Edgar Filing: TELETECH HOLDINGS INC

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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, 2015

£ 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 May 4, 2015, there were 48,444,321 shares of the registrant’s common stock outstanding.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

MARCH 31, 2015 FORM 10-Q

TABLE OF CONTENTS

		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 (unaudited)	1

	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014 (unaudited)	2

	Consolidated Statement of Stockholders’ Equity as of and for the three months ended March 31, 2015 (unaudited)	3

	Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (unaudited)	4

	Notes to the Unaudited Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31

Item 4.	Controls and Procedures	34

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 6.	Exhibits	36

SIGNATURES		37

EXHIBIT INDEX		38

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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)

(Unaudited)

			March 31, 2015			December 31, 2014
ASSETS
Current assets
Cash and cash equivalents	$	65,714		$	77,316
Accounts receivable, net	295,719			276,432
Prepaids and other current assets	66,609			64,702
Deferred tax assets, net	22,783			22,501
Income tax receivable	4,638			4,532
Total current assets	455,463			445,483

Long-term assets
Property, plant and equipment, net	150,017			150,212
Goodwill	127,588			128,705
Deferred tax assets, net	30,035			31,512
Other intangible assets, net	56,528			59,905
Other long-term assets	44,852			36,658
Total long-term assets	409,020			406,992
Total assets	$	864,483		$	852,475

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	31,785		$	37,019
Accrued employee compensation and benefits	69,492			70,069
Other accrued expenses	32,969			34,430
Income taxes payable	9,298			10,141
Deferred tax liabilities, net	34			-
Deferred revenue	29,440			29,887
Other current liabilities	17,610			17,085
Total current liabilities	190,628			198,631

Long-term liabilities
Line of credit	126,000			100,000
Deferred tax liabilities, net	2,866			4,675
Deferred rent	9,589			8,956
Other long-term liabilities	77,248			74,149
Total long-term liabilities	215,703			187,780
Total liabilities	406,331			386,411

Commitments and contingencies (Note 10)

Mandatorily redeemable noncontrolling interest	3,411			2,814

Stockholders’ equity
Preferred stock - $0.01 par value: 10,000,000 shares authorized; zero shares outstanding as of March 31, 2015 and December 31, 2014	-			-
Common stock - $0.01 par value; 150,000,000 shares authorized; 48,366,272 and 48,452,852 shares outstanding as of March 31, 2015 and December 31, 2014, respectively	484			485
Additional paid-in capital	355,779			356,792
Treasury stock at cost: 33,685,981 and 33,599,401 shares as of March 31, 2015 and December 31, 2014, respectively	(530,818)			(527,595			)
Accumulated other comprehensive income (loss)	(66,020)			(52,274			)
Retained earnings	687,497			677,859
Noncontrolling interest	7,819			7,983
Total stockholders’ equity	454,741			463,250
Total liabilities and stockholders’ equity	$	864,483		$	852,475

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 (Loss)

(Amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2015		2014

Revenue	$	325,521	$	302,221

Operating expenses
Cost of services	232,984		213,787
Selling, general and administrative	50,237		50,367
Depreciation and amortization	15,363		13,170
Restructuring charges, net	809		540
Total operating expenses	299,393		277,864

Income from operations	26,128		24,357

Other income (expense)
Interest income	317		511
Interest expense	(1,698)		(1,690		)
Other income (expense), net	(307)		1,001
Total other income (expense)	(1,688)		(178		)

Income before income taxes	24,440		24,179

Provision for income taxes	(4,405)		(2,876		)

Net income	20,035		21,303

Net income attributable to noncontrolling interest	(1,263)		(1,085		)

Net income attributable to TeleTech stockholders	$	18,772	$	20,218

Other comprehensive income (loss)
Net income	$	20,035	$	21,303
Foreign currency translation adjustments	(11,283)		(1,723		)
Derivative valuation, gross	(1,645)		(3,917		)
Derivative valuation, tax effect	1,493		1,382
Other, net of tax	(2,595)		276
Total other comprehensive income (loss)	(14,030)		(3,982		)
Total comprehensive income (loss)	6,005		17,321

Less: Comprehensive income attributable to noncontrolling interest	(806)		(992		)

Comprehensive income attributable to TeleTech stockholders	$	5,199	$	16,329

Weighted average shares outstanding
Basic	48,370		50,045
Diluted	49,158		50,973

Net income per share attributable to TeleTech stockholders
Basic	$	0.39	$	0.40
Diluted	$	0.38	$	0.40

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

															Accumulated
	Preferred Stock			Common Stock								Additional			Other
									Treasury			Paid-in			Comprehensive			Retained			Noncontrolling			Total
	Shares	Amount		Shares		Amount			Stock			Capital			Income (Loss)			Earnings			interest			Equity

Balance as of December 31, 2014	-	$	-	48,453		$	485		$	(527,595	)	$	356,792		$	(52,274	)	$	677,859		$	7,983		$	463,250
Net income	-	-		-		-			-			-			-			18,772			1,090			19,862
Dividends to shareholders	-	-		-		-			-			-			-			(8,710		)	-			(8,710		)
Adjustments to redemption value of mandatorily redeemable noncontrolling interest	-	-		-		-			-			-			-			(424		)	-			(424		)
Dividends distributed to noncontrolling interest		-		-		-			-			-			-			-			(990		)	(990		)
Foreign currency translation adjustments	-	-		-		-			-			-			(10,999		)	-			(284		)	(11,283		)
Derivatives valuation, net of tax	-	-		-		-			-			-			(152		)	-			-			(152		)
Vesting of restricted stock units	-	-		159		2			2,456			(3,766		)	-			-			-			(1,308		)
Exercise of stock options	-	-		15		-			233			1			-			-			-			234
Excess tax benefit from equity-based awards	-	-		-		-			-			111			-			-			-			111
Equity-based compensation expense	-	-		-		-			-			2,641			-			-			20			2,661
Purchases of common stock	-	-		(261	)	(3		)	(5,912		)	-			-			-			-			(5,915		)
Other, net of tax	-	-		-		-			-			-			(2,595		)	-			-			(2,595		)

Balance as of March 31, 2015	-	$	-	48,366		$	484		$	(530,818	)	$	355,779		$	(66,020	)	$	687,497		$	7,819		$	454,741

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,
	2015		2014

Cash flows from operating activities
Net income	$	20,035	$	21,303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,363		13,170
Amortization of contract acquisition costs	281		358
Amortization of debt issuance costs	178		170
Imputed interest expense and fair value adjustments to contingent consideration	209		200
Provision for doubtful accounts	53		113
Gain on disposal of assets	(35)		-
Impairment losses	-		-
Deferred income taxes	(1,479)		990
Excess tax benefit from equity-based awards	(409)		(788		)
Equity-based compensation expense	2,690		3,160
Gain on foreign currency derivatives	87		(634		)

Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(24,821)		(8,092		)
Prepaids and other assets	1,849		1,618
Accounts payable and accrued expenses	(7,583)		(10,817		)
Deferred revenue and other liabilities	(2,598)		(7,214		)
Net cash provided by operating activities	3,820		13,537

Cash flows from investing activities
Proceeds from sale of long lived assets	-		135
Purchases of property, plant and equipment, net of acquisitions	(13,038)		(15,095		)
Investment in securities	(9,000)		-
Acquisitions, net of cash acquired of zero and $812, respectively	(102)		(8,160		)
Net cash used in investing activities	(22,140)		(23,120		)

Cash flows from financing activities
Proceeds from line of credit	573,800		632,900
Payments on line of credit	(547,800)		(632,900		)
Payments on other debt	(778)		(1,525		)
Payments of contingent consideration related to acquisitions	(1,000)		(2,189		)
Dividends paid to shareholders	(8,710)		-
Payments to noncontrolling interest	(990)		(990		)
Proceeds from exercise of stock options	234		12
Excess tax benefit from equity-based awards	409		788
Purchase of treasury stock		(5,915)		(20,466	)
Net cash used in financing activities	9,250		(24,370		)

Effect of exchange rate changes on cash and cash equivalents	(2,532)		(3,687		)

Decrease in cash and cash equivalents	(11,602)		(37,640		)
Cash and cash equivalents, beginning of period	77,316		158,017
Cash and cash equivalents, end of period	$	65,714	$	120,377

Supplemental disclosures
Cash paid for interest	$	1,340	$	982
Cash paid for income taxes	$	2,803	$	2,834

Non-cash investing and financing activities
Acquisition of equipment through increase in accounts payable	$	1,704	$	941
Contract acquisition costs credited to accounts receivable	$	-	$	1,000

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

Summary of Business

TeleTech Holdings, Inc. and its subsidiaries (“TeleTech” or the “Company”) is a customer engagement management services provider, delivering integrated consulting, technology, growth and customer care solutions on a global scale. Our suite of product and service capabilities allows us to design and deliver enhanced, value-driven customer experiences across numerous communication channels. TeleTech’s 44,000 employees serve clients in the automotive, communication, financial services, government, healthcare, logistics, media and entertainment, retail, technology, transportation and travel industries via operations in the U.S., Australia, Belgium, Brazil, Bulgaria, Canada, Costa Rica, Germany, Ireland, Israel, Lebanon, Macedonia, Mexico, New Zealand, the Philippines, Poland, Singapore, South Africa, Thailand, Turkey, the United Arab Emirates, and the United Kingdom.

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, and its 80% interest in iKnowtion, LLC. All intercompany balances and transactions have been eliminated in consolidation.

The 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 and the consolidated results of operations and comprehensive income (loss) and the consolidated cash flows of the Company. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

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, 2014.

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 on-going 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, contingent consideration, 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 April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. ASU 2015-03 requires all costs incurred in connection with the issuance of debt to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. This ASU is effective for interim and annual periods beginning on or after December 15, 2015 and early adoption is permitted. The Company is evaluating when it will adopt the standard but does not expect the adoption of this standard to have a material impact on its financial position, results of operation or related disclosures.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(2) ACQUISITIONS & INVESTMENTS

rogenSi

In the third quarter of 2014, as an addition to the Customer Strategy Services (“CSS”) segment, the Company acquired substantially all operating assets of rogenSi Worldwide PTY, Ltd., a global leadership, change management, sales, performance training and consulting company.

The total purchase price was $34.4 million, subject to certain working capital adjustments, and consists of $18.1 million in cash at closing and an estimated $14.5 million in three earn-out payments, contingent on the acquired companies and TeleTech’s CSS segment achieving certain agreed earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as defined in the sale and purchase agreement. Additionally, the estimated purchase price included a $1.8 million hold-back payment for contingencies as defined in the sale and purchase agreement which will be paid in the first quarter of 2016, if required. The total contingent consideration possible per the sale and purchase agreement ranges from zero to $17.6 million and the earn-out payments are payable in early 2015, 2016 and 2017, based on July 1, 2014 through December 31, 2014, and full year 2015 and 2016 performance, respectively.

The fair value of the contingent consideration was measured by applying a probability weighted discounted cash flow model based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 4.6% and expected future value of payments of $15.3 million. The $15.3 million of expected future payments was calculated using a probability weighted EBITDA assessment with the highest probability associated with rogenSi achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent consideration was approximately $14.5 million. During the fourth quarter of 2014, the Company recorded a fair value adjustment of the contingent consideration of $0.5 million based on revised estimates noting higher probability of exceeding the EBITDA targets (see Note 7). As of March 31, 2015, the fair value of the contingent consideration was $15.3 million, of which $11.3 million and $4.0 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively.

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

	Preliminary Estimate of Acquisition Date Fair Value
Cash	$	2,670
Accounts receivable, net	6,417
Other assets	2,880
Property, plant and equipment	578
Deferred tax assets, net	449
Customer relationships	9,348
Goodwill	20,927
	43,269

Accounts payable	708
Accrued employee compensation and benefits	2,203
Accrued expenses	1,146
Other	4,843
	8,900

Total purchase price	$	34,369

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 above.

The rogenSi customer relationships have been estimated based on similar acquisitions and are amortized over an estimated useful life of five years. The goodwill recognized from the rogenSi acquisition is estimated to be attributable, but not limited to, the acquired workforce and expected synergies within CSS. None of the tax basis of the acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and the operating results of rogenSi are reported, as its own reporting unit, within the CSS segment from the date of acquisition.

Sofica

In the first quarter of 2014, as an addition to the Customer Management Services (“CMS”) segment, the Company acquired a 100% interest in Sofica Group, a Bulgarian joint stock company (“Sofica”). Sofica provides customer lifecycle management and other business process services across multiple channels in multiple sites in over 18 languages.

The purchase price of $14.2 million included $9.4 million in cash consideration (including working capital adjustments) and an estimated $3.8 million in earn-out payments, payable in 2015 and 2016, contingent on Sofica achieving specified EBITDA targets, as defined by the stock purchase agreement. The total contingent consideration possible per the stock purchase agreement ranges from zero to $7.5 million. Additionally, the purchase price includes a $1.0 million hold-back payment for contingencies as defined in the stock purchase agreement which will be paid in the second quarter of 2016, if required.

The fair value of the contingent consideration was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 5.0% and expected future value of payments of $4.0 million. The $4.0 million of expected future payments was calculated using a probability weighted EBITDA assessment with the highest probability associated with Sofica achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent consideration was approximately $3.8 million. During the third and fourth quarters of 2014, the Company recorded fair value adjustments of the contingent consideration of $1.8 million and $0.6 million, respectively based on revised estimates noting higher probability of exceeding the EBITDA targets (see Note 7). As of March 31, 2015, the fair value of the contingent consideration was $6.4 million, of which $3.6 million and $2.8 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively.

Financial Impact of Acquired Businesses

The acquired businesses purchased in 2014 noted above contributed revenues of $12.6 million and income from operations of $1.1 million, inclusive of $0.7 million of acquired intangible amortization, to the Company for the three months ended March 31, 2015.

Investments

Café X

In the first quarter of 2015, the Company invested $9.0 million in CafeX Communications, Inc. (“CafeX”) through the purchase of a portion of the Series B Preferred Stock of CafeX. After the transaction, the Company owns 17.3% of the total equity of CafeX. CaféX is a provider of omni-channel web-based real time communication (WebRTC) solutions that enhance mobile applications and websites with in-app video communication and screen share technology to increase customer satisfaction and enterprise efficiency. TeleTech anticipates deploying the CafeX technology as part of the TeleTech customer experience offerings within the CMS business segment and as part of its Humanify platform.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(3) SEGMENT INFORMATION

The Company reports the following four segments:

·	the CMS 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 CGS segment provides technology-enabled sales and marketing solutions that support revenue generation across the customer lifecycle, including sales advisory, search engine optimization, digital demand generation, lead qualification, and acquisition sales, growth and retention services;

·	the CTS segment includes operational and design consulting, systems integration, and cloud and on-premise managed services, the requirements needed to design, deliver and maintain best-in-class multichannel customer engagement platforms; and

·	the CSS segment provides professional services in customer experience strategy, customer intelligence analytics, system and operational process optimization, and culture development and knowledge management.

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 (in thousands):

Quarter Ended March 31, 2015
		Gross Revenue		Intersegment Sales		Net Revenue		Depreciation & Amortization		Income (Loss) from Operations
Customer Management Services	$	243,009	$	-	$	243,009	$	10,797	$	21,702
Customer Growth Services		25,956		-		25,956		1,485		26
Customer Technology Services		35,721		(7)		35,714		2,164		2,009
Customer Strategy Services		20,842		-		20,842		917		2,391
Total	$	325,528	$	(7)	$	325,521	$	15,363	$	26,128

Quarter Ended March 31, 2014
		Gross Revenue		Intersegment Sales		Net Revenue		Depreciation & Amortization		Income (Loss) from Operations
Customer Management Services	$	227,924	$	-	$	227,924	$	9,465	$	20,823
Customer Growth Services		28,905		-		28,905		1,556		1,770
Customer Technology Services		32,779		(3)		32,776		1,715		311
Customer Strategy Services		12,616		-		12,616		434		1,453
Total	$	302,224	$	(3)	$	302,221	$	13,170	$	24,357

	Three Months Ended March 31,
	2015		2014
Capital Expenditures
Customer Management Services	$	9,447	$	9,912
Customer Growth Services	1,305		380
Customer Technology Services	2,282		4,631
Customer Strategy Services	4		172
Total	$	13,038	$	15,095

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	March 31, 2015		December 31, 2014
Total Assets
Customer Management Services	$	533,622	$	514,957
Customer Growth Services	83,240		88,394
Customer Technology Services	158,822		159,441
Customer Strategy Services	88,799		89,683
Total	$	864,483	$	852,475

	March 31, 2015		December 31, 2014
Goodwill
Customer Management Services	$	25,410	$	25,871
Customer Growth Services	30,395		30,395
Customer Technology Services	42,709		42,709
Customer Strategy Services	29,074		29,730
Total	$	127,588	$	128,705

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

	Three Months Ended March 31,
	2015		2014
United States	$	171,653	$	146,469
Philippines	84,987		86,666
Latin America	40,554		42,046
Europe / Middle East / Africa	19,313		19,217
Asia Pacific	7,674		6,400
Canada	1,340		1,423
Total Revenue	$	325,521	$	302,221

(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, 2015 and 2014. This client operates in the communications industry and is included in the Customer Management Services segment. This client contributed 10.9% and 11.6% of total revenue for the three months ended March 31, 2015 and 2014, respectively. This client had an outstanding receivable balance of $37.6 million and $32.3 million as of March 31, 2015 and 2014, respectively.

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, 2015.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(5) GOODWILL

Goodwill consisted of the following (in thousands):

	December 31, 2014		Acquisitions/ Adjustments		Impairments		Effect of Foreign Currency		March 31, 2015

Customer Management Services	$	25,871	$	-	$	-	$	(461)	$	25,410
Customer Growth Services	30,395		-		-		-		30,395
Customer Technology Services	42,709		-		-		-		42,709
Customer Strategy Services	29,730		68		-		(724)		29,074
Total	$	128,705	$	68	$	-	$	(1,185)	$	127,588

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.

The Company concluded that goodwill for all reporting units was not impaired at December 1, 2014. While no impairment indicators were identified, due to the small margin of fair value in excess of carrying value for two reporting units, Revana (approximately 6.0%) and WebMetro (approximately 11%), these reporting units remain at considerable risk for future impairment if projected operating results are not met or other inputs into the fair value measurement change.

At March 31, 2015, the Company updated its quantitative assessment of these reporting units fair value using an income based approach. The determination of fair value requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rates for the businesses, the useful lives over which the cash flows will occur and determination of appropriate discount rates (based in part on the Company’s weighted average cost of capital). Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. As of March 31, 2015, the updated fair values continue to exceed the carrying values for Revana (approximately 12%) and WebMetro (approximately 17%). The Company will continue to review the calculated fair value of these reporting units until the fair value is substantially in excess of its carrying value.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

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 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, 2015, the Company had 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, 2015 and 2014 (in thousands and net of tax):

	Three Months Ended March 31,
	2015		2014

Aggregate unrealized net gain/(loss) at beginning of year	$	(18,345)	$	(8,352)
Add: Net gain/(loss) from change in fair value of cash flow hedges	(1,291)		(3,649)
Less: Net (gain)/loss reclassified to earnings from effective hedges	1,139		1,115
Aggregate unrealized net gain/(loss) at end of period	$	(18,497)	$	(10,886)

The Company’s foreign exchange cash flow hedging instruments as of March 31, 2015 and December 31, 2014 are summarized as follows (in thousands). All hedging instruments are forward contracts.

As of March 31, 2015	Local Currency Notional Amount	U.S. Dollar Notional Amount			% Maturing in the Next 12 Months	Contracts Maturing Through
Canadian Dollar	750	$	719		100.0 %	June 2015
Philippine Peso	17,063,000	386,570		(1)	36.8 %	February 2020
Mexican Peso	2,528,000	176,073			28.5 %	February 2020
		$	563,362

As of December 31, 2014	Local Currency Notional Amount	U.S. Dollar Notional Amount
Canadian Dollar	1,500	$	1,441
Philippine Peso	17,428,000	398,046		(1)
Mexican Peso	2,532,000	179,089
New Zealand Dollar	490	381
		$	578,957

(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, 2015 and December 31, 2014.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company’s interest rate swap arrangements as of March 31, 2015 and December 31, 2014 were as follows:

Notional
Amount

Variable Rate
Received

Fixed Rate
Paid

Contract
Commencement
Date

Contract
Maturity
Date

As of March 31, 2015

25 million

1 - month LIBOR

2.55

April 2012

April 2016

and December 31, 2014

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, 2015 and December 31, 2014 the total notional amount of the Company’s forward contracts used as fair value hedges were $262.6 million and $242.5 million, respectively.

Derivative Valuation and Settlements

The Company’s derivatives as of March 31, 2015 and December 31, 2014 were as follows (in thousands):

	March 31, 2015
Designation:	Designated as Hedging Instruments				Not Designated as Hedging Instruments
Derivative contract type:	Foreign Exchange		Interest Rate		Foreign Exchange
Derivative classification:	Cash Flow		Cash Flow		Fair Value

Fair value and location of derivative in the Consolidated Balance Sheet:
Prepaids and other current assets	$	1,758	$	-	$	904
Other long-term assets	228		-		-
Other current liabilities	(13,394)		(971)		(197)
Other long-term liabilities	(19,534)		(339)		-
Total fair value of derivatives, net	$	(30,942)	$	(1,310)	$	707

	December 31, 2014
Designation:	Designated as Hedging Instruments				Not Designated as Hedging Instruments
Derivative contract type:	Foreign Exchange		Interest Rate		Foreign Exchange
Derivative classification:	Cash Flow		Cash Flow		Fair Value

Fair value and location of derivative in the Consolidated Balance Sheet:
Prepaids and other current assets	$	192	$	-	$	797
Other long-term assets	389		-		-
Other current liabilities	(12,680)		(988)		(5)
Other long-term liabilities	(17,070)		(452)		-
Total fair value of derivatives, net	$	(29,169)	$	(1,440)	$	792

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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 (Loss) for the three months ended March 31, 2015 and 2014 were as follows (in thousands):

	Three Months Ended March 31,
	2015				2014
Designation:	Designated as Hedging Instruments				Designated as Hedging Instruments
Derivative contract type:	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 (loss) - effective portion, net of tax:	$	1,220	$	(71)	$	(3,592)	$	(57)

Amount and location of net gain or (loss) reclassified from accumulated OCI to income - effective portion:
Revenue	$	(1,708)	$	-	$	(1,570)	$	-
Interest Expense	-		(257)		-		(258)

	Three Months Ended March 31,
	2015				2014
Designation:	Not Designated as Hedging Instruments				Not Designated as Hedging Instruments
Derivative contract type:	Foreign Exchange				Foreign Exchange

Derivative classification:	Forward Contracts		Fair Value		Forward Contracts		Fair Value

Amount and location of net gain or (loss) recognized in the Consolidated Statement of Comprehensive Income:
Costs of services	$	-	$	-	$	-	$	-
Other income (expense), net	$	-	$	80	$	-	$	619

(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, 2015 and December 31, 2014 for 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.

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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, 2015 and December 31, 2014, the Company had $126.0 million and $100.0 million, respectively, of borrowings outstanding under the Credit Agreement. During the first quarter of 2015 outstanding borrowings accrued interest at an average rate of 1.2% 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, 2015, 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, 2015 and December 31, 2014 (in thousands):

As of March 31, 2015

	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	$	-	$	(30,942)	$	-	$	(30,942)
Interest rate swaps	-		(1,310)		-		(1,310)
Fair value hedges	-		707		-		707
Total net derivative asset (liability)	$	-	$	(31,545)	$	-	$	(31,545)

As of December 31, 2014

	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	$	-	$	(29,169)	$	-	$	(29,169)
Interest rate swaps	-		(1,440)		-		(1,440)
Fair value hedges	-		792		-		792
Total net derivative asset (liability)	$	-	$	(29,817)	$	-	$	(29,817)

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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, 2015 and December 31, 2014 (in thousands):

As of March 31, 2015
	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
Derivative instruments, net	$	-	$	-	$	-
Total assets	$	-	$	-	$	-

Liabilities
Deferred compensation plan liability	$	-	$	(9,272)	$	-
Derivative instruments, net	-		(31,545)		-
Contingent consideration	-		-		(23,953)
Total liabilities	$	-	$	(40,817)	$	(23,953)

As of December 31, 2014
	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
Derivative instruments, net	$	-	$	-	$	-
Total assets	$	-	$	-	$	-

Liabilities
Deferred compensation plan liability	$	-	$	(8,478)	$	-
Derivative instruments, net	-		(29,817)		-
Contingent consideration	-		-		(24,744)
Total liabilities	$	-	$	(38,295)	$	(24,744)

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.

Contingent Consideration — The Company recorded contingent consideration related to the acquisitions of iKnowtion, Guidon, TSG, WebMetro, Sofica and rogenSi. These contingent payables were recognized at fair value using a discounted cash flow approach and a discount rate of 21.0%, 21.0%, 4.6%, 5.3%, 5.0% or 4.6%, respectively. The discount rates vary dependant on the specific risks of each acquisition including the country of operation, the nature of services and complexity of the acquired business, and other similar factors. These measurements were based on significant inputs not observable in the market. The Company will accrete interest expense each period using the effective interest method until the future value of these contingent payables reaches their expected future value of $24.7 million. Interest expense related to all recorded purchase price payables is included in Interest expense in the Consolidated Statements of Comprehensive Income (Loss).

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

During the second and fourth quarters of 2014, the Company recorded fair value adjustments of the contingent consideration associated with the TSG reporting unit within the CTS segment based on revised estimates noting achievement of the targeted 2014 and 2015 EBITDA was remote. Accordingly, a $4.0 million and $3.9 million, respectively, reductions in the payable were recorded as of June 30, 2014 and December 31, 2014 and were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

During the third and fourth quarters of 2014, the Company recorded fair value adjustments of the contingent consideration associated with the Sofica reporting unit within the CMS segment of $1.8 million and $0.6 million, respectively, as the Company’s revised estimates reflected Sofica exceeding its EBITDA targets for both 2014 and 2015. Accordingly, the $1.8 million and $0.6 million increases in the payable were recorded as of September 30, 2014 and December 31, 2014 and were included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

During the third quarter of 2014, the Company recorded a fair value adjustment of the contingent consideration associated with the WebMetro reporting unit within the CGS segment based on revised estimates noting achievement of the targeted 2014 EBITDA was remote. Accordingly, a $1.7 million reduction in the payable was recorded as of September 30, 2014 and was included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

During the fourth quarter of 2014, the Company recorded a fair value adjustment of the contingent consideration associated with the rogenSi reporting unit within the CSS segment based on revised estimates reflecting rogenSi exceeding its EBITDA targets for 2014. Accordingly a $0.5 million increase in the payable was recorded as of December 31, 2014 and was included in Other income (expense) in the Consolidated Statements of Comprehensive Income (Loss).

During the first quarter of 2015, the Company assessed the contingent payables associated with all of the acquisitions and determined that no material adjustments were necessary.

A rollforward of the activity in the Company’s fair value of the contingent consideration payable is as follows (in thousands):

	December 31, 2014		Acquisitions		Payments		Imputed Interest / Adjustments		March 31, 2015

iKnowtion	$	2,265	$	-	$	-	$	15	$	2,280
Guidon	1,000		-		(1,000)		-		-
TSG	-		-		-		-		-
WebMetro	-		-		-		-		-
Sofica	6,317		-		-		80		6,397
rogenSi	15,162		-		-		114		15,276
Total	$	24,744	$	-	$	(1,000)	$	209	$	23,953

Subsequent to March 31, 2015, an additional $8.1 million of payments were completed in accordance with the acquisition agreements.

(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.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

During the first quarter of 2014, a benefit of $1.2 million was recorded due to the closing of statutes of limitations in Canada.

As of March 31, 2015, the Company had $52.8 million of gross deferred tax assets (after a $10.4 million valuation allowance) and net deferred tax assets (after deferred tax liabilities) of $49.9 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, 2015 and 2014 was 18.0% and 11.9%, respectively.

The Company’s U.S. income tax returns filed for the tax years ending December 31, 2011 to present remain open tax years. The Company has been notified of the intent to audit, or is currently under audit, of income taxes in the U.S. specifically for the acquired entity Technology Solutions Group for the tax year 2012 (prior to acquisition) and Canada for tax years 2009 and 2010. 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, 2015 and 2014, the Company undertook a number of restructuring activities primarily associated with reductions in the Company’s capacity and workforce in several of its 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 (Loss) for the three months ended March 31, 2015 and 2014, respectively, is as follows (in thousands):

	Three Months Ended March 31,
	2015		2014
Reduction in force
Customer Management Services	$	776	$	511
Customer Growth Services	-		29
Customer Technology Services	-		-
Customer Strategy Services	33		-
Total	$	809	$	540

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

	Closure of Delivery Centers		Reduction in Force			Total

Balance as of December 31, 2014	$	-	$	2,071		$	2,071
Expense	-		809			809
Payments	-		(1,208		)	(1,208		)
Changes in estimates	-		-			-
Balance as of March 31, 2015	$	-	$	1,672		$	1,672

The remaining restructuring accruals are expected to be paid or extinguished during 2015 and are all classified as current liabilities within Other accrued expenses in the Consolidated Balance Sheets.

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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 its 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, 2015 and 2014, the Company recognized no losses related to leasehold improvement assets.

(10) COMMITMENTS AND CONTINGENCIES

Credit Facility

In the second quarter of 2013, the Company entered into a $700.0 million, five-year, multi-currency revolving credit facility (the “Credit Agreement”) with a syndicate of lenders which includes an accordion feature that permits the Company to request an increase in total commitments up to $1.0 billion, under certain conditions. Wells Fargo Securities, LLC, KeyBank National Association, Bank of America Merrill Lynch, BBVA Compass and HSBC Bank USA, National Association served as Joint Lead Arrangers. The Credit Agreement amends and restates in its entirety the Company’s prior credit facility entered into during 2010 and amended in 2012.

The Credit Agreement provides for a secured revolving credit facility that matures on June 3, 2018 with an initial maximum aggregate commitment of $700.0 million. At the Company’s discretion, direct borrowing options under the Credit Agreement include (i) Eurodollar loans with one, two, three, and six month terms, and/or (ii) overnight base rate loans. The Credit Agreement also provides for a sub-limit for loans or letters of credit in both U.S. dollars and certain foreign currencies, with direct foreign subsidiary borrowing capabilities up to 50% of the total commitment amount. The Company may increase the maximum aggregate commitment under the Credit Agreement to $1.0 billion if certain conditions are satisfied, including that the Company is not in default under the Credit Agreement at the time of the increase and that the Company obtains the commitment of the lenders participating in the increase.

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, 2015 and December 31, 2014, the Company had borrowings of $126.0 million and $100.0 million, respectively, under its Credit Agreement, and its average daily utilization was $297.0 million and $270.9 million for the three months ended March 31, 2015 and 2014, respectively. After consideration for issued letters of credit under the Credit Agreement, totaling $3.2 million, the Company’s remaining borrowing capacity was $570.8 million as of March 31, 2015. As of March 31, 2015, the Company was in compliance with all covenants and conditions under its Credit Agreement.

From time-to-time, the Company has unsecured, uncommitted lines of credit to support working capital for a few foreign subsidiaries. As of March 31, 2015 and 2014, no foreign loans were outstanding.

Letters of Credit

As of March 31, 2015, outstanding letters of credit under the Credit Agreement totaled $3.2 million and primarily guaranteed workers’ compensation and other insurance related obligations. As of March 31, 2015, letters of credit and contract performance guarantees issued outside of the Credit Agreement totaled $4.6 million.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Legal Proceedings

From time to time, the Company has been involved in legal actions, both as plaintiff and defendant, which arise in the ordinary course of business. The Company accrues for exposures associated with such legal actions to the extent that losses are deemed both probable and estimable. To the extent specific reserves have not been made for certain legal proceedings, their ultimate outcome, and consequently, an estimate of possible loss, if any, cannot reasonably be determined at this time.

Based on currently available information and advice received from counsel, the Company believes that the disposition or ultimate resolution of any current legal proceedings, except as otherwise specifically reserved for in its financial statements, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

(11) NONCONTROLLING INTEREST

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

	Three Months Ended March 31,
	2015		2014
Noncontrolling interest, January 1	$	7,983	$	8,081
Net income attributable to noncontrolling interest	1,090		957
Dividends distributed to noncontrolling interest	(990)		(990)
Foreign currency translation adjustments	(284)		35
Equity based compensation expense	20		8
Noncontrolling interest, March 31	$	7,819	$	8,091

(12) MANDATORILY REDEEMABLE NONCONTROLLING INTEREST

The Company holds an 80% interest in iKnowtion. 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 which the Company determined is probable of being achieved.

The Company has recorded the mandatorily redeemable noncontrolling interest at the redemption value based on the corresponding EBITDA multiples as prescribed in the purchase and sale agreement at the end of each reporting period. At the end of each reporting period the changes in the redemption value are recorded in retained earnings. Since the EBITDA multiples as defined in the purchase and sale agreement are below the current market multiple, the Company has determined that there is no preferential treatment to the noncontrolling interest shareholders resulting in no impact to earnings per share.

A rollforward of the mandatorily redeemable noncontrolling interest is as follows (in thousands):

	Three months ended March 31,
	2015		2014
Mandatorily redeemable noncontrolling interest, January 1	$	2,814	$	2,509
Net income attributable to mandatorily redeemable noncontrolling interest	173		128
Dividends distributed to mandatorily redeemable noncontrolling interest	-		-
Change in redemption value	424		(175)
Mandatorily redeemable noncontrolling interest, March 31	$	3,411	$	2,462

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(13) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents changes in the accumulated balance for each component of other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss) (in thousands):

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

Accumulated other comprehensive income (loss) at December 31, 2014	$	(33,352)	$	(18,345)	$	(577)	$	(52,274	)

Other comprehensive income (loss) before reclassifications		(10,999)		(1,291)		(2,841)		(15,131	)
Amounts reclassified from accumulated other comprehensive income (loss)		-		1,139		246		1,385
Net current period other comprehensive income (loss)		(10,999)		(152)		(2,595)		(13,746	)

Accumulated other comprehensive income (loss) at March 31, 2015	$	(44,351)	$	(18,497)	$	(3,172)	$	(66,020	)

Accumulated other comprehensive income (loss) at December 31, 2013	$	(10,581)	$	(8,352)	$	(1,653)	$	(20,586	)

Other comprehensive income (loss) before reclassifications		(1,758)		(3,649)		187		(5,220	)
Amounts reclassified from accumulated other comprehensive income (loss)		-		1,115		89		1,204
Net current period other comprehensive income (loss)		(1,758)		(2,534)		276		(4,016	)

Accumulated other comprehensive income (loss) at March 31, 2014	$	(12,339)	$	(10,886)	$	(1,377)	$	(24,602	)

The following table presents the classification and amount of the reclassifications from accumulated other comprehensive income (loss) to the statement of comprehensive income (in thousands):

	For the Three Months Ended
	March 31, 2015			March 31, 2014			Statement of Comprehensive Income Classification

Derivative valuation
Gain (loss) on foreign currency forward exchange contracts	$	(1,708	)	$	(1,570	)	Revenue
Loss on interest rate swaps	(257		)	(258		)	Interest expense
Tax effect	826			713			Provision for income taxes
	$	(1,139	)	$	(1,115	)	Net income (loss)

Other
Actuarial loss on defined benefit plan	$	(274	)	$	(95	)	Cost of services
Tax effect	28			6			Provision for income taxes
	$	(246	)	$	(89	)	Net income (loss)

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(14) NET INCOME PER SHARE

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

	Three Months Ended March 31,
	2015	2014
Shares used in basic earnings per share calculation	48,370	50,045
Effect of dilutive securities:
Stock options	384	411
Restricted stock units	401	517
Performance-based restricted stock units	3	-
Total effects of dilutive securities	788	928
Shares used in dilutive earnings per share calculation	49,158	50,973

For the three months ended March 31, 2015 and 2014, 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, 2015 and 2014, restricted stock units (“RSUs”) of 0.5 million and 0.3 million, respectively, were outstanding, but not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

(15) EQUITY-BASED COMPENSATION PLANS

All equity—based awards to employees are recognized in the Consolidated Statements of Comprehensive Income (Loss) at the fair value of the award on the grant date. During the three months ended March 31, 2015 and 2014, the Company recognized total compensation expense of $2.7 million and $3.2 million, respectively. Of the total compensation expense, $0.6 million and $0.6 million was recognized in Cost of services and $2.1 million and $2.6 million was recognized in Selling, general and administrative.

Restricted Stock Unit Grants

During the three months ended March 31, 2015 and 2014, the Company granted 80,000 and 164,000 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 $2.6 million and $3.0 million for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, there was approximately $24.2 million of total unrecognized compensation cost (including the impact of expected forfeitures) related to RSUs granted under the Company’s equity plans.

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Litigation Reform Act”), relating to our future operations, expected financial condition and prospects, results of operation, and other business matters that are based on our current expectations, assumptions, business strategy, and projections with respect to the future, and are not a guarantee of performance. Forward-looking statements may appear throughout this report, including without limitation, the following sections: Part I, Item 2, “Management’s Discussion and Analysis” of Financial Condition and Results of Operations” and Part II, Item 1A, “Risk Factors.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. When we discuss our strategy, plans, goals, initiatives, or objectives, we are making forward-looking statements. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Litigation Reform Act.

We caution you not to rely unduly on any forward-looking statements. Actual results may differ materially from what is expressed in the forward-looking statements, and you should review and consider carefully the risks, uncertainties and other factors that affect our business and may cause such differences, as outlined but are not limited to factors discussed in the “Risk Factors” section of our 2014 Annual Report on Form 10-K.

The forward-looking statements are based on information available as of the date that this Form 10-Q is filed with the United States Securities and Exchange Commission (“SEC”) and we undertake no obligation to update them, except as may be required by applicable laws. They are based on numerous assumptions and developments that are not within our control. Although we believe these forward-looking statements are reasonable, we cannot assure you they will turn out to be correct.

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

Executive Summary

TeleTech Holdings, Inc. (“TeleTech”, “the Company”, “we”, “our” or “us”) is a customer engagement management service provider that delivers integrated consulting, technology, growth and customer care solutions on a global scale. Our suite of product and service capabilities allows us to design and deliver enhanced, value-driven customer experiences across numerous communication channels. Our solutions are supported by 44,000 employees delivering services in 24 countries from 61 delivery centers on six continents. Our revenue for the quarter ended March 31, 2015 was $326 million.

Since our establishment in 1982, we have helped clients strengthen their customer relationships, brand recognition and loyalty through customer engagement solutions. We deliver thought leadership, technology and innovation that create customer strategies designed to differentiate our clients from their competition; data analytics that personalize interactions and increase customer value; and integration services that connect clients’ customer relationship management (“CRM”) system to a cloud-based collaboration platform, leading to customer interactions that are seamless and relevant.

Our services are value-oriented, outcome-based, and delivered on a global scale across all of our business segments: Customer Management Services (“CMS”), Customer Growth Services (“CGS”), Customer Technology Services (“CTS”) and Customer Strategy Services (“CSS”). Our integrated customer experience platform differentiates the Company by combining strategic consulting, data analytics, process optimization, system design and integration, operational excellence, and technology solutions and services.

We have developed tailored expertise in the automotive, communications, financial services, government, healthcare, logistics, media and entertainment, retail, technology, travel and transportation industries. We target customer-focused industry leaders in the Global 1000 and serve more than 250 global clients.

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To improve our competitive position in a rapidly changing market and stay strategically relevant to our clients, we continue to invest in innovation and growth businesses, diversifying our traditional business process outsourcing services of our CMS segment into higher-value consulting, data analytics, digital marketing and technology-enabled services. Of the $326 million in revenue we reported in the current period, approximately 25% or $82.5 million came from the CGS, CTS and CSS segments (our “Emerging Segments”), focused on customer-centric strategy, growth or technology-based services, with the remainder of our revenue coming from the traditional business process outsourcing focused CMS segment.

Consistent with our growth and diversification strategy, we continue to invest in technology differentiation, analytics, cloud computing and digital marketing. We also invest in businesses that accelerate our strategy: in 2014, we acquired Sofica Group, a Bulgarian customer management services company which provides our clients with the capabilities of 18 additional languages while contributing to the geographic and time zone diversity of our footprint; and rogenSi, a global leadership, change management and sales consulting company that further diversifies our consulting offerings.

Our strong balance sheet, cash flows from operations and access to debt and capital markets have historically provided us the financial flexibility to effectively fund our organic growth, capital expenditures, strategic acquisitions and incremental investments. Additionally, we continue to return capital to our shareholders via an ongoing stock repurchase program. As of March 31, 2015, our cumulative authorized repurchase allowance was $662.3 million, of which we repurchased 42.3 million shares for $631.4 million. For the period from March 31, 2015 through May 4, 2015, we repurchased no additional shares. The stock repurchase program does not have an expiration date. Effective February 28, 2015, the Board of Directors authorized an additional $25 million for stock repurchases.

On February 24, 2015, our Board of Directors adopted a dividend policy, with the intent to distribute a periodic cash dividend to stockholders of our common stock, after consideration of, among other things, TeleTech’s performance, cash flows, capital needs and liquidity factors. Given our cash flow generation and balance sheet strength, we believe cash dividends and early returns to shareholders through share repurchases, in balance with our investments in innovation and strategic acquisitions, align shareholder interests with the needs of the Company. The initial dividend of $0.18 per common share was paid on March 16, 2015 to shareholders of record as of March 6, 2015.

Our Integrated Service Offerings and Business Segments

We operate our business utilizing four operating and reportable segments, which provide an integrated set of services offering through design, technology enablement, management and growth:

Customer Strategy Services

We typically begin by engaging our clients at a strategic level. Through our strategy, change management and analytics-driven consulting expertise, we help our clients design, build and execute their customer engagement strategies. We he