UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JUNE 30, 2004

Commission File Number	Exact name of registrant as specified in its charter	IRS Employer Identification No.

1-12577	SITEL CORPORATION	47-0684333

MINNESOTA

(State or Other Jurisdiction of Incorporation or Organization)

7277 WORLD COMMUNICATIONS DRIVE OMAHA, NEBRASKA		68122
(Address of Principal Executive Offices)		(Zip Code)

(402) 963-6810

(Registrant’s Telephone Number, Including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o

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

YES ý NO o

COMMON STOCK, $.001 PAR VALUE – 74,433,629 SHARES OUTSTANDING AS OF JULY 31, 2004

PART I – Financial Information

	Item 1 –	Financial Statements

		Consolidated Condensed Statements of Income (Loss)
		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 4 –	Submission of Matters to a Vote of Security Holders

	Item 5 –	Other Information

	Item 6 –	Exhibits and Reports on Form 8-K

	Signature

	Exhibit Index

PART I - FINANCIAL INFORMATION

As described in Note 1 to the Consolidated Condensed Financial Statements of SITEL Corporation and subsidiaries (the Company), KPMG LLP (KPMG), the independent accountants for the Company, has advised the Company that, due to the ongoing status of an internal investigation by the Audit Committee of the Board of Directors into an incorrect calculation of performance bonus amount on a single client program at an operating site in one of our business units, KPMG is currently unable to complete its review under Statement of Auditing Standards No. 100, “Interim Financial Information” (SAS 100), of the unaudited Consolidated Condensed Financial Statements included in the Form 10-Q for the quarterly period ended June 30, 2004. The investigation is substantially complete, except for some confirmatory review of electronic documents. When such reviews have been completed, the Company intends to amend this Form 10-Q.

Item 1: Financial Statements

SITEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003

Revenue	$	240,055		$	204,566		$	484,123		$	398,661

Operating expenses:
Direct labor and telecommunications expenses	143,032			121,664			287,160			232,435
Subcontracted and other services expenses	13,022			12,904			25,837			26,554
Operating, selling and administrative expenses	76,922			70,711			153,762			136,387
Asset impairment and restructuring expenses	—			—			—			796
Total operating expenses	232,976			205,279			466,759			396,172

Operating income (loss)	7,079			(713		)	17,364			2,489

Other income (expense):
Interest expense	(3,099		)	(2,977		)	(6,332		)	(5,834		)
Interest income	121			103			242			236
Equity in earnings of affiliates	77			322			70			939
Other income (expense), net	(118		)	1,393			(392		)	735
Total other expense, net	(3,019		)	(1,159		)	(6,412		)	(3,924		)

Income (loss) before income taxes and minority interest	4,060			(1,872		)	10,952			(1,435		)

Income tax expense	1,331			1,269			3,183			1,439
Minority interest	210			102			424			308

Net income (loss)	$	2,519		$	(3,243	)	$	7,345		$	(3,182	)

Weighted average common shares outstanding:
Basic	73,670			74,072			73,652			74,165
Diluted	74,174			74,072			74,077			74,165

Earnings per share:
Basic	$	0.03		$	(0.04	)	$	0.10		$	(0.04	)
Diluted	$	0.03		$	(0.04	)	$	0.10		$	(0.04	)

See Notes to Consolidated Condensed Financial Statements.

SITEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands, except per share data)

	June 30, 2004			December 31, 2003
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	49,516		$	29,850
Trade accounts receivable (net of allowance for doubtful accounts of $2,196 and $3,088, respectively)	172,085			175,542
Prepaid expenses	10,168			10,072
Deferred income taxes	2,415			2,367
Other assets	6,038			7,364
Total current assets	240,222			225,195

Property and equipment, net	83,675			90,233

Other assets:
Goodwill	53,858			53,553
Deferred income taxes	8,805			8,724
Investment in affiliates	18,817			18,911
Other assets	7,415			8,139
Total assets	$	412,792		$	404,755

Liabilities and Stockholders’ Equity
Current liabilities:
Revolving credit facility and other current debt	$	24,570		$	22,894
Current portion of capital lease obligations	2,691			3,181
Trade accounts payable	32,296			30,582
Income taxes payable	314			628
Accrued wages, salaries and bonuses	40,790			38,817
Accrued operating expenses	35,455			37,823
Deferred revenue and other	7,740			6,884
Total current liabilities	143,856			140,809
Long-term debt and other liabilities:
Long-term debt, excluding current portion	100,000			100,000
Capital lease obligations, excluding current portion	8,368			8,684
Deferred compensation	1,236			1,389
Deferred income taxes	1,139			1,055
Total liabilities	254,599			251,937

Minority interests	2,293			1,869
Stockholders’ equity:
Common stock, voting, $.001 par value 200,000,000 shares authorized, 74,412,945 and 74,368,135 shares issued and outstanding, respectively	74			74
Additional paid-in capital	168,820			168,726
Accumulated other comprehensive income (loss)	(2,233		)	329
Accumulated deficit	(9,683		)	(17,044		)
Less treasury stock, at cost, 734,420 and 755,300 common shares, respectively	(1,078		)	(1,136		)

Total stockholders’ equity	155,900			150,949
Total liabilities and stockholders’ equity	$	412,792		$	404,755

See Notes to Consolidated Condensed Financial Statements.

SITEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Six Months Ended June 30,
	2004			2003

Cash flows from operating activities:
Net income (loss)	$	7,345		$	(3,182	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Asset impairment and restructuring provision	—			796
Depreciation and amortization	17,706			18,358
Loss on disposal of assets	27			20
Provision for deferred income taxes	(26		)	(13		)
Equity in earnings of affiliates	(70		)	(939		)
Impairment of equity investments	—			500
Changes in operating assets and liabilities:
Trade accounts receivable	(509		)	(15,137		)
Other assets	1,456			(986		)
Trade accounts payable	1,989			4,529
Other liabilities	2,821			4,116
Net cash flows from operating activities	30,739			8,062

Cash flows from investing activities:
Purchases of property and equipment	(10,546		)	(14,124		)
Investment in affiliates	(820		)	(1,000		)
Receipts on notes receivable	380			—
Proceeds from the sale of property and equipment	8			—
Net cash flows from investing activities	(10,978		)	(15,124		)

Cash flows from financing activities:
Borrowings on debt	9,945			12,383
Repayments of debt	(8,457		)	(6,060		)
Repayments of capital lease obligations	(1,551		)	(1,122		)
Treasury stock reissuances (repurchases), net	102			(835		)
Net cash flows from financing activities	39			4,366
Effect of exchange rates on cash	(134		)	51
Net increase (decrease) in cash	19,666			(2,645		)
Cash and cash equivalents, beginning of period	29,850			34,142
Cash and cash equivalents, end of period	$	49,516		$	31,497

Non-cash investing and financing activities:
Capital lease obligations incurred	$	686		$	983

See Notes to Consolidated Condensed Financial Statements.

SITEL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1. Basis of Consolidation and Presentation

General

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

We are a leading global provider of outsourced customer support services. We specialize in the design, implementation, and operation of complex, multi-channel contact centers. We support the Customer Relationship Management (CRM) strategies of large and mid-size corporations in North America, Europe, Asia Pacific, and Latin America. We provide customer acquisition, customer care, technical support and risk management services on an outsourced basis, as well as operational and information technology professional services for both outsourced and internal contact centers. We serve clients primarily in the automotive, consumer products, financial services, insurance, telecommunications, Internet service provider, cable, technology and utilities 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, 2003. All significant intercompany balances and transactions have been eliminated. Certain amounts in prior fiscal periods have been reclassified for comparative purposes.

KPMG LLP (KPMG), the independent accountants of SITEL Corporation and subsidiaries (the Company), has advised the Company that, due to the ongoing status of the Audit Committee’s internal investigation into an incorrect calculation of performance bonus amount on a single client program at an operating site in one of our business units, KPMG is currently unable to complete its review under Statement of Auditing Standards No. 100, “Interim Financial Information” (SAS 100), of the unaudited Consolidated Condensed Financial Statements for the quarterly period ended June 30, 2004, as required by Rule 10-01(d) of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. In light of the absence of the required SAS 100 review for the second quarter of fiscal year 2004, the Section 906 certifications required by 18 U.S.C. §1350 and included as Exhibits 32.1 and 32.2 to this Form 10-Q have been qualified by reference to the absence of that review. When such reviews have been completed, the Company intends to amend its Form 10-Q for such quarterly period.

Restatement

We have determined that our previously reported revenue and net income for the three months ended March 31, 2004, were overstated by $0.3 million and $0.2 million, respectively. The overstatement was the result of intentional improper changes to operational data, which resulted in an incorrect calculation of performance bonus amounts on a single client program at an operating site in one of our business units. The error does not affect previously reported basic and diluted earnings per share of $0.07. The Company will restate the previously issued March 31, 2004 interim financial statements for the correction of the error.

Use of Accounting Estimates

Management makes estimates and assumptions when preparing financial statements under accounting principles generally accepted in the United States of America that affect our reported amounts of assets and liabilities at the dates of the financial statements, our disclosure of contingent assets and liabilities at the dates of the financial statements, and our reported amounts of revenue and expenses during the reporting periods. These estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could differ from these estimates.

Recently Issued Accounting Pronouncements

In January 2003, the FASB released Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (FIN 46) which requires that all primary beneficiaries of Variable Interest Entities (VIE) consolidate that entity. FIN 46 is effective immediately for VIE’s created after January 31, 2003 and to VIE’s in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to VIE’s in which an enterprise holds 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 the provisions of the interpretation and to defer the effective date of implementation for certain entities. The remaining provisions of FIN 46R were effective January 1, 2004. The adoption of FIN 46R had no impact on our consolidated condensed financial statements.

Stock-Based Compensation

We apply the intrinsic-value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), and related interpretations to account for our fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(in thousands)
Net income (loss):
As reported	$	2,519		$	(3,243	)	$	7,345		$	(3,182	)
Less: total stock based employee compensation expense determined under the fair value method for all awards, net of tax	(239		)	(360		)	(498		)	(708		)
Pro forma	$	2,280		$	(3,603	)	$	6,847		$	(3,890	)

Income (loss) per common share:
As reported:
Basic	$	0.03		$	(0.04	)	$	0.10		$	(0.04	)
Diluted	0.03			(0.04		)	0.10			(0.04		)
Pro forma:
Basic	0.03			(0.05		)	0.09			(0.05		)
Diluted	0.03			(0.05		)	0.09			(0.05		)

The fair value of options was estimated at the date of the grant using the Black-Scholes option-pricing model with an expected dividend yield of 0.0%, and the following weighted-average assumptions:

	2004		2003

- Volatility factor	52.3	%	64.0	%
- Risk-free interest rate	3.5	%	3.0	%
- Expected life (in years)	5		5

Significant Clients

Our top 20 clients accounted for 66.9% and 73.0% of our revenue in the three-month periods ended June 30, 2004 and 2003, respectively, and 66.9% and 71.0% for the six-month periods ended June 30, 2004 and 2003, respectively, and include multiple independently managed business units of General Motors Corporation. These General Motors business units were responsible for 16.0% and 21.1% of our total revenue in the three-month periods ended June 30, 2004 and 2003, respectively, and were responsible for 16.7% and 21.3% for the six-month periods ended June 30, 2004, and 2003, respectively. The primary General Motors contract expires in December 2005, while a second contract terminated in June 2004. In addition, Hewlett-Packard (HP) was responsible for 11.0% of our revenue for the three-month period ended June 30, 2004, and was responsible for 11.2% of our revenue for the six-month period ended June 30, 2004. We did not have any other clients under common control that generated more than 10% of our revenue for the periods presented.

Note 2. Comprehensive Income (Loss)

Comprehensive income (loss) for the three and six-month periods ended June 30, 2004 and 2003 are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net income (loss)	$	2,519		$	(3,243	)	$	7,345		$	(3,182	)
Other comprehensive income (loss):
Currency translation adjustment	(2,563		)	4,186			(2,562		)	7,084
Comprehensive income (loss)	$	(44	)	$	943		$	4,783		$	3,902

Accumulated other comprehensive income included in our consolidated condensed balance sheets represents the accumulated foreign currency translation adjustment.

Note 3. Asset Impairment and Restructuring Expenses

As a result of certain client contract negotiations that concluded during the first quarter of 2003, we re-assessed our facilities requirements and determined that a certain facility subject to an operating lease was no longer needed. As a result, we recorded asset impairment and restructuring expenses of $0.8 million during the three months ended March 31, 2003 related to the write-off of abandoned leasehold improvements of $0.4 million and $0.4 million for scheduled payments of operating leases for which we will receive no future economic benefit. Our estimates are based upon many factors including projections of sublease rates and the time period required to locate tenants. The facility was abandoned prior to March 31, 2003.

The additional remaining asset impairment and restructuring accruals relate to previous restructurings in conjunction with our plan designed to intensify our focus on core competencies, accelerate revenue growth, and improve profitability, which was announced in June 2001.

We summarize the components of the accrued restructuring expenses recorded in our consolidated condensed balance sheet in the following table:

	Accrual Balance December 31, 2003		Expensed in 2004		Paid in 2004			Other		Accrual Balance June 30, 2004
	(in millions)

Severance	$	0.1	$	—	$	—		$	—	$	0.1
Facility closure or reduction	6.5		—		(1.8		)	0.2		4.9
Total	$	6.6	$	—	$	(1.8	)	$	0.2	$	5.0

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

Note 4. Investments in Affiliates

We have made minority interest investments for business and strategic purposes through the purchase of voting common and preferred stock of companies. We periodically evaluate whether declines in fair value, if any, of our investments are other-than-temporary. This evaluation consists of a review of qualitative and quantitative factors. We also consider other factors to determine whether declines in fair value are other-than-temporary, such as the investee’s financial condition, results of operations and operating trends. We also consider the implied value from any recent rounds of financing completed by the investee. Based upon an evaluation of the facts and circumstances during the quarter ended March 31, 2003, we determined that an other-than-temporary impairment existed for one of our investments. Impairment charges of $0.5 million were recorded in other expense, net in the consolidated condensed statement of income to record this investment at fair value.

Subcontracted expenses for services provided by our India joint venture were $3.1 million and $2.9 million for the three-month periods ended June 30, 2004 and 2003, respectively, and $6.5 million and $6.3 million for the six-month periods ended June 30, 2004 and 2003, respectively. The Company had payables to our India joint venture of $2.2 million and $1.9 million at June 30, 2004 and

December 31, 2003, respectively, which are included in trade accounts payable in the accompanying consolidated condensed balance sheets.

Subcontracted services provided by our Latin America joint venture for the three-month and six-month periods ended June 30, 2004 and 2003 were not material.

Note 5. 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 appreciation rights, restricted shares, and performance shares or units) for the issuance of up to an aggregate of 10,500,000 shares of common stock to our employees, consultants and non-employee directors.

Vesting terms vary with each grant, and option terms may not exceed ten years. Option prices, set by the Compensation Committee of the Board of Directors, may not be less than the fair market value at date of grant for incentive stock options or less than par value for nonqualified stock options. At June 30, 2004, there were approximately 5.4 million shares available for issuance pursuant to future grants under the 1999 Plan.

Prior to the adoption of the 1999 Plan, we granted options under several different plans. As of June 30, 2004, options granted under these plans aggregating 2.8 million remained outstanding with strike prices ranging from $2.41 to $19.50. The last of these options will expire on February 1, 2009. We will not grant additional options under these plans. The following table sets forth shares subject to options:

	Number of Options		Weighted- Average Exercise Price per Share

Balance, January 1, 2004	7,750,390		$	3.67
Granted	176,095		2.55
Exercised	(48,260	)	2.29
Canceled	(562,334	)	3.38
Balance, June 30, 2004	7,315,891		3.68

The options exercisable at the end of each period were:

	Number of Options	Weighted- Average Exercise Price per Share

December 31, 2003	3,175,457	$	4.61
June 30, 2004	3,568,574	$	4.46

The following table summarizes stock options outstanding at June 30, 2004:

Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Life	Weighted- Average Exercise Price

$1.24 to $1.75	801,491	8.6	$	1.55
$1.76 to $4.00	4,719,251	5.9	$	3.05
$4.01 to $6.33	1,051,314	4.8	$	4.82
$6.34 to $7.22	482,625	5.5	$	6.69
$7.23 to $12.66	201,210	3.6	$	9.77
$12.67 to $20.00	60,000	2.7	$	17.35

The following table summarizes stock options exercisable at June 30, 2004:

Range of Exercise Prices	Number Exercisable	Weighted- Average Exercise Price

$1.24 to $1.75	174,596	$	1.52
$1.76 to $4.00	1,837,775	$	3.10
$4.01 to $6.33	900,261	$	4.81
$6.34 to $7.22	395,942	$	6.70
$7.23 to $12.66	200,000	$	9.75
$12.67 to $20.00	60,000	$	17.35

Note 6. Contingencies

From time to time, we are involved in litigation incidental to our business. We cannot predict the ultimate outcome of such litigation with certainty, but management believes, after consultation with counsel, that the resolution of such matters will not have a material adverse effect on our consolidated financial position or results of operations.

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

Note 7. Earnings Per Share

We calculate income per common share by dividing our reported net income by the weighted average number of common shares and common equivalent shares outstanding during each period. Our reported net income is used in the computation of both basic and diluted income per share.

The difference between the number of shares used to calculate basic and diluted earnings per share represents the number of shares assumed to be issued from the exercise of dilutive stock options under our stock option plans, less shares assumed to be purchased with proceeds from the exercise of the stock options and the related tax benefits. At June 30, 2004 and 2003, we had 1.9 million and 7.7 million options, respectively, which have been excluded from the diluted net income per share computation because their exercise price exceeds the fair market value.

Note 8. Payroll Tax Refund

During the three months ended June 30, 2004, we recorded a benefit from the refund of payroll tax overpayments paid in a prior year. We recorded the payroll tax refund in the accompanying consolidated condensed statements of income (loss) as a $1.3 million reduction of direct labor and telecommunications expenses and a $0.4 million reduction of operating, selling and administrative expenses during the three months ended June 30, 2004.

Note 9. Supplemental Guarantor Financial Information

Our 9.25% Senior Subordinated Notes are guaranteed, on a full, unconditional and joint and several basis, by substantially all of our wholly owned domestic subsidiaries. Separate financial statements for each of the guarantor subsidiaries are not presented because they would not be material to investors. However, on the following pages we have presented the following statements of (a) SITEL Corporation, the parent, (b) the guarantor subsidiaries, (c) the nonguarantor subsidiaries, and (d) SITEL Corporation on a consolidated basis:

• Consolidating Condensed Statements of Income (Loss) and Comprehensive Income (Loss) for the three and six- month periods ended June 30, 2004 and 2003,

• Consolidating Condensed Balance Sheets at June 30, 2004 and December 31, 2003, and

• Consolidating Condensed Statements of Cash Flows for the six months ended June 30, 2004 and 2003.

Consolidating Condensed Statement of Income (Loss) and Comprehensive Income (Loss)

Three Months Ended June 30, 2004	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)

Revenue	$	88,676		$	11,977		$	139,402		$	—		$	240,055

Operating expenses:
Direct labor and telecommunications expenses	49,549			6,625			86,858			—			143,032
Subcontracted and other services expenses	9,950			975			2,097			—			13,022
Operating, selling and administrative expenses	26,065			3,282			47,575			—			76,922
Asset impairment and restructuring expenses	—			—			—			—			—
Total operating expenses	85,564			10,882			136,530			—			232,976

Operating income (loss)	3,112			1,095			2,872			—			7,079

Other income (expense):
Interest expense	(2,550		)	(2		)	(547		)	—			(3,099		)
Interest income	54			—			67			—			121
Equity in earnings (losses) of affiliates	1,110			98			77			(1,208		)	77
Other income (expense), net	971			84			(1,173		)	—			(118		)
Total other income (expense), net	(415		)	180			(1,576		)	(1,208		)	(3,019		)

Income (loss) before income taxes and minority interest	2,697			1,275			1,296			(1,208		)	4,060

Income tax expense	21			165			1,145			—			1,331
Minority interest	157			—			53			—			210

Net income (loss)	$	2,519		$	1,110		$	98		$	(1,208	)	$	2,519

Currency translation adjustment	(2,563		)	(149		)	(2,393		)	2,542			(2,563		)
Comprehensive income (loss)	$	(44	)	$	961		$	(2,295	)	$	1,334		$	(44	)

Three Months Ended June 30, 2003	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)

Revenue	$	88,439		$	9,659		$	107,894		$	(1,426	)	$	204,566

Operating expenses:
Direct labor and telecommunications expenses	48,743			5,841			67,080			—			121,664
Subcontracted and other services expenses	12,196			639			1,340			(1,271		)	12,904
Operating, selling and administrative expenses	28,811			2,863			39,192			(155		)	70,711
Asset impairment and restructuring expenses	—			—			—			—			—
Total operating expenses	89,750			9,343			107,612			(1,426		)	205,279

Operating income (loss)	(1,311		)	316			282			—			(713		)

Other income (expense):
Interest expense	(2,597		)	(3		)	(377		)	—			(2,977		)
Interest income	44			—			59			—			103
Equity in earnings (losses) of affiliates	(135		)	(699		)	322			834			322
Other income (expense), net	756			251			386			—			1,393
Total other income (expense), net	(1,932		)	(451		)	390			834			(1,159		)

Income (loss) before income taxes and minority interest	(3,243		)	(135		)	672			834			(1,872		)

Income tax expense	—			—			1,269			—			1,269
Minority interest	—			—			102			—			102

Net income (loss)	$	(3,243	)	$	(135	)	$	(699	)	$	834		$	(3,243	)

Currency translation adjustment	4,186			69			728			(797		)	4,186
Comprehensive income (loss)	$	943		$	(66	)	$	29		$	37		$	943

Six Months Ended June 30, 2004	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)

Revenue	$	180,662		$	24,829		$	278,632		$	—		$	484,123

Operating expenses:
Direct labor and telecommunications expenses	99,568			13,177			174,415			—			287,160
Subcontracted and other services expenses	21,507			1,795			2,535			—			25,837
Operating, selling and administrative expenses	52,621			6,061			95,080			—			153,762
Asset impairment and restructuring expenses	—			—			—			—			—
Total operating expenses	173,696			21,033			272,030			—			466,759

Operating income (loss)	6,966			3,796			6,602			—			17,364

Other income (expense):
Interest expense	(5,097		)	(3		)	(1,232		)	—			(6,332		)
Interest income	98			—			144			—			242
Equity in earnings (losses) of affiliates	3,282			(517		)	70			(2,765		)	70
Other income (expense), net	2,285			197			(2,874		)	—			(392		)
Total other expense, net	568			(323		)	(3,892		)	(2,765		)	(6,412		)

Income (loss) before income taxes and minority interest	7,534			3,473			2,710			(2,765		)	10,952

Income tax expense	32			191			2,960			—			3,183
Minority interest	157			—			267			—			424

Net income (loss)	$	7,345		$	3,282		$	(517	)	$	(2,765	)	$	7,345

Currency translation adjustment	(2,562		)	(161		)	(2,380		)	2,541			(2,562		)
Comprehensive income (loss)	$	4,783		$	3,121		$	(2,897	)	$	(224	)	$	4,783

Six Months Ended June 30, 2003	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)

Revenue	$	175,969		$	21,441		$	204,225		$	(2,974	)	$	398,661

Operating expenses:
Direct labor and telecommunications expenses	95,618			11,743			125,074			—			232,435
Subcontracted and other services expenses	23,807			1,311			2,707			(1,271		)	26,554
Operating, selling and administrative expenses	58,094			5,650			74,346			(1,703		)	136,387
Asset impairment and restructuring expenses	—			—			796			—			796
Total operating expenses	177,519			18,704			202,923			(2,974		)	396,172

Operating income (loss)	(1,550		)	2,737			1,302			—			2,489

Other income (expense):
Interest expense	(5,213		)	(8		)	(613		)	—			(5,834		)
Interest income	122			—			114			—			236
Equity in earnings (losses) of affiliates	2,099			(716		)	939			(1,383		)	939
Other income (expense), net	1,360			86			(711		)	—			735
Total other expense, net	(1,632		)	(638		)	(271		)	(1,383		)	(3,924		)

Income (loss) before income taxes and minority interest	(3,182		)	2,099			1,031			(1,383		)	(1,435		)

Income tax expense	—			—			1,439			—			1,439
Minority interest	—			—			308			—			308

Net income (loss)	$	(3,182	)	$	2,099		$	(716	)	$	(1,383	)	$	(3,182	)

Currency translation adjustment	7,084			117			3,756			(3,873		)	7,084
Comprehensive income (loss)	$	3,902		$	2,216		$	3,040		$	(5,256	)	$	3,902

Consolidating Condensed Balance Sheet

At June 30, 2004	Parent		Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	23,616	$	4,226	$	21,674		$	—		$	49,516
Trade accounts receivable, net	99,783		60,216		99,537			(87,451		)	172,085
Prepaid expenses and other current assets	5,826		42		12,753			—			18,621
Total current assets	129,225		64,484		133,964			(87,451		)	240,222

Property and equipment, net	19,800		2,255		61,620			—			83,675

Other assets:
Goodwill	19,577		14		34,267			—			53,858
Deferred income taxes	8,607		—		198			—			8,805
Investments in affiliates	—		—		18,817			—			18,817
Other assets	5,779		56		1,580			—			7,415
Investments in subsidiaries	132,794		99,787		—			(232,581		)	—
Total assets	$	315,782	$	166,596	$	250,446		$	(320,032	)	$	412,792

Liabilities and Stockholders’ Equity
Current liabilities:
Revolving credit facility and other current debt	$	377	$	—	$	24,193		$	—		$	24,570
Current portion of capital lease obligations	450		119		2,122			—			2,691
Trade accounts payable	27,792		31,514		60,432			(87,442		)	32,296
Accrued expenses and other current liabilities	27,255		2,129		55,002			(87		)	84,299
Total current liabilities	55,874		33,762		141,749			(87,529		)	143,856
Long-term debt and other liabilities:
Long-term debt, excluding current portion	100,203		—		(203		)	—			100,000
Capital lease obligations, excluding current portion	354		40		7,974			—			8,368
Deferred compensation	1,236		—		—			—			1,236
Deferred income taxes	—		—		1,139			—			1,139
Total liabilities	157,667		33,802		150,659			(87,529		)	254,599

Minority interests	1,481		—		812			—			2,293

Stockholders’ equity	156,634		132,794		98,975			(232,503		)	155,900
Total liabilities and stockholders’ equity	$	315,782	$	166,596	$	250,446		$	(320,032	)	$	412,792

At December 31, 2003	Parent		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	12,010	$	3,090	$	14,750	$	—		$	29,850
Trade accounts receivable, net	95,899		60,483		113,341		(94,181		)	175,542
Prepaid expenses and other current assets	6,280		34		13,489		—			19,803
Total current assets	114,189		63,607		141,580		(94,181		)	225,195

Property and equipment, net	20,792		2,608		66,833		—			90,233

Other assets:
Goodwill	19,577		14		33,962		—			53,553
Deferred income taxes	8,607		—		117		—			8,724
Investments in affiliates	—		—		18,911		—			18,911
Other assets	6,196		56		1,887		—			8,139
Investments in subsidiaries	132,961		104,008		—		(236,969		)	—
Total assets	$	302,322	$	170,293	$	263,290	$	(331,150	)	$	404,755

Liabilities and Stockholders’ Equity
Current liabilities:
Revolving credit facility and other current debt	$	—	$	—	$	22,894	$	—		$	22,894
Current portion of capital lease obligations	506		117		2,558		—			3,181
Trade accounts payable	17,913		35,402		71,448		(94,181		)	30,582
Accrued expenses and other current liabilities	29,776		1,713		52,743		(80		)	84,152
Total current liabilities	48,195		37,232		149,643		(94,261		)	140,809
Long-term debt and other liabilities:
Long-term debt	100,000		—		—		—			100,000
Capital lease obligations, excluding current portion	—		100		8,584		—			8,684
Deferred compensation	1,389		—		—		—			1,389
Deferred income taxes	—		—		1,055		—			1,055
Total liabilities	149,584		37,332		159,282		(94,261		)	251,937

Minority interests	—		—		1,869		—			1,869

Stockholders’ equity	152,738		132,961		102,139		(236,889		)	150,949
Total liabilities and stockholders’ equity	$	302,322	$	170,293	$	263,290	$	(331,150	)	$	404,755

Consolidating Condensed Statement of Cash Flows

Six Months Ended June 30, 2004	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)

Net cash flows from operating activities	$	961		$	5,828		$	23,960		$	(10	)	$	30,739

Cash flows from investing activities:
Purchases of property and equipment	(2,936		)	(139		)	(7,471		)	—			(10,546		)
Investment in affiliates	—			—			(820		)	—			(820		)
Receipts on note receivable	—			—			380			—			380
Proceeds from the sale of property and equipment	8			—			—			—			8
Net cash flows from investing activities	(2,928		)	(139		)	(7,911		)	—			(10,978		)

Cash flows from financing activities:
Borrowings on debt	—			—			9,945			—			9,945
Repayments of debt and capital lease obligations	(2,145		)	—			(7,863		)	—			(10,008		)
Net borrowings and payments in intercompany balances	15,616			(4,553		)	(11,073		)	10			—
Treasury stock reissuances (repurchases), net	102			—			—			—			102
Net cash flows from financing activities	13,573			(4,553		)	(8,991		)	10			39
Effect of exchange rates on cash	—			—			(134		)	—			(134		)
Net increase (decrease) in cash	11,606			1,136			6,924			—			19,666
Cash and cash equivalents, beginning of period	12,010			3,090			14,750			—			29,850
Cash and cash equivalents, end of period	$	23,616		$	4,226		$	21,674		$	—		$	49,516

Six Months Ended June 30, 2003	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations		Consolidated
	(in thousands)

Net cash flows from operating activities	$	8,126		$	4,215		$	(4,279	)	$	—	$	8,062

Cash flows from investing activities:
Purchases of property and equipment	(3,300		)	(409		)	(10,415		)	—		(14,124		)
Investment in affiliates	(1,000		)	—			—			—		(1,000		)
Receipts on note receivable	—			—			—			—		—
Proceeds from the sale of property and equipment	—			—			—			—		—
Net cash flows from investing activities	(4,300		)	(409		)	(10,415		)	—		(15,124		)

Cash flows from financing activities:
Borrowings on debt	656			—			11,727			—		12,383
Repayments of debt and capital lease obligations	(6,647		)	—			(535		)	—		(7,182		)
Net borrowings and payments in intercompany balances	2,503			(3,452		)	949			—		—
Treasury stock reissuances (repurchases), net	(835		)	—			—			—		(835		)
Net cash flows from financing activities	(4,323		)	(3,452		)	12,141			—		4,366
Effect of exchange rates on cash	(376		)	—			427			—		51
Net increase (decrease) in cash	(873		)	354			(2,126		)	—		(2,645		)
Cash and cash equivalents, beginning of period	16,615			2,855			14,672			—		34,142
Cash and cash equivalents, end of period	$	15,742		$	3,209		$	12,546		$	—	$	31,497

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

General

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

We are a leading global provider of outsourced customer support services. We specialize in the design, implementation, and operation of complex, multi-channel contact centers. We support the Customer Relationship Management (CRM) strategies of large corporations in North America, Europe, Asia Pacific, and Latin America. We provide customer acquisition, customer care, technical support and risk management services on an outsourced basis, as well as operational and information technology professional services for both outsourced and in-house contact centers. We serve clients primarily in the automotive; consumer products; financial services; insurance; technology; telecommunications, ISP and cable; and utilities sectors.

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

As you read this discussion and analysis, refer to our Consolidated Condensed Statements of Income (Loss), which presents the results of our operations for the three-month and six-month periods ended June 30, 2004 and 2003, and are summarized on the following pages. We analyze and explain the differences between periods for the components of net income (loss) in the following sections. Our analysis is important in making decisions about your investment in SITEL Corporation.

General Business Risks, Critical Accounting Policies and Estimates

General Business Risks

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

Our results of operations and operating cash flows may vary with periodic wins, expansions, and losses of client contracts and with changes in the scope of client requirements. Our top 20 clients accounted for 66.9% and 73.0% of our revenue for the three-month periods ended June 30, 2004 and 2003, respectively, and 66.9% and 71.0% for the six-month periods ended June 30, 2004 and 2003, respectively, and include multiple independently managed business units of General Motors Corporation. These General Motors business units were responsible for 16.0% and 21.1% of our revenue for the three-month periods ended June 30, 2004 and 2003, respectively, and 16.7% and 21.3% for the six-month periods ended June 30, 2004 and 2003, respectively. On April 21, 2004, we announced the signing of a new contract with General Motors to continue to provide customer support services for General Motors’ North American Vehicle Sales, Service, and Marketing Group through December 31, 2005. An existing agreement under which we supported OnStar operations terminated effective June 22, 2004. In addition, Hewlett-Packard (HP) was responsible for 11.0% of our revenue for the three-month period ended June 30, 2004, and 11.2% for the six-month period ended June 30, 2004. We did not have any other clients under common control that generated more than 10% of our revenue for the periods presented. The financial failure of any of these clients or the loss of any or all of their business could have an adverse impact on our operating results.

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

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

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

We recognize revenue in accordance with applicable accounting standards, including Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 101 (SAB 101) “Revenue Recognition in Financial Statements” and SAB 104, “Revenue Recognition”. We recognize revenue at the time services are performed based on an hourly, monthly, per call or per employee rate detailed in the client contract. A portion of our revenue is often subject to performance standards, such as sales per hour, average handle time, occupancy rate and abandonment rate. Our performance against such standards may result 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 excluded from revenue and included in deferred revenue and other in the consolidated balance sheet. Revenue for services performed under certain collection service agreements are recognized as the related consumer debts are collected and are calculated based upon a percentage of cash collected or other agreed upon contractual parameters.

Trade Accounts Receivable

We report our trade accounts receivable net of an allowance for doubtful accounts, which represents management’s estimates of the amount of our receivables that may not be collectible, net of recoveries of amounts previously written off. These estimates are based on a detailed aging analysis of accounts receivable, historical bad debts, client credit-worthiness, and changes in our client payment terms. The financial condition of our clients may deteriorate, which may require us to increase our allowance for doubtful accounts. We would record an increase in the allowance for doubtful accounts as operating, selling, and administrative expense in our consolidated condensed statements of income, which would reduce our results of operations.

Property and Equipment

We record property and equipment at cost, and calculate depreciation using the straight-line method over the estimated useful lives of the assets, which range from 3 to 20 years. We amortize leasehold improvements and assets under capital leases on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. If the actual useful lives of these assets are less than the estimated depreciable lives, we would record additional depreciation expense or losses on disposal to the extent the net book value of such asset is not recovered upon sale.

Asset Impairment

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

Upon the occurrence of a triggering event, the carrying amount of a long-lived asset is reviewed to assess whether the recoverable amount has declined below its carrying amount. The recoverable amount is the estimated net future cash flows that we expect to recover from the future use of the asset, undiscounted and without interest, plus the asset’s residual value on disposal. Where the recoverable amount of the long-lived asset is less than the carrying value, an impairment loss would be recognized to write down the asset to its fair value, which is based on discounted estimated cash flows from the future use of the asset.

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

Goodwill

At least annually or more frequently, as changes in circumstances indicate, we will evaluate the estimated fair value of our goodwill. On these evaluation dates, to the extent that the carrying value of the net assets of any of our reporting units having

goodwill is greater than their estimated fair value, we will be required to take additional goodwill impairment charges. We are required to make certain assumptions and estimates regarding the fair value of goodwill when assessing for impairment. Changes in the fact patterns underlying such assumptions and estimates could ultimately result in the recognition of additional impairment losses. Effective as of October 1, 2003, we completed the annual evaluation of our goodwill and determined no impairment charge was required.

The operating results of one of our reporting units is below expectations. Management will monitor the operating performance of this reporting unit and will conduct a review of the carrying value of goodwill during our annual evaluation at October 1, 2004. The recorded goodwill for this reporting unit, as a result of prior acquisitions, is approximately $7.6 million. At this point in time, we are unable to predict what effect, if any, the outcome of this review will have on the carrying value of our goodwill or on our financial position or results of operations.

Deferred Income Taxes

We record deferred tax assets and liabilities using enacted tax rates in the jurisdictions in which we operate for the effect of temporary differences between the book and tax basis of assets and liabilities. If enacted tax rates change, we would adjust the deferred tax assets and liabilities, through the provision for income taxes in the period of change, to reflect the enacted tax rate expected to be in effect when the deferred tax items reverse. To the extent that we believe that recovery is not likely, we establish a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. The valuation allowance is based on our estimates of future taxable income by jurisdiction in which we operate and the period over which the deferred tax assets can be recovered. A review of all available positive and negative evidence needs to be considered, including our current and past performance, the market environment in which we operate, the utilization of past tax credits, length of carryback and carryforward periods, and existing or prospective contracts that will result in future profits.

Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years in certain tax jurisdictions. Cumulative losses weigh heavily in the overall assessment. We have established valuation allowances for future tax benefits related to net operating losses incurred in certain federal, state and foreign tax jurisdictions. We expect to continue to record a valuation allowance on future tax benefits in certain tax jurisdictions until an appropriate level of profitability is sustained. Until an appropriate level of profitability is reached, we do not expect to recognize any significant tax benefits in future results of operations. If future taxable income is lower than expected, we may record an additional valuation allowance through income tax expense in the period such determination is made.

Self-Insurance Reserves

We are self-insured in North America for health care claims for eligible participating employees, subject to certain deductibles and limitations. The costs include an estimate of expected settlements on pending claims and a provision for claims incurred but not reported. These estimates are based on our assessment of potential liability using an analysis of available information with respect to pending claims, historical experience, and current cost trends. Actual claims results could differ from these estimates.

Contingencies

We consider the likelihood of various loss contingencies, including tax and legal contingencies arising in the ordinary course of business, and our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted.

Results of Operations for the Three and Six Month Periods Ended June 30, 2004 Compared with the Same Periods of 2003

In this section, we discuss our operating results and the factors affecting them. We describe our general business risks, critical accounting policies, and estimates that are important to our operating results on the previous pages. Please refer to that discussion as you read this section.

Components of Net Income

The following table summarizes our income statement data on a percentage-of-revenue basis.

	Three Months Ended June 30,										Six Months Ended June 30,
	2004					2003					2004					2003
	$			%		$			%		$			%		$			%
	(in thousands)										(in thousands)
Revenues	$	240,055		*100.0*	%	$	204,566		*100.0*	%	$	484,123		*100.0*	%	$	398,661		*100.0*	%

Direct labor and telecommunications expenses	143,032			*59.6*	%	121,664			*59.5*	%	287,160			*59.3*	%	232,435			*58.3*	%
Subcontracted and other services expenses	13,022			*5.4*	%	12,904			*6.3*	%	25,837			5.3	%	26,554			*6.7*	%
Operating, selling and administrative expenses	76,922			*32.0*	%	70,711			*34.6*	%	153,762			*31.8*	%	136,387			*34.2*	%
Asset impairment and restructuring expenses	—			*0.0*	%	—			*0.0*	%	—			*0.0*	%	796			*0.2*	%
Operating income (loss)	7,079			*2.9*	%	(713		)	*-0.4*	%	17,364			*3.6*	%	2,489			*0.6*	%

Interest expense, net	(2,978		)	*-1.2*	%	(2,874		)	*-1.4*	%	(6,090		)	*-1.3*	%	(5,598		)	*-1.4*	%
Equity in earnings of affiliates	77			*0.0*	%	322			*0.2*	%	70			*0.0*	%	939			*0.2*	%
Other expense, net	(118		)	*0.0*	%	1,393			*0.7*	%	(392		)	*-0.1*	%	735			*0.2*	%
Income (loss) before income taxes and minority interest	4,060			*1.7*	%	(1,872		)	*-0.9*	%	10,952			*2.3*	%	(1,435		)	*-0.4*	%

Income tax expense	1,331			*0.6*	%	1,269			*0.6*	%	3,183			*0.7*	%	1,439			*0.4*	%
Minority interest	210			*0.1*	%	102			*0.1*	%	424			*0.1*	%	308			*0.1*	%
Net income (loss)	$	2,519		*1.0*	%	$	(3,243	)	*-1.6*	%	$	7,345		*1.5*	%	$	(3,182	)	*-0.8*	%

Three Months Ended June 30, 2004 Compared to the Same Period of 2003

Revenue

Revenue increased $35.5 million, or 17.3%, in the three months ended June 30, 2004 compared to the same period of 2003. The changes in revenue by geographic region are shown in the following table:

Three Months Ended June 30,	2004		2003		$ Change		% Change
	(in millions)
North America	$	123.7	$	112.2	$	11.6	10.3	%
Europe	99.4		81.6		17.8		21.8	%
Asia Pacific	9.8		7.5		2.3		30.2	%
Latin America	7.2		3.3		3.9		116.6	%
Totals	$	240.1	$	204.6	$	35.5	17.3	%

North American revenue increased for the three months ended June 30, 2004 compared to the same period in 2003 primarily due to an increase of $15.0 million in customer care, technical support and risk management services offset by a $3.4 million decrease in customer acquisition business as a result of a decline in outbound customer acquisition programs. The weakening of the U.S. dollar versus the Canadian dollar accounted for $0.4 million of the increase.

European revenue increased $17.8 million for the three months ended June 30, 2004 compared to the same period in 2003. Higher sales volumes from new and existing clients resulted in an increase in revenue of $11.4 million for the three months ended June 30, 2004 compared to the same period in 2003. The weakening of the U.S. dollar versus the British pound and Euro accounted for the remaining $6.4 million of the increase.

Asia Pacific revenue increased $2.3 million for the three months ended June 30, 2004 compared to the same period in 2003. Higher sales volumes with existing clients resulted in an increase in revenue of $1.4 million, while the weakening of the U.S. dollar versus the New Zealand and Australian dollars resulted in the remaining $0.9 million of the increase.

The increase in Latin American revenue was primarily due to the change in how we report our investment in our Panama affiliate. Effective October 1, 2003, we completed the previously announced restructuring in the governance of our Latin America joint venture which handles services in Panama and other Latin American countries and offshore services in Mexico and Central America. As a result of this revision in governance, we reported our investment in our Panama affiliate using the consolidation method rather than the equity method of accounting effective October 1, 2003. As a result of this change, our Latin America revenue includes the revenue associated with our Panama affiliate resulting in a $3.5 million increase in revenue for the three months ended June 30, 2004 compared to the same period in 2003. The strengthening of the US dollar accounted for a $0.1 million decrease in revenue for the three months ended June 30, 2004 compared to the same period in 2003. Excluding the impact of the change in accounting and the impact of changes in foreign currency, Latin American revenue increased $0.6 million for the three months ended June 30, 2004 compared to the same period in 2003 as a result of higher sales volume.

Direct Labor and Telecommunications Expenses

Direct labor and telecommunications expenses include the compensation of our customer service professionals and their first line supervisors and telephone usage expenses directly related to the production of revenue.

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

During the three months ended June 30, 2004, we recorded a benefit from the refund of $1.3 million of payroll tax overpayments paid in a prior year as a reduction of direct labor and telecommunications expenses. Excluding the impact of the payroll tax refund, direct labor and telecommunications expenses as a percentage of revenue increased to 60.1% for the three months ended June 30, 2004 compared to 59.5% in same period in 2003. The increase was primarily the result of higher direct labor costs, particularly in Europe, and a change in the mix of services provided in the three months ended June 30, 2004 compared to the same period in 2003.

Subcontracted and Other Services Expenses

Subcontracted and other services expenses included services provided to clients through subcontractors and other out-of-pocket expenses. Subcontracted and other services expenses remained consistent for the three months ended June 30, 2004 compared to the same period of 2003.

Subcontracted expenses for services provided by our India joint venture for the three months ended June 30, 2004 and 2003 were $3.1 million and $2.9 million, respectively.

Operating, Selling and Administrative Expenses

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

Operating, selling and administrative expenses increased $6.2 million, or 8.8%, for the three months ended June 30, 2004 compared to the same period of 2003. The weakening of the US dollar compared to the primary currency in the jurisdictions that we operate accounted for an increase of $2.7 million in operating, selling and administrative expenses for the three months ended June 30, 2004 compared to the same period in 2003. As a result of the change in accounting for our Panama affiliate as previously discussed, operating, selling and administrative expenses increased $1.0 million for the three months ended June 30, 2004 compared to the same period in 2003. As a percentage of revenue, operating, selling and administrative expenses decreased to 32.0% for the three months ended June 30, 2004 compared to 34.6% in the same period of 2003. The decrease is primarily the result of higher sales volumes while maintaining the existing cost structure.

Operating Income (Loss)

Operating income increased $7.8 million for the three months ended June 30, 2004 compared to the same period of 2003 due to the factors discussed above.

Interest Expense, Net

Interest expense, net of interest income, remained consistent for the three months ended June 30, 2004 compared to the same period in 2003.

Equity in Earnings of Affiliates

Equity in earnings of affiliates decreased $0.2 million for the three months ended June 30, 2004 compared to the same period in 2003 primarily due to higher costs related to the transition of clients served by one of our joint ventures.

Other Income (Expense), Net

Other income (expense), net decreased $1.5 million for the three months ended June 30, 2004 compared to the same period in 2003 primarily as a result of fluctuations in foreign currency remeasurement gains (losses) arising from monetary assets and liabilities denominated in currencies other than a business unit’s functional currency.

Income Tax Expense

For the three months ended June 30, 2004, income tax expense as a percentage of income before income taxes and minority interest was 32.8%. The difference between this rate and the statutory U.S. Federal rate of 35% was primarily due to the utilization of net operating loss carryforwards in certain subsidiaries for which a full valuation allowance had previously been provided against the net deferred tax asset.

The effective tax rate for the three months ended June 30, 2003 was significantly more than the U.S. statutory rate which was primarily the result of not reflecting any significant tax benefits for the current net operating losses in certain federal, state and foreign tax jurisdictions.

Six Months Ended June 30, 2004 Compared to the Same Period of 2003

Revenue

Revenue increased $85.5 million, or 21.4%, for the six months ended June 30, 2004 compared to the same period of 2003. The changes in revenue by geographic region are shown in the following table:

Six Months Ended June 30,	2004		2003		$ Change		% Change
	(in millions)
North America	$	252.9	$	226.5	$	26.4	11.6	%
Europe	197.9		151.5		46.4		30.6	%
Asia Pacific	19.5		15.0		4.5		29.8	%
Latin America	13.8		5.6		8.2		147.1	%
Totals	$	484.1	$	398.7	$	85.5	21.4	%

North American revenue increased for the six months ended June 30, 2004 compared to the same period in 2003 primarily due to a $32.4 million increase in customer care, technical support and risk management services offset by a $6.1 million decrease in customer acquisition business as a result of a decline in outbound customer acquisition programs. The weakening of the U.S. dollar versus the Canadian dollar accounted for $2.8 million of the increase.

European revenue increased $46.4 million for the six months ended June 30, 2004 compared to the same period in 2003. Higher sales volumes from new and existing clients resulted in an increase in revenue of $26.5 million for the six months ended June 30, 2004 compared to the same period in 2003. The weakening of the U.S. dollar versus the British pound and Euro accounted for the remaining $19.9 million of the increase.

Asia Pacific revenue increased $4.5 million for the six months ended June 30, 2004 compared to the same period in 2003. Higher sales volume with existing clients resulted in an increase in revenue of $1.7 million, while the weakening of the U.S. dollar versus the New Zealand and Australian dollars resulted in the remaining $2.8 million of the increase.

The increase in Latin American revenue was primarily due to the change in how we report our investment in our Panama affiliate. Effective October 1, 2003, we completed the previously announced restructuring in the governance of our Latin America joint venture which handles services in Panama and other Latin American countries and offshore services in Mexico and Central America. As a result of this revision in governance, we reported our investment in our Panama affiliate using the consolidation method rather than the equity method of accounting effective October 1, 2003. As a result of this change, our Latin America revenue includes the revenue associated with our Panama affiliate resulting in a $6.6 million increase in revenue for six months ended June 30, 2004 compared to the same period in 2003. The weakening of the US dollar accounted for $0.5 million of the increase for the six months ended June 30, 2004 compared to the same period in 2003. Excluding the impact of

the change in accounting and the impact of changes in foreign currency, Latin American revenue increased $1.1 million for the six months ended June 30, 2004 compared to the same period in 2003 as a result of higher sales volume.

Direct Labor and Telecommunications Expenses

During the six months ended June 30, 2004, we recorded a benefit from the refund of $1.3 million of payroll tax overpayments paid in a prior year as a reduction of direct labor and telecommunications expenses. Excluding the impact of the payroll tax refund, direct labor and telecommunications expenses as a percentage of revenue increased to 59.6% in the six months ended June 30, 2004 compared to 58.3% in same period in 2003. The increase was primarily the result of higher direct labor costs, particularly in Europe, and a change in the mix of services provided in the six months ended June 30, 2004 compared to the same period in 2003.

Subcontracted and Other Services Expenses

Subcontracted and other services expenses included in services provided to clients through subcontractors and other out-of-pocket expenses. Subcontracted and other services expenses decreased $0.7 million, or 2.7%, for the six months ended June 30, 2004 compared to the same period in 2003. The decrease was primarily the result of lower subcontracted IT costs to support client programs.

Subcontracted expenses for services provided by our India joint venture for the six months ended June 30, 2004 and 2003 were $6.5 million and $6.3 million, respectively.

Operating, Selling and Administrative Expenses

Operating, selling and administrative expenses increased $17.4 million, or 12.7%, for the six months ended June 30, 2004 compared to the same period in 2003. The weakening of the U.S. dollar compared to the primary jurisdictions that we operate in accounted for an increase of $8.3 million for the six months ended June 30, 2004 compared with the same period in 2003. As a result of the change in accounting for our Panama affiliate as previously discussed, operating, selling and administrative expenses increased $1.8 million for the six months ended June 30, 2004 compared to the same period in 2003. As a percentage of revenue, operating, selling and administrative expenses decreased to 31.8% for the six months ended June 30, 2004 compared to 34.2% for the same period of 2003. The decrease is primarily the result of higher sales volumes while maintaining the existing cost structure.

Asset Impairment and Restructuring Expenses

During the six months ended June 30, 2003, in connection with the closure of a contact center, we recorded asset impairment and restructuring expenses of $0.8 million, which consisted of the write-off of abandoned leasehold improvements of $0.4 million and $0.4 million of scheduled payments of operating leases for which we will receive no future economic benefits.

Operating Income

Operating income increased $14.9 million for the six months ended June 30, 2004 due to the factors discussed above.

Interest Expense, Net

Interest expense, net of interest income, increased $0.5 million, or 8.8%, for the six months ended June 30, 2004 compared to the same period in 2003 primarily as a result of higher average short-term borrowings to finance our growth in Europe.

Equity in Earnings of Affiliates

Equity in earnings of affiliates decreased by $0.9 million for the six months ended June 30, 2004 as compared to the same period in 2003 primarily due to higher costs related to the transition of clients served by one of our joint ventures.

Other Income (Expense), Net

Other income (expense), net decreased $1.1 million for the six months ended June 30, 2004 compared to the same period in 2003. The decrease was primarily as a result of fluctuations in foreign currency remeasurement gains (losses) arising from monetary assets and liabilities denominated in currencies other than a business unit’s functional currency offset by an impairment charge of $0.5 million to reduce our basis in an investment to fair value.

Income Tax Expense

For the six months ended June 30, 2004, income tax expense as a percentage of income before income taxes and minority interest was 29.1%. The difference between this rate and the statutory U.S. Federal rate of 35% was primarily due to the utilization of net operating loss carryforwards in certain subsidiaries for which a full valuation allowance had previously been provided against the net deferred tax asset.

The effective tax rate for the same period of 2003 was significantly more than the U.S. statutory rate which was primarily the result of not reflecting any significant tax benefits for the current net operating losses in certain federal, state and foreign tax jurisdictions.

Financial Condition and Liquidity

In this section, we discuss our financial condition and liquidity and the factors affecting them. We separately discuss cash flows, capital resources, and contractual obligations and commitments. We describe our general business risks, critical accounting policies, and estimates that are important to our financial condition and liquidity earlier in this report. Please refer to that discussion as you read this section.

Cash Flows

The following table sets forth summary cash flow data for the periods indicated. Please refer to this summary as you read our discussion of the sources and uses of cash in each year.

Six Months Ended June 30,	2004			2003
	(in millions)
Net cash provided by (used in):
Operating activities	$	30.7		$	8.1
Investing activities	(11.0		)	(15.1		)
Financing activities	—			4.4

2004

In the six months ended June 30, 2004, cash provided by operating activities resulted primarily from income before depreciation and amortization, and other charges of $25.0 million and $4.8 million of increases in trade accounts payable and other liabilities, a $1.5 million decrease in other assets offset by increases in trade accounts receivable of $0.5 million.

In the six months ended June 30, 2004, we used cash for investing activities to purchase $10.5 million of property and equipment and used $0.8 million to increase investments in affiliates, offset partially by receipts on notes receivable of $0.4 million.

In the six months ended June 30, 2004, cash used in financing activities resulted in net repayments of debt and other obligations of $0.1 million offset by cash receipts from the reissuances of treasury stock.

2003

In the six months ended June 30, 2003, cash provided by operating activities resulted primarily from income before asset impairment and restructuring expenses, depreciation and amortization, and other charges of $15.5 million and $8.6 million of increases in trade accounts payable and other liabilities offset by increases in trade accounts receivable and other assets of $16.1 million.

In the six months ended June 30, 2003, we used cash for investing activities to purchase $14.1 million of property and equipment and used $1.0 million to increase investments in affiliates.

In the six months ended June 30, 2003, cash provided by financing activities resulted from $5.2 million of additional borrowings, net of repayments. In addition, we used cash to purchase a total of $0.8 million of common stock under our existing stock repurchase program.

Capital Resources

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

We have a three-year $50 million revolving credit facility that expires in December 2005. The credit facility is secured by accounts receivable in the United States, Canada and the United Kingdom. We intend to utilize the facility, as needed, for ongoing working capital requirements and general corporate purposes. At June 30, 2004, we had $40.4 million of available borrowings under the credit facility, and we were in compliance with all financial covenants of the facility.

We expect to finance our current operations, planned capital expenditures, and internal growth for the foreseeable future using funds generated from operations, existing cash and available funds under our credit facility in addition to lease financing for property and equipment. We expect capital expenditures in the third quarter of 2004 to be in the range of $10 million to $15 million, as we continue to cover maintenance and technology upgrades, asset replacements, efficiency investments, and investment for continued growth including the build out of our new contact centers in Canada and Philippines. Future acquisitions, if any, may require additional debt or equity financing.

Under a stock repurchase program that was authorized 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 privately negotiated transactions, depending on general business and market conditions. Through the date of this report, we had repurchased a total of 881,700 shares at a total cost of $1.5 million.

Contractual Obligations and Commitments

We summarize various contractual obligations and commitments in the Notes to our Consolidated Financial Statements in our Report on Form 10-K for the year ended December 31, 2003. These contractual obligations and commitments include:

• $100.0 million of long-term debt as shown in our consolidated condensed balance sheet at June 30, 2004,

• $24.6 million of revolving credit facility and other local short-term debt as shown in our consolidated condensed balance

sheet at June 30, 2004,

• $11.1 million of capital lease obligations as shown in our consolidated condensed balance sheet at June 30, 2004, and

• operating lease obligations for property and certain equipment under noncancelable operating lease arrangements, which

expire at various dates through 2016.

Other Matters

Quarterly Results and Seasonality

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

• the timing of our clients’ customer relationship management initiatives and customer acquisition and loyalty campaigns,

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

• revenue mix,

• the timing of additional operating, selling, and administrative expenses to support new business, and

• the timing of recognition of incentive fees.

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

Effects of Inflation

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

Recently Issued Accounting Pronouncements

In January 2003, the FASB released Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (FIN 46) which requires that all primary beneficiaries of Variable Interest Entities (VIE) consolidate that entity. FIN 46 is effective immediately for VIE’s created after January 31, 2003 and to VIE’s in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to VIE’s in which an enterprise holds 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 the provisions of the interpretation and to defer the effective date of implementation for certain entities. The remaining provisions of FIN 46R were effective January 1, 2004. The adoption of FIN 46R did not have a material impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

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

Our financial statements are presented in U.S. dollars and can be impacted by foreign exchange fluctuations through both (i) translation risk, which is the risk that the financial statements for a particular period or as of a certain date depend on the prevailing exchange rates of the various currencies against the U.S. dollar, and (ii) transaction risk, which is the risk that the functional currency of costs and liabilities fluctuates in relation to the currency of our revenue and assets, which fluctuation may adversely affect operating margins.

With respect to translation risk, even though the fluctuations of currencies against the U.S. dollar can be substantial and therefore significantly impact comparisons with prior periods, the translation impact is recorded as a component of stockholders’ equity and does not affect the underlying results of operations. Remeasurement gains and losses related to transactions denominated in a currency other than the functional currency of the countries in which we operate, including short-term intercompany accounts, are included in the determination of net income.

Interest Rate Risk

We are also exposed to changes in interest rates on our variable rate borrowings. Interest rates on our Senior Subordinated Notes and capital lease obligations are fixed, but rates on borrowings under our bank credit facility are variable. During the three-month and six-month periods ended June 30, 2004, our average borrowings under our revolving credit facility were $9.2 and $8.4 million, respectively. Based on our projected cash needs for the foreseeable future, we do not expect that our exposure to changes in interest rates for these borrowings will have a material impact on our interest expense.

Item 4. Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are not effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

During the quarter, we identified a deficiency within our internal control framework. We have determined that our previously reported revenue and net income for the three months ended March 31, 2004, were overstated by $0.3 million and $0.2 million, respectively. The overstatement was the result of intentional improper changes to operational data, which resulted in an incorrect calculation of performance bonus amounts on a single client program at an operating site in one of our business units. The error does not affect previously reported basic and diluted earnings per share of $0.07. The Company will restate the previously issued March 31, 2004 interim financial statements for the correction of the error. Because the error resulted in the restatement of revenue and earnings for the three months ended March 31, 2004, we have determined the deficiency to be a material weakness. We have implemented corrective action to detect and monitor changes in operations data through a secondary review. There were no other changes in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

may not be sufficient to cover all of the costs of investigating and resolving such matter. We might also seek a license under the patents. Any such license may not be available under commercially reasonable terms. Any license costs would increase the cost of doing business in the future and may or may not be fully reflected in our pricing. To our knowledge, no litigation has been initiated against our client or us concerning this matter. At this stage, due to the inherent uncertainties, we are unable to predict whether this matter may have a material adverse effect on our business or on our financial condition or results of operation.

Item 4. Submission of Matters to a Vote of Security Holders

(a) Date and Type of Meeting

The Company held its Annual Meeting of Stockholders on April 30, 2004.

(b) Matters Voted Upon and Number of Votes Cast

There were 68,674,228 shares of Common Stock represented at the meeting in person or by proxy. One proposal was presented to the stockholders for the election of three directors for three-year terms. The voting on the proposals was as follows:

1. Election of three directors for a three-year term:

	FOR	WITHHELD
Mathias J. DeVito	63,018,573	5,655,654
David J. Hanger	63,187,193	5,487,035
James F. Lynch	62,983,272	5,690,956

Item 5. Other Information

Forward-Looking Statements

We make statements in this report that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934. Sometimes these statements will contain words such as “believes,” “expects,” “intends,” “should,” “will,” “plans,” and other similar words. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other important factors that could cause our actual performance 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 subcontractors and strategic partners, risks associated with managing a global business, fluctuations in operating results, reliance on telecommunications and computer technology, dependence on labor force, industry regulation, general and local economic conditions, competitive pressures in our industry, foreign currency 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 these forward-looking statements. Please see the other sections of this report and our other periodic reports filed with the Securities and Exchange Commission for more information on these factors.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit No.

31.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K:

The Company filed a Current Report on Form 8-K dated April 29, 2004, which reported under Items 7 and 12 the issuance of a press release. The press release was filed as an exhibit to the Form 8-K.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		SITEL Corporation
		(Registrant)


Date: August 9, 2004	By	/s/	Jorge A. Celaya
		Jorge A. Celaya
		Chief Financial Officer
		(Duly Authorized Officer and
		Principal Financial Officer)

EXHIBIT INDEX

Exhibit No.

31.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002