TTEC HOLDINGS, INC.
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
| (Mark One) | ||
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2010 | ||
| 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
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
9197 South Peoria Street
Englewood, Colorado 80112
(Address of principal executive
offices)
Registrant’s telephone number, including area code:
(303) 397-8100
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of each class
|
Name of each exchange on which registered
|
|
|
Common Stock, $0.01 par value
|
NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the
Act:
None.
Indicate by checkmark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of
1934. Yes
o
No
þ
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
þ
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
o
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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. (Check one):
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
As of June 30, 2010, the last business day of the
registrant’s most recently completed second fiscal quarter,
there were 60,176,232 shares of the registrant’s
common stock outstanding. The aggregate market value of the
registrant’s voting and non-voting common stock that was
held by non-affiliates on such date was $372,485,127 based on
the closing sale price of the registrant’s common stock on
such date as reported on the NASDAQ Global Select Market.
As of February 24, 2011, there were 56,956,450 shares
of the registrant’s common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information required for Part III of this report is
incorporated by reference to the proxy statement for the
registrant’s 2011 annual meeting of stockholders.
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
DECEMBER 31, 2010 FORM 10-K
TABLE OF CONTENTS
DECEMBER 31, 2010 FORM 10-K
TABLE OF CONTENTS
i
Table of Contents
NON-GAAP FINANCIAL
MEASURES
In various places throughout this Annual Report on
Form 10-K
(“Form 10-K”),
we use certain financial measures to describe our performance
that are not accepted measures under accounting principles
generally accepted in the United States (non-GAAP financial
measures). We believe such non-GAAP financial measures are
informative to the users of our financial information because we
use these measures to manage our business. We discuss non-GAAP
financial measures in Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations of
this
Form 10-K
under the heading Presentation of Non-GAAP Measurements.
| CAUTIONARY NOTE ABOUT | FORWARD-LOOKING STATEMENTS |
This
Form 10-K
and the information incorporated by reference contains
“forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, the
Private Securities Litigation Reform Act of 1995 (the
“PSLRA”) or in releases made by the Securities and
Exchange Commission (“SEC”), all as may be amended
from time to time. In particular, we direct your attention to
Item 1. Business, Item 3. Legal Proceedings,
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, Item 7A.
Quantitative and Qualitative Disclosures About Market Risk and
Item 9A. Controls and Procedures. We intend the
forward-looking statements throughout this
Form 10-K
and the information incorporated by reference to be covered by
the safe harbor provisions for forward-looking statements. All
projections and statements regarding our expected financial
position and operating results, our business strategy, our
financing plans and the outcome of any contingencies are
forward-looking statements. These statements can sometimes be
identified by our use of forward-looking words such as
“may,” “believe,” “plan,”
“will,” “anticipate,” “estimate,”
“expect,” “intend,” “project,”
“would,” “could,” “should,”
“seeks,” or “scheduled to” and other words
and phrases of similar meaning. Known and unknown risks,
uncertainties and other factors could cause the actual results
to differ materially from those contemplated by the statements.
The forward-looking information is based on information
available as of the date of this
Form 10-K
and 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. Actual results could be materially different
from our expectations due to a variety of factors, including,
but not limited to, the factors identified in this
Form 10-K
under the captions Item 1A. Risk Factors and Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations, our other SEC filings and our press
releases. We assume no obligation to update:
(i) forward-looking statements to reflect actual results or
(ii) changes in factors affecting such forward-looking
statements.
AVAILABILITY OF
INFORMATION
You may read and copy any materials TeleTech files with the SEC
at the SEC’s Public Reference Room at 100 F. Street, N.E.,
Room 1580, Washington, D.C. 20549. Copies of such
materials also can be obtained at the SEC’s website,
www.sec.gov
or by mail from the Public Reference Room of
the SEC, at the proscribed rates. Please call the SEC at
1-800-SEC-0330
for further information on the Public Reference Room.
TeleTech’s SEC filings are also available to the public,
free of charge, on its corporate website,
www.teletech.com
, as soon as reasonably practicable after
TeleTech electronically files such material with, or furnishes
it to, the SEC.
ii
Table of Contents
Our
Business
Over our
29-year
history, we have become one of the largest global providers of
business process outsourcing (“BPO”) solutions. Our
expertise has been in designing, implementing and managing
critical business processes that drive commerce and
differentiate the customer experience to deliver increased brand
loyalty, satisfaction and retention. We provide a fully
integrated suite of technology-enabled customer-centric services
that span strategic professional services, revenue generation,
front and back office processes, cloud-based fully hosted BPO
delivery center environments and learning innovation services.
We help the Global 1000, which are the world’s largest
companies based on market capitalization, optimize their
customers’ experience, grow revenue, increase operating
efficiencies, improve quality and lower costs by designing,
implementing and managing their critical business processes. We
provide a 24 x 7, 365 day fully integrated global solution
that spans people, process, proprietary technology and
infrastructure for governments and private sector clients in the
automotive, broadband, cable, financial services, healthcare,
logistics, media and entertainment, retail, technology, travel,
and wireline and wireless communication industries. As of
December 31, 2010, our approximately 45,500 employees
provided services from nearly 33,000 workstations across 62
delivery centers in 17 countries. We have approximately 85
global clients, many of whom are in the Global 1000. We perform
a variety of BPO services for our clients and support more than
275 unique BPO programs.
We believe BPO is a key enabler of improved business performance
as measured by a company’s ability to consistently
outperform peers through both business and economic cycles. We
believe the benefits of BPO include renewed focus on core
capabilities, faster time to market, enhanced revenue generation
opportunities, streamlined processes, reduced capital and
operating risk, movement from a fixed to variable cost
structure, access to borderless sourcing capabilities, and
creation of proprietary best operating practices and technology,
all of which contribute to increased customer satisfaction and
shareholder returns for our clients.
Industry studies indicate that companies with high quality
customer experience levels tend to grow faster and more
profitably and typically enjoy premium pricing and market
valuations in their industry.
Given the strong correlation between customer satisfaction and
improved profitability, we believe that more companies are
increasingly focused on selecting outsourcing partners, such as
TeleTech, that can deliver strategic solutions across a
continuum of capabilities that span professional services,
revenue generation, front- to back-office processes, hosted BPO
delivery center environments and learning innovation services
all designed to grow revenue and optimize the customer
experience versus merely reduce costs.
Our Business
History
We were founded in 1982 and reorganized as a Delaware
corporation in 1994. We completed an initial public offering of
our common stock in 1996 and since that time have grown our
annual revenue from $183 million to $1.1 billion,
representing a compound annual growth rate (“CAGR”) of
13.6%.
Our revenue is derived from a suite of BPO services and is
reported in our North American and International BPO segments.
Certain information with respect to segments and geographic
areas is contained in Note 4 to the Consolidated Financial
Statements. These services typically involve the transfer of our
clients’ front- and back-office business processes to our
62 delivery centers or work from home associates. We also manage
the facilities and operations of our clients’ service
delivery centers. Professional services, customer management and
revenue generation solutions help our clients segment, target,
acquire, grow and retain their customer base. Enterprise
management solutions help companies manage their internal
business process and include product or service provisioning,
fulfillment, expense management, supply chain management, claims
processing, payment and warranty processing, basic through
advanced technical support, human resource recruiting and talent
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management, retirement plan administration, data analysis and
market research, network management, and workforce training and
scheduling. Our hosted
OnDemand
tm
technology offerings provide our clients with cloud-based
computing solutions to fully host their customer management
environments from a network and application perspective and
includes multi-channel interaction routing, customer experience
management and workforce optimization. Learning innovation
services includes virtual job-simulation environments, eLearning
courses, interactive social media networking and collaboration,
as well as intuitive 3D and game-based learning courses, all of
which increase speed to proficiency as well as reduce learning
curves and training expenses.
We market our services primarily to Global 1000 clients in G-20
countries which represent 19 of the world’s largest
economies, together with the European Union and perform the
majority of our services from strategically located delivery
centers around the globe. Many of our clients choose a blended
strategy whereby they outsource work with us in multiple
geographic locations and may also utilize our work from home
offering. We believe our ability to offer one of the most
geographically diverse footprints improves service flexibility
while reducing operational and delivery risk in the event of a
service interruption at any one location.
With BPO operations in 17 countries, we believe this makes us
one of the largest and most geographically diverse providers of
outsourced business process services. We plan to selectively
expand into other attractive delivery markets over time.
Of the 17 countries from which we provide BPO services, eleven
provide services for onshore clients including the U.S.,
Australia, Brazil, China, England, Germany, Ghana, New Zealand,
Northern Ireland, Scotland and Spain. The total number of
workstations in these countries is 9,300, or 28% of our total
delivery capacity.
The other six countries provide services, partially or entirely,
for offshore clients including Argentina, Canada, Costa Rica,
Mexico, the Philippines and South Africa. The total number of
workstations in these countries is 23,600, or 72% of our total
delivery capacity.
Historical
Performance
As summarized below, following our initial public offering in
1996, we experienced double-digit revenue growth through 2000,
undertook a business transformation strategy in late 2001, began
to realize the benefits of this transformation in 2004 and
continue to realize those benefits. Beginning in 1997, we were
one of the first companies to provide BPO services to
U.S. clients from offshore delivery centers in Canada and
Latin America.
Although revenue growth continued at a CAGR of 4.7% from
$913 million in 2001 to $1.0 billion in 2003, we
experienced net losses during this time period. We attribute
these losses primarily to the global economic downturn, the
bursting of the dot-com bubble, the September 11, 2001
terrorist attacks and the business transformation we undertook
to further strengthen our industry position and future
competitiveness. The business transformation redefined our
delivery model, reduced our cost structure and improved our
competitive and financial position by:
| • | Migrating from a decentralized holding company to a centralized operating company to enhance financial and operating disciplines; | |
| • | Centralizing our technology infrastructure and migrating to a 100% IP-based delivery platform; | |
| • | Standardizing our global operational processes and applications; | |
| • | Automating and virtualizing our human capital needs primarily around talent acquisition, training and performance optimization; | |
| • | Improving the efficiency of certain underperforming operations and reducing our selling, general and administrative expenses; | |
| • | Improving pricing or rationalizing the performance of certain underperforming client programs; |
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| • | Investing in sales and client account management; | |
| • | Investing in innovative new solutions to diversify revenue into higher margin offerings, including professional services, learning innovation services and hosted technology solutions; | |
| • | Increasing delivery capabilities with expanded onshore, offshore and work from home solutions; | |
| • | Approving and executing a stock repurchase program. |
As a result of this business transformation, from 2005 to 2008,
our revenue grew at a CAGR of 8.8% from $1.1 billion to
$1.4 billion and diluted earnings per share grew at a CAGR
of 43.3% from $0.36 to $1.06. Our operating margin more than
doubled to 7.8% in 2008 from 2.9% in 2005.
Due to the global economic slowdown leading to a reduction in
client volumes and elongated sales cycles, our revenue decreased
21.8% from $1.4 billion in 2008 to $1.1 billion in
2010, of which 100 basis points of the decline was due to
changes in foreign exchange rates, a portion was attributable to
our clients continuing to migrate work from onshore delivery
centers to offshore delivery centers, in addition to proactive
management of underperforming business and geographies out of
our portfolio. Despite this revenue decrease, we were able to
hold the operating margin decline to just 110 basis points,
the majority of which was due to increases in restructuring
charges related to better aligning our capacity and workforce
with the current business needs. The small operating margin
decline was also achieved through increased professional
services revenue, increased utilization of our delivery centers
across a
24-hour
period, leveraging our global purchasing power and continued
expansion of services provided from our geographically diverse
delivery centers.
As of December 31, 2010, we had $119.4 million in cash
and cash equivalents and a debt to capitalization ratio of 1.1%.
We generated $107.7 million in free cash flow during 2010
and our cash flows from operations and borrowings under our
revolving credit facility have enabled us to fund
$26.8 million in capital expenditures and
$80.3 million in stock repurchases. Approximately 60% of
our capital expenditures were related to the opening
and/or
growth of our delivery platform with the remaining 40% used for
maintenance of our embedded infrastructure and internal
technology projects. See Management’s Discussion and
Analysis of Financial Condition and Results of Operations for
discussion of free cash flow and other non-GAAP measurements.
The Company has a stock repurchase program which was initially
authorized by the Company’s Board of Directors (the
“Board”) in November 2001. The Board periodically
authorizes additional increases to the program. As of
December 31, 2010, the cumulative authorized repurchase
allowance was $412.3 million, of which we have purchased
28.8 million shares for $367.0 million. As of
December 31, 2010, the remaining allowance under the
program was approximately $45.3 million. For the period
from January 1, 2011 through February 24, 2011, we
have purchased an additional 1.2 million shares for
$24.8 million. The stock repurchase program does not have
an expiration date.
Our Future Growth
Goals and Strategy
Our objective is to become the world’s largest, most
technologically advanced and innovative provider of
customer-centric BPO solutions. Companies within the Global 1000
are our primary client targets due to their size, global reach,
focus on outsourcing and desire for a BPO provider who can offer
an
end-to-end
suite of fully-integrated, globally scalable solutions. We have
developed, and continue to invest in, a broad set of
capabilities designed to serve this growing client need.
We organize our suite of services around proven practices that
differentiate the customer experience as follows:
Professional Services
delivers innovative
customer-centric solutions that drive enhanced market share,
increased revenue, improved customer segmentation strategies,
actionable data analytics and optimized business processes and
operations.
Revenue and eCommerce Generation
solutions deliver
more than $5 billion in annual revenue for our clients via
a comprehensive suite of integrated offerings designed to help
clients grow their existing
3
Table of Contents
revenue, retain valuable customers and target new markets for
additional growth. TeleTech designs and manages more than 8,000
client-branded
e-commerce
websites and processes more than three terabytes of customer
data daily to create and implement sophisticated customer
targeting and segmentation strategies to optimize the revenue
potential in every customer interaction.
Customer Innovation
solutions are specifically
tailored to improve each customer’s
end-to-end
experience, helping build brand loyalty and drive the highest
levels of satisfaction across all customer interaction channels
in traditional and emerging media, resulting in lengthier, more
profitable customer relationships. Online channels are
increasingly playing a more important role as we provide our
clients with customized cross-channel services that span email,
chat and text.
Enterprise Innovation
solutions involve the
redesign of clients’ front- and back-office processes to
significantly advance clients’ abilities to obtain a
customer-centric view of their relationships and to capitalize
on greater up-sell and or cross-sell opportunities while
optimizing the customer experience.
Cloud-Based Hosted Technology
solutions offer
software and infrastructure on a hosted basis to enable
companies to implement an
end-to-end,
best-in-class
customer management capability that facilitates interaction with
customers across all touch points on a global scale with higher
quality, lower costs and reduced risk.
Learning Innovation
solutions increase speed to
proficiency as well as reduce learning curves and training
expenses. In addition, TeleTech utilizes a blended methodology
which includes virtual job-simulation environments, eLearning
courses, interactive social media networking and collaboration,
as well as intuitive 3D and game-based learning courses.
Many of the above services are provided via our TeleTech@Home
offering which allows our employees to serve clients from their
homes. This capability has enhanced the flexibility of our
offering by allowing clients to choose our onshore, offshore or
work from home employees to meet their outsourced business
process needs.
Our business strategy to increase revenue, profitability and our
industry position includes the following elements:
| • | Capitalize on the favorable trends in the global outsourcing environment, which we believe will include more companies that want to: |
| - | Adopt or increase BPO services; | |
| - | Consolidate outsourcing providers with those that have a solid financial position, adequate capital resources to sustain a long-term relationship and globally diverse delivery capabilities across a broad range of solutions; | |
| - | Modify their approach to outsourcing based on total value delivered versus the lowest priced provider; | |
| - | Create focused revenue generation capabilities in targeted market segments; | |
| - | Better integrate front- and back-office processes; | |
| - | Address the growing complexity of managing multiple customer communication channels including voice, self service, email, chat and text; and | |
| - | Take advantage of cost efficiencies through the adoption of cloud-based technology solutions. |
| • | Deepen and broaden our relationships with existing clients; | |
| • | Win business with new clients and focus on end-to-end offerings in targeted industries where we expect accelerating adoption of business process outsourcing; | |
| • | Continue to invest in innovative proprietary technology and new business offerings; |
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| • | Continue to diversify revenue into higher-margin offerings such as professional services, talent acquisition, learning innovation services and our hosted TeleTech OnDemand tm capabilities; | |
| • | Continue to improve our operating margins through selected profit improvement initiatives and increased asset utilization of our globally diverse delivery centers; | |
| • | Scale our work from home initiative to increase operational flexibility; and | |
| • | Selectively pursue acquisitions that extend our capabilities, geographic reach and/or industry expertise. |
Our Market
Opportunity
Companies around the world are increasingly realizing that the
quality of their customer relationships is critical to
maintaining their competitive advantage. This realization along
with the complexity of managing rapidly growing communication
mediums have driven companies to increase their focus on
developing, managing, growing and continuously enhancing their
customer relationships.
As globalization of the world’s economy continues to
accelerate, businesses are increasingly competing on a
large-scale basis due to rapid advances in technology and
telecommunication that permit cost-effective real-time global
communications and ready access to a highly skilled worldwide
labor force. As a result of these developments, we believe that
companies have increasingly outsourced business processes to
third-party providers in an effort to enhance or maintain their
competitive position while increasing shareholder value through
improved productivity and profitability.
Revenue in 2010 decreased over the prior year due primarily to
the continued global economic slowdown resulting in a decline in
our current call volumes and delayed client purchasing
decisions. In addition, the continued migration of several of
our clients to our offshore delivery centers, along with our
proactive management of underperforming business and geographies
out of our portfolio has impacted our revenue. Nevertheless, we
believe that our revenue will grow over the long-term as global
demand for our services is fueled by the following trends:
| • | Focus on providers who can offer fully integrated revenue generation solutions. A focus on providers who can offer fully integrated revenue generation solutions to target new or underpenetrated markets and improve revenue and profitability through customer acquisition, retention and growth by leveraging the profitability potential of each customer. | |
| • | Integration of front- and back-office business processes to provide increased operating efficiencies and an enhanced customer experience especially in light of the weakening global economic environment. Companies have realized that integrated business processes reduce operating costs and allow customer needs to be met more quickly and efficiently resulting in higher customer satisfaction and brand loyalty thereby improving their competitive position. A majority of our historic revenue has been derived from providing customer-facing front-office solutions to our clients. Given that our global delivery centers are also fully capable of providing back-office solutions, we are uniquely positioned to grow our revenue by winning more back-office opportunities and providing the services during non-peak hours with minimal incremental investment. Furthermore, by spreading our fixed costs across a larger revenue base and increasing our asset utilization, we expect our profitability to improve over time. | |
| • | Increasing percentage of company operations being outsourced to most capable third-party providers. Having experienced success with outsourcing a portion of their business processes, companies are increasingly inclined to outsource a larger percentage of this work. We believe companies will continue to consolidate their business processes with third-party providers, such as TeleTech, who are financially stable and able to invest in their business while also demonstrating an extensive global operating history and an ability to cost effectively scale to meet their evolving needs. |
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| • | Increasing adoption of outsourcing across broader groups of industries. Early adopters of the business process outsourcing trend, such as the media and communications industries, are being joined by companies in other industries, including healthcare, retail and financial services. These companies are beginning to adopt outsourcing to improve their business processes and competitiveness. For example, we see increasing interest in our services from companies in the healthcare, retail and financial services industries. We believe the number of other industries that will adopt or increase their level of outsourcing will continue to grow, further enabling us to increase and diversify our revenue and client base. | |
| • | Focus on speed-to-market by companies launching new products or entering new geographic locations. As companies broaden their product offerings and seek to enter new emerging markets, they are looking for outsourcing providers that can provide speed-to-market while reducing their capital and operating risk. To achieve these benefits, companies are seeking BPO providers with an extensive operating history, an established global footprint, the financial strength to invest in innovation to deliver more strategic capabilities and the ability to scale and meet customer demands quickly. Given our financial stability, geographic presence in 17 countries and our significant investment in standardized technology and processes, we believe that clients select TeleTech because we can quickly ramp large, complex business processes around the globe in a short period of time while assuring a high-quality experience for their customers. |
Our Business
Overview
We help Global 1000 clients optimize their customers’
experience by leveraging technology to improve the efficiency of
their front- and back-office business processes while increasing
customer satisfaction. We manage our clients’ outsourcing
needs with the primary goal of delivering a high-quality
customer experience while also reducing their total delivery
costs.
Our solutions provide access to highly skilled people in 17
countries using standardized operating processes and a
centralized delivery platform to:
| • | Maximize revenue and customer profitability for our clients via highly sophisticated market segmentation, data analytic, and electronic direct marketing tools; | |
| • | Support field sales teams and manage sales relationships with small and medium-sized businesses as well as governmental agencies; | |
| • | Design, implement and manage e-commerce portals; | |
| • | Manage the customer lifecycle, from acquiring and on-boarding through support and retention; | |
| • | Design, implement and manage industry-specific end-to-end enterprise level back-office processes to achieve efficient and effective global service delivery for discrete or multiple back-office requirements; | |
| • | Manage and host BPO delivery center environments including TeleTech OnDemand tm infrastructure and fully-integrated software applications through a monthly license subscription; | |
| • | Provide services and tools for client’s internal human capital operations including talent acquisition, learning innovation services and performance optimization; and | |
| • | Offer professional consulting services in each of the above areas. |
Our Competitive
Strengths
Entering a business services outsourcing relationship is
typically a long-term strategic commitment for companies. The
outsourced processes are usually complex and require a high
degree of customization and integration with a client’s
core operations. Accordingly, our clients tend to enter
long-term contracts which provide us with a more predictable
revenue stream. In addition, for many of our clients we provide
services for multiple of their unique programs across their many
lines of business. We have high levels of
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client retention due to our operational excellence and ability
to meet our clients’ outsourcing objectives, as well as the
significant transition costs required by our client to exit the
relationship. Our client retention was 90% in 2010 and 88% in
2009.
We believe that our clients select us due to our:
| • | Industry reputation and our position as one of the largest and most financially sound industry providers with 29 years of expertise in delivering complex BPO solutions across targeted industries; | |
| • | Ability to scale infrastructure and employees worldwide using globally deployed best practices to ensure a consistent, high-quality service; | |
| • | Ability to optimize the performance of our workforce through proprietary hiring, training and performance optimization tools; and | |
| • | Commitment to continued product and services innovation to further the strategic capabilities of our clients. |
We believe that technological excellence, best operating
practices and innovative human capital strategies that can scale
globally are key elements to our continued industry leadership.
Technological
Excellence
We have measurably transformed our technology platform by moving
to a secure, private, 100% internet protocol (“IP”)
based infrastructure. This transformation has enabled us to
centralize and standardize our worldwide delivery capabilities
resulting in improved quality of delivery for our clients along
with lower capital and information technology (“IT”)
operating costs.
The foundation of this platform is our four IP hosting centers
known as TeleTech
GigaPOPs
®
,
which are located on three continents. These centers provide a
fully integrated suite of voice and data routing, workforce
management, quality monitoring, business analytic and storage
capabilities. This enables anywhere to anywhere, real-time
processing of our clients’ business needs from any location
around the globe and is the foundation for new, innovative
offerings including TeleTech
OnDemand
tm
,
TeleTech@Home and our suite of human capital solutions. This hub
and spoke model enables us to provide our services at the lowest
cost while increasing scalability, reliability, redundancy,
asset utilization and the diversity of our service offerings.
To ensure high
end-to-end
security and reliability of this critical infrastructure, we
monitor and manage the TeleTech
GigaPOPs
®
24 x 7, 365 days per year from several strategically
located
state-of-the-art
global command centers as well as providing redundant, fail-over
capabilities for each GigaPOP.
Our technology innovations have resulted in the filing of more
than 20 intellectual property patent applications.
Globally Deployed
Best Operating Practices
Globally deployed best operating practices assure that we can
deliver a consistent, scalable, high-quality experience to our
clients’ customers from any of our 62 delivery centers or
work from home associates around the world. Standardized
processes include our approach to attracting, screening, hiring,
training, scheduling, evaluating, coaching and maximizing
associate performance to meet our clients’ needs. We
provide real-time reporting on performance across the globe to
ensure consistency of delivery. In addition, this information
provides valuable insight into what is driving customer
inquiries, enabling us to proactively recommend process changes
to our clients to optimize their customers’ experience.
Innovative Human
Capital Strategies
To effectively manage and leverage our human capital
requirements, we have developed a proprietary suite of business
processes, software tools and client engagement guidelines that
work together to
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improve performance for our clients while enabling us to reduce
time to hire, decrease employee turnover and improve time to
service and quality of performance.
The three primary components of our human capital
platform – Talent Acquisition, Learning Innovation
Services and Performance Optimization – combine to
form a powerful and flexible management system to streamline and
standardize operations across our global delivery centers. These
three components work together to allow us to make better hires,
improve training quality and provide real-time feedback and
incentives for performance.
Innovative New
Revenue Opportunities
We continue to develop other innovative services that leverage
our investment in a centralized and standardized delivery
platform to meet our clients’ needs, and we believe that
these solutions will represent a growing percentage of our
future revenue.
TeleTech
OnDemand
tm
TeleTech
OnDemand
tm
delivers a fully integrated suite of
best-in-class
business process applications on a hosted (software as a
service) basis, providing streamlined delivery center
technology, knowledge and services. This allows our clients to
empower their associates with the same technology and best
practices we use internally on a monthly subscription license
model. With TeleTech
OnDemand
tm
,
there is no need for our clients to license software, purchase
on-premise hardware, or increase staff to provide ongoing
technology support.
Our TeleTech
OnDemand
tm
solutions are easy to implement and scale seamlessly to support
business growth, encompassing the full breadth of business
process operations including Interaction Routing, Self-Service,
Customer Experience Management, Employee Desktop Management,
Business Intelligence and Performance Management. These
solutions are based on our rigorous first-hand use, thus our
hosted services are proven, reliable, scalable and continually
refined and expanded.
TeleTech@Home
Our dispersed workforce solution enables employees to work from
home while accessing the same proprietary training, workflow,
reporting and quality tools as our delivery center associates.
TeleTech@Home associates are TeleTech employees – not
independent contractors – providing a strong cultural
fit, seamless workforce control and high levels of job
satisfaction. Our TeleTech@Home solution utilizes our highly
scalable and centralized technical architecture and enables
secure access, monitoring and reporting for our Global 1000
clients. TeleTech@Home is offered as a full service solution,
disaster recovery
back-up,
a
managed service or as a Hosted/Technology solution.
Features of the TeleTech@Home offering include:
| • | Outstanding quality, low employee turnover, high call resolution and superior sales and customer management performance; | |
| • | Greater flexibility and scalability through the benefit of dispersed geography and proven processes; | |
| • | Ability to reach a new and talented employee pool that includes licensed and certified professionals in a variety of industries with multiple years of experience; | |
| • | Access to a unique and flexible employee population that includes stay-at-home parents, workers with physical challenges that make office commuting undesirable, rural workers and workers in highly technical urban centers; and | |
| • | An excellent business continuity safeguard to prevent potential disruption resulting from natural disasters or pandemic threats. |
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Clients
In 2010, we had no clients that represented at least 10% of our
total annual revenue. Our top five and ten clients represented
39% and 63% of total revenue in 2010, respectively. We have
experienced long-term relationships with our top five clients,
ranging from four to 15 years, with the majority of these
clients having completed multiple contract renewals with us.
Certain of our communications clients also provide us with
telecommunication services through transactions that are
negotiated at different times and with different legal entities.
These clients currently represent approximately 15% of our total
annual revenue. We believe each of these supplier contracts is
negotiated on an arm’s length basis and that the terms are
substantially the same as those that have been negotiated with
unrelated vendors. Expenditures under these supplier contracts
represent less than one percent of our total operating costs.
Competition
We compete with the in-house business process operations of our
current and potential clients. We also compete with certain
companies that provide BPO services including: Accenture Ltd.;
Convergys Corporation; Genpact Limited, Sykes Enterprises
Incorporated and Teleperformance, among others. We work with
Accenture Ltd., Computer Sciences Corporation and IBM on a
sub-contract
basis and approximately 10% of our total revenue is generated
from relationships with these system integrators.
We compete primarily on the basis of our 29 years of
experience, our global locations, our quality and scope of
services, our speed and flexibility of implementation, our
technological expertise, and our total value delivered and
contractual terms. A number of competitors may have different
capabilities and resources than ours. Additionally, niche
providers or new entrants could capture a segment of the market
by developing new systems or services that could impact our
market potential.
Seasonality
Historically, we experience a seasonal increase in revenue in
the fourth quarter related to higher volumes from clients
primarily in the healthcare, retail and other industries with
seasonal businesses. Also, our operating margins in the first
quarter are impacted by higher payroll-related taxes with our
global workforce.
Employees
As of December 31, 2010, we had approximately
45,500 employees in 17 countries. Approximately 87% of
these employees held full-time positions and 78% were located
outside of the U.S. We have approximately
10,400 employees outside the U.S. and Canada covered
by collective bargaining agreements. In most cases, the
collective bargaining agreements are mandated under national
labor laws. These collective bargaining agreements include
employees in the following countries:
| • | In Argentina, approximately 3,300 employees are covered by an industry-wide collective bargaining agreement with the Confederation of Commerce Employees that expires in April 2011; | |
| • | In Brazil, approximately 700 employees are covered by industry-wide collective bargaining agreements with Sintratel and SintelMark that expire in January 2012; | |
| • | In Mexico, we have approximately 4,000 employees covered by an industry-wide collective bargaining agreement with the Federacion Obrero Sindicalista that expires in January 2012; | |
| • | In Spain, we have approximately 2,300 employees covered by industry-wide collective bargaining agreements with COMFIA-CCOO and FES-UGT that expires in December 2011; and | |
| • | In Australia, approximately 100 employees are covered by a collective agreement adopted by TeleTech International, Pty. Ltd. under the provisions of the Contract Call Centres Award 2010 that expires in January 2013. |
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We anticipate that these agreements will be renewed and that any
renewals will not impact us in a manner materially different
from all other companies covered by such industry-wide
agreements. We believe that our relations with our employees and
unions are satisfactory. We have not experienced any material
work stoppages in our ongoing business.
Intellectual
Property and Proprietary Technology
Our success is partially dependent upon certain proprietary
technologies and core intellectual property. We have a number of
pending patent applications in the U.S. and foreign
countries. Our technology is also protected under copyright
laws. Additionally, we rely on trade secret protection and
confidentiality and proprietary information agreements to
protect our proprietary technology. We have trademarks or
registered trademarks in the U.S. and other countries,
including
TELETECH
®
,
the TELETECH GLOBE Design, TELETECH
GIGAPOP
®
,
TELETECH GLOBAL
VENTURES
®
,
HIREPOINT
®
,
VISAPOINT
®
,
IDENTIFY!
®
,
IDENTIFY!
PLUS
®
,
INCULTURE
®
,
TOTAL DELIVERED
VALUE
®
and YOUR CUSTOMER MANAGEMENT
PARTNER
®
.
We believe that several of our trademarks are of material
importance. Some of our proprietary technology is licensed to
others under corresponding license agreements. Some of our
technology is licensed from others. While our competitive
position could be affected by our ability to protect our
intellectual property, we believe that we have generally taken
commercially reasonable steps to protect our intellectual
property.
Our Corporate
Information
Our principal executive offices are located at 9197 South Peoria
Street, Englewood, Colorado 80112 and the telephone number at
that address is
(303) 397-8100.
Electronic copies of our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and Proxy Statements are available free of charge by
(i) visiting the “Investors” section of our
website at
http://www.teletech.com
or (ii) sending a written request to Investor Relations at
our corporate headquarters or to
investor.relations@teletech.com
. The public may read and
copy any materials that we file with the SEC at the SEC’s
Public Reference Room at 100 F Street, NE,
Room 1580, Washington, DC 20549. You may obtain information
on the operation of the Public Reference Room by calling the SEC
at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC at
www.sec.gov
. Information on our website is not
incorporated by reference into this report.
In evaluating our business, you should carefully consider the
risks and uncertainties discussed in this section, in addition
to the other information presented in this Annual Report on
Form 10-K.
The risks and uncertainties described below may not be the only
risks that we face. If any of these risks or uncertainties
actually occurs, our business, financial condition or results of
operation could be materially adversely affected and the market
price of our common stock may decline.
Risks Relating to
Our Business
Recent changes
in U.S. and global economic conditions could have an adverse
effect on the profitability of our business
Our business is directly affected by the performance of our
clients and general economic conditions. Recent turmoil in the
financial markets has adversely affected economic activity in
the U.S. and other regions of the world in which we do
business. There is evidence that this is affecting demand for
some of our services. In substantially all of our client
programs, we generate revenue based, in large part, on the
amount of time our employees devote to our clients’
customers. Consequently, the amount of revenue generated from
any particular client program is dependent upon consumers’
interest in and use of our client’s products
and/or
services, which may be adversely affected by general economic
conditions. Our clients may not be able to market or develop
products and services that require their customers to use our
services, especially as a result of the downturn in the
U.S. and worldwide economy. Furthermore, a decline in our
clients’ business or performance, including possible client
bankruptcies, could impair their ability to pay for our
services. Our
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business, financial condition, results of operations and cash
flows would be adversely affected if any of our major clients
were unable or unwilling, for any reason, to pay for our
services.
A large
portion of our revenue is generated from a limited number of
clients, and the loss of one or more of our clients could cause
a reduction in our revenue and operating results
We rely on strategic, long-term relationships with large, global
companies in targeted industries. As a result, we derive a
substantial portion of our revenue from relatively few clients.
Our five largest clients collectively represented 39% of revenue
in 2010 and 36% of revenue in 2009. Our ten largest clients
represented 63% of revenue in 2010 and 58% of revenue in 2009.
We did not have a client that represented 10% of our revenue in
2010. We had one client,
T-Mobile,
which represented 10% of our revenue in 2009.
We believe that a substantial portion of our total revenue will
continue to be derived from a relatively small number of our
clients in the future. The contracts with our ten largest
clients expire between 2011 and 2012. We have historically
renewed most of our contracts with our largest clients. However,
there is no assurance that any contracts will be renewed or, if
renewed, will be on terms as favorable as the existing
contracts. The volumes and profit margins of our most
significant programs may decline and we may not be able to
replace such clients or programs with clients or programs that
generate comparable revenue and profits. The loss of all or part
of a major client’s business could have a material adverse
effect on our business, financial condition, results of
operations and cash flows.
Client
consolidations could result in a loss of clients or contract
concessions that would adversely affect our operating
results
We serve clients in targeted industries that have historically
experienced a significant level of consolidation. If one of our
clients is acquired by another company (including another one of
our clients), provisions in certain of our contracts allow these
clients to cancel or renegotiate their contracts, or to seek
contract concessions. Such consolidations may result in the
termination or phasing out of an existing client contract,
volume discounts and other contract concessions that could have
an adverse effect on our business, financial condition, results
of operations and cash flows.
Our
concentration of business activities in certain geographic areas
subjects us to risks that may harm our results of operations and
financial condition
We have delivery centers in many countries, and some business
activities may be concentrated in certain geographic areas,
including the Philippines and Latin America. As a result, we are
subject to risks that may interrupt or limit our ability to
operate our delivery centers or increase the cost of operating
in these geographic areas, which could harm our results of
operations and financial condition, including:
| • | security concerns, such as armed conflict and civil or military unrest, crime, political instability or terrorist activity; | |
| • | health concerns; | |
| • | natural disasters; | |
| • | inefficient and limited infrastructure and disruptions, such as large-scale outages or interruptions of service from utilities, transportation, or telecommunications providers; | |
| • | restrictions on our operations by governments seeking to support local industries, nationalization of our operations, and restrictions on our ability to repatriate earnings; | |
| • | differing employment practices, prevailing wage rates and labor issues; | |
| • | local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations; and | |
| • | regulatory requirements and prohibitions that differ among jurisdictions. |
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We may be disproportionately exposed to interruption of or
limitations to the operation of our business or increases in
operating costs in these geographic areas due to these or other
factors. As a result, any interruption or limitation of, or
increase in costs related to, our operations in these geographic
areas could harm our results of operations and financial
condition.
Unauthorized
disclosure of sensitive or confidential client and customer data
could expose us to protracted and costly litigation, penalties
and cause us to lose clients
We are dependent on IT networks and systems to process, transmit
and store electronic information and to communicate among our
locations around the world and with our alliance partners and
clients. Security breaches of this infrastructure could lead to
shutdowns or disruptions of our systems and potential
unauthorized disclosure of confidential information. We are also
required at times to manage, utilize and store sensitive or
confidential client or customer data. As a result, we are
subject to numerous U.S. and foreign laws and regulations
designed to protect this information, such as the European Union
Directive on Data Protection and various U.S. federal and
state laws governing the protection of health or other
individually identifiable information. If any person, including
any of our employees, negligently disregards or intentionally
breaches our established controls with respect to such data or
otherwise mismanages or misappropriates that data, we could be
subject to monetary damages, fines
and/or
criminal prosecution. Unauthorized disclosure of sensitive or
confidential client or customer data, whether through systems
failure, employee negligence, fraud or misappropriation, could
damage our reputation and cause us to lose clients. Similarly,
unauthorized access to or through our information systems or
those we develop for our clients, whether by our employees or
third parties, could result in negative publicity, legal
liability and damage to our reputation, business, financial
condition, results of operations and cash flows.
Our financial
results depend on our capacity utilization, in particular our
ability to forecast our clients’ customer demand and make
corresponding decisions regarding staffing levels, investments
and operating expenses
Our delivery center utilization rates have a substantial and
direct effect on our profitability, and we may not achieve
desired utilization rates. Our utilization rates are affected by
a number of factors, including:
| • | Our ability to maintain and increase capacity in each of our delivery centers during peak and non-peak hours; | |
| • | Our ability to predict our clients’ customer demand for our services and thereby to make corresponding decisions regarding staffing levels, investments and other operating expenditures in each of our delivery center locations; | |
| • | Our ability to hire and assimilate new employees and manage employee turnover; and | |
| • | Our need to devote time and resources to training, professional development and other non-chargeable activities. |
However, because the majority of our business is inbound from
our clients’ customer-initiated encounters, we have
significantly higher utilization during peak (weekday) periods
than during off-peak (night and weekend) periods. We have
experienced periods of idle capacity, particularly in our
multi-client delivery centers. Historically, we experience idle
peak period capacity upon opening a new delivery center or
termination or completion of a large client program. We may
consolidate or close under-performing delivery centers in order
to maintain or improve targeted utilization and margins. In the
event we close delivery centers in the future, we may be
required to record restructuring or impairment charges, which
could adversely impact our results of operations. There can be
no assurance that we will be able to achieve or maintain desired
delivery center capacity utilization. As a result of the fixed
costs associated with each delivery center, quarterly variations
in client volumes, many of which are outside our control, can
have a material adverse effect on our utilization rates. If our
utilization rates are below expectations in any given period,
our financial condition, results of operations and cash flows
for that period could be adversely affected.
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Our business
depends on uninterrupted service to clients
Our operations are dependent upon our ability to protect our
facilities, computer and telecommunications equipment and
software systems against damage or interruption from fire, power
loss, terrorist or cyber attacks, sabotage, telecommunications
interruption or failure, labor shortages, weather conditions,
natural disasters and other similar events. Additionally, severe
weather can cause our employees to miss work and interrupt the
delivery of our services, resulting in a loss of revenue. In the
event we experience a temporary or permanent interruption at one
or more of our locations (including our corporate headquarters
building), our business could be materially adversely affected
and we may be required to pay contractual damages or face the
suspension or loss of a client’s business. Further, the
impacts associated with global climate change, such as rising
sea levels or increased and intensified storm activity, may
cause increased business interruptions or may require the
relocation of our facilities located in low-lying coastal areas.
Although we maintain property and business interruption
insurance, such insurance may not adequately compensate us for
any losses we may incur.
Many of our
contracts utilize performance pricing that link some of our fees
to the attainment of various performance or business targets,
which could increase the variability of our revenue and
operating margin
A majority of our contracts include performance clauses that
condition some of our fees on the achievement of
agreed-upon
performance standards or milestones. These performance standards
can be complex and often depend in some measure on our
clients’ actual levels of business activity or other
factors outside of our control. If we fail to satisfy these
measures, it could reduce our revenue under the contracts or
subject us to potential damage claims under the contract terms.
Our contracts
provide for early termination, which could have a material
adverse effect on our operating results
Most of our contracts do not ensure that we will generate a
minimum level of revenue and the profitability of each client
program may fluctuate, sometimes significantly, throughout the
various stages of a program. Our contracts generally enable the
clients to terminate the contract or reduce customer interaction
volumes. Our larger contracts generally require the client to
pay a contractually agreed amount
and/or
provide prior notice in the event of early termination. There
can be no assurance that we will be able to collect early
termination fees.
We may not be
able to offset increased costs with increased service fees under
long-term contracts
Some of our larger long-term contracts allow us to increase our
service fees if and to the extent certain cost or price indices
increase. The majority of our expenses are payroll and
payroll-related, which includes healthcare costs. Over the past
several years, payroll costs, including healthcare costs, have
increased at a rate much greater than that of general cost or
price indices. Increases in our service fees that are based upon
increases in cost or price indices may not fully compensate us
for increases in labor and other costs incurred in providing
services. There can be no assurance that we will be able to
recover increases in our costs through increased service fees.
Our business
may be affected by our ability to obtain financing
From time to time, we may need to obtain debt or equity
financing for capital expenditures, stock repurchases, payment
of existing obligations, replenishment of cash reserves,
acquisitions or joint ventures. Additionally, our existing
credit facility requires us to comply with certain financial
covenants. There can be no assurance that we will be able to
obtain additional debt or equity financing, or that any such
financing would be on terms acceptable to us. Furthermore, there
can be no assurance that we will be able to meet the financial
covenants under our debt agreements or, in the event of
noncompliance, will be able to obtain waivers or amendments from
the lenders.
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Our business
may be affected by risks associated with international
operations and expansion
An important component of our growth strategy is continued
international expansion. There are certain risks inherent with
conducting international business, including but not limited to:
| • | Management of personnel overseas; | |
| • | Longer payment cycles; | |
| • | Difficulties in accounts receivable collections; | |
| • | Foreign currency exchange rates; | |
| • | Difficulties in complying with foreign laws; | |
| • | Unexpected changes in regulatory requirements; | |
| • | Political and social instability, as demonstrated by terrorist threats, regime change, increasing tension in the Middle East and other regions, and the resulting need for enhanced security measures; and | |
| • | Potentially adverse tax consequences. |
Any one or more of these or other factors could have a material
adverse effect on our international operations and,
consequently, on our business, financial condition, results of
operations and cash flow. There can be no assurance that we will
be able to manage our international operations successfully.
Our financial
results may be impacted by foreign currency exchange
risk
We serve an increasing number of our clients from delivery
centers in other countries such as Argentina, Canada, Costa
Rica, Mexico, the Philippines and South Africa. Contracts with
these clients are typically priced, invoiced, and paid in
U.S. dollars or other foreign currencies while the costs
incurred to operate these delivery centers are denominated in
the functional currency of the applicable operating subsidiary.
Therefore, fluctuations between the currencies of the
contracting and operating subsidiary present foreign currency
exchange risks. In addition, because our financial statements
are denominated in U.S. dollars, and approximately 25% of
our revenue is derived from contracts denominated in other
currencies, our results of operations and revenue could be
adversely affected if the U.S. dollar strengthens
significantly against foreign currencies.
While we enter into forward and option contracts to hedge
against the effect of exchange rate fluctuations, the foreign
exchange exposure between the contracting and operating
subsidiaries is not hedged 100%. Since the operating subsidiary
assumes the foreign exchange exposure, its operating margins
could decrease if the operating subsidiary’s currency
strengthens against the contracting subsidiary’s currency.
For example, our operating subsidiaries are at risk if their
functional currency strengthens against the contracting
subsidiary’s currency (typically the U.S. dollar). If
the U.S. dollar devalues against the operating
subsidiaries’ functional currency, the financial results of
those operating subsidiaries and TeleTech (upon consolidation)
will be negatively affected. While our hedging strategy
effectively offsets a portion of these foreign currency changes,
there can be no assurance that we will be able to continue to
successfully hedge this foreign currency exchange risk or that
the value of the U.S. dollar will not materially weaken. If
we fail to manage our foreign currency exchange risk, our
business, financial condition, results of operations and cash
flows could be adversely affected.
We are subject
to counterparty credit risk and market risk with respect to
financial transactions with our financial
institutions
The recent global economic and credit crisis weakened the
creditworthiness of many financial institutions, and in some
circumstances caused previously financially solvent financial
institutions to file for bankruptcy.
The counterparties to our hedge transactions are financial
institutions or affiliates of financial institutions, and we are
subject to risks that these counterparties become insolvent and
fail to perform their financial
14
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obligations under these hedge transactions. Our hedging exposure
to counterparty credit risk is not secured by any collateral. If
one or more of the counterparties to one or more of our hedge
transactions becomes subject to insolvency proceedings, we will
become an unsecured creditor in those proceedings with a claim
equal to our exposure at the time under those transactions. Our
exposure will depend on many factors but, generally, our credit
exposure will depend on foreign exchange rate movements relative
to the contracted foreign exchange rate and whether any gains
result that are not realized due to a counterparty default.
While all of our counterparty financial institutions were
investment grade rated by the national rating agencies as of
December 31, 2010, we can provide no assurances as to the
financial stability or viability of any of our counterparties.
We also have a revolving credit facility with a syndicate of
financial institutions that were investment grade rated at
December 31, 2010. We can provide no assurances as to the
financial stability or viability of these financial and other
institutions and their ability to fund their obligations when
required under our agreements.
Our global
operations expose us to numerous and sometimes conflicting legal
and regulatory requirements
Because we provide services to our clients’ customers, who
reside in 85 countries, we are subject to numerous, and
sometimes conflicting, legal regimes on matters as diverse as
import/export controls, content requirements, trade
restrictions, tariffs, taxation, sanctions, government affairs,
immigration, internal and disclosure control obligations, data
privacy and labor relations. Violations of these regulations
could result in liability for monetary damages, fines
and/or
criminal prosecution, unfavorable publicity, restrictions on our
ability to process information and allegations by our clients
that we have not performed our contractual obligations. Due to
the varying degrees of development of the legal systems of the
countries in which we operate, local laws might be insufficient
to protect our contractual and intellectual property rights,
among other rights.
Changes in U.S. federal, state and international laws and
regulations may adversely affect the sale of our services,
including expansion of overseas operations. In the U.S., some of
our services must comply with various federal and state
regulations regarding the method of placing outbound telephone
calls. In addition, we could incur liability for failure to
comply with laws or regulations related to the portions of our
clients’ businesses that are transferred to us. Changes in
these regulations and requirements, or new restrictive
regulations and requirements, may slow the growth of our
services or require us to incur substantial costs. Changes in
laws and regulations could also mandate significant and costly
changes to the way we implement our services and solutions, such
as preventing us from using offshore resources to provide our
services, or could impose additional taxes on the provision of
our services and solutions. These changes could threaten our
ability to continue to serve certain markets.
Our financial
results and projections may be impacted by our ability to
maintain and find new locations for our delivery centers in
countries with stable wage rates
Our industry is labor-intensive and the majority of our
operating costs relate to wages, employee benefits and
employment taxes. As a result, our future growth is dependent
upon our ability to find cost-effective locations in which to
operate, both domestically and internationally. Some of our
delivery centers are located in countries that have experienced
rising standards of living, which may in turn require us to
increase employee wages. In addition, approximately
10,400 employees outside the U.S. are covered by
collective bargaining agreements. Although we anticipate that
the terms of agreements will not impact us in a manner
materially different than other companies located in these
countries, we may not be able to pass increased labor costs on
to our clients. There is no assurance that we will be able to
find cost-effective locations. Any increases in labor costs may
have a material adverse effect on our business, financial
condition, results of operations and cash flows.
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The business
process outsourcing markets are highly competitive, and we might
not be able to compete effectively
Our ability to compete will depend on a number of factors,
including our ability to:
| • | Initiate, develop and maintain new client relationships; | |
| • | Maintain and expand existing client programs; | |
| • | Staff and equip suitable delivery center facilities in a timely manner; and | |
| • | Develop new solutions and enhance existing solutions we provide to our clients. |
Moreover, we compete with a variety of companies with respect to
our offerings, including:
| • | Large multinational providers, including the service arms of large global technology providers; | |
| • | Offshore service providers in lower-cost locations that offer services similar to those we offer, often at highly competitive prices; | |
| • | Niche solution or service providers that compete with us in a specific geographic market, industry segment or service area; and | |
| • | Most importantly, the in-house operations of clients or potential clients. |
Because our primary competitors are the in-house operations of
existing or potential clients, our performance and growth could
be adversely affected if our existing or potential clients
decide to provide in-house business process services they
currently outsource, or retain or increase their in-house
business processing services and product support capabilities.
In addition, competitive pressures from current or future
competitors also could cause our services to lose market
acceptance or put downward pressure on the prices we charge for
our services and on our operating margins. If we are unable to
provide our clients with superior services and solutions at
competitive prices, our business, financial condition, results
of operations and cash flows could be adversely affected.
We may not be
able to develop our services and solutions in response to
changes in technology and client demand
Our success depends on our ability to develop and implement
systems technology and outsourcing services and solutions that
anticipate and respond to rapid and continuing changes in
technology, industry developments and client needs. Our
continued growth and future profitability will be highly
dependent on a number of factors, including our ability to
develop new technologies that:
| • | Expand our existing solutions and offerings; | |
| • | Achieve cost efficiencies in our existing delivery center operations; and | |
| • | Introduce new solutions that leverage and respond to changing technological developments. |
We may not be successful in anticipating or responding to these
developments on a timely basis. Our integration of new
technologies may not achieve their intended cost reductions and
services and technologies offered by current or future
competitors may make our service offerings uncompetitive or
obsolete. Our failure to maintain our technological capabilities
or to respond effectively to technological changes could have a
material adverse effect on our business, financial condition,
results of operations and cash flows.
If we fail to
recruit, hire, train and retain key executives or qualified
employees, our business will be adversely affected
Our business is labor intensive and places significant
importance on our ability to recruit, train, and retain
qualified personnel. We generally experience high employee
turnover and are continuously required to recruit and train
replacement personnel as a result of a changing and expanding
work force. Demand for qualified technical professionals
conversant in multiple languages, including English,
and/or
certain
16
Table of Contents
technologies may exceed supply, as new and additional skills are
required to keep pace with evolving technologies. In addition,
certain delivery centers are located in geographic areas with
relatively low unemployment rates, which could make it more
costly to hire qualified personnel. Our ability to locate and
train employees is critical to achieving our growth objective.
Our inability to attract and retain qualified personnel or an
increase in wages or other costs of attracting, training, or
retaining qualified personnel could have a material adverse
effect on our business, financial condition, results of
operations and cash flows.
Our success is also dependent upon the efforts, direction and
guidance of our executive management team. Although members of
our executive team are subject to non-competition agreements,
they can terminate their employment at any time. The loss of any
member of our senior management team could adversely affect our
business, financial condition, results of operations and cash
flows and growth potential.
If we fail to
integrate businesses and assets that we may acquire through
joint ventures or acquisitions, we may lose clients and our
liquidity, capital resources and profitability may be adversely
affected
We may pursue joint ventures or strategic acquisitions of
companies with services, technologies, industry specializations,
or geographic coverage that extend or complement our existing
business. Acquisitions and joint ventures often involve a number
of special risks, including the following:
| • | We may encounter difficulties integrating acquired software, operations and personnel and our management’s attention could be diverted from other business concerns; | |
| • | We may not be able to successfully incorporate acquired technology and rights into our service offerings and maintain uniform standards, controls, procedures and policies; | |
| • | The businesses or assets we acquire may fail to achieve the revenue and earnings we anticipated, causing us to incur additional debt to fund operations and to write down the value of acquisitions on our financial statements; | |
| • | We may assume liabilities associated with the sale of the acquired company’s products or services; | |
| • | Our resources may be diverted in asserting and defending our legal rights and we may ultimately be liable for contingent and other liabilities, not previously disclosed to us, of the companies that we acquire; | |
| • | Acquisitions may disrupt our ongoing business and dilute our ownership interest; | |
| • | Acquisitions may result in litigation from former employees or third parties; and | |
| • | Due diligence may fail to identify significant issues with product quality, product architecture, ownership rights and legal contingencies, among other matters. |
We may pursue strategic alliances in the form of joint ventures
and partnerships, which involve many of the same risks as
acquisitions as well as additional risks associated with
possible lack of control if we do not have a majority ownership
position. Any of the factors identified above could have a
material adverse effect on our business and on the market value
of our common stock.
In addition, negotiation of potential acquisitions and the
resulting integration of acquired businesses, products, or
technologies, could divert management’s time and resources.
Future acquisitions could cause us to issue dilutive equity or
incur debt, contingent liabilities, additional amortization
charges from intangible assets, asset impairment charges, or
write-off charges for in-process research and development and
other indefinite-lived intangible assets that could adversely
affect our business, financial condition, results of operations
and cash flows.
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Table of Contents
We face risks
related to health epidemics, which could disrupt our business
and have a material adverse effect on our financial condition
and results of operations.
Our business could be materially and adversely affected by
health epidemics, including, but not limited to, outbreaks of
the H1N1 influenza virus (commonly known as the “swine
flu”), the avian flu, and severe acute respiratory syndrome
(“SARS”). Outbreaks of SARS in 2003 and 2004 and the
avian flu in 2006, 2007 and 2008 alarmed people around the
world, raising issues pertaining to health and travel and
undermining confidence in the world’s economy. More
recently, cases of the H1N1 virus have been identified
internationally, including confirmed human outbreaks and deaths.
Any prolonged epidemic of the H1N1 virus, avian flu, SARS, or
other contagious infection in the markets in which we do
business may result in worker absences, lower asset utilization
rates, voluntary closure of our offices and delivery centers,
travel restrictions on our employees, and other disruptions to
our business. Moreover, health epidemics may force local health
and government authorities to mandate the closure of our offices
and delivery centers. Any prolonged or widespread health
epidemic could severely disrupt our business operations, result
in a significant decrease in demand for our services, and have a
material adverse effect on our financial condition and results
of operations.
The adoption
and implementation of new statutory and regulatory requirements
for derivative transactions could have an adverse impact on our
ability to hedge risks associated with our
business.
We enter into forward and option contracts to hedge against the
effect of exchange rate fluctuations. The United States Congress
has passed, and the President has signed into law, the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Financial Reform Act”). The Financial Reform Act
provides for new statutory and regulatory requirements for
derivative transactions, including foreign currency hedging
transactions. The Financial Reform Act requires the Commodities
Futures and Trading Commission to promulgate rules relating to
the Financial Reform Act. Until the rules relating to the
Financial Reform Act are established, we do not know how these
regulations will affect us. The rules adopted by the Commodities
Futures and Trading Commission may in the future impact our
flexibility to execute strategic hedges to reduce foreign
exchange rate uncertainty and thus protect cash flows. In
addition, the banks and other derivatives dealers who are our
contractual counterparties will be required to comply with the
Financial Reform Act’s new requirements. It is possible
that the costs of such compliance will be passed on to customers
such as ourselves.
Risks Relating to
Our Common Stock
The market
price for our common stock may be volatile
The trading price of our common stock has been volatile and may
be subject to wide fluctuations in response to, among other
factors, the following:
| • | Actual or anticipated variations in our quarterly results; | |
| • | Announcements of new contracts or contract cancellations; | |
| • | Changes in financial estimates by securities analysts; | |
| • | Our ability to meet the expectations of securities analysts; | |
| • | Conditions or trends in the business process outsourcing industry; | |
| • | Changes in the market valuations of other business process outsourcing companies; | |
| • | Developments in countries where we have significant delivery centers, GigaPOPs or operations; | |
| • | The ability of our clients to pay for our services; or | |
| • | Other events or factors, many of which are beyond our control. |
In addition, the stock market in general, the NASDAQ Global
Select Market and the market for BPO providers in particular
have experienced extreme price and volume fluctuations that have
often been
18
Table of Contents
unrelated or disproportionate to the operating performance of
particular companies. These broad market and industry factors
may materially and adversely affect our stock price, regardless
of our operating performance.
You may suffer
significant dilution as a result of our outstanding stock
options and our equity incentive programs
We have adopted benefit plans for the compensation of our
employees and directors under which restricted stock units
(“RSUs”) and options to purchase our common stock have
been and will continue to be granted. Options to purchase
approximately 2.9 million shares of our common stock were
outstanding at December 31, 2010, of which approximately
2.9 million shares were exercisable. RSUs representing
approximately 2.7 million shares were outstanding at
December 31, 2010, all of which were unvested. The large
number of shares issuable upon exercise of our options and other
equity incentive grants could have a significant depressing
effect on the market price of our stock and cause dilution to
the earnings per share of our common stock.
Our Chairman
and Chief Executive Officer has practical control over all
matters requiring action by our stockholders
Kenneth D. Tuchman, our Chairman and Chief Executive Officer,
beneficially owns approximately 54.5% of our common stock. As a
result, Mr. Tuchman could exercise control over all matters
requiring action by our stockholders, including the election of
our entire Board of Directors. Therefore, a change in control of
our company could not be effected without his approval.
Our controls
and procedures may not prevent or detect all errors or acts of
fraud
Our management, including our CEO and Interim CFO, believes that
any disclosure controls and procedures or internal controls and
procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of
a control system must consider the benefits of controls relative
to their costs. Inherent limitations within a control system
include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more
people or by an unauthorized override of the controls. While the
design of any system of controls is to provide reasonable
assurance of the effectiveness of disclosure controls, such
design is also based in part upon certain assumptions about the
likelihood of future events, and such assumptions, while
reasonable, may not take into account all potential future
conditions. Accordingly, because of the inherent limitations in
a cost effective control system, misstatements due to error or
fraud may occur and may not be prevented or detected.
Failure to
maintain an effective system of internal control over financial
reporting may have an adverse effect on our stock
price
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
and the rules and regulations promulgated by the Securities and
Exchange Commission (“SEC”) to implement
Section 404, we are required to furnish a report by our
management to include in this
Form 10-K
regarding the effectiveness of our internal control over
financial reporting. The report includes, among other things, an
assessment of the effectiveness of our internal control over
financial reporting as of the end of our fiscal year, including
a statement as to whether or not our internal control over
financial reporting is effective. This assessment must include
disclosure of any material weaknesses in our internal control
over financial reporting identified by management. We have in
the past discovered, and may potentially in the future discover,
areas of internal control over financial reporting which may
require improvement. If we are unable to assert that our
internal control over financial reporting is effective now or in
any future period, or if our auditors are unable to express an
opinion on the effectiveness of our internal controls, we could
lose investor confidence in the accuracy and completeness of our
financial reports, which could have an adverse effect on our
stock price.
19
Table of Contents
We have not received written comments regarding our periodic or
current reports from the staff of the SEC that were issued
180 days or more preceding the end of our 2010 fiscal year
that remain unresolved.
Our corporate headquarters are located in Englewood, Colorado,
which consists of approximately 264,000 square feet of
owned office space. In addition to the delivery centers
discussed below, we also have small sales and consulting offices
in several countries around the world.
As of December 31, 2010, excluding delivery centers we have
exited, we operated 62 delivery centers that are classified as
follows:
| • | Multi-Client Center – We lease space for these centers and serve multiple clients in each facility; | |
| • | Dedicated Center – We lease space for these centers and dedicate the entire facility to one client; and | |
| • | Managed Center – These facilities are leased or owned by our clients and we staff and manage these sites on behalf of our clients in accordance with facility management contracts. |
As of December 31, 2010, our delivery centers were located
in the following countries:
|
Multi-Client
|
Dedicated
|
Managed
|
Total Number of
|
|||||||||||||
| Centers | Centers | Centers | Delivery Centers | |||||||||||||
|
Argentina
|
4 | – | 2 | 6 | ||||||||||||
|
Australia
|
2 | 1 | – | 3 | ||||||||||||
|
Brazil
|
1 | – | – | 1 | ||||||||||||
|
Canada
|
4 | – | 1 | 5 | ||||||||||||
|
China
|
– | – | 1 | 1 | ||||||||||||
|
Costa Rica
|
1 | – | – | 1 | ||||||||||||
|
England
|
– | – | 1 | 1 | ||||||||||||
|
Germany
|
– | – | 1 | 1 | ||||||||||||
|
Ghana
|
1 | – | – | 1 | ||||||||||||
|
Mexico
|
3 | – | – | 3 | ||||||||||||
|
New Zealand
|
1 | – | – | 1 | ||||||||||||
|
Northern Ireland
|
1 | – | – | 1 | ||||||||||||
|
Philippines
|
12 | – | – | 12 | ||||||||||||
|
Scotland
|
– | 1 | 2 | 3 | ||||||||||||
|
South Africa
|
1 | – | 1 | 2 | ||||||||||||
|
Spain
|
5 | – | – | 5 | ||||||||||||
|
United States of America
|
6 | 3 | 6 | 15 | ||||||||||||
|
Total
|
42 | 5 | 15 | 62 | ||||||||||||
The leases for our delivery centers have remaining terms ranging
from one to seven years and generally contain renewal options,
with the exception of one center which we have subleased thru
the lease completion in 2021. We believe that our existing
delivery centers are suitable and adequate for our current
operations, and we have plans to build additional centers to
accommodate future business.
From time to time, we have been involved in claims and lawsuits,
both as plaintiff and defendant, which arise in the ordinary
course of business. Accruals for claims or lawsuits have been
provided for to the extent that losses are deemed both probable
and estimable. Although the ultimate outcome of these claims or
lawsuits cannot be ascertained, on the basis of present
information and advice received from counsel, we believe that
the disposition or ultimate resolution of such claims or
lawsuits will not have a material adverse effect on our
financial position, cash flows or results of operations.
20
Table of Contents
Securities
Class Action
On January 25, 2008, a class action lawsuit was filed in
the United States District Court for the Southern District of
New York entitled
Beasley v. TeleTech Holdings, Inc., et
al.
against TeleTech, certain current directors and officers
and others alleging violations of Sections 11, 12(a)(2) and
15 of the Securities Act, Section 10(b) of the Securities
Exchange Act and
Rule 10b-5
promulgated thereunder and Section 20(a) of the Securities
Exchange Act. The complaint alleges, among other things, false
and misleading statements in the Registration Statement and
Prospectus in connection with (i) a March 2007 secondary
offering of common stock and (ii) various disclosures made
and periodic reports filed by the Company between
February 8, 2007 and November 8, 2007. On
February 25, 2008, a second nearly identical class action
complaint, entitled
Brown v. TeleTech Holdings, Inc., et
al.,
was filed in the same court. On May 19, 2008, the
actions described above were consolidated under the caption
In re: TeleTech Litigation
and lead plaintiff and lead
counsel were approved. On October 21, 2009, the Company and
the other named defendants executed a stipulation of settlement
with the lead plaintiffs to settle the consolidated class action
lawsuit. On June 11, 2010, the United States District Court
for the Southern District of New York issued final approval of
the settlement. The Company paid $225,000 of the total
settlement amount, which had been included in Other accrued
expenses in the accompanying Consolidated Balance Sheets at
December 31, 2009; the remaining settlement amount was
covered by the Company’s insurance carriers.
Derivative
Action
On July 28, 2008, a shareholder derivative action was filed
in the Court of Chancery, State of Delaware, entitled
Susan
M. Gregory v. Kenneth D. Tuchman, et al.
, against
certain of TeleTech’s former and current officers and
directors alleging, among other things, that the individual
defendants breached their fiduciary duties and were unjustly
enriched in connection with: (i) equity grants made in
excess of plan limits; and (ii) manipulating the grant
dates of stock option grants from 1999 through 2008. TeleTech is
named solely as a nominal defendant against whom no recovery is
sought. On October 26, 2009, the Company and other
defendants in the derivative action executed a stipulation of
settlement with the lead plaintiffs to settle the derivative
action. On January 5, 2010, the Court of Chancery, State of
Delaware issued final approval of the settlement. The total
amount paid under the approved settlement was covered by the
Company’s insurance carriers.
Our common stock is traded on the NASDAQ Global Select Market
under the symbol “TTEC.” The following table sets
forth the range of the high and low sales prices per share of
the common stock for the quarters indicated as reported on the
NASDAQ Global Select Market:
| High | Low | |||||||
|
Fourth Quarter 2010
|
$ | 22.00 | $ | 14.24 | ||||
|
Third Quarter 2010
|
$ | 15.33 | $ | 12.17 | ||||
|
Second Quarter 2010
|
$ | 18.13 | $ | 12.28 | ||||
|
First Quarter 2010
|
$ | 20.95 | $ | 16.64 | ||||
|
Fourth Quarter 2009
|
$ | 20.89 | $ | 14.82 | ||||
|
Third Quarter 2009
|
$ | 18.28 | $ | 14.05 | ||||
|
Second Quarter 2009
|
$ | 15.37 | $ | 10.01 | ||||
|
First Quarter 2009
|
$ | 11.89 | $ | 7.05 | ||||
21
Table of Contents
As of December 31, 2010, we had approximately 502 holders
of record of our common stock. We have never declared or paid
any dividends on our common stock and we do not expect to do so
in the foreseeable future.
Stock Repurchase
Program
The Company has a stock repurchase program which was initially
authorized by the Company’s Board of Directors in November
2001. The Board periodically authorizes additional increases to
the program. As of December 31, 2010, the cumulative
authorized repurchase allowance was $412.3 million, of
which we have purchased 28.8 million shares for
$367.0 million. As of December 31, 2010, the remaining
allowance under the program was approximately
$45.3 million. For the period from January 1, 2011
through February 24, 2011, we have purchased an additional
1.2 million shares for $24.8 million. The stock
repurchase program does not have an expiration date.
Issuer Purchases
of Equity Securities During the Fourth Quarter of 2010
The following table provides information about our repurchases
of equity securities during the quarter ended December 31,
2010:
|
Total Number
|
Approximate
|
|||||||||||||||
|
of Shares
|
Dollar Value of
|
|||||||||||||||
|
Purchased as
|
Shares that May
|
|||||||||||||||
|
Total
|
Part of Publicly
|
Yet Be Purchased
|
||||||||||||||
|
Number of
|
Average
|
Announced
|
Under the Plans
|
|||||||||||||
|
Shares
|
Price Paid
|
Plans or
|
or Programs
|
|||||||||||||
| Period | Purchased | per Share | Programs | (In thousands) | ||||||||||||
|
October 1, 2010 – October 31, 2010
|
265,794 | $ | 14.77 | 265,794 | $ | 23,047 | ||||||||||
|
November 1, 2010 – November 30, 2010
|
1,030,000 | $ | 17.66 | 1,030,000 | $ | 5,219 | ||||||||||
|
December 1, 2010 – December 31, 2010
|
475,829 | $ | 20.73 | 475,829 | $ | 45,357 | ||||||||||
|
Total
|
1,771,623 | 1,771,623 | ||||||||||||||
Equity
Compensation Plan Information
The following table sets forth, as of December 31, 2010,
the number of shares of our common stock to be issued upon
exercise of outstanding options, RSUs, warrants and rights, the
weighted-average exercise price of outstanding options, warrants
and rights, and the number of securities available for future
issuance under equity-based compensation plans.
|
Number of
|
||||||||||||
|
Securities
|
||||||||||||
|
Number of
|
Remaining Available
|
|||||||||||
|
Securities to be
|
for Future Issuance
|
|||||||||||
|
Issued Upon
|
Under Equity
|
|||||||||||
|
Exercise of
|
Weighted- Average
|
Compensation Plans
|
||||||||||
|
Outstanding
|
Exercise Price of
|
(Excluding
|
||||||||||
|
Options, RSUs,
|
Outstanding
|
Securities
|
||||||||||
|
Warrants and Rights
|
Options, Warrants
|
Reflected in Column
|
||||||||||
|
Plan Category
|
(a) | and Rights(b) | (a)) | |||||||||
|
Equity compensation plans approved by security holders
|
5,586,822 | (1) | $ | 10.81 | (2) | 3,790,684 | ||||||
|
Equity compensation plans not approved by security holders
|
– | $ | – | – | ||||||||
|
Total
|
5,586,822 | 3,790,684 | ||||||||||
| (1) | Includes options to purchase 2,877,620 shares and 2,709,202 RSUs issued under our equity incentive plans. | |
| (2) | Weighted average exercise price of outstanding stock options; excludes RSUs, which have no exercise price. |
22
Table of Contents
Stock Performance
Graph
The graph depicted below compares the performance of TeleTech
common stock with the performance of the NASDAQ Composite Index;
the Russell 2000 Index; and customized peer group over the
period beginning on December 31, 2005 and ending on
December 31, 2010. We have chosen a “Peer Group”
composed of Convergys Corporation (NYSE: CVG), Genpact Limited
(NYSE: G), Sykes Enterprises, Incorporated (NASDAQ: SYKE) and
Teleperformance (NYSE Euronext: RCF). We believe that the
companies in the Peer Group are relevant to our current business
model, market capitalization and position in the overall BPO
industry.
The graph assumes that $100 was invested on December 31,
2005 in our common stock and in each comparison index, and that
all dividends were reinvested. We have not declared any
dividends on our common stock. Stock price performance shown on
the graph below is not necessarily indicative of future price
performance.
COMPARISON OF 5
YEAR CUMULATIVE TOTAL
RETURN
*
Among TeleTech Holdings, Inc., The NASDAQ Composite Index,
The Russell 2000 Index, And A Peer Group
Among TeleTech Holdings, Inc., The NASDAQ Composite Index,
The Russell 2000 Index, And A Peer Group
| December 31, | ||||||||||||||||||||||||
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
|
TeleTech Holdings, Inc.
|
$ | 100 | $ | 198 | $ | 177 | $ | 69 | $ | 166 | $ | 171 | ||||||||||||
|
NASDAQ Composite
|
$ | 100 | $ | 112 | $ | 125 | $ | 74 | $ | 107 | $ | 126 | ||||||||||||
|
Russell 2000
|
$ | 100 | $ | 118 | $ | 117 | $ | 77 | $ | 98 | $ | 124 | ||||||||||||
|
Peer Group
|
$ | 100 | $ | 143 | $ | 119 | $ | 71 | $ | 108 | $ | 111 | ||||||||||||
*$100 invested on 12/31/05 in stock
or index, including reinvestment of dividends.
Fiscal year ending December 31.
Fiscal year ending December 31.
23
Table of Contents
The following selected financial data should be read in
conjunction with Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations, the
Consolidated Financial Statements and the related notes
appearing elsewhere in this
Form 10-K
(amounts in thousands except per share amounts).
| Year Ended December 31, | ||||||||||||||||||||||
| 2010 | 2009 | 2008 (11) | 2007 (11) | 2006 (11) | ||||||||||||||||||
|
Statement of Operations Data
|
||||||||||||||||||||||
|
Revenue
|
$ | 1,094,906 | $ | 1,167,915 | $ | 1,400,147 | $ | 1,369,632 | $ | 1,210,753 | ||||||||||||
|
Cost of services
|
(789,697 | ) | (820,517 | ) | (1,024,451 | ) | (1,001,459 | ) | (882,809 | ) | ||||||||||||
|
Selling, general and administrative
|
(165,812 | ) | (180,039 | ) | (199,495 | ) (5) | (207,528 | ) (5) | (199,995 | ) | ||||||||||||
|
Depreciation and amortization
|
(50,218 | ) | (56,991 | ) | (59,166 | ) | (55,953 | ) | (51,989 | ) | ||||||||||||
|
Other operating expenses
|
(15,434 | ) (1) | (9,659 | ) (4) | (8,077 | ) (6) | (22,904 | ) (8) | (2,195 | ) (10) | ||||||||||||
|
Income from operations
|
73,745 | 100,709 | 108,958 | 81,788 | 73,765 | |||||||||||||||||
|
Other income (expense)
|
8,224 | (2) | 2,334 | (4,354 | ) | (6,437 | ) (9) | (4,442 | ) | |||||||||||||
|
Provision for income taxes
|
(28,431 | ) (3) | (27,477 | ) | (27,269 | ) (7) | (19,562 | ) | (16,474 | ) (7) | ||||||||||||
|
Noncontrolling interest
|
(3,664 | ) | (3,812 | ) | (3,588 | ) | (2,686 | ) | (1,868 | ) | ||||||||||||
|
Net income attributable to TeleTech shareholders
|
$ | 49,874 | $ | 71,754 | $ | 73,747 | $ | 53,103 | $ | 50,981 | ||||||||||||
|
Weighted average shares outstanding
|
||||||||||||||||||||||
|
Basic
|
60,361 | 62,891 | 68,208 | 70,228 | 69,184 | |||||||||||||||||
|
Diluted
|
61,792 | 64,238 | 69,578 | 72,638 | 69,869 | |||||||||||||||||
|
Net income per share attributable to TeleTech shareholders
|
||||||||||||||||||||||
|
Basic
|
$ | 0.83 | $ | 1.14 | $ | 1.08 | $ | 0.76 | $ | 0.74 | ||||||||||||
|
Diluted
|
$ | 0.81 | $ | 1.12 | $ | 1.06 | $ | 0.73 | $ | 0.73 | ||||||||||||
|
Balance Sheet Data
|
||||||||||||||||||||||
|
Total assets
|
$ | 660,623 | $ | 640,167 | $ | 668,942 | $ | 760,295 | $ | 664,421 | ||||||||||||
|
Total long-term liabilities
|
$ | 33,554 | $ | 38,300 | $ | 127,949 | $ | 118,729 | $ | 111,800 | ||||||||||||
| (1) | Includes $13.1 million expense related to reductions in force; $0.4 million expense related to facility exit charges; and a $2.0 million expense related to the impairment of property and equipment. | |
| (2) | Includes a $5.9 million gain due to the settlement of a Newgen legal claim. | |
| (3) | Includes a $5.6 million expense related to repatriation of $105 million of foreign earnings previously considered permanently invested outside the U.S., an increase of $2.5 million in the U.S. deferred tax liability related to foreign tax assets that can no longer offset taxable income in more than one jurisdiction, an increase of $6.6 million in the deferred tax valuation allowance, and a $2.3 million tax expense related to the legal settlement included in Other income (expense) (as discussed above), offset by a $4.0 million benefit related to foreign tax planning strategies associated with the international operations. | |
| (4) | Includes $5.5 million expense related to reductions in force; $0.6 million expense related to facility exit charges; $1.0 million benefit related to the revised estimates of facility exit charges; and a $4.6 million expense related to the impairment of property and equipment. | |
| (5) | Includes $14.6 million and $11.5 million for 2008 and 2007, respectively, for costs incurred for the Company’s review of its equity-based compensation practices and restatement of the Consolidated Financial Statements. | |
| (6) | Includes $3.2 million expense related to reductions in force; $2.8 million expense related to facility exit charges; and a $2.0 million expense related to the impairment of property and equipment. | |
| (7) | Includes benefits due to the reversal of income tax valuation allowances of $3.9 million and $5.7 million for the years 2008 and 2006, respectively. The year 2006 includes a $3.3 million benefit due to the Enhansiv Holdings, Inc. loss carry forward. |
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| (8) | Includes the following items: $13.4 million expense related to the impairment of goodwill; $2.4 million expense related to the impairment of property and equipment; $3.7 million expense related to reductions in force; and $3.4 million expense related to facility exit charges. | |
| (9) | Includes a net $0.9 million benefit related to the sale of assets; and a $2.2 million benefit related to the execution of a software and intellectual property license agreement. | |
| (10) | Includes $1.0 million expense related to reductions in force; $0.8 million expense related to facility exit costs; and a $0.6 million expense related to the impairment of property and equipment. | |
| (11) | Presentation has been recast in accordance with the application of new accounting guidance for non-controlling interest. See Note 1 to the Consolidated Financial Statements. |
RESULTS OF OPERATIONS
Executive
Summary
TeleTech is one of the largest and most geographically diverse
global providers of business process outsourcing solutions. We
have a
29-year
history of designing, implementing and managing critical
business processes for Global 1000 companies to help them
optimize their customers’ experience, grow revenue,
increase their operating efficiencies, improve quality and lower
costs. By delivering a high-quality customer experience through
the effective integration of customer-facing, front-office
processes with internal back-office processes, we enable our
clients to better serve, grow and retain their customer base. We
have developed deep vertical industry expertise and support more
than 275 business process outsourcing programs serving
approximately 85 global clients in the automotive, broadband,
cable, financial services, government, healthcare, logistics,
media and entertainment, retail, technology, travel, and
wireline and wireless communication industries.
As globalization of the world’s economy continues to
accelerate, businesses are increasingly competing on a
large-scale basis due to rapid advances in technology and
telecommunications that permit cost-effective real-time global
communications and ready access to a highly-skilled worldwide
labor force. As a result of these developments, we believe that
companies have increasingly outsourced business processes to
third-party providers in an effort to enhance or maintain their
competitive position while increasing shareholder value through
improved productivity and profitability.
Revenue in 2010 decreased over the prior year primarily due to
the global economic slowdown resulting in a decline in our
current call volumes and delayed client purchasing decisions. In
addition, the continued migration of several of our clients to
our offshore delivery centers, and proactive management of
underperforming business and geographies out of our portfolio
has impacted our revenue. We believe that our revenue will grow
over the long-term as global demand for our services is fueled
by the following trends:
| • | Focus on providers who can offer fully integrated revenue generation solutions. A focus on providers who can offer fully integrated revenue generation solutions to target new or underpenetrated markets and improve revenue and profitability through customer acquisition, retention and growth by leveraging the profitability potential of each customer. | |
| • | Integration of front- and back-office business processes to provide increased operating efficiencies and an enhanced customer experience especially in light of the weakening global economic environment. Companies have realized that integrated business processes reduce operating costs and allow customer needs to be met more quickly and efficiently resulting in higher customer satisfaction and brand loyalty thereby improving their competitive position. A majority of our historic revenue has been derived from providing customer-facing front-office solutions to our clients. Given that our global delivery centers are also fully capable of providing back-office solutions, we are uniquely positioned to grow our revenue by winning more back-office opportunities and providing the services during non-peak hours with minimal incremental investment. Furthermore, by spreading our fixed costs across a larger revenue base and increasing our asset utilization, we expect our profitability to improve over time. |
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| • | Increasing percentage of company operations being outsourced to most capable third-party providers. Having experienced success with outsourcing a portion of their business processes, companies are increasingly inclined to outsource a larger percentage of this work. We believe companies will continue to consolidate their business processes with third-party providers, such as TeleTech, who are financially stable and able to invest in their business while also demonstrating an extensive global operating history and an ability to cost effectively scale to meet their evolving needs. | |
| • | Increasing adoption of outsourcing across broader groups of industries. Early adopters of the business process outsourcing trend, such as the media and communications industries, are being joined by companies in other industries, including healthcare, retail and financial services. These companies are beginning to adopt outsourcing to improve their business processes and competitiveness. For example, we see increasing interest in our services from companies in the healthcare, retail and financial services industries. We believe the number of other industries that will adopt or increase their level of outsourcing will continue to grow, further enabling us to increase and diversify our revenue and client base. | |
| • | Focus on speed-to-market by companies launching new products or entering new geographic locations . As companies broaden their product offerings and seek to enter new emerging markets, they are looking for outsourcing providers that can provide speed-to-market while reducing their capital and operating risk. To achieve these benefits, companies are seeking BPO providers with an extensive operating history, an established global footprint, the financial strength to invest in innovation to deliver more strategic capabilities and the ability to scale and meet customer demands quickly. Given our financial stability, geographic presence in 17 countries and our significant investment in standardized technology and processes, we believe that clients select TeleTech because we can quickly ramp large, complex business processes around the globe in a short period of time while assuring a high-quality experience for their customers. |
Our
Strategy
Our objective is to become the world’s largest, most
technologically advanced and innovative provider of
customer-centric BPO solutions. Companies within the Global 1000
are our primary client targets due to their size, global reach,
focus on outsourcing and desire for a BPO provider who can offer
an
end-to-end
suite of fully-integrated, globally scalable solutions. We have
developed, and continue to invest in, a broad set of
capabilities designed to serve this growing client need. These
investments include our recently completed acquisition of a
majority interest in Peppers and Rogers Group to further enhance
our professional services capabilities. In addition, we have
begun to offer cloud-based ‘hosted services’ where
clients can license any aspect of our global network and
proprietary applications. While the revenue from these offerings
is small relative to our consolidated revenue, we believe it
will continue to grow as these services become more widely
adopted by our clients. We aim to further improve our
competitive position by investing in a growing suite of new and
innovative business process services across our targeted
industries.
Our business strategy to increase revenue, profitability and our
industry position includes the following elements:
| • | Capitalize on the favorable trends in the global outsourcing environment, which we believe will include more companies that want to: |
| - | Seek a provider that can deliver strategic consulting and operational execution around customer-centric strategies; | |
| - | Adopt or increase BPO services; |
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| - | Consolidate outsourcing providers with those that have a solid financial position, adequate capital resources to sustain a long-term relationship and globally diverse delivery capabilities across a broad range of solutions; | |
| - | Modify their approach to outsourcing based on total value delivered versus the lowest priced provider; | |
| - | Create focused revenue generation capabilities in targeted market segments; | |
| - | Better integrate front- and back-office processes; and | |
| - | Take advantage of cost efficiencies through the adoption of cloud-based technology solutions. |
| • | Deepen and broaden our relationships with existing clients; | |
| • | Win business with new clients and focus on end-to-end offerings in targeted industries where we expect accelerating adoption of business process outsourcing; | |
| • | Continue to invest in innovative proprietary technology and new business offerings; | |
| • | Continue to diversify revenue into higher-margin offerings such as professional services, talent acquisition, learning innovation services and our hosted TeleTech OnDemand tm capabilities; | |
| • | Continue to improve our operating margins through selective profit improvement initiatives and increased asset utilization of our globally diverse delivery centers; | |
| • | Scale our work from home initiative to increase operational flexibility; and | |
| • | Selectively pursue acquisitions that extend our capabilities, geographic reach and/or industry expertise. |
Our 2010
Financial Results
In 2010, our revenue decreased 6.3% to $1,095 million over
the 2009 year, which included an increase of 3.7% or
$43.3 million due to fluctuations in foreign currency
rates. Our income from operations decreased 26.8% to
$73.7 million or 6.7% of revenue in 2010 from
$100.7 million or 8.6% of revenue in 2009. This revenue
decrease was due to a decline in existing client volumes in
light of the continuing global recessionary economic
environment, the continued migration of several of our clients
to our offshore delivery centers and proactive management of
underperforming business and geographies out of our portfolio.
Income from operations in 2010 included $13.5 million and
$2.0 million of restructuring charges and asset
impairments, respectively.
Our offshore delivery centers serve clients based both in North
America and in other countries. Our offshore delivery capacity
spans six countries with 23,600 workstations and currently
represents 72% of our global delivery capabilities. Revenue from
services provided in these offshore locations was
$492.6 million and represented 45% of our total revenue for
2010, compared to $556.5 million and 48% of our total
revenue for 2009.
Our strong financial position due to our cash flow from
operations allowed us to finance our capital needs and stock
repurchases primarily through internally generated cash flows.
At December 31, 2010, we had $119.4 million of cash
and cash equivalents, total debt of $4.9 million, and a
total debt to total capitalization ratio of 1.1%. During 2010,
we repurchased 5.0 million shares of our common stock for
$80.3 million under the stock repurchase program. Since
inception of the program through December 31, 2010, the
Board has authorized the repurchase of shares up to an aggregate
value of $412.3 million, of which we have purchased
28.8 million shares for $367.0 million. As of
December 31, 2010, we held 29.5% of our outstanding shares
of common stock in treasury.
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Business
Overview
Our BPO business provides outsourced business process and
customer management services along with strategic consulting for
a variety of industries through global delivery centers. Our
North American BPO segment is comprised of sales to all clients
based in North America (encompassing the U.S. and Canada),
while our International BPO segment is comprised of sales to all
clients based in all countries outside of North America.
See Note 4 to the Consolidated Financial Statements for
additional discussion regarding the preparation of our segment
information.
BPO
Services
The BPO business generates revenue based primarily on the amount
of time our associates devote to a client’s program. We
primarily focus on large global corporations in the following
industries: automotive, broadband, cable, financial services,
government, healthcare, logistics, media and entertainment,
retail, technology, travel, and wireline and wireless
telecommunications. Revenue is recognized as services are
provided. The majority of our revenue is from multi-year
contracts and we expect that trend to continue. However, we do
provide certain client programs on a short-term basis.
We have historically experienced annual attrition of existing
client programs of approximately 6% to 12% of our revenue.
Attrition of existing client programs during 2010 and 2009 was
10% and 12%, respectively.
The BPO industry is highly competitive. We compete primarily
with the in-house business processing operations of our current
and potential clients. We also compete with certain third-party
BPO providers. Our ability to sell our existing services or gain
acceptance for new products or services is challenged by the
competitive nature of the industry. There can be no assurance
that we will be able to sell services to new clients, renew
relationships with existing clients, or gain client acceptance
of our new products.
Our ability to renew or enter into new multi-year contracts,
particularly large complex opportunities, is dependent upon the
macroeconomic environment in general and the specific industry
environments in which our clients operate. Continued weakness in
the U.S. or the global economy could lengthen sales cycles
or cause delays in closing new business opportunities.
Our potential clients typically obtain bids from multiple
vendors and evaluate many factors in selecting a service
provider, including, among others, the scope of services
offered, the service record of the vendor and price. We
generally price our bids with a long-term view of profitability
and, accordingly, we consider all of our fixed and variable
costs in developing our bids. We believe that our competitors,
at times, may bid business based upon a short-term view, as
opposed to our longer-term view, resulting in a lower price bid.
While we believe our clients’ perceptions of the value we
provide results in our being successful in certain competitive
bid situations, there are often situations where a potential
client may prefer a lower cost.
Our industry is labor-intensive and the majority of our
operating costs relate to wages, employee benefits and
employment taxes. An improvement in the local or global
economies where our delivery centers are located could lead to
increased labor-related costs. In addition, our industry
experiences high personnel turnover, and the length of training
time required to implement new programs continues to increase
due to increased complexities of our clients’ businesses.
This may create challenges if we obtain several significant new
clients or implement several new, large scale programs and need
to recruit, hire and train qualified personnel at an accelerated
rate.
To some extent our profitability is influenced by the number of
new client programs entered into within the period. For new
programs we defer revenue related to initial training
(“Training Revenue”) when training is billed as a
separate component from production rates. Consequently, the
corresponding training costs associated with this revenue,
consisting primarily of labor and related expenses
(“Training Costs”), are also deferred. In these
circumstances, both the Training Revenue and Training Costs are
amortized straight-line over the life of the contract. In
situations where Training Revenue is not billed separately, but
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rather included in the production rates, there is no deferral as
all revenue is recognized over the life of the contract and the
associated training expenses are expensed as incurred.
As of December 31, 2010, we had deferred
start-up
Training revenue, net of Training costs, of $5.0 million
that will be recognized into our income from operations over the
remaining life of the corresponding contracts ($2.9 million
will be recognized within the next 12 months). See
Note 15 to the Consolidated Financial Statements for
further discussion of deferred training revenue and costs.
We may have difficulties managing the timeliness of launching
new or expanded client programs and the associated internal
allocation of personnel and resources. This could cause slower
than anticipated revenue growth
and/or
higher than expected costs primarily related to hiring, training
and retaining the required workforce, either of which could
adversely affect our operating results.
Quarterly, we review our capacity utilization and projected
demand for future capacity. In conjunction with these reviews,
we may decide to consolidate or close under-performing delivery
centers, including those impacted by the loss of a client
program, in order to maintain or improve targeted utilization
and margins. In addition, because clients may request that we
serve their customers from international delivery centers with
lower prevailing labor rates, in the future we may decide to
close one or more of our delivery centers, even though it is
generating positive cash flow, because we believe the future
profits from conducting such work outside the current delivery
center may more than compensate for the one-time charges related
to closing the facility.
Our profitability is influenced by our ability to increase
capacity utilization in our delivery centers. We attempt to
minimize the financial impact resulting from idle capacity when
planning the development and opening of new delivery centers or
the expansion of existing delivery centers. As such, management
considers numerous factors that affect capacity utilization,
including anticipated expirations, reductions, terminations, or
expansions of existing programs and the potential size and
timing of new client contracts that we expect to obtain.
We continue to win new business with both new and existing
clients. To respond more rapidly to changing market demands, to
implement new programs and to expand existing programs, we may
be required to commit to additional capacity prior to the
contracting of additional business, which may result in idle
capacity. This is largely due to the significant time required
to negotiate and execute large, complex BPO client contracts and
the difficulty of predicting specifically when new programs will
launch.
We internally target capacity utilization in our delivery
centers at 80% to 90% of our available workstations. As of
December 31, 2010, the overall capacity utilization in our
multi-client centers was 70%. The table below presents
workstation data for our multi-client centers as of
December 31, 2010 and 2009. Dedicated and Managed Centers
(3,125 and 3,956 workstations, at December 31, 2010 and
2009, respectively) are excluded from the workstation data as
unused workstations in these facilities are not available for
sale. Our utilization percentage is defined as the total number
of utilized production workstations compared to the total number
of available production workstations. We may change the
designation of shared or dedicated centers based on the normal
changes in our business environment and client needs.
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||
|
Total
|
Total
|
|||||||||||||||||||||||||
|
Production
|
% In
|
Production
|
% In
|
|||||||||||||||||||||||
| Workstations | In Use | Use | Workstations | In Use | Use | |||||||||||||||||||||
|
Multi-client centers
|
||||||||||||||||||||||||||
|
Sites open >1 year
|
29,011 | 20,375 | 70 | % | 31,525 | 20,907 | 66 | % | ||||||||||||||||||
|
Sites open <1 year
|
792 | 509 | 64 | % | 119 | 39 | 33 | % | ||||||||||||||||||
|
Total multi-client centers
|
29,803 | 20,884 | 70 | % | 31,644 | 20,946 | 66 | % | ||||||||||||||||||
We continue to see demand from all geographic regions to utilize
our offshore delivery capabilities and expect this trend to
continue with our clients. In light of this trend, we plan to
continue to selectively retain capacity and expand into new
offshore markets. As we grow our offshore delivery capabilities
and our
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exposure to foreign currency fluctuations increase; we continue
to actively manage this risk via a multi-currency hedging
program designed to minimize operating margin volatility.
Overall
As shown in the “Results of Operations” section which
follows later, our income from operations has decreased for both
our North American and International BPO segments, The decreases
are attributable to reduced revenue for both segments due to the
economic slowdown as discussed above, an increase in expenses
relating to transitioning work on certain client programs to
lower cost operating centers, and increased restructuring
charges related to aligning our capacity and workforce to our
current business needs.
As we pursue acquisition opportunities, it is possible that the
contemplated benefits of any future acquisitions may not
materialize within the expected time periods or to the extent
anticipated. Critical to the success of our acquisition strategy
is the orderly, effective integration of acquired businesses
into our organization. If this integration is unsuccessful, our
business may be adversely impacted. There is also the risk that
our valuation assumptions and models for an acquisition may be
overly optimistic or incorrect.
Critical
Accounting Policies and Estimates
Management’s Discussion and Analysis of its financial
condition and results of operations are based upon our
Consolidated Financial Statements, which have been prepared in
accordance with generally accepted accounting principles
(“GAAP”). The preparation of these financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and
expenses as well as the disclosure of contingent assets and
liabilities. We regularly review our estimates and assumptions.
These estimates and assumptions, which are based upon historical
experience and on various other factors believed to be
reasonable under the circumstances, form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Reported
amounts and disclosures may have been different had management
used different estimates and assumptions or if different
conditions had occurred in the periods presented. Below is a
discussion of the policies that we believe may involve a high
degree of judgment and complexity.
Revenue
Recognition
For each client arrangement, we determine whether evidence of an
arrangement exists, delivery of our service has occurred, the
fee is fixed or determinable and collection is reasonably
assured. If all criteria are met, we recognize revenue at the
time services are performed. If any of these criteria are not
met, revenue recognition is deferred until such time as all of
the criteria are met.
Our BPO segments recognize revenue under three models:
Production Rate
– Revenue is recognized based
on the billable time or transactions of each associate, as
defined in the client contract. The rate per billable time or
transaction is based on a pre-determined contractual rate. This
contractual rate can fluctuate based on our performance against
certain pre-determined criteria related to quality and
performance.
Performance
-
based
– Under
performance-based arrangements, we are paid by our clients based
on the achievement of certain levels of sales or other
client-determined criteria specified in the client contract. We
recognize performance-based revenue by measuring our actual
results against the performance criteria specified in the
contracts. Amounts collected from clients prior to the
performance of services are recorded as deferred revenue, which
is recorded in Other current liabilities or Other long-term
liabilities in the accompanying Consolidated Balance Sheets.
Hybrid
– Hybrid models include production rate
and performance-based elements. For these types of arrangements,
we allocate revenue to the elements based on the relative fair
value of each element. Revenue for each element is recognized
based on the methods described above.
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Certain client programs provide for adjustments to monthly
billings based upon whether we meet or exceed certain
performance criteria as set forth in the contract. Increases or
decreases to monthly billings arising from such contract terms
are reflected in revenue as earned or incurred.
Periodically we make certain expenditures related to acquiring
contracts or provide up front discounts for future services to
existing customers (recorded as Contract acquisition costs in
the accompanying Consolidated Balance Sheets). Those
expenditures are capitalized and amortized in proportion to the
expected future revenue from the contract, which in most cases
results in straight-line amortization over the life of the
contract. Amortization of these amounts is recorded as a
reduction of revenue.
Income
Taxes
We account for income taxes in accordance with the authoritative
guidance 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 or tax returns. 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. When
circumstances warrant, we assess the likelihood that our net
deferred tax assets will more likely than not be recovered from
future projected taxable income.
We continually review the likelihood that deferred tax assets
will be realized in future tax periods under the
“more-likely-than-not” criteria. In making this
judgment, we consider all available evidence, both positive and
negative, in determining whether, based on the weight of that
evidence, a valuation allowance is required.
We follow a two-step approach to recognizing and measuring
uncertain tax positions. The first step is to determine if the
weight of available evidence indicates that it is more likely
than not that the tax position will be sustained on audit. The
second step is to estimate and measure the tax benefit as the
amount that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority. We evaluate
these uncertain tax positions on a quarterly basis. This
evaluation is based on the consideration of several factors
including changes in facts or circumstances, changes in
applicable tax law, and settlement of issues under audit.
Interest and penalties relating to income taxes and uncertain
tax positions are accrued net of tax in Provision for income
taxes in the accompanying Consolidated Statements of Operations
and Comprehensive Income (Loss).
In the future, our effective tax rate could be adversely
affected by several factors, many of which are outside our
control. Our effective tax rate is affected by the proportion of
revenue and income before taxes in the various domestic and
international jurisdictions in which we operate. Further, we are
subject to changing tax laws, regulations and interpretations in
multiple jurisdictions, in which we operate, as well as the
requirements, pronouncements and ruling of certain tax,
regulatory and accounting organizations. We estimate our annual
effective tax rate each quarter based on a combination of actual
and forecasted results of subsequent quarters. Consequently,
significant changes in our actual quarterly or forecasted
results may impact the effective tax rate for the current or
future periods.
Allowance for
Doubtful Accounts
We have established an allowance for doubtful accounts to
reserve for uncollectible accounts receivable. Each quarter,
management reviews the receivables on an
account-by-account
basis and assigns a probability of collection. Management’s
judgment is used in assessing the probability of collection.
Factors considered in making this judgment include, among other
things, the age of the identified receivable, client financial
condition, previous client payment history and any recent
communications with the client.
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Impairment of
Long-Lived Assets
We evaluate the carrying value of property, plant and equipment
and definite-lived intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An asset is considered to be
impaired when the forecasted undiscounted cash flows of an asset
group are estimated to be less than its carrying value. The
amount of impairment recognized is the difference between the
carrying value of the asset group and its fair value. Fair value
estimates are based on assumptions concerning the amount and
timing of estimated future cash flows and assumed discount rates.
Goodwill and
Indefinite-Lived Intangible Assets
We evaluate indefinite-lived intangible assets and goodwill for
possible impairment at least annually or whenever events or
changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. An intangible asset with an
indefinite life (a trade name) is evaluated for possible
impairment by comparing the fair value of the asset with its
carrying value. Fair value is estimated as the discounted value
of future revenues arising from a trade name using a royalty
rate that an independent party would pay for use of that trade
name. An impairment charge is recorded if the trade name’s
carrying value exceeds its estimated fair value. Impairment of
goodwill occurs when the carrying amount exceeds its estimated
fair value. The impairment, if any, is measured based on the
estimated fair value of the reporting unit. We aggregate segment
components with similar economic characteristics in forming a
reporting unit; aggregation can be based on types of customers,
methods of distribution of services, shared operations,
acquisition history, and management judgment and reporting.
We estimate fair value using discounted cash flows of the
reporting units. The most significant assumptions used in these
analyses are those made in estimating future cash flows. In
estimating future cash flows, we use financial assumptions in
our internal forecasting model such as projected capacity
utilization, projected changes in the prices we charge for our
services, projected labor costs, as well as contract negotiation
status. The financial and credit market volatility directly
impacts our fair value measurement through our weighted average
cost of capital that we use to determine our discount rate. We
use a discount rate we consider appropriate for the country
where the business unit is providing services. As of
December 31, 2010, the Company’s assessment of
goodwill impairment indicated that the fair values of the
Company’s reporting units were substantially in excess of
their estimated carrying values, and therefore goodwill in the
reporting units was not impaired. If actual results are less
than the assumptions used in performing the impairment test, the
fair value of the reporting units may be significantly lower,
causing the carrying value to exceed the fair value and
indicating an impairment has occurred.
Restructuring
Liability
We routinely assess the profitability and utilization of our
delivery centers and existing markets. In some cases, we have
chosen to close under-performing delivery centers and complete
reductions in workforce to enhance future profitability.
Severance payments that occur from reductions in workforce are
in accordance with postemployment plans
and/or
statutory requirements that are communicated to all employees
upon hire date; therefore, we recognize severance liabilities
when they are determined to be probable and reasonably
estimable. Other liabilities for costs associated with an exit
or disposal activity are recognized when the liability is
incurred, rather than upon commitment to a plan.
A significant assumption used in determining the amount of the
estimated liability for closing delivery centers is the
estimated liability for future lease payments on vacant centers,
which we determine based on our ability to successfully
negotiate early termination agreements with landlords
and/or
our
ability to sublease the facility. If our assumptions regarding
early termination and the timing and amounts of sublease
payments prove to be inaccurate, we may be required to record
additional losses, or conversely, a reversal of previously
reported losses.
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Equity-Based
Compensation Expense
Equity-based compensation expense for all share-based payment
awards granted is determined based on the grant-date fair value.
We recognize equity-based compensation expense net of an
estimated forfeiture rate, and recognize compensation expense
only for shares that are expected to vest on a straight-line
basis over the requisite service period of the award, which is
typically the vesting term of the share-based payment award. We
estimate the forfeiture rate annually based on historical
experience of forfeited awards.
Fair Value
Measurement
The fair value guidance codifies a new framework for measuring
fair value and expands related disclosures. The framework
requires fair value to be determined based on the exchange price
that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction
between market participants. We utilize market data or
assumptions that we believe market participants would use in
pricing the asset or liability, assumptions about counterparty
credit risk, including the ability of each party to execute its
obligation under the contract, and the risks inherent in the
inputs to the valuation technique. These inputs can be readily
observable, market corroborated or generally unobservable.
We primarily apply the market approach for recurring fair value
measurements and endeavor to utilize the best available
information. Accordingly, we utilize valuation techniques that
maximize the use of observable inputs and minimize the use of
unobservable inputs. We are able to classify fair value balances
based on the observability of those inputs.
The valuation techniques required by the new provisions
establish a fair value hierarchy that prioritizes the inputs
used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3
measurement). The three levels of the fair value hierarchy are
as follows:
| Level 1 | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and U.S. government treasury securities. |
| Level 2 | Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as over-the-counter forwards, options and repurchase agreements. |
| Level 3 | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant. Level 3 instruments include those that may be more structured or otherwise tailored to customers’ needs. At each balance sheet date, we perform an analysis of all instruments subject to fair value measurements and includes in Level 3 all of those whose fair value is based on significant unobservable inputs. |
33
Table of Contents
Derivatives
We enter into foreign exchange forward and option contracts to
reduce our exposure to foreign currency exchange rate
fluctuations that are associated with forecasted revenue in
non-functional currencies. Upon proper qualification, these
contracts are accounted for as cash flow hedges. We also entered
into foreign exchange forward contracts to hedge our net
investment in a foreign operation.
All derivative financial instruments are reported in the
accompanying Consolidated Balance Sheets at fair value. Changes
in fair value of derivative instruments designated as cash flow
hedges are recorded in Accumulated other comprehensive income
(loss), a component of Stockholders’ Equity, to the extent
they are deemed effective. Based on the criteria established by
current accounting standards, all of our cash flow hedge
contracts are deemed to be highly effective. Changes in fair
value of any net investment hedge are recorded in cumulative
translation adjustment in Accumulated other comprehensive income
(loss) in the accompanying Consolidated Balance Sheets
offsetting the change in cumulative translation adjustment
attributable to the hedged portion of our net investment in the
foreign operation. Any realized gains or losses resulting from
the cash flow hedges are recognized together with the hedged
transaction within Revenue. Gains and losses from the
settlements of our net investment hedge remain in Accumulated
other comprehensive income (loss) until partial or complete
liquidation of the applicable net investment.
We also enter into fair value derivative contracts to reduce our
exposure to foreign currency exchange rate fluctuations
associated with changes in asset and liability balances. Changes
in the fair value of derivative instruments designated as fair
value hedges affect the carrying value of the asset or liability
hedged, with changes in both the derivative instrument and the
hedged asset or liability being recognized in Other income
(expense), net in the accompanying Consolidated Statements of
Operations and Comprehensive Income (Loss).
While we expect that our derivative instruments will continue to
be highly effective and in compliance with applicable accounting
standards, if our hedges did not qualify as highly effective or
if we determine that forecasted transactions will not occur, the
changes in the fair value of the derivatives used as hedges
would be reflected currently in earnings.
In addition to hedging activities, we also have embedded
derivatives in certain foreign lease contracts. We bifurcate and
fair value the embedded derivative feature from the host
contract with any changes in fair value of the embedded
derivatives recognized in Cost of services.
Contingencies
We record a liability for pending litigation and claims where
losses are both probable and reasonably estimable. Each quarter,
management reviews all litigation and claims on a
case-by-case
basis and assigns probability of loss and range of loss.
Explanation of
Key Metrics and Other Items
Cost of
Services
Cost of services principally include costs incurred in
connection with our BPO operations, including direct labor,
telecommunications, printing, postage, sales and use tax and
certain fixed costs associated with delivery centers. In
addition, cost of services includes income related to grants we
may receive from local or state governments as an incentive to
locate delivery centers in their jurisdictions which reduce the
cost of services for those facilities.
Selling, General
and Administrative
Selling, general and administrative expenses primarily include
costs associated with administrative services such as sales,
marketing, product development, legal settlements, legal,
information systems (including core technology and telephony
infrastructure) and accounting and finance. It also includes
equity-based compensation expense, outside professional fees
(i.e., legal and accounting services),
34
Table of Contents
building expense for non-delivery center facilities and other
items associated with general business administration.
Restructuring
Charges, Net
Restructuring charges, net primarily include costs incurred in
conjunction with reductions in force or decisions to exit
facilities, including termination benefits and lease
liabilities, net of expected sublease rentals.
Interest
Expense
Interest expense includes interest expense and amortization of
debt issuance costs associated with our debts and capitalized
lease obligations.
Other
Income
The main components of other income are miscellaneous income not
directly related to our operating activities, such as foreign
exchange transaction gains.
Other
Expenses
The main components of other expenses are expenditures not
directly related to our operating activities, such as foreign
exchange transaction losses.
Presentation of
Non-GAAP Measurements
Free Cash
Flow
Free cash flow is a non-GAAP liquidity measurement. We believe
that free cash flow is useful to our investors because it
measures, during a given period, the amount of cash generated
that is available for debt obligations and investments other
than purchases of property, plant and equipment. Free cash flow
is not a measure determined by GAAP and should not be considered
a substitute for “income from operations,” “net
income,” “net cash provided by operating
activities,” or any other measure determined in accordance
with GAAP. We believe this non-GAAP liquidity measure is useful,
in addition to the most directly comparable GAAP measure of
“net cash provided by operating activities,” because
free cash flow includes investments in operational assets. Free
cash flow does not represent residual cash available for
discretionary expenditures, since it includes cash required for
debt service. Free cash flow also includes cash that may be
necessary for acquisitions, investments and other needs that may
arise.
The following table reconciles net cash provided by operating
activities to free cash flow for our consolidated results
(amounts in thousands):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Net cash provided by operating activities
|
$ | 134,455 | $ | 160,672 | $ | 160,566 | ||||||
|
Purchases of property, plant and equipment
|
26,800 | 24,188 | (1) | 61,712 | (1) | |||||||
|
Free cash flow
|
$ | 107,655 | $ | 136,484 | $ | 98,854 | ||||||
| (1) | Purchases of property, plant and equipment for the years ended December 31, 2009 and 2008 are net of proceeds from a government grant of $0.8 million and $4.3 million, respectively. |
We discuss factors affecting free cash flow between periods in
the “Liquidity and Capital Resources” section below.
35
Table of Contents
RESULTS OF
OPERATIONS
Year Ended
December 31, 2010 Compared to December 31,
2009
The following tables are presented to facilitate
Management’s Discussion and Analysis. The following table
presents results of operations by segment for the years ended
December 31, 2010 and 2009 (dollar amounts in thousands):
| Year Ended December 31, 2010 | ||||||||||||||||||||||||||
|
% of
|
% of
|
|||||||||||||||||||||||||
|
Segment
|
Segment
|
|||||||||||||||||||||||||
| 2010 | Revenue | 2009 | Revenue | $ Change | % Change | |||||||||||||||||||||
|
Revenue
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 824,265 | $ | 886,738 | $ | (62,473 | ) | –7.0 | % | |||||||||||||||||
|
International BPO
|
270,641 | 281,177 | (10,536 | ) | –3.7 | % | ||||||||||||||||||||
| $ | 1,094,906 | $ | 1,167,915 | $ | (73,009 | ) | –6.3 | % | ||||||||||||||||||
|
Cost of services
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 572,413 | 69.4 | % | $ | 598,040 | 67.4 | % | $ | (25,627 | ) | –4.3 | % | |||||||||||||
|
International BPO
|
217,284 | 80.3 | % | 222,477 | 79.1 | % | (5,193 | ) | –2.3 | % | ||||||||||||||||
| $ | 789,697 | 72.1 | % | $ | 820,517 | 70.3 | % | $ | (30,820 | ) | –3.8 | % | ||||||||||||||
|
Selling, general and administrative
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 119,845 | 14.5 | % | $ | 132,399 | 14.9 | % | $ | (12,554 | ) | –9.5 | % | |||||||||||||
|
International BPO
|
45,967 | 17.0 | % | 47,640 | 16.9 | % | (1,673 | ) | –3.5 | % | ||||||||||||||||
| $ | 165,812 | 15.1 | % | $ | 180,039 | 15.4 | % | $ | (14,227 | ) | –7.9 | % | ||||||||||||||
|
Depreciation and amortization
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 38,652 | 4.7 | % | $ | 39,603 | 4.5 | % | $ | (951 | ) | –2.4 | % | |||||||||||||
|
International BPO
|
11,566 | 4.3 | % | 17,388 | 6.2 | % | (5,822 | ) | –33.5 | % | ||||||||||||||||
| $ | 50,218 | 4.6 | % | $ | 56,991 | 4.9 | % | $ | (6,773 | ) | –11.9 | % | ||||||||||||||
|
Restructuring charges, net
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 8,206 | 1.0 | % | $ | 3,388 | 0.4 | % | $ | 4,818 | 142.2 | % | ||||||||||||||
|
International BPO
|
5,270 | 1.9 | % | 1,684 | 0.6 | % | 3,586 | 212.9 | % | |||||||||||||||||
| $ | 13,476 | 1.2 | % | $ | 5,072 | 0.4 | % | $ | 8,404 | 165.7 | % | |||||||||||||||
|
Impairment losses
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 1,387 | 0.2 | % | $ | 1,811 | 0.2 | % | $ | (424 | ) | –23.4 | % | |||||||||||||
|
International BPO
|
571 | 0.2 | % | 2,776 | 1.0 | % | (2,205 | ) | –79.4 | % | ||||||||||||||||
| $ | 1,958 | 0.2 | % | $ | 4,587 | 0.4 | % | $ | (2,629 | ) | –57.3 | % | ||||||||||||||
|
Income (loss) from operations
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 83,762 | 10.2 | % | $ | 111,497 | 12.6 | % | $ | (27,735 | ) | –24.9 | % | |||||||||||||
|
International BPO
|
(10,017 | ) | –3.7 | % | (10,788 | ) | –3.8 | % | 771 | 7.1 | % | |||||||||||||||
| $ | 73,745 | 6.7 | % | $ | 100,709 | 8.6 | % | $ | (26,964 | ) | –26.8 | % | ||||||||||||||
|
Other income (expense), net
|
$ | 8,224 | 0.8 | % | $ | 2,334 | 0.2 | % | $ | 5,890 | 252.4 | % | ||||||||||||||
|
Provision for income taxes
|
$ | (28,431 | ) | –2.6 | % | $ | (27,477 | ) | –2.4 | % | $ | (954 | ) | –3.5 | % | |||||||||||
Revenue
Revenue for North American BPO for 2010 compared to 2009 was
$824.3 million and $886.7 million, respectively. The
decrease in revenue for North American BPO was due to program
completions of $64.3 million, net decreases in client
programs of $44.3 million, and a $2.0 million
reduction to revenue for disputed service delivery issues,
offset by net increases in short-term government programs of
$16.9 million, and a $31.3 million increase due to
realized gains on cash flow hedges and positive changes in
foreign currency translation.
Revenue for International BPO for 2010 compared to 2009 was
$270.6 million and $281.2 million, respectively. The
decrease in revenue for International BPO was due to program
completions of $28.8 million, offset by net increases in
client programs of $6.2 million, and positive changes in
foreign currency translation of $12.0 million.
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Table of Contents
Our offshore delivery capacity represented 72% of our global
delivery capabilities at December 31, 2010. In 2010 revenue
from services provided in these offshore locations was
$492.6 million and represented 45% of our total revenue. In
2009 revenue from services provided in these offshore locations
was $556.5 million and represented 48% of our total
revenue. An important component of our growth strategy is
continued expansion of services delivered from our offshore
locations, which contributes to our higher margins, along with
our technology and consulting related projects. Factors that may
impact our ability to maintain our offshore operating margins
include potential increases in competition for the available
workforce, the trend of higher occupancy costs and foreign
currency fluctuations.
Cost of
Services
Cost of services for North American BPO for 2010 compared to
2009 was $572.4 million and $598.0 million,
respectively. Cost of services as a percentage of revenue in
North American BPO increased compared to the prior year due to a
decrease in the percentage of revenue generated from services
provided in our offshore delivery centers and lower capacity
utilization. In absolute dollars the decrease was due to a
$35.3 million decrease in employee related expenses due to
lower volumes in existing client programs and the completion of
client programs, and a $3.0 million decrease in technology
costs, offset by a $4.2 million increase in
telecommunications expenses primarily associated with a
short-term government program, a $3.0 million decrease in
training grant reimbursements, a $1.9 million increase for
rent and related expenses and operating leases, and a
$1.1 million increase in contract labor, and a
$2.5 million net increase in other expenses.
Cost of services for International BPO for 2010 compared to 2009
was $217.3 million and $222.5 million, respectively.
Cost of services as a percentage of revenue in International BPO
increased slightly compared to the prior year due to lower
capacity utilization, and the inability to rapidly reduce costs
in certain markets due to local labor agreements and regulatory
requirements. In absolute dollars the decrease was due to a
$2.8 million decrease in employee related expenses due to
the migration of several clients from onshore delivery centers
to offshore delivery centers, lower volumes for some client
programs and the completion of client programs, a
$0.8 million decrease in sales and use taxes, and a
$2.5 million net decrease in other expenses, offset by a
$0.9 million increase in rent and related expenses.
Selling, General
and Administrative
Selling, general and administrative expenses for North American
BPO for 2010 compared to 2009 were $119.8 million and
$132.4 million, respectively. The expenses decreased in
both absolute dollars and as a percentage of revenue. The
decrease in absolute dollars was due to a $12.1 million
decrease in employee expenses and incentive compensation
expense, a $1.4 million decrease in bad debts, and a
$1.0 million decrease in litigation settlements, offset by
a $1.2 million net increase in other expenses, and a
$0.7 million increase in corporate business insurance
expense.
Selling, general and administrative expenses for International
BPO for 2010 compared to 2009 were $46.0 million and
$47.6 million, respectively. The expenses decreased in
absolute dollars while increasing slightly as a percentage of
revenue. The decrease in absolute dollars was due to a decrease
of $2.3 million for employee expenses and incentive
compensation expense, a $1.3 million decrease in
telecommunication expenses, and a $0.8 million decrease in
rent and operating lease expenses, offset by a $1.3 million
net increase in other expenses, a $0.9 million increase in
litigation settlements, and a $0.6 million increase in bad
debts.
Depreciation and
Amortization
Depreciation and amortization expense on a consolidated basis
for 2010 and 2009 was $50.2 million and $57.0 million,
respectively. For the North American BPO segment, the
depreciation expense decreased slightly in absolute value while
it increased slightly as a percentage of revenue as compared to
the prior year. For the International BPO segment, the
depreciation expense decreased in absolute value and as a
percentage of revenue as compared to the prior year. This
decrease in value was due to a decrease in capital expenditures,
restructuring activities and delivery center closures which have
better aligned our
37
Table of Contents
capacity to our operational needs as well as asset impairments
recorded during 2009 and 2010, resulting in the reduction of
long-lived assets utilized, thereby reducing depreciation
expense year over year.
Restructuring
Charges
During 2010, we recorded a net $13.5 million of
restructuring charges compared to $5.1 million in 2009.
During 2010, we undertook reductions in both our North American
BPO and International BPO segments to better align our capacity
and workforce with the current business needs. We recorded
$13.1 million in severance related expenses, and
$0.4 million in delivery center closure costs in both the
North American BPO and International BPO segments. During 2009,
we recorded $5.5 million in severance related expenses and
$0.6 million in delivery center closure costs in both the
North American BPO and International BPO segments, and a
$1.0 million reduction in our estimates of previously
recorded delivery center closure charges in the North American
BPO segment.
Impairment
Losses
During 2010, we recorded $2.0 million of impairment charges
compared to $4.6 million of impairment charges in 2009. In
both 2010 and 2009, these impairment charges related to the
reduction of the net book value of certain leasehold
improvements in both the North American BPO and International
BPO segments.
Other Income
(Expense)
For 2010, interest income decreased to $2.1 million from
$2.6 million in 2009, primarily due to lower cash and cash
equivalent balances and lower interest rates. Interest expense
remained relatively flat between 2010 and 2009 at
$3.2 million. Other income increased during 2010 as a
result of a $5.9 million settlement of a Newgen Results
Corporation (“Newgen”) legal claim (see Note 3 to
the accompanying Notes to the Consolidated Financial Statements).
Income
Taxes
The effective tax rate for 2010 was 34.7%. This compared to an
effective tax rate of 26.7% in 2009. The 2010 effective tax rate
increased due to $5.6 million in incremental income taxes
owed to the U.S. associated with our decision to repatriate
$104.8 million in foreign earnings which had previously
been considered permanently invested outside the United States.
In addition, income taxes increased because we recorded a $2.5
million deferred tax liability in the U.S. related to
foreign tax assets that will no longer be able to offset tax in
more than one jurisdiction. Income taxes also increased due to a
$6.6 million increase to the deferred tax valuation
allowance, $3.7 million of this increase arising in the
fourth quarter due to our change in judgment concerning the
recoverability of tax assets in one European jurisdiction.
Income taxes also increased by $2.3 million related to the
$5.9 million gain recorded in Other income (expense), net
as discussed above and $0.7 million of other charges.
Offsetting these increases is a $4.0 million reduction to
income taxes for foreign tax planning strategies associated with
our international operations. Without these items our effective
tax rate for 2010 would have been 19.3%.
38
Table of Contents
Year Ended
December 31, 2009 Compared to December 31,
2008
The following table presents results of operations by segment
for the years ended December 31, 2009 and 2008 (amounts in
thousands):
| Year Ended December 31, 2009 | ||||||||||||||||||||||||||
|
% of
|
% of
|
|||||||||||||||||||||||||
|
Segment
|
Segment
|
|||||||||||||||||||||||||
| 2009 | Revenue | 2008 | Revenue | $ Change | % Change | |||||||||||||||||||||
|
Revenue
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 886,738 | $ | 1,020,722 | $ | (133,984 | ) | –13.1 | % | |||||||||||||||||
|
International BPO
|
281,177 | 379,425 | (98,248 | ) | –25.9 | % | ||||||||||||||||||||
|
Database Marketing and Consulting
|
– | – | – | – | ||||||||||||||||||||||
| $ | 1,167,915 | $ | 1,400,147 | $ | (232,232 | ) | –16.6 | % | ||||||||||||||||||
|
Cost of services
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 598,040 | 67.4 | % | $ | 726,114 | 71.1 | % | $ | (128,074 | ) | –17.6 | % | |||||||||||||
|
International BPO
|
222,477 | 79.1 | % | 298,230 | 78.6 | % | (75,753 | ) | –25.4 | % | ||||||||||||||||
|
Database Marketing and Consulting
|
– | – | 107 | – | (107 | ) | –100.0 | % | ||||||||||||||||||
| $ | 820,517 | 70.3 | % | $ | 1,024,451 | 73.2 | % | $ | (203,934 | ) | –19.9 | % | ||||||||||||||
|
Selling, general and administrative
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 132,399 | 14.9 | % | $ | 145,338 | 14.2 | % | $ | (12,939 | ) | –8.9 | % | |||||||||||||
|
International BPO
|
47,640 | 16.9 | % | 53,755 | 14.2 | % | (6,115 | ) | –11.4 | % | ||||||||||||||||
|
Database Marketing and Consulting
|
– | – | 402 | – | (402 | ) | –100.0 | % | ||||||||||||||||||
| $ | 180,039 | 15.4 | % | $ | 199,495 | 14.2 | % | $ | (19,456 | ) | –9.8 | % | ||||||||||||||
|
Depreciation and amortization
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 39,603 | 4.5 | % | $ | 41,385 | 4.1 | % | $ | (1,782 | ) | –4.3 | % | |||||||||||||
|
International BPO
|
17,388 | 6.2 | % | 17,756 | 4.7 | % | (368 | ) | –2.1 | % | ||||||||||||||||
|
Database Marketing and Consulting
|
– | – | 25 | – | (25 | ) | –100.0 | % | ||||||||||||||||||
| $ | 56,991 | 4.9 | % | $ | 59,166 | 4.2 | % | $ | (2,175 | ) | –3.7 | % | ||||||||||||||
|
Restructuring charges, net
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 3,388 | 0.4 | % | $ | 2,947 | 0.3 | % | $ | 441 | 15.0 | % | ||||||||||||||
|
International BPO
|
1,684 | 0.6 | % | 3,169 | 0.8 | % | (1,485 | ) | –46.9 | % | ||||||||||||||||
|
Database Marketing and Consulting
|
– | – | (57 | ) | – | 57 | 100.0 | % | ||||||||||||||||||
| $ | 5,072 | 0.4 | % | $ | 6,059 | 0.4 | % | $ | (987 | ) | –16.3 | % | ||||||||||||||
|
Impairment losses
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 1,811 | 0.2 | % | $ | 1,854 | 0.2 | % | $ | (43 | ) | –2.3 | % | |||||||||||||
|
International BPO
|
2,776 | 1.0 | % | 164 | 0.0 | % | 2,612 | 1593 | % | |||||||||||||||||
|
Database Marketing and Consulting
|
– | – | – | – | – | – | ||||||||||||||||||||
| $ | 4,587 | 0.4 | % | $ | 2,018 | 0.1 | % | $ | 2,569 | 127.3 | % | |||||||||||||||
|
Income (loss) from operations
|
||||||||||||||||||||||||||
|
North American BPO
|
$ | 111,497 | 12.6 | % | $ | 103,084 | 10.1 | % | $ | 8,413 | 8.2 | % | ||||||||||||||
|
International BPO
|
(10,788 | ) | –3.8 | % | 6,351 | 1.7 | % | (17,139 | ) | –269.9 | % | |||||||||||||||
|
Database Marketing and Consulting
|
– | – | (477 | ) | – | 477 | –100.0 | % | ||||||||||||||||||
| $ | 100,709 | 8.6 | % | $ | 108,958 | 7.8 | % | $ | (8,249 | ) | –7.6 | % | ||||||||||||||
|
Other income (expense), net
|
$ | 2,334 | 0.2 | % | $ | (4,354 | ) | –0.3 | % | $ | 6,688 | –153.6 | % | |||||||||||||
|
Provision for income taxes
|
$ | (27,477 | ) | –2.4 | % | $ | (27,269 | ) | –1.9 | % | $ | (208 | ) | –0.8 | % | |||||||||||
Revenue
Revenue for North American BPO for 2009 compared to 2008 was
$886.7 million and $1,020.7 million, respectively. The
decrease in revenue for North American BPO was due to net
decreases in client programs of $20.0 million, along with
certain program terminations of $90.8 million, and a
$23.2 million decrease due to realized losses on cash flow
hedges purchased to reduce our exposure to foreign currency
exchange rate fluctuations for revenue delivered in a different
country from where the client is located.
39
Table of Contents
Revenue for International BPO for 2009 compared to 2008 was
$281.2 million and $379.4 million, respectively. The
decrease in revenue for International BPO was due to a net
increase in client programs of $9.7 million, offset by
certain program terminations of $73.8 million, and negative
changes in foreign exchange translation rates causing a decrease
in revenue of $34.1 million.
Our strategy of continuing to increase our offshore revenue
delivery resulted in an increase in our percentage of offshore
revenue. Our offshore delivery capacity represented 72% of our
global delivery capabilities at December 31, 2009. Revenue
in these offshore locations was $556.6 million and
represented 48% of our total revenue for 2009. Revenue in these
offshore locations was $628.3 million and represented 45%
of our total revenue for 2008. An important component of our
growth strategy is continued international expansion which is
one of several factors contributing to our higher margins along
with increased technology and consulting related projects.
Factors that may impact our ability to maintain our offshore
operating margins include potential increases in competition for
the available workforce, the trend of higher occupancy costs and
foreign currency fluctuations.
Cost of
Services
Cost of services for North American BPO for 2009 compared to
2008 was $598.0 million and $726.1 million,
respectively. Cost of services as a percentage of revenue in
North American BPO decreased compared to the prior year. In
absolute dollars the decrease was due to a $114.2 million
decrease in employee related expenses due to lower volumes in
existing client programs and program terminations, a
$6.6 million decrease for telecommunications expense due to
reductions in client volume and the closure of several delivery
centers, a $5.5 million decrease for rent and related
expenses due to the closure of several delivery centers, and a
$1.8 million net decrease in other expenses.
Cost of services for International BPO for 2009 compared to 2008
was $222.5 million and $298.2 million, respectively.
Cost of services as a percentage of revenue in International BPO
increased slightly compared to the prior year. In absolute
dollars the decrease was due to a $67.3 million decrease in
employee related expenses due to program terminations and
changes in the foreign currency rates, a $3.5 million
decrease for rent and related expenses due to the closure of
several delivery centers, a $2.7 million decrease in sales
and use tax, and a $2.2 million net decrease in other
expenses.
Selling, General
and Administrative
Selling, general and administrative expenses for North American
BPO for 2009 compared to 2008 were $132.4 million and
$145.3 million, respectively. The expenses decreased in
absolute dollars while increasing slightly as a percentage of
revenue. The decrease in absolute dollars reflects an increase
in employee related expenses primarily related to incentive
compensation of $0.6 million, a $5.9 million decrease
in external professional fees related to our review of
equity-based compensation practices and restatement of our
historic financial statements completed in 2008, a
$2.4 million decrease in technology costs, a
$1.1 million decrease in advertising, and a net decrease in
other expenses of $4.1 million.
Selling, general and administrative expenses for International
BPO for 2009 compared to 2008 were $47.6 million and
$53.8 million, respectively. The expenses decreased in
absolute dollars while increasing as a percentage of revenue.
The decrease in absolute dollars reflected a decrease in
employee related expenses of $2.7 million, a
$2.7 million decrease in external professional fees related
to our review of equity-based compensation practices and
restatement of our historic financial statements completed in
2008, a $0.6 million decrease in technology costs, and a
net decrease in other expenses of $0.2 million.
Depreciation and
Amortization
Depreciation and amortization expense on a consolidated basis
for 2009 and 2008 was $57.0 million and $59.2 million,
respectively. For North American BPO, the depreciation expense
decreased in absolute value while it increased slightly as a
percentage of revenue as compared to the prior year. This
decrease in value was due to restructuring activities and
delivery center closures which have better aligned our capacity
to our operational needs. For International BPO, the
depreciation expense decreased in
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absolute value while it increased as a percentage of revenue as
compared to the prior year. During 2009 we shortened the useful
life of certain telephony assets, resulting in the acceleration
of $1.8 million of depreciation expense in the period in
the International BPO. This increase was offset by decreases in
depreciation expense due to delivery center closures which have
better aligned our capacity to our operational needs.
Restructuring
Charges
During 2009, we recorded a net $5.1 million of
restructuring charges compared to $6.1 million in 2008.
During 2009, we undertook reductions in both our North American
BPO and International BPO segments to better align our capacity
and workforce with the current business needs. We recorded
$5.7 million in severance related expenses, and
$0.8 million in delivery center closure costs in both the
North American BPO and International BPO segments. We also
recorded a $1.4 million reduction in several of our
estimates of previously recorded delivery center closure
charges. During 2008, we undertook several restructuring
activities including the closure of four North American BPO
delivery centers and reductions in force in our International
BPO segment to better align our capacity and workforce with
current business needs.
Impairment
Losses
During 2009, we recorded $4.6 million of impairment charges
compared to $2.0 million of impairment charges in 2008. In
2009, this impairment charge related to the reduction of the net
book value of certain leasehold improvements in both the North
American BPO and International BPO segments. In 2008, these
impairment charges related primarily to the closure of two North
American BPO delivery centers.
Other Income
(Expense)
For 2009, interest income decreased to $2.6 million from
$4.8 million in 2008, primarily due to lower cash and cash
equivalent balances and lower interest rates. Interest expense
decreased during 2009 by $3.6 million due to a lower
average outstanding balance on our line of credit and lower
interest rates. Other income increased during 2009 by
$5.3 million primarily due to changes in foreign exchange
rates which caused a shift from foreign currency losses to
foreign currency gains.
Income
Taxes
The effective tax rate for 2009 was 26.7%. This compared to an
effective tax rate of 26.1% in 2008. The 2009 effective tax rate
was positively influenced by earnings in international
jurisdictions currently under an income tax holiday and the
distribution of income between the U.S. and international
tax jurisdictions. The effective tax rate for 2008 of 26.1% was
lower than the statutory rate due to the release of
$3.9 million of valuation allowance in the United Kingdom,
the Netherlands and the United States and a net reduction of
$0.1 million of liabilities for uncertain tax positions.
Liquidity and
Capital Resources
Our principal sources of liquidity are our cash generated from
operations, our cash and cash equivalents, and borrowings under
our Credit Agreement, dated October 1, 2010 (the
“Credit Agreement”). During the year ended
December 31, 2010, we generated positive operating cash
flows of $134.5 million. We believe that our cash generated
from operations, existing cash and cash equivalents, and
available credit will be sufficient to meet expected operating
and capital expenditure requirements for the next 12 months.
We manage a centralized global treasury function in the United
States with a particular focus on concentrating and safeguarding
our global cash and cash equivalent reserves. While we generally
prefer to hold U.S. Dollars, we maintain adequate cash in
the functional currency of our foreign subsidiaries to support
local operating costs. While there are no assurances, we believe
our global cash is protected given our cash management
practices, banking partners, and utilization of low-risk
investments.
We have global operations that expose us to foreign currency
exchange rate fluctuations that may positively or negatively
impact our liquidity. To mitigate these risks, we enter into
foreign exchange forward and option contracts through our cash
flow hedging program. Please refer to Item 7A.
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Table of Contents
Quantitative and Qualitative Disclosures About Market Risk,
Foreign Currency Risk, for further discussion.
We primarily utilize our Credit Agreement to fund working
capital, stock repurchases, and other strategic and general
operating purposes. As of December 31, 2010 and 2009, we
had no outstanding borrowings under our Credit Agreement. After
consideration for issued letters of credit under the Credit
Agreement, totaling $4.6 million, our remaining borrowing
capacity was $345.4 million as of December 31, 2010.
As of December 31, 2010, we were in compliance with all
covenants and conditions under our Credit Agreement.
The amount of capital required over the next 12 months will
also depend on our levels of investment in infrastructure
necessary to maintain, upgrade or replace existing assets. Our
working capital and capital expenditure requirements could also
increase materially in the event of acquisitions or joint
ventures, among other factors. These factors could require that
we raise additional capital through future debt or equity
financing. There can be no assurance that additional financing
will be available, at all, or on terms favorable to us.
The following discussion highlights our cash flow activities
during the years ended December 31, 2010, 2009, and 2008.
Cash and Cash
Equivalents
We consider all liquid investments purchased within 90 days
of their original maturity to be cash equivalents. Our cash and
cash equivalents totaled $119.4 million and
$109.4 million as of December 31, 2010 and 2009,
respectively.
Cash Flows from
Operating Activities
We reinvest our cash flows from operating activities in our
business for strategic acquisitions or in the purchase of our
outstanding stock. For the years 2010, 2009 and 2008 we reported
net cash flows provided by operating activities of
$134.5 million, $160.7 million and
$160.6 million, respectively. The net decrease from 2009 to
2010 was primarily due to a $22.0 million decrease in net
income, and a $27.3 million decrease in the collection of
accounts receivable, offset by a $38.8 million increase in
accounts payable and accrued expenses. Our cash from operating
activities in 2009 was relatively unchanged from 2008.
Cash Flows from
Investing Activities
We reinvest cash in our business primarily to grow our client
base and to expand our infrastructure. For the years 2010, 2009
and 2008, we reported net cash flows used in investing
activities of $43.2 million, $29.8 million and
$62.1 million, respectively. The net decrease from 2009 to
2010 was primarily due to the $12.8 million payment for the
acquisition of Peppers & Rogers Group, the payment of
a $3.6 million Newgen claim, and a $1.8 million
increase in net capital expenditures, offset by a
$3.9 million decrease in contract acquisition costs paid.
The decrease from 2008 to 2009 was primarily due to a
$37.5 million reduction in net capital expenditures.
Cash Flows from
Financing Activities
For the years 2010, 2009 and 2008, we reported net cash flows
used in financing activities of $85.9 million,
$114.9 million and $75.6 million, respectively. The
change from 2009 to 2010 was due to a decrease in net payments
on our line of credit of $80.8 million offset by an
increase in cash used to purchase common stock of
$45.5 million. The change from 2008 to 2009 was due to an
increase in net payments on our line of credit of
$96.2 million offset by decreased purchases of common stock
of $54.8 million.
Free Cash
Flow
Free cash flow (see “Presentation of
Non-GAAP Measurements” for definition of free cash
flow) was $107.7 million, $136.5 million and
$98.9 million for the years 2010, 2009 and 2008,
respectively. The
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Table of Contents
decrease from 2009 to 2010 resulted primarily from a significant
decrease in cash flow from operating activities as previously
discussed. The increase from 2008 to 2009 resulted primarily
from a decrease in capital expenditures.
Obligations and
Future Capital Requirements
Future maturities of our outstanding debt and contractual
obligations as of December 31, 2010 are summarized as
follows (amounts in thousands):
|
Less than
|
1 to 3
|
3 to 5
|
Over 5
|
|||||||||||||||||
| 1 Year | Years | Years | Years | Total | ||||||||||||||||
|
Credit Facility
|
$ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
|
Capital lease obligations
|
1,532 | 403 | – | – | 1,935 | |||||||||||||||
|
Equipment financing arrangements
|
682 | 747 | 31 | – | 1,460 | |||||||||||||||
|
Purchase obligations
|
22,334 | 18,708 | – | – | 41,042 | |||||||||||||||
|
Operating lease commitments
|
25,927 | 30,662 | 10,614 | 7,392 | 74,595 | |||||||||||||||
|
Total
|
$ | 50,475 | $ | 50,520 | $ | 10,645 | $ | 7,392 | $ | 119,032 | ||||||||||
| • | Contractual obligations to be paid in a foreign currency are translated at the period end exchange rate. | |
| • | Purchase obligations primarily consist of outstanding purchase orders for goods or services not yet received, which are not recognized as liabilities in our Consolidated Balance Sheets until such goods and/or services are received. | |
| • | The contractual obligation table excludes liabilities of $0.5 million related to uncertain tax positions because we cannot reliably estimate the timing of future cash payments. See Note 12 to the Consolidated Financial Statements for further discussion. |
Purchase
Obligations
Occasionally we contract with certain of our communications
clients to provide us with telecommunication services. These
clients currently represent approximately 15% of our total
annual revenue. We believe these contracts are negotiated on an
arm’s-length basis and may be negotiated at different times
and with different legal entities.
Future Capital
Requirements
We expect total capital expenditures in 2011 to be approximately
$40 million. Approximately 65% of these expected capital
expenditures are related to the opening
and/or
growth of our delivery platform and 35% relates to the
maintenance capital required for existing assets and internal
technology projects. The anticipated level of 2011 capital
expenditures is primarily dependent upon new client contracts
and the corresponding requirements for additional delivery
center capacity as well as enhancements to our technological
infrastructure.
We may consider restructurings, dispositions, mergers,
acquisitions and other similar transactions. Such transactions
could include the transfer, sale or acquisition of significant
assets, businesses or interests, including joint ventures or the
incurrence, assumption, or refinancing of indebtedness and could
be material to the consolidated financial condition and
consolidated results of our operations. In addition, as of
December 31, 2010, we were authorized to purchase an
additional $45.3 million of common stock under our stock
repurchase program (see Part II Item 5 of this
Form 10-K).
The stock repurchase program does not have an expiration date.
The launch of large client contracts may result in short-term
negative working capital because of the time period between
incurring the costs for training and launching the program and
the beginning of the accounts receivable collection process. As
a result, periodically we may generate negative cash flows from
operating activities.
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On October 1, 2010, we entered into the Credit Agreement
with a syndicate of lenders led by KeyBank National Association,
Wells Fargo Bank, National Association, Bank of America, N.A.,
BBVA Compass, and JPMorgan Chase Bank, N.A. The Credit Agreement
replaces in its entirety our prior Amended and Restated Credit
Agreement dated as of September 28, 2006.
The Credit Agreement provides for a secured revolving credit
facility that matures on September 30, 2015 with an initial
maximum aggregate commitment of $350.0 million. At our
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.
We may increase the maximum aggregate commitment under the
Credit Agreement to $500.0 million if certain conditions
are satisfied, including that we are not in default under the
Credit Agreement at the time of the increase and that we obtain
the commitment of the lenders participating in the increase.
For additional information regarding the Credit Agreement, see
our Current Report on
Form 8-K
as filed with the Securities and Exchange Commission on
October 7, 2010.
Base rate loans bear interest at a rate equal to the greatest of
(i) KeyBank National Association’s prime rate,
(ii) the federal funds effective rate plus 0.5% or
(iii) the one month London Interbank Offered Rate plus
1.25%, in each case adding a margin based upon our leverage
ratio. Eurodollar and alternate currency loans bear interest
based upon LIBOR, as adjusted for prescribed bank reserves, plus
a margin based upon our leverage ratio. Letter of credit fees
are 1.25% of the stated amount of the letter of credit on the
date of issuance, renewal or amendment, plus an annual fee equal
to the borrowing margin for Eurodollar loans. Facility fees are
payable to the Lenders in an amount equal to the unused portion
of the credit facility and are based upon our leverage ratio.
Indebtedness under the Credit Agreement is guaranteed by certain
of our present and future domestic subsidiaries and is secured
by security interests (subject to permitted liens) in the
U.S. accounts receivable and cash of the Company and
certain of our domestic subsidiaries and may be secured by
tangible assets of the Company and such domestic subsidiaries if
borrowings by foreign subsidiaries exceed $50.0 million and
the leverage ratio is greater than 2.50 to 1.00. We also pledged
65% of the voting stock and 100% of the non-voting stock of
certain of the Company’s material foreign subsidiaries and
may pledge 65% of the voting stock and 100% of the non-voting
stock of the Company’s other foreign subsidiaries.
The Credit Agreement, which includes customary financial
covenants, may be used for general corporate purposes, including
working capital, purchases of treasury stock and acquisition
financing. As of December 31, 2010, we were in compliance
with all financial covenants. During 2010, 2009 and 2008,
borrowings accrued interest at an average rate of approximately
1.5%, 1.2%, and 4.0% per annum, respectively; excluding unused
commitment fees. Our daily average borrowings during 2010, 2009
and 2008 were $62.5 million, $74.3 million and
$101.8 million, respectively. As of both December 31,
2010 and 2009, we had no outstanding borrowings under the Credit
Agreement or the previous Credit Facility. Availability was
$345.4 million as of December 31, 2010, reduced from
$350.0 million by $4.6 million in issued letters of
credit; and $220.2 million as of December 31, 2009,
reduced by $4.8 million in issued letters of credit.
We also have unsecured, uncommitted bank lines of credit to
support working capital for a few foreign subsidiaries. As of
December 31, 2010, only one loan was outstanding for
approximately $600,000, which is included in Other current
liabilities in the accompanying Consolidated Balance Sheets. The
line of credit accrues interest at 6.0% per annum.
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Table of Contents
Client
Concentration
Our five largest clients accounted for 39%, 36% and 39% of our
annual revenue for the years ended December 31, 2010, 2009
and 2008, respectively. We have experienced long-term
relationships with our top five clients, ranging from four to
15 years, with the majority of these clients having
completed multiple contract renewals with TeleTech. The relative
contribution of any single client to consolidated earnings is
not always proportional to the relative revenue contribution on
a consolidated basis and varies greatly based upon specific
contract terms. In addition, clients may adjust business volumes
served by us based on their business requirements. We believe
the risk of this concentration is mitigated, in part, by the
long-term contracts we have with our largest clients. Although
certain client contracts may be terminated for convenience by
either party, this risk is mitigated, in part, by the service
level disruptions and transition/migration costs that would
arise for our clients.
The contracts with our ten largest clients expire between 2011
and 2012. Additionally, a particular client may have multiple
contracts with different expiration dates. We have historically
renewed most of our contracts with our largest clients. However,
there is no assurance that future contracts will be renewed or,
if renewed, will be on terms as favorable as the existing
contracts.
Recently Issued
Accounting Pronouncements
We discuss the potential impact of recent accounting
pronouncements in Note 1 to the Consolidated Financial
Statements.
Market risk represents the risk of loss that may impact our
consolidated financial position, consolidated results of
operations, or consolidated cash flows due to adverse changes in
financial and commodity market prices and rates. Market risk
also includes credit and non-performance risk by counterparties
to our various financial instruments, our banking partners. We
are exposed to market risks due to changes in interest rates and
foreign currency exchange rates (as measured against the
U.S. dollar); as well as credit risk associated with
potential non-performance of our counterparty banks. These
exposures are directly related to our normal operating and
funding activities. As discussed below, we enter into derivative
instruments to manage and reduce the impact of currency exchange
rate changes, primarily between the U.S. dollar/Canadian
dollar, the U.S. dollar/Philippine peso, the
U.S. dollar/Mexican peso, the U.S. dollar/Argentine
peso and the Australian dollar/Philippine peso. In order to
mitigate against credit and non-performance risk, it is our
policy to only enter into derivative contracts and other
financial instruments with investment grade counterparty
financial institutions and, correspondingly, our derivative
valuations reflect the creditworthiness of our counterparties.
As of the date of this report, we have not experienced, nor do
we anticipate, any issue related to derivative counterparty
defaults.
Interest Rate
Risk
The interest rate on our Credit Agreement was variable based
upon the Prime Rate and the LIBOR and, therefore, is affected by
changes in market interest rates. As of December 31, 2010,
we had no outstanding borrowings under the Credit Agreement.
However, based upon the 2010 annual average borrowing rate of
1.5% and a daily average borrowed balance of $62.5 million,
if the Prime Rate or LIBOR increased 100 basis points,
there would not be a material impact to our consolidated
financial position or results of operations.
Foreign Currency
Risk
Our subsidiaries in Argentina, Canada, Costa Rica, Malaysia,
Mexico, the Philippines and South Africa use the local currency
as their functional currency for paying labor and other
operating costs. Conversely, revenue for these foreign
subsidiaries is derived principally from client contracts that
are invoiced and collected in U.S. dollars or other foreign
currencies. As a result, we may experience foreign currency
gains or losses, which may positively or negatively affect our
results of operations attributed to these
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Table of Contents
subsidiaries. For the years ended December 31, 2010, 2009
and 2008, revenue associated with this foreign exchange risk was
34%, 36% and 32% of our consolidated revenue, respectively.
The following summarizes relative (weakening) strengthening of
local currencies:
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Canadian Dollar vs. U.S. Dollar
|
4.7 | % | 14.3 | % | (23.9 | )% | ||||||||
|
Philippine Peso vs. U.S. Dollar
|
5.4 | % | 2.2 | % | (15.1 | )% | ||||||||
|
Argentina Peso vs. U.S. Dollar
|
(4.1 | )% | (8.1 | )% | (11.5 | )% | ||||||||
|
Mexican Peso vs. U.S. Dollar
|
5.0 | % | 5.7 | % | (26.7 | )% | ||||||||
|
S. African Rand vs. U.S. Dollar
|
10.4 | % | 20.6 | % | (36.1 | )% | ||||||||
|
Australian Dollar vs. U.S. Dollar
|
12.1 | % | 21.8 | % | (25.7 | )% | ||||||||
|
Euro vs. U.S. Dollar
|
(8.2 | )% | 2.9 | % | (4.9 | )% | ||||||||
|
Philippine Peso vs. Australian Dollar
|
(7.6 | )% | (25.1 | )% | 8.5 | % | ||||||||
In order to mitigate the risk of these non-functional foreign
currencies from weakening against the functional currencies of
the servicing subsidiaries, which thereby decreases the economic
benefit of performing work in these countries, we may hedge a
portion, though not 100%, of the projected foreign currency
exposure related to client programs served from these foreign
countries through our cash flow hedging program. While our
hedging strategy can protect us from adverse changes in foreign
currency rates in the short term, an overall weakening of the
non-functional foreign currencies would adversely impact margins
in the segments of the contracting subsidiary over the long term.
Cash Flow Hedging
Program
To reduce our exposure to foreign currency exchange rate
fluctuations associated with forecasted revenue in
non-functional currencies, we purchase forward
and/or
option contracts to acquire the functional currency of the
foreign subsidiary at a fixed exchange rate at specific dates in
the future. We have designated and account for these derivative
instruments as cash flow hedges for forecasted revenue in
non-functional currencies.
While we have implemented certain strategies to mitigate risks
related to the impact of fluctuations in currency exchange
rates, we cannot ensure that we will not recognize gains or
losses from international transactions, as this is part of
transacting business in an international environment. Not every
exposure is or can be hedged and, where hedges are put in place
based on expected foreign exchange exposure, they are based on
forecasts for which actual results may differ from the original
estimate. Failure to successfully hedge or anticipate currency
risks properly could adversely affect our consolidated operating
results.
Our cash flow hedging instruments as of December 31, 2010
and 2009 are summarized as follows (amounts in thousands). All
hedging instruments are forward contracts, except as noted.
|
Local Currency
|
U.S. Dollar
|
% Maturing in
|
Contracts Maturing
|
|||||||||||
|
2010
|
Notional Amount | Notional Amount | 2011 | Through | ||||||||||
|
Canadian Dollar
|
10,200 | $ | 8,493 | 100.0 | % | December 2011 | ||||||||
|
Philippine Peso
|
7,731,000 | 169,364 | (1) | 66.6 | % | December 2013 | ||||||||
|
Mexican Peso
|
311,500 | 22,383 | 100.0 | % | December 2011 | |||||||||
|
British Pound Sterling
|
4,647 | 7,231 | (2) | 100.0 | % | December 2011 | ||||||||
| $ | 207,471 | |||||||||||||
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|
Local Currency
|
U.S. Dollar
|
|||||||
|
2009
|
Notional Amount | Notional Amount | ||||||
|
Canadian Dollar
|
14,400 | $ | 11,782 | |||||
|
Canadian Dollar Call Options
|
19,400 | 17,301 | ||||||
|
Philippine Peso
|
4,615,000 | 96,354 | (1) | |||||
|
Argentine Peso
|
9,000 | 2,454 | ||||||
|
Mexican Peso
|
491,500 | 34,880 | ||||||
|
S. African Rand
|
23,000 | 2,081 | ||||||
|
British Pound Sterling
|
3,876 | 6,565 | (2) | |||||
| $ | 171,417 | |||||||
| (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 December 31, 2010 and December 31, 2009. | |
| (2) | Includes contracts to purchase British pound sterling in exchange for Euros, which are translated into equivalent U.S. dollars on December 31, 2010 and December 31, 2009. |
The fair value of our cash flow hedges at December 31, 2010
was (assets/(liabilities)) (amounts in thousands):
|
December 31,
|
Maturing in
|
|||||||
| 2010 | 2011 | |||||||
|
Canadian Dollar
|
$ | 1,699 | $ | 1,699 | ||||
|
Philippine Peso
|
7,665 | 5,689 | ||||||
|
Mexican Peso
|
2,548 | 2,548 | ||||||
|
British Pound Sterling
|
(10 | ) | (10 | ) | ||||
| $ | 11,902 | $ | 9,926 | |||||
Our cash flow hedges are valued using models based on market
observable inputs, including both forward and spot foreign
exchange rates, implied volatility, and counterparty credit
risk. The year over year change in fair value largely reflects
the continuing global economic conditions, including high
foreign exchange volatility and an overall weakening in the
U.S. dollar.
We recorded net gains/(losses) of $9.8 million,
$(18.3) million, and $4.9 million for settled cash
flow hedge contracts and the related premiums for the years
ended December 31, 2010, 2009, and 2008, respectively.
These gains/(losses) were reflected in Revenue in the
accompanying Consolidated Statements of Operations and
Comprehensive Income (Loss). If the exchange rates between our
various currency pairs were to increase or decrease by 10% from
current period-end levels, we would incur a material gain or
loss on the contracts. However, any gain or loss would be
mitigated by corresponding gains or losses in our underlying
cost exposures.
Other than the transactions hedged as discussed above and in
Note 10 in the accompanying Consolidated Financial
Statements, the majority of the transactions of our
U.S. and foreign operations are denominated in their
respective local currencies. However, transactions are
denominated in other currencies from
time-to-time.
We do not currently engage in hedging activities related to
these types of foreign currency risks because we believe them to
be insignificant as we endeavor to settle these accounts on a
timely basis. For the years ended 2010 and 2009, approximately
25% and 24%, respectively, of revenue was derived from contracts
denominated in currencies other than the U.S. Dollar. Our
results from operations and revenue could be adversely affected
if the U.S. Dollar strengthens significantly against
certain foreign currencies.
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Table of Contents
Fair Value of
Debt and Equity Securities
We did not have any investments in debt or equity securities as
of December 31, 2010 or 2009.
The financial statements required by this item are located
beginning on
page F-1
of this report and incorporated herein by reference.
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
This
Form 10-K
includes the certifications of our Chief Executive Officer and
Interim Chief Financial Officer required by
Rule 13a-14
of the Securities Exchange Act of 1934 (the “Exchange
Act”). See Exhibits 31.1 and 31.2. This Item 9A
includes information concerning the controls and control
evaluations referred to in those certifications.
Disclosure Controls and Procedures
.
Our management, with the participation of our CEO and Interim
CFO, has evaluated the effectiveness of TeleTech’s
disclosure controls and procedures, as required by
Rule 13a-15(b)
and
15d-15(b)
under the Securities Exchange Act of 1934 (the “Exchange
Act”) as of December 31, 2010. Our disclosure controls
and procedures are designed to reasonably assure that
information required to be disclosed by us in reports we file or
submit under the Exchange Act is accumulated and communicated to
our management, including our CEO and Interim CFO, as
appropriate to allow timely decisions regarding disclosure and
is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commission’s rules and forms.
Our CEO and Interim CFO have concluded that, based on their
review, our disclosure controls and procedures are effective to
provide such reasonable assurance.
Our management, including the CEO and Interim CFO, believes that
any disclosure controls and procedures or internal controls and
procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of
a control system must consider the benefits of controls relative
to their costs. Inherent limitations within a control system
include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more
people, or by unauthorized override of the control. Over time,
controls may become inadequate because of changes in conditions
or deterioration in the degree of compliance with associated
policies or procedures. While the design of any system of
controls is to provide reasonable assurance of the effectiveness
of disclosure controls, such design is also based in part upon
certain assumptions about the likelihood of future events, and
such assumptions, while reasonable, may not take into account
all potential future conditions. Accordingly, because of the
inherent limitations in a cost effective control system,
misstatements due to error or fraud may occur and may not be
prevented or detected.
Our management has conducted an assessment of its internal
control over financial reporting as of December 31, 2010 as
required by Section 404 of the Sarbanes-Oxley Act.
Management’s report on our internal control over financial
reporting is included below. The Independent Registered Public
Accounting Firm’s report with respect to the effectiveness
of our internal control over financial reporting is included on
page F-2.
Management has concluded that internal control over financial
reporting is effective as of December 31, 2010.
48
Table of Contents
Changes in
Internal Control Over Financial Reporting
There has been no change in our system of internal control over
financial reporting during the most recent quarter that has
materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Management’s
Report on Internal Control over Financial Reporting
Management, under the supervision of our CEO and Interim CFO, is
responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over
financial reporting (as defined in
Rules 13a-15(f)
and 15d(f) under the Exchange Act) is a process designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. GAAP.
Internal control over financial reporting includes those
policies and procedures which (a) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of assets,
(b) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP, (c) provide
reasonable assurance that receipts and expenditures are being
made only in accordance with appropriate authorization of
management and the Board of Directors, and (d) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that
could have a material effect on the financial statements.
In connection with the preparation of this
Form 10-K,
our management, under the supervision and with the participation
of our CEO and Interim CFO, conducted an evaluation of the
effectiveness of our internal control over financial reporting
as of December 31, 2010 based on the framework established
in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). As a result of that
evaluation, management has concluded that our internal control
over financial reporting was effective at a reasonable assurance
level as of December 31, 2010. The effectiveness of our
internal control over financial reporting as of
December 31, 2010 has also been audited by
PricewaterhouseCoopers LLP, our independent registered public
accounting firm, as stated in their report, which is included in
“Part II – Item 8 – Financial
Statements and Supplementary Data.”
None.
The information in our 2011 Definitive Proxy Statement on
Schedule 14A (the “2011 Proxy Statement”)
regarding our executive officers under the heading
“Information Regarding Executive Officers” is
incorporated herein by reference. We have a Code of Ethical
Conduct for Financial Managers for Senior Financial Officers and
a Policy of Business Conduct. The Code of Ethical Conduct for
Financial Managers applies to our CEO, Interim CFO, Controller
or persons performing similar functions. The Code of Conduct
applies to all of our directors, officers and employees and
those of our subsidiaries. Both the Code of Ethical Conduct for
Financial Managers and the Code of Conduct are posted on our
website at
www.teletech.com
on the Corporate Governance
page. We will post on our website any amendments to or waivers
of the Code of Ethical Conduct for Financial Managers or Code of
Conduct for executive officers or directors, in accordance with
applicable laws and regulations. The remaining information
called for by this Item 10 is incorporated by reference
herein from the discussions under the headings captions
“Election of Directors” and “Code of Conduct and
Committee Charters” in our 2011 Proxy Statement and is
incorporated by reference herein.
The information in our 2011 Proxy Statement set forth under the
captions “Executive Compensation” and
“Compensation Committee Report” is incorporated herein
by reference.
49
Table of Contents
AND RELATED STOCKHOLDER MATTERS
The information in our 2011 Proxy Statement set forth under the
captions “Security Ownership of Certain Beneficial Owners
and Management” and “Equity Compensation Plan
Information” is incorporated herein by reference.
AND DIRECTOR INDEPENDENCE
The information in our 2011 Proxy Statement set forth under the
caption “Certain Relationships and Related Party
Transactions” is incorporated herein by reference.
The information in our 2011 Proxy Statement set forth under the
caption “Fees Paid to Accountants” is incorporated
herein by reference.
(a) The following documents are filed as part of this
report:
| 1 | . | Consolidated Financial Statements. | ||
| The Index to Consolidated Financial Statements is set forth on page F-1 of this report. | ||||
| 2 | . | Financial Statement Schedules. | ||
| All schedules for TeleTech have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information is included in the respective Consolidated Financial Statements or notes thereto. | ||||
| 3 | . | Exhibits. |
EXHIBIT INDEX
|
Exhibit No.
|
Description
|
|||
| 3 | .01 | Restated Certificate of Incorporation of TeleTech (incorporated by reference to Exhibit 3.1 to TeleTech’s Amendment No. 2 to Form S-1 Registration Statement (Registration No. 333-04097) filed on July 5, 1996) | ||
| 3 | .02 | Second Amended and Restated Bylaws of TeleTech (incorporated by reference to Exhibit 3.02 to TeleTech’s Current Report on Form 8-K filed on May 28, 2009) | ||
| 10 | .01 | TeleTech Holdings, Inc. Stock Plan, as amended and restated (incorporated by reference to Exhibit 10.7 to TeleTech’s Amendment No. 2 to Form S-1 Registration Statement (Registration No. 333-04097) filed on July 5, 1996)** | ||
| 10 | .02 | TeleTech Holdings, Inc. Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-113432) filed on March 9, 2004)** | ||
| 10 | .03 | TeleTech Holdings, Inc. Directors Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.8 to TeleTech’s Amendment No. 2 to Form S-1 Registration Statement (Registration No. 333-04097) filed on July 5, 1996)** | ||
| 10 | .04 | TeleTech Holdings, Inc. Amended and Restated 1999 Stock Option and Incentive Plan (incorporated by reference to Exhibit 99.1 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-96617) filed on July 17, 2002)** | ||
| 10 | .05 | Amendment to 1999 Stock Option and Incentive Plan dated February 11, 2009 (incorporated by reference to Exhibit 10.05 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
50
Table of Contents
|
Exhibit No.
|
Description
|
|||
| 10 | .06 | TeleTech Holdings, Inc. 2010 Equity Incentive Plan (incorporated by reference to Appendix A to TeleTech’s Definitive Proxy Statement, filed April 12, 2010)** | ||
| 10 | .07 | Form of Restricted Stock Unit Agreement (effective in 2007 and 2008) (incorporated by reference to Exhibit 10.05 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2007)** | ||
| 10 | .08 | Amendment to Form of Restricted Stock Unit Agreement (effective December 2008) (incorporated by reference to Exhibit 10.07 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .09 | Form of Restricted Stock Unit Agreement (effective in 2009) (incorporated by reference to Exhibit 10.1 TeleTech’s Current Report on Form 8-K filed on February 17, 2009)** | ||
| 10 | .10 | Form of Non-Qualified Stock Option Agreement (below Vice President) (incorporated by reference to Exhibit 10.06 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2007)** | ||
| 10 | .11 | Form of Non-Qualified Stock Option Agreement (Vice President and above) (incorporated by reference to Exhibit 10.07 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2007)** | ||
| 10 | .12 | Form of Non-Qualified Stock Option Agreement (Non-Employee Director) (incorporated by reference to Exhibit 10.08 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2007)** | ||
| 10 | .13 | Independent Director Compensation Arrangements (effective May 21, 2009) (incorporated by reference to Exhibit 10.1 to TeleTech’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009)** | ||
| 10 | .14 | Employment Agreement between James E. Barlett and TeleTech dated October 15, 2001 (incorporated by reference to Exhibit 10.66 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2001)** | ||
| 10 | .15 | Amendment to Employment Agreement between James E. Barlett and TeleTech dated December 31, 2008 (incorporated by reference to Exhibit 10.13 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .16 | Stock Option Agreement dated October 15, 2001 between James E. Barlett and TeleTech (incorporated by reference to Exhibit 10.70 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2001)** | ||
| 10 | .17 | Amendment dated September 17, 2008 to Stock Option Agreement between James E. Barlett and TeleTech (incorporated by reference to Exhibit 10.15 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .18 | Employment Agreement between Kenneth D. Tuchman and TeleTech dated October 15, 2001 (incorporated by reference to Exhibit 10.68 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2001)** | ||
| 10 | .19 | Amendment to Employment Agreement between Kenneth D. Tuchman and TeleTech dated December 31, 2008 (incorporated by reference to Exhibit 10.17 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .20 | Stock Option Agreement between Kenneth D. Tuchman and TeleTech dated October 1, 2001 (incorporated by reference to Exhibit 10.69 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2001)** | ||
| 10 | .21 | Amendment dated September 17, 2008 to Stock Option Agreement between Kenneth D. Tuchman and TeleTech (incorporated by reference to Exhibit 10.19 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .22 | Employment Agreement dated April 6, 2004 between Gregory G. Hopkins and TeleTech (incorporated by reference to Exhibit 10.1 to TeleTech’s Quarterly Report on Form 10-Q for the for the quarter ended September 30, 2008)** | ||
51
Table of Contents
|
Exhibit No.
|
Description
|
|||
| 10 | .23 | Amendment to Employment Agreement between Gregory G. Hopkins and TeleTech dated December 16, 2008 (incorporated by reference to Exhibit 10.21 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .24 | Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, The Lenders named herein, as lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of September 28, 2006 (incorporated by reference to Exhibit 10.39 to TeleTech’s Annual Report on Form 10-K filed on February 7, 2007) | ||
| 10 | .25 | First Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of October 24, 2006 (incorporated by reference to Exhibit 10.40 to TeleTech’s Annual Report on Form 10-K filed on February 7, 2007) | ||
| 10 | .26 | Second Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of November 15, 2007 (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on December 4, 2007) | ||
| 10 | .27 | Third Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of March 25, 2008 (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on March 27, 2008) | ||
| 10 | .28 | Fourth Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of June 30, 2008 (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on June 30, 2008) | ||
| 10 | .29 | Fifth Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of September 4, 2008 (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on September 8, 2008) | ||
| 10 | .30 | Credit Agreement, dated as of October 1, 2010, among TeleTech Holdings, Inc., the lenders party thereto, KeyBank National Association, as Joint Lead Arranger, Sole Book Runner and Administrative Agent, Wells Fargo Bank, National Association, as Joint Lead Arranger and Co-Syndication Agent, Bank of America, N.A., as Co-Syndication Agent, BBVA Compass, as Co-Documentation Agent and JPMorgan Chase Bank, N.A., as Co-Documentation Agent (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on October 7, 2010) | ||
| 10 | .31 | Form of Indemnification Agreement with Directors (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on February 17, 2010)** | ||
| 10 | .32 | Form of Amendment to Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to TeleTech’s Current Report on Form 8-K filed on February 17, 2010)** | ||
| 10 | .33 | Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to TeleTech’s Current Report on Form 8-K filed on February 17, 2010)** | ||
| 10 | .34 | Form of Restricted Stock Unit Agreement (Section 16 Officers) (incorporated by reference to Exhibit 4.3 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-167300) filed on June 3, 2010)** | ||
| 10 | .35 | Form of Restricted Stock Unit Agreement (Non-Section 16 Employees) (incorporated by reference to Exhibit 4.4 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-167300) filed on June 3, 2010)** | ||
52
Table of Contents
|
Exhibit No.
|
Description
|
|||
| 10 | .36 | Form of Independent Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 4.5 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-167300) filed on June 3, 2010)** | ||
| 10 | .37 | Executive Employment Agreement dated March 8, 2010 between Joseph Bellini and TeleTech (incorporated by reference to Exhibit 10.1 to TeleTech’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010)** | ||
| 10 | .38 | First Amendment to Executive Employment Agreement, dated September 20, 2010 between TeleTech and Joseph Bellini (incorporated by reference to Exhibit 10.1 to TeleTech’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010)** | ||
| 21 | .01* | List of subsidiaries | ||
| 22 | .01* | Consent of Independent Registered Public Accounting Firm | ||
| 31 | .01* | Rule 13a-14(a) Certification of CEO of TeleTech | ||
| 31 | .02* | Rule 13a-14(a) Certification of CFO of TeleTech | ||
| 32 | .01* | Written Statement of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | ||
| 32 | .02* | Written Statement of Acting Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | ||
| 101 | .INS*** | XBRL Instance Document | ||
| 101 | .SCH*** | XBRL Taxonomy Extension Schema Document | ||
| 101 | .CAL*** | XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101 | .LAB*** | XBRL Taxonomy Extension Label Linkbase Document | ||
| 101 | .PRE*** | XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 101 | .DEF*** | XBRL Taxonomy Extension Definition Linkbase Document | ||
| * | Filed herewith. | |
| ** | Identifies exhibit that consists of or includes a management contract or compensatory plan or arrangement. | |
| *** | Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008, (ii) Consolidated Balance Sheets as of December 31, 2010 and 2009, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008, and (v) Notes to Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
53
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned;
thereunto duly authorized on March 1, 2011.
TELETECH HOLDINGS, INC.
| By: |
/s/
Kenneth
D. Tuchman
|
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 1, 2011,
by the following persons on behalf of the registrant and in the
capacities indicated:
|
Signature
|
Title
|
|||
|
/s/
Kenneth
D. Tuchman
|
PRINCIPAL EXECUTIVE OFFICER
Chief Executive Officer and Chairman of the Board |
|||
|
/s/
John
R. Troka, Jr.
|
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
Senior Vice President Finance – Global Operations and Interim Chief Financial Officer |
|||
|
/s/
James
E. Barlett
|
DIRECTOR | |||
|
/s/
William
A. Linnenbringer
|
DIRECTOR | |||
|
/s/
Ruth
C. Lipper
|
DIRECTOR | |||
|
/s/
Shrikant
Mehta
|
DIRECTOR | |||
|
/s/
Anjan
Mukherjee
|
DIRECTOR | |||
|
/s/
Robert
M. Tarola
|
DIRECTOR | |||
|
/s/
Shirley
Young
|
DIRECTOR | |||
54
INDEX TO THE
CONSOLIDATED FINANCIAL STATEMENTS OF TELETECH HOLDINGS,
INC.
| Page No. | ||||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
F-1
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
TeleTech Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations and
comprehensive income (loss), of stockholders’ equity and of
cash flows present fairly, in all material respects, the
financial position of TeleTech Holdings, Inc. and its
subsidiaries at December 31, 2010 and 2009, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2010 in conformity
with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over
financial reporting as of December 31, 2010 based on
criteria established in
Internal Control –
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in
Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements and on the
Company’s internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Denver, CO
March 1, 2011
F-2
Table of Contents
Consolidated Balance Sheets
(Amounts in thousands except share amounts)
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
ASSETS
|
||||||||
|
Current assets
|
||||||||
|
Cash and cash equivalents
|
$ | 119,385 | $ | 109,424 | ||||
|
Accounts receivable, net
|
233,706 | 216,614 | ||||||
|
Prepaids and other current assets
|
38,486 | 39,144 | ||||||
|
Deferred tax assets, net
|
8,770 | 5,911 | ||||||
|
Income taxes receivable
|
23,869 | 31,282 | ||||||
|
Total current assets
|
424,216 | 402,375 | ||||||
|
Long-term assets
|
||||||||
|
Property, plant and equipment, net
|
105,528 | 126,995 | ||||||
|
Goodwill
|
52,707 | 45,250 | ||||||
|
Contract acquisition costs, net
|
2,782 | 8,049 | ||||||
|
Deferred tax assets, net
|
37,944 | 36,527 | ||||||
|
Other long-term assets
|
37,446 | 20,971 | ||||||
|
Total long-term assets
|
236,407 | 237,792 | ||||||
|
Total assets
|
$ | 660,623 | $ | 640,167 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Current liabilities
|
||||||||
|
Accounts payable
|
$ | 23,599 | $ | 17,625 | ||||
|
Accrued employee compensation and benefits
|
72,406 | 67,106 | ||||||
|
Other accrued expenses
|
40,682 | 18,481 | ||||||
|
Income taxes payable
|
23,175 | 20,327 | ||||||
|
Deferred tax liabilities, net
|
2,235 | 3,145 | ||||||
|
Deferred revenue
|
5,570 | 13,164 | ||||||
|
Other current liabilities
|
4,584 | 6,118 | ||||||
|
Total current liabilities
|
172,251 | 145,966 | ||||||
|
Long-term liabilities
|
||||||||
|
Line of credit
|
– | – | ||||||
|
Negative investment in deconsolidated subsidiary
|
76 | 4,865 | ||||||
|
Deferred tax liabilities, net
|
3,559 | – | ||||||
|
Deferred rent
|
10,363 | 13,989 | ||||||
|
Other long-term liabilities
|
19,556 | 19,446 | ||||||
|
Total long-term liabilities
|
33,554 | 38,300 | ||||||
|
Total liabilities
|
205,805 | 184,266 | ||||||
|
Commitments and contingencies (Note 16)
|
||||||||
|
Stockholders’ equity
|
||||||||
|
Preferred stock; $0.01 par; 10,000,000 shares
authorized;
|
||||||||
|
zero shares outstanding as of December 31, 2010 and 2009
|
– | – | ||||||
|
Common stock; $.01 par value; 150,000,000 shares
authorized; 57,875,269 and 62,218,238 shares outstanding as
of December 31, 2010 and 2009, respectively
|
579 | 622 | ||||||
|
Additional paid-in capital
|
349,157 | 344,251 | ||||||
|
Treasury stock at cost: 24,179,176 and 19,836,208 shares,
respectively
|
(322,946 | ) | (251,691 | ) | ||||
|
Accumulated other comprehensive income
|
20,334 | 10,513 | ||||||
|
Retained earnings
|
396,602 | 346,728 | ||||||
|
Noncontrolling interest
|
11,092 | 5,478 | ||||||
|
Total stockholders’ equity
|
454,818 | 455,901 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 660,623 | $ | 640,167 | ||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
Table of Contents
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Amounts in thousands except per share amounts)
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Revenue
|
$ | 1,094,906 | $ | 1,167,915 | $ | 1,400,147 | ||||||||
|
Operating expenses
|
||||||||||||||
|
Cost of services (exclusive of depreciation and amortization
presented separately below)
|
789,697 | 820,517 | 1,024,451 | |||||||||||
|
Selling, general and administrative
|
165,812 | 180,039 | 199,495 | |||||||||||
|
Depreciation and amortization
|
50,218 | 56,991 | 59,166 | |||||||||||
|
Restructuring charges, net
|
13,476 | 5,072 | 6,059 | |||||||||||
|
Impairment losses
|
1,958 | 4,587 | 2,018 | |||||||||||
|
Total operating expenses
|
1,021,161 | 1,067,206 | 1,291,189 | |||||||||||
|
Income from operations
|
73,745 | 100,709 | 108,958 | |||||||||||
|
Other income (expense)
|
||||||||||||||
|
Interest income
|
2,129 | 2,634 | 4,816 | |||||||||||
|
Interest expense
|
(3,161 | ) | (3,158 | ) | (6,738 | ) | ||||||||
|
Other income (expense), net
|
9,256 | 2,858 | (2,432 | ) | ||||||||||
|
Total other income (expense)
|
8,224 | 2,334 | (4,354 | ) | ||||||||||
|
Income before income taxes
|
81,969 | 103,043 | 104,604 | |||||||||||
|
Provision for income taxes
|
(28,431 | ) | (27,477 | ) | (27,269 | ) | ||||||||
|
Net income
|
53,538 | 75,566 | 77,335 | |||||||||||
|
Net income attributable to noncontrolling interest
|
(3,664 | ) | (3,812 | ) | (3,588 | ) | ||||||||
|
Net income attributable to TeleTech shareholders
|
$ | 49,874 | $ | 71,754 | $ | 73,747 | ||||||||
|
Other comprehensive income (loss)
|
||||||||||||||
|
Net income
|
$ | 53,538 | $ | 75,566 | $ | 77,335 | ||||||||
|
Foreign currency translation adjustments
|
8,080 | 18,231 | (48,396 | ) | ||||||||||
|
Derivative valuation, net of tax
|
2,623 | 25,647 | (42,596 | ) | ||||||||||
|
Other
|
(792 | ) | – | 100 | ||||||||||
|
Total comprehensive income (loss)
|
63,449 | 119,444 | (13,557 | ) | ||||||||||
|
Comprehensive income attributable to noncontrolling interest
|
(3,754 | ) | (4,157 | ) | (3,604 | ) | ||||||||
|
Comprehensive income (loss) attributable to TeleTech
|
$ | 59,695 | $ | 115,287 | $ | (17,161 | ) | |||||||
|
Weighted average shares outstanding
|
||||||||||||||
|
Basic
|
60,361 | 62,891 | 68,208 | |||||||||||
|
Diluted
|
61,792 | 64,238 | 69,578 | |||||||||||
|
Net income per share attributable to TeleTech shareholders
|
||||||||||||||
|
Basic
|
$ | 0.83 | $ | 1.14 | $ | 1.08 | ||||||||
|
Diluted
|
$ | 0.81 | $ | 1.12 | $ | 1.06 | ||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Amounts in thousands)
Consolidated Statements of Stockholders’ Equity
(Amounts in thousands)
| Stockholders’ Equity of the Company | ||||||||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||||||||
|
Additional
|
Other
|
|||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock |
Treasury
|
Paid-in
|
Comprehensive
|
Retained
|
Noncontrolling
|
Total
|
|||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Stock | Capital | Income (Loss) | Earnings | interest | Equity | |||||||||||||||||||||||||||||||||
|
Balance as of December 31, 2007
|
– | $ | – | 69,828 | $ | 698 | $ | (143,205 | ) | $ | 334,593 | $ | 57,888 | $ | 201,227 | $ | 3,555 | $ | 454,756 | |||||||||||||||||||||||
|
Net income
|
– | – | – | – | – | – | – | 73,747 | 3,588 | 77,335 | ||||||||||||||||||||||||||||||||
|
Dividends distributed to noncontrolling interest
|
– | – | – | – | – | – | – | – | (2,148 | ) | (2,148 | ) | ||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
– | – | – | – | – | – | (48,412 | ) | – | 16 | (48,396 | ) | ||||||||||||||||||||||||||||||
|
Derivatives valuation, net of tax
|
– | – | – | – | – | – | (42,596 | ) | – | – | (42,596 | ) | ||||||||||||||||||||||||||||||
|
Cumulative effect of adoption FIN 48
|
– | – | 148 | 2 | – | (1,059 | ) | – | – | – | (1,057 | ) | ||||||||||||||||||||||||||||||
|
Exercise of stock options
|
– | – | 334 | 3 | 4,124 | (1,194 | ) | – | – | – | 2,933 | |||||||||||||||||||||||||||||||
|
Excess tax benefit from equity-based awards
|
– | – | – | – | – | (1,176 | ) | – | – | – | (1,176 | ) | ||||||||||||||||||||||||||||||
|
Equity-based compensation expense
|
– | – | – | – | – | 10,723 | – | – | – | 10,723 | ||||||||||||||||||||||||||||||||
|
Purchases of common stock
|
– | – | (6,494 | ) | (65 | ) | (89,515 | ) | – | – | – | – | (89,580 | ) | ||||||||||||||||||||||||||||
|
Other
|
– | – | – | – | – | – | 100 | – | – | 100 | ||||||||||||||||||||||||||||||||
|
Balance as of December 31, 2008
|
– | $ | – | 63,816 | $ | 638 | $ | (228,596 | ) | $ | 341,887 | $ | (33,020 | ) | $ | 274,974 | $ | 5,011 | $ | 360,894 | ||||||||||||||||||||||
|
Net income
|
– | – | – | – | – | – | – | 71,754 | 3,812 | 75,566 | ||||||||||||||||||||||||||||||||
|
Dividends distributed to noncontrolling interest
|
– | – | – | – | – | – | – | – | (3,690 | ) | (3,690 | ) | ||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
– | – | – | – | – | – | 17,886 | – | 345 | 18,231 | ||||||||||||||||||||||||||||||||
|
Derivatives valuation, net of tax
|
– | – | – | – | – | – | 25,647 | – | – | 25,647 | ||||||||||||||||||||||||||||||||
|
Vesting of restricted stock units
|
– | – | 307 | 3 | 3,855 | (5,777 | ) | – | – | – | (1,919 | ) | ||||||||||||||||||||||||||||||
|
Exercise of stock options
|
– | – | 621 | 6 | 7,791 | (1,638 | ) | – | – | – | 6,159 | |||||||||||||||||||||||||||||||
|
Excess tax benefit from equity-based awards
|
– | – | – | – | – | (1,861 | ) | – | – | – | (1,861 | ) | ||||||||||||||||||||||||||||||
|
Equity-based compensation expense
|
– | – | – | – | – | 11,640 | – | – | – | 11,640 | ||||||||||||||||||||||||||||||||
|
Purchases of common stock
|
(2,526 | ) | (25 | ) | (34,741 | ) | – | – | – | – | (34,766 | ) | ||||||||||||||||||||||||||||||
|
Balance as of December 31, 2009
|
– | $ | – | 62,218 | $ | 622 | $ | (251,691 | ) | $ | 344,251 | $ | 10,513 | $ | 346,728 | $ | 5,478 | $ | 455,901 | |||||||||||||||||||||||
|
Net income
|
– | – | – | – | – | – | – | 49,874 | 3,664 | 53,538 | ||||||||||||||||||||||||||||||||
|
Noncontrolling interest (Note 2)
|
– | – | – | – | – | – | – | – | 6,000 | 6,000 | ||||||||||||||||||||||||||||||||
|
Dividends distributed to noncontrolling interest
|
– | – | – | – | – | – | – | – | (4,140 | ) | (4,140 | ) | ||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
– | – | – | – | – | – | 7,990 | – | 90 | 8,080 | ||||||||||||||||||||||||||||||||
|
Derivatives valuation, net of tax
|
– | – | – | – | – | – | 2,623 | – | – | 2,623 | ||||||||||||||||||||||||||||||||
|
Vesting of restricted stock units
|
– | – | 420 | 5 | 5,448 | (8,525 | ) | – | – | – | (3,072 | ) | ||||||||||||||||||||||||||||||
|
Exercise of stock options
|
– | – | 273 | 3 | 3,541 | (752 | ) | – | – | – | 2,792 | |||||||||||||||||||||||||||||||
|
Excess tax benefit from equity-based awards
|
– | – | – | – | – | 811 | – | – | – | 811 | ||||||||||||||||||||||||||||||||
|
Equity-based compensation expense
|
– | – | – | – | – | 13,372 | – | – | – | 13,372 | ||||||||||||||||||||||||||||||||
|
Purchases of common stock
|
– | – | (5,036 | ) | (51 | ) | (80,244 | ) | – | – | – | – | (80,295 | ) | ||||||||||||||||||||||||||||
|
Other
|
– | – | – | – | – | – | (792 | ) | – | – | (792 | ) | ||||||||||||||||||||||||||||||
|
Balance as of December 31, 2010
|
– | $ | – | 57,875 | $ | 579 | $ | (322,946 | ) | $ | 349,157 | $ | 20,334 | $ | 396,602 | $ | 11,092 | $ | 454,818 | |||||||||||||||||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
Table of Contents
Consolidated Statements of Cash Flows
(Amounts in thousands)
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Cash flows from operating activities
|
||||||||||||||
|
Net income
|
$ | 53,538 | $ | 75,566 | $ | 77,335 | ||||||||
|
Adjustment to reconcile net income to net cash provided by
operating activities:
|
||||||||||||||
|
Depreciation and amortization
|
50,218 | 56,991 | 59,166 | |||||||||||
|
Amortization of contract acquisition costs
|
5,267 | 3,450 | 2,384 | |||||||||||
|
Amortization of debt issuance costs and other
|
672 | – | – | |||||||||||
|
Provision for doubtful accounts
|
600 | 1,412 | 1,990 | |||||||||||
|
Loss (gain) on disposal of assets
|
(617 | ) | 1,603 | (305 | ) | |||||||||
|
Impairment losses
|
1,958 | 4,587 | 2,018 | |||||||||||
|
Deferred income taxes
|
(3,030 | ) | 6,066 | 752 | ||||||||||
|
Excess tax benefit from equity-based awards
|
(972 | ) | (2,345 | ) | (1,485 | ) | ||||||||
|
Equity-based compensation expense
|
13,372 | 11,640 | 10,312 | |||||||||||
|
(Gain) loss on foreign currency derivatives
|
(128 | ) | (192 | ) | 1,942 | |||||||||
|
Gain on Newgen legal settlement, net of tax
|
(3,542 | ) | – | – | ||||||||||
|
Changes in assets and liabilities, net of effect of acquisition:
|
||||||||||||||
|
Accounts receivable
|
(87 | ) | 27,258 | 17,668 | ||||||||||
|
Prepaids and other assets
|
16,853 | (6,194 | ) | 8,658 | ||||||||||
|
Accounts payable and accrued expenses
|
19,683 | (19,142 | ) | (14,259 | ) | |||||||||
|
Deferred revenue and other liabilities
|
(19,330 | ) | (28 | ) | (5,610 | ) | ||||||||
|
Net cash provided by operating activities
|
134,455 | 160,672 | 160,566 | |||||||||||
|
Cash flows from investing activities
|
||||||||||||||
|
Proceeds from grant for property, plant and equipment
|
– | 785 | 4,276 | |||||||||||
|
Purchases of property, plant and equipment
|
(26,800 | ) | (24,973 | ) | (65,988 | ) | ||||||||
|
Settlement of foreign currency contracts for net investment
hedging
|
– | (1,727 | ) | – | ||||||||||
|
Purchases of foreign currency option contracts
|
– | – | (416 | ) | ||||||||||
|
Payment for contract acquisition costs
|
– | (3,900 | ) | – | ||||||||||
|
Investment in deconsolidated subsidiary
|
(3,600 | ) | – | – | ||||||||||
|
Acquisition of PRG, net of cash acquired of $2.2 million
|
(12,798 | ) | – | – | ||||||||||
|
Net cash used in investing activities
|
(43,198 | ) | (29,815 | ) | (62,128 | ) | ||||||||
|
Cash flows from financing activities
|
||||||||||||||
|
Proceeds from line of credit
|
1,257,100 | 920,960 | 1,147,730 | |||||||||||
|
Payments on line of credit
|
(1,257,100 | ) | (1,001,760 | ) | (1,132,330 | ) | ||||||||
|
Payments on capital lease obligations and equipment financing
|
(3,749 | ) | (2,332 | ) | (1,359 | ) | ||||||||
|
Payments of debt refinancing fees
|
(2,288 | ) | – | (1,109 | ) | |||||||||
|
Dividends distributed to noncontrolling interest
|
(4,140 | ) | (3,690 | ) | (2,148 | ) | ||||||||
|
Proceeds from exercise of stock options
|
2,792 | 6,159 | 2,933 | |||||||||||
|
Excess tax benefit from equity based awards
|
1,783 | 484 | 309 | |||||||||||
|
Purchase of treasury stock
|
(80,295 | ) | (34,766 | ) | (89,580 | ) | ||||||||
|
Net cash used in financing activities
|
(85,897 | ) | (114,945 | ) | (75,554 | ) | ||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
4,601 | 5,570 | (26,181 | ) | ||||||||||
|
Increase (decrease) in cash and cash equivalents
|
9,961 | 21,482 | (3,297 | ) | ||||||||||
|
Cash and cash equivalents, beginning of period
|
109,424 | 87,942 | 91,239 | |||||||||||
|
Cash and cash equivalents, end of period
|
$ | 119,385 | $ | 109,424 | $ | 87,942 | ||||||||
|
Supplemental disclosures
|
||||||||||||||
|
Cash paid for interest
|
$ | 2,217 | $ | 2,775 | $ | 4,098 | ||||||||
|
Cash paid for income taxes
|
$ | 15,593 | $ | 24,543 | $ | 21,196 | ||||||||
|
Non-cash investing and financing activities
|
||||||||||||||
|
Acquisition of equipment through installment purchase agreements
|
$ | 186 | $ | 3,971 | $ | – | ||||||||
|
Landlord incentives credited to deferred rent
|
$ | 810 | $ | 165 | – | |||||||||
|
Grant income credited to property, plant and equipment
|
$ | – | $ | 745 | $ | 792 | ||||||||
|
Recognition of asset retirement obligations
|
$ | 406 | $ | 183 | $ | – | ||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| (1) | OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Overview
TeleTech Holdings, Inc. and its subsidiaries
(“TeleTech” or the “Company”) serve their
clients through the primary businesses of Business Process
Outsourcing (“BPO”), which provides outsourced
business process, customer management, hosted technology,
consulting and marketing services for a variety of industries
via operations in the U.S., Argentina, Australia, Belgium,
Brazil, Canada, China, Costa Rica, England, Germany, Ghana,
Kuwait, 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 in Percepta, LLC, and its 80% interest
in Peppers & Rogers Group (“PRG”) which was
acquired on November 30, 2010 (see Note 2 for
additional information). All intercompany balances and
transactions have been eliminated in consolidation.
Use of
Estimates
The preparation of the Consolidated Financial Statements in
conformity with accounting principles generally accepted in the
U.S. (“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 and
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.
Concentration of
Credit Risk
The Company is exposed to credit risk in the normal course of
business, primarily related to accounts receivable and
derivative instruments. Historically, the losses related to
credit risk have been immaterial. The Company regularly monitors
its credit risk to mitigate the possibility of current and
future exposures resulting in a loss. The Company evaluates the
creditworthiness of its clients prior to entering into an
agreement to provide services and as necessary through the life
of the client relationship. The Company does not believe it is
exposed to more than a nominal amount of credit risk in its
derivative hedging activities, as the Company diversifies its
activities across six well-capitalized, investment-grade
financial institutions.
Fair Value of
Financial Instruments
Fair values of cash equivalents and accounts receivable and
payable approximate the carrying amounts because of their
short-term nature.
Cash and Cash
Equivalents
The Company considers all cash and highly liquid short-term
investments with an original maturity of 90 days or less to
be cash equivalents. The Company manages a concentrated global
treasury function in the United States with a particular focus
on centralizing and safeguarding its global cash and cash
equivalent reserves. While the Company generally prefers to hold
U.S. Dollars, it maintains adequate cash in the functional
currency of its foreign subsidiaries to support local operating
costs. The Company believes that it has effectively mitigated
and managed its risk relating to its global cash through its
cash
F-7
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
management practices, banking partners, and low-risk
investments. However, the Company can provide no assurances that
it will not sustain losses.
Accounts
Receivable
An allowance for doubtful accounts is determined based on the
aging of the Company’s accounts receivable, historical
experience, client financial condition, and management judgment.
The Company writes off accounts receivable against the allowance
when the Company determines a balance is uncollectible.
Derivatives
The Company enters into foreign exchange forward and option
contracts to reduce its exposure to foreign currency exchange
rate fluctuations that are associated with forecasted revenue in
non-functional currencies. Upon proper qualification, these
contracts are accounted for as cash flow hedges under current
accounting standards. The Company also entered into foreign
exchange forward contracts to hedge its net investment in a
foreign operation. The Company formally documents at the
inception of the hedge all relationships between hedging
instruments and hedged items as well as its risk management
objective and strategy for undertaking various hedging
activities.
All derivative financial instruments are reported in Other
assets and Other liabilities in the accompanying Consolidated
Balance Sheets at fair value. Changes in fair value of
derivative instruments designated as cash flow hedges are
recorded in Accumulated other comprehensive income (loss), a
component of Stockholders’ Equity, to the extent they are
deemed effective. Ineffectiveness is measured based on the
change in fair value of the forward contracts and the fair value
of the hypothetical derivatives with terms that match the
critical terms of the risk being hedged. Based on the criteria
established by current accounting standards, the Company’s
cash flow hedge contracts are deemed to be highly effective.
Changes in fair value of the Company’s net investment hedge
are recorded in cumulative translation adjustment in Accumulated
other comprehensive income (loss) in the accompanying
Consolidated Balance Sheets offsetting the change in cumulative
translation adjustment attributable to the hedged portion of the
Company’s net investment in the foreign operation. Any
realized gains or losses resulting from the cash flow hedges are
recognized together with the hedged transaction within Revenue.
Gains and losses from the settlements of the Company’s net
investment hedges remain in Accumulated other comprehensive
income (loss) until partial or complete liquidation of the
applicable net investment.
The Company also enters into fair value derivative contracts
that hedge against foreign currency exchange gains and losses
primarily associated with short-term payables and receivables.
Changes in the fair value of derivative instruments designated
as fair value hedges affect the carrying value of the asset or
liability hedged, with changes in both the derivative instrument
and the hedged asset or liability being recognized in Other
income (expense), net in the accompanying Consolidated
Statements of Operations and Comprehensive Income (Loss).
In addition to hedging activities, the Company has embedded
derivatives in certain foreign lease contracts. The Company
bifurcates and calculates the fair values of the embedded
derivative feature from the host contract with any changes in
fair value of the embedded derivatives recognized in Cost of
services.
Property, Plant
and Equipment
Property, plant and equipment are stated at historical cost less
accumulated depreciation and amortization. Maintenance, repairs
and minor renewals are expensed as incurred.
F-8
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Depreciation and amortization are computed on the straight-line
method based on the following estimated useful lives:
|
Building
|
25 years | |
|
Computer equipment and software
|
3 to 5 years | |
|
Telephone equipment
|
4 to 7 years | |
|
Furniture and fixtures
|
5 years | |
|
Leasehold improvements
|
Lesser of economic useful life (typically 10 years) or original lease term | |
|
Other
|
3 to 7 years |
The Company evaluates the carrying value of property, plant and
equipment for impairment whenever events or changes in
circumstances indicate that the carrying amounts may not be
recoverable. An asset is considered to be impaired when the
forecasted undiscounted cash flows of an asset group are
estimated to be less than its carrying value. The amount of
impairment recognized is the difference between the carrying
value of the asset group and its fair value. Fair value
estimates are based on assumptions concerning the amount and
timing of forecasted future cash flows.
Software
Development Costs
The Company capitalizes costs incurred to acquire or develop
software for internal use. Capitalized software development
costs are amortized using the straight-line method over an
estimated useful life equal to the lesser of the license term or
4 years.
Goodwill
The Company assesses realizability of goodwill annually in the
fourth quarter, and whenever events or changes in circumstances
indicate it may be impaired. Impairment, if any, is measured
based on the estimated fair value of the reporting unit. The
Company determines fair value based on discounted future
probability-weighted cash flows. Impairment occurs when the
carrying amount of goodwill exceeds its estimated fair value.
Contract
Acquisition Costs
Amounts paid to or on behalf of clients to obtain long-term
contracts are capitalized and amortized in proportion to the
initial expected future revenue from the contract, which in most
cases results in straight-line amortization over the life of the
contract. These costs are recorded as a reduction to Revenue.
The Company evaluates the recoverability of these costs based on
the individual underlying client contracts’ forecasted
future cash flows.
Other Intangible
Assets
The Company has other intangible assets that include customer
relationships (definite-lived) and trade names
(indefinite-lived). Definite-lived intangible assets are
amortized on a straight-line basis over their estimated useful
lives, which range from 9 to 10 years. The Company
evaluates the carrying value of its definite-lived intangible
assets whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. An asset is
considered to be impaired when the forecasted undiscounted cash
flows of an asset group are estimated to be less than its
carrying value. The Company evaluates indefinite-lived
intangible assets for possible impairment at least annually or
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. An
intangible asset with an indefinite life (a trade name) is
evaluated for possible impairment by comparing the fair value of
the asset with its carrying value. Fair value is estimated as
the discounted value of future revenues arising from a trade
name using a royalty rate that an independent
F-9
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
party would pay for use of that trade name. An impairment charge
is recorded if the trade name’s carrying value exceeds its
estimated fair value.
Self Insurance
Liabilities
The Company self-insures for certain levels of workers’
compensation, employee health and general liability insurance.
The Company records estimated liabilities for these insurance
lines based upon analyses of historical claims experience. The
most significant assumption the Company makes in estimating
these liabilities is that future claims experience will emerge
in a similar pattern with historical claims experience. The
liabilities related to workers’ compensation and employee
health insurance are included in Accrued employee compensation
and benefits in the accompanying Consolidated Balance Sheets.
The liability for other general liability insurance is included
in Other accrued expenses in the accompanying Consolidated
Balance Sheets.
Restructuring
Liabilities
The Company routinely assesses the profitability and utilization
of its delivery centers and existing markets. In some cases, the
Company has chosen to close under-performing delivery centers
and complete reductions in workforce to enhance future
profitability. Severance payments that occur from reductions in
workforce are in accordance with the Company’s
postemployment plans
and/or
statutory requirements that are communicated to all employees
upon hire date; therefore, severance liabilities are recognized
when they are determined to be probable and reasonably
estimable. Other liabilities for costs associated with an exit
or disposal activity are recognized when the liability is
incurred, rather than upon commitment to a plan.
A significant assumption used in determining the amount of
estimated liability for closing delivery centers is the future
lease payments on vacant centers, which the Company determines
based on its ability to successfully negotiate early termination
agreements with landlords
and/or
to
sublease the facility. If the Company’s actual results
differ from these estimates, additional gains or losses would be
recorded within Restructuring charges, net in the accompanying
Consolidated Statements of Operations and Comprehensive Income
(Loss). The accrual for restructuring liabilities is included in
Other accrued expenses in the accompanying Consolidated Balance
Sheets.
Grant
Advances
The Company receives grants from various government levels as an
incentive to locate delivery centers in their jurisdictions. The
Company’s policy is to account for grant monies received in
advance as a liability and recognize to income as either a
reduction to Cost of services or Depreciation expense over the
term of the grant, when it is reasonably assured that the
conditions of the grant have been or will be met.
Income
Taxes
Under current accounting standards, the Company accounts for
income tax through the 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 or tax returns. 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 enacted tax rates in effect for the
year in which the differences are expected to reverse. Gross
deferred tax assets may then be reduced by a valuation allowance
for amounts that do not satisfy the realization criteria
established by current accounting standards.
The Company accounts for uncertain tax positions using a
two-step approach to recognizing and measuring uncertain tax
positions. The first step is to determine if the weight of
available evidence indicates that it is more likely than not
that the tax position will be sustained on audit. The second
step is to estimate and measure the tax benefit as the amount
that has a greater than 50% likelihood of being
F-10
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
realized upon ultimate settlement with the tax authority. The
Company evaluates these uncertain tax positions on a quarterly
basis. This evaluation is based on the consideration of several
factors including changes in facts or circumstances, changes in
applicable tax law, and settlement of issues under audit. The
Company recognizes interest and penalties related to uncertain
tax positions as a part of the Provision for income taxes in the
accompanying Consolidated Statements of Operations and
Comprehensive Income (Loss).
The Company provides for U.S. income tax expense on the
earnings of foreign subsidiaries unless the subsidiaries’
earnings are considered permanently reinvested outside the U.S.
Equity-Based
Compensation Expense
Equity-based compensation expense for all share-based payment
awards granted is determined based on the grant-date fair value
net of an estimated forfeiture rate on a straight-line basis
over the requisite service period of the award, which is
typically the vesting term of the share-based payment award. The
Company estimates the forfeiture rate annually based on its
historical experience of forfeited awards.
Foreign Currency
Translation
The assets and liabilities of the Company’s foreign
subsidiaries, whose functional currency is not the
U.S. dollar, are translated at the exchange rates in effect
on the last day of the period and income and expenses are
translated using the monthly average exchange rates in effect
for the period in which the items occur. Foreign currency
translation gains and losses are recorded in Accumulated other
comprehensive income (loss) within equity. Foreign currency
transaction gains and losses are included in Other income
(expense), net in the accompanying Consolidated Statements of
Operations and Comprehensive Income (Loss).
Revenue
Recognition
For each client arrangement, the Company determines whether
evidence of an arrangement exists, delivery of service has
occurred, the fee is fixed or determinable and collection is
reasonably assured. If all criteria are met, the Company
recognizes revenue at the time services are performed. The
Company’s BPO business recognizes revenue as follows:
Production Rate
– Revenue is recognized based
on the billable time or transactions of each associate, as
defined in the client contract. The rate per billable time or
transaction is based on a pre-determined contractual rate. This
contractual rate can fluctuate based on the Company’s
performance against certain pre-determined criteria related to
quality and performance.
Performance
-
based
– Under
performance-based arrangements, the Company is paid by its
clients based on the achievement of certain levels of sales or
other client-determined criteria specified in the client
contract. The Company recognizes performance-based revenue by
measuring its actual results against the performance criteria
specified in the contracts. Amounts collected from clients prior
to the performance of services are recorded as deferred revenue,
which is recorded in Other current liabilities or Other
long-term liabilities in the accompanying Consolidated Balance
Sheets.
Hybrid
– Hybrid models include production rate
and performance-based elements. For these types of arrangements,
the Company allocates revenue to the elements based on the
relative fair value of each element. Revenue for each element is
recognized based on the methods described above.
Certain client programs provide for adjustments to monthly
billings based upon whether the Company meets or exceeds certain
performance criteria as set forth in the contract. Increases or
decreases to monthly billings arising from such contract terms
are reflected in Revenue in the accompanying Consolidated
Statements of Operations and Comprehensive Income (Loss) as
earned or incurred.
F-11
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Operating results for the year 2010 include a $2.0 million
reduction to revenue for disputed service delivery issues which
occurred in 2009.
Training Revenue
and Costs
Current accounting standards require the deferral of revenue for
initial training that occurs upon commencement of a new client
contract if that training is billed separately to a client.
Accordingly, the corresponding training costs, consisting
primarily of labor and related expenses, are also deferred. In
these circumstances, both the training revenue and costs are
amortized straight-line over the life of the client contract as
a component of Revenue and Cost of services, respectively. In
situations where these initial training costs are not billed
separately, but rather included in the hourly service rates paid
by the client over the life of the contract, no deferral is
necessary as the revenue is being recognized over the life of
the contract and the associated training costs are expensed as
incurred.
Deferred
Revenue
The Company records amounts billed and received, but not earned,
as deferred revenue. These amounts are recorded in Deferred
revenue or as a component of Other long-term liabilities in the
accompanying Consolidated Balance Sheets based on the period
over which the Company expects to render services.
Rent
Expense
The Company has negotiated certain rent holidays,
landlord/tenant incentives and escalations in the base price of
rent payments over the initial term of its operating leases. The
initial term includes the “build-out” period of
leases, where no rent payments are typically due. The Company
recognizes rent holidays and rent escalations on a straight-line
basis to rent expense over the lease term. The landlord/tenant
incentives are recorded as an increase to deferred rent
liabilities and amortized on a straight line basis to rent
expense over the initial lease term.
Asset Retirement
Obligations
Asset retirement obligations relate to legal obligations
associated with the retirement of long-lived assets resulting
from the acquisition, construction, development
and/or
normal use of the underlying assets.
The Company records all asset retirement obligations at
estimated fair value. The Company’s asset retirement
obligations primarily relate to clauses in its delivery center
operating leases which require the Company to return the leased
premises to its original condition. The associated asset
retirement obligations are capitalized as part of the carrying
amount of the underlying asset and depreciated over the
estimated useful life of the asset. The liability, reported
within Other long-term liabilities, is accreted through charges
to operating expenses. If the asset retirement obligation is
settled for an amount other than the carrying amount of the
liability, the Company recognizes a gain or loss on settlement.
Recently Issued
Accounting Pronouncements
Effective January 1, 2010, the Company adopted a new
financial accounting statement that requires additional
disclosures about transfers of financial assets, including
securitization transactions, and where companies have continuing
exposure to the risks related to the transferred financial
assets. The new statement eliminates the concept of a
“qualifying special-purpose entity,” changes the
requirements for derecognizing financial assets, and requires
additional disclosures. The adoption of this standard did not
have a material impact on the Company’s results of
operations, financial position or cash flows.
Effective January 1, 2010, the Company adopted a new
financial accounting statement that changes how TeleTech
determines when an entity that is insufficiently capitalized or
is not controlled through voting or similar rights should be
consolidated. The determination of whether TeleTech is required
to consolidate an entity is based on, among other things, an
entity’s purpose and design and TeleTech’s ability to
direct
F-12
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
the activities of the entity that most significantly impact the
entity’s economic performance. The adoption of this
standard did not have a material impact on the Company’s
results of operations, financial position, or cash flows.
In September 2009, the Financial Accounting Standards Board
(“FASB”) issued new revenue guidance that requires an
entity to apply the relative selling price allocation method in
order to estimate a selling price for all units of accounting,
including delivered items when vendor-specific objective
evidence or acceptable third-party evidence does not exist. The
new guidance is effective for revenue arrangements entered into
or materially modified in fiscal years beginning on or after
June 15, 2010 and shall be applied on a prospective basis.
The Company expects to adopt this guidance effective
January 1, 2011 and does not expect that the new guidance
will have a material impact on its results of operations,
financial position, or cash flows.
In December 2010, the FASB issued new guidance related to
goodwill impairment testing. The new guidance clarifies the
requirements of when to perform step 2 of impairment testing for
goodwill for reporting units with zero or negative carrying
amounts. The Company will adopt this guidance on January 1,
2011. Historically, the Company has not had a reporting unit
with goodwill and a zero or negative carrying amount; therefore,
the Company does not expect that the new guidance will have a
material impact on its results of operations, financial
position, or cash flows.
| (2) | ACQUISITIONS |
On November 30, 2010, the Company acquired an 80% interest
in Peppers & Rogers Group. PRG is a leading global
management consulting firm specializing in customer-centric
strategies for Global 1000 companies and is recognized as a
leading authority on customer-based strategies with a deep
understanding of the most powerful levers that drive customer
loyalty and business results. PRG currently operates offices on
six continents across the globe, including headquarters in
Norwalk, Connecticut, and Istanbul, Turkey, along with regional
offices in Belgium, Germany, United Arab Emirates, South Africa,
and Kuwait. PRG has 130 employees.
The up-front cash consideration paid was $15.0 million,
subject to working capital adjustments on the date of
acquisition as defined in the purchase and sale agreement. The
working capital adjustment was approximately $9.1 million
and is included in Other accrued expenses in the accompanying
Consolidated Balance Sheets as of December 31, 2010. An
additional $5.0 million payment is due on March 1,
2012. This $5.0 million payment was recognized at fair
value using a discounted cash flow approach with a discount rate
of 18.4%. This measurement is based on significant inputs not
observable in the market, which are deemed to be Level 3
inputs. The fair value on the date of acquisition was
approximately $4.4 million and is included in Other
long-term liabilities in the accompanying Consolidated Balance
Sheets as of December 31, 2010. This value will be accreted
up to the $5.0 million payment using the effective interest
rate method.
The purchase and sale agreement includes a contingent
consideration arrangement that requires additional consideration
to be paid in 2013 if PRG achieves a specified fiscal year 2012
EBITDA target. The range of the undiscounted amounts the Company
could pay under the contingent consideration agreement is
between zero and $5.0 million. The fair value of the
contingent consideration recognized on the acquisition date was
zero and was estimated by applying the income approach. This
measure is based on significant inputs not observable in the
market (Level 3 inputs). Key assumptions include (i) a
discount rate of 30.6% percent and (ii) probability
adjusted level of EBITDA between $9.0 million and
$12.6 million.
The fair value of the 20% noncontrolling interest of
$6.0 million in PRG was estimated by applying a market
approach. This fair value measurement is based on significant
inputs not observable in the market (Level 3 inputs). The
fair value estimates are based on assumed financial multiplies
of companies
F-13
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
deemed similar to PRG, and assumed adjustments because of the
lack of control or lack of marketability that market
participants would consider when estimating fair value of the
noncontrolling interest in PRG.
The purchase and sale agreement also included an option for the
Company to acquire the remaining 20% interest in PRG exercisable
in 2015 for a period of one year, with a one year extension (the
“Initial Exercise Period”). If the Company does not
acquire the remaining 20% of PRG pursuant to its call option
during the Initial Exercise Period, PRG has an option to
purchase the Company’s 80% interest in PRG. The exercise
price is based on a multiple of EBITDA as defined in the
purchase and sale agreement.
The following summarizes the preliminary estimated fair values
of the identifiable assets acquired and liabilities assumed at
the acquisition date (in thousands). The estimates of fair value
of identifiable assets acquired and liabilities assumed are
preliminary, pending completion of the valuation, thus are
subject to revisions which may result in adjustments to the
values presented below.
|
Preliminary
|
||||
|
Estimates of
|
||||
|
Acquisition Date
|
||||
| Fair Value | ||||
|
Cash
|
$ | 2,202 | ||
|
Accounts receivable, net
|
16,843 | |||
|
Property, plant and equipment
|
359 | |||
|
Other assets
|
843 | |||
|
Customer relationships
|
9,300 | |||
|
Trade name
|
6,400 | |||
|
Goodwill
|
7,251 | |||
| $ | 43,198 | |||
|
Accounts payable
|
$ | 1,515 | ||
|
Accrued expenses
|
1,599 | |||
|
Deferred tax liability
|
3,690 | |||
|
Deferred revenue
|
598 | |||
|
Line of credit
|
570 | |||
|
Other
|
709 | |||
| $ | 8,681 | |||
|
Noncontrolling interest
|
$ | 6,000 | ||
|
Total purchase price
|
$ | 28,517 | ||
The goodwill recognized is attributable primarily to the
assembled workforce of PRG, expected synergies, and other
factors. None of the goodwill is expected to be deductible for
income tax purposes. The operating results of PRG are reported
within the International BPO segment from the date of
acquisition. The Company recognized $0.4 million of
acquisition related expenses that were recorded in Selling,
general and administrative expense in the accompanying
Consolidated Statements of Operations and Comprehensive Income
(Loss) during the year ended December 31, 2010.
| (3) | DECONSOLIDATION OF A SUBSIDIARY |
On December 22, 2008, Newgen Results Corporation
(“Newgen”), a wholly-owned subsidiary of the Company,
filed a voluntary petition for liquidation under Chapter 7
in the United States Bankruptcy Court for the District of
Delaware. The consolidation of a majority-owned subsidiary is
precluded where control does not rest with the majority owners
and under legal reorganization or bankruptcy control rests with
the Bankruptcy Court. Accordingly, the Company deconsolidated
Newgen as of December 22, 2008.
On September 9, 2010, Newgen settled a legal claim for
$3.6 million that was paid for by the Company on behalf of
Newgen. As a result of the legal settlement, the Company
recognized a $5.9 million gain in Other income (expense),
net and a $2.3 million expense in Provision for income
taxes for the year 2010.
F-14
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
As of December 31, 2010, the Company’s negative
investment in Newgen was $0.1 million as presented in the
accompanying Consolidated Balance Sheets.
The following condensed financial statements of Newgen have been
prepared to show the remaining liabilities subject to compromise
by the Bankruptcy Court to be reported separately from the
liabilities not subject to compromise (pre and post rent
settlement). All liabilities included in the condensed financial
statements below are subject to compromise as of
December 31, 2010 and represent the current estimate of the
amount of known or potential pre-petition claims that are
subject to final settlement. Such claims remain subject to
future adjustments.
|
December 31,
|
December 31,
|
December 22,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Total current assets
|
$ | 127 | $ | 1,700 | $ | 1,700 | ||||||
|
Total long-term assets
|
– | 2,379 | 3,110 | |||||||||
|
Total assets
|
$ | 127 | $ | 4,079 | $ | 4,810 | ||||||
|
Total current liabilities
|
$ | 203 | $ | 7,886 | $ | 3,931 | ||||||
|
Total long-term liabilities
|
– | – | 5,744 | |||||||||
|
Total liabilities
|
203 | 7,886 | 9,675 | |||||||||
|
Total stockholders’ deficit
|
(76 | ) | (3,807 | ) | (4,865 | ) | ||||||
|
Total liabilities and stockholders’ deficit
|
$ | 127 | $ | 4,079 | $ | 4,810 | ||||||
| (4) | SEGMENT INFORMATION |
The Company serves its clients through the primary business of
BPO services.
The Company’s BPO business provides outsourced business
process, consulting, technology services and customer management
services for a variety of industries through global delivery
centers and represents 100% of total annual revenue. The
Company’s North American BPO segment is comprised of sales
to all clients based in North America (encompassing the
U.S. and Canada), while the Company’s International
BPO segment is comprised of sales to all clients based in
countries outside of North America.
The Database Marketing and Consulting segment, of which the
Company sold substantially all the assets and liabilities in
September 2007, provided outsourced database management, direct
marketing and related customer acquisitions and retention
services for automobile dealerships and manufacturers in North
America and operated under the name Newgen Results Corporation.
The Company allocates to each segment its portion of corporate
operating expenses. All inter – company transactions
between the reported segments for the periods presented have
been eliminated.
F-15
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
The following tables present certain financial data by segment
(amounts in thousands):
|
As of and for the
|
||||||||||||||
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Revenue
|
||||||||||||||
|
North American BPO
|
$ | 824,265 | $ | 886,738 | $ | 1,020,722 | ||||||||
|
International BPO
|
270,641 | 281,177 | 379,425 | |||||||||||
|
Database Marketing and Consulting
|
– | – | – | |||||||||||
|
Total
|
$ | 1,094,906 | $ | 1,167,915 | $ | 1,400,147 | ||||||||
|
Depreciation and amortization
|
||||||||||||||
|
North American BPO
|
$ | 38,652 | $ | 39,603 | $ | 41,385 | ||||||||
|
International BPO
|
11,566 | 17,388 | 17,756 | |||||||||||
|
Database Marketing and Consulting
|
– | – | 25 | |||||||||||
|
Total
|
$ | 50,218 | $ | 56,991 | $ | 59,166 | ||||||||
|
Income from operations
|
||||||||||||||
|
North American BPO
|
$ | 83,762 | $ | 111,497 | $ | 103,084 | ||||||||
|
International BPO
|
(10,017 | ) | (10,788 | ) | 6,351 | |||||||||
|
Database Marketing and Consulting
|
– | – | (477 | ) | ||||||||||
|
Total
|
$ | 73,745 | $ | 100,709 | $ | 108,958 | ||||||||
|
Capital expenditures
|
||||||||||||||
|
North American BPO
|
$ | 22,838 | $ | 22,892 | $ | 40,216 | ||||||||
|
International BPO
|
3,962 | 2,081 | 25,772 | |||||||||||
|
Database Marketing and Consulting
|
– | – | – | |||||||||||
|
Total
|
$ | 26,800 | $ | 24,973 | $ | 65,988 | ||||||||
|
Assets
|
||||||||||||||
|
North American BPO
|
$ | 417,632 | $ | 450,434 | $ | 483,187 | ||||||||
|
International BPO
|
242,991 | 189,733 | 185,755 | |||||||||||
|
Database Marketing and Consulting
|
– | – | – | |||||||||||
|
Total
|
$ | 660,623 | $ | 640,167 | $ | 668,942 | ||||||||
|
Goodwill
|
||||||||||||||
|
North American BPO
|
$ | 35,885 | $ | 35,885 | $ | 35,885 | ||||||||
|
International BPO
|
16,822 | 9,365 | 8,265 | |||||||||||
|
Database Marketing and Consulting
|
– | – | – | |||||||||||
|
Total
|
$ | 52,707 | $ | 45,250 | $ | 44,150 | ||||||||
F-16
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
The following tables present certain financial data based upon
the geographic location where the services are provided (amounts
in thousands):
|
As of and for the
|
||||||||||||||
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Revenue
|
||||||||||||||
|
United States
|
$ | 406,652 | $ | 411,438 | $ | 407,546 | ||||||||
|
Philippines
|
292,726 | 309,793 | 289,026 | |||||||||||
|
Latin America
|
203,420 | 200,486 | 304,093 | |||||||||||
|
Europe / Middle East / Africa
|
120,643 | 138,290 | 154,146 | |||||||||||
|
Canada
|
52,396 | 82,500 | 154,190 | |||||||||||
|
Asia Pacific
|
19,069 | 25,408 | 91,146 | |||||||||||
|
Total
|
$ | 1,094,906 | $ | 1,167,915 | $ | 1,400,147 | ||||||||
|
Property, plant and equipment, gross
|
||||||||||||||
|
United States
|
$ | 274,336 | $ | 260,243 | $ | 261,064 | ||||||||
|
Philippines
|
88,513 | 79,898 | 71,974 | |||||||||||
|
Latin America
|
88,984 | 85,662 | 82,201 | |||||||||||
|
Europe / Middle East / Africa
|
25,261 | 24,517 | 21,828 | |||||||||||
|
Canada
|
29,697 | 43,408 | 49,813 | |||||||||||
|
Asia Pacific
|
27,100 | 24,610 | 20,018 | |||||||||||
|
Total
|
$ | 533,891 | $ | 518,338 | $ | 506,898 | ||||||||
|
Other long-term assets
|
||||||||||||||
|
United States
|
$ | 14,417 | $ | 15,127 | $ | 15,836 | ||||||||
|
Philippines
|
2,906 | 2,042 | 2,573 | |||||||||||
|
Latin America
|
1,143 | 1,107 | 1,814 | |||||||||||
|
Europe / Middle East / Africa
|
17,241 | 1,384 | 1,038 | |||||||||||
|
Canada
|
113 | 164 | 561 | |||||||||||
|
Asia Pacific
|
1,626 | 1,147 | 1,240 | |||||||||||
|
Total
|
$ | 37,446 | $ | 20,971 | $ | 23,062 | ||||||||
| (5) | ACCOUNTS RECEIVABLE AND SIGNIFICANT CLIENTS |
Accounts receivable, net in the accompanying Consolidated
Balance Sheets consists of the following (amounts in thousands):
| December 31, | ||||||||||
| 2010 | 2009 | |||||||||
|
Accounts receivable
|
$ | 240,012 | $ | 222,194 | ||||||
|
Less: Allowance for doubtful accounts
|
(6,306 | ) | (5,580 | ) | ||||||
|
Accounts receivable, net
|
$ | 233,706 | $ | 216,614 | ||||||
F-17
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Activity in the Company’s Allowance for doubtful accounts
consists of the following (amounts in thousands):
| December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Balance, beginning of year
|
$ | 5,580 | $ | 5,551 | $ | 4,725 | ||||||||
|
Provision for doubtful accounts
|
600 | 1,412 | 1,990 | |||||||||||
|
Uncollectible receivables written-off
|
(67 | ) | (2,069 | ) | (193 | ) | ||||||||
|
Effect of foreign currency
|
193 | 686 | (971 | ) | ||||||||||
|
Balance, end of year
|
$ | 6,306 | $ | 5,580 | $ | 5,551 | ||||||||
Significant
Clients
The Company had no clients in the year ended December 31,
2010 that contributed at least 10% of total revenue and had one
client in each of the years ended 2009 and 2008 that contributed
at least 10% of total revenue as reflected in the table below.
Each operates in the communications industry and is included in
the North American BPO segment. The revenue from these clients
as a percentage of total revenue was as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
T-Mobile
|
8 | % | 10 | % | 4 | % | ||||||
|
Sprint Nextel
|
3 | % | 6 | % | 13 | % | ||||||
Accounts receivable from these clients were as follows (amounts
in thousands):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
T-Mobile
|
$ | 22,610 | $ | 27,569 | $ | 15,987 | ||||||
|
Sprint Nextel
|
$ | 6,879 | $ | 6,554 | $ | 20,375 | ||||||
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 exists as of
December 31, 2010.
| (6) | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consisted of the following
(amounts in thousands):
| December 31, | ||||||||||
| 2010 | 2009 | |||||||||
|
Land and buildings
|
$ | 45,372 | $ | 44,528 | ||||||
|
Computer equipment and software
|
245,333 | 232,456 | ||||||||
|
Telephone equipment
|
45,743 | 45,150 | ||||||||
|
Furniture and fixtures
|
54,364 | 54,685 | ||||||||
|
Leasehold improvements
|
140,412 | 140,762 | ||||||||
|
Motor vehicles
|
898 | 492 | ||||||||
|
Construction-in-progress
and other
|
1,768 | 264 | ||||||||
|
Property, plant and equipment, gross
|
533,891 | 518,338 | ||||||||
|
Less: Accumulated depreciation and amortization
|
(428,363 | ) | (391,343 | ) | ||||||
|
Property, plant and equipment, net
|
$ | 105,528 | $ | 126,995 | ||||||
F-18
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Depreciation and amortization expense for property, plant and
equipment was $49.2 million, $55.9 million and
$57.6 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Included in computer equipment and software in the table above,
the Company had $2.7 million and $1.1 million of
unamortized Software Development Costs as of December 31,
2010 and 2009, respectively. Amortization expense for Software
Development Costs was $0.2 million, $0.4 million and
$1.0 million for the years ended December 31, 2010,
2009 and 2008, respectively, which is included in the
depreciation and amortization expense for property, plant and
equipment discussed above.
| (7) | GOODWILL AND IMPAIRMENT |
Goodwill consisted of the following (amounts in thousands):
|
Effect of
|
||||||||||||||||||||
|
December 31,
|
Foreign
|
December 31,
|
||||||||||||||||||
| 2009 | Acquisitions | Impairments | Currency | 2010 | ||||||||||||||||
|
North American BPO
|
$ | 35,885 | $ | – | $ | – | $ | – | $ | 35,885 | ||||||||||
|
International BPO
|
9,365 | 7,251 | – | 206 | 16,822 | |||||||||||||||
|
Total
|
$ | 45,250 | $ | 7,251 | $ | – | $ | 206 | $ | 52,707 | ||||||||||
|
Effect of
|
||||||||||||||||||||
|
December 31,
|
Foreign
|
December 31,
|
||||||||||||||||||
| 2008 | Acquisitions | Impairments | Currency | 2009 | ||||||||||||||||
|
North American BPO
|
$ | 35,885 | $ | – | $ | – | $ | – | $ | 35,885 | ||||||||||
|
International BPO
|
8,265 | – | – | 1,100 | 9,365 | |||||||||||||||
|
Total
|
$ | 44,150 | $ | – | $ | – | $ | 1,100 | $ | 45,250 | ||||||||||
Impairment
The Company performs a goodwill impairment test on at least an
annual basis. Application of the goodwill impairment test
requires significant judgments including estimation of future
cash flows, which is dependent on internal forecasts, estimation
of the long-term rate of growth for the business, the useful
life over which cash flows will occur and determination of 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. The
Company conducts its annual goodwill impairment test in the
fourth quarter each year, or more frequently if indicators of
impairment exist. As of December 31, 2010, the
Company’s assessment of goodwill impairment indicated that
the fair values of the Company’s reporting units were
substantially in excess of their estimated carrying values, and
therefore goodwill in the reporting units was not impaired.
| (8) | CONTRACT ACQUISITION COSTS |
Contract acquisition costs, net consisted of the following
(amounts in thousands):
| December 31, | ||||||||||
| 2010 | 2009 | |||||||||
|
Contract acquisition costs, gross
|
$ | 30,710 | $ | 30,710 | ||||||
|
Less: Accumulated amortization
|
(27,928 | ) | (22,661 | ) | ||||||
|
Contract acquisition costs, net
|
$ | 2,782 | $ | 8,049 | ||||||
Amortization of contract acquisition costs recorded as a
reduction to Revenue was $5.3 million, $3.4 million
and $2.4 million for the years ended December 31,
2010, 2009 and 2008, respectively.
F-19
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Expected future amortization of contract acquisition costs as of
December 31, 2010 is as follows (amounts in thousands):
|
2011
|
$ | 1,511 | ||
|
2012
|
509 | |||
|
2013
|
509 | |||
|
2014
|
253 | |||
|
Total
|
$ | 2,782 | ||
| (9) | OTHER INTANGIBLE ASSETS |
Other intangible assets which are included in Other long-term
assets in the accompanying Consolidated Balance Sheets consisted
of the following (amounts in thousands):
|
Amortization
|
Acquisitions
|
Effect of
|
||||||||||||||||||
|
December 31,
|
and
|
or
|
Foreign
|
December 31,
|
||||||||||||||||
| 2009 | Impairment | Disposals | Currency | 2010 | ||||||||||||||||
|
Customer relationships, gross
|
$ | 7,300 | $ | – | 9,300 | – | $ | 16,600 | ||||||||||||
|
Customer relationships accumulated amortization
|
(2,555 | ) | (816 | ) | – | – | (3,371 | ) | ||||||||||||
|
Trade name – indefinite life
|
1,800 | – | 6,400 | – | 8,200 | |||||||||||||||
|
Other intangible assets, net
|
$ | 6,545 | $ | (816 | ) | $ | 15,700 | $ | – | $ | 21,429 | |||||||||
|
Amortization
|
Acquisitions
|
Effect of
|
||||||||||||||||||
|
December 31,
|
and
|
or
|
Foreign
|
December 31,
|
||||||||||||||||
| 2008 | Impairment | Disposals | Currency | 2009 | ||||||||||||||||
|
Customer relationships, gross
|
$ | 11,445 | $ | (604 | ) | $ | (4,879 | ) | $ | 1,338 | $ | 7,300 | ||||||||
|
Customer relationships accumulated amortization
|
(5,494 | ) | (1,071 | ) | 4,879 | (869 | ) | (2,555 | ) | |||||||||||
|
Trade name – indefinite life
|
1,800 | – | – | – | 1,800 | |||||||||||||||
|
Other intangible assets, net
|
$ | 7,751 | $ | (1,675 | ) | $ | – | $ | 469 | $ | 6,545 | |||||||||
Customer relationships are being amortized over a weighted
average useful life of 9.6 years. Amortization expense
related to other intangible assets was $0.8 million,
$1.1 million and $1.6 million for the years ended
December 31, 2010, 2009 and 2008, respectively. In the year
ended 2009, the Company recognized $0.6 million in
impairment losses related to its customer relationships
intangible asset due to the loss of a significant customer in
the International BPO segment. The impairment loss was
equivalent to the remaining net carrying value of the particular
asset at the time of the impairment.
Expected future amortization of other intangible assets as of
December 31, 2010 is as follows (amounts in thousands):
|
2011
|
$ | 1,763 | ||
|
2012
|
1,763 | |||
|
2013
|
1,763 | |||
|
2014
|
1,763 | |||
|
2015
|
1,763 | |||
|
Thereafter
|
4,414 | |||
|
Total
|
$ | 13,229 | ||
F-20
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| (10) | DERIVATIVES |
Cash Flow
Hedges
The Company enters into foreign exchange forward and option
contracts to reduce its exposure to foreign currency exchange
rate fluctuations that are associated with forecasted revenue
earned in foreign locations. 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
December 31, 2010, 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 years ended December 31, 2010, 2009
and 2008 (amounts in thousands and net of tax):
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Aggregate unrealized net gain (loss) at beginning of year
|
$ | 4,468 | $ | (21,180 | ) | $ | 21,417 | |||||||
|
Net gain/(loss) from change in fair value of cash flow hedges
|
8,513 | 14,427 | (39,624 | ) | ||||||||||
|
Net (gain)/loss reclassified to earnings from effective hedges
|
(5,890 | ) | 11,221 | (2,973 | ) | |||||||||
|
Aggregate unrealized net gain/(loss) at end of year
|
$ | 7,091 | $ | 4,468 | $ | (21,180 | ) | |||||||
The Company’s cash flow hedging instruments as of
December 31, 2010 and 2009 are summarized as follows
(amounts in thousands). All hedging instruments are forward
contracts, except as noted.
|
Local Currency
|
U.S. Dollar
|
% Maturing in
|
Contracts Maturing
|
|||||||||||
|
2010
|
Notional Amount | Notional Amount | 2011 | Through | ||||||||||
|
Canadian Dollar
|
10,200 | $ | 8,493 | 100.0 | % | December 2011 | ||||||||
|
Philippine Peso
|
7,731,000 | 169,364 | (1) | 66.6 | % | December 2013 | ||||||||
|
Mexican Peso
|
311,500 | 22,383 | 100.0 | % | December 2011 | |||||||||
|
British Pound Sterling
|
4,647 | 7,231 | (2) | 100.0 | % | December 2011 | ||||||||
| $ | 207,471 | |||||||||||||
|
Local Currency
|
U.S. Dollar
|
|||||||
|
2009
|
Notional Amount | Notional Amount | ||||||
|
Canadian Dollar
|
14,400 | $ | 11,782 | |||||
|
Canadian Dollar Call Options
|
19,400 | 17,301 | ||||||
|
Philippine Peso
|
4,615,000 | 96,354 | (1) | |||||
|
Argentine Peso
|
9,000 | 2,454 | ||||||
|
Mexican Peso
|
491,500 | 34,880 | ||||||
|
S. African Rand
|
23,000 | 2,081 | ||||||
|
British Pound Sterling
|
3,876 | 6,565 | (2) | |||||
| $ | 171,417 | |||||||
| (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 December 31, 2010 and December 31, 2009. | |
| (2) | Includes contracts to purchase British pound sterling in exchange for Euros, which are translated into equivalent U.S. dollars on December 31, 2010 and December 31, 2009. |
F-21
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Hedge of Net
Investment
In 2008, the Company entered into a foreign exchange forward
contract to hedge its net investment in a foreign operation
which was settled in May 2009. Changes in fair value of the
Company’s net investment hedge are recorded in the
cumulative translation adjustment in Accumulated other
comprehensive income (loss) in the accompanying Consolidated
Balance Sheets offsetting the change in the cumulative
translation adjustment attributable to the hedged portion of the
Company’s net investment in the foreign operation. Gains
and losses from the settlements of the Company’s net
investment hedge remain in Accumulated other comprehensive
income (loss) until partial or complete liquidation of the
applicable net investment. A loss of $1.2 million from the
settlements of net investment hedges was recorded within
Accumulated other comprehensive income (loss) at
December 31, 2010.
Fair Value
Hedges
The Company enters into foreign exchange forward contracts to
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, as well as the offsetting gain
or loss on the hedged asset or liability, are recognized in
earnings in Other income (expense), net. As of December 31,
2010, the total notional amount of the Company’s forward
contracts used as fair value hedges was $93.3 million.
Embedded
Derivatives
In addition to hedging activities, the Company’s foreign
subsidiary in Argentina is party to U.S. dollar denominated
lease contracts which the Company has determined contain
embedded derivatives. As such, the Company bifurcates the
embedded derivatives features of the lease contracts and values
these features as foreign currency derivatives.
Derivative
Valuation and Settlements
The Company’s derivatives as of December 31, 2010 and
2009 were as follows (amounts in thousands):
| December 31, 2010 | ||||||||||||||||||||
|
Designated as Hedging
|
||||||||||||||||||||
| Instruments | Not Designated as Hedging Instruments | |||||||||||||||||||
|
Foreign
|
Foreign
|
Foreign
|
Foreign
|
|||||||||||||||||
| Derivative contracts: | Exchange | Exchange | Exchange | Exchange | Leases | |||||||||||||||
|
Option and
|
||||||||||||||||||||
|
Net
|
Forward
|
Embedded
|
||||||||||||||||||
| Derivative classification: | Cash Flow | Investment | Contracts | Fair Value | Derivative | |||||||||||||||
|
Fair value and location of derivative in the Consolidated
Balance Sheet:
|
||||||||||||||||||||
|
Prepaids and other current assets
|
$ | 10,602 | $ | – | $ | – | $ | 783 | $ | – | ||||||||||
|
Other long-term assets
|
2,081 | – | – | – | – | |||||||||||||||
|
Other current liabilities
|
(677 | ) | – | – | (58 | ) | (105 | ) | ||||||||||||
|
Other long-term liabilities
|
(104 | ) | – | – | – | (34 | ) | |||||||||||||
|
Total fair value of derivatives, net
|
$ | 11,902 | $ | – | $ | – | $ | 725 | $ | (139 | ) | |||||||||
F-22
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| December 31, 2009 | ||||||||||||||||||||
|
Designated as Hedging
|
||||||||||||||||||||
| Instruments | Not Designated as Hedging Instruments | |||||||||||||||||||
|
Foreign
|
Foreign
|
Foreign
|
Foreign
|
|||||||||||||||||
| Derivative contracts: | Exchange | Exchange | Exchange | Exchange | Leases | |||||||||||||||
|
Option and
|
||||||||||||||||||||
|
Net
|
Forward
|
Embedded
|
||||||||||||||||||
| Derivative classification: | Cash Flow | Investment | Contracts | Fair Value | Derivative | |||||||||||||||
|
Fair value and location of derivative in the Consolidated
Balance Sheet:
|
||||||||||||||||||||
|
Prepaids and other current assets
|
$ | 8,022 | $ | – | $ | 42 | $ | 29 | $ | – | ||||||||||
|
Other long-term assets
|
1,996 | – | – | – | – | |||||||||||||||
|
Other current liabilities
|
(1,884 | ) | – | – | (137 | ) | (139 | ) | ||||||||||||
|
Other long-term liabilities
|
(30 | ) | – | – | – | (230 | ) | |||||||||||||
|
Total fair value of derivatives, net
|
$ | 8,104 | $ | – | $ | 42 | $ | (108 | ) | $ | (369 | ) | ||||||||
The effect of derivative instruments on the Consolidated
Statements of Operations and Comprehensive Income (Loss) for the
year ended December 31, 2010 and 2009 were as follows
(amounts in thousands):
| Year Ended December 31, | ||||||||||||||||
| 2010 | 2009 | |||||||||||||||
|
Designated as Hedging
|
Designated as
|
|||||||||||||||
| Instruments | Hedging Instruments | |||||||||||||||
|
Foreign
|
Foreign
|
Foreign
|
Foreign
|
|||||||||||||
| Derivative contracts: | Exchange | Exchange | Exchange | Exchange | ||||||||||||
|
Net
|
Net
|
|||||||||||||||
|
Derivative classification:
|
Cash Flow | Investment | Cash Flow | Investment | ||||||||||||
|
Amount of gain or (loss) recognized in other comprehensive
income – effective portion, net of tax:
|
$ | 8,513 | $ | – | $ | 14,427 | $ | (1,727 | ) | |||||||
|
Amount and location of net gain or (loss) reclassified from
accumulated OCI to income – effective portion:
|
||||||||||||||||
|
Revenue
|
$ | 9,817 | $ | – | $ | (18,293 | ) | $ | – | |||||||
|
Amount and location of net gain or (loss) reclassified from
accumulated OCI to income – ineffective portion and
amount excluded from effectiveness testing:
|
||||||||||||||||
|
Other income (expense), net
|
$ | – | $ | – | $ | – | $ | – | ||||||||
| Year Ended December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||||||
| Not Designated as Hedging Instruments | Not Designated as Hedging Instruments | |||||||||||||||||||||||
| Derivative contracts: | Foreign Exchange | Leases | Foreign Exchange | Leases | ||||||||||||||||||||
|
Option and
|
Option and
|
|||||||||||||||||||||||
|
Forward
|
Embedded
|
Forward
|
Embedded
|
|||||||||||||||||||||
|
Derivative classification:
|
Contracts | Fair Value | Derivative | Contracts | Fair Value | Derivative | ||||||||||||||||||
|
Amount and location of net gain or (loss) recognized in the
Consolidated Statement of Operations:
|
||||||||||||||||||||||||
|
Cost of services
|
$ | – | $ | – | $ | 230 | $ | – | $ | – | $ | 1,108 | ||||||||||||
|
Other income (expense), net
|
(42 | ) | 3,693 | – | (87 | ) | (144 | ) | – | |||||||||||||||
F-23
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| (11) | 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 December 31, 2010
of the Company’s assets and liabilities required to be
measured at fair value on a recurring basis, as well as the fair
value hierarchy used to determine their fair value.
Accounts Receivable and Payable
- The amounts recorded in
the accompanying balance sheets approximate fair value because
of their short-term nature.
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
December 31, 2010, the Company had no borrowings
outstanding under the Credit Agreement. During 2010, borrowings
accrued interest at an outstanding average rate of 1.5% per
annum; excluding unused commitment fees.
Derivatives –
Net derivative assets
(liabilities) measured at fair value on a recurring basis
included the following (amounts in thousands):
The portfolio is valued using models based on market observable
inputs, including both forward and spot foreign exchange rates,
implied volatility, and counterparty credit risk, including the
ability of each party to execute its obligations under the
contract. As of December 31, 2010, credit risk did not
materially change the fair value of the Company’s foreign
currency forward and option contracts.
The following is a summary of the Company’s fair value
measurements as of December 31, 2010 and 2009 (amounts in
thousands):
As of
December 31, 2010
| Fair Value Measurements Using | ||||||||||||||||
|
Quoted Prices
|
Significant
|
|||||||||||||||
|
in Active
|
Other
|
Significant
|
||||||||||||||
|
Markets for
|
Observable
|
Unobservable
|
||||||||||||||
| Identical Assets | Inputs | Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | At Fair Value | |||||||||||||
|
Cash flow hedges
|
$ | – | $ | 11,902 | $ | – | $ | 11,902 | ||||||||
|
Fair value hedges
|
– | 725 | – | 725 | ||||||||||||
|
Embedded derivatives
|
– | (139 | ) | – | (139 | ) | ||||||||||
|
Option and Forward Contracts
|
– | – | – | – | ||||||||||||
|
Total net derivative asset (liability)
|
$ | – | $ | 12,488 | $ | – | $ | 12,488 | ||||||||
F-24
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
As of
December 31, 2009
| Fair Value Measurements Using | ||||||||||||||||
|
Quoted Prices
|
Significant
|
|||||||||||||||
|
in Active
|
Other
|
Significant
|
||||||||||||||
|
Markets for
|
Observable
|
Unobservable
|
||||||||||||||
| Identical Assets | Inputs | Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | At Fair Value | |||||||||||||
|
Cash flow hedges
|
$ | – | $ | 8,104 | $ | – | $ | 8,104 | ||||||||
|
Fair value hedges
|
– | (108 | ) | – | (108 | ) | ||||||||||
|
Embedded derivatives
|
– | (369 | ) | – | (369 | ) | ||||||||||
|
Option and Forward Contracts
|
– | 42 | – | 42 | ||||||||||||
|
Total net derivative asset (liability)
|
$ | – | $ | 7,669 | $ | – | $ | 7,669 | ||||||||
As of
December 31, 2010
| Fair Value Measurements Using | ||||||||||||
|
Quoted Prices in
|
Significant
|
|||||||||||
|
Active Markets for
|
Significant Other
|
Unobservable
|
||||||||||
| Identical Assets | Observable Inputs |
Inputs
|
||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||
|
Assets
|
||||||||||||
|
Money market investments
|
$ | – | $ | 19,668 | $ | – | ||||||
|
Derivative instruments, net
|
$ | – | $ | 12,488 | $ | – | ||||||
|
Total assets
|
$ | – | $ | 32,156 | $ | – | ||||||
|
Liabilities
|
||||||||||||
|
Deferred compensation plan liability
|
$ | – | $ | (3,781 | ) | $ | – | |||||
|
Purchase price payable
|
$ | – | $ | – | $ | (4,506 | ) | |||||
|
Total liabilities
|
$ | – | $ | (3,781 | ) | $ | (4,506 | ) | ||||
As of
December 31, 2009
| Fair Value Measurements Using | ||||||||||||
|
Quoted Prices in
|
Significant
|
|||||||||||
|
Active Markets for
|
Significant Other
|
Unobservable
|
||||||||||
|
Identical Assets
|
Observable Inputs
|
Inputs
|
||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||
|
Assets
|
||||||||||||
|
Money market investments
|
$ | – | $ | – | $ | – | ||||||
|
Derivative instruments, net
|
$ | – | $ | 7,669 | $ | – | ||||||
|
Total assets
|
$ | – | $ | 7,669 | $ | – | ||||||
|
Liabilities
|
||||||||||||
|
Deferred compensation plan liability
|
$ | – | $ | (3,399 | ) | $ | – | |||||
|
Total liabilities
|
$ | – | $ | (3,399 | ) | $ | – | |||||
Money Market Investments
– The Company invests
in various well-diversified money market funds which are managed
by financial institutions. These money market funds are not
publicly traded, but have historically been highly liquid. The
value of the money market funds are determined by the banks
based upon the funds’ net asset values (“NAV”).
All of the money market funds currently permit daily investments
and redemptions at a $1.00 NAV.
Deferred Compensation Plan
– The Company
maintains a non-qualified deferred compensation plan structured
as a Rabbi trust for certain eligible employees. Participants in
the deferred compensation plan
F-25
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
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.
| (12) | INCOME TAXES |
The sources of pre-tax accounting income are as follows (amounts
in thousands):
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Domestic
|
$ | 19,891 | $ | 34,791 | $ | 23,113 | ||||||||
|
Foreign
|
62,078 | 68,252 | 81,491 | |||||||||||
|
Total
|
$ | 81,969 | $ | 103,043 | $ | 104,604 | ||||||||
The components of the Company’s Provision for income taxes
are as follows (amounts in thousands):
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Current provision
|
||||||||||||||
|
Federal
|
$ | 9,612 | $ | 7,751 | $ | 8,480 | ||||||||
|
State
|
1,391 | (317 | ) | 933 | ||||||||||
|
Foreign
|
20,458 | 13,977 | 17,104 | |||||||||||
|
Total current provision
|
31,461 | 21,411 | 26,517 | |||||||||||
|
Deferred provision (benefit)
|
||||||||||||||
|
Federal
|
(128 | ) | 7,027 | 1,009 | ||||||||||
|
State
|
(17 | ) | 460 | 331 | ||||||||||
|
Foreign
|
(2,885 | ) | (1,421 | ) | (588 | ) | ||||||||
|
Total deferred provision (benefit)
|
(3,030 | ) | 6,066 | 752 | ||||||||||
|
Total provision for income taxes
|
$ | 28,431 | $ | 27,477 | $ | 27,269 | ||||||||
F-26
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
The following reconciles the Company’s effective tax rate
to the federal statutory rate (amounts in thousands):
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Income tax per U.S. federal statutory rate (35%)
|
$ | 28,689 | $ | 36,084 | $ | 36,611 | ||||||||
|
State income taxes, net of federal deduction
|
2,079 | 1,015 | 716 | |||||||||||
|
Change in valuation allowances
|
5,645 | (2,855 | ) | (2,825 | ) | |||||||||
|
Foreign income taxes at different rates than the U.S.
|
(12,499 | ) | (12,812 | ) | (11,426 | ) | ||||||||
|
Foreign withholding taxes
|
989 | 3,402 | 2,501 | |||||||||||
|
Increase to current/deferred tax assets due to implementation of
tax planning strategies
|
(4,910 | ) | – | – | ||||||||||
|
Losses in international markets without tax benefits
|
964 | 856 | 560 | |||||||||||
|
Nondeductible compensation under Section 162(m)
|
1,002 | 1,162 | 175 | |||||||||||
|
Liabilities for uncertain tax positions
|
(2,695 | ) | 401 | (72 | ) | |||||||||
|
Permanent difference related to foreign exchange gains
|
(46 | ) | (110 | ) | (149 | ) | ||||||||
|
(Income)/losses of foreign branch operations
|
2,340 | (78 | ) | 2,501 | ||||||||||
|
Non-taxable earnings of minority interest
|
(603 | ) | (434 | ) | (863 | ) | ||||||||
|
Foreign dividend less foreign tax credits
|
5,344 | – | – | |||||||||||
|
Increase in deferred tax liability – branch losses in
UK
|
2,586 | – | – | |||||||||||
|
Increase to deferred tax asset – change in state tax
rate
|
(588 | ) | – | – | ||||||||||
|
Other
|
134 | 846 | (460 | ) | ||||||||||
|
Income tax per effective tax rate
|
$ | 28,431 | $ | 27,477 | $ | 27,269 | ||||||||
The Company’s deferred income tax assets and liabilities
are summarized as follows (amounts in thousands):
| Year Ended December 31, | ||||||||||
| 2010 | 2009 | |||||||||
|
Deferred tax assets, gross
|
||||||||||
|
Accrued workers compensation, deferred compensation and employee
benefits
|
$ | 2,337 | $ | 4,014 | ||||||
|
Allowance for doubtful accounts, insurance and other accruals
|
8,402 | 6,258 | ||||||||
|
Depreciation and amortization
|
12,579 | 11,279 | ||||||||
|
Amortization of deferred rent liabilities
|
2,624 | 5,273 | ||||||||
|
Net operating losses
|
19,126 | 13,756 | ||||||||
|
Equity compensation
|
7,010 | 5,979 | ||||||||
|
Customer acquisition and deferred revenue accruals
|
1,905 | 3,071 | ||||||||
|
Federal and state tax credits, net
|
18,450 | 14,972 | ||||||||
|
Contract acquisition costs
|
241 | – | ||||||||
|
Other
|
5,431 | 4,555 | ||||||||
|
Total deferred tax assets, gross
|
78,105 | $ | 69,157 | |||||||
|
Valuation allowances
|
(22,636 | ) | (20,363 | ) | ||||||
|
Total deferred tax assets, net
|
55,469 | $ | 48,794 | |||||||
|
Deferred tax liabilities
|
||||||||||
|
Long-term lease obligations
|
(28 | ) | (1,327 | ) | ||||||
|
Unrealized gains on derivatives
|
(4,810 | ) | (2,851 | ) | ||||||
|
Contract acquisition costs
|
– | (505 | ) | |||||||
|
Future losses in UK
|
(4,554 | ) | (1,967 | ) | ||||||
|
Other
|
(5,157 | ) | (2,851 | ) | ||||||
|
Total deferred tax liabilities
|
(14,549 | ) | (9,501 | ) | ||||||
|
Net deferred tax assets
|
$ | 40,920 | $ | 39,293 | ||||||
F-27
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
The Company periodically reviews the likelihood that deferred
tax assets will be realized in future tax periods under the
“more likely than not” criteria. In making this
judgment, the Company evaluates all available evidence, both
positive and negative, to determine whether, based on the weight
of that evidence, a valuation allowance is required.
As of December 31, 2010 the Company had approximately
$22.0 million of net deferred tax assets in the
U.S. and $19.0 million of net deferred tax assets
related to certain international locations whose recoverability
is dependent upon their future profitability. As of
December 31, 2010 the deferred tax valuation allowance was
$22.6 million and related primarily to tax losses in
foreign jurisdictions and U.S. federal and state tax
credits which do not meet the “more-likely-than-not”
standard under current accounting guidance. The utilization of
these state tax credits are subject to numerous factors
including various expiration dates, generation of future taxable
income over extended periods of time and state income tax
apportionment factors which are subject to change.
When there is a change in judgment concerning the recovery of
deferred tax assets in future periods, a valuation allowance is
recorded into earnings during the quarter in which the change in
judgment occurred. In 2010, the Company made adjustments to its
deferred tax assets and corresponding valuation allowances. The
net change to the valuation allowance of $6.6 million was
due to a $3.7 million valuation allowance for its deferred
tax assets in Spain that do not meet the
“more-likely-than-not” standard and a
$2.1 million increase in the United States primarily for
valuation of executive compensation that may be limited for tax
purposes in the future and certain state credits and NOLs that
do not meet the “more-likely-than-not” standard; and a
$0.8 million increase in the valuation allowance in certain
other foreign jurisdictions.
On February 20, 2011 the Company received notice of an
adverse decision by the Canadian Revenue Agency
(“CRA”) in regards to the Company’s attempt to
recover taxes paid to Canada with respect to the years 2001 and
2002. In 2005, through the Competent Authority process, the
Company sought relief under the United States-Canada Income Tax
Convention for avoidance of double taxation arising from
adjustments to the taxable income originally reported to these
jurisdictions. At December 31, 2010, the Company continued
to believe that collection of the income tax receivable was more
likely than not. Upon receipt of the notification, the Company
can no longer conclude that the collection of this income tax
receivable is more likely than not. Consistent with accounting
for tax positions that no longer meet the recognition criteria,
the Company expects to reverse the income tax receivable of
$8.9 million (which includes $3.9 million of
accumulated foreign exchange gains since the position was first
established in 2005) through income tax expense in the
first quarter of 2011. The Company continues to believe in the
merits of its claim for which it sought relief from double
taxation through the Competent Authority process. As such, the
Company is exploring and intends to vigorously pursue any
available remedies in response to the CRA decision.
As of December 31, 2010, after consideration of all tax
loss and tax credit carry back opportunities, the Company had
net foreign tax loss carry forwards expiring as follows (amounts
in thousands):
|
2011
|
$ | – | ||
|
2012
|
– | |||
|
2013
|
– | |||
|
2014
|
7,073 | |||
|
2015
|
340 | |||
|
No expiration
|
29,480 | |||
|
Total
|
$ | 36,893 | ||
As of December 31, 2010, domestically, the Company had a
state tax credit carry-forwards of $9.4 million that if
unused will expire between 2011 and 2023.
As of December 31, 2010 the cumulative amount of foreign
earnings considered permanently invested outside the
U.S. was $209.0 million. Those earnings do not include
earnings from certain subsidiaries
F-28
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
which the Company intends to repatriate to the U.S. or are
otherwise considered available for distribution to the
U.S. Accordingly, no provision for U.S. federal or
state income taxes or foreign withholding taxes has been
provided on these undistributed earnings. If these earnings
become taxable in the U.S, the Company would be subject to
incremental tax expense, after any applicable foreign tax
credit, and foreign withholding tax expense.
The Company has been granted “Tax Holidays” as an
incentive to attract foreign investment by the governments of
the Philippines and Costa Rica. Generally, a Tax Holiday is an
agreement between the Company and a foreign government under
which the Company receives certain tax benefits in that country,
such as exemption from taxation on profits derived from
export-related activities. In the Philippines, the Company has
been granted 14 separate agreements with an initial period of
four years and additional periods for varying years, expiring at
various times between 2011 and 2013. The aggregate effect on
income tax expense for the years ended December 31, 2010,
2009 and 2008 was approximately $7.6 million,
$8.9 million and $9.2 million, respectively, which had
a favorable impact on net income per share of $0.13, $0.14 and
$0.14, respectively.
Accounting for
Uncertainty in Income Taxes
In accordance with ASC 740, the Company has recorded a
reserve for uncertain tax positions. The total amount of
interest and penalties recognized in the accompanying
Consolidated Statements of Operations and Comprehensive Income
(Loss) as of December 31, 2010 was approximately
$0.1 million and the total amount of interest and penalties
recognized in the accompanying Consolidated Balance Sheets as of
December 31, 2010 was approximately $0.1 million.
The Company had a reserve for uncertain tax benefits, on a net
basis, of $9.0 million and $19.1 million for the years
ended December 31, 2010 and 2009, respectively. The
liability for uncertain tax positions was reduced by
$3.8 million for tax positions that were resolved favorably
or expired. It was also reduced by $9.2 million on account
of new information used in the measurement of an unrecognized
tax benefit. It is also reasonably possible that a substantial
change in the amount of unrecognized tax benefits will occur in
2011. The Company anticipates it is reasonably possible that it
will reach a settlement with the IRS concerning disallowed
deductions on the Company’s 2002 tax year. The amount of
unrecognized tax benefits associated with this issue is
$8.1 million. The range of settlements, which would
positively affect income tax expense in 2011, is between
$2.1 million and $8.1 million. If the Company
recognized these remaining unrecorded tax benefits,
approximately $9.0 million of tax benefits and tax related
interest and penalties accrued, such recognition would favorably
impact the effective tax rate.
The tabular reconciliation of the reserve for uncertain tax
benefits on a gross basis for the year ended December 31,
2010 is presented below (amounts in thousands):
|
Balance as of December 31, 2007
|
$ | 21,932 | ||||
|
Additions for current year tax positions
|
613 | |||||
|
Reductions in prior year tax positions
|
(627 | ) | ||||
|
Balance as of December 31, 2008
|
$ | 21,918 | ||||
|
Additions for current year tax positions
|
352 | |||||
|
Reductions in prior year tax positions
|
(238 | ) | ||||
|
Balance as of December 31, 2009
|
$ | 22,032 | ||||
|
Additions for current year tax positions
|
28 | |||||
|
Reductions in prior year tax positions
|
(13,025 | ) | ||||
|
Balance as of December 31, 2010
|
$ | 9,035 | ||||
F-29.1
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
The Company and its domestic and foreign subsidiaries (including
Percepta LLC and its domestic and foreign subsidiaries) file
income tax returns as required in the U.S. federal
jurisdiction and various state and foreign jurisdictions. The
following table presents the major tax jurisdictions and tax
years that are open as of December 31, 2010 and subject to
examination by the respective tax authorities:
|
Tax Jurisdiction
|
Tax Year Ended | |
|
United States
|
2002 to 2004 and 2007 to present | |
|
Argentina
|
2005 to present | |
|
Australia
|
2006 to present | |
|
Brazil
|
2002 to present | |
|
Canada
|
2003 to present | |
|
Mexico
|
2005 to present | |
|
Philippines
|
2008 to present | |
|
Spain
|
2006 to present |
The Company’s U.S. income tax returns filed for the
tax years ending December 31, 2002 through 2004, and 2007
to present, remain open tax years subject to IRS audit. The
Company has been notified of the intent to audit, or is
currently under audit of income taxes in the Philippines.
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 in
the Company’s Consolidated Financial Statements.
| (13) | RESTRUCTURING CHARGES AND IMPAIRMENT LOSSES |
Restructuring
Charges
During the year ended December 31, 2010, the Company
undertook a number of restructuring activities primarily
associated with reductions in the Company’s capacity and
workforce in both the North American BPO and International BPO
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 Operations and
Comprehensive Income (Loss) for the years ended
December 31, 2010, 2009 and 2008, respectively, is as
follows (amounts in thousands):
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
North American BPO
|
||||||||||||||
|
Reduction in force
|
$ | 7,891 | $ | 4,008 | $ | 744 | ||||||||
|
Facility exit charges
|
320 | 408 | 2,385 | |||||||||||
|
Changes in estimates
|
(5 | ) | (1,028 | ) | (182 | ) | ||||||||
|
Total
|
$ | 8,206 | $ | 3,388 | $ | 2,947 | ||||||||
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
International BPO
|
||||||||||||||
|
Reduction in force
|
$ | 5,189 | $ | 1,516 | $ | 3,169 | ||||||||
|
Facility exit charges
|
89 | 168 | – | |||||||||||
|
Changes in estimates
|
(8 | ) | – | – | ||||||||||
|
Total
|
$ | 5,270 | $ | 1,684 | $ | 3,169 | ||||||||
F-30
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Database Marketing and Consulting
|
||||||||||||||
|
Reduction in force
|
$ | – | $ | – | $ | 8 | ||||||||
|
Changes in estimates
|
– | – | (65 | ) | ||||||||||
|
Total
|
$ | – | $ | – | $ | (57 | ) | |||||||
A rollforward of the activity in the Company’s
restructuring accruals for the years ended December 31,
2010 and 2009, respectively, is as follows (amounts in
thousands):
|
Closure of Delivery
|
||||||||||||||
| Centers | Reduction in Force | Total | ||||||||||||
|
Balance as of December 31, 2008
|
$ | 2,113 | $ | – | $ | 2,113 | ||||||||
|
Expense
|
576 | 5,524 | 6,100 | |||||||||||
|
Payments
|
(1,286 | ) | (5,511 | ) | (6,797 | ) | ||||||||
|
Changes in estimates
|
(1,028 | ) | – | (1,028 | ) | |||||||||
|
Balance as of December 31, 2009
|
375 | 13 | 388 | |||||||||||
|
Expense
|
409 | 13,080 | 13,489 | |||||||||||
|
Payments
|
(89 | ) | (4,813 | ) | (4,902 | ) | ||||||||
|
Changes in estimates
|
– | (13 | ) | (13 | ) | |||||||||
|
Balance as of December 31, 2010
|
$ | 695 | $ | 8,267 | $ | 8,962 | ||||||||
During 2010 and 2009, the Company determined that $13 thousand
and $1.0 million, respectively, of previously recorded
restructuring expenses would not be paid and these amounts were
reversed against restructuring expense and included as a
revision of prior estimates in the table above.
The remaining reduction in force accrual is expected to be paid
during 2011, with the remaining accrual for the closure of
delivery centers to be paid or extinguished no later than 2012.
Impairment
Losses
The Company evaluated the recoverability of its leasehold
improvement assets at certain delivery centers. An asset is
considered to be impaired when the anticipated undiscounted
future cash flows of an asset group are estimated to be less
than the asset group’s carrying value. The amount of
impairment recognized is the difference between the carrying
value of the asset group and its fair value. To determine fair
value, the Company used Level 3 inputs in its discounted
cash flows analysis. Assumptions included the amount and timing
of estimated future cash flows and assumed discount rates.
During 2010, the Company recognized impairment losses related to
leasehold improvement assets of $1.4 million in its North
American BPO segment and $0.6 million in its International
BPO segment.
During 2009, the Company recognized impairment losses of
$2.8 million in its International BPO segment, related to
the exiting of $2.0 million of certain delivery centers and
an $0.8 million impairment loss based on the Company’s
evaluation of the recoverability of its leasehold improvement
and other intangible assets. During 2009, the Company recognized
impairment losses of $1.8 million in its North American BPO
segment based on the Company’s evaluation of the
recoverability of its leasehold improvement assets.
During 2008, the Company recognized impairment losses of
$1.8 million and $0.2 million in its North American
BPO and International BPO segments, respectively, based on the
Company’s evaluation of the recoverability of its leasehold
improvement assets.
F-31
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| (14) | INDEBTEDNESS |
Credit
Facility
On October 1, 2010, the Company entered into a credit
agreement (the “Credit Agreement”) with a syndicate of
lenders led by KeyBank National Association, Wells Fargo Bank,
National Association, Bank of America, N.A., BBVA Compass, and
JPMorgan Chase Bank, N.A. The Credit Agreement amends and
restates in its entirety the Company’s prior credit
facility entered into during 2006.
The Credit Agreement provides for a secured revolving credit
facility that matures on September 30, 2015 with an initial
maximum aggregate commitment of $350.0 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 $500.0 million 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.
Base rate loans bear interest at a rate equal to the greatest of
(i) KeyBank National Association’s prime rate,
(ii) the federal funds effective rate plus 0.5% or
(iii) the one month London Interbank Offered Rate
(“LIBOR”) plus 1.25%, in each case adding a margin
based upon the Company’s leverage ratio. Eurodollar and
alternate currency loans bear interest based upon LIBOR, as
adjusted for prescribed bank reserves, plus a margin based upon
the Company’s leverage ratio. Letter of credit fees are
0.125% of the stated amount of the letter of credit on the date
of issuance, renewal or amendment, plus an annual fee equal to
the borrowing margin for Eurodollar loans. Facility fees are
payable to the Lenders in an amount equal to the unused portion
of the credit facility and are based upon the Company’s
leverage ratio.
Indebtedness under the Credit Agreement is guaranteed by certain
of the Company’s present and future domestic subsidiaries.
Indebtedness under the Credit Agreement and the related
guarantees are secured by security interests (subject to
permitted liens) in the U.S. accounts receivable and cash
of the Company and certain of its domestic subsidiaries and may
be secured by tangible assets of the Company and such domestic
subsidiaries if borrowings by foreign subsidiaries exceed
$50.0 million and the leverage ratio is greater than 2.50
to 1.00. The Company also pledged 65% of the voting stock and
100% of the non-voting stock of certain of the Company’s
material foreign subsidiaries and may pledge 65% of the voting
stock and 100% of the non-voting stock of the Company’s
other foreign subsidiaries.
The Credit Agreement, which includes customary financial
covenants, may be used for general corporate purposes, including
working capital, purchases of treasury stock and acquisition
financing. As of December 31, 2010, the Company was in
compliance with all financial covenants. During 2010, 2009 and
2008, borrowings accrued interest at an average rate of
approximately 1.5%, 1.2%, and 4.0% per annum, respectively;
excluding unused commitment fees. The Company’s daily
average borrowings during 2010, 2009 and 2008 were
$62.5 million, $74.3 million and $101.8 million,
respectively. As of both December 31, 2010 and 2009, the
Company had no outstanding borrowings under the Credit Agreement
or the previous credit facility. Availability under the Credit
Agreement was $345.4 million as of December 31, 2010,
which represents the $350.0 million less $4.6 million
in issued letters of credit. As of December 31, 2009, the
availability under the credit facility was $220.2 million,
which was $225.0 million less $4.8 million in issued
letters of credit.
The Company has unsecured, uncommitted lines of credit to
support working capital for a few foreign subsidiaries. As of
December 31, 2010, only one loan was outstanding for
approximately $0.6 million,
F-32
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
which was included in Other current liabilities in the
accompanying Consolidated Balance Sheets. The line of credit
accrues interest at 6.0% per annum.
| (15) | DEFERRED TRAINING REVENUE AND COSTS |
Deferred training revenue in the accompanying Consolidated
Balance Sheets consist of the following (amounts in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Deferred Training Revenue – Current
|
$ | 4,060 | $ | 7,083 | ||||
|
Deferred Training Revenue – Long-term
|
2,669 | 2,297 | ||||||
|
Total Deferred Training Revenue
|
$ | 6,729 | $ | 9,380 | ||||
Activity for the Company’s Deferred training revenue was as
follows (amounts in thousands):
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Balance, beginning of year
|
$ | 9,380 | $ | 15,308 | $ | 12,662 | ||||||||
|
Add: Amounts deferred due to new business
|
7,711 | 17,853 | 20,961 | |||||||||||
|
Less: Revenue recognized
|
(10,446 | ) | (24,415 | ) | (17,830 | ) | ||||||||
|
Net increase/(decrease) in deferred revenue
|
(2,735 | ) | (6,562 | ) | 3,131 | |||||||||
|
Effect of foreign currency
|
84 | 634 | (485 | ) | ||||||||||
|
Balance, end of year
|
$ | 6,729 | $ | 9,380 | $ | 15,308 | ||||||||
Deferred training costs in the accompanying Consolidated Balance
Sheets consist of the following (amounts in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Deferred Training Costs – Current
|
$ | 1,135 | $ | 2,800 | ||||
|
Deferred Training Costs – Long-term
|
586 | 779 | ||||||
|
Total Deferred Training Costs
|
$ | 1,720 | $ | 3,579 | ||||
Activity for the Company’s Deferred training costs was as
follows (amounts in thousands):
| Year Ended December 31, | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
|
Balance, beginning of year
|
$ | 3,579 | $ | 6,559 | $ | 5,327 | ||||||||
|
Add: Amounts deferred due to new business
|
2,188 | 7,180 | 8,916 | |||||||||||
|
Less: Recognized expense
|
(4,067 | ) | (10,119 | ) | (7,452 | ) | ||||||||
|
Net increase/(decrease) in deferred costs
|
(1,879 | ) | (2,939 | ) | 1,464 | |||||||||
|
Effect of foreign currency
|
20 | (41 | ) | (232 | ) | |||||||||
|
Balance, end of year
|
$ | 1,720 | $ | 3,579 | $ | 6,559 | ||||||||
| (16) | COMMITMENTS AND CONTINGENCIES |
Letters of
Credit
As of December 31, 2010, outstanding letters of credit and
other performance guarantees totaled approximately
$5.5 million, which primarily guarantee workers’
compensation and other insurance-related obligations.
F-33
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Guarantees
The Company’s Credit Facility is guaranteed by certain of
the Company’s domestic subsidiaries.
On March 31, 2010, the Company sold a corporate aircraft
that was financed under a synthetic operating lease.
Accordingly, the Company elected to exercise its purchase option
rights under the lease for a specified amount. Simultaneous with
the purchase, the Company sold the aircraft to an unrelated
third-party. The proceeds from the aircraft sale were used to
satisfy the lease obligations and other sales-related expenses,
with the Company realizing a net gain of approximately $137,000,
which was recorded in Other income (expense), net in the
accompanying Consolidated Statements of Operations and
Comprehensive Income (Loss) during 2010.
Legal
Proceedings
From time to time, we have been involved in claims and lawsuits,
both as plaintiff and defendant, which arise in the ordinary
course of business. Accruals for claims or lawsuits have been
provided for to the extent that losses are deemed both probable
and estimable. Although the ultimate outcome of these claims or
lawsuits cannot be ascertained, on the basis of present
information and advice received from counsel, we believe that
the disposition or ultimate resolution of such claims or
lawsuits will not have a material adverse effect on our
financial position, cash flows or results of operations.
Securities
Class Action
On January 25, 2008, a class action lawsuit was filed in
the United States District Court for the Southern District of
New York entitled
Beasley v. TeleTech Holdings, Inc., et
al.
against TeleTech, certain current directors and officers
and others alleging violations of Sections 11, 12(a)(2) and
15 of the Securities Act, Section 10(b) of the Securities
Exchange Act and
Rule 10b-5
promulgated thereunder and Section 20(a) of the Securities
Exchange Act. The complaint alleged, among other things, false
and misleading statements in the Registration Statement and
Prospectus in connection with (i) a March 2007 secondary
offering of common stock and (ii) various disclosures made
and periodic reports filed by the Company between
February 8, 2007 and November 8, 2007. On
February 25, 2008, a second nearly identical class action
complaint, entitled
Brown v. TeleTech Holdings, Inc., et
al.,
was filed in the same court. On May 19, 2008, the
actions described above were consolidated under the caption
In re: TeleTech Litigation
and lead plaintiff and lead
counsel were approved. On October 21, 2009, the Company and
the other defendants named executed a stipulation of settlement
with the lead plaintiffs to settle the consolidated class action
lawsuit. On June 11, 2010, the United States District Court
for the Southern District of New York issued final approval of
the settlement. The Company paid $225,000 of the total
settlement amount, which had been included in Other accrued
expenses in the accompanying Consolidated Balance Sheets at
December 31, 2009; the remaining settlement amount was
covered by the Company’s insurance carriers.
Derivative
Action
On July 28, 2008, a shareholder derivative action was filed
in the Court of Chancery, State of Delaware, entitled
Susan
M. Gregory v. Kenneth D. Tuchman, et al.
, against
certain of TeleTech’s former and current officers and
directors alleging, among other things, that the individual
defendants breached their fiduciary duties and were unjustly
enriched in connection with: (i) equity grants made in
excess of plan limits; and (ii) manipulating the grant
dates of stock option grants from 1999 through 2008. TeleTech
was named solely as a nominal defendant against whom no recovery
is sought. On October 26, 2009, the Company and other
defendants in the derivative action executed a stipulation of
settlement with the lead plaintiffs to settle the derivative
action. On January 5, 2010, the Court of Chancery, State of
Delaware issued final approval of the settlement. The total
amount paid under the approved settlement was covered by the
Company’s insurance carriers.
F-34
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| (17) | LEASES |
The Company has various operating leases primarily for
equipment, delivery centers and office space, which generally
contain renewal options. Rent expense under operating leases was
approximately $30.2 million, $29.7 million and
$31.7 million for the years ended December 31, 2010,
2009 and 2008, respectively.
In 2008, the Company
sub-leased
one of its delivery centers to a third party for the remaining
term of the original lease. The
sub-lease
began on January 1, 2009 and rental income received over
the term of the lease will be recognized on a straight-line
basis. Future minimum
sub-lease
rental receipts are shown in the table below.
The future minimum rental payments and receipts required under
non-cancelable operating leases as of December 31, 2010 are
as follows (amounts in thousands):
|
Operating
|
Sub-Lease
|
|||||||
| Leases | Income | |||||||
|
2011
|
$ | 25,927 | $ | 1,752 | ||||
|
2012
|
18,531 | 1,823 | ||||||
|
2013
|
12,131 | 1,823 | ||||||
|
2014
|
7,242 | 1,823 | ||||||
|
2015
|
3,372 | 2,234 | ||||||
|
Thereafter
|
7,392 | 12,083 | ||||||
|
Total
|
$ | 74,595 | $ | 21,538 | ||||
In addition, the Company records operating lease expense on a
straight-line basis over the life of the lease as described in
Note 1. The deferred lease liability as of
December 31, 2010 and 2009 was $10.4 million and
$14.0 million, respectively.
The future minimum rental payments for capital leases as of
December 31, 2010 are as follows (amounts in thousands) and
the current portion and the long-term portion of the obligation
are included in the Other current liabilities in the
accompanying Consolidated Balance Sheets:
|
Capital
|
||||
| Leases | ||||
|
2011
|
$ | 1,532 | ||
|
2012
|
403 | |||
|
Total
|
1,935 | |||
|
Less amount representing interest
|
(126 | ) | ||
|
Present value of minimum lease payments
|
1,809 | |||
|
Less current portion
|
(1,417 | ) | ||
|
Long-term portion
|
$ | 392 | ||
F-35
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
The Company has two delivery centers classified as capital
leases at December 31, 2010. The amounts applicable to
these leases as included in property, plant and equipment are as
follows (amounts in thousands):
| December 31, | ||||||||||
| 2010 | 2009 | |||||||||
|
Historical cost
|
$ | 12,181 | $ | 12,181 | ||||||
|
Less: Accumulated depreciation
|
(11,871 | ) | (10,435 | ) | ||||||
| $ | 310 | $ | 1,746 | |||||||
Asset Retirement
Obligations
The Company records asset retirement obligations for its
delivery center leases. Capitalized costs related to asset
retirement obligations are included in Other long-term assets in
the accompanying Consolidated Balance Sheets while the asset
retirement obligation (“ARO”) liability is included in
Other long-term liabilities in the accompanying Consolidated
Balance Sheets. Following is a summary of the amounts recorded
(amounts in thousands):
|
Balance at
|
Balance at
|
|||||||||||||||||||
|
December 31,
|
Additions and
|
December 31,
|
||||||||||||||||||
| 2009 | Modifications | Accretion | Settlements | 2010 | ||||||||||||||||
|
ARO liability at inception
|
$ | 1,798 | $ | 406 | $ | – | $ | (559 | ) | $ | 1,645 | |||||||||
|
Accumulated accretion
|
805 | – | $ | 82 | $ | (232 | ) | 655 | ||||||||||||
| $ | 2,603 | $ | 406 | $ | 82 | $ | (791 | ) | $ | 2,300 | ||||||||||
|
Balance at
|
Balance at
|
|||||||||||||||||||
|
December 31,
|
Additions and
|
December 31,
|
||||||||||||||||||
| 2008 | Modifications | Accretion | Settlements | 2009 | ||||||||||||||||
|
ARO liability at inception
|
$ | 1,788 | $ | 183 | $ | – | $ | (173 | ) | $ | 1,798 | |||||||||
|
Accumulated accretion
|
702 | 8 | 90 | 5 | 805 | |||||||||||||||
| $ | 2,490 | $ | 191 | $ | 90 | $ | (168 | ) | $ | 2,603 | ||||||||||
Increases to ARO result from a new lease agreement or
modifications on an ARO from a preexisting lease agreement.
Modifications to ARO liabilities and accumulated accretion occur
when lease agreements are amended or when assumptions change,
such as the rate of inflation. Modifications are accounted for
prospectively as changes in estimates. Settlements occur when
leased premises are vacated and the actual cost of restoration
is paid. Differences between the actual costs of restoration and
the balance recorded as ARO liabilities are recognized as gains
or losses in the accompanying Consolidated Statements of
Operations and Comprehensive Income (Loss).
F-36
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| (18) | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
The following table summarizes Accumulated other comprehensive
income (loss) for the periods indicated (amounts in thousands):
| Translation Adjustments | ||||||||||||||||||||||
|
Foreign
|
||||||||||||||||||||||
|
Currency
|
Net
|
Cash
|
||||||||||||||||||||
|
Translation
|
Investment
|
Flow
|
||||||||||||||||||||
| Adjustments | Hedges | Hedges | Other | Totals | ||||||||||||||||||
|
Accumulated other comprehensive income (loss) at
December 31, 2007
|
$ | 36,683 | $ | – | $ | 21,417 | $ | (212 | ) | $ | 57,888 | |||||||||||
|
Gross changes
|
(48,919 | ) | 507 | (64,171 | ) | 100 | (112,483 | ) | ||||||||||||||
|
Tax
|
– | – | 21,574 | – | 21,574 | |||||||||||||||||
|
Other comprehensive income (loss), net of tax
|
(48,919 | ) | 507 | (42,597 | ) | 100 | (90,909 | ) | ||||||||||||||
|
Accumulated other comprehensive income (loss) at
December 31, 2008
|
(12,236 | ) | 507 | (21,180 | ) | (112 | ) | (33,021 | ) | |||||||||||||
|
Gross changes
|
19,613 | (1,727 | ) | 47,072 | – | 64,958 | ||||||||||||||||
|
Tax
|
– | – | (21,424 | ) | – | (21,424 | ) | |||||||||||||||
|
Other comprehensive income (loss), net of tax
|
19,613 | (1,727 | ) | 25,648 | – | 43,534 | ||||||||||||||||
|
Accumulated other comprehensive income (loss) at
December 31, 2009
|
7,377 | (1,220 | ) | 4,468 | (112 | ) | 10,513 | |||||||||||||||
|
Gross changes
|
7,990 | – | 4,583 | (792 | ) | 11,781 | ||||||||||||||||
|
Tax
|
– | – | (1,960 | ) | – | (1,960 | ) | |||||||||||||||
|
Other comprehensive income (loss), net of tax
|
7,990 | – | 2,623 | (792 | ) | 9,821 | ||||||||||||||||
|
Accumulated other comprehensive income (loss) at
December 31, 2010
|
$ | 15,367 | $ | (1,220 | ) | $ | 7,091 | $ | (904 | ) | $ | 20,334 | ||||||||||
| (19) | NET INCOME PER SHARE |
The following table sets forth the computation of basic and
diluted net income per share for the periods indicated (amounts
in thousands):
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Shares used in basic earnings per share calculation
|
60,361 | 62,891 | 68,208 | |||||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Stock options
|
874 | 814 | 1,370 | |||||||||
|
Restricted stock units
|
557 | 533 | – | |||||||||
|
Total effects of dilutive securities
|
1,431 | 1,347 | 1,370 | |||||||||
|
Shares used in dilutive earnings per share calculation
|
61,792 | 64,238 | 69,578 | |||||||||
For the years ended December 31, 2010, 2009 and 2008,
0.1 million, 0.4 million and 0.3 million,
respectively, of options to purchase shares of common stock were
outstanding but not included in the
F-37
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
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 years ended December 31, 2010,
2009 and 2008, restricted stock units of 1.1 million,
0.8 million, and 1.1 million, respectively, were
outstanding but not included in the computation of diluted net
income per share because the effect would have been
anti-dilutive. For the years ended December 31, 2010, 2009
and 2008, restricted stock units that vest based on the Company
achieving specified operating income performance targets, of
0.1 million, 0.1 million and 0.4 million,
respectively, were outstanding but not included in the
computation of diluted net income per share because they were
not determined to be contingently issuable.
| (20) | EMPLOYEE COMPENSATION PLANS |
Employee Benefit
Plan
The Company has two 401(k) profit-sharing plans that allow
participation by U.S. employees who have completed six
months of service, as defined, and are 21 years of age or
older. Participants may defer up to 75% of their gross pay, up
to a maximum limit determined by U.S. federal law.
Participants are also eligible for a matching contribution. The
Company may from time to time, at its discretion, make a
“matching contribution” based on the amount and rate
of the elective deferrals. The Company determines how much, if
any, it will contribute for each dollar of elective deferrals.
Participants vest in matching contributions over a three-year
period. Company matching contributions to the 401(k) plans
totaled $2.2 million, $2.7 million and
$3.1 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Equity
Compensation Plans
In February 1999, the Company adopted the TeleTech Holdings,
Inc. 1999 Stock Option and Incentive Plan (the “1999
Plan”). The purpose of the 1999 Plan was to enable the
Company to continue to (a) attract and retain high quality
directors, officers, employees, consultants and independent
contractors; (b) motivate such persons to promote the
long-term success of the Company and its subsidiaries; and
(c) induce employees of companies that are acquired by
TeleTech to accept employment with TeleTech following such an
acquisition. The 1999 Plan supplemented the 1995 Option Plan. An
aggregate of 7.0 million shares of common stock were
reserved under the 1995 Option Plan and 14.0 million shares
of common stock were reserved for issuance under the 1999 Plan,
which permitted the award of incentive stock options,
non-qualified stock options, stock appreciation rights, shares
of restricted common stock and restricted stock units
(“RSUs”). The 1999 Plan also provided for annual
equity-based compensation grants to members of the
Company’s Board of Directors. Options granted to employees
generally vested over four to five years and had a contractual
life of ten years. Options issued to Directors vested
immediately and had a contractual life of ten years. In May of
2009, the Company adopted a policy to issue RSUs to Directors,
which generally vest over one year.
In May 2010, the Company adopted the 2010 Equity Incentive Plan
(the “2010 Plan”). Upon adoption of the 2010 Plan, all
authorized and unissued equity in both the 1995 Option Plan and
the 1999 Plan was cancelled. An aggregate of 4.0 million
shares of common stock has been reserved for issuance under the
2010 Plan, which permits the award of incentive stock options,
non-qualified stock options, stock appreciation rights, shares
of restricted common stock and restricted stock units. As of
December 31, 2010, a total of 4.0 million shares were
authorized and 3.8 million shares were available for
issuance under the 2010 Plan.
For the years ended December 31, 2010, 2009, and 2008, the
Company recorded total equity-based compensation expense under
all equity-based arrangements (stock options and RSUs) of
$13.4 million, $11.6 million and $10.3 million,
respectively. All compensation expense is included in Selling,
general and administrative expense in the accompanying
Consolidated Statements of Operations and Comprehensive Income
(Loss).
F-38
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Restricted Stock
Units
2007 RSU Awards:
Beginning in January 2007,
the Compensation Committee of the Company’s Board of
Directors granted RSUs under the 1999 Plan to certain members of
the Company’s management team. RSUs are intended to provide
management with additional incentives to promote the success of
the Company’s business, thereby aligning their interests
with the interests of the Company’s stockholders. One RSU
award was granted during 2007 for 500,000 shares and vests
equally over a
10-year
period. The Company granted an additional RSU award for
500,000 shares of which 50% vests equally over five years
and 50% is earned by achieving specific performance targets over
a five year period. Of the remaining RSUs granted during 2007,
one-third vest over five years based on the individual
recipient’s continued employment with the Company
(“time vesting RSUs”) and two-thirds vested pro-rata
over three years based on the Company achieving specified
operating income performance targets in each of the years 2007,
2008, and 2009 (“performance RSUs”). If the
performance target for a particular year is not met, the
performance RSUs scheduled to vest are canceled. The Company
records compensation expense for the performance RSUs when it
concludes that it is probable that the performance condition
will be achieved. Because the Company did not achieve the
operating income performance targets in 2010, the performance
RSUs were canceled. There were 50,000 performance RSUs
outstanding as of December 31, 2010.
2008, 2009 and 2010 RSU Awards:
The Company
granted additional RSUs in 2008, 2009 and 2010 to new and
existing employees that vest over four years. The Company also
granted RSUs in 2009 and 2010 to members of the Board of
Directors that generally vest over one year. There were no
performance vesting RSUs issued in 2008, 2009 and 2010. All RSUs
vested during the year ended December 31, 2010 were issued
out of treasury stock.
Summary of RSUs:
Settlement of the RSUs shall
be made in shares of the Company’s common stock by delivery
of one share of common stock for each RSU then being settled.
The Company calculates the fair value for RSUs based on the
closing price of the Company’s stock on the date of grant
and records compensation expense over the vesting period using a
straight-line method. The Company factors an estimated
forfeiture rate in calculating compensation expense on RSUs and
adjusts for actual forfeitures upon the vesting of each tranche
of RSUs.
The weighted-average grant date fair value of RSUs granted
during the years ended December 31, 2010, 2009, and 2008
was $17.82, $9.42, and $10.78 per share, respectively. The total
intrinsic value of RSUs vested during the years ended
December 31, 2010, 2009, and 2008 was $10.6 million,
$5.7 million, and $3.4 million.
A summary of the status of the Company’s non-vested RSUs
and activity for the year ended December 31, 2010 is as
follows:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Grant Date
|
||||||||
| Shares | Fair Value | |||||||
|
Unvested as of December 31, 2009
|
2,394,978 | $ | 17.67 | |||||
|
Granted
|
1,217,816 | $ | 17.82 | |||||
|
Vested
|
(599,941 | ) | $ | 15.95 | ||||
|
Cancellations/expirations
|
(303,651 | ) | $ | 14.80 | ||||
|
Unvested as of December 31, 2010
|
2,709,202 | $ | 18.45 | |||||
As of December 31, 2010, there was approximately
$36.2 million of total unrecognized compensation expense
and approximately $54.8 million in total intrinsic value
related to non-vested time vesting RSU
F-39
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
grants. The unrecognized compensation expense will be recognized
over the remaining weighted-average vesting period of
1.6 years using the straight-line method.
Stock
Options
The grant date fair values of stock options granted to Directors
in 2008 (there were no stock options granted in 2009 or 2010),
were calculated using the Black-Scholes-Merton model. The
following table provides the range of assumptions used in the
Black-Scholes-Merton model for stock options granted:
| Year Ended December 31, | ||||||
| 2010 | 2009 | 2008 | ||||
|
Risk-free interest rate
|
– | – | 2.3% | |||
|
Expected life in years
|
– | – | 2.6 | |||
|
Expected volatility
|
– | – | 60.6% | |||
|
Dividend yield
|
– | – | 0% | |||
|
Weighted-average volatility
|
– | – | 60.6% | |||
The Company estimated the expected term based on historical
averages of option exercises and expirations. The calculation of
expected volatility is based on the historical volatility of the
Company’s common stock over the expected term. The
risk-free interest rate is based on the yield on the grant
measurement date of a traded zero-coupon U.S. Treasury
bond, as reported by the U.S. Federal Reserve, with a term
equal to the expected term of the stock option granted. The
Company factored an estimated forfeiture rate and adjusted for
actual forfeitures upon the vesting of each tranche of options.
A summary of stock option activity for the year ended
December 31, 2010 is as follows:
|
Weighted
|
||||||||||||||||
|
Weighted
|
Average
|
Aggregate
|
||||||||||||||
|
Average
|
Remaining
|
Intrinsic
|
||||||||||||||
|
Exercise
|
Contract
|
Value
|
||||||||||||||
| Shares | Price | Term in Years | (000’s) | |||||||||||||
|
Outstanding as of December 31, 2009
|
3,337,913 | $ | 11.72 | |||||||||||||
|
Exercises
|
(272,974 | ) | $ | 10.22 | ||||||||||||
|
Pre-vest cancellations
|
(13,650 | ) | $ | 12.55 | ||||||||||||
|
Post-vest cancellations/expirations
|
(173,669 | ) | $ | 28.96 | ||||||||||||
|
Outstanding as of December 31, 2010
|
2,877,620 | $ | 10.82 | 2.8 | $ | 29,041 | ||||||||||
|
Vested and exercisable as of December 31, 2010
|
2,863,520 | $ | 10.81 | 2.8 | $ | 28,941 | ||||||||||
The weighted-average grant-date fair value of options granted
during the years ended December 31, 2010, 2009 and 2008 was
$0, $0 and $5.61 per share, respectively. The total intrinsic
value of options exercised during the years ended
December 31, 2010, 2009 and 2008 was $2.3 million,
$4.0 million and $1.8 million, respectively. The total
fair value of shares vested during the years ended
December 31, 2010, 2009 and 2008 was $0.7 million,
$2.6 million and $5.7 million, respectively.
As of December 31, 2010, there was approximately $24,000 of
unrecognized compensation expense related to non-vested stock
options. The unrecognized compensation expense will be
recognized over the remaining weighted-average vesting period of
0.2 years using the straight-line method. Equity-based
compensation expense is recognized in Selling, general and
administrative in the accompanying Consolidated Statements of
Operations and Comprehensive Income (Loss).
Cash received from option exercises under the Plans for the
years ended December 31, 2010, 2009 and 2008 was
$2.8 million, $6.2 million and $2.9 million,
respectively. Shares issued for options exercised during the
year ended December 31, 2010 were issued out of treasury
stock.
F-40
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| (21) | STOCK REPURCHASE PROGRAM |
Stock Repurchase
Program
The Company has a stock repurchase program, which was initially
authorized by the Company’s Board of Directors in November
2001. As of December 31, 2010, the cumulative authorized
repurchase allowance was $412.3 million. During the year
ended December 31, 2010, the Company purchased
5.0 million shares for $80.3 million. Since inception
of the program, the Company has purchased 28.8 million
shares for $367.0 million. As of December 31, 2010,
the remaining allowance under the program was approximately
$45.3 million. For the period from January 1, 2011
through February 24, 2011, the Company has purchased an
additional 1.2 million shares for $24.8 million. The
stock repurchase program does not have an expiration date.
| (22) | RELATED PARTY TRANSACTIONS |
The Company has entered into agreements under which Avion, LLC
(“Avion”) and AirMax, LLC (“AirMax”) provide
certain aviation flight services as requested by the Company.
Such services include the use of an aircraft and flight crew.
Kenneth D. Tuchman, Chairman and Chief Executive Officer of the
Company, has a direct 100% beneficial ownership interest in
Avion and had an indirect interest in AirMax during 2008. During
2010, 2009 and 2008, the Company paid $1.5 million,
$0.6 million and $0.7 million, respectively, to Avion
for services provided to the Company. During 2010, 2009 and
2008, the Company paid $0.9 million, $1.1 million and
$1.7 million, respectively, to AirMax for services provided
to the Company. There were no amounts outstanding to either
Avion or AirMax as of December 31, 2010. The Audit
Committee of the Board of Directors reviews these transactions
annually and has determined that the fees charged by Avion and
AirMax are at fair market value.
| (23) | OTHER FINANCIAL INFORMATION |
Self-insurance liabilities of the Company which are included in
Accrued employee compensation and benefits and Other accrued
expenses in the accompanying Consolidated Balance Sheets were as
follows (amounts in thousands):
| December 31, | ||||||||
| 2010 | 2009 | |||||||
|
Worker’s compensation
|
$ | 2,720 | $ | 2,525 | ||||
|
Employee health and dental insurance
|
2,912 | 2,971 | ||||||
|
Other general liability insurance
|
1,221 | 723 | ||||||
|
Total self-insurance liabilities
|
$ | 6,853 | $ | 6,219 | ||||
F-41
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
| (24) | QUARTERLY FINANCIAL DATA (UNAUDITED) |
The following tables present certain quarterly financial data
for the year ended December 31, 2010 (amounts in thousands
except per share amounts).
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||||
|
Revenue
|
$ | 271,526 | $ | 271,927 | $ | 271,005 | $ | 280,448 | ||||||||||
|
Cost of services
|
194,618 | 198,194 | 193,996 | 202,889 | ||||||||||||||
|
Selling, general and administrative
|
43,408 | 39,741 | 40,572 | 42,091 | ||||||||||||||
|
Depreciation and amortization
|
12,724 | 12,946 | 12,452 | 12,096 | ||||||||||||||
|
Restructuring charges, net
|
1,469 | 1,304 | 3,579 | 7,124 | ||||||||||||||
|
Impairment losses
|
– | 679 | 327 | 952 | ||||||||||||||
|
Income from operations
|
19,307 | 19,063 | 20,079 | 15,296 | ||||||||||||||
|
Other income (expense)
|
(211 | ) | 332 | 7,295 | 808 | |||||||||||||
|
Provision for income taxes
|
(5,054 | ) | (5,071 | ) | (7,586 | ) | (10,720 | ) | ||||||||||
|
Non-controlling interest
|
(755 | ) | (922 | ) | (1,118 | ) | (869 | ) | ||||||||||
|
Net income attributable to TeleTech shareholders
|
$ | 13,287 | $ | 13,402 | $ | 18,670 | $ | 4,515 | ||||||||||
|
Weighted average shares outstanding
|
||||||||||||||||||
|
Basic
|
61,877 | 61,117 | 59,808 | 58,690 | ||||||||||||||
|
Diluted
|
63,483 | 62,317 | 61,028 | 60,369 | ||||||||||||||
|
Net income per share attributable to TeleTech shareholders
|
||||||||||||||||||
|
Basic
|
$ | 0.21 | $ | 0.22 | $ | 0.31 | $ | 0.08 | ||||||||||
|
Diluted
|
$ | 0.21 | $ | 0.22 | $ | 0.31 | $ | 0.07 | ||||||||||
Included in Revenue for the first quarter is a $2.0 million
reduction for disputed service delivery issues which occurred in
2009.
Included in Selling, general and administrative for the second
and fourth quarters, respectively, is a decrease of
$0.3 million and $1.1 million due to change in
estimates relating to self-insurance liabilities.
Included in Other income (expense) for the third quarter is a
$5.9 million gain related to the settlement of a Newgen
legal claim.
Included in Provision for income taxes for the third quarter is
a $2.3 million expense related to the gain described above.
Included in the Provision for income taxes for the fourth
quarter is a $5.6 million expense related repatriation of
foreign earnings previously considered permanently invested
outside the U.S., an increase of $2.5 million in the
U.S. deferred tax liability related to foreign tax assets
that can no longer offset taxable income in more than one
jurisdiction, an increase of $6.6 million in the deferred
tax valuation allowance of which $3.7 million is related to
certain European markets, and a $2.3 million expense
related to our legal settlement included in Other income
(expense), and $0.7 million in other items offset by a
$4.0 million benefit related to foreign tax planning
strategies associated with the International operations.
F-42
Table of Contents
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
The following tables present certain quarterly financial data
for the year ended December 31, 2009 (amounts in thousands
except per share amounts).
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||||
|
Revenue
|
$ | 304,030 | $ | 301,512 | $ | 281,524 | $ | 280,849 | ||||||||||
|
Cost of services
|
218,842 | 213,049 | 194,609 | 194,017 | ||||||||||||||
|
Selling, general and administrative
|
48,515 | 44,981 | 42,565 | 43,978 | ||||||||||||||
|
Depreciation and amortization
|
14,062 | 13,808 | 15,664 | 13,457 | ||||||||||||||
|
Restructuring charges, net
|
303 | 4,008 | 703 | 58 | ||||||||||||||
|
Impairment losses
|
1,967 | 2,620 | – | – | ||||||||||||||
|
Income from operations
|
20,341 | 23,046 | 27,983 | 29,339 | ||||||||||||||
|
Other income (expense)
|
726 | 399 | 445 | 764 | ||||||||||||||
|
Provision for income taxes
|
(5,180 | ) | (6,328 | ) | (6,971 | ) | (8,998 | ) | ||||||||||
|
Non-controlling interest
|
(824 | ) | (987 | ) | (935 | ) | (1,066 | ) | ||||||||||
|
Net income attributable to TeleTech shareholders
|
$ | 15,063 | $ | 16,130 | $ | 20,522 | $ | 20,039 | ||||||||||
|
Weighted average shares outstanding
|
||||||||||||||||||
|
Basic
|
63,908 | 63,098 | 62,159 | 62,415 | ||||||||||||||
|
Diluted
|
64,300 | 64,175 | 63,832 | 64,243 | ||||||||||||||
|
Net income per share attributable to TeleTech shareholders
|
||||||||||||||||||
|
Basic
|
$ | 0.24 | $ | 0.26 | $ | 0.33 | $ | 0.32 | ||||||||||
|
Diluted
|
$ | 0.23 | $ | 0.25 | $ | 0.32 | $ | 0.31 | ||||||||||
Included in Cost of services during the fourth quarter is a
reduction in expense of $3.0 million relating to grant
reimbursement.
Included in Selling, general and administrative for the second
and fourth quarters, respectively, is a decrease of
$1.3 million and $2.3 million due to change in
estimates relating to self-insurance liabilities.
F-43
Table of Contents
EXHIBIT INDEX
|
Exhibit No.
|
Description
|
|||
| 3 | .01 | Restated Certificate of Incorporation of TeleTech (incorporated by reference to Exhibit 3.1 to TeleTech’s Amendment No. 2 to Form S-1 Registration Statement (Registration No. 333-04097) filed on July 5, 1996) | ||
| 3 | .02 | Second Amended and Restated Bylaws of TeleTech (incorporated by reference to Exhibit 3.02 to TeleTech’s Current Report on Form 8-K filed on May 28, 2009) | ||
| 10 | .01 | TeleTech Holdings, Inc. Stock Plan, as amended and restated (incorporated by reference to Exhibit 10.7 to TeleTech’s Amendment No. 2 to Form S-1 Registration Statement (Registration No. 333-04097) filed on July 5, 1996)** | ||
| 10 | .02 | TeleTech Holdings, Inc. Amended and Restated Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-113432) filed on March 9, 2004)** | ||
| 10 | .03 | TeleTech Holdings, Inc. Directors Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.8 to TeleTech’s Amendment No. 2 to Form S-1 Registration Statement (Registration No. 333-04097) filed on July 5, 1996)** | ||
| 10 | .04 | TeleTech Holdings, Inc. Amended and Restated 1999 Stock Option and Incentive Plan (incorporated by reference to Exhibit 99.1 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-96617) filed on July 17, 2002)** | ||
| 10 | .05 | Amendment to 1999 Stock Option and Incentive Plan dated February 11, 2009 (incorporated by reference to Exhibit 10.05 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .06 | TeleTech Holdings, Inc. 2010 Equity Incentive Plan (incorporated by reference to Appendix A to TeleTech’s Definitive Proxy Statement, filed April 12, 2010)** | ||
| 10 | .07 | Form of Restricted Stock Unit Agreement (effective in 2007 and 2008) (incorporated by reference to Exhibit 10.05 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2007)** | ||
| 10 | .08 | Amendment to Form of Restricted Stock Unit Agreement (effective December 2008) (incorporated by reference to Exhibit 10.07 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .09 | Form of Restricted Stock Unit Agreement (effective in 2009) (incorporated by reference to Exhibit 10.1 TeleTech’s Current Report on Form 8-K filed on February 17, 2009)** | ||
| 10 | .10 | Form of Non-Qualified Stock Option Agreement (below Vice President) (incorporated by reference to Exhibit 10.06 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2007)** | ||
| 10 | .11 | Form of Non-Qualified Stock Option Agreement (Vice President and above) (incorporated by reference to Exhibit 10.07 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2007)** | ||
| 10 | .12 | Form of Non-Qualified Stock Option Agreement (Non-Employee Director) (incorporated by reference to Exhibit 10.08 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2007)** | ||
| 10 | .13 | Independent Director Compensation Arrangements (effective May 21, 2009) (incorporated by reference to Exhibit 10.1 to TeleTech’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009)** | ||
| 10 | .14 | Employment Agreement between James E. Barlett and TeleTech dated October 15, 2001 (incorporated by reference to Exhibit 10.66 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2001)** | ||
| 10 | .15 | Amendment to Employment Agreement between James E. Barlett and TeleTech dated December 31, 2008 (incorporated by reference to Exhibit 10.13 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .16 | Stock Option Agreement dated October 15, 2001 between James E. Barlett and TeleTech (incorporated by reference to Exhibit 10.70 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2001)** | ||
| 10 | .17 | Amendment dated September 17, 2008 to Stock Option Agreement between James E. Barlett and TeleTech (incorporated by reference to Exhibit 10.15 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
Table of Contents
|
Exhibit No.
|
Description
|
|||
| 10 | .18 | Employment Agreement between Kenneth D. Tuchman and TeleTech dated October 15, 2001 (incorporated by reference to Exhibit 10.68 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2001)** | ||
| 10 | .19 | Amendment to Employment Agreement between Kenneth D. Tuchman and TeleTech dated December 31, 2008 (incorporated by reference to Exhibit 10.17 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .20 | Stock Option Agreement between Kenneth D. Tuchman and TeleTech dated October 1, 2001 (incorporated by reference to Exhibit 10.69 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2001)** | ||
| 10 | .21 | Amendment dated September 17, 2008 to Stock Option Agreement between Kenneth D. Tuchman and TeleTech (incorporated by reference to Exhibit 10.19 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .22 | Employment Agreement dated April 6, 2004 between Gregory G. Hopkins and TeleTech (incorporated by reference to Exhibit 10.1 to TeleTech’s Quarterly Report on Form 10-Q for the for the quarter ended September 30, 2008)** | ||
| 10 | .23 | Amendment to Employment Agreement between Gregory G. Hopkins and TeleTech dated December 16, 2008 (incorporated by reference to Exhibit 10.21 to TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2008)** | ||
| 10 | .24 | Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, The Lenders named herein, as lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of September 28, 2006 (incorporated by reference to Exhibit 10.39 to TeleTech’s Annual Report on Form 10-K filed on February 7, 2007) | ||
| 10 | .25 | First Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of October 24, 2006 (incorporated by reference to Exhibit 10.40 to TeleTech’s Annual Report on Form 10-K filed on February 7, 2007) | ||
| 10 | .26 | Second Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of November 15, 2007 (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on December 4, 2007) | ||
| 10 | .27 | Third Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of March 25, 2008 (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on March 27, 2008) | ||
| 10 | .28 | Fourth Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of June 30, 2008 (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on June 30, 2008) | ||
| 10 | .29 | Fifth Amendment to the Amended and Restated Credit Agreement among TeleTech Holdings, Inc. as Borrower, the Lenders named herein, as Lenders and Keybank National Association, as Lead Arranger, Sole Book Runner and Administrative Agent dated as of September 4, 2008 (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on September 8, 2008) | ||
| 10 | .30 | Credit Agreement, dated as of October 1, 2010, among TeleTech Holdings, Inc., the lenders party thereto, KeyBank National Association, as Joint Lead Arranger, Sole Book Runner and Administrative Agent, Wells Fargo Bank, National Association, as Joint Lead Arranger and Co-Syndication Agent, Bank of America, N.A., as Co-Syndication Agent, BBVA Compass, as Co-Documentation Agent and JPMorgan Chase Bank, N.A., as Co-Documentation Agent (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on October 7, 2010) | ||
| 10 | .31 | Form of Indemnification Agreement with Directors (incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on February 17, 2010)** | ||
Table of Contents
|
Exhibit No.
|
Description
|
|||
| 10 | .32 | Form of Amendment to Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to TeleTech’s Current Report on Form 8-K filed on February 17, 2010)** | ||
| 10 | .33 | Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to TeleTech’s Current Report on Form 8-K filed on February 17, 2010)** | ||
| 10 | .34 | Form of Restricted Stock Unit Agreement (Section 16 Officers) (incorporated by reference to Exhibit 4.3 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-167300) filed on June 3, 2010)** | ||
| 10 | .35 | Form of Restricted Stock Unit Agreement (Non-Section 16 Employees) (incorporated by reference to Exhibit 4.4 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-167300) filed on June 3, 2010)** | ||
| 10 | .36 | Form of Independent Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 4.5 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-167300) filed on June 3, 2010)** | ||
| 10 | .37 | Executive Employment Agreement dated March 8, 2010 between Joseph Bellini and TeleTech (incorporated by reference to Exhibit 10.1 to TeleTech’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010)** | ||
| 10 | .38 | First Amendment to Executive Employment Agreement, dated September 20, 2010 between TeleTech and Joseph Bellini (incorporated by reference to Exhibit 10.1 to TeleTech’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010)** | ||
| 21 | .01* | List of subsidiaries | ||
| 22 | .01* | Consent of Independent Registered Public Accounting Firm | ||
| 31 | .01* | Rule 13a-14(a) Certification of CEO of TeleTech | ||
| 31 | .02* | Rule 13a-14(a) Certification of CFO of TeleTech | ||
| 32 | .01* | Written Statement of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | ||
| 32 | .02* | Written Statement of Acting Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | ||
| 101 | .INS*** | XBRL Instance Document | ||
| 101 | .SCH*** | XBRL Taxonomy Extension Schema Document | ||
| 101 | .CAL*** | XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101 | .LAB*** | XBRL Taxonomy Extension Label Linkbase Document | ||
| 101 | .PRE*** | XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 101 | .DEF*** | XBRL Taxonomy Extension Definition Linkbase Document | ||
| * | Filed herewith. | |
| ** | Identifies exhibit that consists of or includes a management contract or compensatory plan or arrangement. | |
| *** | Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008, (ii) Consolidated Balance Sheets as of December 31, 2010 and 2009, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008, and (v) Notes to Consolidated Financial Statements. Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. ReservedPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountants Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules