TTEC Holdings, Inc. - Quarter Report: 2009 March (Form 10-Q)

 

 

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

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

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

As of May 4, 2009, there were 63,267,200 shares of the registrant’s common stock outstanding.

 

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES
MARCH 31, 2009 FORM 10-Q
TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008			1
Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008 (unaudited)			2
Consolidated Statement of Equity as of and for the three months ended March 31, 2009 (unaudited)			3
Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008 (unaudited)			4
Notes to the Unaudited Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures about Market Risk			34
Item 4. Controls and Procedures			36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 3. Defaults Upon Senior Securities			38
Item 4. Submission of Matters to a Vote of Security Holders			38
Item 5. Other Information			38
Item 6. Exhibits			38
SIGNATURES			39
EXHIBIT INDEX			40
EX-31.1
EX-31.2
EX-32.1
EX-32.2

 i 

		March 31,				December 31,
		2009				2008
ASSETS
Current assets
Cash and cash equivalents		$	91,153			$	87,942
Accounts receivable, net			224,786				236,997
Prepaids and other current assets			29,264				31,279
Deferred tax assets, net			30,354				30,328
Income tax receivables			18,821				18,342
Total current assets			394,378				404,888
Property, plant and equipment, net			148,358				157,747
Goodwill			44,145				44,150
Contract acquisition costs, net			6,822				7,591
Deferred tax assets, net			28,326				31,504
Other noncurrent assets			19,955				23,062
Total assets		$	641,984			$	668,942
LIABILITIES AND EQUITY
Current liabilities
Accounts payable		$	25,339			$	26,214
Accrued employee compensation and benefits			74,759				71,919
Other accrued expenses			14,404				18,887
Income taxes payable			20,862				19,168
Deferred revenue			15,995				12,867
Other current liabilities			30,915				31,044
Total current liabilities			182,274				180,099
Line of credit			47,300				80,800
Grant advances			1,447				1,824
Negative investment in deconsolidated subsidiary			4,865				4,865
Other noncurrent liabilities			35,234				40,460
Total liabilities			271,120				308,048
Commitments and contingencies (Note 10)
Equity
Preferred stock – $0.01 par value; 10,000,000 shares authorized; zero shares outstanding as of March 31, 2009 and December 31, 2008			—				—
Common stock – $0.01 par value; 150,000,000 shares authorized; 63,820,472 and 63,816,379 shares outstanding as of March 31, 2009 and December 31, 2008, respectively			638				638
Treasury stock at cost: 18,233,973 and 18,238,066 shares as of March 31, 2009 and December 31, 2008, respectively			(228,101	)			(228,596	)
Additional paid-in capital			340,908				341,887
Accumulated other comprehensive loss			(37,494	)			(33,020	)
Retained earnings			290,037				274,974
Total stockholders’ equity			365,988				355,883
Noncontrolling interest			4,876				5,011
Total equity			370,864				360,894
Total liabilities and equity		$	641,984			$	668,942

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

		Three-Months Ended
		March 31,
		2009				2008
Revenue		$	304,030			$	367,636
Operating expenses
Cost of services (exclusive of depreciation and amortization presented separately below)			218,842				270,100
Selling, general and administrative			48,515				51,372
Depreciation and amortization			14,062				15,160
Restructuring charges, net			303				2,202
Impairment losses			1,967				—
Total operating expenses			283,689				338,834
Income from operations			20,341				28,802
Other income (expense)
Interest income			807				1,086
Interest expense			(843	)			(1,565	)
Other, net			762				(569	)
Total other income (expense)			726				(1,048	)
Income before income taxes			21,067				27,754
Provision for income taxes			(5,180	)			(7,793	)
Net income			15,887				19,961
Net income attributable to noncontrolling interest			(824	)			(836	)
Net income attributable to TeleTech shareholders		$	15,063			$	19,125
Weighted average shares outstanding
Basic			63,908				69,937
Diluted			64,300				71,508
Net income per share attributable to TeleTech shareholders
Basic		$	0.24			$	0.27
Diluted		$	0.23			$	0.27

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

																										Accumulated
																						Additional				Other								Non-
		Preferred Stock								Common Stock								Treasury				Paid-in				Comprehensive				Retained				controlling
		Shares				Amount				Shares				Amount				Stock				Capital				Loss				Earnings				interest				Total Equity
Balance as of December 31, 2008			—			$	—				63,816			$	638			$	(228,596	)		$	341,887			$	(33,020	)		$	274,974			$	5,011			$	360,894
Net income			—				—				—				—				—				—				—				15,063				824				15,887
Dividends distributed to noncontrolling interest			—				—				—				—				—				—				—				—				(900	)			(900	)
Foreign currency translation adjustments			—				—				—				—				—				—				(7,513	)			—				(59	)			(7,572	)
Derivatives valuation, net of tax			—				—				—				—				—				—				3,039				—				—				3,039
Vesting of restricted stock units			—				—				170				2				2,138				(2,694	)			—				—				—				(554	)
Exercise of stock options			—				—				29				—				359				(153	)			—				—				—				206
Excess tax benefit from equity-based awards			—				—				—				—				—				(1,746	)			—				—				—				(1,746	)
Equity-based compensation expense			—				—				—				—				—				3,614				—				—				—				3,614
Purchases of common stock			—				—				(195	)			(2	)			(2,002	)			—				—				—				—				(2,004	)
Balance as of March 31, 2009			—			$	—				63,820			$	638			$	(228,101	)		$	340,908			$	(37,494	)		$	290,037			$	4,876			$	370,864

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

		Three-Months Ended
		March 31,
		2009				2008
Cash flows from operating activities
Net income		$	15,887			$	19,961
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			14,062				15,160
Amortization of contract acquisition costs			769				486
Provision for doubtful accounts			304				78
Loss on disposal of assets			556				111
Impairment losses			1,967				—
Deferred income taxes			(1,160	)			(775	)
Excess tax benefit from equity-based awards			(1,746	)			(1,047	)
Equity-based compensation expense			3,614				2,723
Other			(63	)			78
Changes in assets and liabilities:
Accounts receivable			9,775				2,690
Prepaids and other assets			3,746				(1,498	)
Accounts payable and accrued expenses			2,934				(6,595	)
Deferred revenue and other liabilities			3,366				(5,197	)
Net cash provided by operating activities			54,011				26,175
Cash flows from investing activities
Purchases of property, plant and equipment			(8,455	)			(15,185	)
Net cash used in investing activities			(8,455	)			(15,185	)
Cash flows from financing activities
Proceeds from line of credit			244,510				305,750
Payments on line of credit			(278,010	)			(309,150	)
Payments on long-term debt and capital lease obligations			(25	)			(574	)
Payments of debt refinancing fees			—				(6	)
Dividends distributed to noncontrolling interest			(900	)			(1,023	)
Proceeds from exercise of stock options			206				—
Purchase of treasury stock			(2,004	)			—
Net cash used in financing activities			(36,223	)			(5,003	)
Effect of exchange rate changes on cash and cash equivalents			(6,122	)			941
Increases in cash and cash equivalents			3,211				6,928
Cash and cash equivalents, beginning of period			87,942				91,239
Cash and cash equivalents, end of period		$	91,153			$	98,167
Supplemental disclosures
Cash paid for interest		$	424			$	1,484
Cash paid for income taxes		$	2,947			$	3,307
Non-cash investing and financing activities
Acquisition of equipment through installment purchase agreements		$	915			$	—
Landlord incentives credited to deferred rent		$	—			$	530

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

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.

The Consolidated Financial Statements are comprised of the accounts of TeleTech, its wholly owned subsidiaries and its 55% equity owned subsidiary in Percepta, LLC. On December 22, 2008, as discussed in Note 2, Newgen Results Corporation, a wholly-owned subsidiary of the Company, filed a voluntary petition for liquidation under Chapter 7 in the United States Bankruptcy Court for the District of Delaware. Under Accounting Research Bulletin No. 51, Consolidated Financial Statements, consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owners. Accordingly, the Company deconsolidated Newgen Results Corporation as of December 22, 2008.

The accompanying unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited Consolidated Financial Statements do reflect all adjustments (consisting only of normal recurring entries) which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of March 31, 2009, and the consolidated results of operations and cash flows of the Company for the three months ended March 31, 2009 and 2008. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Effective January 1, 2009, TeleTech implemented Statement of Financial Accounting Standards (“SFAS”) No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). This standard changed the accounting for and reporting of minority interest (now called noncontrolling interest) in a subsidiary in the Company’s consolidated financial statements. Upon adoption, certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on the Company’s previously reported financial position or results of operations. Refer to Note 11 for additional information on the adoption of SFAS 160.

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates including those related to derivatives and hedging activities, income taxes including the valuation allowance for deferred tax assets, valuation of long-lived assets, self-insurance, litigation and restructuring reserves, and allowance for doubtful accounts. Actual results may differ from those estimates.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS 157”) which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements. Where applicable, SFAS 157 simplifies and codifies related guidance within GAAP. Except for non-financial assets and liabilities recognized on a non-recurring basis, the Company adopted SFAS 157 in the first quarter of 2008. As permitted by FASB Staff Position (“FSP”) No. FAS 157-2, the Company adopted SFAS 157 for non-financial assets and liabilities recognized on a non-recurring basis as of January 1, 2009. Adoption of SFAS 157-2 did not have a significant impact on the Company’s results of operations, financial position or cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised), Business Combinations – a replacement of FASB Statement No. 141 which significantly changes the principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is effective prospectively, except for certain retrospective adjustments to deferred tax balances, for the Company beginning January 1, 2009. The adoption of this pronouncement did not have a material impact on the Company’s results of operations, financial position, or cash flows.

In February 2008, the FASB issued FSP No. FAS 140-3 (“FSP FAS 140-3”), Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. FSP FAS 140-3 concludes that a transferor and transferee should not separately account for a transfer of a financial asset and a related repurchase financing unless the two transactions have a valid and distinct business or economic purpose for being entered into separately and the repurchase financing does not result in the initial transferor regaining control over the financial asset. FSP FAS 140-3 is effective for the Company beginning January 1, 2009 The adoption of this pronouncement did not have a material effect on the Company’s results of operations, financial position, or cash flows.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 amends SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”) disclosure requirements related to (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and related interpretations, and (iii) how derivative instruments and related hedged items affect an 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 adopted this statement effective January 1, 2009. Since SFAS No. 161 requires only additional disclosures concerning derivatives and hedging activities, adoption of SFAS No. 161 did not affect the Company’s financial condition, results of operations or cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions that are used to determine the useful life of a recognized intangible asset. FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for the Company beginning January 1, 2009. This pronouncement did not have a material impact on the Company’s results of operations, financial position, or cash flows.

In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (“FSP 141(R)-1”), to amend FASB Statement No. 141 (revised 2007), Business Combinations. FSP 141(R)-1 addresses the initial recognition, measurement and subsequent accounting for assets and liabilities arising from contingencies in a business combination, and requires that such assets acquired or liabilities assumed be initially recognized at fair value at the acquisition date if fair value can be determined during the measurement period. If the acquisition date fair value cannot be determined, the asset acquired or liability assumed arising from a contingency is recognized only if certain criteria are met. This FSP also requires that a systematic and rational basis for subsequently measuring and accounting for the assets or liabilities be developed depending on their nature. This FSP shall be effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is during or after 2010. The Company does not expect that this pronouncement will have a material impact on its results of operations, financial position, or cash flows, absent any future material business combinations.

In April 2009, the FASB issued the following three FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. These FSPs are effective for interim and annual periods ending after June 15, 2009:

FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides guidelines for making fair value measurements more consistent with the principles presented in FASB Statement No. 157 (“SFAS 157”), Fair Value Measurements. FSP FAS 157-4 reaffirms what SFAS 157 states is the objective of fair value measurement, to reflect how much an asset would be sold for in an orderly transaction at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The Company does not expect this pronouncement to have a material impact on its results of operations, financial position, or cash flows.

FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, enhances consistency in financial reporting by increasing the frequency of fair value disclosures. This relates to fair value disclosures for any financial instruments that are not currently reflected on the consolidated balance sheet at fair value. FSP FAS 107-1 and APB 28-1 now require that fair value disclosures be made on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The Company does not expect this pronouncement to have a material impact on its results of operations, financial position, or cash flows.

FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. This FSP is intended to bring greater consistency to the timing of impairment recognition and to provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. This FSP also requires increased and timelier disclosures sought by investors regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. The Company does not expect this pronouncement to have a material impact on its results of operations, financial position, or cash flows.

On December 22, 2008, Newgen Results Corporation, a wholly-owned subsidiary of the Company, filed a voluntary petition for liquidation under Chapter 7 in the United States Bankruptcy Court for the District of Delaware. Under Accounting Research Bulletin No. 51, Consolidated Financial Statements, a consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owners. Under these rules, legal reorganization or bankruptcy represents conditions that can preclude consolidation as control rests with the Bankruptcy Court, rather than the majority owner. Accordingly, the Company deconsolidated Newgen Results Corporation as of December 22, 2008. As a result, the Company has reflected its negative investment of $4.9 million on the Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008.

The following condensed financial statements of Newgen Results Corporation have been prepared in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, which requires the liabilities subject to compromise by the Bankruptcy Court to be reported separately from the liabilities not subject to compromise. All liabilities included in the condensed financial statements below are subject to compromise and represent the current estimate of the amount of known or potential pre-petition claims that are subject to final settlement. Such claims remain subject to future adjustments. Amounts below are stated in thousands.

		December 22,				December 31,				March 31,
		2008				2008				2009
Total current assets		$	1,700			$	1,700			$	1,700
Total noncurrent assets			3,110				2,379				2,379
Total assets			4,810				4,079				4,079
Total current liabilities		$	3,931			$	7,886			$	7,886
Total noncurrent liabilities			5,744				—				—
Total liabilities			9,675				7,886				7,886
Total stockholders’ deficit			(4,865	)			(3,807	)			(3,807	)
Total liabilities and stockholders’ deficit		$	4,810			$	4,079			$	4,079

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. Effective January 1, 2009, the Company completed certain organizational changes focused on streamlining the structure of its organization to more closely align the Company’s reporting structure with its client base and increase management accountability. Beginning in the first quarter of 2009, the Company’s North American BPO segment is comprised of sales to all clients based in North America (encompassing the U.S. and Canada), while the Company’s International BPO is comprised of sales to all clients based in countries outside of North America. TeleTech revised previously reported segment information to conform to its new segments in effect as of January 1, 2009.

The Database Marketing and Consulting segment, of which the Company sold substantially all the assets and liabilities in September 2007, provided outsourced database management, direct marketing and related customer acquisitions and retention services for automobile dealerships and manufacturers in North America. On December 22, 2008, as discussed in Note 2, Newgen Results Corporation, which comprised the Database Marketing and Consulting segment, filed a voluntary petition for liquidation under Chapter 7 in the United States Bankruptcy Court for the District of Delaware. Accordingly, the Company deconsolidated Newgen Results Corporation as of December 22, 2008.

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

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

		Three Months Ended March 31,
		2009				2008
Revenue
North American BPO		$	228,886			$	273,802
International BPO			75,144				93,834
Database Marketing and Consulting			—				—
Total		$	304,030			$	367,636
Income (loss) from operations
North American BPO		$	25,427			$	32,921
International BPO			(5,086	)			(3,750	)
Database Marketing and Consulting			—				(369	)
Total		$	20,341			$	28,802

		March 31,				December 31,
		2009				2008
Assets
North American BPO		$	457,734			$	483,187
International BPO			184,250				185,755
Database Marketing and Consulting			—				—
Total		$	641,984			$	668,942

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

		Three Months Ended March 31,
		2009				2008
Revenue
United States		$	100,062			$	109,528
Latin America			57,064				76,547
Philippines			78,341				69,175
Canada			26,244				47,649
Europe			31,411				36,301
Asia Pacific / Africa			10,908				28,436
Total		$	304,030			$	367,636

The Company did not have any clients that contributed in excess of 10% of total revenue for the three months ended March 31, 2009. For the three months ended March 31, 2008, the Company had one client, Sprint Nextel, which contributed 15.6% of total revenue and had $20.4 million outstanding in accounts receivable at December 31, 2008.

The loss of one or more of its significant clients could have a material adverse effect on the 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 March 31, 2009.

Goodwill consisted of the following (amounts in thousands):

										Effect of
		December 31,								Foreign				March 31,
		2008				Impairments				Currency				2009
North American BPO		$	35,885			$	—			$	—			$	35,885
International BPO			8,265				—				(5	)			8,260
Total		$	44,150			$	—			$	(5	)		$	44,145

Under 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.

The Company enters into foreign exchange forward and option contracts to reduce its exposure to foreign currency exchange rate fluctuations that are associated with forecasted revenue in non-functional currencies. Upon proper qualification, these contracts are designated as cash flow hedges, as defined by SFAS 133. It is the Company’s policy to only enter into derivative contracts with investment grade counterparty financial institutions, and correspondingly, the derivative assets reflect the creditworthiness of these counterparties. Conversely, the derivative liabilities reflect the Company’s creditworthiness. As of March 31, 2009, the Company has not experienced, nor does it anticipate, any issues related to derivative counterparty defaults. The following table summarizes the aggregate unrealized net gain and loss in Accumulated Other Comprehensive Loss for the three months ended March 31, 2009 and 2008 (amounts in thousands and net of tax):

		Three Months Ended March 31,
		2009				2008
Aggregate unrealized net (loss) gain at beginning of year		$	(21,180	)		$	21,417
Net loss (gain) reclassified to earnings			7,808				(6,056	)
Change in fair value of cash flow hedges			(4,769	)			(2,035	)
Aggregate unrealized net (loss) gain at end of period		$	(18,141	)		$	13,326

The Company’s cash flow hedging instruments as of March 31, 2009 and December 31, 2008 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts, except as noted.

										% Maturing in
		Local Currency				U.S. Dollar				the Next 12				Contracts Maturing
As of March 31, 2009		Notional Amount				Amount				Months				Through
Canadian Dollar			78,100			$	68,088				60.2	%		December 2011
Canadian Dollar Call Options			39,000				34,628				60.8	%		December 2010
Philippine Peso			6,007,048				133,160	1			86.0	%		February 2011
Argentine Peso			75,950				21,206	2			95.3	%		May 2010
Mexican Peso			709,500				57,653				75.8	%		September 2011
South African Rand			108,500				9,940				100.0	%		February 2010
British Pound Sterling			1,535				2,554	3			49.8	%		March 2011
						$	327,229

		Local Currency				U.S. Dollar
As of December 31, 2008		Notional Amount				Amount
Canadian Dollar			88,300			$	77,865
Canadian Dollar Call Options			44,400				39,305
Philippine Peso			6,656,909				150,418	1
Argentine Peso			102,072				29,054	2
Mexican Peso			856,500				70,530
South African Rand			92,000				8,399
British Pound Sterling			1,725				2,537	3
						$	378,108

In 2008, the Company entered into foreign exchange forward contracts to hedge its net investment in a foreign operation. The aggregate notional value of this hedge was $7.0 million as of March 31, 2009. Changes in fair value of the Company’s net investment hedge are recorded in the cumulative translation adjustment in Accumulated Other Comprehensive Loss on the Consolidated Balance Sheets offsetting the change in the cumulative translation adjustment attributable to the hedged portion of the Company’s net investment in the foreign operation. Gains and losses from the settlements of the Company’s net investment hedge remain in Accumulated Other Comprehensive Loss until partial or complete liquidation of the applicable net investment.

The Company enters into foreign exchange forward contracts to hedge against translation gains and losses on certain receivables and payables of the Company’s foreign operations. Changes in the fair value of derivative instruments designated as fair value hedges, as well as the offsetting gain or loss on the hedged asset or liability, are recognized in earnings in the same line item, Other, net. As of March 31, 2009, the total notional amount of the Company’s forward contracts used as fair value hedges was $12.0 million.

In addition to hedging activities, the Company’s foreign subsidiaries in Argentina and Mexico are parties to U.S. dollar denominated lease contracts which the Company has determined contain embedded derivatives, as defined by SFAS 133. As such, the Company bifurcates the embedded derivative features of the lease contracts and values these features as foreign currency derivatives.

The Company’s derivatives as of March 31, 2009 and December 31, 2008 are as follows (amounts in thousands):

		March 31, 2009																December 31, 2008
		Designated as hedging								Not designated as hedging								Designated as hedging								Not designated as hedging
		instruments under SFAS 133								instruments under SFAS 133								instruments under SFAS 133								instruments under SFAS 133
		Foreign				Foreign				Foreign				Leases				Foreign				Foreign				Foreign				Leases
Derivative contracts:		Exchange				Exchange				Exchange				Embedded				Exchange				Exchange				Exchange				Embedded
Derivative classification:		Cash Flow				Net Investment				Fair Value				Derivative				Cash Flow				Net Investment				Fair Value				Derivative
Fair value and location of derivative in the Consolidated Balance Sheet:
Prepaids and other current assets		$	1,867			$	—			$	—			$	3			$	1,926			$	—			$	—			$	—
Other noncurrent assets			1,012				—				—				—				2,297				—				—				9
Other current liabilities			(27,856	)			(65	)			(49	)			(148	)			(30,757	)			(113	)			(44	)			(130	)
Other noncurrent liabilities			(3,351	)			—				—				(1,070	)			(6,555	)			—				—				(1,355	)
Total fair value of derivatives, net		$	(28,328	)		$	(65	)		$	(49	)		$	(1,215	)		$	(33,089	)		$	(113	)		$	(44	)		$	(1,476	)

The effect of derivative instruments on the Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008 are as follows (amounts in thousands):

		2009								2008
		Designated as hedging instruments								Designated as hedging instruments
		under SFAS 133								under SFAS 133
Derivative contracts:		Foreign Exchange				Foreign Exchange				Foreign Exchange				Foreign Exchange
Derivative classification:		Cash Flow				Net Investment				Cash Flow				Net Investment
Amount of gain or (loss) recognized in other comprehensive income – effective portion:		$	(18,141	)		$	(50	)		$	13,326			$	—
Amount and location of net gain or (loss) reclassified from accumulated OCI to income – effective portion:
Revenue		$	(7,808	)		$	—			$	6,056			$	—
Other, net			—				—				—				—
Amount and location of net gain or (loss) reclassified from accumulated OCI to income – ineffective portion and amount excluded from effectiveness testing:
Revenue		$	(35	)		$	—			$	—			$	—
Other, net			—				—				—				—

		2009								2008
		Not designated as hedging								Not designated as hedging
		instruments under SFAS 133								instruments under SFAS 133
						Leases								Leases
Derivative contracts:		Foreign Exchange				Embedded				Foreign Exchange				Embedded
Derivative classification:		Fair Value				Derivative				Fair Value				Derivative
Amount and location of net gain or (loss) recognized in the Consolidated Statement of Income:
Selling, general and administrative		$	—			$	261			$	—			$	(78	)
Other, net			374				—				746				—

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. In general, fair values determined by Level I inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability.

Derivatives – Net derivative assets (liabilities) measured at fair value on a recurring basis include the following as of March 31, 2009 (amounts in thousands):

		Fair Value Measurements Using
		Quoted Prices in								Significant
		Active Markets for				Significant Other				Unobservable
		Identical Assets				Observable Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)				At Fair Value
Cash flow hedges		$	—			$	(28,328	)		$	—			$	(28,328	)
Net investment hedges		$	—			$	(65	)		$	—			$	(65	)
Fair value hedges		$	—			$	(49	)		$	—			$	(49	)
Embedded derivatives		$	—			$	(1,215	)		$	—			$	(1,215	)
Total net derivative asset (liability)		$	—			$	(29,657	)		$	—			$	(29,657	)

The portfolio is valued using models based on market observable inputs, including both forward and spot foreign exchange rates, implied volatility, and counterparty credit risk, including the ability of each party to execute its obligations under the contract. As of March 31, 2009, credit risk did not materially change the fair value of the Company’s foreign currency forward and option contracts.

Money Market Investments – The Company invests in various well-diversified money market funds which are managed by financial institutions. These money market funds are not publicly traded, but have historically been highly liquid. The value of the money market funds is determined by the banks based upon the funds’ net asset values (“NAV”). All of the money market funds currently permit daily investments and redemptions at a $1.00 NAV.

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

Debt – The Company’s debt is reflected in the accompanying balance sheets 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 March 31, 2009, the weighted average interest rate of the Company’s Credit Facility borrowings was 1.21%. Based on the foregoing, the Company considers the fair value of outstanding borrowings to approximate the recorded value.

Deferred Compensation Plan – The Company maintains a non-qualified deferred compensation plan structured as a Rabbi trust for certain eligible employees. Participants in the deferred compensation plan select from a menu of phantom investment options for their deferral dollars offered by the Company each year, which are based upon changes in value of complimentary, defined market investments. The deferred compensation liability represents the combined values of market investments against which participant accounts are tracked.

The following is a summary of the Company’s fair value measurements as of March 31, 2009 (amounts in thousands):

		Fair Value Measurements Using
		Quoted Prices in								Significant
		Active Markets for				Significant Other				Unobservable
		Identical Assets				Observable Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)
Assets
Money market investments		$	—			$	4,764			$	—
Total assets		$	—			$	4,764			$	—
Liabilities
Derivative instruments		$	—			$	(29,657	)		$	—
Deferred compensation plan liability			—				(1,662	)			—
Total liabilities		$	—			$	(31,319	)		$	—

The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future income tax consequences of transactions that have been included in the Consolidated Financial Statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. When circumstances warrant, the Company assesses the likelihood that its net deferred tax assets will more likely than not be recovered from future projected taxable income.

The Company has protested one issue to the appeals branch of the Internal Revenue Service for an administrative resolution of one matter arising from the Company’s most recent federal tax audit for which no tax benefit has been recorded under FASB Interpretation 48, Accounting for Uncertainty in Income Taxes. The Company has been notified of the intent to audit, or is currently under audit of income taxes in Australia, Brazil, the Philippines, Malaysia and the Percepta U.S. business, for various open tax years. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company’s Consolidated Financial Statements.

As of March 31, 2009, the Company had $62.0 million of deferred tax assets (after a $29.7 million valuation allowance) and net deferred tax assets (after deferred tax liabilities) of $58.7 million related to the U.S. and international tax jurisdictions whose recoverability is dependent upon future profitability. During the first quarter 2009, the Company recorded $1.2 million of valuation allowance in the U.S. and international tax jurisdictions for deferred tax assets that do not meet the more than likely standard for recoverability.

As of December 31, 2008, the Company had $64.9 million of deferred tax assets (after a $28.9 million valuation allowance) and net deferred tax assets (after deferred tax liabilities) of $61.8 million related to the U.S. and international tax jurisdictions whose recoverability is dependent upon future profitability.

The effective tax rate for the three months ended March 31, 2009 and 2008 was 24.6% and 28.1%, respectively.

During the three months ended March 31, 2009, the Company undertook a number of restructuring activities primarily associated with reductions in the Company’s workforce in both the North American and International BPO segments to better align the workforce with current business needs.

A summary of the expenses recorded for the three months ended March 31, 2009 and 2008, respectively, is as follows (amounts in thousands):

		Three Months Ended March 31,
		2009				2008
North American BPO
Reduction in force		$	900			$	110
Facility exit charges			112				—
Revision of prior estimates			(1,135	)			—
Total		$	(123	)		$	110

		Three Months Ended March 31,
		2009				2008
International BPO
Reduction in force		$	426			$	2,157
Facility exit charges			—				—
Revision of prior estimates			—				—
Total		$	426			$	2,157

		Three Months Ended March 31,
		2009				2008
Database Marketing and Consulting
Reduction in force		$	—			$	—
Facility exit charges			—				—
Revision of prior estimates			—				(65	)
Total		$	—			$	(65	)

During the three months ended March 31, 2009, the Company determined that $0.7 million of previously recorded restructuring expense will be reimbursed from the primary client in the centers being closed, and $0.2 million previously recorded will not be paid; these amounts were reversed against restructuring charge expenses.

A roll-forward 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, 2008		$	2,113			$	—			$	2,113
Expense			112				1,325				1,437
Payments			(338	)			(1,212	)			(1,550	)
Revision of prior estimates			(1,135	)			—				(1,135	)
Balance as of March 31, 2009		$	752			$	113			$	865

$0.5 million of the remaining accrued costs are expected to be paid during 2009, with the remainder to be paid thereafter.

During the three months ended March 31, 2009, the Company recognized impairment losses of $2.0 million related to the abandonment of certain leasehold improvement assets in an International BPO facility. During the three months ended March 31, 2008, the Company did not record any impairment losses.

As of March 31, 2009, outstanding letters of credit and other performance guarantees totaled approximately $5.6 million, which primarily guarantee workers’ compensation and other insurance related obligations and facility leases.

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. If the Company elects to return the aircraft, it has guaranteed a portion of the residual value to the lessor. Although the approximate residual value guarantee is $2.1 million at lease expiration, the Company does not expect to have a liability under this lease based upon current estimates of the aircraft’s fair value at the time of lease expiration.

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.

The following table sets forth comprehensive income for the periods indicated (amounts in thousands):

		Three-Months Ended
		March 31,
		2009				2008
Net income		$	15,887			$	19,961
Foreign currency translation adjustments			(7,513	)			3,910
Derivatives valuation, net of tax			3,039				(8,091	)
Total comprehensive income		$	11,413			$	15,780
Comprehensive income attributable to noncontrolling interest			(765	)			(852	)
Comprehensive income attributable to TeleTech		$	10,648			$	14,928

The following table reconciles equity attributable to noncontrolling interest (amounts in thousands):

		Three-Months Ended
		March 31,
		2009				2008
Noncontrolling interest, January 1		$	5,011			$	3,555
Net income attributable to noncontrolling interest			824				836
Dividends distributed to noncontrolling interest			(900	)			(1,023	)
Foreign currency translation adjustments			(59	)			16
Noncontrolling interest, March 31		$	4,876			$	3,384

The following table sets forth the computation of basic and diluted shares for the periods indicated (amounts in thousands):

		Three Months Ended
		March 31,
		2009				2008
Shares used in basic earnings per share calculation			63,908				69,937
Effect of dilutive securities – Stock options			202				1,571
Effect of dilutive securities – RSUs			190				—
Shares used in dilutive earnings per share calculation			64,300				71,508

For the three months ended March 31, 2009 and 2008, options to purchase 2.7 million and 0.4 million 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 March 31, 2009 and 2008, restricted stock units (“RSUs”) of 1.0 million and zero, respectively, were outstanding, but not included in the computation of diluted net income per share because the effect would have been anti-dilutive.

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 Consolidated Statements of Operations 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.

As of March 31, 2009, there was approximately $2.3 million of total unrecognized compensation cost (including the impact of expected forfeitures as required under SFAS 123(R)) related to unvested option arrangements granted under the Company’s equity plans. 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 $1.0 million and $1.1 million for the three months ended March 31, 2009 and 2008, respectively.

During the three months ended March 31, 2009 and 2008, the Company granted 815,000 and zero RSUs, respectively, to new and existing employees, which vest in equal installments over four years. The Company recognized compensation expense related to RSUs of $2.6 million for the three months ended March 31, 2009, and $1.6 million for the three months ended March 31, 2008. As of March 31, 2009, there was approximately $34.3 million of total unrecognized compensation cost (including the impact of expected forfeitures as required under SFAS 123(R)) related to RSUs granted under the Company’s equity plans.

As of March 31, 2009 and 2008, the Company had performance-based RSUs outstanding that vest based on the Company achieving specified operating income performance targets in 2009 and 2008. The Company determined that it was not probable these performance targets would be met, therefore no expense was recognized for the three months ended March 31, 2009 and 2008.

The following discussion and analysis should be read in conjunction with our Annual Report on Form
10-K for the year ended December 31, 2008. Except for historical information, the discussion below contains certain 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, especially due to the global economic slowdown; achieving 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; the possibility of lower revenue or price pressure from our clients experiencing a business downturn or merger in their business; greater than anticipated competition in the BPO services market, causing adverse pricing and more stringent contractual terms; risks associated with losing or not renewing client relationships, particularly large client agreements, or early termination of a client agreement; the risk of losing clients due to consolidation in the industries we serve; consumers’ concerns or adverse publicity regarding our clients’ products; our ability to find cost effective locations, obtain favorable lease terms and build or retrofit facilities in a timely and economic manner; risks associated with business interruption due to weather, fires, pandemic, or 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.

This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere in this report. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business and should be read in conjunction with the more detailed cautionary statements included in our 2008 Annual Report on Form 10-K under the caption Item 1A. “Risk Factors,” our other Securities and Exchange Commission filings and our press releases.

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 communication industries.

As globalization of the world’s economy continues to accelerate, businesses are increasingly competing on a large-scale basis due to rapid advances in technology and telecommunications that permit cost-effective real-time global communications and ready access to a highly skilled worldwide labor force. As a result of these developments, companies have increasingly outsourced business processes to third-party providers in an effort to enhance or maintain their competitive position while increasing shareholder value through improved productivity and profitability.

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 increased operating efficiencies and an enhanced customer experience especially in light of the weakening global economic environment. Companies have realized that integrated business processes reduce operating costs and allow customer needs to be met more quickly and efficiently resulting in higher customer satisfaction and brand loyalty thereby improving their competitive position. A majority of our historic revenue has been derived from providing customer-facing front-office solutions to our clients. Given that our global delivery centers are also fully capable of providing back-office solutions, we are uniquely positioned to grow our revenue by winning more back-office opportunities and providing the services during non-peak hours with minimal incremental investment. Furthermore, by spreading our fixed costs across a larger revenue base and increasing our asset utilization, we expect our profitability to improve over time.
	•		Increasing percentage of company operations being outsourced to most capable third-party providers. Having experienced success with outsourcing a portion of their business processes, companies are increasingly inclined to outsource a larger percentage of this work. We believe companies will continue to consolidate their business processes with third-party providers, such as TeleTech, who are financially stable and able to invest in their business while also demonstrating an extensive global operating history and an ability to cost effectively scale to meet their evolving needs.
	•		Increasing adoption of outsourcing across broader groups of industries. Early adopters of the business process outsourcing trend, such as the media and communications industries, are being joined by companies in other industries, including healthcare, retail and financial services. These companies are beginning to adopt outsourcing to improve their business processes and competitiveness. For example, we have seen an increase in interest of our services for companies in the healthcare, retail and financial services industries. We believe the number of other industries that will adopt or increase their level of outsourcing will continue to grow, further enabling us to increase and diversify our revenue and client base.
	•		Focus on speed-to-market by companies launching new products or entering new geographic locations. As companies broaden their product offerings and seek to enter new emerging markets, they are looking for outsourcing providers that can provide speed-to-market while reducing their capital and operating risk. To achieve these benefits, companies are seeking BPO providers with an extensive operating history, an established global footprint, the financial strength to invest in innovation to deliver more strategic capabilities and the ability to scale and meet customer demands quickly. Given our financial stability, geographic presence in 17 countries and our significant investment in standardized technology and processes, clients increasingly select TeleTech because we can quickly ramp large, complex business processes around the globe in a short period of time while assuring a high-quality experience for our client’s 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 homes. This capability has enhanced the flexibility of our offering allowing clients to choose our onshore, offshore or work from home employees to meet their outsourced business process needs. In addition, we have begun to offer ‘hosted services’ where clients can license any aspect of our global network and proprietary applications. While the revenue from these offerings is small relative to our consolidated revenue, we believe it will continue to grow as these services become more widely adopted by our clients. We aim to further improve our competitive position by investing in a growing suite of new and innovative business process services across our targeted industries.

Our business strategy to increase revenue, profitability and our industry position includes the following elements:

	•		Deepen and broaden our relationships with existing clients;
	•		Win business with new clients and focus on targeted industries where we expect accelerating adoption of business process outsourcing;
	•		Continue to invest in innovative proprietary technology and new business offerings;
	•		Continue to improve our operating margins through increased asset utilization of our globally diverse centers; and
	•		Selectively pursue acquisitions that extend our capabilities, geographic reach and/or industry expertise.

Our First Quarter 2009 Financial Results

In 2009, our first quarter revenue decreased 17.3% to $304.0 million over the year-ago period, which includes a decrease of $35.9 million due to fluctuations in foreign currency rates. Our first quarter 2009 income from operations decreased 29.4% to $20.3 million or 6.7% of revenue in 2009 from $28.8 million or 7.8% of revenue in the year-ago period. This decrease is due to softness of existing client volumes in light of the current global recessionary economic environment and the continued migration of several of our clients to our offshore delivery centers. Income from operations in 2009 and 2008 included $2.3 million and $2.2 million of asset impairment and restructuring charges, respectively. Excluding these charges, our income from operations in 2009 decreased 27.1% to $22.6 million or 7.4% of revenue from $31.0 million or 8.4% of revenue in 2008 excluding similar items.

We have experienced growth in our offshore delivery centers, which primarily serve clients located in other countries. Our offshore delivery capacity now spans seven countries with approximately 25,400 workstations and currently represents 67% of our global delivery capabilities. Revenue in these offshore locations was $146 million and grew to 48% of our total revenue in the first quarter of 2009. While historically it was primarily US-based clients that were willing to utilize our offshore delivery capabilities, we have increasingly seen clients in Europe and Asia Pacific willing to utilize our offshore delivery capabilities and expect this trend to continue with clients in other countries. In light of this trend, we plan to continue to selectively expand into new offshore markets. For example, we believe we are one of the first multi-national BPO providers to enter the African continent. As we grow our offshore delivery capabilities and our exposure to foreign currency fluctuations increase, we continue to actively manage this risk via a multi-currency hedging program designed to minimize operating margin volatility.

Our strong financial position due to our cash flow from operations and low debt levels allowed us to finance a significant portion of our capital needs and stock repurchases through internally generated cash flows. At March 31, 2009, we had $91.2 million of cash and cash equivalents and a total debt to total capitalization ratio of 13.1%.

Business Overview

Our BPO business provides outsourced business process and customer management services for a variety of industries through global delivery centers. Effective January 1, 2009, we completed certain organizational changes focused on streamlining the structure of our organization to more closely align our reporting structure with our client base and increase management accountability. Beginning in the first quarter of 2009, our North American BPO segment is comprised of sales to all clients based in North America (encompassing the U.S. and Canada), while our International BPO is comprised of sales to all clients based in all countries outside of North America. TeleTech revised previously reported operating segment information to conform to its new operating segments in effect as of January 1, 2009.

BPO Services

The BPO business generates revenue based primarily on the amount of time our associates devote to a client’s program. We primarily focus on large global corporations in the following industries: automotive, cable, financial services, government, healthcare, logistics, media and entertainment, retail, technology, travel and leisure and wireline and wireless telecommunications. Revenue is recognized as services are provided. The majority of our revenue is from multi–year contracts, and we expect that trend to continue. However, we do provide certain client programs on a short–term basis.

We have historically experienced annual attrition of existing client programs of approximately 7% to 15% of our revenue. Attrition of existing client programs during the first three months of 2009 was 2%, which is lower than the three months ended March 31, 2008. 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.

Our goal in both the North American and the International BPO segments is to improve our revenue and profitability by:

•

Capitalizing on the favorable trends in the global outsourcing environment, which we believe will include more companies that want to:

	–		Adopt or increase BPO services;
	–		Consolidate outsourcing providers with those that have a solid financial position, capital resources to sustain a long-term relationship and globally diverse delivery capabilities across a broad range of solutions;
	–		Modify their approach to outsourcing based on total value delivered versus the lowest priced provider; and
	–		Better integrate front- and back-office processes.

	•		Deepening and broadening relationships with existing clients;
	•		Winning business with new clients and focusing on targeted high growth industry verticals;
	•		Continuing to diversify revenue into higher-margin offerings such as professional services, talent acquisition, learning services and our hosted TeleTech OnDemand™ capabilities;

	•		Increasing capacity utilization during peak and non-peak hours;
	•		Scaling our work-from-home initiative to increase operational flexibility; and
	•		Completing select acquisitions that extend our core BPO capabilities or vertical expertise.

Our ability to renew or enter into new multi-year contracts, particularly large complex opportunities, is dependent upon the macroeconomic environment in general and the specific industry environments in which our clients operate. A continued weakening of the U.S. or the global economy could lengthen sales cycles or cause delays in closing new business opportunities.

Our potential clients typically obtain bids from multiple vendors and evaluate many factors in selecting a service provider, including, among other factors, the scope of services offered, the service record of the vendor and price. We generally price our bids with a 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 our being successful in certain competitive bid situations, there are often situations where a potential client may prefer a lower cost.

Our industry is labor intensive and the majority of our operating costs relate to wages, employee benefits and employment taxes. An improvement in the local or global economies where our delivery centers are located could lead to increased labor related costs. In addition, our industry experiences high personnel turnover and the length of training time required to implement new programs continues to increase due to increased complexities of our clients’ businesses. This may create challenges if we obtain several significant new clients or implement several new, large scale programs and need to recruit, hire and train qualified personnel at an accelerated rate.

As discussed above, to some extent our profitability is influenced by the number of new client programs entered into within the period. For new programs we defer revenue related to initial training (“Training Revenue”) when training is billed as a separate component from production rates. Consequently, the corresponding training costs associated with this revenue, consisting primarily of labor and related expenses (“Training Costs”), are also deferred. In these circumstances, both the Training Revenue and Training Costs are amortized straight-line over the life of the contract. In situations where Training Revenue is not billed separately, but rather included in the production rates, there is no deferral as all revenue is recognized over the life of the contract and the associated training expenses are expensed as incurred. As of March 31, 2009, we had deferred start-up training revenue, net of costs, of $8.1 million that will be recognized into our income from operations over the remaining life of the corresponding contracts (approximately 16 months).

We may have difficulties managing the timeliness of launching new or expanded client programs and the associated internal allocation of personnel and resources. This could cause slower than anticipated revenue growth and/or higher than expected costs primarily related to hiring, training and retaining the required workforce, either of which could adversely affect our operating results.

Quarterly, we review our capacity utilization and projected demand for future capacity. In conjunction with these reviews, we may decide to consolidate or close under-performing delivery centers, including those impacted by the loss of a client program, in order to maintain or improve targeted utilization and margins. In addition, because clients may request that we serve their customers from international delivery centers with lower prevailing labor rates, in the future, we may decide to close one or more of our delivery centers, even though it is generating positive cash flow, because we believe that the future profits from conducting such work outside the current delivery center may more than compensate for the one-time charges related to closing the facility.

Our profitability is influenced by our ability to increase capacity utilization in our delivery centers. We attempt to minimize the financial impact resulting from idle capacity when planning the development and opening of new delivery centers or the expansion of existing delivery centers. As such, management considers numerous factors that affect capacity utilization, including anticipated expirations, reductions, terminations, or expansions of existing programs and the potential size and timing of new client contracts that we expect to obtain.

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

We internally target capacity utilization in our delivery centers at 80% to 90% of our available workstations. As of March 31, 2009, the overall capacity utilization in our multi–client centers was 71% and is lower than the prior year due to softness of existing client volumes in light of the current global recessionary economic environment and the continued migration of several of our current clients to our off shore delivery centers. The table below presents workstation data for our multi–client centers as of March 31, 2009 and 2008. Dedicated and managed centers (8,565 and 9,948 workstations as of March 31, 2009 and 2008, respectively) are excluded from the workstation data as unused workstations in these facilities are not available for sale to other clients. Our utilization percentage is defined as the total number of utilized production workstations compared to the total number of available production workstations. We may change the designation of shared or dedicated centers based on the normal changes in our business environment and client needs.

		March 31, 2009												March 31, 2008
		Total												Total
		Production												Production
		Workstations				In Use				% In Use				Workstations				In Use				% In Use
Multi-client centers
Sites open <1 year			4,748				2,438				51	%			5,387				2,885				54	%
Sites open >1 year			24,478				18,374				75	%			22,533				18,220				81	%
Total multi-client centers			29,226				20,812				71	%			27,920				21,105				76	%

Recent Issued Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for a discussion of recently issued accounting pronouncements.

Critical Accounting Policies and Estimates

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

Revenue Recognition

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

Our BPO segments recognize revenue under three models:

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

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

Hybrid – Hybrid models include production rate and performance-based elements. For these types of arrangements, we allocate revenue to the elements based on the relative fair value of each element. Revenue for each element is recognized based on the methods described above.

Certain client programs provide for adjustments to monthly billings based upon whether we meet or exceed certain performance criteria as set forth in the contract. Increases or decreases to monthly billings arising from such contract terms are reflected in revenue as earned or incurred.

Periodically, we make certain expenditures related to acquiring contracts or provide up-front discounts for future services to existing clients (recorded as Contract Acquisition Costs in the accompanying Consolidated Balance Sheets). Those expenditures are capitalized and amortized in proportion to the expected future revenue from the contract, which in most cases results in 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 Consolidated Financial Statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. When circumstances warrant, we assess the likelihood that our net deferred tax assets will more likely than not be recovered from future projected taxable income.

As required by SFAS 109, we continually review the likelihood that deferred tax assets will be realized in future tax periods under the “more likely than not” criterion. In making this judgment, SFAS 109 requires that all available evidence, both positive and negative, should be considered in determining whether, based on the weight of that evidence, a valuation allowance is required.

The FASB recently issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”), an interpretation of SFAS 109. FIN 48 became effective in 2007. FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS 109. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors including changes in facts or circumstances, changes in applicable tax law, and settlement of issues under audit. We recognize interest and penalties related to uncertain tax positions in Provision for Income Taxes in our Consolidated Statements of Operations. See Note 8 to the Consolidated Financial Statements for a discussion of the impact FIN 48 has had on our Consolidated Financial Statements.

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.

We have established an allowance for doubtful accounts to reserve for uncollectible accounts receivable. Each quarter, management reviews the receivables on an account-by-account basis and assigns a probability of collection. Management’s judgment is used in assessing the probability of collection. Factors considered in making this judgment include, among other things, the age of the identified receivable, client financial condition, previous client payment history and any recent communications with the client.

We evaluate the carrying value of property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carry amount may not be recoverable in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. An asset is considered to be impaired when the anticipated undiscounted future cash flows of an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates.

We assess the realizability of goodwill annually and whenever events or changes in circumstances indicate it may be impaired. 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. We aggregate segment components with similar economic characteristics in forming a reporting unit; aggregation can be based on types of customers, methods of distribution of services, shared operations, acquisition history, and management judgment and reporting.

We 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.

We adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”) using the modified prospective transition method effective in our first quarter of 2006. Under SFAS 123(R) the estimated fair value of equity-based awards is charged against income over the requisite service period, which is generally the vesting period.

We record a liability in accordance with SFAS No. 5 Accounting for Contingencies for pending litigation and claims where losses are both probable and reasonably estimable. Each quarter, management reviews all litigation and claims on a case-by-case basis and assigns probability of loss and range of loss.

Cost of services principally include costs incurred in connection with our BPO operations and database marketing services, including direct labor, telecommunications, printing, postage, sales and use tax and certain fixed costs associated with delivery centers. In addition, cost of services includes income related to grants we may receive from local or state governments as an incentive to locate delivery centers in their jurisdictions which reduce the cost of services for those facilities.

Selling, general and administrative 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 expense for non–delivery center facilities and other items associated with general business administration.

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

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

The main component of other income is miscellaneous receipts not directly related to our operating activities, such as foreign exchange transaction gains.

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

Presentation of Non-GAAP Measurements

Free Cash Flow

Free cash flow is a non-GAAP liquidity measurement. We believe that free cash flow is useful to our investors because it measures, during a given period, the amount of cash generated that is available for debt obligations and investments other than purchases of property, plant and equipment. Free cash flow is not a measure determined by GAAP and should not be considered a substitute for “income from operations,” “net income,” “net cash provided by operating activities,” or any other measure determined in accordance with GAAP. We believe this non-GAAP liquidity measure is useful, in addition to the most directly comparable GAAP measure of “net cash provided by operating activities,” because free cash flow includes investments in operational assets. Free cash flow does not represent residual cash available for discretionary expenditures, since it includes cash required for debt service. Free cash flow also 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
		March 31,
		2009				2008
Free cash flow		$	45,556			$	10,990
Purchases of property, plant and equipment			8,455				15,185
Net cash provided by operating activities		$	54,011			$	26,175

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

Non-GAAP Income from Operations

We discuss our income from operations for the three months ended March 31, 2009 and 2008 excluding asset impairment and restructuring charges, and costs associated with our equity-based compensation review and financial restatement, which is a non-GAAP financial measure. We believe this measure provides meaningful supplemental information by indentifying matters that are not indicative of core business operating results or are of a substantially non-recurring nature. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is included with the presentation of the non-GAAP financial measure.

Non-GAAP Effective Tax Rate

The effective tax rate for the periods ended March 31, 2009 and 2008 is discussed using non-GAAP financial measures that exclude the effects of amounts associated with restructuring and asset impairments charges, the release of valuation allowances and reduction in our FIN 48 tax liability, gains/losses from the dispositions of assets, and changes due to certain tax planning and corporate restructuring activities. Management believes that it is helpful to exclude these effects to better understand and analyze the periods’ effective tax rate given the discrete nature of these items. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure is included with the presentation of the non-GAAP financial measures.

Results of Operations

Three Months Ended March 31, 2009 As Compared to Three Months Ended March 31, 2008

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 March 31, 2009 and 2008 (amounts in thousands). We allocate to each segment its portion of corporate operating expenses. All inter–company transactions between the reported segments for the periods presented have been eliminated.

		Three-Months Ended March 31,
						% of								% of
						Segment								Segment
		2009				Revenue				2008				Revenue				$ Change				% Change
Revenue
North American BPO		$	228,886				75.3	%		$	273,802				74.5	%		$	(44,916	)			-16.4	%
International BPO			75,144				24.7	%			93,834				25.5	%			(18,690	)			-19.9	%
Database Marketing and Consulting			—				0.0	%			—				0.0	%			—				0.0	%
		$	304,030				100.0	%		$	367,636				100.0	%		$	(63,606	)			-17.3	%
Cost of services
North American BPO		$	157,693				68.9	%		$	193,162				70.5	%		$	(35,469	)			-18.4	%
International BPO			61,149				81.4	%			76,901				82.0	%			(15,752	)			-20.5	%
Database Marketing and Consulting			—				0.0	%			37				0.0	%			(37	)			-100.0	%
		$	218,842				72.0	%		$	270,100				73.5	%		$	(51,258	)			-19.0	%
Selling, general and administrative
North American BPO		$	35,699				15.6	%		$	36,774				13.4	%		$	(1,075	)			-2.9	%
International BPO			12,816				17.1	%			14,210				15.1	%			(1,394	)			-9.8	%
Database Marketing and Consulting			—				0.0	%			388				0.0	%			(388	)			-100.0	%
		$	48,515				16.0	%		$	51,372				14.0	%		$	(2,857	)			-5.6	%
Depreciation and amortization
North American BPO		$	10,190				4.5	%		$	10,835				4.0	%		$	(645	)			-6.0	%
International BPO			3,872				5.2	%			4,316				4.6	%			(444	)			-10.3	%
Database Marketing and Consulting			—				0.0	%			9				0.0	%			(9	)			-100.0	%
		$	14,062				4.6	%		$	15,160				4.1	%		$	(1,098	)			-7.2	%
Restructuring charges, net
North American BPO		$	(123	)			-0.1	%		$	110				0.0	%		$	(233	)			-211.8	%
International BPO			426				0.6	%			2,157				2.3	%			(1,731	)			-80.3	%
Database Marketing and Consulting			—				0.0	%			(65	)			0.0	%			65				-100.0	%
		$	303				0.1	%		$	2,202				0.6	%		$	(1,899	)			-86.2	%
Impairment losses
North American BPO		$	—				0.0	%		$	—				0.0	%		$	—				100.0	%
International BPO			1,967				2.6	%			—				0.0	%			1,967				0.0	%
Database Marketing and Consulting			—				0.0	%			—				0.0	%			—				0.0	%
		$	1,967				0.6	%		$	—				0.0	%		$	1,967				100.0	%
Income (loss) from operations
North American BPO		$	25,427				11.1	%		$	32,921				12.0	%		$	(7,494	)			-22.8	%
International BPO			(5,086	)			-6.8	%			(3,750	)			-4.0	%			(1,336	)			35.6	%
Database Marketing and Consulting			—				0.0	%			(369	)			0.0	%			369				100.0	%
		$	20,341				6.7	%		$	28,802				7.8	%		$	(8,461	)			-29.4	%
Other income (expense), net		$	726				0.2	%		$	(1,048	)			-0.3	%		$	1,774				169.3	%
Provision for income taxes		$	(5,180	)			-1.7	%		$	(7,793	)			-2.1	%		$	2,613				33.5	%