e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
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
(State or other jurisdiction of
incorporation or organization)
|
|
84-1291044
(I.R.S. Employer
Identification No.) |
9197 South Peoria Street
Englewood, Colorado 80112
(Address of principal executive offices)
Registrants telephone number, including area code: (303) 397-8100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes 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 whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer þ |
|
Accelerated filero |
|
Non-accelerated filer o (Do not check if a smaller reporting company) |
|
Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of July 22, 2009, there were 62,033,270 shares of the registrants common stock outstanding.
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
JUNE 30, 2009 FORM 10-Q
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
83,963 |
|
|
$ |
87,942 |
|
Accounts receivable, net |
|
|
225,720 |
|
|
|
236,997 |
|
Prepaids and other current assets |
|
|
34,337 |
|
|
|
31,279 |
|
Deferred tax assets, net |
|
|
24,874 |
|
|
|
30,328 |
|
Income tax receivables |
|
|
20,983 |
|
|
|
18,342 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
389,877 |
|
|
|
404,888 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
141,719 |
|
|
|
157,747 |
|
Goodwill |
|
|
44,822 |
|
|
|
44,150 |
|
Contract acquisition costs, net |
|
|
6,048 |
|
|
|
7,591 |
|
Deferred tax assets, net |
|
|
30,395 |
|
|
|
31,504 |
|
Other noncurrent assets |
|
|
19,692 |
|
|
|
23,062 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
632,553 |
|
|
$ |
668,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
23,872 |
|
|
$ |
26,214 |
|
Accrued employee compensation and benefits |
|
|
71,748 |
|
|
|
71,919 |
|
Other accrued expenses |
|
|
21,537 |
|
|
|
18,887 |
|
Income taxes payable |
|
|
19,519 |
|
|
|
19,168 |
|
Deferred revenue |
|
|
18,328 |
|
|
|
12,867 |
|
Other current liabilities |
|
|
18,089 |
|
|
|
31,044 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
173,093 |
|
|
|
180,099 |
|
|
|
|
|
|
|
|
|
|
Line of credit |
|
|
25,000 |
|
|
|
80,800 |
|
Grant advances |
|
|
1,526 |
|
|
|
1,824 |
|
Negative investment in deconsolidated subsidiary |
|
|
4,865 |
|
|
|
4,865 |
|
Other noncurrent liabilities |
|
|
32,297 |
|
|
|
40,460 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
236,781 |
|
|
|
308,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Preferred stock $0.01 par value; 10,000,000 shares authorized; |
|
|
|
|
|
|
|
|
zero shares outstanding as of June 30, 2009 and December 31, 2008 |
|
|
|
|
|
|
|
|
Common stock $0.01 par value; 150,000,000 shares authorized; |
|
|
|
|
|
|
|
|
62,077,557 and 63,816,379 shares outstanding
as of June 30, 2009 and December 31, 2008, respectively |
|
|
620 |
|
|
|
638 |
|
Treasury stock at cost: 19,976,948 and 18,238,066 shares
as of June 30, 2009 and December 31, 2008, respectively |
|
|
(250,678 |
) |
|
|
(228,596 |
) |
Additional paid-in capital |
|
|
344,643 |
|
|
|
341,887 |
|
Accumulated other comprehensive loss |
|
|
(10,309 |
) |
|
|
(33,020 |
) |
Retained earnings |
|
|
306,167 |
|
|
|
274,974 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
390,443 |
|
|
|
355,883 |
|
Noncontrolling interest |
|
|
5,329 |
|
|
|
5,011 |
|
|
|
|
|
|
|
|
Total equity |
|
|
395,772 |
|
|
|
360,894 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
632,553 |
|
|
$ |
668,942 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
1
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
|
Six-Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenue |
|
$ |
301,512 |
|
|
$ |
357,416 |
|
|
$ |
605,542 |
|
|
$ |
725,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation and
amortization presented separately below) |
|
|
213,049 |
|
|
|
265,833 |
|
|
|
431,891 |
|
|
|
535,933 |
|
Selling, general and administrative |
|
|
44,981 |
|
|
|
45,858 |
|
|
|
93,496 |
|
|
|
97,230 |
|
Depreciation and amortization |
|
|
13,808 |
|
|
|
15,624 |
|
|
|
27,870 |
|
|
|
30,784 |
|
Restructuring charges, net |
|
|
4,008 |
|
|
|
440 |
|
|
|
4,311 |
|
|
|
2,642 |
|
Impairment losses |
|
|
2,620 |
|
|
|
|
|
|
|
4,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
278,466 |
|
|
|
327,755 |
|
|
|
562,155 |
|
|
|
666,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
23,046 |
|
|
|
29,661 |
|
|
|
43,387 |
|
|
|
58,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
705 |
|
|
|
1,388 |
|
|
|
1,512 |
|
|
|
2,474 |
|
Interest expense |
|
|
(1,320 |
) |
|
|
(1,489 |
) |
|
|
(2,163 |
) |
|
|
(3,054 |
) |
Other, net |
|
|
1,014 |
|
|
|
(442 |
) |
|
|
1,776 |
|
|
|
(1,011 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
399 |
|
|
|
(543 |
) |
|
|
1,125 |
|
|
|
(1,591 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
23,445 |
|
|
|
29,118 |
|
|
|
44,512 |
|
|
|
56,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
(6,328 |
) |
|
|
(7,536 |
) |
|
|
(11,508 |
) |
|
|
(15,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
17,117 |
|
|
|
21,582 |
|
|
|
33,004 |
|
|
|
41,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest |
|
|
(987 |
) |
|
|
(1,220 |
) |
|
|
(1,811 |
) |
|
|
(2,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to TeleTech shareholders |
|
$ |
16,130 |
|
|
$ |
20,362 |
|
|
$ |
31,193 |
|
|
$ |
39,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
63,098 |
|
|
|
69,977 |
|
|
|
63,502 |
|
|
|
69,957 |
|
Diluted |
|
|
64,175 |
|
|
|
71,729 |
|
|
|
64,167 |
|
|
|
71,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to TeleTech
shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.49 |
|
|
$ |
0.56 |
|
Diluted |
|
$ |
0.25 |
|
|
$ |
0.28 |
|
|
$ |
0.49 |
|
|
$ |
0.55 |
|
The accompanying notes are an integral part of these consolidated financial statements.
2
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Equity
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
Other |
|
|
|
|
|
Non- |
|
|
|
|
Preferred Stock |
|
Common Stock |
|
Treasury |
|
Paid-in |
|
Comprehensive |
|
Retained |
|
controlling |
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Stock |
|
Capital |
|
Loss |
|
Earnings |
|
interest |
|
Total Equity |
|
|
|
Balance as of December 31, 2008 |
|
|
|
|
|
$ |
|
|
|
|
63,816 |
|
|
$ |
638 |
|
|
$ |
(228,596 |
) |
|
$ |
341,887 |
|
|
$ |
(33,020 |
) |
|
$ |
274,974 |
|
|
$ |
5,011 |
|
|
$ |
360,894 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,193 |
|
|
|
1,811 |
|
|
|
33,004 |
|
Dividends distributed to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,800 |
) |
|
|
(1,800 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,286 |
|
|
|
|
|
|
|
307 |
|
|
|
7,593 |
|
Derivatives valuation, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,425 |
|
|
|
|
|
|
|
|
|
|
|
15,425 |
|
Vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
177 |
|
|
|
2 |
|
|
|
2,212 |
|
|
|
(2,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(565 |
) |
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
142 |
|
|
|
1 |
|
|
|
1,774 |
|
|
|
(465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,310 |
|
Excess tax benefit from equity-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 |
) |
Equity-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,079 |
|
Purchases of common stock |
|
|
|
|
|
|
|
|
|
|
(2,057 |
) |
|
|
(21 |
) |
|
|
(26,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,089 |
) |
|
|
|
Balance as of June 30, 2009 |
|
|
|
|
|
$ |
|
|
|
|
62,078 |
|
|
$ |
620 |
|
|
$ |
(250,678 |
) |
|
$ |
344,643 |
|
|
$ |
(10,309 |
) |
|
$ |
306,167 |
|
|
$ |
5,329 |
|
|
$ |
395,772 |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six-Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
33,004 |
|
|
$ |
41,543 |
|
Adjustment to reconcile net income to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
27,870 |
|
|
|
30,784 |
|
Amortization of contract acquisition costs |
|
|
1,543 |
|
|
|
1,053 |
|
Provision for doubtful accounts |
|
|
953 |
|
|
|
502 |
|
(Gain) loss on foreign currency derivatives |
|
|
(878 |
) |
|
|
383 |
|
Loss on disposal of assets |
|
|
808 |
|
|
|
|
|
Impairment losses |
|
|
4,587 |
|
|
|
|
|
Deferred income taxes |
|
|
(2,555 |
) |
|
|
124 |
|
Excess tax benefit from equity-based awards |
|
|
(79 |
) |
|
|
(1,125 |
) |
Equity-based compensation expense |
|
|
6,079 |
|
|
|
4,734 |
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
16,192 |
|
|
|
651 |
|
Prepaids and other assets |
|
|
3,207 |
|
|
|
(9,323 |
) |
Accounts payable and accrued expenses |
|
|
(1,699 |
) |
|
|
(4,766 |
) |
Deferred revenue and other liabilities |
|
|
4,806 |
|
|
|
(5,255 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
93,838 |
|
|
|
59,305 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(14,301 |
) |
|
|
(36,408 |
) |
Other |
|
|
(1,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(16,028 |
) |
|
|
(36,408 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from line of credit |
|
|
467,660 |
|
|
|
587,250 |
|
Payments on line of credit |
|
|
(523,460 |
) |
|
|
(574,250 |
) |
Payments on
capital lease obligations and equipment financing |
|
|
(672 |
) |
|
|
(802 |
) |
Payments of debt refinancing fees |
|
|
|
|
|
|
(146 |
) |
Dividends distributed to non-controlling interest |
|
|
(1,800 |
) |
|
|
(1,113 |
) |
Proceeds from exercise of stock options |
|
|
1,310 |
|
|
|
|
|
Purchase of treasury stock |
|
|
(26,089 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(83,051 |
) |
|
|
10,939 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
1,262 |
|
|
|
1,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) / Increase in cash and cash equivalents |
|
|
(3,979 |
) |
|
|
35,675 |
|
Cash and cash equivalents, beginning of period |
|
|
87,942 |
|
|
|
91,239 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
83,963 |
|
|
$ |
126,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
675 |
|
|
$ |
2,741 |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
12,398 |
|
|
$ |
9,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
Acquisition of equipment through installment purchase agreements |
|
$ |
1,456 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Landlord incentives credited to deferred rent |
|
$ |
|
|
|
$ |
400 |
|
|
|
|
|
|
|
|
Recognition of asset retirement obligations |
|
$ |
63 |
|
|
$ |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
TELETECH
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) OVERVIEW AND BASIS OF PRESENTATION
Overview
TeleTech Holdings, Inc. and its subsidiaries (TeleTech or the Company) serve their clients
through the primary businesses of Business Process Outsourcing (BPO), which provides outsourced
business process, customer management and marketing services for a variety of industries via
operations in the U.S., Argentina, Australia, Brazil, Canada, China, Costa Rica, England, Germany,
Malaysia, Mexico, New Zealand, Northern Ireland, the Philippines, Scotland, South Africa and Spain.
Basis of Presentation
The Consolidated Financial Statements are comprised of the accounts of TeleTech, its wholly owned
subsidiaries and its 55% equity ownership in Percepta, LLC. On December 22, 2008, as
discussed in Note 2, Newgen Results Corporation, 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. Under Accounting Research Bulletin (ARB) No. 51, Consolidated Financial
Statements (ARB 51), consolidation of a majority-owned subsidiary is precluded where control does
not rest with the majority owners. Accordingly, the Company deconsolidated Newgen Results
Corporation as of December 22, 2008.
The accompanying unaudited Consolidated Financial Statements do not include all of the disclosures
required by accounting principles generally accepted in the U.S. (GAAP), pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). The unaudited Consolidated
Financial Statements do reflect all adjustments (consisting only of normal recurring entries)
which, in the opinion of management, are necessary to present fairly the consolidated financial
position of the Company as of June 30, 2009, and the consolidated results of operations of the
Company for the three and six months ended June 30, 2009 and 2008, and the cash flows of the
Company for the six months ended June 30, 2009 and 2008. Operating results for the six months ended
June 30, 2009 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2009. The Company has evaluated all subsequent events through July 29, 2009,
the date the financial statements were issued.
These unaudited Consolidated Financial Statements should be read in conjunction with the Companys
audited Consolidated Financial Statements and footnotes thereto included in the Companys Annual
Report on Form 10K for the year ended December 31, 2008.
Effective January 1, 2009, TeleTech implemented Statement of Financial Accounting Standards
(SFAS) No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51 (SFAS 160). This standard changed the accounting for and
reporting of minority interest (now called noncontrolling interest) in a subsidiary in the
Companys consolidated financial statements. Upon adoption, certain prior period amounts have been
reclassified to conform to the current period financial statement presentation. These
reclassifications have no effect on the Companys previously reported financial position or results
of operations. Refer to Note 11 for additional information on the adoption of SFAS 160.
5
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with GAAP requires
management to make estimates and assumptions in determining the reported amounts of assets and
liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial
Statements and the reported amounts of revenue and expenses during the reporting period. On an
on-going basis, the Company evaluates its estimates including those related to derivatives and
hedging activities, income taxes including the valuation allowance for deferred tax assets,
valuation of long-lived assets, self-insurance reserves, litigation and restructuring reserves, and
allowance for doubtful accounts. 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
from these estimates under different assumptions or conditions. In the three months ended June 30,
2009, the Company recorded a decrease of $1.3 million to self-insurance reserves. In the three
months ended June 30, 2008, the Company recorded a decrease of $2.4 million to self-insurance
reserves, and a $1.9 million decrease to the accrued incentive compensation liability.
Recently Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS 157), which defines fair value, establishes a framework for measurement
and expands disclosure about fair value measurements. Where applicable, SFAS 157 simplifies and
codifies related guidance within GAAP. Except for non-financial assets and liabilities recognized
on a non-recurring basis, the Company adopted SFAS 157 in the first quarter of 2008. As permitted
by FASB Staff Position (FSP) No. FAS 157-2, the Company adopted SFAS 157 for non-financial assets
and liabilities recognized on a non-recurring basis as of January 1, 2009. Adoption of FSP
FAS 157-2 did not have a significant impact on the Companys results of operations, financial
position or cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations a
replacement of FASB Statement No. 141 (SFAS 141(R)), which significantly changes the principles
and requirements for how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree. The statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects of the business
combination. This statement is effective prospectively, except for certain retrospective
adjustments to deferred tax balances, for the Company beginning January 1, 2009. The adoption of
this pronouncement did not have a material impact on the Companys results of operations, financial
position or cash flows.
Effective January 1, 2009, the Company adopted FSP No. FAS 140-3 (FSP FAS 140-3), Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions. FSP FAS 140-3 concludes that a
transferor and transferee should not separately account for a transfer of a financial asset and a
related repurchase financing unless the two transactions have a valid and distinct business or
economic purpose for being entered into separately and the repurchase financing does not result in
the initial transferor regaining control over the financial asset. The adoption of this
pronouncement did not have a material effect on the Companys results of operations, financial
position or cash flows.
Effective January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS 161). SFAS 161 amends SFAS No. 133 Accounting for
Derivative Instruments and Hedging Activities, as amended (SFAS 133) disclosure requirements
related to (i) how and why an entity uses derivative instruments, (ii) how derivative instruments
and related hedge items are accounted for under SFAS 133 and related interpretations, and (iii) how
derivative instruments and related hedged items affect an entitys financial position, financial
performance, and cash flows. The new disclosures are expanded to include more tables and discussion
about the qualitative aspects of the Companys hedging strategies. Since SFAS 161 requires only
additional disclosures concerning derivatives and hedging activities, adoption of SFAS 161 did not
affect the Companys results of operations, financial position, or cash flows.
6
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Effective January 1, 2009, the Company adopted FSP No. FAS 142-3, Determination of the Useful Life
of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions that are used to determine the useful life of a
recognized intangible asset. FSP FAS 142-3 also requires expanded disclosure related to the
determination of intangible asset useful lives. This pronouncement did not have a material impact
on the Companys results of operations, financial position or cash flows.
Effective this quarter, the Company adopted the following three FSPs intended to provide additional
application guidance and enhance disclosures regarding fair value measurements and impairments of
securities.
FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP
FAS 157-4), provides guidelines for making fair value measurements more consistent with the
principles presented in SFAS 157. FSP FAS 157-4 reaffirms what SFAS 157 states is the objective of
fair value measurement, to reflect how much an asset would be sold for in an orderly transaction at
the date of the financial statements under current market conditions. Specifically, it reaffirms
the need to use judgment to ascertain if a formerly active market has become inactive and in
determining fair values when markets have become inactive. This pronouncement did not have a
material impact on the Companys results of operations, financial position or cash flows.
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, enhances
consistency in financial reporting by increasing the frequency of fair value disclosures. This
relates to fair value disclosures for any financial instruments that are not currently reflected on
the consolidated balance sheet at fair value. FSP FAS 107-1 and APB 28-1 now require that fair
value disclosures be made on a quarterly basis, providing qualitative and quantitative information
about fair value estimates for all those financial instruments not measured on the balance sheet at
fair value. Since this FSP addresses disclosure requirements, the adoption of this FSP did not
impact the Companys results of operations, financial position or cash flows.
FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments,
provides additional guidance designed to create greater clarity and consistency in accounting for
and presenting impairment losses on securities. This FSP is intended to bring greater consistency
to the timing of impairment recognition and to provide greater clarity to investors about the
credit and noncredit components of impaired debt securities that are not expected to be sold. This
FSP also requires increased and timelier disclosures sought by investors regarding expected cash
flows, credit losses, and an aging of securities with unrealized losses. This pronouncement did not
have a material impact on the Companys results of operations, financial position or cash flows.
In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies (FSP FAS 141(R)-1), to amend
SFAS 141(R). FSP FAS 141(R)-1 addresses the initial recognition, measurement and subsequent
accounting for assets and liabilities arising from contingencies in a business combination, and
requires that such assets acquired or liabilities assumed be initially recognized at fair value at
the acquisition date if fair value can be determined during the measurement period. If the
acquisition date fair value cannot be determined, the asset acquired or liability assumed arising
from a contingency is recognized only if certain criteria are met. This FSP also requires that a
systematic and rational basis for subsequently measuring and accounting for the assets or
liabilities be developed depending on their nature. This FSP shall be effective for assets or
liabilities arising from contingencies in business combinations for which the acquisition date is
during or after 2010. The Company does not expect that this pronouncement will have a material
impact on its results of operations, financial position or cash flows, absent any future material
business combinations.
7
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Effective this quarter, the Company adopted SFAS No. 165, Subsequent Events, which provides general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or available to be issued. It requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for that date, whether
that date represents the date the financial statements were issued or were available to be issued.
See Note 1, Basis of Presentation for the related disclosures. The adoption of this pronouncement
did not have a material impact on the Companys results of operations, financial position or cash
flows.
In June 2009, the FASB issued SFAS No. 168 which replaces SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles, to establish the FASB Accounting Standards Codification, (the
Codification), as the single source of authoritative nongovernmental Generally Accepted
Accounting Principles (GAAP) in the United States. The Codification will be effective for interim
and annual periods ending after September 15, 2009, or as of July 1, 2009 for TeleTech. Upon the
effective date, the Codification will be the single source of authoritative accounting principles
to be applied by all nongovernmental U.S. entities. All other accounting literature not included in
the Codification will be nonauthoritative. The Company does not expect the adoption of the
Codification to have an impact on its results of operations, financial position, or cash flows.
In June 2009, the FASB issued two Financial Accounting Statements (SFAS No. 166 and SFAS No. 167)
that change the way entities account for securitizations and special purpose entities. These new
standards are effective at the start of a companys first fiscal year beginning after November 15,
2009.
SFAS No. 166, Accounting for Transfers of Financial Assets, is a revision to SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and
will require more information about transfers of financial assets, including securitization
transactions, and where companies have continuing exposure to the risks related to the transferred
financial assets. It eliminates the concept of a qualifying special-purpose entity, changes the
requirements for derecognizing financial assets, and requires additional disclosures. The Company
does not expect that this pronouncement will have a material impact on its results of operations,
financial position, or cash flows.
SFAS No. 167, Amendments to FASB Interpretation No. 46(R), Consolidation of Variable Interest
Entities, changes how a company determines when an entity that is insufficiently capitalized or is
not controlled through voting or similar rights should be consolidated. The determination of
whether a company is required to consolidate an entity is based on, among other things, an entitys
purpose and design and a companys ability to direct the activities of the entity that most
significantly impact the entitys economic performance. The Company does not expect that this
pronouncement will have a material impact on its results of operations, financial position, or cash
flows.
(2) DECONSOLIDATION OF A SUBSIDIARY
On December 22, 2008, Newgen Results Corporation, 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. Under ARB 51, a consolidation of a majority-owned subsidiary is precluded
where control does not rest with the majority owners. Under these rules, legal reorganization or
bankruptcy represents conditions that can preclude consolidation as control rests with the
Bankruptcy Court, rather than the majority owner. Accordingly, the Company deconsolidated Newgen
Results Corporation as of December 22, 2008. As a result, the Company has reflected its negative
investment of $4.9 million on the Consolidated Balance Sheets as of June 30, 2009 and December 31,
2008.
8
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following condensed financial statements of Newgen Results Corporation have been prepared in
accordance with American Institute of Certified Public Accountants Statement of Position 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code, which requires the
liabilities subject to compromise by the Bankruptcy Court to be reported separately from the
liabilities not subject to compromise. All liabilities included in the condensed financial
statements below are subject to compromise 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. Amounts below are stated in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
December 22, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Total current assets |
|
$ |
1,700 |
|
|
$ |
1,700 |
|
|
$ |
1,700 |
|
Total noncurrent assets |
|
|
2,379 |
|
|
|
2,379 |
|
|
|
3,110 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
4,079 |
|
|
|
4,079 |
|
|
|
4,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
7,886 |
|
|
$ |
7,886 |
|
|
$ |
3,931 |
|
Total noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
5,744 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
7,886 |
|
|
|
7,886 |
|
|
|
9,675 |
|
Total stockholders deficit |
|
|
(3,807 |
) |
|
|
(3,807 |
) |
|
|
(4,865 |
) |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit |
|
$ |
4,079 |
|
|
$ |
4,079 |
|
|
$ |
4,810 |
|
|
|
|
|
|
|
|
|
|
|
(3) SEGMENT INFORMATION
The Companys BPO business provides outsourced business process and customer management services
for a variety of industries through global delivery centers and represents 100% of total annual
revenue. In September 2007, the Company sold substantially all the assets and certain liabilities
of its Database Marketing and Consulting business. Effective January 1, 2009, the Company completed
certain organizational changes focused on streamlining the structure of its organization to more
closely align the Companys reporting structure with its client base and increase management
accountability. Beginning in the first quarter of 2009, the Companys North American BPO segment is
comprised of sales to all clients based in North America (encompassing the U.S. and Canada), while
the Companys International BPO is comprised of sales to all clients based in countries outside of
North America. TeleTech revised previously reported segment information to conform to its new
segments in effect as of January 1, 2009.
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. On December 22, 2008, as discussed in Note 2, Newgen Results
Corporation, which comprised the Database Marketing and Consulting segment, filed a voluntary
petition for liquidation under Chapter 7 in the United States Bankruptcy Court for the District of
Delaware. Accordingly, the Company deconsolidated Newgen Results Corporation as of December 22,
2008.
The Company allocates to each segment its portion of corporate operating expenses. All
intercompany transactions between the reported segments for the periods presented have been
eliminated.
9
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present certain financial data by segment (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
229,992 |
|
|
$ |
257,109 |
|
|
$ |
458,878 |
|
|
$ |
530,911 |
|
International BPO |
|
|
71,520 |
|
|
|
100,307 |
|
|
|
146,664 |
|
|
|
194,141 |
|
Database Marketing and
Consulting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
301,512 |
|
|
$ |
357,416 |
|
|
$ |
605,542 |
|
|
$ |
725,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
28,314 |
|
|
$ |
27,948 |
|
|
$ |
53,741 |
|
|
$ |
60,869 |
|
International BPO |
|
|
(5,268 |
) |
|
|
1,703 |
|
|
|
(10,354 |
) |
|
|
(2,047 |
) |
Database Marketing and
Consulting |
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
(359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,046 |
|
|
$ |
29,661 |
|
|
$ |
43,387 |
|
|
$ |
58,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Assets |
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
441,510 |
|
|
$ |
483,187 |
|
International BPO |
|
|
191,043 |
|
|
|
185,755 |
|
Database Marketing and Consulting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
632,553 |
|
|
$ |
668,942 |
|
|
|
|
|
|
|
|
The following table presents revenue based upon the geographic location where the services are
provided (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
111,489 |
|
|
$ |
100,690 |
|
|
$ |
211,551 |
|
|
$ |
210,218 |
|
Latin America |
|
|
47,801 |
|
|
|
82,667 |
|
|
|
104,865 |
|
|
|
159,214 |
|
Philippines |
|
|
78,751 |
|
|
|
67,327 |
|
|
|
157,092 |
|
|
|
136,502 |
|
Canada |
|
|
21,583 |
|
|
|
39,981 |
|
|
|
47,827 |
|
|
|
87,630 |
|
Europe |
|
|
29,336 |
|
|
|
39,594 |
|
|
|
60,747 |
|
|
|
75,895 |
|
Asia Pacific / Africa |
|
|
12,552 |
|
|
|
27,157 |
|
|
|
23,460 |
|
|
|
55,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
301,512 |
|
|
$ |
357,416 |
|
|
$ |
605,542 |
|
|
$ |
725,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS
The Company did not have any clients that contributed in excess of 10% of total revenue for the
three and six months ended June 30, 2009. For the three and six months ended June 30, 2008, the
Company had one client, Sprint Nextel, which contributed 14.0% and 14.8%, respectively, of total
revenue and had $20.4 million outstanding in accounts receivable at December 31, 2008.
The loss of one or more of its significant clients could have a material adverse effect on the
Companys business, operating results, or financial condition. The Company does not require
collateral from its clients. To limit the Companys credit risk, management performs ongoing credit
evaluations of its clients and maintains allowances for uncollectible accounts. Although the
Company is impacted by economic conditions in various industry segments, management does not
believe significant credit risk exists as of June 30, 2009.
10
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(5) GOODWILL
Goodwill consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
Foreign |
|
|
June 30, |
|
|
|
2008 |
|
|
Impairments |
|
|
Currency |
|
|
2009 |
|
North American BPO |
|
$ |
35,885 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
35,885 |
|
International BPO |
|
|
8,265 |
|
|
|
|
|
|
|
672 |
|
|
|
8,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
44,150 |
|
|
$ |
|
|
|
$ |
672 |
|
|
$ |
44,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS No. 142 Goodwill and Other Intangible Assets requires the Company to perform 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 businesses, the useful life over
which cash flows will occur and determination of the Companys 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. Such indicators may include a sustained, significant decline in the Companys
share price and market capitalization, a decline in its expected future cash flows, a significant
adverse change in the business climate, unanticipated competition and/or slower than expected
growth rates, among others. During the quarter ended June 30, 2009, the Company assessed whether
any such indicators of impairment exist, and concluded there were no indicators of impairment.
(6) 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. Upon
proper qualification, these contracts are designated as cash flow hedges, as defined by SFAS 133.
It is the Companys policy to only enter into derivative contracts with investment grade
counterparty financial institutions, and correspondingly, the derivative assets reflect the
creditworthiness of these counterparties. Conversely, the derivative liabilities reflect the
Companys creditworthiness. As of June 30, 2009, 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 and loss in derivative valuation in Accumulated Other
Comprehensive Loss for the three and six months ended June 30, 2009 and 2008 (amounts in thousands
and net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Aggregate
unrealized net
(loss) gain at
beginning of period |
|
$ |
(18,141 |
) |
|
$ |
13,326 |
|
|
$ |
(21,180 |
) |
|
$ |
21,417 |
|
Net gain (loss)
from change in fair
value of cash flow
hedges |
|
|
9,117 |
|
|
|
(11,960 |
) |
|
|
7,393 |
|
|
|
(16,356 |
) |
Net loss (gain)
reclassified to
earnings from
effective hedges |
|
|
3,269 |
|
|
|
(2,646 |
) |
|
|
8,032 |
|
|
|
(6,341 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
unrealized net loss
at end of period |
|
$ |
(5,755 |
) |
|
$ |
(1,280 |
) |
|
$ |
(5,755 |
) |
|
$ |
(1,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
11
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Companys cash flow hedging instruments as of June 30, 2009 and December 31, 2008 are
summarized as follows (amounts in thousands). All hedging instruments are forward contracts, except
as noted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Maturing |
|
|
|
|
|
|
Local Currency |
|
|
U.S. Dollar |
|
|
in the Next 12 |
|
|
Contracts Maturing |
|
As of June 30, 2009 |
|
Notional Amount |
|
|
Notional Amount |
|
|
Months |
|
|
Through |
|
Canadian Dollar |
|
|
55,200 |
|
|
$ |
47,913 |
|
|
|
67.4 |
% |
|
December 2011 |
Canadian Dollar Call
Options |
|
|
28,100 |
|
|
|
24,901 |
|
|
|
63.7 |
% |
|
December 2010 |
Philippine Peso |
|
|
4,277,347 |
|
|
|
94,491 |
1 |
|
|
90.6 |
% |
|
February 2011 |
Argentine Peso |
|
|
51,050 |
|
|
|
14,295 |
2 |
|
|
100.0 |
% |
|
May 2010 |
Mexican Peso |
|
|
645,500 |
|
|
|
50,412 |
|
|
|
76.3 |
% |
|
September 2011 |
South African Rand |
|
|
92,000 |
|
|
|
8,416 |
|
|
|
100.0 |
% |
|
February 2010 |
British Pound Sterling |
|
|
1,344 |
|
|
|
2,369 |
3 |
|
|
57.0 |
% |
|
March 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
242,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Currency |
|
|
U.S. Dollar |
|
As of December 31, 2008 |
|
Notional Amount |
|
|
Notional Amount |
|
Canadian Dollar |
|
|
88,300 |
|
|
$ |
77,865 |
|
Canadian Dollar Call Options |
|
|
44,400 |
|
|
|
39,305 |
|
Philippine Peso |
|
|
6,656,909 |
|
|
|
150,418 |
1 |
Argentine Peso |
|
|
102,072 |
|
|
|
29,054 |
2 |
Mexican Peso |
|
|
856,500 |
|
|
|
70,530 |
|
South African Rand |
|
|
92,000 |
|
|
|
8,399 |
|
British Pound Sterling |
|
|
1,725 |
|
|
|
2,537 |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
378,108 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes contracts to purchase Philippine pesos in exchange for British pound
sterling and New Zealand dollars, which are translated into equivalent U.S. dollars on June 30,
2009 and December 31, 2008. |
|
(2) |
|
Includes contracts to purchase Argentine pesos in exchange for Euros, which are
translated into equivalent U.S. dollars on June 30, 2009 and December 31, 2008. |
|
(3) |
|
Includes contracts to purchase British pound sterling in exchange for Euros, which
are translated into equivalent U.S. dollars on June 30, 2009 and December 31, 2008. |
Hedge of Net Investment
In 2008, the Company entered into foreign exchange forward contracts to hedge its net investment in
a foreign operation which was settled in May 2009. Changes in fair value of the Companys net
investment hedge are recorded in the cumulative translation adjustment in Accumulated Other
Comprehensive Loss on the Consolidated Balance Sheets offsetting the change in the cumulative
translation adjustment attributable to the hedged portion of the Companys net investment in the
foreign operation. Gains and losses from the settlements of the Companys net investment hedge
remain in Accumulated Other Comprehensive Loss until partial or complete liquidation of the
applicable net investment. A loss of $1.2 million from the settlements of net investment hedges is
recorded in Accumulated Other Comprehensive Loss as of June 30, 2009.
12
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Fair Value Hedges
The Company enters into foreign exchange forward contracts to hedge against translation gains and
losses on certain receivables and payables of the Companys 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 the same line item, Other,
net. As of June 30, 2009, the total notional amount of the Companys forward contracts used as fair
value hedges was $35.3 million.
Embedded Derivatives
In addition to hedging activities, the Companys foreign subsidiaries in Argentina and Mexico are
parties to U.S. dollar denominated lease contracts which the Company has determined contain
embedded derivatives, as defined by SFAS 133. As such, the Company bifurcates the embedded
derivative features of the lease contracts and values these features as foreign currency
derivatives.
Derivative Valuation and Settlements
The Companys derivatives as of June 30, 2009 and December 31, 2008 are as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
Designated as hedging |
|
Not designated as hedging instruments under |
|
|
instruments under SFAS 133 |
|
SFAS 133 |
|
|
Foreign |
|
Foreign |
|
Foreign |
|
Foreign |
|
|
Derivative contracts: |
|
Exchange |
|
Exchange |
|
Exchange |
|
Exchange |
|
Leases |
|
|
|
|
|
|
|
|
|
|
Option |
|
|
|
|
|
Embedded |
Derivative classification: |
|
Cash Flow |
|
Net Investment |
|
Contracts |
|
Fair Value |
|
Derivative |
|
|
|
|
|
Fair value and location of
derivative in the
Consolidated Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaids and other current assets |
|
$ |
5,419 |
|
|
$ |
|
|
|
$ |
89 |
|
|
$ |
33 |
|
|
$ |
|
|
Other noncurrent assets |
|
|
2,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Other current liabilities |
|
|
(15,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(184 |
) |
Other noncurrent liabilities |
|
|
(551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of derivatives, net |
|
$ |
(8,281 |
) |
|
$ |
|
|
|
$ |
89 |
|
|
$ |
33 |
|
|
$ |
(599 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
Designated as hedging |
|
Not designated as hedging |
|
|
instruments under SFAS 133 |
|
instruments under SFAS 133 |
|
|
Foreign |
|
Foreign |
|
Foreign |
|
|
Derivative contracts: |
|
Exchange |
|
Exchange |
|
Exchange |
|
Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded |
Derivative classification: |
|
Cash Flow |
|
Net Investment |
|
Fair Value |
|
Derivative |
|
|
|
|
|
Fair value and location of
derivative in the
Consolidated Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaids and other current assets |
|
$ |
1,926 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other noncurrent assets |
|
|
2,297 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Other current liabilities |
|
|
(30,757 |
) |
|
|
(113 |
) |
|
|
(44 |
) |
|
|
(130 |
) |
Other noncurrent liabilities |
|
|
(6,555 |
) |
|
|
|
|
|
|
|
|
|
|
(1,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of derivatives, net |
|
$ |
(33,089 |
) |
|
$ |
(113 |
) |
|
$ |
(44 |
) |
|
$ |
(1,476 |
) |
|
|
|
|
|
13
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The effect of derivative instruments on the Consolidated Statements of Operations and Other
Comprehensive Loss for the three months ended June 30, 2009 and 2008 are as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2009 |
|
2008 |
|
|
Designated as hedging instruments under |
|
Designated as hedging instruments under |
|
|
SFAS 133 |
|
SFAS 133 |
Derivative contracts: |
|
Foreign Exchange |
|
Foreign Exchange |
|
Foreign Exchange |
|
Foreign Exchange |
Derivative classification: |
|
Cash Flow |
|
Net Investment |
|
Cash Flow |
|
Net Investment |
Amount of gain or (loss) recognized in other
comprehensive income effective portion, net of tax: |
|
$ |
9,117 |
|
|
$ |
(1,235 |
) |
|
$ |
(11,960 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and location of net gain or (loss) reclassified
from accumulated OCI to income effective portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
(5,360 |
) |
|
$ |
|
|
|
$ |
4,337 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and location of net gain or (loss) reclassified
from accumulated OCI to income ineffective portion
and amount excluded from effectiveness testing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net |
|
$ |
(98 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Three Months Ended June 30, |
|
|
2009 |
|
2008 |
|
|
Not designated as hedging instruments under |
|
Not designated as hedging instruments under |
|
|
SFAS 133 |
|
SFAS 133 |
Derivative contracts: |
|
Foreign Exchange |
|
Leases |
|
Foreign Exchange |
|
Leases |
|
|
|
|
|
|
Embedded |
|
|
|
|
|
Embedded |
Derivative classification: |
|
Fair Value |
|
Derivative |
|
Fair Value |
|
Derivative |
Amount and location of net gain or (loss) recognized
in the Consolidated Statement of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
$ |
|
|
|
$ |
616 |
|
|
$ |
|
|
|
$ |
(300 |
) |
Other, net |
|
|
(1,331 |
) |
|
|
|
|
|
|
99 |
|
|
|
|
|
The effect of derivative instruments on the Consolidated Statements of Operations and Other
Comprehensive Loss for the six months ended June 30, 2009 and 2008 are as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
|
Designated as hedging instruments under |
|
Designated as hedging instruments under |
|
|
SFAS 133 |
|
SFAS 133 |
Derivative contracts: |
|
Foreign Exchange |
|
Foreign Exchange |
|
Foreign Exchange |
|
Foreign Exchange |
Derivative classification: |
|
Cash Flow |
|
Net Investment |
|
Cash Flow |
|
Net Investment |
Amount of gain or (loss) recognized in other
comprehensive income effective portion, net of tax: |
|
$ |
7,393 |
|
|
$ |
(1,727 |
) |
|
$ |
(16,356 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and location of net gain or (loss) reclassified
from accumulated OCI to income effective portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
(13,168 |
) |
|
$ |
|
|
|
$ |
10,393 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and location of net gain or (loss) reclassified
from accumulated OCI to income ineffective portion
and amount excluded from effectiveness testing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net |
|
$ |
(133 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
|
Not designated as hedging instruments |
|
Not designated as hedging instruments |
|
|
under SFAS 133 |
|
under SFAS 133 |
Derivative contracts: |
|
Foreign Exchange |
|
Leases |
|
Foreign Exchange |
|
Leases |
|
|
|
|
|
|
Embedded |
|
|
|
|
|
Embedded |
Derivative classification: |
|
Fair Value |
|
Derivative |
|
Fair Value |
|
Derivative |
Amount and location of net gain or (loss) recognized
in the Consolidated Statement of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
$ |
|
|
|
$ |
878 |
|
|
$ |
|
|
|
$ |
(378 |
) |
Other, net |
|
|
(957 |
) |
|
|
|
|
|
|
845 |
|
|
|
|
|
14
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(7) FAIR VALUE
SFAS 157 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 June 30, 2009 of the Companys 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 Companys debt is reflected in the accompanying balance sheets at amortized cost. Debt
consists primarily of the Companys Credit Facility, which permits floating-rate borrowings based
upon the current Prime Rate or LIBOR plus a credit spread as determined by the Companys leverage
ratio calculation (as defined in the Credit Facility agreement). As of June 30, 2009, the weighted
average interest rate of the Companys Credit Facility borrowings was 2.03%. Based on the
foregoing, the Company considers the fair value of outstanding borrowings to approximate the
recorded value.
Derivatives Net derivative assets (liabilities) measured at fair value on a recurring basis
include the following as of June 30, 2009 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
At Fair Value |
|
Cash flow hedges |
|
$ |
|
|
|
$ |
(8,281 |
) |
|
$ |
|
|
|
$ |
(8,281 |
) |
Net investment hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges |
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
33 |
|
Embedded derivatives |
|
|
|
|
|
|
(599 |
) |
|
|
|
|
|
|
(599 |
) |
Option Contracts |
|
|
|
|
|
|
89 |
|
|
|
|
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net derivative
asset (liability) |
|
$ |
|
|
|
$ |
(8,758 |
) |
|
$ |
|
|
|
$ |
(8,758 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2009, credit
risk did not materially change the fair value of the Companys foreign currency forward and option
contracts.
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 is 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.
15
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Deferred Compensation Plan The Company maintains a non-qualified deferred compensation plan
structured as a Rabbi trust for certain eligible employees. Participants in the deferred
compensation plan select from a menu of phantom investment options for their deferral dollars
offered by the Company each year, which are based upon changes in
value of complementary, defined
market investments. The deferred compensation liability represents the combined values of market
investments against which participant accounts are tracked.
The following is a summary of the Companys fair value measurements as of June 30, 2009 (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
|
|
|
$ |
5,497 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
5,497 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
|
|
|
$ |
(8,758 |
) |
|
$ |
|
|
Deferred compensation plan liability |
|
|
|
|
|
|
(2,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
(11,546 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
(8) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes,
which requires recognition of deferred tax assets and liabilities for the expected future income
tax consequences of transactions that have been included in the Consolidated Financial Statements.
Under this method, deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using tax rates in effect
for the year in which the differences are expected to reverse. When circumstances warrant, the
Company assesses the likelihood that its net deferred tax assets will more likely than not be
recovered from future projected taxable income.
The Company has protested one issue to the appeals branch of the Internal Revenue Service for an
administrative resolution arising from the Companys most recent federal tax audit for which no tax
benefit has been recorded under FASB Interpretation 48, Accounting for Uncertainty in Income Taxes.
The Company has been notified of the intent to audit, or is currently under audit of income taxes
in Australia, Brazil, Malaysia, the Philippines, the United Kingdom and the Percepta U.S. business,
for various open tax years. Although the outcome of examinations by taxing authorities are always
uncertain, it is the opinion of management that the resolution of these audits will not have a
material effect on the Companys Consolidated Financial Statements.
As of June 30, 2009, the Company had $60.3 million of deferred tax assets (after a $32.5 million
valuation allowance) and net deferred tax assets (after deferred tax liabilities) of $55.2 million
related to the U.S. and international tax jurisdictions whose recoverability is dependent upon
future profitability. During the second quarter 2009, the Company
recorded $2.8 million of
valuation allowance in the U.S. and international tax jurisdictions for deferred tax assets that do
not meet the more than likely standard for recoverability.
The
effective tax rate for the three and six months ended June 30,
2009 was 27.0% and 25.9%,
respectively. The effective tax rate for the three and six months ended June 30, 2008 was 25.9% and
27.0%, respectively.
16
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(9) RESTRUCTURING CHARGES AND IMPAIRMENT LOSSES
Restructuring Charges
During the three and six months ended June 30, 2009, the Company undertook a number of
restructuring activities primarily associated with reductions in the Companys capacity and
workforce in both the North American and International BPO segments to better align the capacity
and workforce with current business needs.
A summary of the expenses recorded for the three and six months ended June 30, 2009 and 2008,
respectively, is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
North American BPO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in force |
|
$ |
2,668 |
|
|
$ |
18 |
|
|
$ |
3,568 |
|
|
$ |
128 |
|
Facility exit charges |
|
|
360 |
|
|
|
|
|
|
|
472 |
|
|
|
|
|
Revision of prior estimates |
|
|
|
|
|
|
|
|
|
|
(1,135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,028 |
|
|
$ |
18 |
|
|
$ |
2,905 |
|
|
$ |
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
International BPO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in force |
|
$ |
824 |
|
|
$ |
414 |
|
|
$ |
1,250 |
|
|
$ |
2,571 |
|
Facility exit charges |
|
|
156 |
|
|
|
|
|
|
|
156 |
|
|
|
|
|
Revision of prior estimates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
980 |
|
|
$ |
414 |
|
|
$ |
1,406 |
|
|
$ |
2,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Database Marketing and Consulting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in force |
|
$ |
|
|
|
$ |
8 |
|
|
$ |
|
|
|
$ |
8 |
|
Facility exit charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revision of prior estimates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
8 |
|
|
$ |
|
|
|
$ |
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2009 and the six months ended June 30, 2009, the Company
determined that $0.7 million of previously recorded restructuring expense will be reimbursed from
the primary client in the delivery centers being closed, and $0.4 million previously recorded will
not be paid; these amounts were reversed against restructuring charge expenses.
A roll-forward of the activity in the Companys restructuring accruals is as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closure of |
|
|
|
|
|
|
|
|
|
Delivery |
|
|
Reduction in |
|
|
|
|
|
|
Centers |
|
|
Force |
|
|
Total |
|
Balance as of December 31, 2008 |
|
$ |
2,113 |
|
|
$ |
|
|
|
$ |
2,113 |
|
Expense |
|
|
628 |
|
|
|
4,818 |
|
|
|
5,446 |
|
Payments |
|
|
(715 |
) |
|
|
(2,554 |
) |
|
|
(3,269 |
) |
Revision of prior estimates |
|
|
(1,135 |
) |
|
|
|
|
|
|
(1,135 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2009 |
|
$ |
891 |
|
|
$ |
2,264 |
|
|
$ |
3,155 |
|
|
|
|
|
|
|
|
|
|
|
Of the remaining accrued costs, $2.8 million are expected to be paid during 2009, with the
remainder to be paid thereafter.
Impairment Losses
During the three months ended June 30, 2009, the Company made the decision to exit certain delivery
centers, in both its North American and International BPO segments, to better align capacity with
current
17
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
business needs. As a result of the decision to exit certain delivery centers, the Company
evaluated the recoverability of its leasehold improvement assets at certain delivery centers in
accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS 144). In accordance with SFAS 144, an asset is considered
to be impaired when the anticipated undiscounted future 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. The Company used Level 3 inputs for its
discounted cash flows analysis in accordance with SFAS 157. Assumptions included the amount and
timing of estimated future cash flows and assumed discount rates. During the three months ended
June 30, 2009, the Company recognized impairment losses related to leasehold improvement assets of
$0.8 million and $1.8 million in its International BPO and North American BPO segments,
respectively.
During the six months ended June 30, 2009, the Company recognized impairment losses of $2.8 million
in its International BPO segment, related to the abandonment of $2.0 million of certain leasehold
improvement assets during the first quarter of 2009 and the $0.8 million impairment loss recognized
in the second quarter based on the Companys evaluation in accordance with SFAS 144. During the six
months ended June 30, 2009, the Company recognized impairment losses of $1.8 million in its North American
BPO segment based on the Companys evaluation in accordance with SFAS 144.
The Company did not recognize any impairment losses during the three and six months ended June 30,
2008.
(10) COMMITMENTS AND CONTINGENCIES
Letters of Credit
As of June 30, 2009, outstanding letters of credit and other performance guarantees totaled
approximately $5.3 million, which primarily guarantee workers compensation and other insurance
related obligations.
Guarantees
The Companys Credit Facility is guaranteed by a majority of the Companys domestic subsidiaries.
The Company has a corporate aircraft financed under a synthetic operating lease. The lease term is
five years and expires in January 2010. During the lease term or at expiration the Company has the
option to return the aircraft, purchase the aircraft at a fixed price, or renew the lease with the
lessor. If the Company elects to return the aircraft, it has guaranteed a portion of the residual
value to the lessor. Although the approximate residual value guarantee is $2.1 million at lease
expiration, the Company does not expect to have a liability under this lease based upon current
estimates of the aircrafts fair value at the time of lease expiration.
Legal Proceedings
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. TeleTech and the other individual defendants intend to defend this case vigorously.
Although the Company expects the majority of expenses related to the class action lawsuit to be
covered by insurance, there can be no assurance that all such expenses will be reimbursed.
18
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 TeleTechs
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. Although the Company expects the majority of expenses related to the
shareholder derivative action to be covered by insurance, there can be no assurance that all such
expenses will be reimbursed.
From time to time, the Company has been involved in claims and lawsuits, both as plaintiff and
defendant, which arise in the ordinary course of business. Accruals for claims or lawsuits have
been provided for to the extent that losses are deemed both probable and estimable. Although the
ultimate outcome of these claims or lawsuits cannot be ascertained, on the basis of present
information and advice received from counsel, the Company believes that the disposition or ultimate
resolution of such claims or lawsuits will not have a material adverse effect on the Company or its
Consolidated Financial Statements.
(11) COMPREHENSIVE INCOME
The following table sets forth comprehensive income for the periods indicated (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
17,117 |
|
|
$ |
21,582 |
|
|
$ |
33,004 |
|
|
$ |
41,543 |
|
Foreign currency translation adjustments |
|
|
14,799 |
|
|
|
1,722 |
|
|
|
7,286 |
|
|
|
5,616 |
|
Derivatives valuation, net of tax |
|
|
12,386 |
|
|
|
(14,605 |
) |
|
|
15,425 |
|
|
|
(22,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
44,302 |
|
|
$ |
8,699 |
|
|
$ |
55,715 |
|
|
$ |
24,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to
noncontrolling interest |
|
|
(1,353 |
) |
|
|
(1,220 |
) |
|
|
(2,118 |
) |
|
|
(2,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to TeleTech |
|
$ |
42,949 |
|
|
$ |
7,479 |
|
|
$ |
53,597 |
|
|
$ |
22,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles equity attributable to noncontrolling interest (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Noncontrolling interest, January 1 |
|
$ |
5,011 |
|
|
$ |
3,555 |
|
Net income attributable to noncontrolling interest |
|
|
1,811 |
|
|
|
2,056 |
|
Dividends distributed to noncontrolling interest |
|
|
(1,800 |
) |
|
|
(1,113 |
) |
Foreign currency translation adjustments |
|
|
307 |
|
|
|
16 |
|
|
|
|
|
|
|
|
Noncontrolling interest, June 30 |
|
$ |
5,329 |
|
|
$ |
4,514 |
|
|
|
|
|
|
|
|
19
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(12) NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted shares for the periods
indicated (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Shares used in basic earnings per share
calculation |
|
|
63,098 |
|
|
|
69,977 |
|
|
|
63,502 |
|
|
|
69,957 |
|
Effect of dilutive securities Stock options |
|
|
641 |
|
|
|
1,729 |
|
|
|
347 |
|
|
|
1,662 |
|
Effect of dilutive securities RSUs |
|
|
436 |
|
|
|
23 |
|
|
|
318 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in dilutive earnings per share
calculation |
|
|
64,175 |
|
|
|
71,729 |
|
|
|
64,167 |
|
|
|
71,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2009 and 2008, options to purchase 0.8 million and 0.3 million,
respectively, shares of common stock were outstanding, but not included in the computation of
diluted net income per share because the effect would have been antidilutive. For the six months
ended June 30, 2009 and 2008, options to purchase 2.4 million and 0.3 million, respectively, shares
of common stock were outstanding, but not included in the computation of diluted net income per
share because the effect would have been antidilutive. For the three months ended June 30, 2009
and 2008, restricted stock units (RSUs) of 0.9 million and zero, respectively, and for the six
months ended June 30, 2009 and 2008, RSUs of 1.0 million and zero, respectively, were outstanding,
but not included in the computation of diluted net income per share because the effect would have
been anti-dilutive.
(13) EQUITY-BASED COMPENSATION PLANS
The Company has adopted SFAS No. 123 (revised 2004) ShareBased Payment (SFAS 123(R)) and applied
the modified prospective method for expensing equity compensation. SFAS 123(R) requires all
equitybased payments to employees to be recognized in the Consolidated Statements of Operations
and Other Comprehensive Loss at the fair value of the award on the grant date. The fair values of
all stock options granted by the Company are estimated on the date of grant using the
BlackScholesMerton Model.
Stock Options
As of June 30, 2009, there was approximately $1.3 million of total unrecognized compensation cost
(including the impact of expected forfeitures as required under SFAS 123(R)) related to unvested
option arrangements granted under the Companys equity plans. The Company recognizes compensation
expense straightline over the vesting term of the option grant. The Company recognized
compensation expense related to stock options of $0.5 million and $0.7 million for the three months
ended June 30, 2009 and 2008, respectively. The Company recognized compensation expense related to
stock options of $1.5 million and $1.8 million for the six months ended June 30, 2009 and 2008,
respectively.
Restricted Stock Unit Grants
During the six months ended June 30, 2009 and 2008, the Company granted 58,575 and zero RSUs,
respectively, to new and existing employees, which vest in equal installments over four years. The
Company recognized compensation expense related to RSUs of $2.0 million and $4.6 million for the
three and six months ended June 30, 2009, respectively, and $1.3 million and $2.9 million for the
three and six months ended June 30, 2008, respectively. As of June 30, 2009, there was
approximately $31.2 million of total unrecognized compensation cost (including the impact of
expected forfeitures as required under SFAS 123(R)) related to RSUs granted under the Companys
equity plans.
As of June 30, 2009 and 2008, the Company had performance-based RSUs outstanding that vest based on
the Company achieving specified operating income performance targets in 2009 and 2008. The Company
determined that it was not probable these performance targets would be met, therefore no expense
was recognized for the six months ended June 30, 2009 and 2008.
20
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The following discussion and analysis should be read in conjunction with our Annual Report on Form
10-K for the year ended December 31, 2008. Except for historical information, the discussion below
contains certain forwardlooking statements that involve risks and uncertainties. The projections
and statements contained in these forwardlooking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance, or achievements to
be materially different from any future results, performance, or achievements expressed or implied
by the forwardlooking statements.
All statements not based on historical fact are forwardlooking statements that involve
substantial risks and uncertainties. In accordance with the Private Securities Litigation Reform
Act of 1995, the following are important factors that could cause our actual results to differ
materially from those expressed or implied by such forwardlooking statements, including but not
limited to the following: achieving estimated revenue from new, renewed and expanded client
business as volumes may not materialize as forecasted, especially due to the global economic
slowdown; achieving profit improvement in our International Business Process Outsourcing (BPO)
operations; the ability to close and ramp new business opportunities that are currently being
pursued or that are in the final stages with existing and/or potential clients; our ability to
execute our growth plans, including sales of new products; the possibility of lower revenue or
price pressure from our clients experiencing a business downturn or merger in their business;
greater than anticipated competition in the BPO services market, causing adverse pricing and more
stringent contractual terms; risks associated with losing or not renewing client relationships,
particularly large client agreements, or early termination of a client agreement; the risk of
losing clients due to consolidation in the industries we serve; consumers concerns or adverse
publicity regarding our clients products; our ability to find cost effective locations, obtain
favorable lease terms and build or retrofit facilities in a timely and economic manner; risks
associated with business interruption due to weather, fires, pandemic, or terroristrelated
events; risks associated with attracting and retaining costeffective labor at our delivery
centers; the possibility of asset impairments and restructuring charges; risks associated with
changes in foreign currency exchange rates; economic or political changes affecting the countries
in which we operate; changes in accounting policies and practices promulgated by standard setting
bodies; and new legislation or government regulation that adversely impacts our tax obligations,
health care costs or the BPO and customer management industry.
This list is intended to identify some of the principal factors that could cause actual results to
differ materially from those described in the forward-looking statements included elsewhere in this
report. These factors are not intended to represent a complete list of all risks and uncertainties
inherent in our business and should be read in conjunction with the more detailed cautionary
statements included in our 2008 Annual Report on Form 10-K under the caption Item 1A. Risk
Factors, our other Securities and Exchange Commission filings and our press releases.
Executive Summary
TeleTech is one of the largest and most geographically diverse global providers of business process
outsourcing solutions. We have a 27-year history of designing, implementing and managing critical
business processes for Global 1000 companies to help them improve their customers experience,
expand their strategic capabilities and increase their operating efficiencies. 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 250 BPO programs serving approximately 100 global clients in the automotive, broadband, cable,
financial services, government, healthcare, logistics, media and entertainment, retail, technology,
travel, wireline and wireless communication industries.
21
As globalization of the worlds 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, 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.
Although
the global economic slowdown has caused a decline in our current call
volumes and delayed client purchasing decisions resulting in reduced
revenues in 2009, we believe that our revenue
will continue to grow over the long-term as global demand for our services is fueled by the
following trends:
|
|
|
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. |
|
|
|
|
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 have seen an increase in interest
of our services for 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, clients increasingly 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 our clients customers. |
22
Our Strategy
Our objective is to become the worlds largest, most technologically advanced and innovative
provider of onshore, offshore and work from home BPO solutions. Companies within the Global 1000
are our primary client targets due to their size, global nature, focus on outsourcing and desire
for the global, scalable integrated process solutions that we offer. We have developed, and
continue to invest in, a broad set of capabilities designed to serve this growing client need.
These investments include our TeleTech@Home offering which allows our employees to serve clients
from their homes. This capability has enhanced the flexibility of our offering allowing clients to
choose our onshore, offshore or work from home employees to meet their outsourced business process
needs. In addition, we have begun to offer 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:
|
|
|
Deepen and broaden our relationships with existing clients; |
|
|
|
|
Win business with new clients and focus on targeted industries where we expect
accelerating adoption of business process outsourcing; |
|
|
|
|
Continue to invest in innovative proprietary technology and new business offerings; |
|
|
|
|
Continue to improve our operating margins through selective cost cutting initiatives and
increased asset utilization of our globally diverse delivery centers; and |
|
|
|
|
Selectively pursue acquisitions that extend our capabilities, geographic reach and/or
industry expertise. |
Our Second Quarter 2009 Financial Results
In 2009, our second quarter revenue decreased 15.6% to $301.5 million over the year-ago period,
which includes a decrease of $27.3 million or 7.6% due to fluctuations in foreign currency rates.
Our second quarter 2009 income from operations decreased 22.3% to
$23.0 million or 7.6% of revenue
from $29.7 million or 8.3% of revenue in the year-ago period. This decrease is due to a decline in
existing client volumes in light of the current global recessionary economic environment and the
continued migration of several of our clients to our offshore delivery centers. Income from
operations for the second quarter of 2009 and 2008 included $6.6 million and $0.4 million of asset
impairment and restructuring charges, respectively. Excluding these charges, our income from
operations in 2009 decreased 1.4% to $29.7 million or 9.8% of revenue from $30.1 million or 8.4%
of revenue in 2008 excluding similar items.
We have experienced growth in our offshore delivery centers, which serve clients based both in
North America and in other countries. Our offshore delivery capacity now spans seven countries with
approximately 25,300 workstations and currently represents 68% of our global delivery capabilities.
Revenue in these offshore locations was $139 million and represents 46% of our total revenue in the
second quarter of 2009. While historically US-based clients utilized most of our offshore delivery
capabilities, we have increasingly seen clients in Europe and Asia Pacific utilize our offshore
delivery capabilities and expect this trend to continue with clients in other countries. In light
of this trend, we plan to continue to selectively expand into new offshore markets. For example, we
believe we are one of the first multi-national BPO providers to enter the African continent. As we
grow our offshore delivery capabilities and our 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.
23
Our strong financial position due to our cash flow from operations and low debt levels allowed us
to finance a significant portion of our capital needs and stock repurchases through internally
generated cash flows. At June 30, 2009, we had $84.0 million of cash and cash equivalents and a
total debt to total capitalization ratio of 7.8%.
Business Overview
Our BPO business provides outsourced business process and customer management services for a
variety of industries through global delivery centers. Effective January 1, 2009, we completed
certain organizational changes focused on streamlining the structure of our organization to more
closely align our reporting structure with our client base and increase management accountability.
Beginning in the first quarter of 2009, 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 is
comprised of sales to all clients based in all countries outside of North America. TeleTech revised
previously reported operating segment information to conform to its new operating segments in
effect as of January 1, 2009.
BPO Services
The BPO business generates revenue based primarily on the amount of time our associates devote to a
clients program. We primarily focus on large global corporations in the following industries:
automotive, cable, financial services, government, healthcare, logistics, media and entertainment,
retail, technology, travel and leisure and wireline and wireless telecommunications. Revenue is
recognized as services are provided. The majority of our revenue is from multiyear contracts, and
we expect this trend to continue. However, we do provide certain client programs on a shortterm
basis.
We have historically experienced annual attrition of existing client programs of approximately 7%
to 15% of our revenue. Attrition of existing client programs during the first six months of 2009
was 9%.
The BPO industry is highly competitive. We compete primarily with the inhouse 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 goal in both the North American and the International BPO segments is to improve our revenue
and profitability by:
|
|
|
Capitalizing 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, 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; and |
|
|
- |
|
Better integrate front- and back-office processes. |
|
|
|
Deepening and broadening relationships with existing clients; |
|
|
|
|
Winning business with new clients and focusing on targeted high growth industry verticals; |
|
|
|
|
Continuing to diversify revenue into higher-margin offerings such as professional
services, talent acquisition, learning services and our hosted TeleTech OnDemand
capabilities; |
|
|
|
|
Increasing capacity utilization during peak and non-peak hours; |
|
|
|
|
Scaling our work-from-home initiative to increase operational flexibility; and |
24
|
|
|
Completing select acquisitions that extend our core BPO capabilities or vertical
expertise. |
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. A continued weakening of 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 other factors, the scope of services offered, the
service record of the vendor and price. We generally price our bids with a longterm 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 shortterm view, as
opposed to our longerterm view, resulting in a lower price bid. While we believe that 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 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 June 30, 2009, we had deferred start-up training
revenue, net of costs, of $9.6 million that will be recognized into our income from operations over
the remaining life of the corresponding contracts ($7.5 million will be recognized within the next
12 months).
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 underperforming 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 that 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.
25
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 June 30, 2009, the overall capacity utilization in our multiclient delivery
centers was 69% and is lower than the prior year due to a decline in existing client volumes in
light of the current global recessionary economic environment. The table below presents workstation
data for our multiclient delivery centers as of June 30, 2009 and 2008. Dedicated and managed
delivery centers (7,950 and 9,883 workstations as of June 30, 2009 and 2008, respectively) are
excluded from the workstation data as unused workstations in these facilities are not available for
sale to other clients. 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 delivery centers based on contractual obligations,
normal changes in our business environment and/or client needs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
June 30, 2008 |
|
|
Total |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Production |
|
|
|
|
|
|
|
|
|
Production |
|
|
|
|
|
|
Workstations |
|
In Use |
|
% In Use |
|
Workstations |
|
In Use |
|
% In Use |
Multi-client centers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sites open <1 year |
|
|
2,721 |
|
|
|
1,539 |
|
|
|
57 |
% |
|
|
7,811 |
|
|
|
3,940 |
|
|
|
50 |
% |
Sites open >1 year |
|
|
26,400 |
|
|
|
18,697 |
|
|
|
71 |
% |
|
|
21,788 |
|
|
|
16,869 |
|
|
|
77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multi-client centers |
|
|
29,121 |
|
|
|
20,236 |
|
|
|
69 |
% |
|
|
29,599 |
|
|
|
20,809 |
|
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Issued Accounting Pronouncements
Refer to Note 1 to the Consolidated Financial Statements for a discussion of recently issued
accounting pronouncements.
Critical Accounting Policies and Estimates
Managements 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 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.
26
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 predetermined criteria related to quality and performance.
PerformanceBased Under performancebased arrangements, we are paid by our clients based on
the achievement of certain levels of sales or other clientdetermined criteria specified in the
client contract. We recognize performancebased 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 Short-Term
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.
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 clients (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
straightline amortization over the life of the contract. Amortization of these costs is recorded
as a reduction of revenue.
Income Taxes
We account for income taxes in accordance with SFAS No. 109 Accounting for Income Taxes (SFAS
109), which requires recognition of deferred tax assets and liabilities for the expected future
income tax consequences of transactions that have been included in the Consolidated Financial
Statements. Under this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and liabilities using tax rates
in effect for the year in which the differences are expected to reverse. 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.
As required by SFAS 109, we continually review the likelihood that deferred tax assets will be
realized in future tax periods under the more likely than not criterion. In making this judgment,
SFAS 109 requires that all available evidence, both positive and negative, should be considered in
determining whether, based on the weight of that evidence, a valuation allowance is required.
The FASB recently issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN
48), an interpretation of SFAS 109. FIN 48 became effective in 2007. FIN 48 contains a two-step
approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS
109. 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. We
recognize interest and penalties related to uncertain tax positions in Provision for Income Taxes
in our Consolidated Statements of Operations.
27
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 rulings 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 accountbyaccount basis and
assigns a probability of collection. Managements 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.
Impairment of LongLived Assets
We evaluate the carrying value of property, plant and equipment for impairment whenever events or
changes in circumstances indicate that the carry amount may not be recoverable in accordance with
SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. An asset is considered
to be impaired when the anticipated undiscounted future 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
SFAS No. 142 Goodwill and Other Intangible Assets requires us to perform 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 businesses, the useful life over which cash
flows will occur and determination of our 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. We conduct our annual goodwill
impairment test in the fourth quarter each year, or more frequently if indicators of impairment
exist. Such indicators may include a sustained, significant decline in our share price and market
capitalization, a decline in our expected future cash flows, a significant adverse change in the
business climate, unanticipated competition and/or slower than expected growth rates, among others.
During the quarter ended June 30, 2009, we assessed whether any such indicators of impairment
exist, and concluded there were no indicators of impairment.
Restructuring Liability
We routinely assess the profitability and utilization of our delivery centers and existing markets.
In some cases, we have chosen to close underperforming delivery centers and complete reductions
in workforce to enhance future profitability. We recognize certain liabilities in accordance with
SFAS No. 112 Employers Accounting for Postemployment Benefits, when the severance liabilities are
determined to be probable and reasonably estimable. All remaining activity follows SFAS No. 146
Accounting for Costs Associated with Exit or Disposal Activities, which specifies that a liability
for a cost associated with an exit or disposal activity be recognized when the liability is
incurred, rather than upon commitment to a plan.
EquityBased Compensation
We adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based
Payment (SFAS 123(R)) using the modified prospective transition method effective in our first
quarter of 2006. Under SFAS 123(R) the estimated fair value of equity-based awards is charged
against income over the requisite service period, which is generally the vesting period.
28
Contingencies
We record a liability in accordance with SFAS No. 5 Accounting for Contingencies 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 and
database marketing services, 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 equitybased compensation expense, outside professional fees (i.e. legal and
accounting services), building expense for nondelivery 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 and telecommunications
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 component of other income is miscellaneous receipts not directly related to our operating
activities, such as foreign exchange transaction gains.
Other Expense
The main components of other expense are expenditures not directly related to our operating
activities, such as foreign exchange transaction losses.
Presentation of NonGAAP Measurements
Free Cash Flow
Free cash flow is a nonGAAP 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 nonGAAP 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.
29
The following table reconciles free cash flow to net cash provided by operating activities for our
consolidated results (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Free cash flow |
|
$ |
33,981 |
|
|
$ |
11,907 |
|
|
$ |
79,537 |
|
|
$ |
22,897 |
|
Purchases of property, plant and equipment |
|
|
5,846 |
|
|
|
21,223 |
|
|
|
14,301 |
|
|
|
36,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
39,827 |
|
|
$ |
33,130 |
|
|
$ |
93,838 |
|
|
$ |
59,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We discuss factors affecting free cash flow between periods in the Liquidity and Capital
Resources section below.
Non-GAAP Income from Operations
We discuss our income from operations for the three and six months ended June 30, 2009 and 2008
excluding asset impairment and restructuring charges, and costs associated with our equity-based
compensation review and financial restatement, which is a non-GAAP financial measure. We believe
this measure provides meaningful supplemental information by identifying matters that are not
indicative of core business operating results or where appropriate are of a substantially non-recurring nature. A
reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial
measure is included with the presentation of the non-GAAP financial measure.
Non-GAAP Effective Tax Rate
The effective tax rate for the periods ended June 30, 2009 and 2008 is discussed using non-GAAP
financial measures that exclude the effects of amounts associated with restructuring and asset
impairment charges, the release of valuation allowances and reduction in our FIN 48 tax liability,
gains/losses from the dispositions of assets, and changes due to certain tax planning and corporate
restructuring activities. Management believes that it is helpful to exclude these effects to better
understand and analyze the periods effective tax rate given the discrete nature of these items. A
reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial
measure is included with the presentation of the non-GAAP financial measures.
30
Results of Operations
Three Months Ended June 30, 2009 As Compared to Three Months Ended June 30, 2008
Operating Review
The following table is presented to facilitate an understanding of our Managements Discussion and
Analysis of Financial Condition and Results of Operations and presents our results of operations by
segment for the three months ended June 30, 2009 and 2008 (amounts in thousands). We allocate to
each segment its portion of corporate operating expenses. All intercompany transactions between
the reported segments for the periods presented have been eliminated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
|
|
|
2009 |
|
|
Revenue |
|
|
2008 |
|
|
Revenue |
|
|
$ Change |
|
|
% Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
229,992 |
|
|
|
|
|
|
$ |
257,109 |
|
|
|
|
|
|
$ |
(27,117 |
) |
|
|
-10.5 |
% |
International BPO |
|
|
71,520 |
|
|
|
|
|
|
|
100,307 |
|
|
|
|
|
|
|
(28,787 |
) |
|
|
-28.7 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
301,512 |
|
|
|
|
|
|
$ |
357,416 |
|
|
|
|
|
|
$ |
(55,904 |
) |
|
|
-15.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
154,119 |
|
|
|
67.0 |
% |
|
$ |
185,335 |
|
|
|
72.1 |
% |
|
$ |
(31,216 |
) |
|
|
-16.8 |
% |
International BPO |
|
|
58,930 |
|
|
|
82.4 |
% |
|
|
80,441 |
|
|
|
80.2 |
% |
|
|
(21,511 |
) |
|
|
-26.7 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
57 |
|
|
|
0.0 |
% |
|
|
(57 |
) |
|
|
-100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
213,049 |
|
|
|
70.7 |
% |
|
$ |
265,833 |
|
|
|
74.4 |
% |
|
$ |
(52,784 |
) |
|
|
-19.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
33,111 |
|
|
|
14.4 |
% |
|
$ |
32,999 |
|
|
|
12.8 |
% |
|
$ |
112 |
|
|
|
0.3 |
% |
International BPO |
|
|
11,870 |
|
|
|
16.6 |
% |
|
|
12,939 |
|
|
|
12.9 |
% |
|
|
(1,069 |
) |
|
|
-8.3 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
(80 |
) |
|
|
0.0 |
% |
|
|
80 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,981 |
|
|
|
14.9 |
% |
|
$ |
45,858 |
|
|
|
12.8 |
% |
|
$ |
(877 |
) |
|
|
-1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
9,609 |
|
|
|
4.2 |
% |
|
$ |
10,809 |
|
|
|
4.2 |
% |
|
$ |
(1,200 |
) |
|
|
-11.1 |
% |
International BPO |
|
|
4,199 |
|
|
|
5.9 |
% |
|
|
4,810 |
|
|
|
4.8 |
% |
|
|
(611 |
) |
|
|
-12.7 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
5 |
|
|
|
0.0 |
% |
|
|
(5 |
) |
|
|
-100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,808 |
|
|
|
4.6 |
% |
|
$ |
15,624 |
|
|
|
4.4 |
% |
|
$ |
(1,816 |
) |
|
|
-11.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
3,028 |
|
|
|
1.3 |
% |
|
$ |
18 |
|
|
|
0.0 |
% |
|
$ |
3,010 |
|
|
|
16722.2 |
% |
International BPO |
|
|
980 |
|
|
|
1.4 |
% |
|
|
414 |
|
|
|
0.4 |
% |
|
|
566 |
|
|
|
136.7 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
8 |
|
|
|
0.0 |
% |
|
|
(8 |
) |
|
|
-100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,008 |
|
|
|
1.3 |
% |
|
$ |
440 |
|
|
|
0.1 |
% |
|
$ |
3,568 |
|
|
|
810.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
1,811 |
|
|
|
0.8 |
% |
|
$ |
|
|
|
|
0.0 |
% |
|
$ |
1,811 |
|
|
|
100.0 |
% |
International BPO |
|
|
809 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
809 |
|
|
|
100.0 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,620 |
|
|
|
0.9 |
% |
|
$ |
|
|
|
|
0.0 |
% |
|
$ |
2,620 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
28,314 |
|
|
|
12.3 |
% |
|
$ |
27,948 |
|
|
|
10.9 |
% |
|
$ |
366 |
|
|
|
1.3 |
% |
International BPO |
|
|
(5,268 |
) |
|
|
-7.4 |
% |
|
|
1,703 |
|
|
|
1.7 |
% |
|
|
(6,971 |
) |
|
|
-409.3 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
10 |
|
|
|
0.0 |
% |
|
|
(10 |
) |
|
|
-100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,046 |
|
|
|
7.6 |
% |
|
$ |
29,661 |
|
|
|
8.3 |
% |
|
$ |
(6,615 |
) |
|
|
-22.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
$ |
399 |
|
|
|
0.1 |
% |
|
$ |
(543 |
) |
|
|
-0.2 |
% |
|
$ |
942 |
|
|
|
173.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
(6,328 |
) |
|
|
-2.1 |
% |
|
$ |
(7,536 |
) |
|
|
-2.1 |
% |
|
$ |
1,208 |
|
|
|
16.0 |
% |
31
Revenue
Revenue for North American BPO for the three months ended June 30, 2009 as compared to the same
period in 2008 was $230.0 million and $257.1 million, respectively. The decrease in revenue for the
North American BPO was due to net increases in client programs of $3.3 million, offset by certain
program terminations of $20.7 million, and a $9.7 million decrease due to realized losses on cash
flow hedges purchased to reduce our exposure to foreign currency exchange rate fluctuations for
revenue operating in a different country.
Revenue for International BPO for the three months ended June 30, 2009 as compared to the same
period in 2008 was $71.5 million and $100.3 million, respectively. The decrease in revenue for the
International BPO was due to net decreases in client programs of $2.6 million, certain program
terminations of $8.6 million, and negative changes in foreign exchange rates causing a decrease in
revenue of $17.6 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 now represents 68% of our global
delivery capabilities. Revenue in these offshore locations was $139.0 million and represented 46%
of our total revenue in the second quarter of 2009. Revenue in these offshore locations was $155.8
million or 44% of total revenue in the second quarter of 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 the three months ended June 30, 2009 as compared to the
same period in 2008 was $154.1 million and $185.3 million, respectively. Cost of services as a
percentage of revenue in the North American BPO decreased compared to the prior year. In absolute
dollars the decrease is due to a $24.7 million decrease in employee related expenses due to
declines in existing client programs and program terminations, a $2.8 million decrease for
telecommunications expenses due to reductions in client volume and the closure of several delivery
centers, a $1.8 million decrease for rent and related expenses due to the closure of several
delivery centers, and a $1.9 million net decrease in other expenses.
Cost of services for International BPO for the three months ended June 30, 2009 as compared to the
same period in 2008 was $58.9 million and $80.4 million, respectively. Cost of services as a
percentage of revenue in the International BPO increased slightly compared to the prior year. In
absolute dollars the decrease is due to $18.6 million decrease in employee related expenses due to
a net reduction in existing clients and program terminations, with the majority of this decrease
attributable to changes in foreign exchange rates, a $1.3 million decrease for rent and related
expenses due to the closure of several delivery centers, and a $1.6 million net decrease in other
expenses.
Selling, General and Administrative
Selling, general and administrative expenses for North American BPO for the three months ended June
30, 2009 as compared to the same period in 2008 were $33.1 million and $33.0 million, respectively.
The expenses increased in both absolute dollars and as a percentage of revenue. The
increase in absolute dollars reflects a $2.4 million decrease in external professional fees related
to our review of equity-based compensation practices and restatement of our historical financial
statements and related lawsuits, a $1.2 million decrease in technology costs, offset by a $2.4 million increase in variable incentive
compensation and an increase in other expenses of $1.3 million.
Selling, general and administrative expenses for International BPO for the three months ended June
30, 2009 as compared to the same period in 2008 were $11.9 million and $12.9 million, respectively.
The expenses decreased in absolute dollars while increasing as a percentage of revenue. The
decrease in absolute dollars reflects a $1.0 million decrease in external professional fees related
to our review of equity-based compensation practices and restatement of our historical financial
statements and related lawsuits, and a $0.1 million decrease in other expenses.
32
Depreciation and Amortization
Depreciation and amortization expense on a consolidated basis for the three months ended June 30,
2009 and 2008 was $13.8 million and $15.6 million, respectively. Although depreciation and
amortization expense in both the North American BPO and International BPO decreased in absolute
value, it remained constant for the North American BPO and increased slightly for the International
BPO as a percentage of revenue compared to the prior year. Decreased depreciation and amortization
expense in both segments is due to restructuring activities and delivery center closures which have
better aligned our capacity to our operational needs and decreased capital expenditures during
2009.
Restructuring Charges
During the three months ended June 30, 2009, we recorded a net $4.0 million of restructuring
charges compared to $0.4 million in the same period in 2008. During 2009, we undertook reductions
in both our North American BPO and International BPO segments to better align our delivery centers
and workforce with the current business needs. We recorded $3.5 million in severance related
expenses, and $0.5 million in delivery center closure costs over both the North American BPO and
International BPO segments.
Impairment Losses
During the three months ended June 30, 2009, we recorded $2.6 million of impairment charges
compared to no impairment charge in the same period 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 and the International BPO segments.
Other Income (Expense)
For the three months ended June 30, 2009, interest income decreased to $0.7 million from $1.4
million in the same period in 2008 primarily due to lower cash and cash equivalent balances and
lower interest rates. Interest expense decreased during 2009 by $0.2 million due to a lower average
outstanding balance on our line of credit.
Income Taxes
The
effective tax rate for the three months ended June 30, 2009 was 27.0%. This compares to an
effective tax rate of 25.9% in the same period of 2008. The effective tax rate for the three months
ended June 30, 2009 is 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. In the future, our effective tax rate could be adversely affected by several
factors, many of which are outside of our control. 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 rulings of certain tax, regulatory and accounting organizations.
Subject to any future adverse legislation, 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. We expect that the effective tax rate in future periods will be
between 25% and 30%.
33
Six Months Ended June 30, 2009 As Compared to Six Months Ended June 30, 2008
Operating Review
The following table is presented to facilitate an understanding of our Managements Discussion and
Analysis of Financial Condition and Results of Operations and presents our results of operations by
segment for the six months ended June 30, 2009 and 2008 (amounts in thousands). We allocate to each
segment its portion of corporate operating expenses. All intercompany transactions between the
reported segments for the periods presented have been eliminated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
Segment |
|
|
|
|
|
|
|
|
|
2009 |
|
|
Revenue |
|
|
2008 |
|
|
Revenue |
|
|
$ Change |
|
|
% Change |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
458,878 |
|
|
|
|
|
|
$ |
530,911 |
|
|
|
|
|
|
$ |
(72,033 |
) |
|
|
-13.6 |
% |
International BPO |
|
|
146,664 |
|
|
|
|
|
|
|
194,141 |
|
|
|
|
|
|
|
(47,477 |
) |
|
|
-24.5 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
605,542 |
|
|
|
|
|
|
$ |
725,052 |
|
|
|
|
|
|
$ |
(119,510 |
) |
|
|
-16.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
311,812 |
|
|
|
68.0 |
% |
|
$ |
378,497 |
|
|
|
71.3 |
% |
|
$ |
(66,685 |
) |
|
|
-17.6 |
% |
International BPO |
|
|
120,079 |
|
|
|
81.9 |
% |
|
|
157,342 |
|
|
|
81.0 |
% |
|
|
(37,263 |
) |
|
|
-23.7 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
94 |
|
|
|
0.0 |
% |
|
|
(94 |
) |
|
|
-100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
431,891 |
|
|
|
71.3 |
% |
|
$ |
535,933 |
|
|
|
73.9 |
% |
|
$ |
(104,042 |
) |
|
|
-19.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
68,810 |
|
|
|
15.0 |
% |
|
$ |
69,773 |
|
|
|
13.1 |
% |
|
$ |
(963 |
) |
|
|
-1.4 |
% |
International BPO |
|
|
24,686 |
|
|
|
16.8 |
% |
|
|
27,149 |
|
|
|
14.0 |
% |
|
|
(2,463 |
) |
|
|
-9.1 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
308 |
|
|
|
0.0 |
% |
|
|
(308 |
) |
|
|
-100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
93,496 |
|
|
|
15.4 |
% |
|
$ |
97,230 |
|
|
|
13.4 |
% |
|
$ |
(3,734 |
) |
|
|
-3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
19,799 |
|
|
|
4.3 |
% |
|
$ |
21,644 |
|
|
|
4.1 |
% |
|
$ |
(1,845 |
) |
|
|
-8.5 |
% |
International BPO |
|
|
8,071 |
|
|
|
5.5 |
% |
|
|
9,126 |
|
|
|
4.7 |
% |
|
|
(1,055 |
) |
|
|
-11.6 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
14 |
|
|
|
0.0 |
% |
|
|
(14 |
) |
|
|
-100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,870 |
|
|
|
4.6 |
% |
|
$ |
30,784 |
|
|
|
4.2 |
% |
|
$ |
(2,914 |
) |
|
|
-9.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
2,905 |
|
|
|
0.6 |
% |
|
$ |
128 |
|
|
|
0.0 |
% |
|
$ |
2,777 |
|
|
|
2169.5 |
% |
International BPO |
|
|
1,406 |
|
|
|
1.0 |
% |
|
|
2,571 |
|
|
|
1.3 |
% |
|
|
(1,165 |
) |
|
|
-45.3 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
(57 |
) |
|
|
0.0 |
% |
|
|
57 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,311 |
|
|
|
0.7 |
% |
|
$ |
2,642 |
|
|
|
0.4 |
% |
|
$ |
1,669 |
|
|
|
63.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
1,811 |
|
|
|
0.4 |
% |
|
$ |
|
|
|
|
0.0 |
% |
|
$ |
1,811 |
|
|
|
100.0 |
% |
International BPO |
|
|
2,776 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
2,776 |
|
|
|
100.0 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,587 |
|
|
|
0.8 |
% |
|
$ |
|
|
|
|
0.0 |
% |
|
$ |
4,587 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American BPO |
|
$ |
53,741 |
|
|
|
11.7 |
% |
|
$ |
60,869 |
|
|
|
11.5 |
% |
|
$ |
(7,128 |
) |
|
|
-11.7 |
% |
International BPO |
|
|
(10,354 |
) |
|
|
-7.1 |
% |
|
|
(2,047 |
) |
|
|
-1.1 |
% |
|
|
(8,307 |
) |
|
|
-405.8 |
% |
Database Marketing and Consulting |
|
|
|
|
|
|
0.0 |
% |
|
|
(359 |
) |
|
|
0.0 |
% |
|
|
359 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
43,387 |
|
|
|
7.2 |
% |
|
$ |
58,463 |
|
|
|
8.1 |
% |
|
$ |
(15,076 |
) |
|
|
-25.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
$ |
1,125 |
|
|
|
0.2 |
% |
|
$ |
(1,591 |
) |
|
|
-0.2 |
% |
|
$ |
2,716 |
|
|
|
170.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
(11,508 |
) |
|
|
-1.9 |
% |
|
$ |
(15,329 |
) |
|
|
-2.1 |
% |
|
$ |
3,821 |
|
|
|
24.9 |
% |
34
Revenue
Revenue for North American BPO for the six months ended June 30, 2009 as compared to the same
period in 2008 was $458.9 million and $530.9 million, respectively. The decrease in revenue for the
North American BPO was due to a net increase in client programs of $0.1 million, certain program
terminations of $48.6 million, and a $23.5 million decrease due to realized losses on cash flow
hedges purchased to reduce our exposure to foreign currency exchange rate fluctuations for revenue
operated in a different country.
Revenue for International BPO for the six months ended June 30, 2009 as compared to the same period
in 2008 was $146.7 million and $194.1 million, respectively. The decrease in revenue for the
International BPO was due to a net increase in client programs of $16.9 million, offset by certain
program terminations of $16.8 million, and negative changes in foreign exchange rates causing a
decrease in revenue of $47.5 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 now represents 68% of our global
delivery capabilities. Revenue in these offshore locations was $285 million and represented 47% of
our total revenue for the first six months of 2009. Revenue in these offshore locations was $319.5
million or 44% of total revenue for the six months of 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 the six months ended June 30, 2009 as compared to the
same period in 2008 was $311.8 million and $378.5 million, respectively. Cost of services as a
percentage of revenue in the North American BPO decreased compared to the prior year. In absolute
dollars the decrease is due to a $57.5 million decrease in employee related expenses due to
declines in existing client programs and program terminations, a $3.7 million decrease in
telecommunications expenses due to reductions in client volume and the closure of several delivery
centers, a $3.2 million decrease for rent and related expenses due to the closure of several
delivery centers, and a $2.3 million net decrease in other expenses.
Cost of services for International BPO for the six months ended June 30, 2009 as compared to the
same period in 2008 was $120.1 million and $157.3 million, respectively. Cost of services as a
percentage of revenue in the International BPO increased slightly compared to the prior year. In
absolute dollars the decrease is due to a $33.6 million decrease in employee related expenses due
to a net reduction in existing clients and program terminations, with the majority of this decrease
attributable to changes in foreign exchange rates, a $2.1 million decrease for rent and related
expenses due to the closure of several delivery centers, and a $1.5 million in net decrease in
other expenses.
Selling, General and Administrative
Selling, general and administrative expenses for North American BPO for the six months ended June
30, 2009 as compared to the same period in 2008 were $68.8 million and $69.8 million, respectively.
The expenses decreased in absolute dollars while increasing as a percentage of revenue. The
decrease in absolute dollars reflects a $3.8 million decrease in external professional fees related
to our review of equity-based compensation practices and restatement of our historical financial
statements and related lawsuits, a $2.0 million decrease in technology costs, offset by a $2.1
million increase in variable incentive compensation, and a $2.7 million net increase in other
expenses.
35
Selling, general and administrative expenses for International BPO for the six months ended June
30, 2009 as compared to the same period in 2008 were $24.7 million and $27.1 million, respectively.
The expenses decreased in absolute dollars while increasing as a percentage of revenue. The
decrease in absolute dollars reflects a $1.6 million decrease in external professional fees related
to our review of equity-based compensation practices and restatement of our historical financial
statements and related lawsuits, and a $0.8 million net decrease in other expenses.
Depreciation and Amortization
Depreciation and amortization expense on a consolidated basis for the six months ended June 30,
2009 and 2008 was $27.9 million and $30.8 million, respectively. Although depreciation and
amortization expense in both the North American BPO and International BPO decreased in absolute
value, it increased slightly as a percentage of revenue compared to the prior year. Decreased
depreciation and amortization expense in both segments is due to restructuring activities and
delivery center closures which have better aligned our capacity to our operational needs and
decreased capital expenditures during 2009.
Restructuring Charges
During the six months ended June 30, 2009, we recorded a net $4.3 million of restructuring charges
compared to $2.6 million in the same period in 2008. During 2009, we undertook reductions in both
our North American BPO and International BPO segments to better align our delivery centers and
workforce with the current business needs. We recorded $4.8 million in severance related expenses,
and $0.6 million in delivery center closure costs in both the North American BPO and International
BPO segments. We also recorded a $1.1 million reduction in several of our estimates of previously
recorded delivery center closure charges.
Impairment Losses
During the six months ended June 30, 2009, we recorded $4.6 million of impairment charges compared
to no impairment charge in the same period 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.
Other Income (Expense)
For the six months ended June 30, 2009, interest income decreased to $1.0 million from $2.5 million
in the same period in 2008 primarily due to lower cash and cash equivalent balances and lower
interest rates. Interest expense decreased during 2009 by $0.9 million due to a lower average
outstanding balance on our line of credit.
Income Taxes
The
effective tax rate for the six months ended June 30, 2009 was
25.9%. This compares to an
effective tax rate of 27.0% in the same period of 2008. The effective tax rate for the six months
ended June 30, 2009 is 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. In the future, our effective tax rate could be adversely affected by several
factors, many of which are outside of our control. 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 rulings of certain tax, regulatory and accounting organizations.
Subject to any future adverse legislation, 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. We expect that the effective tax rate in future periods will be
between 25% and 30%.
36
Liquidity and Capital Resources
Our principal sources of liquidity are our cash generated from operations, our cash and cash
equivalents, and borrowings under our Amended and Restated Credit Agreement, dated September 28,
2006 (the Credit Facility). During the six months ended June 30, 2009, we generated positive
operating cash flows of $93.8 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 from 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 working capital requirements. While there are no assurances, we
believe our global cash is protected given our cash management practices, banking partners, and
low-risk investments.
We primarily utilize our Credit Facility to fund working capital, stock repurchases, and other
strategic and general operating purposes. In September 2008, we exercised the upsizing feature
under the Credit Facility to increase our borrowing capacity by an additional $45.0 million, which
increased the total commitments to $225.0 million. As of June 30, 2009 and December 31, 2008, we
had $25.0 million and $80.8 million in outstanding borrowings under our Credit Facility,
respectively. After consideration for issued letters of credit under the Credit Facility, totaling
$5.1 million, our remaining borrowing capacity under this facility was $194.9 million as of June
30, 2009.
We continue to closely monitor the global credit crisis and evaluate how recent events are
impacting the liquidity and capitalization of our investment-grade rated syndication of banks. At
this time, we do not foresee an issue that would limit our access to the available borrowing
capacity under the Credit Facility.
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 on terms favorable to us.
The following discussion highlights our cash flow activities during the six months ended June 30,
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 $84.0 million and $87.9 million as of June 30,
2009 and December 31, 2008, respectively.
Cash Flows from Operating Activities
We reinvest our cash flows from operating activities in our business or in the purchases of our
outstanding common stock. For the six months ended June 30, 2009 and 2008, net cash flows provided
by operating activities increased to $93.8 million from $59.3 million, respectively. The increase
is primarily due to greater collections of accounts receivable, an increase in prepayment of
revenue, and a decrease in prepaids and other assets.
Cash Flows from Investing Activities
We reinvest cash in our business primarily to grow our client base and to expand our
infrastructure. For the six months ended June 30, 2009 and 2008, we reported net cash flows used in
investing activities of $16.0 million and $36.4 million, respectively. The decrease is due to
limited capital expenditures during the first six months of 2009 due
to a reduced need for
additional capacity.
37
Cash Flows from Financing Activities
For the six months ended June 30, 2009 and 2008, we reported net cash flows used in financing
activities of $83.1 million and provided by financing activities of $10.9 million, respectively.
The increase in net cash flows used from 2008 to 2009 was primarily due to increased net payments
on our line of credit of $68.8 million, and purchases of our outstanding common stock of $26.1
million.
Free Cash Flow
Free cash flow (see Presentation of NonGAAP Measurements for definition of free cash flow) was
$79.5 million and $22.9 million for the six months ended June 30, 2009 and 2008, respectively. The
increase in free cash flow was primarily due to an increase in our cash from operations of $34.5
million and a decrease in capital expenditures of $22.1 million.
Obligations and Future Capital Requirements
Future maturities of our outstanding debt and contractual obligations as of June 30, 2009 are
summarized as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
1 to 3 Years |
|
|
3 to 5 Years |
|
|
Over 5 Years |
|
|
Total |
|
Credit facility(1) |
|
$ |
779 |
|
|
$ |
25,974 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,753 |
|
Capital lease obligations |
|
|
1,645 |
|
|
|
2,757 |
|
|
|
|
|
|
|
|
|
|
|
4,402 |
|
Equipment financing
arrangements |
|
|
1,090 |
|
|
|
1,317 |
|
|
|
351 |
|
|
|
|
|
|
|
2,758 |
|
Purchase obligations |
|
|
20,059 |
|
|
|
31,901 |
|
|
|
6,986 |
|
|
|
|
|
|
|
58,946 |
|
Operating lease commitments |
|
|
28,495 |
|
|
|
39,250 |
|
|
|
16,783 |
|
|
|
8,616 |
|
|
|
93,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
52,068 |
|
|
$ |
101,199 |
|
|
$ |
24,120 |
|
|
$ |
8,616 |
|
|
$ |
186,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes estimated interest payments based on the
weighted-average interest rate and debt outstanding as of
June 30, 2009. |
|
|
|
Contractual obligations to be paid in a foreign currency are translated at the June 30,
2009 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 our FIN 48 liabilities of $1.6 million because
we cannot reliably estimate the timing of cash payments. |
Future Capital Requirements
We expect total capital expenditures in 2009 to be approximately $30 to $40 million. Of the
expected capital expenditures in 2009, approximately 70% relates to the opening and/or growth of
our delivery platform and approximately 30% relates to the maintenance capital required for
existing assets and internal technology projects. The anticipated level of 2009 capital
expenditures is primarily dependent upon new client contracts and the corresponding requirements
for additional delivery center capacity as well as enhancements to our technology 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 June 30, 2009, we are authorized to purchase an additional $9.3 million
of common stock under our stock repurchase program (see Part II
Item 2 of this Form 10-Q). The stock
repurchase program does not have an expiration date.
38
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.
Debt Instruments and Related Covenants
We discuss
debt instruments and related covenants in Note 13 of the Notes to the Consolidated Financial
Statements in our 2008 Annual Report on Form 10K. As of June 30, 2009, we were in compliance with
all covenants under the Credit Facility and had approximately $194.9 million in available borrowing
capacity. Interest accrued on outstanding borrowings at a weighted-average rate of 2.03% as of June
30, 2009.
Client Concentration
Our five largest clients accounted for 35.8% and 41.2% of our consolidated revenue for the three
months ended June 30, 2009 and 2008, respectively. Our five largest clients accounted for 35.7% and
41.7% of our consolidated revenue for the six months ended June 30, 2009 and 2008, respectively.
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 client concentration is mitigated, in part, by
the longterm 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 five largest clients expire between 2009 and 2011. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. We are exposed to market risk due to changes in interest
rates, and foreign currency exchange rates as measured against the U.S. dollar. 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 U.S. dollar/South African rand. It is our policy to only
enter into derivative contracts with investment grade counterparty financial institutions and,
correspondingly, our derivative assets reflect the creditworthiness of our counterparties.
Conversely, our derivative liabilities values reflect our creditworthiness. As of the date of this
report, we have not experienced, nor do we anticipate, any issues related to derivative
counterparty defaults.
Interest Rate Risk
The interest rate on our Credit Facility is variable based upon the Prime Rate and LIBOR and,
therefore, is affected by changes in market interest rates. As of June 30, 2009, there was a $25.0
million outstanding balance under the Credit Facility with a weighted average interest rate of
2.03%. 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.
39
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 subsidiaries. For the six months ended June 30, 2009 and
2008, revenue associated with this foreign exchange risk was 36.6% and 30.8% of our consolidated
revenue, respectively.
In order to mitigate the risk of these non-functional foreign currencies from weakening against the
functional currency of the servicing subsidiary, 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, as defined by SFAS 133.
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.
40
Our cash flow hedging instruments as of June 30, 2009 and December 31, 2008 are summarized as
follows (amounts in thousands). All hedging instruments are forward contracts, except as noted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Maturing in |
|
|
|
|
|
|
Local Currency |
|
|
U.S. Dollar |
|
|
the Next 12 |
|
|
Contracts Maturing |
|
As of June 30, 2009 |
|
Notional Amount |
|
|
Notional Amount |
|
|
Months |
|
|
Through |
|
Canadian Dollar |
|
|
55,200 |
|
|
$ |
47,913 |
|
|
|
67.4 |
% |
|
December 2011 |
Canadian Dollar Call Options |
|
|
28,100 |
|
|
|
24,901 |
|
|
|
63.7 |
% |
|
December 2010 |
Philippine Peso |
|
|
4,277,347 |
|
|
|
94,491 |
1 |
|
|
90.6 |
% |
|
February 2011 |
Argentine Peso |
|
|
51,050 |
|
|
|
14,295 |
2 |
|
|
100.0 |
% |
|
May 2010 |
Mexican Peso |
|
|
645,500 |
|
|
|
50,412 |
|
|
|
76.3 |
% |
|
September 2011 |
South African Rand |
|
|
92,000 |
|
|
|
8,416 |
|
|
|
100.0 |
% |
|
February 2010 |
British Pound Sterling |
|
|
1,344 |
|
|
|
2,369 |
3 |
|
|
57.0 |
% |
|
March 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
242,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Currency |
|
|
U.S. Dollar |
|
As of December 31, 2008 |
|
Notional Amount |
|
|
Notional Amount |
|
Canadian Dollar |
|
|
88,300 |
|
|
$ |
77,865 |
|
Canadian Dollar Call Options |
|
|
44,400 |
|
|
|
39,305 |
|
Philippine Peso |
|
|
6,656,909 |
|
|
|
150,418 |
1 |
Argentine Peso |
|
|
102,072 |
|
|
|
29,054 |
2 |
Mexican Peso |
|
|
856,500 |
|
|
|
70,530 |
|
South African Rand |
|
|
92,000 |
|
|
|
8,399 |
|
British Pound Sterling |
|
|
1,725 |
|
|
|
2,537 |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
378,108 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes contracts to purchase Philippine pesos in exchange
for British pound sterling and New Zealand dollars, which
are translated into equivalent U.S. dollars on June 30,
2009 and December 31, 2008. |
|
(2) |
|
Includes contracts to purchase Argentine pesos in exchange
for Euros, which are translated into equivalent U.S.
dollars on June 30, 2009 and December 31, 2008. |
|
(3) |
|
Includes contracts to purchase British pound sterling in
exchange for Euros, which are translated into equivalent
U.S. dollars on June 30, 2009 and December 31, 2008. |
The fair value of our cash flow hedges at June 30, 2009 is (assets/(liabilities)) (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in the |
|
|
|
June 30, 2009 |
|
|
Next 12 Months |
|
Canadian Dollar |
|
$ |
(317 |
) |
|
$ |
(677 |
) |
Canadian Dollar Call Options |
|
|
977 |
|
|
|
506 |
|
Philippine Peso |
|
|
(7,188 |
) |
|
|
(7,574 |
) |
Argentine Peso |
|
|
(1,693 |
) |
|
|
(1,693 |
) |
Mexican Peso |
|
|
(3,139 |
) |
|
|
(3,770 |
) |
South African Rand |
|
|
3,221 |
|
|
|
3,221 |
|
British Pound Sterling |
|
|
(142 |
) |
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
$ |
(8,281 |
) |
|
$ |
(10,073 |
) |
|
|
|
|
|
|
|
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 for asset positions
and the Companys credit worthiness for liability positions. The year over year change in fair
value largely reflects the recent global economic conditions which resulted in high foreign
exchange volatility and an overall strengthening in the U.S. dollar.
41
We recorded a net loss of $13.2 million and a net gain of $10.4 million for settled cash flow hedge
contracts for the six months ended June 30, 2009 and 2008, respectively. These amounts are
reflected in Revenue in the accompanying Consolidated Statements of Operations. 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 exposures.
Other than the transactions hedged as discussed above and in Note 6 to the accompanying
Consolidated Financial Statements, the majority of the transactions of our U.S. and foreign
operations are denominated in the respective local currency. For the six months ended June 30, 2009
and 2008, approximately 24% and 27%, respectively of revenue is 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 foreign currencies.
Fair Value of Debt and Equity Securities
We did not have any investments in debt or equity securities as of June 30, 2009.
ITEM 4. CONTROLS AND PROCEDURES
This Report includes the certifications of our Chief Executive Officer and 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 4 includes information concerning the controls and control
evaluations referred to in those certifications.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) are designed to ensure that information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in SEC rules and forms and that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosures.
In connection with the preparation of this Quarterly Report on Form 10-Q, our management, under the
supervision and with the participation of the Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and operation of our disclosure controls
and procedures as of June 30, 2009. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures were effective as of
June 30, 2009.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended June
30, 2009 that materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. 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, we believe that the ultimate resolution of these
matters will not have a material adverse effect on our financial position, cash flows or results of
operations.
42
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 our common stock and (ii) various disclosures made and
periodic reports filed by us 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 by the
court. TeleTech and the other individual defendants intend to defend this case vigorously. Although
we expect the majority of expenses related to the class action lawsuit to be covered by insurance,
there can be no assurance that all such expenses will be reimbursed.
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 our 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. Although we expect the majority of expenses related to the shareholder derivative action to
be covered by insurance, there can be no assurance that all such expenses will be reimbursed.
ITEM 1A. RISK FACTORS
There are no material changes to the risk factors as previously reported in our Annual Report on
Form 10K for the year ended December 31, 2008.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Following is the detail of the issuer purchases made during the quarter ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Dollar Value of |
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
Shares that May |
|
|
|
Total |
|
|
Average |
|
|
Part of Publicly |
|
|
Yet Be Purchased |
|
|
|
Number of |
|
|
Price Paid |
|
|
Announced |
|
|
Under the Plans |
|
|
|
Shares |
|
|
per Share |
|
|
Plans or |
|
|
or Programs(1) |
|
Period |
|
Purchased |
|
|
(or Unit) |
|
|
Programs |
|
|
(in thousands) |
|
April 1, 2009 April 30, 2009 |
|
|
525,000 |
|
|
$ |
12.35 |
|
|
|
525,000 |
|
|
$ |
26,927 |
|
May 1, 2009 May 31, 2009 |
|
|
140,000 |
|
|
$ |
12.69 |
|
|
|
140,000 |
|
|
$ |
25,151 |
|
June 1, 2009 June 30, 2009 |
|
|
1,197,000 |
|
|
$ |
13.22 |
|
|
|
1,197,000 |
|
|
$ |
9,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,862,000 |
|
|
|
|
|
|
|
1,862,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In November 2001, our Board of Directors (Board)
authorized a stock repurchase program to repurchase up to
$5.0 million of our common stock with the objective of
increasing stockholder returns. The Board has since
periodically authorized additional increases in the
program. The most recent Board authorization to purchase additional common stock occurred in February 2009, whereby the Board increased the program allowance by $25 million. Since inception of the program through June 30,
2009, the Board has authorized the repurchase of shares up
to a total value of $287.3 million, of which we have
purchased 23.3 million shares on the open market for $278.0
million. As of June 30, 2009 the remaining amount authorized for
repurchases under
the program is approximately $9.3 million. The stock
repurchase program does not have an expiration date. |
43
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following two matters were submitted to a vote of security holders at the Annual Meeting of
Stockholders held on May 21, 2009. Our stockholders adopted two proposals by the margins indicated
below:
|
1. |
|
Election of directors to hold office until the next annual meeting of stockholders or
until their successors are duly elected and qualified. |
|
|
|
|
|
|
|
|
|
Director |
|
For |
|
Withheld |
Kenneth D. Tuchman |
|
|
61,380,060 |
|
|
|
907,305 |
|
James E. Barlett |
|
|
61,509,898 |
|
|
|
777,467 |
|
William A. Linnenbringer |
|
|
61,620,703 |
|
|
|
666,662 |
|
Ruth C. Lipper |
|
|
60,268,799 |
|
|
|
2,018,566 |
|
Shrikant Mehta |
|
|
61,568,428 |
|
|
|
718,937 |
|
Robert M. Tarola |
|
|
61,620,143 |
|
|
|
667,222 |
|
Shirley Young |
|
|
61,634,622 |
|
|
|
652,743 |
|
|
2. |
|
Ratification of the appointment of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for 2009. |
|
|
|
|
|
For
|
|
Against
|
|
Abstain |
|
|
|
|
|
62,254,184
|
|
16,482
|
|
15,809 |
ITEM 5. OTHER INFORMATION
On May 21, 2009, our Board of Directors adopted new compensation arrangements for independent
directors. The new arrangements: (i) eliminate meeting fees; (ii) provide for annual retainers (to
be paid quarterly) based on the independent directors Board and Committee service; and (iii)
provide for an annual grant of RSUs in lieu of stock options. A detailed description of the new
compensation arrangements for independent directors is provided in Exhibit 10.1 to this Form 10-Q
and is incorporated herein by reference.
ITEM 6. EXHIBITS
|
|
|
Exhibit No. |
|
Exhibit Description |
|
|
|
10.1
|
|
Independent Director Compensation Arrangements (effective May 21, 2009) |
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
|
|
|
31.2
|
|
Certification of Interim Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
|
|
|
32.2
|
|
Certification of Interim Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
44
SIGNATURES
Pursuant to the requirements 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.
|
|
|
|
|
|
|
|
|
|
|
TELETECH HOLDINGS, INC. |
|
|
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
Date: July 29, 2009
|
|
By:
|
|
/s/ Kenneth D. Tuchman
Kenneth D. Tuchman
|
|
|
|
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
Date: July 29, 2009
|
|
By:
|
|
/s/ John R. Troka, Jr.
John R. Troka, Jr.
|
|
|
|
|
|
|
Interim Chief Financial Officer |
|
|
45
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Exhibit Description |
|
|
|
10.1
|
|
Independent Director Compensation Arrangements (effective May 21, 2009) |
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
|
|
|
31.2
|
|
Certification of Interim Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
|
|
|
32.2
|
|
Certification of Interim Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) |
46