Edgar Filing: TELETECH HOLDINGS INC

ttec_Current folio_10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended September 30, 2016


☐	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 ☑ 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 ☑ 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 ☐		Accelerated filer ☑

Non-accelerated filer ☐ (Do not check if a smaller reporting company)		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 ☑

As of October 31, 2016, there were 46,479,987 shares of the registrant’s common stock outstanding.

Table of Contents

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

SEPTEMBER 30, 2016 FORM 10-Q

TABLE OF CONTENTS


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 (unaudited)	1

	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015 (unaudited)	2

	Consolidated Statement of Equity as of and for the nine months ended September 30, 2016 (unaudited)	3

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)	4

	Notes to the Unaudited Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 6.	Exhibits	47

SIGNATURES		48

EXHIBIT INDEX		49

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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)


	September 30,		December 31,
	2016		2015
ASSETS
Current assets
Cash and cash equivalents	$	61,308	$	60,304
Accounts receivable, net		256,039		283,474
Prepaids and other current assets		61,441		64,180
Income tax receivable		8,707		7,114
Assets held for sale		9,967		—
Total current assets		397,462		415,072

Long-term assets
Property, plant and equipment, net		164,007		168,289
Goodwill		111,088		114,183
Deferred tax assets, net		55,251		52,082
Other intangible assets, net		33,994		51,215
Other long-term assets		45,485		42,486
Total long-term assets		409,825		428,255
Total assets	$	807,287	$	843,327

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	37,092	$	43,323
Accrued employee compensation and benefits		71,878		71,634
Other accrued expenses		25,080		33,160
Income tax payable		8,308		9,125
Deferred tax liabilities, net		—		—
Deferred revenue		24,372		26,184
Other current liabilities		29,911		23,480
Liabilities held for sale		1,121		—
Total current liabilities		197,762		206,906

Long-term liabilities
Line of credit		129,000		100,000
Deferred tax liabilities, net		2,039		3,333
Deferred rent		12,970		11,791
Other long-term liabilities		70,453		76,349
Total long-term liabilities		214,462		191,473
Total liabilities		412,224		398,379

Commitments and contingencies (Note 10)

Mandatorily redeemable noncontrolling interest		—		4,131

Stockholders’ equity
Preferred stock; $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of September 30, 2016 and December 31, 2015		—		—
Common stock; $0.01 par value; 150,000,000 shares authorized; 46,708,311 and 48,481,323 shares outstanding as of September 30, 2016 and December 31, 2015, respectively		468		485
Additional paid-in capital		346,637		347,251
Treasury stock at cost: 35,343,942 and 33,570,930 shares as of September 30, 2016 and December 31, 2015, respectively		(586,057)		(533,744)
Accumulated other comprehensive income (loss)		(109,832)		(101,365)
Retained earnings		736,551		720,989
Noncontrolling interest		7,296		7,201
Total stockholders’ equity		395,063		440,817
Total liabilities and stockholders’ equity	$	807,287	$	843,327

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 September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Revenue	$	312,796	$	309,195	$	930,311	$	944,939

Operating expenses
Cost of services (exclusive of depreciation and amortization presented separately below)		233,541		225,978		691,649		682,579
Selling, general and administrative		40,628		48,418		130,902		146,031
Depreciation and amortization		16,811		15,486		51,761		46,529
Restructuring charges, net		3,688		622		3,890		1,629
Impairment losses		5,602		3,066		5,602		3,066
Total operating expenses		300,270		293,570		883,804		879,834

Income from operations		12,526		15,625		46,507		65,105

Other income (expense)
Interest income		397		196		826		877
Interest expense		(2,041)		(2,337)		(5,758)		(5,711)
Other income (expense), net		6,254		146		7,488		1,133
Loss on assets held for sale		(5,300)		—		(5,300)		—
Total other income (expense)		(690)		(1,995)		(2,744)		(3,701)

Income before income taxes		11,836		13,630		43,763		61,404

Benefit from (provision for) income taxes		813		(1,192)		(6,667)		(13,438)

Net income		12,649		12,438		37,096		47,966

Net income attributable to noncontrolling interest		(1,198)		(1,243)		(2,804)		(3,303)

Net income attributable to TeleTech stockholders	$	11,451	$	11,195	$	34,292	$	44,663

Other comprehensive income (loss)
Net income	$	12,649	$	12,438	$	37,096	$	47,966
Foreign currency translation adjustments		(8,541)		(21,997)		(8,069)		(39,342)
Derivative valuation, gross		(6,009)		(11,426)		(2,395)		(17,733)
Derivative valuation, tax effect		2,462		4,928		725		8,264
Other, net of tax		802		223		1,202		(2,140)
Total other comprehensive income (loss)		(11,286)		(28,272)		(8,537)		(50,951)
Total comprehensive income (loss)		1,363		(15,834)		28,559		(2,985)

Less: Comprehensive income attributable to noncontrolling interest		(1,202)		(906)		(2,734)		(2,443)

Comprehensive income (loss) attributable to TeleTech stockholders	$	161	$	(16,740)	$	25,825	$	(5,428)

Weighted average shares outstanding
Basic		47,081		48,345		47,771		48,346
Diluted		47,315		48,936		48,089		49,052

Net income per share attributable to TeleTech stockholders
Basic	$	0.24	$	0.23	$	0.72	$	0.92
Diluted	$	0.24	$	0.23	$	0.71	$	0.91

Dividends paid per share outstanding	$	—	$	—	$	0.185	$	0.180

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
											Other
	Preferred Stock			Common Stock			Treasury		Additional		Comprehensive		Retained		Noncontrolling
	Shares	Amount		Shares	Amount		Stock		Paid-in Capital		Income (Loss)		Earnings		interest		Total Equity
Balance as of December 31, 2015	—	$	—	48,481	$	485	$	(533,744)	$	347,251	$	(101,365)	$	720,989	$	7,201	$	440,817
Net income	—		—	—		—		—		—		—		34,292		2,804		37,096
Dividends to shareholders ($0.385 per common share)	—		—	—		—		—		—		—		(18,264)		—		(18,264)
Dividends distributed to noncontrolling interest	—		—	—		—		—		—		—		—		(2,745)		(2,745)
Adjustments to redemption value of mandatorily redeemable noncontrolling interest	—		—	—		—		—		—		—		(466)		—		(466)
Foreign currency translation adjustments	—		—	—		—		—		—		(7,999)		—		(70)		(8,069)
Derivatives valuation, net of tax	—		—	—		—		—		—		(1,670)		—		—		(1,670)
Vesting of restricted stock units	—		—	285		3		4,488		(8,183)		—		—		—		(3,692)
Exercise of stock options	—		—	29		—		458		(82)		—		—		—		376
Excess tax benefit from equity-based awards, net	—		—	—		—		—		499		—		—		—		499
Equity-based compensation expense	—		—	—		—		—		7,152		—		—		96		7,248
Purchases of common stock	—		—	(2,087)		(20)		(57,259)		—		—		—		—		(57,279)
Other, net of tax	—		—	—		—		—		—		1,202		—		10		1,212
Balance as of September 30, 2016	—	$	—	46,708	$	468	$	(586,057)	$	346,637	$	(109,832)	$	736,551	$	7,296	$	395,063

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)


	Nine Months Ended September 30,
	2016		2015
Cash flows from operating activities
Net income	$	37,096	$	47,966
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		51,761		46,529
Amortization of contract acquisition costs		499		754
Amortization of debt issuance costs		582		534
Imputed interest expense and fair value adjustments to contingent consideration		(4,320)		786
Provision for doubtful accounts		542		964
(Gain) loss on disposal of assets		(65)		(118)
Impairment losses		5,602		3,066
Loss on held for sale assets		5,300		—
Deferred income taxes		5,368		4,380
Excess tax benefit from equity-based awards		(539)		(420)
Equity-based compensation expense		7,278		8,569
(Gain) loss on foreign currency derivatives		4,649		4,820
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		23,780		4,722
Prepaids and other assets		(12,652)		(6,839)
Accounts payable and accrued expenses		(13,039)		11,857
Deferred revenue and other liabilities		(4,696)		(11,406)
Net cash provided by operating activities		107,146		116,164

Cash flows from investing activities
Proceeds from sale of long-lived assets		93		116
Purchases of property, plant and equipment		(38,863)		(49,184)
Investments in non-marketable equity investments		—		(9,000)
Acquisitions, net of cash acquired of zero and zero, respectively		(400)		(1,776)
Net cash used in investing activities		(39,170)		(59,844)

Cash flows from financing activities
Proceeds from line of credit		1,584,800		1,697,500
Payments on line of credit		(1,555,800)		(1,682,500)
Payments on other debt		(2,306)		(2,556)
Payments of contingent consideration and hold back payments to acquisitions		(9,467)		(11,883)
Dividends paid to shareholders		(8,922)		(8,710)
Payments to noncontrolling interest		(3,237)		(3,557)
Purchase of mandatorily redeemable noncontrolling interest		(4,105)		—
Proceeds from exercise of stock options		371		459
Excess tax benefit from equity-based awards		539		420
Payments of debt issuance costs		(1,888)		(35)
Purchase of treasury stock		(57,279)		(16,602)
Net cash used in financing activities		(57,294)		(27,464)

Effect of exchange rate changes on cash and cash equivalents		(9,678)		(20,002)

Increase in cash and cash equivalents		1,004		8,854
Cash and cash equivalents, beginning of period		60,304		77,316
Cash and cash equivalents, end of period	$	61,308	$	86,170

Supplemental disclosures
Cash paid for interest	$	4,976	$	4,640
Cash paid for income taxes	$	16,755	$	10,924
Non-cash operating, investing and financing activities
Acquisition of long-lived assets through capital leases	$	2,417	$	5,316
Acquisition of equipment through increase in accounts payable, net	$	(542)	$	5,448
Contract acquisition costs credited to accounts receivable	$	200	$	820
Dividend declared but not paid	$	9,342	$	8,713

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 products and services allows us to design and deliver engaging, outcome-based customer experiences across numerous interaction channels. TeleTech’s 43,500 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, China, Costa Rica, Germany, Hong Kong, 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 100% interest in iKnowtion, LLC effective January 2016 (see Note 12). 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 state 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, 2016.

During the three months ended March 31, 2016, the Company recorded an additional tax expense of $1.1 million that should have been recorded in prior periods related to operations by an entity outside its country of incorporation. The total amount of $1.1 million should have been recorded as additional expense in the amount of $180 thousand in 2011, $123 thousand in 2012, $137 thousand in 2013, $358 thousand in 2014 and $301 thousand in 2015.

During the three months ended June 30, 2015, an additional expense of $1.75 million was recorded as an additional estimated tax liability that should have been recorded in prior periods related to ongoing discussions with relevant government authorities related to site compliance with tax advantaged status. The total amount of $1.75 million should have been recorded as additional tax expense in the amount of $466 thousand in 2012, $406 thousand in 2013, $645 thousand in 2014 and $234 thousand in the first quarter of 2015.

During the three months ended June 30, 2015, the Company recorded an additional $3.2 million loss related to foreign currency translation within Other comprehensive income (loss) that should have been recorded in 2014 and the three months ended March 31, 2015 to correct for an error in translating the financial results of Sofica Group AD, which the Company acquired on February 28, 2014. Of the $3.2 million recorded, approximately $1.7 million and $1.5 million should have been recorded in the year ended December 31, 2014 and the three months ended March 31, 2015, respectively. The Company also recorded an additional $2.7 million loss to “Other, net of tax” within Other comprehensive income (loss) in the three months ended March 31, 2015 related to the annual actuarial analysis for the Company’s Philippines pension liability that should have been recorded in the fourth quarter of 2014.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

During the three months ended December 31, 2015, the Company recorded an additional $2.9 million impairment to correct for an error in the goodwill impairment annual assessment and quarterly assessment for the WebMetro reporting unit. The Company should have recorded a $2.3 million impairment in the three months ended December 31, 2014 and an additional $0.6 million impairment in the three months ended September 30, 2015.

The Company has evaluated the aggregate impact of these adjustments and concluded that these adjustments were not material to the previously issued or current period consolidated financial statements.

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, 2015.

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 May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. ASU 2014-09 provides new guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 specifies new accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers. While ASU-2014-09 was originally effective for fiscal years and interim periods within those years, beginning after December 15, 2016, in August 2015, the FASB issued ASU 2015-14, “Deferral of Effective Date”, deferring the effective date by one year, to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, with early application not permitted. The Company is currently determining its implementation approach and assessing the impact on the consolidated financial statements.

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. Beginning in 2016, the Company has applied the new guidance as applicable and the adoption of this standard did not have a material impact on its financial position, results of operations or related disclosures.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In February 2016, the FASB issued ASU 2016-02, “Leases”, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases and making targeted changes to lessor accounting. The ASU also requires new disclosures regarding the amounts, timing, and uncertainty of cash flows arising from leases. The ASU is effective for interim and annual periods beginning on or after December 15, 2018 and early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently assessing the impact on the consolidated financial statements and related disclosures evaluating software and other tracking methods, and determining the implementation timeline.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting”, which amends the existing accounting standards related to stock-based compensation. The ASU simplifies several aspects of accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for interim and annual periods beginning on or after December 15, 2016 and early adoption is permitted. The Company has finalized the implementation which will occur effective January 1, 2017, and is currently assessing the impact on its consolidated statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows”. ASU 2016-15 is intended to reduce diversity in practice regarding how certain cash transactions are presented and classified in the Consolidated Statement of Cash Flows by providing guidance on eight specific cash flow issues. The ASU is effective for interim and annual periods beginning on or after December 15, 2017 and early adoption is permitted. The Company is currently assessing the impact on the consolidated statements and related disclosures.

(2)ACQUISITIONS AND DIVESTITURES

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 consisted 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 was paid in the first quarter of 2016. 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.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 third quarter of 2015, the fourth quarter of 2015, and the third quarter of 2016, the Company recorded fair value adjustments of the contingent consideration of $0.5 million, $0.8 million, $(0.3) million, and $(4.3) million, respectively, based on revised estimates noting higher or lower probability of exceeding the EBITDA targets (see Note 7). As of September 30, 2016, the fair value of the remaining contingent consideration has been reduced from $4.3 million to zero given the remote possibility of achieving targeted EBITDA for 2016.

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 ranged from zero to $7.5 million. Additionally, the purchase price included a $1.0 million hold-back payment for contingencies, as defined in the stock purchase agreement, which was paid in the first quarter of 2016.

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). During the second quarter of 2015, the Company recorded a negative fair value adjustment for contingent consideration of $0.5 million based on revised estimates noting lower profitability than initially estimated. As of September 30, 2016, all of the contingent consideration has been paid.

Assets and Liabilities Held for Sale

As of September 30, 2016, the Company has determined that one business unit from the Customer Growth Services segment and one business unit from the Customer Strategy Services segment will be divested from the Company’s operations. These business units have met the criteria to be classified as held for sale. The Company is in discussions with bankers, a potential broker and assessing potential buyers. The Company anticipates the transactions will be finalized during the next six to twelve months. The Company has taken into consideration the discounted cash flow models, management input based on early discussions with potential brokers and buyers, and other third party evidence from similar transactions to complete the fair value analysis as there has not been a selling price determined at this point for either unit. The fair values were compared to the carrying values to estimate any potential loss on sale. For the two business units losses of $2.6 million and $2.7 million, respectively, were recorded as of September 30, 2016 in Loss on assets held for sale in the Consolidated Statements of Comprehensive Income (Loss).

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents information related to the major components of assets and liabilities that were classified as held for sale in the Consolidated Balance Sheet as of September 30, 2016.


	As of
	September 30, 2016
Cash	$	—
Accounts receivable, net		6,073
Allowance for doubtful accounts		(51)
Other assets		517
Property, plant and equipment		769
Deferred tax assets, net		—
Customer relationships		4,155
Goodwill		3,033
Other intangible assets		771
Allowance for reduction of assets held for sale		(5,300)
Total assets	$	9,967

Accounts payable	$	411
Accrued employee compensation and benefits		498
Accrued expenses		78
Other		134
Total liabilities