Attached files

file filename
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350 - SITEL Worldwide Corpq22014exhibit322.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350 - SITEL Worldwide Corpq22014exhibit321.htm
EXCEL - IDEA: XBRL DOCUMENT - SITEL Worldwide CorpFinancial_Report.xls
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 15D-14(A) UNDER THE S - SITEL Worldwide Corpq22014exhibit312.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 15D-14(A) UNDER THE SE - SITEL Worldwide Corpq22014exhibit311.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 (Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended
June 30, 2014
 
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
 
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 
 
 
 
 
3102 West End Avenue
 
 
Two American Center, Suite 900
 
 
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

The Registrant is a voluntary filer of reports required of companies with public securities under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports which would have been required of the Registrant during the preceding 12 months had it been subject to such provisions.

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 þ    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
(Do not check if a smaller reporting company)
Smaller reporting company
o
    

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
July 31, 2014
Class A, $0.01 par value
39,265,939
Class B, $0.01 par value
88,281,647
Class C, $0.01 par value
23,990




TABLE OF CONTENTS
 
 
 
Item
 
Page No.
PART I
1.
 
 
 
 
 
2.
3.
4.
 
 
 
PART II
1.
1A.
2.
5.
6.
 



PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS (UNAUDITED)

SITEL Worldwide Corporation
Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands of U.S. dollars)



 
June 30, 2014
 
December 31, 2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
24,051

 
$
7,366

Accounts receivable (net of allowance for doubtful accounts of $2,782 and $2,081, respectively)
253,038

 
242,472

Prepaids and other current assets
62,599

 
53,832

Total current assets
339,688

 
303,670

Property and equipment, net
91,905

 
89,662

Goodwill
117,710

 
117,709

Other intangible assets, net
36,024

 
36,547

Deferred income taxes
30,941

 
35,975

Other noncurrent assets
37,428

 
36,658

Total assets
$
653,696

 
$
620,221

Liabilities and Stockholders’ Deficit
 
 
 
Current liabilities
 
 
 
Accounts payable
$
24,280

 
$
20,161

Accrued payroll and benefits
79,975

 
76,646

Accrued liabilities and other
85,755

 
85,235

Income taxes payable
7,098

 
7,510

Current portion of capital lease obligations
2,623

 
2,005

Total current liabilities
199,731

 
191,557

Long-term debt
718,003

 
734,614

Capital lease obligations
3,724

 
3,125

Deferred income taxes
3,796

 
3,828

Other noncurrent liabilities
48,659

 
51,202

Total liabilities
973,913

 
984,326


3

SITEL Worldwide Corporation
Condensed Consolidated Balance Sheets (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

 
June 30, 2014
 
December 31, 2013
Commitments and contingencies (see Note 10)

 

Redeemable preferred stock, 20,000,000 convertible shares authorized, issuable in series:
 
 
 
Series B, $0.01 par value; 39,947 shares issued and outstanding at June 30, 2014 and December 31, 2013
70,849

 
66,982

Series C, $0.01 par value; 28,881 shares issued and outstanding at June 30, 2014 and December 31, 2013
64,171

 
59,056

Series D, $0.01 par value; 75,000 shares issued and outstanding at June 30, 2014 and none issued at December 31, 2013
75,847

 

Stockholders’ deficit
 
 
 
Subsidiary exchangeable preferred stock, no par value; 1,713,321 shares authorized, issued, and outstanding at June 30, 2014 and December 31, 2013
2,665

 
2,665

Common stock, 361,000,000 shares authorized; 225,000,000 Class A shares, 128,500,000 Class B convertible shares, and 7,500,000 Class C shares
 
 
 
Class A, $0.01 par value; 41,726,398 shares (including 9,075,858 restricted shares) and 40,699,602 shares (including 8,268,358 restricted shares) issued at June 30, 2014 and December 31, 2013, respectively; 39,261,291 shares and 38,234,495 shares outstanding at June 30, 2014 and December 31, 2013, respectively
327

 
325

Class B, $0.01 par value; convertible into Class A common stock on 1:1 basis; 88,281,647 shares issued and outstanding at June 30, 2014 and December 31, 2013
882

 
882

Class C, $0.01 par value; 6,751,263 shares issued and 23,990 shares outstanding at June 30, 2014 and December 31, 2013
68

 
68

Additional paid-in capital
347,629

 
357,518

Accumulated deficit
(828,838
)
 
(788,390
)
Accumulated other comprehensive loss, net of tax
(44,570
)
 
(53,964
)
Treasury shares, at cost
(9,247
)
 
(9,247
)
Total stockholders’ deficit
(531,084
)
 
(490,143
)
Total liabilities and stockholders’ deficit
$
653,696

 
$
620,221

See accompanying Notes to Condensed Consolidated Financial Statements.


4

SITEL Worldwide Corporation
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)

(in thousands of U.S. dollars)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues
$
348,747

 
$
348,934

 
$
699,226

 
$
713,996

Operating expenses
 
 
 
 
 
 
 
Costs of services*
237,180

 
231,709

 
474,110

 
470,655

Selling, general, and administrative expenses*
87,424

 
90,325

 
179,354

 
183,441

Depreciation and amortization of property and equipment
8,548

 
8,627

 
16,960

 
17,675

Amortization of intangible assets

 
1,617

 
523

 
3,234

Restructuring and exit charges
12,532

 
1,986

 
15,804

 
5,302

Loss (gain) on foreign currency transactions
600

 
(919
)
 
190

 
943

Loss on sale of subsidiary

 

 

 
4,558

(Gain) loss on disposal of assets
(86
)
 
30

 
27

 
(209
)
Other income, net
(59
)
 
(270
)
 
(38
)
 
(293
)
Operating income
2,608

 
15,829

 
12,296

 
28,690

Interest and other financing costs, net
21,423

 
18,260

 
42,989

 
38,661

Loss before income taxes
(18,815
)
 
(2,431
)
 
(30,693
)
 
(9,971
)
Income tax provision
2,817

 
2,440

 
9,755

 
3,975

Net loss
(21,632
)
 
(4,871
)
 
(40,448
)
 
(13,946
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax of $0
2,761

 
(10,663
)
 
3,413

 
(9,532
)
Unrealized gain (loss) on derivative valuation, net of tax expense (benefit) of $1,265, $0, $(2,153) and $598, respectively
1,483

 
(7,583
)
 
5,909

 
(6,158
)
Reclassification of pension amounts realized in Net loss, net of tax of $0
37

 
(36
)
 
72

 
(73
)
Total other comprehensive income (loss)
4,281

 
(18,282
)
 
9,394

 
(15,763
)
Comprehensive loss
$
(17,351
)
 
$
(23,153
)
 
$
(31,054
)
 
$
(29,709
)
* Exclusive of Depreciation and amortization of property and equipment
See accompanying Notes to Condensed Consolidated Financial Statements.





5

SITEL Worldwide Corporation
Condensed Consolidated Statements of Changes in Stockholders' Deficit
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

-- Schedule 1 --
 
Shares Issued
 
Par Value
 
 
 
 
 
 
 
Class A
Common
Stock
 
Class B
Common
Stock
 
Class C
Common
Stock
 
Class A
Common
Stock
 
Class B
Common
Stock
 
Class C
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Subtotal
Balances at December 31, 2013
40,699,602

 
88,281,647

 
6,751,263

 
$
325

 
$
882

 
$
68

 
$
357,518

 
$
(788,390
)
 
$
(429,597
)
Restricted shares granted
810,000

 

 

 

 

 

 

 

 

Restricted shares forfeited
(2,500
)
 

 

 

 

 

 

 

 

Non-cash stock granted
219,296

 

 

 
2

 

 

 
120

 

 
122

Preferred B, C, and D stock accretion and BCF

 

 

 

 

 

 
(10,009
)
 

 
(10,009
)
Net loss

 

 

 

 

 

 

 
(40,448
)
 
(40,448
)
Balances at June 30, 2014
41,726,398

 
88,281,647

 
6,751,263

 
$
327

 
$
882

 
$
68

 
$
347,629

 
$
(828,838
)
 
$
(479,932
)
-- Schedule 2 --
 
 
 
Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
 
 
Totals
from
Schedule 1
 
Foreign
Currency
Translation
 
Defined
Benefit
Pension/
Other
 
Unrealized
Gain on
Derivatives
Valuation
 
Subsidiary
Exchangeable
Stock
 
Treasury
Stock
Shares
 
Treasury
Stock
Capital
 
Total
Balances at December 31, 2013
$
(429,597
)
 
$
(40,007
)
 
$
(1,632
)
 
$
(12,325
)
 
$
2,665

 
9,192,380

 
$
(9,247
)
 
$
(490,143
)
Non-cash stock granted
122

 

 

 

 

 

 

 
122

Preferred B, C, and D stock accretion and BCF
(10,009
)
 

 

 

 

 

 

 
(10,009
)
Reclassification of pension amounts realized in net loss, net of tax of $0

 

 
72

 

 

 

 

 
72

Unrealized gain on derivative, net of tax expense (benefit) of $(2,153)

 

 

 
5,909

 

 

 

 
5,909

Net loss
(40,448
)
 

 

 

 

 

 

 
(40,448
)
Foreign currency translation adjustment, net of tax of $0

 
3,413

 

 

 

 

 

 
3,413

Balances at June 30, 2014
$
(479,932
)
 
$
(36,594
)
 
$
(1,560
)
 
$
(6,416
)
 
$
2,665

 
9,192,380

 
$
(9,247
)
 
$
(531,084
)
See accompanying Notes to Condensed Consolidated Financial Statements.

6

SITEL Worldwide Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)

(in thousands of U.S. dollars)

 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities
 
 
 
Net loss
$
(40,448
)
 
$
(13,946
)
Adjustments to reconcile Net loss to net cash flows relating to operating activities:
 
 
 
Depreciation and amortization (including intangible assets)
17,483

 
20,909

Deferred income taxes
4,697

 
1,022

Non-cash derivative activity
3,836

 
1,979

Amortization of debt issue costs and original issue discount
2,625

 
2,367

Amortization of deferred training revenue, net of costs
(779
)
 
(2,903
)
Loss on sale of subsidiary

 
4,558

Other non-cash items, net
194

 
(591
)
Change in book overdrafts
(3,138
)
 
5,596

Changes in operating assets and liabilities, net
(5,075
)
 
8,260

Net cash (used in) provided by operating activities
(20,605
)
 
27,251

Cash flows from investing activities
 
 
 
Purchases of property and equipment
(16,747
)
 
(12,472
)
Proceeds from disposition of property and equipment
1,208

 
270

Net cash used in investing activities
(15,539
)
 
(12,202
)
Cash flows from financing activities
 
 
 
Proceeds from issuance of Series D Preferred Stock, net
74,820

 

Payments on long-term debt and capital lease obligations
(239,875
)
 
(426,083
)
Proceeds from long-term debt
220,701

 
410,219

Payment of interest rate swap, net
(1,826
)
 
(1,756
)
Payments of debt issue costs
(719
)
 
(15
)
Net cash provided by (used in) financing activities
53,101

 
(17,635
)
Effect of exchange rate on cash and cash equivalents
(272
)
 
27

Net change in cash and cash equivalents
16,685

 
(2,559
)
Cash and cash equivalents:
 
 
 
Beginning of period
7,366

 
12,245

End of period
$
24,051

 
$
9,686

See accompanying Notes to Condensed Consolidated Financial Statements.



7

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
SITEL Worldwide Corporation, including consolidated subsidiaries ("we", "our", “Sitel", or “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. We offer our clients a wide array of services, including customer service, technical support, customer acquisition, retention and revenue generation services, and back office support. 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, interactive voice response ("IVR"), and social media channels. We serve a broad range of industry end–markets, including financial services, technology, wireless, retail and consumer products, telecommunications, media and entertainment, energy and utilities, travel and transportation, internet service providers, insurance, public sector, and healthcare.
We are organized geographically and have two reporting segments: (1) "Americas," which refers to North America, Latin America, and Asia Pacific; and (2) "EMEA," which refers to Europe, the Middle East, and Africa. 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 statement of the financial position, results of operations, and cash flows for each period shown. Certain items have been reclassified from their prior period classifications to conform to the current year presentations. These reclassifications had no effect on net income or stockholders' equity as previously reported. 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, 2013 Condensed Consolidated Balance Sheet data was derived from the Company’s year-end audited Consolidated Financial Statements as presented in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on February 19, 2014. 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 Notes thereto included in Item 8 of Part II of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Recent Accounting Pronouncements
In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) ", which applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The adoption of this guidance did not have a material effect on our financial statements and related disclosures.
In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (Topic 740)", which provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should

8

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in ASU 2013-11 do not require new recurring disclosures. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. Adoption of ASU 2013-11 during the first quarter of 2014 resulted in a decrease in both Deferred tax assets and Other noncurrent liabilities of $2,786.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", which applies to customer contracts for the transfer of goods or services or nonfinancial assets, unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for annual and interim reporting periods beginning after December 15, 2016. Early application is not permitted. The amendments should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Update recognized at the date of initial application. If an entity elects the transition method, it should provide additional disclosures in the reporting periods that include the date of initial application of the amount by which each financial statement line item is affected in the current reporting period compared to the guidance that was in effect before the change. In addition, an explanation of the reasons for significant changes are required in the disclosure. The Company is currently evaluating the effect of ASU 2014-09 on our financial statements.
Out of Period Adjustments
During the six months ended June 30, 2014, we identified prior period accounting errors related to the understatement of an accrued liability, the overstatement of certain deposits, and the overstatement of foreign currency transaction losses. The errors were not material to prior years' financial statements and are not expected to be material to the 2014 results. Therefore, we recorded the error corrections in the same quarters they were identified, which increased Loss before income taxes and Net loss by $961 and $625, respectively, for the first quarter of 2014 and decreased Loss before income taxes and Net loss by $1,400 for the second quarter of 2014. The aggregate impact of the corrections for the six months ended June 30, 2014 was a $439 decrease in Loss before income taxes and a $775 decrease in Net loss.
2.
Property and Equipment
The composition of Property and equipment is as follows:
 
June 30, 2014
 
December 31, 2013
Land
$
3,554

 
$
3,554

Buildings and improvements
26,540

 
26,219

Leasehold improvements
68,720

 
64,506

Computer software
48,140

 
46,850

Equipment
179,745

 
171,259

Furniture and fixtures
31,493

 
29,834

Total original cost
358,192

 
342,222

Less: Accumulated depreciation
(279,687
)
 
(261,635
)
Net, excluding construction in progress
78,505

 
80,587

Construction in progress
13,400

 
9,075

Property and equipment, net
$
91,905

 
$
89,662

Depreciation expense was $8,548 and $16,960 for the three and six months ended June 30, 2014, compared to $8,627 and $17,675 for the same periods in 2013.

9

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

3.
Goodwill and Other Intangible Assets
The carrying amount of Goodwill increased $1 during the six months ended June 30, 2014, due to foreign currency translation.
The following table presents our Other intangible assets as of June 30, 2014:
 
Gross
Intangibles
 
Accumulated Amortization and Impairment Charges
 
Net
Intangibles
Customer relationships
$
89,686

 
$
(89,686
)
 
$

Trademark and trade name (indefinite lived)
40,200

 
(4,176
)
 
36,024

 
$
129,886

 
$
(93,862
)
 
$
36,024

The following table presents our Other intangible assets as of December 31, 2013:
 
Gross
Intangibles
 
Accumulated Amortization and Impairment Charges
 
Net
Intangibles
Customer relationships
$
89,686

 
$
(89,163
)
 
$
523

Trademark and trade name (indefinite lived)
40,200

 
(4,176
)
 
36,024

 
$
129,886

 
$
(93,339
)
 
$
36,547

We amortize intangible assets with definite lives over their estimated useful lives, using the straight-line method. Intangible asset amortization expense was $0 and $523 for the three and six months ended June 30, 2014, respectively. Amortization expense for the same periods of 2013 was $1,617 and $3,234, respectively. We do not expect additional amortization expense to be recognized during the remainder of the year ended December 31, 2014.
4.
Restructuring and Exit Activities
Given the nature of the industry we operate in, we evaluate and assess our worldwide operations in an effort to rationalize facility and labor costs, further streamline our operations in order to align resources to support growth, and appropriately shift the geographic mix of Company resources. Restructuring expense during the three months ended June 30, 2014 for activities initiated in 2014 was $11,628, of which $11,242 related to severance costs and $386 related to facility exit costs. Restructuring expense during the six months ended June 30, 2014 for activities initiated in 2014 was $14,011, of which $12,638 related to severance costs and $1,373 related to facility exit costs. For these activities, the remaining severance-related accrual of $8,204 is expected to be paid during the remainder of 2014 and the remaining facility exit costs accrual of $757 is expected to be paid during the remainder of 2014 through the year 2015 as the related leases expire.
Restructuring expense during the three months ended June 30, 2014 for activities initiated prior to 2014 was $904, of which $622 related to severance costs and $282 related to facility exit costs. Restructuring expense during the six months ended June 30, 2014 for activities initiated prior to 2014 was $1,793, of which $1,245 related to severance costs and $548 related to facility exit costs. For these activities, the remaining severance-related accrual of $733 is expected to be paid by the end of 2014, and the remaining accrual for facility exit costs of $2,251 is expected to be paid during the remainder of 2014 through the year 2017 as the related leases expire. Total expected expenses during the remainder of 2014 relating to restructuring activities already initiated as of June 30, 2014 are $1,028.

10

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

The liability for restructuring activities initiated in 2014 consisted of the following:
 
 
 
Facility
 
 
 
 
 
Exit and
 
 
 
Severance
 
Other
 
Total
December 31, 2013
$

 
$

 
$

Costs accrued (offset was to expense)
12,638

 
1,373

 
14,011

Cash payments
(4,385
)
 
(607
)
 
(4,992
)
Foreign exchange and other
(49
)
 
(9
)
 
(58
)
June 30, 2014
$
8,204

 
$
757

 
$
8,961

Current portion of restructuring included in Accrued liabilities and other
$
8,204

 
$
757

 
$
8,961

 
 
 
 
 
 
Activity not reflected within the restructuring liability:
 
 
 
 
 
Costs expensed
$

 
$

 
$

Cash payments
$

 
$

 
$

Restructuring expense during the three and six months ended June 30, 2014 for activities initiated in 2014 was $10,031 and $11,957 for EMEA and $1,597 and $2,054 for the Americas, respectively.
The liability for restructuring activities initiated in 2013 and prior years consisted of the following:
 
 
 
Facility
 
 
 
 
 
Exit and
 
 
 
Severance
 
Other
 
Total
December 31, 2013
$
1,382

 
$
2,831

 
$
4,213

Costs accrued (offset was to expense)
899

 
548

 
1,447

Cash payments
(1,493
)
 
(1,198
)
 
(2,691
)
Foreign exchange and other
(55
)
 
70

 
15

June 30, 2014
$
733

 
$
2,251

 
$
2,984

Current portion of restructuring included in Accrued liabilities and other
$
733

 
$
936

 
$
1,669

Long-term portion of restructuring included in Other noncurrent liabilities
$

 
$
1,315

 
$
1,315

 
 
 
 
 
 
Activity not reflected within the restructuring liability:
 
 
 
 
 
Costs expensed
$
346

 
$

 
$
346

Cash payments
$
(10
)
 
$

 
$
(10
)
Restructuring expense during the three and six months ended June 30, 2014 for activities initiated in 2013 and prior years was $260 and $715 for EMEA and $644 and $1,078 for the Americas, respectively. As of June 30, 2014, cumulative restructuring costs related to such activities are $14,255, of which $7,335 relates to EMEA and $6,920 relates to the Americas.
In January 2007, we approved a plan (“Plan”) to restructure certain operations during 2007 related to the acquisition of Legacy SITEL (which refers to SITEL Corporation, a Minnesota corporation, prior to its acquisition by SITEL Worldwide on January 30, 2007). The Plan included downsizing space in certain customer care centers and eliminating certain administrative and operational positions. No restructuring expense was recorded during the three and six months ended June 30, 2014 related to the Plan. Cash payments during the six months ended June 30, 2014 related to the Plan were $52. The remaining accrual for all restructuring and exit activities related to the Plan was $158 and $315 at June 30, 2014 and December 31, 2013, respectively, and is recorded in Accrued liabilities and other.

11

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

5.
Long-Term Debt
The composition of Long-term debt is as follows:
 
June 30, 2014
 
December 31, 2013
Senior Notes
$
295,532

 
$
295,073

Senior Secured Notes
194,730

 
194,045

Senior Secured Credit Facility:
 
 
 
Revolvers:
 
 
 
U.S. revolver

 
18,000

Term Loans:
 
 
 
U.S. dollar term loan
177,973

 
177,973

Euro term loan
29,833

 
30,191

British pound sterling term loan
19,935

 
19,332

Total debt
718,003

 
734,614

Less: Debt maturing within one year

 

Total long-term debt
$
718,003

 
$
734,614

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 issue 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’s 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.
Senior Secured Notes
On April 20, 2012, the Issuers issued in a private placement, 11.0% senior secured notes ("Senior Secured Notes") due 2017 having an aggregate principal amount of $200,000 with an original issue discount of $8,000. The Senior Secured Notes are guaranteed by the Company and its domestic subsidiaries, are secured on an equal and ratable basis with all obligations of the Issuers and the guarantors under the Company's senior secured credit facility (the “Senior Secured Credit Facility”), and will mature on April 1, 2017. Interest accrues on the Senior Secured Notes at a rate of 11.0% annually and is payable semi-annually in arrears on February 1 and August 1.
Both the Senior Notes and the Senior Secured Notes contain 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.
Senior Secured Credit Facility
The Company's Senior Secured Credit Facility initially provided 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. In January 2013, the non-extended portion of our U.S. revolver expired, reducing the borrowing capacity under the Revolvers to $61,250 from $85,000.
All Term Loans mature on January 30, 2017 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

12

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

exceeded the cumulative amortization schedule, thus no amount is due until maturity. Interest on the U.S. term loan is based, at our option, on LIBOR plus the applicable margin of 6.75%, or the higher of the federal funds rate plus 0.50% or the prime rate plus the applicable margin of 5.75%. Interest on the Euro term loan is based on EURIBOR plus the applicable margin of 6.75%. Interest on the British pound sterling term loan is based on LIBOR plus the applicable margin of 6.75%. We have an interest rate swap agreement for the notional amount of $175,000 against our Term Loans that is based on a rate of 2.315% versus three month LIBOR.
The Revolvers mature on January 30, 2016. A commitment fee is payable quarterly at 0.50% per annum of the undrawn portion of the Revolvers. Interest on the U.S. revolver is based, at our option, on LIBOR plus the applicable margin of 6.75%, or the higher of the federal funds rate plus 0.50% or the prime rate plus the applicable margin of 5.75%. Interest on the Canadian revolver is based, at our option, on the Canadian banker's acceptance rate (the "BA Rate") plus the applicable margin of 6.75%, or the higher of the one month BA Rate plus 0.75% or the Canadian prime rate plus the applicable margin of 5.75%. At June 30, 2014 and December 31, 2013, we had $59,207 and $42,242 available under the Revolvers after utilizing $2,043 and $1,008 for letters of credit outstanding.
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. During the first quarter of 2014, we executed the sixth amendment to our Senior Secured Credit Facility (the "Sixth Amendment"), which decreased the Minimum Interest Coverage Ratio and increased the maximum permitted Senior Secured Leverage Ratio, effective the first quarter of 2014. We paid debt issuance and other financing costs of $1,492 during the first six months of 2014 related to the Sixth Amendment, of which $719 were deferred and recorded in Other noncurrent assets to be amortized over the remaining term of the facility.
Future maturities of the Company's outstanding Long-term debt as of June 30, 2014 are summarized as follows:
2014
$

2015

2016

2017
427,741

2018
300,000

2019 and thereafter 

Total debt payments
727,741

Less amount representing unamortized debt discount
(9,738
)
Total debt balance at June 30, 2014
$
718,003

6.
Redeemable Preferred Stock
We are authorized to issue in series up to 20,000,000 shares of preferred stock with a par value of $0.01. To date, we have authorized the issuance of three series of preferred shares—Series B, Series C, and Series D. Our Board of Directors determines the voting rights, dividend policy, and conversion rights of each series of these preferred shares. 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 $4.85 per share for Series B, $1.50 per share for Series C, and $0.77 per share for Series D), in settlement of these 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).
The Series B, C, and D Preferred Stock contain an optional cash redemption call option that is only exercisable by the Company. Since Onex controls the majority of our Board of Directors, accounting guidance requires that we 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

13

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

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. We have determined that the value is immaterial as of June 30, 2014 and December 31, 2013, thus no adjustment to the carrying value of the stock has been recorded in relation to the in-substance put option.
Series D Preferred Stock
On May 8, 2014, we authorized the issuance of 125,000 shares of 16% Cumulative Participating Preferred Stock, Series D (the "Series D Preferred Stock"). On May 8, 2014, we executed a subscription agreement with Onex Clientlogic Holdings LLC to issue up to 75,000 shares of the Series D Preferred Stock at a rate of $1,000 per share. Pursuant to this offer, we received proceeds of $75,000 from Onex Clientlogic Holdings LLC and other existing shareholders during the second quarter of 2014, which the Company intends to use to fund sales growth, invest in our clients, and execute ongoing cost initiatives. The Series D Preferred Stock ranks senior to each other class of the Company's stock in liquidation rights. Holders of the Series D 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 our Board of Directors. Accrued dividends are recorded to Additional paid-in capital.
At June 30, 2014, the number of shares of Series D Preferred Stock issued and outstanding was 75,000. During the six months ended June 30, 2014, we incurred fees associated with the issuance of the Series D Preferred Stock totaling $180 related to a fairness opinion issued by a third party. These fees were deferred and recorded outside of permanent equity as a reduction of the related proceeds, to be accreted to Additional paid-in capital from the date of issuance to the stated redemption date. The liquidation value of the Series D Preferred Stock, including accrued dividends payable, at June 30, 2014 of $75,847 is net of deferred financing costs of $176.
Series C Preferred Stock
On December 10, 2008, we authorized the issuance of 125,000 shares of Series C Preferred Stock. At June 30, 2014 and December 31, 2013, the number of shares of Series C Preferred Stock issued and outstanding was 28,881.
When 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 issuance date, there is a Beneficial Conversion Feature (“BCF”) associated with the preferred stock. The value of the BCF is 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 accreted from the date of issuance to the stated redemption date. For the Series C Preferred Stock owned by Onex, the BCF is 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 June 30, 2014 of $64,171 is net of deferred financing costs of $154 and the BCF of $1,594. The liquidation value of the Series C Preferred Stock, including accrued dividends payable, at December 31, 2013 of $59,056 is net of deferred financing costs of $174 and the BCF of $1,793. 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 our Board of Directors.
Series B Preferred Stock
On April 3, 2008, we authorized the issuance of 125,000 shares of Series B Preferred Stock. At June 30, 2014 and December 31, 2013, the number of shares of Series B Preferred Stock issued and outstanding was 39,947.
The liquidation value of the Series B Preferred Stock, including accrued dividends payable, at June 30, 2014 of $70,849 and at December 31, 2013 of $66,982, is net of deferred financing costs of $236 and $265, 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 our Board of Directors.

14

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

7.
Stock-Based Compensation
The Company’s operating results for the three and six months ended June 30, 2014 included stock-based compensation expense for issued stock grants of $63 and $122, respectively, compared to $66 and $129, respectively, for the same periods in 2013. These grants were primarily related to director and executive compensation. 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, 2013
8,268,358

 
$
7,611

Granted
810,000

 
462

Vested

 

Converted

 

Forfeited
(2,500
)
 
(6
)
Unvested at June 30, 2014
9,075,858

 
$
8,067

Restricted Stock Unit Activity
 
 
Weighted
 
 
 
Average
 
 
 
Grant Date
 
Shares
 
Fair Value
Unvested at December 31, 2013
1,616,500

 
$
3,954

Granted
20,000

 
11

Vested

 

Forfeited
(156,500
)
 
(495
)
Unvested at June 30, 2014
1,480,000

 
$
3,470


During the six months ended June 30, 2014, we issued 810,000 shares of Class A Common Stock to various executives pursuant to the terms of a Restricted Stock Grant Plan and Agreement with each executive. The restricted shares will generally be earned based on the attainment of specified goals achieved over a performance period.
As of June 30, 2014, there was approximately $9,031 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 the cost for restricted stock units over a period of three years following the occurrence of a change in control, initial public offering, or liquidity event, as defined in our Restricted Plans. We will recognize the cost for restricted shares either immediately, over a two-year period, or over a three-year period, depending on the terms of the restricted share agreement, commencing upon a change in control, initial public offering, or liquidity event.
8.
Income Taxes
The effective tax rate of (31.8)% for the six months ended June 30, 2014 differs from the effective tax rate of (39.9)% for the same period of 2013 primarily due to the greater pre-tax book loss for the six months ended June 30, 2014. In addition, tax expense resulting from changes in the intra-period allocation to continuing operations of $2,153 was recorded during the six months ended June 30, 2014 compared to a tax benefit of $598 recorded in the same period of 2013, and tax expense of $1,682 related to foreign uncertain tax positions and tax audits was recorded during the six months ended June 30, 2014 compared to a tax benefit of $356 recorded in the same period of 2013.
We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing operations (the "Income Tax Allocation"). Through the second quarter of 2014, as a result of the Income Tax Allocation, we recorded a non-cash deferred income tax expense of $1,646 against Other comprehensive income as a result of year-to-date gains from mark-to-market fluctuations on foreign currency hedges that are designated as accounting hedges and an offsetting

15

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

non-cash income tax benefit of $1,646 in continuing operations. Also during the first quarter of 2014, the 2013 hedge portfolio was fully settled resulting in the reversal of previously recorded tax benefits resulting in non-cash income tax expense of $3,799.
Our gross unrecognized tax benefits (excluding interest and penalties) increased from $30,717 at December 31, 2013 to $31,884 at June 30, 2014, primarily resulting from an assessment received in a certain foreign jurisdiction. There was a cash payment of $320 associated with an audit settlement in a foreign jurisdiction. The total amount of unrecognized tax benefits (including interest and penalties) that would affect income tax expense, if ever recognized in the financial statements is $34,700. We believe 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 $1,389 as a result of statute expirations or final resolution.
9.
Employee Benefits and Compensation
We have defined benefit pension plans covering certain employees outside of the United States. These plans are administered by a third party and include limited activity. The components of the net pension liability of $6,169 at June 30, 2014 and $5,988 at December 31, 2013 are included in Other noncurrent liabilities. Net periodic pension cost consisted of the following:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Service cost
$
170

 
$
108

 
$
341

 
$
274

Interest cost
113

 
109

 
234

 
173

Expected return on plan assets
(82
)
 
(73
)
 
(165
)
 
(148
)
Past service costs
39

 
41

 
76

 
82

Amortization of actuarial gains and losses and other
(2
)
 
(77
)
 
(4
)
 
(155
)
Net periodic pension cost
$
238

 
$
108

 
$
482

 
$
226

We also sponsor 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 were $448 and $816 in the three and six months ended June 30, 2014, respectively. Expenses related to these plans in the same periods of 2013 were $206 and $425, respectively.
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.
During 2011, the French tax authorities assessed SITEL France approximately €7,900 (equivalent to approximately $10,750 as of June 30, 2014) for the periods from 2007 to July 2010 for input value added taxes related to its performance of intermediary insurance services for the sale of insurance products on behalf of its insurance clients. During December 2013, the French tax authorities reduced the assessment to approximately €1,247 (equivalent to approximately $1,700 as of June 30, 2014). On January 6, 2014, the Company paid the assessment to perfect its rights in the event litigation is necessary to resolve the matter. As of June 30, 2014, we have accrued a portion of the assessment within SG&A equal to our estimated obligation under this matter. No liability related to this matter was recorded as of December 31, 2013.
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 R$3,500 (equivalent to approximately $1,580 as of June 30, 2014) for a period extending from 2004 to October 2008. 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

16

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

2010, the tax authorities ruled against SITEL Brazil. In October 2010, SITEL Brazil received a formal demand to pay the assessment, which at the time totaled R$7,700 due to increases in interest and penalties. SITEL Brazil deposited R$7,700 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 liability related to this matter was recorded as of June 30, 2014 and December 31, 2013.
11.
Derivative Financial Instruments
We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. Our 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 our 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 our subsidiaries' functional 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 June 30, 2014, our forward contracts mature within the next eighteen months.
Interest Rate Risk
Interest rate movements create a degree of risk by affecting the amount of our interest payments. 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. On November 28, 2011 we amended the interest rate swap agreement to extend the term through December 31, 2016 and decreased the notional amount to $175,000 as of March 31, 2012. The fair value of this interest rate swap is classified as part of Accrued liabilities and other of $3,564 and $3,526 and as Other noncurrent liabilities of $3,122 and $4,061 as of June 30, 2014 and December 31, 2013, respectively.
For the three and six months ended June 30, 2014, we recorded losses of $921 and $1,826 for settled interest payments, compared to losses of $908 and $1,756 for the three and six months ended June 30, 2013. Additionally, there was a non-cash mark-to-market valuation increase in the liability of $743 and $924 for the three and six months ended June 30, 2014, compared to a reduction of $1,905 and $1,868 for the same periods in 2013. These amounts are reflected in Interest and other financing costs, net.

17

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

Fair Values in the Condensed Consolidated Balance Sheets
 
 
Derivative Assets
 
Derivative Liabilities
 
 
 
 
June 30,
2014
 
December 31,
2013
 
 
 
June 30,
2014
 
December 31,
2013
 
 
Balance
Sheet
Classification
 
Fair
Value
 
Fair
Value
 
Balance
Sheet
Classification
 
Fair
Value
 
Fair
Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Prepaids and other current assets
 
$
691

 
$
62

 
Accrued liabilities and other
 
$
1,699

 
$
4,996

Foreign exchange contracts
 
Other noncurrent assets
 
34

 

 
Other noncurrent liabilities
 
339

 

Total
 
 
 
$
725

 
$
62

 
 
 
$
2,038

 
$
4,996

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate contract - ST
 
Prepaids and other current assets
 
$

 
$

 
Accrued liabilities and other
 
$
3,564

 
$
3,526

Interest rate contract - LT
 
Other noncurrent assets
 

 

 
Other noncurrent liabilities
 
3,122

 
4,061

Foreign exchange contracts
 
Prepaids and other current assets
 
474

 
341

 
Accrued liabilities and other
 
1,326

 
3,264

Foreign exchange contracts
 
Other noncurrent assets
 
6

 

 
Other noncurrent liabilities
 
75

 

Total
 
 
 
$
480

 
$
341

 
 
 
$
8,087

 
$
10,851

Total derivatives
 
 
 
$
1,205

 
$
403

 
 
 
$
10,125

 
$
15,847


18

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Comprehensive Loss
Derivatives in
Cash Flow
Hedging
Relationships
 
Amount of (Loss) or Gain Recognized in OCI on Derivative
(Effective Portion)
 
Location of Loss
Reclassified from
Accumulated OCI into Income
(Effective Portion)
 
Amount of (Loss) or Gain
Reclassified from
Accumulated OCI
into Income
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Foreign exchange contracts
 
$
1,256

 
$
(7,069
)
 
COS and SG&A
 
$
(1,492
)
 
$
512

Total
 
$
1,256

 
$
(7,069
)
 
 
 
$
(1,492
)
 
$
512

 
 
 
 
 
 
 
 
 
 
 
Derivatives in
Cash Flow
Hedging
Relationships
 
Amount of (Loss) or Gain Recognized in OCI on Derivative
(Effective Portion)
 
Location of Loss
Reclassified from
Accumulated OCI into Income
(Effective Portion)
 
Amount of (Loss) or Gain
Reclassified from
Accumulated OCI
into Income
 
Six Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Foreign exchange contracts
 
$
265

 
$
(4,285
)
 
COS and SG&A
 
$
(3,491
)
 
$
1,273

Total
 
$
265

 
$
(4,285
)
 
 
 
$
(3,491
)
 
$
1,273

For the three and six months ended June 30, 2014 we recorded losses of $895 and $2,094, respectively, compared to gains of $255 and $808, respectively, for the same periods in 2013 to Cost of services. For the three and six months ended June 30, 2014, we recorded losses of $597 and $1,397, respectively, compared to gains of $257 and $465, respectively, for the same periods in 2013 to Selling, general, and administrative expenses (“SG&A”) for the effective portion of settled hedge contracts. We expect unrealized losses of $1,274 will be reclassified from Accumulated other comprehensive loss (“AOCL”) to Cost of services and SG&A over the next twelve months. 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 June 30, 2014.
For the three and six months ended June 30, 2014 we recognized gains on foreign currency transactions related to the ineffective portion of the derivative instruments of $0 and $3, respectively, compared to gains of $38 and $93, respectively, for the same periods in 2013.
Derivatives Not
Designated as Hedging Instruments        
 
Location of (Loss) or Gain
Recognized in Income on Derivative
 
Amount of (Loss) or
Gain Recognized in
Income on Derivative
 
Amount of (Loss) or
Gain Recognized in
Income on Derivative
Three Months Ended June 30,
 
Six Months Ended June 30,
2014
 
2013
 
2014
 
2013
Foreign exchange contracts
 
COS and SG&A
 
$
200

 
$
(1,795
)
 
$
223

 
$
(564
)
Foreign exchange contracts
 
Foreign currency transactions
 
963

 
1,686

 
1,201

 
1,929

Total
 
 
 
$
1,163

 
$
(109
)
 
$
1,424

 
$
1,365

For the three and six months ended June 30, 2014, we recorded gains of $120 and $134, respectively, compared to losses of $1,077 and $338, respectively, for the same periods in 2013 to Cost of services for derivatives not designated as hedging contracts. For the three and six months ended June 30, 2014, we recorded gains of $80 and $89, respectively, compared to losses of $718 and $226, respectively, for the same periods in 2013 to SG&A for derivatives not designated as hedging contracts.

19

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

Current Contracts
At June 30, 2014, 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 contract
$
175,000

Foreign exchange contracts
140,602

12.
Fair Value Measurements
The fair values of Cash and cash equivalents, short-term investments, trade receivables, and trade payables are valued as Level 1 items. The carrying value of these assets and liabilities approximates their fair value due to the short-term maturities. The terms of the Senior Secured Credit Facility, Senior Secured Notes, and Senior Notes include debt with variable and fixed interest rates, totaling $718,003 and $734,614 at June 30, 2014 and December 31, 2013, respectively. The estimated fair value of such debt was $739,000 and $754,000 at June 30, 2014 and December 31, 2013, respectively. The fair value of debt with fixed interest rates was determined using the quoted market prices of debt instruments with similar terms and maturities which are considered Level 2 inputs. The fair value of debt with variable interest rates was also measured using Level 2 inputs. These inputs included good faith estimates of the market value for the particular debt instrument, which represent the amount an independent market participant would provide, based upon market observations and other factors relevant under the circumstances.
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.

20

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

The following tables summarize the value of financial instruments by the pricing levels defined above as of June 30, 2014 and December 31, 2013. There were no transfers between pricing levels for the six month period ended June 30, 2014.
 
Fair Value Measurements at June 30, 2014
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Foreign currency forward contracts
$
1,205

 
$

 
$
1,205

 
$

Total
$
1,205

 
$

 
$
1,205

 
$

Liabilities
 
 
 
 
 
 
 
Foreign currency forward contracts
$
3,439

 
$

 
$
3,439

 
$

Interest rate derivative instrument
6,686

 

 
6,686

 

Total
$
10,125

 
$

 
$
10,125

 
$

 
Fair Value Measurements at December 31, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Foreign currency forward contracts
$
403

 
$

 
$
403

 
$

Total
$
403

 
$

 
$
403

 
$

Liabilities
 
 
 
 
 
 
 
Foreign currency forward contracts
$
8,260

 
$

 
$
8,260

 
$

Interest rate derivative instrument
7,587

 

 
7,587

 

Total
$
15,847

 
$

 
$
15,847

 
$

We value 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. Our 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. Our 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 and the counterparty. Therefore, the impact of the Company's and counterparty's creditworthiness have also been factored into the fair value measurement of these derivative instruments.
We measure our 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. We conduct annual impairment tests as of December 31.
We estimate the fair values of Goodwill and other indefinite-lived intangibles utilizing multiple measurement techniques performed. The estimation is primarily determined based on an estimate of future cash flows (income approach) discounted at a market derived weighted average cost of capital. The income approach has been determined to be the most representative because our equity does not have an active trading market. Other unobservable inputs used in these valuations include managements' cash flow projections and estimated terminal growth rates. The valuation of indefinite-lived intangible assets also includes an unobservable input for royalty rate, which is based on rates used by comparable industries. We then use a public company model (which uses peer group valuation metrics) to confirm the measurement.
No impairment charges related to Goodwill and Other intangible assets were recorded during the three and six months ended June 30, 2014 and 2013.
Long-lived assets are measured at fair value on a non-recurring basis and are classified in Level 3 of the fair value hierarchy. The fair value is estimated utilizing unobservable inputs, including appraisals on real estate as well as evaluations of the marketability and potential relocation of other assets in similar condition and similar market areas. We analyze our long-lived assets on a quarterly basis for any triggering events that would cause us to perform an impairment test. No impairment charges related to long-lived assets were recorded during the three and six months ended June 30, 2014 and 2013.

21

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

13.
Accumulated Other Comprehensive Loss
Changes in Accumulated Other Comprehensive Loss by Component (a) 
 
 
For the Three Months Ended June 30, 2014
 
 
Gains and Losses on Cash Flow Hedges
 
Defined Benefit Pension Items
 
Foreign Currency Items
 
Total
Beginning balance
 
$
(7,899
)
 
$
(1,597
)
 
$
(39,355
)
 
$
(48,851
)
Other comprehensive (loss) income before reclassifications, net of tax of $1,265
 
(9
)
 

 
2,761

 
2,752

Amounts reclassified from accumulated other comprehensive loss, net of tax of $0
 
1,492

 
37

 

 
1,529

Net current-period other comprehensive income
 
1,483

 
37

 
2,761

 
4,281

Ending balance
 
$
(6,416
)
 
$
(1,560
)
 
$
(36,594
)
 
$
(44,570
)
 
 
For the Three Months Ended June 30, 2013
 
 
Gains and Losses on Cash Flow Hedges
 
Defined Benefit Pension Items
 
Foreign Currency Items
 
Total
Beginning balance
 
$
(4,003
)
 
$
(121
)
 
$
(26,757
)
 
$
(30,881
)
Other comprehensive loss before reclassifications, net of tax of $0
 
(7,071
)
 

 
(10,663
)
 
(17,734
)
Amounts reclassified from accumulated other comprehensive loss, net of tax of $0
 
(512
)
 
(36
)
 

 
(548
)
Net current-period other comprehensive loss
 
(7,583
)
 
(36
)
 
(10,663
)
 
(18,282
)
Ending balance
 
$
(11,586
)
 
$
(157
)
 
$
(37,420
)
 
$
(49,163
)
 
 
For the Six Months Ended June 30, 2014
 
 
Gains and Losses on Cash Flow Hedges
 
Defined Benefit Pension Items
 
Foreign Currency Items
 
Total
Beginning balance
 
$
(12,325
)
 
$
(1,632
)
 
$
(40,007
)
 
$
(53,964
)
Other comprehensive (loss) income before reclassifications, net of tax of $1,646
 
(1,381
)
 

 
3,413

 
2,032

Amounts reclassified from accumulated other comprehensive loss, net of tax of $3,799
 
7,290

 
72

 

 
7,362

Net current-period other comprehensive income
 
5,909

 
72

 
3,413

 
9,394

Ending balance
 
$
(6,416
)
 
$
(1,560
)
 
$
(36,594
)
 
$
(44,570
)

22

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

 
 
For the Six Months Ended June 30, 2013
 
 
Gains and Losses on Cash Flow Hedges
 
Defined Benefit Pension Items
 
Foreign Currency Items
 
Total
Beginning balance
 
$
(5,428
)
 
$
(84
)
 
$
(27,888
)
 
$
(33,400
)
Other comprehensive loss before reclassifications, net of tax of $598
 
(4,885
)
 

 
(9,532
)
 
(14,417
)
Amounts reclassified from accumulated other comprehensive loss, net of tax of $0
 
(1,273
)
 
(73
)
 

 
(1,346
)
Net current-period other comprehensive loss
 
(6,158
)
 
(73
)
 
(9,532
)
 
(15,763
)
Ending balance
 
$
(11,586
)
 
$
(157
)
 
$
(37,420
)
 
$
(49,163
)
(a) Amounts in parentheses indicate debits to Accumulated other comprehensive loss.

Reclassifications out of Accumulated Other Comprehensive Loss (a) 
For the Three Months Ended June 30, 2014
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Statement Where Net Income is Presented
Gains and losses on cash flow hedges
 
 
 
 
Foreign exchange contracts
 
$
(895
)
 
COS
 
 
(597
)
 
SG&A
 
 
(1,492
)
 
Total before tax
 
 

 
Tax (expense) or benefit
 
 
$
(1,492
)
 
Net of tax
 
 
 
 
 
Amortization of defined benefit pension items
 
 
 
 
Prior service costs
 
$
(39
)
 
SG&A
Actuarial gains
 
2

 
SG&A
 
 
(37
)
 
Total before tax
 
 

 
Tax (expense) or benefit
 
 
$
(37
)
 
Net of tax
 
 
 
 
 
Total reclassifications for the period
 
$
(1,529
)
 
Net of tax

23

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

For the Three Months Ended June 30, 2013
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Statement Where Net Income is Presented
Gains and losses on cash flow hedges
 
 
 
 
Foreign exchange contracts
 
$
255

 
COS
 
 
257

 
SG&A
 
 
512

 
Total before tax
 
 

 
Tax (expense) or benefit
 
 
$
512

 
Net of Tax
 
 
 
 
 
Amortization of defined benefit pension items
 
 
 
 
Prior service costs
 
$
(41
)
 
SG&A
Actuarial gains
 
77

 
SG&A
 
 
36

 
Total before tax
 
 

 
Tax (expense) or benefit
 
 
$
36

 
Net of Tax
 
 
 
 
 
Total reclassifications for the period
 
$
548

 
Net of Tax
For the Six Months Ended June 30, 2014
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Statement Where Net Income is Presented
Gains and losses on cash flow hedges
 
 
 
 
Foreign exchange contracts
 
$
(2,094
)
 
COS
 
 
(1,397
)
 
SG&A
 
 
(3,491
)
 
Total before tax
 
 
(3,799
)
 
Tax (expense) or benefit
 
 
$
(7,290
)
 
Net of tax
 
 
 
 
 
Amortization of defined benefit pension items
 
 
 
 
Prior service costs
 
$
(76
)
 
SG&A
Actuarial gains
 
4

 
SG&A
 
 
(72
)
 
Total before tax
 
 

 
Tax (expense) or benefit
 
 
$
(72
)
 
Net of tax
 
 
 
 
 
Total reclassifications for the period
 
$
(7,362
)
 
Net of tax

24

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

For the Six Months Ended June 30, 2013
Details about Accumulated Other Comprehensive Loss Components
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Statement Where Net Income is Presented
Gains and losses on cash flow hedges
 
 
 
 
Foreign exchange contracts
 
$
808

 
COS
 
 
465

 
SG&A
 
 
1,273

 
Total before tax
 
 

 
Tax (expense) or benefit
 
 
$
1,273

 
Net of tax
 
 
 
 
 
Amortization of defined benefit pension items
 
 
 
 
Prior service costs
 
$
(82
)
 
SG&A
Actuarial gains
 
155

 
SG&A
 
 
73

 
Total before tax
 
 

 
Tax (expense) or benefit
 
 
$
73

 
Net of tax
 
 
 
 
 
Total reclassifications for the period
 
$
1,346

 
Net of tax
(a) Amounts in parentheses indicate debits to profit/loss.
14.
Related Party Transactions
Sale of Subsidiary
On March 29, 2013, the Company sold all of its common stock, totaling 1,287,000 shares, in its Sitel Belgium NV (“Belgium”) subsidiary to HV Management Consulting BVBA (“HVMC”), a company of which the controlling shareholder and chief executive officer is the former Belgium country manager and director, for a nominal price. During the six months ended June 30, 2013, the Company recorded a Loss on sale of subsidiary of $4,558 related to the Belgium sale in the accompanying Condensed Consolidated Statements of Comprehensive Loss.
In addition to the sale of stock, the Company also agreed to provide support services and certain sub-contract services to HVMC and Belgium following the date of closing in order to assist in the transition. Certain information technology assets and employees were transitioned to another Company affiliate concurrently with the sale. The Company continues to provide these services as of June 30, 2014.
NAFS Purchase
On August 31, 2011, our wholly owned subsidiary, NAFS, now known as NA Liquidating Company, Inc., executed a Membership Interest Purchase Agreement with David Garner, our former Chief Executive Officer and Non-Executive Chairman of the Company’s Board of Directors, and current Board member. Pursuant to the agreement, Mr. Garner agreed to purchase directly or indirectly through an affiliate, Emory Enterprises, LLC ("Emory"), certain assets and obligations comprising NAFS's third party collections business based in Buffalo, New York (the "NAFS Business"). To facilitate this transaction, NAFS agreed to transfer the assets and obligations of the NAFS Business to a newly formed limited liability company ("NAFS Buffalo").
A portion of the purchase price for the NAFS Business was paid at closing on August 31, 2011, with the remainder to be paid in equal monthly installments over a thirty-six month period commencing March 2012. The NAFS Business was deconsolidated effective August 1, 2011. In addition, commencing August 31, 2011 and ending January 30, 2014, we provided certain outsourced information technology services to NAFS Buffalo and Emory. These services were provided to NAFS Buffalo and Emory to support continuing information technology requirements. The parties also entered an additional service

25

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

agreement in August 2011 pursuant to which NAFS Buffalo and/or is affiliates agreed to continue to service one of the Company’s clients.
On February 13, 2013, we entered into an agreement with Mr. Garner and Emory pursuant to which we deferred payment of certain information technology service fees charged from February 1, 2012 through January 31, 2013 and amended such service agreements to reduce certain 2013 fees and provide for their ultimate termination. On January 30, 2014, we entered into a new agreement to defer payment of additional past due amounts of $46 and the remaining purchase price receivable of $398 owed to the Company by Emory and Mr. Garner related to the 2011 purchase of the NAFS Business. The Company also agreed to defer payment of the information technology service fees of $176 charged during 2013. These deferred payment amounts were added to the principal and accrued interest owed under the original note, which amounted to $193 as of December 31, 2013. The original note was amended and restated in the principal amount of $813 and is recorded in Other noncurrent assets at June 30, 2014 and December 31, 2013. The note is guaranteed by Mr. Garner on a recourse basis, and is due December 15, 2017. Mr. Garner’s guarantee is secured by a security interest in all of Mr. Garner’s preferred and common stock in the Company granted pursuant to a stock pledge agreement.
15.
Operating Segment and Geographical Information
Our two reportable segments, Americas and EMEA, are organized by geographic operating units that portray similar economic characteristics. The segment information presented below reflects the internal management reporting that the chief operating decision maker ("CODM") uses to evaluate segment performance and allocate resources, which is solely based on segment revenues, gross margin (segment revenues less segment cost of sales), segment selling, general, and administrative (“SG&A”) expense, and the segment operating results as calculated below.
Certain Revenues, Costs of services, and SG&A amounts are excluded from the CODM evaluation of our segments, as the CODM believes they are not representative of segment performance. In addition, the CODM does not review assets or the associated depreciation and amortization at the reportable segment level. Therefore, we do not allocate these items to our reportable segments or present these items at the segment level in our internal management reporting. These unallocated amounts, as well as other income and expenses that are managed at the corporate level, are presented below in the reconciliation of segment operating results to our consolidated Loss before income taxes.
We have modified previously reported SG&A to exclude certain foreign exchange transactions that are no longer presented at the segment level in our internal management reporting that is provided to and used by the CODM.
Information about the Company’s reportable segments is as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Americas
 
 
Revenues
 
$
212,783

 
$
219,782

 
$
423,611

 
$
442,266

Gross margin
 
75,106

 
82,479

 
151,258

 
167,654

SG&A
 
47,998

 
49,512

 
96,054

 
99,531

Segment operating results
 
$
27,108

 
$
32,967

 
$
55,204

 
$
68,123

GM%
 
35.3
%
 
37.5
%
 
35.7
%
 
37.9
%
SG&A%
 
22.6
%
 
22.5
%
 
22.7
%
 
22.5
%
Op Results%
 
12.7
%
 
15.0
%
 
13.0
%
 
15.4
%


26

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
EMEA
 
 
Revenues
 
$
135,937

 
$
129,137

 
$
275,567

 
$
271,719

Gross margin
 
36,129

 
35,845

 
73,153

 
76,086

SG&A
 
29,847

 
28,927

 
61,168

 
59,352

Segment operating results
 
$
6,282

 
$
6,918

 
$
11,985

 
$
16,734

GM%
 
26.6
%
 
27.8
%
 
26.5
%
 
28.0
%
SG&A%
 
22.0
%
 
22.4
%
 
22.2
%
 
21.8
%
Op Results%
 
4.6
%
 
5.4
%
 
4.3
%
 
6.2
%
Reconciliation of Segment operating results to consolidated Loss before income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Segment operating results:
 
 
 
 
 
 
 
 
Americas
 
$
27,108

 
$
32,967

 
$
55,204

 
$
68,123

EMEA
 
6,282

 
6,918

 
11,985

 
16,734

Total
 
33,390

 
39,885

 
67,189

 
84,857

 
 
 
 
 
 
 
 
 
Corporate and other(1)
 
9,247

 
12,985

 
21,427

 
24,957

Depreciation and amortization
 
8,548

 
10,244

 
17,483

 
20,909

Restructuring and exit charges
 
12,532

 
1,986

 
15,804

 
5,302

Loss on sale of subsidiary
 

 

 

 
4,558

Other operating expense (income)(2)
 
455

 
(1,159
)
 
179

 
441

Operating income
 
2,608

 
15,829

 
12,296

 
28,690

Interest and other financing costs, net
 
21,423

 
18,260

 
42,989

 
38,661

Loss before income taxes
 
$
(18,815
)
 
$
(2,431
)
 
$
(30,693
)
 
$
(9,971
)
(1) Represents other operating income and expenses not allocated to segments for internal management reporting purposes, including certain corporate employee compensation, corporate overhead, stock-based compensation, and the net operating results of disposed subsidiaries, which are not material to segment operating results.
(2) Includes amounts from the Condensed Consolidated Statements of Comprehensive Loss for Loss (gain) on foreign currency transactions, (Gain) loss on disposal of assets, and Other income, net.

27

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

16.
Supplemental Condensed Consolidated Financial Information
The following guarantor financial information is presented to comply with U.S. SEC disclosure requirements, specifically Rule 3-10 of Regulation S-X.
The Senior Secured Notes and Senior Notes are guaranteed jointly and severally, and in the case of the Senior Secured Notes, on a senior secured basis, by the Issuers' parent company, SITEL Worldwide, and by each of SITEL Worldwide's existing and future direct and indirect domestic subsidiaries that are 100% owned by SITEL Worldwide that are guarantors under the Senior Secured Credit Facility (the “Subsidiary Guarantors”). The guarantees are not full and unconditional because Subsidiary Guarantors can be released and relieved of their obligations under certain customary circumstances contained in the indenture governing the Senior Notes and Senior Secured Notes. These circumstances include the following, so long as other applicable provisions of the indentures are adhered to: any sale or other disposition of all or substantially all of the assets of any Subsidiary Guarantors, any sale or other disposition of capital stock of any Subsidiary Guarantors, or designation of any restricted subsidiary that is a Subsidiary Guarantor as an unrestricted subsidiary.
The Condensed Consolidating Statements of Comprehensive (Loss) Income are presented net of intercompany activity. The following supplemental financial information sets forth, on a consolidating basis based on the equity method of accounting, balance sheets, statements of comprehensive income and loss, and statements of cash flows for the Company, the Subsidiary Guarantors, and the Company's non-guarantor subsidiaries.

28

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

SITEL Worldwide Corporation
Condensed Consolidating Balance Sheet
June 30, 2014
(in thousands of U.S. dollars)
 
Parent
 
Issuers
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
844

 
$
23,207

 
$

 
$
24,051

Accounts receivable (net of allowance for doubtful accounts)

 

 
111,991

 
141,047

 

 
253,038

Prepaids and other current assets
296,714

 
433

 
212,044

 
319,789

 
(766,381
)
 
62,599

Total current assets
296,714

 
433

 
324,879

 
484,043

 
(766,381
)
 
339,688

Property and equipment, net
62

 

 
38,840

 
53,003

 

 
91,905

Goodwill

 

 
16,690

 
101,020

 

 
117,710

Other intangible assets, net

 

 
16,104

 
19,920

 

 
36,024

Deferred income taxes

 

 
4,558

 
26,383

 

 
30,941

Investments in affiliates
(487,038
)
 
503,336

 
185,221

 

 
(201,519
)
 

Other noncurrent assets
3,138

 
94,842

 
47,125

 
25,365

 
(133,042
)
 
37,428

Total assets
$
(187,124
)
 
$
598,611

 
$
633,417

 
$
709,734

 
$
(1,100,942
)
 
$
653,696

Liabilities and Stockholders' (Deficit) Equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
103

 
$

 
$
7,315

 
$
16,862

 
$

 
$
24,280

Accrued payroll and benefits

 

 
12,420

 
67,555

 

 
79,975

Accrued liabilities and other
132,883

 
431,130

 
86,475

 
201,648

 
(766,381
)
 
85,755

Income taxes payable
107

 
4

 
290

 
6,697

 

 
7,098

Current portion of capital lease obligations

 

 
2,486

 
137

 

 
2,623

Total current liabilities
133,093

 
431,134

 
108,986

 
292,899

 
(766,381
)
 
199,731

Long-term debt

 
668,234

 

 
49,769

 

 
718,003

Capital lease obligations

 

 
3,576

 
148

 

 
3,724

Deferred income taxes

 

 
3,796

 

 

 
3,796

Other noncurrent liabilities

 
3,122

 
13,723

 
164,856

 
(133,042
)
 
48,659

Total liabilities
133,093

 
1,102,490

 
130,081

 
507,672

 
(899,423
)
 
973,913

Series B PIK preferred stock
70,849

 

 

 

 

 
70,849

Series C PIK preferred stock, net of beneficial conversion feature
64,171

 

 

 

 

 
64,171

Series D PIK preferred stock
75,847

 

 

 

 

 
75,847

Stockholders' (deficit) equity
 
 
 
 
 
 
 
 
 
 
 
Subsidiary exchangeable preferred stock
2,665

 

 

 

 

 
2,665

Common stock
1,277

 

 
536

 
168,965

 
(169,501
)
 
1,277

Additional paid-in capital
347,629

 
105,786

 
668,880

 
309,794

 
(1,084,460
)
 
347,629

Accumulated deficit
(828,838
)
 
(563,538
)
 
(120,306
)
 
(282,937
)
 
966,781

 
(828,838
)
Accumulated other comprehensive (loss) income, net of tax
(44,570
)
 
(46,127
)
 
(45,774
)
 
6,240

 
85,661

 
(44,570
)
Treasury shares, at cost
(9,247
)
 

 

 

 

 
(9,247
)
Total stockholders' (deficit) equity
(531,084
)
 
(503,879
)
 
503,336

 
202,062

 
(201,519
)
 
(531,084
)
Total liabilities and stockholders' (deficit) equity
$
(187,124
)
 
$
598,611

 
$
633,417

 
$
709,734

 
$
(1,100,942
)
 
$
653,696


29

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

SITEL Worldwide Corporation
Condensed Consolidating Balance Sheet
December 31, 2013
(in thousands of U.S. dollars)
 
Parent
 
Issuers
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
136

 
$
7,230

 
$

 
$
7,366

Accounts receivable (net of allowance for doubtful accounts)

 

 
112,222

 
130,250

 

 
242,472

Prepaids and other current assets
245,718

 
322

 
166,728

 
302,244

 
(661,180
)
 
53,832

Total current assets
245,718

 
322

 
279,086

 
439,724

 
(661,180
)
 
303,670

Property and equipment, net
206

 

 
37,840

 
51,616

 

 
89,662

Goodwill

 

 
16,690

 
101,019

 

 
117,709

Other intangible assets, net

 

 
16,104

 
20,443

 

 
36,547

Deferred income taxes
1,980

 

 
4,558

 
29,437

 

 
35,975

Investments in affiliates
(470,679
)
 
482,165

 
186,528

 

 
(198,014
)
 

Other noncurrent assets
2,972

 
87,280

 
47,460

 
24,023

 
(125,077
)
 
36,658

Total assets
$
(219,803
)
 
$
569,767

 
$
588,266

 
$
666,262

 
$
(984,271
)
 
$
620,221

Liabilities and Stockholders' (Deficit) Equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
502

 
$

 
$
5,842

 
$
13,817

 
$

 
$
20,161

Accrued payroll and benefits
3,342

 

 
12,230

 
61,074

 

 
76,646

Accrued liabilities and other
138,053

 
367,032

 
69,461

 
171,869

 
(661,180
)
 
85,235

Income taxes payable
426

 
82

 
187

 
6,815

 

 
7,510

Current portion of capital lease obligations

 

 
1,583

 
422

 

 
2,005

Total current liabilities
142,323

 
367,114

 
89,303

 
253,997

 
(661,180
)
 
191,557

Long-term debt

 
685,090

 

 
49,524

 

 
734,614

Capital lease obligations

 

 
2,993

 
132

 

 
3,125

Deferred income taxes

 

 
3,828

 

 

 
3,828

Other noncurrent liabilities
1,979

 
4,062

 
9,977

 
160,260

 
(125,076
)
 
51,202

Total liabilities
144,302

 
1,056,266

 
106,101

 
463,913

 
(786,256
)
 
984,326

Series B PIK preferred stock
66,982

 

 

 

 

 
66,982

Series C PIK preferred stock, net of beneficial conversion feature
59,056

 

 

 

 

 
59,056

Stockholders' (deficit) equity
 
 
 
 
 
 
 
 
 
 
 
Subsidiary exchangeable preferred stock
2,665

 

 

 

 

 
2,665

Common stock
1,275

 

 
536

 
168,965

 
(169,501
)
 
1,275

Additional paid-in capital
357,518

 
105,786

 
668,881

 
309,793

 
(1,084,460
)
 
357,518

Accumulated deficit
(788,390
)
 
(536,750
)
 
(131,717
)
 
(279,318
)
 
947,785

 
(788,390
)
Accumulated other comprehensive (loss) income, net of tax
(53,964
)
 
(55,535
)
 
(55,535
)
 
2,909

 
108,161

 
(53,964
)
Treasury shares, at cost
(9,247
)
 

 

 

 

 
(9,247
)
Total stockholders' (deficit) equity
(490,143
)
 
(486,499
)
 
482,165

 
202,349

 
(198,015
)
 
(490,143
)
Total liabilities and stockholders' (deficit) equity
$
(219,803
)
 
$
569,767

 
$
588,266

 
$
666,262

 
$
(984,271
)
 
$
620,221


30

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

SITEL Worldwide Corporation
Condensed Consolidating Statement of Comprehensive (Loss) Income
Three Months Ended June 30, 2014
(in thousands of U.S. dollars)
 
Parent
 
Issuers
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
Revenues
$

 
$

 
$
101,914

 
$
246,833

 
$

 
$
348,747

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Costs of services*

 

 
68,692

 
168,488

 

 
237,180

Selling, general, and administrative expenses*
4,379

 
40

 
22,520

 
60,485

 

 
87,424

Depreciation and amortization of property and equipment
61

 

 
2,877

 
5,610

 

 
8,548

Restructuring and exit charges

 

 
280

 
12,252

 

 
12,532

(Gain) loss on foreign currency transactions
(247
)
 
(477
)
 
(748
)
 
2,072

 

 
600

Other, net
(5
)
 
6

 
(71
)
 
(75
)
 

 
(145
)
Operating (loss) income
(4,188
)
 
431

 
8,364

 
(1,999
)
 

 
2,608

Interest and other financing costs, net

 
19,063

 
1,408

 
952

 

 
21,423

Equity in earnings of subsidiaries
17,513

 
(554
)
 
7,413

 

 
(24,372
)
 

Loss before income taxes
(21,701
)
 
(18,078
)
 
(457
)
 
(2,951
)
 
24,372

 
(18,815
)
Income tax (benefit) provision
(69
)
 

 
(1,011
)
 
3,897

 

 
2,817

Net (loss) income
(21,632
)
 
(18,078
)
 
554

 
(6,848
)
 
24,372

 
(21,632
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax of $0
2,761

 
1,949

 
2,302

 
2,425

 
(6,676
)
 
2,761

Unrealized gain (loss) on derivative valuation, net of tax expense of $1,265
1,483

 
1,486

 
1,486

 
(15
)
 
(2,957
)
 
1,483

Reclassification of pension amounts realized in Net (loss) income, net of tax of $0
37

 
37

 
37

 
37

 
(111
)
 
37

Comprehensive (loss) income
$
(17,351
)
 
$
(14,606
)
 
$
4,379

 
$
(4,401
)
 
$
14,628

 
$
(17,351
)
*Exclusive of Depreciation and amortization of property and equipment

31

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

SITEL Worldwide Corporation
Condensed Consolidating Statement of Comprehensive (Loss) Income
Six Months Ended June 30, 2014
(in thousands of U.S. dollars)
 
Parent
 
Issuers
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
Revenues
$

 
$

 
$
210,872

 
$
488,354

 
$

 
$
699,226

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Costs of services*

 

 
139,027

 
335,083

 

 
474,110

Selling, general, and administrative expenses*
12,705

 
78

 
46,343

 
120,228

 

 
179,354

Depreciation and amortization of property and equipment
148

 

 
5,846

 
10,966

 

 
16,960

Amortization of intangible assets

 

 

 
523

 

 
523

Restructuring and exit charges

 

 
465

 
15,339

 

 
15,804

(Gain) loss on foreign currency transactions
(147
)
 
(377
)
 
(2,212
)
 
2,926

 

 
190

Other, net
(5
)
 
6

 
31

 
(43
)
 

 
(11
)
Operating (loss) income
(12,701
)
 
293

 
21,372

 
3,332

 

 
12,296

Interest and other financing costs, net

 
38,491

 
2,766

 
1,732

 

 
42,989

Equity in earnings of subsidiaries
25,728

 
(11,410
)
 
4,678

 

 
(18,996
)
 

(Loss) income before income taxes
(38,429
)
 
(26,788
)
 
13,928

 
1,600

 
18,996

 
(30,693
)
Income tax provision
2,019

 

 
2,518

 
5,218

 

 
9,755

Net (loss) income
(40,448
)
 
(26,788
)
 
11,410

 
(3,618
)
 
18,996

 
(40,448
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax of $0
3,413

 
3,427

 
3,780

 
3,083

 
(10,290
)
 
3,413

Unrealized gain on derivative valuation, net of tax benefit of $2,153
5,909

 
5,909

 
5,909

 
176

 
(11,994
)
 
5,909

Reclassification of pension amounts realized in Net (loss) income, net of tax of $0
72

 
72

 
72

 
72

 
(216
)
 
72

Comprehensive (loss) income
$
(31,054
)
 
$
(17,380
)
 
$
21,171

 
$
(287
)
 
$
(3,504
)
 
$
(31,054
)
*Exclusive of Depreciation and amortization of property and equipment

32

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

SITEL Worldwide Corporation
Condensed Consolidating Statement of Comprehensive (Loss) Income
Three Months Ended June 30, 2013
(in thousands of U.S. dollars)
 
Parent
 
Issuers
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
Revenues
$

 
$

 
$
101,135

 
$
247,799

 
$

 
$
348,934

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Costs of services*

 

 
61,911

 
169,798

 

 
231,709

Selling, general, and administrative expenses*
7,910

 
32

 
20,383

 
62,000

 

 
90,325

Depreciation and amortization of property and equipment
105

 

 
2,731

 
5,791

 

 
8,627

Amortization of intangible assets

 

 

 
1,617

 

 
1,617

Restructuring and exit charges

 

 
127

 
1,859

 

 
1,986

Loss (gain) on foreign currency transactions
89

 
1,181

 
(1,395
)
 
(794
)
 

 
(919
)
Other, net
54

 

 
(251
)
 
(43
)
 

 
(240
)
Operating (loss) income
(8,158
)
 
(1,213
)
 
17,629

 
7,571

 

 
15,829

Interest and other financing costs, net
3

 
16,356

 
748

 
1,153

 

 
18,260

Equity in earnings of subsidiaries
(3,393
)
 
(20,305
)
 
(2,593
)
 

 
26,291

 

(Loss) income before income taxes
(4,768
)
 
2,736

 
19,474

 
6,418

 
(26,291
)
 
(2,431
)
Income tax provision (benefit)
103

 

 
(831
)
 
3,168

 

 
2,440

Net (loss) income
(4,871
)
 
2,736

 
20,305

 
3,250

 
(26,291
)
 
(4,871
)
Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax of $0
(10,663
)
 
(10,001
)
 
(10,001
)
 
(10,925
)
 
30,927

 
(10,663
)
Unrealized loss on derivative valuation, net of tax of $0
(7,583
)
 
(7,583
)
 
(7,583
)
 
(997
)
 
16,163

 
(7,583
)
Reclassification of pension amounts realized in Net (loss) income, net of tax of $0
(36
)
 
(36
)
 
(36
)
 
(36
)
 
108

 
(36
)
Comprehensive (loss) income
$
(23,153
)
 
$
(14,884
)
 
$
2,685

 
$
(8,708
)
 
$
20,907

 
$
(23,153
)
*Exclusive of Depreciation and amortization of property and equipment

33

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

SITEL Worldwide Corporation
Condensed Consolidating Statement of Comprehensive (Loss) Income
Six Months Ended June 30, 2013
(in thousands of U.S. dollars)
 
Parent
 
Issuers
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
Revenues
$

 
$

 
$
201,189

 
$
512,807

 
$

 
$
713,996

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
Costs of services*

 

 
121,198

 
349,457

 

 
470,655

Selling, general, and administrative expenses*
16,855

 
70

 
41,755

 
124,761

 

 
183,441

Depreciation and amortization of property and equipment
212

 

 
5,526

 
11,937

 

 
17,675

Amortization of intangible assets

 

 

 
3,234

 

 
3,234

Restructuring and exit charges

 

 
545

 
4,757

 

 
5,302

Loss (gain) on foreign currency transactions
9

 
1,231

 
731

 
(1,028
)
 

 
943

Loss on sale of subsidiary

 

 

 
4,558

 

 
4,558

Other, net
117

 

 
(251
)
 
(368
)
 

 
(502
)
Operating (loss) income
(17,193
)
 
(1,301
)
 
31,685

 
15,499

 

 
28,690

Interest and other financing costs, net
8

 
34,910

 
1,510

 
2,233

 

 
38,661

Equity in earnings of subsidiaries
(3,462
)
 
(38,514
)
 
(7,300
)
 

 
49,276

 

(Loss) income before income taxes
(13,739
)
 
2,303

 
37,475

 
13,266

 
(49,276
)
 
(9,971
)
Income tax provision (benefit)
207

 

 
(1,039
)
 
4,807

 

 
3,975

Net (loss) income
(13,946
)
 
2,303

 
38,514

 
8,459

 
(49,276
)
 
(13,946
)
Other comprehensive (loss) income
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax of $0
(9,532
)
 
(8,407
)
 
(8,407
)
 
(9,220
)
 
26,034

 
(9,532
)
Unrealized (loss) gain on derivative valuation, net of tax expense of $598
(6,158
)
 
(6,158
)
 
(6,158
)
 
354

 
11,962

 
(6,158
)
Reclassification of pension amounts realized in Net (loss) income, net of tax of $0
(73
)
 
(73
)
 
(73
)
 
(73
)
 
219

 
(73
)
Comprehensive (loss) income
$
(29,709
)
 
$
(12,335
)
 
$
23,876

 
$
(480
)
 
$
(11,061
)
 
$
(29,709
)
*Exclusive of Depreciation and amortization of property and equipment

34

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

SITEL Worldwide Corporation
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2014
(in thousands of U.S. dollars)
 
Parent
 
Issuers
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(40,448
)
 
$
(26,788
)
 
$
11,410

 
$
(3,618
)
 
$
18,996

 
$
(40,448
)
Undistributed equity in earnings of subsidiaries
25,728

 
(11,410
)
 
4,678

 

 
(18,996
)
 

Adjustments to reconcile Net (loss) income to net cash flows relating to operating activities:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization (including intangible assets)
148

 

 
5,846

 
11,489

 

 
17,483

Deferred income taxes
1,980

 

 
2,153

 
564

 

 
4,697

Non-cash derivative activity

 
469

 
2,585

 
782

 

 
3,836

Amortization of debt issue costs and original issue discount

 
2,516

 

 
109

 

 
2,625

Other non-cash items, net
119

 

 
(987
)
 
283

 

 
(585
)
Change in book overdrafts

 

 
(2,501
)
 
(637
)
 

 
(3,138
)
Changes in operating assets and liabilities, net
(62,342
)
 
55,758

 
(18,273
)
 
19,782

 

 
(5,075
)
Net cash (used in) provided by operating activities
(74,815
)
 
20,545

 
4,911

 
28,754

 

 
(20,605
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
(5
)
 

 
(4,712
)
 
(12,030
)
 

 
(16,747
)
Proceeds from disposition of property and equipment

 

 
1,199

 
9

 

 
1,208

Net cash used in investing activities
(5
)
 

 
(3,513
)
 
(12,021
)
 

 
(15,539
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of Series D Preferred Stock, net
74,820

 

 

 

 

 
74,820

Payments on long-term debt and capital lease obligations

 
(231,371
)
 
(690
)
 
(7,814
)
 

 
(239,875
)
Proceeds from long-term debt

 
213,371

 

 
7,330

 

 
220,701

Payment of interest rate swap, net

 
(1,826
)
 

 

 

 
(1,826
)
Payments of debt issue costs

 
(719
)
 

 

 

 
(719
)
Net cash provided by (used in) financing activities
74,820

 
(20,545
)
 
(690
)
 
(484
)
 

 
53,101

Effect of exchange rate on cash and cash equivalents

 

 

 
(272
)
 

 
(272
)
Net change in cash and cash equivalents

 

 
708

 
15,977

 

 
16,685

Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
 
Beginning of period

 

 
136

 
7,230

 

 
7,366

End of period
$

 
$

 
$
844

 
$
23,207

 
$

 
$
24,051


35

SITEL Worldwide Corporation
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(in thousands of U.S. dollars, except share and per share data)

SITEL Worldwide Corporation
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2013
(in thousands of U.S. dollars)
 
Parent
 
Issuers
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(13,946
)
 
$
2,303

 
$
38,514

 
$
8,459

 
$
(49,276
)
 
$
(13,946
)
Undistributed equity in earnings of subsidiaries
(3,462
)
 
(38,514
)
 
(7,300
)
 

 
49,276

 

Adjustments to reconcile Net (loss) income to net cash flows relating to operating activities:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization (including intangible assets)
212

 

 
5,526

 
15,171

 

 
20,909

Deferred income taxes

 

 
(794
)
 
1,816

 

 
1,022

Non-cash derivative activity

 
1,431

 
198

 
350

 

 
1,979

Amortization of debt issue costs and original issue discount

 
2,328

 

 
39

 

 
2,367

Loss on sale of subsidiary

 

 

 
4,558

 

 
4,558

Other non-cash items, net
160

 

 
(1,809
)
 
(1,845
)
 

 
(3,494
)
Change in book overdrafts

 
(1,586
)
 
5,937

 
1,245

 

 
5,596

Changes in operating assets and liabilities, net
17,068

 
54,036

 
(35,404
)
 
(27,440
)
 

 
8,260

Net cash provided by operating activities
32

 
19,998

 
4,868

 
2,353

 

 
27,251

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment

 

 
(3,861
)
 
(8,611
)
 

 
(12,472
)
Proceeds from disposition of property and equipment

 

 

 
270

 

 
270

Net cash used in investing activities

 

 
(3,861
)
 
(8,341
)
 

 
(12,202
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Payments on long-term debt and capital lease obligations

 
(424,665
)
 
(770
)
 
(648
)
 

 
(426,083
)
Proceeds from long-term debt

 
406,506

 

 
3,713

 

 
410,219

Payment of interest rate swap, net

 
(1,756
)
 

 

 

 
(1,756
)
Payments of debt issue costs

 
(15
)
 

 

 

 
(15
)
Net cash (used in) provided by financing activities

 
(19,930
)
 
(770
)
 
3,065

 

 
(17,635
)
Effect of exchange rate on cash and cash equivalents
(32
)
 
(68
)
 
(237
)
 
364

 

 
27

Net change in cash and cash equivalents

 

 

 
(2,559
)
 

 
(2,559
)
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
 
Beginning of period

 

 

 
12,245

 

 
12,245

End of period
$

 
$

 
$

 
$
9,686

 
$

 
$
9,686


36

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(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, customer acquisition, retention and revenue generation services, and back office support. 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, IVR, and social media channels. We serve a broad range of industry end–markets, including financial services, technology, wireless, retail and consumer products, telecommunications, media and entertainment, energy and utilities, travel and transportation, internet service providers, insurance, public sector, and healthcare.
We strive to deliver value to our clients by reducing their operating costs, as well as increasing their revenue through improved customer satisfaction, increased retention and more effective sales interactions. Many of our clients seek providers who offer a complete suite of customer care services tailored to the needs of their particular end-market. Our top ten clients utilize, on average, four of our services.
We are organized geographically and have two reporting segments: (1) "Americas," which refers to North America, Latin America, and Asia Pacific; and (2) "EMEA," which refers to Europe, the Middle East, and Africa. Each reporting segment performs substantially the same services for clients.
Our global and flexible operating platform is one of the industry’s most geographically diverse, with services delivered in 40 languages through a network of approximately 110 customer contact centers and related facilities in 23 countries. We have approximately 41,600 employees based in the Americas and approximately 15,800 employees based in EMEA. Our blend of domestic, near-shore, and off-shore locations allows us to provide customized client solutions, whether to service customers in a single country or across many different countries at various price points. Our standardized practices and regionalized support functions are designed to achieve consistent, quality service throughout the world.
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 could 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 Annual Report on Form 10-K filed with the SEC on February 19, 2014. 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 Annual Report 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

37

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

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 Annual Report on Form 10-K filed with the SEC on February 19, 2014. Any deviation from these policies or estimates could have a material impact on our Condensed Consolidated Financial Statements.
Results of Operations
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and segment data therein. Results for interim periods may not be indicative of the results for the full years. The table below presents statement of operations data, including the amount and percentage changes for the periods indicated, as well as Revenues, Costs of services, and SG&A adjusted to exclude the impact of foreign exchange translation. See Non-GAAP Measures for more information on the computation of Revenues, Costs of services, and SG&A that have been adjusted to exclude the impact of foreign exchange translation.

38

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

 
Three Months Ended June 30,
 
Dollar
Change
 
Percentage
Change
 
Percentage Change Excluding Foreign Exchange
 
Foreign Exchange Impact
 
2014
 
2013
 
 
 
 
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Americas
$
212,783

 
$
219,782

 
$
(6,999
)
 
(3.2
)%
 
(1.6
)%
 
$
(3,439
)
EMEA
135,937

 
129,137

 
6,800

 
5.3
 %
 
(0.2
)%
 
7,090

Other
27

 
15

 
12

 
80.0
 %
 
na

 

Total revenues
348,747

 
348,934

 
(187
)
 
(0.1
)%
 
(1.1
)%
 
3,651

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Costs of services:
 
 
 
 
 
 
 
 
 
 
 
Americas
137,677

 
137,303

 
374

 
0.3
 %
 
2.2
 %
 
(2,676
)
EMEA
99,808

 
93,292

 
6,516

 
7.0
 %
 
1.3
 %
 
5,338

Other
(305
)
 
1,114

 
(1,419
)
 
(127.4
)%
 
0.3
 %
 
(1,422
)
Total costs of services
237,180

 
231,709

 
5,471

 
2.4
 %
 
1.8
 %
 
1,240

Selling, general and administrative expenses:
 
 
 
 
 
 
 
 
 
 
 
Americas
47,998

 
49,512

 
(1,514
)
 
(3.1
)%
 
(0.5
)%
 
(1,281
)
EMEA
29,847

 
28,927

 
920

 
3.2
 %
 
(2.2
)%
 
1,559

Other
9,579

 
11,886

 
(2,307
)
 
(19.4
)%
 
(18.3
)%
 
(126
)
Total selling, general and administrative expenses
87,424

 
90,325

 
(2,901
)
 
(3.2
)%
 
(3.4
)%
 
152

Depreciation and amortization of property and equipment
8,548

 
8,627

 
(79
)
 
(0.9
)%
 
na

 
na

Amortization of intangible assets

 
1,617

 
(1,617
)
 
(100.0
)%
 
na

 
na

Restructuring and exit charges
12,532

 
1,986

 
10,546

 
531.0
 %
 
na

 
na

Loss (gain) on foreign currency transactions
600

 
(919
)
 
1,519

 
165.3
 %
 
na

 
na

(Gain) loss on disposal of assets
(86
)
 
30

 
(116
)
 
(386.7
)%
 
na

 
na

Other income, net
(59
)
 
(270
)
 
211

 
78.1
 %
 
na

 
na

Operating income
2,608

 
15,829

 
(13,221
)
 
(83.5
)%
 
na

 
na

Interest and other financing costs, net
21,423

 
18,260

 
3,163

 
17.3
 %
 
na

 
na

Loss before income taxes
(18,815
)
 
(2,431
)
 
(16,384
)
 
(674.0
)%
 
na

 
na

Income tax provision
2,817

 
2,440

 
377

 
15.5
 %
 
na

 
na

Net income
$
(21,632
)
 
$
(4,871
)
 
$
(16,761
)
 
(344.1
)%
 
na

 
na

Revenues
We reported Revenues of $348,747 for the three months ended June 30, 2014, a decrease of $187, compared to $348,934 for the three months ended June 30, 2013. Excluding the $3,651 impact of foreign exchange translation, Revenues decreased $3,838 in the second quarter of 2014, compared to the second quarter of 2013. Revenues decreased in the second quarter of 2014 (excluding the impact of foreign exchange translation) primarily due to $27,300 of attrition, of which $19,500 related to the Americas and $7,800 related to EMEA. These decreases were partially offset by revenue from new clients of $16,800, with $11,500 attributable to the Americas and $5,300 attributable to EMEA. In addition, net growth of existing client campaigns was $6,600, of which $4,400 related to Americas and $2,200 related to EMEA.

39

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

Costs of Services
Costs of services were $237,180 for the three months ended June 30, 2014, an increase of $5,471, compared to $231,709 for the three months ended June 30, 2013. Excluding the impact of foreign exchange translation of $1,240, Costs of services increased $4,231 during the three months ended June 30, 2014, as compared to the same period of 2013. The increase in Costs of services was driven by the cost to ramp new business, changes in pricing, and changes in the client and geographic mix of Revenues.
SG&A
SG&A expenses were $87,424 for the three months ended June 30, 2014, a decrease of $2,901, compared to $90,325 for the three months ended June 30, 2013. Excluding the impact of foreign currency translation of $152, SG&A decreased $3,053 during the three months ended June 30, 2014, compared to the same period of 2013. The decrease was primarily related to SG&A initiatives around employee and consultant expenses.
Depreciation and Amortization of Property and Equipment
Depreciation and amortization of property and equipment was $8,548 for the three months ended June 30, 2014, a decrease of $79 or 0.9%, as compared to $8,627 for the three months ended June 30, 2013.
Amortization of Intangible Assets
Amortization of intangible assets was $0 for the three months ended June 30, 2014, compared to $1,617 for the three months ended June 30, 2013. The decrease is due to the customer relationship intangibles becoming fully amortized during the first quarter of 2014.
Restructuring and Exit Charges
Given the nature of the industry we operate in, we evaluate and assess our worldwide operations in an effort to rationalize facility and labor costs, further streamline our operations in order to align resources to support growth, and appropriately shift the geographic mix of Company resources. This evaluation has resulted in restructuring activities and their related charges, as summarized below.
Restructuring and exit charges were $12,532 for the three months ended June 30, 2014, an increase of $10,546, as compared to $1,986 for the three months ended June 30, 2013. Restructuring charges for the second quarter of 2014 included severance costs of $11,864 and site closure costs of $668, which are primarily ongoing lease and other contractual obligations.
During the three months ended June 30, 2014, 846 positions were eliminated and two sites were closed, resulting in total restructuring charges of $11,864 and estimated annualized savings of $1,097. The remaining accrual for 2014 severance-related activities of $8,204 is expected to be paid during the remainder of 2014 and the remaining facility exit costs accrual of $757 is expected to be paid during the remainder of 2014 through the year 2015 as the related leases expire.
In the second quarter of 2014, we recognized expense of $904 relating to restructuring activities that were initiated in 2013 and prior years. These activities are expected to be completed by the end of 2017 as the related leases expire. The remaining accrual for severance-related activities of $733 is expected to be paid by the end of 2014, and the remaining accrual for facility exit costs of $2,251 is expected to be paid during the remainder of 2014 through 2017 as the related leases expire.
(Gain) Loss on Foreign Currency Transactions
We recognized a loss on foreign currency transactions of $600 for the three months ended June 30, 2014, compared to a gain of $919 for the three months ended June 30, 2013. The variance is attributable to foreign currency rate fluctuations, primarily related the strengthening of the U.S. Dollar and the British Pound Sterling against the Euro, partially offset by the aforementioned out of period adjustment during the three months ended June 30, 2014.

40

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

(Gain) Loss on Disposal of Assets
We recognized a gain on disposal of assets of $86 for the three months ended June 30, 2014, compared to a loss of $30 for the three months ended June 30, 2013. The gain during the three months ended June 30, 2013 was primarily related to disposal of assets in the Americas.
Interest and Other Financing Costs, Net
Interest and other financing costs were $21,423 for the three months ended June 30, 2014, an increase of $3,163, compared to $18,260 for the three months ended June 30, 2013. The increase was primarily attributable to non-cash mark-to-market losses related to our interest rate swap for the three months ended June 30, 2014 as compared to gains during the same period of 2013.
Income Tax Provision
The provision for income taxes was $2,817 for the three months ended June 30, 2014, compared to a provision of $2,440 for the three months ended June 30, 2013. The increase in tax expense resulted primarily from an increase in the tax reserves by $991 related to foreign uncertain tax positions recorded during the three months ended June 30, 2014 offset by a tax benefit of $1,265 recorded during the same period from changes in the intra-period allocation to continuing operations in addition to changes in the regional mix of pre-tax book income.
Management will continue to assess our 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. It is not anticipated that the Company will release any remaining portion of valuation allowances with respect to these operations during 2014.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and segment data therein. Results for interim periods may not be indicative of the results for the full years. The table below presents statement of operations data, including the amount and percentage changes for the periods indicated, as well as Revenues, Costs of services, and SG&A adjusted to exclude the impact of foreign exchange translation. See Non-GAAP Measures for more information on the computation of Revenues, Costs of services, and SG&A that have been adjusted to exclude the impact of foreign exchange translation.

41

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

 
Six Months Ended June 30,
 
Dollar
Change
 
Percentage
Change
 
Percentage Change Excluding Foreign Exchange
 
Foreign Exchange Impact
 
2014
 
2013
 
 
 
 
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Americas
$
423,611

 
$
442,266

 
$
(18,655
)
 
(4.2
)%
 
(1.9
)%
 
$
(10,181
)
EMEA
275,567

 
271,719

 
3,848

 
1.4
 %
 
(3.1
)%
 
12,389

Other
48

 
11

 
37

 
336.4
 %
 
na

 

Total revenues
699,226

 
713,996

 
(14,770
)
 
(2.1
)%
 
(2.4
)%
 
2,208

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Costs of services:
 
 
 
 
 
 
 
 
 
 
 
Americas
272,353

 
274,612

 
(2,259
)
 
(0.8
)%
 
1.7
 %
 
(7,011
)
EMEA
202,414

 
195,633

 
6,781

 
3.5
 %
 
(1.3
)%
 
9,314

Other
(657
)
 
410

 
(1,067
)
 
(260.2
)%
 
(5.1
)%
 
(1,046
)
Total costs of services
474,110

 
470,655

 
3,455

 
0.7
 %
 
0.5
 %
 
1,257

Selling, general and administrative expenses:
 
 
 
 
 
 
 
 
 
 
 
Americas
96,054

 
99,531

 
(3,477
)
 
(3.5
)%
 
(0.5
)%
 
(2,958
)
EMEA
61,168

 
59,352

 
1,816

 
3.1
 %
 
(1.6
)%
 
2,741

Other
22,132

 
24,558

 
(2,426
)
 
(9.9
)%
 
(13.1
)%
 
787

Total selling, general and administrative expenses
179,354

 
183,441

 
(4,087
)
 
(2.2
)%
 
(2.5
)%
 
570

Depreciation and amortization of property and equipment
16,960

 
17,675

 
(715
)
 
(4.0
)%
 
na

 
na

Amortization of intangible assets
523

 
3,234

 
(2,711
)
 
(83.8
)%
 
na

 
na

Restructuring and exit charges
15,804

 
5,302

 
10,502

 
198.1
 %
 
na

 
na

Loss on foreign currency transactions
190

 
943

 
(753
)
 
(79.9
)%
 
na

 
na

Loss on sale of subsidiary

 
4,558

 
(4,558
)
 
(100.0
)%
 
na

 
na

Loss (gain) on disposal of assets
27

 
(209
)
 
236

 
112.9
 %
 
na

 
na

Other income, net
(38
)
 
(293
)
 
255

 
87.0
 %
 
na

 
na

Operating income
12,296

 
28,690

 
(16,394
)
 
(57.1
)%
 
na

 
na

Interest and other financing costs, net
42,989

 
38,661

 
4,328

 
11.2
 %
 
na

 
na

Loss before income taxes
(30,693
)
 
(9,971
)
 
(20,722
)
 
(207.8
)%
 
na

 
na

Income tax provision
9,755

 
3,975

 
5,780

 
145.4
 %
 
na

 
na

Net loss
$
(40,448
)
 
$
(13,946
)
 
$
(26,502
)
 
(190.0
)%
 
na

 
na

Revenues
We reported Revenues of $699,226 for the six months ended June 30, 2014, a decrease of $14,770, compared to $713,996 for the three months ended June 30, 2013. Excluding the $2,208 impact of foreign exchange translation, Revenues decreased $16,978 in the first six months of 2014, compared to the first six months of 2013. Revenues decreased in the first six months of 2014 (excluding the impact of foreign exchange translation) primarily due to $69,300 of attrition, of which $43,700 related to the Americas and $25,600 related to EMEA. These decreases were partially offset by revenue from new clients of $37,700, with

42

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

$25,600 attributable to the Americas and $12,100 attributable to EMEA. In addition, net growth of existing client campaigns was $14,500, of which $9,600 related to Americas and $4,900 related to EMEA.
Costs of Services
Costs of services were $474,110 for the six months ended June 30, 2014, an increase of $3,455, compared to $470,655 for the six months ended June 30, 2013. Excluding the impact of foreign exchange translation of $1,257, Costs of services increased $2,198 during the six months ended June 30, 2014, as compared to the same period of 2013. The increase in Costs of services was driven by the cost to ramp new business, changes in pricing, and changes in the client and geographic mix of Revenues.
SG&A
SG&A expenses were $179,354 for the six months ended June 30, 2014, a decrease of $4,087, compared to $183,441 for the six months ended June 30, 2013. Excluding the impact of foreign currency translation of $570, SG&A decreased $4,657 during the six months ended June 30, 2014, compared to the same period of 2013. The decrease was primarily related to SG&A initiatives around employee, consultant, facility, and telecommunication expenses.
Depreciation and Amortization of Property and Equipment
Depreciation and amortization of property and equipment was $16,960 for the six months ended June 30, 2014, a decrease of $715 or 4.0%, as compared to $17,675 for the six months ended June 30, 2013. The decrease is primarily driven from assets in the Americas becoming fully depreciated during 2013.
Amortization of Intangible Assets
Amortization of intangible assets was $523 for the six months ended June 30, 2014, a decrease of $2,711, or 83.8%, compared to $3,234 for the six months ended June 30, 2013. The decrease is primarily related to the customer relationship intangibles becoming fully amortized during the first quarter of 2014 resulting in no amortization expense recorded during the second quarter of 2014.
Restructuring and Exit Charges
Given the nature of the industry we operate in, we evaluate and assess our worldwide operations in an effort to rationalize facility and labor costs, further streamline our operations in order to align resources to support growth, and appropriately shift the geographic mix of Company resources. This evaluation has resulted in restructuring activities and their related charges, as summarized below.
Restructuring and exit charges were $15,804 for the six months ended June 30, 2014, an increase of $10,502, as compared to $5,302 for the six months ended June 30, 2013. Restructuring charges for the first six months of 2014 included severance costs of $13,883 and site closure costs of $1,921, which are primarily ongoing lease and other contractual obligations.
During the six months ended June 30, 2014, 1,373 positions were eliminated and two sites were closed, resulting in total restructuring charges of $12,638 and estimated annualized savings of $2,482. The remaining accruals for 2014 severance-related activities of $8,204 is expected to be paid during the remainder of 2014 and the remaining facility exit costs accrual of $757 is expected to be paid during the remainder of 2014 through the year 2015 as the related leases expire.
In the first six months of 2014, we recognized expense of $1,793 relating to restructuring activities that were initiated in 2013 and prior years. These activities are expected to be completed by the end of 2017 as the related leases expire. The remaining accrual for severance-related activities of $733 is expected to be paid by the end of 2014, and the remaining accrual for facility exit costs of $2,251 is expected to be paid during the remainder of 2014 through 2017 as the related leases expire.
Loss on Foreign Currency Transactions
We recognized a loss on foreign currency transactions of $190 for the six months ended June 30, 2014, compared to a loss of $943 for the six months ended June 30, 2013. The variance is attributable to foreign currency rate fluctuations, primarily

43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

related the strengthening of the U.S. Dollar and the British Pound Sterling against the Euro, partially offset by the aforementioned out of period adjustment during the three months ended June 30, 2014.
Loss (Gain) on Disposal of Assets
We recognized a loss on disposal of assets of $27 for the six months ended June 30, 2014, compared to a gain of $209 for the six months ended June 30, 2013. The gain during the six months ended June 30, 2013 was primarily related to disposal of assets in the Americas.
Interest and Other Financing Costs, Net
Interest and other financing costs were $42,989 for the six months ended June 30, 2014, an increase of $4,328, compared to $38,661 for the six months ended June 30, 2013. The increase was primarily attributable to non-cash mark-to-market losses related to our interest rate swap for the six months ended June 30, 2014 as compared to gains during the same period of 2013.
Income Tax Provision
The provision for income taxes was $9,755 for the six months ended June 30, 2014, compared to a provision of $3,975 for the six months ended June 30, 2013. The increase in tax expense resulted primarily from tax expense in jurisdictions that were not taxable through the second quarter of 2013 due to valuation allowances in place at that time. We also recognized additional tax expense primarily resulting from changes in the intra-period allocation to continuing operations of $2,153 recorded during the six months ended June 30, 2014 compared to a tax benefit of $598 recorded in the same period of 2013, and tax expense of $1,682 related to foreign uncertain tax positions and tax audits recorded during the six months ended June 30, 2014 compared to a tax benefit of $356 recorded in the same period of 2013.
We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing operations (the "Income Tax Allocation"). Through the second quarter of 2014, as a result of the Income Tax Allocation, we recorded a non-cash deferred income tax expense of $1,646 against Other comprehensive income as a result of year-to-date gains from mark-to-market fluctuations on foreign currency hedges that are designated as accounting hedges and an offsetting non-cash income tax benefit of $1,646 in continuing operations. Also during the first quarter of 2014, the 2013 hedge portfolio was fully settled resulting in the reversal of previously recorded tax benefits resulting in non-cash income tax expense of $3,799.
Management will continue to assess our 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. It is not anticipated that the Company will release any remaining portion of valuation allowances with respect to these operations during 2014.
Client Concentration
Our ten largest clients represented approximately 37.2% and 36.9%, respectively, of our revenues for the three and six months ended June 30, 2014, as compared to 37.0% and 36.6%, respectively, for the comparable periods in 2013. No client accounted for more than 10% of our total revenues during these periods.
Liquidity and Capital Resources
Our principal sources of liquidity are net cash provided by operating activities, borrowings under our Senior Secured Credit Facility, and proceeds from the issuances of our Senior Secured Notes, Senior Notes, and equity. We expect that these will continue to be our principal sources of cash in the future. Our principal uses of cash have included debt service, capital expenditures, restructuring activities, and the financing of working capital. We expect that these will continue to be our principal uses of cash in the future.
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. We protect our cash

44

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

reserves by maintaining sound cash management practices, relationships with reputable banking partners, and highly liquid investments. We continuously review our assertion for indefinitely reinvested earnings in line with our global cash strategy. Based on forecasted cash needs, no changes to our assertion are necessary at this time.
We believe that cash generated from operations, existing cash balances, and borrowings under our Senior Secured Credit Facility or other financing arrangements will be sufficient to meet our working capital requirements, anticipated capital expenditures, and scheduled debt payments.
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 contact centers. Our working capital and capital expenditure requirements could also increase materially in the event cash is required to fund new strategic initiatives, the resolution of certain litigation or administration disputes, or other unexpected business expenses. These factors could require that we raise additional capital through future debt or equity financing or reduce certain capital and other expenditures.
We expect our operations to continue to require capital expenditures consistent with prior periods to support the growth of our business. We expect to continue to finance equipment purchases through proceeds from our operations, our Senior Secured Credit Facility, and our ability to acquire equipment through operating and capital lease obligations with various equipment vendors and lending institutions.
Cash Flows
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
The following summarizes our primary sources and uses of cash in the periods presented (in thousands):
 
 
 
 
 
Increase
 
Six Months Ended June 30,
 
(Decrease) to
 
 
Net Cash Flow
 
2014
 
2013
 
Amount
Cash provided by (used in):
 
 
 
 
 
Operating activities
$
(20,605
)
 
$
27,251

 
$
(47,856
)
Investing activities
(15,539
)
 
(12,202
)
 
3,337

Financing activities
53,101

 
(17,635
)
 
70,736

Operating Activities.    Cash used in operations was $20,605 during the six months ended June 30, 2014, compared to a source of cash of 27,251 during the six months ended June 30, 2013. The $47,856 decrease compared to the same period in 2013 was primarily driven by an increase in Net loss. In addition, there was decrease in cash from the changes in working capital as a result of an increase in Accounts receivable. The increase in Accounts receivable was due to the timing of cash receipts in the current quarter as compared to prior year.
Investing Activities.    Cash used in investing activities was $15,539 during the six months ended June 30, 2014 compared to $12,202 during the comparable period in 2013. The $3,337 increase was primarily due to increases in capital expenditures partially offset by an the disposition of an asset held for sale in the Americas during the six months ended June 30, 2014.
Financing Activities.    Cash provided by financing activities was $53,101 during the six months ended June 30, 2014, compared to a use of cash of $17,635 during the same period in 2013. The $70,736 increase was primarily due to the issuance of Series D Preferred Stock during the six months ended June 30, 2014.
Cash Position, Working Capital and Indebtedness
As of June 30, 2014, our total Cash and cash equivalents were $24,051 and we had total indebtedness of $724,350. Working capital was $139,957 at June 30, 2014, compared to $112,113 at December 31, 2013, while adjusted working capital (defined as current assets (excluding Cash and cash equivalents and restricted cash) less current liabilities (excluding current portion of long-term debt and book overdrafts)) was $114,364 at June 30, 2014, compared to $105,965 at December 31, 2013, an increase of $8,399. Adjusted working capital is a non-GAAP measure. See "Non-GAAP Measures" for a reconciliation of this non-GAAP measure.

45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

Contractual Obligations and Commercial Commitments
Senior Notes
On March 18, 2010, SITEL, LLC and Sitel Finance Corp. (the "Issuers") issued the 11.5% Senior Notes due April 1, 2018 having an aggregate principal amount of $300,000 with an original issuance discount of $7,638. The Senior Notes are general unsecured obligations of SITEL Worldwide Corporation 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 our 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 100.0% of the outstanding balance on the Revolvers, both of which are discussed further below.
We are not required to make mandatory redemptions or sinking fund payments with respect to the Senior Notes; however at any time prior to August 1, 2013, the issuers of the Senior Notes may, on any one or more occasions, redeem up to 35.0% of the aggregate principal amount of Senior Notes with the net proceeds of certain equity offerings at 111.5%. Prior to April 1, 2014, the Senior Notes may be redeemed in part or in full at a redemption price equal to 100.0% 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 100.000% 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 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.
Senior Secured Notes
On April 20, 2012, the Issuers issued the 11.0% Senior Secured Notes due August 1, 2017, having an aggregate principal amount of $200,000 with an original issuance discount of $8,000. The Senior Secured Notes are guaranteed by our domestic subsidiaries and will mature on August 1, 2017. The Senior Secured Notes and the guarantees are the senior obligations of the Issuers and the guarantors and are secured on a first-priority basis by a lien on substantially all of the assets of the Issuers and the guarantors, subject to certain exceptions. Interest accrues on the Senior Secured Notes at a rate of 11.0% annually, and is payable semi-annually in arrears on February 1 and August 1. Proceeds from the Senior Secured Notes offering were used to pay down approximately $128,900 of the Term Loans and 100.0% of the outstanding balance on the Revolvers, both of which are discussed further below.
We are not required to make mandatory redemptions or sinking fund payments with respect to the Senior Secured Notes; however at any time prior to August 1, 2014, the issuers of the Senior Notes may, on any one or more occasions, redeem up to 35.0% of the aggregate principal amount of Senior Secured Notes with the net proceeds of certain equity offerings at 111.0%. Prior to August 1, 2014, the Senior Secured Notes may be redeemed in part or in full at a redemption price equal to 100.0% of the principal amount of the Senior Secured Notes, plus a make-whole premium calculated in accordance with the indenture governing the Senior Secured Notes and accrued and unpaid interest. On or after August 1, 2014, the Senior Secured Notes may be redeemed in part or in full at the following percentages of the outstanding principal amount prepaid: 105.500% prior to August 1, 2015; 102.750% on or after August 1, 2015, but prior to August 1, 2016; and 100.000% on or after August 1, 2016.
The indenture governing the Senior Secured Notes contains customary covenants and restrictions on the activities of SITEL, LLC, Sitel Finance 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.

46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

2007 Senior Secured Credit Facility
Overview
On January 30, 2007, we entered into a 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 included $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 €51,447 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.
As of June 30, 2014, we had an aggregate of $227,741 of outstanding indebtedness under our Senior Secured Credit Facility, which consisted of $227,741 of Term Loans and $0 of Revolvers. Our Term Loans consisted of $177,973 outstanding on the U.S. term loan, $29,833 outstanding on the Euro term loan, and $19,935 outstanding on the British pound sterling term loan. In addition, we had outstanding letters of credit of $2,043 as of that date. As of June 30, 2014, we had $59,207 available for additional borrowings under our Revolvers.
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 $27,047 of outstanding principal under the Term Loans for $15,000, which Term Loans were subsequently cancelled and retired.
Second Amendment
In April 2009, we entered into the second amendment to our Senior Secured Credit Facility which effected a technical amendment clarifying certain terms governing minimum borrowing amounts under certain interest rates including London Interbank Offer Rate ("LIBOR").
Third Amendment
In February 2010, we entered into a 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.
Fourth Amendment
During the second quarter of 2011, we entered into the fourth amendment to the Senior Secured Credit Facility (the "Fourth Amendment") to, among other things, allow flexibility to refinance or prepay the non-extended portions of the Term Loans prior to the extended portions, and to refinance, extend or replace the Revolvers and Term Loans; increase the Senior Secured Leverage Ratio covenant levels; and decrease the Minimum Interest Coverage Ratio covenant levels.
Fifth Amendment
In April 2012, we entered into the fifth amendment to the Senior Secured Credit Facility (the "Fifth Amendment") which allowed for the issuance and sale of the Senior Secured Notes, modified our leverage covenant and interest coverage covenant and changed the currency mix of our lenders' revolver commitments. During the second quarter of 2012, a portion of the proceeds received from the issuance of the Senior Secured Notes were used to prepay the outstanding balances on the non-extended term loans, which were due in January 2014.

47

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

Sixth Amendment
In February 2014, we entered into the sixth amendment to the Senior Secured Credit Facility (the "Sixth Amendment") which increased our Senior Secured Leverage Ratio and decreased our Minimum Interest Coverage Ratio covenant levels.
Interest
The Term Loans mature in January 2017. All Term Loans 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 U.S. term loan is based, at our option, on LIBOR plus the applicable margin of 6.75% or the higher of (i) the federal funds rate plus 0.50% or (ii) the banks’ prime rate, plus the applicable margin of 5.75%. Interest on the Euro term loan is based on EURIBOR plus the applicable margin of 6.75%. Interest on the British pound sterling term loan is based on LIBOR plus the applicable margin of 6.75%. We have an interest rate swap agreement for the notional amount of $350,000 against our Term Loans that is based on a rate of 2.315% versus three month LIBOR. In November 2011, we amended our interest rate swap agreement to reduce the notional amount to $175,000 as of March 31, 2012.
The Revolvers mature in January 2016. In January 2013, the non-extended portion of our U.S. Revolver expired, reducing the borrowing capacity under the Revolvers from $85,000 to $61,250. A commitment fee is payable quarterly at 0.50% per annum of the undrawn portion of the Revolvers. Interest on the U.S. revolver is based, at our option, on LIBOR plus the applicable margin of 6.75%, or the higher of the federal funds rate plus 0.50% or the prime rate plus the applicable margin of 5.75%. Interest on the Canadian revolver is based, at our option, on the Canadian banker's acceptance rate plus the applicable margin of 6.75% or the higher of the one month BA Rate 0.75% or the Canadian prime rate plus the applicable margin of 5.75%.
For the six months ended June 30, 2014, including the impact of our interest rate swap, the weighted average interest rate on the Term Loans was 8.60%. The weighted average rate on the Revolvers was 8.24% for the same period. Specified interest rates for the Euro term loan and British pound sterling term loan are as described in the Senior Secured Credit Facility.
Covenants
We are required under the terms of the Senior Secured Credit Facility to maintain certain financial covenants on a quarterly and annual basis, specifically:
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 of our assets or equity interests or any of our subsidiaries to our Adjusted EBITDA (as defined in the amended 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.
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.
We were in compliance with all debt covenants under the Senior Secured Credit Facility as of June 30, 2014. We believe that we will continue to be in compliance with restrictive covenants in our Senior Secured Credit Facility throughout the next twelve months.
Off-Balance Sheet Arrangements
Our off balance sheet arrangements primarily consist of our operating leases and standby letters of credit. We lease property and equipment under non-cancelable operating lease arrangements with initial or remaining lease terms in excess of one year. At June 30, 2014, the future lease commitments relating to our operating leases were $122,822. We utilize standby

48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(in thousands of U.S. dollars, except share and per share data)

letters of credit to support primarily workers’ compensation policy requirements and certain operating leases. These obligations will expire at various dates through June 2015, and are renewed as required. The outstanding commitment on these obligations at June 30, 2014 was $2,043.
Non-GAAP Measures
We use Adjusted working capital and Revenues, Costs of services, and SG&A that have been adjusted to exclude the impact of foreign exchange translation as non-GAAP measures.
The computation of Adjusted working capital is as follows:
 
June 30, 2014
 
December 31, 2013
Working capital (a)
$
139,957

 
$
112,113

Adjustments:
 
 
 
Cash and cash equivalents
(24,051
)
 
(7,366
)
Restricted cash
(4,552
)
 
(4,312
)
Current portion of capital lease obligations
2,623

 
2,005

Book overdrafts
387

 
3,525

Total adjustments
(25,593
)
 
(6,148
)
Adjusted working capital
$
114,364

 
$
105,965

(a) Defined as current assets less current liabilities from the Condensed Consolidated Balance Sheets.
We believe that Adjusted working capital provides a meaningful measure of our operational results and underlying performance.
The computation of Revenues, Costs of services, and SG&A that have been adjusted to exclude the impact of foreign exchange translation is as follows:
 
Three Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
2014
 
2013
 
Dollar
Change
 
Percentage
Change
 
Percentage Change Excluding Foreign Exchange
 
Foreign Exchange Impact
 
$ Change without Foreign exchange impact
Total revenues
$
348,747

 
$
348,934

 
$
(187
)
 
(0.1
)%
 
(1.1
)%
 
$
3,651

 
$
(3,838
)
Total costs of services
237,180

 
231,709

 
5,471

 
2.4
 %
 
1.8
 %
 
1,240

 
4,231

Total SG&A
87,424

 
90,325

 
(2,901
)
 
(3.2
)%
 
(3.4
)%
 
152

 
(3,053
)
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
2014
 
2013
 
Dollar
Change
 
Percentage
Change
 
Percentage Change Excluding Foreign Exchange
 
Foreign Exchange Impact
 
$ Change without Foreign exchange impact
Total revenues
$
699,226

 
$
713,996

 
$
(14,770
)
 
(2.1
)%
 
(2.4
)%
 
$
2,208

 
$
(16,978
)
Total costs of services
474,110

 
470,655

 
3,455

 
0.7
 %
 
0.5
 %
 
1,257

 
2,198

Total SG&A
179,354

 
183,441

 
(4,087
)
 
(2.2
)%
 
(2.5
)%
 
570

 
(4,657
)
We believe that the presentation of Revenue, Costs of services, and SG&A excluding the impact of foreign exchange translation provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance.
The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP and may not be comparable to other companies' non-GAAP measures with similar titles.

49

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 Annual Report on Form 10-K filed with the SEC on February 19, 2014. As of June 30, 2014, 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 June 30, 2014. 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 June 30, 2014, 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 three months ended June 30, 2014 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

50

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
For a detailed discussion of the risks and uncertainties associated with our business see “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on February 19, 2014. There have been no material changes to these risk factors since that report.

51

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(in thousands of U.S. dollars, except share and per share data)

On June 9, 2014, we completed the sale of $75,000 of newly authorized 16% Cumulative Participating Preferred Stock, Series D (the "Series D Preferred Stock") at $1,000 per share to certain existing shareholders of the Corporation, led by Onex Clientlogic Holdings LLC in continuation of its support to fund sales growth, invest in our clients, and execute ongoing cost initiatives. Holders of the Series D Preferred Stock will be 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 our Board of Directors. The 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 $0.77 per share), in settlement of these obligations (including all accumulated and unpaid dividends through the redemption date).
The following table presents shareholder participation in the sale:
Name
 
Shares Purchased
Onex ClientLogic Holdings LLC
 
73,682

Other existing shareholders (six in total)
 
1,318

The Series D Preferred Stock was offered and sold to the investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.
ITEM 5. OTHER INFORMATION
None.

52


ITEM 6. EXHIBITS
a)
Exhibits
 
 
 
No.
 
Exhibit Description
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
32.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350
101.INS
 
XBRL INSTANCE DOCUMENT
101.SCH
 
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL
 
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
101.DEF
 
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
101.LAB
 
XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
101.PRE
 
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

53


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:
August 7, 2014
By:
/s/ Patrick Tolbert
 
 
 
Name:
Patrick Tolbert
 
 
 
Title:
Chief Operating and Financial Officer and Director
 
 
 
 
(Duly authorized officer and principal financial officer)

54