PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SITEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003

Revenue	$	229,454		$	208,755		$	713,577		$	607,415

Operating expenses:
Direct labor and telecommunications expenses	138,230			124,899			425,390			357,335
Subcontracted and other services expenses	12,401			13,799			38,238			40,352
Operating, selling and administrative expenses	77,785			70,453			231,547			206,840
Asset impairment and restructuring expenses	—			—			—			796
Total operating expenses	228,416			209,151			695,175			605,323

Operating income (loss)	1,038			(396		)	18,402			2,092

Other income (expense):
Interest expense	(3,055		)	(3,110		)	(9,387		)	(8,943		)
Interest income	152			117			394			352
Equity in earnings of affiliates	298			518			368			1,458
Other income (expense), net	(70		)	(317		)	(462		)	418
Total other expense, net	(2,675		)	(2,792		)	(9,087		)	(6,715		)

Income (loss) before income taxes and minority interest	(1,637		)	(3,188		)	9,315			(4,623		)

Income tax expense	67			651			3,250			2,090
Minority interest	32			107			456			415

Net income (loss)	$	(1,736	)	$	(3,946	)	$	5,609		$	(7,128	)

Weighted average common shares outstanding:
Basic	73,710			73,584			73,671			73,969
Diluted	73,710			73,584			74,089			73,969

Earnings per share:
Basic	$	(0.02	)	$	(0.05	)	$	0.08		$	(0.10	)
Diluted	$	(0.02	)	$	(0.05	)	$	0.08		$	(0.10	)

See Notes to Consolidated Condensed Financial Statements.

1

SITEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2004					December 31, 2003
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$			42,116		$	29,850
Trade accounts receivable (net of allowance for doubtful accounts of $2,377 and $3,088, respectively)	175,895					175,542
Prepaid expenses	8,839					10,072
Deferred income taxes	3,322					2,367
Other assets	7,005					7,364
Total current assets	237,177					225,195

Property and equipment, net	83,497					90,233

Other assets:
Goodwill	54,297					53,553
Deferred income taxes	7,885					8,724
Investment in affiliates	17,311					18,911
Other assets	7,388					8,139
Total assets	$		407,555			$	404,755

Liabilities and Stockholders’ Equity
Current liabilities:
Revolving credit facility and other current debt	$		21,750			$	22,894
Current portion of capital lease obligations	2,287					3,181
Trade accounts payable	23,189					30,582
Income taxes payable	14					628
Accrued wages, salaries and bonuses	47,197					38,817
Accrued operating expenses	33,620					37,823
Deferred revenue and other	8,297					6,884
Total current liabilities	136,354					140,809

Long-term debt and other liabilities:
Long-term debt, excluding current portion	100,000					100,000
Capital lease obligations, excluding current portion	8,575					8,684
Deferred compensation and other	1,980					1,389
Deferred income taxes	898					1,055
Total liabilities	247,807					251,937

Minority interests	2,450					1,869
Stockholders’ equity:
Common stock, voting, $.001 par value 200,000,000 shares authorized, 74,433,629 and 74,368,135 shares issued and outstanding, respectively	74					74
Additional paid-in capital	168,860					168,726
Accumulated other comprehensive income	830					329
Accumulated deficit	(11,418				)	(17,044		)
Less treasury stock, at cost, 723,845 and 755,300 common shares, respectively	(1,048				)	(1,136		)
Total stockholders’ equity	157,298					150,949
Total liabilities and stockholders’ equity	$	407,555				$	404,755

See Notes to Consolidated Condensed Financial Statements.

SITEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Nine Months Ended September 30,
	2004			2003

Cash flows from operating activities:
Net income (loss)	$	5,609		$	(7,128	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Asset impairment and restructuring provision	—			796
Depreciation and amortization	26,682			27,702
Loss on disposal of assets	45			20
Provision for deferred income taxes	(284		)	1
Equity in earnings of affiliates	(368		)	(1,458		)
Impairment of equity investments	—			500
Changes in operating assets and liabilities:
Trade accounts receivable	(2,426		)	(27,474		)
Other assets	2,085			197
Trade accounts payable	(7,394		)	1,414
Other liabilities	6,934			11,853
Net cash flows from operating activities	30,883			6,423

Cash flows from investing activities:
Purchases of property and equipment	(17,104		)	(19,057		)
Dividend received from affiliates	1,747			1,085
Investment in affiliates	(820		)	(1,000		)
Receipts on notes receivable	510			—
Proceeds from the sale of property and equipment	9			—
Net cash flows from investing activities	(15,658		)	(18,972		)

Cash flows from financing activities:
Borrowings on debt	19,158			16,197
Repayments of debt	(20,573		)	(6,614		)
Repayments of capital lease obligations	(2,297		)	(1,887		)
Proceeds from stock options exercised, net of tax	146			—
Treasury stock reissuances (repurchases), net	89			(1,120		)
Other	—			59
Net cash flows from financing activities	(3,477		)	6,635
Effect of exchange rates on cash	518			(661		)
Net increase (decrease) in cash	12,266			(6,575		)
Cash and cash equivalents, beginning of period	29,850			34,142
Cash and cash equivalents, end of period	$	42,116		$	27,567

Non-cash investing and financing activities:
Capital lease obligations incurred	$	1,453		$	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”, “our” and the “Company” 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.

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 September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
	(in thousands, except per share amounts)
Net income (loss):
As reported	$	(1,736	)	$	(3,946	)	$	5,609		$	(7,128	)
Less: total stock based employee compensation expense determined under the fair value method for all awards, net of tax	(249		)	(267		)	(747		)	(975		)
Pro forma	$	(1,985	)	$	(4,213	)	$	4,862		$	(8,103	)

Income (loss) per common share:
As reported:
Basic	$	(0.02	)	$	(0.05	)	$	0.08		$	(0.10	)
Diluted	(0.02		)	(0.05		)	0.08			(0.10		)
Pro forma:
Basic	(0.03		)	(0.06		)	0.07			(0.11		)
Diluted	(0.03		)	(0.06		)	0.07			(0.11		)

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	50.3	%	64.5	%
Risk-free interest rate	3.6	%	2.9	%
Expected life (in years)	5		5

Significant Clients

Our top 20 clients accounted for 68.5% and 70.8% of our revenue for the three-month periods ended September 30, 2004 and 2003, respectively, and 67.2% and 69.6% for the nine-month periods ended September 30, 2004 and 2003, respectively. Some of these top 20 clients include multiple independently managed business units within the clients’ affiliated group. General Motors Corporation business units were responsible for 13.9% and 22.3% of our total revenue for the three-month periods ended September 30, 2004 and 2003, respectively, and were responsible for 15.8% and 21.6% for the nine-month periods ended September 30, 2004, and 2003, respectively. The primary General Motors Corporation contract expires in December 2005, while a second contract terminated in June 2004. Hewlett-Packard Company business units were responsible for 11.4% of our revenue for the three-month period ended September 30, 2004, and 11.3% of our revenue for the nine-month period ended September 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 nine-month periods ended September 30, 2004 and 2003 are as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004		2003
Net income (loss)	$	(1,736	)	$	(3,946	)	$	5,609	$	(7,128	)
Other comprehensive income:
Currency translation adjustment	3,063			472			501		7,556
Comprehensive income (loss)	$	1,327		$	(3,474	)	$	6,110	$	428

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:

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

Severance	$	0.1	$	—	$	(0.1	)	$	—	$	—
Facility closure or reduction	6.5		—		(2.5		)	0.1		4.1
Total	$	6.6	$	—	$	(2.6	)	$	0.1	$	4.1

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 (loss) to record this investment at fair value.

Subcontracted expenses for services provided by our India joint venture were $3.0 million and $2.8 million for the three-month periods ended September 30, 2004 and 2003, respectively, and $9.4 million and $9.5 million for the nine-month periods ended September 30, 2004 and 2003, respectively. The Company had payables to our India joint venture of $1.8 million and $1.9 million at September 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 nine-month periods ended September 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 September 30, 2004, there were approximately 5.6 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 September 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	332,924		3.21
Exercised	(65,494	)	2.22
Canceled	(580,103	)	3.44
Balance, September 30, 2004	7,437,717		$	3.70

The options exercisable at the end of each period were:

	Number	Weighted-Average Exercise of Options Price per Share

December 31, 2003	3,175,457	$	4.61
September 30, 2004	3,660,658	$	4.44

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

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

$1.24 to $1.75	787,584	8.4	$	1.55
$1.76 to $4.00	4,857,954	5.8	$	3.08
$4.01 to $6.33	1,049,544	4.5	$	4.82
$6.34 to $7.22	481,425	5.3	$	6.69
$7.23 to $12.66	201,210	3.4	$	9.77
$12.67 to $20.00	60,000	2.5	$	17.35

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

Range of Exercise Prices	Number Exercisable	Weighted Average Exercise Price

$1.24 to $1.75	206,832	$	1.54
$1.76 to $4.00	1,860,923	$	3.10
$4.01 to $6.33	938,161	$	4.82
$6.34 to $7.22	394,742	$	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 (loss) per common share by dividing our reported net income (loss) by the weighted average number of common shares and common equivalent shares outstanding during each period. Our reported net income (loss) is used in the computation of both basic and diluted income (loss) 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 September 30, 2004, we had 6.6 million options, which have been excluded from the diluted net income per share computation because their exercise price

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

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

Revenue	$	83,391		$	9,972		$	137,967		$	(1,876	)	$	229,454

Operating expenses:
Direct labor and telecommunications expenses	44,030			5,739			88,461			—			138,230
Subcontracted and other services expenses	10,019			1,034			3,206			(1,858		)	12,401
Operating, selling and administrative expenses	24,643			2,571			50,627			(56		)	77,785
Total operating expenses	78,692			9,344			142,294			(1,914		)	228,416

Operating income (loss)	4,699			628			(4,327		)	38			1,038

Other income (expense):
Interest expense	(2,565		)	(1		)	(489		)	—			(3,055		)
Interest income	73			—			79			—			152
Equity in earnings (losses) of affiliates	(4,091		)	(4,804		)	298			8,895			298
Other income (expense), net	(150		)	57			61			(38		)	(70		)
Total other income (expense), net	(6,733		)	(4,748		)	(51		)	8,857			(2,675		)

Income (loss) before income taxes and minority interest	(2,034		)	(4,120		)	(4,378		)	8,895			(1,637		)

Income tax expense	(141		)	(29		)	237			—			67
Minority interest	(157		)	—			189			—			32

Net income (loss)	$	(1,736	)	$	(4,091	)	$	(4,804	)	$	8,895		$	(1,736	)

Currency translation adjustment	3,063			28			2,997			(3,025		)	3,063
Comprehensive income (loss)	$	1,327		$	(4,063	)	$	(1,807	)	$	5,870		$	1,327

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

Revenue	$	94,386		$	9,392		$	106,418		$	(1,441	)	$	208,755

Operating expenses:
Direct labor and telecommunications expenses	53,218			5,283			66,398			—			124,899
Subcontracted and other services expenses	12,391			831			1,851			(1,274		)	13,799
Operating, selling and administrative expenses	27,891			2,733			39,996			(167		)	70,453
Total operating expenses	93,500			8,847			108,245			(1,441		)	209,151

Operating income (loss)	886			545			(1,827		)	—			(396		)

Other income (expense):
Interest expense	(2,634		)	(3		)	(473		)	—			(3,110		)
Interest income	46			—			71			—			117
Equity in earnings (losses) of affiliates	(3,009		)	(3,771		)	518			6,780			518
Other income (expense), net	765			220			(1,302		)	—			(317		)
Total other income (expense), net	(4,832		)	(3,554		)	(1,186		)	6,780			(2,792		)

Income (loss) before income taxes and minority interest	(3,946		)	(3,009		)	(3,013		)	6,780			(3,188		)

Income tax expense	—			—			651			—			651
Minority interest	—			—			107			—			107

Net income (loss)	$	(3,946	)	$	(3,009	)	$	(3,771	)	$	6,780		$	(3,946	)

Currency translation adjustment	472			6			684			(690		)	472
Comprehensive income (loss)	$	(3,474	)	$	(3,003	)	$	(3,087	)	$	6,090		$	(3,474	)

Nine Months Ended September 30, 2004	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated

	(in thousands)

Revenue	$	264,053		$	34,801		$	416,599		$	(1,876	)	$	713,577

Operating expenses:
Direct labor and telecommunications expenses	143,598			18,916			262,876			—			425,390
Subcontracted and other services expenses	31,526			2,829			5,741			(1,858		)	38,238
Operating, selling and administrative expenses	77,265			8,631			145,707			(56		)	231,547
Total operating expenses	252,389			30,376			414,324			(1,914		)	695,175

Operating income (loss)	11,664			4,425			2,275			38			18,402

Other income (expense):
Interest expense	(7,662		)	(4		)	(1,721		)	—			(9,387		)
Interest income	171			—			223			—			394
Equity in earnings (losses) of affiliates	(809		)	(5,321		)	368			6,130			368
Other income (expense), net	2,135			254			(2,813		)	(38		)	(462		)
Total other expense, net	(6,165		)	(5,071		)	(3,943		)	6,092			(9,087		)

Income (loss) before income taxes and minority interest	5,499			(646		)	(1,668		)	6,130			9,315

Income tax expense	(110		)	163			3,197			—			3,250
Minority interest	—			—			456			—			456

Net income (loss)	$	5,609		$	(809	)	$	(5,321	)	$	6,130		$	5,609

Currency translation adjustment	501			(133		)	617			(484		)	501
Comprehensive income (loss)	$	6,110		$	(942	)	$	(4,704	)	$	5,646		$	6,110

Nine Months Ended September 30, 2003	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)

Revenue	$	270,355		$	30,833		$	310,642		$	(4,415	)	$	607,415

Operating expenses:
Direct labor and telecommunications expenses	148,837			17,025			191,473			—			357,335
Subcontracted and other services expenses	36,197			2,142			4,558			(2,545		)	40,352
Operating, selling and administrative expenses	85,985			8,383			114,342			(1,870		)	206,840
Asset impairment and restructuring expenses	—			—			796			—			796
Total operating expenses	271,019			27,550			311,169			(4,415		)	605,323

Operating income (loss)	(664		)	3,283			(527		)	—			2,092

Other income (expense):
Interest expense	(7,822		)	(11		)	(1,110		)	—			(8,943		)
Interest income	168			—			184			—			352
Equity in earnings (losses) of affiliates	(910		)	(4,487		)	1,458			5,397			1,458
Other income (expense), net	2,100			305			(1,987		)	—			418
Total other income (expense), net	(6,464		)	(4,193		)	(1,455		)	5,397			(6,715		)

Income (loss) before income taxes and minority interest	(7,128		)	(910		)	(1,982		)	5,397			(4,623		)

Income tax expense	—			—			2,090			—			2,090
Minority interest	—			—			415			—			415

Net income (loss)	$	(7,128	)	$	(910	)	$	(4,487	)	$	5,397		$	(7,128	)

Currency translation adjustment	7,556			124			4,439			(4,563		)	7,556
Comprehensive income (loss)	$	428		$	(786	)	$	(48	)	$	834		$	428

Consolidating Condensed Balance Sheet

At September 30, 2004	Parent		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	19,447	$	3,982	$	18,687	$	—		$	42,116
Trade accounts receivable, net	93,868		60,287		106,136		(84,396		)	175,895
Prepaid expenses and other current assets	6,812		28		12,326		—			19,166
Total current assets	120,127		64,297		137,149		(84,396		)	237,177

Property and equipment, net	18,651		2,033		62,794		19			83,497

Other assets:
Goodwill	19,577		14		34,706		—			54,297
Deferred income taxes	7,800		—		85		—			7,885
Investments in affiliates	—		—		17,311		—			17,311
Other assets	5,861		56		1,471		—			7,388
Investments in subsidiaries	132,075		96,581		—		(228,656		)	—
Total assets	$	304,091	$	162,981	$	253,516	$	(313,033	)	$	407,555

Liabilities and Stockholders’ Equity
Current liabilities:
Revolving credit facility and other current debt	$	402	$	—	$	21,348	$	—		$	21,750
Current portion of capital lease obligations	360		120		1,807		—			2,287
Trade accounts payable	13,700		28,281		65,513		(84,305		)	23,189
Accrued expenses and other current liabilities	27,655		2,495		59,048		(70		)	89,128
Total current liabilities	42,117		30,896		147,716		(84,375		)	136,354

Long-term debt and other liabilities:
Long-term debt, excluding current portion	100,000		—		—		—			100,000
Capital lease obligations, excluding current portion	454		10		8,111		—			8,575
Deferred compensation and other	1,770		—		210		—			1,980
Deferred income taxes	—		—		898		—			898
Total liabilities	144,341		30,906		156,935		(84,375		)	247,807

Minority interests	1,324		—		1,126		—			2,450

Stockholders’ equity	158,426		132,075		95,455		(228,658		)	157,298
Total liabilities and stockholders’ equity	$	304,091	$	162,981	$	253,516	$	(313,033	)	$	407,555

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, excluding current portion	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

Nine Months Ended September 30, 2004	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)

Net cash flows from operating activities	$	2,768		$	9,588		$	18,619		$	(92	)	$	30,883

Cash flows from investing activities:
Purchases of property and equipment	(3,681		)	(139		)	(13,284		)	—			(17,104		)
Dividend received from affiliates	—			—			1,747			—			1,747
Investment in affiliates	—			—			(820		)	—			(820		)
Receipts on note receivable	—			—			510			—			510
Proceeds from the sale of property and equipment	9			—			—			—			9
Net cash flows from investing activities	(3,672		)	(139		)	(11,847		)	—			(15,658		)

Cash flows from financing activities:
Borrowings on debt	—			—			19,158			—			19,158
Repayments of debt and capital lease obligations	(2,491		)	—			(20,379		)	—			(22,870		)
Net borrowings and payments in intercompany balances	10,597			(8,557		)	(2,132		)	92			—
Proceeds from stock options exercised, net of tax	146			—			—			—			146
Treasury stock reissuances (repurchases), net	89			—			—			—			89
Net cash flows from financing activities	8,341			(8,557		)	(3,353		)	92			(3,477		)
Effect of exchange rates on cash	—			—			518			—			518
Net increase in cash	7,437			892			3,937			—			12,266
Cash and cash equivalents, beginning of period	12,010			3,090			14,750			—			29,850
Cash and cash equivalents, end of period	$	19,447		$	3,982		$	18,687		$	—		$	42,116

Nine Months Ended September 30, 2003	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations		Consolidated
	(in thousands)

Net cash flows from operating activities	$	13,313		$	4,131		$	(11,021	)	$	—	$	6,423

Cash flows from investing activities:
Purchases of property and equipment	(3,750		)	(671		)	(14,636		)	—		(19,057		)
Investment in affiliates	(1,000		)	—			—			—		(1,000		)
Dividends received from affiliates	—			—			1,085			—		1,085
Net cash flows from investing activities	(4,750		)	(671		)	(13,551		)	—		(18,972		)

Cash flows from financing activities:
Borrowings on debt	441			—			15,756			—		16,197
Repayments of debt and capital lease obligations	(7,214		)	—			(1,287		)	—		(8,501		)
Net borrowings and payments in intercompany balances	(682		)	(2,531		)	3,213			—		—
Treasury stock reissuances (repurchases), net	(1,120		)	—			—			—		(1,120		)
Other	59			—			—			—		59
Net cash flows from financing activities	(8,516		)	(2,531		)	17,682			—		6,635
Effect of exchange rates on cash	(2,697		)	—			2,036			—		(661		)
Net increase (decrease) in cash	(2,650		)	929			(4,854		)	—		(6,575		)
Cash and cash equivalents, beginning of period	16,615			2,855			14,672			—		34,142
Cash and cash equivalents, end of period	$	13,965		$	3,784		$	9,818		$	—	$	27,567

Note 10. Subsequent Event

On October 26, 2004, the Company gave notice to the holders of its 9.25% Senior Subordinated Notes (the Notes) due 2006 of a $10 million partial redemption effective December 1, 2004. The Company will use cash to redeem this portion of the Notes. Repayment of the $10 million is the initial phase of a plan to refinance the entire $100 million of the Notes. The Notes are redeemable at a redemption price of 101.542% plus accrued and unpaid interest, if any, to the date of redemption.

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

General

References in this report to “we”, “our”, and the “Company” 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 in-house contact centers. We serve clients primarily in the automotive, consumer products, financial services, insurance, telecommunications, Internet service provider, cable, technology 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 present the results of our operations for the three-month and nine-month periods ended September 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.

In the near term, we will be considering current capacity and the various business units’ performance. Where excess capacity exists we will look to consolidate facilities and close some remaining underutilized centers to drive optimal profit center efficiency. We will also be accelerating our restructuring of several underperforming business units.

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 68.5% and 70.8% of our revenue for the three-month periods ended September 30, 2004 and 2003, respectively, and 67.2% and 69.6% for the nine-month periods ended September 30, 2004 and 2003, respectively. Some of these top 20 clients include multiple business units within the clients’ affiliated group. General Motors Corporation (General Motors) business units were responsible for 13.9% and 22.3% of our revenue for the three-month periods ended September 30, 2004 and 2003, respectively, and 15.8% and 21.6% for the nine-month periods ended September 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 Company business units were responsible for 11.4% of our revenue for the three-month period ended September 30, 2004, and 11.3% for the nine-month period ended September 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 the rate detailed in the client contract, such as hourly, monthly, per call or per employee. 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 (loss), 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. 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 currently 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 in accordance with Statement of Financial Accounting Standards, No. 109, “Accounting for Income Taxes”. 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 Nine Month Periods Ended September 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 (Loss)

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

	Three Months Ended September 30,										Nine Months Ended September 30,
	2004					2003					2004					2003
	$			%		$			%		$			%		$			%
				(in thousands)										(in thousands)
Revenues	$	229,454		*100.0*	%	$	208,755		*100.0*	%	$	713,577		*100.0*	%	$	607,415		*100.0*	%

Direct labor and telecommunications expenses	138,230			*60.2*	%	124,899			*59.8*	%	425,390			*59.6*	%	357,335			*58.8*	%
Subcontracted and other services expenses	12,401			*5.4*	%	13,799			*6.6*	%	38,238			*5.4*	%	40,352			*6.6*	%
Operating, selling and administrative expenses	77,785			*33.9*	%	70,453			*33.8*	%	231,547			*32.4*	%	206,840			*34.1*	%
Asset impairment and restructuring expenses	—			*0.0*	%	—			*0.0*	%	—			*0.0*	%	796			*0.1*	%
Operating income (loss)	1,038			*0.5*	%	(396		)	*-0.2*	%	18,402			*2.6*	%	2,092			*0.3*	%

Interest expense	(3,055		)	*-1.3*	%	(3,110		)	*-1.5*	%	(9,387		)	*-1.3*	%	(8,943		)	*-1.5*	%
Interest income	152			*0.1*	%	117			*0.1*	%	394			*0.1*	%	352			*0.1*	%
Equity in earnings of affiliates	298			*0.1*	%	518			*0.3*	%	368			*0.1*	%	1,458			*0.2*	%
Other income (expense), net	(70		)	*0.0*	%	(317		)	*-0.2*	%	(462		)	*-0.1*	%	418			*0.1*	%
Income (loss) before income taxes and minority interest	(1,637		)	*-0.7*	%	(3,188		)	*-1.5*	%	9,315			*1.3*	%	(4,623		)	*-0.8*	%

Income tax expense	67			*0.0*	%	651			*0.3*	%	3,250			*0.5*	%	2,090			*0.3*	%
Minority interest	32			*0.0*	%	107			*0.1*	%	456			*0.1*	%	415			*0.1*	%
Net income (loss)	$	(1,736	)	*-0.8*	%	$	(3,946	)	*-1.9*	%	$	5,609		*0.8*	%	$	(7,128	)	*-1.2*	%

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

Revenue

Revenue increased $20.7 million, or 9.9%, in the three months ended September 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 September 30,	2004		2003		$ Change			% Change
	(in millions)
North America	$	117.5	$	122.6	$	(5.1	)	-4.2	%
Europe	93.0		74.4		18.6			25.0	%
Asia Pacific	11.4		8.4		3.0			36.1	%
Latin America	7.6		3.4		4.2			121.9	%
Totals	$	229.5	$	208.8	$	20.7		9.9	%

North American revenue decreased $5.1 million for the three months ended September 30, 2004 compared to the same period in 2003. An $11.5 million decrease, primarily as a result of a decline in customer acquisition programs, was partially offset by a $6.5 million increase in customer care and technical support services. The weakening of the U.S. dollar versus the Canadian dollar accounted for $1.0 million of the increase.

European revenue increased $18.6 million for the three months ended September 30, 2004 compared to the same period in 2003. Higher sales volumes from new and existing clients resulted in $10.8 million of the increase. The weakening of the U.S. dollar versus the British pound and Euro accounted for the remaining $7.8 million of the increase.

Asia Pacific revenue increased $3.0 million for the three months ended September 30, 2004 compared to the same period in 2003. Higher sales volumes with existing clients resulted in $2.0 million of the increase. The weakening of the U.S. dollar versus the New Zealand and Australian dollars resulted in the remaining $1.0 million of the increase.

Latin American revenue increased $4.2 million for the three months ended September 30, 2004 compared to the same period in 2003. This increase 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 American 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 American revenue includes the revenue associated with our Panama affiliate. Our Panama affiliate’s revenue resulted in $3.8 million of the increase. Higher sales volume resulted in $0.5 million of the increase. These amounts were partially offset by a $0.1 million decrease in revenue resulting from the strengthening of the U.S. dollar versus the Brazilian real.

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.

Direct labor and telecommunications expenses as a percentage of revenue increased to 60.2% for the three months ended September 30, 2004 compared to 59.8% in the 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 we provided.

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 decreased $1.4 million for the three months ended September 30, 2004 compared to the same period of 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 three months ended September 30, 2004 and 2003 were $3.0 million and $2.8 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 $7.3 million, or 10%, for the three months ended September 30, 2004 compared to the same period of 2003. The weakening of the U.S. dollar compared to the primary currency in the jurisdictions that we operate accounted for $3.5 million of the increase. The change in accounting for our Panama affiliate accounted for $1.1 million of the increase. The remainder of the increase in these expenses was associated with our revenue increase. As a percentage of revenue, operating, selling and administrative expenses remained consistent for the three months ended September 30, 2004 compared to the same period in 2003.

Operating Income (Loss)

Operating income improved by $1.4 million to operating income of $1.0 million for the three months ended September 30, 2004 compared to a $0.4 million operating loss for the same period in 2003 due to the factors discussed above.

Interest Expense

Interest expense remained consistent for the three months ended September 30, 2004 compared to the same period in 2003.

Interest Income

Interest income remained consistent for the three months ended September 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 September 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 $0.2 million for the three months ended September 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

The effective tax rate for the three months ended September 30, 2004 and 2003 was significantly more than the U.S. statutory rate of 35%, 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.

Nine Months Ended September 30, 2004 Compared to the Same Period of 2003

Revenue

Revenue increased $106.2 million, or 17.5%, for the nine months ended September 30, 2004 compared to the same period of 2003. The changes in revenue by geographic region are shown in the following table:

Nine months ended September 30,	2004		2003		$ Change		% Change
	(in millions)
North America	$	370.4	$	349.1	$	21.3	6.1	%
Europe	290.9		225.9		65.0		28.8	%
Asia Pacific	30.9		23.4		7.5		32.1	%
Latin America	21.4		9.0		12.4		137.5	%
Totals	$	713.6	$	607.4	$	106.2	17.5	%

North American revenue increased $21.3 million for the nine months ended September 30, 2004 compared to the same period in 2003 primarily due to a $41.4 million increase in customer care, technical support and risk management services partially offset by a $20.0 million decrease in customer acquisition programs. The weakening of the U.S. dollar versus the Canadian dollar accounted for $3.7 million of the increase.

European revenue increased $65.0 million for the nine months ended September 30, 2004 compared to the same period in 2003. Higher sales volumes from new and existing clients resulted in $37.3 million of the increase. The weakening of the U.S. dollar versus the British pound and Euro accounted for the remaining $27.7 million of the increase.

Asia Pacific revenue increased $7.5 million for the nine months ended September 30, 2004 compared to the same period in 2003. Higher sales volume with existing clients resulted in $3.7 million of the increase. The weakening of the U.S. dollar versus the New Zealand and Australian dollars resulted in the remaining $3.8 million of the increase.

Latin American revenue increased $12.4 million for the nine months ended September 30, 2004 compared to the same period in 2003. This increase 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 American 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. Our Panama affiliate’s revenue resulted in $10.4 million of the increase. The weakening of the U.S. dollar accounted for $0.5 million of the increase. Higher sales volume resulted in the remaining $1.5 million of the increase.

Direct Labor and Telecommunications Expenses

During the nine months ended September 30, 2004, direct labor and telecommunications expenses as a percentage of revenue increased to 59.6% compared to 58.8% 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 we provided. This increase was partially offset by

the impact of the recording of a benefit from a refund of $1.3 million of payroll tax overpayments paid in a prior year as a reduction of direct labor and telecommunications expense.

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 decreased $2.1 million, or 5.2%, for the nine months ended September 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 nine months ended September 30, 2004 and 2003 were $9.4 million and $9.5 million, respectively.

Operating, Selling and Administrative Expenses

Operating, selling and administrative expenses increased $24.7 million, or 11.9%, for the nine months ended September 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 $11.7 million of the increase. The change in accounting for our Panama affiliate resulted in $3.0 million of the increase. The remainder of the increase in these expenses was associated with our revenue increase. As a percentage of revenue, operating, selling and administrative expenses decreased to 32.4% for the nine months ended September 30, 2004 compared to 34.1% 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 nine months ended September 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 $16.3 million for the nine months ended September 30, 2004 compared to the same period in 2003 due to the factors discussed above.

Interest Expense

Interest expense increased $0.4 million, or 5%, for the nine months ended September 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.

Interest Income

Interest income remained consistent for the nine months ended September 30, 2004 compared to the same period in 2003.

Equity in Earnings of Affiliates

Equity in earnings of affiliates decreased by $1.1 million for the nine months ended September 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 $0.9 million to other expense of $0.5 million for the nine months ended September 30, 2004 compared to other income of $0.4 million for 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.

Income Tax Expense

For the nine months ended September 30, 2004, income tax expense as a percentage of income before income taxes and minority interest was 35%, which is consistent with the statutory U.S. Federal rate of 35%.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.

Nine Months Ended September 30,	2004			2003
	(in millions)
Net cash provided by (used in):
Operating activities	$	30.9		$	6.4
Investing activities	(15.7		)	(19.0		)
Financing activities	(3.5		)	6.6

2004

In the nine months ended September 30, 2004, cash provided by operating activities resulted primarily from $31.7 million in income before depreciation and amortization, and other charges, a $2.1 million decrease in other assets and a $6.9 million increase in other liabilities, partially offset by a $2.4 million increase in trade accounts receivable and a $7.4 million decrease in trade accounts payable.

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

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

2003

In the nine months ended September 30, 2003, cash provided by operating activities resulted primarily from income before asset impairment and restructuring expenses, depreciation and amortization, and other charges of $20.4 million and $13.3 million of increases in trade accounts payable and other liabilities partially offset by increases in trade accounts receivable and other assets of $27.3 million.

In the nine months ended September 30, 2003, we used cash for investing activities to purchase $19.1 million of property and equipment and used $1.0 million to increase investments in affiliates. This was partially offset by $1.1 million of proceeds from dividends received from an equity method investee.

In the nine months ended September 30, 2003, we used cash for financing activities to repay $1.9 million of capital lease obligations. In addition, we used cash to purchase a total of $1.1 million of common stock under our existing stock purchase program. These payments were partially offset by additional borrowings net of repayments of $9.6 million.

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 September 30, 2004, we had $37.8 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 fourth quarter of 2004 to be in the range of $8 million to $12 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.

On October 26, 2004, the Company gave notice to the holders of its 9.25% Senior Subordinated Notes (the Notes) due 2006 of a $10 million partial redemption of notes effective December 1, 2004. The Company will use cash to redeem this portion of the Notes. Repayment of the $10 million of notes is the initial phase of a plan to refinance the entire $100 million of the Notes. The Notes are redeemable at a redemption price of 101.542% plus accrued and unpaid interest, if any, to the date of redemption.

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 million of long-term debt as shown in our consolidated condensed balance sheet at September 30, 2004,

• $21.8 million of revolving credit facility and other local short-term debt as shown in our consolidated condensed balance sheet at September 30, 2004,

• $10.9 million of capital lease obligations as shown in our consolidated condensed balance sheet at September 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 nine-month periods ended September 30, 2004, our average borrowings under our revolving credit facility were $11.2 million and $9.4 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 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.

There was no change 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

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

1-12577	SITEL CORPORATION	47-0684333

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

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

(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 July 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.

			SITEL Corporation
			(Registrant)


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

Washington, D.C. 20549

MINNESOTA

1

CONSOLIDATED CONDENSED BALANCE SHEETS

SITEL CORPORATION AND SUBSIDIARIES

General

General Business Risks, Critical Accounting Policies and Estimates

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

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

Cash Flows

Contractual Obligations and Commitments

SIGNATURE

(402) 963-6810
(Registrant’s Telephone Number, Including Area Code)

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

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 5	–		Other Information

	Item 6	–		Exhibits and Reports on Form 8-K

	Signature

	Exhibit Index