**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q/A**

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

**OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended MARCH 31, 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’sTelephone Number, Including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OFTHE ACT:
|                                | ** ** | Name of Each Exchange        |
|--------------------------------|------------|------------------------------|
| **Title of Each Class**        | ** ** | **On Which Registered**      |
| Common Stock,  $.001 Par Value |       | The New York  Stock Exchange |

 

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

**Not Applicable**

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

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

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

YES o  NO  x

### **COMMONSTOCK, $.001 PAR VALUE – 73,743,490 SHARES OUTSTANDING AS OF APRIL 29, 2005**

 

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| **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 and  Reports on Form 8-K |   |   |
|                                    |   |   |   |   |   |
|                                    |   | Signature |   |   |   |
|                                    |   |   |   |   |
|                                    |   | Exhibit  Index |   |   |

 

1

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**EXPLANATORYNOTE:**  This quarterlyreport on Form 10-Q/A is being filed for the purpose of amending ourconsolidated financial statements to provide users of our financial informationwith additional information relative to adjustments recorded during the firstquarters of 2005 and 2004.  On February27, 2006, we determined that it was appropriate to restate previously issuedconsolidated financial statements to record these adjustments.

As described in Note 2 ofthe consolidated condensed financial statements, SITEL Corporation has restatedits previously filed consolidated financial statements as of March 31, 2005 andDecember 31, 2004, and for the quarters ended March 31, 2005 and 2004 includedin its Quarterly Report on Form 10-Q for the quarter ended March 31, 2005,which was filed with the Securities and Exchange Commission on May 10, 2005.  We identified errors in our financialstatements related to accounting irregularities identified at ourBrazilian subsidiary including interestand penalties on unpaid tax obligations; deferred recognition of expenses;errors in revenue recording; intentional falsification of financial results;and intentional misclassification of recorded amounts.

We also recorded other adjustments that werepreviously deemed immaterial.

As a result of the errorsreferred to above, the net income for the quarters ended March 31, 2005 and2004 was overstated by $0.9 million and $0.7 million, respectively.

This amendmentpresents the 2005 First Quarter Form 10-Q, as amended, in its entirety, exceptfor the Supplemental Guarantor Financial Information that is no longer requiredas a result of the refinancing during the third quarter of 2005, but does notmodify or update the disclosure in the 2005 First Quarter Form 10-Q in any wayother than as required to reflect the changes discussed above and does notreflect events occurring after the original filing of the 2005 First QuarterForm 10-Q on May 10, 2005.

All informationcontained in this Form 10-Q/A is subject to updating and supplementing asprovided in our reports filed with the Securities and Exchange Commission (theSEC) subsequent to the date of the original filing of the Annual Report on Form10-K.  As a result, we recommend thatthis Form 10-Q/A be read in conjunction with all other periodic and currentreports of the Company filed under the Securities Exchange Act of 1934, asamended, after the filing of the original Form 10-Q, including withoutlimitation the information described in Note 2 to the consolidated financialstatements included in this Form 10-Q/A and the information contained in theCompany’s Quarterly Reports on Form 10-Q/A for the quarters ended June 30, 2005and September 30, 2005, each as filed on the date hereof.

2

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**PARTI – FINANCIAL INFORMATION**

### **SITELCORPORATION AND SUBSIDIARIES**

**CONSOLIDATED CONDENSED STATEMENTS OFOPERATIONS**

**(UNAUDITED)**

(in thousands,except per share data)
| ** **                                            | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                            | ** ** | **March 31,**               | ** ** |
| ** **                                            | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| ** **                                            | ** ** | **(As Restated)**           | ** ** | **(As Restated)** | ** ** |
| * *                                              | * *   | * *                         | * *   | * * | * * |
| **Revenue**                                           |       | $                                | 250,892    |   | $ | 244,027 |   |
| ** **                                            | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Operating expenses:**                               | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Direct labor and  telecommunications expenses         |       | 152,450                          |       | 144,083 |   |
| Subcontracted and  other services expenses            |       | 12,880                           |       | 12,815 |   |
| Operating,  selling and administrative expenses       |       | 80,239                           |       | 77,519 |   |
| Total operating  expenses                             |       | 245,569                          |       | 234,417 |   |
|                                                  |       |                             |       |   |   |
| **Operating income**                                  |       | 5,323                            |       | 9,610 |   |
| ** **                                            | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Other income (expense):**                           | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Interest expense                                      |       | (3,162                           | )          | (3,450 | ) |
| Interest income                                       |       | 120                              |       | 118 |   |
| Equity in  earnings (loss) of affiliates              |       | (107                             | )          | (7 | ) |
| Other expense,  net                                   |       | (10                              | )          | (260 | ) |
| Total other  expense, net                             |       | (3,159                           | )          | (3,599 | ) |
|                                                  |       |                             |       |   |   |
| **Income before income taxes and  minority interest** |       | 2,164                            |       | 6,011 |   |
|                                                  |       |                             |       |   |   |
| Income tax expense                                    |       | 1,258                            |       | 1,715 |   |
| Minority interest                                     |       | 358                              |       | 212 |   |
| **Net income**                                        |       | $                                | 548        |   | $ | 4,084 |   |
|                                                  |       |                             |       |   |   |
| **Weighted average common shares  outstanding:**      | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Basic                                                 |       | 73,736                           |       | 73,633 |   |
| Diluted                                               |       | 74,340                           |       | 73,980 |   |
| ** **                                            | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Earnings per share:**                               | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Basic                                                 |       | $                                | 0.01       |   | $ | 0.06 |   |
| Diluted                                               |       | $                                | 0.01       |   | $ | 0.06 |   |

*See Notes to Consolidated Condensed FinancialStatements*

3

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### **SITELCORPORATION AND SUBSIDIARIES**

### **CONSOLIDATEDCONDENSED BALANCE SHEETS**

(in thousands,except share data)
| ** **                                                                                                                                   | ** ** | **March 31,**     | ** ** | **December 31,**  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                                                   | ** ** | **2005**               | ** ** | **2004**               | ** ** |
| ** **                                                                                                                                   | ** ** | **(Unaudited)**        | ** ** | ** **             | ** ** |
| ** **                                                                                                                                   | ** ** | **(As restated)** | ** ** | **(As restated)** | ** ** |
| **Assets**                                                                                                                                   | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Current  assets:**                                                                                                                         | ** ** | ** **             | ** ** | ** **             | ** ** |
| Cash and cash  equivalents                                                                                                                   |       | $                      | 34,862     |                   | $          | 29,130 |   |
| Trade accounts  receivable (net of allowance for doubtful accounts of $2,066 and $2,391,  respectively)                                      |       | 194,622                |       | 192,204                |       |
| Prepaid expenses  and other assets                                                                                                           |       | 16,850                 |       | 16,416                 |       |
| Deferred income  taxes                                                                                                                       |       | 1,918                  |       | 1,251                  |       |
| Total current  assets                                                                                                                        |       | 248,252                |       | 239,001                |       |
|                                                                                                                                         |       |                   |       |                   |       |
| **Property  and equipment, net**                                                                                                             |       | 81,798                 |       | 85,934                 |       |
|                                                                                                                                         |       |                   |       |                   |       |
| **Other  assets:**                                                                                                                           | ** ** | ** **             | ** ** | ** **             | ** ** |
| Goodwill                                                                                                                                     |       | 47,592                 |       | 48,276                 |       |
| Investment in  affiliates                                                                                                                    |       | 16,194                 |       | 16,466                 |       |
| Other assets                                                                                                                                 |       | 5,566                  |       | 8,386                  |       |
| Deferred income  taxes                                                                                                                       |       | 578                    |       | 1,360                  |       |
| **Total  assets**                                                                                                                            |       | $                      | 399,980    |                   | $          | 399,423 |   |
| ** **                                                                                                                                   | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Liabilities and Stockholders’  Equity**                                                                                               | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Current  liabilities:**                                                                                                                    | ** ** | ** **             | ** ** | ** **             | ** ** |
| Senior  Subordinated Notes                                                                                                                   |       | $                      | 90,000     |                   | $          | — |   |
| Revolving credit  facility and other current debt                                                                                            |       | 38,567                 |       | 19,712                 |       |
| Current portion  of capital lease obligations                                                                                                |       | 3,608                  |       | 3,435                  |       |
| Trade accounts  payable                                                                                                                      |       | 15,948                 |       | 29,318                 |       |
| Accrued wages,  salaries and bonuses                                                                                                         |       | 54,034                 |       | 50,273                 |       |
| Accrued  operating expenses                                                                                                                  |       | 44,452                 |       | 48,644                 |       |
| Deferred revenue  and other                                                                                                                  |       | 7,249                  |       | 8,892                  |       |
| Income taxes  payable                                                                                                                        |       | 141                    |       | 1,107                  |       |
| Total current  liabilities                                                                                                                   |       | 253,999                |       | 161,381                |       |
| **Long-term  debt and other liabilities:**                                                                                                   | ** ** | ** **             | ** ** | ** **             | ** ** |
| Long-term debt,  excluding current portion                                                                                                   |       | 926                    |       | 91,020                 |       |
| Capital lease  obligations, excluding current portion                                                                                        |       | 7,829                  |       | 8,510                  |       |
| Other  liabilities                                                                                                                           |       | 11,727                 |       | 9,788                  |       |
| Deferred income  taxes                                                                                                                       |       | 204                    |       | 883                    |       |
| Total  liabilities                                                                                                                           |       | 274,685                |       | 271,582                |       |
|                                                                                                                                         |       |                   |       |                   |       |
| **Minority  interests**                                                                                                                      |       | 2,969                  |       | 2,611                  |       |
| **Stockholders’  equity:**                                                                                                              | ** ** | ** **             | ** ** | ** **             | ** ** |
| Common stock,  voting, $.001 par value 200,000,000 shares authorized, 74,437,829 and  74,433,629 shares issued and outstanding, respectively |       | 74                     |       | 74                     |       |
| Additional  paid-in capital                                                                                                                  |       | 168,871                |       | 168,871                |       |
| Accumulated  other comprehensive income                                                                                                      |       | 4,237                  |       | 7,721                  |       |
| Accumulated  deficit                                                                                                                         |       | (49,871                | )          | (50,419                | )          |
| Less treasury  stock, at cost, 694,339 and 707,927 common shares, respectively                                                               |       | (985                   | )          | (1,017                 | )          |
| Total  stockholders’ equity                                                                                                             |       | 122,326                |       | 125,230                |       |
| **Total liabilities and stockholders’ equity**                                                                                          |       | $                      | 399,980    |                   | $          | 399,423 |   |

*See Notes to Consolidated Condensed FinancialStatements.*

4

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**SITEL CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED CONDENSED STATEMENTS OF CASHFLOWS**

** (UNAUDITED)**

(inthousands)
| ** **                                                                        | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                        | ** ** | **March 31,**               | ** ** |
| ** **                                                                        | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| ** **                                                                        | ** ** | **(As restated)**           | ** ** | **(As restated)** | ** ** |
|                                                                              |       |                             |       |   |   |
| **Cash flows from operating  activities:**                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                                        |       | $                                | 548        |   | $ | 4,084 |   |
| Adjustments to  reconcile net income to net cash flows from operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                    |       | 8,957                            |       | 9,274 |   |
| (Gain)/Loss on  disposal of assets                                                |       | 88                               |       | — |   |
| Provision for  deferred income taxes                                              |       | (709                             | )          | (18 | ) |
| Equity in  (earnings) loss of affiliates                                          |       | 107                              |       | 7 |   |
| Minority  interest in net income of consolidated subsidiaries                     |       | 358                              |       | 212 |   |
| Changes in  operating assets and liabilities:                                     |       |                             |       |   |   |
| Trade accounts  receivable                                                        |       | (6,750                           | )          | (8,711 | ) |
| Other assets                                                                      |       | (905                             | )          | (906 | ) |
| Trade accounts  payable                                                           |       | (7,795                           | )          | (3,995 | ) |
| Other  liabilities                                                                |       | (2,835                           | )          | 6,449 |   |
| Net  cash flows from operating activities                                         |       | (8,936                           | )          | 6,396 |   |
|                                                                              |       |                             |       |   |   |
| **Cash flows from investing activities:**                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Purchases  of property and equipment                                              |       | (6,653                           | )          | (5,464 | ) |
| Proceeds  from cash surrender value of life insurance                             |       | 3,274                            |       | — |   |
| Net  cash flows from investing activities                                         |       | (3,379                           | )          | (5,464 | ) |
|                                                                              |       |                             |       |   |   |
| **Cash flows from financing  activities:**                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Borrowings on debt                                                                |       | 50,859                           |       | 3,896 |   |
| Repayments of debt                                                                |       | (31,580                          | )          | (5,630 | ) |
| Repayments of capital  lease obligations                                          |       | (896                             | )          | (678 | ) |
| Treasury stock  reissuances                                                       |       | 33                               |       | 63 |   |
| Net cash flows from  financing activities                                         |       | 18,416                           |       | (2,349 | ) |
| Effect of exchange  rates on cash                                                 |       | (369                             | )          | 516 |   |
| **Net increase (decrease) in cash**                                               |       | 5,732                            |       | (901 | ) |
| **Cash and cash equivalents,  beginning of period**                               |       | 29,130                           |       | 30,131 |   |
| **Cash and cash equivalents, end  of period**                                     |       | $                                | 34,862     |   | $ | 29,230 |   |
| ** **                                                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Non-cash investing and  financing activities:**                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Capital leases incurred                                                           |       | $                                | 852        |   | 33 |   |

*See Notes to Consolidated Condensed FinancialStatements.*

5

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### **SITELCORPORATION AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS**

**Note1. Basis of Consolidation and Presentation**

***General***

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

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

The accompanying unaudited consolidated condensed financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the interim periods presented. The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-K for the year ended December 31, 2005, which reports the restated fiscal 2004 consolidated financial statements filed this same date. All significant intercompany balances and transactions have been eliminated. Certain amounts in prior fiscal periods have been reclassified for comparative purposes.

***Use of Accounting Estimates***

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

***Recently IssuedAccounting Pronouncements***

In December 2004, the Financial Accounting StandardsBoard (FASB) issued SFAS No. 123 (R), *Share-BasedPayment*, (SFAS 123R). This standard will require the cost ofemployee compensation paid with equity instruments to be measured based ongrant-date fair values with the cost recorded as compensation expense over theperiod during which the employee is required to perform service in exchange forthe award (generally over the vesting period of the award). The proformadisclosures previously permitted under SFAS 123 no longer will be analternative to financial statement recognition. See “Stock-Based Compensation”below for the pro forma net income and net income per share amounts, for thethree months ended March 31, 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 and ExchangeCommission (SEC) issued Staff Accounting Bulletin (SAB) No. 107,which expressed the views of the SEC regarding the interaction betweenSFAS 123R and certain SEC rules and regulations. SAB No. 107provides guidance related to the valuation of share-based payment arrangementsfor public companies, including assumptions such as expected volatility andexpected term.  In April 2005, theSEC approved a rule that delayed the effective date of SFAS 123R forpublic companies. As a result, SFAS 123R will be effective for the Companyin the first quarter of 2006 and will apply to all of our outstanding unvestedshare-based payment awards as of January 1, 2006 and all prospectiveawards.  Although we have not 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 of2004. *FSP 109-2 provides additional time to companies beyondthe financial reporting period of enactment to evaluate the effects of the AJCAon their plans for repatriation of foreign earnings for purposes of applyingSFAS 109, *Accounting for Income Taxes*.The Company is currently evaluating the repatriation provisions of AJCA, whichif implemented would affect our tax provision and deferred tax assets andliabilities. Due to the complexity and uncertainty of applying the provisionsof the Act, the income tax effects of such repatriation cannot be reasonablyestimated at this time.

6

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In January 2003, the FASBreleased Interpretation No. 46, *Consolidationof Variable Interest Entities, an Interpretation of ARB No. 51*,(FIN 46), which required that all primary beneficiaries of Variable InterestEntities (VIE) consolidate that entity. FIN 46 was effective immediately forVIE’s created after January 31, 2003 and to VIE’s in which an enterpriseobtained an interest after that date. It applied in the first fiscal year orinterim period beginning after June 15, 2003 to VIE’s in which an enterpriseheld a variable interest it acquired before February 1, 2003. In December 2003,the FASB published a revision to FIN 46 (FIN 46R) to clarify some of theprovisions of the interpretation and to defer the effective date ofimplementation for certain entities. The remaining provisions of FIN 46R wereeffective January 1, 2004.  The adoptionof FIN 46R had no impact on our consolidated financial statements.

***Stock-BasedCompensation***

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

The following table illustrates the effect on our netincome if the fair-value-based method had been applied to alloutstanding and unvested awards in each period (in thousands):
| Three Months Ended March 31,                                                                         | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                               | ** ** | **(As restated)** | ** ** | **(As restated)** | ** ** |
| Net income:                                                                                                              |       |                   |       |                   |       |
| As reported                                                                                                              |       | $                      | 548        |                   | $          | 4,084 |   |
| Less: total stock based employee compensation expense  determined under the fair value method for all awards, net of tax |       | (127                   | )          | (259                   | )          |
| Pro forma                                                                                                                |       | $                      | 421        |                   | $          | 3,825 |   |
|                                                                                                                     |       |                   |       |                   |       |
| Income per  common share:                                                                                                |       |                   |       |                   |       |
| As reported:                                                                                                             |       |                   |       |                   |       |
| Basic                                                                                                                    |       | $                      | 0.01       |                   | $          | 0.06 |   |
| Diluted                                                                                                                  |       | 0.01                   |       | 0.06                   |       |
| Pro forma:                                                                                                               |       |                   |       |                   |       |
| Basic                                                                                                                    |       | 0.01                   |       | 0.05                   |       |
| Diluted                                                                                                                  |       | 0.01                   |       | 0.05                   |       |

 

The fair value of options granted during the three months ended March31, 2004, was estimated at the date of the grant using the Black-Scholesoption-pricing model, and the following weighted-average assumptions:

 
|                             | ** ** | **2004** | ** ** |
|-----------------------------|------------|----------|------------|
|                        |       |     |       |
| - Volatility  factor        |       | 53.0     | %          |
| - Risk-free  interest rate  |       | 3.4      | %          |
| - Expected life  (in years) |       | 5        |       |
| - Expected dividend  yield  |       | 0.0      | %          |

 

There were no options granted during the three months ended March 31,2005.

7

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***SignificantClients***

Our******top 20 clients accounted for 68.9% and 68.3% of ourrevenue in the three-month periods ended March 31, 2005 and 2004, respectively,and include multiple independently managedbusiness units within the client’s affiliated group.  Hewlett-PackardCompany business unitswere responsible for 12.4% and 11.6% of our revenue for the three-month periodended March 31, 2005 and 2004.  GeneralMotors Corporation (General Motors) business units were responsible for 12.2%and 17.3% of our total revenue in the three-month periods ended March 31, 2005and 2004.  The primary General Motorscontract expires in December 2005, while a second contract terminated in June2004.

**Note2. Restatement**

Asa result of accounting irregularities identified at our Braziliansubsidiary, we have restated ourpreviously filed consolidated financial statements as of March 31, 2005 andDecember 31, 2004 and for the quarters ended March 31, 2005 and 2004. Wehave determined that the subsidiary’s former controller, in violation ofCompany policies, engaged in improper accounting practices and the avoidance oflocal tax obligations and caused misleading records to be created to preventthe Company’s senior management from detecting this misconduct.

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

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

Summary of restatementitems for the quarters ended March 31:
|                                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|
| Net income as  originally reported                     |       | $        | 1,449      |     | $          | 4,826 |   |
|                                                   |       |     |       |     |       |
| Tax obligations,  including interest and penalties (A) |       | (360     | )          | (282     | )          |
| Deferred expense  recognition (B)                      |       | (314     | )          | (145     | )          |
| Errors in  revenue recording (C)                       |       | (332     | )          | —   |       |
| Intentional  falsification of records (D)              |       | (10      | )          | (90      | )          |
| Other (E)                                              |       | 115      |       | (225     | )          |
| Total impact of  restatement adjustments               |       | (901     | )          | (742     | )          |
|                                                   |       |     |       |     |       |
| Net income as adjusted                                 |       | $        | 548        |     | $          | 4,084 |   |

 

----

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

(A) Tax obligations,including interest and penalties

During the years 2001through March 31, 2005, certain Brazilian Municipal and Federal taxes totalingapproximately $5.3 million were collected and accrued but not paid. As aresult, we incurred accumulated interest of approximately $1.6 million, plusapproximately $0.9 million in penalties as of March 31, 2005. Our restatedconsolidated condensed statements of operations reflect the recognition ofinterest and penalties in the prior period incurred based on laws andregulations in effect at the time.

(B) Deferred expenserecognition

The subsidiary improperly deferred expense recognition of certainpayments. These payments should have been recorded as expense when incurredrather than deferred.

8

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(C) Errors in revenuerecording

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

(D) Intentionalfalsification of financial results

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

(E) Other

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

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

The functional currencyof our Brazilian subsidiary is the Brazilian Real. The restatement adjustmentspresented in our prior period financial statements were recorded using theforeign currency exchange rates in effect in the applicable period. The assetsand liabilities are subsequently adjusted for fluctuations in foreign currencyexchange rates from the date of the original transaction to the balance sheetdate. Translation gains and losses resulting from the revaluation of the assetsand liabilities of the foreign subsidiary to US dollars is included in othercomprehensive income, a component of stockholders’ equity. The cumulativeeffect of foreign currency exchange rate fluctuations from the restatementadjustments was a decrease in stockholders’ equity of $0.6 million as of March31, 2005 and December 31, 2004.

**Thefollowing items in the Consolidated Statements of Operations, ConsolidatedBalance Sheets and Consolidated Statements of Cash Flows have been restated asfollows based on the items noted above.**

9

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| ** **                                               | ** ** | **Quarter Ended March 31, 2005** | ** ** | **Quarter Ended March 31, 2004** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                               | ** ** | **As previously**                               | ** ** | **As**                                               | ** ** | **As previously** | ** ** | **As** | ** ** |
| ** **                                               | ** ** | **reported**                                         | ** ** | **restated**                                         | ** ** | **reported** | ** ** | **restated** | ** ** |
| *Consolidated  Statements of Operations:*                | * *   | * *                                             | * *   | * *                                             | * *   | * * | * * | * * | * * |
| Revenue                                                  |       | $                                                    | 251,169    |                                                 | $          | 250,892 |   | $ | 244,068 |   | $ | 244,027 |   |
| Direct labor and  telecommunications expense             |       | 152,476                                              |       | 152,450                                              |       | 144,128 |   | 144,083 |   |
| Subcontracted  and other services expenses               |       | 12,888                                               |       | 12,880                                               |       | 12,815 |   | 12,815 |   |
| Operating,  selling and administrative expenses          |       | 80,003                                               |       | 80,239                                               |       | 76,839 |   | 77,519 |   |
| Total operating  expenses                                |       | 245,367                                              |       | 245,569                                              |       | 233,782 |   | 234,417 |   |
| Operating income  (loss)                                 |       | 5,802                                                |       | 5,323                                                |       | 10,286 |   | 9,610 |   |
| Interest expense                                         |       | (2,857                                               | )          | (3,162                                               | )          | (3,233 | ) | (3,450 | ) |
| Interest income                                          |       | 120                                                  |       | 120                                                  |       | 121 |   | 118 |   |
| Other income  (expense), net                             |       | (10                                                  | )          | (10                                                  | )          | (274 | ) | (260 | ) |
| Total other  expense, net                                |       | (2,854                                               | )          | (3,159                                               | )          | (3,393 | ) | (3,599 | ) |
| Income (loss)  before income taxes and minority interest |       | 2,948                                                |       | 2,164                                                |       | 6,893 |   | 6,011 |   |
| Income tax  expense (benefit)                            |       | 1,139                                                |       | 1,258                                                |       | 1,853 |   | 1,715 |   |
| Minority  Interest                                       |       | 360                                                  |       | 358                                                  |       | 214 |   | 212 |   |
| Net income  (loss)                                       |       | 1,449                                                |       | 548                                                  |       | 4,826 |   | 4,084 |   |
| Income (loss)  per share:                                |       |                                                 |       |                                                 |       |   |   |   |   |
| Basic and  Diluted                                       |       | $                                                    | 0.02       |                                                 | $          | 0.01 |   | $ | 0.07 |   | $ | 0.06 |   |

 
| ** **                                            | ** ** | **As of March 31, 2005** | ** ** | **As of December 31, 2004** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                            | ** ** | **As previously**                       | ** ** | **As**                                          | ** ** | **As previously** | ** ** | **As** | ** ** |
| ** **                                            | ** ** | **reported**                                 | ** ** | **restated**                                    | ** ** | **reported** | ** ** | **restated** | ** ** |
| *Consolidated  Balance Sheets:*                       | * *   | * *                                     | * *   | * *                                        | * *   | * * | * * | * * | * * |
| Cash and cash  equivalents                            |       | $                                            | 34,980     |                                            | $          | 34,862 |   | $ | 28,906 |   | $ | 29,130 |   |
| Trade accounts  receivable                            |       | 193,975                                      |       | 194,622                                         |       | 191,391 |   | 192,204 |   |
| Prepaid expenses  and other assets                    |       | 16,154                                       |       | 16,850                                          |       | 15,859 |   | 16,416 |   |
| Deferred income  taxes                                |       | 2,033                                        |       | 1,918                                           |       | 1,313 |   | 1,251 |   |
| Total current  assets                                 |       | 247,142                                      |       | 248,252                                         |       | 237,469 |   | 239,001 |   |
| Property and  equipment, net                          |       | 81,959                                       |       | 81,798                                          |       | 86,057 |   | 85,934 |   |
| Other assets                                          |       | 5,566                                        |       | 5,566                                           |       | 8,420 |   | 8,386 |   |
| Deferred income  taxes                                |       | 777                                          |       | 578                                             |       | 843 |   | 1,360 |   |
| Total assets                                          |       | 399,230                                      |       | 399,980                                         |       | 397,531 |   | 399,423 |   |
| Revolving credit  facility and other current debt     |       | 37,338                                       |       | 38,567                                          |       | 18,802 |   | 19,712 |   |
| Current portion  of capital lease obligations         |       | 3,302                                        |       | 3,608                                           |       | 3,202 |   | 3,435 |   |
| Trade accounts  payable                               |       | 15,895                                       |       | 15,948                                          |       | 32,595 |   | 29,318 |   |
| Accrued wages,  salaries and bonuses                  |       | 54,033                                       |       | 54,034                                          |       | 43,641 |   | 50,273 |   |
| Accrued  operating expenses                           |       | 38,793                                       |       | 44,452                                          |       | 46,533 |   | 48,644 |   |
| Deferred revenue  and other                           |       | 7,249                                        |       | 7,249                                           |       | 8,816 |   | 8,892 |   |
| Income taxes  payable                                 |       | 102                                          |       | 141                                             |       | 1,107 |   | 1,107 |   |
| Total current  liabilities                            |       | 246,712                                      |       | 253,999                                         |       | 154,696 |   | 161,381 |   |
| Long-term debt,  excluding current portion            |       | —                                       |       | 926                                             |       | 90,000 |   | 91,020 |   |
| Capital lease  obligations, excluding current portion |       | 7,775                                        |       | 7,829                                           |       | 8,393 |   | 8,510 |   |
| Other  liabilities                                    |       | 10,907                                       |       | 11,727                                          |       | 8,949 |   | 9,788 |   |
| Deferred income  taxes                                |       | 204                                          |       | 204                                             |       | 205 |   | 883 |   |
| Total  liabilities                                    |       | 265,598                                      |       | 274,685                                         |       | 262,243 |   | 271,582 |   |
| Minority Interest                                     |       | 2,989                                        |       | 2,969                                           |       | 2,629 |   | 2,611 |   |
| Accumulated  other comprehensive income (loss)        |       | 4,845                                        |       | 4,237                                           |       | 8,342 |   | 7,721 |   |
| Accumulated  deficit                                  |       | (42,162                                      | )          | (49,871                                         | )          | (43,611 | ) | (50,419 | ) |
| Total  stockholders’ equity                      |       | 130,643                                      |       | 122,326                                         |       | 132,659 |   | 125,230 |   |
| Total liabilities and  stockholders’ equity      |       | 399,230                                      |       | 399,980                                         |       | 397,531 |   | 399,423 |   |
|                                                       |            |                                              |            |                                                 |            |  |  |  |  |  |  |  |  |

10

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|                                           | ** ** | **Quarter Ended March 31, 2005** | ** ** | **Quarter Ended March 31, 2004** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                | ** ** | **As previously**                               | ** ** | **As**                                               | ** ** | **As previously** | ** ** | **As** | ** ** |
| ** **                                | ** ** | **reported**                                         | ** ** | **restated**                                         | ** ** | **reported** | ** ** | **restated** | ** ** |
| *Consolidated  Statements of Cash Flows:* | * *   | * *                                             | * *   | * *                                             | * *   | * * | * * | * * | * * |
| Operating  activities                     |       | $                                                    | (8,310     | )                                                    | $          | (8,936 | ) | $ | 6,292 |   | $ | 6,396 |   |
| Investing  activities                     |       | (3,324                                               | )          | (3,379                                               | )          | (5,458 | ) | (5,464 | ) |
| Financing activities                      |       | 18,267                                               |       | 18,416                                               |       | (2,051 | ) | (2,349 | ) |
|                                           |            |                                                      |            |                                                      |            |  |  |  |  |  |  |  |  |

 

**Note3. Comprehensive Income**

Comprehensive income for the three months ended March 31, 2005 and 2004is as follows (in thousands):

 
|                                     | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **March 31,**               | ** ** |
| ** **                          | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| ** **                          | ** ** | **(As restated)**           | ** ** | **(As restated)** | ** ** |
|                                |       |                             |       |   |   |
| Net income                          |       | $                                | 548        |   | $ | 4,084 |   |
| Other  comprehensive income (loss): |       |                             |       |   |   |
| Currency translation adjustment     |       | (3,484                           | )          | 26 |   |
| Comprehensive income  (loss)        |       | $                                | (2,936     | ) | $ | 4,110 |   |

 

Accumulated othercomprehensive income included in our consolidated condensed balance sheetsrepresents the accumulated foreign currency translation adjustment.

**Note 4. Asset Impairment and Restructuring Expenses**

Thefollowing table summarizes activity in our restructuring liabilities for thethree months ended March 31, 2005:
|                    | ** ** | ** **    | ** ** | **Facility**        | ** ** | ** ** | ** ** |
|--------------------|------------|---------------|------------|---------------------|------------|------------|------------|
| ** **         | ** ** | ** **    | ** ** | **Closure or** | ** ** | ** ** | ** ** |
| ** **         | ** ** | **Severance** | ** ** | **Reduction**       | ** ** | **Total**  | ** ** |
|               |       |          |       |                |       |       |       |
| December 31,  2004 |       | $             | 4.2        |                | $          | 5.9        |       | $ | 10.1 |   |
| Expensed           |       | —        |       | —              |       | —     |       |
| Paid               |       | (1.5          | )          | (1.1                | )          | (2.6       | )          |
| Other              |       | 0.1           |       | (0.5                | )          | (0.4       | )          |
| March 31, 2005     |       | $             | 2.8        |                | $          | 4.3        |       | $ | 7.1 |   |

 

Other changes in theaccrued restructuring expenses represent the impact of foreign currencyfluctuations.

We expect to pay the employee compensationrestructuring liabilities during 2005. The Company expects to utilize theremaining facility closure or reduction restructuring liabilities over therespective lease periods through fiscal 2009.

**Note 5. Investments in Affiliates**

We have made minorityinterest investments for business and strategic purposes through the purchaseof voting common and preferred stock of companies.  We periodically evaluate whether declines infair value, if any, of our investments are other-than-temporary. Thisevaluation consists of a review of qualitative and quantitative factors. Wealso consider other factors to determine whether declines in fair

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value areother-than-temporary, such as the investee’s financial condition, results ofoperations and operating trends. We also consider the implied value from anyrecent rounds of financing completed by the investee.

Subcontractedexpenses for services provided by our India joint venture for the three-monthperiods ended March 31, 2005 and 2004 were $4.0 million and $3.4 million,respectively.  The Company had payablesto our India joint venture of $3.0 million at March 31, 2005 and December 31,2004, which are included in trade accounts payable in the accompanyingconsolidated condensed balance sheets.

Subcontractedservices provided by our Latin America joint venture for the three-monthperiods ended March 31, 2005 and 2004 were not material.

**Note 6. Stock-Based Compensation**

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

Vesting terms vary with eachgrant, and option terms may not exceed ten years. Option prices, set by theCompensation Committee of the Board of Directors, may not be less than the fairmarket value at date of grant for incentive stock options or less than parvalue for nonqualified stock options. At March 31, 2005, there wereapproximately 5.8 million shares available for issuance pursuant to futuregrants under the 1999 Plan.

Prior to the adoption of the 1999 Plan, we grantedoptions under several different plans. As of March 31, 2005, options grantedunder these plans aggregating 2.3 million remained outstanding with strikeprices ranging from $2.41 to $19.50.  Thelast of these options will expire on February 1, 2009. We will not grantadditional options under these plans. The following table sets forth sharessubject to options:
|                          | ** ** | ** **         | ** ** | **Weighted-Average**    | ** ** |
|--------------------------|------------|--------------------|------------|-------------------------|------------|
| ** **               | ** ** | **Number of** | ** ** | **Exercise Price** | ** ** |
| ** **               | ** ** | **Options**        | ** ** | **per Share**      | ** ** |
|                     |       |               |       |                    |       |
| Balance January  1, 2005 |       | 6,808,736          |       | $                       | 3.68       |   |
| Granted                  |       | —             |       | —                  |       |
| Exercised                |       | (4,200             | )          | 1.33                    |       |
| Canceled                 |       | (154,546           | )          | 3.89                    |       |
| Balance March 31, 2005   |       | 6,649,990          |       | $                       | 3.58       |   |

 

The options exercisable at the end of each period were:

 
|                    | ** ** | ** **         | ** ** | **Weighted-Average**    | ** ** |
|--------------------|------------|--------------------|------------|-------------------------|------------|
| ** **         | ** ** | **Number of** | ** ** | **Exercise Price** | ** ** |
| ** **         | ** ** | **Options**        | ** ** | **per Share**      | ** ** |
| December 31,  2004 |       | 3,716,345          |       | $                       | 4.28       |   |
| March 31, 2005     |       | 3,882,712          |       | $                       | 4.04       |   |

12

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The following tablesummarizes stock options outstanding at March31, 2005:
|                          | ** ** | ** **      | ** ** | **Weighted-Average** | ** ** | **Weighted-Average** | ** ** |
|--------------------------|------------|-----------------|------------|----------------------|------------|----------------------|------------|
| **Range of**        | ** ** | **Number**      | ** ** | **Remaining**        | ** ** | **Exercise**         | ** ** |
| **Exercise Prices** | ** ** | **Outstanding** | ** ** | **Life**             | ** ** | **Price**            | ** ** |
| $1.24 to $1.75           |       | 732,884         |       | 7.8                  |       | $                    | 1.56       |   |
| $1.76 to $4.00           |       | 4,601,187       |       | 4.9                  |       | $                    | 3.08       |   |
| $4.01 to $6.33           |       | 709,184         |       | 4.0                  |       | $                    | 4.84       |   |
| $6.34 to $7.22           |       | 425,525         |       | 4.7                  |       | $                    | 6.70       |   |
| $7.23 to $12.66          |       | 121,210         |       | 2.9                  |       | $                    | 9.78       |   |
| $12.67 to $20.00         |       | 60,000          |       | 2.0                  |       | $                    | 17.35      |   |

 

The following table summarizes stock options exercisable at March 31,2005:
|                          | ** ** | ** **      | ** ** | **Weighted-Average** | ** ** |
|--------------------------|------------|-----------------|------------|----------------------|------------|
| **Range of**        | ** ** | **Number**      | ** ** | **Exercise**         | ** ** |
| **Exercise Prices** | ** ** | **Exercisable** | ** ** | **Price**            | ** ** |
| $1.24 to $1.75           |       | 329,984         |       | $                    | 1.55       |   |
| $1.76 to $4.00           |       | 2,271,169       |       | $                    | 3.02       |   |
| $4.01 to $6.33           |       | 676,034         |       | $                    | 4.83       |   |
| $6.34 to $7.22           |       | 425,525         |       | $                    | 6.70       |   |
| $7.23 to $12.66          |       | 120,000         |       | $                    | 9.75       |   |
| $12.67 to $20.00         |       | 60,000          |       | $                    | 17.35      |   |

 

**Note 7. Contingencies**

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

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

*BankruptcyOP Computers SPA vs. SITEL Kingston Limited* (now known as Mitre Telesales Limited) wasfiled in April 2004 in the Court of Ivrea in Milan, Italy.  The receivers assert that Mitre, as a formersupplier to Olivetti, is required under Italian bankruptcy law to return€5,349,025 (approximately $6.9 million) in payments Olivetti had allegedly paidMitre during a one-year “clawback” period, which allegedly runs from March 9,1998 until March 9, 1999, the alleged date Olivetti filed forreceivership.  Mitre filed its Defencewith the court in November 2004.  TheDefence outlined the facts and reasons why Mitre did not and should notreasonably have known of Olivetti’s insolvent state during the time that Mitrewas performing services for Olivetti. The first substantive hearing held in May 2005 was adjourned to November2005.  The Company and its subsidiaryMitre Telesales Limited are currently unable to predict the outcome orreasonably estimate the possible loss, if any, or range of losses associatedwith this claim.

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,

13

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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.

**Note 8. Earnings Per Share**

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

Thedifference between the number of shares used to calculate basic and dilutedearnings per share represents the number of shares assumed to be issued fromthe exercise of dilutive stock options under our stock option plans, lessshares assumed to be purchased with proceeds from the exercise of the stockoptions and the related tax benefits. At March 31, 2005 and 2004, we had6.0 million and 5.8 million options, respectively, which have been excludedfrom the diluted net income per share computation because their exercise priceexceeds the fair market value.

**Note 9. Senior Subordinated Notes**

Our 9.25% SeniorSubordinated Notes (the Notes) are due in March 2006.  As the Notes are due within one year, theCompany has reclassified the remaining $90.0 million of outstanding bonds to acurrent liability as of March 31, 2005. We are currently in the process ofrefinancing the Notes and our Revolving Credit Facility.

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

##### **General**

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

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

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

As described in Note 2 ofthe consolidated condensed financial statements, SITEL Corporation has restatedits previously filed consolidated financial statements as of March 31, 2005 andDecember 31, 2004, and for the quarters ended March 31, 2005 and 2004 includedin its Quarterly Report on Form 10-Q for the quarter ended March 31, 2005,which was filed with the Securities and Exchange Commission on May 10,2005.  We identified errors in ourfinancial statements related to accounting irregularities identified atour Brazilian subsidiary including interestand penalties on unpaid tax obligations; deferred recognition of expenses;errors in revenue recording; intentional falsification of financial results;and intentional misclassification of recorded amounts.

We also recorded other adjustments that werepreviously deemed immaterial.

As a result of the errors referred to above,the net income for the quarters ended March 31, 2005 and 2004 was overstated by$0.9 million and $0.7 million, respectively.

As you read this discussion and analysis, refer to our ConsolidatedCondensed Statements of Operations, which present the results of our operationsfor the three-month periods ended March 31, 2005 and 2004, and are summarizedon the following pages. We analyze and explain the differences between periodsfor the components of net income in the following sections. Our analysis isimportant in making decisions about your investment in SITEL Corporation.

During 2004, we initiated a profit improvement plan comprised of a setof initiatives.  These initiativesinclude a plan to rationalize underutilized facilities, eliminate losses frombusiness units that are underperforming, right size support functions to betterutilize human and physical assets, reduce and further leverage IT andtelecommunication costs, and improve the operating performance of all of ourfacilities through enhanced efficiency. We will continue to focus on ourperformance-based pricing initiatives, invoice and contract management, andstatement of work change controls.

##### **General Business Risks and CriticalAccounting Policies and Estimates**

**General BusinessRisks**

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

Our results of operations and operating cash flowsmay vary with periodic wins and losses of client contracts and with changes inthe scope of client requirements. Our******top20 clients accounted for 68.9% and 68.3% of our revenue in the three-monthperiods ended March 31, 2005 and 2004, respectively, and include multiple independently managed businessunits within the client’s affiliated group. Hewlett-Packard Company business units were responsible for 12.4%and 11.6% of our revenue for the three-month period ended March 31, 2005 and2004.  General Motors Corporation(General Motors) business units were responsible for 12.2% and 17.3% of our totalrevenue in the three-month periods ended March 31, 2005

15

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and 2004. On April21, 2004, we announced the signing of a new contract with General Motors tocontinue to provide customer support services for General Motors’ NorthAmerican Vehicle Sales, Service, and Marketing Group through December 31, 2005.An existing agreement under which we supported OnStar operations terminatedeffective June 22, 2004.  The financial failure of any of these clients orthe loss of any or all of their business could have an adverse impact on ouroperating results.

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

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

**CriticalAccounting Policies and Estimates**

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

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

***Revenue Recognition***

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

***Trade Accounts Receivable***

We report our tradeaccounts receivable net of an allowance for doubtful accounts, which representsmanagement’s estimates of the amount of our receivables that may not becollectible, net of recoveries of amounts previously written off. Theseestimates are based on a detailed aging analysis of accounts receivable,historical bad debts, client credit-worthiness, and changes in our clientpayment terms. The financial condition of our clients may deteriorate, whichmay require us to increase our allowance for doubtful accounts. We would recordan increase in the allowance for doubtful accounts as operating, selling, andadministrative expense in our consolidated statements of operations, whichwould 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 generally range from 2 to25 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.

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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 the estimatednet future cash flows that we expect to recover from the future use of theasset, undiscounted and without interest, plus the asset’s residual value ondisposal. Where the recoverable amount of the long-lived asset is less than thecarrying value, an impairment loss would be recognized to write down the assetto its fair value, which is based on discounted estimated cash flows from thefuture use of the asset.

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

***Goodwill***

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

***Deferred Income Taxes***

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

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

***Self-Insurance Reserves***

We are self-insured inNorth America for workers’ compensation and health care claims for eligibleparticipating employees, subject to certain deductibles and limitations. Thecosts include an estimate of expected settlements on pending claims and aprovision for claims incurred but not reported. These estimates are based onour assessment of potential liability using an analysis of availableinformation with respect to pending claims, historical experience, and currentcost trends. Actual claims results could differ from these estimates.

***Contingencies***

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

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**Resultsof Operations**

##### **For the Three Months Ended March 31, 2005Compared to the Same Period of 2004**

In this section, we discuss our operating results and the factorsaffecting them. We describe our general business risks, critical accountingpolicies, and estimates that are important to our operating results on theprevious pages.  Please refer to thatdiscussion as you read this section.

**Components of Operations**

The following tablesummarizes our statement of operations data on a percentage-of-revenue basis.
| ** **                                            | ** ** | **Three Months Ended March 31,** | ** **  |
|-------------------------------------------------------|------------|------------------------------------------------------|-------------|
| ** **                                            | ** ** | **2005**                                             | ** **  | **2004** | ** ** |
| ** **                                            | ** ** | **$**                                                | ** **  | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                            | ** ** | **(As Restated)**                               | ** **  | **(As Restated)** | ** ** |
| ** **                                            | ** ** | **(in thousands)**                              | ** **  |
|                                                  |       |                                                 |        |
| **Revenue**                                           | ** ** | **$**                                                | **250,892** |   | 100.0 | % | $ | 244,027 |   | 100.0 | % |
|                                                  |       |                                                 |        |   |   |   |   |   |   |
| Direct labor and  telecommunications expenses         | ** ** | **152,450**                                          |        | 60.8 | % | 144,083 |   | 59.0 | % |
| Subcontracted  and other services expenses            | ** ** | **12,880**                                           |        | 5.1 | % | 12,815 |   | 5.3 | % |
| Operating,  selling and administrative expenses       | ** ** | **80,239**                                           |        | 32.0 | % | 77,519 |   | 31.8 | % |
| **Operating  income**                                 | ** ** | **5,323**                                            |        | 2.1 | % | 9,610 |   | 3.9 | % |
|                                                  |       |                                                 |        |   |   |   |   |   |   |
| Interest expense                                      | ** ** | **(3,162**                                           | **)**       | -1.3 | % | (3,450 | ) | -1.4 | % |
| Interest income                                       | ** ** | **120**                                              |        | 0.0 | % | 118 |   | 0.0 | % |
| Equity in  earnings (loss) of affiliates              | ** ** | **(107**                                             | **)**       | 0.0 | % | (7 | ) | 0.0 | % |
| Other expense,  net                                   | ** ** | **(10**                                              | **)**       | 0.0 | % | (260 | ) | -0.1 | % |
| **Income  before income taxes and minority interest** | ** ** | **2,164**                                            |        | 0.9 | % | 6,011 |   | 2.5 | % |
|                                                  |       |                                                 |        |   |   |   |   |   |   |
| Income tax  expense                                   | ** ** | **1,258**                                            |        | 0.5 | % | 1,715 |   | 0.7 | % |
| Minority  interest                                    | ** ** | **358**                                              |        | 0.1 | % | 212 |   | 0.1 | % |
|                                                  |       |                                                 |        |   |   |   |   |   |   |
| **Net Income**                                        | ** ** | **$**                                                | **548**     |   | 0.2 | % | $ | 4,084 |   | 1.7 | % |

 

***Revenue***

Revenue increased $6.9 million, or 2.8%, in the first quarter of 2005compared to the same period of 2004.  Thechanges in revenue by geographic region are shown in the following table:
| Three months             | ** ** | ** **             | ** ** | ** **             | ** ** | **$**      | ** ** | **%**      | ** ** |
|-------------------------------|------------|------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| **Ended March 31,** | ** ** | **2005**               | ** ** | **2004**               | ** ** | **Change** | ** ** | **Change** | ** ** |
| ** **                    | ** ** | **(As Restated)** | ** ** | **(As Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **(in millions)** | ** ** |
|                          |       |                   |       |                   |       |       |       |       |       |
| North America                 | ** ** | **$**                  | **122.9**  |                   | $          | 129.2      |       | $          | (6.3       | ) | -4.9 | % |
| Europe                        | ** ** | **107.9**              |       | 98.5                   |       | 9.4        |       | 9.5        | %          |
| Asia Pacific                  | ** ** | **12.3**               |       | 9.7                    |       | 2.6        |       | 26.8       | %          |
| Latin America                 | ** ** | **7.8**                |       | 6.6                    |       | 1.2        |       | 18.2       | %          |
| Totals                        | ** ** | **$**                  | **250.9**  |                   | $          | 244.0      |       | $          | 6.9        |   | 2.8 | % |

 

North American revenue decreased $6.3 million dueto a $14.0 million decrease in customer acquisition, customer care and riskmanagement business partially offset by a $7.7 million increase in technicalsupport services.

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European revenue increased $9.4 million in the first quarter of 2005 compared to the same period in 2004. Highersales volumes from new and existing clients resulted in an increase in revenueof $4.7 million in the first quarter of 2005 compared to the same period in2004.  The weakening of the U.S. dollarversus the British pound and Euro accounted for the remaining $4.7 million ofthe increase.

The weakening of the US dollar versus the NewZealand and Australia dollars accounted for $0.5 million of the increase inAsia Pacific revenue.  The remainingincrease was the result of higher sales volumes from new and existing clients.

Latin American revenue increased $0.6 million as a result of theweakening of the US dollar versus the Brazilian Real.  The remaining increase is a result of highersales volumes from new and existing clients.

***Direct Labor andTelecommunications Expenses***

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

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

Direct labor and telecommunications expensesincreased $8.4 million, or 5.8%, in the first quarter of 2005 compared to thesame period of 2004.  As a percentage ofrevenue, direct labor and telecommunications expenses increased to 60.8%in the first quarter of 2005 compared to 59.0% in same period in 2004. Theincrease was primarily the result of higher direct labor costs, particularly inEurope, and a change in the mix of services provided in the first quarter of2005 compared to the same period in 2004.

***Subcontracted and Other ServicesExpenses***

Subcontracted and other services expenses includeservices provided to clients through subcontractors and other out-of-pocketexpenses. Subcontracted and other services expenses remained consistent for thefirst quarter of 2005 compared to the same period of 2004.

Subcontracted expenses for services provided byour India joint venture for the three months ended March 31, 2005 and 2004 were$4.0 million and $3.4 million, respectively.

***Operating, Selling andAdministrative Expenses***

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

Operating, selling and administrative expensesincreased $2.7 million, or 3.5%, in the first quarter of 2005 comparedto the same period of 2004.  The weakening of the U.S. dollar compared tothe primary currency in the jurisdictions that we operate accounted for anincrease of $2.4 million in operating, selling and administrative expensescompared to the same period in 2004.  Asa percentage of revenue, operating, selling and administrative expensesincreased to 32.0% in the first quarter of 2005 compared to 31.8% in the firstquarter of 2004.

***Operating Income***

Operating income decreased $4.3 million in thefirst quarter of 2005 compared to the same period of 2004. As a percentage of revenue, operating incomedecreased to 2.1% in the first quarter of 2005 compared to 3.9% in the sameperiod of 2004 due to the factors discussed above.

***Interest Expense***

Interest expense decreased $0.3 million or 8.3% in the first quarter of2005 compared to the same period in 2004 primarily as a result of the decreasein the outstanding Senior Subordinated Notes from $100 million during the firstquarter of 2004 to $90 million for the same period in 2005.

***Interest Income***

Interest income remained consistent for the first quarter of 2005compared to the same period in 2004.

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***Equity in Earnings (Loss) ofAffiliates***

Equityin losses of affiliates increased by $0.1million in the first quarter of 2005as compared to the same period in 2004.

***Other Expense, Net***

Other expense, net of other income, decreased $0.3 million in the firstquarter of 2005 as compared to the same period in 2004.

***Income Tax Expense***

Incometax expense as a percentage of income before income taxes and minority interestwas 58.1% and 28.5% for the three-months ended March 31, 2005 and 2004,respectively. The difference betweenthese rates and the statutory U.S. Federal rate of 35% was primarily due to theutilization of net operating loss carryforwards in certain subsidiaries forwhich a full valuation allowance had previously been provided against the netdeferred tax asset and due to income tax expense incurred in certain non-USsubsidiaries.

**Financial Condition andLiquidity**

In this section, wediscuss our financial condition and liquidity and the factors affecting them.We separately discuss cash flows, capital resources, and contractualobligations and commitments. We describe our general business risks, criticalaccounting policies, and estimates that are important to our financialcondition and liquidity earlier in this report. Please refer to that discussionas you read this section.

# **Cash Flows**

Thefollowing table provides 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.
| Three Months Ended March 31, | ** ** | **2005**                | ** ** | **2004**               | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                       | ** ** | **(As restated)**  | ** ** | **(As restated)** | ** ** |
| ** **                                       | ** ** | **(in thousands)** | ** ** |
| ** **                                       |       |                    |       |                   |       |
| **Net  cash flows from:**                        |       |                    |       |                   |       |
| Operating activities                             |       | $                       | (8,936     | )                      | $          | 6,396 |   |
| Investing activities                             |       | (3,379                  | )          | (5,464                 | )          |
| Financing  activities                            |       | 18,416                  |       | (2,349                 | )          |
|                                                  |            |                         |            |                        |            |  |  |

 

**2005**

In the first quarter of 2005, cash used by operatingactivities resulted primarily from income before depreciation and amortization andother charges of $9.3 million, which was offset by a $7.7 million increase intrade accounts receivable and other assets and a $10.6 million decrease intrade accounts payable and other liabilities.

In the first quarter of 2005, weused cash for investing activities to purchase $6.7 million of property andequipment.  This was partially offset by$3.3 million in proceeds from the cash surrender value of life insurance.

In the first quarter of 2005,cash provided by financing activities resulted from $19.3 million in netborrowings under the revolving credit facility and other short-termborrowings.  This was partially offset bycash used to repay borrowings under capital lease obligations of $0.9 million.

**2004**

Inthe first quarter of 2004, cash provided by operating activities resultedprimarily from income before depreciation and amortization of $13.6 million anda $6.4 million increase in other liabilities, which were partially offset by a$9.6 million increase in trade accounts receivable and $4.0 million decrease intrade accounts payable.

Inthe first quarter of 2004, we used cash for investing activities to purchase$5.5 million of property and equipment.

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In the first quarter of 2004, weused cash for financing activities to repay $4.6 million of the revolvingcredit facility, net of additional borrowings of $4.1 million. Additionally, weused cash to repay borrowings under locallines of credit and capital leaseobligations of $1.2 million and $0.7 million, respectively.

***Capital Resources***

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

We have a three-year $50 million revolving creditfacility that expires in December 2005. The credit facility is secured by accounts receivable in the UnitedStates, Canada and the United Kingdom. We intend to utilize the facility, as needed, for ongoing workingcapital requirements and general corporate purposes. At March 31, 2005, we had$30.3 million of available borrowings under the credit facility, and we were incompliance with all financial covenants of the facility.

Our 9.25% Senior SubordinatedNotes (the Notes) are due in March 2006. As the Notes are due within one year, the Company has reclassified theremaining $90.0 million of outstanding bonds to a current liability as of March31, 2005. We are currently in the process of refinancing the Notes and ourRevolving Credit Facility.

We expect to finance our currentoperations, planned capital expenditures, and internal growth for theforeseeable future using funds generated from operations, existing cash andavailable funds under our credit facility in addition to lease financing forproperty and equipment. We expect capital expenditures in the secondquarter of 2005 to be in the range of $10 million to $12 million, as wecontinue to cover maintenance and technology upgrades, asset replacements,efficiency investments, and investment for continued growth. Future acquisitions, if any, may requireadditional debt or equity financing.

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

# **Contractual Obligations and Commitments**

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

·            $90.0 million of Senior Subordinated Notes asshown in our consolidated condensed balance sheet at March 31, 2005,

·            $38.6 million of revolving credit facility andother local short-term borrowings debt as shown in our consolidated condensedbalance sheet at March 31, 2005,

·            $0.9 million of long-term debt, excluding currentportion as shown in our consolidated condensed balance sheet at March 31, 2005,

·            $11.4 million of capital lease obligations asshown in our consolidated condensed balance sheet at March 31, 2005, and

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

**Off-BalanceSheet Arrangements**

Wedo not have any obligations that meet the definition of an off-balance sheetarrangement and that have or are reasonably likely to have a material effect onour consolidated financial statements.

**Other Matters**

***Quarterly Results and Seasonality***

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

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

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

·                  revenue mix,

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

·                  the timing of recognition of incentive fees.**

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We experience periodic fluctuations in our results of operationsrelated to both the start-up costs associated with expansion and theimplementation of clients’ outsourced customer management activities. Inaddition, our business generally tends to 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 PartyTransactions***

We have made minority interest investments forbusiness and strategic purposes through the purchase of voting common andpreferred stock of companies.  Theseinvestments are included in investments in affiliates in consolidated financialstatements.  As of March 31, 2005 andDecember 31, 2004, the investment in our India joint venture was approximately$3.8 million and $4.1 million respectively. Subcontracted services provided byour India joint venture for the three months ended March 31, 2005 and 2004 were$4.0 million and $3.4 million, respectively and are included in subcontractedand other services expenses in the accompanying consolidated statements ofoperations. The Company had payables to our India joint venture of $3.0 millionat March 31, 2005 and December 31, 2004, which are included in trade accountspayable in the consolidated financial statements.

As of March 31, 2005 andDecember 31, 2004, the investment in certain Latin America affiliates wasapproximately $12.4 million. Of the $12.4 million investment in certain LatinAmerica affiliates, approximately $7.7 million is equity method goodwill. Thisequity method goodwill is not amortized. Subcontracted services provided by our Latin America joint ventures forthe three months ended March 31, 2005 and 2004 were not material.

***Recently IssuedAccounting Pronouncements***

In December 2004, theFinancial Accounting Standards Board (FASB) issued SFAS No. 123 (R), *Share-Based Payment*, (SFAS 123R). Thisstandard will require the cost of employee compensation paid with equityinstruments to be measured based on grant-date fair values with the costrecorded as compensation expense over the period during which the employee isrequired to perform service in exchange for the award (generally over thevesting period of the award). The proforma disclosures previously permittedunder SFAS 123 no longer will be an alternative to financial statementrecognition. See “Stock-Based Compensation” in Note 1 to the consolidatedfinancial statements for the pro forma net income and net income per shareamounts, for the three months ended March 31, 2005 and 2004, as if we had useda fair-value-based method similar to the methods required under SFAS 123Rto measure compensation expense for employee stock incentive awards.  In March 2005, the Securities and ExchangeCommission (SEC) issued Staff Accounting Bulletin (SAB) No. 107,which expressed the views of the SEC regarding the interaction betweenSFAS 123R and certain SEC rules and regulations. SAB No. 107provides guidance related to the valuation of share-based payment arrangementsfor public companies, including assumptions such as expected volatility andexpected term.  In April 2005, theSEC approved a rule that delayed the effective date of SFAS 123R forpublic companies. As a result, SFAS 123R will be effective for the Companyin the first quarter of 2006 and will apply to all of our outstanding unvestedshare-based payment awards as of January 1, 2006 and all prospectiveawards.  Although we have not yetdetermined whether the adoption of SFAS 123R will result in amounts thatare similar to the current pro forma disclosures under SFAS 123, we areevaluating the requirements under SFAS 123R and expect the adoption tohave a significant impact on our consolidated statements of income and netincome per share.

In October 2004, TheAmerican Jobs Creation Act of 2004 (the Act) was signed into law. The Actcreates a temporary incentive for U.S. multinationals to repatriate accumulatedincome earned outside the U.S. In December 2004, the FASB issued FSP 109-2, *Accounting and Disclosure Guidance for the ForeignEarnings Repatriation Provision within the American Jobs Creation Act of2004. *FSP 109-2 provides additional time to companies beyondthe financial reporting period of enactment to evaluate the effects of the AJCAon their plans for repatriation of foreign earnings for purposes of applyingSFAS 109, *Accounting for Income Taxes*.The Company is currently evaluating the repatriation provisions of AJCA, whichif implemented would affect our tax provision and deferred tax assets andliabilities. Due to the complexity and uncertainty of applying the provisionsof the Act, the income tax effects of such repatriation cannot be reasonablyestimated at this time.

In January 2003, the FASBreleased Interpretation No. 46, *Consolidationof Variable Interest Entities, an Interpretation of ARB No. 51,*(FIN 46), which required that all primary beneficiaries of Variable InterestEntities (VIE) consolidate that entity. FIN 46 was effective immediately forVIE’s created after January 31, 2003 and to VIE’s in which an enterpriseobtained an interest after that date. It applied in the first fiscal year orinterim period beginning after June 15, 2003 to

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VIE’s in which anenterprise held a variable interest it acquired before February 1, 2003. InDecember 2003, the FASB published a revision to FIN 46 (FIN 46R) to clarifysome of the provisions of the interpretation and to defer the effective date ofimplementation for certain entities. The remaining provisions of FIN 46R wereeffective January 1, 2004.  The adoptionof FIN 46R had no impact on our consolidated financial statements.

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

***Foreign Currency Risk***

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

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

With respect totranslation risk, even though the fluctuations of currencies against the U.S.dollar can be substantial and therefore significantly impact comparisons withprior periods, the translation impact is included in accumulated othercomprehensive income, a component ofstockholders’ equity, and does not affect the underlying results ofoperations. Gains and losses related totransactions denominated in a currency other than the functional currency ofthe countries in which we operate including short-term intercompany accountsare 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 Senior Subordinated Notes and capital lease obligations are fixed, butrates on borrowings under our bank credit facility are variable. During thethree-month period ended March 31, 2005, our average borrowings under ourrevolving credit facility were $11.0 million. Based on our projected cash needs for the foreseeable future, we do notexpect that our exposure to changes in interest rates for these borrowings willhave a material impact on our interest expense.

***Investment Risk***

We do not use derivative financial or commodity instruments.  Our financial instruments included cash andcash equivalents, accounts receivable, accounts payable, current and long-termdebt.  Our cash and cash equivalents,accounts receivable, accounts payable, and current debt balances are short-termin nature and do not expose us to material investment risk.  Our Senior Subordinated Notes had a bookvalue of $90 million at March 31, 2005 and December 31, 2004.

**Item 4. Controls and Procedures**

Our management evaluated,with the participation of our Chief Executive Officer and our Chief FinancialOfficer, the effectiveness of our disclosure controls and procedures as of theend of the period covered by the Quarterly Report on Form 10-Q filed on May 10,2005. Based on that evaluation, our Chief Executive Officer and our ChiefFinancial Officer had concluded that our disclosure controls and procedureswere effective to ensure that information we are required to disclose inreports that we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms.  As a result of the subsequent discovery,discussed below, of a material weakness within our internal controls frameworkas it existed at March 31, 2005, our Chief Executive Officer and our ChiefFinancial Officer have concluded that our disclosure controls and procedureswere not effective to ensure that information we are required to disclose inreports that we file or submit under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin Securities and Exchange Commission rules and forms.

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

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

**Restatement**

Subsequently, during thefirst quarter of 2006, we identified a deficiency within our internal controlframework.  We determined that our previously reported consolidatedcondensed financial statements for the three months ended March 31, 2005 and2004 and our consolidated financial statements for the four years endedDecember 31, 2001 through December 31, 2004, required restatement. ThisForm 10-Q/A restates the March 31, 2005, interim financial statements for thecorrection of the error. Because the error resulted in the restatement ofpreviously issued financial statements, we determined the deficiency within ourinternal control framework to be a material weakness.

Refer to Note 2 to theconsolidated condensed financial statements for further information regardingthis restatement.

**PART II – OTHER INFORMATION**

**Item1. Legal Proceedings**

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

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

*BankruptcyOP Computers SPA vs. SITEL Kingston Limited* (now known as Mitre Telesales Limited) wasfiled in April 2004 in the Court of Ivrea in Milan, Italy.  The receivers assert that Mitre, as a formersupplier to Olivetti, is required under Italian bankruptcy law to return €5,349,025(approximately $6.9 million) in payments Olivetti had allegedly paid Mitreduring a one-year “clawback” period, which allegedly runs from March 9, 1998until March 9, 1999, the alleged date Olivetti filed for receivership.  Mitre filed its Defence with the court inNovember 2004.  The Defence outlined thefacts and reasons why Mitre did not and should not reasonably have known ofOlivetti’s insolvent state during the time that Mitre was performing servicesfor Olivetti.  The first substantivehearing held in May 2005 was adjourned to November 2005.  The Company and its subsidiary MitreTelesales Limited are currently unable to predict the outcome or reasonablyestimate the possible loss, if any, or range of losses associated with thisclaim.

Two of our clients have received letters from time to time containingan offer to license and suggesting that the clients might be infringing certainpatents related to computerized telephonic voice response systems without thelicense. The clients have indicated that if any infringement occurred theclient would seek contractual indemnity from us. In such an event, we wouldexpect to seek contractual indemnity from certain of our vendors. Any 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.

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**Item 5. OtherInformation**

**Forward-LookingStatements**

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

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

**Item 6. Exhibitsand Reports on Form 8-K**

(a)          Exhibits:

Exhibit No.

31.1    CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of theSarbanes-Oxley Act of 2002

31.2    CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of theSarbanes-Oxley Act of 2002

32.1    CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002

32.2    Certification Pursuant to 18 U.S.C. Section1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)         Reports on Form 8-K:

The Company filed a Current Report on Form 8-K datedFebruary 3, 2005, which reported under Items 2.02 and 9.01 the issuance of apress release. The press release was filed as an exhibit to the Form 8-K.

The Company filed a Current Report on Form 8-K datedFebruary 10, 2005, which reported under Items 2.02 and 9.01 the issuance of apress release. The press release was filed as an exhibit to the Form 8-K.

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### **SIGNATURE**

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

 

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**EXHIBITINDEX**

Exhibit No. 

31.1                           CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of theSarbanes-Oxley Act of 2002

31.2                           CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of theSarbanes-Oxley Act of 2002

32.1                           CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002

32.2                           CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002

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