**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

### **Washington, D.C. 20549**

**FORM 10-Q/A**

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)**

### **OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended September 30, 2005**
| Commission  |   |                                                  |   | IRS Employer        |
|-------------|--------|-------------------------------------------------------|--------|---------------------|
| File Number |   | Exact name of  registrant as specified in its charter |   | Identification  No. |
| **1-12577** |   | **SITEL CORPORATION**                                 |   | **47-0684333**      |

 

**MINNESOTA**

(State or OtherJurisdiction of Incorporation or Organization)
| **7277 WORLD COMMUNICATIONS DRIVE**       |   | **68122**  |
|-------------------------------------------|--------|------------|
| **OMAHA,  NEBRASKA**                      |   | (Zip Code) |
| (Address of  Principal Executive Offices) |   |       |

 

**(402) 963-6810**

(Registrant’sTelephone Number, Including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OFTHE ACT:

|                                | ** ** | **Name of Each Exchange**    |
|--------------------------------|------------|------------------------------|
| **Title of Each Class**        | ** ** | **On Which Registered**      |
| Common Stock,  $.001 Par Value |       | The New York  Stock Exchange |

 

SECURITIES REGISTEREDPURSUANT TO SECTION 12(G) OF THE ACT:

**Not Applicable**

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days. YES  o  NO  x

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Act).  YES  x  NO  o

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12-2 of the Exchange Act).

YES  o  NO  x

**COMMON STOCK,$.001 PAR VALUE –73,792,141 SHARES OUTSTANDING AS OF OCTOBER 31, 2005**

 

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**SITELCORPORATION AND SUBSIDIARIES**

**TABLE OFCONTENTS**

 
| **PART I – Financial  Information** |           |   |
|------------------------------------------|----------------|--------|
| ** **                               |           |   |
|                                     | Item 1         | – | Financial Statements |   |
|                                     |           |   |   |   |
|                                     |           |   | Consolidated Condensed  Statements of Operations |   |
|                                     |           |   | Consolidated Condensed  Balance Sheets |   |
|                                     |           |   | Consolidated  Condensed Statements of Cash Flows |   |
|                                     |           |   | Notes to  Consolidated Condensed Financial Statements |   |
|                                     |           |   |   |   |
|                                     | Item 2         | – | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                                     |           |   |   |   |
|                                     |           |   | General |   |
|                                     |           |   | General Business  Risks, Critical Accounting Policies and Estimates |   |
|                                     |           |   | Results of Operations |   |
|                                     |           |   | Financial Condition  and Liquidity |   |
|                                     |           |   | Other Matters |   |
|                                     |           |   |   |   |
|                                     | Item 3         | – | Quantitative  and Qualitative Disclosures About Market Risk |   |
|                                     |           |   |   |   |
|                                     | Item 4         | – | Controls and  Procedures |   |
|                                     |           |   |   |   |
| **PART II – Other Information**     |           |   |
| ** **                               |           |   |
|                                     | Item 1         | – | Legal Proceedings |   |   |
|                                     |           |   |   |   |   |
|                                     | Item 5         | – | Other Information |   |   |
|                                     |           |   |   |   |   |
|                                     | Item  6        |   | Exhibits |   |   |
|                                     |           |   |   |   |   |
|                                     | Signature      |   |   |
|                                     |           |   |   |
|                                     | Exhibit  Index |   |   |
|                                          |                |        |  |  |  |  |  |

 

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**EXPLANATORYNOTE:**  This quarterlyreport on Form 10-Q/A is being filed for the purpose of amending ourconsolidated financial statements to provide users of our financial informationwith additional information relative to adjustments recorded during the first,second and third quarters of 2005 and 2004. On February 27, 2006, we determined that it was appropriate to restatepreviously issued consolidated financial statements to record theseadjustments.

Asdescribed in Note 2 of the consolidated condensed financial statements, SITELCorporation has restated its previously filed consolidated financial statementsas of September 30, 2005 and December 31, 2004, and for the three and ninemonth periods ended September 30, 2005 and 2004 included in its QuarterlyReport on Form 10-Q for the quarter ended September 30, 2005, which was filedwith the Securities and Exchange Commission on November 9, 2005.  We identified errors in our financialstatements related to accounting irregularities identified at ourBrazilian subsidiary including interestand penalties on unpaid tax obligations; deferred recognition of expenses;errors in revenue recording; intentional falsification of financial results;and intentional misclassification of recorded amounts.  Primarilyas a result of matters arising out of and related to our investigation ofirregularities at our Brazilian subsidiary and the restatement, we were not incompliance with certain covenants of our credit agreements with WellsFargo Foothill, Inc. and Ableco Finance LLC as Agents as of September 30, 2005.  Wesubsequently obtained waivers of the non-compliance as described in Note 10.

We also recorded other adjustments that werepreviously deemed immaterial.

As a result of the errorsreferred to above, the net income (loss) for the nine month period endedSeptember 30, 2005 and 2004 was overstated by $2.4 million and $1.6 million,respectively, and $0.8 million and $0.6 million for the three month periodended September 30, 2005 and 2004, respectively.

This amendmentpresents the 2005 Third Quarter Form 10-Q, as amended, in its entirety, butdoes not modify or update the disclosure in the 2005 Third Quarter Form 10-Q inany way other than as required to reflect the changes discussed above and doesnot reflect events occurring after the original filing of the 2005 ThirdQuarter Form 10-Q on November 9, 2005.

All information containedin this Form 10-Q/A is subject to updating and supplementing as provided in ourreports filed with the Securities and Exchange Commission (the SEC) subsequentto the date of the original filing of the Annual Report on Form 10-K.  As a result, we recommend that this Form10-Q/A be read in conjunction with all other periodic and current reports ofthe Company filed under the Securities Exchange Act of 1934, as amended, afterthe filing of the original Form 10-Q, including without limitation theinformation described in Note 2 to the consolidated financial statementsincluded in this Form 10-Q/A and the information contained in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2005, each as filed on thedate hereof.

1

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**PARTI - FINANCIAL INFORMATION**

**Item 1. Financial Statements**

**SITEL CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED CONDENSED STATEMENTS OFOPERATIONS**

**(UNAUDITED)**

(in thousands, except per share data)
|                                                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                   | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                   | ** ** | **2005**                         | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                   | ** ** | **(As restated)**                | ** ** | **(As restated)**               | ** ** |
| * *                                                     | * *   | * *                         | * *   | * *                        | * *   | * * | * * | * * | * * |
| **Revenue**                                                  |       | $                                | 244,042    |                            | $          | 229,393 |   | $ | 746,744 |   | $ | 713,317 |   |
| ** **                                                   | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating  expenses:**                                     | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Direct labor and telecommunications expenses                 |       | 147,432                          |       | 138,187                         |       | 453,522 |   | 425,252 |   |
| Subcontracted and other services expenses                    |       | 12,019                           |       | 12,401                          |       | 37,780 |   | 38,238 |   |
| Operating, selling and administrative expenses               |       | 80,874                           |       | 77,970                          |       | 242,010 |   | 232,332 |   |
| Asset impairment and restructuring expenses                  |       | 4,616                            |       | —                          |       | 2,007 |   | — |   |
| Total operating expenses                                     |       | 244,941                          |       | 228,558                         |       | 735,319 |   | 695,822 |   |
|                                                         |       |                             |       |                            |       |   |   |   |   |
| **Operating  income (loss)**                                 |       | (899                             | )          | 835                             |       | 11,425 |   | 17,495 |   |
| ** **                                                   | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Other  income (expense):**                                 | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense                                             |       | (3,811                           | )          | (3,292                          | )          | (10,231 | ) | (10,069 | ) |
| Interest income                                              |       | 144                              |       | 152                             |       | 404 |   | 392 |   |
| Equity in earnings (loss) of affiliates                      |       | 27                               |       | 298                             |       | 315 |   | 368 |   |
| Other income (expense), net                                  |       | 53                               |       | (69                             | )          | 22 |   | (451 | ) |
| Total other expense, net                                     |       | (3,587                           | )          | (2,911                          | )          | (9,490 | ) | (9,760 | ) |
|                                                         |       |                             |       |                            |       |   |   |   |   |
| **Income  (loss) before income taxes and minority interest** |       | (4,486                           | )          | (2,076                          | )          | 1,935 |   | 7,735 |   |
|                                                         |       |                             |       |                            |       |   |   |   |   |
| Income tax  expense (benefit)                                |       | (3,438                           | )          | 190                             |       | (800 | ) | 3,267 |   |
| Minority  interest                                           |       | 875                              |       | 29                              |       | 1,538 |   | 449 |   |
|                                                         |       |                             |       |                            |       |   |   |   |   |
| **Net income  (loss)**                                       |       | $                                | (1,923     | )                               | $          | (2,295 | ) | $ | 1,197 |   | $ | 4,019 |   |
|                                                         |       |                             |       |                            |       |   |   |   |   |
| **Weighted  average common shares outstanding:**             | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                        |       | 74,448                           |       | 73,710                          |       | 73,986 |   | 73,671 |   |
| Diluted                                                      |       | 74,448                           |       | 73,710                          |       | 74,290 |   | 74,089 |   |
| ** **                                                   | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Earnings  per share:**                                     | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                        |       | $                                | (0.03      | )                               | $          | (0.03 | ) | $ | 0.02 |   | $ | 0.05 |   |
| Diluted                                                      |       | $                                | (0.03      | )                               | $          | (0.03 | ) | $ | 0.02 |   | $ | 0.05 |   |

 

*See Notes to Consolidated Condensed FinancialStatements.*

2

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### **SITELCORPORATION AND SUBSIDIARIES**

### **CONSOLIDATEDCONDENSED BALANCE SHEETS**

(in thousands, except share data)
|                                                                                                                                              | ** **   | **September 30,** | ** ** | **December 31,**  | ** **   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------|------------|------------------------|--------------|
| ** **                                                                                                                                   | ** **   | **2005**               | ** ** | **2004**               | ** **   |
| ** **                                                                                                                                   | ** **   | **(Unaudited)**        | ** ** | ** **             | ** **   |
| ** **                                                                                                                                   | *** *** | **(As restated)** | ** ** | **(As restated)** | *** *** |
| **Assets**                                                                                                                                   | ** **   | ** **             | ** ** | ** **             | ** **   |
| **Current assets:**                                                                                                                          | ** **   | ** **             | ** ** | ** **             | ** **   |
| Cash and cash equivalents                                                                                                                    |         | $                      | 36,558     |                   | $            | 29,130 |   |
| Trade accounts receivable (net of allowance for  doubtful accounts of $2,467 and $2,391, respectively)                                       |         | 196,548                |       | 192,204                |         |
| Prepaid expenses and other assets                                                                                                            |         | 17,600                 |       | 16,416                 |         |
| Deferred income taxes                                                                                                                        |         | 2,094                  |       | 1,251                  |         |
| Total current assets                                                                                                                         |         | 252,800                |       | 239,001                |         |
|                                                                                                                                         |         |                   |       |                   |         |
| **Property and equipment, net**                                                                                                              |         | 76,954                 |       | 85,934                 |         |
|                                                                                                                                         |         |                   |       |                   |         |
| **Other assets:**                                                                                                                            | ** **   | ** **             | ** ** | ** **             | ** **   |
| Goodwill                                                                                                                                     |         | 46,503                 |       | 48,276                 |         |
| Investment in affiliates                                                                                                                     |         | 16,761                 |       | 16,466                 |         |
| Other assets                                                                                                                                 |         | 11,504                 |       | 8,386                  |         |
| Deferred income taxes                                                                                                                        |         | 6,435                  |       | 1,360                  |         |
| **Total assets**                                                                                                                             |         | $                      | 410,957    |                   | $            | 399,423 |   |
| ** **                                                                                                                                   | ** **   | ** **             | ** ** | ** **             | ** **   |
| **Liabilities  and Stockholders’ Equity**                                                                                               | ** **   | ** **             | ** ** | ** **             | ** **   |
| **Current liabilities:**                                                                                                                     | ** **   | ** **             | ** ** | ** **             | ** **   |
| Revolving credit facility and other current debt                                                                                             |         | $                      | 20,407     |                   | $            | 19,712 |   |
| Current portion of capital lease obligations                                                                                                 |         | 2,632                  |       | 3,435                  |         |
| Trade accounts payable                                                                                                                       |         | 23,442                 |       | 29,318                 |         |
| Accrued wages, salaries and bonuses                                                                                                          |         | 45,951                 |       | 50,273                 |         |
| Accrued operating expenses                                                                                                                   |         | 51,574                 |       | 48,644                 |         |
| Deferred revenue and other                                                                                                                   |         | 10,111                 |       | 8,892                  |         |
| Income taxes payable                                                                                                                         |         | 2,193                  |       | 1,107                  |         |
| Total current liabilities                                                                                                                    |         | 156,310                |       | 161,381                |         |
|                                                                                                                                         |         |                   |       |                   |         |
| **Long-term debt and other liabilities:**                                                                                                    | ** **   | ** **             | ** ** | ** **             | ** **   |
| Long-term debt, excluding current portion                                                                                                    |         | 117,551                |       | 91,020                 |         |
| Capital lease obligations, excluding current portion                                                                                         |         | 7,000                  |       | 8,510                  |         |
| Other liabilities                                                                                                                            |         | 9,409                  |       | 9,788                  |         |
| Deferred income taxes                                                                                                                        |         | 141                    |       | 883                    |         |
| Total liabilities                                                                                                                            |         | 290,411                |       | 271,582                |         |
|                                                                                                                                         |         |                   |       |                   |         |
| **Minority interests**                                                                                                                       |         | 3,845                  |       | 2,611                  |         |
| **Stockholders’ equity:**                                                                                                               | ** **   | ** **             | ** ** | ** **             | ** **   |
| Common stock, voting, $.001 par value 200,000,000  shares authorized, 74,455,729 and 74,433,629 shares issued and outstanding,  respectively |         | 74                     |       | 74                     |         |
| Additional paid-in capital                                                                                                                   |         | 168,890                |       | 168,871                |         |
| Accumulated other comprehensive income                                                                                                       |         | (2,123                 | )          | 7,721                  |         |
| Accumulated deficit                                                                                                                          |         | (49,221                | )          | (50,419                | )            |
| Less treasury stock, at cost, 663,588 and 707,927  common shares, respectively                                                               |         | (919                   | )          | (1,017                 | )            |
| Total stockholders’ equity                                                                                                              |         | 116,701                |       | 125,230                |         |
| **Total liabilities and  stockholders’ equity**                                                                                         |         | $                      | 410,957    |                   | $            | 399,423 |   |

 

*See Notesto Consolidated Condensed Financial Statements.*

3

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**SITEL CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED CONDENSED STATEMENTS OF CASHFLOWS**

**(UNAUDITED)**

(in thousands)
|                                                                                   | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                        | ** ** | **September 30,**          | ** ** |
| ** **                                                                        | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| ** **                                                                        | ** ** | **(As restated)**          | ** ** | **(As restated)** | ** ** |
| **Cash  flows from operating activities:**                                        | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Net income                                                                        |       | $                               | 1,197      |   | $ | 4,019 |   |
| Adjustments to  reconcile net income to net cash flows from operating activities: |       |                            |       |   |   |
| Asset impairment and restructuring provision                                      |       | 2,007                           |       | — |   |
| Depreciation and amortization                                                     |       | 27,535                          |       | 26,953 |   |
| Loss on disposal of assets                                                        |       | 163                             |       | 45 |   |
| Provision for deferred income taxes                                               |       | (7,021                          | )          | (284 | ) |
| Equity in earnings (loss) of affiliates                                           |       | (315                            | )          | (368 | ) |
| Minority interest in net income of consolidated  subsidiaries                     |       | 1,538                           |       | 449 |   |
| Changes in operating assets and liabilities:                                      |       |                            |       |   |   |
| Trade accounts receivable                                                         |       | (14,890                         | )          | (2,859 | ) |
| Other assets                                                                      |       | (473                            | )          | 1,485 |   |
| Trade accounts payable                                                            |       | (4,783                          | )          | (7,037 | ) |
| Other liabilities                                                                 |       | 4,097                           |       | 8,407 |   |
| Net cash flows  from operating activities                                         |       | 9,055                           |       | 30,810 |   |
|                                                                              |       |                            |       |   |   |
| **Cash  flows from investing activities:**                                        | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                                              |       | (21,290                         | )          | (17,291 | ) |
| Proceeds from  cash surrender value of life insurance                             |       | 3,274                           |       | — |   |
| Dividend  received from affiliates                                                |       | —                          |       | 1,747 |   |
| Dividend paid to  minority interest shareholder                                   |       | (450                            | )          | — |   |
| Proceeds from  the sale of property and equipment                                 |       | 98                              |       | 9 |   |
| Other                                                                             |       | —                          |       | (310 | ) |
| Net cash flows  from investing activities                                         |       | (18,368                         | )          | (15,845 | ) |
|                                                                              |       |                            |       |   |   |
| **Cash  flows from financing activities:**                                        | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Borrowings on  debt                                                               |       | 191,841                         |       | 18,476 |   |
| Repayment of  debt                                                                |       | (167,512                        | )          | (20,283 | ) |
| Repayments of  capital lease obligations                                          |       | (2,597                          | )          | (2,263 | ) |
| Debt issuance  costs                                                              |       | (5,503                          | )          | — |   |
| Proceeds from  stock options exercised, net of tax                                |       | —                          |       | 146 |   |
| Treasury stock  reissuances                                                       |       | 116                             |       | 89 |   |
| Net cash flows  from financing activities                                         |       | 16,345                          |       | (3,835 | ) |
| Effect of  exchange rates on cash                                                 |       | 396                             |       | 840 |   |
| **Net  increase in cash**                                                         |       | 7,428                           |       | 11,970 |   |
| **Cash  and cash equivalents, beginning of period**                               |       | 29,130                          |       | 30,131 |   |
| **Cash  and cash equivalents, end of period**                                     |       | $                               | 36,558     |   | $ | 42,101 |   |
| ** **                                                                        | ** ** | ** **                      | ** ** | ** ** | ** ** |
| **Non-cash  investing and financing activities:**                                 | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Capital lease  obligations incurred                                               |       | $                               | 1,768      |   | $ | 1,583 |   |

 

*See Notes to ConsolidatedCondensed Financial Statements.*

4

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**SITEL CORPORATION ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**Note1. Basis of Consolidation and Presentation**

***General***

References in the Notes to Consolidated Condensed Financial Statementsto “the Company”, “we” and “our” are to SITEL Corporation and its subsidiaries,collectively.

We are a leading global provider of outsourcedcustomer support services. We specialize in the design, implementation, andoperation of multi-channel contact centers. We support the customer managementstrategies of large and medium size corporations in North America, Europe, AsiaPacific, and Latin America. We provide customer acquisition, customer care,technical support and risk management services on an outsourced basis, as wellas operational and information technology professional services for bothoutsourced and internal contact centers. We serve clients primarily in the automotive, consumer, financial services,insurance, technology, telecommunications and ISP, media services, andutilities sectors.

The accompanyingunaudited consolidated condensed financial statements reflect all normal andrecurring adjustments that are, in the opinion of management, necessary for afair presentation of the results of operations, financial position, and cashflows for the interim periods presented. The consolidated condensed financialstatements should be read in conjunction with the consolidated financialstatements and notes thereto, together with management’s discussion andanalysis of financial condition and results of operations, contained in ourAnnual Report on Form 10-K for the year ended December 31, 2005, which reportsthe restated fiscal 2004 consolidated financial statements and is filed thisdame date. All significant intercompany balances and transactions have beeneliminated.

***Use of Accounting Estimates***

Management makesestimates and assumptions when preparing financial statements under accountingprinciples generally accepted in the United States of America that affect our reported amounts of assets and liabilities atthe dates of the financial statements, our disclosure of contingent assets andliabilities at the dates of the financial statements, and our reported amountsof revenue and expenses during the reporting periods. These estimates involvejudgments with respect to, among other things, future economic factors that aredifficult to predict and are beyond management’s control. As a result, actualamounts could differ from these estimates.

***Recently IssuedAccounting Pronouncements***

In December 2004, the Financial Accounting StandardsBoard (FASB) issued SFAS No. 123 (R), *Share-BasedPayment*, (SFAS 123R). This standard will require the cost ofemployee compensation paid with equity instruments to be measured based ongrant-date fair values with the cost recorded as compensation expense over theperiod during which the employee is required to perform service in exchange forthe award (generally over the vesting period of the award). The proformadisclosures previously permitted under SFAS 123 will no longer be analternative to financial statement recognition. See “Stock-Based Compensation”below for the pro forma net income (loss) and net income (loss) per shareamounts, for the three and six month periods ended September 30, 2005 and 2004,as if we had used a fair-value-based method similar to the methods requiredunder SFAS 123R to measure compensation expense for employee stockincentive awards.  In March 2005, theSecurities and Exchange Commission (SEC) issued Staff Accounting Bulletin(SAB) No. 107, which expressed the views of the SEC regarding theinteraction between SFAS 123R and certain SEC rules and regulations.SAB No. 107 provides guidance related to the valuation of share-basedpayment arrangements for public companies, including assumptions such asexpected volatility and expected term. In April 2005, the SEC approved a rule that delayed the effectivedate of SFAS 123R for public companies. As a result, SFAS 123R willbe effective for the Company in the first quarter of 2006 and will apply to allof our outstanding unvested share-based payment awards as of January 1,2006 and all prospective awards.  Although wehave not yet determined whether the adoption of SFAS 123R will result inamounts that are similar to the current pro forma disclosures underSFAS 123, we are evaluating the requirements under SFAS 123R and expectthe adoption to have a significant impact on our consolidated statements ofoperations and net income per share.

In October 2004, TheAmerican Jobs Creation Act of 2004 (AJCA) was signed into law. The Act createsa temporary incentive for U.S. multinationals to repatriate accumulated incomeearned outside the U.S. In December 2004, the FASB issued FSP 109-2, *Accounting and Disclosure Guidance for the ForeignEarnings Repatriation Provision within the American Jobs Creation Act of 2004*(FSP109-2)*. *FSP 109-2 providesadditional time to companies beyond the financial reporting period of 

5

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enactment to evaluate theeffects of the AJCA on their plans for repatriation of foreign earnings forpurposes of applying SFAS 109, *Accountingfor Income Taxes*. The Company is currently evaluating therepatriation provisions of AJCA, which if implemented would affect our taxprovision and deferred tax assets and liabilities. Due to the complexity anduncertainty of applying the provisions of the Act, the income tax effects ofsuch repatriation cannot be reasonably estimated at this time.

***Stock-BasedCompensation***

We apply the intrinsic-value-based methodof accounting prescribed by Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees* (APB No. 25)*,* and related interpretations to account for ourfixed-plan stock options. Under this method, compensation expense isrecorded on the date of grant only if the current market price of theunderlying stock exceeded the exercise price. Statement of Financial AccountingStandard No. 123, *Accounting for Stock-BasedCompensation* (SFAS No. 123)*,* established accounting anddisclosure requirements using a fair-value-based method ofaccounting for stock-based employee compensation plans.

The following table illustrates the effect on our netincome (loss) if the fair-value-based method had been applied toall outstanding and unvested awards in each period.
|                                                                                                                                 | ** ** | **Three Months Ended**                                      | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                      | ** ** | **September 30,**                                                | ** ** | **September 30,**          | ** ** |
| ** **                                                                                                                      | ** ** | **2005**                                                              | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                      | ** ** | **(As restated)**                                                | ** ** | **(As restated)**          | ** ** |
| ** **                                                                                                                      | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Net income  (loss):                                                                                                             |       |                                                                  |       |                            |       |   |   |   |   |
| As reported                                                                                                                     |       | $                                                                     | (1,923     | )                               | $          | (2,295 | ) | $ | 1,197 |   | $ | 4,019 |   |
| Less: total stock based employee compensation  expense determined under the  fair  value method for all awards, net of tax |       | (164                                                                  | )          | (249                            | )          | (410 | ) | (747 | ) |
| Pro forma                                                                                                                       |       | $                                                                     | (2,087     | )                               | $          | (2,544 | ) | $ | 787 |   | $ | 3,272 |   |
|                                                                                                                            |       |                                                                  |       |                            |       |   |   |   |   |
| Income (loss)  per common share:                                                                                                |       |                                                                  |       |                            |       |   |   |   |   |
| As reported:                                                                                                                    |       |                                                                  |       |                            |       |   |   |   |   |
| Basic                                                                                                                           |       | $                                                                     | (0.03      | )                               | $          | (0.03 | ) | $ | 0.02 |   | $ | 0.05 |   |
| Diluted                                                                                                                         |       | (0.03                                                                 | )          | (0.03                           | )          | 0.02 |   | 0.05 |   |
| Pro forma:                                                                                                                      |       |                                                                  |       |                            |       |   |   |   |   |
| Basic                                                                                                                           |       | (0.03                                                                 | )          | (0.03                           | )          | 0.01 |   | 0.04 |   |
| Diluted                                                                                                                         |       | (0.03                                                                 | )          | (0.03                           | )          | 0.01 |   | 0.04 |   |

 

The fair value of optionsgranted during the nine months ended September 30, 2004, was estimated at thedate of the grant using the Black-Scholes option-pricing model with thefollowing weighted-average assumptions:
|                           | ** ** | **2004** | ** ** |
|---------------------------|------------|----------|------------|
|                      |       |     |       |
| Volatility  factor        |       | 50.3     | %          |
| Risk-free  interest rate  |       | 3.6      | %          |
| Expected life  (in years) |       | 5        |       |
| Dividend yield            |       | 0.0      | %          |

 

There were no optionsgranted during the nine-month period ended September 30, 2005.

***SignificantClients***

Our******top 20 clients, whichinclude multiple independently managed business units within the clients’affiliated group, accounted for 66.4% and 68.5% of our revenue for thethree-month periods ended September 30, 2005 and 2004, respectively, and 67.4%and 67.2% for the nine-month periods ended September 30, 2005 and 2004,respectively.  Hewlett-Packard Companybusiness units wereresponsible for 11.8% and 11.4% of our revenue for the three-month periodsended September 30, 2005 and 2004, 

6

----

respectively, and 12.0% and 11.3% of our revenue for thenine-month periods ended September 30, 2005 and 2004, respectively.  General Motors Corporation (General Motors)business units were responsible for 11.9% and 13.9% of our total revenue forthe three-month periods ended September 30, 2005 and 2004, respectively, andwere responsible for 12.0% and 15.8% for the nine-month periods ended September30, 2005, and 2004, respectively.  Theprimary General Motors contract expires in December 2005, while a secondcontract terminated in June 2004.  We didnot have any other clients under common control that generated more than 10% ofour revenue for the periods presented.

***Reclassifications***

We have reclassifiedcertain prior-period amounts for comparative purposes.  Thesereclassifications did not affect consolidated net loss for the periodspresented.

**Note2. Restatement**

Asa result of accounting irregularities identified at our Braziliansubsidiary, we have restated ourpreviously filed consolidated financial statements as of September 30, 2005 andDecember 31, 2004 and for the nine-month and three-month periods endedSeptember 30, 2005 and 2004. We have determined that the subsidiary’s formercontroller, in violation of Company policies, engaged in improper accountingpractices and the avoidance of local tax obligations and caused misleadingrecords to be created to prevent the Company’s senior management from detectingthis misconduct.

Additionally, as part ofthe restatement process, we also recorded other adjustments that werepreviously deemed immaterial.

As a result of the restatement, we have determinedthat it is more likely than not that we will not realize the full tax benefitof our net operating losses in Brazil. Consequently, the restatement amountsare presented on a pre-tax basis as we do not expect to realize any significanttax benefit from the additional expenses.

Summary of restatementitems for the following periods:
|                                                        | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                             | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                             | ** ** | **2005**                         | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income  (loss) as originally reported              |       | $                                | (1,115     | )                               | $          | (1,736 | ) | $ | 3,551 |   | $ | 5,609 |   |
|                                                   |       |                             |       |                            |       |   |   |   |   |
| Tax obligations,  including interest and penalties (A) |       | (513                             | )          | (261                            | )          | (1,351 | ) | (811 | ) |
| Deferred expense  recognition (B)                      |       | (275                             | )          | (153                            | )          | (638 | ) | (447 | ) |
| Errors in  revenue recording (C)                       |       | 68                               |       | (55                             | )          | (261 | ) | (144 | ) |
| Intentional  falsification of records (D)              |       | (26                              | )          | (39                             | )          | (25 | ) | (207 | ) |
| Other (E)                                              |       | (62                              | )          | (51                             | )          | (79 | ) | 19 |   |
| Total impact of  restatement adjustments               |       | (808                             | )          | (559                            | )          | (2,354 | ) | (1,590 | ) |
|                                                   |       |                             |       |                            |       |   |   |   |   |
| Net income (loss) as  adjusted                         |       | $                                | (1,923     | )                               | $          | (2,295 | ) | $ | 1,197 |   | $ | 4,019 |   |

 

Errors in previouslyissued financial statements were identified in the following areas:

(A) Tax obligations,including interest and penalties

During the years 2001through September 30, 2005, certain Brazilian Municipal and Federal taxestotaling approximately $7.9 million were collected and accrued but not paid. Asa result, we incurred accumulated interest of approximately $2.5 million, plusapproximately $1.4 million in penalties as of September 30, 2005. Ourrestated consolidated condensed statements of operations reflect the recognition interest and penaltiesin the prior period incurred based on laws and regulations in effect at thetime.

(B) Deferred expenserecognition

The subsidiary improperlydeferred expense recognition of certain payments. These payments should havebeen recorded as expense when incurred rather than deferred.

7

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(C) Errors in revenuerecording

The subsidiary improperlyrecorded revenue related to certain customer invoices including; recordinghigher revenue than the invoice amount, recording revenue and subsequentlycanceling the invoice and recording revenue for invoices that have not beenlocated or for which cash was not received.

(D) Intentionalfalsification of financial results

The subsidiary’s formercontroller intentionally falsified financial reporting records provided toCorporate management.  The actual resultsreported to Corporate management were manipulated to present different reportedearnings than actually recorded in the subsidiary’s local financial records.

(E) Other

Represents adjustmentsrecorded to correct other miscellaneous items identified in the restatement andother adjustments that were previously deemed immaterial, none of which areindividually significant.

In addition, thesubsidiary’s former controller intentionally misclassified amounts in thebalance sheet. The misclassifications impacted substantially all of the lineitems in the consolidated balance sheets.

The functional currencyof our Brazilian subsidiary is the Brazilian Real. The restatement adjustmentspresented in our prior period financial statements were recorded using the foreigncurrency exchange rates in effect in the applicable period. The assets andliabilities are subsequently adjusted for fluctuations in foreign currencyexchange rates from the date of the original transaction to the balance sheetdate. Translation gains and losses resulting from the revaluation of the assetsand liabilities of the foreign subsidiary to US dollars is included in othercomprehensive income, a component of stockholders’ equity. The cumulativeeffect of foreign currency exchange rate fluctuations from the restatementadjustments was a decrease in stockholders’ equity of $2.4 million and $0.6million as of September 30, 2005 and December 31, 2004, respectively.

**The following items in theConsolidated Statements of Operations, Consolidated Balance Sheets andConsolidated Statements of Cash Flows have been restated as follows based onthe items noted above.**

8

----

 
| ** **                                               | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                               | ** ** | **September 30, 2005** | ** ** | **September 30, 2004** | ** ** |
| ** **                                               | ** ** | **As previously**           | ** ** | **As**                           | ** ** | **As previously** | ** ** | **As** | ** ** |
| ** **                                               | ** ** | **reported**                     | ** ** | **restated**                     | ** ** | **reported** | ** ** | **restated** | ** ** |
| *Consolidated Statements of  Operations:*                | * *   | * *                         | * *   | * *                         | * *   | * * | * * | * * | * * |
| Revenue                                                  |       | $                                | 243,988    |                             | $          | 244,042 |   | $ | 229,454 |   | $ | 229,393 |   |
| Direct labor and  telecommunications expense             |       | 147,417                          |       | 147,432                          |       | 138,230 |   | 138,187 |   |
| Subcontracted and other  services expenses               |       | 12,034                           |       | 12,019                           |       | 12,401 |   | 12,401 |   |
| Operating, selling and  administrative expenses          |       | 80,502                           |       | 80,874                           |       | 77,785 |   | 77,970 |   |
| Total operating  expenses                                |       | 244,569                          |       | 244,941                          |       | 228,416 |   | 228,558 |   |
| Operating income (loss)                                  |       | (581                             | )          | (899                             | )          | 1,038 |   | 835 |   |
| Interest expense                                         |       | (3,403                           | )          | (3,811                           | )          | (3,055 | ) | (3,292 | ) |
| Interest income                                          |       | 144                              |       | 144                              |       | 152 |   | 152 |   |
| Other income (expense),  net                             |       | 53                               |       | 53                               |       | (70 | ) | (69 | ) |
| Total other expense,  net                                |       | (3,179                           | )          | (3,587                           | )          | (2,675 | ) | (2,911 | ) |
| Income (loss) before  income taxes and minority interest |       | (3,760                           | )          | (4,486                           | )          | (1,637 | ) | (2,076 | ) |
| Income tax expense  (benefit)                            |       | (3,522                           | )          | (3,438                           | )          | 67 |   | 190 |   |
| Minority Interest                                        |       | 877                              |       | 875                              |       | 32 |   | 29 |   |
| Net income (loss)                                        |       | (1,115                           | )          | (1,923                           | )          | (1,736 | ) | (2,295 | ) |
| Income (loss) per  share:                                |       |                             |       |                             |       |   |   |   |   |
| Basic and Diluted                                        |       | $                                | (0.01      | )                                | $          | (0.03 | ) | $ | (0.02 | ) | $ | (0.03 | ) |

 
| ** **                                               | ** ** | **Nine Months Ended**  | ** ** | **Nine Months Ended**  | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                               | ** ** | **September 30, 2005** | ** ** | **September 30, 2004** | ** ** |
| ** **                                               | ** ** | **As previously**           | ** ** | **As**                           | ** ** | **As previously** | ** ** | **As** | ** ** |
| ** **                                               | ** ** | **reported**                     | ** ** | **restated**                     | ** ** | **reported** | ** ** | **restated** | ** ** |
| *Consolidated Statements of  Operations:*                | * *   | * *                         | * *   | * *                         | * *   | * * | * * | * * | * * |
| Revenue                                                  |       | $                                | 746,966    |                             | $          | 746,744 |   | $ | 713,577 |   | $ | 713,317 |   |
| Direct labor and  telecommunications expense             |       | 453,530                          |       | 453,522                          |       | 425,390 |   | 425,252 |   |
| Subcontracted and other  services expenses               |       | 37,808                           |       | 37,780                           |       | 38,238 |   | 38,238 |   |
| Operating, selling and  administrative expenses          |       | 241,059                          |       | 242,010                          |       | 231,547 |   | 232,332 |   |
| Total operating  expenses                                |       | 734,404                          |       | 735,519                          |       | 695,175 |   | 695,822 |   |
| Operating income (loss)                                  |       | 12,562                           |       | 11,425                           |       | 18,402 |   | 17,495 |   |
| Interest expense                                         |       | (9,199                           | )          | (10,231                          | )          | (9,387 | ) | (10,069 | ) |
| Interest income                                          |       | 404                              |       | 404                              |       | 394 |   | 392 |   |
| Other income (expense),  net                             |       | 22                               |       | 22                               |       | (462 | ) | (451 | ) |
| Total other expense,  net                                |       | (8,458                           | )          | (9,490                           | )          | (9,087 | ) | (9,760 | ) |
| Income (loss) before  income taxes and minority interest |       | 4,104                            |       | 1,935                            |       | 9,315 |   | 7,735 |   |
| Income tax expense  (benefit)                            |       | (991                             | )          | (800                             | )          | 3,250 |   | 3,267 |   |
| Minority Interest                                        |       | 1,544                            |       | 1,538                            |       | 456 |   | 449 |   |
| Net income (loss)                                        |       | 3,551                            |       | 1,197                            |       | 5,609 |   | 4,019 |   |
| Income (loss) per  share:                                |       |                             |       |                             |       |   |   |   |   |
| Basic and Diluted                                        |       | $                                | 0.05       |                             | $          | 0.02 |   | $ | 0.08 |   | $ | 0.05 |   |

9

----

 
| ** **                                            | ** ** | **As of September 30, 2005** | ** ** | **As of December 31, 2004** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                            | ** ** | **As previously**                           | ** ** | **As**                                          | ** ** | **As previously** | ** ** | **As** | ** ** |
| ** **                                            | ** ** | **reported**                                     | ** ** | **restated**                                    | ** ** | **reported** | ** ** | **restated** | ** ** |
| *Consolidated  Balance Sheets:*                       | * *   | * *                                         | * *   | * *                                        | * *   | * * | * * | * * | * * |
| Cash and cash  equivalents                            |       | $                                                | 36,792     |                                            | $          | 36,558 |   | $ | 28,906 |   | $ | 29,130 |   |
| Trade accounts  receivable                            |       | 195,025                                          |       | 196,548                                         |       | 191,391 |   | 192,204 |   |
| Prepaid expenses  and other assets                    |       | 15,942                                           |       | 17,600                                          |       | 15,859 |   | 16,416 |   |
| Deferred income  taxes                                |       | 2,234                                            |       | 2,094                                           |       | 1,313 |   | 1,251 |   |
| Total current  assets                                 |       | 249,993                                          |       | 252,800                                         |       | 237,469 |   | 239,001 |   |
| Property and  equipment, net                          |       | 77,254                                           |       | 76,954                                          |       | 86,057 |   | 85,934 |   |
| Other assets                                          |       | 11,504                                           |       | 11,504                                          |       | 8,420 |   | 8,386 |   |
| Deferred income  taxes                                |       | 6,675                                            |       | 6,435                                           |       | 843 |   | 1,360 |   |
| Total assets                                          |       | 408,690                                          |       | 410,957                                         |       | 397,531 |   | 399,423 |   |
| Revolving credit  facility and other current debt     |       | 18,797                                           |       | 20,407                                          |       | 18,802 |   | 19,712 |   |
| Current portion  of capital lease obligations         |       | 2,487                                            |       | 2,632                                           |       | 3,202 |   | 3,435 |   |
| Trade accounts  payable                               |       | 23,426                                           |       | 23,442                                          |       | 29,217 |   | 29,318 |   |
| Accrued wages,  salaries and bonuses                  |       | 45,718                                           |       | 45,951                                          |       | 50,271 |   | 50,273 |   |
| Accrued  operating expenses                           |       | 41,904                                           |       | 51,574                                          |       | 43,245 |   | 48,644 |   |
| Deferred revenue  and other                           |       | 10,111                                           |       | 10,111                                          |       | 8,816 |   | 8,892 |   |
| Income taxes  payable                                 |       | 2,048                                            |       | 2,193                                           |       | 1,107 |   | 1,107 |   |
| Total current  liabilities                            |       | 144,491                                          |       | 156,310                                         |       | 154,696 |   | 161,381 |   |
| Long-term debt,  excluding current portion            |       | 116,584                                          |       | 117,551                                         |       | 90,000 |   | 91,020 |   |
| Capital lease  obligations, excluding current portion |       | 6,733                                            |       | 7,000                                           |       | 8,393 |   | 8,510 |   |
| Other  liabilities                                    |       | 8,630                                            |       | 9,409                                           |       | 8,949 |   | 9,788 |   |
| Deferred income  taxes                                |       | 141                                              |       | 141                                             |       | 205 |   | 883 |   |
| Total  liabilities                                    |       | 276,579                                          |       | 290,411                                         |       | 262,243 |   | 271,582 |   |
| Minority  interest                                    |       | 3,870                                            |       | 3,845                                           |       | 2,629 |   | 2,611 |   |
| Accumulated  other comprehensive income (loss)        |       | 256                                              |       | (2,123                                          | )          | 8,342 |   | 7,721 |   |
| Accumulated  deficit                                  |       | (40,060                                          | )          | (49,221                                         | )          | (43,611 | ) | (50,419 | ) |
| Total  stockholders’ equity                      |       | 128,241                                          |       | 116,701                                         |       | 132,659 |   | 125,230 |   |
| Total liabilities and  stockholders’ equity      |       | 408,690                                          |       | 410,957                                         |       | 397,531 |   | 399,423 |   |
|                                                       |            |                                                  |            |                                                 |            |  |  |  |  |  |  |  |  |

 
| ** **                                | ** ** | **Nine Months Ended**  | ** ** | **Nine Months Ended**  | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                | ** ** | **September 30, 2005** | ** ** | **September 30, 2004** | ** ** |
| ** **                                | ** ** | **As previously**           | ** ** | **As**                           | ** ** | **As previously** | ** ** | **As** | ** ** |
| ** **                                | ** ** | **reported**                     | ** ** | **restated**                     | ** ** | **reported** | ** ** | **restated** | ** ** |
| *Consolidated  Statements of Cash Flows:* | * *   | * *                         | * *   | * *                         | * *   | * * | * * | * * | * * |
| Operating  activities                     |       | $                                | 9,884      |                             | $          | 9,055 |   | $ | 30,883 |   | $ | 30,810 |   |
| Investing  activities                     |       | (17,982                          | )          | (18,368                          | )          | (15,658 | ) | (15,845 | ) |
| Financing activities                      |       | 16,507                           |       | 16,345                           |       | (3,477 | ) | (3,835 | ) |
|                                           |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |

 

**Note3. Comprehensive Income (Loss)**

Comprehensive income (loss) for the three andnine-month periods ended September 30, 2005 and 2004 are as follows (inthousands):
|                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                          | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                          | ** ** | **2005**                         | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                          | ** ** | **(As restated)**           | ** ** | **(As restated)**          | ** ** |
|                                |       |                             |       |                            |       |   |   |   |   |
| Net income  (loss)                  |       | $                                | (1,923     | )                               | $          | (2,295 | ) | $ | 1,197 |   | $ | 4,019 |   |
| Other  comprehensive income (loss): |       |                             |       |                            |       |   |   |   |   |
| Currency translation adjustment     |       | 344                              |       | 2,617                           |       | (9,844 | ) | 426 |   |
| Comprehensive income  (loss)        |       | $                                | (1,579     | )                               | $          | 322 |   | $ | (8,647 | ) | $ | 4,445 |   |

10

----

Accumulated othercomprehensive income (loss) included in our consolidated condensed balancesheets represents the accumulated foreign currency translation adjustment.

**Note 4. Asset Impairment and RestructuringExpenses**

Wesummarize the components of the accrued restructuring expenses recorded in ourconsolidated condensed balance sheet in the following table:
|                    | ** ** | ** **    | ** ** | **Facility**        | ** ** | ** **        | ** ** | ** ** | ** ** |
|--------------------|------------|---------------|------------|---------------------|------------|-------------------|------------|------------|------------|
| ** **         | ** ** | ** **    | ** ** | **Closure or** | ** ** | **Grant**         | ** ** | ** ** | ** ** |
| ** **         | ** ** | **Severance** | ** ** | **Reduction**       | ** ** | **Reimbursement** | ** ** | **Total**  | ** ** |
| December 31,  2004 |       | $             | 4.2        |                | $          | 5.9               |       | $          | —     |   | $ | 10.1 |   |
| Expensed           |       | 2.4           |       | —              |       | 3.1               |       | 5.5        |       |
| Reversed           |       | —        |       | (3.5                | )          | —            |       | (3.5       | )          |
| Paid               |       | (4.8          | )          | (1.0                | )          | —            |       | (5.8       | )          |
| Other              |       | (0.1          | )          | (0.1                | )          | —            |       | (0.2       | )          |
| September 30, 2005 |       | $             | 1.7        |                | $          | 1.3               |       | $          | 3.1        |   | $ | 6.1 |   |

 

Other changes in the accrued restructuring expensesrepresent the impact of foreign currency fluctuations.

On July 7, 2005, incontinuation of the previously announced profit improvement plan, we committedto additional actions to reduce ongoing operating expenses, consolidatefacilities, and reduce our workforce. The additional actions include closingand consolidating certain facilities in Northern Europe and reducing netheadcount by a total of approximately 60 employees. We expect approximately 20positions will be reduced by attrition and the remainder by severance.  We recorded restructuring expenses of $1.7million for severance expenses incurred during the three months ended September30, 2005 as a result of these actions. In addition, we recorded $0.7 million of severance expenses as a resultof previously announced actions.

As a result of thefacility closures, we will no longer be able to maintain certain minimumemployment levels required to retain government grants received and recorded asa reduction of operating expenses in previous periods. Consequently, werecorded restructuring expense of $3.1 million during the three months endedSeptember 30, 2005, to establish a liability for the obligation to repay suchamounts.

We estimate that we willrecord an additional $3.4 million to $5.0 million of costs during our fourthquarter of fiscal year 2005 for the remaining severance, facilities costs andthe disposal of certain capital equipment. The majority of the severance costis expected to be paid out by the end of fiscal year 2005, and the facilitiescosts are expected to be paid out over the remaining lease terms, which rangefrom several months to approximately 5 years. We expect to complete theseactivities by the end of fiscal year 2005.

The following table illustratesthe remaining anticipated costs by major categories (in thousands):
| Description            | ** ** | **Estimated Range** | ** ** |
|------------------------|------------|--------------------------|------------|
| Cash charges:          |       |                     |       |   |   |   |   |
| Employee severance     |       | $                        | 0.5        |   | to |   | $ | 0.7 |   |
| Facilities leases      |       | 1.3                      |       | to |   | 2.5 |   |
| Total cash charges     |       | 1.8                      |       | to |   | 3.2 |   |
|                   |       |                     |       |   |   |   |   |
| Non-cash  charges:     |       |                     |       |   |   |   |   |
| Fixed asset disposals  |       | 1.6                      |       | to |   | 1.8 |   |
| Total non-cash charges |       | 1.6                      |       | to |   | 1.8 |   |
|                   |       |                     |       |   |   |   |   |
| Total charges          |       | $                        | 3.4        |   | to |   | $ | 5.0 |   |

11

----

During the nine monthsended September 30, 2005, we decided to open previously closed leasedfacilities in North America to temporarily accommodate new business.  In a prior year, we had recorded arestructuring liability for the future scheduled lease payments for the closedfacilities. As a result of the decision to reopen the facilities, we reversedthe remaining $3.5 million restructuring liability.

**Note 5. Investments in Affiliates**

We have made minorityinterest investments for business and strategic purposes through the purchaseof voting common and preferred stock of companies.  We periodically evaluate whether declines infair value, if any, of our investments are other-than-temporary. Thisevaluation consists of a review of qualitative and quantitative factors. Wealso consider other factors to determine whether declines in fair value are other-than-temporary,such as the investee’s financial condition, results of operations and operatingtrends. We also consider the implied value from any recent rounds of financingcompleted by the investee.

Subcontractedexpenses for services provided by our India joint venture were $3.4 million and$3.0 million for the three-month periods ended September 30, 2005 and 2004,respectively, and $11.7 million and $9.4 million for the nine-month periodsended September 30, 2005 and 2004, respectively.  The Company had payables to our India jointventure of $2.9 million and $3.0 million at September 30, 2005 and December 31,2004, respectively, which are included in trade accounts payable in theaccompanying consolidated condensed balance sheets.

As of September 30, 2005and December 31, 2004, the investment in certain Latin America affiliates wasapproximately $13.3 million and $12.4 million, respectively. Of the investmentin certain Latin America affiliates, approximately $7.7 million is equitymethod goodwill. This equity method goodwill is not amortized.  Subcontractedservices provided by our Latin America joint venture for the three-month andnine-month periods ended September 30, 2005 and 2004 were not material.

**Note 6. Stock-Based Compensation**

The 1999 Stock Incentive Plan(1999 Plan) provides for the granting of various types of incentive awards(including incentive stock options, nonqualified options, stock appreciationrights, restricted shares, and performance shares or units) for the issuance ofup to an aggregate of 10,500,000 shares of common stock to our employees,consultants and non-employee directors.

Vesting terms vary with eachgrant, and option terms may not exceed ten years. Option prices, set by theCompensation Committee of the Board of Directors, may not be less than the fairmarket value at date of grant for incentive stock options or less than parvalue for nonqualified stock options. At September 30, 2005 there wereapproximately 6.1 million shares available for issuance pursuant to futuregrants under the 1999 Plan.

Prior to the adoption of the 1999 Plan, we grantedoptions under several different plans. As of September 30, 2005, optionsgranted under these plans aggregating 2.2 million remained outstanding withstrike prices ranging from $2.41 to $19.50. The last of these options will expire on February 1, 2009.  We will not grant additional options underthese plans.

The following table sets forth shares subject tooptions:
|                              | ** ** | ** **          | ** ** | **Weighted-Average**          | ** ** |
|------------------------------|------------|---------------------|------------|-------------------------------|------------|
| ** **                   | ** ** | **Number**          | ** ** | **Exercise**                  | ** ** |
| ** **                   | ** ** | **of Options** | ** ** | **Price per Share** | ** ** |
|                         |       |                |       |                          |       |
| Balance, January  1, 2005    |       | 6,808,736           |       | $                             | 3.68       |   |
| Granted                      |       | —              |       | —                        |       |
| Exercised                    |       | (22,100             | )          | 1.49                          |       |
| Canceled                     |       | (620,067            | )          | 3.52                          |       |
| Balance,  September 30, 2005 |       | 6,166,569           |       | $                             | 3.60       |   |

12

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The options exercisable at theend of each period were:
|                    | ** ** | ** **          | ** ** | **Weighted-Average**          | ** ** |
|--------------------|------------|---------------------|------------|-------------------------------|------------|
| ** **         | ** ** | **Number**          | ** ** | **Exercise**                  | ** ** |
| ** **         | ** ** | **of Options** | ** ** | **Price per Share** | ** ** |
|               |       |                |       |                          |       |
| December 31,  2004 |       | 3,716,345           |       | $                             | 4.28       |   |
| September 30, 2005 |       | 3,672,988           |       | $                             | 4.08       |   |

 

The following tablesummarizes stock options outstanding at September 30, 2005:
|                          | ** ** | ** **      | ** ** | **Weighted**  | ** ** | **Weighted** | ** ** |
|--------------------------|------------|-----------------|------------|---------------|------------|--------------|------------|
| ** **               | ** ** | ** **      | ** ** | **Average**   | ** ** | **Average**  | ** ** |
| **Range of**        | ** ** | **Number**      | ** ** | **Remaining** | ** ** | **Exercise** | ** ** |
| **Exercise Prices** | ** ** | **Outstanding** | ** ** | **Life**      | ** ** | **Price**    | ** ** |
| ** **               | ** ** | ** **      | ** ** | ** **    | ** ** | ** **   | ** ** |
| $1.24 to $1.75           |       | 683,500         |       | 7.5           |       | $            | 1.56       |   |
| $1.76 to $4.00           |       | 4,250,650       |       | 4.2           |       | $            | 3.08       |   |
| $4.01 to $6.33           |       | 649,742         |       | 3.6           |       | $            | 4.85       |   |
| $6.34 to $7.22           |       | 402,277         |       | 4.1           |       | $            | 6.70       |   |
| $7.23 to $12.66          |       | 120,400         |       | 2.4           |       | $            | 9.76       |   |
| $12.67 to $20.00         |       | 60,000          |       | 1.5           |       | $            | 17.35      |   |

 

Thefollowing table summarizes stock options exercisable at September 30, 2005:
|                          | ** ** | ** **      | ** ** | **Weighted** | ** ** |
|--------------------------|------------|-----------------|------------|--------------|------------|
| ** **               | ** ** | ** **      | ** ** | **Average**  | ** ** |
| **Range of**        | ** ** | **Number**      | ** ** | **Exercise** | ** ** |
| **Exercise Prices** | ** ** | **Exercisable** | ** ** | **Price**    | ** ** |
| ** **               | ** ** | ** **      | ** ** | ** **   | ** ** |
| $1.24 to $1.75           |       | 336,457         |       | $            | 1.57       |   |
| $1.76 to $4.00           |       | 2,104,512       |       | $            | 3.04       |   |
| $4.01 to $6.33           |       | 649,742         |       | $            | 4.85       |   |
| $6.34 to $7.22           |       | 402,277         |       | $            | 6.70       |   |
| $7.23 to $12.66          |       | 120,000         |       | $            | 9.75       |   |
| $12.67 to $20.00         |       | 60,000          |       | $            | 17.35      |   |

 

**Note 7. Contingencies**

From time to time, during the normal course ofbusiness, we may make certain indemnities, commitments and guarantees underwhich we may be required to make payments in relation to certain transactions.These include for example: (i) indemnities to clients pertaining to claimsbased on our negligence or willful misconduct and (ii) indemnities involvingthe accuracy of representations and warranties in certain contracts.

From time to time, we are involved in litigationincidental to our business. We cannot predict the ultimate outcome of suchlitigation with certainty, but management believes, after consultation withcounsel, except for the items discussed below for the reasons mentionedtherein, that the resolution of such matters will not have a material adverseeffect on our consolidated financial position or results of operations.

*BankruptcyOP Computers SPA vs. SITEL Kingston Limited* (now known as Mitre Telesales Limited) wasfiled in April 2004 in the Court of Ivrea in Milan, Italy.  The receivers asserted that Mitre, as aformer supplier to Olivetti, is required under Italian bankruptcy law to return€5,349,025 (approximately $6.9 million) in payments Olivetti had allegedly paidMitre during a one-year “clawback” period, which allegedly runs from March 9,1998 until March 9, 1999, the alleged date Olivetti filed forreceivership.  Mitre filed its Defencewith the court in November 2004.  TheDefence outlined the facts and reasons why Mitre 

13

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did not and should notreasonably have known of Olivetti’s insolvent state during the time that Mitrewas performing services for Olivetti. The first substantive hearing held in May 2005 was adjourned to November2005.  Counsel for Mitre TelesalesLimited and for the receiver have recently engaged in settlement discussionsand have reached an oral agreement which is subject to confirmation by thereceiver and the bankruptcy court.  Whileconfirmation cannot be assured, on the basis of present information and advicefrom counsel, the Company and its subsidiary Mitre Telesales Limited believethat confirmation is likely.  In suchcase the matter would be settled for the amount that the Company has alreadyaccrued for such purpose and would not have a material adverse effect on theCompany’s results or financial condition.

Two of our clients have received letters from time totime containing an offer to license and suggesting that the clients might beinfringing certain patents related to computerized telephonic voice responsesystems without the license. The clients have indicated that if anyinfringement occurred the clients would seek contractual indemnity from us. Insuch an event, we would expect to seek contractual indemnity from certain ofour vendors. Any such contractual indemnity we might obtain may not besufficient to cover all of the costs of investigating and resolving suchmatter. We might also seek a license under the patents. Any such license maynot be available under commercially reasonable terms. Any license costs wouldincrease the cost of doing business in the future and may or may not be fullyreflected in our pricing. To our knowledge, no litigation has been initiatedagainst our clients or us concerning this matter. At this stage, due to theinherent uncertainties, we are unable to predict whether this matter may have amaterial adverse effect on our business or on our financial condition orresults of operation.

**Note 8.Earnings Per Share**

Wecalculate income (loss) per common share by dividing our reported net income(loss) by the weighted average number of common shares and common equivalentshares outstanding during each period. Our reported net income (loss) is usedin the computation of both basic and diluted income (loss) per share.

Thedifference between the number of shares used to calculate basic and dilutedearnings per share represents the number of shares assumed to be issued fromthe exercise of dilutive stock options under our stock option plans, lessshares assumed to be purchased with proceeds from the exercise of the stockoptions and the related tax benefits. At September 30, 2005, we had 3.2million options, which have been excluded from the nine-month diluted netincome per share computation because their exercise price exceeds the fairmarket value.  For the three-monthdiluted net income per share computation, all 6.2 million options were excludedfrom the computation due to the net loss. At September 30, 2004, all 6.6 million options were excluded from thediluted net income per share computation due to the net loss for the three andnine month periods.

**Note 9. Payroll TaxRefund**

During the quarter endedJune 30, 2004, we recorded a benefit from the refund of payroll taxoverpayments paid in a prior year. We recorded the payroll tax refund in theaccompanying consolidated condensed statements of operations as a $1.3 millionreduction of direct labor and telecommunications expenses and a $0.4 millionreduction of operating, selling and administrative expenses during the ninemonths ended September 30, 2004.

**Note10. Debt**

On August 19, 2005,the Company entered into a five year $145 million credit facility (theCredit Facility) with certain lenders. The Credit Facility is comprised of twocredit agreements (the Credit Agreements). ACredit Agreement with Wells Fargo Foothill, Inc., entered into by US andforeign borrowers, consists of a senior revolving credit facility (Revolver) of$90 million and an amortizing term loan (Term Loan A) of $20 million, securedby a first lien on the Company’s assets in the United States and a first lienon the Company’s accounts receivable and related assets and deposit accounts inCanada, the United Kingdom, Ireland and Germany.  A second Credit Agreement with Ableco FinanceLLC, entered into by US borrowers, provides for a bullet-repayment term loan(Term Loan B) of $35 million secured by a second lien on the Company’s assetsin the United States.  Certain other non-U.S. subsidiaries haveguaranteed the obligations of the foreign borrowers.

Borrowings under eachCredit Agreement bear interest, at the Company’s option, at either the PrimeRate plus the Applicable Margins or the LIBOR Rate plus the Applicable Margins(each term as defined in the Credit Agreements). The Term Loan A requiresmonthly principal payments of $0.3 million each, with the balance payable atmaturity.  On September 30, 2005, theweighted average interest rates applicable to the Revolver and Term Loan A wereeach 6.7% and the interest rate applicable to the Term Loan B was 10.3%.

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The Credit Agreementsrequire prepayment from excess cash flow and proceeds of certain asset sales,debt issuances, and extraordinary receipts. The Company may prepay the termloans without prepayment premium under certain circumstances.  If the Credit Facility is terminated duringthe first four years, the applicable prepayment premium is 4% in year one onthe maximum Revolver and any remaining principal of Term Loan A, declining byone percent each year thereafter, and 2% on any remaining principal of TermLoan B, declining by one-half percent each year thereafter.

The Credit Agreements contain covenants thatamong other things limit the ability of the Company and certain othersubsidiaries to incur indebtedness; incur liens; liquidate, merge orconsolidate with others; sell assets; change the nature of its business; prepayor amend the terms of other indebtedness; have a change in control; paydividends or make certain other restricted payments; make investments; enterinto certain transactions with affiliates; or permit liens or indebtednessabove certain limits in other subsidiaries. The Company must also comply with certain financial covenants.

The Credit Agreements contain events of defaultincluding failure to make required payments; failure to comply with covenantsor other agreements in the Credit Agreements; failure to pay, or the right ofacceleration of, certain other indebtedness; certain events of bankruptcy,insolvency, and injunction; material breach of representations and warranties;and certain judgments.  Upon theoccurrence and continuance of an event of default, amounts due under the CreditAgreements may be accelerated.

On August 19, 2005, weused proceeds of the Revolver under the Credit Facility to repay amountsoutstanding under our existing revolving credit facility with Fleet CapitalCorporation that was to expire on December 27, 2005.

On September 21, 2005, weused the proceeds of Term Loan A, Term Loan B, and an additional drawing underthe Revolver to redeem the outstanding 9.25% Senior Subordinated Notes (theNotes) that were due March 2006.

At September 30, 2005, wehad $120.2 million outstanding under the Credit Agreements, of which $3.6million is included in revolving credit facility and other current debt in theaccompanying consolidated condensed balance sheet.  The remainder is included in long-term debtin the accompanying consolidated condensed balance sheet.

Primarilyas a result of matters arising out of and related to our investigation ofirregularities at our Brazilian subsidiary, we were not in compliance withcertain covenants of our credit agreements with Wells Fargo Foothill,Inc. and Ableco Finance LLC as Agents as ofSeptember 30, 2005.   We subsequentlyobtained waivers of the non-compliance.

The waivers addressedpast defaults, including among other things, (1) the delayed submission ofcertain monthly unaudited financial statements, monthly compliancecertificates, borrowing base certificates and projections; (2) our exceedingthe maximum leverage ratio of 2.75 to 1.0 for the four fiscal quarters endedSeptember 30, 2005 based on the restatement of prior financial statements; and(3) inaccuracies in prior financial statements and related compliancecertificates due to the restatement of such financial statements.  The waivers also enable us to avoid defaultrelated to any delinquent payment of certain U.S. income taxes that wouldresult if we do not receive the expected favorable IRS rulings concerningtechnical errors in the filings of the Company’s US federal tax returns forfiscal years 2001-2003.

Annual repayments of theCredit Facility for the years ending December 31, are as follows (inthousands):
|        | ** ** | **Amount** | ** ** |
|--------|------------|------------|------------|
|   |       |       |       |
| 2005   |       | $          | 900        |   |
| 2006   |       | 3,600      |       |
| 2007   |       | 3,600      |       |
| 2008   |       | 3,600      |       |
| 2009   |       | 3,600      |       |
| 2010   |       | 104,884    |       |
| Total  |       | $          | 120,184    |   |

 

As a result of therepayment of the Fleet revolving credit facility and redemption of the Notes,the Company recorded a non-cash pre-tax charge of approximately $0.4 millionduring the three month period ended September 30, 2005 to write-off previouslycapitalized debt issuance costs, which is included in interest expense in theaccompanying consolidated condensed statements of operations.

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**Note11.  Income Taxes**

During the three monthsended September 30, 2005, we recorded a non-cash tax benefit of approximately$5.8 million, which is included in income tax expense (benefit) in theaccompanying consolidated condensed statements of operations. This tax benefitresults from the release of a valuation allowance associated with deferred taxassets in one of our European business units. The decision to release thisvaluation allowance was based on a sustained improvement of earnings combinedwith an improved financial outlook for the business unit. The improvedfinancial situation led management to decide that the tax losses in thebusiness unit would be fully utilized before they expire.

**In the future, we will continueto periodically assess the recoverability of the remaining deferred income taxassets, which is principally dependent upon our ability to achieve taxableincome in the US and certain foreign jurisdictions. In addition, the deferredtax asset and its potential realizability will be evaluated to determine if aportion of the valuation allowance should be reversed. Any reversal of thisvaluation allowance in the future will result in a reduction of our effectivetax rate.**

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**Item2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

##### **General**

References in this report to “we”, “our”, and the “Company” are toSITEL Corporation and its subsidiaries, collectively.

We are a leading global provider of outsourcedcustomer support services. We specialize in the design, implementation, andoperation of multi-channel contact center solutions. We support the customermanagement strategies of large and medium size corporations in North America,Europe, Asia Pacific, and Latin America. We provide customer acquisition,customer care, technical support and risk management services on an outsourcedbasis, as well as operational and information technology professional servicesfor both outsourced and in-house contact centers. We serve clients primarily inthe automotive, consumer,financial services, insurance, technology, telecommunications and ISP, mediaservices, and utilities sectors.

In Management’s Discussion and Analysis, we provide information aboutour general business risks, critical accounting policies and estimates, resultsof operations, financial condition and liquidity, and certain other mattersaffecting our operating results for the periods covered by this report.

As described in Note 2 ofthe consolidated condensed financial statements, SITEL Corporation has restatedits previously filed consolidated financial statements as of September 30, 2005and December 31, 2004, and for the three and nine month periods ended September30, 2005 and 2004 included in its Quarterly Report on Form 10-Q for the quarterended September 30, 2005, which was filed with the Securities and ExchangeCommission on November 9, 2005.  Weidentified errors in our financial statements related to accountingirregularities identified at our Brazilian subsidiary including interest and penalties on unpaid tax obligations;deferred recognition of expenses; errors in revenue recording; intentionalfalsification of financial results; and intentional misclassification ofrecorded amounts.

We also recorded other adjustments that werepreviously deemed immaterial.

As a result of the errors referred to above,the net income (loss) for the nine month period ended September 30, 2005 and2004 was overstated by $2.4 million and $1.6 million, respectively, and $0.8million and $0.6 million for the three month period ended September 30, 2005and 2004, respectively.

As you read this discussion and analysis, refer to our ConsolidatedCondensed Statements of Operations, which present the results of our operationsfor the three and nine month periods ended September 30, 2005 and 2004, and aresummarized on the following pages. We analyze and explain the differencesbetween periods for the components of operations in the following sections. Ouranalysis is important in making decisions about your investment in SITELCorporation.

During 2004, we initiateda profit improvement plan comprised of a set of initiatives.  These initiatives include a plan torationalize underutilized facilities, eliminate losses from business units thatare underperforming, right size support functions to better utilize human andphysical assets, reduce and further leverage IT and telecommunication costs,and improve the operating performance of all of our facilities through enhancedefficiency. We will continue to focus on our performance-based pricinginitiatives, invoice and contract management, and statement of work changecontrols.

##### **General Business Risks, Critical AccountingPolicies and Estimates**

**General BusinessRisks**

Our business success depends on our ability toefficiently deploy our human and capital resources in the delivery of servicesto our clients. Consequently, the needs of our clients may significantly impactour results of operations, financial condition, and liquidity.

Our results of operations and operating cash flowsmay vary with periodic wins, expansions, and losses of client contracts andwith changes in the scope of client requirements.  Our******top20 clients accounted for 66.4% and 68.5% of our revenue for the three-monthperiods ended September 30, 2005 and 2004, respectively, and 67.4% and 67.2%for the nine-month periods ended September 30, 2005 and 2004,respectively.  Some of these top 20clients include multiple business units within the clients’ affiliated group.  Hewlett-PackardCompany business units were responsible for 11.8% and 11.4% of our revenue for the three-monthperiods ended September 30, 2005 and 2004, respectively, and 12.0% and 11.3%for the nine-month periods ended September 30, 2005 and 2004,respectively.  General Motors Corporation(General Motors) business units were responsible for 11.9% and 13.9% of our revenue for the three-monthperiods ended September 30, 2005 and 2004, respectively, and 12.0% and

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15.8% for the nine-month periods ended September30, 2005 and 2004, respectively. OnApril 21, 2004, we announced the signing of a new contract with General Motorsto continue to provide customer support services for General Motors’ NorthAmerican Vehicle Sales, Service, and Marketing Group through December 31,2005.  An existing agreement under whichwe supported OnStar operations terminated effective June 22, 2004. We did not have any otherclients under common control that generated more than 10% of our revenue forthe periods presented.  The financial failure of any of these clients orthe loss of any or all of their business could have an adverse impact on ouroperating results.

Our liquidity, including our ability to complywith restrictive debt covenants, may be adversely affected if we were to lose asignificant client or as a result of significant changes in client demand if weare unable to efficiently re-deploy our human and capital resources.

In the following sections, we also discuss theimportance of our critical accounting policies and the use of accountingestimates, and their potential impacts on our results of operations.

**Critical Accounting Policies andEstimates**

Theprocess of preparing financial statements requires the use of estimates on thepart of management. These estimates involve judgments with respect to, amongother things, future economic factors that are difficult to predict and arebeyond management’s control. As a result, actual results could differ fromthese estimates.

We have identified the following to be critical accounting policiesbecause they are the most important to the portrayal of our results of operationsand financial condition, and they require management’s most difficult,subjective, or complex judgments.

***Revenue Recognition***

We recognize revenue in accordance with applicable accountingstandards, including Securities and Exchange Commission Staff AccountingBulletin (SAB) No. 104, *RevenueRecognition*.  We recognizerevenue at the time services are performed based on the rate detailed in theclient contract, such as hourly, monthly, per call or per employee.  A portion of our revenue is often subject toperformance standards, such as sales per hour, average handle time, occupancyrate and abandonment rate.  Our performance against such standards mayresult in incentives or penalties, which are recognized as earned or incurred.In certain circumstances, we receive payment in advance of providing service.Amounts billed but not earned under these contracts are excluded from revenueand included in deferred revenue and other in the consolidated balance sheet.Revenue for services performed under certain collection service agreements isrecognized as the related consumer debts are collected and is calculated basedupon a percentage of cash collected or other agreed upon contractualparameters.

***Trade Accounts Receivable***

We report our tradeaccounts receivable net of an allowance for doubtful accounts, which representsmanagement’s estimates of the amount of our receivables that may not becollectible, net of recoveries of amounts previously written off. Theseestimates are based on a detailed aging analysis of accounts receivable,historical bad debts, client credit-worthiness, and changes in our clientpayment terms. The financial condition of our clients may deteriorate, whichmay require us to increase our allowance for doubtful accounts. We would recordan increase in the allowance for doubtful accounts as operating, selling, andadministrative expense in our consolidated condensed statements of income(loss), which would reduce our results of operations.

***Property and Equipment***

We record property andequipment at cost, and calculate depreciation using the straight-line methodover the estimated useful lives of the assets, which range from 3 to20 years. We amortize leasehold improvements and assets under capitalleases on a straight-line basis over the shorter of the lease term or theestimated useful life of the asset. If the actual useful lives of these assetsare less than the estimated depreciable lives, we would record additionaldepreciation expense or losses on disposal to the extent the net book value ofsuch asset is not recovered upon sale.

***Asset Impairment***

We evaluate long-livedassets for impairment whenever events or changes in circumstances indicate thecarrying amount of an asset may not be recoverable.  Triggering events include a significant changein the extent or manner in which long-lived assets are being used or in itsphysical condition, in legal factors, or in the business climate that couldaffect the value of the long-lived assets. The interpretation of such eventsrequires judgment from management as to whether such an event has occurred.

Upon the occurrence of atriggering event, the carrying amount of a long-lived asset is reviewed toassess whether the recoverable amount has declined below its carryingamount.  The recoverable amount is theestimated net future cash flows 

18

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that we expect to recoverfrom the future use of the asset, undiscounted and without interest, plus theasset’s residual value on disposal. Where the recoverable amount of thelong-lived asset is less than the carrying value, an impairment loss would berecognized to write down the asset to its fair value, which is based ondiscounted estimated cash flows from the future use of the asset.

The estimated cash flowsarising from future use of the asset that are used in the impairment analysisrequires judgment regarding what we would expect to recover from future use ofthe asset.  Any changes in the estimatesof cash flows arising from future use of the asset or the residual value of theasset on disposal based on changes in the market conditions, changes in the useof the assets, management’s plans, and the determination of the useful life ofthe assets could significantly change the recoverable amount of the asset orthe calculation of the fair value and the resulting impairment loss, whichcould significantly affect the results of operations.

***Goodwill***

At least annually or morefrequently, as changes in circumstances indicate, we will evaluate theestimated fair value of our goodwill. On these evaluation dates, to the extentthat the carrying value of the net assets of any of our reporting units havinggoodwill is greater than their estimated fair value, we will be required totake additional goodwill impairment charges. We are required to make certainassumptions and estimates regarding the fair value of goodwill when assessingfor impairment. Changes in the fact patterns underlying such assumptions andestimates could ultimately result in the recognition of additional impairmentlosses.

***Deferred Income Taxes***

We record deferred taxassets and liabilities using enacted tax rates in the jurisdictions in which weoperate for the effect of temporary differences between the book and tax basisof assets and liabilities in accordance with Statement of Financial AccountingStandards, No. 109, *Accounting for IncomeTaxes*. If enacted tax rates change, we would adjust the deferred taxassets and liabilities, through the provision for income taxes in the period ofchange, to reflect the enacted tax rate expected to be in effect when thedeferred tax items reverse. To the extent that we believe that recovery is notlikely, we establish a valuation allowance to reduce the deferred tax assets tothe amount that is more likely than not to be realized. The valuation allowanceis based on our estimates of future taxable income by jurisdiction in which weoperate and the period over which the deferred tax assets can be recovered. A review of all available positive and negativeevidence needs to be considered, including our current and past performance,the market environment in which we operate, the utilization of past taxcredits, length of carryback and carryforward periods, and existing orprospective contracts that will result in future profits.

Forming aconclusion that a valuation allowance is not needed is difficult when there isnegative evidence such as cumulative losses in recent years in certain taxjurisdictions. Cumulative losses weigh heavily in the overall assessment. Wehave established valuation allowances for future tax benefits related to netoperating losses incurred in certain federal, state and foreign taxjurisdictions. We expect to continue to record a valuation allowance on futuretax benefits in certain tax jurisdictions until an appropriate level ofprofitability is sustained.

***Self-Insurance Reserves***

We are self-insured inNorth America for health care claims for eligible participating employees,subject to certain deductibles and limitations. The costs include an estimateof expected settlements on pending claims and a provision for claims incurredbut not reported. These estimates are based on our assessment of potentialliability using an analysis of available information with respect to pendingclaims, historical experience, and current cost trends. Actual claims resultscould differ from these estimates.

***Contingencies***

We consider thelikelihood of various loss contingencies, including tax and legal contingenciesarising in the ordinary course of business, and our ability to reasonablyestimate the amount of loss in determining loss contingencies. An estimatedloss contingency is accrued when it is probable that a liability has beenincurred and the amount of loss can be reasonably estimated. We regularlyevaluate current information available to us to determine whether such accrualsshould be adjusted.

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##### **Resultsof Operations for the Three and Nine Month Periods Ended September 30, 2005Compared with the Same Periods of 2004**

Inthis section, we discuss our operating results and the factors affecting them.We describe our general business risks, critical accounting policies, andestimates that are important to our operating results on the previouspages.  Please refer to that discussionas you read this section.

**Components of Operations**

The following table summarizes our statement ofoperations data on a percentage-of-revenue basis.
|                                                              | ** ** | **Three Months Ended September 30,** | ** **   | **Nine Months Ended September 30,** | ** **  |
|--------------------------------------------------------------|------------|----------------------------------------------------------|--------------|---------------------------------------------------------|-------------|
| ** **                                                   | ** ** | **2005**                                                 | ** **   | **2004**                                                | ** **  | **2005** | ** ** | **2004** | ** ** |
| ** **                                                   | ** ** | **$**                                                    | ** **   | **%**                                                   | ** **  | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                                   | ** ** | **(As restated)**                                   | ** **   | **(As restated)**                                  | ** **  |
| ** **                                                   | ** ** | **(in thousands)**                                  | ** **   | **(in thousands)**                                 | ** **  |
| **Revenue**                                                  |       | $                                                        | 244,042      | *** ***                                            | ***100.0*** | ***%*** | $ | 229,393 | *** *** | ***100.0*** | ***%*** | $ | 746,744 | *** *** | ***100.0*** | ***%*** | $ | 713,317 | *** *** | ***100.0*** | ***%*** |
|                                                         |       |                                                     |         |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Direct  labor and telecommunications expenses                |       | 147,432                                                  | *** *** | ***60.4***                                              | ***%***     | 138,187 | *** *** | ***60.2*** | ***%*** | 453,522 | *** *** | ***60.7*** | ***%*** | 425,252 | *** *** | ***59.6*** | ***%*** |
| Subcontracted  and other services expenses                   |       | 12,019                                                   | *** *** | ***4.9***                                               | ***%***     | 12,401 | *** *** | ***5.4*** | ***%*** | 37,780 | *** *** | ***5.1*** | ***%*** | 38,238 | *** *** | ***5.4*** | ***%*** |
| Operating,  selling and administrative expenses              |       | 80,874                                                   | *** *** | ***33.1***                                              | ***%***     | 77,970 | *** *** | ***34.0*** | ***%*** | 242,010 | *** *** | ***32.4*** | ***%*** | 232,332 | *** *** | ***32.6*** | ***%*** |
| Asset  impairment and restructuring expenses                 |       | 4,616                                                    | *** *** | ***1.9***                                               | ***%***     | — | *** *** | ***0.0*** | ***%*** | 2,007 | *** *** | ***0.3*** | ***%*** | — | *** *** | ***0.0*** | ***%*** |
| **Operating income (loss)**                                  |       | (899                                                     | )            | ***-0.4***                                              | ***%***     | 835 | *** *** | ***0.4*** | ***%*** | 11,425 | *** *** | ***1.5*** | ***%*** | 17,495 | *** *** | ***2.5*** | ***%*** |
|                                                         |       |                                                     |         |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest  expense                                            |       | (3,811                                                   | )            | ***-1.6***                                              | ***%***     | (3,292 | ) | ***-1.4*** | ***%*** | (10,231 | ) | ***-1.4*** | ***%*** | (10,069 | ) | ***-1.4*** | ***%*** |
| Interest  income                                             |       | 144                                                      | *** *** | ***0.1***                                               | ***%***     | 152 | *** *** | ***0.1*** | ***%*** | 404 | *** *** | ***0.1*** | ***%*** | 392 | *** *** | ***0.1*** | ***%*** |
| Equity  in earnings (loss) of affiliates                     |       | 27                                                       | *** *** | ***0.0***                                               | ***%***     | 298 | *** *** | ***0.1*** | ***%*** | 315 | *** *** | ***0.0*** | ***%*** | 368 | *** *** | ***0.1*** | ***%*** |
| Other  income (expense), net                                 |       | 53                                                       | *** *** | ***0.0***                                               | ***%***     | (69 | ) | ***0.0*** | ***%*** | 22 | *** *** | ***0.0*** | ***%*** | (451 | ) | ***-0.1*** | ***%*** |
| **Income (loss) before income  taxes and minority interest** |       | (4,486                                                   | )            | ***-1.8***                                              | ***%***     | (2,076 | ) | ***-0.9*** | ***%*** | 1,935 | *** *** | ***0.3*** | ***%*** | 7,735 | *** *** | ***1.1*** | ***%*** |
|                                                         |       |                                                     |         |                                                    |        |   |   |   |   |   |   |   |   |   |   |   |   |
| Income  tax expense (benefit)                                |       | (3,438                                                   | )            | ***-1.4***                                              | ***%***     | 190 | *** *** | ***0.1*** | ***%*** | (800 | ) | ***-0.1*** | ***%*** | 3,267 | *** *** | ***0.5*** | ***%*** |
| Minority  interest                                           |       | 875                                                      | *** *** | ***0.4***                                               | ***%***     | 29 | *** *** | ***0.0*** | ***%*** | 1,538 | *** *** | ***0.2*** | ***%*** | 449 | *** *** | ***0.1*** | ***%*** |
| **Net income (loss)**                                        |       | $                                                        | (1,923       | )                                                       | ***-0.8***  | ***%*** | $ | (2,295 | ) | ***-1.0*** | ***%*** | $ | 1,197 | *** *** | ***0.2*** | ***%*** | $ | 4,019 | *** *** | ***0.6*** | ***%*** |

 

# ***Three MonthPeriod Ended September 30, 2005 Compared to the Same Period of 2004***

***Revenue***

Revenue increased $14.6 million, or 6.4%, in the threemonths ended September 30, 2005 compared to the same period of 2004. Thechanges in revenue by geographic region are shown in the following table:
| Three months                 | ** ** | ** **             | ** ** | ** **             | ** ** | **$**      | ** ** | **%**      | ** ** |
|-----------------------------------|------------|------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| **ended September 30,** | ** ** | **2005**               | ** ** | **2004**               | ** ** | **Change** | ** ** | **Change** | ** ** |
| ** **                        | ** ** | **(As restated)** | ** ** | **(As restated)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **             | ** ** | **(in millions)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| North America                     | ** ** | **$**                  | **124.0**  |                   | $          | 117.5      |       | $          | 6.5        |   | 5.5 | % |
| Europe                            | ** ** | **95.2**               |       | 93.0                   |       | 2.2        |       | 2.4        | %          |
| Asia Pacific                      | ** ** | **13.4**               |       | 11.4                   |       | 2.0        |       | 17.5       | %          |
| Latin America                     | ** ** | **11.4**               |       | 7.5                    |       | 3.9        |       | 52.0       | %          |
| Totals                            | ** ** | **$**                  | **244.0**  |                   | $          | 229.4      |       | $          | 14.6       |   | 6.4 | % |

 

20

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North American revenue increased $6.5 million forthe three months ended September 30, 2005 compared to the same period in2004.  An $11.2 million increase,primarily as a result of an increase in customer care and technical supportprograms, was partially offset by a $4.7 million decrease in customeracquisition and risk management services. The weakening of the U.S. dollar versus the Canadian dollar accountedfor $0.4 million of the increase.

European revenue increased $2.2 million for thethree months ended September 30, 2005 compared to the same period in 2004.  Higher sales volumes from new and existingclients resulted in a $2.8 million increase, partially offset by a $0.6 milliondecrease due to the strengthening of the U.S. dollar versus the British poundand the Euro.

Asia Pacific revenue increased $2.0 million forthe three months ended September 30, 2005 compared to the same period in2004.  Higher sales volumes from new andexisting clients resulted in $1.2 million of the increase.  The weakening of the U.S. dollar versus theNew Zealand and Australian dollars resulted in the remaining $0.8 million ofthe increase.

Latin American revenue increased $3.9 million forthe three months ended September 30, 2005 compared to the same period in2004.  Higher sales volumes from new andexisting clients resulted in $2.4 million of the increase.  The weakening of the U.S. dollar versus theBrazilian Real resulted in the remaining $1.5 million of the increase.

***Direct Labor andTelecommunications Expenses***

Direct labor and telecommunications expensesinclude the compensation of our customer service professionals and their firstline supervisors and telephone usage expenses directly related to theproduction of revenue.

Direct labor and telecommunications expenses as apercentage of revenue can vary based on the nature of the contract, the natureof the work, and the market in which the services are provided. Accordingly,direct labor and telecommunications expenses as a percentage of revenue canvary, sometimes significantly, from period to period.

Directlabor and telecommunications expenses as a percentage of revenue for thethree months ended September 30, 2005 were consistent with the same period in2004.

***Subcontracted and Other ServicesExpenses***

Subcontracted and other services expensesincluded services provided to clients through subcontractors and otherout-of-pocket expenses.  Subcontractedand other services expenses decreased $0.4 million for the three months endedSeptember 30, 2005 compared to the same period of 2004.  Thedecrease was primarily the result of lower subcontracted IT costs to supportclient programs.

Subcontracted expenses for services provided byour India joint venture for the three months ended September 30, 2005 and 2004were $3.4 million and $3.0 million, respectively.

***Operating, Selling andAdministrative Expenses***

Operating, selling and administrative expenses representexpenses incurred to directly support and manage the business, including costsof management, administration, technology, facilities, depreciation andamortization, maintenance, sales and marketing, and client support services.

Operating, selling and administrative expensesincreased $2.9 million for the three months ended September 30, 2005 comparedto the same period of 2004.  Theweakening of the U.S. dollar compared to the primary currency in thejurisdictions that we operate accounted for $1.0 million of the increase.  The remainder of the increase in theseexpenses was associated with our revenue increase.  As a percentage of revenue, operating, sellingand administrative expenses decreased to 33.1% for the three months ended September30, 2005 compared to 34.0% for the same period of 2004.  The decrease is primarily the result ofhigher sales volumes while maintaining the existing cost structure.

***AssetImpairment and Restructuring Expense***

On July 7, 2005, incontinuation of the previously announced profit improvement plan, we committedto additional actions to reduce ongoing operating expenses, consolidatefacilities, and reduce our workforce. The additional actions include closingand consolidating certain facilities in Northern Europe and reducing netheadcount by a total of approximately 60 employees. We expect approximately 20positions will be reduced by attrition and the remainder by severance.  We recorded restructuring expenses of $1.7million for severance expenses incurred during the three months ended September30, 2005 as a result of these actions.

21

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As a result of thefacility closures, we will no longer be able to maintain certain minimumemployment levels required to retain government grants received and recorded asa reduction of operating expenses in previous periods. Consequently, werecorded restructuring expense of $3.1 million during the three months endedSeptember 30, 2005, to establish a liability for the obligation to repay suchamounts.

We estimate that we willrecord an additional $3.4 million to $5.0 million of costs during our fourthquarter of fiscal year 2005 for the remaining severance, facilities costs andthe disposal of certain capital equipment. The majority of the severance costis expected to be paid out by the end of fiscal year 2005, and the facilitiescosts are expected to be paid out over the remaining lease terms, which rangefrom several months to approximately 5 years. We expect to complete theseactivities by the end of fiscal year 2005.
| Description            | ** ** | **Estimated Range** | ** ** |
|------------------------|------------|--------------------------|------------|
| Cash charges:          |       |                     |       |   |   |
| Employee severance     |       | $                        | 0.5        | to | $ | 0.7 |   |
| Facilities leases      |       | 1.3                      | to         | 2.5 |   |
| Total cash charges     |       | 1.8                      | to         | 3.2 |   |
|                   |       |                     |       |   |   |
| Non-cash  charges:     |       |                     |       |   |   |
| Fixed asset disposals  |       | 1.6                      | to         | 1.8 |   |
| Total non-cash charges |       | 1.6                      | to         | 1.8 |   |
|                   |       |                     |       |   |   |
| Total charges          |       | $                        | 3.4        | to | $ | 5.0 |   |

 

During the three monthsended September 30, 2005, we decided to open a previously closed leasedfacility in North America to temporarily accommodate new business.  In a prior year, we had recorded arestructuring liability for the future scheduled lease payments for the closedfacility. As a result of the decision to reopen the facility, we reversed theremaining $0.2 million restructuring liability.

There were no restructuring expenses for the same period in 2004.

***Operating Income(Loss)***

Operating income declined by $1.7 million to anoperating loss of $0.9 million for the three months ended September 30, 2005compared to $0.8 million operating income for the same period in 2004 due tothe factors discussed above.

***Interest Expense***

Interest expense increased $0.5 million for thethree months ended September 30, 2005 compared to the same period in 2004primarily as a result of $0.4 million write-off of previously capitalized debtissuance costs.

***InterestIncome***

Interest incomeremained consistent for the three months ended September 30, 2005 compared tothe same period in 2004.

***Equity in Earnings (loss) ofAffiliates***

Equity in earnings (loss) of affiliates decreasedfor the three months ended September 30, 2005 compared to the same period in2004 primarily as a result of reduced volumes from our India joint venturefollowing flooding that occurred at their Mumbai facility during the quarter.

***Other Income (Expense), Net***

Other income (expense), net increased $0.1 millionfor the three months ended September 30, 2005 compared to the same period in2004 primarily as a result of fluctuations in foreign currency remeasurementgains (losses) arising from monetary assets and liabilities denominated in currenciesother than a business unit’s functional currency.

***Income Tax Expense***

The effective tax rate for the three-months endedSeptember 30, 2005, was more than the statutory U.S. Federal rate of 35% due tonot reflecting any significant tax benefits for the current net operatinglosses in certain federal, state and foreign tax jurisdictions.

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During the three months ended September 30, 2005, we recorded anon-cash tax benefit of approximately $5.8 million, which is included in incometax expense (benefit) in the accompanying consolidated condensed statements ofoperations. This tax benefit results from the release of a valuation allowanceassociated with deferred tax assets in one of our European business units. Thedecision to release this valuation allowance was based on a sustainedimprovement of earnings combined with an improved financial outlook for thebusiness unit. The improved financial situation led management to decide thatthe tax losses in the business unit would be fully utilized before they expire.

Incometax expense as a percentage of income before income taxes and minority interestwas 9.2% for the three-months ended September 30, 2004. The difference between this rate and the statutoryU.S. Federal rate of 35% was primarily due to the utilization of net operatingloss carryforwards in certain subsidiaries for which a full valuation allowancehad previously been provided against the net deferred tax asset and due toincome tax expense incurred in certain non-US subsidiaries.

**NineMonths Ended September 30, 2005 Compared to the Same Period of 2004**

***Revenue***

Revenue increased $33.4 million, or 4.7%, for thenine months ended September 30, 2005 compared to the same period of 2004. Thechanges in revenue by geographic region are shown in the following table:
| Nine months                  | ** ** | ** **             | ** ** | ** **             | ** ** | **$**      | ** ** | **%**      | ** ** |
|-----------------------------------|------------|------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| **ended September 30,** | ** ** | **2005**               | ** ** | **2004**               | ** ** | **Change** | ** ** | **Change** | ** ** |
| ** **                        | ** ** | **(As restated)** | ** ** | **(As restated)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | ** **             | ** ** | **(in millions)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| North America                     | ** ** | **$**                  | **370.5**  |                   | $          | 370.4      |       | $          | 0.1        |   | 0.0 | % |
| Europe                            | ** ** | **309.2**              |       | 290.9                  |       | 18.3       |       | 6.3        | %          |
| Asia Pacific                      | ** ** | **38.3**               |       | 30.9                   |       | 7.4        |       | 23.9       | %          |
| Latin America                     | ** ** | **28.7**               |       | 21.1                   |       | 7.6        |       | 36.0       | %          |
| Totals                            | ** ** | **$**                  | **746.7**  |                   | $          | 713.3      |       | $          | 33.4       |   | 4.7 | % |

 

Despite the previouslyannounced loss of an account and reduced pricing on a major client contract in2004, North American revenue remained consistentfor the nine months ended September 30, 2005 compared to the same period in2004.  During the nine monthsended September 30, 2005, technical support revenue increased $26.3 millionoffset by decreases in customer care and acquisition revenue of $12.7 millionand risk management of $14.5 million.

European revenue increased $18.3 million for thenine months ended September 30, 2005 compared to the same period in 2004.  Higher sales volumes from new and existingclients resulted in $9.8 million of the increase.  The weakening of the U.S. dollar versus theBritish pound and Euro accounted for the remaining $8.5 million of theincrease.

Asia Pacific revenue increased $7.4 million forthe nine months ended September 30, 2005 compared to the same period in2004.  Higher sales volume from new andexisting clients resulted in $4.8 million of the increase.   The weakening of the U.S. dollar versus theNew Zealand and Australian dollars resulted in the remaining $2.6 million ofthe increase.

Latin American revenue increased $7.6 million for thenine months ended September 30, 2005 compared to the same period in 2004.  Higher sales volume from new and existingclients resulted in $4.5 million of the increase.  The weakening of the U.S. dollar versus theBrazilian Real accounted for the remaining $3.1 million of the increase.

***Direct Labor andTelecommunications Expenses***

During the nine months ended September 30, 2005,direct labor and telecommunications expenses as a percentage of revenueincreased to 60.7% compared to 59.6% in same period in 2004.  Theincrease was primarily the result of higher ramp-up costs of new clientprograms, particularly in Europe, reduced pricing on a major client contract,and a change in the mix of services provided in the nine months ended September30, 2005 compared to the same period in 2004. During the nine months endedSeptember 30, 2005, direct labor and telecommunications expenses were lower dueto the impact of the recording of a benefit from a refund of $1.3 million ofpayroll tax overpayments paid in a prior year as a reduction of direct laborand telecommunications expense.

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***Subcontracted and Other ServicesExpenses***

Subcontracted and other services expenses includedservices provided to clients through subcontractors and other out-of-pocketexpenses.  Subcontracted and otherservices expenses decreased $0.4 million for the nine months ended September30, 2005 compared to the same period in 2004. The decrease was primarily the result of lower subcontracted IT costs tosupport client programs.

Subcontracted expenses for services provided byour India joint venture for the nine months ended September 30, 2005 and 2004were $11.7 million and $9.4 million, respectively.

***Operating, Selling andAdministrative Expenses***

Operating, selling and administrative expensesrepresent expenses incurred to directly support and manage the business,including costs of management, administration, technology, facilities,depreciation and amortization, maintenance, sales and marketing, and client supportservices.

Operating, selling and administrative expensesincreased $9.7 million for the nine months ended September 30, 2005 compared tothe same period in 2004.  The weakeningof the U.S. dollar compared to the primary jurisdictions that we operate inaccounted for $6.2 million of the increase. The remainder of the increase in these expenses was associated with ourrevenue increase.  As a percentage ofrevenue, operating, selling and administrative expenses decreased to 32.4% forthe nine months ended September 30, 2005 compared to 32.6% for the same periodin 2004.

***Asset Impairment andRestructuring Expenses***

On July 7, 2005, incontinuation of the previously announced profit improvement plan, we committedto additional actions to reduce ongoing operating expenses, consolidatefacilities, and reduce our workforce. The additional actions include closingand consolidating certain facilities in Northern Europe and reducing netheadcount by a total of approximately 60 employees. We expect approximately 20positions will be reduced by attrition and the remainder by severance.  We recorded restructuring expenses of $1.7million for severance expenses incurred during the nine months ended September30, 2005 as a result of these actions. In addition, we recorded $0.7 million of severance expenses as a resultof previously announced actions.

As a result of thefacility closures, we will no longer be able to maintain certain minimumemployment levels required to retain government grants received and recorded asa reduction of operating expenses in previous periods. Consequently, werecorded restructuring expense of $3.1 million during the nine months endedSeptember 30, 2005, to establish a liability for the obligation to repay suchamounts.

During the nine months endedSeptember 30, 2005, we decided to open previously closed leased facilities inNorth America to temporarily accommodate new business.  In a prior year, we had recorded arestructuring liability for the future scheduled lease payments for the closedfacilities. As a result of the decision to reopen the facilities, we reversedthe remaining $3.5 million restructuring liability.

There were norestructuring expenses for the same period in 2004.

***Operating Income***

Operating incomedecreased $6.1 million for the nine months ended September 30, 2005 compared tothe same period in 2004 due to the factors discussed above.

***Interest Expense***

Interest expense increased $0.2 million for thenine months ended September 30, 2005 compared to the same period in 2004 primarilydue to the $0.4 million write-off of previously capitalized debt issuancecosts.  This increase was partiallyoffset by a decrease in interest expense on lower average borrowings.

***InterestIncome***

Interest income remained consistent for the ninemonths ended September 30, 2005 compared to the same period in 2004.

***Equity in Earnings (loss) ofAffiliates***

Equity in earnings(loss) of affiliates remained consistent for the nine months ended September30, 2005 as compared to the same period in 2004.

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***Other Income (Expense), Net***

Other income (expense), net increased $0.5 millionfor the nine months ended September 30, 2005 compared to the same period in2004.  The increase was primarily as aresult of fluctuations in foreign currency remeasurement gains (losses) arisingfrom monetary assets and liabilities denominated in currencies other than abusiness unit’s functional currency.

***Income Tax Expense***

The effective tax rate for the nine-months endedSeptember 30, 2005, was more than the statutory U.S. Federal rate of 35% due tonot reflecting any significant tax benefits for the current net operatinglosses in certain federal, state and foreign tax jurisdictions.

During the three monthsended September 30, 2005, we recorded a non-cash tax benefit of approximately $5.8million, which is included in income tax expense (benefit) in the accompanyingconsolidated condensed statements of operations. This tax benefit results fromthe release of a valuation allowance associated with deferred tax assets in oneof our European business units. The decision to release this valuationallowance was based on a sustained improvement of earnings combined with animproved financial outlook for the business unit. The improved financialsituation led management to decide that the tax losses in the business unitwould be fully utilized before they expire.

Incometax expense as a percentage of income before income taxes and minority interestwas 42.2% for the nine months ended September 30, 2004.  The difference between this rate the statutoryU.S. Federal rate of 35% was primarily due to the utilization of net operatingloss carryforwards in certain subsidiaries for which a full valuation allowancehad previously been provided against the deferred tax asset and due to incometax expense incurred in certain non-U.S subsidiaries.

**Financial Condition and Liquidity**

Inthis section, we discuss our financial condition and liquidity and the factorsaffecting them. We separately discuss cash flows, capital resources, andcontractual obligations and commitments. We describe our general businessrisks, critical accounting policies, and estimates that are important to ourfinancial condition and liquidity earlier in this report. Please refer to thatdiscussion as you read this section.

# **Cash Flows**

Thefollowing table sets forth summary cash flow data for the periods indicated.Please refer to this summary as you read our discussion of the sources and usesof cash in each year.
| Nine Months Ended September 30, | ** ** | **2005**               | ** ** | **2004**                | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|-------------------------|------------|
| ** **                                          | ** ** | **(As restated)** | ** ** | **(As restated)**  | ** ** |
| ** **                                          | ** ** | ** **             | ** ** | **(in thousands)** | ** ** |
| **Net  cash provided by (used in):**                | ** ** | ** **             | ** ** | ** **              | ** ** |
| Operating activities                                | ** ** | **$**                  | **9,055**  |                    | $          | 30,810 |   |
| Investing activities                                | ** ** | **(18,368**            | **)**      | (15,845                 | )          |
| Financing  activities                               | ** ** | **16,345**             |       | (3,835                  | )          |
|                                                     |            |                        |            |                         |            |  |  |

 

**2005**

In the nine months ended September 30, 2005, cash provided by operatingactivities resulted primarily from $25.1 million in income before depreciationand amortization, and other non-cash charges and benefits, and a $4.1 milliondecrease in other liabilities, partially offset by a $15.4 million increase inaccount receivable and other assets and a $4.8 million decrease in tradeaccounts payable.

In the nine months ended September 30, 2005, we used cash for investingactivities to purchase $21.3 million of property and equipment and used $0.5million for dividends paid to a minority interest shareholder.  This was partially offset by $3.3 million inproceeds from the cash surrender value of life insurance.

In the nine months ended September 30, 2005, cash provided by financingactivities resulted from net borrowings of debt and other obligations of $21.7million, offset by the payment of $5.5 million of debt issue costs associatedwith the new Credit Facility.

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**2004**

Inthe nine months ended September 30, 2004, cash provided by operating activitiesresulted primarily from $30.8 million in income before depreciation andamortization, and other charges, a $1.5 million decrease in other assets and a$8.4 million increase in other liabilities, partially offset by a $2.9 millionincrease in trade accounts receivable and a $7.0 million decrease in tradeaccounts payable.

Inthe nine months ended September 30, 2004, we used cash for investing activities to purchase $17.3 million ofproperty and equipment and used $0.8 million to increase investments in affiliates,offset partially by a dividend from an affiliate of $1.7 million and receiptson notes receivable of $0.5 million.

In the nine months endedSeptember 30, 2004, cash used infinancing activities resulted in net repayments of debt and other obligationsof $4.1 million partially offset by $0.2 million of cash receipts from theproceeds on stock options exercised, net of tax.

**CapitalResources**

We have historically used fundsgenerated from operations, leases of property and equipment, equity capital,senior subordinated notes, and borrowings under credit facilities with banks tofinance business acquisitions, capital expenditures and working capitalrequirements.

On August 19, 2005,the Company entered into a five year $145 million credit facility (theCredit Facility) with certain lenders. The Credit Facility is comprised of twocredit agreements (the Credit Agreements). ACredit Agreement with Wells Fargo Foothill, Inc., entered into by US andforeign borrowers, consists of a senior revolving credit facility (Revolver) of$90 million and an amortizing term loan (Term Loan A) of $20 million, securedby a first lien on the Company’s assets in the United States and a first lienon the Company’s accounts receivable and related assets and deposit accounts inCanada, the United Kingdom, Ireland and Germany.  A second Credit Agreement with Ableco FinanceLLC, entered into by US borrowers, provides for a bullet-repayment term loan(Term Loan B) of $35 million secured by a second lien on the Company’s assetsin the United States.  Certain other non-U.S. subsidiaries haveguaranteed the obligations of the foreign borrowers.

Borrowings under eachCredit Agreement bear interest, at the Company’s option, at either the PrimeRate plus the Applicable Margins or the LIBOR Rate plus the Applicable Margins(each term as defined in the Credit Agreements). The Term Loan A requiresmonthly principal payments of $0.3 million each, with the balance payable atmaturity.  On September 30, 2005, theweighted average interest rates applicable to the Revolver and Term Loan A wereeach 6.7% and the interest rate applicable to the Term Loan B was 10.3%.

The Credit Agreementsrequire prepayment from excess cash flow and proceeds of certain asset sales,debt issuances, and extraordinary receipts. The Company may prepay the termloans without prepayment premium under certain circumstances.  If the Credit Facility is terminated duringthe first four years, the applicable prepayment premium is 4% in year one onthe maximum Revolver and any remaining principal of Term Loan A, declining byone percent each year thereafter, and 2% on any remaining principal of TermLoan B, declining by one-half percent each year thereafter.

The Credit Agreements contain covenants thatamong other things limit the ability of the Company and certain othersubsidiaries to incur indebtedness; incur liens; liquidate, merge orconsolidate with others; sell assets; change the nature of its business; prepayor amend the terms of other indebtedness; have a change in control; paydividends or make certain other restricted payments; make investments; enterinto certain transactions with affiliates; or permit liens or indebtednessabove certain limits in other subsidiaries. The Company must also comply with certain financial covenants.

The Credit Agreements contain events of defaultincluding failure to make required payments; failure to comply with covenantsor other agreements in the Credit Agreements; failure to pay, or the right ofacceleration of, certain other indebtedness; certain events of bankruptcy,insolvency, and injunction; material breach of representations and warranties;and certain judgments.  Upon theoccurrence and continuance of an event of default, amounts due under the CreditAgreements may be accelerated.

On August 19, 2005, weused proceeds of the Revolver under the Credit Facility to repay amountsoutstanding under our existing revolving credit facility with Fleet CapitalCorporation that was to expire on December 27, 2005.

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On September 21, 2005, weused the proceeds of Term Loan A, Term Loan B, and an additional drawing underthe Revolver to redeem the outstanding 9.25% Senior Subordinated Notes (theNotes) that were due March 2006.

At September 30, 2005, wehad $120.2 million outstanding under the Credit Agreements, of which $3.6million is included in revolving credit facility and other current debt in theaccompanying consolidated condensed balance sheet.  The remainder is included in long-term debtin the accompanying consolidated condensed balance sheet.

Primarilyas a result of matters arising out of and related to our investigation ofirregularities at our Brazilian subsidiary, we were not in compliance withcertain covenants of our credit agreements with Wells Fargo Foothill,Inc. and Ableco Finance LLC as Agents as ofSeptember 30, 2005.   We subsequentlyobtained waivers of the non-compliance.

The waivers addressedpast defaults, including among other things, (1) the delayed submission ofcertain monthly unaudited financial statements, monthly compliancecertificates, borrowing base certificates and projections; (2) our exceedingthe maximum leverage ratio of 2.75 to 1.0 for the four fiscal quarters endedSeptember 30, 2005 based on the restatement of prior financial statements; and(3) inaccuracies in prior financial statements and related compliancecertificates due to the restatement of such financial statements.  The waivers also enable us to avoid defaultrelated to any delinquent payment of certain U.S. income taxes that wouldresult if we do not receive the expected favorable IRS rulings concerningtechnical errors in the filings of the Company’s US federal tax returns forfiscal years 2001-2003.

Annual repayments of theCredit Facility for the years ending December 31, are as follows (in thousands):
|        | ** ** | **Amount** | ** ** |
|--------|------------|------------|------------|
|   |       |       |       |
| 2005   |       | $          | 900        |   |
| 2006   |       | 3,600      |       |
| 2007   |       | 3,600      |       |
| 2008   |       | 3,600      |       |
| 2009   |       | 3,600      |       |
| 2010   |       | 104,884    |       |
| Total  |       | $          | 120,184    |   |

 

At September 30, 2005, we had $24.8 million remainingunder the credit facility, and we were in compliance with all financialcovenants of the facility.

We expect to finance our currentoperations, planned capital expenditures, and internal growth for theforeseeable future using funds generated from operations, existing cash andavailable funds under our credit facility in addition to lease financing forproperty and equipment. We expect capital expenditures in the fourthquarter of 2005 to be in the range of $8 million to $12 million, as we continueto cover maintenance and technology upgrades, asset replacements, efficiencyinvestments, and investment for continued growth. Future acquisitions, ifany, may require additional debt or equity financing.

Under a stock repurchase program that wasauthorized by our Board of Directors in February 2001, we may repurchase up to$10 million of our shares from time to time in the open market or in privatelynegotiated transactions, depending on general business and market conditions.Through the date of this report, we had repurchased a total of 881,700 sharesat a total cost of $1.5 million.

# **Contractual Obligations and Commitments**

We summarize various contractual obligations andcommitments in the Notes to our Consolidated Financial Statements in our Reporton Form 10-K for the year ended December 31, 2004.  These contractual obligations and commitmentsinclude:

·                                          $20.4 million of other local short-term debt asshown in our consolidated condensed balance sheet at September 30, 2005,

·                                          $117.6 million of other long-term debt, excludingcurrent portion of long-term as shown in our consolidated condensed balancesheet at September 30, 2005,

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·                                          $9.6 million of capital lease obligations as shownin our consolidated condensed balance sheet at September 30, 2005, and

·                                          operating lease obligations for property andcertain equipment under noncancelable operating lease arrangements, whichexpire at various dates through 2018.

As summarized in Note 10 to theConsolidated Financial Statements of this Report on Form 10-Q, the Companyentered into a five-year Credit Facility on August 19, 2005.  The following table summarizes theobligations under the Credit Facility as of September 30, 2005:
|                | ** ** | ** **              | ** ** | **Less than** | ** ** | ** **         | ** ** | ** **         | ** ** |
|----------------|------------|-------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|
| ** **     | ** ** | **Total**               | ** ** | **1 year**    | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** |
| ** **     | ** ** | **(in thousands)** | ** ** |
| Long-term debt |       | $                       | 120,184    |               | $          | 3,600              |       | $                  | 7,200      |   | $ | 109,384 |   |
|                |            |                         |            |                    |            |                    |            |                    |            |  |  |  |  |

 

**Other Matters**

***QuarterlyResults and Seasonality***

We have experienced, and expect to continue toexperience, quarterly variations in our results of operations mostly due to:

·                  the timing of our clients’ customer relationshipmanagement initiatives and customer acquisition and loyalty campaigns,

·                  the commencement of new contracts and thediscontinuance and termination of existing contracts,

·                  revenue mix,

·                  the timing of additional operating, selling, andadministrative expenses to support new business, and

·                  the timing of recognition of incentive fees.**

We experience periodic fluctuations in our results of operationsrelated to both the start-up costs associated with expansion and theimplementation of clients’ CRM activities. In addition, our business generallycan be slower in the third quarter due to summer holidays in Europe.

***Effects of Inflation***

Inflation has not had asignificant effect on our operations. However, there can be no assurance thatinflation will not have a material effect on our operations in the future.

***RelatedParty Transactions***

We have made minorityinterest investments for business and strategic purposes through the purchaseof voting common and preferred stock of companies.  We periodically evaluate whether declines infair value, if any, of our investments are other-than-temporary. Thisevaluation consists of a review of qualitative and quantitative factors. Wealso consider other factors to determine whether declines in fair value areother-than-temporary, such as the investee’s financial condition, results ofoperations and operating trends. We also consider the implied value from anyrecent rounds of financing completed by the investee.

Subcontractedexpenses for services provided by our India joint venture were $3.4 million and$3.0 million for the three-month periods ended September 30, 2005 and 2004,respectively, and $11.7 million and $9.4 million for the nine-month periodsended September 30, 2005 and 2004, respectively.  The Company had payables to our India jointventure of $2.9 million and $3.0 million at September 30, 2005 and December 31,2004, respectively, which are included in trade accounts payable in theaccompanying consolidated condensed balance sheets.

As of September 30, 2005and December 31, 2004, the investment in certain Latin America affiliates wasapproximately $13.3 million and $12.4 million, respectively. Of the investmentin certain Latin America affiliates, approximately $7.7 million is equitymethod goodwill. This equity method goodwill is not amortized.  Subcontractedservices provided by our Latin America joint venture for the three-month andnine-month periods ended September 30, 2005 and 2004 were not material.

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***Recently IssuedAccounting Pronouncements***

In December 2004, theFinancial Accounting Standards Board (FASB) issued SFAS No. 123 (R), *Share-Based Payment*, (SFAS 123R). Thisstandard will require the cost of employee compensation paid with equityinstruments to be measured based on grant-date fair values with the costrecorded as compensation expense over the period during which the employee isrequired to perform service in exchange for the award (generally over thevesting period of the award). The proforma disclosures previously permittedunder SFAS 123 no longer will be an alternative to financial statementrecognition. See “Stock-Based Compensation” in Note 1 to the consolidatedfinancial statements for the pro forma net income and net income per shareamounts, for the three and six month periods ended September 30, 2005 and 2004,as if we had used a fair-value-based method similar to the methods requiredunder SFAS 123R to measure compensation expense for employee stockincentive awards.  In March 2005, theSecurities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107,which expressed the views of the SEC regarding the interaction betweenSFAS 123R and certain SEC rules and regulations. SAB No. 107provides guidance related to the valuation of share-based payment arrangementsfor public companies, including assumptions such as expected volatility andexpected term.  In April 2005, theSEC approved a rule that delayed the effective date of SFAS 123R forpublic companies. As a result, SFAS 123R will be effective for the Companyin the first quarter of 2006 and will apply to all of our outstanding unvestedshare-based payment awards as of January 1, 2006 and all prospectiveawards.  Although we have not yetdetermined whether the adoption of SFAS 123R will result in amounts thatare similar to the current pro forma disclosures under SFAS 123, we areevaluating the requirements under SFAS 123R and expect the adoption tohave a significant impact on our consolidated statements of income and netincome per share.

In October 2004, TheAmerican Jobs Creation Act of 2004 (the Act) was signed into law. The Actcreates a temporary incentive for U.S. multinationals to repatriate accumulatedincome earned outside the U.S. In December 2004, the FASB issued FSP 109-2, *Accounting and Disclosure Guidance for the ForeignEarnings Repatriation Provision within the American Jobs Creation Act of 2004*(FSP109-2)*. *FSP 109-2 providesadditional time to companies beyond the financial reporting period of enactmentto evaluate the effects of the AJCA on their plans for repatriation of foreignearnings for purposes of applying SFAS 109, *Accountingfor Income Taxes*. The Company is currently evaluating therepatriation provisions of AJCA, which if implemented would affect our taxprovision and deferred tax assets and liabilities. Due to the complexity anduncertainty of applying the provisions of the Act, the income tax effects ofsuch repatriation cannot be reasonably estimated at this time.

**Item 3.Quantitative and Qualitative Disclosures about Market Risk**

***Foreign Currency Risk***

We are exposed to market risks associatedprimarily with changes in foreign currency exchange rates. We have operationsin many parts of the world; however, both revenue and expenses of thoseoperations are typically denominated in the currency of the country of operations,providing a natural hedge.

Ourfinancial statements are presented in U.S. dollars and can be impacted byforeign exchange fluctuations through both (i) translation risk, which isthe risk that the financial statements for a particular period or as of acertain date depend on the prevailing exchange rates of the various currenciesagainst the U.S. dollar, and (ii) transaction risk, which is the risk thatthe currency impact of transactions denominated incurrencies other than the business unit’s functional currency may varyaccording to currency fluctuations.

With respect to translation risk, even though the fluctuations ofcurrencies against the U.S. dollar can be substantial and thereforesignificantly impact comparisons with prior periods, the translation impact isincluded in accumulated other comprehensive income, a component of stockholders’ equity, and does not affect theunderlying results of operations. Gains andlosses related to transactions denominated in a currency other than thefunctional currency of the countries in which we operate including short-termintercompany accounts are included in the determination of net income.

***Interest Rate Risk***

We are also exposed tochanges in interest rates on our variable rate borrowings. Interest rates onour capital lease obligations are fixed, but rates on borrowings under ourCredit Facility are variable. During the three-month and nine-month periodsended September 30, 2005, our average borrowings under our prior Fleetrevolving credit facility and the existing Revolver were $23.0 million and$16.2 million, respectively.  Borrowingsunder the Term Loan A and Term Loan B were $20 million and $35 million,respectively, at September 30, 2005.  Ahypothetical 10% change in interest rates would increase or decrease quarterlyinterest expense by approximately $0.2 million.

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**Item 4. Controls and Procedures**

Our management evaluated,with the participation of our Chief Executive Officer and our Chief FinancialOfficer, the effectiveness of our disclosure controls and procedures as of theend of the period covered by the Quarterly Report on Form 10-Q filed onNovember 9, 2005. Based on that evaluation, our Chief Executive Officer and ourChief Financial Officer had concluded that our disclosure controls and procedureswere effective to ensure that information we are required to disclose inreports that we file or submit under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin Securities and Exchange Commission rules and forms.  As a result of the subsequent discovery,discussed below, of a material weakness within our internal controls frameworkas it existed at September 30, 2005, our Chief Executive Officer and our ChiefFinancial Officer have concluded that our disclosure controls and procedureswere not effective to ensure that information we are required to disclose inreports that we file or submit under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin Securities and Exchange Commission rules and forms.

There was no change in our internal control over financial reportingthat occurred during the period covered by that Quarterly Report on Form 10-Qthat has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

We do not expect that our disclosure controls and procedures or ourinternal controls over financial reporting will prevent all error and allfraud. A control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the controlsystem are met. Further, the design of a control system must reflect the factthat there are resource constraints, and the benefits of controls must beconsidered relative to their costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within SITEL have beendetected.

**Restatement**

Subsequently, during thefirst quarter of 2006, we identified a deficiency within our internal controlframework.  We determined that our previously reported consolidatedcondensed financial statements for the three and nine months ended September30, 2005 and 2004 and our consolidated financial statements for the four yearsended December 31, 2001 through December 31, 2004, requiredrestatement. This Form 10-Q/A restates the September 30, 2005, interimfinancial statements for the correction of the error. Because the errorresulted in the restatement of previously issued financial statements, wedetermined the deficiency within our internal control framework to be amaterial weakness.

Refer to Note 2 to the consolidated condensed financial statements forfurther information regarding this restatement.

**PART II – OTHER INFORMATION**

**Item 1.Legal Proceedings**

From time to time, during the normal course ofbusiness, we may make certain indemnities, commitments and guarantees underwhich we may be required to make payments in relation to certaintransactions.  These include, forexample:  (i) indemnities to clientspertaining to claims based on our negligence or willful misconduct, and (ii)indemnities involving the accuracy of representations and warranties in certaincontracts.

From time to time, we areinvolved in litigation incidental to our business. We cannot predict theultimate outcome of such litigation with certainty, but management believes,after consultation with counsel, except for the items discussed below for thereasons mentioned therein, that the resolution of such matters will not have amaterial adverse effect on our consolidated financial position or results ofoperations.

*BankruptcyOP Computers SPA vs. SITEL Kingston Limited* (now known as Mitre Telesales Limited) wasfiled in April 2004 in the Court of Ivrea in Milan, Italy.  The receivers asserted that Mitre, as aformer supplier to Olivetti, is required under Italian bankruptcy law to return€5,349,025 (approximately $6.9 million) in payments Olivetti had allegedly paidMitre during a one-year “clawback” period, which allegedly runs from March 9,1998 until March 9, 1999, the alleged date Olivetti filed forreceivership.  Mitre filed its Defencewith the court in November 2004.  TheDefence outlined the facts and reasons why Mitre did not and should notreasonably have known of Olivetti’s insolvent state during the time that Mitrewas performing services for Olivetti.  Counselfor Mitre Telesales Limited and for the receiver have recently engaged insettlement discussions and have reached an oral agreement which is subject toconfirmation by the receiver and the bankruptcy court.  While confirmation cannot be assured, on thebasis of present information and advice from 

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counsel, the Company and its subsidiary Mitre Telesales Limited believethat confirmation is likely.  In suchcase the matter would be settled for the amount that the Company has alreadyaccrued for such purpose and would not have a material adverse effect on theCompany’s results or financial condition.

Two of our clients have received letters from time to time containingan offer to license and suggesting that the clients might be infringing certainpatents related to computerized telephonic voice response systems without thelicense. The clients have indicated that if any infringement occurred theclient would seek contractual indemnity from us. In such an event, we wouldexpect to seek contractual indemnity from certain of our vendors. Any suchcontractual indemnity we might obtain may not be sufficient to cover all of thecosts of investigating and resolving such matter. We might also seek a licenseunder the patents. Any such license may not be available under commerciallyreasonable terms. Any license costs would increase the cost of doing businessin the future and may or may not be fully reflected in our pricing. To ourknowledge, no litigation has been initiated against our clients or usconcerning this matter. At this stage, due to the inherent uncertainties, weare unable to predict whether this matter may have a material adverse effect onour business or on our financial condition or results of operation.

**Item 5. OtherInformation**

**Forward-Looking Statements**

We make statements in this report that are consideredforward-looking statements within the meaning of the Securities Exchange Act of1934. Sometimes these statements will contain words such as “believes,” “expects,”“intends,” “should,” “will,” “plans,” and other similar words. These statementsare not guarantees of our future performance and are subject to risks,uncertainties, and other important factors that could cause our actualperformance or achievements to be materially different from those we project.These risks, uncertainties, and factors include, but are not limited to:reliance on major clients, conditions affecting clients’ industries, clients’budgets and plans, unanticipated labor, contract or technical difficulties,delays in ramp up of services under contracts, reliance on major subcontractorsand strategic partners, risks associated with managing a global business,fluctuations in operating results, relianceon telecommunications and computer technology, dependence on laborforce, industry regulation, general and local economic conditions, competitivepressures in our industry, risks associated with litigation and claims, foreigncurrency risks, the effects of leverage, dependency on credit availability,restrictions imposed by the terms of indebtedness, and dependence on key personnel and control by management.

Given these uncertainties, you should not place undue reliance on theseforward-looking statements. Please see the other sections of this report andour other periodic reports filed with the Securities and Exchange Commissionfor more information on these factors.

**Item 6. Exhibits**

(a)          Exhibits:
| Exhibit No. | ** ** | ** **                                                                                                              |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------|
| 31.1        |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2        |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1        |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2        |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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### **SIGNATURE**

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.
|            |               | SITEL Corporation             |
|------------|--------------------|-------------------------------|
| ** ** | ** **         | **(Registrant)**              |
| ** ** |               |                          |
| ** ** |               |                          |
| Date:      | September 13, 2006 | By                            | /s/ | *Jorge  A. Celaya* | * * |
| ** ** |               | **Jorge  A. Celaya**          |
| * *   |               | *Chief  Financial Officer*    |
|       |               | (Duly Authorized  Officer and |
|       |               | Principal  Financial Officer) |
|            |                    |                               |  |  |  |

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**EXHIBITINDEX**
| Exhibit No. | ** ** | ** **                                                                                                              |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                    |
| 31.1        |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|        |       |                                                                                                                    |
| 31.2        |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|        |       |                                                                                                                    |
| 32.1        |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|        |       |                                                                                                                    |
| 32.2        |       | Certification Pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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