Attached files
file | filename |
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EX-31.2 - EX-31.2 - SITEL Worldwide Corp | g24496exv31w2.htm |
EX-32.2 - EX-32.2 - SITEL Worldwide Corp | g24496exv32w2.htm |
EX-32.1 - EX-32.1 - SITEL Worldwide Corp | g24496exv32w1.htm |
EX-31.1 - EX-31.1 - SITEL Worldwide Corp | g24496exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | 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 333-172952
SITEL WORLDWIDE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 16-1556476 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
3102 West End Avenue Two American Center, Suite 1000 Nashville, Tennessee |
37203 |
|
(Address of Principal Executive Offices) | (Zip Code) | |
Registrants Telephone Number, Including Area Code: (615) 301-7100
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 o NO þ
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act.)
YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the
latest practicable date.
Outstanding | ||||
Class | April 30, 2011 | |||
Class A, $0.01 par value |
29,640,487 | |||
Class B, $0.01 par value |
88,281,647 | |||
Class C, $0.01 par value |
6,751,263 |
SITEL Worldwide Corporation
INDEX
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SITEL Worldwide Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 18,039 | $ | 29,894 | ||||
Accounts receivable (net of allowance for doubtful
accounts of $4,796 and $6,142, respectively) |
263,745 | 236,092 | ||||||
Prepaids and other current assets |
83,094 | 78,243 | ||||||
Total current assets |
364,878 | 344,229 | ||||||
Property and equipment, net |
107,277 | 106,359 | ||||||
Goodwill |
117,712 | 117,711 | ||||||
Other intangible assets, net |
59,589 | 63,237 | ||||||
Deferred income taxes |
25,812 | 20,026 | ||||||
Other noncurrent assets |
32,145 | 30,855 | ||||||
Total assets |
$ | 707,413 | $ | 682,417 | ||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
3
Table of Contents
SITEL Worldwide Corporation
Condensed Consolidated Balance Sheets Continued
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Condensed Consolidated Balance Sheets Continued
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Liabilities and Stockholders Deficit |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 32,195 | $ | 27,534 | ||||
Accrued payroll and benefits |
75,602 | 65,967 | ||||||
Accrued liabilities and other |
132,086 | 123,280 | ||||||
Income taxes payable |
3,186 | 3,200 | ||||||
Current portion of capital lease obligations |
3,322 | 3,224 | ||||||
Total current liabilities |
246,391 | 223,205 | ||||||
Long-term debt |
653,024 | 646,213 | ||||||
Capital lease obligations |
5,643 | 6,837 | ||||||
Deferred income taxes |
8,188 | 8,303 | ||||||
Other noncurrent liabilities |
67,191 | 72,321 | ||||||
Total liabilities |
980,437 | 956,879 | ||||||
Commitments and contingencies (see Note 10) |
||||||||
Redeemable preferred stock, 20,000,000 convertible shares authorized, issuable in series: |
||||||||
Series B, $0.01 par value; 48,244 shares issued and outstanding at
March 31, 2011 and December 31, 2010 |
58,921 | 57,282 | ||||||
Series C, $0.01 par value; 30,983 shares issued and outstanding at
March 31, 2011 and December 31, 2010 |
39,095 | 37,278 | ||||||
Stockholders deficit |
||||||||
Subsidiary exchangeable preferred stock, no par value; 1,713,321 shares
authorized, issued, and outstanding at March 31, 2011 and December 31, 2010 |
2,665 | 2,665 | ||||||
Common stock, 361,000,000 shares authorized; 225,000,000 Class A
shares, 128,500,000 Class B shares, and 7,500,000 Class C shares: |
||||||||
Class A, $0.01 par value; 31,934,256 shares (including 1,854,975
restricted shares) and 31,174,824 shares (including 1,133,975
restricted shares) issued at March 31, 2011 and December 31, 2010,
respectively; 29,640,487 shares and 28,881,055 shares
outstanding at March 31, 2011 and December 31, 2010, respectively |
301 | 301 | ||||||
Class B, $0.01 par value; convertible into Class A common stock on
1:1 basis; 88,281,647 shares issued and outstanding at March 31, 2011
and December 31, 2010 |
882 | 882 | ||||||
Class C, $0.01 par value; 6,751,263 shares issued and outstanding
at March 31, 2011 and December 31, 2010 |
68 | 68 | ||||||
Additional paid-in capital |
387,887 | 391,297 | ||||||
Accumulated deficit |
(731,773 | ) | (733,723 | ) | ||||
Accumulated other comprehensive loss |
(20,247 | ) | (19,689 | ) | ||||
Stock subscriptions receivable |
(2,653 | ) | (2,653 | ) | ||||
Treasury shares, at cost |
(8,170 | ) | (8,170 | ) | ||||
Total stockholders deficit |
(371,040 | ) | (369,022 | ) | ||||
Total liabilities and stockholders deficit |
$ | 707,413 | $ | 682,417 | ||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
4
Table of Contents
SITEL Worldwide Corporation
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | 343,172 | $ | 358,167 | ||||
Operating expenses |
||||||||
Cost of services (exclusive of depreciation and
amortization shown below) |
221,625 | 225,877 | ||||||
Selling, general, and administrative expenses (exclusive
of depreciation and amortization shown below) |
88,553 | 95,107 | ||||||
Depreciation and amortization of property and equipment |
8,630 | 10,047 | ||||||
Amortization of intangible assets |
3,651 | 3,953 | ||||||
Restructuring and exit charges |
7,020 | 5,765 | ||||||
(Gain) loss on foreign currency transactions |
(2,568 | ) | 3,259 | |||||
Other expense, net |
846 | 191 | ||||||
Operating income |
15,415 | 13,968 | ||||||
Interest and other financing costs, net |
16,031 | 14,873 | ||||||
Loss on extinguishment of debt, net |
| 3,019 | ||||||
Loss before income taxes |
(616 | ) | (3,924 | ) | ||||
Income tax (benefit) provision |
(2,566 | ) | 2,846 | |||||
Net income (loss) |
1,950 | (6,770 | ) | |||||
Other comprehensive loss |
||||||||
Foreign currency translation adjustments |
1,383 | 3,375 | ||||||
Unrealized
(loss) gain on derivative valuation, net of tax of $0 |
(1,959 | ) | 753 | |||||
Unrecognized pension gain (loss), net of tax of $0 |
18 | (69 | ) | |||||
Comprehensive income (loss) |
$ | 1,392 | $ | (2,711 | ) | |||
See accompanying Notes to the Condensed Consolidated Financial Statements.
5
Table of Contents
SITEL Worldwide Corporation
Condensed Consolidated Statements of Changes in Stockholders Deficit
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Condensed Consolidated Statements of Changes in Stockholders Deficit
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Shares Issues | Par Value | |||||||||||||||||||||||||||||||||||
Class A | Class B | Class C | Class A | Class B | Class C | Additional | ||||||||||||||||||||||||||||||
Common | Common | Common | Common | Common | Common | Paid-in | Accumulated | |||||||||||||||||||||||||||||
Stock | Stock | Stock | Stock | Stock | Stock | Capital | Deficit | Subtotal | ||||||||||||||||||||||||||||
Balances at January 1, 2010 |
31,238,754 | 88,281,647 | 6,751,263 | $ | 299 | $ | 882 | $ | 68 | $ | 402,770 | $ | (694,866 | ) | $ | (290,847 | ) | |||||||||||||||||||
Restricted shares converted |
| | | 1 | | | 277 | | 278 | |||||||||||||||||||||||||||
Restricted shares forfeited |
(7,000 | ) | | | | | | | | | ||||||||||||||||||||||||||
Stock issued for cash and notes |
| | | | | | | | | |||||||||||||||||||||||||||
Purchase of treasury stock |
| | | | | | | | | |||||||||||||||||||||||||||
Stock granted |
22,728 | | | | | | 62 | | 62 | |||||||||||||||||||||||||||
Preferred B and C stock accretion and BCF |
| | | | | | (3,237 | ) | | (3,237 | ) | |||||||||||||||||||||||||
Unrecognized pension gain, net of tax of $0 |
| | | | | | | | | |||||||||||||||||||||||||||
Unrealized gain on derivative, net of tax of $0 |
| | | | | | | | | |||||||||||||||||||||||||||
Net loss |
| | | | | | | (6,770 | ) | (6,770 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | | | |||||||||||||||||||||||||||
Balances at March 31, 2010 |
31,254,482 | 88,281,647 | 6,751,263 | $ | 300 | $ | 882 | $ | 68 | $ | 399,872 | $ | (701,636 | ) | $ | (300,514 | ) | |||||||||||||||||||
Restricted shares forfeited |
(157,778 | ) | | | | | | | | | ||||||||||||||||||||||||||
Stock issued for cash and notes |
| | | | | | | | | |||||||||||||||||||||||||||
Stock granted |
78,120 | | | 1 | | | 187 | | 188 | |||||||||||||||||||||||||||
Preferred B and C stock accretion and BCF |
| | | | | | (8,762 | ) | | (8,762 | ) | |||||||||||||||||||||||||
Unrecognized pension gain, net of tax of $0 |
| | | | | | | | | |||||||||||||||||||||||||||
Unrealized loss on derivative, net of tax of $0 |
| | | | | | | | | |||||||||||||||||||||||||||
Net loss |
| | | | | | | (32,087 | ) | (32,087 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | | | |||||||||||||||||||||||||||
Balances at December 31, 2010 |
31,174,824 | 88,281,647 | 6,751,263 | $ | 301 | $ | 882 | $ | 68 | $ | 391,297 | $ | (733,723 | ) | $ | (341,175 | ) | |||||||||||||||||||
Restricted shares granted |
750,000 | | | | | | | | | |||||||||||||||||||||||||||
Restricted shares forfeited |
(29,000 | ) | | | | | | | | | ||||||||||||||||||||||||||
Stock granted |
38,432 | | | | | | 46 | | 46 | |||||||||||||||||||||||||||
Preferred B and C stock accretion and BCF |
| | | | | | (3,456 | ) | | (3,456 | ) | |||||||||||||||||||||||||
Unrecognized pension gain, net of tax of $0 |
| | | | | | | | | |||||||||||||||||||||||||||
Unrealized loss on derivative, net of tax of $0 |
| | | | | | | | | |||||||||||||||||||||||||||
Net income |
| | | | | | | 1,950 | 1,950 | |||||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | | | |||||||||||||||||||||||||||
Balances at March 31, 2011 |
31,934,256 | 88,281,647 | 6,751,263 | $ | 301 | $ | 882 | $ | 68 | $ | 387,887 | $ | (731,773 | ) | $ | (342,635 | ) | |||||||||||||||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
6
Table of Contents
SITEL Worldwide Corporation
Condensed Consolidated Statements of Changes in Stockholders Deficit Continued
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Condensed Consolidated Statements of Changes in Stockholders Deficit Continued
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Accumulated Other | ||||||||||||||||||||||||||||||||||||
Comprehensive (Loss) Income | ||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||
Defined | (Loss) | |||||||||||||||||||||||||||||||||||
Totals | Foreign | Benefit | Gain on | Subsidiary | Stock | Treasury | Treasury | |||||||||||||||||||||||||||||
From | Currency | Pension / | Derivatives | Exchangeable | Subscriptions | Stock | Stock | |||||||||||||||||||||||||||||
Schedule 1 | Translation | Other | Valuation | Stock | Receivable | Shares | Capital | Total | ||||||||||||||||||||||||||||
Balances at January 1, 2010 |
$ | (290,847 | ) | $ | (24,324 | ) | $ | (272 | ) | $ | 376 | $ | 2,665 | $ | (3,335 | ) | 2,093,426 | $ | (7,619 | ) | $ | (323,356 | ) | |||||||||||||
Restricted shares converted |
278 | | | | | | | | 278 | |||||||||||||||||||||||||||
Restricted shares forfeited |
| | | | | | | | | |||||||||||||||||||||||||||
Stock issued for cash and notes |
| | | | | 673 | | | 673 | |||||||||||||||||||||||||||
Purchase of treasury stock |
| | | | | | 200,343 | (551 | ) | (551 | ) | |||||||||||||||||||||||||
Stock granted |
62 | | | | | | | | 62 | |||||||||||||||||||||||||||
Preferred B and C stock accretion and BCF |
(3,237 | ) | | | | | | | | (3,237 | ) | |||||||||||||||||||||||||
Unrecognized pension gain, net of tax of $0 |
| | (69 | ) | | | | | | (69 | ) | |||||||||||||||||||||||||
Unrealized gain on derivative, net of tax of $0 |
| | | 753 | | | | | 753 | |||||||||||||||||||||||||||
Net loss |
(6,770 | ) | | | | | | | | (6,770 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment |
| 3,375 | | | | | | | 3,375 | |||||||||||||||||||||||||||
Balances at March 31, 2010 |
$ | (300,514 | ) | $ | (20,949 | ) | $ | (341 | ) | $ | 1,129 | $ | 2,665 | $ | (2,662 | ) | 2,293,769 | $ | (8,170 | ) | $ | (328,842 | ) | |||||||||||||
Restricted shares forfeited |
| | | | | | | | | |||||||||||||||||||||||||||
Stock issued for cash and notes |
| | | | | 9 | | | 9 | |||||||||||||||||||||||||||
Stock granted |
188 | | | | | | | | 188 | |||||||||||||||||||||||||||
Preferred B and C stock accretion and BCF |
(8,762 | ) | | | | | | | | (8,762 | ) | |||||||||||||||||||||||||
Unrecognized pension gain, net of tax of $0 |
| | 1,107 | | | | | | 1,107 | |||||||||||||||||||||||||||
Unrealized loss on derivative, net of tax of $0 |
| | | (469 | ) | | | | | (469 | ) | |||||||||||||||||||||||||
Net loss |
(32,087 | ) | | | | | | | | (32,087 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment |
| (166 | ) | | | | | | | (166 | ) | |||||||||||||||||||||||||
Balances at December 31, 2010 |
$ | (341,175 | ) | $ | (21,115 | ) | $ | 766 | $ | 660 | $ | 2,665 | $ | (2,653 | ) | 2,293,769 | $ | (8,170 | ) | $ | (369,022 | ) | ||||||||||||||
Restricted shares granted |
| | | | | | | | | |||||||||||||||||||||||||||
Restricted shares forfeited |
| | | | | | | | | |||||||||||||||||||||||||||
Stock granted |
46 | | | | | | | | 46 | |||||||||||||||||||||||||||
Preferred B and C stock accretion and BCF |
(3,456 | ) | | | | | | | | (3,456 | ) | |||||||||||||||||||||||||
Unrecognized pension gain, net of tax of $0 |
| | 18 | | | | | | 18 | |||||||||||||||||||||||||||
Unrealized loss on derivative, net of tax of $0 |
| | | (1,959 | ) | | | | | (1,959 | ) | |||||||||||||||||||||||||
Net income |
1,950 | | | | | | | | 1,950 | |||||||||||||||||||||||||||
Foreign currency translation adjustment |
| 1,383 | | | | | | | 1,383 | |||||||||||||||||||||||||||
Balances at March 31, 2011 |
$ | (342,635 | ) | $ | (19,732 | ) | $ | 784 | $ | (1,299 | ) | $ | 2,665 | $ | (2,653 | ) | 2,293,769 | $ | (8,170 | ) | $ | (371,040 | ) | |||||||||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
7
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SITEL Worldwide Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities |
||||||||
Net income (loss) |
$ | 1,950 | $ | (6,770 | ) | |||
Adjustments to reconcile net loss to net cash flows relating
to operating activities: |
||||||||
Depreciation and amortization (including intangible assets) |
12,281 | 14,000 | ||||||
Deferred income taxes |
(5,486 | ) | (1,885 | ) | ||||
Noncash derivative activity |
(4,349 | ) | (5,575 | ) | ||||
Amortization of debt issue costs and OID |
556 | 169 | ||||||
Write off of deferred financing fees |
| 371 | ||||||
Non-cash interest expense |
8,608 | 1,380 | ||||||
Other noncash items, net |
(371 | ) | (383 | ) | ||||
Proceeds of marketable securities, net |
| 4,494 | ||||||
Change in book overdrafts |
(93 | ) | (1,851 | ) | ||||
Changes in working capital, net |
(20,956 | ) | (5,612 | ) | ||||
Net cash used in operating activities |
(7,860 | ) | (1,662 | ) | ||||
Cash flows from investing activities |
||||||||
Purchases of property and equipment |
(7,034 | ) | (5,315 | ) | ||||
Proceeds from disposition of property and equipment |
27 | 431 | ||||||
Net cash used in investing activities |
(7,007 | ) | (4,884 | ) | ||||
Cash flows from financing activities |
||||||||
Purchases of treasury shares |
| (551 | ) | |||||
Payments on long-term debt and capital lease obligations |
(123,734 | ) | (389,842 | ) | ||||
Proceeds from long-term debt |
125,337 | 141,770 | ||||||
Proceeds from issuance of Senior Notes |
| 292,362 | ||||||
Payments of debt issue costs |
| (8,156 | ) | |||||
Net cash provided by financing activities |
1,603 | 35,583 | ||||||
Effect of exchange rate on Cash and cash equivalents |
1,409 | (227 | ) | |||||
Net change in Cash and cash equivalents |
(11,855 | ) | 28,810 | |||||
Cash and cash equivalents |
||||||||
Beginning of period |
29,894 | 26,915 | ||||||
End of period |
$ | 18,039 | $ | 55,725 | ||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
8
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
1. Overview and Basis of Presentation
Overview
References in the Notes to the Condensed Consolidated Financial Statements to the Company,
we, and our are to SITEL Worldwide Corporation and its subsidiaries, collectively.
The Company is a majority-owned subsidiary of Onex Corporation (Onex) and is one of the
worlds largest and most diversified providers of customer care outsourcing services. The Company
offers its clients a wide array of services, including customer service, technical support, and
customer acquisition, retention, and revenue generation services. The majority of our customer care
services are inbound and delivered telephonically, but we are increasingly asked to provide
services through other communication channels, including email, online chat, web, and interactive
voice response (IVR). The Company serves a broad range of industry end-markets, including
wireless, telecommunications, technology, financial services, retail and consumer products, media
and entertainment, energy and utilities, travel and transportation, internet service providers,
insurance, and healthcare.
We are organized geographically and have two reporting segments: (1) EMEA, which refers to
Europe, the Middle East, and Africa and (2) Americas, which refers to North America, Latin
America, and Asia Pacific. Each reporting segment performs substantially the same services for
clients.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of the Company are
presented in accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP) and, in the opinion of management, include all adjustments necessary for a
fair presentation of the financial position, results of operations, and cash flows for each period
shown. All adjustments are of a normal and recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with U.S. GAAP have
been condensed or omitted. The December 31, 2010 Condensed Consolidated Balance Sheet data was
derived from the Companys year-end audited Consolidated Financial Statements as presented in the
Companys Registration Statement on Form S-4 (333-172952) filed with the United States Securities
and Exchange Commission (SEC) and declared effective by
the SEC on March 28, 2011, but does not
include all disclosures required by U.S. GAAP. The Companys interim Condensed Consolidated
Financial Statements are not necessarily indicative of the financial position or operating results
for an entire year. The accompanying interim Condensed Consolidated Financial Statements should be
read in conjunction with the audited Consolidated Financial Statements and the Notes thereto
included in the Companys Registration Statement on Form S-4.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make
estimates and judgments that affect the amounts reported in the Condensed Consolidated Financial
Statements and the Notes thereto. Certain of our accounting policies are considered critical, due
to the level of subjectivity and judgment necessary in applying these policies and because the
impact of these estimates and assumptions on our financial condition and operating performance may
be material. On an ongoing basis, we evaluate our estimates and judgments in these areas based on
historic experience and other relevant factors. The estimates as of the date of the financial
statements reflect our best judgment giving consideration to all currently available facts and
circumstances. We believe our estimates and judgments are reasonable, however, actual results and
the timing of the recognition of such amounts could differ from those estimates.
We have used methodologies that are consistent from year to year in all material respects. For
details concerning these critical accounting policies and estimates, please refer to the audited
Consolidated Financial Statements and the Notes thereto included in the Companys Registration
Statement on Form S-4 (333-172952) filed with the SEC and declared effective by the SEC on March
28, 2011. Any deviation from these policies or estimates could have a material impact on our
Condensed Consolidated Financial Statements.
2. Property and Equipment, net
The composition of property and equipment is as follows:
9
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Land |
$ | 3,579 | $ | 3,579 | ||||
Buildings and improvements |
31,559 | 30,877 | ||||||
Leasehold improvements |
63,994 | 61,813 | ||||||
Computer software |
36,567 | 35,354 | ||||||
Equipment |
156,011 | 151,305 | ||||||
Furniture and fixtures |
29,175 | 29,239 | ||||||
Total original cost |
320,885 | 312,167 | ||||||
Less: Accumulated depreciation and amortization |
(217,964 | ) | (211,918 | ) | ||||
Net, excluding construction in progress |
102,921 | 100,249 | ||||||
Construction in progress |
4,356 | 6,110 | ||||||
Property and equipment, net |
$ | 107,277 | $ | 106,359 | ||||
Depreciation expense was $8,630 and $10,047 for the three months ended March 31, 2011 and
2010, respectively. There were $7,452 of additions, $331 of disposals, and $2,427 of currency
translation during the quarter ended March 31, 2011. The decrease in construction in progress is
driven by assets being placed in service during the quarter ended March 31, 2011.
3. Goodwill and Other Intangible Assets, net
There was a $1 change in the carrying amount of goodwill for the three month period ended
March 31, 2011 related to foreign exchange.
The following table presents our Other intangible assets as of March 31, 2011:
Currency | ||||||||||||||||
Gross | Accumulated | Translation | Net | |||||||||||||
Intangibles | Amortization | Adjustment | Intangibles | |||||||||||||
Customer relationships |
$ | 89,686 | $ | (65,554 | ) | $ | (563 | ) | $ | 23,569 | ||||||
Trademark and trade name |
36,020 | | | 36,020 | ||||||||||||
Cash grant contracts |
605 | (605 | ) | | | |||||||||||
$ | 126,311 | $ | (66,159 | ) | $ | (563 | ) | $ | 59,589 | |||||||
The following table presents our Other intangible assets as of December 31, 2010:
Currency | ||||||||||||||||
Gross | Accumulated | Translation | Net | |||||||||||||
Intangibles | Amortization | Adjustment | Intangibles | |||||||||||||
Customer relationships |
$ | 89,686 | $ | (61,966 | ) | $ | (507 | ) | $ | 27,213 | ||||||
Trademark and trade name |
36,020 | | | 36,020 | ||||||||||||
Developed technology |
4,800 | (4,800 | ) | | | |||||||||||
Cash grant contracts |
605 | (601 | ) | | 4 | |||||||||||
$ | 131,111 | $ | (67,367 | ) | $ | (507 | ) | $ | 63,237 | |||||||
We amortize intangible assets with definite lives over their estimated useful lives,
using the straight-line method. Intangible asset amortization expense was $3,651 and $3,953 for the
three months ended March 31, 2011 and 2010, respectively, and is estimated to be approximately
$13,036 for the year ended December 31, 2011.
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
4. Restructuring and Exit Activities
The Company continues to evaluate and assess its operations. This results in restructuring activities to rationalize facility and labor costs, further streamline the Companys
operations in order to align resources to support growth, and to shift the geographic mix of some
of the Companys resources. Reduced volumes stemming from the recent global economic downturn have
also resulted in further workforce reductions and site closures. Total expected costs relating to
restructuring activities initiated in 2011 are $7,900. The restructuring activities initiated in
2011 are expected to be completed by the end of 2011. For activities initiated in 2011, the
remaining accrual of $4,272 related to severance is expected to be paid by the end of 2011, and the
remaining accrual for facility exit costs of $767 is expected to be paid during the remainder of
the current fiscal year through 2014 as the related leases expire. Restructuring activities
initiated in 2010 were completed as of December 31, 2010, and the costs incurred to date are equal
to the total expected costs for the 2010 activities. For restructuring activities initiated in
2010, the remaining accrual for severance-related activities of $11,084 is expected to be paid by
the end of 2011, and the remaining accrual for facility exit costs of $4,825 is expected to be paid
during the remainder of the current fiscal year through 2016 as the related leases expire.
The liability for restructuring activity initiated in 2011 consisted of the following:
Facility | ||||||||||||
Exit and | ||||||||||||
Severance | Other | Total | ||||||||||
December 31, 2010 |
$ | | $ | | $ | | ||||||
Costs accrued (offset was to expense) |
4,413 | 800 | 5,213 | |||||||||
Cash payments |
(242 | ) | (39 | ) | (281 | ) | ||||||
Foreign exchange |
101 | 6 | 107 | |||||||||
March 31, 2011 |
$ | 4,272 | $ | 767 | $ | 5,039 | ||||||
Current portion of restructuring
included in Accrued liabilities and other |
$ | 4,272 | $ | 89 | $ | 4,361 | ||||||
Long-term portion of restructuring
included in Other noncurrent liabilities |
$ | | $ | 678 | $ | 678 | ||||||
Activity not reflected within the restructuring liability: |
||||||||||||
Costs expensed |
$ | 864 | $ | 353 | $ | 1,217 | ||||||
Cash payments |
$ | (864 | ) | $ | (353 | ) | $ | (1,217 | ) |
Restructuring
expense during the three months ended March 31, 2011 for activities
initiated in 2011 was $4,663 for EMEA and $1,767 for the Americas.
The liability for restructuring activity initiated in 2010 consisted of the following:
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Facility | ||||||||||||
Exit and | ||||||||||||
Severance | Other | Total | ||||||||||
December 31, 2010 |
$ | 17,042 | $ | 5,990 | $ | 23,032 | ||||||
Costs accrued (offset was to expense) |
(229 | ) | 541 | 312 | ||||||||
Cash payments |
(6,708 | ) | (1,813 | ) | (8,521 | ) | ||||||
Foreign exchange |
979 | 107 | 1,086 | |||||||||
March 31, 2011 |
$ | 11,084 | $ | 4,825 | $ | 15,909 | ||||||
Current portion of restructuring
included in Accrued liabilities and other |
$ | 11,084 | $ | 2,130 | $ | 13,214 | ||||||
Long-term portion of restructuring
included in Other noncurrent liabilities |
$ | | $ | 2,695 | $ | 2,695 | ||||||
Activity not reflected within the restructuring liability: |
||||||||||||
Costs expensed |
$ | | $ | 337 | $ | 337 | ||||||
Cash payments |
$ | | $ | (337 | ) | $ | (337 | ) |
Restructuring
expense during the three months ended March 31, 2011 for activities
initiated in 2010 was $448 for EMEA and $201 for the Americas. Cumulative restructuring costs
related to such activities are $38,693 as of March 31, 2011, of which $27,714 relates to EMEA and
$10,979 relates to the Americas.
In January 2007, we approved a plan to restructure certain operations during 2007 related to
the acquisition of Legacy SITEL. The plan included downsizing space in certain customer care
centers and eliminating certain administrative and operational positions. This activity is detailed
below.
Facility | ||||||||||||
Exit and | ||||||||||||
Restructuring purchase allocation |
Severance | Other | Total | |||||||||
December 31, 2010 |
$ | | $ | 235 | $ | 235 | ||||||
Costs accrued (offset was to expense) |
| (59 | ) | (59 | ) | |||||||
Cash payments |
| | | |||||||||
Foreign exchange and other adjustments |
| 56 | 56 | |||||||||
March 31, 2011 |
$ | | $ | 232 | $ | 232 | ||||||
The remaining accrual for all restructuring and exit activities related to the purchase
allocation is to be paid by the end of 2011 and is recorded as $232 in Accrued liabilities and
other in the accompanying Condensed Consolidated Balance Sheet.
5. Long-Term Debt
The composition of long-term debt is as follows:
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Senior Notes due 2018 |
$ | 292,986 | $ | 292,829 | ||||
Senior secured credit facility: |
||||||||
Revolvers: |
||||||||
U.S. revolver |
2,700 | | ||||||
Term loans due 2014: |
||||||||
U.S. dollar term loan |
286,740 | 286,739 | ||||||
Euro term loan |
42,435 | 39,592 | ||||||
British pound sterling term loan |
28,163 | 27,053 | ||||||
Total debt |
653,024 | 646,213 | ||||||
Less: Debt maturing within one year |
| | ||||||
Total long-term debt |
$ | 653,024 | $ | 646,213 | ||||
Senior Notes
On March 18, 2010, SITEL, LLC and Sitel Finance Corp. (the Issuers) issued in a private
placement, 11.5% senior notes due 2018 (the Senior Notes) having an aggregate principal amount of
$300,000 with an original discount of $7,638. The Senior Notes are general unsecured obligations of
the Company and are senior in right of payment to all existing and future indebtedness, if any,
that is by its terms expressly subordinated to the Senior Notes. The Senior Notes are guaranteed by
the Company and its domestic subsidiaries and will mature on April 1, 2018. Interest accrues on the
Senior Notes at a rate of 11.5% annually, and is payable semi-annually in arrears on April 1 and
October 1.
The Company is not required to make mandatory redemptions or sinking fund payments with
respect to the Senior Notes; however, at any time prior to April 1, 2013, the Issuers may, on any
one or more occasions, redeem up to 35% of the aggregate principal amount of Senior Notes issued
under the indenture governing the Senior Notes (the indenture) (including any additional Senior
Notes issued subsequent to the initial offering), subject to certain terms and conditions.
The indenture contains customary covenants and restrictions on the activities of SITEL, LLC,
Sitel Finance Corp. and SITEL, LLCs restricted subsidiaries, including, but not limited to, the
incurrence of additional indebtedness; dividends or distributions in respect of capital stock or
certain other restricted payments or investments; entering into agreements that restrict
distributions from restricted
subsidiaries; the sale or disposal of assets, including capital stock of restricted
subsidiaries; transactions with affiliates; the incurrence of liens; and mergers, consolidations or
the sale of substantially all of SITEL, LLCs assets.
Proceeds from the offering were used to pay down approximately $231,600 of the Companys
senior secured term loans (the Term Loans) and $50,000 or 100% of the outstanding balance on the
Companys senior secured revolving credit facilities (the Revolvers), both of which are discussed
further below.
As a result of the partial pay down of the Term Loans, the Company recorded a loss on
extinguishment of debt of $3,019 during the first quarter of 2010, consisting of fees paid of
$2,648 and write off of deferred financing fees of $371. Additionally, there is an original issue
discount associated with the Senior Notes of $7,638, and the Company deferred debt issuance costs
relating to the Senior Notes of $8,203, both of which are being amortized over the term of the
Senior Notes.
Senior Secured Credit Facility
The Companys senior secured credit facility (the Senior Secured Credit Facility) provides
for available borrowings in an aggregate amount of $760,000. Components of the Senior Secured
Credit Facility are (1) the $675,000 aggregate principal amount Term Loans, including a $550,000
U.S. dollar loan, a 51,447 Euro loan, and a 30,000 British pound sterling loan, and (2) the $85,000
aggregate principal amount Revolvers.
The Term Loans mature in January 2014, and amortize in equal quarterly installments in an
aggregate annual amount equal to 0.25% of the original principal amount with the balance payable at
maturity. Payments on the principal amount have exceeded the cumulative amortization schedule, thus
no amount is due until maturity. Interest on the Term Loans is based, at our option, on floating
LIBOR plus the applicable margin of 5.5% or the higher of the federal funds rate plus 0.5% or prime
rate plus the applicable margin of 4.5%.
The Revolvers mature in January 2013. A commitment fee is payable quarterly at 0.50% per annum
of the undrawn portion of the Revolvers. Interest on the Revolvers is based on floating LIBOR plus
the applicable margin of 5.5% or prime rate plus the applicable
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
margin of 4.5%. The weighted
average interest rate on the Revolvers was 7.75% and 0% for the three months ended March 31, 2011
and 2010. At March 31, 2011 and December 31, 2010, we had $81,190 and $83,903 available under the
Revolvers.
Borrowings under the Senior Secured Credit Facility are collateralized by interests granted on
a substantial portion of our worldwide assets and are guaranteed by certain subsidiary guarantors.
The Senior Secured Credit Facility also contains customary affirmative and negative covenants
such as restricting certain corporate actions, including asset dispositions, acquisitions, the
payment of dividends, changes of control, the incurrence of indebtedness, providing financing and
investments and transactions with affiliates. Under the Senior Secured Credit Facility, we are
required to comply with certain financial covenants on a quarterly and annual basis.
Future maturities of the Companys outstanding long-term debt as of March 31, 2011 are
summarized as follows:
2011 |
$ | | ||
2012 |
| |||
2013 (Revolvers) |
2,700 | |||
2014 (Term Loans) |
357,338 | |||
2015 |
| |||
2016 and thereafter (Senior Notes) |
300,000 | |||
Total debt payments |
660,038 | |||
Less amount representing unamortized debt discount |
(7,014 | ) | ||
Total debt balance at March 31, 2011 |
$ | 653,024 | ||
6. Redeemable Preferred Stock
The Company is authorized to issue in series up to 20,000,000 shares of preferred stock with a
par value of $0.01. The Board of Directors determines the voting rights, dividend policy, and
conversion rights of each series of these preferred shares. To date, the Company has authorized the
issuance of two series of preferred sharesSeries B and Series C. The majority of each series of
these preferred shares are held by Onex and other related parties. Each series has a mandatory
redemption date of July 2, 2018 for cash and the right to be converted, at any time through the
redemption date at the option of the holder, into the Companys Class A Voting Common Stock
(initially at $1.50 per share for Series C and $4.85 per share for Series B), in settlement of the
Companys obligations (including all accumulated and unpaid dividends through the redemption date).
The net value of the preferred shares is recorded as Redeemable preferred stock (outside of
permanent equity) on the accompanying Condensed Consolidated Balance Sheets.
The Series B and C Preferred Stock contain an optional cash redemption call option that is
only exercisable by the Company. Since Onex controls the majority of the Board of Directors,
accounting guidance requires the Company to account for this as an in-substance put
option, since it assumes that Onex could force the execution of the call option. The
in-substance put option meets the qualifications of a derivative, requiring it to be separated from
the host instrument and recorded as a liability at fair value, with subsequent changes in the fair
value recorded to the income statement. The Company has determined that the value is immaterial as
of March 31, 2011 and December 31, 2010, thus no adjustment to the carrying value of the stock has
been recorded in relation to the in-substance put option.
Series C Preferred Stock
On December 10, 2008, the Company authorized the issuance of 125,000 shares of Series C
Preferred Stock. At March 31, 2011 and December 31, 2010, the number of shares of Series C
Preferred Stock issued and outstanding was 30,983.
Since the conversion option of the Series C Preferred Stock into Class A Voting Common Stock
at $1.50 per share is less than the fair value of the common stock on the December 2008 and
February 2009 issuance dates ($2.75 per share), there is a Beneficial Conversion Feature (BCF)
associated with this preferred stock. The value of the BCF has been recognized separately at
issuance by allocating a portion of the proceeds equal to the intrinsic value to Additional paid-in
capital. For the Series C Preferred Stock owned by certain other related parties, this discount is
then being accreted from the date of issuance to the stated redemption date of July 2, 2018. For
the Series C Preferred Stock owned by Onex, the BCF was immediately amortized to the date of
issuance due to existence of the in-substance put option on the stock discussed above.
The liquidation value of the Series C Preferred Stock, including accrued dividends payable, at
March 31, 2011 and December 31, 2010 of $39,095 and $37,278, respectively, is net of deferred
financing costs of $300 and $311, respectively, and the BCF of $4,174 and $4,325, respectively. The
Series C Preferred Stock ranks senior to each other class of the Companys stock in liquidation
rights. Holders of the Series C Preferred Stock are entitled to receive cumulative dividends at the
rate of 16% of the liquidation preference per share per annum, which accrue from inception and are
payable at the mandatory redemption date or upon declaration by the Board of Directors.
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Series B Preferred Stock
On April 3, 2008, the Company authorized the issuance of 125,000 shares of Series B Preferred
Stock. At March 31, 2011 and December 31, 2010, the number of shares of Series B Preferred Stock
issued and outstanding was 48,244.
The liquidation value of the Series B Preferred Stock, including accrued dividends payable, at
March 31, 2011 and December 31, 2010 of $58,921 and $57,282, respectively, is net of deferred
financing costs of $516 and $533, respectively. Holders of the Series B Preferred Stock are
entitled to receive cumulative dividends at the rate of 12% of the liquidation preference per share
per annum, which accrue from inception and are payable at the mandatory redemption date or upon
declaration by the Board of Directors.
7. Stock-Based Compensation
The Companys operating results for the three months ended March 31, 2011 and 2010 included
stock based compensation expense of $47 and $40, respectively. A summary of the activity for the
plans is included below.
Stock Option Plan
A summary of nonqualified and incentive stock option activity for the three months ended March
31, 2011 is presented below:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | |||||||||||||||
Exercise | Contractual | Aggregate | ||||||||||||||
Price Per | Term (in | Intrinsic | ||||||||||||||
Shares | Share | Years) | Value | |||||||||||||
Options outstanding at December 31, 2010 |
24,700 | $ | 4.62 | |||||||||||||
Exercised |
| |||||||||||||||
Forfeited |
(1,000 | ) | 11.75 | |||||||||||||
Options outstanding at March 31, 2011 |
23,700 | $ | 4.32 | 2.30 | $ | | ||||||||||
Exercisable at March 31, 2011 |
23,700 | $ | 4.32 | 2.30 | $ | |
Restricted Stock and Restricted Stock Unit Plans
A summary of restricted stock and restricted stock unit activity is set forth below:
Restricted Stock Activity
Weighted | ||||||||
Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
Unvested at December 31, 2010 |
1,133,975 | $ | 4,031 | |||||
Granted |
750,000 | 1,335 | ||||||
Vested |
| | ||||||
Forfeited |
(29,000 | ) | (74 | ) | ||||
Unvested at March 31, 2011 |
1,854,975 | $ | 5,292 | |||||
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Restricted Stock Unit Activity
Weighted | ||||||||
Average | ||||||||
Share | Grant Date | |||||||
Units | Fair Value | |||||||
Unvested at December 31, 2010 |
1,641,000 | $ | 4,711 | |||||
Granted |
235,500 | 419 | ||||||
Forfeited |
(47,000 | ) | (160 | ) | ||||
Unvested at March 31, 2011 |
1,829,500 | $ | 4,970 | |||||
As of March 31, 2011, there was approximately $10,787 of total unrecognized compensation
cost (including the effect of expected forfeitures) related to unvested restricted stock and
restricted stock units that the Company had not recorded. We will recognize that cost over a period
of two and three years for restricted shares and restricted stock units, respectively, following
the occurrence of a change in control, initial public offering, or liquidity event, as defined in
our individual employee restricted stock and restricted stock unit grant plans and agreements.
Deferred Compensation Plan
As of March 31, 2011 and December 31, 2010, $63 and $63, respectively, is recorded in Other
noncurrent liabilities for the phantom stock units associated with the deferred compensation plan.
Compensation income of $24 was recorded in the first quarter of 2010, based on the stock price at
the end of the applicable period. No such income was recognized for the first quarter of 2011.
8. Income Taxes
The effective tax rate of 416.6% for the first quarter of 2011 differs from the effective tax
rate of (72.5%) for the first quarter of 2010 as permanent items have remained consistent while
pre-tax book loss has decreased. In addition, the effective tax rate for the first quarter of 2011
includes the impact of the release of valuation allowance on the deferred tax assets of our
Australian subsidiary, which resulted in a discrete benefit of $6,132.
The Companys liability for unrecognized tax benefits was $38,439 and $37,179 at March 31,
2011 and December 31, 2010, respectively. The total amount of unrecognized tax benefits that would
affect income tax expense, if ever recognized in the financial statements is $40,567. The Company
believes that it is reasonably possible that within the next 12-month period, the amount of
unrecognized tax benefits for certain foreign tax positions might be reduced by $1,721 as a result
of statute expirations or final resolution.
9. Employee Benefits and Compensation
The Company has defined benefit pension plans covering certain employees outside of the U.S.
These plans are administered by a third party and include limited activity. The components of the
net pension liability of $3,677 and $3,331 at March 31, 2011 and December 31, 2010, respectively
are included in Other noncurrent liabilities and Other noncurrent assets in the accompanying
Condensed Consolidated Balance Sheets. Net periodic pension cost consisted of the following:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Service cost |
$ | 160 | $ | 111 | ||||
Interest cost |
39 | 22 | ||||||
Other |
18 | 113 | ||||||
Net periodic pension cost |
$ | 217 | $ | 246 | ||||
The Company also sponsors various employee retirement plans. In the United States, the
Company sponsors a 401(k) savings plan that covers substantially all U.S. employees. In both Canada
and Europe, the Company sponsors similar defined contribution plans. Expenses related to the
defined contribution plans amounted to $86 and $114 for the three month periods ended March 31,
2011 and 2010, respectively.
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
10. Commitments and Contingencies
The Company and its subsidiaries from time to time are subject to legal claims arising in the
ordinary course of business. While the Company is unable to predict the outcome of these matters,
it believes, based upon currently available facts, that adequate provision for such claims has been
made. However, adverse developments could negatively impact earnings in particular future fiscal
periods.
On December 16, 2010, three former employees of the now closed Memphis, Tennessee site filed
an action in the United States District Court for the Western District of Tennessee alleging unpaid
wages on behalf of themselves and, purportedly, other similarly situated current and former
employees. The complaint alleges violation of the federal Fair Labor Standards Act (the FLSA)
relating to unpaid pre and post shift work. Plaintiffs counsel has expressed their intent to file
a motion for conditional certification for a nationwide class. Sitel filed an Answer and Motion to
Dismiss on January 31, 2011 seeking dismissal for failure to state a claim. Plaintiffs responded to
the Motion to Dismiss by voluntarily narrowing the scope of the putative class to former employees
of the Memphis, Tennessee site and tendered a proposed Amended Complaint. The Motion to Dismiss has
been referred to the magistrate judge and is pending. The Court entered a scheduling order setting
out deadlines for the case, and initial disclosures were filed on April 4, 2011. The Plaintiffs
filed a motion for conditional certification of the class on April 26, 2011, and the Companys
response is due in late May. We are currently unable to predict the probable outcome of this matter
and are not able to reasonably estimate the amount of loss, if any. No reserve has been recorded as
of March 31, 2011 and December 31, 2010.
On March 3, 2011, one former employee of the now closed Birmingham, Alabama site filed an
action in the United States District Court for the Northern District of Alabama alleging unpaid
wages on behalf of himself and, purportedly, other similarly situated current and former employees
in Alabama. The complaint alleges unpaid pre and post shift work. This lawsuit is similar to the
one filed in December 2010 in Memphis, Tennessee (discussed above). Sitel filed an answer on April
22, 2011. The Plaintiff filed a motion for conditional certification of the class on April 26,
2011, and the Companys response is due in late May. We are currently unable to predict the
probable outcome of this matter and are not able to reasonably estimate the amount of loss, if any.
No reserve has been recorded as of March 31, 2011 and December 31, 2010.
On July 22, 2010, General Motors LLC (GM) served a lawsuit against us in the United States
District Court for the Eastern District of Michigan. The lawsuit alleged that the Company supplied
GM with certain computerized telephonic voice response systems which were the subject of a patent
infringement lawsuit filed against GM in 2006. On April 13, 2011, the parties executed a settlement
agreement under which Sitel will pay GM $400 in exchange for a full release of all claims asserted
in the lawsuit. We have recorded a reserve for this amount as of March 31, 2011 in Accrued
liabilities and other on the accompanying Condensed Consolidated Balance Sheet. Payment of the
settlement amount will be made prior to May 3, 2011.
On July 21, 2009, one of our clients filed a lawsuit against us in New York federal court
alleging breach of contract and negligence. The lawsuit alleges that we failed to maintain certain
call recordings on behalf of such client and seeks actual damages or, in the alternative,
liquidated damages in the amount of $33,000. Our insurance carrier has indicated that actual
damages likely would be covered. On August 11, 2009, we answered the complaint denying liability
and asserting a counterclaim for $1,202 in unpaid fees for services rendered by us. Discovery is
currently ongoing, and the parties are currently engaged in a dispute regarding the sufficiency of
discovery responses. In January 2011, the court ordered that all discovery be completed by July 29,
2011 and that the pretrial order be submitted by August 31, 2011. The court stated that it is
willing to move these dates back if there are still discovery issues after the next production of
documents. On or about March 29, 2011, the plaintiff provided additional documents as ordered by
the court but the responses were inadequate. We do not believe the plaintiff has complied with the
courts discovery order and on April 18, 2011, we filed a renewed motion to compel and a motion for
sanctions to address the plaintiffs continued failure to respond appropriately to our discovery
requests. We are currently unable to predict the probable outcome of this matter and are not able
to reasonably estimate the amount of loss, if any. No reserve has been recorded as of March 31,
2011 and December 31, 2010.
In April 2008, the local Sao Paulo, Brazil tax authorities assessed our Brazilian subsidiary
(SITEL Brazil) for the alleged non-payment of local sales taxes in the original amount of
approximately 3,500 Brazilian Reais (equivalent to approximately $2,115 as of March 31, 2011) for a
period extending from 2004 to October 2008. We currently estimate that the amount of the assessment
is now approximately 7,700 Brazilian Reais (equivalent to approximately $4,652 as of March 31,
2011), due to increases in interest and penalties. The assessment relates to billings made to a
domestic Brazilian client for which SITEL Brazil provided on site agent support at the clients
site located in Barueri City, Brazil. Local sales taxes on services provided in Brazil are assessed
based on the actual location where services are rendered. SITEL Brazil paid local sales taxes to
Barueri City, however the Sao Paulo tax authorities contend erroneously that the services were
performed in Sao Paolo where SITEL Brazil maintains an office. SITEL Brazil appealed the original
assessment and in March 2010, the tax authorities ruled against SITEL Brazil. In October 2010,
SITEL Brazil received a formal demand to pay the 7,700 Brazilian Reais (equivalent to approximately
$4,652 as of March 31, 2011) assessment. SITEL Brazil deposited 7,700 Brazilian Reais (equivalent
to approximately $4,652 as of March 31, 2011) with the tax authorities in December 2010 and filed
its defense with the courts in January 2011. We are currently unable to predict the probable
outcome of this matter and are not able to reasonably estimate the amount of loss, if any. No
reserve has been recorded as of March 31, 2011 and December 31, 2010.
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
11. Derivative Financial Instruments
The Company is exposed to a variety of market risks, including the effects of changes in
foreign currency exchange rates and interest rates. Market risk is the potential loss arising from
adverse changes in market rates and prices. The Companys policies allow for the use of derivative
financial instruments to prudently manage foreign currency exchange rate and interest rate
exposure, but do not allow derivatives to be used for speculative purposes. Derivatives that we use
are primarily foreign currency forward contracts and interest rate swaps. Our derivative activities
are subject to the management, direction, and control of our senior financial officers. Risk
management practices, including the use of financial derivative instruments, are presented to the
Board of Directors at least annually.
Foreign Currency Exchange Rate Risk
We conduct a significant portion of our business in currencies other than the U.S. dollar. Our
subsidiaries generally use the local currency as their functional currency for paying labor and
other operating costs. Conversely, revenues for some of these foreign subsidiaries are derived from
client contracts that are invoiced and collected in a different currency, principally in U.S.
dollars, as well as other currencies such as Euro, British pound sterling, or Australian dollars.
To hedge against the risk of fluctuations in the invoiced currency, we have contracted with
financial institutions to acquire (utilizing forward contracts) the functional currency of the
foreign subsidiary at a fixed counterparty exchange rate at specific dates in the future. As of
March 31, 2011, we had forward contracts maturing within the next 23 months.
Interest Rate Risk
Interest rate movements create a degree of risk by affecting the amount of our interest
payments, so our practice is to use interest rate swap agreements to manage our exposure to
interest rate changes.
In connection with the Senior Secured Credit Facility dated January 30, 2007, we entered into
an interest rate swap to convert $400,000 (reduced to $350,000 on March 31, 2009) of our floating
rate debt into fixed rate debt. We elected not to designate this swap for hedge accounting
treatment. The fair value of this interest rate swap is included in the table below.
For the three months ended March 31, 2011 and 2010, we recorded losses of $4,033 and $4,078,
respectively, for settled interest payments and a mark to market valuation reduction in the
liability of $3,625 for the three months ended March 31, 2011 and an increase in the liability of
$96 for the three months ended March 31, 2010. These amounts are reflected in Interest and other
financing costs, net in the accompanying Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss).
Fair Values in the Condensed Consolidated Balance Sheets
Derivative Assets | Derivative Liabilities | |||||||||||||||||||
3/31/2011 | 12/31/2010 | 3/31/2011 | 12/31/2010 | |||||||||||||||||
Balance | Balance | |||||||||||||||||||
Sheet | Fair | Fair | Sheet | Fair | Fair | |||||||||||||||
Location | Value | Value | Location | Value | Value | |||||||||||||||
Derivatives designated as
hedging instruments |
||||||||||||||||||||
Foreign exchange contracts |
Prepaids and other current assets | $ | 5,803 | $ | 6,559 | Accrued liabilities and other | $ | 1,679 | $ | 1,349 | ||||||||||
Foreign exchange contracts |
Other noncurrent assets | 27 | 959 | Other noncurrent liabilities | 389 | 212 | ||||||||||||||
Total |
$ | 5,830 | $ | 7,518 | $ | 2,068 | $ | 1,561 | ||||||||||||
Derivatives not designated
as hedging instruments |
||||||||||||||||||||
Interest rate contract ST |
Prepaids and other current assets | $ | | $ | | Accrued liabilities and other | $ | 15,784 | $ | 15,527 | ||||||||||
Interest rate contract LT |
Other noncurrent assets | | | Other noncurrent liabilities | | 3,882 | ||||||||||||||
Foreign exchange contracts |
Prepaids and other current assets | 140 | 596 | Accrued liabilities and other | 308 | 227 | ||||||||||||||
Foreign exchange contracts |
Other noncurrent assets | | | Other noncurrent liabilities | | 40 | ||||||||||||||
Total |
$ | 140 | $ | 596 | $ | 16,092 | $ | 19,676 | ||||||||||||
Total derivatives |
$ | 5,970 | $ | 8,114 | $ | 18,160 | $ | 21,237 | ||||||||||||
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations
and Comprehensive Loss
Amount of Gain or (Loss) | Amount of Gain or (Loss) | |||||||||||||||||
Recognized in OCI on | Reclassified from | |||||||||||||||||
Derivative | Location of Gain or | Accumulated OCI | ||||||||||||||||
(Effective Portion) | (Loss) Reclassified | into Income | ||||||||||||||||
Derivatives in | Three Months Ended | from Accumulated | Three Months Ended | |||||||||||||||
Cash Flow Hedging | March 31, | OCI into Income | March 31, | |||||||||||||||
Relationships | 2011 | 2010 | (Effective Portion) | 2011 | 2010 | |||||||||||||
Foreign exchange contracts |
$ | 298 | $ | 962 | Cost of Services and SG&A | $ | 2,257 | $ | 357 | |||||||||
Total |
$ | 298 | $ | 962 | $ | 2,257 | $ | 357 | ||||||||||
For the three months ended March 31, 2011 and 2010, we recorded gains of $1,370 and $250,
respectively, to Cost of services and gains of $887 and $107, respectively, to Selling, general,
and administrative expenses in the accompanying Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the effective portion of settled hedge contracts. We expect
unrealized gains will be reclassified from Accumulated other comprehensive loss (AOCL) to
Revenues during the next twelve months of $4,084. However, this amount and other future
reclassifications from AOCL will fluctuate with movements in the underlying market price of the
forward contracts. The estimates of fair value are based on applicable and commonly used pricing
models and prevailing financial market information as of March 31, 2011.
For the three months ended March 31, 2011, we recognized a loss on foreign currency
transactions related to the ineffective portion of the derivative instruments of $84. For the three
months ended March 31, 2010, no amounts were recognized in income due to ineffectiveness on
derivatives.
Amount of Gain or | ||||||||||
(Loss) Recognized in | ||||||||||
Income on Derivative | ||||||||||
Derivatives Not | Location of Gain or (Loss) | Three Months Ended | ||||||||
Designated as | Recognized in Income on | March 31, | ||||||||
Hedging Instruments | Derivative | 2011 | 2010 | |||||||
Foreign
exchange contracts |
Cost of Services and SG&A | $ | 10 | $ | 6,562 | |||||
Foreign
exchange contracts |
(Gain) loss on foreign currency transactions | (95 | ) | | ||||||
Total |
$ | (85 | ) | $ | 6,562 | |||||
For the three months ended March 31, 2011 and 2010, we recorded gains of $6 and $4,361,
respectively, to Cost of services and gains of $4 and $2,201, respectively, to Selling, general,
and administrative expenses (SG&A) in the accompanying Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss) for derivatives not designated as hedging contracts.
Current Contracts
At March 31, 2011, the Company had the following outstanding financial contracts that were
entered to hedge foreign exchange and interest rate risk:
Derivatives in Cash Flow Relationship | Notional Amount | |||
Interest rate contracts |
$ | 350,000 | ||
Foreign exchange contracts |
195,305 | |||
Total |
$ | 545,305 | ||
12. Fair Value Measurements
The carrying values of Cash and cash equivalents, short-term investments, trade receivables,
and trade payables approximate fair value. The terms of the Companys Senior Secured Credit
Facility and Senior Notes include debt with variable and fixed interest rates,
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
totaling $653,024
and $646,213 and March 31, 2011 and December 31, 2010, respectively. The fair value of such debt
was $628,049 and $576,895 at March 31, 2011 and December 31, 2010.
U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurements are classified into a hierarchy by the inputs used to perform the fair
value calculation as follows:
Level 1 Fair value based on unadjusted quoted prices for identical assets or liabilities in
active markets.
Level 2 Modeled fair value with model inputs that are all observable market values.
Level 3 Modeled fair value with at least one model input that is not an observable market
value.
The following tables summarize financial assets and liabilities measured and reported at fair
value on a recurring basis as of March 31, 2011 and December 31, 2010. There were no transfers
between pricing levels for the three month period ended March 31, 2011.
Fair Value Measurements at March 31, 2011 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets |
||||||||||||||||
Foreign currency forward contracts |
$ | 5,970 | $ | | $ | 5,970 | $ | | ||||||||
Marketable securities |
8 | 8 | | | ||||||||||||
Total |
$ | 5,978 | $ | 8 | $ | 5,970 | $ | | ||||||||
Liabilities |
||||||||||||||||
Foreign currency forward contracts |
$ | 2,376 | $ | | $ | 2,376 | $ | | ||||||||
Interest rate derivative instrument |
15,784 | | 15,784 | | ||||||||||||
Total |
$ | 18,160 | $ | | $ | 18,160 | $ | | ||||||||
Fair Value Measurements at December 31, 2010 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets |
||||||||||||||||
Foreign currency forward contracts |
$ | 8,114 | $ | | $ | 8,114 | $ | | ||||||||
Marketable securities |
8 | 8 | | | ||||||||||||
Total |
$ | 8,122 | $ | 8 | $ | 8,114 | $ | | ||||||||
Liabilities |
||||||||||||||||
Foreign currency forward contracts |
$ | 1,828 | $ | | $ | 1,828 | $ | | ||||||||
Interest rate derivative instrument |
19,409 | | 19,409 | | ||||||||||||
Total |
$ | 21,237 | $ | | $ | 21,237 | $ | | ||||||||
The Company uses quoted market prices in active markets to determine the fair value of
its marketable securities, which are classified in Level 1 of the fair value hierarchy. The Company
values its derivatives based on current market prices of comparable instruments or, if none are
available, on pricing models or formulas using current market and model assumptions. The Companys
interest rate derivative instrument is a pay-fixed, receive-variable, interest rate swap based on
LIBOR swap rate. The LIBOR swap rate is observable at commonly quoted intervals for the full term
of the swap and therefore is considered a level 2 item. The Companys foreign currency forward
contracts are contracts to buy foreign currency at a fixed rate for delivery on a specified future
date or period. The foreign exchange rate is observable for the full term of the swap and is
therefore also considered a level 2 item. The fair value measurement of a liability must reflect
the nonperformance risk of the entity. Therefore, the impact of the Companys creditworthiness has
also been factored into the fair value measurement of these derivative instruments.
The Company measures and reports its intangible assets at fair value on a nonrecurring basis.
These assets are classified in Level 3 of the fair value hierarchy.
We test all existing goodwill and other indefinite-lived intangibles (trademark and trade
name) for impairment at least annually and more frequently if circumstances indicate that the
carrying amount exceeds fair value. Annual impairment tests are conducted by the Company as of
December 31. The Company estimates the fair value of goodwill and other indefinite-lived
intangibles utilizing multiple measurement techniques. The estimation is primarily determined based
on an estimate of future cash flows (income approach) discounted
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
at a market derived weighted
average cost of capital. The income approach has been determined to be the most representative
because the Company does not have an active trading market for its equity. We then use a public
company model (which uses peer group valuation metrics) to confirm the measurement.
The Company evaluates the remaining useful lives of its definite-lived intangible assets
(customer relationships and cash grant contracts) whenever events or circumstances warrant a
revision to the remaining amortization period. The fair value of definite-lived intangible assets
is based on estimated cash flows from the future use of the asset, discounted at a market derived
weighted average cost of capital.
No impairment charges related to goodwill and other intangible assets were recorded during the
quarters ended March 31, 2011 and 2010.
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
13. Variable Interest Entity
On March 15, 2010, we entered into an Agreement and Plan of Merger (the option agreement)
with a previously unrelated entity, as well as an Exclusive Purchase and Distribution Agreement
pursuant to which we acquired certain intellectual property and other commercial rights. We paid
$500 for these rights from January 1, 2010 through December 31, 2011 (exclusivity period) and
will pay a total amount of approximately $1,100 in additional fees in monthly increments to the
entity for consulting services. The option agreement also gives us the right, without obligation,
to purchase licenses and sublicenses of the software units and related hardware at a discount. In
addition, pursuant to the option agreement, we have the option but not the obligation to acquire
100% of the entity at any time during the exclusivity period for an agreed upon purchase price. The
entity has the right to negate our exercise of this option if we have not attained certain
performance metrics involving the implementation of the related software and hardware. Our maximum
loss exposure is the $500 paid for the exclusivity period rights, plus any consulting fees paid.
We have determined the entity is a variable interest entity (VIE) based on our option to
acquire 100% of the business over the exclusivity period. The Company does have certain rights
through the option agreement, but does not control management decisions of the entity. Since we
have no obligation to exercise the purchase option to gain control, and the current fair value of
the entity is significantly less than the option price, we have concluded that we are not the
primary beneficiary.
14. Operating Segment and Geographical Information
The Companys two reportable segments, EMEA and the Americas, are consistent with the
Companys management of the business and reflect its internal financial reporting structure and
operating focus.
The following tables reflect information about our reportable segments, which correspond to
the geographic areas in which we operate:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
EMEA |
$ | 151,455 | $ | 157,529 | ||||
Americas |
191,717 | 200,638 | ||||||
$ | 343,172 | $ | 358,167 | |||||
Costs of services: |
||||||||
EMEA |
$ | 107,025 | $ | 111,428 | ||||
Americas |
114,600 | 114,449 | ||||||
$ | 221,625 | $ | 225,877 | |||||
Selling, general and administrative expenses (SG&A): |
||||||||
EMEA |
$ | 36,691 | $ | 41,816 | ||||
Americas |
51,862 | 53,291 | ||||||
$ | 88,553 | $ | 95,107 | |||||
Revenues less costs of services and SG&A: |
||||||||
EMEA |
$ | 7,739 | $ | 4,285 | ||||
Americas |
25,255 | 32,898 | ||||||
$ | 32,994 | $ | 37,183 | |||||
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Long-lived assets: |
||||||||
EMEA |
$ | 66,456 | $ | 66,061 | ||||
Americas |
100,410 | 103,535 | ||||||
$ | 166,866 | $ | 169,596 | |||||
Total assets: |
||||||||
EMEA |
$ | 265,257 | $ | 240,345 | ||||
Americas |
442,156 | 442,072 | ||||||
$ | 707,413 | $ | 682,417 | |||||
15. Supplemental Condensed Consolidated Financial Information
The following guarantor financial information is presented to comply with U.S. SEC disclosure
requirements of Rule 3-10 of Regulation S-X. Certain reclassifications have been made to conform to
current year presentation.
On March 29, 2011, the Issuers announced that they had filed a Registration Statement on Form
S-4 with the SEC seeking to undertake an exchange offer of $300,000 principal amount of Senior
Notes. The Issuers would offer to exchange unregistered notes which have been privately issued
under Rule 144A for freely tradable notes registered under the Securities Act of 1933 with
otherwise substantially the same terms and conditions. On April 29, 2011, all of the outstanding
Senior Notes were exchanged for registered Senior Notes.
The Senior Notes are guaranteed by the Issuers parent company, SITEL Worldwide, and by each
of SITEL Worldwides existing and future direct and indirect domestic subsidiaries that are
guarantors under the Senior Secured Credit Facility (the Subsidiary Guarantors). The
Consolidating Statements of Operations and Comprehensive Income (Loss) are presented net of
intercompany activity. The following supplemental financial information sets forth, on a
consolidating basis, balance sheets, statements of operations and comprehensive income (loss), and
statements of cash flows for the Company, the Subsidiary Guarantors, and the Companys
non-guarantor subsidiaries.
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
SITEL Worldwide Corporation
Condensed Consolidating Balance Sheets
March 31, 2011
(in thousands of U.S. dollars)
Condensed Consolidating Balance Sheets
March 31, 2011
(in thousands of U.S. dollars)
Non- | Total | |||||||||||||||||||||||
Parent | Issuers | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 496 | $ | | $ | 17,543 | $ | | $ | 18,039 | ||||||||||||
Accounts receivable (net of allowance
for doubtful accounts) |
| | 78,498 | 185,247 | | 263,745 | ||||||||||||||||||
Prepaids and other current assets |
217,247 | 195 | 95,864 | 13,809 | (244,021 | ) | 83,094 | |||||||||||||||||
Total current assets |
217,247 | 691 | 174,362 | 216,599 | (244,021 | ) | 364,878 | |||||||||||||||||
Property and equipment, net |
367 | | 32,467 | 74,443 | | 107,277 | ||||||||||||||||||
Goodwill |
| | 16,690 | 101,022 | | 117,712 | ||||||||||||||||||
Other intangible assets, net |
| | 18,504 | 41,085 | | 59,589 | ||||||||||||||||||
Deferred income taxes |
| | 2,206 | 23,606 | | 25,812 | ||||||||||||||||||
Investments in affiliates |
(341,518 | ) | 244,865 | 176,145 | | (79,492 | ) | | ||||||||||||||||
Other noncurrent assets |
2,885 | 85,821 | 8,002 | 21,497 | (86,060 | ) | 32,145 | |||||||||||||||||
Total assets |
$ | (121,019 | ) | $ | 331,377 | $ | 428,376 | $ | 478,252 | $ | (409,573 | ) | $ | 707,413 | ||||||||||
Liabilities and Stockholders Deficit |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | 536 | $ | | $ | 10,281 | $ | 21,378 | $ | | $ | 32,195 | ||||||||||||
Accrued payroll and benefits |
2,390 | | 9,955 | 63,257 | | 75,602 | ||||||||||||||||||
Accrued liabilities and other |
148,896 | 188,168 | 19,936 | 19,108 | (244,022 | ) | 132,086 | |||||||||||||||||
Income taxes payable |
183 | 1 | 3,002 | | | 3,186 | ||||||||||||||||||
Current portion of capital
lease obligations |
| | 1,504 | 1,818 | | 3,322 | ||||||||||||||||||
Total current liabilities |
152,005 | 188,169 | 44,678 | 105,561 | (244,022 | ) | 246,391 | |||||||||||||||||
Long-term debt |
| 582,425 | | 70,599 | | 653,024 | ||||||||||||||||||
Capital lease obligations |
| | 2,075 | 3,568 | | 5,643 | ||||||||||||||||||
Deferred income taxes |
| | | 8,188 | | 8,188 | ||||||||||||||||||
Other noncurrent liabilities |
| | 24,842 | 128,409 | (86,060 | ) | 67,191 | |||||||||||||||||
Total liabilities |
152,005 | 770,594 | 71,595 | 316,325 | (330,082 | ) | 980,437 | |||||||||||||||||
Series B preferred stock |
58,921 | | | | | 58,921 | ||||||||||||||||||
Series C preferred stock |
39,095 | | | | | 39,095 | ||||||||||||||||||
Stockholders deficit |
||||||||||||||||||||||||
Subsidiary exchangeable preferred stock |
2,665 | | | | | 2,665 | ||||||||||||||||||
Common stock |
1,251 | | 84,208 | 168,887 | (253,095 | ) | 1,251 | |||||||||||||||||
Additional paid-in capital |
387,887 | 70,235 | 653,459 | 267,273 | (990,967 | ) | 387,887 | |||||||||||||||||
Accumulated deficit |
(731,773 | ) | (509,452 | ) | (336,881 | ) | (298,583 | ) | 1,144,916 | (731,773 | ) | |||||||||||||
Accumulated other comprehensive loss |
(20,247 | ) | | (44,005 | ) | 24,350 | 19,655 | (20,247 | ) | |||||||||||||||
Stock subscriptions receivable |
(2,653 | ) | | | | | (2,653 | ) | ||||||||||||||||
Treasury shares, at cost |
(8,170 | ) | | | | | (8,170 | ) | ||||||||||||||||
Total stockholders deficit |
(371,040 | ) | (439,217 | ) | 356,781 | 161,927 | (79,491 | ) | (371,040 | ) | ||||||||||||||
Total liabilities and
stockholders deficit |
$ | (121,019 | ) | $ | 331,377 | $ | 428,376 | $ | 478,252 | $ | (409,573 | ) | $ | 707,413 | ||||||||||
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SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
SITEL Worldwide Corporation
Condensed Consolidating Balance Sheets
December 31, 2010
(in thousands of U.S. dollars)
Condensed Consolidating Balance Sheets
December 31, 2010
(in thousands of U.S. dollars)
Non- | Total | |||||||||||||||||||||||
Parent | Issuers | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 7,780 | $ | | $ | 22,114 | $ | | $ | 29,894 | ||||||||||||
Accounts receivable (net of allowance
for doubtful accounts) |
| | 80,986 | 155,106 | | 236,092 | ||||||||||||||||||
Prepaids and other current assets |
222,725 | 572 | 84,411 | 151,813 | (381,278 | ) | 78,243 | |||||||||||||||||
Total current assets |
222,725 | 8,352 | 165,397 | 329,033 | (381,278 | ) | 344,229 | |||||||||||||||||
Property and equipment, net |
259 | | 33,435 | 72,665 | | 106,359 | ||||||||||||||||||
Goodwill |
| | 16,691 | 101,020 | | 117,711 | ||||||||||||||||||
Other intangible assets, net |
| | 19,230 | 44,007 | | 63,237 | ||||||||||||||||||
Deferred income taxes |
| | 706 | 19,320 | | 20,026 | ||||||||||||||||||
Investments in affiliates |
(350,569 | ) | 217,693 | 168,440 | | (35,564 | ) | | ||||||||||||||||
Other noncurrent assets |
2,831 | 86,182 | 3,455 | 18,990 | (80,603 | ) | 30,855 | |||||||||||||||||
Total assets |
$ | (124,754 | ) | $ | 312,227 | $ | 407,354 | $ | 585,035 | $ | (497,445 | ) | $ | 682,417 | ||||||||||
Liabilities and Stockholders Deficit |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | 86 | $ | | $ | 10,874 | $ | 16,574 | $ | | $ | 27,534 | ||||||||||||
Accrued payroll and benefits |
1,874 | | 7,512 | 56,581 | | 65,967 | ||||||||||||||||||
Accrued liabilities and other |
147,650 | 182,800 | 26,118 | 147,990 | (381,278 | ) | 123,280 | |||||||||||||||||
Income taxes payable |
98 | 1 | 3,101 | | | 3,200 | ||||||||||||||||||
Current portion of capital
lease obligations |
| | 1,482 | 1,742 | | 3,224 | ||||||||||||||||||
Total current liabilities |
149,708 | 182,801 | 49,087 | 222,887 | (381,278 | ) | 223,205 | |||||||||||||||||
Long-term debt |
| 579,568 | | 66,645 | | 646,213 | ||||||||||||||||||
Capital lease obligations |
| | 2,472 | 4,365 | | 6,837 | ||||||||||||||||||
Deferred income taxes |
| | | 8,303 | | 8,303 | ||||||||||||||||||
Other noncurrent liabilities |
| 3,882 | 13,773 | 135,269 | (80,603 | ) | 72,321 | |||||||||||||||||
Total liabilities |
149,708 | 766,251 | 65,332 | 437,469 | (461,881 | ) | 956,879 | |||||||||||||||||
Series B preferred stock |
57,282 | | | | | 57,282 | ||||||||||||||||||
Series C preferred stock |
37,278 | | | | | 37,278 | ||||||||||||||||||
Stockholders deficit |
||||||||||||||||||||||||
Subsidiary exchangeable preferred stock |
2,665 | | | | | 2,665 | ||||||||||||||||||
Common stock |
1,251 | | 84,208 | 168,887 | (253,095 | ) | 1,251 | |||||||||||||||||
Additional paid-in capital |
391,297 | 70,234 | 665,837 | 260,678 | (996,749 | ) | 391,297 | |||||||||||||||||
Accumulated deficit |
(733,723 | ) | (524,258 | ) | (364,061 | ) | (306,928 | ) | 1,195,247 | (733,723 | ) | |||||||||||||
Accumulated other comprehensive loss |
(19,689 | ) | | (43,962 | ) | 24,929 | 19,033 | (19,689 | ) | |||||||||||||||
Stock subscriptions receivable |
(2,653 | ) | | | | | (2,653 | ) | ||||||||||||||||
Treasury shares, at cost |
(8,170 | ) | | | | | (8,170 | ) | ||||||||||||||||
Total stockholders deficit |
(369,022 | ) | (454,024 | ) | 342,022 | 147,566 | (35,564 | ) | (369,022 | ) | ||||||||||||||
Total liabilities and
stockholders deficit |
$ | (124,754 | ) | $ | 312,227 | $ | 407,354 | $ | 585,035 | $ | (497,445 | ) | $ | 682,417 | ||||||||||
25
Table of Contents
SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
SITEL Worldwide Corporation
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended March 31, 2011
(in thousands of U.S. dollars)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended March 31, 2011
(in thousands of U.S. dollars)
Non- | Total | |||||||||||||||||||||||
Parent | Issuers | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | | $ | | $ | 82,720 | $ | 260,452 | $ | | $ | 343,172 | ||||||||||||
Operating expenses |
||||||||||||||||||||||||
Costs of services (exclusive of depreciation
and amortization shown below) |
| | 46,666 | 174,959 | | 221,625 | ||||||||||||||||||
Selling, general, and administrative
expenses (exclusive of depreciation
and amortization shown below) |
7,142 | 67 | 18,001 | 63,343 | | 88,553 | ||||||||||||||||||
Depreciation and amortization
of property and equipment |
| | 2,352 | 6,278 | | 8,630 | ||||||||||||||||||
Amortization of intangible assets |
| | 729 | 2,922 | | 3,651 | ||||||||||||||||||
Restructuring and exit charges |
8 | | 594 | 6,418 | | 7,020 | ||||||||||||||||||
Loss (gain) on foreign currency transactions |
565 | (1,252 | ) | (127 | ) | (1,754 | ) | | (2,568 | ) | ||||||||||||||
Other (income) expense, net |
(70 | ) | 560 | (1 | ) | 357 | | 846 | ||||||||||||||||
Operating (loss) income |
(7,645 | ) | 625 | 14,506 | 7,929 | | 15,415 | |||||||||||||||||
Interest and other financing (income) costs, net |
(10 | ) | 12,992 | 558 | 2,491 | | 16,031 | |||||||||||||||||
Loss on extinguishment of debt, net |
| | | | | | ||||||||||||||||||
Equity in earnings of subsidiaries |
(9,674 | ) | (21,401 | ) | (7,703 | ) | | 38,778 | | |||||||||||||||
Income (loss) before income taxes |
2,039 | 9,034 | 21,651 | 5,438 | (38,778 | ) | (616 | ) | ||||||||||||||||
Income tax provision (benefit) |
89 | | 250 | (2,905 | ) | | (2,566 | ) | ||||||||||||||||
Net income (loss) |
1,950 | 9,034 | 21,401 | 8,343 | (38,778 | ) | 1,950 | |||||||||||||||||
Other comprehensive income (loss) |
||||||||||||||||||||||||
Foreign currency translation adjustments |
64 | | 1,580 | (261 | ) | | 1,383 | |||||||||||||||||
Unrealized gain (loss) on derivative
valuation, net of tax of $0 |
| | (1,624 | ) | (335 | ) | | (1,959 | ) | |||||||||||||||
Unrecognized pension gain, net of
tax of $0 |
| | | 18 | | 18 | ||||||||||||||||||
Comprehensive income (loss) |
$ | 2,014 | $ | 9,034 | $ | 21,357 | $ | 7,765 | $ | (38,778 | ) | $ | 1,392 | |||||||||||
26
Table of Contents
SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
SITEL Worldwide Corporation
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended March 31, 2010
(in thousands of U.S. dollars)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended March 31, 2010
(in thousands of U.S. dollars)
Non- | Total | |||||||||||||||||||||||
Parent | Issuers | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Revenues |
$ | | $ | 12 | $ | 94,040 | $ | 264,115 | $ | | $ | 358,167 | ||||||||||||
Operating expenses |
||||||||||||||||||||||||
Costs of services (exclusive of depreciation
and amortization shown below) |
94 | | 54,541 | 171,242 | | 225,877 | ||||||||||||||||||
Selling, general, and administrative
expenses (exclusive of depreciation
and amortization shown below) |
4,219 | 57 | 23,340 | 67,491 | | 95,107 | ||||||||||||||||||
Depreciation and amortization
of property and equipment |
| | 2,651 | 7,396 | | 10,047 | ||||||||||||||||||
Amortization of intangible assets |
| | 783 | 3,170 | | 3,953 | ||||||||||||||||||
Restructuring and exit charges |
277 | | 960 | 4,528 | | 5,765 | ||||||||||||||||||
Loss (gain) on foreign currency transactions |
(388 | ) | 95 | 272 | 3,280 | | 3,259 | |||||||||||||||||
Other (income) expense, net |
(182 | ) | (60 | ) | 51 | 382 | | 191 | ||||||||||||||||
Operating income (loss) |
(4,020 | ) | (80 | ) | 11,442 | 6,626 | | 13,968 | ||||||||||||||||
Interest and other financing (income) costs, net |
(97 | ) | 11,225 | 256 | 3,489 | | 14,873 | |||||||||||||||||
Loss on extinguishment of debt, net |
| 3,019 | | | | 3,019 | ||||||||||||||||||
Equity in earnings of subsidiaries |
2,768 | (11,707 | ) | 193 | | 8,746 | | |||||||||||||||||
Income (loss) before
income taxes |
(6,691 | ) | (2,617 | ) | 10,993 | 3,137 | (8,746 | ) | (3,924 | ) | ||||||||||||||
Income tax provision (benefit) |
79 | | (714 | ) | 3,481 | | 2,846 | |||||||||||||||||
Net income (loss) |
(6,770 | ) | (2,617 | ) | 11,707 | (344 | ) | (8,746 | ) | (6,770 | ) | |||||||||||||
Other comprehensive income (loss) |
||||||||||||||||||||||||
Foreign currency translation adjustments |
(94 | ) | | (1,817 | ) | 5,286 | | 3,375 | ||||||||||||||||
Unrealized gain (loss) on derivative
valuation, net of tax of $0 |
| | 648 | 105 | | 753 | ||||||||||||||||||
Unrecognized pension gain, net of
tax of $0 |
| | | (69 | ) | | (69 | ) | ||||||||||||||||
Comprehensive income (loss) |
$ | (6,864 | ) | $ | (2,617 | ) | $ | 10,538 | $ | 4,978 | $ | (8,746 | ) | $ | (2,711 | ) | ||||||||
27
Table of Contents
SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
SITEL Worldwide Corporation
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2011
(in thousands of U.S. dollars)
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2011
(in thousands of U.S. dollars)
Non- | Total | |||||||||||||||||||||||
Parent | Issuers | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||||||
Net income (loss) |
$ | 1,950 | $ | 9,034 | $ | 21,401 | $ | 8,343 | $ | (38,778 | ) | $ | 1,950 | |||||||||||
Undistributed equity in earnings of subsidiaries |
(9,674 | ) | (21,401 | ) | (7,703 | ) | | 38,778 | | |||||||||||||||
Adjustments to reconcile net income (loss) to
net cash flows relating to operating activities: |
||||||||||||||||||||||||
Depreciation and amortization (including
of intangible assets) |
| | 3,078 | 9,203 | | 12,281 | ||||||||||||||||||
Deferred income taxes |
| | | (5,486 | ) | | (5,486 | ) | ||||||||||||||||
Noncash derivative activity |
| | (244 | ) | (4,105 | ) | | (4,349 | ) | |||||||||||||||
Amortization of debt issue costs and OID |
| 518 | | 38 | | 556 | ||||||||||||||||||
Non-cash
interest expense (income) |
| 8,818 | (36 | ) | (174 | ) | | 8,608 | ||||||||||||||||
Other noncash items, net |
47 | | (3,607 | ) | 3,189 | | (371 | ) | ||||||||||||||||
Change in book overdrafts |
| | (167 | ) | 74 | | (93 | ) | ||||||||||||||||
Changes in working capital, net |
7,785 | (6,928 | ) | (10,963 | ) | (10,850 | ) | | (20,956 | ) | ||||||||||||||
Net cash (used in) provided by
operating activities |
108 | (9,959 | ) | 1,759 | 232 | | (7,860 | ) | ||||||||||||||||
Cash flows from investing activities |
||||||||||||||||||||||||
Purchases of property and equipment |
(108 | ) | | (1,381 | ) | (5,545 | ) | | (7,034 | ) | ||||||||||||||
Proceeds from disposition of property
and equipment |
| | 10 | 17 | | 27 | ||||||||||||||||||
Net cash used in investing
activities |
(108 | ) | | (1,371 | ) | (5,528 | ) | | (7,007 | ) | ||||||||||||||
Cash flows from financing activities |
||||||||||||||||||||||||
Payments on long-term debt and
capital lease obligations |
| (122,662 | ) | (387 | ) | (685 | ) | | (123,734 | ) | ||||||||||||||
Proceeds from long-term debt |
| 125,337 | | | | 125,337 | ||||||||||||||||||
Net cash (used in) provided by
financing activities |
| 2,675 | (387 | ) | (685 | ) | | 1,603 | ||||||||||||||||
Effect of exchange rate on Cash and
cash equivalents |
| | | 1,409 | | 1,409 | ||||||||||||||||||
Net change in Cash and cash
equivalents |
| (7,284 | ) | 1 | (4,572 | ) | | (11,855 | ) | |||||||||||||||
Cash and cash equivalents |
||||||||||||||||||||||||
Beginning of period |
| 7,780 | | 22,114 | | 29,894 | ||||||||||||||||||
End of period |
$ | | $ | 496 | $ | 1 | $ | 17,542 | $ | | $ | 18,039 | ||||||||||||
28
Table of Contents
SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands of U.S. dollars, except share and per share data)
SITEL Worldwide Corporation
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2010
(in thousands of U.S. dollars)
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2010
(in thousands of U.S. dollars)
Non- | Total | |||||||||||||||||||||||
Parent | Issuers | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||||||
Net income (loss) |
$ | (6,770 | ) | $ | (2,617 | ) | $ | 11,707 | $ | (344 | ) | $ | (8,746 | ) | $ | (6,770 | ) | |||||||
Undistributed equity in earnings of subsidiaries |
2,768 | (11,707 | ) | 193 | | 8,746 | | |||||||||||||||||
Adjustments to reconcile net income (loss) to
net cash flows relating to operating activities: |
||||||||||||||||||||||||
Depreciation and amortization (including
of intangible assets) |
| | 3,433 | 10,567 | | 14,000 | ||||||||||||||||||
Deferred income taxes |
| | 648 | (2,533 | ) | | (1,885 | ) | ||||||||||||||||
Noncash derivative activity |
| | (706 | ) | (4,869 | ) | | (5,575 | ) | |||||||||||||||
Amortization of debt issue costs and OID |
| 26 | | 143 | | 169 | ||||||||||||||||||
Write off of deferred financing fees |
| 371 | | | | 371 | ||||||||||||||||||
Non-cash
interest expense (income) |
| 837 | (160 | ) | 703 | | 1,380 | |||||||||||||||||
Other noncash items, net |
41 | | 6,404 | (6,828 | ) | | (383 | ) | ||||||||||||||||
Proceeds of marketable
securities, net |
| | | 4,494 | | 4,494 | ||||||||||||||||||
Change in book overdrafts |
| | (1,592 | ) | (259 | ) | | (1,851 | ) | |||||||||||||||
Changes in working capital, net |
4,518 | (68,129 | ) | (16,742 | ) | 74,741 | | (5,612 | ) | |||||||||||||||
Net cash (used in) provided by
operating activities |
557 | (81,219 | ) | 3,185 | 75,815 | | (1,662 | ) | ||||||||||||||||
Cash flows from investing activities |
||||||||||||||||||||||||
Purchases of property and equipment |
(6 | ) | | (2,905 | ) | (2,404 | ) | | (5,315 | ) | ||||||||||||||
Proceeds from disposition of property
and equipment |
| | | 431 | | 431 | ||||||||||||||||||
Net cash used in investing
activities |
(6 | ) | | (2,905 | ) | (1,973 | ) | | (4,884 | ) | ||||||||||||||
Cash flows from financing activities |
||||||||||||||||||||||||
Purchases of treasury shares |
(551 | ) | | | | | (551 | ) | ||||||||||||||||
Payments on long-term debt and
capital lease obligations |
| (335,648 | ) | (280 | ) | (53,914 | ) | | (389,842 | ) | ||||||||||||||
Proceeds from long-term debt |
| 141,770 | | | | 141,770 | ||||||||||||||||||
Proceeds from issuance of senior notes |
| 292,362 | | | | 292,362 | ||||||||||||||||||
Payments of debt issue costs |
| (8,156 | ) | | | | (8,156 | ) | ||||||||||||||||
Net cash (used in) provided by
financing activities |
(551 | ) | 90,328 | (280 | ) | (53,914 | ) | | 35,583 | |||||||||||||||
Effect of exchange rate on Cash and
cash equivalents |
| | | (227 | ) | | (227 | ) | ||||||||||||||||
Net change in Cash and cash
equivalents |
| 9,109 | | 19,701 | | 28,810 | ||||||||||||||||||
Cash and cash equivalents |
||||||||||||||||||||||||
Beginning of period |
| 257 | | 26,658 | | 26,915 | ||||||||||||||||||
End of period |
$ | | $ | 9,366 | $ | | $ | 46,359 | $ | | $ | 55,725 | ||||||||||||
29
Table of Contents
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
(Amounts in thousands of U.S. dollars except share and per share data)
Overview
We are one of the worlds largest and most diversified providers of customer care outsourcing
services. We offer our clients a wide array of services, including customer service, technical
support and customer acquisition, retention and revenue generation services. The majority of our
customer care services are inbound and delivered telephonically, but we are increasingly asked to
provide services through other communication channels, including email, online chat, web and IVR.
We serve a broad range of industry end-markets, including wireless, telecommunications, technology,
financial services, retail and consumer products, media and entertainment, energy and utilities,
travel and transportation, internet service providers, insurance and healthcare.
We provide our clients with high quality customer care expertise customized for their specific
end-markets in order to improve their interactions with their customers and, in turn, increase
their return on customer investment. Our clients reduce their costs by leveraging our economies of
scale, gaining access to our skilled labor force, and benefiting from our facilities, which are
strategically located in cost-effective labor markets throughout the world. They increase their
revenues through improved customer satisfaction, increased retention, and more effective sales
conversions. In addition, our services allow our clients to reduce capital expenditures, better
manage working capital and transform fixed customer care-related costs into variable costs. We have
worked closely with our clients through the recent global economic downturn to drive efficiency and
effectiveness throughout their customer care operations.
We are organized geographically and have two reporting segments: (1) EMEA, which refers to
Europe, the Middle East and Africa and (2) Americas, which refers to North America, Latin America
and Asia Pacific. Each reporting segment performs substantially the same services for clients. We
have approximately 16,000 employees based in EMEA. And approximately 39,000 employees based in the
Americas.
Our standardized practices and regionalized support functions are designed to achieve
consistent, high quality service throughout the world. Of our revenues for the quarter ended March
31, 2011, 44% was generated in EMEA and 56% was generated in the Americas.
We reported revenues of $343,172 for the first three months of 2011, down 4.2%, or $14,995
from $358,167 for the same period of 2010. The decline was primarily due to client attrition in
2010, primarily driven by clients changes in outsourcing strategies. Although we expect a more
stable macroeconomic environment throughout 2011, certain conditions may
continue to impact customer demand for our clients products, which can impact our call volumes and
revenues.
Operating expenses decreased largely in line with our revenues, as the company continued its
on-going simplification and rationalization efforts.
Forward-Looking Statements
This report contains forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995, which are based on the beliefs and assumptions of our management
regarding, among other things, our plans, strategies and prospects, both business and financial.
Although we believe that our plans, intentions and expectations reflected in or suggested by these
forward-looking statements are reasonable, we cannot assure you that we will achieve or realize
these plans, intentions or expectations. Forward-looking statements are inherently subject to
risks, uncertainties and assumptions. Generally, statements that are not historical facts,
including statements concerning our possible or assumed future actions, business strategies, events
or results of operations, are forward-looking statements. These statements may be preceded by,
followed by or include the words believes, expects, anticipates, intends, plans,
estimates or similar expressions. These statements discuss potential risks and uncertainties;
therefore, our actual future results to be materially different than those expressed in our
forward-looking statements. We caution you not to place undue reliance on these forward-looking
statements. Forward-looking statements speak only as of the date they were made. We do not
undertake any obligation to make any revisions to these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the occurrence of unanticipated
events, except as required by law, including the securities laws of the United States and rules and
regulations of the SEC. See the discussion in the Risk Factors and Caution Concerning
Forward-Looking Statements sections of the Companys Registration Statement on Form S-4
(333-172952) filed with the SEC and declared effective by the SEC on
March 28, 2011. All written
and oral forward-looking statements attributable to us, or persons acting on our behalf, are
expressly qualified in their entirety by the cautionary statements contained in the section
entitled Risk Factors included in such Registration Statement as well as other cautionary
statements that are made from time to time in our other SEC filings and public communications. You
should evaluate all forward-looking statements made in this report in the context of these risks
and uncertainties.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations and financial condition are based upon
our Condensed Consolidated Financial Statements and the Notes thereto. The preparation of financial
statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the
amounts reported in the Condensed Consolidated Financial Statements and Notes thereto. Certain of
our accounting policies are considered critical, due to the level of subjectivity and judgment
necessary in applying these policies and because the impact of these estimates and assumptions on
our financial condition and operating performance may be material. On an ongoing basis, we evaluate
our estimates and judgments in these areas based on historic experience and other relevant factors.
The estimates as of the date of the financial
30
Table of Contents
statements reflect our best judgment giving consideration to all
currently available facts and circumstances. We believe our estimates and judgments are reasonable,
however, actual results and the timing of the recognition of such amounts could differ from those
estimates.
We have used methodologies that are consistent from year to year in all material respects. For
details concerning these critical accounting policies and estimates, please refer to the audited
Consolidated Financial Statements and the Notes thereto included in the Companys Registration
Statement on Form S-4 (333-172952) filed with the SEC and declared effective by the SEC on March
28, 2011. Any deviation from these policies or estimates could have a material impact on our
Condensed Consolidated Financial Statements.
Results of Operations
The following discussion should be read in conjunction with the Condensed Consolidated
Financial Statements. Results for interim periods may not be indicative of the results for the full
years. The table below sets forth statement of operations data expressed as a percentage of
revenues for the periods indicated:
Three Months Ended March 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Percent of | Percent of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Statement of Operations Data: |
||||||||||||||||
Revenues |
$ | 343,172 | 100.0 | % | $ | 358,167 | 100.0 | % | ||||||||
Operating expenses |
||||||||||||||||
Cost of services |
221,625 | 64.6 | % | 225,877 | 63.1 | % | ||||||||||
Selling, general, and administrative expenses |
88,553 | 25.8 | % | 95,107 | 26.6 | % | ||||||||||
Depreciation and amortization of property and equipment |
8,630 | 2.5 | % | 10,047 | 2.8 | % | ||||||||||
Amortization of intangible assets |
3,651 | 1.1 | % | 3,953 | 1.1 | % | ||||||||||
Restructuring and exit charges |
7,020 | 2.0 | % | 5,765 | 1.6 | % | ||||||||||
(Gain) loss on foreign currency transactions |
(2,568 | ) | -0.7 | % | 3,259 | 0.9 | % | |||||||||
Other expense, net |
846 | 0.2 | % | 191 | 0.1 | % | ||||||||||
Operating income |
15,415 | 4.5 | % | 13,968 | 3.9 | % | ||||||||||
Interest and other financing costs, net |
16,031 | 4.7 | % | 14,873 | 4.2 | % | ||||||||||
Loss on extinguishment of debt, net |
| 0.0 | % | 3,019 | 0.8 | % | ||||||||||
Loss before income taxes |
(616 | ) | -0.2 | % | (3,924 | ) | -1.1 | % | ||||||||
Income tax (benefit) provision |
(2,566 | ) | -0.7 | % | 2,846 | 0.8 | % | |||||||||
Net income (loss) |
$ | 1,950 | 0.6 | % | $ | (6,770 | ) | -1.9 | % | |||||||
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
The table below presents statement of operations data, including the amount and percentage
changes for the periods indicated:
31
Table of Contents
Three Months Ended | ||||||||||||||||
March 31, | Dollar | Percentage | ||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
Statement of Operations Data: |
||||||||||||||||
Revenues |
$ | 343,172 | $ | 358,167 | $ | (14,995 | ) | -4.2 | % | |||||||
Operating expenses |
||||||||||||||||
Cost of services |
221,625 | 225,877 | (4,252 | ) | -1.9 | % | ||||||||||
Selling, general, and administrative expenses |
88,553 | 95,107 | (6,554 | ) | -6.9 | % | ||||||||||
Depreciation and amortization of property and equipment |
8,630 | 10,047 | (1,417 | ) | -14.1 | % | ||||||||||
Amortization of intangible assets |
3,651 | 3,953 | (302 | ) | -7.6 | % | ||||||||||
Restructuring and exit charges |
7,020 | 5,765 | 1,255 | 21.8 | % | |||||||||||
(Gain) loss on foreign currency transactions |
(2,568 | ) | 3,259 | (5,827 | ) | -178.8 | % | |||||||||
Other expense, net |
846 | 191 | 655 | 342.9 | % | |||||||||||
Operating income |
15,415 | 13,968 | 1,447 | 10.4 | % | |||||||||||
Interest and other financing costs, net |
16,031 | 14,873 | 1,158 | 7.8 | % | |||||||||||
Loss on extinguishment of debt, net |
| 3,019 | (3,019 | ) | -100.0 | % | ||||||||||
Loss before income taxes |
(616 | ) | (3,924 | ) | 3,308 | -84.3 | % | |||||||||
Income tax (benefit) provision |
(2,566 | ) | 2,846 | (5,412 | ) | -190.2 | % | |||||||||
Net income (loss) |
$ | 1,950 | $ | (6,770 | ) | $ | 8,720 | 128.8 | % | |||||||
Revenues
Consolidated revenues decreased $14,995 or 4.2% to $343,172 for the three months ended March
31, 2011 as compared to $358,167 for the three months ended March 31, 2010. Revenues in the EMEA
segment decreased $6,074 or 3.9% to $151,455 for the three months ended March 31, 2011 as compared
to $157,529 for the three months ended March 31, 2010. In the Americas, revenues decreased $8,921
or 4.4% to $191,717 from $200,638 for the three months ended March 31, 2011 and March 31, 2010,
respectively.
We believe the decreases in revenues were primarily attributable to approximately:
| $27,400 of attrition primarily attributable to reductions in existing client programs driven by certain clients changes in outsourcing strategies and competitive pricing pressures. |
Decreases in first quarter revenues were partially offset by approximately:
| $10,800 incremental revenue from new customers and net growth from our existing clients driven by expansion of our relationships with these customers (i.e. new campaigns and/or new services). |
| $1,600 of foreign exchange impact due to weakening of the U.S. dollar against the Euro and British pound Sterling during the first quarter of 2011. |
Costs of Services
Costs of services decreased $4,252 or 1.9% to $221,625 for the three months ended March 31,
2011, as compared to $225,877 for the three months ended March 31, 2010. Of the $4,252 decrease,
$4,403 was attributable to EMEA offset by a slight increase of $151 in the Americas segment. Costs
of services decreases for the quarter were proportionately lower than the decline in revenues and
are primarily due to the loss of higher margin business in the first quarter of 2011, combined with
a $4,361 gain for derivatives not designated as hedging contracts in the first quarter of 2010
compared to a gain of $6 in the first quarter of 2011.
As a result, our cost of services for the three months ended March 31, 2011 was 64.6% of
revenues, a 1.5 percentage point increase from the three months ended March 31, 2010.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses (SG&A) decreased $6,554 or 6.9% to $88,553 for
the three months ended March 31, 2011 as compared to $95,107 for the three months ended March 31,
2010. In addition to our restructuring efforts, we have also incurred savings due to negotiated
reductions in information technology, leases, and professional service fees. Additionally, gains on
our designated foreign exchange derivative contracts accounted for $887, or 0.3% as a percent of
revenues, of the decrease.
The EMEA segment reported a 12.3% decrease in SG&A of $5,125 from $41,816 for the three months
ended March 31, 2010 to $36,691 for the three months ended March 31, 2011. In addition, SG&A
expense in the Americas decreased $1,429 or 2.7% from $53,291 to $51,862 for the three months ended
March 31, 2010 and March 31, 2011, respectively.
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Depreciation and Amortization of Property and Equipment
Depreciation and amortization of property and equipment decreased $1,417 or 14.1% to $8,630
for the three months ended March 31, 2011 as compared to $10,047 for the three months ended March
31, 2010. The decrease in depreciation and amortization of property and equipment was primarily the
result of assets becoming fully depreciated. We anticipate an increase in capital expenditures in
2011 due to projected growth and IT and facilities maintenance, which we expect to drive future
increases in depreciation and amortization of property and equipment in 2011.
Restructuring and Exit Charges
The Company continues to evaluate and assess its operations. This results in
restructuring activities to rationalize facility and labor costs, further streamline the Companys
operations in order to align resources to support growth, and to shift the geographic mix of some
of the Companys resources. Reduced volumes stemming from the recent global economic downturn have
also resulted in further workforce reductions and site closures.
Restructuring and exit charges increased $1,255 to $7,020 for the three months ended March 31,
2011 as compared to $5,765 for the three months ended March 31, 2010. The restructuring charge for
the quarter included severance costs of $5,048 and site closure costs totaling $1,972, which are
primarily ongoing lease and other contractual obligations.
During the three months ended March 31, 2011, four sites were closed or consolidated and 734
positions were eliminated resulting in total restructuring charges of $6,430 and estimated
annualized savings of $9,600. Total expected costs relating to restructuring activities initiated
in 2011 are $7,900, and such activities are expected to be completed by the end of 2011. The
remaining accrual for severance-related activities of $4,272 is expected to be paid by the end of
2011, and the remaining accrual for facility exit costs of $767 is expected to be paid during the
remainder of the current fiscal year through 2014 as the related leases expire.
During the quarter ended March 31, 2011, we recognized expense of $649 relating to
restructuring activities initiated in 2010. These activities are completed, and no additional
significant costs are expected to be incurred. The remaining accrual for severance-related
activities of $11,084 is expected to be paid by the end of 2011, and the remaining accrual for
facility exit costs of $4,825 is expected to be paid during the remainder of the current fiscal
year through 2016 as the related leases expire.
(Gain) Loss on Foreign Currency Transactions
We recognized a gain on foreign currency transactions in the amount of $2,568 for the three
months ended March 31, 2011 as compared to a loss of $3,259 for the three months ended March 31,
2010. The gain on foreign currency is primarily attributable to the weakening of the U.S. dollar
against the Euro and British pound Sterling during the first quarter of 2011.
Interest and Financing Costs
Interest and other financing costs increased $1,158 or 7.8% to $16,031 for the three months
ended March 31, 2011 as compared to $14,873 for the three months ended March 31, 2010. Increases in
interest and financing costs were primarily attributable to higher weighted average interest rates
due to the issuance of the 11.5% Senior Notes at a fixed rate in March 2010.
Loss on Extinguishment of Debt
We recognized a loss on extinguishment of debt in the amount of $3,019 for the three months
ended March 31, 2010, consisting of fees paid of $2,648 and
write off of deferred financing fees of
$371. There were no comparable costs for the three months ended March 31, 2011.
Income Tax (Benefit) Provision
Our provision for income taxes decreased from $2,846 for the three months ended March 31, 2010
to a tax benefit of $2,566 for the three months ended March 31, 2011. The benefit arose primarily
from the release of valuation allowance on the deferred tax assets of our Australian subsidiary
during the first quarter of 2011, which resulted in a discrete benefit of $6,132. Management
concluded that strong first quarter performance coupled with cumulative profitability overcame
historic inconsistent financial performance to warrant the release of the valuation allowance on
the deferred tax assets of its Australian subsidiary.
Management will continue to assess the Companys ability to realize the deferred tax benefits
in jurisdictions which currently have valuation allowances. There are certain state and foreign
jurisdictions where management feels it is necessary to see further evidence of sustained
achievement towards financial targets before any valuation allowance can be released with respect
to these operations. If such goals can be achieved and sustained throughout 2011, the Company may
release all or a portion of the remaining valuation allowance with respect to these operations.
Such release would result in a benefit to the income tax rate and net income in the period of
release.
Client Concentration
Our ten largest clients represented approximately 37.8% of our revenues for the first three
months of 2011, an increase from 37.4% for the comparable period in 2010. No client accounted for
more than 10% of our total revenues during these periods.
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Liquidity and Capital Resources
Our principal sources of liquidity have been net cash provided by operating activities,
borrowings under our Senior Secured Credit Facility and the issuance of the Senior Notes and
equity. Our principal uses of cash have included debt service, capital expenditures, and the
financing of working capital. We expect that our principal uses of cash in the future will be to
finance working capital, capital expenditures and service debt. We expect that our principal
sources of cash in the future will remain net cash provided by operating activities. Subject to our
operating performance, which if significantly adversely affected, would adversely affect the
availability of funds, we believe that cash generated from operations and borrowings under our
Senior Secured Credit Facility or other financing arrangements will be sufficient to meet working
capital requirements, anticipated capital expenditures and scheduled debt payments for at least the
next twelve months.
We manage a centralized global treasury function in the United States with a particular focus
on concentrating and safeguarding our global Cash and cash equivalent reserves. While we generally
prefer to hold U.S. dollars, we maintain adequate cash in the functional currency of our foreign
subsidiaries to support local operating costs. While there are no assurances, we believe our global
cash is protected given our cash management practices, banking partners, and low-risk investments.
The amount of capital required over the next 12 months will also depend on our levels of
investment in infrastructure necessary to maintain, upgrade, or replace existing assets or to
develop new customer care centers. Our working capital and capital expenditure requirements could
also increase materially in the event of acquisitions or joint ventures, among other factors. These
factors could require that we raise additional capital through future debt or equity financing.
We expect our operations to continue to require increased capital expenditures to support the
growth of our business.
Historically, equipment purchases have been financed through cash generated from operations,
our Senior Secured Credit Facility, our ability to acquire equipment through operating leases, and
through capital lease obligations with various equipment vendors and lending institutions.
We believe that our cash equivalents, the cash flow generated from operations, the ability to
acquire equipment through leases, and funds available under our Senior Secured Credit Facility will
be sufficient to finance our current operations and planned capital expenditures for at least the
next twelve months.
Cash Flows
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
The following summarizes our primary sources and uses of cash in the periods presented (in
thousands):
Increase | ||||||||||||
Three Months Ended | (Decrease) to | |||||||||||
March 31, | Net Cash Flow | |||||||||||
2011 | 2010 | Amount | ||||||||||
Cash provided by (used in): |
||||||||||||
Operating activities |
$ | (7,860 | ) | $ | (1,662 | ) | $ | (6,198 | ) | |||
Investing activities |
(7,007 | ) | (4,884 | ) | (2,123 | ) | ||||||
Financing activities |
1,603 | 35,583 | (33,980 | ) |
Operating Activities. We used cash in operations of $7,860 in for the first quarter of
2011 compared to cash used in operations of $1,662 for the comparable period in 2010. The $6,198
decrease in cash flows from operations was primarily driven by increased interest expense due to
the issuance of the Senior Notes in 2010, the absence of cash proceeds from marketable securities
and the change in working capital.
Investing Activities. We used cash in investing activities of $7,007 during the first
quarter of 2011 compared to $4,884 during the comparable period in 2010. The $2,123 increase in
cash used in investing activities was primarily driven by an increase in property and equipment
purchases. We are forecasting continued increases in capital expenditures in 2011 due to growth in
the Americas and EMEA as well as technology and facilities maintenance.
Financing Activities. We generated cash from financing activities of $1,603 during the
first three months of 2011 compared to $35,583 during the comparable period in 2010. The decrease
in financing proceeds was primarily driven by the Senior Notes offering and related use of proceeds
during the first quarter of 2010.
Cash Position, Working Capital and Indebtedness
As of March 31, 2011, our total Cash and cash equivalents were $18,039 and we had total
indebtedness of approximately $653,024. Working capital (defined as Prepaids and other current
assets (excluding Cash and cash equivalents) less Accrued liabilities and other
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(excluding Current portion of long-term debt and Current portion of capital lease obligations),
adjusted for Other non-current assets less Other non-current liabilities) was $68,724 at March 31,
2011, compared to $60,865 at March 31, 2010, an increase of $7,859.
Contractual Obligations and Commercial Commitments
The
following table represents our contractual commitments associated with
our operating and capital leases as of March 31, 2011.
Payments Due By Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Commitments | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Capital lease obligations (1) |
$ | 12,351 | $ | 4,354 | $ | 6,324 | $ | 1,620 | $ | 53 | ||||||||||
Operating lease obligations (2) |
180,163 | 56,025 | 78,447 | 23,618 | 22,073 | |||||||||||||||
Total |
$ | 192,514 | $ | 60,379 | $ | 84,771 | $ | 25,238 | $ | 22,126 | ||||||||||
(1) | Consists of payments under our capital leases for certain equipment. | |
(2) | Represents payments under our non-cancelable operating leases for various property and equipment. |
The Senior Notes
On March 18, 2010, SITEL, LLC and Sitel Finance Corp., as co-issuers, issued, in a private
placement, $300,000 of 11.5% Senior Notes due April 1, 2018 at an offering price of 97.454% of the
face value of the Senior Notes. On April 29, 2011, all of the outstanding Senior Notes were
exchanged for registered Senior Notes. The Senior Notes are general unsecured obligations of the
Company and are senior in right of payment to all existing and future indebtedness, if any, that is
by its terms expressly subordinated to the Senior Notes. The Senior Notes are guaranteed by the
Company and its domestic subsidiaries and will mature on April 1, 2018. Interest accrues on the
Senior Notes at a rate of 11.5% annually, and is payable semi-annually in arrears on April 1 and
October 1. Proceeds from the Senior Notes offering were used to pay down approximately $231,600 of
the Term Loans and 100% of the outstanding balance on the Revolvers, both of which are discussed
further below.
The Company is not required to make mandatory redemptions or sinking fund payments with
respect to the Senior Notes; however, at any time prior to April 1, 2013, the Issuers may, on any
one or more occasions, redeem up to 35% of the aggregate principal amount of Senior Notes with the
net proceeds of certain equity offerings at 111.50%. Prior to April 1, 2014, the Senior Notes may
be redeemed in part or in full at a redemption price equal to 100% of the principal amount of the
Senior Notes, plus a make-whole premium calculated in accordance with the indenture governing the
Senior Notes and accrued and unpaid interest. On or after April 1, 2014, the Senior Notes may be
redeemed in part or in full at the following percentages of the outstanding principal amount
prepaid: 105.750% prior to April 1, 2015; 102.875% on or after April 1, 2015, but prior to April 1,
2016; and 100% on or after April 1, 2016.
The indenture governing the Senior Notes contains customary covenants and restrictions on the
activities of SITEL, LLC, Sitel Finance Corp. and SITEL, LLCs restricted subsidiaries, including,
but not limited to, the incurrence of additional indebtedness; dividends or distributions in
respect of capital stock or certain other restricted payments or investments; entering into
agreements that restrict distributions from restricted subsidiaries; the sale or disposal of
assets, including capital stock of restricted subsidiaries; transactions with affiliates; the
incurrence of liens; and mergers, consolidations or the sale of substantially all of SITEL, LLCs
assets. Certain of these covenants will be suspended if the Senior Notes are assigned an investment
grade rating by both Standard & Poors Rating Services and Moodys Investor Service, Inc. and no
default has occurred or is continuing. If either rating on the Senior Notes should subsequently
decline to below investment grade, the suspended covenants will be reinstated.
As a result of the partial pay down of the Term Loans, the Company recorded a loss on
extinguishment of debt of $3,019, consisting of fees paid of $2,648
and write off of deferred
financing fees of $371. Additionally, there is an original issue discount associated with the
Senior Notes of $7,638, and the Company deferred debt issuance costs relating to the Senior Notes
of $8,203, both of which will be amortized over the term of the Senior Notes.
2007 Senior Secured Credit Facility
Overview
On January 30, 2007, we entered into the Senior Secured Credit Facility among a syndicate of
banks with Goldman Sachs Credit Partners L.P. as joint lead arranger, joint bookrunner,
administrative agent and collateral agent and GE Capital Markets, Inc. as joint lead arranger and
joint bookrunner. The Senior Secured Credit Facility originally provided for total available
borrowings in an aggregate principal amount of approximately $760,000, which includes $85,000 of
Revolvers maturing on January 30, 2013, consisting of a $50,000 U.S. revolver, a $7,000 Canadian
revolver (made available in Canadian dollars) and a $28,000 U.K. revolver (made available in Euro
and British pound sterling), and $675,000 of Term Loans maturing on January 30, 2014, consisting of
a $550,000 U.S. term loan, a 51,400 Euro term loan, and a £30,000 British pound sterling term
loan. SITEL, LLC is the borrower under the U.S. term loan and the U.S. revolver, ClientLogic
Holding Limited is the borrower under the Euro term loan, the British pound sterling term loan and
the U.K. revolver, and Sitel Canada Corporation (formerly known as ClientLogic Canada Corporation)
is the borrower under the Canadian revolver. We used the proceeds from the Senior Secured Credit
Facility to repay our August 2006 credit facility and to fund recent acquisitions, including the
acquisition of Legacy SITEL on January 30, 2007.
As of March 31, 2011, we had an aggregate of $360,038 of outstanding indebtedness under our
Senior Secured Credit Facility, which consisted of $357,338 of Term Loans and $2,700 of Revolvers.
Our Term Loans consisted of $286,740 outstanding on the U.S. term loan, $42,435 outstanding on the
Euro term loan, and $28,163 outstanding on the British pound sterling term loan. In addition, we
had outstanding letters of credit of $1,110 as of that date. As of March 31, 2011, we had $81,190
available for additional borrowings under our Revolvers.
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First Amendment
On December 9, 2008, we entered into the first amendment to our Senior Secured Credit Facility
(the First Amendment) which, among other matters, modified applicable interest rates, certain
negative covenants, and financial covenant thresholds. In addition, the First Amendment permitted
us to offer to purchase the outstanding Term Loans at a discount to par using a portion of the net
proceeds we received from the sales of our series C preferred stock we completed in 2008. We
received approximately $29,600 through the issuance of series C preferred stock which was a
condition to entering into the First Amendment. As required under the First Amendment, we offered
to purchase Term Loans under the Senior Secured Credit Facility, and in December 2008, we purchased
approximately $27,000 of outstanding principal under the Term Loans for approximately $15,000,
which Term Loans were subsequently cancelled and retired.
Second Amendment
In April 2009, we entered into the second amendment to the Senior Secured Credit Facility
which effected a technical amendment clarifying certain terms governing minimum borrowing amounts
under certain interest rates including LIBOR.
Third Amendment
In February 2010, we entered into the third amendment to the Senior Secured Credit Facility
(the Third Amendment) to, among other things, permit the issuance of the Senior Notes, improve
the terms of mandatory prepayment requirements, and modify our leverage covenant and interest
coverage covenant.
Interest
Interest on the U.S. term loan is based, at our option, on LIBOR plus the applicable margin of
5.5% or the higher of (i) the federal funds rate plus 0.5% or (ii) the banks prime rate,
plus the applicable margin of 4.5%. At March 31, 2011, the weighted average rate on the
Term Loans was 5.90%. We have an interest rate swap agreement for a notional amount of $350,000
against our Term Loans that is based on a rate of 4.91% versus three month LIBOR. The agreement
expires in March 2012. At March 31, 2011, including the impact of our interest rate swap, the
weighted average interest rate on the Term Loans was 4.93%. Interest on the U.S. revolver is based
on LIBOR plus the applicable margin of 5.5% or the higher of (i) the federal funds rate plus 0.5%
or (ii) the banks prime rate, plus the applicable margin of 4.5%. At March 31, 2011, the
weighted average rate on the Revolvers was 7.75%. Specified interest rates for the Euro term loan
and Canadian term loan are as described in the Senior Secured Credit Facility.
Prepayments
Beginning on April 2, 2007, our Term Loans began amortizing in equal quarterly installments of
$1,700 with the balance payable at maturity. We may be required to prepay certain amounts under the
Senior Secured Credit Facility should we initiate specified transactions, including certain
issuances of equity, sale of certain assets or receipt of certain insurance proceeds, or additional
debt issuances if not otherwise extended as well as from certain percentages of any excess cash
flow. We may voluntarily prepay all or part of the Term Loans under certain conditions. Amounts
borrowed under the Term Loans that are repaid or prepaid may not be re-borrowed. Amounts repaid
under our Revolvers may be re-borrowed, as long as the total commitment under the Revolvers is not
permanently reduced.
On April 2, 2007, we made our first quarterly installment of $1,700. On April 30, 2007, we
received an equity investment of $32,600. Our Senior Secured Credit Facility required us to use 50%
of such equity proceeds to prepay the Term Loans. As such, we repaid $16,300 against the Term Loans
and, as a result, we were not required to make quarterly principal installments on the Term Loans
until September 2009. In addition, in September 2008, we made a voluntary prepayment on the Term
Loans of $31,500 using proceeds from a $31,500 convertible subordinated note from Onex. As a
result, we will not incur any further quarterly principal installments on our Term Loans before
maturity. Furthermore, on December 19, 2008, we received a $30,000 equity investment and used
$15,000 of the proceeds to repurchase $27,000 of the Term Loans pursuant to a tender offer process.
We subsequently cancelled and retired these tendered term loans.
Covenants
We are required under the terms of the Senior Secured Credit Facility to maintain certain
financial covenants. Specifically, the Third Amendment requires us to comply with the following
financial covenants on an annual basis:
Senior Secured Leverage Ratio. The senior secured leverage ratio is the ratio
of our total funded debt that is secured by a lien on any assets or equity interests of the Company
or any of our subsidiaries to our Adjusted EBITDA (as defined in the Senior Secured Credit
Facility) for each period of four consecutive quarters ending during the term of the Senior Secured
Credit Facility.
Minimum Interest Coverage Ratio. The minimum interest coverage ratio is the ratio of
Adjusted EBITDA to cash interest expense (net of interest income) for each period of four
consecutive quarters ending during the term of the Senior Secured Credit Facility.
Maximum Capital Expenditures. The maximum capital expenditures covenant in our Senior
Secured Credit Facility limits our annual capital spending, cash restructuring in excess of
$10,000, and our acquisition expenses in excess of $10,000 to a pre-established limit each year and
allows for carryover of unused spend up to a maximum of $5,000 per year.
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The Senior Secured Credit Facility also contains customary affirmative and negative covenants
such as restricting certain corporate actions, including asset dispositions, acquisitions, the
payment of dividends, changes of control, the incurrence of indebtedness, providing financing and
investments, and transactions with affiliates.
The Company was in compliance with all debt covenants under the Senior Secured Credit Facility
as of March 31, 2011. We believe that we will continue to be able to comply with the restrictive
covenants in our Senior Secured Credit Facility. However, the decline in our Adjusted EBITDA during
2010 has increased our Senior Secured Leverage Ratio. If we are unable to increase our Adjusted
EBITBA in line with tightening covenant levels, or in the event of unforeseen adverse
circumstances, we could be forced to undertake additional restructuring activities (including
further cost reductions), further management of working capital or capital expenditures, or seek
additional financing, in order to remain compliant with these covenants. We may also need to
decrease the use of our Revolvers, which would have the effect of decreasing our Senior Secured
Leverage Ratio. There is no assurance that we would be able to implement such additional actions or
obtain additional financing with acceptable terms and conditions, or that we would have the
flexibility to decrease our revolver draw if necessary. Our failure to comply with those covenants
could result in an event of default which, if not cured or waived, could result in the acceleration
of all of our debt, including the Senior Notes. Furthermore, all of our borrowings under the Senior
Secured Credit Facility have a scheduled maturity prior to that of the Senior Notes. There can be
no assurance that we will be able to successfully refinance these obligations on or prior to their
applicable maturity dates.
Off Balance Sheet Arrangements
Our off balance sheet arrangements primarily consist of our operating leases, standby letters
of credit, and the VIE. We lease property and equipment under non-cancelable operating lease
arrangements with initial or remaining lease terms in excess of one year. At March 31, 2011, the
future lease commitments relating to our operating leases were
$180,163. We utilize standby letters
of credit to support primarily workers compensation policy requirements and certain operating
leases. These obligations will expire at various dates through October 30, 2011, and are renewed as
required. The outstanding commitment on these obligations at March 31, 2011 was $1,110. There have
been no significant changes related to the VIE since December 31, 2010.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
See Managements Discussion and Analysis of Financial Condition and Results of
OperationsQuantitative and Qualitative Disclosures About Market Risks in the Companys
Registration Statement on Form S-4 (333-172952) filed with the SEC and declared effective by the
SEC on March 28, 2011. As of March 31, 2011, there has been no material change in this information.
ITEM 4. | CONTROLS AND PROCEDURES |
We carried out an evaluation required by the Securities Exchange Act of 1934, as amended (the
1934 Act), under the supervision and with the participation of our principal executive officer
and principal financial officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act) as of March
31, 2011. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the reports that it
files or submits under the 1934 Act is accumulated and communicated to the issuers management,
including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure. Based on this
evaluation, our principal executive officer and principal financial officer concluded that, as of
March 31, 2011, our disclosure controls and procedures were effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the 1934 Act is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms.
There have been no changes in our internal control over financial reporting during the first
fiscal quarter of 2011 that have materially affected or are reasonably likely to materially affect
our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
See Note 10 Commitments and Contingencies to the accompanying unaudited interim Condensed
Consolidated Financial Statements.
ITEM 1A. | RISK FACTORS |
See Risk Factors in the Companys Registration Statement on Form S-4 (333-172952) filed with
the SEC and declared effective by the SEC on March 28, 2011. As of March 31, 2011, there have been
no material changes in this information.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | [REMOVED AND RESERVED] |
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
a) | Exhibits |
Exhibit | ||||
Number | ||||
31.1 | Certification of Chief Executive Officer Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934 |
|||
31.2 | Certification of Chief Financial Officer Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934 |
|||
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350 |
|||
32.1 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350 |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SITEL Worldwide Corporation |
||||
Date: May 10, 2011 | By: | /s/ Patrick Tolbert | ||
Name: | Patrick Tolbert | |||
Title: | Global Chief Financial Officer and Director (Duly authorized officer and principal financial officer) |
|||
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