TTEC Holdings, Inc. - Quarter Report: 2011 September (Form 10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2011

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

For the transition period from to

Commission File Number 001-11919

TeleTech Holdings, Inc.
(Exact name of registrant as specified in its charter)


Delaware		84-1291044
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
9197 South Peoria Street Englewood, Colorado 80112 (Address of principal executive offices)
Registrant's telephone number, including area code: (303) 397-8100

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 ý 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 ý No o

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


Large accelerated filer o		Accelerated filer ý
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 ý

As of October 27, 2011, there were 56,173,894 shares of the registrant's common stock outstanding.

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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2011 FORM 10-Q
TABLE OF CONTENTS

			Page No.

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010	1
		Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (unaudited)	2
		Consolidated Statement of Equity as of and for the nine months ended September 30, 2011 (unaudited)	3
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited)	4
		Notes to the Unaudited Consolidated Financial Statements	5
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
	Item 4.	Controls and Procedures	41
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	42
	Item 1A.	Risk Factors	42
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
	Item 3.	Defaults Upon Senior Securities	43
	Item 4.	Reserved	43
	Item 5.	Other Information	43
	Item 6.	Exhibits	44
SIGNATURES			45
EXHIBIT INDEX			46

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

				September 30, 2011			December 31, 2010

				(Unaudited)
ASSETS
Current assets
	Cash and cash equivalents			$	169,809		$	119,385
	Accounts receivable, net				265,598			233,706
	Prepaids and other current assets				40,068			38,486
	Deferred tax assets, net				20,180			8,770
	Income tax receivable				28,839			23,869

		Total current assets			524,494			424,216
Long-term assets
	Property, plant and equipment, net				92,379			105,528
	Goodwill				73,990			52,707
	Contract acquisition costs, net				2,072			2,782
	Deferred tax assets, net				33,729			37,944
	Other long-term assets				56,465			37,446

		Total long-term assets			258,635			236,407

		Total assets		$	783,129		$	660,623

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Accounts payable			$	21,401		$	23,599
	Accrued employee compensation and benefits				73,008			72,406
	Other accrued expenses				27,755			40,682
	Income taxes payable				8,416			23,175
	Deferred tax liabilities, net				1,712			2,235
	Deferred revenue				16,063			5,570
	Other current liabilities				9,181			4,584

		Total current liabilities			157,536			172,251
Long-term liabilities
	Line of credit				130,300			–
	Negative investment in deconsolidated subsidiary				76			76
	Deferred tax liabilities, net				3,294			3,559
	Deferred rent				7,243			10,363
	Other long-term liabilities				29,949			19,556

		Total long-term liabilities			170,862			33,554

		Total liabilities			328,398			205,805

Commitments and contingencies (Note 10)
Stockholders' equity
	Preferred stock – $0.01 par value: 10,000,000 shares authorized; zero shares outstanding as of September 30, 2011 and December 31, 2010				–			–
	Common stock – $0.01 par value; 150,000,000 shares authorized; 56,336,610 and 57,875,269 shares outstanding as of September 30, 2011 and December 31, 2010, respectively				563			579
	Additional paid-in capital				348,519			349,157
	Treasury stock at cost: 25,715,643 and 24,179,176 shares as of September 30, 2011 and December 31, 2010, respectively				(360,815	)		(322,946	)
	Accumulated other comprehensive income				888			20,334
	Retained earnings				454,663			396,602
	Noncontrolling interest				10,913			11,092

		Total stockholders' equity			454,731			454,818

			Total liabilities and stockholders' equity	$	783,129		$	660,623

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

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

			Three Months Ended September 30,						Nine Months Ended September 30,

			2011			2010			2011			2010
Revenue			$	304,235		$	271,005		$	878,850		$	814,458
Operating expenses
	Cost of services (exclusive of depreciation and amortization presented separately below)			220,795			193,996			630,274			586,808
	Selling, general and administrative			43,445			40,572			138,529			123,721
	Depreciation and amortization			11,807			12,452			34,828			38,122
	Restructuring charges, net			1,616			3,579			2,298			6,352
	Impairment losses			–			327			230			1,006

		Total operating expenses		277,663			250,926			806,159			756,009

Income from operations				26,572			20,079			72,691			58,449
Other income (expense)
	Interest income			896			571			2,282			1,631
	Interest expense			(1,143	)		(696	)		(3,814	)		(2,212	)
	Other income (expense), net			(386	)		7,420			(647	)		7,997

		Total other income (expense)		(633	)		7,295			(2,179	)		7,416

Income before income taxes				25,939			27,374			70,512			65,865
Benefit from (provision for) income taxes				496			(7,586	)		(9,482	)		(17,711	)

Net income				26,435			19,788			61,030			48,154
Net income attributable to noncontrolling interest				(1,064	)		(1,118	)		(2,969	)		(2,795	)

Net income attributable to TeleTech shareholders			$	25,371		$	18,670		$	58,061		$	45,359

Weighted average shares outstanding
	Basic			56,476			59,808			56,790			60,926
	Diluted			57,748			61,028			58,173			62,258
Net income per share attributable to TeleTech shareholders
	Basic		$	0.45		$	0.31		$	1.02		$	0.74
	Diluted		$	0.44		$	0.31		$	1.00		$	0.73

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

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

		Stockholders' Equity of the Company

		Preferred Stock				Common Stock												Accumulated Other Comprehensive Income (Loss)
		Preferred Stock				Common Stock						Treasury Stock			Additional Paid-in Capital						Retained Earnings		Noncontrolling interest			Total Equity
		Shares		Amount		Shares			Amount			Treasury Stock			Additional Paid-in Capital						Retained Earnings		Noncontrolling interest			Total Equity

Balance as of December 31, 2010			–	$	–		57,875		$	579		$	(322,946	)	$	349,157		$	20,334		$	396,602	$	11,092		$	454,818
	Net income		–		–		–			–			–			–			–			58,061		2,969			61,030
	Dividends distributed to noncontrolling interest		–		–		–			–			–			–			–			–		(2,783	)		(2,783	)
	Foreign currency translation adjustments		–		–		–			–			–			–			(9,366	)		–		(365	)		(9,731	)
	Derivatives valuation, net of tax		–		–		–			–			–			–			(10,414	)		–		–			(10,414	)
	Vesting of restricted stock units issued out of treasury		–		–		452			4			6,187			(10,958	)		–			–		–			(4,767	)
	Exercise of stock options		–		–		1,036			10			14,281			(5,763	)		–			–		–			8,528
	Excess tax benefit from equity-based awards		–		–		–			–			–			4,520			–			–		–			4,520
	Equity-based compensation expense		–		–		–			–			–			11,563			–			–		–			11,563
	Purchases of common stock		–		–		(3,026	)		(30	)		(58,337	)		–			–			–		–			(58,367	)
	Other		–		–		–			–			–			–			334			–		–			334

Balance as of September 30, 2011			–	$	–		56,337		$	563		$	(360,815	)	$	348,519		$	888		$	454,663	$	10,913		$	454,731

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

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

					Nine Months Ended September 30,

					2011			2010
Cash flows from operating activities
	Net income				$	61,030		$	48,154
	Adjustment to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				34,828			38,122
		Amortization of contract acquisition costs				1,448			4,806
		Amortization of debt issuance costs and other				435			447
		Accretion expense				649			60
		Provision for doubtful accounts				301			642
		Gain on disposal of assets				(351	)		(482	)
		Impairment losses				230			1,006
		Deferred income taxes				5,582			2,757
		Excess tax benefit from equity-based awards				(756	)		–
		Equity-based compensation expense				11,563			9,976
		Loss (gain) on foreign currency derivatives				966			(994	)
		Gain on Newgen legal settlement, net of tax				–			(3,542	)
		Changes in assets and liabilities, net of acquisition:
			Accounts receivable			(26,332	)		24,461
			Prepaids and other assets			(13,459	)		18,882
			Accounts payable and accrued expenses			(28,302	)		(11,129	)
			Deferred revenue and other liabilities			(8,330	)		(13,210	)

				Net cash provided by operating activities		39,502			119,956
Cash flows from investing activities
	Proceeds from sale of property, plant and equipment					2,197			–
	Purchases of property, plant and equipment					(21,166	)		(17,391	)
	Payment of contract acquisition costs					(738	)		–
	Investment in deconsolidated subsidiary					–			(3,600	)
	Acquisitions, net of cash acquired of $14					(45,787	)		–

		Net cash used in investing activities				(65,494	)		(20,991	)
Cash flows from financing activities
	Proceeds from line of credit					556,800			745,700
	Payments on line of credit					(426,500	)		(745,700	)
	Payments on capital lease obligations and equipment financing					(1,646	)		(3,167	)
	Dividends distributed to noncontrolling interest					(2,783	)		(3,015	)
	Proceeds from exercise of stock options					8,528			1,117
	Excess tax benefit from equity-based awards					5,276			143
	Purchase of treasury stock					(58,367	)		(48,319	)
	Payments of debt issuance costs					(22	)		–

		Net cash provided by (used in) financing activities				81,286			(53,241	)
Effect of exchange rate changes on cash and cash equivalents						(4,870	)		4,003

Increase in cash and cash equivalents						50,424			49,727
Cash and cash equivalents, beginning of period						119,385			109,424

Cash and cash equivalents, end of period					$	169,809		$	159,151

Supplemental disclosures
	Cash paid for interest				$	2,908		$	1,514

	Cash paid for income taxes				$	16,710		$	11,916

Non-cash investing and financing activities
	Acquisition of equipment through installment purchase agreements				$	–		$	186

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

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

(1) OVERVIEW AND BASIS OF PRESENTATION

Overview

TeleTech Holdings, Inc. and its subsidiaries ("TeleTech" or the "Company") serve their clients through the primary businesses of Business Process Outsourcing ("BPO"), which provides outsourced business process, customer management, hosted technology, premise based technology, consulting and marketing services for a variety of industries via operations in the U.S., Argentina, Australia, Belgium, Brazil, Canada, China, Costa Rica, England, Germany, Ghana, Kuwait, Ireland, Lebanon, Mexico, New Zealand, Northern Ireland, the Philippines, Scotland, South Africa, Spain, Turkey and the United Arab Emirates.

Basis of Presentation

The Consolidated Financial Statements are comprised of the accounts of TeleTech, its wholly owned subsidiaries, its 55% equity owned subsidiary Percepta, LLC, and its 80% interest in Peppers & Rogers Group ("PRG") which was acquired on November 30, 2010 (see Note 2 for additional information). All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. ("GAAP"), pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of September 30, 2011, and the consolidated results of operations of the Company for the three and nine months ended September 30, 2011 and 2010, and the cash flows of the Company for the nine months ended September 30, 2011 and 2010. Operating results for the nine months ended September 30, 2010 included a $2.0 million reduction to revenue for disputed service delivery issues which occurred in 2009. Operating results for the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

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, 2010.

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates including those related to derivatives and hedging activities, income taxes including the valuation allowance for deferred tax assets, self-insurance reserves, litigation reserves, restructuring reserves, allowance for doubtful accounts and valuation of goodwill, long-lived and intangible assets. In the three months ended September 30, 2011, the Company recorded a reduction of $2.8 million to its variable accrued incentive compensation liability. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ materially from these estimates under different assumptions or conditions.

Recently Issued Accounting Pronouncements

Effective January 1, 2011, the Company adopted new revenue guidance that requires an entity to apply the relative selling price allocation method in order to estimate a selling price for all units of accounting, including delivered items when vendor-specific objective evidence or acceptable third-party evidence

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

does not exist. The adoption of this standard did not have a material impact on the Company's results of operations, financial position, or cash flows.

In December 2010, the FASB issued new guidance related to goodwill impairment testing. The new guidance clarifies the requirements of when to perform step 2 of impairment testing for goodwill for reporting units with zero or negative carrying amounts. The Company adopted this guidance on January 1, 2011 and it did not have a material impact on the Company's results of operations, financial position, or cash flows because the Company has not historically had or is expected to have a reporting unit with goodwill and a zero or negative carrying amount.

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

In June 2011, the FASB amended its guidance on the presentation of comprehensive income. Under the amended guidance, an entity has the option to present comprehensive income in either one or two consecutive financial statements. A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income. In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The option under current guidance that permits the presentation of other comprehensive income in the statement of changes in stockholders' equity has been eliminated. The amendment becomes effective retrospectively for the Company's interim period ending March 31, 2012. Early adoption is permitted.

In September 2011, the FASB amended its guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under the current accounting standards. This guidance will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption of this amended guidance is permitted. The Company will early adopt this amended guidance and will apply a more qualitative assessment for its annual goodwill impairment test to be performed December 1, 2011. The Company does not expect this guidance to have a material impact on its financial position, result of operations or cash flows.

(2) ACQUISITIONS

eLoyalty

On May 28, 2011, the Company acquired certain assets and assumed certain liabilities of eLoyalty Corporation ("eLoyalty"), related to the Integrated Contract Solutions ("ICS") business unit, and the eLoyalty trade name. The ICS business unit focuses on helping clients improve customer service business performance through the implementation of a variety of service centers. ICS generates revenue in three ways: 1) managed services that support and maintain clients' customer service center environment over the long-term; 2) consulting services that assist the customer in implementation and integration of a customer service center solution; and 3) product resale through the sale of third party software and hardware. eLoyalty operates out of an office in Austin, TX with an additional administrative location in Chicago, IL and has approximately 160 employees.

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

The up-front cash consideration was $40.9 million, subject to certain balance sheet adjustments of ($3.0) million as defined in the purchase and sale agreement, for a total purchase price of $37.9 million.

As of September 30, 2011, TeleTech had paid the total net purchase price of $37.9 million. The Company recognized $0.3 million of acquisition related expenses as part of the eLoyalty purchase. These costs were recorded in Selling, general and administrative expense in the accompanying Consolidated Statements of Operations during the nine months ended September 30, 2011.

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

	Preliminary Estimates of Acquisition Date Fair Value

Cash	$	14
Accounts Receivable		7,702
Prepaid assets – cost deferrals		14,726
Property, plant and equipment		897
Other assets		869
Deferred tax asset		3,253
Customer relationships		11,700
Software		1,200
Noncompete agreements		900
Trademark		600
Consulting services backlog		500
Goodwill		21,614

		63,975
Accounts payable		2,156
Accrued expenses		1,211
Deferred revenue		22,525
Other		192

		26,084


Total purchase price	$	37,891

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

Peppers & Rogers Group

On November 30, 2010, the Company acquired an 80% interest in Peppers & Rogers Group. PRG is a leading global management consulting firm specializing in customer-centric strategies for Global 1000 companies and is recognized as a leading authority on customer-based strategies with a deep understanding of the most powerful levers that drive customer loyalty and business results. PRG currently operates offices on six continents across the globe, including headquarters in Stamford,

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

Connecticut, and Istanbul, Turkey, along with regional offices in Belgium, Germany, United Arab Emirates, South Africa, Lebanon and Kuwait. PRG has approximately 150 employees.

The up-front cash consideration paid was $15.0 million plus a working capital adjustment of $7.9 million as defined in the purchase and sale agreement. The working capital adjustment due to PRG former owners was paid during the nine months ended September 30, 2011. An additional $5.0 million payment is due on March 1, 2012. This $5.0 million payment was recognized at fair value using a discounted cash flow approach with a discount rate of 18.4%. This measurement is based on significant inputs not observable in the market, which are deemed to be Level 3 inputs. The fair value on the date of acquisition was approximately $4.4 million and was included in Other long-term liabilities in the Consolidated Balance Sheets as of December 31, 2010. The fair value as of September 30, 2011 was $4.9 million and was included in Other current liabilities in the Consolidated Balance Sheets as of September 30, 2011. This value will be accreted up to the $5.0 million payment using the effective interest rate method.

The purchase and sale agreement includes a contingent consideration arrangement that requires additional consideration to be paid in 2013 if PRG achieves a specified fiscal year 2012 earnings before interest, taxes depreciation and amortization ("EBITDA") target. The range of the undiscounted amounts the Company could pay under the contingent consideration agreement is between zero and $5.0 million. The fair value of the contingent consideration recognized on the acquisition date was zero and was estimated by applying the income approach. This measure is based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include (i) a discount rate of 30.6% percent and (ii) probability adjusted level of EBITDA between $9.0 million and $12.6 million. As of September 30, 2011, the fair value of the contingent consideration remains zero.

The fair value of the 20% noncontrolling interest of $6.0 million in PRG was estimated by applying a market approach. This fair value measurement is based on significant inputs not observable in the market (Level 3 inputs). The fair value estimates are based on assumed financial multiples of companies deemed similar to PRG, and assumed adjustments because of the lack of control or lack of marketability that market participants would consider when estimating fair value of the noncontrolling interest in PRG.

The purchase and sale agreement also included an option for the Company to acquire the remaining 20% interest in PRG exercisable in 2015 for a period of one year, with a one year extension (the "Initial Exercise Period"). If the Company does not acquire the remaining 20% of PRG pursuant to its call option during the Initial Exercise Period, PRG has an option to purchase the Company's 80% interest in PRG. The exercise price is based on a multiple of EBITDA as defined in the purchase and sale agreement.

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

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

	Preliminary Estimates of Acquisition Date Fair Value

Cash	$	2,202
Accounts Receivable		16,475
Property, plant and equipment		322
Other assets		847
Customer relationships		9,300
Trade name		6,400
Goodwill		7,295

		42,841
Accounts payable		1,519
Accrued expenses		1,967
Deferred tax liability		3,690
Deferred revenue		660
Line of credit		570
Other		1,562

		9,968
Noncontrolling interest		6,000


Total purchase price	$	26,873

The goodwill recognized from the PRG acquisition is attributable primarily to the assembled workforce of PRG, expected synergies, and other factors. None of the goodwill is deductible for income tax purposes. The operating results of PRG are reported within the International BPO segment from the date of acquisition.

The acquired businesses contributed revenues of $25.4 million and $50.4 million and income from operations of $1.5 million and $3.7 million to the Company for the three and nine months ended September 30, 2011, respectively.

(3) SEGMENT INFORMATION

The Company's BPO business provides outsourced business process, consulting, technology services and customer management services for a variety of industries through global delivery centers and represents 100% of total annual revenue. The Company's North American BPO segment is comprised of sales to clients based in North America (encompassing the U.S. and Canada), while the Company's International BPO segment is comprised of sales to clients based in countries outside of North America.

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.

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

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

			Three Months Ended September 30,					Nine Months Ended September 30,

			2011		2010			2011		2010
Revenue
	North American BPO		$	219,891	$	204,978		$	612,825	$	625,426
	International BPO			84,344		66,027			266,025		189,032

		Total	$	304,235	$	271,005		$	878,850	$	814,458

Income (loss) from operations
	North American BPO		$	22,936	$	22,099		$	59,823	$	66,984
	International BPO			3,636		(2,020	)		12,868		(8,535	)

		Total	$	26,572	$	20,079		$	72,691	$	58,449

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

			Three Months Ended September 30,				Nine Months Ended September 30,

			2011		2010		2011		2010
Revenue
	United States		$	110,122	$	102,476	$	288,935	$	314,843
	Philippines			86,957		73,096		255,983		210,470
	Latin America			51,188		51,666		159,852		148,848
	Europe / Middle East / Africa			39,031		27,573		122,802		86,398
	Canada			12,829		11,708		38,674		40,105
	Asia Pacific			4,108		4,486		12,604		13,794

		Total	$	304,235	$	271,005	$	878,850	$	814,458

(4) SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS

The Company did not have any clients that contributed in excess of 10% of total revenue for the three or nine months ended September 30, 2011 and 2010.

The loss of one or more of its significant clients could have a material adverse effect on the Company's business, operating results, or financial condition. The Company does not require collateral from its clients. To limit the Company's credit risk, management performs periodic credit evaluations of its clients and maintains allowances for uncollectible accounts and may require pre-payment for services. Although the Company is impacted by economic conditions in various industry segments, management does not believe significant credit risk exists as of September 30, 2011.

Table of Contents

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

(5) GOODWILL

Goodwill consisted of the following (amounts in thousands):

	December 31, 2010		Acquisitions		Impairments		Effect of Foreign Currency			September 30, 2011

North American BPO	$	35,885	$	21,614	$	–	$	–		$	57,499
International BPO		16,822		–		–		(331	)		16,491

Total	$	52,707	$	21,614	$	–	$	(331	)	$	73,990

The Company performs a goodwill impairment test on at least an annual basis. The Company uses a qualitative and/or quantitative assessment when completing its annual goodwill impairment test. The qualitative assessment will include the review of macroeconomic conditions as well as market and industry considerations. Historical and forecasted financial performance by reporting unit will also be reviewed when completing this type of assessment. The quantitative assessment of goodwill includes comparing a reporting unit's fair value to its carrying value. The calculation of fair value requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and determination of the Company's weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company conducts its annual goodwill impairment test in the fourth quarter each year, or more frequently if indicators of impairment exist. During the quarter ended September 30, 2011, the Company assessed whether any such indicators of impairment existed, and concluded that there were none.

(6) DERIVATIVES

Cash Flow Hedges

The Company enters into foreign exchange and interest rate derivatives. Foreign exchange derivatives entered into consist of forward and option contracts to reduce the Company's exposure to currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations. Interest rate derivatives consist of interest rate swaps to reduce the Company's exposure to rate fluctuations associated with its variable rate debt. Upon proper qualification, these contracts are designated as cash flow hedges. It is the Company's policy to only enter into derivative contracts with investment grade counterparty financial institutions, and correspondingly, the fair value of derivative assets consider, among other factors, the creditworthiness of these counterparties. Conversely, the fair value of derivative liabilities reflects the Company's creditworthiness. As of September 30, 2011, the Company has not experienced, nor does it anticipate any issues related to derivative counterparty defaults. The following table summarizes the aggregate unrealized net gain or loss in Accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2011 and 2010 (amounts in thousands and net of tax):

	Three Months Ended September 30,						Nine Months Ended September 30,

	2011			2010			2011			2010
Aggregate unrealized net gain (loss) at beginning of period	$	511		$	3,431		$	7,091		$	4,468
Add: Net gain/(loss) from change in fair value of cash flow hedges		(2,504	)		4,814			(4,935	)		6,337
Less: Net (gain)/loss reclassified to earnings from effective hedges		(1,330	)		(1,520	)		(5,479	)		(4,080	)

Aggregate unrealized net gain (loss) at end of period	$	(3,323	)	$	6,725		$	(3,323	)	$	6,725

Table of Contents

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

The Company's foreign exchange cash flow hedging instruments as of September 30, 2011 and December 31, 2010 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts unless noted otherwise.

As of September 30, 2011	Local Currency Notional Amount		U.S. Dollar Notional Amount				Contracts Maturing Through

Canadian Dollar		25,300	$	24,705		72.3%	August 2013
Costa Rican Colons		2,750,000		5,340		100.0%	August 2012
Philippine Peso		12,571,000		282,201	⁽¹⁾	54.8%	December 2014
Mexican Peso		771,000		60,814		62.6%	April 2014
Mexican Peso Collars		140,298		12,000	⁽³⁾	75.0%	December 2012
British Pound Sterling		9,267		14,673	⁽²⁾	54.8%	June 2014

			$	399,733


As of December 31, 2010	Local Currency Notional Amount		U.S. Dollar Notional Amount
Canadian Dollar		10,200	$	8,493
Philippine Peso		7,731,000		169,364	⁽¹⁾
Mexican Peso		311,500		22,383
British Pound Sterling		4,647		7,231	⁽²⁾

			$	207,471

⁽¹⁾: Includes contracts to purchase Philippine pesos in exchange for New Zealand dollars and Australian dollars, which are translated into equivalent U.S. dollars on September 30, 2011.
⁽²⁾: Includes contracts to purchase British pound sterling in exchange for Euros, which are translated into equivalent U.S. dollars on September 30, 2011.
⁽³⁾: The Mexican Peso Collars include call options with a floor total of MXN 140,298 and put options with a cap total of MXN 157,038.

The Company's interest rate swap arrangements as of September 30, 2011 were as follows:

	Notional Amount		Variable Rate Received	Fixed Rate Paid	Contract Commencement Date	Contract Maturity Date

As of September 30, 2011	$	25 million	1 - month LIBOR	2.55 %	April 2012	April 2016
		15 million	1 - month LIBOR	3.14 %	May 2012	May 2017

	$	40 million

The Company did not have any interest rate swap arrangements as of December 31, 2010.

Table of Contents

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

Fair Value Hedges

The Company enters into foreign exchange forward contracts to hedge against foreign currency exchange gains and losses on certain receivables and payables of the Company's foreign operations. Changes in the fair value of derivative instruments designated as fair value hedges, as well as the offsetting gain or loss on the hedged asset or liability, are recognized in earnings in Other income (expense), net. As of September 30, 2011 and December 31, 2010, the total notional amount of the Company's forward contracts used as fair value hedges were $51.1 million and $93.3 million, respectively.

Embedded Derivatives

In addition to hedging activities, the Company's foreign subsidiary in Argentina is party to U.S. dollar denominated lease contracts that the Company has determined contain embedded derivatives. As such, the Company bifurcates the embedded derivative features of the lease contracts and values these features as foreign currency derivatives.

Derivative Valuation and Settlements

The fair value of the Company's derivatives as of September 30, 2011 and December 31, 2010 were as follows (amounts in thousands):

	September 30, 2011

	Designated as Hedging Instruments						Not Designated as Hedging Instruments
Derivative contracts:	Foreign Exchange			Interest Rate			Foreign Exchange			Leases
Derivative classification:	Cash Flow			Cash Flow			Fair Value			Embedded Derivative
Fair value and location of derivative in the Consolidated Balance Sheet:
Prepaids and other current assets	$	4,342		$	–		$	–		$	–
Other long-term assets		2,117			–			–			–
Other current liabilities		(7,062	)		–			(171	)		(7	)
Other long-term liabilities		(3,129	)		(1,950	)		–			–

Total fair value of derivatives, net	$	(3,732	)	$	(1,950	)	$	(171	)	$	(7	)

	December 31, 2010

	Designated as Hedging Instruments					Not Designated as Hedging Instruments
Derivative contracts:	Foreign Exchange			Interest Rate		Foreign Exchange			Leases
Derivative classification:	Cash Flow			Cash Flow		Fair Value			Embedded Derivative
Fair value and location of derivative in the Consolidated Balance Sheet:
Prepaids and other current assets	$	10,602		$	–	$	783		$	–
Other long-term assets		2,081			–		–			–
Other current liabilities		(677	)		–		(58	)		(105	)
Other long-term liabilities		(104	)		–		–			(34	)

Total fair value of derivatives, net	$	11,902		$	–	$	725		$	(139	)

Table of Contents

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

The effect of derivative instruments on the Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010 were as follows (amounts in thousands):

	Three Months Ended September 30,

	2011						2010
	Designated as Hedging Instruments						Designated as Hedging Instruments
Derivative contracts:	Foreign Exchange			Interest Rate			Foreign Exchange		Interest Rate
Derivative classification:	Cash Flow			Cash Flow			Cash Flow		Cash Flow

Amount of gain or (loss) recognized in other comprehensive income – effective portion, net of tax	$	(1,662	)	$	(843	)	$	4,814	$	–
Amount and location of net gain or (loss) reclassified from accumulated OCI to income – effective portion:
Revenue	$	2,216		$	–		$	2,491	$	–
Amount and location of net gain or (loss) reclassified from accumulated OCI to income – ineffective portion and amount excluded from effectiveness testing: Other income (expense), net	$	–		$	–		$	–	$	–

	Three Months Ended September 30,

	2011							2010
	Not Designated as Hedging Instruments							Not Designated as Hedging Instruments
Derivative contracts:	Foreign Exchange					Leases		Foreign Exchange				Leases
Derivative classification:	Option and Forward Contracts		Fair Value			Embedded Derivative		Option and Forward Contracts		Fair Value		Embedded Derivative

Amount and location of net gain or (loss) recognized in the Consolidated Statement of Operations:
Costs of services	$	–	$	–		$	10	$	–	$	–	$	96
Other income (expense), net	$	–	$	(1,189	)	$	–	$	–	$	3,256	$	–

The effect of derivative instruments on the Consolidated Statements of Operations for the nine months ended September 30, 2011 and 2010 were as follows (amounts in thousands):

	Nine Months Ended September 30,

	2011						2010
	Designated as Hedging Instruments						Designated as Hedging Instruments
Derivative contracts:	Foreign Exchange			Interest Rate			Foreign Exchange		Interest Rate
Derivative classification:	Cash Flow			Cash Flow			Cash Flow		Cash Flow

Amount of gain or (loss) recognized in other comprehensive income – effective portion, net of tax	$	(3,765	)	$	(1,170	)	$	6,337	$	–
Amount and location of net gain or (loss) reclassified from accumulated OCI to income – effective portion:
Revenue	$	9,131		$	–		$	6,688	$	–
Amount and location of net gain or (loss) reclassified from accumulated OCI to income – ineffective portion and amount excluded from effectiveness testing:
Other income (expense), net	$	–		$	–		$	–	$	–

Table of Contents

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


Level 1	–	Quoted prices in active markets for identical assets or liabilities.
Level 2	–	Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.
Level 3	–	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of September 30, 2011

		Fair Value Measurements Using
		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs		At Fair Value
		(Level 1)		(Level 2)			(Level 3)		At Fair Value
Cash flow hedges		$	–	$	(3,732	)	$	–	$	(3,732	)
Interest rate swaps			–		(1,950	)		–		(1,950	)
Fair value hedges			–		(171	)		–		(171	)
Embedded derivatives			–		(7	)		–		(7	)

	Total net derivative asset (liability)	$	–	$	(5,860	)	$	–	$	(5,860	)


As of December 31, 2010
		Fair Value Measurements Using
		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs		At Fair Value
		(Level 1)		(Level 2)			(Level 3)		At Fair Value
Cash flow hedges		$	–	$	11,902		$	–	$	11,902
Fair value hedges			–		725			–		725
Embedded derivatives			–		(139	)		–		(139	)

	Total net derivative asset (liability)	$	–	$	12,488		$	–	$	12,488

As of September 30, 2011

			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
			(Level 1)		(Level 2)			(Level 3)
Assets
	Money market investments		$	–	$	15,907		$	–
	Derivative instruments, net			–		–			–

		Total assets	$	–	$	15,907		$	–

Liabilities
	Derivative instruments, net		$	–	$	(5,860	)	$	–
	Deferred compensation plan liability			–		(3,706	)		–
	Purchase price payable			–		–			(4,926	)

		Total liabilities	$	–	$	(9,566	)	$	(4,926	)

As of December 31, 2011

			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
			(Level 1)		(Level 2)			(Level 3)
Assets
	Money market investments		$	–	$	19,668		$	–
	Derivative instruments, net			–		12,488			–

		Total assets	$	–	$	32,156		$	–

Liabilities
	Deferred compensation plan liability			–		(3,781	)		–
	Purchase price payable			–		–			(4,506	)

		Total liabilities	$	–	$	(3,781	)	$	(4,506	)

		Closure of Delivery Centers			Reduction in Force			Total

Balance as of December 31, 2010		$	695		$	8,267		$	8,962
	Expense		72			2,580			2,652
	Payments		(230	)		(9,462	)		(9,692	)
	Revision of prior estimates		–			(354	)		(354	)

Balance as of September 30, 2011		$	537		$	1,031		$	1,568

		Nine Months Ended September 30,

		2011			2010
Noncontrolling interest, January 1		$	11,092		$	5,478
Net income attributable to noncontrolling interest			2,969			2,795
Dividends distributed to noncontrolling interest			(2,783	)		(3,015	)
Foreign currency translation adjustments			(365	)		72

	Noncontrolling interest, September 30	$	10,913		$	5,330

		September 30, 2011						September 30, 2010

		Total Production Workstations		In Use		% In Use		Total Production Workstations		In Use		% In Use
Multi-client centers
	Sites open <1 year		1,623		479		30%		388		320		82%
	Sites open >1 year		26,516		20,442		77%		30,733		20,362		66%

Total multi-client centers			28,139		20,921		74%		31,121		20,682		66%

		Three Months Ended September 30,

		2011			% of Revenue		2010			% of Revenue		$ Change			% Change
Revenue
	North American BPO	$	219,891				$	204,978				$	14,913			7.3%
	International BPO		84,344					66,027					18,317			27.7%

		$	304,235				$	271,005				$	33,230			12.3%
Cost of services
	North American BPO	$	156,832			71.3%	$	141,324			68.9%	$	15,508			11.0%
	International BPO		63,963			75.8%		52,672			79.8%		11,291			21.4%

		$	220,795			72.6%	$	193,996			71.6%	$	26,799			13.8%
Selling, general and administrative
	North American BPO	$	29,674			13.5%	$	29,194			14.2%	$	480			1.6%
	International BPO		13,771			16.3%		11,378			17.2%		2,393			21.0%

		$	43,445			14.3%	$	40,572			15.0%	$	2,873			7.1%
Depreciation and amortization
	North American BPO	$	9,012			4.1%	$	9,650			4.7%	$	(638	)		-6.6%
	International BPO		2,795			3.3%		2,802			4.2%		(7	)		-0.2%

		$	11,807			3.9%	$	12,452			4.6%	$	(645	)		-5.2%
Restructuring charges, net
	North American BPO	$	1,437			0.7%	$	2,711			1.3%	$	(1,274	)		-47.0%
	International BPO		179			0.2%		868			1.3%		(689	)		-79.4%

		$	1,616			0.5%	$	3,579			1.3%	$	(1,963	)		-54.8%
Impairment losses
	North American BPO	$	–			0.0%	$	–			0.0%	$	–			0.0%
	International BPO		–			0.0%		327			0.5%		(327	)		-100.0%

		$	–			0.0%	$	327			0.1%	$	(327	)		-100.0%
Income (loss) from operations
	North American BPO	$	22,936			10.4%	$	22,099			10.8%	$	837			3.8%
	International BPO		3,636			4.3%		(2,020	)		-3.1%		5,656			280.0%

		$	26,572			8.7%	$	20,079			7.4%	$	6,493			32.3%
Total other income (expense)		$	(633	)		-0.2%	$	7,295			2.7%	$	(7,928	)		-108.7%
Benefit from (provision for) income taxes		$	496			0.2%	$	(7,586	)		-2.8%	$	8,082			106.5%

		Less than 1 Year		1 to 3 Years		3 to 5 Years		Over 5 Years		Total

Credit Facility⁽¹⁾		$	3,149	$	7,391	$	133,996	$	–	$	144,536
Capital lease obligations			512		–		–		–		512
Equipment financing arrangements			608		341		–		–		949
Purchase obligations			21,464		9,731		–		–		31,195
Operating lease commitments			24,006		35,400		14,433		2,183		76,022

	Total	$	49,739	$	52,863	$	148,429	$	2,183	$	253,214

	September 30, 2011			Maturing in the Next 12 Months

Canadian Dollar	$	(672	)	$	(521	)
Costa Rican Colons		77			77
Philippine Peso		5,112			3,280
Mexican Peso		(8,028	)		(5,483	)
British Pound Sterling		(221	)		(73	)

	$	(3,732	)	$	(2,720	)

Period		Average Price Paid per Share (or Unit)			Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)¹


July 1, 2011 – July 31, 2011	–	$	–	–	$	51,609
August 1, 2011 – August 31, 2011	578,800	$	16.69	578,800	$	41,947
September 1, 2011 – September 30, 2011	314,000	$	15.78	314,000	$	36,991

Total	892,800			892,800

Exhibit No.		Exhibit Description


31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
31.2		Certification of Interim Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
32.2		Certification of Interim Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document


		TELETECH HOLDINGS, INC. (Registrant)
Date: November 2, 2011	By:	/s/ Kenneth D. Tuchman Kenneth D. Tuchman Chairman and Chief Executive Officer
Date: November 2, 2011	By:	/s/ John R. Troka, Jr. John R. Troka, Jr. Interim Chief Financial Officer