Edgar Filing: TELETECH HOLDINGS INC

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2013

o 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 x 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 x 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 x

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

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 25, 2013, there were 52,181,147 shares of the registrant’s common stock outstanding.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

MARCH 31, 2013 FORM 10-Q

TABLE OF CONTENTS

		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012	1

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012 (unaudited)	2

	Consolidated Statement of Equity as of and for the three months ended March 31, 2013 (unaudited)	3

	Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited)	4

	Notes to the Unaudited Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	38

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	39

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

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

	March 31, 2013			December 31, 2012
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	170,551		$	164,485
Accounts receivable, net	245,836			251,206
Prepaids and other current assets	62,583			58,702
Deferred tax assets, net	5,406			14,169
Income tax receivable	15,904			14,982
Total current assets	500,280			503,544

Long-term assets
Property, plant and equipment, net	108,351			112,276
Goodwill	95,191			94,679
Contract acquisition costs, net	1,607			1,860
Deferred tax assets, net	43,086			35,429
Other long-term assets	98,980			99,385
Total long-term assets	347,215			343,629
Total assets	$	847,495		$	847,173

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	20,219		$	23,494
Accrued employee compensation and benefits	62,354			71,621
Other accrued expenses	26,580			29,056
Income taxes payable	12,927			12,650
Deferred tax liabilities, net	323			341
Deferred revenue	27,224			26,892
Other current liabilities	8,098			7,351
Total current liabilities	157,725			171,405

Long-term liabilities
Line of credit	115,000			108,000
Deferred tax liabilities, net	2,391			3,029
Deferred rent	8,707			8,589
Other long-term liabilities	50,064			55,813
Total long-term liabilities	176,162			175,431
Total liabilities	333,887			346,836

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, 2013 and December 31, 2012	—			—
Common stock - $0.01 par value; 150,000,000 shares authorized; 52,200,947 and 52,288,567 shares outstanding as of March 31, 2013 and December 31, 2012, respectively	521			522
Additional paid-in capital	345,158			350,714
Treasury stock at cost: 29,851,306 and 29,763,686 shares as of March 31, 2013 and December 31, 2012, respectively	(432,866		)	(428,716		)
Accumulated other comprehensive income	28,547			22,981
Retained earnings	558,752			540,791
Noncontrolling interest	13,496			14,045
Total stockholders’ equity	513,608			500,337
Total liabilities and stockholders’ equity	$	847,495		$	847,173

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

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2013			2012

Revenue	$	288,383		$	292,654

Operating expenses
Cost of services (exclusive of depreciation and amortization presented separately below)	208,232			211,895
Selling, general and administrative	45,747			48,135
Depreciation and amortization	10,555			10,116
Restructuring charges, net	851			1,958
Impairment losses	—			1,800
Total operating expenses	265,385			273,904

Income from operations	22,998			18,750

Other income (expense)
Interest income	669			760
Interest expense	(1,865		)	(1,098		)
Other income (expense), net	(808		)	258
Total other income (expense)	(2,004		)	(80		)

Income before income taxes	20,994			18,670

Provision for income taxes	(2,391		)	(1,853		)

Net income	18,603			16,817

Net income attributable to noncontrolling interest	(642		)	(936		)

Net income attributable to TeleTech stockholders	$	17,961		$	15,881

Other comprehensive income (loss)
Net income	$	18,603		$	16,817
Foreign currency translation adjustment	3,134			8,751
Derivative valuation, gross	3,390			11,671
Derivative valuation, tax effect	(1,210		)	(4,574		)
Other, net of tax	162			345
Total other comprehensive income	5,476			16,193
Total comprehensive income	24,079			33,010

Comprehensive income attributable to noncontrolling interest	(552		)	(948		)

Comprehensive income attributable to TeleTech stockholders	$	23,527		$	32,062

Weighted average shares outstanding
Basic	52,347			56,493
Diluted	53,217			57,418

Net income per share attributable to TeleTech stockholders
Basic	$	0.34		$	0.28
Diluted	$	0.34		$	0.28

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

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

(Amounts in thousands)

(Unaudited)

	Stockholders’ Equity of the Company
	Preferred Stock			Common Stock					Treasury			Additional Paid-in			Accumulated Other Comprehensive		Retained		Noncontrolling			Total
	Shares	Amount		Shares		Amount			Stock			Capital			Income		Earnings		interest			Equity

Balance as of December 31, 2012	—	$	—	52,288		$	522		$	(428,716	)	$	350,714		$	22,981	$	540,791	$	14,045		$	500,337
Net income	—	—		—		—			—			—			—		17,961		642			18,603
Dividends distributed to noncontrolling interest	—	—		—		—			—			—			—		—		(1,109		)	(1,109		)
Foreign currency translation adjustments	—	—		—		—			—			—			3,224		—		(90		)	3,134
Derivatives valuation, net of tax	—	—		—		—			—			—			2,180		—		—			2,180
Vesting of restricted stock units	—	—		340		3			4,851			(8,813		)	—		—		—			(3,959		)
Exercise of stock options	—	—		59		1			844			(306		)	—		—		—			539
Excess tax benefit from equity-based awards	—	—		—		—			—			414			—		—		—			414
Equity-based compensation expense	—	—		—		—			—			3,149			—		—		8			3,157
Purchases of common stock	—	—		(487	)	(5		)	(9,845		)	—			—		—		—			(9,850		)
Other	—	—		—		—			—			—			162		—		—			162
Balance as of March 31, 2013	—	$	—	52,200		$	521		$	(432,866	)	$	345,158		$	28,547	$	558,752	$	13,496		$	513,608

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

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	Three Months Ended March 31,
	2013			2012

Cash flows from operating activities
Net income	$	18,603		$	16,817
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,555			10,116
Amortization of contract acquisition costs	255			256
Amortization of debt issuance costs	175			153
Imputed interest expense	346			64
Provision for doubtful accounts	76			40
Loss (gain) on disposal of assets	(107		)	110
Impairment losses	—			1,800
Deferred income taxes	3,975			(1,222		)
Excess tax benefit from equity-based awards	(800		)	(462		)
Equity-based compensation expense	3,191			3,388
(Gain) loss on foreign currency derivatives	(433		)	(299		)

Changes in assets and liabilities, net of acquisitions:
Accounts receivable	5,012			3,031
Prepaids and other assets	(7,630		)	(7,826		)
Accounts payable and accrued expenses	(19,399		)	(15,526		)
Deferred revenue and other liabilities	(7,325		)	4,224
Net cash provided by operating activities	6,494			14,664

Cash flows from investing activities
Proceeds from grant for property, plant and equipment	—			110
Purchases of property, plant and equipment, net of acquisitions	(4,105		)	(6,484		)
Acquisitions, net of cash acquired of $0 and $1,373, respectively	—			(4,627		)
Net cash used in investing activities	(4,105		)	(11,001		)

Cash flows from financing activities
Proceeds from line of credit	366,950			248,550
Payments on line of credit	(359,950		)	(227,550		)
Proceeds from other debt	3,709			6,821
Payments on other debt	(1,338		)	(655		)
Dividends distributed to noncontrolling interest	(1,109		)	(720		)
Proceeds from exercise of stock options	539			342
Excess tax benefit from equity-based awards	800			462
Purchase of treasury stock	(9,850		)	(22,656		)
Payments of debt issuance costs	—			(419		)
Net cash (used in) provided by financing activities	(249		)	4,175

Effect of exchange rate changes on cash and cash equivalents	3,926			8,552

Increase in cash and cash equivalents	6,066			16,390
Cash and cash equivalents, beginning of period	164,485			156,371
Cash and cash equivalents, end of period	$	170,551		$	172,761

Supplemental disclosures
Cash paid for interest	$	1,048		$	873
Cash paid for income taxes	$	1,751		$	1,887

Non-cash investing and financing activities
Landlord incentives credited to deferred rent	$	—		$	604

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

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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, which includes data-driven strategic consulting and marketing services, customer management, and 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, Spain, Thailand, South Africa, 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% interest in Percepta, LLC, its 80% interest in Peppers & Rogers Group (“PRG”) and its 80% interest in iKnowtion, LLC 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, 2013, and the consolidated results of operations and comprehensive income and cash flows of the Company for the three months ended March 31, 2013 and 2012. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

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, 2012.

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.

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued new accounting guidance that improves the reporting of reclassifications out of accumulated other comprehensive income. This new guidance requires entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income when applicable or to cross-reference the reclassifications with other disclosures that provide additional detail about the reclassifications made when the reclassifications are not made to net income. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2012. The Company’s adoption of this guidance did not have a material impact on the Company’s financial position, results of operations, or cash flows since it was an enhancement to current required disclosures.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(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.

As of March 31, 2013 the Company had paid $3.1 million towards the purchase price. The remaining purchase price will be paid out once the potential for covered losses has expired under the purchase agreement, which is expected to be in 2013. The $0.2 million was included within Other accrued expenses in the accompanying Consolidated Balance Sheets as of March 31, 2013. 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 first quarter of 2012.

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	$	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 once it is placed into service. The goodwill recognized from the OnState acquisition is primarily attributable to the synergies resulting from incorporating the acquired software into the Company’s current technology platforms in addition to the acquisition of the employees who developed the acquired software. Since this acquisition is an asset acquisition for tax purposes, the goodwill of $1.1 million and software are deductible over their respective tax lives. The acquired goodwill of OnState is reported within the Customer Technology Services segment from the date of acquisition.

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 was 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. The working capital adjustment was $0.2 million and was paid during the second quarter of 2012.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 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 21% and expected future value of payments of $4.3 million. The $4.3 million of expected future payments was calculated using a probability weighted EBITDA assessment with higher probability associated with iKnowtion achieving the maximum EBITDA targets. As of the acquisition date, the fair value of the contingent payments was approximately $2.9 million. As of March 31, 2013, the fair value of the contingent consideration was $3.8 million, of which $1.1 million and $2.7 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 at the date of acquisition was $0.9 million and was estimated based on a 20% interest of the fair value of a 100% interest in iKnowtion and was discounted for a lack of control at a rate of 23.1%.

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 iKnowtion’s 2015 EBITDA as defined in the purchase and sale agreement. These terms represent a contingent redemption feature. The fair value of the redemption feature is based on a comparison of EBITDA multiples and the EBITDA multiple to purchase the remaining 20% of iKnowtion approximates EBITDA multiples in the market for similar acquisitions.

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 fair values of the identifiable assets acquired and liabilities and noncontrolling interest assumed as of the acquisition date (in thousands):

	Acquisition Date Fair Value
Cash	$	1,337
Accounts Receivable	1,792
Property, plant and equipment	161
Other assets	90
Customer relationships	1,400
Goodwill	447
	5,227

Accounts payable	18
Accrued expenses	19
Other	164
	201

Noncontrolling interest	941

Total purchase price	$	4,085

The iKnowtion customer relationships have an estimated useful life of 5 years. The goodwill recognized from the iKnowtion acquisition was attributable primarily to the acquired workforce of iKnowtion, expected synergies, and other factors. The tax basis of the acquired intangibles and goodwill will be 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.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Guidon

On October 4, 2012, the Company acquired 100% of the stock of Guidon Performance Solutions’ (“Guidon”) parent company. Guidon provides operational consulting services and designs solutions for operational and cultural transformation for global clients. Guidon is located in Mesa, AZ and has approximately 25 employees.

The up-front cash consideration paid was $5.6 million. The Company was also obligated to pay a working capital adjustment equivalent to any acquired working capital from Guidon in excess of a working capital floor defined in the stock purchase agreement. The working capital payment was less than $0.1 million and was paid during the fourth quarter of 2012.

The Company is also obligated to make earn-out payments over the next two years if Guidon achieves specified EBITDA targets as defined in the stock purchase agreement. The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions included in the fair value calculation include a discount rate of 21% and expected future value of payments of $2.8 million. The $2.8 million of expected future payments was calculated using a probability weighted EBITDA assessment with higher probability associated with Guidon achieving the maximum EBITDA targets. As of the acquisition date, the fair value of the contingent payments was approximately $2.1 million. As of March 31, 2013, the fair value of the contingent consideration was $2.3 million, which was included in Other long-term liabilities in the accompanying Consolidated Balance Sheets.

The Company paid $0.1 million of acquisition related expenses as part of the Guidon purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income for the year ended December 31, 2012.

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	$	376
Accounts Receivable	1,375
Property, plant and equipment	49
Other assets	228
Customer relationships	2,490
Goodwill	3,619
	8,137

Accounts payable	202
Accrued expenses	122
Other	65
	389

Total purchase price	$	7,748

The Guidon customer relationships have an estimated useful life of 5 years. The goodwill recognized from the Guidon acquisition was attributable primarily to the acquired workforce of Guidon, expected synergies, and other factors. The tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and the operating results of Guidon are reported within the Customer Strategy Services segment from the date of acquisition.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

TSG

On December 31, 2012, the Company acquired a 100% interest in Technology Solutions Group, Inc. (“TSG”). TSG designs and implements custom communications systems for a variety of business types and sizes. TSG is located in Aurora, IL and has approximately 90 employees.

The up-front cash consideration paid was $32.7 million. The Company is also obligated to pay a working capital adjustment equivalent to any acquired working capital from TSG in excess of a working capital floor as defined in the stock purchase agreement. The estimated working capital adjustment is approximately $0.6 million and will be paid during the second quarter of 2013.

The Company is also obligated to make earn-out payments over three years if TSG achieves specified EBITDA targets, as defined by the stock purchase agreement. The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions included in the fair value calculation include a discount rate of 4.6% and expected future value of payments of $7.3 million. The $7.3 million of expected future payments was calculated using a probability weighted EBITDA assessment with higher probability associated with TSG achieving the maximum EBITDA targets. As of the acquisition date, the fair value of the contingent payments was approximately $6.7 million. As of March 31, 2013 the fair value of the contingent consideration was $6.8 million which was included in Other long-term liabilities in the accompanying Consolidated Balance Sheets.

The Company paid $0.1 million of acquisition related expenses as part of the TSG purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income during the year ended December 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 a valuation, thus are subject to revisions that may result in adjustments to the values presented below:

	Preliminary Estimate of Acquisition Date Fair Value
Cash	$	1,995
Accounts receivable	4,871
Prepaid assets - cost deferrals	3,665
Property, plant and equipment	583
Other assets	1,886
Customer relationships	15,300
Noncompete agreements	2,300
Trade name	1,100
Consulting services backlog	800
Goodwill	19,421
	51,921

Accounts payable	3,091
Accrued expenses	1,539
Deferred revenue	7,295
	11,925

Total purchase price	$	39,996

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The TSG customer relationships have an estimated useful life of 10 years. The goodwill recognized from the TSG acquisition was attributable primarily to the acquired workforce of TSG, expected synergies, and other factors. The tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and the operating results of TSG are reported within the Customer Technology Services segment from the date of acquisition.

The acquired businesses noted above contributed revenues of $13.1 million and $0.6 million and income from operations of $0.6 million and $0.1 million, inclusive of $0.9 million and $0.0 million of acquired intangible amortization, to the Company for the three months ended March 31, 2013 and 2012, respectively.

(3) SEGMENT INFORMATION

The Company reports 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 TSG; and

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

The Company allocates to each segment its portion of corporate operating expenses. 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):

Quarter Ended March 31, 2013

	Gross Revenue		Intersegment Sales			Net Revenue		Depreciation & Amortization		Income (Loss) from Operations
Customer Management Services	$	222,889	$	(307	)	$	222,582	$	7,862	$	20,731
Customer Growth Services	22,856		—			22,856		697		1,276
Customer Technology Services	33,646		(84		)	33,562		1,516		2,898
Customer Strategy Services	9,930		(547		)	9,383		480		(1,907		)
Total	$	289,321	$	(938	)	$	288,383	$	10,555	$	22,998

Quarter Ended March 31, 2012

	Gross Revenue		Intersegment Sales			Net Revenue		Depreciation & Amortization		Income (Loss) from Operations
Customer Management Services	$	234,876	$	—		$	234,876	$	8,160	$	16,707
Customer Growth Services	22,764		—			22,764		800		(2,130		)
Customer Technology Services	26,199		(647		)	25,552		805		3,679
Customer Strategy Services	10,363		(901		)	9,462		351		494
Total	$	294,202	$	(1,548	)	$	292,654	$	10,116	$	18,750

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Three Months Ended March 31,
	2013		2012
Capital Expenditures
Customer Management Services	$	2,286	$	5,262
Customer Growth Services	316		546
Customer Technology Services	1,328		539
Customer Strategy Services	175		137
Total	$	4,105	$	6,484

	March 31, 2013		December 31, 2012
Total Assets
Customer Management Services	$	588,076	$	588,627
Customer Growth Services	54,906		54,164
Customer Technology Services	149,416		148,043
Customer Strategy Services	55,097		56,339
Total	$	847,495	$	847,173

	March 31, 2013		December 31, 2012
Goodwill
Customer Management Services	$	20,322	$	20,288
Customer Growth Services	24,439		24,439
Customer Technology Services	39,069		38,591
Customer Strategy Services	11,361		11,361
Total	$	95,191	$	94,679

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

	Three Months Ended March 31,
	2013		2012
Revenue
United States	$	131,747	$	110,576
Philippines	86,108		78,665
Latin America	45,028		47,896
Europe / Middle East / Africa	16,984		38,366
Canada	4,290		12,953
Asia Pacific	4,226		4,198
Total	$	288,383	$	292,654

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(4) SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS

The Company had one client that contributed in excess of 10% of total revenue for the three months ended March 31, 2013. This client contributed 11.9% and 9.4% of total revenue for the three months ended March 31, 2013 and 2012. This client had an outstanding receivable balance of $25.0 million and $21.5 million as of March 31, 2013 and 2012.

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, 2013.

(5) GOODWILL

Goodwill consisted of the following (amounts in thousands):

	December 31, 2012		Acquisitions		Impairments		Effect of Foreign Currency		March 31, 2013

Customer Management Services	$	20,288	$	—	$	—	$	34	$	20,322
Customer Growth Services	24,439		—		—		—		24,439
Customer Technology Services	38,591		478		—		—		39,069
Customer Strategy Services	11,361		—		—		—		11,361
Total	$	94,679	$	478	$	—	$	34	$	95,191

The Company performs a goodwill impairment assessment on at least an annual basis. The Company conducts its annual goodwill impairment assessment during the fourth quarter, or more frequently, if indicators of impairment exist.

As of December 2012, the Company had one reporting unit with goodwill of $7.3 million and a calculated fair value which exceeded its carrying value by 4%. At March 31, 2013, the Company updated its quantitative assessment of this reporting unit’s fair value using an income based approach. Key assumptions used in the updated fair value calculation include, but are not limited to, a perpetuity growth rate of 7.0% based on the current inflation rate combined with the GDP growth rate for the reporting unit’s geographical region and a discount rate of 25.5%, which is equal to the reporting unit’s equity risk premium adjusted for its size and company specific risk factors. Estimated future cash flows under the income approach are based on the Company’s internal business plan and adjusted as appropriate for the Company’s view of market participant assumptions. The current business plan assumes the occurrence of certain events in the future, such as realignment of operations and reduction of general and administrative costs. Significant differences in the outcome of some or all of these assumptions may impact the calculated fair value of this reporting unit resulting in impairment to goodwill in a future period. As of March 31, 2013, the updated fair value of this reporting unit continues to exceed its carrying value by 4%. The Company will continue to review the calculated fair value of this reporting unit until the fair value is substantially in excess of its carrying value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(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 considers, among other factors, the creditworthiness of these counterparties. Conversely, the fair value of derivative liabilities reflects the Company’s creditworthiness. As of March 31, 2013, 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, 2013 and 2012 (amounts in thousands and net of tax):

	Three Months Ended March 31,
	2013			2012

Aggregate unrealized net gain/(loss) at beginning of year	$	9,559		$	(5,852	)
Add: Net gain/(loss) from change in fair value of cash flow hedges	4,099			7,071
Less: Net (gain)/loss reclassified to earnings from effective hedges	(1,919		)	26
Aggregate unrealized net gain/(loss) at end of period	$	11,739		$	1,245

The Company’s foreign exchange cash flow hedging instruments as of March 31, 2013 and December 31, 2012 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts unless noted otherwise.

As of March 31, 2013	Local Currency Notional Amount	U.S. Dollar Notional Amount			% Maturing in the Next 12 Months		Contracts Maturing Through
Canadian Dollar	20,750	$	20,172		45.8	%	June 2015
Philippine Peso	11,970,000	280,827		(1)	41.5	%	December 2016
Mexican Peso	1,130,000	80,569			50.6	%	December 2015
British Pound Sterling	5,122	7,942		(2)	76.6	%	June 2014
New Zealand Dollar	199	150			100.0	%	June 2013
		$	389,660

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As of December 31, 2012	Local Currency Notional Amount	U.S. Dollar Notional Amount
Canadian Dollar	7,750	$	7,407
Philippine Peso	11,710,000	271,970		(1)
Mexican Peso	1,320,500	94,530
British Pound Sterling	3,518	5,575		(2)
New Zealand Dollar	398	300
		$	379,782

(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, 2013 and December 31, 2012.

(2) Includes contracts to purchase British pound sterling in exchange for Euros, which are translated into equivalent U.S. dollars on March 31, 2013 and December 31, 2012.

The Company’s interest rate swap arrangements as of March 31, 2013 and December 31, 2012 were as follows:

Notional
Amount

Variable Rate
Received

Fixed Rate
Paid

Contract
Commencement
Date

Contract
Maturity
Date

As of March 31, 2013

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, 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

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, 2013 and December 31, 2012 the total notional amount of the Company’s forward contracts used as fair value hedges were $212.2 million and $189.3 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. As of March 31, 2013 and December 31, 2012, the fair value of the embedded derivative was $0.2 million and $0.3 million, respectively, and was included in Other current liabilities and Other long-term liabilities in the accompanying Consolidated Balance Sheets as shown in the table below.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Derivative Valuation and Settlements

The Company’s derivatives as of March 31, 2013 and December 31, 2012 were as follows (amounts in thousands):

	March 31, 2013
	Designated as Hedging Instruments						Not Designated as Hedging Instruments
	Foreign Exchange			Interest Rate			Foreign Exchange			Leases
Derivative contracts: 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	$	13,859		$	—		$	237		$	—
Other long-term assets	8,480			—			—			—
Other current liabilities	(238		)	(1,111		)	(355		)	(157		)
Other long-term liabilities	(67		)	(1,703		)	—			(52		)
Total fair value of derivatives, net	$	22,034		$	(2,814	)	$	(118	)	$	(209	)

	December 31, 2012
	Designated as Hedging Instruments						Not Designated as Hedging Instruments
	Foreign Exchange			Interest Rate			Foreign Exchange			Leases
Derivative contracts: 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	$	11,421		$	—		$	11		$	—
Other long-term assets	7,619			—			—			—
Other current liabilities	(157		)	(1,032		)	(476		)	(59		)
Other long-term liabilities	(65		)	(1,955		)	—			(219		)
Total fair value of derivatives, net	$	18,818		$	(2,987	)	$	(465	)	$	(278	)

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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, 2013 and 2012 were as follows (amounts in thousands):

	Three Months Ended March 31,
	2013					2012
	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:	$	4,178	$	(79	)	$	7,234		$	(163	)

Amount and location of net gain or (loss) reclassified from accumulated OCI to income - effective portion:
Revenue	$	3,460	$	—		$	(43	)	$	—
Interest Expense	—		(257		)	—			—

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,
	2013							2012
	Not Designated as Hedging Instruments							Not Designated as Hedging Instruments
	Foreign Exchange				Leases			Foreign Exchange				Leases
Derivative contracts: 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 Comprehensive Income:
Costs of services	$	—	$	—	$	(69	)	$	—	$	—	$	—
Other income (expense), net	$	—	$	1,438	$	—		$	—	$	2,169	$	—

(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, 2013 and December 31, 2012 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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, 2013 and December 31, 2012, the Company had $115.0 million and $108.0 million, respectively, of borrowings outstanding under the Credit Agreement. During the first quarter of 2013 outstanding borrowings accrued interest at an average rate of 1.5% 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, 2013, 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, 2013 and December 31, 2012 (amounts in thousands):

As of March 31, 2013

	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	$	—	$	22,034		$	—	$	22,034
Interest rate swaps	—		(2,814		)	—		(2,814		)
Fair value hedges	—		(118		)	—		(118		)
Embedded derivatives	—		(209		)	—		(209		)
Total net derivative asset (liability)	$	—	$	18,893		$	—	$	18,893

As of December 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	$	—	$	18,818		$	—	$	18,818
Interest rate swaps	—		(2,987		)	—		(2,987		)
Fair value hedges	—		(465		)	—		(465		)
Embedded derivatives	—		(278		)	—		(278		)
Total net derivative asset (liability)	$	—	$	15,088		$	—	$	15,088

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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, 2013 and December 31, 2012 (amounts in thousands):

As of March 31, 2013

	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	$	—	$	300		$	—
Derivative instruments, net	—		18,893			—
Total assets	$	—	$	19,193		$	—

Liabilities
Deferred compensation plan liability	$	—	$	(5,436	)	$	—
Purchase price payable	—		—			(12,868		)
Total liabilities	$	—	$	(5,436	)	$	(12,868	)

As of December 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	$	—	$	350		$	—
Derivative instruments, net	—		15,088			—
Total assets	$	—	$	15,438		$	—

Liabilities
Deferred compensation plan liability	$	—	$	(5,305	)	$	—
Purchase price payable	—		—			(12,533		)
Total liabilities	$	—	$	(5,305	)	$	(12,533	)

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.

Purchase Price Payable — The Company recorded purchase price payables related to the acquisitions of iKnowtion, Guidon and TSG. These purchase price payables were recognized at fair value using a discounted cash flow approach and a discount rate of 4.6% or 21.0%. These measurements were based on significant inputs not observable in the market. The Company will record interest expense each period using the effective interest method until the future value of these purchase price payables reaches their expected future value of $14.5 million. Interest expense related to all recorded purchase price payables is included in Interest expense in the Consolidated Statements of Comprehensive Income.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 interest 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.

In 2005, the Company sought relief under the United States-Canada Income Tax Convention for avoidance of double taxation arising from adjustments to the taxable income assessed in the U.S. and Canada with respect to the years 2001 and 2002. On February 20, 2011, the Company received notice of an adverse decision by the Canadian Revenue Agency (“CRA”) in regards to the Company’s request. Consistent with accounting for tax positions that no longer meet the recognition criteria, in the first quarter of 2011 the Company derecognized income tax positions totaling $8.6 million through income tax expense and filed for Judicial Review of CRA’s actions with the Federal Court of Canada. On March 20, 2013, the Company presented its arguments in the Federal Court of Canada and asked the Court to issue a writ of mandamus to compel the CRA to accept the Company’s application for Competent Authority consideration. A final decision in this matter is expected later this year.

As of March 31, 2013, the Company had $48.5 million of gross deferred tax assets (after a $19.0 million valuation allowance) and net deferred tax assets (after deferred tax liabilities) of $45.8 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, 2013 and 2012 was 11.4% and 9.9%, respectively.

The Company’s U.S. income tax returns filed for the tax years ending December 31, 2009 to present, remain open tax years subject to IRS audit. The Company is currently under audit of income taxes in Canada. 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.

(9) RESTRUCTURING CHARGES AND IMPAIRMENT LOSSES

Restructuring Charges

During the three months ended March 31, 2013 and 2012, the Company undertook a number of restructuring activities primarily associated with reductions in the Company’s capacity and workforce in its Customer Management Services, Customer Growth Services and Customer Strategy Services segments to better align the capacity and workforce with current business needs.

During the second quarter of 2012, the Company made the decision to cease operations in Spain and terminated the contracts with its clients. The Company notified the employees and commenced severance procedures as required under Spanish law. The Company recorded $14.7 million of severance and $0.4 million of center closure expenses for the year ended December 31, 2012. As of the first quarter of 2013, $14.1 million was paid and the remaining $1.0 million was included in Other accrued expenses in the Consolidated Balance Sheets as of March 31, 2013.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A summary of the expenses recorded in Restructuring, net in the accompanying Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012, respectively, is as follows (amounts in thousands):

	Three Months Ended March 31,
	2013		2012
Reduction in force
Customer Management Services	$	694	$	1,855
Customer Growth Services	—		103
Customer Technology Services	—		—
Customer Strategy Services	157		—
Total	$	851	$	1,958

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, 2012	$	—	$	4,079		$	4,079
Expense	—		851			851
Payments	—		(2,120		)	(2,120		)
Changes in estimates	—		—			—
Balance as of March 31, 2013	$	—	$	2,810		$	2,810

The remaining restructuring accruals are expected to be paid during 2013 and are all classified as current liabilities within Other accrued expenses in the Consolidated Balance Sheets.

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, 2013 and 2012, the Company recognized no losses related to leasehold improvement assets.

During the first quarter of 2012, the Company rebranded its Direct Alliance Corporation (“DAC”) subsidiary to RevanaTM, thus the $1.8 million DAC trade name 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.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company primarily utilizes its Credit Agreement to fund working capital, general operations, stock repurchases and other strategic activities, such as the acquisitions described in Note 2. As of March 31, 2013 and December 31, 2012, the Company had borrowings of $115.0 million and $108.0 million, respectively, under our Credit Agreement, and our average daily utilization was $219.6 million and $126.1 million for the three months ended March 31, 2013 and 2012, respectively. After consideration for issued letters of credit under the Credit Agreement, totaling $3.8 million, our remaining borrowing capacity was $381.2 million as of March 31, 2013. As of March 31, 2013, the Company was in compliance with all covenants and conditions under its Credit Agreement.

Letters of Credit

As of March 31, 2013, outstanding letters of credit under the Credit Agreement totaled $3.8 million and primarily guaranteed workers’ compensation and other insurance related obligations. As of March 31, 2013, letters of credit and contract performance guarantees issued outside of the Credit Agreement totaled $0.5 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. All legal fees are expensed as incurred.

In 2009, the municipality of Sao Paulo, Brazil assessed the Company’s Brazilian subsidiary a services tax on certain equipment rental income earned in 2004 and 2005. In March 2011, the Company’s Brazilian subsidiary filed a tax annulment action in the Sao Paulo municipal court to challenge the assessment of services taxes on rental income. Further, in order to halt the possibility of any further interest being charged against the alleged due tax assessments, the Company’s Brazilian subsidiary gave a bank guarantee of 6.9 million Brazilian reais (approximately $3.5 million USD as of March 31, 2013). In the second quarter of 2012, the Sao Paulo municipal court issued a ruling in favor of Sao Paulo on this tax annulment action, which ruling the Company’s Brazilian subsidiary has challenged. The Company’s Brazilian subsidiary filed this challenge in the state court of Sao Paulo which is not bound by the decision of the Sao Paulo municipal court and where a ruling is not expected for the next one to two years. Based on an opinion received from legal counsel in Brazil, the Company believes that (i) the ruling issued by the Sao Paulo municipal court was incorrect and in contravention of a Brazil Supreme Court ruling concerning the invalidity of services taxes on rental income, (ii) the Brazilian subsidiary has valid defenses against the assessed services taxes and (iii) that payment of these services taxes is not probable. Accordingly, the Company has not recorded an expense as of March 31, 2013 for the Sao Paulo services tax assessment.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

On October 12, 2012, an amended class action complaint was filed in the Superior Court of the State of California, County of Santa Clara, against TeleTech Services Corp. and Google Inc. (“Google”), as co-defendants. The action alleges that the defendants violated California Penal Code Section 632 by recording telephone calls made on behalf of Google to residents in California without disclosing that the calls might be recorded. The plaintiff seeks class certification, cash statutory damages and attorney fees. Pursuant to the Company’s agreement with Google, Google has made a claim for full indemnification from the Company for all expenses incurred by Google in connection with the lawsuit. The ultimate outcome of this litigation, and consequently, an estimate of the possible loss, if any, related to this litigation, cannot reasonably be determined at this time. The Company intends to vigorously defend itself in these proceedings.

(11) NONCONTROLLING INTEREST

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

	Three Months Ended March 31,
	2013			2012
Noncontrolling interest, January 1	$	14,045		$	11,260
Acquisition of noncontrolling interest	—			1,365
Net income attributable to noncontrolling interest	642			936
Dividends distributed to noncontrolling interest	(1,109		)	(720		)
Foreign currency translation adjustments	(90		)	12
Equity based compensation expense	8			—
Noncontrolling interest, March 31	$	13,496		$	12,853

Table of Contents

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(12) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

In 2013, the Company adopted new accounting guidance that requires an entity to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The following table presents changes in the accumulated balance for each component of other comprehensive income, including current period other comprehensive income and reclassifications out of accumulated other comprehensive income (amounts in thousands):

	Foreign Currency Translation Adjustment		Derivative Valuation, Net of Tax			Other, Net of Tax			Totals

Accumulated other comprehensive income (loss) at December 31, 2012	$	15,673	$	9,559		$	(2,251	)	$	22,981

Other comprehensive income before reclassifications	3,224		4,099			14			7,337
Amounts reclassified from accumulated other comprehensive income	—		(1,919		)	148			(1,771		)
Net current period other comprehensive income	3,224		2,180			162			5,566

Accumulated other comprehensive income (loss) at March 31, 2013	$	18,897	$	11,739		$	(2,089	)	$	28,547

Accumulated other comprehensive income (loss) at December 31, 2011	$	3,156	$	(5,852	)	$	(2,778	)	$	(5,474	)