XNAS:TTEC TeleTech Holdings Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

 

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 June 30, 2012

 

OR

 

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

 

For the transition period from            to

 


 

Commission File Number 001-11919

 


 

TeleTech Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

84-1291044

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

9197 South Peoria Street

Englewood, Colorado 80112

(Address of principal executive offices)

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes R   No o

 

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 R   No o

 

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 R

 

 

 

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 o   No R

 

As of July 26, 2012, there were 54,535,438 shares of the registrant’s common stock outstanding.

 



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

JUNE 30, 2012 FORM 10-Q

TABLE OF CONTENTS

 

 

 

Page No.

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011

1

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011 (unaudited)

2

 

 

 

 

Consolidated Statement of Equity as of and for the six months ended June 30, 2012 (unaudited)

3

 

 

 

 

Consolidated Statements of Cash Flows for the three and six months ended June 30, 2012 and 2011 (unaudited)

4

 

 

 

 

Notes to the Unaudited Consolidated Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

40

 

 

 

Item 4.

Controls and Procedures

43

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

44

 

 

 

Item 1A.

Risk Factors

44

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

Item 6.

Exhibits

46

 

 

 

SIGNATURES

47

 

 

EXHIBIT INDEX

48

 



Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

 

 

 

 

June 30,
2012

 

 

December 31,
2011

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

170,578

 

 

$

156,371

 

Accounts receivable, net

 

243,360

 

 

243,636

 

Prepaids and other current assets

 

51,737

 

 

37,434

 

Deferred tax assets, net

 

23,692

 

 

22,994

 

Income tax receivable

 

12,328

 

 

17,847

 

Total current assets

 

501,695

 

 

478,282

 

 

 

 

 

 

 

 

Long-term assets

 

 

 

 

 

 

Property, plant and equipment, net

 

105,055

 

 

100,321

 

Goodwill

 

72,057

 

 

70,844

 

Contract acquisition costs, net

 

2,358

 

 

2,866

 

Deferred tax assets, net

 

31,642

 

 

32,512

 

Other long-term assets

 

72,145

 

 

62,153

 

Total long-term assets

 

283,257

 

 

268,696

 

Total assets

 

$

784,952

 

 

$

746,978

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

29,960

 

 

$

27,555

 

Accrued employee compensation and benefits

 

71,000

 

 

71,500

 

Other accrued expenses

 

43,941

 

 

33,816

 

Income taxes payable

 

12,222

 

 

10,051

 

Deferred tax liabilities, net

 

1,745

 

 

912

 

Deferred revenue

 

16,603

 

 

15,895

 

Other current liabilities

 

8,530

 

 

10,282

 

Total current liabilities

 

184,001

 

 

170,011

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

Line of credit

 

78,000

 

 

64,000

 

Negative investment in deconsolidated subsidiary

 

76

 

 

76

 

Deferred tax liabilities, net

 

3,226

 

 

3,020

 

Deferred rent

 

7,528

 

 

6,729

 

Other long-term liabilities

 

43,459

 

 

32,895

 

Total long-term liabilities

 

132,289

 

 

106,720

 

Total liabilities

 

316,290

 

 

276,731

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock - $0.01 par value: 10,000,000 shares authorized;
zero shares outstanding as of June 30, 2012 and December 31, 2011

 

-

 

 

-

 

Common stock - $0.01 par value; 150,000,000 shares authorized;
54,555,105 and 56,635,319 shares outstanding as of June 30, 2012 and December 31, 2011, respectively

 

546

 

 

566

 

Additional paid-in capital

 

346,018

 

 

350,386

 

Treasury stock at cost: 27,497,148 and 25,416,934 shares as of June 30, 2012 and December 31, 2011, respectively

 

(390,468

)

 

(357,267

)

Accumulated other comprehensive income (loss)

 

7,197

 

 

(5,474

)

Retained earnings

 

491,980

 

 

470,776

 

Noncontrolling interest

 

13,389

 

 

11,260

 

Total stockholders’ equity

 

468,662

 

 

470,247

 

Total liabilities and stockholders’ equity

 

$

784,952

 

 

$

746,978

 

 

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

 

1



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

288,798

 

 

$

293,636

 

 

$

581,452

 

 

$

574,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (exclusive of depreciation and amortization presented separately below)

 

209,121

 

 

210,358

 

 

421,016

 

 

409,479

 

Selling, general and administrative

 

45,709

 

 

47,283

 

 

93,844

 

 

95,084

 

Depreciation and amortization

 

10,229

 

 

11,423

 

 

20,345

 

 

23,021

 

Restructuring charges, net

 

16,296

 

 

(57

)

 

18,254

 

 

682

 

Impairment losses

 

997

 

 

-

 

 

2,797

 

 

230

 

Total operating expenses

 

282,352

 

 

269,007

 

 

556,256

 

 

528,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

6,446

 

 

24,629

 

 

25,196

 

 

46,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

695

 

 

720

 

 

1,455

 

 

1,386

 

Interest expense

 

(1,583

)

 

(1,291

)

 

(2,681

)

 

(2,671

)

Other expense, net

 

(582

)

 

(705

)

 

(324

)

 

(261

)

Total other income (expense)

 

(1,470

)

 

(1,276

)

 

(1,550

)

 

(1,546

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

4,976

 

 

23,353

 

 

23,646

 

 

44,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit (Provision) for income taxes

 

1,272

 

 

(129

)

 

(581

)

 

(9,978

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

6,248

 

 

23,224

 

 

23,065

 

 

34,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interest

 

(925

)

 

(1,007

)

 

(1,861

)

 

(1,905

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to TeleTech stockholders

 

$

5,323

 

 

$

22,217

 

 

$

21,204

 

 

$

32,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,248

 

 

$

23,224

 

 

$

23,065

 

 

$

34,595

 

Foreign currency translation adjustment

 

(5,530

)

 

1,835

 

 

3,252

 

 

6,881

 

Derivative valuation, gross

 

2,719

 

 

(8,193

)

 

14,390

 

 

(10,480

)

Derivative valuation, tax effect

 

(1,000

)

 

3,070

 

 

(5,574

)

 

3,900

 

Other

 

262

 

 

111

 

 

650

 

 

221

 

Total other comprehensive income

 

(3,549

)

 

(3,177

)

 

12,718

 

 

522

 

Total comprehensive income

 

2,699

 

 

20,047

 

 

35,783

 

 

35,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interest

 

(960

)

 

(956

)

 

(1,908

)

 

(1,907

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to TeleTech stockholders

 

$

1,739

 

 

$

19,091

 

 

$

33,875

 

 

$

33,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

55,125

 

 

56,713

 

 

55,809

 

 

56,949

 

Diluted

 

55,712

 

 

57,974

 

 

56,558

 

 

58,376

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to TeleTech stockholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

0.39

 

 

$

0.38

 

 

$

0.57

 

Diluted

 

$

0.10

 

 

$

0.38

 

 

$

0.37

 

 

$

0.56

 

 

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

 

2



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

(Amounts in thousands)

(Unaudited)

 

 

 

Stockholders’ Equity of the Company

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Treasury
Stock

 

Additional
Paid-in
Capital

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Retained
Earnings

 

Noncontrolling
interest

 

Total
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2011

 

-

$

 

-

 

56,635

$

 

566

$

 

(357,267

)

$

 

350,386

$

 

(5,474

)

$

 

470,776

$

 

11,260

$

 

470,247

 

Net income

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

21,204

 

1,861

 

23,065

 

Acquisition of noncontrolling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

941

 

941

 

Dividends distributed to noncontrolling interest

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(720

)

(720

)

Foreign currency translation adjustments

 

-

 

-

 

-

 

-

 

-

 

-

 

3,205

 

-

 

47

 

3,252

 

Derivatives valuation, net of tax

 

-

 

-

 

-

 

-

 

-

 

-

 

8,816

 

-

 

-

 

8,816

 

Vesting of restricted stock units

 

-

 

-

 

475

 

5

 

6,626

 

(10,455

)

-

 

-

 

-

 

(3,824

)

Exercise of stock options

 

-

 

-

 

63

 

1

 

879

 

(110

)

-

 

-

 

-

 

770

 

Excess tax benefit from equity-based awards

 

-

 

-

 

-

 

-

 

-

 

(648

)

-

 

-

 

-

 

(648

)

Equity-based compensation expense

 

-

 

-

 

-

 

-

 

-

 

6,845

 

-

 

-

 

-

 

6,845

 

Purchases of common stock

 

-

 

-

 

(2,618

)

(26

)

(40,706

)

-

 

-

 

-

 

-

 

(40,732

)

Other

 

-

 

-

 

-

 

-

 

-

 

-

 

650

 

-

 

-

 

650

 

Balance as of June 30, 2012

 

-

$

 

-

 

54,555

$

 

546

$

 

(390,468

)

$

 

346,018

$

 

7,197

$

 

491,980

$

 

13,389

$

 

468,662

 

 

 

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

 

3



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

2012

 

2011

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

23,065

 

 

$

34,595

 

Adjustment to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

20,345

 

 

23,021

 

Amortization of contract acquisition costs

 

508

 

 

1,009

 

Amortization of debt issuance costs

 

347

 

 

290

 

Imputed interest expense

 

373

 

 

531

 

Provision for doubtful accounts

 

48

 

 

-

 

Loss (gain) on disposal of assets

 

137

 

 

(696

)

Impairment losses

 

2,797

 

 

230

 

Deferred income taxes

 

(8,097

)

 

8,076

 

Excess tax benefit from equity-based awards

 

(1,136

)

 

(3,099

)

Equity-based compensation expense

 

6,845

 

 

7,715

 

(Gain) loss on foreign currency derivatives

 

(963

)

 

531

 

 

 

 

 

 

 

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable

 

1,095

 

 

5,908

 

Prepaids and other assets

 

(11,979

)

 

(6,317

)

Accounts payable and accrued expenses

 

13,453

 

 

(17,950

)

Deferred revenue and other liabilities

 

1,819

 

 

(5,863

)

Net cash provided by operating activities

 

48,657

 

 

47,981

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Proceeds from grant for property, plant and equipment

 

110

 

 

-

 

Proceeds from sale of long-lived assets

 

225

 

 

2,328

 

Purchases of property, plant and equipment, net of acquisitions

 

(17,478

)

 

(12,362

)

Acquisitions, net of cash acquired of $1,373 and $14, respectively

 

(4,809

)

 

(43,884

)

Net cash used in investing activities

 

(21,952

)

 

(53,918

)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from line of credit

 

515,950

 

 

406,100

 

Payments on line of credit

 

(501,950

)

 

(288,100

)

Proceeds from other debt

 

6,821

 

 

-

 

Payments on other debt

 

(1,390

)

 

(1,088

)

Dividends distributed to noncontrolling interest

 

(720

)

 

(1,859

)

Proceeds from exercise of stock options

 

770

 

 

3,673

 

Excess tax benefit from equity-based awards

 

1,136

 

 

3,099

 

Purchase of treasury stock

 

(40,732

)

 

(43,748

)

Payments of debt issuance costs

 

(432

)

 

(22

)

Net cash (used in) provided by financing activities

 

(20,547

)

 

78,055

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

8,049

 

 

2,783

 

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

14,207

 

 

74,901

 

Cash and cash equivalents, beginning of period

 

156,371

 

 

119,385

 

Cash and cash equivalents, end of period

 

$

170,578

 

 

$

194,286

 

 

 

 

 

 

 

 

Supplemental disclosures

 

 

 

 

 

 

Cash paid for interest

 

$

1,706

 

 

$

2,026

 

Cash paid for income taxes

 

$

8,546

 

 

$

14,875

 

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

Purchases of equipment through financing agreements

 

$

6,100

 

 

$

-

 

Grant income credited to property, plant and equipment

 

$

110

 

 

$

-

 

Landlord incentives credited to deferred rent

 

$

604

 

 

$

-

 

 

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

 

4



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

(1)        OVERVIEW AND BASIS OF PRESENTATION

 

Overview

 

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

 

Basis of Presentation

 

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

 

The accompanying unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of June 30, 2012, and the consolidated results of operations and comprehensive income and cash flows of the Company for the three and six months ended June 30, 2012 and 2011. Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

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

 

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

 

Use of Estimates

 

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates including those related to derivatives and hedging activities, income taxes including the valuation allowance for deferred tax assets, self-insurance reserves, litigation reserves, restructuring reserves, allowance for doubtful accounts and valuation of goodwill, long-lived and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions. In the three months ended June 30, 2012, the Company recorded a change in estimate which resulted in a decrease of $4.6 million to employee related expenses in connection with an authoritative ruling in Spain related to the legally required cost of living adjustment for our employees’ salaries for the years 2010, 2011 and 2012.

 

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Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Recently Issued Accounting Pronouncements

 

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

 

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

 

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

 

(2)        ACQUISITIONS

 

OnState

 

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

 

As of the six months ended June 30, 2012, the Company has paid $3.1 million of the purchase price. The remaining purchase price will be paid out once the potential for covered losses has expired per the purchase agreement. The Company paid $0.1 million of acquisition related expenses as part of the OnState purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income during the six months ended June 30, 2012.

 

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Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

 

 

Acquisition Date
Fair Value

Cash

 

$

36

 

Accounts Receivable

 

68

 

Property, plant and equipment

 

33

 

Software

 

2,100

 

Goodwill

 

1,132

 

 

 

3,369

 

 

 

 

 

Accounts payable

 

93

 

 

 

93

 

 

 

 

 

Total purchase price

 

$

3,276

 

 

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

 

iKnowtion

 

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

 

The up-front cash consideration paid was $1.0 million. The Company was also obligated to pay a working capital adjustment equivalent to any acquired working capital from iKnowtion in excess of a working capital floor as defined in the purchase and sale agreement. The working capital adjustment was $0.2 million and was paid during the second quarter of 2012.

 

The Company is also obligated to make earn-out payments over the next four years if iKnowtion achieves specified earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as defined by the purchase and sale agreement. The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions included in the fair value calculation include a discount rate of 21% and expected future value of payments of $4.3 million. The $4.3 million of expected future payments was estimated using a probability weighted EBITDA assessment with higher probability associated with iKnowtion achieving the maximum EBITDA targets. As of the acquisition date, the fair value of the contingent payments was approximately $2.9 million. As of June 30, 2012, the fair value of the contingent consideration was $3.3 million, of which $1.0 million and $2.3 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively.

 

The preliminary estimated fair value of the 20% noncontrolling interest in iKnowtion is $0.9 million and was estimated based on a 20% interest of the fair value of 100% interest in iKnowtion and was discounted for a lack of control at a rate of 23.1%.

 

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Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In the event iKnowtion meets certain EBITDA targets for calendar year 2015, the purchase and sale agreement requires TeleTech to purchase the remaining 20% interest in iKnowtion in 2016 for an amount equal to a multiple of iKnowtions’s 2015 EBITDA as defined in the purchase and sale agreement. These terms represent a contingent redemption feature. The preliminary fair value of the redemption feature is based on a comparison of EBITDA multiples and the EBITDA multiple to purchase the remaining 20% of iKnowtion approximates EBITDA multiples in the market for similar acquisitions.

 

The Company paid $0.1 million of acquisition related expenses as part of the iKnowtion purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income during the six months ended June 30, 2012.

 

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

 

 

 

Preliminary
Estimates of
Acquisition Date
Fair Value

Cash

 

$

1,337

 

Accounts Receivable

 

1,792

 

Property, plant and equipment

 

161

 

Other assets

 

90

 

Customer relationships

 

1,400

 

Goodwill

 

447

 

 

 

5,227

 

 

 

 

 

Accounts payable

 

18

 

Accrued expenses

 

19

 

Other

 

164

 

 

 

201

 

 

 

 

 

Noncontrolling interest

 

941

 

 

 

 

 

Total purchase price

 

$

4,085

 

 

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

 

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Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

eLoyalty

 

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

 

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

 

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

 

 

 

Acquisition Date
Fair Value

Cash

 

$

14

 

Accounts Receivable

 

7,702

 

Prepaid assets - cost deferrals

 

14,726

 

Property, plant and equipment

 

897

 

Other assets

 

869

 

Deferred tax asset

 

3,735

 

Customer relationships

 

11,700

 

Software

 

1,200

 

Noncompete agreements

 

900

 

Trade name

 

3,300

 

Consulting services backlog

 

500

 

Goodwill

 

18,516

 

 

 

64,059

 

 

 

 

 

Accounts payable

 

2,156

 

Accrued expenses

 

1,211

 

Deferred revenue

 

22,525

 

Other

 

192

 

 

 

26,084

 

 

 

 

 

Total purchase price

 

$

37,975

 

 

The customer relationship intangible asset is being amortized over 11 years. The goodwill recognized from the eLoyalty acquisition was attributable primarily to the assembled workforce of eLoyalty and significant opportunity for Company growth and marketing based on additional service offerings and capabilities. Since this acquisition has been treated as an asset acquisition for tax purposes, the goodwill of $18.5 million and associated intangible assets will be deductible for income tax purposes. The operating results of eLoyalty are reported within the Customer Technology Services segment from the date of acquisition.

 

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Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The three acquired businesses described above contributed revenues of $22.1 million and $43.2 million and income from operations of $1.7 million and $4.1 million to the Company for the three and six months ended June 30, 2012.

 

(3)        SEGMENT INFORMATION

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Three Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross
Revenue

 

Intersegment
Sales

 

Net
Revenue

 

Depreciation
&
Amortization

 

Income
(Loss) from
Operations

 

Customer Management Services

 

$

229,401

 

$

-

 

$

229,401

 

$

5,890

 

$

28,563

 

Customer Growth Services

 

24,409

 

-

 

24,409

 

631

 

4,212

 

Customer Technology Services

 

25,578

 

(622

)

24,956

 

678

 

4,103

 

Customer Strategy Services

 

10,347

 

(315

)

10,032

 

341

 

316

 

Total segments

 

289,735

 

(937

)

288,798

 

7,540

 

37,194

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

-

 

-

 

-

 

2,689

 

(30,748

)

Total

 

$

289,735

 

$

(937

)

$

288,798

 

$

10,229

 

$

6,446

 

 

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Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Three Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross
Revenue

 

Intersegment
Sales

 

Net
Revenue

 

Depreciation
&
Amortization

 

Income
(Loss) from
Operations

 

Customer Management Services

 

$

248,207

 

$

-

 

$

248,207

 

$

7,305

 

$

49,588

 

Customer Growth Services

 

23,483

 

-

 

23,483

 

766

 

4,594

 

Customer Technology Services

 

11,660

 

-

 

11,660

 

448

 

3,156

 

Customer Strategy Services

 

10,286

 

-

 

10,286

 

309

 

1,309

 

Total segments

 

293,636

 

-

 

293,636

 

8,828

 

58,647

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

-

 

-

 

-

 

2,595

 

(34,018

)

Total

 

$

293,636

 

$

-

 

$

293,636

 

$

11,423

 

$

24,629

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross
Revenue

 

Intersegment
Sales

 

Net
Revenue

 

Depreciation
&
Amortization

 

Income
(Loss) from
Operations

 

Customer Management Services

 

$

464,277

 

$

-

 

$

464,277

 

$

12,030

 

$

74,269

 

Customer Growth Services

 

47,173

 

-

 

47,173

 

1,196

 

5,291

 

Customer Technology Services

 

52,062

 

(1,553

)

50,509

 

1,465

 

7,808

 

Customer Strategy Services

 

20,709

 

(1,216

)

19,493

 

690

 

847

 

Total segments

 

584,221

 

(2,769

)

581,452

 

15,381

 

88,215

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

-

 

-

 

-

 

4,964

 

(63,019

)

Total

 

$

584,221

 

$

(2,769

)

$

581,452

 

$

20,345

 

$

25,196

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross
Revenue

 

Intersegment
Sales

 

Net
Revenue

 

Depreciation
&
Amortization

 

Income
(Loss) from
Operations

 

Customer Management Services

 

$

494,280

 

$

-

 

$

494,280

 

$

15,736

 

$

97,839

 

Customer Growth Services

 

45,626

 

-

 

45,626

 

1,552

 

7,576

 

Customer Technology Services

 

16,317

 

-

 

16,317

 

517

 

5,868

 

Customer Strategy Services

 

18,392

 

-

 

18,392

 

607

 

1,773

 

Total segments

 

574,615

 

-

 

574,615

 

18,412

 

113,056

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

-

 

-

 

-

 

4,609

 

(66,937

)

Total

 

$

574,615

 

$

-

 

$

574,615

 

$

23,021

 

$

46,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

Customer Management Services

 

$

7,336

 

$

4,958

 

$

12,982

 

$

7,079

 

Customer Growth Services

 

524

 

94

 

893

 

200

 

Customer Technology Services

 

375

 

45

 

701

 

115

 

Customer Strategy Services

 

18

 

 

84

 

138

 

Corporate

 

2,741

 

3,395

 

2,818

 

4,830

 

Total

 

$

10,994

 

$

8,492

 

$

17,478

 

$

12,362

 

 

11



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

June 30, 2012

 

December 31,
2011

 

 

 

 

 

 

Total Assets

 

 

 

 

 

 

 

 

 

 

Customer Management Services

 

$

496,401

 

$

479,818

 

 

 

 

 

 

Customer Growth Services

 

46,241

 

50,950

 

 

 

 

 

 

Customer Technology Services

 

77,865

 

70,745

 

 

 

 

 

 

Customer Strategy Services

 

50,339

 

42,882

 

 

 

 

 

 

Corporate

 

114,106

 

102,583

 

 

 

 

 

 

Total

 

$

784,952

 

$

746,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

December 31,
2011

 

 

 

 

 

 

Goodwill

 

 

 

 

 

 

 

 

 

 

Customer Management Services

 

$

20,228

 

$

20,594

 

 

 

 

 

 

Customer Growth Services

 

24,439

 

24,439

 

 

 

 

 

 

Customer Technology Services

 

19,648

 

18,516

 

 

 

 

 

 

Customer Strategy Services

 

7,742

 

7,295

 

 

 

 

 

 

Total

 

$

72,057

 

$

70,844

 

 

 

 

 

 

 

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

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Revenue

 

 

 

 

 

 

 

 

 

United States

 

$

111,857

 

$

94,184

 

$

222,433

 

$

178,813

 

Philippines

 

83,336

 

85,519

 

162,002

 

169,026

 

Latin America

 

46,259

 

53,066

 

94,155

 

108,664

 

Europe / Middle East / Africa

 

33,085

 

44,013

 

71,450

 

83,771

 

Canada

 

10,288

 

13,047

 

23,241

 

25,845

 

Asia Pacific

 

3,973

 

3,807

 

8,171

 

8,496

 

Total

 

$

288,798

 

$

293,636

 

$

581,452

 

$

574,615

 

 

(4)        SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS

 

The Company did not have any clients that contributed in excess of 10% of total revenue for the three or six months ended June 30, 2012 or 2011.

 

The loss of one or more of its significant clients could have a material adverse effect on the Company’s business, operating results, or financial condition. The Company does not require collateral from its clients. To limit the Company’s credit risk, management performs periodic credit evaluations of its clients and maintains allowances for uncollectible accounts and may require pre-payment for services. Although the Company is impacted by economic conditions in various industry segments, management does not believe significant credit risk existed as of June 30, 2012.

 

12



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

(5)        GOODWILL

 

Goodwill consisted of the following (amounts in thousands):

 

 

 

December 31,
2011

 

Acquisitions

 

Impairments

 

Effect of
Foreign
Currency

 

June 30,2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Management Services

 

$

20,594

 

$

 

$

 

$

(366

)

 

$

20,228

 

Customer Growth Services

 

24,439

 

 

 

 

 

24,439

 

Customer Technology Services

 

18,516

 

1,132

 

 

 

 

19,648

 

Customer Strategy Services

 

7,295

 

447

 

 

 

 

7,742

 

Total

 

$

70,844

 

$

1,579

 

$

 

$

(366

)

 

$

72,057

 

 

The Company performs a goodwill impairment test on at least an annual basis. The Company conducts its annual goodwill impairment test during the fourth quarter, or more frequently, if indicators of impairment exist. During the quarter ended June 30, 2012, the Company assessed whether any such indicators of impairment existed and concluded that there were none.

 

(6)        DERIVATIVES

 

Cash Flow Hedges

 

The Company enters into foreign exchange and interest rate related derivatives. Foreign exchange derivatives entered into consist of forward and option contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations. Interest rate derivatives consist of interest rate swaps to reduce the Company’s exposure to interest rate fluctuations associated with its variable rate debt. Upon proper qualification, these contracts are designated as cash flow hedges. It is the Company’s policy to only enter into derivative contracts with investment grade counterparty financial institutions, and correspondingly, the fair value of derivative assets consider, among other factors, the creditworthiness of these counterparties. Conversely, the fair value of derivative liabilities reflects the Company’s creditworthiness. As of June 30, 2012, the Company has not experienced, nor does it anticipate, any issues related to derivative counterparty defaults. The following table summarizes the aggregate unrealized net gain or loss in Accumulated other comprehensive income (loss) for the three and six months ended June 30, 2012 and 2011 (amounts in thousands and net of tax):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

Aggregate unrealized net gain (loss) at beginning of period

 

$

1,245  

 

$

5,634  

 

$

(5,852) 

 

$

7,091  

Add: Net gain/(loss) from change in fair value of cash flow hedges

 

2,024  

 

(3,189) 

 

9,095  

 

(2,431) 

Less: Net (gain)/loss reclassified to earnings from effective hedges

 

(305) 

 

(1,934) 

 

(279) 

 

(4,149) 

Aggregate unrealized net gain (loss) at end of period

 

$

2,964  

 

$

511  

 

$

2,964  

 

$

511  

 

13



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The Company’s foreign exchange cash flow hedging instruments as of June 30, 2012 and December 31, 2011 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts unless noted otherwise.

 

As of June 30, 2012

 

Local Currency
Notional
Amount

 

U.S. Dollar
Notional
Amount

 

% Maturing in
the Next 12
Months

 

 

Contracts
Maturing
Through

 

Canadian Dollar

 

15,250

 

$

14,740

 

78.7 %

 

 

March 2014

 

Costa Rican Colon

 

500,000

 

963

 

100.0 %

 

 

August 2012

 

Philippine Peso

 

11,270,000

 

255,746

 (1)

56.9 %

 

 

December 2015

 

Mexican Peso (Forwards)

 

1,322,500

 

95,791

 

50.5 %

 

 

December 2015

 

Mexican Peso (Collars)

 

70,149

 

6,000

 (3)

100.0 %

 

 

December 2012

 

British Pound Sterling

 

6,162

 

9,628

 (2)

66.6 %

 

 

June 2014

 

New Zealand Dollars

 

726

 

550

 

100.0 %

 

 

June 2013

 

 

 

 

 

$

383,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

Local Currency
Notional
Amount

 

U.S. Dollar
Notional
Amount

 

 

 

 

 

 

Canadian Dollar

 

25,750

 

$

25,137

 

 

 

 

 

 

Costa Rican Colon

 

2,000,000

 

3,874

 

 

 

 

 

 

Philippine Peso

 

13,304,000

 

301,361

 (1)

 

 

 

 

 

Mexican Peso (Forwards)

 

1,081,000

 

80,735

 

 

 

 

 

 

Mexican Peso (Collars)

 

140,298

 

12,000

 (4)

 

 

 

 

 

British Pound Sterling

 

8,808

 

13,822

 (2)

 

 

 

 

 

 

 

 

 

 

$

436,929

 

 

 

 

 

 

 

(1)                Includes contracts to purchase Philippine pesos in exchange for New Zealand dollars and Australian dollars, which are translated into equivalent U.S. dollars on June 30, 2012 and December 31, 2011.

(2)                Includes contracts to purchase British pound sterling in exchange for Euros, which are translated into equivalent U.S. dollars on June 30, 2012 and December 31, 2011.

(3)                The Mexican peso collars include call options with a floor total of MXN 70.1 million and put options with a cap total of MXN (81.8 million) as of June 30, 2012.

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

 

The Company’s interest rate swap arrangements as of June 30, 2012 and December 31, 2011 were as follows:

 

 

 

Notional
Amount
(millions)

 

Variable Rate
Received

 

Fixed Rate
Paid

 

Contract
Commencement
Date

 

Contract
Maturity
Date

 

As of June 30, 2012

 

$

25.0

 

1 - month LIBOR

 

2.55    %

 

April 2012

 

April 2016

 

 

 

 

15.0

 

1 - month LIBOR

 

3.14    %

 

May 2012

 

May 2017

 

 

 

$

40.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2011

 

$

25.0

 

1 - month LIBOR

 

2.55    %

 

April 2012

 

April 2016

 

 

 

 

15.0

 

1 - month LIBOR

 

3.14    %

 

May 2012

 

May 2017

 

 

 

$

40.0

 

 

 

 

 

 

 

 

 

 

14



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Fair Value Hedges

 

The Company enters into foreign exchange forward contracts to economically hedge against foreign currency exchange gains and losses on certain receivables and payables of the Company’s foreign operations. Changes in the fair value of derivative instruments designated as fair value hedges are recognized in earnings in Other income (expense), net. As of June 30, 2012 and December 31, 2011 the total notional amount of the Company’s forward contracts used as fair value hedges were $111.3 million and $49.8 million, respectively.

 

Embedded Derivatives

 

In addition to hedging activities, the Company’s foreign subsidiary in Argentina was party to U.S. dollar denominated lease contracts which the Company determined contain embedded derivatives. As such, the Company bifurcated the embedded derivative features of the lease contracts and valued these features as foreign currency derivatives. As of June 30, 2012, the fair value of the embedded derivatives was $0.3 million and was included in Other current liabilities and Other long-term liabilities in the accompanying Consolidated Balance Sheets as shown in the table below.

 

Derivative Valuation and Settlements

 

The Company’s derivatives as of June 30, 2012 and December 31, 2011 were as follows (amounts in thousands):

 

 

 

June 30, 2012

 

 

 

Designated as Hedging Instruments

 

Not Designated as Hedging
Instruments

 

Derivative contracts:

 

Foreign
Exchange

 

Interest Rate

 

Foreign
Exchange

 

Leases

 

Derivative classification:

 

Cash Flow

 

Cash Flow

 

Fair Value

 

Embedded
Derivative

 

 

 

 

 

 

 

 

 

 

 

Fair value and location of derivative in the Consolidated Balance Sheet:

 

 

 

 

 

 

 

 

 

Prepaids and other current assets

 

$

6,288 

 

$

-

 

$

900

 

$

-

 

Other long-term assets

 

4,140

 

-

 

-

 

-

 

Other current liabilities

 

(2,047)

 

(997)

 

-

 

(101)

 

Other long-term liabilities

 

(552)

 

(1,877)

 

-

 

(165)

 

Total fair value of derivatives, net

 

$

7,829 

 

$

(2,874)

 

$

900

 

$

(266)

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

Designated as Hedging Instruments

 

Not Designated as Hedging
Instruments

 

Derivative contracts:

 

Foreign
Exchange

 

Interest Rate

 

Foreign
Exchange

 

Leases

 

Derivative classification:

 

Cash Flow

 

Cash Flow

 

Fair Value

 

Embedded Derivative

 

 

 

 

 

 

 

 

 

 

 

Fair value and location of derivative in the Consolidated Balance Sheet:

 

 

 

 

 

 

 

 

 

Prepaids and other current assets

 

$

2,325 

 

$

-

 

$

12

 

$

-

 

Other long-term assets

 

1,119 

 

-

 

-

 

-

 

Other current liabilities

 

(7,828)

 

-

 

(341)

 

-

 

Other long-term liabilities

 

(2,786)

 

(2,263)

 

-

 

-

 

Total fair value of derivatives, net

 

$

(7,170)

 

$

(2,263)

 

$

(329)

 

$

-

 

 

15


 


Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income for the three months ended June 30, 2012 and 2011 were as follows (amounts in thousands):

 

 

 

Three Months Ended June 30,

 

 

 

2012

 

2011

 

 

 

Designated as Hedging Instruments

 

Designated as Hedging Instruments

 

Derivative contracts:

 

Foreign Exchange

 

Interest Rate

 

Foreign Exchange

 

Interest Rate

 

Derivative classification:

 

Cash Flow

 

Cash Flow

 

Cash Flow

 

Cash Flow

 

 

 

 

 

 

 

 

 

 

 

Amount of gain or (loss) recognized in other comprehensive income - effective portion, net of tax:

 

$

2,337

 

$

(313)

 

$

(2,673)

 

$

(516)

 

 

 

 

 

 

 

 

 

 

 

Amount and location of net gain or (loss) reclassified from accumulated OCI to income - effective portion:

 

 

 

 

 

 

 

 

 

Revenue

 

$

692

 

$

-

 

$

3,224

 

$

-

 

Interest expense

 

-

 

(183)