UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

Form 10-Q

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

For the quarterly period ended March 31, 2012

OR

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

_______________________________

Commission File Number 001-11919

_______________________________

TeleTech Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		84-1291044
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

9197 South Peoria Street

Englewood, Colorado 80112

(Address of principal executive offices)

Registrant’s telephone number, including area code: (303) 397-8100

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 R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ

Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

As of April 26, 2012, there were 55,464,125 shares of the registrant’s common stock outstanding.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

MARCH 31, 2012 FORM 10-Q

TABLE OF CONTENTS

		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011	1

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011 (unaudited)	2

	Consolidated Statement of Equity as of and for the three months ended March 31, 2012 (unaudited)	3

	Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited)	4

	Notes to the Unaudited Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 6.	Exhibits	41

Signatures		42

Exhibit Index		43

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

		March 31, 2012					December 31, 2011
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	172,761			$	156,371
Accounts receivable, net	244,212				243,636
Prepaids and other current assets	46,611				37,434
Deferred tax assets, net	19,886				22,994
Income tax receivable	5,856				17,847
Total current assets	489,326				478,282

Long-term assets
Property, plant and equipment, net	98,645				100,321
Goodwill	74,069				70,844
Contract acquisition costs, net	2,624				2,866
Deferred tax assets, net	31,652				32,512
Other long-term assets	74,799				62,153
Total long-term assets	281,789				268,696
Total assets	$		771,115		$			746,978

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$		20,793		$			27,555
Accrued employee compensation and benefits	70,019				71,500
Other accrued expenses	29,778				33,816
Income taxes payable	8,695				10,051
Deferred tax liabilities, net	1,832				912
Deferred revenue	13,546				15,895
Other current liabilities	5,161				10,282
Total current liabilities	149,824				170,011

Long-term liabilities
Line of credit	85,000				64,000
Negative investment in deconsolidated subsidiary	76				76
Deferred tax liabilities, net	3,242				3,020
Deferred rent	7,516				6,729
Other long-term liabilities	45,229				32,895
Total long-term liabilities	141,063				106,720
Total liabilities	290,887				276,731

Commitments and contingencies (Note 10)

Stockholders’ equity
Preferred stock - $0.01 par value: 10,000,000 shares authorized; zero shares outstanding as of March 31, 2012 and December 31, 2011	-				-
Common stock - $0.01 par value; 150,000,000 shares authorized; 55,678,427 and 56,635,319 shares outstanding as of March 31, 2012 and December 31, 2011, respectively	556				566
Additional paid-in capital	342,895				350,386
Treasury stock at cost: 26,373,826 and 25,416,934 shares as of March 31, 2012 and December 31, 2011, respectively	(373,440			)	(357,267				)
Accumulated other comprehensive income (loss)	10,707				(5,474				)
Retained earnings	486,657				470,776
Noncontrolling interest	12,853				11,260
Total stockholders’ equity	480,228				470,247
Total liabilities and stockholders’ equity	$		771,115		$			746,978

The accompanying notes are an integral part of these consolidated financial statements.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2012			2011

Revenue	$	292,654		$	280,979

Operating expenses
Cost of services (exclusive of depreciation and amortization presented separately below)	211,895			199,121
Selling, general and administrative	48,135			47,801
Depreciation and amortization	10,116			11,598
Restructuring charges, net	1,958			739
Impairment losses	1,800			230
Total operating expenses	273,904			259,489

Income from operations	18,750			21,490

Other income (expense)
Interest income	760			666
Interest expense	(1,098		)	(1,380		)
Other income, net	258			444
Total other income (expense)	(80		)	(270		)

Income before income taxes	18,670			21,220

Provision for income taxes	(1,853		)	(9,849		)

Net income	16,817			11,371

Net income attributable to noncontrolling interest	(936		)	(898		)

Net income attributable to TeleTech stockholders	$	15,881		$	10,473

Other comprehensive income (loss)
Net income	$	16,817		$	11,371
Foreign currency translation adjustment	8,751			5,091
Derivative valuation, gross	11,671			(2,287		)
Derivative valuation, tax effect	(4,574		)	830
Other	345			110
Total other comprehensive income	16,193			3,744
Total comprehensive income	33,010			15,115

Comprehensive income attributable to noncontrolling interest	(948		)	(951		)

Comprehensive income attributable to TeleTech stockholders	$	32,062		$	14,164

Weighted average shares outstanding
Basic	56,493			57,190
Diluted	57,418			58,797

Net income per share attributable to TeleTech stockholders
Basic	$	0.28		$	0.18
Diluted	$	0.28		$	0.18

The accompanying notes are an integral part of these financial statements.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

(Amounts in thousands)

(Unaudited)

	Stockholders' Equity of the Company
	Preferred Stock			Common Stock					Treasury Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Noncontrolling interest			Total Equity

	Shares	Amount		Shares		Amount

Balance as of December 31, 2011	-	$	-	56,635		$	566		$	(357,267	)	$	350,386		$	(5,474	)	$	470,776	$	11,260		$	470,247
Net income	-	-		-		-			-			-			-			15,881		936			16,817
Acquisition of noncontrolling interest	-	-		-		-			-			-			-			-		1,365			1,365
Dividends distributed to noncontrolling interest	-	-		-		-			-			-			-			-		(720		)	(720		)
Foreign currency translation adjustments	-	-		-		-			-			-			8,739			-		12			8,751
Derivatives valuation, net of tax	-	-		-		-			-			-			7,097			-		-			7,097
Vesting of restricted stock units	-	-		436		4			6,079			(9,814		)	-			-		-			(3,731		)
Exercise of stock options	-	-		28		-			390			(48		)	-			-		-			342
Excess tax benefit from equity-based awards	-	-		-		-			-			(1,017		)	-			-		-			(1,017		)
Equity-based compensation expense	-	-		-		-			-			3,388			-			-		-			3,388
Purchases of common stock	-	-		(1,421	)	(14		)	(22,642		)	-			-			-		-			(22,656		)
Other	-	-		-		-			-			-			345			-		-			345
Balance as of March 31, 2012	-	$	-	55,678		$	556		$	(373,440	)	$	342,895		$	10,707		$	486,657	$	12,853		$	480,228

The accompanying notes are an integral part of these consolidated financial statements.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	Three Months Ended March 31,
	2012			2011

Cash flows from operating activities
Net income	$	16,817		$	11,371
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,116			11,598
Amortization of contract acquisition costs	256			635
Amortization of debt issuance costs	153			228
Accretion expense	64			196
Provision for doubtful accounts	40			(208)
Loss (gain) on disposal of assets	110			-
Impairment losses	1,800			230
Deferred income taxes	(1,222		)	5,361
Excess tax benefit from equity-based awards	(462		)	(2,066)
Equity-based compensation expense	3,388			3,760
(Gain) loss on foreign currency derivatives	(299		)	(35)

Changes in assets and liabilities, net of acquisitions:
Accounts receivable	3,031			11,627
Prepaids and other assets	(7,826		)	(386)
Accounts payable and accrued expenses	(15,526		)	(23,665)
Deferred revenue and other liabilities	4,224			5,962
Net cash provided by operating activities	14,664			24,608

Cash flows from investing activities
Proceeds from grant for property, plant and equipment	110			-
Purchases of property, plant and equipment	(6,484		)	(3,870)
Acquisitions, net of cash acquired of $1,373 and zero, respectively	(4,627		)	-
Net cash used in investing activities	(11,001		)	(3,870)

Cash flows from financing activities
Proceeds from line of credit	248,550			258,900
Payments on line of credit	(227,550		)	(179,400)
Proceeds from other debt	6,821			-
Payments on other debt	(655		)	(537)
Dividends distributed to noncontrolling interest	(720		)	(990)
Proceeds from exercise of stock options	342			1,750
Excess tax benefit from equity-based awards	462			2,066
Purchase of treasury stock	(22,656		)	(33,829)
Payments of debt issuance costs	(419		)	(22)
Net cash provided by financing activities	4,175			47,938

Effect of exchange rate changes on cash and cash equivalents	8,552			1,646

Increase in cash and cash equivalents	16,390			70,322
Cash and cash equivalents, beginning of period	156,371			119,385
Cash and cash equivalents, end of period	$	172,761		$	189,707

Supplemental disclosures
Cash paid for interest	$	873		$	1,050
Cash paid for income taxes	$	1,887		$	11,860

Non-cash investing and financing activities
Acquisition of equipment through installment purchase agreements	$	-		$	110
Recognition of asset retirement obligations	$	-		$	278
Landlord incentives credited to deferred rent	$	604		$	-

The accompanying notes are an integral part of these consolidated financial statements.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) OVERVIEW AND BASIS OF PRESENTATION

Overview

TeleTech Holdings, Inc. and its subsidiaries (“TeleTech” or the “Company”) serve their clients through the primary businesses of Business Process Outsourcing (“BPO”), which includes data-driven strategic consulting and marketing services, customer management, hosted and managed technologies, for a variety of industries via operations in the U.S., Argentina, Australia, Belgium, Brazil, Canada, China, Costa Rica, England, France, Germany, Ghana, Italy, Kuwait, Lebanon, Mexico, New Zealand, Northern Ireland, the Philippines, Scotland, South Africa, Spain, Turkey and the United Arab Emirates.

Basis of Presentation

The Consolidated Financial Statements are comprised of the accounts of TeleTech, its wholly owned subsidiaries, its 55% equity owned subsidiary Percepta, LLC, its 80% interest in Peppers & Rogers Group (“PRG”) and its 80% interest in iKnowtion which was acquired on February 27, 2012 (see Note 2 for additional information). All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of March 31, 2012, and the consolidated results of operations and comprehensive income and cash flows of the Company for the three months ended March 31, 2012 and 2011. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Certain amounts for 2011 have been reclassified in the Consolidated Financial Statements to conform to the 2012 presentation.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates including those related to derivatives and hedging activities, income taxes including the valuation allowance for deferred tax assets, self-insurance reserves, litigation reserves, restructuring reserves, allowance for doubtful accounts and valuation of goodwill, long-lived and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Recently Issued Accounting Pronouncements

In May 2011, the FASB amended its guidance, to converge fair value measurement and disclosure guidance in U.S. GAAP with International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board. The amendment changes the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The FASB does not intend for the amendment to result in a change in the application of the requirements in the current authoritative guidance. The amendment became effective prospectively for the Company’s interim period ended March 31, 2012. The adoption of this guidance did not have a material impact on its financial position, results of operations or cash flows.

In June 2011, the FASB amended its guidance on the presentation of comprehensive income. Under the amended guidance, an entity has the option to present comprehensive income in either one or two consecutive financial statements. The Company decided to present a single statement setting the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income. The amendment became effective retrospectively for the Company’s interim period ended March 31, 2012.

In December 2011, the FASB issued additional guidance related to the presentation of other comprehensive income. This guidance is intended to allow the FASB time to re-deliberate whether it is necessary to require entities to present the effects of reclassifications out of accumulated other comprehensive income in both the statement in which net income is presented and the statement in which other comprehensive income is presented. This guidance defers the effective date of only those provisions in the other comprehensive income guidance that relate to the presentation of reclassification adjustments out of other comprehensive income and reinstates the previous requirements to present reclassification adjustments either on the face of the statement in which other comprehensive income is reported or to disclose them in a note to the financial statements. The amendments in this new guidance became effective at the same time as the amendments in the other comprehensive income guidance explained above. The Company’s adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.

(2) ACQUISITIONS

OnState

On January 1, 2012, the Company entered into an asset purchase agreement with OnState Communications Corporation (“OnState”) to acquire 100% of its assets and assume certain of its liabilities for total cash consideration of $3.3 million. OnState provides hosted business process outsourcing solutions to a variety of small businesses. OnState was headquartered in Boston, MA with a minimal employee base.

The Company paid $3.1 million towards the purchase price with the remaining $0.2 million payable during the second quarter of 2012. The $0.2 million was included within Other accrued expenses in the accompanying Consolidated Balance Sheets as of March 31, 2012. The Company paid $0.1 million of acquisition related expenses as part of the OnState purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income during the three months ended March 31, 2012.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands). The estimates of fair value of identifiable assets acquired and liabilities assumed, are preliminary, pending completion of the valuation, thus are subject to revisions that may result in adjustments to the values presented below:

	Preliminary Estimates of Acquisition Date Fair Value
Cash	$	36
Accounts Receivable	68
Property, plant and equipment	33
Software	2,100
Goodwill	1,132
	3,369

Accounts payable	93

Total purchase price	$	3,276

The software acquired will be amortized over four years as soon as the software is placed into service. The goodwill recognized from the OnState acquisition is primarily attributable to incorporating the acquired software into current technology platforms in addition to the acquisition of the employees who developed the acquired software. Since this acquisition is considered an asset acquisition for tax purposes, the goodwill and software will be deductible.

iKnowtion

On February 27, 2012, the Company acquired an 80% interest in iKnowtion, LLC (“iKnowtion”). iKnowtion integrates proven marketing analytics methodologies and business consulting capabilities to help clients improve their return on marketing expenditures in such areas as demand generation, share of wallet, and channel mix optimization. iKnowtion is located in Boston, MA and has approximately 40 employees.

The up-front cash consideration paid was $1.0 million. The Company is also obligated to pay a working capital adjustment equivalent to any acquired working capital from iKnowtion in excess of a working capital floor as defined in the purchase and sale agreement. As of March 31, 2012, the working capital adjustment was estimated to be $0.2 million, which will be paid during the second quarter of 2012 and was included in Other accrued expenses in the accompanying Consolidated Balance Sheets.

The Company is also obligated to make earn-out payments over the next four years if iKnowtion achieves specified earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as defined by the purchase and sale agreement. The Company expects iKnowtion to achieve the maximum EBITDA targets and has calculated the fair value of these contingent payments to be approximately $4.3 million. The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 10% and expected future value of payments of $4.8 million. The fair value of the contingent consideration was $4.3 million as of March 31, 2012, of which $1.1 million and $3.2 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively.

The fair value of the 20% noncontrolling interest in iKnowtion of $1.4 million is preliminary and based on an estimate of 20% of the total purchase price.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In the event iKnowtion meets certain EBITDA targets for calendar year 2015, the purchase and sale agreement requires TeleTech to purchase the remaining 20% interest in iKnowtion in 2016 for an amount equal to a multiple of iKnowtions’s 2015 EBITDA as defined in the purchase and sale agreement. The preliminary fair value of this feature is minimal and included in the fair value of the noncontrolling interest as of March 31, 2012.

The Company paid $0.1 million of acquisition related expenses as part of the iKnowtion purchase. These costs were recorded in selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income during the three months ended March 31, 2012.

The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities and noncontrolling interest assumed as of the acquisition date (in thousands). The estimates of fair value of identifiable assets acquired and liabilities assumed, are preliminary, pending completion of the valuation, and thus are subject to revisions that will result in adjustments to the values presented below:

	Preliminary Estimates of Acquisition Date Fair Value
Cash	$	1,337
Accounts Receivable	1,792
Property, plant and equipment	161
Other assets	95
Customer relationships	1,640
Goodwill	1,996
	7,021

Accounts payable	12
Accrued expenses	19
Deferred rent	164
	195

Noncontrolling interest	1,365

Total purchase price	$	5,461

The iKnowtion customer relationships have an estimated useful life of 7 years. The goodwill recognized from the iKnowtion acquisition is primarily attributable to the acquired workforce of iKnowtion, expected synergies, and other factors. None of the goodwill is deductible for income tax purposes. The acquired goodwill and the operating results of iKnowtion are reported within the Customer Strategy Services segment from the date of acquisition.

eLoyalty

On May 28, 2011, the Company acquired certain assets and assumed certain liabilities of eLoyalty Corporation (“eLoyalty”), related to the Integrated Contract Solutions (“ICS”) business unit, and the eLoyalty trade name. The ICS business unit focuses on helping clients improve customer service business performance through the implementation of a variety of service centers. The ICS business unit generates revenue in three ways: (i) managed services that support and maintain clients’ customer service center environment over the long-term; (ii) consulting services that assist the customer in implementation and integration of a customer service center solution; and (iii) product resale through the sale of third party software and hardware. eLoyalty operates out of an office in Austin, TX with an additional administrative location in Chicago, IL and has approximately 160 employees.

The up-front cash consideration in the eLoyalty transaction was $40.9 million, subject to certain balance sheet adjustments of ($2.9) million as defined in the purchase and sale agreement, for a total purchase price of $38.0 million, all of which was paid by December 31, 2011.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):

	Acquisition Date Fair Value
Cash	$	14
Accounts Receivable	7,702
Prepaid assets - cost deferrals	14,726
Property, plant and equipment	897
Other assets	869
Deferred tax asset	3,735
Customer relationships	11,700
Software	1,200
Noncompete agreements	900
Trade name	3,300
Consulting services backlog	500
Goodwill	18,516
	64,059

Accounts payable	2,156
Accrued expenses	1,211
Deferred revenue	22,525
Other	192
	26,084

Total purchase price	$	37,975

The customer relationship intangible asset is being amortized over 11 years. The goodwill recognized from the eLoyalty acquisition is attributable primarily to the assembled workforce of eLoyalty and significant opportunity for Company growth and marketing based on additional service offerings and capabilities. Since this acquisition is treated as an asset acquisition for tax purposes, the goodwill and associated intangible assets will be deductible for income tax purposes. The operating results of eLoyalty are reported within the Customer Technology Services segment from the date of acquisition.

The acquired businesses contributed revenues of $21.1 million and income from operations of $2.4 million to the Company for the quarter ended March 31, 2012.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(3) SEGMENT INFORMATION

Effective January 1, 2012, the Company completed certain changes focused on streamlining the organization to more closely align the Company’s reporting structure with its products and services and to increase management accountability. Beginning in the first quarter of 2012, the Company will now report the following four segments:

· the Customer Management Services segment includes the customer experience delivery solutions which integrate innovative technology with highly-trained customer experience professionals to optimize the customer experience across all channels and all stages of the customer lifecycle from an onshore, offshore or work-from-home environment;

· the Customer Growth Services segment includes the technology-enabled sales and marketing business;

· the Customer Technology Services segment includes the hosted and managed technology offerings, including certain acquired assets of eLoyalty; and

· the Customer Strategy Services segment includes the customer experience strategy and data analytics offerings.

TeleTech revised previously reported segment information to conform to its new segments in effect as of January 1, 2012.

All intercompany transactions between the reported segments for the periods presented have been eliminated.

The following tables present certain financial data by segment (amounts in thousands):

Q1 2012

		Gross Revenue		Intersegment Sales		Net Revenue		Depreciation & Amortization		Income (Loss) from Operations
Customer Management Services	$		234,876	$	-	$	234,876	$	6,140	$	45,422
Customer Growth Services		22,764		-		22,764		565		1,079
Customer Technology Services		26,484		(931)		25,553		787		3,635
Customer Strategy Services		10,362		(901)		9,461		350		885
Total segments		294,486		(1,832)		292,654		7,842		51,021

Corporate		-		-		-		2,274		(32,271)
Total	$		294,486	$	(1,832)	$	292,654	$	10,116	$	18,750

Q1 2011

		Gross Revenue		Intersegment Sales		Net Revenue		Depreciation & Amortization		Income (Loss) from Operations
Customer Management Services	$		246,073	$	-	$	246,073	$	8,431	$	48,251
Customer Growth Services		22,143		-		22,143		785		2,982
Customer Technology Services		4,657		-		4,657		69		2,712
Customer Strategy Services		8,106		-		8,106		299		463
Total segments		280,979		-		280,979		9,584		54,408

Corporate		-		-		-		2,014		(32,918)
Total	$		280,979	$	-	$	280,979	$	11,598	$	21,490

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Three Months Ended March 31,
	2012		2011
Capital Expenditures
Customer Management Services	$	2,178	$	2,121
Customer Growth Services	369		106
Customer Technology Services	326		70
Customer Strategy Services	66		138
Corporate	3,545		1,435
Total	$	6,484	$	3,870

	March 31, 2012		December 31, 2011
Total Assets
Customer Management Services	$	479,624	$	479,818
Customer Growth Services	46,388		50,950
Customer Technology Services	82,442		70,745
Customer Strategy Services	50,340		42,882
Corporate	112,321		102,583
Total	$	771,115	$	746,978

	March 31, 2012		December 31, 2011
Goodwill
Customer Management Services	$	20,691	$	20,594
Customer Growth Services	24,439		24,439
Customer Technology Services	19,648		18,516
Customer Strategy Services	9,291		7,295
Total	$	74,069	$	70,844

The following table presents revenue based upon the geographic location where the services are provided (amounts in thousands):

	Three Months Ended March 31,
	2012		2011
Revenue
United States	$	110,576	$	84,629
Philippines	78,665		83,507
Latin America	47,896		55,598
Europe / Middle East / Africa	38,366		39,758
Canada	12,953		12,798
Asia Pacific	4,198		4,689
Total	$	292,654	$	280,979

(4) SIGNIFICANT CLIENTS and other concentrations

The Company did not have any clients that contributed in excess of 10% of total revenue for the three months ended March 31, 2012 or 2011.

The loss of one or more of its significant clients could have a material adverse effect on the Company’s business, operating results, or financial condition. The Company does not require collateral from its clients. To limit the Company’s credit risk, management performs periodic credit evaluations of its clients and maintains allowances for uncollectible accounts and may require pre-payment for services. Although the Company is impacted by economic conditions in various industry segments, management does not believe significant credit risk existed as of March 31, 2012.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(5) GOODWILL

Goodwill consisted of the following (amounts in thousands):

	December 31, 2011		Acquisitions		Impairments		Effect of Foreign Currency		March 31, 2012

Customer Management Services	$	20,594	$	-	$	-	$	97	$	20,691
Customer Growth Services	24,439		-		-		-		24,439
Customer Technology Services	18,516		1,132		-		-		19,648
Customer Strategy Services	7,295		1,996		-		-		9,291
Total	$	70,844	$	3,128	$	-	$	97	$	74,069

The Company performs a goodwill impairment test on at least an annual basis. The Company conducts its annual goodwill impairment test during the fourth quarter, or more frequently, if indicators of impairment exist. During the quarter ended March 31, 2012, the Company assessed whether any such indicators of impairment existed and concluded that there were none.

(6) DERIVATIVES

Cash Flow Hedges

The Company enters into foreign exchange and interest rate related derivatives. Foreign exchange derivatives entered into consist of forward and option contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations. Interest rate derivatives consist of interest rate swaps to reduce the Company’s exposure to interest rate fluctuations associated with its variable rate debt. Upon proper qualification, these contracts are designated as cash flow hedges. It is the Company’s policy to only enter into derivative contracts with investment grade counterparty financial institutions, and correspondingly, the fair value of derivative assets consider, among other factors, the creditworthiness of these counterparties. Conversely, the fair value of derivative liabilities reflects the Company’s creditworthiness. As of March 31, 2012, the Company has not experienced, nor does it anticipate, any issues related to derivative counterparty defaults. The following table summarizes the aggregate unrealized net gain or loss in Accumulated other comprehensive income (loss) for the three months ended March 31, 2012 and 2011 (amounts in thousands and net of tax):

	Three Months Ended March 31,
	2012		2011

Aggregate unrealized net gain/(loss) at beginning of year	$	(5,852)	$	7,091
Add: Net gain/(loss) from change in fair value of cash flow hedges	7,071		758
Less: Net (gain)/loss reclassified to earnings from effective hedges	26		(2,215)
Aggregate unrealized net gain/(loss) at end of period	$	1,245	$	5,634

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company’s foreign exchange cash flow hedging instruments as of March 31, 2012 and December 31, 2011 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts unless noted otherwise.

As of March 31, 2012	Local Currency Notional Amount	U.S. Dollar Notional Amount			% Maturing in the Next 12 Months	Contracts Maturing Through
Canadian Dollar	20,500	$	19,935		62.2 %	March 2014
Costa Rican Colon	1,250,000	2,415			100.0 %	August 2012
Philippine Peso	11,260,000	255,373		(1)	48.3 %	December 2014
Mexican Peso (Forwards)	952,000	70,505			40.7 %	November 2014
Mexican Peso (Collars)	105,224	9,000		(3)	100.0 %	December 2012
British Pound Sterling	7,484	11,832		(2)	53.0 %	June 2014
		$	369,060

As of December 31, 2011	Local Currency Notional Amount	U.S. Dollar Notional Amount
Canadian Dollar	25,750	$	25,137
Costa Rican Colon	2,000,000	3,874
Philippine Peso	13,304,000	301,361		(1)
Mexican Peso (Forwards)	1,081,000	80,735
Mexican Peso (Collars)	140,298	12,000		(4)
British Pound Sterling	8,808	13,822		(2)
		$	436,929

(1) Includes contracts to purchase Philippine pesos in exchange for New Zealand dollars and Australian dollars, which are translated into equivalent U.S. dollars on March 31, 2012 and December 31, 2011.

(2) Includes contracts to purchase British pound sterling in exchange for Euros, which are translated into equivalent U.S. dollars on March 31, 2012 and December 31, 2011.

(3) The Mexican peso collars include call options with a floor total of MXN 105.2 million and put options with a cap total of MXN (120.2 million) as of March 31, 2012.

(4) The Mexican peso collars include call options with a floor total of MXN 140.3 million and put options with a cap total of MXN (157.0 million) as of December 31, 2011.

The Company’s interest rate swap arrangements as of March 31, 2012 and December 31, 2011 were as follows:

Notional
Amount

Variable Rate
Received

Fixed Rate
Paid

Contract
Commencement
Date

Contract
Maturity
Date

As of March 31, 2012

25 million

1 - month LIBOR

2.55 %

April 2012

April 2016

15 million

1 - month LIBOR

3.14 %

May 2012

May 2017

40 million

As of December 31, 2011

25 million

1 - month LIBOR

2.55 %

April 2012

April 2016

15 million

1 - month LIBOR

3.14 %

May 2012

May 2017

40 million

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Fair Value Hedges

The Company enters into foreign exchange forward contracts to economically hedge against foreign currency exchange gains and losses on certain receivables and payables of the Company’s foreign operations. Changes in the fair value of derivative instruments designated as fair value hedges are recognized in earnings in Other income (expense), net. As of March 31, 2012 and December 31, 2011 the total notional amount of the Company’s forward contracts used as fair value hedges were $67.3 million and $49.8 million, respectively.

Embedded Derivatives

In addition to hedging activities, the Company’s foreign subsidiary in Argentina was party to U.S. dollar denominated lease contracts which the Company determined contain embedded derivatives. As such, the Company bifurcates the embedded derivative features of the lease contracts and valued these features as foreign currency derivatives. During 2011, the Company amended its leases to remove the embedded derivative feature which reduced the fair value to zero as of December 31, 2011.

Derivative Valuation and Settlements

The Company’s derivatives as of March 31, 2012 and December 31, 2011 were as follows (amounts in thousands):

	March 31, 2012
	Designated as Hedging Instruments				Not Designated as Hedging Instruments
Derivative contracts:	Foreign Exchange		Interest Rate		Foreign Exchange		Leases
Derivative classification:	Cash Flow		Cash Flow		Fair Value		Embedded Derivative

Fair value and location of derivative in the Consolidated Balance Sheet:
Prepaids and other current assets	$	4,237	$	-	$	9	$	-
Other long-term assets	3,046		-		-		-
Other current liabilities	(2,135)		-		(38)		-
Other long-term liabilities	(377)		(2,535)		-		-
Total fair value of derivatives, net	$	4,771	$	(2,535)	$	(29)	$	-

	December 31, 2011
	Designated as Hedging Instruments				Not Designated as Hedging Instruments
Derivative contracts:	Foreign Exchange		Interest Rate		Foreign Exchange		Leases
Derivative classification:	Cash Flow		Cash Flow		Fair Value		Embedded Derivative

Fair value and location of derivative in
the Consolidated Balance Sheet:
Prepaids and other current assets	$	2,325	$	-	$	12	$	-
Other long-term assets	1,119		-		-		-
Other current liabilities	(7,828)		-		(341)		-
Other long-term liabilities	(2,786)		(2,263)		-		-
Total fair value of derivatives, net	$	(7,170)	$	(2,263)	$	(329)	$	-

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011 were as follows (amounts in thousands):

	Three Months Ended March 31,
	2012				2011
	Designated as Hedging Instruments				Designated as Hedging Instruments
Derivative contracts:	Foreign Exchange		Interest Rate		Foreign Exchange		Interest Rate
Derivative classification:	Cash Flow		Cash Flow		Cash Flow		Cash Flow

Amount of gain or (loss) recognized in other comprehensive income - effective portion, net of tax:	$	7,234	$	(163)	$	570	$	188

Amount and location of net gain or (loss) reclassified from accumulated OCI to income - effective portion:
Revenue	$	(43)	$	-	$	3,691	$	-

Amount and location of net gain or (loss) reclassified from accumulated OCI to income - ineffective portion and amount excluded from effectiveness testing:
Other income (expense), net	$	-	$	-	$	-	$	-

	Three Months Ended March 31,
	2012						2011
	Not Designated as Hedging Instruments						Not Designated as Hedging Instruments
Derivative contracts:	Foreign Exchange				Leases		Foreign Exchange				Leases
Derivative classification:	Option and Forward Contracts		Fair Value		Embedded Derivative		Option and Forward Contracts		Fair Value		Embedded Derivative

Amount and location of net gain or (loss) recognized in the Consolidated Statement of Operations:
Costs of services	$	-	$	-	$	-	$	-	$	-	$	44
Other income (expense), net	$	-	$	2,169	$	-	$	-	$	711	$	-

(7) FAIR VALUE

The authoritative guidance for fair value measurements establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following presents information as of March 31, 2012 and December 31, 2011 of the Company’s assets and liabilities required to be measured at fair value on a recurring basis, as well as the fair value hierarchy used to determine their fair value.

Accounts Receivable and Payable - The amounts recorded in the accompanying balance sheets approximate fair value because of their short-term nature.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Debt - The Company’s debt consists primarily of the Company’s Credit Agreement, which permits floating-rate borrowings based upon the current Prime Rate or LIBOR plus a credit spread as determined by the Company’s leverage ratio calculation (as defined in the Credit Agreement). As of March 31, 2012 and December 31, 2011, the Company had $85.0 million and $64.0 million, respectively, of borrowings outstanding under the Credit Agreement. During the first quarter of 2012 outstanding borrowings accrued interest at an average rate of 1.6% per annum, excluding unused commitment fees. The amounts recorded in the accompanying balance sheets approximate fair value due to the variable nature of the debt.

Derivatives - Net derivative assets (liabilities) are measured at fair value on a recurring basis. The portfolio is valued using models based on market observable inputs, including both forward and spot foreign exchange rates, interest rates, implied volatility, and counterparty credit risk, including the ability of each party to execute its obligations under the contract. As of March 31, 2012, credit risk did not materially change the fair value of the Company’s derivative contracts.

The following is a summary of the Company’s fair value measurements for its net derivative assets (liabilities) as of March 31, 2012 and December 31, 2011 (amounts in thousands):

As of March 31, 2012

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		At Fair Value
Cash flow hedges	$	-	$	4,771	$	-	$	4,771
Interest rate swaps	-		(2,535)		-		(2,535)
Fair value hedges	-		(29)		-		(29)
Total net derivative asset (liability)	$	-	$	2,207	$	-	$	2,207

As of December 31, 2011

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		At Fair Value
Cash flow hedges	$	-	$	(7,170)	$	-	$	(7,170)
Interest rate swaps	-		(2,263)		-		(2,263)
Fair value hedges	-		(329)		-		(329)
Total net derivative asset (liability)	$	-	$	(9,762)	$	-	$	(9,762)

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following is a summary of the Company’s fair value measurements as of March 31, 2012 and December 31, 2011 (amounts in thousands):

As of March 31, 2012

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Money market investments	$	-	$	523	$	-
Derivative instruments, net	-		2,207		-
Total assets	$	-	$	2,730	$	-

Liabilities
Deferred compensation plan liability	$	-	$	(4,761)	$	-
Derivative instruments, net	-		-		-
Purchase price payable	-		-		(4,303)
Total liabilities	$	-	$	(4,761)	$	(4,303)

As of December 31, 2011

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
	(Level 1)		(Level 2)			(Level 3)
Assets
Money market investments	$	-	$	507		$	-
Derivative instruments, net	-		-			-
Total assets	$	-	$	507		$	-

Liabilities
Deferred compensation plan liability	$	-	$	(3,990	)	$	-
Derivative instruments, net	-		(9,762		)	-
Purchase price payable	-		-			(4,985)
Total liabilities	$	-	$	(13,752	)	$	(4,985)

Money Market Investments — The Company invests in various well-diversified money market funds which are managed by financial institutions. These money market funds are not publicly traded, but have historically been highly liquid. The value of the money market funds are determined by the banks based upon the funds’ net asset values (“NAV”). All of the money market funds currently permit daily investments and redemptions at a $1.00 NAV.

Deferred Compensation Plan — The Company maintains a non-qualified deferred compensation plan structured as a Rabbi trust for certain eligible employees. Participants in the deferred compensation plan select from a menu of phantom investment options for their deferral dollars offered by the Company each year, which are based upon changes in value of complementary, defined market investments. The deferred compensation liability represents the combined values of market investments against which participant accounts are tracked.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Purchase Price Payable — The Company recorded a purchase price payable related to the acquisition of iKnowtion. The purchase price payable was recognized at fair value using a discounted cash flow approach and a discount rate of 10.0%. This measurement was based on significant inputs not observable in the market. The Company will record accretion expense each period using the effective interest method until the future value of this purchase price payable reaches $4.8 million in 2016. Accretion expense related to all recorded purchase price payables is included in Interest expense in the Consolidated Statements of Comprehensive Income.

The Company also had a future payable related to the purchase of PRG. As part of the PRG acquisition, the Company paid the previously recognized purchase price payable of $5.0 million on March 1, 2012. The Company recorded accretion expense each period using the effective interest rate method until the payable reached the $5.0 million payment.

(8) INCOME TAXES

The Company accounts for income taxes in accordance with the accounting literature for income taxes, which requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the Consolidated Financial Statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. Quarterly, the Company assesses the likelihood that its net deferred tax assets will be recovered. Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit will not be realized.

On February 20, 2011, the Company received notice of an adverse decision by the Canadian Revenue Agency (“CRA”) in regards to the Company’s attempt to recover taxes paid to Canada with respect to the years 2001 and 2002. In 2005, through the Competent Authority process, the Company sought relief under the United States-Canada Income Tax Convention for avoidance of double taxation arising from adjustments to the taxable income originally reported to these jurisdictions. Consistent with accounting for tax positions that no longer meet the recognition criteria, the Company derecognized income tax positions totaling $8.6 million through income tax expense in the first quarter of 2011. The Company continues to believe in the merits of its claim for which it sought relief from double taxation through the Competent Authority process. In response to the February 2011 notice, the Company has filed for Judicial Review in the Federal Court of Canada seeking a writ of mandamus to compel the CRA to accept the Company’s application for Competent Authority consideration.

On December 20, 2011, the Company received written notice from the Internal Revenue Service that the Joint Committee on Taxation had completed its consideration of the mediated settlement reached with the IRS concerning tax refund claims and taken no exception to the conclusions reached. During 2011, the Company recognized, as a reduction to income tax expense, income tax positions (including interest net of tax) of $11.7 million related to these claims. During the first quarter of 2012, the Company fully collected these amounts.

As of March 31, 2012, the Company had $51.5 million of gross deferred tax assets (after a $15.0 million valuation allowance) and net deferred tax assets (after deferred tax liabilities) of $46.5 million related to the U.S. and international tax jurisdictions whose recoverability is dependent upon future profitability.

The effective tax rate for the three months ended March 31, 2012 and 2011 was 9.9% and 46.4%, respectively.

The Company is currently under audit of income taxes in the Philippines for 2008. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company’s Consolidated Financial Statements.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(9) RESTRUCTURING CHARGES AND IMPAIRMENT LOSSES

Restructuring Charges

During the three months ended March 31, 2012 and 2011, the Company undertook a number of restructuring activities primarily associated with reductions in the Company’s capacity and workforce in both the Customer Management Services and Customer Growth Services segments to better align the capacity and workforce with current business needs.

A summary of the expenses recorded in Restructuring, net in the accompanying Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011, respectively, is as follows (amounts in thousands):

	Three Months Ended March 31,
	2012		2011
Reduction in force
Customer Management Services	$	1,544	$	852
Customer Growth Services	103		110
Customer Technology Services	-		-
Customer Strategy Services	-		-
Corporate	311		-
Total	$	1,958	$	962

	Three Months Ended March 31,
	2012		2011
Facility exit charges
Customer Management Services	$	-	$	7
Customer Growth Services	-		-
Customer Technology Services	-		-
Customer Strategy Services	-		-
Corporate	-		-
Total	$	-	$	7

A rollforward of the activity in the Company’s restructuring accruals is as follows (amounts in thousands):

	Closure of Delivery Centers		Reduction in Force		Total

Balance as of December 31, 2011	$	415	$	1,652	$	2,067
Expense	-		1,958		1,958
Payments	(30)		(1,608)		(1,638)
Reversals	-		-		-
Balance as of March 31, 2012	$	385	$	2,002	$	2,387

The remaining restructuring accruals are expected to be paid or extinguished during 2012 and are all classified as current liabilities within Accrued employee compensation and benefits in the Consolidated Balance Sheet.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Impairment Losses

During each of the periods presented, the Company evaluated the recoverability of its leasehold improvement assets at certain delivery centers. An asset is considered to be impaired when the anticipated undiscounted future cash flows of an asset group are estimated to be less than the asset group’s carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. To determine fair value, the Company used Level 3 inputs in its discounted cash flows analysis. Assumptions included the amount and timing of estimated future cash flows and assumed discount rates. During the three months ended March 31, 2012 and 2011, the Company recognized zero and $0.2 million, respectively, of losses related to leasehold improvement assets in the Customer Management Services segment.

During the first quarter of 2012, the Company elected to rebrand the Direct Alliance Corporation (“DAC”) subsidiary to Revana. Based on this decision and management’s intention not to use the DAC name on a go-forward basis, the future cash flows associated with the trade name indefinite-lived intangible asset that was established as part of the purchase price accounting of DAC in 2006 is less than the asset’s carrying value. Thus the $1.8 million asset was impaired as of March 31, 2012. This expense was included in the Impairment losses in the Consolidated Statements of Comprehensive Income.

(10) COMMITMENTS AND CONTINGENCIES

Credit Facility

On October 1, 2010, the Company entered into a five-year, $350.0 million revolving line of credit agreement (the “Credit Agreement”) with a syndicate of lenders led by KeyBank National Association, Wells Fargo Bank, National Association, Bank of America, N.A., BBVA Compass, and JPMorgan Chase Bank, N.A. On March 27, 2012, the Company amended the Credit Agreement by increasing the aggregate commitment by $150.0 million to $500.0 million and revising certain definitions.

The Company primarily utilizes its Credit Agreement to fund working capital, general operating purposes, stock repurchases and other strategic purposes, such as the acquisitions described in Note 2. As of March 31, 2012 and December 31, 2011, the Company had borrowings of $85.0 million and $64.0 million, respectively, under our Credit Agreement, and our average daily utilization was $126.1 million and $71.3 million for the three months ended March 31, 2012 and 2011, respectively. After consideration for issued letters of credit under the Credit Agreement, totaling $4.4 million, our remaining borrowing capacity was $410.6 million as of March 31, 2012. As of March 31, 2012, the Company was in compliance with all covenants and conditions under its Credit Agreement.

Letters of Credit

As of March 31, 2012, outstanding letters of credit under the Credit Agreement totaled $4.4 million and primarily guaranteed workers’ compensation and other insurance related obligations. As of March 31, 2012, letters of credit and contract performance guarantees issued outside of the Credit Agreement totaled $1.3 million.

Guarantees

Indebtedness under the Credit Agreement is guaranteed by certain of the Company’s present and future domestic subsidiaries.

Legal Proceedings

From time to time, the Company has been involved in claims and lawsuits, both as plaintiff and defendant, which arise in the ordinary course of business. Accruals for claims or lawsuits have been provided for to the extent that losses are deemed both probable and estimable. Although the ultimate outcome of these claims or lawsuits cannot be ascertained, on the basis of present information and advice received from counsel, the Company believes that the disposition or ultimate resolution of such claims or lawsuits will not have a material adverse effect on its financial position, cash flows or results of operations.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(11) NONCONTROLLING INTEREST

The following table reconciles equity attributable to noncontrolling interest (amounts in thousands):

	Three Months Ended March 31,
	2012		2011
Noncontrolling interest, January 1	$	11,260	$	11,092
Acquisition of noncontrolling interest	1,365		-
Net income attributable to noncontrolling interest	936		898
Dividends distributed to noncontrolling interest	(720)		(990)
Foreign currency translation adjustments	12		53
Noncontrolling interest, March 31	$	12,853	$	11,053

(12) NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted shares for the periods indicated (amounts in thousands):

	Three Months Ended March 31,
	2012	2011
Shares used in basic earnings per share calculation	56,493	57,190
Effect of dilutive securities:
Stock options	396	951
Restricted stock units	529	656
Performance-based restricted stock units	-	-
Total effects of dilutive securities	925	1,607
Shares used in dilutive earnings per share calculation	57,418	58,797

For the three months ended March 31, 2012 and 2011, options to purchase 0.1 million and 0.1 million shares of common stock, respectively, were outstanding, but not included in the computation of diluted net income per share because the exercise price exceeded the value of the shares and the effect would have been anti–dilutive. For the three months ended March 31, 2012 and 2011, restricted stock units (“RSUs”) of 1.2 million and 0.5 million, respectively, were outstanding, but not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

(13) EQUITY-BASED COMPENSATION PLANS

All equity–based awards to employees are recognized in the Consolidated Statements of Comprehensive Income at the fair value of the award on the grant date. During the three months ended March 31, 2012 and 2011, the Company recognized total compensation expense of $3.4 million and $3.7 million, respectively. Of the total compensation expense, $0.5 million and $0.4 million was recognized in Cost of services and $2.9 million and $3.3 million was recognized in Selling, general and administrative.

Stock Options

As of March 31, 2012, there was approximately $1.0 million of total unrecognized compensation cost (including the impact of expected forfeitures) related to unvested option arrangements granted under the Company’s equity plans. The Company recognizes compensation expense straight–line over the vesting term of the option grant. The Company recognized compensation expense related to stock options of approximately $130,000 and $14,000 for the three months ended March 31, 2012 and 2011, respectively.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Restricted Stock Unit Grants

During the three months ended March 31, 2012 and 2011, the Company granted 438,500 and 489,500 restricted stock units (“RSUs”), respectively, to new and existing employees, which vest in equal installments over four or five years. The Company recognized compensation expense related to RSUs of $3.3 million and $3.7 million for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, there was approximately $35.6 million of total unrecognized compensation cost (including the impact of expected forfeitures) related to RSUs granted under the Company’s equity plans.

As of March 31, 2012 and 2011, the Company had performance-based RSUs outstanding that vest based on the Company achieving specified revenue and operating income performance targets. The Company determined that it was not probable these performance targets would be met; therefore no expense was recognized for the three months ended March 31, 2012 or 2011.

Cash Based Awards

During the three months ended March 31, 2012, the Company granted 30,000 cash based awards that vest over a period of five years. These awards will be settled in cash equal to the Company’s stock price on each vesting date. Since these awards are settled in cash, the Company marks-to-market the associated expense for each award at the end of each reporting period. The Company accounts for these as liability awards and marks to market the fair value of the award until final settlement.

As of the March 31, 2012 Company stock price, there was approximately $0.4 million of total unrecognized compensation cost related to unvested cash based awards. The Company recognized approximately $7,000 of compensation expense related to these cash based awards for the three months ended March 31, 2012.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10–K for the year ended December 31, 2011. Except for historical information, the discussion below contains certain forward–looking statements that involve risks and uncertainties. The projections and statements contained in these forward–looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward–looking statements.

All statements not based on historical fact are forward–looking statements that involve substantial risks and uncertainties. In accordance with the Private Securities Litigation Reform Act of 1995, the following are important factors that could cause our actual results to differ materially from those expressed or implied by such forward–looking statements, including but not limited to the following: achieving estimated revenue from new, renewed and expanded client business as volumes may not materialize as forecasted, especially due to the global economic slowdown; the ability to close and ramp new business opportunities that are currently being pursued or that are in the final stages with existing and/or potential clients; our ability to execute our growth plans, including the successful integration of acquired companies and the sales of new products; the possibility of lower revenue or price pressure from our clients experiencing a business downturn or merger in their business; greater than anticipated competition in the customer management industry, causing adverse pricing and more stringent contractual terms; risks associated with losing or not renewing client relationships, particularly large client agreements, or early termination of a client agreement; the risk of losing clients due to consolidation in the industries we serve; consumers’ concerns or adverse publicity regarding our clients’ products; our ability to find cost effective locations, obtain favorable lease terms and build or retrofit facilities in a timely and economic manner; risks associated with business interruption due to weather, fires, pandemic, or terrorist–related events; risks associated with attracting and retaining cost–effective labor at our delivery centers; the possibility of asset impairments and restructuring charges; risks associated with changes in foreign currency exchange rates; economic or political changes affecting the countries in which we operate; changes in accounting policies and practices promulgated by standard setting bodies; and new legislation or government regulation that adversely impacts our tax obligations, health care costs or the customer management industry.

This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere in this report. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business and should be read in conjunction with the more detailed cautionary statements included in our 2011 Annual Report on Form 10-K under the caption Item 1A. “Risk Factors,” in our other Securities and Exchange Commission filings and in our press releases.

Executive Summary

TeleTech is one of the largest and most geographically diverse global providers of customer experience strategy, technology and business process outsourcing solutions. We have a 30-year history of designing, building, implementing and managing superior customer experiences across the customer lifecycle in order to maximize revenue, increase brand loyalty and optimize business processes. By delivering a high-quality customer experience through the effective integration of customer-facing, front-office processes with internal back-office processes, we enable our clients to better serve, grow and retain their customer base. We support more than 425 unique programs for approximately 175 global clients, many of whom are included in the Global 1000, which are the world’s largest companies based on market capitalization, in the automotive, broadband, cable, financial services, government, healthcare, logistics, media and entertainment, retail, technology, travel, and wireline and wireless communication industries.

Our fully integrated suite of technology-enabled customer-centric services span:

· Professional Services. Leveraging our proprietary, data-driven methodology, our team of management consultants partner with clients to build the business case and design the roadmap for implementing a customer-centric business strategy. We utilize highly sophisticated customer analytics to create technology-enabled, multi-channel interaction strategies to optimize and personalize the customer experience, increase brand loyalty and help clients achieve their business and financial objectives.

· Revenue Generation. Through our data-driven sales and marketing capabilities we help our clients improve revenue and profitability by targeting new or underpenetrated markets and maximizing the revenue potential of each customer. We deliver more than $1 billion in annual revenue for our clients via more than 700 TeleTech-designed and managed client-branded e-commerce websites. We also process more than three terabytes of customer data daily to create and implement sophisticated customer targeting and segmentation strategies to maximize customer acquisition, retention and growth.

· Customer Innovation Solutions. We redesign and manage clients’ front-office processes to deliver just-in-time, personalized, multi-channel customer experiences. Leveraging our highly trained customer experience professionals within our onshore and offshore delivery centers as well as our TeleTech@Home work-from-home associates, our solutions integrate voice, chat, e-mail, ecommerce and social media to optimize the customer experience for our clients.

· Enterprise Innovation Solutions. We redesign and manage clients’ back-office processes, such as administration, finance, accounting, logistics and distribution, to significantly advance clients’ abilities to obtain a customer-centric view of their relationships, and maximize operating efficiencies. Our delivery of integrated business processes via on our onshore, offshore or work-from-home customer experience professionals reduces operating costs and allows customer needs to be met more quickly and efficiently, resulting in higher customer satisfaction and brand loyalty and an improved competitive position.

· Managed Technology Solutions. We offer software and infrastructure as a service on a fully hosted basis. In addition, we provide the design, implementation and ongoing management of clients’ premise-based delivery center environments to enable companies to deliver a superior customer experience across all touch points on a global scale with higher quality, lower costs and reduced risk.

· Learning Innovation Training Solutions. We offer workforce training services via a blended methodology which includes virtual job-simulation environments, eLearning courses, interactive social media networking and collaboration, as well as intuitive 3D and game-based learning courses to increase speed to proficiency, improve employee engagement and retention while also lowering training expenses.

· Data Analytics.