SITEL Corporation (NYSE:SWW), a leading global provider of
outsourced customer support services, announced today its
preliminary financial results for the second quarter and six months
ended June 30, 2006. Second quarter of 2006 revenue of $278.4
million, increased 11% over the year-ago quarter, exceeding the
Company's previous outlook of $265 million to $275 million.
Excluding the effect of exiting the GM contract effective January
1, 2006, revenue grew 22% year over year (see table below for
non-GAAP reconciliations). Operating income for the second quarter
of 2006 was up 53% from the year-ago quarter, increasing to $10.7
million or 3.8% of total revenue. Second quarter of 2006 fully
diluted earnings per share increased more than three-fold over the
prior-year quarter to $0.10. The second quarter of 2006 operating
and net income included $6 million, or $0.08 per share, from a
settlement agreement with a business partner over the handling of
certain business transactions. Commenting on the second quarter
results, Jim Lynch, Chairman and CEO of SITEL Corporation, said,
"Our second quarter exceeded our revenue outlook and was within our
EPS range. This was achieved despite a significant transitioning of
accounts. The second quarter profitability levels were influenced
by an unusually high number of start-ups. This, in addition to
faster-than-expected ramp downs of two North American clients, is
also expected to negatively affect third quarter results. However,
we expect that the vacated seats will be backfilled with volumes
from other clients in the fourth quarter." Mr. Lynch continued,
"Looking ahead, our robust global sales engine has allowed us to
rapidly replace in 2006 approximately $100 million of prior GM
revenue and add an anticipated additional $70 million of growth. We
continue to maneuver away from price-pressured North American
operating facilities, grow our offshore points of delivery and add
profitable clients in optimum industries and in the most
appropriate markets." "The strategy we have steadfastly pursued
over the past few years is a good one. We have consistently made
decisions for the long-term health of our business, despite
short-term pressure on our operating margins. Yet we have built a
business that boasts a larger, more diversified client base. A
business that is more experienced across many more sectors than our
competitors with a foundation as the most global and quality
service-oriented service provider," concluded Mr. Lynch. Business
Unit Highlights for the Second Quarter of 2006 -- Revenue from
North America vertical business units and collection unit increased
24% to $122.6 million from $99.1 million in the second quarter of
2005. Each of the business units in North America increased revenue
in the second quarter of 2006 led by the Consumer Services, Media
Services, and Financial Services business units. Operating results
for the business units in North America increased almost 28% in the
second quarter of 2006 compared to the year earlier quarter. During
the quarter, the company announced the addition of a second site in
the Philippines with a capacity, already spoken for, of 750
workstations. The company now has 1,500 workstations providing
customer support services to 15 clients in the Philippines -- in
some cases, running pilot programs which have considerable
additional upside. The addition of this capacity is an important
part of the company strategy of serving more business offshore
where higher margins are realized. Additionally, following on the
heels of the successful completion of the Pearson project, our
focus on the healthcare industry continues to pay dividends as we
added two significant U.S. healthcare programs in the second
quarter. -- For business units in Europe, revenue in the second
quarter of 2006 increased 24% to $128.8 million from revenue of
$104.1 million in the second quarter of last year. Double-digit
revenue growth from business units in the Belgium, Netherlands,
Nordics, France, Poland, Germany and Spain led the way in the
overall improvement. Operating results improved 19% in Europe. The
restructuring effort in the U.K., France and the Nordics has led to
improvements in the second quarter, which combined with the filling
of empty seats in those business units from new projects including
the previously announced programs in the U.K. for T-Mobile and in
France for Pages Jaunes. -- Revenue in the second quarter of 2006
from business units in Latin America, excluding unconsolidated
joint ventures, increased 40% to $15.6 million from $11.1 million
in the second quarter of 2005. This includes strong growth for
Spanish language offshore. -- For the business units in Asia
Pacific, revenue declined to $11.2 million from $12.6 million in
the second quarter of 2005. Asia Pacific is starting to gain
traction in its offshore initiative, with its recent ramps of two
significant client programs in the Philippines. Outlook The Company
expects third quarter of 2006 revenue to be in a range of $265
million to $275 million and earnings per share to be in a range of
a loss of $0.02 and a profit of $0.02. The Company anticipates
fourth quarter revenue to be in a range of $280 million to $290
million and earnings per share in a range of $0.07 to $0.11. The
full year 2006 revenue outlook of $1 billion to $1.1 billion is
unchanged yet we expect to be at the higher end of the range.
Earnings per share, although revised downward to $0.18 to $0.26,
continue to compare favorably to 2005. The lower forecast,
especially the third quarter, reflects a higher than previously
expected cyclical third quarter downturn in Europe,
higher-than-expected ramp up and migration costs associated with
the large number of contract wins and delayed start-ups into the
two new offshore locations in Bulgaria and Chile. Also, the Systems
and Solutions start-up groups, although gaining traction, are
behind plan. In contrast, the Company continues to expect a strong
fourth quarter in terms of both revenue and earnings per share. The
expected strong fourth quarter is the result of the continued
expansion of existing business, the normal seasonal rebound in
Europe, the normalization of the new programs and contract wins
ramped in the second and third quarters and continued aggressive
growth in higher margin offshore facilities. Contributions from the
new Solutions and System groups are also planned to have a positive
impact on the fourth quarter. The above comments are based on
current expectations, exclude any non-recurring items, unless
otherwise stated, and supersede any prior outlook provided by the
Company. Form 10-K Filing Status The Company has now completed its
previously announced internal investigation of accounting errors
and other irregularities at one of its international subsidiaries,
with the assistance of independent outside counsel. The expected
total earnings impact associated with the restatement of years 2000
through 2004 and the first three quarters of 2005 to correct the
subsidiary's accounting errors, including interest and penalties on
unpaid taxes, is $8.8 million. In April 2006, we received the
benefit of new legislation that resulted in a $1.8 million
reduction in the amount of interest and penalties we were required
to pay for the unpaid taxes. The investigation of the matter did
not reveal any prior involvement or knowledge by any officer or
director of the Company regarding the irregularities. We have taken
and are taking remedial actions. We contacted the SEC on March 1,
2006 and reported that the irregularities at the subsidiary raised
the possibility of violations of the U.S. Foreign Corrupt Practices
Act. We have reported to the SEC the results of the internal
investigation, and are responding to the SEC's requests for further
information. We cannot predict the ultimate outcome of the ongoing
discussions with the SEC. The outcome could include the institution
of administrative or civil injunctive proceedings involving the
Company and/or current or former Company employees, officers and/or
directors, the imposition of fines and other penalties, remedies
and/or sanctions and/or a referral to other governmental agencies.
The Company has been working with its lenders to obtain waivers of
technical events of default, including those resulting from the
restatement itself and the events requiring the restatement and
waivers of non-compliance with financial covenants related to the
restatement. The waiver language has been approved by Wells Fargo
Foothill and Ableco as agents for the lenders. The waivers have
been circulated for final approval and execution by the lender
groups. As a result of our restatement and thorough review of our
prior year financial statements, the company has identified
technical errors in the filings of its U.S. federal tax returns for
fiscal years 2001 through 2003. We have requested private letter
rulings from the Internal Revenue Service, which would permit the
company to correct the technical errors. The Company expects to
receive favorable rulings from the IRS. However, there can be no
assurance that the IRS will grant any such rulings or, if such
rulings are granted, when they will be received. If the requested
rulings are not granted, the Company may be required to restate its
previously issued financial statements for the fiscal years 2001
through 2004 and potentially for each of the three-month periods
covered by the interim quarterly reports for the fiscal year 2005.
If the requested rulings are not granted, the Company estimates the
total cash charge relating to this matter could be $9 million to
$11 million. An unfavorable ruling could also result in a higher
effective tax rate on our U.S. earnings. While the results reported
today are unaudited, SITEL believes that these results accurately
reflect, in all material respects, the results based on current
information and on the portion of the restated adjustments that
have been identified to date. Please refer to the following for a
comparison of the restated preliminary results to those originally
reported for the second quarter and six month periods of 2005.
Effects of the Preliminary Restatement Because the restatements are
not yet completed, the expected impact of the restatement for the
three- and six-month periods ended June 30, 2005 contained herein
is preliminary and subject to a final review by management and the
Audit Committee of the Board of Directors and our external
auditors. Three Months Ended June 30, 2005 The effects of the
adjustments identified to date will reduce earnings in the second
quarter of 2005 by $600,000. These adjustments reflect an increase
in operating, selling and administrative expenses of $300,000 (from
the previously reported $80.6 million to the restated $80.9
million) resulting primarily from additional depreciation as well
as penalties from the failure to remit certain taxes and an
increase in interest expense of $300,000 (from the previously
reported $2.9 million to the restated $3.2 million) resulting
primarily from the failure to remit certain taxes. Six Months Ended
June 30, 2005 The effects of the adjustments identified to date
will reduce earnings for the six months ended June 30, 2005 by $1.5
million. These adjustments reflect an increase in operating,
selling and administrative expenses of $600,000 (from the
previously reported $160.5 million to the restated $161.1 million)
resulting primarily from additional depreciation as well as
penalties from the failure to remit certain taxes and an increase
in interest expense of $600,000 (from the previously reported $5.8
million to the restated $6.4 million) resulting primarily from the
failure to remit certain taxes. As a result of the reviews, the
Company was required to delay the filing of its 2005 Annual Report
on Form 10-K, which was due March 16, 2006 and its first quarter
2006 Quarterly Report on Form 10-Q, which was due on May 10, 2006,
in order to allow for the Company and Audit Committee's evaluation
of these issues to be concluded and for its external auditors to
complete an audit of the Company's financial statements. The
Company will therefore also be required to delay the filing of its
second quarter 2006 Quarterly Report on Form 10-Q, which was due
today, August 9, 2006. Conference Call SITEL executive management
will host a conference call to discuss second quarter 2006
financial results tomorrow, August 10, 2006 at 8:30 a.m. ET. To
participate, for domestic callers, please dial 888-428-4480 and for
international callers, please dial 612-288-0337. Replay of the
conference call will be available in the U.S. by dialing
800-475-6701 and International by dialing 320-365-3844 (Access
Code) 838692 starting at 12:00 p.m. ET on August 10, 2006 and will
play for seven days. The conference call will be simulcast live on
the Internet via SITEL's website at http://www.sitel.com. Replay
will be available for seven days. About SITEL SITEL is a leading
global provider of outsourced customer support services. On behalf
of many of the world's leading organizations, SITEL designs and
improves customer contact models across its clients' customer
acquisition, retention and development cycles. SITEL manages
approximately two million customer interactions per day via the
telephone, e-mail, Internet and traditional mail. SITEL has over
39,000 employees in 91 global contact centers, utilizing more than
32 languages and dialects to serve customers in 56 countries. SITEL
is a leader in the contact center industry. Please visit SITEL's
website at www.sitel.com for further information. This news release
contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. The
words "expects," "anticipates," "estimates," "will," and similar
expressions in this news release identify forward-looking
statements, which speak only as of the date the statement is made.
SITEL assumes no obligation to update any such forward-looking
statement. Although SITEL believes that the expectations reflected
in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. Because
forward-looking statements involve risks and uncertainties, future
events and actual results could differ materially from those set
forth in, contemplated by or underlying the forward-looking
statements. Important factors that could cause actual results to
differ materially from SITEL's expectations may include, but are
not limited to the following, many of which are outside SITEL's
control: completion of the audit of the Company's financial
statements, conclusion of the IRS ruling request process,
conclusion of discussions with the SEC regarding the irregularities
at the foreign subsidiary, completion of lender waiver approval
process, client budgets and plans, effectiveness of cost control
initiatives, effectiveness of revenue enhancement initiatives,
delays in approving new contact center initiatives or in moving
forward with previously approved initiatives, terms of final
contracts to be completed with clients, ability to negotiate
contracts on acceptable terms, contract termination provisions,
delays in ramp up of services, customer demand for client products
and services, the demand for off-shore services, delays in securing
necessary regulatory approvals, licenses, leases, personnel,
services and equipment for new facilities, competitive pressures in
SITEL's and its clients' industries and in local markets, reliance
on major clients, subcontractors and strategic partners, mergers
and restructurings involving clients or prospective clients,
industry regulation, reliance on telecommunications and computer
technology, unanticipated labor, contract or technical
difficulties, general and local economic trends and conditions, the
effects of leverage, currency translation, uncertainties of
litigation, risks associated with operating a global business, and
dependence on credit availability and credit market conditions.
SITEL's Form 10-K, 10-Q and 8-K reports filed with the Securities
and Exchange Commission describe other important factors that may
impact SITEL's business, results of operation and financial
condition and cause actual results to differ materially from those
set forth in, contemplated by or underlying the forward-looking
statements -0- *T SITEL CORPORATION AND SUBSIDIARIES CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands,
except per share data) Three Months Ended Six Months Ended June 30,
June 30, ------------------------ ------------------------ 2006
2005 2006 2005 ---------- ------------- ---------- -------------
(As restated) (As restated) Revenue $278,425 $251,810 $553,517
$502,702 -------------------- ---------- ------------- ----------
------------- Operating expenses: Direct labor and
telecommunications expenses 178,732 153,640 350,585 306,090
Subcontracted and other services expenses 10,019 12,881 18,938
25,761 Operating, selling and administrative expenses 78,986 80,897
164,510 161,136 Asset impairment and restructuring expenses, net --
(2,609) -- (2,609)
----------------------------------------------------------------------
Total operating expenses 267,737 244,809 534,033 490,378
----------------------------------------------------------------------
Operating income 10,688 7,001 19,484 12,324
----------------------------------------------------------------------
Other income (expense): Interest expense (2,150) (3,258) (5,846)
(6,420) Interest income 107 140 186 260 Equity in earnings (loss)
of affiliates 1,660 395 1,950 288 Other income (expense), net 404
(21) 484 (31)
----------------------------------------------------------------------
Total other expense, net 21 (2,744) (3,226) (5,903)
----------------------------------------------------------------------
Income before income taxes and minority interest 10,709 4,257
16,258 6,421 Income tax expense 2,453 1,380 5,346 2,638 Minority
interest 558 305 1,269 663
----------------------------------------------------------------------
Net income $7,698 $2,572 $9,643 $3,120
----------------------------------------------------------------------
Weighted average common shares outstanding: Basic 74,379 73,764
74,271 73,750 Diluted 75,678 73,843 75,292 74,090 Earnings per
share: Basic $0.10 $0.03 $0.13 $0.04 Diluted $0.10 $0.03 $0.13
$0.04 See Notes to Consolidated Condensed Financial Statements.
SITEL Corporation Preliminary Balance Sheet Data -- Second Quarter
2006 Earnings Release (Unaudited) 6/30/05 9/30/05 12/31/05 3/31/06
6/30/06 -------- -------- --------- -------- -------- Cash $29.4
$36.6 $25.8 $25.7 $25.7 Accounts Receivable $191.1 $196.5 $220.6
$223.1 $225.8 Total Current Assets $237.6 $252.8 $266.6 $266.0
$271.1 Total Assets $386.1 $411.0 $420.0 $421.1 $430.4 Total
Current Liabilities $247.7 $156.2 $172.6 $162.6 $163.2 Long-Term
Debt and Capital Leases, net $8.1 $124.6 $114.5 $122.0 $117.4 Total
Debt -- Short-Term and Long-Term $129.1 $147.6 $137.1 $148.1 $138.5
Total Liabilities $265.0 $290.3 $297.0 $294.4 $290.4 Total Equity
$118.3 $116.8 $118.4 $121.5 $134.2 SITEL Corporation Revenue
Statistics -- Second Quarter 2006 Earnings Release (Unaudited) % of
Total Revenue Q105 Q205 Q3 05 Q4 05 2005 Q1 06 Q2 06 ------ ------
------ ------ ------ ------ ------ Customer Acquisition 17.4% 16.1%
15.1% 14.4% 15.7% 16.6% 19.0% Customer Care 57.1% 60.4% 61.7% 65.1%
61.2% 60.1% 58.2% Technical Support 18.0% 17.6% 16.9% 15.1% 16.9%
15.6% 15.1% Risk Management 6.3% 5.5% 5.4% 4.6% 5.4% 5.7% 5.4%
Other 1.2% 0.4% 0.9% 0.8% 0.8% 2.0% 2.3% ------ ------ ------
------ ------ ------ ------ Total 100.0% 100.0% 100.0% 100.0%
100.0% 100.0% 100.0% ------ ------ ------ ------ ------ ------
------ Geographic Mix % of Total Revenue Q105 Q205 Q3 05 Q4 05 2005
Q1 06 Q2 06 ------ ------ ------ ------ ------ ------ ------ North
America 48.9% 47.7% 49.4% 53.6% 50.0% 46.5% 44.4% Europe 42.9%
42.2% 39.1% 37.5% 40.3% 44.1% 46.7% Asia Pacific 4.9% 5.7% 6.1%
4.5% 5.3% 4.3% 4.0% Latin America 3.3% 4.4% 5.4% 4.4% 4.4% 5.1%
4.9% ------ ------ ------ ------ ------ ------ ------ Total 100.0%
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ------ ------ ------
------ ------ ------ ------ Industry Mix % of Total Revenue Q105
Q205 Q3 05 Q4 05 2005 Q1 06 Q2 06 ------ ------ ------ ------
------ ------ ------ Insurance 6.1% 5.9% 5.9% 5.7% 5.9% 5.9% 6.0%
Financial Services 17.2% 17.1% 17.8% 16.0% 17.0% 18.5% 18.2%
Consumer Products 19.7% 21.4% 21.1% 19.7% 20.5% 13.4% 14.4%
Technology 26.3% 25.8% 24.1% 22.0% 24.4% 24.4% 24.6% Energy and
Utilities 7.5% 7.5% 7.6% 7.2% 7.4% 7.2% 7.0% Telecommunications,
ISP, and Cable 18.6% 19.9% 20.1% 18.8% 19.3% 21.6% 22.8% Other 4.6%
2.4% 3.4% 10.6% 5.5% 9.0% 7.0% ------ ------ ------ ------ ------
------ ------ Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
100.0% ------ ------ ------ ------ ------ ------ ------ SITEL
CORPORATION AND SUBSIDIARIES Reconciliation of Revenue as Adjusted
Preliminary and Unaudited (In thousands) Three Months Ended June
30, -------------------------- 2006 2005 ------------ ------------
As restated Revenue Results as reported under U.S. GAAP $278,425
$251,810 Less: Reconciling items(a) -- (24,286)
----------------------------------------------------------------------
Revenue as adjusted (a non-GAAP measure) $278,425 $227,524
======================================================================
The schedule above provides a reconciliation of the Company's
revenue, as reported under U.S. Generally Accepted Accounting
Principles (U.S. GAAP), to revenue, as adjusted (non-U.S. GAAP).
(a) Three months ended June 30, 2005, reflects GM revenue of $24.3
million. Non-GAAP Measures: The amounts shown above in the Revenue
As Adjusted are non-GAAP financial measures within the meaning of
Regulation G promulgated by the Securities and Exchange Commission.
Because of the loss of the GM contract, the Company believes that
the supplemental non-GAAP financial measures presented above may
help investors and other users of the Company's financial
information to understand aspects of the Company's revenue that may
not be apparent from the reported GAAP results. The non-GAAP
financial measures presented above are not a substitute for the
Company's reported GAAP information. *T
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