TTEC Holdings, Inc. - Quarter Report: 2008 September (Form 10-Q)

 

 

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 September 30, 2008

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

		For the transition period from            to

Commission File Number 001-11919

TeleTech Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		84-1291044
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

9197 South Peoria Street
Englewood, Colorado 80112
(Address of principal executive offices)

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 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 filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of October 31, 2008, there were 65,308,892 shares of the registrant’s common stock outstanding.

 

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2008 FORM 10-Q
TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007			1
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2008 and 2007 (unaudited)			2
Condensed Consolidated Statement of Stockholders’ Equity as of and for the nine months ended September 30, 2008 (unaudited)			3
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 (unaudited)			4
Notes to the Unaudited Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures about Market Risk			38
Item 4. Controls and Procedures			40
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 3. Defaults Upon Senior Securities			45
Item 4. Submission of Matters to a Vote of Security Holders			45
Item 5. Other Information			45
Item 6. Exhibits			46
SIGNATURES			47
EXHIBIT INDEX			48
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
(Unaudited)

		September 30,				December 31,
		2008				2007
ASSETS
Current assets
Cash and cash equivalents		$	123,156			$	91,239
Accounts receivable, net			248,629				270,988
Prepaids and other current assets			45,739				62,344
Deferred tax assets, net			25,071				8,386
Income tax receivables			25,029				26,868
Total current assets			467,624				459,825
Long-term assets
Property, plant and equipment, net			172,003				174,809
Goodwill			44,802				45,154
Contract acquisition costs, net			6,122				6,984
Deferred tax assets, net			42,422				39,764
Other long-term assets			25,839				33,759
Total long-term assets			291,188				300,470
Total assets		$	758,812			$	760,295
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	31,009			$	38,761
Accrued employee compensation and benefits			90,233				87,480
Other accrued expenses			47,927				28,872
Income tax payables			18,740				18,552
Deferred tax liabilities, net			62				88
Other short-term liabilities			10,583				13,057
Total current liabilities			198,554				186,810
Long-term liabilities
Line of credit			108,700				65,400
Grant advances			3,910				6,741
Deferred tax liabilities, net			—				57
Other long-term liabilities			46,700				46,531
Total long-term liabilities			159,310				118,729
Total liabilities			357,864				305,539
Minority interest			5,135				3,555
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock – $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of September 30, 2008 and December 31, 2007			—				—
Common stock – $0.01 par value; 150,000,000 shares authorized; 65,582,279 and 69,828,671 shares outstanding as of September 30, 2008 and December 31, 2007, respectively			655				698
Treasury stock at cost: 16,472,166 and 12,077,609 shares outstanding as of September 30, 2008 and December 31, 2007, respectively			(213,983	)			(143,205	)
Additional paid-in capital			340,665				334,593
Accumulated other comprehensive income			7,602				57,888
Retained earnings			260,874				201,227
Total stockholders’ equity			395,813				451,201
Total liabilities and stockholders’ equity		$	758,812			$	760,295

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

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Amounts in thousands, except per share amounts)
(Unaudited)

		Three-Months Ended								Nine-Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenue		$	349,110			$	335,727			$	1,074,162			$	998,075
Operating expenses
Cost of services (exclusive of depreciation and amortization presented separately below)			252,666				246,558				788,599				721,028
Selling, general and administrative			51,157				46,968				148,387				147,675
Depreciation and amortization			14,998				14,250				45,782				41,598
Restructuring charges, net			2,015				2,588				4,657				2,850
Impairment			1,033				2,274				1,033				15,789
Total operating expenses			321,869				312,638				988,458				928,940
Income from operations			27,241				23,089				85,704				69,135
Other income (expense)
Interest income			1,327				650				3,801				1,535
Interest expense			(1,595	)			(1,395	)			(4,649	)			(4,457	)
Loss on sale of business			—				(6,122	)			—				(6,122	)
Other, net			(509	)			41				(1,520	)			(1,294	)
Total other expense			(777	)			(6,826	)			(2,368	)			(10,338	)
Income before income taxes and minority interest			26,464				16,263				83,336				58,797
Provision for income taxes			(5,368	)			(1,082	)			(20,697	)			(16,193	)
Income before minority interest			21,096				15,181				62,639				42,604
Minority interest			(936	)			(808	)			(2,992	)			(1,750	)
Net income		$	20,160			$	14,373			$	59,647			$	40,854
Other comprehensive income (loss)
Foreign currency translation adjustments		$	(26,281	)		$	7,710			$	(20,668	)		$	19,197
Derivatives valuation, net of tax			(6,922	)			5,683				(29,618	)			16,721
Other			—				(22	)			—				(66	)
Total other comprehensive income (loss)			(33,203	)			13,371				(50,286	)			35,852
Comprehensive income (loss)		$	(13,043	)		$	27,744			$	9,361			$	76,706
Weighted average shares outstanding
Basic			68,217				70,214				69,373				70,367
Diluted			69,508				72,343				70,922				72,909
Net income per share
Basic		$	0.30			$	0.20			$	0.86			$	0.58
Diluted		$	0.29			$	0.20			$	0.84			$	0.56

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

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders’ Equity
(Amounts in thousands)
(Unaudited)

																										Accumulated
																						Additional				Other								Total
		Preferred Stock								Common Stock								Treasury				Paid-in				Comprehensive				Retained				Stockholders’
		Shares				Amount				Shares				Amount				Stock				Capital				Income				Earnings				Equity
Balance as of December 31, 2007			—			$	—				69,829			$	698			$	(143,205	)		$	334,593			$	57,888			$	201,227			$	451,201
Net income			—				—				—				—				—				—				—				59,647				59,647
Foreign currency translation adjustments			—				—				—				—				—				—				(20,668	)			—				(20,668	)
Derivatives valuation, net of tax			—				—				—				—				—				—				(29,618	)			—				(29,618	)
Vesting of restricted stock units			—				—				148				2				—				(2	)			—				—				—
Exercised stock options											335				3				4,124				(1,194	)			—				—				2,933
Tax shortfall from equity-based awards			—				—				—				—				—				(997	)			—				—				(997	)
Equity-based compensation expense			—				—				—				—				—				7,889				—				—				7,889
Modifications to equity-based awards			—				—				—				—				—				376				—				—				376
Purchases of common stock			—				—				(4,818	)			(48	)			(74,902	)			—				—				—				(74,950	)
Balance as of September 30, 2008			—			$	—				65,494			$	655			$	(213,983	)		$	340,665			$	7,602			$	260,874			$	395,813

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

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)

		Nine-Months Ended
		September 30,
		2008				2007
Cash flows from operating activities
Net income		$	59,647			$	40,854
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			45,782				41,598
Amortization of contract acquisition costs			1,625				2,017
Provision for doubtful accounts			780				609
Loss on disposal of assets			65				6,185
Impairment losses			1,033				15,789
Deferred income taxes			(38	)			975
Minority interest			2,992				1,750
Tax shortfall from equity-based awards			(997	)			—
Equity-based compensation expense			7,889				9,103
Loss on foreign currency derivative			675				43
Changes in assets and liabilities:
Accounts receivable			15,034				(786	)
Prepaids and other assets			(10,472	)			(14,751	)
Accounts payable and accrued expenses			15,412				2,001
Other liabilities			(14,128	)			(5,102	)
Net cash provided by operating activities			125,299				100,285
Cash flows from investing activities
Purchases of property, plant and equipment			(51,728	)			(43,788	)
Proceeds from disposition of business			—				3,237
Payment for contract acquisition costs			(763	)			—
Net cash used in investing activities			(52,491	)			(40,551	)
Cash flows from financing activities
Proceeds from lines of credit			779,170				394,800
Payments on lines of credit			(735,870	)			(421,300	)
Payments on long-term debt and capital lease obligations			(1,203	)			(933	)
Payments of debt refinancing fees			(1,105	)			(17	)
Payments to minority shareholder			(1,428	)			(2,693	)
Proceeds from exercise of stock options			2,933				15,593
Excess tax benefit from exercise of stock options			—				8,018
Purchase of treasury stock			(73,842	)			(47,021	)
Net cash used in financing activities			(31,345	)			(53,553	)
Effect of exchange rate changes on cash and cash equivalents			(9,546	)			6,151
Increases in cash and cash equivalents			31,917				12,332
Cash and cash equivalents, beginning of period			91,239				58,352
Cash and cash equivalents, end of period		$	123,156			$	70,684
Supplemental disclosures
Cash paid for interest		$	3,822			$	4,131
Cash paid for income taxes		$	19,191			$	15,750

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

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED 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. On September 28, 2007, the Company, through its wholly owned subsidiary Newgen Results Corporation and related companies (hereinafter “Newgen”), completed the sale of substantially all of the assets and certain liabilities of its Database Marketing and Consulting business, which provided outsourced database management, direct marketing and related customer acquisition and retention services for automotive dealerships and manufacturers in North America.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S., pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited Condensed 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 September 30, 2008, and the consolidated results of operations and cash flows of the Company for the three and nine months ended September 30, 2008 and 2007. Operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards 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 generally accepted accounting principles. 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 FAS 157-2, the Company will adopt SFAS 157 for non-financial assets and liabilities recognized on a non-recurring basis as of January 1, 2009. Adoption of SFAS 157 in the first quarter of 2008 did not have a significant impact on the Company’s results of operations, financial position or cash flows. The Company does not expect the adoption of SFAS 157 for non-financial assets and liabilities in the first quarter of 2009 to have a material impact on the Company’s results of operations, financial position or cash flows.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Fair Value Hierarchy – SFAS 157 requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair-value hierarchy:

		Level 1		Quoted prices for identical instruments in active markets.
		Level 2		Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
		Level 3		Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Determination of Fair Value – The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities for which the Company has the ability to access to determine fair value, and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates, etc. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

The following section describes the valuation methodologies used by the Company to measure fair value, including an indication of the level in the fair value hierarchy in which each asset or liability is generally classified.

Derivative Financial Instruments – The Company enters into foreign currency forward and option contracts and values such contracts using forward rates, discounted at an appropriate forward curve rate and adjusted to account for credit risk. The item is classified in Level 2 of the fair value hierarchy. See related derivatives disclosure in Note 5.

Other Financial Instruments – The Company has other financial instruments recorded at cost but for which fair values are disclosed in accordance with SFAS 107. Effective January 1, 2008, the Company began using the principles of SFAS 157 to value these other financial instruments.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 (“SFAS 159”). The Company adopted SFAS 159 as of January 1, 2008. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value, with unrealized gains and losses related to these financial instruments reported in earnings at each subsequent reporting date. The decision whether to elect the fair value option is generally: (i) applied instrument by instrument; (ii) irrevocable (unless a new election date occurs, as discussed in SFAS 157); and (iii) applied only to an entire instrument and not to only specified risks, specific cash flows, or portions of that instrument. Under SFAS 159, financial instruments for which the fair value option is elected, must be valued in accordance with SFAS 157 (as described above) and must be marked to market each period through the income statement. Upon adoption on January 1, 2008, the Company did not elect to change its accounting for any of its financial instruments as permitted by SFAS 159 as of the date of this report. Therefore, the adoption of SFAS 159 did not have a material impact on the Company’s results of operations, financial position or cash flows.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

In December 2007, the FASB issued SFAS No. 141 (revised), 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 fiscal years beginning after December 15, 2008. This statement will be effective for the Company beginning in fiscal 2009. The Company does not expect that the adoption of this pronouncement will have a material impact on its Condensed Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Condensed Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). This statement establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective prospectively, except for certain retrospective disclosure requirements, for fiscal years beginning after December 15, 2008. This statement will be effective for the Company beginning in fiscal 2009. The Company does not expect that the adoption of this pronouncement will have a material impact on its Condensed Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 amends the disclosure requirements of SFAS No. 33, Accounting for Derivative Instruments and Hedging Activities (“SFAS 33”) 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 entity’s financial position, financial performance, and cash flows. The new disclosures will be expanded to include more tables and discussion about the qualitative aspects of the Company’s hedging strategies. The Company will be required to adopt SFAS 161 on January 1, 2009, at which time the Company expects to expand its derivative disclosures.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

(2) SEGMENT INFORMATION

The Company serves its clients through the primary business of BPO services.

The Company’s 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. When the Company begins operations in a new country, it determines whether the country is intended primarily to serve U.S.-based clients, in which case the country is included in the North American BPO segment. If the country is intended to serve domestic clients from that country and U.S.-based clients, or clients from another country, then the country is included in the International BPO segment. This is consistent with the Company’s management of the business, internal financial reporting structure and operating focus. Operations for each segment of the Company’s BPO business are conducted in the following countries:

North American BPO		International BPO
United States		Argentina
Canada		Australia
Philippines		Brazil
		China
		Costa Rica
		England
		Germany
		Malaysia
		Mexico
		New Zealand
		Northern Ireland
		Scotland
		South Africa
		Spain

The Company allocates to each segment its portion of corporate-level operating expenses. All inter-company transactions between the reported segments for the periods presented have been eliminated.

One of the Company’s strategies is to secure additional business through the lower cost opportunities offered by certain foreign countries. Accordingly, the Company contracts with certain clients in one country to provide services from delivery centers in other foreign countries including Argentina, Canada, Costa Rica, Mexico, Malaysia, the Philippines and South Africa. Under this arrangement, the contracting subsidiary invoices and collects from its local clients, while also entering into a contract with the foreign operating subsidiary to reimburse the foreign operating subsidiary for its costs plus a reasonable profit. This reimbursement is reflected as revenue by the foreign operating subsidiary. As a result, a portion of the revenue from these client contracts is recorded by the contracting subsidiary, while a portion is recorded by the foreign operating subsidiary. For U.S. clients served from Canada and the Philippines, all of the revenue remains within the North American BPO segment. For European and Asia Pacific clients served from the Philippines, a portion of the revenue is reflected in the North American BPO segment. For U.S. clients served from Argentina, Costa Rica, Malaysia, Mexico and South Africa, a portion of the revenue is reflected in the International BPO segment. For European, Asia Pacific and Latin America clients served by countries within the International BPO segment, all revenue remains within the International BPO segment.

European and Asia Pacific clients served from the Philippines generated approximately $1.5 million and $0.7 million of income from operations in the North American BPO segment for the three months ended September 30, 2008 and 2007, respectively, and approximately $3.9 million and $1.1 million for the nine months ended September 30, 2008 and 2007, respectively. U.S. based clients served by countries within our International BPO segment generated approximately $4.4 million of income from operations in the International BPO segment for each of the three months ended September 30, 2008 and 2007 and approximately $14.9 million and $11.0 million for the nine months ended September 30, 2008 and 2007, respectively.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenue
North American BPO		$	233,171			$	229,231			$	738,871			$	689,468
International BPO			115,939				101,198				335,291				291,714
Database Marketing and Consulting			—				5,298				—				16,893
Total		$	349,110			$	335,727			$	1,074,162			$	998,075
Income (loss) from operations
North American BPO		$	19,974			$	25,430			$	78,975			$	87,777
International BPO			7,356				4,475				7,213				9,449
Database Marketing and Consulting			(89	)			(6,816	)			(484	)			(28,091	)
Total		$	27,241			$	23,089			$	85,704			$	69,135

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenue
United States		$	94,688			$	100,286			$	305,474			$	311,660
Latin America			79,953				56,957				239,167				167,630
Philippines			77,179				58,107				213,681				158,990
Canada			36,206				49,798				123,836				154,196
Europe			39,798				36,059				115,693				109,946
Asia Pacific			21,286				34,520				76,311				95,653
Total		$	349,110			$	335,727			$	1,074,162			$	998,075

(3) SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS

The Company had one client, Sprint Nextel, that contributed in excess of 10% of total revenue for the three and nine months ended September 30, 2008 and 2007. The revenue from this client as a percentage of total revenue was as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
			12.0	%			15.2	%			13.9	%			14.8	%

Accounts receivable from Sprint Nextel was as follows (amounts in thousands):

		September 30,				December 31,
		2008				2007
		$	25,895			$	37,347

The loss of one or more of its significant clients could have a material adverse effect on the Company’s business, operating results, or financial condition. The Company does not require collateral from its clients. To limit the Company’s credit risk, management performs 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 September 30, 2008.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

(4) GOODWILL

Goodwill consisted of the following (amounts in thousands):

										Foreign
		December 31,								Currency				September 30,
		2007				Impairments				Impact				2008
North American BPO		$	35,885			$	—			$	—			$	35,885
International BPO			9,269				—				(352	)			8,917
Total		$	45,154			$	—			$	(352	)		$	44,802

Under Statement of Financial Accounting Standards (“SFAS”) No. 142 Goodwill and Other Intangible Assets (“SFAS 142”), goodwill is no longer amortized but is reviewed for impairment at least annually and more often if a triggering event were to occur in an interim period. The Company’s annual impairment testing is performed in the fourth quarter of each year unless an indicator of impairment arises.

(5) DERIVATIVES

The Company conducts a significant portion of its business in currencies other than the U.S. dollar, the currency in which the Condensed Consolidated Financial Statements are reported. Correspondingly, the Company’s operating results could be adversely affected by foreign currency exchange rate volatility relative to the U.S. dollar. The Company’s 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 and other foreign currencies. To hedge against the risk of principally a weaker U.S. dollar, the Company’s U.S. entity has contracted on behalf of its foreign subsidiaries with several financial institutions to acquire (utilizing forward, non-deliverable forward and/or option contracts) the functional currency of the foreign subsidiary at a fixed exchange rate at specific dates in the future. The Company pays up-front premiums to obtain certain option contracts used as hedge instruments.

While the Company has implemented certain strategies to mitigate risks related to the impact of fluctuations in currency exchange rates, it cannot ensure that it 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 the Company’s consolidated operating results.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

As of September 30, 2008, the notional amount of these derivative instruments is summarized as follows (amounts in thousands):

		Local								Dates
		Currency				U.S. Dollar				Contracts
		Amount				Amount				are Through
Canadian Dollar			107,050			$	97,819	1		December 2010
Philippine Peso			7,862,061				179,227	2		August 2010
Argentine Peso			129,035				37,207	3		May 2010
Mexican Peso			703,500				62,265			April 2010
British Pound Sterling			1,915				3,379	4		March 2011
						$	379,897

The fair value of these derivatives, including option premiums, is classified as Prepaids and Other Current Assets of $4.1 million and $23.9 million; Other Long-term Assets of $3.2 million and $11.3 million; Other Accrued Expenses of $12.5 million and $0.0 million and Other Long-term Liabilities of $5.7 million and $0.0 million as of September 30, 2008 and December 31, 2007, respectively, in the accompanying Condensed Consolidated Balance Sheets.

The Company recorded deferred tax assets of $4.6 million and deferred tax liabilities of $13.7 million related to these derivatives as of September 30, 2008 and December 31, 2007, respectively. A total of $7.2 million of deferred losses, net of tax and $21.4 million of deferred gains, net of tax, on derivative instruments as of September 30, 2008 and December 31, 2007, respectively, were recorded in Accumulated Other Comprehensive Income (Loss) in the accompanying Condensed Consolidated Balance Sheets.

The Company recorded gains of $1.4 million and $3.8 million for settled hedge contracts and the related premiums for the three months ended September 30, 2008 and 2007, respectively. The Company recorded gains of $11.8 million and $6.3 million for the nine months ended September 30, 2008 and 2007, respectively. These gains are reflected in Revenue in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

(6) FAIR VALUE

Money Market Investments – The Company invests in various well-diversified government-backed money market funds which are managed by our banks. 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. The fair value of the Company’s money market investments is $38.0 million at September 30, 2008 as determined based upon Level 2 observable inputs from the banks.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Deferred Compensation Plan – The Company maintains a non-qualified deferred compensation plan structured as a Rabbi trust (the “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 complimentary, defined market investments. The deferred compensation liability represents the combined values of market investments against which participant accounts are tracked. The liability is valued based on its cash surrender value. The total value of the deferred compensation liabilities at September 30, 2008 was $3.9 million.

Derivative Assets and Liabilities – The Company’s derivative financial instruments consist of foreign currency forward and purchased option contracts. 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.

The Company’s assets and liabilities measured at fair value on a recurring basis subject to the requirements of SFAS 157 consist of the following:

		Fair Value Measurements at September 30, 2008 Using:
						Quoted Prices in				Significant
						Active Markets				Other				Significant
						for Identical				Observable				Unobservable
		Balance at				Assets				Inputs				Inputs
		September 30, 2008				(Level 1)				(Level 2)				(Level 3)
Assets
Money market investments(1)		$	38.0			$	—			$	38.0			$	—
Total assets		$	38.0			$	—			$	38.0			$	—
Liabilities
Foreign currency contracts(2)		$	11.0			$	—			$	11.0			$	—
Deferred compensation plan liability(3)			3.9				—				3.9				—
Total liabilities		$	14.9			$	—			$	14.9			$	—

Accounts Receivable and Payable – The amounts recorded in the accompanying balance sheet approximate fair value because of their short-term nature.

Debt – The Company’s debt is reflected in the accompanying balance sheet at amortized cost. Debt consists primarily of the Company’s Credit Facility, which permits floating-rate borrowings based upon the current Prime Rate or LIBOR plus a credit spread as determined by the Company’s leverage ratio calculation (as defined in the Credit Facility agreement). As of September 30, 2008, the weighted average interest rate of the Company’s Credit Facility borrowings was 3.5%. Based on the foregoing, the Company considers the fair value of outstanding borrowings to approximate the recorded value or $109.8 million as of September 30, 2008.

At September 30, 2008, the Company also had assets that, under certain conditions are subject to measurement at fair value on a non-recurring basis, like those associated with acquired businesses, including goodwill, other intangible assets, and other long-lived assets. For these assets, measurement at fair value utilizing Level 3 inputs, in periods subsequent to their initial recognition, are applicable if one or more of these assets are determined to be impaired.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

(7) INCOME TAXES

The Company accounts 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 Condensed 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.

During the third quarter 2008, the tax audit being conducted by the IRS of the Company’s U.S. income tax returns filed for the tax years ending December 31, 2002, 2003 and 2004 was closed resulting in no material change to the Company’s financial statements. The Company has protested one issue to the appeals branch for an administrative resolution of the matter for which no tax benefit has been recorded under FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). In addition, the Company’s U.K. subsidiary is under audit by HM Revenue and Customs for the year ended December 31, 2002. The Company’s subsidiary in the Philippines is also under tax audit for the years ended December 31, 2005 and 2006. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company’s Condensed Consolidated Financial Statements. In addition there are no other tax audits in process in major tax jurisdictions that would have a significant impact on the Company’s Condensed Consolidated Financial Statements.

As of September 30, 2008, the Company had $67.5 million of deferred tax assets (after a $16.1 million valuation allowance) and net deferred tax assets (after deferred tax liabilities) of $67.4 million related to the U.S. and international tax jurisdictions whose recoverability is dependent upon future profitability. During the third quarter 2008, we released $2.9 million of the $6.2 million deferred tax valuation allowance with respect to our UK business. This change in estimate was due to (i) the strength and volume of new business and contracts (ii) significant increases in both current year and projected pre-tax income; and (iii) a recent history of cumulative pre-tax income in the UK.

The effective tax rate for the three and nine months ended September 30, 2008 was 20.3% and 24.8%, respectively. The effective tax rate for the three and nine months ended September 30, 2007 was 6.7% and 27.5%, respectively.

(8) RESTRUCTURING CHARGES AND IMPAIRMENT LOSSES

Restructuring Charges

During 2008 and 2007, the Company undertook a number of restructuring activities primarily associated with reductions in its capacity and workforce to better align them with current business needs.

The restructuring of the workforce in the International BPO segment resulted in total restructuring costs of $0.5 million for the three months ended September 30, 2008, of which $0.5 million had been paid as of September 30, 2008. For the nine months ended September 30, 2008 the International BPO segment incurred restructuring costs of $3.1 million, of which $3.1 million had been paid as of September 30, 2008. All of these charges were for employee severance costs.

Total restructuring charges in the North American BPO segment were $1.5 million and $1.6 million for the three and nine months ended September 30, 2008, respectively, primarily relating to the closure to two delivery centers. As of September 30, 2008, $0.6 million had been paid.

During the three and nine months ended September 30, 2007, the Company incurred total restructuring costs of $0.9 million in relation to the Database Marketing and Consulting business. This included severance charges of $0.6 million and an acceleration of equity-based compensation expense associated with certain change of control provisions (related to the sale of substantially all of the assets and certain liabilities of the Database Marketing and Consulting business) included in an equity-based award to a terminated employee.

The restructuring of the workforce in the North American BPO segment resulted in total restructuring costs of $1.3 million for the three and nine months ended September 30, 2007 for employee severance costs.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The restructuring of the workforce in the International BPO segment resulted in total restructuring costs of $0.4 million and $0.7 million for the three and nine months ended September 30, 2007, respectively. All of these charges were for employee severance costs.

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

		Closure of
		Delivery				Reduction in
		Centers				Force				Total
Balance as of December 31, 2007		$	4,326			$	348			$	4,674
Expense			1,475				3,249				4,724
Payments			(2,883	)			(3,502	)			(6,385	)
Reversals			—				(67	)			(67	)
Balance as of September 30, 2008		$	2,918			$	28			$	2,946

Impairment Losses

During the three and nine months ended September 30, 2008, the Company recognized an impairment of $1.0 million related to two delivery centers in the North American BPO segment.

During the three and nine months ended September 30, 2007, the Company recognized an impairment charge of $2.3 million and $15.6 million, respectively. The $2.3 million related to the closure of a delivery center for the Database Marketing and Consulting business. The $15.8 million primarily related to impairments of assets and goodwill of the Database Marketing and Consulting business as a result of the sale of substantially all of the assets and liabilities of this business.

(9) COMMITMENTS AND CONTINGENCIES

Letters of Credit

As of September 30, 2008, outstanding letters of credit and other performance guarantees totaled approximately $7.4 million, which primarily guarantee workers’ compensation and other insurance related obligations and facility leases.

Guarantees

The Company’s Credit Facility is guaranteed by the majority of the Company’s 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. In the event 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 aircraft’s future fair value at the time of lease expiration.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

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 of such expenses will be reimbursed.

On July 28, 2008, a shareholder derivative action was filed in the Court of Chancery, State of Delaware, entitled Susan M. Gregory v. Kenneth D. Tuchman, et al., against certain of TeleTech’s former and current officers and directors alleging, among other things, that the individual defendants breached their fiduciary duties and were unjustly enriched in connection with: (i) equity grants made in excess of plan limits; and (ii) manipulating the grant dates of stock option grants from 1999 through 2008. TeleTech is named solely as a nominal defendant against whom no recovery is sought. 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.

(10) 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								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Shares used in basic earnings per share calculation			68,217				70,214				69,373				70,367
Effect of dilutive securities – Stock options			1,289				78				1,549				43
Effect of dilutive securities – RSUs			2				2,051				—				2,499
Shares used in dilutive earnings per share calculation			69,508				72,343				70,922				72,909

For the three months ended September 30, 2008 and 2007, options to purchase 289,000 and 300,000 shares of common stock, respectively, and for the nine months ended September 30, 2008 and 2007, options to purchase 139,000 and 100,000 shares of common stock, respectively, were outstanding, but not included in the computation of diluted net income per share because the effect would have been anti-dilutive. For the three months ended September 30, 2008 and 2007, restricted stock units (“RSUs”) of 1,237,000 and 864,000, respectively, and for the nine months ended September 30, 2008 and 2007, RSUs of 1,372,000 and 846,000, respectively, were outstanding, but not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

(11) EQUITY-BASED COMPENSATION PLANS

The Company has adopted SFAS No. 123 (revised 2004) Share-Based Payment (“SFAS 123(R)”) and applied the modified prospective method for expensing equity compensation. SFAS 123(R) requires all equity-based payments to employees to be recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income 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 Black-Scholes-Merton Model.

Stock Options

As of September 30, 2008, there was approximately $3.8 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 equity plans that the Company had not recorded. That cost is expected to be recognized over the weighted-average period of four years and the Company recognizes compensation expense straight-line over the vesting term of the option grant. The Company recognized compensation expense related to stock options of $1.5 million and $3.3 million, respectively, for the three and nine months ended September 30, 2008. The Company recognized compensation expense related to stock options of $1.4 million and $4.7 million, respectively, for the three and nine months ended September 30, 2007.

Restricted Stock Unit Grants

In January 2007, the Compensation Committee of the Board of Directors granted an aggregate of approximately 1.5 million restricted stock units (“RSUs”) to executive officers and members of the Company’s management team. The grants replace the Company’s January 2005 Long-Term Incentive Plan and are intended to provide management with additional incentives to promote the success of the Company’s business, thereby aligning management’s interests with the interests of the Company’s stockholders. In 2007, the Company granted one RSU for 500,000 shares which vests equally over a 10-year period, and an additional RSU for 500,000 shares of which 50% vests equally over five years and 50% is earned by achieving specific performance targets over a five year period. The remaining RSU grants during 2007 are partially earned by achieving specific performance targets and partially time vested. Two-thirds of the RSUs granted vest pro rata over three years based solely on the Company exceeding specified operating income performance targets in each of the years 2007, 2008 and 2009. If the performance target for a particular year is not met, the RSUs scheduled to vest in that year are cancelled. The remaining one-third of the RSUs vest pro rata in equal installments over five years based on the individual recipient’s continued employment with the Company. Settlement of the RSUs are made in shares of the Company’s common stock by delivery of one share of common stock for each RSU then being settled.

In August 2008, the Company granted an additional 432,000 RSUs that vest annually over four years, to new and existing employees to provide the same incentives as outlined above. The Company recognized compensation expense related to RSUs of $1.7 million and $4.6 million, for the three and nine months ended September 30, 2008, respectively, and $2.1 million and $3.3 million, for the three and nine months ended September 30, 2007, respectively.

ITEM 2. MANAGEMENT’S 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, 2007. Except for historical information, the discussion below contains certain forward-looking statements that involve risks and uncertainties. The projections and statements contained in these forward-looking 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 forward-looking statements.

All statements not based on historical fact are forward-looking 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 forward-looking 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; achieving continued profit improvement in our International 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 (such as OnDemand); 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, pandemic, or terrorist-related events; risks associated with attracting and retaining cost-effective 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 impacts the BPO and customer management industry.

See Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K.

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 business process outsourcing 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 industries.

As globalization of the world’s economy continues to accelerate, businesses are increasingly competing on a worldwide basis due to rapid advances in technology and telecommunications that permit cost-effective real-time global communications and ready access to a highly skilled global 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 and increase shareholder value through improved productivity and profitability.

We believe that our revenue will continue to grow over the long-term as global demand for our services is being fueled by the following trends:

•

Integration of front- and back-office business processes to provide an enhanced customer experience. Companies have realized that integrated business processes 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 revenues have been derived from providing customer-facing front-office solutions to our clients. Given 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 outsourcing 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, retailing 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 our revenue from 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 and 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 us because we can quickly ramp large, complex business processes around the globe in a short period of time while assuring a high-quality experience for their customers.

Our Strategy

Our objective is to become the world’s largest, most technologically advanced and innovative provider of 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 home. 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 increased offshore delivery; and

•

Selectively pursue acquisitions that extend our capabilities, geographic reach and/or industry expertise.

Our Third Quarter 2008 Financial Results

In 2008, our third quarter revenue grew 4.0% to $349.1 million over the year-ago period. Our third quarter 2008 income from operations increased $4.2 million or 18.0% to $27.2 million in 2008 from $23.1 million in the year-ago period and operating margin increased to 7.8% from 6.9% in the year-ago period. Our improved profitability has stemmed primarily from continued expansion into offshore markets, increased utilization of our delivery centers across a 24-hour period, leveraging our global purchasing power and diversifying revenue into higher margin opportunities.

We have experienced strong growth in our offshore delivery centers which primarily serve clients located in other countries. Our offshore delivery capacity now spans seven countries with approximately 25,300 workstations and currently represents 63% of our global delivery capabilities. Revenue in these offshore locations grew 16% in the third quarter 2008 to $159 million and represented 45% of our consolidated third quarter 2008 revenue.

Our strong financial position, cash flow from operations and low debt levels allowed us to finance a significant portion of our capital needs through internally generated cash flows. At September 30, 2008, we had $123.2 million of cash and cash equivalents and a total debt to equity ratio of 29.5%.

Cost of Restatement

We have incurred substantial expenses for accounting, legal, tax and other professional services in connection with the Audit Committee’s and our internal review of historical, equity-based compensation practices (the “Review”), as well as preparation of our Consolidated Financial Statements and restated Consolidated Financial Statements. These third-party expenses, which are included in selling, general and administrative expenses, were $0.1 million for the three and nine months ended September 30, 2007; $1.4 million and $9.8 million for the three and nine months ended September 30, 2008, respectively; and $8.6 million for the year ended December 31, 2007. In addition, in the quarter ended September 30, 2008 and the quarter ended December 31, 2007 we recorded additional compensation expense of $0.7 million and $2.9 million, respectively, including amounts for incremental federal, state and employment taxes, assessed upon employees under Section 409A of the Internal Revenue Code, including penalties, interest and tax “gross-ups.” We have committed to make our employees whole for any adverse tax consequences arising as a result of the vesting or exercise of mispriced options in 2006 and 2007.

Securities Class Action Lawsuits

Two class action lawsuits, which have now been consolidated, have been filed against us, certain directors and officers and others, alleging violations of the federal securities laws. The complaints allege, among other things, false and misleading statements in (i) a Registration Statement and prospectus relating to a March 2007 secondary offering of common stock; and (ii) various periodic reports filed with the SEC between February 8, 2007 and November 8, 2007. Although we expect the majority of expenses related to the class action lawsuits to be covered by insurance, there can be no assurance that all of 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) alleged manipulation of 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.

Regulatory Inquiries Related to Historical Equity-Based Compensation Practices

As previously disclosed, the Audit Committee’s independent counsel voluntarily met and discussed the results of the Review with the staff of the SEC. On July 17, 2008, after we filed our delayed periodic reports (our Annual Report on Form 10-K for the year ended December 31, 2007 and our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2007 and March 31, 2008), the SEC Division of Enforcement sent a letter to the Audit Committee’s independent counsel stating that the Division of Enforcement does not intend to recommend any enforcement action by the SEC.

However, we cannot predict what actions, if any, by the SEC, the IRS or any other regulatory authority or agency may result from the Audit Committee’s Review. For example, the IRS is conducting an inquiry of the tax implications of our historical equity-based compensation practices. We can provide no assurance that there will be no additional inquiries or proceedings by the SEC, the IRS or other regulatory authorities or agencies.

NASDAQ Proceedings

On July 17, 2008, we received a letter from The NASDAQ Stock Market confirming that: (i) the NASDAQ Listing and Hearing Review Council, after consultation with the Listing Qualification staff, had determined that we have regained compliance with all NASDAQ filing requirements under the Marketplace rules, including Rule 4310(c)(14), based on the filing with the SEC of our delayed periodic reports; and (ii) our common stock will continue to be listed on the NASDAQ Global Select Market.

Business Overview

Our BPO business provides outsourced business process, customer management and marketing services for a variety of industries through global delivery centers and represents 100% of total revenue. When we begin operations in a new country, we determine whether the country is intended primarily to serve U.S.-based clients, in which case we include the country in our North American BPO segment, or if the country is intended to serve both domestic clients from that country and U.S.-based clients, in which case we include the country in our International BPO segment. Operations for each segment of our BPO business are conducted in the following countries:

North American BPO		International BPO
United States		Argentina
Canada		Australia
Philippines		Brazil
		China
		Costa Rica
		England
		Germany
		Malaysia
		Mexico
		New Zealand
		Northern Ireland
		Scotland
		South Africa
		Spain

BPO Services

The BPO business generates revenue based primarily on the amount of time our associates devote to a client’s program. We primarily focus on large global corporations in the following industries: automotive, communications, financial services, government, healthcare, logistics, media and entertainment, retail, technology and travel and leisure. Revenue is recognized as services are provided. The majority of our revenue is from multi-year contracts, which we expect will continue in the future. However, we do provide certain client programs on a short-term 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 nine months of 2008 was 7%, which is consistent with the nine months ended 2007, and is at the low end of our range of historical experience. We believe that this is attributable to our investment in an account management and operations team focused on client service.

The BPO industry is highly competitive. We compete primarily with the in-house business processing operations of our current and potential clients. We also compete with certain companies that provide BPO on an outsourced basis. 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.

We have improved our revenue and profitability in both the North American and the International BPO segments 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
	•		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 weakening of the U.S. or the global economy could result in lower volumes from our existing clients, longer 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 long-term view of profitability and, accordingly, we consider all of our fixed and variable costs in developing our bids. We believe that our competitors, at times, may bid business based upon a short-term view, as opposed to our longer-term view, resulting in a lower price bid. While we believe that our clients’ perceptions of the value we provide results in successful competitive wins, 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. A strengthening in the local or global economies where our delivery centers are located could lead to increased labor-related costs if demand for workers increases while supply decreases. In addition, our industry experiences high personnel attrition 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.

As discussed above, our profitability is influenced, in part, by the number of new or expanded client programs. We defer revenue for the initial training that occurs upon commencement of a new client contract (“Start-up Training”) if that training is billed separately to the client. Accordingly, the corresponding training costs, consisting primarily of labor and related expenses, are also deferred. In these circumstances, both the training revenue and costs are amortized straight-line over the life of the contract. In situations where Start-up Training is not billed separately, but rather included in the production rates paid by the client over the life of the contract as services are performed, the revenue is recognized over the life of the contract and the associated training expenses are expensed as incurred. As of September 30, 2008, we had deferred Start-up Training revenue, net of costs, of $7.6 million that will be recognized into our income from operations over the remaining life of the corresponding contracts (approximately 39 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 connection with these reviews, we may decide to consolidate or close under-performing delivery centers, including those impacted by the loss of a major client program, in order to maintain or improve targeted utilization and margins. In addition, clients may request that we serve their customers from off-shore delivery centers with lower prevailing labor rates. As a result, we may decide to close one or more of our on-shore delivery centers, even though it is generating positive cash flow, because we believe that the future profits from conducting such services in another country may more than compensate for the charges related to closing the facility.

Our profitability is significantly 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, we consider numerous factors that affect capacity utilization, including anticipated expirations, reductions, terminations, or expansions of existing programs and the potential size and timing of new client contracts that we expect to obtain.

We continue to win new business with both new and existing clients. To respond more rapidly to changing market demands, to implement new programs and to expand existing programs, we may be required to commit to additional capacity prior to the contracting of additional business, which may result in idle capacity. This is largely due to the significant time required to negotiate and execute large, complex BPO client contracts and the difficulty of predicting specifically when new programs will launch.

We target capacity utilization in our delivery centers at 85% to 90% of our available workstations. As of September 30, 2008, the overall capacity utilization in our multi-client centers was 70%. The table below presents workstation data for our multi-client centers as of September 30, 2008 and 2007. Dedicated and managed centers (9,257 and 10,072 workstations as of September 30, 2008 and 2007, 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 centers based on the normal changes in our business environment and client needs.

		September 30, 2008												September 30, 2007
		Total Production												Total Production
		Workstations				In Use				% In Use				Workstations				In Use				% In Use
North American BPO
Sites open < 1 year			2,935				1,252				43%				1,843				367				20%
Sites open > 1 year			14,289				10,949				77%				13,946				10,552				76%
Total North American BPO			17,224				12,201				71%				15,789				10,919				69%
International BPO
Sites open < 1 year			3,160				1,480				47%				1,972				273				14%
Sites open > 1 year			10,000				7,464				75%				9,866				7,756				79%
Total International BPO			13,160				8,944				68%				11,838				8,029				68%
Total			30,384				21,145				70%				27,627				18,948				69%

Overall

As shown in the “Results of Operations” section which follows later, we have improved income from operations for our North American and International BPO segments. The increases are attributable to a variety of factors such as expansion of work on certain client programs, transitioning work on certain client programs to lower cost operating centers, improving individual client program profit margins and/or eliminating underperforming programs and our multi-phased cost reduction plan.

As we pursue acquisition opportunities, it is possible that the contemplated benefits of any future acquisitions may not materialize within the expected time periods or to the extent anticipated. Critical to the success of our acquisition strategy is the orderly, effective integration of acquired businesses into our organization. If this integration is unsuccessful, our business may be adversely impacted. There is also the risk that our valuation assumptions and models for an acquisition may be overly optimistic or incorrect.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of its financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses as well as the disclosure of contingent assets and liabilities. We regularly review our estimates and assumptions. These estimates and assumptions, which are based upon historical experience and on various other factors believed to be reasonable under the circumstances, form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Reported amounts and disclosures may have been different had management used different estimates and assumptions or if different conditions had occurred in the periods presented. Below is a discussion of the policies that we believe may involve a high degree of judgment and complexity.

Revenue Recognition

For each client arrangement, we determine whether evidence of an arrangement exists, delivery of our service has occurred, the fee is fixed or determinable and collection is reasonably assured. If all criteria are met, we recognize revenue at the time services are performed. If any of these criteria are not met, revenue recognition is deferred until such time as all of the criteria are met.

Our BPO segments recognize revenue under three models:

Production Rate – Revenue is recognized based on the billable time or transactions of each associate, as defined in the client contract. The rate per billable time or transaction is based on a predetermined contractual rate. This contractual rate can fluctuate based on our performance against certain pre-determined criteria related to quality and performance.

Performance-Based – Under performance-based arrangements, we are paid by our clients based on the achievement of certain levels of sales or other client-determined criteria specified in the client contract. We recognize performance-based revenue by measuring our actual results against the performance criteria specified in the contracts. Amounts collected from clients prior to the performance of services are recorded as deferred revenue, which is recorded in Other Short-Term Liabilities or Other Long-Term Liabilities in the accompanying Condensed 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 increases or decreases 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.

From time to time, we make certain expenditures related to acquiring contracts (recorded as contract acquisition costs in the accompanying Condensed Consolidated Balance Sheets). Those expenditures are capitalized and amortized in proportion to the initial expected future revenue from the contract, which in most cases results in straight-line amortization over the life of the contract. 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 Condensed 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 favorable and unfavorable, should be considered in determining whether, based on the weight of that evidence, a valuation allowance is required.

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 account-by-account basis and assigns a probability of collection. Management’s judgment is used in assessing the probability of collection. Factors considered in making this judgment include, among other things, the age of the receivable, client financial condition, previous client payment history and any recent communications with the client.

Impairment of Long-Lived Assets

We evaluate the carrying value of our individual delivery centers in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144 requires that a long-lived asset group be reviewed for impairment only when events or changes in circumstances indicate that the carrying amount of the long-lived asset group may not be recoverable. When the operating results of a delivery center have deteriorated to the point that it is likely that losses will continue for the foreseeable future, or we expect that a delivery center will be closed or otherwise disposed of before the end of its estimated useful life, we select the delivery center for further review.

For delivery centers selected for further review, we estimate the probability-weighted future cash flows resulting from operating the delivery center over its useful life. Significant judgment is involved in projecting future capacity utilization, pricing, labor costs and the estimated useful life of the delivery center. We do not subject the same test to delivery centers that have been operated for less than two years or those delivery centers that have been impaired within the past two years because we believe sufficient time is necessary to establish a market presence and build a client base for such new or modified delivery centers in order to adequately assess recoverability. However, such delivery centers are nonetheless evaluated in case other factors would indicate an impairment had occurred. For impaired delivery centers, we write the assets down to their estimated fair market value. If the assumptions used in performing the impairment test prove insufficient, the fair market value estimate of the delivery centers may be significantly lower, thereby causing the carrying value to exceed fair market value and indicating an impairment had occurred.

We assess the realizable value of capitalized software development costs based upon current estimates of future cash flows from services utilizing the underlying software.

Goodwill

In accordance with SFAS No. 142 Goodwill and Other Intangible Assets (“SFAS 142”), goodwill is tested for impairment at least annually for reporting units one level below the segment level for the North American BPO and International BPO segments, which consists of one subsidiary company. Impairment occurs when the carrying amount of goodwill exceeds its estimated fair value. The impairment, if any, is measured based on the estimated fair value of the reporting unit. Fair value can be determined based on discounted cash flows, comparable sales, or valuations of other similar businesses. Our policy is to test goodwill for impairment in the fourth quarter of each year unless an indicator of impairment arises.

The most significant assumptions used in these analyses are those made in estimating future cash flows. In estimating future cash flows, we generally use the financial assumptions in our internal forecasting model such as projected capacity utilization, projected changes in the prices we charge for our services and projected labor costs. We then use a discount rate that we consider appropriate for the country where the business unit is providing services. If actual results are less than the assumptions used in performing the impairment test, the fair value of the reporting units may be significantly lower, causing the carrying value to exceed the fair value and indicating that an impairment has occurred.

Restructuring Liability

We routinely assess the profitability and utilization of our delivery centers and existing markets. In some cases, we have chosen to close under-performing delivery centers and complete reductions in workforce to enhance future profitability. We follow 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.

Equity-Based Compensation

Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004) Share-Based Payment (“SFAS 123(R)”) applying the modified prospective method. SFAS 123(R) requires all equity-based payments to employees, including grants of employee stock options, to be recognized in the Condensed Consolidated Statement of Operations and Comprehensive Income based on the grant date fair value of the award. Prior to the adoption of SFAS 123(R), we accounted for equity-based awards under the intrinsic value method, which followed recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations and included equity-based compensation as pro-forma disclosure within the notes to our Condensed Consolidated Financial Statements.

For the three months ended September 30, 2008 and 2007, we recorded expense of $3.2 million and $3.5 million, respectively, for equity-based compensation. For the nine months ended September 30, 2008 and 2007, we recorded expense of $7.9 million and $8.0 million, respectively, for equity-based compensation. We expect that equity-based compensation expense for 2008 from existing awards will be approximately $10.6 million. This amount represents awards of both stock options and restricted stock units (“RSUs”).

The performance-based portion of the RSUs is not included in the equity-based compensation expense described above because it is not probable at this time that the performance targets will be met. In the event that achievement of the RSU performance targets becomes probable, equity-based compensation expense would increase by approximately $9.9 million in 2008. It is noted that any future significant awards of RSUs or changes in the estimated forfeiture rates of stock options and RSUs may impact this estimate. See Note 11 to the Condensed Consolidated Financial Statements for additional information.

Contingencies

We record a liability in accordance with SFAS No. 5 Accounting for Contingencies pending litigation and claims where losses are both probable and reasonably estimable. Each quarter, management, with the advice of legal counsel, reviews all litigation and claims on a case-by-case basis and assigns probability of loss based on the assessments of in-house counsel and outside counsel, as appropriate.

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 time to time from local or state governments as an incentive to locate delivery centers in their jurisdictions, which reduce the cost of services for those facilities.

Selling, General and Administrative

Selling, general and administrative expenses primarily include costs associated with administrative services such as sales, marketing, product development, legal settlements, legal, information systems (including core technology and telephony infrastructure) and accounting and finance. It also includes equity-based compensation expense, outside professional fees (i.e. legal and accounting services), building maintenance expense for non-delivery center facilities and other items associated with general business administration.

Restructuring Charges, Net

Restructuring charges, net primarily include costs incurred in connection with reductions in force or decisions to exit facilities, including termination benefits and lease liabilities, net of expected sublease rentals.

Interest Expense

Interest expense includes interest expense and amortization of debt issuance costs associated with our debts and capitalized lease obligations.

Other Income

The main components of other income are miscellaneous receipts not directly related to our operating activities, such as foreign exchange transaction gains and income from the sale of a software and intellectual property license agreement.

Other Expenses

The main components of other expenses are expenditures not directly related to our operating activities, such as corporate legal settlements and foreign exchange transaction losses.

Presentation of Non-GAAP Measurements

Free Cash Flow

Free cash flow is a non-GAAP liquidity measurement that is defined as “net cash provided by operating activities,” less “purchases of property, plant and equipment.” 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 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. However, we believe that this non-GAAP liquidity measure is useful, in addition to the most directly comparable GAAP measure of “net cash provided by operating activities,” because free cash flow includes investments in operational assets. Free cash flow does not represent residual cash available for discretionary expenditures, since it includes cash required for debt service. Free cash flow also excludes cash that may be necessary for acquisitions, investments and other needs that may arise.

The following table reconciles free cash flow to net cash provided by operating activities for our consolidated results (amounts in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Free cash flow		$	50,674			$	36,299			$	73,571			$	56,497
Purchases of property, plant and equipment			15,320				14,768				51,728				43,788
Net cash provided by operating activities		$	65,994			$	51,067			$	125,299			$	100,285

We discuss factors affecting free cash flow between periods in the “Liquidity and Capital Resources” section below.

Results of Operations

Three Months Ended September 30, 2008 As Compared to Three Months Ended September 30, 2007

Operating Review

The following table is presented to facilitate an understanding of our Management’s Discussion and Analysis of Financial Condition and Results of Operations and presents our results of operations by segment for the three months ended September 30, 2008 and 2007 (amounts in thousands):

		Three-Months Ended September 30,
						% of								% of
						Segment								Segment
		2008				Revenue				2007				Revenue				$ Change				% Change
Revenue
North American BPO		$	233,171				66.8	%		$	229,231				68.3	%		$	3,940				1.7	%
International BPO			115,939				33.2	%			101,198				30.1	%			14,741				14.6	%
Database Marketing and Consulting			—				0.0	%			5,298				1.6	%			(5,298	)			(100.0	)%
		$	349,110				100.0	%		$	335,727				100.0	%		$	13,383				4.0	%
Cost of services
North American BPO		$	170,311				73.0	%		$	166,106				72.5	%		$	4,205				2.5	%
International BPO			82,339				71.0	%			76,920				76.0	%			5,419				7.0	%
Database Marketing and Consulting			16				0.0	%			3,532				66.7	%			(3,516	)			(99.5	)%
		$	252,666				72.4	%		$	246,558				73.4	%		$	6,108				2.5	%
Selling, general and administrative
North American BPO		$	31,491				13.5	%		$	28,409				12.4	%		$	3,082				10.8	%
International BPO			19,593				16.9	%			14,350				14.2	%			5,243				36.5	%
Database Marketing and Consulting			73				0.0	%			4,209				79.4	%			(4,136	)			(98.3	)%
		$	51,157				14.7	%		$	46,968				14.0	%		$	4,189				8.9	%
Depreciation and amortization
North American BPO		$	8,892				3.8	%		$	8,017				3.5	%		$	875				10.9	%
International BPO			6,106				5.3	%			5,053				5.0	%			1,053				20.8	%
Database Marketing and Consulting			—				0.0	%			1,180				22.3	%			(1,180	)			(100.0	)%
		$	14,998				4.3	%		$	14,250				4.2	%		$	748				5.2	%
Restructuring charges, net
North American BPO		$	1,470				0.6	%		$	1,269				0.6	%		$	201				15.8	%
International BPO			545				0.5	%			400				0.4	%			145				36.3	%
Database Marketing and Consulting			—				0.0	%			919				17.3	%			(919	)			(100.0	)%
		$	2,015				0.6	%		$	2,588				0.8	%		$	(573	)			(22.1	)%
Impairment losses
North American BPO		$	1,033				0.4	%		$	—				0.0	%		$	1,033				100.0	%
International BPO			—				0.0	%			—				0.0	%			—				0.0	%
Database Marketing and Consulting			—				0.0	%			2,274				42.9	%			(2,274	)			(100.0	)%
		$	1,033				0.3	%		$	2,274				0.7	%		$	(1,241	)			(54.6	)%
Income (loss) from operations
North American BPO		$	19,974				8.6	%		$	25,430				11.1	%		$	(5,456	)			(21.5	)%
International BPO			7,356				6.3	%			4,475				4.4	%			2,881				64.4	%
Database Marketing and Consulting			(89	)			0.0	%			(6,816	)			(128.7	)%			6,727				98.7	%
		$	27,241				7.8	%		$	23,089				6.9	%		$	4,152				18.0	%
Other income (expense), net		$	(777	)			(0.2	)%		$	(6,826	)			(2.0	)%		$	6,049				88.6	%
Provision for income taxes		$	(5,368	)			(1.5	)%		$	(1,082	)			(0.3	)%		$	(4,286	)			(396.1	)%