Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 10-Q

 

x

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

 

For the quarterly period ended June 30, 2014

 

OR

 

o

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

 

For the transition period from            to           

 


 

Commission File Number 001-11919

 


 

TeleTech Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

84-1291044

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

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 x  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 x  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 x

 

 

 

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 x

 

As of August 5, 2014, there were 49,187,278 shares of the registrant’s common stock outstanding.

 

 

 



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

JUNE 30, 2014 FORM 10-Q

TABLE OF CONTENTS

 

 

 

Page No.

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 (unaudited)

1

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013 (unaudited)

2

 

 

 

 

Consolidated Statement of Equity as of and for the six months ended June 30, 2014 (unaudited)

3

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)

4

 

 

 

 

Notes to the Unaudited Consolidated Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

35

 

 

 

Item 4.

Controls and Procedures

37

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

38

 

 

 

Item 1A.

Risk Factors

38

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

 

 

 

Item 6.

Exhibits

39

 

 

 

SIGNATURES

40

 

 

 

EXHIBIT INDEX

41

 



Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

(unaudited)

 

 

 

June 30,
2014

 

December 31,
2013

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

97,778

 

$

158,017

 

Accounts receivable, net

 

251,436

 

236,099

 

Prepaids and other current assets

 

59,515

 

52,332

 

Deferred tax assets, net

 

11,731

 

11,905

 

Income tax receivable

 

10,821

 

11,198

 

Total current assets

 

431,281

 

469,551

 

 

 

 

 

 

 

Long-term assets

 

 

 

 

 

Property, plant and equipment, net

 

141,381

 

126,719

 

Goodwill

 

110,781

 

102,743

 

Contract acquisition costs, net

 

1,043

 

1,642

 

Deferred tax assets, net

 

33,740

 

42,791

 

Other intangible assets, net

 

54,190

 

54,812

 

Other long-term assets

 

44,221

 

44,084

 

Total long-term assets

 

385,356

 

372,791

 

Total assets

 

$

816,637

 

$

842,342

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

28,675

 

$

32,031

 

Accrued employee compensation and benefits

 

69,216

 

80,130

 

Other accrued expenses

 

28,441

 

31,659

 

Income taxes payable

 

2,851

 

6,066

 

Deferred tax liabilities, net

 

35

 

590

 

Deferred revenue

 

23,046

 

28,799

 

Other current liabilities

 

9,641

 

11,512

 

Total current liabilities

 

161,905

 

190,787

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

Line of credit

 

100,000

 

100,000

 

Deferred tax liabilities, net

 

3,342

 

2,281

 

Deferred rent

 

8,726

 

9,635

 

Other long-term liabilities

 

50,882

 

63,648

 

Total long-term liabilities

 

162,950

 

175,564

 

Total liabilities

 

324,855

 

366,351

 

 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

Mandatorily redeemable noncontrolling interest

 

3,274

 

2,509

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock - $0.01 par value: 10,000,000 shares authorized; zero shares outstanding as of June 30, 2014 and December 31, 2013

 

 

 

Common stock - $0.01 par value; 150,000,000 shares authorized; 49,186,028 and 50,352,881 shares outstanding as of June 30, 2014 and December 31, 2013, respectively

 

492

 

503

 

Additional paid-in capital

 

352,920

 

356,381

 

Treasury stock at cost: 32,866,225 and 31,699,372 shares as of June 30, 2014 and December 31, 2013, respectively

 

(508,627

)

(477,399

)

Accumulated other comprehensive income (loss)

 

(6,357

)

(20,586

)

Retained earnings

 

641,852

 

606,502

 

Noncontrolling interest

 

8,228

 

8,081

 

Total stockholders’ equity

 

488,508

 

473,482

 

Total liabilities and stockholders’ equity

 

$

816,637

 

$

842,342

 

 

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

 

1



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

295,490

 

$

289,692

 

$

597,711

 

$

578,075

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Cost of services (exclusive of depreciation and amortization presented separately below)

 

212,315

 

208,809

 

426,102

 

417,041

 

Selling, general and administrative

 

47,802

 

46,168

 

98,169

 

91,915

 

Depreciation and amortization

 

14,089

 

11,263

 

27,259

 

21,818

 

Restructuring charges, net

 

617

 

2,572

 

1,157

 

3,423

 

Impairment losses

 

 

1,205

 

 

1,205

 

Total operating expenses

 

274,823

 

270,017

 

552,687

 

535,402

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

20,667

 

19,675

 

45,024

 

42,673

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

Interest income

 

492

 

575

 

1,003

 

1,244

 

Interest expense

 

(1,861

)

(1,903

)

(3,551

)

(3,768

)

Loss on deconsolidation of subsidiary

 

 

(3,655

)

 

(3,655

)

Other income (expense), net

 

4,249

 

1,884

 

5,250

 

1,076

 

Total other income (expense)

 

2,880

 

(3,099

)

2,702

 

(5,103

)

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

23,547

 

16,576

 

47,726

 

37,570

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

(5,417

)

(3,854

)

(8,293

)

(6,245

)

 

 

 

 

 

 

 

 

 

 

Net income

 

18,130

 

12,722

 

39,433

 

31,325

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interest

 

(1,268

)

(407

)

(2,353

)

(1,049

)

 

 

 

 

 

 

 

 

 

 

Net income attributable to TeleTech stockholders

 

$

16,862

 

$

12,315

 

$

37,080

 

$

30,276

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

Net income

 

$

18,130

 

$

12,722

 

$

39,433

 

$

31,325

 

Foreign currency translation adjustment

 

(7,010

)

(19,617

)

(5,287

)

(16,483

)

Derivative valuation, gross

 

17,780

 

(23,801

)

13,863

 

(20,411

)

Derivative valuation, tax effect

 

(6,775

)

9,418

 

(5,393

)

8,208

 

Other, net of tax

 

280

 

137

 

556

 

299

 

Total other comprehensive income (loss)

 

4,275

 

(33,863

)

3,739

 

(28,387

)

Total comprehensive income (loss)

 

22,405

 

(21,141

)

43,172

 

2,938

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interest

 

(1,167

)

(277

)

(2,159

)

(829

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to TeleTech stockholders

 

$

21,238

 

$

(21,418

)

$

41,013

 

$

2,109

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

49,351

 

51,861

 

49,696

 

52,104

 

Diluted

 

50,111

 

52,628

 

50,536

 

52,912

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to TeleTech stockholders

 

 

 

 

 

 

 

 

 

Basic

 

$

0.34

 

$

0.24

 

$

0.75

 

$

0.58

 

Diluted

 

$

0.34

 

$

0.23

 

$

0.73

 

$

0.57

 

 

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

 

2



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

(Amounts in thousands)

(Unaudited)

 

 

 

Stockholders’ Equity of the Company

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Treasury

 

Additional
Paid-in

 

Accumulated
Other
Comprehensive

 

Retained

 

Noncontrolling

 

Total

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Stock

 

Capital

 

Income (Loss)

 

Earnings

 

interest

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2013

 

 

$

 

50,353

 

$

503

 

$

(477,399

)

$

356,381

 

$

(20,586

)

$

606,502

 

$

8,081

 

$

473,482

 

Net income

 

 

 

 

 

 

 

 

37,080

 

2,074

 

39,154

 

Dividends distributed to noncontrolling interest

 

 

 

 

 

 

 

 

 

(2,025

)

(2,025

)

Adjustments to redemption value of mandatorily redeemable noncontrolling interest

 

 

 

 

 

 

 

 

(1,730

)

 

(1,730

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

5,202

 

 

85

 

5,287

 

Derivatives valuation, net of tax

 

 

 

 

 

 

 

8,471

 

 

 

8,471

 

Vesting of restricted stock units

 

 

 

339

 

4

 

5,092

 

(9,794

)

 

 

 

(4,698

)

Exercise of stock options

 

 

 

47

 

1

 

713

 

(400

)

 

 

 

314

 

Excess tax benefit from equity-based awards

 

 

 

 

 

 

923

 

 

 

 

923

 

Equity-based compensation expense

 

 

 

 

 

 

5,810

 

 

 

13

 

5,823

 

Purchases of common stock

 

 

 

(1,553

)

(16

)

(37,033

)

 

 

 

 

(37,049

)

Other

 

 

 

 

 

 

 

556

 

 

 

556

 

Balance as of June 30, 2014

 

 

$

 

49,186

 

$

492

 

$

(508,627

)

$

352,920

 

$

(6,357

)

$

641,852

 

$

8,228

 

$

488,508

 

 

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

 

3



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

39,433

 

$

31,325

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

27,259

 

21,818

 

Amortization of contract acquisition costs

 

657

 

506

 

Amortization of debt issuance costs

 

349

 

319

 

Imputed interest expense and fair value adjustments to contingent consideration

 

(3,710

)

670

 

Provision for doubtful accounts

 

219

 

478

 

Gain on disposal of assets

 

 

(106

)

Impairment losses

 

 

1,205

 

Deferred income taxes

 

5,035

 

2,697

 

Excess tax benefit from equity-based awards

 

(1,050

)

(1,046

)

Equity-based compensation expense

 

5,881

 

6,577

 

Gain on foreign currency derivatives

 

(2,955

)

(2,768

)

Loss on deconsolidation of subsidiary, net of cash of zero and $897, respectively

 

 

2,758

 

 

 

 

 

 

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

Accounts receivable

 

(9,238

)

(2,804

)

Prepaids and other assets

 

(631

)

1,044

 

Accounts payable and accrued expenses

 

(22,965

)

(14,151

)

Deferred revenue and other liabilities

 

(6,654

)

(8,311

)

Net cash provided by operating activities

 

31,630

 

40,211

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Proceeds from sale of property, plant and equipment

 

135

 

 

Purchases of property, plant and equipment, net of acquisitions

 

(34,483

)

(13,660

)

Acquisitions, net of cash acquired of $857 and zero, respectively

 

(8,732

)

(1,652

)

Net cash used in investing activities

 

(43,080

)

(15,312

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from line of credit

 

1,001,500

 

681,550

 

Payments on line of credit

 

(1,001,500

)

(679,550

)

Proceeds from other debt

 

 

3,709

 

Payments on other debt

 

(3,127

)

(2,661

)

Payments of contingent consideration related to acquisitions

 

(8,547

)

 

Dividends paid to noncontrolling interest

 

(3,713

)

(2,385

)

Proceeds from exercise of stock options

 

313

 

856

 

Excess tax benefit from equity-based awards

 

1,050

 

1,046

 

Purchase of treasury stock

 

(37,049

)

(31,001

)

Payments of debt issuance costs

 

 

(1,732

)

Net cash used in financing activities

 

(51,073

)

(30,168

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

2,284

 

(8,593

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(60,239

)

(13,862

)

Cash and cash equivalents, beginning of period

 

158,017

 

164,485

 

Cash and cash equivalents, end of period

 

$

97,778

 

$

150,623

 

 

 

 

 

 

 

Supplemental disclosures

 

 

 

 

 

Cash paid for interest

 

$

2,670

 

$

2,226

 

Cash paid for income taxes

 

$

7,486

 

$

8,913

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

Acquisition of equipment through increase in accounts payable

 

$

1,420

 

$

 

Landlord incentive credited to deferred rent

 

$

 

$

511

 

 

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

 

4



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

(1)                                 OVERVIEW AND BASIS OF PRESENTATION

 

Summary of Business

 

TeleTech Holdings, Inc. (“TeleTech” or “the Company”) is a leading provider of customer strategy, analytics-driven and technology-enabled customer engagement management solutions with 40,000 employees delivering services across 25 countries from 53 delivery centers on five continents.

 

We have deep industry expertise and serve more than 250 customer-focused industry leaders in the Global 1000. Our business is structured and reported in four segments: Customer Management Services (“CMS”), Customer Growth Services (“CGS”), Customer Technology Services (“CTS”), and Customer Strategy Services (“CSS”).

 

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, its 80% interest in iKnowtion, LLC, and its 80% interest in Peppers & Rogers Group through the third quarter of 2013 when the final 20% interest was repurchased (see Note 2). All intercompany balances and transactions have been eliminated in consolidation.

 

The 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 and the consolidated results of operations and comprehensive income (loss) and the consolidated cash flows of the Company. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

 

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, 2013.

 

Use of Estimates

 

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

 

Recently Issued Accounting Pronouncements

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment — Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 provides new guidance related to the definition of a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This new guidance is effective for annual periods beginning on or after December 15, 2014 and interim periods within those years. Beginning in 2015, the Company will apply the new guidance, as applicable, to future disposals of components or classifications as held for sale.

 

5



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 provides new guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 specifies new accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, with early application not permitted. The Company is currently determining its implementation approach and assessing the impact on the consolidated financial statements.

 

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, and early adoption is permitted. Beginning in 2016, the Company will apply the new guidance as applicable.

 

(2)                                 ACQUISITIONS

 

Sofica

 

In the first quarter of 2014, the Company acquired a 100% interest in Sofica Group, a Bulgarian joint stock company (“Sofica”). Sofica provides customer lifecycle management and other business process services across multiple channels in multiple sites in over 18 languages.

 

The estimated purchase price of $13.8 million, included $9.4 million in cash consideration (including a working capital adjustment) and $3.4 million in earn-out payments, payable in 2015 and 2016, contingent on Sofica achieving specified earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as defined by the stock purchase agreement. Additionally, the estimated purchase price includes a $1.0 million hold-back payment for contingencies as defined in the stock purchase agreement which will be paid in the second quarter of 2016 as required.

 

The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 22% and expected future value of payments of $4.0 million. The $4.0 million of expected future payments was calculated using a bell curve probability weighted EBITDA assessment with the highest probability associated with Sofica achieving the targeted EBITDA for each earn-out year. As of the acquisition date, the fair value of the contingent consideration was approximately $3.4 million. As of June 30, 2014, the fair value of the contingent consideration was $3.5 million, of which $2.0 million and $1.5 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively.

 

6



Table of Contents

 

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

 

 

 

Preliminary
Estimate of
Acquisition Date
Fair Value

 

Cash

 

$

857

 

Accounts receivable

 

3,175

 

Other assets

 

378

 

Property, plant and equipment

 

653

 

Customer relationships

 

3,531

 

Goodwill

 

7,208

 

 

 

15,802

 

 

 

 

 

Accounts payable

 

296

 

Accrued employee compensation and benefits

 

697

 

Accrued expenses

 

664

 

Deferred tax liability and other

 

368

 

 

 

2,025

 

 

 

 

 

Total purchase price

 

$

13,777

 

 

The Sofica customer relationships have an estimated useful life of five years. The goodwill recognized from the Sofica acquisition was attributable primarily to the acquired workforce of Sofica, expected synergies, and other factors. The tax basis of the acquired intangibles and goodwill are not deductible for income tax purposes. The acquired goodwill and the operating results of Sofica are reported within the CMS segment from the date of acquisition.

 

WebMetro

 

In the third quarter of 2013, the Company acquired 100% of WebMetro, a California corporation (“WebMetro”), a digital marketing agency.

 

The total purchase price was $17.8 million, including $15.3 million in cash consideration (inclusive of a working capital adjustment) and $2.5 million in earn-out payments, payable in 2014 and 2015, contingent on WebMetro achieving specified EBITDA targets, as defined by the stock purchase agreement. The first contingent payment was made in the second quarter of 2014.

 

Financial Information

 

The acquired businesses purchased in 2013 and 2014 noted above contributed revenues of $7.9 million and $12.8 million and income from operations of $0.6 million and $0.9 million, inclusive of $0.7 million and $1.3 million of acquired intangible amortization, to the Company for the three and six months ended June 30, 2014.

 

Peppers & Rogers Group

 

In the third quarter of 2013, the Company acquired the remaining 20% interest in Peppers & Rogers Group (“PRG”) for $425 thousand. The buy-out accelerated TeleTech’s rights pursuant to the sale and purchase agreement to acquire the remaining portion of the business in 2015.

 

7



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

rogenSi

 

Subsequent to June 30, 2014, the Company entered into an agreement (the “rogenSi Agreement”) to acquire substantially all operating assets of rogenSi Worldwide PTY, Ltd., a global sales and leadership performance training and applied leadership consulting company (the “rogenSi Acquisition”). The total purchase price is $35.7 million, subject to standard working capital adjustments, and consists of $18.0 million in cash at closing and $17.7 million in three earn-out payments, contingent on the acquired companies and TeleTech’s CSS business segment achieving certain agreed EBITDA targets, as defined in the rogenSi Agreement. The earn-out payments are payable in early 2015, 2016 and 2017, based on post closing performance in 2014, 2015 and 2016, respectively. We expect the rogenSi Acquisition to close on or before August 31, 2014, subject to customary closing deliverables, representations, warranties and indemnifications.

 

(3)                                 SEGMENT INFORMATION

 

The Company reports the following four segments:

 

·                  the CMS segment includes the customer experience delivery solutions which integrate innovative technology with highly-trained customer experience professionals to optimize the customer experience across all channels and all stages of the customer lifecycle from an onshore, offshore or work-from-home environment;

 

·                  the CGS segment provides technology-enabled sales and marketing solutions that support revenue generation across the customer lifecycle, including sales advisory, search engine optimization, digital demand generation, lead qualification, and acquisition sales, growth and retention services;

 

·                  the CTS segment includes operational and design consulting, systems integration, and cloud and on-premise managed services, the requirements needed to design, deliver and maintain best-in-class multichannel customer engagement platforms; and

 

·                  the CSS segment provides professional services in customer experience strategy, customer intelligence analytics, system and operational process optimization, and culture development and knowledge management.

 

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

 

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

 

Three Months Ended June 30, 2014

 

 

 

Gross
Revenue

 

Intersegment
Sales

 

Net
Revenue

 

Depreciation
&
Amortization

 

Income
(Loss) from
Operations

 

Customer Management Services

 

$

218,683

 

$

 

$

218,683

 

$

10,169

 

$

16,493

 

Customer Growth Services

 

28,875

 

 

28,875

 

1,468

 

1,831

 

Customer Technology Services

 

35,753

 

(16

)

35,737

 

2,008

 

1,616

 

Customer Strategy Services

 

12,195

 

 

12,195

 

444

 

727

 

Total

 

$

295,506

 

$

(16

)

$

295,490

 

$

14,089

 

$

20,667

 

 

8



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Three Months Ended June 30, 2013

 

 

 

Gross
Revenue

 

Intersegment
Sales

 

Net
Revenue

 

Depreciation
&
Amortization

 

Income
(Loss) from
Operations

 

Customer Management Services

 

$

220,965

 

$

(324

)

$

220,641

 

$

8,532

 

$

16,465

 

Customer Growth Services

 

22,399

 

 

22,399

 

777

 

(620

)

Customer Technology Services

 

36,717

 

(73

)

36,644

 

1,489

 

5,819

 

Customer Strategy Services

 

10,256

 

(248

)

10,008

 

465

 

(1,989

)

Total

 

$

290,337

 

$

(645

)

$

289,692

 

$

11,263

 

$

19,675

 

 

Six Months Ended June 30, 2014

 

 

 

Gross
Revenue

 

Intersegment
Sales

 

Net
Revenue

 

Depreciation
&
Amortization

 

Income
(Loss) from
Operations

 

Customer Management Services

 

$

446,607

 

$

 

$

446,607

 

$

19,634

 

$

37,316

 

Customer Growth Services

 

57,780

 

 

57,780

 

3,024

 

3,601

 

Customer Technology Services

 

68,532

 

(19

)

68,513

 

3,723

 

1,927

 

Customer Strategy Services

 

24,811

 

 

24,811

 

878

 

2,180

 

Total

 

$

597,730

 

$

(19

)

$

597,711

 

$

27,259

 

$

45,024

 

 

Six Months Ended June 30, 2013

 

 

 

Gross
Revenue

 

Intersegment
Sales

 

Net
Revenue

 

Depreciation
&
Amortization

 

Income
(Loss) from
Operations

 

Customer Management Services

 

$

443,854

 

$

(631

)

$

443,223

 

$

16,394

 

$

37,196

 

Customer Growth Services

 

45,255

 

 

45,255

 

1,474

 

656

 

Customer Technology Services

 

70,363

 

(157

)

70,206

 

3,005

 

8,717

 

Customer Strategy Services

 

20,186

 

(795

)

19,391

 

945

 

(3,896

)

Total

 

$

579,658

 

$

(1,583

)

$

578,075

 

$

21,818

 

$

42,673

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Capital Expenditures

 

 

 

 

 

 

 

 

 

Customer Management Services

 

$

14,587

 

$

8,110

 

$

24,499

 

$

10,396

 

Customer Growth Services

 

1,289

 

435

 

1,669

 

751

 

Customer Technology Services

 

3,407

 

960

 

8,038

 

2,288

 

Customer Strategy Services

 

105

 

50

 

277

 

225

 

Total

 

$

19,388

 

$

9,555

 

$

34,483

 

$

13,660

 

 

 

 

June 30,
2014

 

December 31,
2013

 

 

 

 

 

Total Assets

 

 

 

 

 

 

 

 

 

Customer Management Services

 

$

531,926

 

$

554,015

 

 

 

 

 

Customer Growth Services

 

84,058

 

86,416

 

 

 

 

 

Customer Technology Services

 

153,552

 

157,040

 

 

 

 

 

Customer Strategy Services

 

47,101

 

44,871

 

 

 

 

 

Total

 

$

816,637

 

$

842,342

 

 

 

 

 

 

9



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

June 30,
2014

 

December 31,
2013

 

 

 

 

 

Goodwill

 

 

 

 

 

 

 

 

 

Customer Management Services

 

$

27,240

 

$

19,819

 

 

 

 

 

Customer Growth Services

 

30,395

 

30,128

 

 

 

 

 

Customer Technology Services

 

42,709

 

42,709

 

 

 

 

 

Customer Strategy Services

 

10,437

 

10,087

 

 

 

 

 

Total

 

$

110,781

 

$

102,743

 

 

 

 

 

 

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

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenue

 

 

 

 

 

 

 

 

 

United States

 

$

137,596

 

$

132,341

 

$

284,065

 

$

264,088

 

Philippines

 

85,541

 

88,049

 

172,207

 

174,158

 

Latin America

 

43,258

 

44,303

 

85,304

 

89,331

 

Europe / Middle East / Africa

 

22,267

 

16,638

 

41,484

 

33,621

 

Asia Pacific

 

5,358

 

4,359

 

11,758

 

8,585

 

Canada

 

1,470

 

4,002

 

2,893

 

8,292

 

Total

 

$

295,490

 

$

289,692

 

$

597,711

 

$

578,075

 

 

(4)                                 SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS

 

The Company had one client that contributed in excess of 10% of total revenue for the six months ended June 30, 2014. This client contributed 12.0% and 11.8% of total revenue for the three months ended June 30, 2014 and 2013. This client contributed 11.8% and 11.8% for the six months ended June 30, 2014 and 2013. This client had an outstanding receivable balance of $28.6 million and $32.5 million as of June 30, 2014 and 2013.

 

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 existed as of June 30, 2014.

 

(5)                                 GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill consisted of the following (in thousands):

 

 

 

December 31,
2013

 

Acquisitions/
Adjustments

 

Impairments

 

Effect of
Foreign
Currency

 

June 30,
2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Management Services

 

$

19,819

 

$

7,208

 

$

 

$

213

 

$

27,240

 

Customer Growth Services

 

30,128

 

267

 

 

 

30,395

 

Customer Technology Services

 

42,709

 

 

 

 

42,709

 

Customer Strategy Services

 

10,087

 

350

 

 

 

10,437

 

Total

 

$

102,743

 

$

7,825

 

$

 

$

213

 

$

110,781

 

 

10



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The Company performs a goodwill impairment assessment on at least an annual basis. The Company conducts its annual goodwill impairment assessment during the fourth quarter, or more frequently, if indicators of impairment exist.

 

The Company has identified a triggering event based on the continued decline during the second quarter of 2014 in operating results of the TSG reporting unit within the CTS segment. At June 30, 2014, the Company completed an interim quantitative assessment of this reporting unit’s fair value using an income based approach. Key assumptions used in the fair value calculation include, but are not limited to, a perpetuity growth rate of 3.0% based on the current inflation rate combined with the GDP growth rate for the reporting unit’s geographical region and a discount rate of 19.1%, which is equal to the reporting unit’s equity risk premium adjusted for its size and company specific risk factors. Estimated future cash flows under the income approach are based on the Company’s internal business plan and adjusted as appropriate for the Company’s view of market participant assumptions. The current business plan assumes the occurrence of certain events in the future, such as realignment of operations and reduction of general and administrative costs. Significant differences in some or all of these assumptions may impact the calculated fair value of this reporting unit resulting in impairment to goodwill in a future period. The goodwill attributable to this reporting unit is $23.0 million. As of June 30, 2014, the fair value of this reporting unit exceeds its carrying value by 8%. The Company will continue to review the calculated fair value of this reporting unit until the fair value is substantially in excess of its carrying value.

 

(6)                                 DERIVATIVES

 

Cash Flow Hedges

 

The Company enters into foreign exchange and interest rate related derivatives. Foreign exchange derivatives entered into consist of forward and option contracts to reduce the Company’s exposure to foreign 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 interest 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 June 30, 2014, 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 six months ended June 30, 2014 and 2013 (in thousands and net of tax):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Aggregate unrealized net gain/(loss) at beginning of period

 

$

(10,886

)

$

11,739

 

$

(8,352

)

$

9,559

 

Add: Net gain/(loss) from change in fair value of cash flow hedges

 

9,946

 

(12,801

)

6,297

 

(8,702

)

Less: Net (gain)/loss reclassified to earnings from effective hedges

 

1,059

 

(1,582

)

2,174

 

(3,501

)

Aggregate unrealized net gain/(loss) at end of period

 

$

119

 

$

(2,644

)

$

119

 

$

(2,644

)

 

11



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 June 30, 2014 and December 31, 2013 are summarized as follows (amounts in thousands). All hedging instruments are forward contracts unless noted otherwise.

 

As of June 30, 2014

 

Local
Currency
Notional
Amount

 

U.S. Dollar
Notional
Amount

 

% Maturing in
the Next 12
Months

 

Contracts Maturing
Through

 

Canadian Dollar

 

4,500

 

$

4,382

 

100.0

%

June 2015

 

Philippine Peso

 

17,776,000

 

411,135

(1)

40.0

%

March 2019

 

Mexican Peso

 

2,395,000

 

170,462

 

29.1

%

March 2019

 

 

 

 

 

$

585,979

 

 

 

 

 

 

As of December 31, 2013

 

Local
Currency
Notional
Amount

 

U.S. Dollar
Notional
Amount

 

 

 

 

 

Canadian Dollar

 

7,500

 

$

7,336

 

 

 

 

 

Philippine Peso

 

17,355,000

 

404,638

(1)

 

 

 

 

Mexican Peso

 

2,305,500

 

166,132

 

 

 

 

 

British Pound Sterling

 

1,200

 

1,853

(2)

 

 

 

 

New Zealand Dollar

 

150

 

117

 

 

 

 

 

 

 

 

 

$

580,076

 

 

 

 

 

 


(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 June 30, 2014 and December 31, 2013.

(2)     Includes contracts to purchase British pound sterling in exchange for Euros, which are translated into equivalent U.S. dollars on December 31, 2013.

 

The Company’s interest rate swap arrangements as of June 30, 2014 and December 31, 2013 were as follows:

 

 

 

Notional
Amount

 

Variable Rate
Received

 

Fixed Rate
Paid

 

Contract
Commencement
Date

 

Contract
Maturity
Date

 

As of June 30, 2014

 

$

25 million

 

1 - month LIBOR

 

2.55

%

April 2012

 

April 2016

 

and December 31, 2013

 

15 million

 

1 - month LIBOR

 

3.14

%

May 2012

 

May 2017

 

 

 

$

40 million

 

 

 

 

 

 

 

 

 

 

Fair Value Hedges

 

The Company enters into foreign exchange forward contracts to economically 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 are recognized in earnings in Other income (expense), net. As of June 30, 2014 and December 31, 2013 the total notional amounts of the Company’s forward contracts used as fair value hedges were $244.3 million and $204.5 million, respectively.

 

12



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Derivative Valuation and Settlements

 

The Company’s derivatives as of June 30, 2014 and December 31, 2013 were as follows (in thousands):

 

 

 

June 30, 2014

 

 

 

Designated as Hedging Instruments

 

Not Designated as Hedging
Instruments

 

 

 

Foreign
Exchange

 

Interest Rate

 

Foreign
Exchange

 

Leases

 

Derivative contracts:
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

 

$

2,853

 

$

 

$

2,472

 

$

 

Other long-term assets

 

8,915

 

 

 

 

Other current liabilities

 

(4,870

)

(1,044

)

(321

)

 

Other long-term liabilities

 

(4,780

)

(847

)

 

 

Total fair value of derivatives, net

 

$

2,118

 

$

(1,891

)

$

2,151

 

$

 

 

 

 

December 31, 2013

 

 

 

Designated as Hedging Instruments

 

Not Designated as Hedging
Instruments

 

 

 

Foreign
Exchange

 

Interest Rate

 

Foreign
Exchange

 

Leases

 

Derivative contracts:
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

 

$

3,379

 

$

 

$

97

 

$

 

Other long-term assets

 

1,439

 

 

 

 

Other current liabilities

 

(4,595

)

(1,028

)

(815

)

(116

)

Other long-term liabilities

 

(11,708

)

(1,124

)

 

 

Total fair value of derivatives, net

 

$

(11,485

)

$

(2,152

)

$

(718

)

$

(116

)

 

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income for the three months ended June 30, 2014 and 2013 were as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

 

2014

 

2013

 

 

 

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 (loss) - effective portion, net of tax

 

$

10,049

 

$

(103

)

$

(12,956

)

$

155

 

 

 

 

 

 

 

 

 

 

 

Amount and location of net gain or (loss) reclassified from accumulated OCI to income - effective portion:

 

 

 

 

 

 

 

 

 

Revenue

 

$

(1,472

)

$

 

$

2,850

 

$

 

Interest Expense

 

 

(265

)

 

(257

)

 

13



Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

 

 

2014

 

2013

 

 

 

Not Designated as Hedging Instruments

 

Not Designated as Hedging Instruments

 

 

 

Foreign Exchange

 

Leases

 

Foreign Exchange

 

Leases

 

Derivative contracts:
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 Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of services

 

$

 

$

 

$

 

$

 

$

 

$

44

 

Other income (expense), net

 

$

 

$

(2,825

)

$

 

$

 

$

(2,685

)

$

 

 

The effects of derivative instruments on the Consolidated Statements of Comprehensive Income for the six months ended June 30, 2014 and 2013 were as follows (in thousands):

 

 

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

 

 

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 (loss) - effective portion, net of tax

 

$

 6,457

 

$

 (160

)

$

 (8,744

)

$

 42

 

 

 

 

 

 

 

 

 

 

 

Amount and location of net gain or (loss) reclassified from accumulated OCI to income - effective portion:

 

 

 

 

 

 

 

 

 

Revenue

 

$

 (3,043

)

$

 

$

 6,310

 

$

 

Interest Expense

 

 

 (523

)

 

 (514

)

 

 

 

Six Months Ended June 30,

 

 

 

2014

 

2013

 

 

 

Not Designated as Hedging Instruments

 

Not Designated as Hedging Instruments

 

 

 

Foreign Exchange

 

Leases

 

Foreign Exchange

 

Leases

 

Derivative contracts:
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 Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of services

 

$

 

$

 

$

116

 

$

 

$

 

$

113

 

Other income (expense), net

 

$

 

$

(2,206

)

$

 

$

 

$

(1,247

)

$

 

 

(7)                                 FAIR VALUE

 

The authoritative guidance for fair value measurements establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 —                Quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.

 

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Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Level 3 —                Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

The following presents information as of June 30, 2014 and December 31, 2013 for the Company’s assets and liabilities required to be measured at fair value on a recurring basis, as well as the fair value hierarchy used to determine their fair value.

 

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

 

Debt - The Company’s debt consists primarily of the Company’s Credit Agreement, which permits floating-rate borrowings based upon the current Prime Rate or LIBOR plus a credit spread as determined by the Company’s leverage ratio calculation (as defined in the Credit Agreement). As of June 30, 2014 and December 31, 2013, the Company had $100.0 million and $100.0 million, respectively, of borrowings outstanding under the Credit Agreement. During the three and six months ended June 30, 2014 outstanding borrowings accrued interest at an average rate of 1.2% and 1.2% per annum, respectively, excluding unused commitment fees. The amounts recorded in the accompanying balance sheets approximate fair value due to the variable nature of the debt.

 

Derivatives - Net derivative assets (liabilities) are measured at fair value on a recurring basis. The portfolio is valued using models based on market observable inputs, including both forward and spot foreign exchange rates, interest rates, implied volatility, and counterparty credit risk, including the ability of each party to execute its obligations under the contract. As of June 30, 2014, credit risk did not materially change the fair value of the Company’s derivative contracts.

 

The following is a summary of the Company’s fair value measurements for its net derivative assets (liabilities) as of June 30, 2014 and December 31, 2013 (in thousands):

 

As of June 30, 2014

 

 

 

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)

 

At Fair Value

 

Cash flow hedges

 

$

 

$

2,118

 

$

 

$

2,118

 

Interest rate swaps

 

 

(1,891

)

 

(1,891

)

Embedded derivatives

 

 

 

 

 

Fair value hedges

 

 

2,151

 

 

2,151

 

Total net derivative asset (liability)

 

$

 

$

2,378

 

$

 

$

2,378

 

 

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Table of Contents

 

TELETECH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

As of December 31, 2013

 

 

 

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)

 

At Fair Value

 

Cash flow hedges

 

$

 

$

(11,485

)

$

 

$

(11,485

)

Interest rate swaps

 

 

(2,152

)

 

(2,152

)

Fair value hedges

 

 

(718

)

 

(718

)

Embedded derivatives

 

 

(116

)

 

(116

)

Total net derivative asset (liability)

 

$

 

$

(14,471

)

$

 

$

(14,471

)

 

The following is a summary of the Company’s fair value measurements as of June 30, 2014 and December 31, 2013 (in thousands):

 

As of June 30, 2014

 

 

 

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

 

$

 

$

241

 

$

 

Derivative instruments, net

 

 

2,378

 

 

Total assets

 

$

 

$

2,619

 

$

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deferred compensation plan liability

 

$

 

$

(8,070

)

$

 

Derivative instruments, net

 

 

 

 

Contingent consideration

 

 

 

(12,481

)