Attached files

file filename
EX-31.2 - EX-31.2 - SITEL Worldwide Corpg24496exv31w2.htm
EX-32.2 - EX-32.2 - SITEL Worldwide Corpg24496exv32w2.htm
EX-32.1 - EX-32.1 - SITEL Worldwide Corpg24496exv32w1.htm
EX-31.1 - EX-31.1 - SITEL Worldwide Corpg24496exv31w1.htm
Table of Contents

 
 
UNITED STATES
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)
     
Registrant’s 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 issuer’s 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
         
    Page No.  
 
    3  
    3  
    3  
    5  
    6  
    8  
    9  
    30  
    38  
    38  
 
       
    39  
    39  
    39  
    39  
    39  
    39  
    39  
    39  
    40  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 


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)
                 
    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)
                 
    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)
                 
    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)
                                                                         
    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)
                                                                         
            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


Table of Contents

SITEL Worldwide Corporation
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


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)
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 world’s 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 Company’s year-end audited Consolidated Financial Statements as presented in the Company’s 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 Company’s 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 Company’s 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 Company’s 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


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)
                 
    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.

10


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)
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 Company’s operations in order to align resources to support growth, and to shift the geographic mix of some of the Company’s 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:

11


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)
                         
            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:

12


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)
                 
    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, LLC’s 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, LLC’s assets.
     Proceeds from the offering were used to pay down approximately $231,600 of the Company’s senior secured term loans (the “Term Loans”) and $50,000 or 100% of the outstanding balance on the Company’s 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 Company’s 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

13


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)
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 Company’s 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 shares—Series 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 Company’s 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 Company’s 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 Company’s 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.

14


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)
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 Company’s 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  
 
           

15


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)
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 Company’s 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.

16


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)
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 Company’s 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 Company’s 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 court’s discovery order and on April 18, 2011, we filed a renewed motion to compel and a motion for sanctions to address the plaintiff’s 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 client’s 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.

17


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)
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 Company’s 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  
 
                               

18


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)
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 Company’s Senior Secured Credit Facility and Senior Notes include debt with variable and fixed interest rates,

19


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)
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 Company’s 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 Company’s 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 Company’s 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

20


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)
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.

21


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)
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 Company’s two reportable segments, EMEA and the Americas, are consistent with the Company’s 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  
 
           

22


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)
                 
    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 Worldwide’s 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 Company’s non-guarantor subsidiaries.

23


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)
SITEL Worldwide Corporation
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  
 
                                   

24


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)
SITEL Worldwide Corporation
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)
SITEL Worldwide Corporation
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)
SITEL Worldwide Corporation
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)
SITEL Worldwide Corporation
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)
SITEL Worldwide Corporation
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.   MANAGEMENT’S 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 world’s 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 client’s 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 Company’s 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 Company’s 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.

32


Table of Contents

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 Company’s operations in order to align resources to support growth, and to shift the geographic mix of some of the Company’s 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 Company’s 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.

33


Table of Contents

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

34


Table of Contents

(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, LLC’s 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, LLC’s assets. Certain of these covenants will be suspended if the Senior Notes are assigned an investment grade rating by both Standard & Poor’s Rating Services and Moody’s 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.

35


Table of Contents

     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 bank’s 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 bank’s 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.

36


Table of Contents

     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.

37


Table of Contents

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risks” in the Company’s 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 issuer’s 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 Commission’s 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.

38


Table of Contents

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 Company’s 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

39


Table of Contents

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) 
 
 

40