**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

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

### ** **

**FORM 10-Q**

 

----

 

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

### **OF THE SECURITIES EXCHANGE ACT OF1934**

### ** **

**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 Other Jurisdiction of Incorporation or  Organization) |
|                                                            |   |   |
| **7277 WORLD COMMUNICATIONS DRIVE  OMAHA, NEBRASKA**       | ** ** | **68122** |
| (Address of Principal Executive Offices)                        |   | (Zip Code) |
|                                                            |   |   |
| **(402) 963-6810**                                              |
| (Registrant’s Telephone 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 REGISTERED PURSUANT TO SECTION 12(G) OFTHE ACT:**

Not Applicable

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days. YES  ý  NO  o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act).

YES  ý  NO  o

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12-2of the Exchange Act).

YES  o  NO  ý

 

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

 

 

----

 

**SITEL CORPORATION AND SUBSIDIARIES**

 

**TABLE OF CONTENTS**

 
| **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                           |   |                                                                                        |

 

----

 

**PART I- FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**SITELCORPORATION AND SUBSIDIARIES**

**CONSOLIDATED CONDENSED STATEMENTS OFOPERATIONS**

**(UNAUDITED)**

(in thousands, except per sharedata)

 
| ** **                                                   | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                   | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| * *                                                     | * *   | * *                                   | * *   | * *                                  | * *   | * * | * * | * * | * * |
| **Revenue**                                                  |       | $                                          | 243,988    |                                      | $          | 229,454 |   | $ | 746,966 |   | $ | 713,577 |   |
|                                                         |       |                                       |       |                                      |       |   |   |   |   |
| **Operating expenses:**                                      |       |                                       |       |                                      |       |   |   |   |   |
| Direct labor and telecommunications expenses                 |       | 147,417                                    |       | 138,230                                   |       | 453,530 |   | 425,390 |   |
| Subcontracted and other services expenses                    |       | 12,034                                     |       | 12,401                                    |       | 37,808 |   | 38,238 |   |
| Operating, selling and administrative expenses               |       | 80,502                                     |       | 77,785                                    |       | 241,059 |   | 231,547 |   |
| Asset impairment and restructuring expenses                  |       | 4,616                                      |       | —                                    |       | 2,007 |   | — |   |
| Total operating expenses                                     |       | 244,569                                    |       | 228,416                                   |       | 734,404 |   | 695,175 |   |
|                                                         |       |                                       |       |                                      |       |   |   |   |   |
| **Operating income (loss)**                                  |       | (581                                       | )          | 1,038                                     |       | 12,562 |   | 18,402 |   |
|                                                         |       |                                       |       |                                      |       |   |   |   |   |
| **Other income (expense):**                                  |       |                                       |       |                                      |       |   |   |   |   |
| Interest expense                                             |       | (3,403                                     | )          | (3,055                                    | )          | (9,199 | ) | (9,387 | ) |
| Interest income                                              |       | 144                                        |       | 152                                       |       | 404 |   | 394 |   |
| Equity in earnings (loss) of affiliates                      |       | 27                                         |       | 298                                       |       | 315 |   | 368 |   |
| Other income (expense), net                                  |       | 53                                         |       | (70                                       | )          | 22 |   | (462 | ) |
| Total other expense, net                                     |       | (3,179                                     | )          | (2,675                                    | )          | (8,458 | ) | (9,087 | ) |
|                                                         |       |                                       |       |                                      |       |   |   |   |   |
| **Income (loss) before income taxes and minority  interest** |       | (3,760                                     | )          | (1,637                                    | )          | 4,104 |   | 9,315 |   |
|                                                         |       |                                       |       |                                      |       |   |   |   |   |
| Income tax expense (benefit)                                 |       | (3,522                                     | )          | 67                                        |       | (991 | ) | 3,250 |   |
| Minority interest                                            |       | 877                                        |       | 32                                        |       | 1,544 |   | 456 |   |
|                                                         |       |                                       |       |                                      |       |   |   |   |   |
| **Net income (loss)**                                        |       | $                                          | (1,115     | )                                         | $          | (1,736 | ) | $ | 3,551 |   | $ | 5,609 |   |
|                                                         |       |                                       |       |                                      |       |   |   |   |   |
| **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                                                        |       | $                                          | (0.01      | )                                         | $          | (0.02 | ) | $ | 0.05 |   | $ | 0.08 |   |
| Diluted                                                      |       | $                                          | (0.01      | )                                         | $          | (0.02 | ) | $ | 0.05 |   | $ | 0.08 |   |

 

*See Notes to Consolidated Condensed FinancialStatements.*

 

1

----

 

### **SITEL CORPORATION AND SUBSIDIARIES**

### **CONSOLIDATED CONDENSED BALANCE SHEETS**

(in thousands, except share data)

 
| ** **                                                                                                                                   | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                   | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| ** **                                                                                                                                   | ** ** | **(Unaudited)**        | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                   |       |                   |       |                  |       |
| **Current assets:**                                                                                                                          |       |                   |       |                  |       |
| Cash and cash equivalents                                                                                                                    |       | $                      | 36,792     |                  | $          | 28,906 |   |
| Trade accounts receivable (net of allowance for  doubtful accounts of $2,467 and $2,391, respectively)                                       |       | 195,025                |       | 191,391               |       |
| Prepaid expenses and other assets                                                                                                            |       | 15,942                 |       | 15,859                |       |
| Deferred income taxes                                                                                                                        |       | 2,234                  |       | 1,313                 |       |
| Total current assets                                                                                                                         |       | 249,993                |       | 237,469               |       |
|                                                                                                                                         |       |                   |       |                  |       |
| **Property and equipment, net**                                                                                                              |       | 77,254                 |       | 86,057                |       |
|                                                                                                                                         |       |                   |       |                  |       |
| **Other assets:**                                                                                                                            |       |                   |       |                  |       |
| Goodwill                                                                                                                                     |       | 46,503                 |       | 48,276                |       |
| Investment in affiliates                                                                                                                     |       | 16,761                 |       | 16,466                |       |
| Other assets                                                                                                                                 |       | 11,504                 |       | 8,420                 |       |
| Deferred income taxes                                                                                                                        |       | 6,675                  |       | 843                   |       |
| **Total assets**                                                                                                                             |       | $                      | 408,690    |                  | $          | 397,531 |   |
|                                                                                                                                         |       |                   |       |                  |       |
| **Liabilities and Stockholders’ Equity**                                                                                                |       |                   |       |                  |       |
| **Current liabilities:**                                                                                                                     |       |                   |       |                  |       |
| Revolving credit facility and other current debt                                                                                             |       | $                      | 18,797     |                  | $          | 18,802 |   |
| Current portion of capital lease obligations                                                                                                 |       | 2,487                  |       | 3,202                 |       |
| Trade accounts payable                                                                                                                       |       | 23,426                 |       | 29,217                |       |
| Accrued wages, salaries and bonuses                                                                                                          |       | 45,718                 |       | 50,271                |       |
| Accrued operating expenses                                                                                                                   |       | 41,904                 |       | 43,245                |       |
| Deferred revenue and other                                                                                                                   |       | 10,111                 |       | 8,852                 |       |
| Income taxes payable                                                                                                                         |       | 2,048                  |       | 1,107                 |       |
| Total current liabilities                                                                                                                    |       | 144,491                |       | 154,696               |       |
|                                                                                                                                         |       |                   |       |                  |       |
| **Long-term debt and other liabilities:**                                                                                                    |       |                   |       |                  |       |
| Long-term debt, excluding current portion                                                                                                    |       | 116,584                |       | 90,000                |       |
| Capital lease obligations, excluding current portion                                                                                         |       | 6,733                  |       | 8,393                 |       |
| Other liabilities                                                                                                                            |       | 8,630                  |       | 8,949                 |       |
| Deferred income taxes                                                                                                                        |       | 141                    |       | 205                   |       |
| Total liabilities                                                                                                                            |       | 276,579                |       | 262,243               |       |
|                                                                                                                                         |       |                   |       |                  |       |
| **Minority interests**                                                                                                                       |       | 3,870                  |       | 2,629                 |       |
| **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                                                                                                       |       | 256                    |       | 8,342                 |       |
| Accumulated deficit                                                                                                                          |       | (40,060                | )          | (43,611               | )          |
| Less treasury stock, at cost, 663,588 and 707,927  common shares, respectively                                                               |       | (919                   | )          | (1,017                | )          |
| Total stockholders’ equity                                                                                                              |       | 128,241                |       | 132,659               |       |
| **Total liabilities and stockholders’ equity**                                                                                          |       | $                      | 408,690    |                  | $          | 397,531 |   |

 

*See Notes to Consolidated Condensed FinancialStatements.*

 

2

----

 

### **SITEL CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED CONDENSED STATEMENTS OF CASHFLOWS**

**(UNAUDITED)**

(in thousands)

 
| ** **                                                                        | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| * *                                                                          | * *   | * *                                  | * *   | * * | * * |
| **Cash flows from operating activities:**                                         |       |                                      |       |   |   |
| Net income                                                                        |       | $                                         | 3,551      |   | $ | 5,609 |   |
| Adjustments to reconcile net income to net cash flows  from operating activities: |       |                                      |       |   |   |
| Asset impairment and restructuring provision                                      |       | 2,007                                     |       | — |   |
| Depreciation and amortization                                                     |       | 27,248                                    |       | 26,682 |   |
| Loss on disposal of assets                                                        |       | 163                                       |       | 45 |   |
| Provision for deferred income taxes                                               |       | (7,112                                    | )          | (284 | ) |
| Equity in earnings (loss) of affiliates                                           |       | (315                                      | )          | (368 | ) |
| Minority interest in net income of consolidated  subsidiaries                     |       | 1,544                                     |       | 456 |   |
| Changes in operating assets and liabilities:                                      |       |                                      |       |   |   |
| Trade accounts receivable                                                         |       | (14,347                                   | )          | (2,426 | ) |
| Other assets                                                                      |       | 509                                       |       | 1,629 |   |
| Trade accounts payable                                                            |       | (4,715                                    | )          | (7,394 | ) |
| Other liabilities                                                                 |       | 1,351                                     |       | 6,934 |   |
| Net cash flows from operating activities                                          |       | 9,884                                     |       | 30,883 |   |
|                                                                              |       |                                      |       |   |   |
| **Cash flows from investing activities:**                                         |       |                                      |       |   |   |
| Purchases of property and equipment                                               |       | (20,904                                   | )          | (17,104 | ) |
| 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                                          |       | (17,982                                   | )          | (15,658 | ) |
|                                                                              |       |                                      |       |   |   |
| **Cash flows from financing activities:**                                         |       |                                      |       |   |   |
| Net borrowings (repayments) on revolving credit  facility and other current debt  |       | 59,270                                    |       | (1,415 | ) |
| Borrowings on term loans                                                          |       | 55,000                                    |       | — |   |
| Repayment of Subordinated Notes                                                   |       | (90,000                                   | )          | — |   |
| Repayments of capital lease obligations                                           |       | (2,376                                    | )          | (2,297 | ) |
| 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                                          |       | 16,507                                    |       | (3,477 | ) |
| Effect of exchange rates on cash                                                  |       | (523                                      | )          | 518 |   |
| **Net increase in cash**                                                          |       | 7,886                                     |       | 12,266 |   |
| **Cash and cash equivalents, beginning of period**                                |       | 28,906                                    |       | 29,850 |   |
| **Cash and cash equivalents, end of period**                                      |       | $                                         | 36,792     |   | $ | 42,116 |   |
|                                                                              |       |                                      |       |   |   |
| **Non-cash investing and financing activities:**                                  |       |                                      |       |   |   |
| Capital lease obligations incurred                                                |       | $                                         | 1,345      |   | $ | 1,453 |   |

 

*See Notes to Consolidated Condensed FinancialStatements.*

 

3

----

 

**SITEL CORPORATION AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED CONDENSEDFINANCIAL STATEMENTS**

 

**Note 1. Basis of Consolidationand Presentation**

** **

***General***

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

 

We are a leading globalprovider of outsourced customer support services. We specialize in the design,implementation, and operation of multi-channel contact centers. We support thecustomer management strategies of large and medium size corporations in NorthAmerica, Europe, Asia Pacific, and Latin America. We provide customeracquisition, customer care, technical support and risk management services onan outsourced basis, as well as operational and information technologyprofessional services for both outsourced and internal contact centers. Weserve clients primarily in the automotive, consumer, financial services, insurance, technology,telecommunications and ISP, media services, and utilities 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, 2004. Allsignificant intercompany balances and transactions have been eliminated.

 

***Use of Accounting Estimates***

Management makesestimates and assumptions when preparing financial statements under accountingprinciples generally accepted in the United States of America that affect ourreported amounts of assets and liabilities at the dates of the financialstatements, our disclosure of contingent assets and liabilities at the dates ofthe financial statements, and our reported amounts of revenue and expensesduring the reporting periods. These estimates involve judgments with respectto, among other things, future economic factors that are difficult to predictand are beyond management’s control. As a result, actual amounts could differfrom these estimates.

 

***Recently Issued Accounting Pronouncements***

In December 2004,the Financial 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 will no longer be an alternative to financial statementrecognition. See “Stock-Based Compensation” below for the pro forma net income(loss) and net income (loss) per share amounts, for the three and six monthperiods ended September 30, 2005 and 2004, as if we had used afair-value-based method similar to the methods required under SFAS 123R tomeasure compensation expense for employee stock incentive awards.  In March 2005, the Securities andExchange 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 123Rfor public 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 yet determinedwhether the adoption of SFAS 123R will result in amounts that are similarto the current pro forma disclosures under SFAS 123, we are evaluating therequirements under SFAS 123R and expect the adoption to have a significantimpact on our consolidated statements of operations 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 enactmentto evaluate the effects of the AJCA on their plans for repatriation of foreignearnings for purposes of applying SFAS

 

4

----

 

109, *Accounting for Income Taxes*. The Companyis currently evaluating the repatriation provisions of AJCA, which if implementedwould affect our tax provision and deferred tax assets and liabilities. Due tothe complexity and uncertainty of applying the provisions of the Act, theincome tax effects of such repatriation cannot be reasonably estimated at thistime.

 

***Stock-Based Compensation***

We apply the intrinsic-value-based method ofaccounting 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 is recordedon the date of grant only if the current market price of the underlying stockexceeded the exercise price. Statement of Financial Accounting Standard No. 123,*Accounting for Stock-Based Compensation* (SFAS No. 123)*,* established accounting anddisclosure requirements using a fair-value-based method of accounting for stock-basedemployee compensation plans.

 

The following table illustrates the effect on our netincome (loss) if the fair-value-based method had been applied to alloutstanding and unvested awards in each period.

 
| ** **                                                                                                               | ** ** | **Three Months Ended  September 30,**    | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2005**                                      | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                               | ** ** | **(in thousands, except per share  amounts)** | ** ** |
| Net income  (loss):                                                                                                      |       |                                          |       |                                      |       |   |   |   |   |
| As reported                                                                                                              |       | $                                             | (1,115     | )                                         | $          | (1,736 | ) | $ | 3,551 |   | $ | 5,609 |   |
| 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                                                                                                                |       | $                                             | (1,279     | )                                         | $          | (1,985 | ) | $ | 3,141 |   | $ | 4,862 |   |
|                                                                                                                     |       |                                          |       |                                      |       |   |   |   |   |
| Income (loss) per common share:                                                                                          |       |                                          |       |                                      |       |   |   |   |   |
| As reported:                                                                                                             |       |                                          |       |                                      |       |   |   |   |   |
| Basic                                                                                                                    |       | $                                             | (0.01      | )                                         | $          | (0.02 | ) | $ | 0.05 |   | $ | 0.08 |   |
| Diluted                                                                                                                  |       | (0.01                                         | )          | (0.02                                     | )          | 0.05 |   | 0.08 |   |
| Pro forma:                                                                                                               |       |                                          |       |                                      |       |   |   |   |   |
| Basic                                                                                                                    |       | (0.02                                         | )          | (0.03                                     | )          | 0.04 |   | 0.07 |   |
| Diluted                                                                                                                  |       | (0.02                                         | )          | (0.03                                     | )          | 0.04 |   | 0.07 |   |

 

The fair value of optionsgranted during the nine months ended September 30, 2004, was estimated atthe date 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.

 

***Significant Clients***

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, and67.4% and 67.2% for the nine-month periods ended September 30, 2005 and2004, respectively.  Hewlett-PackardCompany business units were responsible for 11.8% and 11.4% of our revenue for thethree-month periods ended September 30, 2005 and 2004, respectively, and12.0% and 11.3% of our revenue for the nine-month periods ended September 30,2005 and 2004, respectively.  GeneralMotors Corporation (General Motors) business units were responsible for 11.9%and 13.9% of our total revenue for the three-month periods ended September 30,2005 and 2004, respectively, and were responsible for 12.0% and 15.8% for thenine-

 

5

----

 

month periods ended September 30, 2005, and2004, respectively.  The primary GeneralMotors contract expires in December 2005, while a second contractterminated in June 2004.  We did nothave any other clients under common control that generated more than 10% of ourrevenue for the periods presented.

 

***Reclassifications***

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

 

**Note 2. ComprehensiveIncome (Loss)**

** **

Comprehensive income(loss) for the three and nine-month periods ended September 30, 2005 and2004 are as follows (in thousands):

 
| ** **                          | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income  (loss)                  |       | $                                          | (1,115     | )                                         | $          | (1,736 | ) | $ | 3,551 |   | $ | 5,609 |   |
| Other  comprehensive income (loss): |       |                                       |       |                                      |       |   |   |   |   |
| Currency translation adjustment     |       | 956                                        |       | 3,063                                     |       | (8,086 | ) | 501 |   |
| Comprehensive  income (loss)        |       | $                                          | (159       | )                                         | $          | 1,327 |   | $ | (4,535 | ) | $ | 6,110 |   |

 

Accumulatedother comprehensive income (loss) included in our consolidated condensedbalance sheets represents the accumulated foreign currency translationadjustment.

 

**Note 3. Asset Impairmentand Restructuring Expenses**

** **

We summarize thecomponents of the accrued restructuring expenses recorded in our consolidatedcondensed 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 theaccrued restructuring expenses represent the impact of foreign currencyfluctuations.

 

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 September 30,2005 as a result of these actions.  Inaddition, we recorded $0.7 million of severance expenses as a result ofpreviously 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 ended September 30,2005, to establish a liability for the obligation to repay such amounts.

 

6

----

 

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 tableillustrates the 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 |   |

 

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 4. Investments inAffiliates**

** **

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.

 

Subcontracted expensesfor services provided by our India joint venture were $3.4 million and $3.0million 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 30,2005 and December 31, 2004, the investment in certain Latin Americaaffiliates was approximately $13.3 million and $12.4 million, respectively. Ofthe investment in certain Latin America affiliates, approximately $7.7 millionis equity method goodwill. This equity method goodwill is not amortized.  Subcontracted services provided by our LatinAmerica joint venture for the three-month and nine-month periods ended September 30,2005 and 2004 were not material.

 

**Note 5. Stock-BasedCompensation**

** **

The 1999 Stock IncentivePlan (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 witheach grant, and option terms may not exceed ten years. Option prices, set bythe Compensation Committee of the Board of Directors, may not be less than thefair market 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.

 

7

----

 

Prior to the adoption ofthe 1999 Plan, we granted options under several different plans. As of September 30,2005, options granted under these plans aggregating 2.2 million remainedoutstanding with strike prices ranging from $2.41 to $19.50.  The last of these options will expire on February 1,2009.  We will not grant additional optionsunder these plans.

 

The following table setsforth shares subject to options:

 
| ** **                        | ** ** | ** **     | ** ** | **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       |   |

 

The options exercisable at the end 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      |   |

 

The following tablesummarizes 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      |   |

 

8

----

 

**Note 6.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) indemnitiesinvolving the 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 for receivership.  Mitre filed its Defence with the court in November 2004.  The Defence outlined the facts and reasonswhy Mitre did not and should not reasonably have known of Olivetti’s insolventstate during the time that Mitre was performing services for Olivetti.  Counsel for Mitre Telesales Limitedand for the receiver have recently engaged in settlement discussions and havereached an oral agreement which is subject to confirmation by the receiver andthe bankruptcy court.  While confirmationcannot be assured, on the basis of present information and advice from counsel,the Company and its subsidiary Mitre Telesales Limited believe thatconfirmation is likely.  In such case thematter would be settled for the amount that the Company has already accrued forsuch purpose and would not have a material adverse effect on the Company’sresults 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 may notbe 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 7.Earnings Per Share**

 

We calculate income(loss) per common share by dividing our reported net income (loss) by theweighted average number of common shares and common equivalent sharesoutstanding during each period. Our reported net income (loss) is used in thecomputation of both basic and diluted income (loss) per share.

 

The difference betweenthe number of shares used to calculate basic and diluted earnings per sharerepresents the number of shares assumed to be issued from the exercise ofdilutive stock options under our stock option plans, less shares assumed to bepurchased with proceeds from the exercise of the stock options and the relatedtax benefits. At September 30, 2005, we had 3.2 million options, whichhave been excluded from the nine-month diluted net income per share computationbecause their exercise price exceeds the fair market value.  For the three-month diluted net income pershare computation, all 6.2 million options were excluded from the computationdue to the net loss.  At September 30,2004, all 6.6 million options were excluded from the diluted net income pershare computation due to the net loss for the three and nine month periods.

 

**Note 8. Payroll Tax Refund**

** **

During the quarter ended June 30,2004, we recorded a benefit from the refund of payroll tax overpayments paid ina prior year. We recorded the payroll tax refund in the accompanyingconsolidated condensed statements of operations as a $1.3 million reduction ofdirect labor and telecommunications expenses and a $0.4 million reduction ofoperating, selling and administrative expenses during the nine months ended September 30,2004.

 

9

----

 

**Note 9. 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,the weighted average interest rates applicable to the Revolver and Term Loan Awere each 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 on themaximum Revolver and any remaining principal of Term Loan A, declining by onepercent each year thereafter, and 2% on any remaining principal of Term Loan 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; pay dividendsor make certain other restricted payments; make investments; enter into certaintransactions with affiliates; or permit liens or indebtedness above certainlimits in other subsidiaries.  TheCompany 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,we used 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, we used the proceeds of Term Loan A, Term Loan B, and an additionaldrawing under the Revolver to redeem the outstanding 9.25% Senior SubordinatedNotes (the Notes) that were due March 2006.

 

At September 30,2005, we had $120.2 million outstanding under the Credit Agreements, of which$3.6 million is included in revolving credit facility and other current debt inthe accompanying consolidated condensed balance sheet.  The remainder is included in long-term debtin the accompanying consolidated condensed balance sheet.  At September 30, 2005, we were incompliance with all covenants under the Credit Agreements.

 

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    |   |

 

10

----

 

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-offpreviously capitalized debt issuance costs, which is included in interestexpense in the accompanying consolidated condensed statements of operations.

 

**Note 10.  Income Taxes**

** **

During the three monthsended September 30, 2005, we recorded a non-cash tax benefit ofapproximately $5.8 million, which is included in income tax expense (benefit)in the accompanying consolidated condensed statements of operations. This taxbenefit results from the release of a valuation allowance associated withdeferred tax assets in one of our European business units. The decision torelease this valuation allowance was based on a sustained improvement ofearnings combined with an improved financial outlook for the business unit. Theimproved financial situation led management to decide that the tax losses inthe business unit would be fully utilized before they expire.

 

**In the future, we will continue to periodically assessthe recoverability of the remaining deferred income tax assets, which isprincipally dependent upon our ability to achieve taxable income in the US andcertain foreign jurisdictions. In addition, the deferred tax asset and itspotential realizability will be evaluated to determine if a portion of thevaluation allowance should be reversed. Any reversal of this valuationallowance in the future will result in a reduction of our effective tax rate.**

 

11

----

 

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

##### **General**

 

References in this reportto “we”, “our”, and the “Company” are to SITEL Corporation and itssubsidiaries, collectively.

 

We are a leading globalprovider of outsourced customer support services. We specialize in the design,implementation, and operation of multi-channel contact center solutions. Wesupport the customer management strategies of large and medium sizecorporations in North America, Europe, Asia Pacific, and Latin America. Weprovide customer acquisition, customer care, technical support and riskmanagement services on an outsourced basis, as well as operational andinformation technology professional services for both outsourced and in-house contactcenters. We serve clients primarily in the automotive, consumer, financial services,insurance, technology, telecommunications and ISP, media services, andutilities sectors.

 

In Management’sDiscussion and Analysis, we provide information about our general businessrisks, critical accounting policies and estimates, results of operations,financial condition and liquidity, and certain other matters affecting ouroperating results for the periods covered by this report.

 

As you read thisdiscussion and analysis, refer to our Consolidated Condensed Statements ofOperations, which present the results of our operations for the three and ninemonth periods ended September 30, 2005 and 2004, and are summarized on thefollowing pages. We analyze and explain the differences between periods for thecomponents of operations in the following sections. Our analysis is importantin making decisions about your investment in SITEL Corporation.

 

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 change controls.

 

##### **General Business Risks,Critical Accounting Policies and Estimates**

##### ** **

**GeneralBusiness Risks**

Our business successdepends on our ability to efficiently deploy our human and capital resources inthe delivery of services to our clients. Consequently, the needs of our clientsmay significantly impact our results of operations, financial condition, andliquidity.

 

Our results of operationsand operating cash flows may vary with periodic wins, expansions, and losses ofclient contracts and with 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% and67.2% 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-Packard Company business unitswereresponsible for 11.8% and 11.4% of our revenue for the three-month periodsended September 30, 2005 and 2004, respectively, and 12.0% and 11.3% forthe 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% ofour revenue for the three-month periods ended September 30, 2005 and 2004,respectively, and 12.0% and 15.8% for the nine-month periods ended September 30,2005 and 2004, respectively. On April 21, 2004, we announced the signing of a newcontract with General Motors to continue to provide customer support servicesfor General Motors’ North American Vehicle Sales, Service, and Marketing Groupthrough December 31, 2005.  Anexisting agreement under which we supported OnStar operations terminatedeffective June 22, 2004. We did not have any other clients under common controlthat generated more than 10% of our revenue for the periods presented.  The financial failure of any of theseclients or the loss of any or all of their business could have an adverseimpact on our operating results.

 

Our liquidity, includingour ability to comply with restrictive debt covenants, may be adverselyaffected if we were to lose a significant client or as a result of significantchanges in client demand if we are unable to efficiently re-deploy our human andcapital resources.

 

In the followingsections, we also discuss the importance of our critical accounting policiesand the use of accounting estimates, and their potential impacts on our resultsof operations.

 

12

----

 

**CriticalAccounting Policies and Estimates**

The process of preparingfinancial statements requires the use of estimates on the part of management.These estimates involve judgments with respect to, among other things, futureeconomic factors that are difficult to predict and are beyond management’scontrol. As a result, actual results could differ from these estimates.

 

We have identified thefollowing to be critical accounting policies because they are the mostimportant to the portrayal of our results of operations and financialcondition, and they require management’s most difficult, subjective, or complexjudgments.

 

***Revenue Recognition***

We recognize revenue inaccordance with applicable accounting standards, including Securities andExchange Commission Staff Accounting Bulletin (SAB) No. 104, *Revenue Recognition*.  We recognize revenue at the time services areperformed based on the rate detailed in the client contract, such as hourly,monthly, per call or per employee.  Aportion of our revenue is often subject to performance standards, such as salesper hour, average handle time, occupancy rate and abandonment rate.  Ourperformance against such standards may result in incentives or penalties, whichare recognized as earned or incurred. In certain circumstances, we receivepayment in advance of providing service. Amounts billed but not earned underthese contracts are excluded from revenue and included in deferred revenue andother in the consolidated balance sheet. Revenue for services performed undercertain collection service agreements is recognized as the related consumerdebts are collected and is calculated based upon a percentage of cash collectedor other agreed upon contractual parameters.

 

***Trade Accounts Receivable***

We report our trade accountsreceivable 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 significantchange in the extent or manner in which long-lived assets are being used or inits physical 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 that we expect to recover from the future useof the asset, undiscounted and without interest, plus the asset’s residualvalue on disposal. Where the recoverable amount of the long-lived asset is lessthan the carrying value, an impairment loss would be recognized to write downthe asset to its fair value, which is based on discounted estimated cash flowsfrom 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.

 

13

----

 

***Goodwill***

At least annually or morefrequently, as changes in circumstances indicate, we will evaluate the estimatedfair value of our goodwill. On these evaluation dates, to the extent that thecarrying value of the net assets of any of our reporting units having goodwillis greater than their estimated fair value, we will be required to takeadditional 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 forIncome Taxes*. If enacted tax rates change, we would adjust thedeferred tax assets and liabilities, through the provision for income taxes inthe period of change, to reflect the enacted tax rate expected to be in effectwhen the deferred tax items reverse. To the extent that we believe thatrecovery is not likely, we establish a valuation allowance to reduce thedeferred tax assets to the amount that is more likely than not to be realized.The valuation allowance is based on our estimates of future taxable income byjurisdiction in which we operate and the period over which the deferred taxassets can be recovered. Areview of all available positive and negative evidence needs to be considered,including our current and past performance, the market environment in which weoperate, the utilization of past tax credits, length of carryback andcarryforward periods, and existing or prospective contracts that will result infuture profits.

 

Forming a conclusion that a valuationallowance is not needed is difficult when there is negative evidence such ascumulative losses in recent years in certain tax jurisdictions. Cumulativelosses weigh heavily in the overall assessment. We have established valuationallowances for future tax benefits related to net operating losses incurred incertain federal, state and foreign tax jurisdictions. We expect to continue torecord a valuation allowance on future tax benefits in certain taxjurisdictions until an appropriate level of profitability 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 pending claims,historical experience, and current cost trends. Actual claims results coulddiffer 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.

 

14

----

 

##### **Results of Operations for theThree and Nine Month Periods Ended September 30, 2005 Compared with theSame 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 previous pages.  Please refer to that discussion as you readthis section.

 

**Componentsof Operations**

 

Thefollowing table summarizes our statement of operations data on apercentage-of-revenue basis.

 
| ** **                                                   | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** **  |
|--------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|-------------|
| ** **                                                   | ** ** | **2005**                                  | ** ** | **2004**                                 | ** **  | **2005** | ** ** | **2004** | ** ** |
| ** **                                                   | ** ** | **$**                                     | ** ** | **%**                                    | ** **  | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                                   | ** ** | **(in thousands)**                        | ** ** | **(in thousands)**                       | ** **  |
| **Revenue**                                                  |       | $                                         | 243,988    | *** ***                             | ***100.0*** | % | $ | 229,454 |   | ***100.0*** | % | $ | 746,966 |   | ***100.0*** | % | $ | 713,577 |   | ***100.0*** | ***%*** |
|                                                         |       |                                      |       |                                     |        |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Direct labor and telecommunications expenses                 |       | 147,417                                   |       | ***60.4***                               | **%**       | 138,230 |   | ***60.2*** | **%** | 453,530 |   | ***60.7*** | **%** | 425,390 |   | ***59.6*** | ***%*** |
| Subcontracted and other services expenses                    |       | 12,034                                    |       | ***4.9***                                | **%**       | 12,401 |   | ***5.4*** | **%** | 37,808 |   | ***5.1*** | **%** | 38,238 |   | ***5.4*** | ***%*** |
| Operating, selling and administrative expenses               |       | 80,502                                    |       | ***33.0***                               | **%**       | 77,785 |   | ***33.9*** | **%** | 241,059 |   | ***32.3*** | **%** | 231,547 |   | ***32.4*** | ***%*** |
| Asset impairment and restructuring expenses                  |       | 4,616                                     |       | ***1.9***                                | **%**       | — |   | ***0.0*** | **%** | 2,007 |   | ***0.3*** | **%** | — |   | ***0.0*** | ***%*** |
| **Operating income (loss)**                                  |       | (581                                      | )          | ***-0.2***                               | **%**       | 1,038 |   | ***0.5*** | **%** | 12,562 |   | ***1.7*** | **%** | 18,402 |   | ***2.6*** | ***%*** |
|                                                         |       |                                      |       |                                     | ** **  |   |   |   | ** ** |   |   |   | ** ** |   |   |   | ** ** |
| Interest expense                                             |       | (3,403                                    | )          | ***-1.4***                               | **%**       | (3,055 | ) | ***-1.3*** | **%** | (9,199 | ) | ***-1.2*** | **%** | (9,387 | ) | ***-1.3*** | ***%*** |
| Interest income                                              |       | 144                                       |       | ***0.1***                                | **%**       | 152 |   | ***0.1*** | **%** | 404 |   | ***0.1*** | **%** | 394 |   | ***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***                                | **%**       | (70 | ) | ***0.0*** | **%** | 22 |   | ***0.0*** | **%** | (462 | ) | ***-0.1*** | ***%*** |
| **Income (loss) before income taxes and minority  interest** |       | (3,760                                    | )          | ***-1.5***                               | **%**       | (1,637 | ) | ***-0.7*** | **%** | 4,104 |   | ***0.5*** | **%** | 9,315 |   | ***1.3*** | ***%*** |
|                                                         |       |                                      |       |                                     | ** **  |   |   |   | ** ** |   |   |   | ** ** |   |   |   | ** ** |
| Income tax expense (benefit)                                 |       | (3,522                                    | )          | ***-1.4***                               | **%**       | 67 |   | ***0.0*** | **%** | (991 | ) | ***-0.1*** | **%** | 3,250 |   | ***0.5*** | ***%*** |
| Minority interest                                            |       | 877                                       |       | ***0.4***                                | **%**       | 32 |   | ***0.0*** | **%** | 1,544 |   | ***0.2*** | **%** | 456 |   | ***0.1*** | ***%*** |
| **Net income (loss)**                                        |       | $                                         | (1,115     | )                                        | ***-0.5***  | **%** | $ | (1,736 | ) | ***-0.8*** | **%** | $ | 3,551 |   | ***0.5*** | **%** | $ | 5,609 |   | ***0.8*** | ***%*** |

# * *

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

# * *

***Revenue***

Revenue increased $14.5million, or 6.3%, in the three months ended September 30, 2005 compared tothe same period of 2004. The changes in revenue by geographic region are shownin the following table:

 
| **Three months**             | ** ** | ** ** | ** ** | ** **        | ** ** | **$**      | ** ** | **%**      | ** ** |
|------------------------------|------------|------------|------------|-------------------|------------|------------|------------|------------|------------|
| **ended September 30,** | ** ** | **2005**   | ** ** | **2004**          | ** ** | **Change** | ** ** | **Change** | ** ** |
| ** **                   | ** ** | ** ** | ** ** | **(in millions)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| North America                | ** ** | **$**      | **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**   |       | 7.6               |       | 3.8        |       | 50.0       | %          |
| Totals                       | ** ** | **$**      | **244.0**  |              | $          | 229.5      |       | $          | 14.5       |   | 6.3 | % |
|                              |            |            |            |                   |            |            |            |            |            |  |  |  |  |

 

North American revenueincreased $6.5 million for the three months ended September 30, 2005compared to the same period in 2004.  A$11.2 million increase, primarily as a result of an increase in customer careand technical support programs, was

 

15

----

 

partially offset by a$4.7 million decrease in customer acquisition and risk managementservices.  The weakening of the U.S.dollar versus the Canadian dollar accounted for $0.4 million of the increase.

 

European revenueincreased $2.2 million for the three months ended September 30, 2005compared to the same period in 2004. Higher sales volumes from new and existing clients resulted in a $2.8million increase, partially offset by a $0.6 million decrease due to thestrengthening of the U.S. dollar versus the British pound and the Euro.

 

Asia Pacific revenueincreased $2.0 million for the three months ended September 30, 2005compared to the same period in 2004. Higher sales volumes from new and existing clients resulted in $1.2million of the increase.  The weakeningof the U.S. dollar versus the New Zealand and Australian dollars resulted inthe remaining $0.8 million of the increase.

 

Latin American revenueincreased $3.8 million for the three months ended September 30, 2005compared to the same period in 2004. Higher sales volumes from new and existing clients resulted in $2.3million of the increase.  The weakeningof the U.S. dollar versus the Brazilian Real resulted in the remaining $1.5million of the increase.

 

***Direct Labor and Telecommunications Expenses***

Direct labor andtelecommunications expenses include the compensation of our customer serviceprofessionals and their first line supervisors and telephone usage expensesdirectly related to the production of revenue.

 

Direct labor andtelecommunications expenses as a percentage of revenue can vary based on thenature of the contract, the nature of the work, and the market in which theservices are provided. Accordingly, direct labor and telecommunicationsexpenses as a percentage of revenue can vary, sometimes significantly, fromperiod to period.

 

Direct labor andtelecommunications expenses as a percentage of revenue for the three monthsended September 30, 2005 were consistent with the same period in 2004.

 

***Subcontracted and Other Services Expenses***

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 three months ended September 30,2005 compared to the same period of 2004. The decrease was primarily the result of lower subcontracted ITcosts to support client programs.

 

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

 

***Operating, Selling and Administrative Expenses***

Operating, selling andadministrative expenses represent expenses incurred to directly support and managethe business, including costs of management, administration, technology,facilities, depreciation and amortization, maintenance, sales and marketing,and client support services.

 

Operating, selling andadministrative expenses increased $2.7 million for the three months ended September 30,2005 compared to the same period of 2004. The weakening 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,selling and administrative expenses decreased to 33.0% for the three monthsended September 30, 2005 compared to 33.9% for the same period of2004.  The decrease is primarily theresult of higher sales volumes while maintaining the existing cost structure.

 

***Asset Impairment 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 September 30,2005 as a result of these 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,

 

16

----

 

we recorded restructuringexpense of $3.1 million during the three months ended September 30, 2005,to establish a liability for the obligation to repay such amounts.

 

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 norestructuring expenses for the same period in 2004.

 

***Operating Income (Loss)***

Operating income declinedby $1.6 million to an operating loss of $0.6 million for the three months endedSeptember 30, 2005 compared to $1.0 million operating income for the sameperiod in 2004 due to the factors discussed above.

 

***Interest Expense***

Interest expenseincreased $0.3 million for the three months ended September 30, 2005compared to the same period in 2004 primarily as a result of $0.4 millionwrite-off of previously capitalized debt issuance costs.

 

***Interest Income***

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

 

***Equity in Earnings (loss) of Affiliates***

Equity in earnings (loss)of affiliates decreased for the three months ended September 30, 2005compared to the same period in 2004 primarily as a result of reduced volumesfrom our India joint venture following flooding that occurred at their Mumbaifacility during the quarter.

 

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

Other income (expense),net increased $0.1 million for the three months ended September 30, 2005compared to the same period in 2004 primarily as a result of fluctuations inforeign currency remeasurement gains (losses) arising from monetary assets andliabilities denominated in currencies other than a business unit’s functionalcurrency.

 

***Income Tax Expense***

The effective tax ratefor the three-months ended September 30, 2005, was more than the statutoryU.S. Federal rate of 35% due to not reflecting any significant tax benefits forthe current net operating losses in certain federal, state and foreign taxjurisdictions.

 

17

----

 

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.

 

Income tax expense as apercentage of income before income taxes and minority interest was 4.1% for thethree-months ended September 30, 2004. The difference between this rate andthe statutory U.S. Federal rate of 35% was primarily due to the utilization ofnet operating loss carryforwards in certain subsidiaries for which a fullvaluation allowance had previously been provided against the net deferred taxasset and due to income tax expense incurred in certain non-US subsidiaries.

 

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

 

***Revenue***

Revenue increased $33.4million, or 4.7%, for the nine months ended September 30, 2005 compared tothe same period of 2004. The changes in revenue by geographic region are shownin the following table:

 
| **Nine months**              | ** ** | ** ** | ** ** | ** **        | ** ** | **$**      | ** ** | **%**      | ** ** |
|------------------------------|------------|------------|------------|-------------------|------------|------------|------------|------------|------------|
| **ended September 30,** | ** ** | **2005**   | ** ** | **2004**          | ** ** | **Change** | ** ** | **Change** | ** ** |
| ** **                   | ** ** | ** ** | ** ** | **(in millions)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| North America                | ** ** | **$**      | **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                | ** ** | **29.0**   |       | 21.4              |       | 7.6        |       | 35.5       | %          |
| Totals                       | ** ** | **$**      | **747.0**  |              | $          | 713.6      |       | $          | 33.4       |   | 4.7 | % |

 

Despite the previouslyannounced loss of an account and reduced pricing on a major client contract in2004, North American revenue remained consistent for the nine months ended September 30,2005 compared to the same period in 2004. During the nine months ended September 30, 2005, technical supportrevenue increased $26.3 million offset by decreases in customer care andacquisition revenue of $12.7 million and risk management of $14.5 million.

 

European revenueincreased $18.3 million for the nine months ended September 30, 2005compared to the same period in 2004. Higher sales volumes from new and existing clients resulted in $9.8million of the increase.  The weakeningof the U.S. dollar versus the British pound and Euro accounted for theremaining $8.5 million of the increase.

 

Asia Pacific revenueincreased $7.4 million for the nine months ended September 30, 2005compared to the same period in 2004. Higher sales volume from new and existing clients resulted in $4.8million of the increase.   The weakeningof the U.S. dollar versus the New Zealand and Australian dollars resulted inthe remaining $2.6 million of the increase.

 

Latin American revenueincreased $7.6 million for the nine months ended September 30, 2005compared to the same period in 2004. Higher sales volume from new and existing clients resulted in $4.5million of the increase.  The weakeningof the U.S. dollar versus the Brazilian Real accounted for the remaining $3.1million of the increase.

 

***Direct Labor and Telecommunications Expenses***

During the nine monthsended September 30, 2005, direct labor and telecommunications expenses asa percentage of revenue increased to 60.7% compared to 59.6% in same period in2004.  The increase was primarily theresult of higher ramp-up costs of new client programs, particularly in Europe,reduced pricing on a major client contract, and a change in the mix of servicesprovided in the nine months ended September 30, 2005 compared to the sameperiod in 2004.  During the nine monthsended September 30, 2005, direct labor and telecommunications expenseswere lower due to the impact of the recording of a benefit from a refund of$1.3 million of payroll tax overpayments paid in a prior year as a reduction ofdirect labor and telecommunications expense.

 

***Subcontracted and Other Services Expenses***

Subcontracted and otherservices expenses included services provided to clients through subcontractorsand other out-of-pocket expenses. Subcontracted and other services expenses decreased $0.4 million for thenine months ended September 30, 2005

 

18

----

 

compared to the sameperiod in 2004.  The decrease wasprimarily the result of lower subcontracted IT costs to support clientprograms.

 

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

 

***Operating, Selling and Administrative Expenses***

Operating, selling andadministrative expenses represent expenses incurred to directly support andmanage the business, including costs of management, administration, technology,facilities, depreciation and amortization, maintenance, sales and marketing,and client support services.

 

Operating, selling andadministrative expenses increased $9.5 million for the nine months ended September 30,2005 compared to the same period in 2004.  The weakening of the U.S. dollar compared tothe primary jurisdictions that we operate in accounted for $6.2 million of theincrease.  The remainder of the increasein these expenses was associated with our revenue increase.  As a percentage of revenue, operating,selling and administrative expenses decreased to 32.3% for the nine monthsended September 30, 2005 compared to 32.4% for the same period of2004.  The decrease is primarily theresult of higher sales volumes while maintaining the existing cost structure.

 

***Asset Impairment and Restructuring 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 September 30,2005 as a result of these actions.  Inaddition, we recorded $0.7 million of severance expenses as a result of previouslyannounced 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 ended September 30,2005, to establish a liability for the obligation to repay such amounts.

 

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.

 

There were norestructuring expenses for the same period in 2004.

 

***Operating Income***

Operatingincome decreased $5.8 million for the nine months ended September 30, 2005compared to the same period in 2004 due to the factors discussed above.

 

***Interest Expense***

Interest expensedecreased $0.2 million for the nine months ended September 30, 2005compared to the same period in 2004 primarily due to lower averageborrowings.  This decrease was partiallyoffset by the $0.4 million write-off of previously capitalized debt issuancecosts.

 

***Interest Income***

Interest income remainedconsistent for the nine months ended September 30, 2005 compared to thesame period in 2004.

 

***Equity in Earnings (loss) of Affiliates***

Equityin earnings (loss) of affiliates remained consistent for the nine months ended September 30,2005 as compared to the same period in 2004.

 

19

----

 

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

Other income (expense),net increased $0.5 million for the nine months ended September 30, 2005compared to the same period in 2004.  Theincrease was primarily as a result of fluctuations in foreign currencyremeasurement gains (losses) arising from monetary assets and liabilitiesdenominated in currencies other than a business unit’s functional currency.

 

***Income Tax Expense***

The effective tax ratefor the nine-months ended September 30, 2005, was more than the statutoryU.S. Federal rate of 35% due to not reflecting any significant tax benefits forthe current net operating losses in certain federal, state and foreign taxjurisdictions.

 

During the three monthsended September 30, 2005, we recorded a non-cash tax benefit ofapproximately $5.8 million, which is included in income tax expense (benefit)in the accompanying consolidated condensed statements of operations. This taxbenefit results from the release of a valuation allowance associated withdeferred tax assets in one of our European business units. The decision torelease this valuation allowance was based on a sustained improvement ofearnings combined with an improved financial outlook for the business unit. Theimproved financial situation led management to decide that the tax losses inthe business unit would be fully utilized before they expire.

 

Income tax expense as apercentage of income before income taxes and minority interest was 35% for thenine months ended September 30, 2004.

 

**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** | ** ** |
|------------------------------------------|------------|--------------------|------------|----------|------------|
| ** **                               | ** ** | **(in thousands)** | ** ** |
| **Net  cash provided by (used in):**     |       |               |       |     |       |
| Operating activities                     | ** ** | **$**              | **9,884**  |     | $          | 30,883 |   |
| Investing activities                     | ** ** | **(17,982**        | **)**      | (15,658  | )          |
| Financing activities                     | ** ** | **16,507**         |       | (3,477   | )          |
|                                          |            |                    |            |          |            |  |  |

 

**2005**

Inthe nine months ended September 30, 2005, cash provided by operatingactivities resulted primarily from $27.1 million in income before depreciationand amortization, and other non-cash charges and benefits, a $0.5 milliondecrease in other assets and a $1.4 million decrease in other liabilities,partially offset by a $14.3 million increase in account receivable and a $4.7million decrease in trade accounts payable.

 

Inthe nine months ended September 30, 2005, we used cash for investingactivities to purchase $20.9 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.

 

Inthe nine months ended September 30, 2005, cash provided by financingactivities resulted from net borrowings of debt and other obligations of $21.9million, offset by the payment of $5.5 million of debt issue costs associatedwith the new Credit Facility.

 

**2004**

In thenine months ended September 30, 2004, cash provided by operatingactivities resulted primarily from $32.1 million in income before depreciationand amortization, and other charges, a $1.6 million decrease in other assetsand a $6.9 million

 

20

----

 

increasein other liabilities, partially offset by a $2.4 million increase in tradeaccounts receivable and a $7.4 million decrease in trade accounts payable.

 

In the nine months ended September 30,2004, we used cash for investing activities to purchase $17.1 million ofproperty and equipment and used $0.8 million to increase investments inaffiliates, offset partially by a dividend from an affiliate of $1.7 millionand receipts on notes receivable of $0.5 million.

 

In the nine months ended September 30,2004, cash used in financing activities resulted in net repayments of debt andother obligations of $3.7 million partially offset by $0.2 million of cashreceipts from the proceeds on stock options exercised, net of tax.

 

**CapitalResources**

We have historically usedfunds generated from operations, leases of property and equipment, equitycapital, senior subordinated notes, and borrowings under credit facilities withbanks to finance business acquisitions, capital expenditures and workingcapital requirements.

 

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,the weighted average interest rates applicable to the Revolver and Term Loan Awere each 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,we used 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, we used the proceeds of Term Loan A, Term Loan B, and an additionaldrawing under the Revolver to redeem the outstanding 9.25% Senior SubordinatedNotes (the Notes) that were due March 2006.

 

At September 30,2005, we had $120.2 million outstanding under the Credit Agreements, of which$3.6 million is included in revolving credit facility and other current debt inthe accompanying consolidated condensed balance sheet.

 

21

----

 

The remainder is includedin long-term debt in the accompanying consolidated condensed balancesheet.  At September 30, 2005, wewere in compliance with all covenants under the Credit Agreement.

 

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    |   |

 

At September 30,2005, we had $24.8 million remaining under the credit facility, and we were incompliance with all financial covenants of the facility.

 

We expect to finance ourcurrent operations, 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 fourth quarter of2005 to be in the range of $8 million to $12 million, as we continue to covermaintenance and technology upgrades, asset replacements, efficiencyinvestments, and investment for continued growth. Future acquisitions, if any, mayrequire additional debt or equity financing.

 

Under a stock repurchaseprogram that was authorized by our Board of Directors in February 2001, wemay repurchase up to $10 million of our shares from time to time in the openmarket or in privately negotiated transactions, depending on general businessand market conditions. Through the date of this report, we had repurchased atotal of 881,700 shares at a total cost of $1.5 million.

 

# ***Contractual Obligations andCommitments***

We summarize variouscontractual obligations and commitments in the Notes to our ConsolidatedFinancial Statements in our Report on Form 10-K for the year ended December 31,2004.  These contractual obligations andcommitments include:

 

•                                          $15.2 millionof other local short-term debt as shown in our consolidated condensed balancesheet at September 30, 2005,

•                                          $9.2 millionof capital lease obligations as shown in our consolidated condensed balancesheet at September 30, 2005, and

•                                          operatinglease obligations for property and certain equipment under noncancelableoperating lease arrangements, which expire at various dates through 2018.

 

As summarized in Note 9to the Consolidated Financial Statements of this Report on Form 10-Q, theCompany entered 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 |   |
|                |            |                    |            |               |            |               |            |               |            |  |  |  |  |

 

22

----

 

**Other Matters**

 

***QuarterlyResults and Seasonality***

We have experienced, andexpect to continue to experience, quarterly variations in our results ofoperations mostly due to:

 

•                  the timing of our clients’ customerrelationship management initiatives and customer acquisition and loyaltycampaigns,

•                  the commencement of new contracts andthe discontinuance and termination of existing contracts,

•                  revenue mix,

•                  the timing ofadditional operating, selling, and administrative expenses to support newbusiness, and

•                  the timing of recognition ofincentive fees.

 

We experience periodicfluctuations in our results of operations related to both the start-up costsassociated with expansion and the implementation of clients’ CRM activities. Inaddition, our business generally can be slower in the third quarter due tosummer 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.

 

***Related Party 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.

 

Subcontracted expensesfor services provided by our India joint venture were $3.4 million and $3.0million 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 30,2005 and December 31, 2004, the investment in certain Latin Americaaffiliates was approximately $13.3 million and $12.4 million, respectively. Ofthe investment in certain Latin America affiliates, approximately $7.7 millionis equity method goodwill. This equity method goodwill is not amortized.  Subcontracted services provided by our LatinAmerica joint venture for the three-month and nine-month periods ended September 30,2005 and 2004 were not material.

 

***Recently Issued Accounting Pronouncements***

In December 2004,the Financial 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 permitted underSFAS 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 and2004, as if we had used a fair-value-based method similar to the methodsrequired under SFAS 123R to measure compensation expense for employeestock incentive awards.  In March 2005,the Securities 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 theeffective date of SFAS 123R for public companies. As a result,SFAS 123R will be effective for the Company in the first quarter of 2006and will apply to all of our outstanding unvested share-based payment awards asof January 1, 2006 and all prospective awards.  Although we have not yet determined whetherthe adoption of SFAS 123R will result in amounts that are similar to thecurrent pro forma disclosures under SFAS 123, we are evaluating therequirements under SFAS 123R and expect the adoption to have a significantimpact on our consolidated statements of income and net income per share.

 

23

----

 

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 theForeign Earnings Repatriation Provision within the American Jobs Creation Actof 2004*(FSP 109-2)*. *FSP109-2 provides additional time to companies beyond the financial reportingperiod of enactment to evaluate the effects of the AJCA on their plans forrepatriation of foreign earnings for purposes of applying SFAS 109, *Accounting for Income Taxes*. The Companyis currently evaluating the repatriation provisions of AJCA, which if implementedwould affect our tax provision and deferred tax assets and liabilities. Due tothe complexity and uncertainty of applying the provisions of the Act, theincome tax effects of such repatriation cannot be reasonably estimated at thistime.

 

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

***Foreign Currency Risk***

We areexposed to market risks associated primarily with changes in foreign currencyexchange rates. We have operations in many parts of the world; however, bothrevenue and expenses of those operations are typically denominated in thecurrency of the country of operations, providing a natural hedge.

 

Our financialstatements are presented in U.S. dollars and can be impacted by foreignexchange fluctuations through both (i) translation risk, which is the riskthat the financial statements for a particular period or as of a certain datedepend on the prevailing exchange rates of the various currencies against theU.S. dollar, and (ii) transaction risk, which is the risk that thecurrency impact of transactionsdenominated in currencies other than the business unit’s functional currencymay vary according to currency fluctuations.

 

Withrespect to translation risk, even though the fluctuations of currencies againstthe U.S. dollar can be substantial and therefore significantly impactcomparisons with prior periods, the translation impact is included inaccumulated other comprehensive income, a component of stockholders’ equity,and does not affect the underlying results of operations. Gains and lossesrelated to transactions denominated in a currency other than the functionalcurrency of the countries in which we operate including short-term intercompanyaccounts 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 periods endedSeptember 30, 2005, our average borrowings under our prior Fleet revolvingcredit facility and the existing Revolver were $23.0 million and $16.2 million,respectively.  Borrowings under the TermLoan A and Term Loan B were $20 million and $35 million, respectively, at September 30,2005.  A hypothetical 10% change ininterest rates would increase or decrease quarterly interest expense byapproximately $0.2 million.

 

**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 this Quarterly Report on Form 10-Q. Based onthis evaluation, our Chief Executive Officer and our Chief Financial Officerhave concluded that our disclosure controls and procedures are effective toensure that information we are required to disclose in reports that we file orsubmit under the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the time periods specified in Securities and ExchangeCommission rules and forms.

 

There was no change inour internal control over financial reporting that occurred during the periodcovered by this Quarterly Report on Form 10-Q that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

We do not expect that ourdisclosure controls and procedures or our internal controls over financialreporting will prevent all error and all fraud. A control system, no matter howwell conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met. Further, thedesign of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within SITEL have been detected.

 

24

----

 

**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) indemnitiesinvolving the accuracy of representations and warranties in certain contracts.

 

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.

 

*Bankruptcy OP Computers SPA vs. SITEL KingstonLimited* (now known asMitre Telesales Limited) was filed in April 2004 in the Court of Ivrea inMilan, Italy.  The receivers assertedthat Mitre, as a former supplier to Olivetti, is required under Italianbankruptcy law to return €5,349,025 (approximately $6.9 million) in paymentsOlivetti had allegedly paid Mitre during a one-year “clawback” period, whichallegedly runs from March 9, 1998 until March 9, 1999, the allegeddate Olivetti filed for receivership. Mitre filed its Defence with the court in November 2004.  The Defence outlined the facts and reasonswhy Mitre did not and should not reasonably have known of Olivetti’s insolventstate during the time that Mitre was performing services for Olivetti.  Counsel for Mitre Telesales Limitedand for the receiver have recently engaged in settlement discussions and havereached an oral agreement which is subject to confirmation by the receiver andthe bankruptcy court.  While confirmationcannot be assured, on the basis of present information and advice from counsel,the Company and its subsidiary Mitre Telesales Limited believe thatconfirmation is likely.  In such case thematter would be settled for the amount that the Company has already accrued forsuch purpose and would not have a material adverse effect on the Company’sresults or financial condition.

 

Two of our clients havereceived letters from time to time containing an offer to license andsuggesting that the clients might be infringing certain patents related tocomputerized telephonic voice response systems without the license. The clientshave indicated that if any infringement occurred the client would seekcontractual indemnity from us. In such an event, we would expect to seekcontractual indemnity from certain of our vendors. Any such contractualindemnity we might obtain may not be sufficient to cover all of the costs ofinvestigating and resolving such matter. We might also seek a license under thepatents. Any such license may not be available under commercially reasonableterms. Any license costs would increase the cost of doing business in thefuture and may or may not be fully reflected in our pricing. To our knowledge,no litigation has been initiated against our clients or us concerning thismatter. At this stage, due to the inherent uncertainties, we are unable topredict whether this matter may have a material adverse effect on our businessor on our financial condition or results of operation.

 

**Item 5.Other Information**

 

**Forward-Looking Statements**

We make statements inthis report that are considered forward-looking statements within the meaningof the Securities Exchange Act of 1934. Sometimes these statements will containwords such as “believes,” “expects,” “intends,” “should,” “will,” “plans,” andother similar words. These statements are not guarantees of our futureperformance and are subject to risks, uncertainties, and other importantfactors that could cause our actual performance or achievements to bematerially different from those we project. These risks, uncertainties, andfactors include, but are not limited to: reliance on major clients, conditionsaffecting clients’ industries, clients’ budgets and plans, unanticipated labor,contract or technical difficulties, delays in ramp up of services undercontracts, reliance on major subcontractors and strategic partners, risksassociated with managing a global business, fluctuations in operating results,reliance on 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 keypersonnel and control by management.

 

Given theseuncertainties, you should not place undue reliance on these forward-lookingstatements. Please see the other sections of this report and our other periodicreports filed with the Securities and Exchange Commission for more informationon these factors.

 

25

----

 

**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 |

 

26

----

 

### **SIGNATURE**

### ** **

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|                                    |   |   |   | SITEL Corporation            |
|-----------------------------------------|--------|--------|--------|------------------------------|
|                                    |   |   |   | **(Registrant)**             |
|                                    |   |   |   |                         |
|                                    |   |   |   |                         |
| Date:  November 9,  2005 |   | By     | /s/    | *Jorge A. Celaya*            |
|                                    |   |   |   | **Jorge A. Celaya**          |
|                                    |   |   |   | *Chief Financial Officer*    |
|                                    |   |   |   | (Duly Authorized Officer and |
|                                    |   |   |   | Principal Financial Officer) |

 

27

----

 

**EXHIBIT INDEX**

 
| **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 |

 

28

----