50% OF CONTACT CENTERS HAVE NO ANALYTICS CAPABILITIES
// MORE THAN ONE-THIRD OF INTERACTIONS ARE NOW
DIGITAL, TEN YEARS AGO THAT NUMBER WAS ZERO //
CUSTOMER AUTHENTICATION
IS A $12BN UNADDRESSED
COST OPPORTUNITY // CUSTOMERS LOSE TWO DAYS OF
WORK A YEAR WAITING FOR IN-HOME APPOINTMENTS //
IVRS ACCOUNT FOR NEARLY 30% OF CALL EXPERIENCES,
YET ONLY 7% OUTPERFORM THE ORGANIZATIONS’ LIVE
ASSOCIATE EXPERIENCE // BY 2020, NEARLY 85% OF ALL
CUSTOMER INTERACTIONS WILL BE SELF-SERVICE // ONLY ONE
IN TEN ORGANIZATIONS VIEW REAL-TIME CX ANALYTICS // LESS
THAN HALF OF CONTACT CENTER INTELLIGENCE IS SHARED
WITH THE REST OF THE ORGANIZATION // OVERALL CUSTOMER
SATISFACTION IS DOWN FOR THE FOURTH CONSECUTIVE
YEAR // NEARLY ONE-THIRD OF CONTACT CENTERS DON’T
HAVE A WORKFORCE MANAGEMENT SYSTEM // CUSTOMER
INTERACTIONS ARE INCREASING BUT VOICE INTERACTIONS
ARE DECREASING // LESS THAN ONE-THIRD OF ASSOCIATES
ENGAGE IN SERVICE-TO-SALES // 80% OF CEOS BELIEVE THEIR
BRAND DELIVERS A GREAT CUSTOMER EXPERIENCE, BUT
LESS THAN 10% OF THE BRANDS’ CUSTOMERS AGREE
TeleTech is a leading global provider of customer experience, engagement, and growth solutions.
Founded in 1982, the company helps its clients acquire, retain, and grow profitable customer
relationships. Using customer-centric strategy, technology, processes, and operations, TeleTech
partners with business leadership across marketing, sales, and customer care to design and deliver
a simple, more human customer experience across every interaction channel.
Servicing over 80 countries, TeleTech’s 46,000 employees live by a set of customer-focused values
that guide relationships with clients, their customers, and each other.
To learn more about how TeleTech is bringing humanity to the customer experience, visit us at
TeleTech.com.
9197 South Peoria Street | Englewood, CO 80112-5833 | 303.397.8100 or 1.800.835.3832
Global Headquarters
teletech.com
LEAD EVERY DAY | DO THE RIGHT THING | REACH FOR AMAZING | SEEK FIRST TO UNDERSTAND | ACT AS ONE | LIVE LIFE PASSIONATELY
Financial Highlights
($ in millions, except per share data)
Revenue in millions
Operating Income in millions
Net Income
Per Diluted Share
$1,241.8
$1,286.8
$1,193.2
$101.4
$96.5
$90.2
$1.29
$1.44
$1.26
2013
2014
2015
2013
2014
2015
2013
2014
2015
Non-GAAP*
$1,194.4
$1,241.8
$1,350.5
$107.9
$100.2
$115.0
$1.48
$1.43
$1.48
Revenue
EBITDA
Operating income
Operating margin
EBIT
Net income
Average diluted shares outstanding
Net income per diluted share
Cash and cash equivalents
Total debt
Capital expenditures
2013
$ 1,193.2
$ 139.0
$ 101.4
8.5%
$ 92.9
$ 67.4
52.2
$ 1.29
$ 158.0
$ 109.8
$ 50.4
2014
$ 1,241.8
$ 157.1
$ 96.5
7.8%
$ 100.5
$ 72.3
50.1
$ 1.44
$ 77.3
$ 105.9
$ 67.6
2015
$ 1,286.8
$ 151.9
$ 90.2
7.0%
$ 88.1
$ 61.7
49.0
$ 1.26
$ 60.3
$ 107.3
$ 66.6
2015 Revenue by Vertical Market
2015 Revenue by Segment
Telecommunications, Internet,
Media and Entertainment
Financial Services
Healthcare
Automotive
Technology
Other
Retail
Government
4%3%
6%
33%
8%
13%
14%
19%
*For reconciliation to Non-GAAP Figures, see page 7.
Customer Management
Services
Customer Technology
Services
Customer Growth
Services
7%
10%
Customer Strategy
12%
Services
71%
Kenneth D. Tuchman
Founder, Chairman and
Chief Executive Officer
Our focus: customer experience,
engagement and growth
TeleTech is sitting
squarely at the
intersection of
a customers’
needs, wants
and desires and a
company’s ability
to meet them.
Dear Shareholders,
2015 was a productive year for TeleTech. We achieved another year of strong bookings,
added marquee brands to our client portfolio, expanded our integrated suite of offerings,
and launched exciting new products. In over 80 countries, we helped clients improve their
customer Net Promoter Score, increase first call resolution, reduce attrition, expand wallet
share, and grow customer lifetime value. As a result, on a non-GAAP constant currency basis,
we reported year-over-year growth in revenue, operating income, cash flow from operations,
and earnings per share.
Our performance signals that we are making significant progress helping our clients improve the
quality of their customers’ experiences. However, if you ask the average customer on the street,
they would probably disagree. The statistics on the cover of our annual report shine a bright
light on the gap between customer expectations and reality. One of the most glaring points
comes from a recent Gartner study. It reports that 80 percent of CEOs think they are delivering
a superior experience. In contrast, less than 10 percent of their customers agree. And therein lies
our unique opportunity. TeleTech is sitting squarely at the intersection of a customers’ needs,
wants and desires and a company’s ability to meet them.
Crossing the divide
Companies are still approaching the customer experience with an inside-out strategy. They are
addressing the challenge through an outdated lens of how things used to be – the days when
corporate systems and processes ruled how customers made contact. Those days are ending.
Back in the day, customers used one, or maybe two, channels to interact with a brand. Today,
the choices are extensive and growing. Customer journeys used to be linear. Today, they are
multidimensional and disconnected, and include dozens of micro-moments that happen on a
mobile phone, through a text, social media, on the web, or in a retail store. And, customers used
to be patient and willing to wait for a response. Today, in the absence of instant gratification, they
move on to the competition. If that’s not bad enough, they leave behind a visceral social media
trail that recommends their followers do the same.
Today, a handful of companies have built their businesses to anticipate the needs of today’s
digitally sophisticated and capricious customers. These customer-centric brands are leading
the pack and reaping the rewards of growth, profitability and passionate customer loyalty.
…we help our
clients orchestrate
exceptional
customer
experiences that
are seamless,
personalized
and simple.
Their competitors are scrambling to catch up and gain an outside-in view, but are falling short
because they are woefully unprepared. These businesses are not structured to meet the
demands of today’s customers. They don’t have a customer-focused strategy, they don’t have
an integrated technology platform, and they don’t have the people and the culture to make
the changes to help them survive.
Digital disruption creates opportunity
As the speed of digital disruption accelerates, the situation will only grow more challenging.
The race is on, but countless well-known and respected brands can’t magically change
overnight. They have decades of systems, technologies and processes that need to evolve
to keep up with the digital revolution.
Why? Because change of this magnitude is hard, costly and takes courage. It takes a team of
technology and customer experience innovators to turn the digital tide. Over the past several years,
we’ve evolved our platform to become that company. We’ve been focused on building a solution to
help brands successfully navigate this unchartered territory. And we are now just beginning to hit
our stride.
− Through our customer strategy services, we help leaders become obsessive in their desire
to understand their customers better. We provide them with the data, the processes and the
organizational transformation tools to help them see the world through their customers’ eyes.
− Through our customer technology services, we architect and deploy the systems that make
interactions seamless and more affordable.
− With our customer management services, we enable organizations to deliver personalized
experiences at scale.
− With our customer growth services, we leverage digital tools to engage new customers at the
precise moment they are ready to buy.
And, when we weave our capabilities together across our segments, we help our clients
orchestrate exceptional customer experiences that are seamless, personalized and simple.
Poised and ready
But, we know that is not enough. Customer demand for effortless, cross-channel experiences
drives the market to move at mach speed. The contact center in the form that we know today
will not exist in the future. As the number and types of communication channels proliferate, the
way that companies and their customers interact will change dramatically. And we are ready.
Since the beginning, we’ve had a single-minded purpose. To bring humanity to the customer
experience by simplifying interactions between brands and their customers. We’ve been deliberate
and invested to stay ahead of the curve and today we have all of the strategic, technological and
operational capabilities our clients need to compete and win in the new marketplace.
We knew it then and continue to believe it more every day, the best customer experience
comes at the lowest cost to serve. We see it on the front lines. When we help our nearly 300
clients remove the friction, their customers are happier, their employees are more effective,
their bottom line improves, and their brand is recognized as compassionate and preferred.
We continue to be incredibly proud of our more than 44,000 employees who are driving
our transformation to a customer experience managed services company. As our customer
strategists, data analysts, digital designers, systems architects, change leaders, and customer
experience associates continue to work side by side, we are creating new and better ways to
design and deliver customer experiences that are simple and elegant. Working together, we
are helping our clients not only navigate, but become leaders in the experience economy by
forging empathetic and profitable relationships with their customers.
We remain confident in our path, resolute in our approach, and optimistic about our future.
We have a growing, prestigious client base, differentiated value proposition, and a diverse,
talented, and dedicated global employee base. Together, we are strong, committed and
ready for where the market is today and where it will be heading tomorrow.
Thank you for your continuing support.
Kenneth D. Tuchman
Founder, Chairman and Chief Executive Officer
TeleTech is sitting squarely at the
center of a customers’ needs, wants
and desires and a company’s ability
to meet them. Our outcome-based
managed services platform delivers
all the capabilities a brand needs
to achieve and maintain customer
experience differentiation.
Exceptional customer experience:
deliver all the capabilities a company
needs to design and deliver a seamless
customer experience across any
channel a customer chooses - text,
chat, voice, video, co-browse, email,
and even face-to-face.
Deepen customer engagement:
use customer insight to increase their
connection and loyalty to a brand.
Accelerate and ignite growth:
harness the power of analytics and
digital tools to drive sales at the
lowest cost.
Orchestrate digital journeys:
activate and integrate information
from real time interactions to deliver
simple, relevant, personalized
interactions across every touch point.
Reconciliation of Non-GAAP Revenue (in millions)
Revenue
Changes due to foreign currency fluctuations
Lost revenue due to weather
Non-GAAP Revenue
2013
2014
2015
$ 1,193.2
$ -
$ 1.2
$ 1,194.4
$ 1,241.8
$ -
$ -
$ 1,241.8
$ 1,286.8
$ 63.7
$ -
$ 1,350.5
Reconciliation of Non-GAAP Income from Operations and Operating Margin (in millions)
GAAP Income from Operations
Restructuring charges, net
Impairment losses
Changes due to foreign currency fluctuations
Net affect of revenue lost from typhoon
Non-GAAP Income from Operations
Non-GAAP Operating Margin
2013
2014
2015
$ 101.4
$ 4.4
$ 1.2
$ -
$ 0.8
$ 107.9
9.0%
$ 96.5
$ 3.4
$ 0.4
$ -
$ -
$ 100.2
8.1%
$ 90.2
$ 1.8
$ 8.1
$ 14.9
$ -
$ 115.0
8.5%
Reconciliation of Non-GAAP Net Income and Net Income per Diluted Share (in millions except per share data)
GAAP Net Income
Asset impairment and restructuring charges, net of related taxes
Deconsolidation of subsidiary
Changes in acquisition earn-outs, net of related taxes
Net affect from revenue lost from typhoon, net of related taxes
Changes in valuation allowance and return to provision adjustments
Non-GAAP Net Income
Average diluted shares outstanding
Non-GAAP Net Income per Diluted Share
Reconciliation of Free Cash Flow (in millions)
Net cash provided by operating activities
Purchases of property, plant and equipment
Free Cash Flow
2013
2014
2015
$ 67.4
$ 3.8
$ 3.6
$ 1.1
$ 0.6
$ 0.9
$ 77.4
52.2
$ 1.48
$ 72.3
$ 2.5
$ -
$ (2.8)
$ -
$ (0.1)
$ 71.8
50.1
$ 1.43
$ 61.7
$ 6.6
$ -
$ 0.3
$ -
$ 3.9
$ 72.5
49.0
$ 1.48
2013
2014
2015
$ 138.0
$ 50.4
$ 87.6
$ 94.1
$ 67.6
$ 26.4
$ 133.8
$ 66.6
$ 67.2
Cautionary Note About Forward-Looking Statements This Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of
1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995, relating to our operations, expected financial position,
results of operation, and other business matters that are based on our current expectations, assumptions, and projections with respect to the future, and are not a guarantee
of performance. In this report, when we use words such as “may,” “believe,” “plan,” “will,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “would,” “could,” “target,” or similar
expressions, or when we discuss our strategy, plans, goals initiatives, or objectives, we are making forward-looking statements.
We caution you not to rely unduly on any forward-looking statements. Actual results may differ materially from what is expressed in the forward-looking statements, and
you should review and consider carefully the risks, uncertainties and other factors that affect our business and may cause such differences as outlined but are not limited to
factors discussed in the section entitled “Risk Factors” of TeleTech Annual Report on Form 10-K. Our forward looking statements speak only as of the date that this report is
filed with the United States Securities and Exchange Commission and we undertake no obligation to update them, except as may be required by applicable laws.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2015
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-11919
TeleTech Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
84-1291044
(I.R.S. Employer
Identification No.)
9197 South Peoria Street
Englewood, Colorado 80112
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(303) 397-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
NASDAQ Global Select Market
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. Yes No
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 No
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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting
company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, there were
48,232,405 shares of the registrant’s common stock outstanding. The aggregate market value of the registrant’s voting and non-
voting common stock that was held by non-affiliates on such date was $435,686,329 based on the closing sale price of the
registrant’s common stock on such date as reported on the NASDAQ Global Select Market.
As of March 7, 2016, there were 48,343,409 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required for Part III of this report is incorporated by reference to the proxy statement for the registrant’s 2016
annual meeting of stockholders.
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
DECEMBER 31, 2015 FORM 10-K
TABLE OF CONTENTS
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
AVAILABILITY OF INFORMATION
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountants Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF TELETECH
HOLDINGS, INC.
Page No.
ii
ii
1
7
16
16
17
17
18
21
23
40
42
43
43
46
47
47
47
47
47
48
51
F-1
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities
Litigation Reform Act of 1995, relating to our operations, expected financial position, results of operation,
and other business matters that are based on our current expectations, assumptions, and projections with
respect to the future, and are not a guarantee of performance. In this report, when we use words such as
“may,” “believe,” “plan,” “will,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “would,” “could,” “target,”
or similar expressions, or when we discuss our strategy, plans, goals, initiatives, or objectives, we are
making forward-looking statements.
We caution you not to rely unduly on any forward-looking statements. Actual results may differ materially
from what is expressed in the forward-looking statements, and you should review and consider carefully
the risks, uncertainties and other factors that affect our business and may cause such differences as
outlined but are not limited to factors discussed in the section of this report entitled “Risk Factors”. Our
forward looking statements speak only as of the date that this report is filed with the United States Securities
and Exchange Commission (“SEC”) and we undertake no obligation to update them, except as may be
required by applicable laws.
AVAILABILITY OF INFORMATION
TeleTech Holdings, Inc.’s principal executive offices are located at 9197 South Peoria Street, Englewood,
Colorado 80112. Electronic copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, Proxy Statements and any amendments to these reports are available free
of charge by (i) visiting our website at http://www.teletech.com/investors/sec-filings/ or (ii) sending a written
request to Investor Relations at our corporate headquarters or to investor.relations@teletech.com.
TeleTech’s SEC filings are posted on our corporate website as soon as reasonably practical after we
electronically file such materials with, or furnish them to, the SEC. Information on our website is not
incorporated by reference into this report.
You may also access any materials that we file with the SEC at the SEC’s Public Reference Room at 100
F. Street, N.E., Room 1580, Washington, D.C. 20549 (telephone number 1-800-SEC-0330); or via the
SEC’s public website at www.sec.gov.
ii
PART I
ITEM 1. BUSINESS
Our Business
TeleTech Holdings, Inc. (“TeleTech”, “the Company”, “we”, “our” or “us”) is a customer engagement
management service provider that delivers integrated consulting, technology, growth and customer care
solutions on a global scale. Our suite of products and services allows us to design and deliver engaging,
outcome-based customer experiences across numerous interaction channels. Our solutions are supported
by 44,000 employees delivering services in 24 countries from 67 delivery centers on six continents. Our
revenue for fiscal 2015 was $1,287 million.
Since our establishment in 1982, we have helped clients strengthen their customer relationships, brand
recognition and loyalty through customer engagement solutions. We deliver thought leadership, technology
and innovation that create customer strategies designed to differentiate our clients from their competition;
data analytics that personalize interactions and increase customer value; and integration services that
connect clients’ customer relationship management (“CRM”) system to a cloud-based collaboration
platform, leading to customer interactions that are seamless and relevant.
Our services are value-oriented, outcome-based, and delivered on a global scale across all of our business
segments: Customer Management Services (“CMS”), Customer Growth Services (“CGS”), Customer
Technology Services (“CTS”) and Customer Strategy Services (“CSS”). Our integrated customer
experience managed services platform differentiates the Company by combining strategic consulting, data
analytics, process optimization, system design and integration, operational excellence, and technology
solutions and services.
We have developed tailored expertise in the automotive, communications, financial services, government,
healthcare, logistics, media and entertainment, retail, technology, travel and transportation industries. We
target customer-focused industry leaders in the Global 1000 and serve approximately 300 global clients.
To improve our competitive position in a rapidly changing market and stay strategically relevant to our
clients, we continue to invest in innovation and growth businesses, diversifying our heritage business
process outsourcing services of our CMS segment into higher-value consulting, data analytics, digital
marketing and technology-enabled services. Of the $1,287 million in revenue we reported in 2015,
approximately 29% or $373 million came from the CGS, CTS and CSS segments (our “Emerging
Segments”), focused on customer-centric strategy, growth or technology-based services, with the
remainder of our revenue coming from the heritage business process outsourcing focused CMS segment.
Consistent with our growth and diversification strategy, we continue to invest in technology differentiation,
analytics, cloud computing and digital marketing. We also invest in businesses that accelerate our strategy:
in 2014, we acquired Sofica Group, a Bulgarian customer management services company which provides
our clients with the capabilities of 18 additional languages while contributing to the geographic and time
zone diversity of our footprint; and rogenSi, a global leadership, change management and sales consulting
company that further diversifies our consulting offerings.
1
Our business is structured and reported in the following four segments:
Operating Segments and Industry Verticals
CMS
CGS
CTS
CSS
Automotive
Communication
Financial Services
Government
Healthcare
Media and Entertainment
Retail
Technology
Automotive
Communication
Financial Services
Healthcare
Media and Entertainment Healthcare
Technology
Travel and Transportation Retail
Automotive
Communication
Financial Services
Government
Automotive
Communication
Financial Services
Government
Healthcare
Technology
Media and Entertainment Media and Entertainment
Technology
Travel and Transportation
Our strong balance sheet, cash flows from operations and access to debt and capital markets have
historically provided us the financial flexibility to effectively fund our organic growth, capital expenditures,
strategic acquisitions and incremental investments. Additionally, we continue to return capital to our
shareholders via an ongoing stock repurchase program and regular semi-annual dividends. As of
December 31, 2015, our cumulative authorized repurchase allowance was $662.3 million, of which we
repurchased 42.8 million shares for $642.8 million. For the period from January 1, 2016 through March 7,
2016, we purchased 217,346 additional shares at a cost of $5.6 million. The stock repurchase program
does not have an expiration date. Effective February 18, 2016, the Board of Directors authorized an
increase in the share repurchase allowance of $25 million.
On February 24, 2015, our Board of Directors adopted a dividend policy, with the intent to distribute a
periodic cash dividend to stockholders of our common stock, after consideration of, among other things,
TeleTech’s performance, cash flows, capital needs and liquidity factors. Given our cash flow generation
and balance sheet strength, we believe cash dividends and early returns to shareholders through share
repurchases, in balance with our investments in innovation and strategic acquisitions, align shareholder
interests with the needs of the Company. The initial dividend of $0.18 per common share was paid on
March 16, 2015 to shareholders of record as of March 6, 2015. An additional dividend of $0.18 per common
share was paid on October 14, 2015 to shareholders of record as of September 30, 2015. Effective February
18, 2016, the Board of Directors authorized an increase in the semi-annual dividend to $0.185 per common
share, payable on April 15, 2016 to shareholders of record as of March 31, 2016.
Our Market Opportunity
We believe that exceptional customer engagement creates sustainable economic value for our clients and
our market opportunities are defined by the following trends:
Increasing focus on customer engagement to sustain competitive advantage. — Our ability to
sustain a competitive advantage based on price or product differentiation has significantly
narrowed given the speed of technological innovation. As customers become more connected and
widely broadcast their experiences across a variety of social networking channels, the quality of
the experience has a profound impact on brand loyalty and business performance. We believe
customers are increasingly shaping their attitudes, behaviors and willingness to recommend or
stay with a brand on the totality of their experience, including not only the superiority of the product
or service but more importantly on the quality of their ongoing service interactions. Given the strong
correlation between high customer satisfaction and improved profitability, we believe more
companies are increasingly focused on selecting third-party partners, such as TeleTech, who can
deliver an analytic-driven, integrated solution that increases the lifetime value of each customer
relationship versus merely reducing costs.
2
Increasing percentage of companies consolidating their customer engagement requirements with
the few select partners who can deliver measurable business outcomes by offering an integrated,
technology-rich solution. — The proliferation of mobile communication technologies and devices
along with customers’ increased access to information and heightened expectations are driving
the need for companies to implement enabling technologies that ensure customers have the best
experience across all devices and channels. These two-way interactions need to be received or
delivered seamlessly via the customer channel of choice and include voice, email, chat, SMS text,
intelligent self serve, virtual agents and the social network. We believe companies will continue to
consolidate to third-party partners, like TeleTech, who have demonstrated expertise in increasing
brand value by delivering a holistic, integrated customer-centric solution that spans strategy to
execution versus the time, expense and often failed returns resulting from linking together a series
of point solutions from different providers.
Focus on speed-to-market by companies launching new products or entering new geographic
locations. — As companies broaden their product offerings and enter new markets, they are
looking for partners that can provide speed-to-market while reducing their capital and operating
risk. To achieve these benefits, companies select us because of our extensive operating track
record, established global footprint, financial strength, commitment to innovation, and our ability
to quickly scale infrastructure and complex business processes around the globe in a short period
of time while assuring a high-quality experience for their customers.
Our Strategy
We aim to grow our revenue and profitability by focusing on higher margin, data and technology-enabled
services that drive a superior customer experience and engagement. To that end we plan to continue:
Building deeper, more strategic relationships with existing global clients to drive enduring,
transformational change within their organizations;
Pursuing new clients who lead their respective industries and who are committed to the customer
engagement as a differentiator;
Investment in our Global Markets and Industries sales leadership team;
Executing strategic acquisitions that further complement and expand our integrated solution; and
Investing in innovative technology-enabled platforms and innovating through proprietary
technology advancements, broader and globally protected intellectual property, and process
optimization.
Our Integrated Service Offerings and Business Segments
We have four operating and reportable segments, which provide an integrated set of services including:
Customer Strategy Services
We typically begin by engaging our clients at a strategic level. Through our strategy, change management
and analytics-driven consulting expertise, we help our clients design, build and execute their customer
engagement strategies. We help our clients to better understand and predict their customers’ behaviors
and preferences along with their current and future economic value. Using proprietary analytic models, we
provide the insight clients need to build the business case for customer centricity, to better optimize their
marketing spend and then work alongside them to help implement our recommendations. A key component
of this segment involves instilling a high performance culture through management and leadership
alignment and process optimization.
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Customer Technology Services
Once the design of the customer engagement is completed, our ability to architect, deploy and host or
manage the client’s customer management environments becomes a key enabler to achieving and
sustaining the client’s customer engagement vision. Given the proliferation of mobile communication
technologies and devices, we enable our clients’ operations to interact with their customers across the
growing array of channels including email, social networks, mobile, web, SMS text, voice and chat. We
design, implement and manage cloud, on-premise or hybrid customer management environments to deliver
a consistent and superior experience across all touch points on a global scale that we believe result in
higher quality, lower costs and reduced risk for our clients. Through our proprietary Humanify™ technology,
we also provide data-driven context aware SaaS-based solutions that link customers seamlessly and
directly to appropriate resources, any time and across any channel.
Customer Management Services
We design and manage clients’ front-to-back office processes to deliver just-in-time, personalized, multi-
channel interactions. Our front-office solutions seamlessly integrate voice, chat, email, e-commerce and
social media to optimize the customer experience for our clients. In addition, we manage certain client back-
office processes to enhance their customer-centric view of relationships and maximize operating
efficiencies. Our delivery of integrated business processes via our onshore, offshore or work-from-home
associates reduces operating costs and allows customer needs to be met more quickly and efficiently,
resulting in higher satisfaction, brand loyalty and a stronger competitive position for our clients.
Customer Growth Services
We offer integrated sales and marketing solutions to help our clients boost revenue in new, fragmented or
underpenetrated business-to-consumer or business-to-business markets. We deliver approximately $2
billion in client revenue annually via the acquisition, growth and retention of customers through a
combination of our highly trained, client-dedicated sales professionals and our proprietary Revana Analytic
Multichannel PlatformTM. This platform continuously aggregates individual customer information across all
channels into one holistic view so as to ensure more relevant and personalized communications. As a result
of our acquisition of the digital agency WebMetro, we have developed an integrated marketing-to-sales
platform that links online searches to live sales through a closed loop, multichannel interface. This platform
uses proprietary tools and methodology to capture and use more than 400 marketing and sales data points
to engage with customers in relevant conversations.
Based on our clients’ requirements, we provide our services on an integrated cross-business segment
and on a discrete basis.
Additional information with respect to our segments and geographic footprint is included in Part II, Item 8.
Financial Statements and Supplementary Data, Note 3 to the Consolidated Financial Statements.
Our Competitive Strengths
We believe our integrated suite of services and holistic approach to customer engagement is an industry
differentiator. Our end-to-end capabilities, from customer strategy and technology services to customer
management and growth services, improve customer outcomes, increase satisfaction and loyalty,
strengthen operating effectiveness and efficiencies, and drive long-term growth and profitability for our
clients. We also believe that our technological solutions, innovative human capital strategies and globally
scaled and deployed best practices are key elements to our continued industry leadership.
As the complexity and pace of technological change required to deliver a multi-channel customer
engagement increases, the successful execution of our principal corporate strategies is based on our
competitive strengths, which are briefly described below:
Our industry reputation and leadership position with over three decades of expertise delivering
integrated customer engagement solutions provides our clients with the ability to enable, manage
and grow the value of every customer relationship;
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Multi-channel, multi-modal solutions that meet the rapidly changing profile of the customer and
their heightened expectations;
Scalable technology and human capital infrastructure using globally deployed best practices to
ensure a consistent, high-quality service;
Tailored and optimized customer care delivery through the use of proprietary workforce hiring,
training and performance optimization methodology and tools; and
Commitment to continued product and services innovation that enhances the strategic capabilities
of our clients.
Technological Excellence
Our technology platform is based on a secure, private, 100% internet protocol based infrastructure. This
architecture enables us to centralize and standardize our worldwide delivery capabilities resulting in
improved scalability and quality of delivery for our clients, as well as lower capital, and lower information
technology (“IT”) operating costs.
The foundation of this platform is our four IP hosting centers known as TeleTech GigaPOPs®, which are
located on three continents. Our GigaPOPs® provide a fully integrated suite of voice and data routing,
workforce management, quality monitoring, business analytic and storage capabilities, enabling seamless
operations from any location around the globe. This hub and spoke model enables us to provide our
services at the lowest cost while increasing scalability, reliability, asset utilization and the diversity of our
service offerings. It also provides an effective redundancy to address ordinary course system interruptions
and outages due to natural disasters and other force majeure conditions.
To ensure high end-to-end security and reliability of this critical infrastructure, we monitor and manage the
TeleTech GigaPOPs® 24 x 7, 365 days per year from several strategically located global command centers
as well as providing redundant, fail-over capabilities for each GigaPOP® to address ordinary course system
interruptions and outages due to natural disasters and other force majeure conditions.
Importantly, this platform has become the foundation for new, innovative offerings including TeleTech’s
cloud-based offerings, TeleTech@Home and our suite of human capital solutions.
Innovative Human Capital Strategies
Our globally located, highly trained employees are a crucial component of the success of our business. We
have made significant investments in proprietary technologies, management tools, methodologies and
training processes in the areas of talent acquisition, learning services, knowledge management, workforce
collaboration and performance optimization. These capabilities are the culmination of more than three
decades of experience in managing large, global workforces combined with the latest technology,
innovation and strategy in the field of human capital management. This capability has enabled us to deliver
a consistent, scalable and flexible workforce that is highly engaged in achieving or exceeding our clients’
business objectives.
Globally Deployed Best Operating Practices
Globally deployed best operating practices assure that we deliver a consistent, scalable, high-quality
experience to our clients’ customers from any of our 67 delivery centers and work from home associates
around the world. Standardized processes include our approach to attracting, screening, hiring, training,
scheduling, evaluating, coaching and maximizing associate performance to meet our clients’ needs. We
provide real-time reporting on performance across the globe to ensure consistency of delivery. In addition,
this information provides valuable insight into what is driving customer inquiries, enabling us to proactively
recommend process changes to our clients to optimize their customers’ experience.
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Our global operating model includes delivery centers in 17 countries on six continents that operate 24 hours
a day, 365 days a year. New delivery centers are established and existing centers are expanded or scaled
down to accommodate anticipated business demands or specific client needs. We continue to expand our
capacity in the Philippines and Latin America to leverage demand and favorable cost efficiencies, and are
exploring opportunities in Central Europe and Africa to augment our multi-lingual service offerings and
continue to diversify our footprint.
Of the 17 countries from which we provide customer management solutions, 11 provide services for
onshore clients including the U.S., Australia, Brazil, China, Germany, Ireland, Macedonia, New Zealand,
South Africa, Thailand, and the United Kingdom. The total number of workstations in these countries is
12,900, or 36% of our total delivery capacity. The other six countries provide services, partially or entirely,
for offshore clients including Bulgaria, Canada, Costa Rica, Mexico, Poland, and the Philippines. The total
number of workstations in these countries is 22,500 or 64% of our total delivery capacity.
See Item 1A. Risk Factors for a description of the risks associated with our foreign operations.
Clients
We develop long-term relationships with Global 1000 companies in customer intensive industries, whose
business complexities and customer focus requires a partner that can quickly and globally scale integrated
technology and data-enabled services.
In 2015, our top five and ten clients represented 35% and 48% of total revenue, respectively; and one of
our clients, Telstra Corporation Limited, represented 10% of our total annual revenue. In several of our
operating segments, we enter into long-term relationships which provide us with a more predictable revenue
stream. Although most of our contracts can be terminated for convenience by either party, our relationships
with our top five clients have ranged from two to 19 years including multiple contract renewals for several
of these clients. In 2015, we had a 96% client retention rate for the combined Customer Management
Services and Customer Growth Services segments.
Certain of our communications clients provide us with telecommunication services through arm’s length
negotiated transactions. These clients currently represent approximately 17% of our total annual revenue.
Expenditures under these supplier contracts represent less than one percent of our total operating costs.
Competition
We are a diverse, global customer engagement management company. Our competitors vary by geography
and business segment, and range from large multinational corporations to smaller, narrowly-focused
enterprises. Across our lines of business, the principal competitive factors include: client relationships,
technology and process innovation; integrated solutions, operational performance and efficiencies, pricing,
brand recognition and financial strength.
Our strategy in maintaining market leadership is to prudently invest, innovate and provide integrated value-
driven services, all centered around customer engagement management. Today, we are executing on a
more expansive, holistic strategy by transforming our business into higher-value offerings through organic
investments and strategic acquisitions. As we execute, we are differentiating ourselves in the marketplace
and entering new markets that introduce us to an expanded competitive landscape.
In our core customer care and management competency, we primarily compete with the in-house customer
management operations of our current and potential clients, as well as other companies that provide
customer care and business process outsourcing (“BPO”) services, including: Convergys, Sykes, and
Teleperformance, among others. As we expand our offerings into customer engagement consulting,
technology, and growth, we are competing with smaller specialized companies and divisions of
multinational companies,
including Bain & Company, McKinsey & Company, Accenture, IBM,
AT&T, Interactive Intelligence, LiveOps, inContact, Five9, WPP, Publicis Groupe, Dentsu, Sitel, and others.
6
Employees
Our people are our most valuable asset. As of December 31, 2015, we had 44,000 employees in 24
countries on six continents. Although a small percentage of these employees are hired seasonally to
address the fourth quarter and first quarter higher business volumes in retail, healthcare and other seasonal
industries, most remain employed throughout the year and work at 67 locations and through our @home
environment. Approximately 67% of our employees are located outside of the U.S. Approximately 15% of
our employees are covered by collective bargaining agreements, most of which are mandated under
national labor laws outside of the United States. These agreements are subject to periodic renegotiations
and we anticipate that they will be renewed in the ordinary course of business without material impact to
our business or in a manner materially different from other companies covered by such industry-wide
agreements.
Research, Innovation, Intellectual Property and Proprietary Technology
We recognize the value of innovation in our business and are committed to developing leading-edge
technologies and proprietary solutions. Research and innovation has been a major factor in our success
and we believe that it will continue to contribute to our growth in the future. We use our investment in
research and development to create, commercialize and deploy innovative business strategies and high-
value technology solutions.
We deliver value to our clients through, and our success in part depends on, certain proprietary
technologies and methodologies. We leverage U.S. and foreign patent, trade secret, copyright and
trademark laws as well as confidentiality, proprietary information non-disclosure agreements, and key staff
non-competition agreements to protect our proprietary technology.
As of December 31, 2015 we had 92 patent applications pending in 10 jurisdictions; and own 120 U.S. and
non-U.S. patents that we leverage in our operations and as market place differentiation for our service
offerings. Our trade name, logos and names of our proprietary solution offerings are protected by their
historic use and by trademarks and service marks registered in 59 countries.
ITEM 1A. RISK FACTORS
In addition to the other information presented in this Annual Report on Form 10-K, you should carefully
consider the risks and uncertainties discussed in this section when evaluating our business. If any of these
risks or uncertainties actually occurs, our business, financial condition, results of operations (including
revenue and profitability) could be materially adversely affected and the market price of our stock may
decline.
Our markets are highly competitive and we might not be able to compete effectively
The markets where we offer our services are highly competitive. Our future performance is largely
dependent on our ability to compete successfully in markets we currently serve, while expanding into new,
profitable markets. We compete with large multinational service providers (including the service arms of
global technology providers); offshore service providers from lower-cost jurisdictions that offer similar
services, often at highly competitive prices and more aggressive contract terms; niche solution or service
providers that compete with us in a specific geographic markets, industry segments or service areas,
including companies that rely on new technologies or delivery models; and in-house functions of large
companies that use their own resources, rather than outsourcing customer care services we provide. Some
of our competitors have greater financial or marketing resources than we do and, therefore, may be better
able to compete.
Further, the continuing trend of consolidation in the technology sector and among business process
outsourcing competitors in various geographies where we have operations may result in new competitors
with greater scale, a broader footprint, better technologies and price efficiencies attractive to our clients. If
we are unable to compete successfully and provide our clients with superior service and solutions at
competitive prices, we could lose market share and clients to competitors, which would materially adversely
affect our business, financial condition, and results of operations.
7
If the TeleTech leadership team is unsuccessful in implementing our business strategy or if our new
investments are not successful, our financial condition could be adversely affected
Our growth strategy included a diversification of our business beyond contact center customer care
outsourcing to an integrated customer experience platform that unites innovative technologies, strategic
consulting, data analytics, digital marketing, client growth solutions, and customer care focused system
design and integration. The strategy also includes an accelerated investment in the development of
proprietary technologies, and the deployment of a multi business line sales function. These investments in
technologies, integrated solution development and sales, however, may not lead to increased revenue and
profitability as we may not be successful in deploying our new products and services. If we are not
successful in creating value from these investments, the investments and lack of new integrated sales could
have a negative impact on our operating results and financial condition.
Our profitability could suffer if our cost-management strategies are unsuccessful
Our ability to improve or maintain our profitability is dependent on our ability to successfully manage our
costs. Our cost management strategies include optimizing the alignment between the demand for our
services and our resource capacity, the costs of service delivery, the cost of sales, and general and
administrative costs, as a percentage of revenues. If we are not effective in managing our operating and
administrative costs in response to changes in demand and pricing for our services; if we are unable to
absorb or pass on to our clients the increases in our costs of operations, our results of operations could be
materially adversely affected.
Cyber attacks on our systems and disclosure of personal information could result in harm to our
reputation, legal liability, and service outages, any of which could adversely affect our business
and results of operations
Our business is dependent upon our information technology systems. Information security breaches,
computer viruses, interruption or loss of business data, DDoS (denial of service) attacks, and other cyber
attacks on any of these systems could disrupt the normal operations of our contact centers, our cloud
platform offerings, and our enterprise services, impeding our ability to provide critical services to our clients
and preventing key personnel from being able to perform their duties or communicate within our
organization. Our business involves the use, storage and transmission of information about our clients,
customers of our clients, and our employees. While we take reasonable measures to protect the security
of and unauthorized access to our systems and the privacy of personal and proprietary information that we
access and store, our security controls over our systems may not prevent the improper access to or
disclosure of this information. Such unauthorized access or disclosure subject us to liability under our
contracts and laws, and could harm our reputation resulting in loss of revenue, and loss of business
opportunities.
In recent years there have been an increasing number of high profile security breaches at private and public
companies and government agencies, and security experts have warned about the growing risks of
hackers, cyber criminals and a broad range of potential attacks targeting information technology systems.
While we have taken measures to protect our systems from intrusion, we cannot be certain that advances
in cyber criminal capabilities, discovery of new system vulnerabilities, and attempts to exploit such
vulnerabilities will not compromise or breach the technology protecting our systems and the information
that we manage and control. Cyber attacks may force us to expend significant additional resources in
response to system disruptions or security breaches, including additional investments in repairing system
damage, reconfiguring and rerouting systems to reduce vulnerabilities; cyber security protection costs, and
litigation and resolution of related legal claims. A significant security breach could materially harm our
business, financial condition and operating results.
8
Our results of operations and ability to grow could be materially adversely affected if we cannot
adapt our services offerings to changes in technology
Our success depends on our ability to develop and implement technology, consulting and outsourcing
services and solutions that anticipate and respond to rapid and continuing changes in technology. Areas of
significant change include mobility, cloud-based computing, and processing and analyzing large and
unstructured data. Our growth and profitability will depend on our ability to develop and adopt new
technologies that expand our existing solutions and service offerings to leverage new technological trends
and developments, and achieve cost efficiencies in our operations. We may not be successful in anticipating
or responding to new technology developments and our integration of new technologies may not achieve
their intended cost reductions. Services and technologies offered by our competitors may make our service
offerings obsolete. Our failure to innovate, maintain technological advantage, or respond effectively and
timely to transformational changes in technology could have a material adverse effect on our business,
financial condition, and results of operations.
Our cloud solutions present execution and competitive risks
We are devoting significant resources to extend our current cloud solutions which are and will continue to
be materially dependent upon certain third party infrastructure and licensed software. There can be no
assurance that such third parties will continue to support and maintain their products and services. In
addition to certain software development costs, we are incurring costs to build and maintain infrastructure
to support cloud computing services.
Certain new competitors offer alternative cloud-based services for consumers and business customers.
While we believe our expertise, investments in infrastructure, and the breadth of our cloud-based services
provide us with a solid foundation to compete, it is uncertain whether our strategies will attract the users or
generate the revenue required to be successful.
If we are unable to attract and retain industry leaders for key positions in our business, our business
and our strategy execution can be adversely impacted
Our business success depends on contributions of senior management and key personnel. Our ability to
attract, motivate and retain key senior management staff is conditioned on our willingness to pay adequate
compensation and incentives. We compete for top senior management candidates with other, often larger,
companies that at times have access to greater resources. Our ability to attract senior management is also
impacted by our requirement that members of senior management sign non-compete agreements as a
condition to joining TeleTech. If we are not able to attract and retain industry leaders, we would be unable
to compete effectively and our growth may be limited, which could have a material adverse effect on our
business, results of operations, and prospects.
A large portion of our revenue is generated from a limited number of clients and the loss of one or
more of our clients could cause adversely effect on our business
We rely on strategic, long-term relationships with large, global companies in targeted industries. As a result,
we derive a substantial portion of our revenue from relatively few clients. Our five and ten largest clients
collectively represented 35% and 48% of our revenue in 2015 while the largest client represented 10% of
our revenue in 2015.
Although we have multiple engagements with each of our largest clients and all contracts are unlikely to
terminate at the same time, the contracts with our five largest clients expire between 2016 and 2020 and
there can be no assurance that these contracts will continue to be renewed at all or be renewed on favorable
terms. The loss of all or part of a major client’s business could have a material adverse effect on our
business, financial condition and results of operations, if the loss of revenue was not replaced with profitable
business from other clients.
9
We serve clients in industries that have historically experienced a significant level of consolidation. If one
of our clients is acquired by another company (including another one of our clients) our business volume
and revenue may materially decrease due to the termination or phase out of an existing client contract,
volume discounts or other contract concessions which could have an adverse effect on our business,
financial condition, and results of operations.
Our delivery model involves geographic concentration exposing us to significant operational risks
Our business model is dependent on our service delivery centers and enterprise support functions being
located in low cost jurisdictions around the globe. We have presence in 24 countries, but our customer care
management delivery capacity and our back office functions are concentrated in the Philippines and Latin
America, and our technology solutions delivery centers are concentrated in a few locations in the United
States. Natural disasters (floods, winds and earthquakes), terrorist attacks, pandemics, insufficient
infrastructure (large-scale utilities outages, telecommunication and transportation disruptions), labor or
political unrest, and restriction on repatriation of funds at some of these locations may interrupt or limit our
ability to operate or may increase our costs. Our business continuity and disaster recovery plans, while
extensive, may not be effective, particularly if catastrophic events occur.
Our dependence on our delivery centers and enterprise services support functions in the Philippines, which
is subject to frequent severe weather, natural disasters, and occasional security threats, represents a
particular risk. This geographic concentration could result in a material adverse effect on our business,
financial condition and results of operations. Although we procure business interruption insurance to cover
some of these exposures, adequate insurance may not be available on an ongoing basis for a reasonable
price.
Our growth of operations could strain our resources and cause our business to suffer
We plan to continue growing our business organically through aggressive expansion and sales efforts and
through strategic acquisitions, while maintaining tight controls on our expenses and overhead. Lean
overhead functions combined with focused growth may place a strain on our management systems,
infrastructure and resources, resulting in internal control failures, missed opportunities, and staff attrition
which could impact our business and results of operations.
Our results of operation and share price could be adversely affected if we are unable to maintain
effective internal controls over financial reporting and we are not able to prevent or timely detect
all errors or acts of fraud
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. As disclosed in Item 9A. Controls and Procedures, our management has identified material
weaknesses in our internal control over financial reporting related to the effectiveness of our control
environment and controls over account reconciliations, journal entries, revenue, and impairments.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement in our annual or interim
financial statements will not be prevented or detected on a timely basis. As a result of the material
weaknesses discussed above, our management concluded that our internal control over financial reporting
was not effective as of December 31, 2015. Although we are taking remedial actions in response to the
identified material weaknesses in our internal control over financial reporting, there can be no assurances
that we will be able to prevent future control deficiencies, including material weaknesses, from occurring,
nor that our remediation actions will be successful. If additional material weaknesses or significant
deficiencies in our internal control over financial reporting are discovered or occur in the future, our
consolidated financial statements may contain material misstatements. These misstatements could result
in restatements of our consolidated financial statements, cause us to fail to meet our reporting obligations
or cause investors to lose confidence in our reported financial information, which could lead to a decline in
our stock price.
Any internal and disclosure controls and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Inherent
limitations within a control system include the realities that judgments in decision-making can be faulty, and
that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented
by individuals acting alone or in collusion with others to override controls.
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Accordingly, because of the inherent limitations in the design of a cost effective control system,
misstatements due to error or fraud may occur and may not always be prevented or timely detected, even
if we are successful in remediating the material weaknesses previously identified by management.
Our financial results depend on our capacity utilization and our ability to forecast demand and make
timely decisions about staffing levels, investments and operating expenses
Our ability to meet our strategic growth and profitability objectives depends on how effectively we manage
our contact center capacity against the fluctuating and seasonal client demands. Predicting customer
demand and making timely staffing level decisions, investments and other operating expenditure
commitments in each of our delivery center locations is key to our successful project execution and
profitability maximization. We can provide no assurance that we will continue to be able to achieve or
maintain desired delivery center capacity utilization, because quarterly variations in client volumes, many
of which are outside our control, can have a material adverse effect on our utilization rates. If our utilization
rates are below expectations, because of our very high fixed costs of operation, our financial conditions and
results of operations could be adversely affected.
If we cannot recruit, hire, train, and retain qualified employees in balance with the demand of our
clients, our business will be adversely affected
Our business is labor intensive and our ability to locate and train employees with the right skills at the right
price point is critical to achieving our growth objective. Demand for qualified personnel with multiple
language capabilities and fluency in English may exceed supply. Employees with new backgrounds and
skills may also be required to keep pace with evolving technologies and client demands. While we invest
and make progress in employee retention, we continue to experience high employee turnover and are
continuously recruiting and training replacement staff. Some of our facilities are located in geographies with
low unemployment, which makes it costly to hire personnel, and in several jurisdictions, jurisdiction-specific
wage regulations are changing quickly which make it difficult to recruit new employees. Our inability to
attract and retain qualified personnel at costs acceptable under our contracts, our costs associated with
attracting, training, and retaining employees, and the challenge of managing the continuously changing and
seasonal client demands could have a material adverse effect on our business, financial condition, and
results of operations.
Our commercial success is subject to the terms of our client contracts, many of which can increase
the volatility of our revenue and could impact our margins
Many of our contracts have termination for convenience clauses, which could have a material adverse effect
on our results of operation. Although many of our contracts can be terminated for convenience, our
relationships with our top five clients have ranged from two to 19 years with the majority of these clients
having completed multiple contract renewals with us. Yet, our contracts, do not guarantee a minimum
revenue level or profitability, and clients may terminate them or materially reduce customer interaction
volumes, which would reduce our earning potential. This could have a material adverse effect on our results
of operations and makes it harder to make projections.
Many of our contracts utilize performance pricing that link some of our fees to the attainment of performance
criteria, which could increase the variability of our revenue and operating margin. A majority of our contracts
include performance clauses that condition our fees on the achievement of agreed-upon performance
criteria. These performance criteria can be complex, and at times they are not entirely within our control. If
we fail to satisfy our contract performance metrics, our revenue under the contracts and our operating
margin are reduced.
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We may not always offset increased costs with increased fees under long-term contracts. The pricing and
other terms of our client contracts, particularly our long-term contact center agreements, are based on
estimates and assumptions we make at the time we enter into these contracts. These estimates reflect our
best judgments regarding the nature of the engagement and our expected costs to provide the contracted
services and could differ from actual results. Not all our larger long-term contracts allow for escalation of
fees as our cost of operations increase. While many of our contracts allow periodic fee adjustments based
on increases in certain price indices, in the past several years, our payroll costs, including healthcare costs,
have increased at rates much greater than increases in these indices. If we cannot negotiate long-term
contract terms that provide for fee adjustments to reflect increases in our cost of service delivery, our
business, financial conditions and results of operation would be materially impacted.
Our contracts seldom address the impacts of currency fluctuation on our costs of delivery. As we continue
to leverage our global delivery model, more of our expenses may be incurred in currencies other than those
in which we bill for services. An increase in the value of certain currencies, such as Australian dollar against
the US dollar and Philippine peso, could increase costs for our delivery at offshore sites by increasing our
labor and other costs that are denominated in local currencies. Our contractual provisions, cost
management efforts, and currency hedging activities may not be able to offset the currency fluctuation
impact, resulting in the decrease of the profitability of our contracts.
Our pricing depends on effectiveness of our forecasting of the level of effort. Pricing for our services in our
technology and strategic consulting businesses is highly contingent on our ability to accurately forecast the
level of effort and cost necessary to deliver our services, which is data dependent and could turn out to be
materially inaccurate. The inaccurate level of effort in project estimates could yield lower profit margins or
become unprofitable, resulting in adverse impacts on our results of operations.
We face special risks associated with our business outside of the United States
An important component of our growth strategy is service delivery outside of the United States and our
continuing international expansion. In 2015 we derived approximately 47% of our revenue from operations
outside of the United States. Conducting business abroad is subject to a variety of risks, including:
currency exchange rate fluctuations, restrictions on currency movement, and impact of international
tax laws could adversely affect our results of operations, if we are forced to maintain assets in
currencies other than the US dollars, while our financial results are reported in US dollars;
longer payment cycles and/or difficulties in accounts receivable collections could impact our cash
flows and results of operations;
political and economic instability and unexpected changes in regulatory regimes could adversely
affect our ability to deliver services overseas and our ability to repatriate cash;
inconsistent regulations, licensing and legal requirements may increase our cost of operations as
we endeavor to comply with multiple, complex laws that differ from one country to another;
terrorist attacks and civil unrests in some of the countries where we do business (e.g. tension in
the Middle East and Latin America, and terror attacks in Europe), and the resulting need for
enhanced security measures may impact our ability to deliver services, threaten the safety of our
employees, and increase our costs of operations; and
special challenges in managing risks inherent in international operations, such as unique and
prescriptive labor rules and corrupt business environments may cause an inadvertent violation of
laws that we may not be able to immediately detect or correct.
While we monitor and endeavor to mitigate timely the relevant regulatory, geopolitical, and other risks
related to our operations outside of the United States, we cannot assess with certainty what impact such
risks are likely to have over time on our business, and we can provide no assurance that we will always be
able to mitigate these risks successfully and avoid material impact to our business and results of operations.
12
Uncertainty of tax regulations and treatment of permanent establishments in certain countries
where we do business may affect our taxation levels and affect our ability to collect for services
rendered
Currently, we operate in multiple countries, in entity forms and under laws that are advantageous to us,
from operational and tax perspectives. Any changes in the regulatory frameworks in the countries where
we currently operate could lead to higher taxation levels, change in our legal operating status, or lead to
higher costs associated with maintaining certain entities, which may materially affect our business,
operating costs, and results of operations.
Our strategy of growing through selective acquisitions and mergers involves risks of failing to
successfully identify, acquire and integrate businesses and realize returns on our investments
We evaluate opportunities to expand the scope of our services through acquisitions and mergers. Yet, we
may be unable to identify companies that complement our strategies and which are available to be acquired
at valuation levels accretive to our business.
Our acquisition strategy involves other potential risks, including the inability to integrate acquired companies
effectively and realize the full amounts of anticipated synergies and benefits from the acquisitions; the
diversion of management’s attention to the integration of the acquired businesses at the expense of
delivering results for the legacy business; the risk that we will not be able to retain key employees of the
acquired business or that they will not be effective as part of TeleTech operations; the impact of liabilities
of the acquired business undiscovered or underestimated as part of the acquisition due diligence; and the
unforeseen difficulties experienced by the acquired operations due to the acquisition or the integration
which could result in short or longer term effects on our operating results.
Corporate social engineering attacks and other phishing scams aimed at the company may result
in the inadvertent loss of cash and cash equivalent resources
The increased activity and sophistication of corporate social engineering attacks and other phishing scams
in recent months have increased the risk of inadvertent transfer of large amounts of cash and cash
equivalents from the various bank accounts we have around the world. We actively train and inform our
employees and key personnel about these risks and, while we have implemented a series of measures to
curb these risks, the very nature of these attacks may deceive one or more employees, thereby resulting
in a material loss.
Intellectual property infringement by us and by others may adversely impact our ability to
innovate and compete
Our services or solutions could infringe intellectual property of others impacting our ability to deploy them
with clients. There can be no assurance that services and solutions we utilize in our business or offer to
clients do not infringe the intellectual property rights of others. From time to time, we and members of our
supply chain receive assertions that our service offerings or technologies infringe on the patents or other
intellectual property rights of third parties. These claims could require us to cease activities, incur expensive
licensing costs, or engage in costly litigation, which could adversely affect our business and results of
operation.
Our intellectual property may not always receive favorable treatment from the United States Patent and
Trademark Office, the European Patent Office or similar foreign intellectual property adjudication and
registration agencies; and our “patent pending” intellectual property may not receive a patent or may be
subject to prior art limitations. The lack of legal system sophistication in certain countries where we do
business or lack of commitment to protection of intellectual property rights, may prevent us from being able
to defend our intellectual property and related technology against infringement by others, leading to a
material adverse effect on our business, results of operations and financial condition.
13
Increases in the cost of communication and data services or significant interruptions in such
services could adversely affect our business
Our business is significantly dependent on telephone, internet and data service provided by various
domestic and foreign communication companies. Any disruption of these services could adversely affect
our business. We have taken steps to mitigate our exposure to service disruptions by investing in complex
and multi-layered redundancies, and we can transition services among different of our contact centers
around the world. Despite these efforts, there can be no assurance, however, that the redundancies we
have in place would be sufficient to maintain operations without disruption.
Our inability to obtain communication and data services at favorable rates could negatively affect our
business results. Where possible, we have entered into long-term contracts with various providers to
mitigate short term rate increases and fluctuations. There is no obligation, however, for the vendors to
renew their contracts with us, or to offer the same or lower rates in the future, and such contracts are subject
to termination or modification for various reasons outside of our control. A significant increase in the cost
of communication services that is not recoverable through an increase in the price of our services could
adversely affect our business.
Our financial results may be adversely impacted by foreign currency exchange rate risk
Many contracts that we service from delivery centers outside of the United States (for example in Bulgaria,
Canada, Costa Rica, Mexico, and the Philippines) are typically priced, invoiced, and paid in U.S. and
Australian dollars, and Euro, while the costs incurred to operate these delivery centers are denominated in
the functional currency of the applicable operating subsidiary. The fluctuations between the currencies of
the contract and operating currencies present foreign currency exchange risks. Furthermore, because our
financial statements are denominated in US dollars, but approximately 23% of our revenue is derived from
contracts denominated in other currencies, our results of operations could be adversely affected if the US
dollar strengthens significantly against foreign currencies.
While we hedge against the effect of exchange rate fluctuations, we can provide no assurance that we will
be able to continue to successfully manage this foreign currency exchange risk and avoid adverse impacts
on our business, financial condition, and results of operations.
Compliance with laws, including unexpected changes to such laws could adversely affect our
results of operations
Our business is subject to extensive regulation by U.S. and foreign national, state and provincial authorities
relating to confidential client and customer data, customer communications, telemarketing practices, and
licensed healthcare and financial services activities, among other areas. Costs and complexity of
compliance with existing and future regulations could adversely affect our profitability. If we fail to comply
with regulations relevant to our business, we could be subject to civil or criminal liability, monitory damages
and fines. Private lawsuits and enforcement actions by regulatory agencies may materially increase our
costs of operations and impact our ability to serve our clients.
As we provide services to clients’ customers residing in over 80 countries, we are subject to numerous, and
sometimes conflicting, legal regimes on matters as diverse as import/export controls, communication
content requirements, trade restrictions and sanctions, tariffs, taxation, data privacy, labor relations, wages
and severance, health care requirements, internal and disclosure control obligations, and immigration.
Violations of these regulations could impact our reputation and result in financial liability, criminal
prosecution, unfavorable publicity, restrictions on our ability to process information and breach of our
contractual commitments.
Adverse changes in laws or regulations that impact our business may negatively affect the sale of our
services, slow the growth of our operations, or mandate changes to how we deliver our services, including
our ability to use offshore resources. These changes could threaten our ability to continue to serve certain
markets.
14
Volatile and uncertain economic conditions and effect of these conditions on our clients could have
an adverse effect on the profitability of our business
Ever changing and increasingly unstable global economic conditions affect our clients’ businesses and
may, therefore, affect our business and our profitability. We generate revenue based, in large part, on the
amount of time our employees devote to our clients’ customers, and our clients’ willingness to invest in their
customer relationships. Consequently, our revenue depends on consumers’ interest in and use of our
clients’ products and services, which may be adversely affected by general economic conditions. Uncertain
economic conditions and slow economic recovery may impact our clients’ willingness to procure our
technology and strategic consulting services and may impact products and services that require their
customers to use our customer care services. Our business, financial condition, results of operations and
cash flows would be adversely affected if any of our major clients were unable to pay for our services due
to volatile economic conditions.
The current trend to outsource customer care may not continue and the prices that clients are
willing to pay for the services may diminish, adversely affecting our business
Our growth depends, in large part, on the willingness of our clients and potential clients to outsource
customer care and management services to companies like TeleTech. There can be no assurance that the
customer care outsourcing trend will continue; and our clients and potential clients may elect to perform in-
house customer care and management services that they currently outsource. Reduction in demand for
our services and increased competition from other providers and in-house service alternatives would create
pricing pressures and excess capacity that could have an adverse effect on our business, financial
condition, and results of operations.
Unfavorable regulation and negative public perception about digital marketing could adversely
affect our business and results of operations
With the growth of online marketplace and e-commerce, there is increasing awareness and concern among
the general public, privacy advocates, mainstream media, and government bodies regarding the reach of
digital marketing and its potential impact on individual privacy interests. For example, in recent years,
consumer advocates and certain government agencies have publicly criticized companies that collect,
store and use personal data for commercial purposes. This public scrutiny may lead to unfavorable
regulation, public distrust of digital marketing industry, consumer reluctance to share and permit use of
personal data, and increased consumer opt-out rates, any of which could negatively influence, change or
reduce our ability to provide our digital marketing and related analytics services and current and prospective
clients’ demand for our offerings, adversely affecting our business and results of operations. Any
unfavorable publicity or negative public perception about us or the digital marketing industry in general may
affect not only our digital marketing business but our reputation, in general, and our businesses unrelated
to digital marketing.
Health epidemics could disrupt our business and adversely affect our financial results
Our contact centers typically seat hundreds of employees in one location. Accordingly, an outbreak of a
contagious infection in one or more of the markets in which we do business may result in significant worker
absenteeism, lower capacity utilization rates, voluntary or mandatory closure of our delivery centers, travel
restrictions on our employees, and other disruptions to our business. Any prolonged or widespread health
epidemic could severely disrupt our business operations and have a material adverse effect on our
business, financial condition and results of operations.
Our credit facility contains covenant restrictions that may limit our ability to operate our business
or execute on our strategy
Our credit facility contains common operating and financial covenants that impose operating and financial
restrictions on how we operate our business and require us to meet certain financial metrics quarterly.
Complying with these covenant restrictions may limit our ability to engage in certain activities, including
incurring additional indebtedness, making certain investments and capital expenditures, acquisitions,
selling certain assets, stock repurchases, payment of existing obligations, or replenishment of cash
reserves.
15
As a result of these covenant restrictions, our ability to respond to changes in business and economic
conditions and to obtain additional financing, if needed, may be restricted, and we may be prevented from
engaging in transactions that might otherwise be beneficial to us. Our ability to comply with these covenants
is dependent on our future performance, which will be subject to many factors, some of which are beyond
our control, including prevailing economic conditions. We can provide no assurance that we will be able to
meet the financial covenants under our credit facility, or that in the event of noncompliance, will be able to
obtain waivers or amendments from the lenders. If we fail to comply with the covenants the lenders could
elect to declare all amounts outstanding under the credit facilities, together with accrued interest, to be
immediately due and payable, and there can be no assurance that we would have adequate resources to
comply with the accelerated repayment schedule or that the assets securing such indebtedness would be
sufficient to repay it in full that indebtedness, which could have a material and adverse effect on our financial
condition.
The volatility of our stock price may result in loss of investment
Our share price has been and may continue to be subject to substantial fluctuation. We believe that market
prices of outsourced customer care management services stock in general have experienced volatility and
such volatility will affect our stock price. As we continue to diversify our service offerings to include growth,
technology and strategic consulting, our stock price volatility may stabilize or it may be further impacted by
stock price fluctuations in these new relevant industries. In addition to fluctuations specific to our industry
and service offerings, we believe that various other factors such as general economic conditions, changes
or volatility in the financial markets, and changing market condition for our clients could impact the valuation
of our stock. The quarterly variations in our financial results, acquisition and divestiture announcements by
us or our competitors, strategic partnerships and new service offering, our failure to meet our growth
objectives or exceeding our targets, and securities analysts’ perception about our performance could cause
the market price of our shares to fluctuate substantially in the future.
Our Chairman and Chief Executive Officer controls majority of our stock and has control over all
matters requiring action by our stockholders
Kenneth D. Tuchman, our Chairman and Chief Executive Officer, directly and beneficially owns
approximately 64.9% of TeleTech’s common stock. As a result, Mr. Tuchman could exercise control over
all matters requiring action by our stockholders, including the election of our entire Board of Directors.
Therefore, a change in control of our company could not be effected without his approval, even when
such a change of control could benefit our other stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have not received written comments regarding our periodic or current reports from the staff of the SEC
that were issued 180 days or more preceding the end of our 2015 fiscal year that remain unresolved.
ITEM 2. PROPERTIES
Our corporate headquarters are located in Englewood, Colorado, which consists of approximately
264,000 square feet of owned office space. In addition to our headquarters and the delivery centers used
by our Customer Management Services and Customer Growth Services segments discussed below, we
also maintain sales and consulting offices in several countries around the world which serve our Customer
Technology Services and Customer Strategy Services segments.
As of December 31, 2015 we operated 67 delivery centers that are classified as follows:
Multi-Client Center — We lease space for these centers and serve multiple clients in each facility;
Dedicated Center — We lease space for these centers and dedicate the entire facility to one client;
and
Managed Center — These facilities are leased or owned by our clients and we staff and manage
these sites on behalf of our clients in accordance with facility management contracts.
16
As of December 31, 2015, our delivery centers were located in the following countries:
Total
Australia
Brazil
Bulgaria
Canada
China
Costa Rica
Germany
Ireland
Macedonia
Mexico
New Zealand
Philippines
Poland
South Africa
Thailand
United Kingdom
United States of America
Total
Centers
Centers
Number of
Multi-Client Dedicated Managed Delivery
Centers
Centers
2
2
2
2
1
1
1
1
1
3
1
20
1
1
1
3
24
67
1
2
2
1
—
—
—
1
1
3
1
17
—
—
—
—
15
44
—
—
—
1
1
—
1
—
—
—
—
1
1
1
1
2
5
14
1
—
—
—
—
1
—
—
—
—
—
2
—
—
—
1
4
9
The leases for our delivery centers have remaining terms ranging from one to 10 years and generally
contain renewal options, with the exception of one center which we have subleased for the remainder of
the lease term through 2021. We believe that our existing delivery centers are suitable and adequate for
our current operations, and we have plans to build additional centers to accommodate future business.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has been involved in legal actions, both as plaintiff and defendant, which
arise in the ordinary course of business. The Company accrues for exposures associated with such legal
actions to the extent that losses are deemed both probable and reasonably estimable. To the extent specific
reserves have not been made for certain legal proceedings, their ultimate outcome, and consequently, an
estimate of possible loss, if any, cannot reasonably be determined at this time.
Based on currently available information and advice received from counsel, the Company believes that the
disposition or ultimate resolution of any current legal proceedings, except as otherwise specifically reserved
for in its financial statements, will not have a material adverse effect on the Company’s financial position,
cash flows or results of operations.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
17
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market under the symbol “TTEC.” The following
table sets forth the range of the high and low sales prices per share of the common stock for the quarters
indicated as reported on the NASDAQ Global Select Market:
Fourth Quarter 2015
Third Quarter 2015
Second Quarter 2015
First Quarter 2015
Fourth Quarter 2014
Third Quarter 2014
Second Quarter 2014
First Quarter 2014
Low
High
$ 30.61 $ 26.76
$ 28.97 $ 25.37
$ 28.01 $ 25.14
$ 25.54 $ 21.86
$ 25.87 $ 21.81
$ 29.54 $ 24.58
$ 29.24 $ 23.58
$ 24.98 $ 21.29
As of December 31, 2015, we had approximately 236 holders of record of our common stock and during
2015 we declared and paid two $0.18 per share dividends on our common stock as discussed below.
On February 24, 2015, our Board of Directors adopted a dividend policy, with the intent to distribute a
periodic cash dividend to stockholders of our common stock, after consideration of, among other things,
TeleTech’s performance, cash flows, capital needs and liquidity factors. Given our cash flow generation
and balance sheet strength, we believe cash dividends and early returns to shareholders through share
repurchases, in balance with our investments in innovation and strategic acquisitions, align shareholder
interests with the needs of the Company. The initial dividend of $0.18 per common share was paid on
March 16, 2015 to shareholders of record as of March 6, 2015. An additional dividend of $0.18 per common
share was paid on October 14, 2015 to shareholders of record as of September 30, 2015. On February 18,
2016, the Board of Directors authorized an increase in the semi-annual dividend to $0.185 per common
share, payable on April 15, 2016, to shareholders of record as of March 31, 2016. While it is our intention
to continue to pay semi-annual dividends in 2016 and beyond, any decision to pay future cash dividends
will be made by our Board of Directors. In addition, our credit facility restricts our ability to pay dividends in
the event we are in default or do not satisfy certain covenants.
Stock Repurchase Program
We continue to return capital to our shareholders via an ongoing stock repurchase program (originally
authorized by the Board of Directors in 2001). As of December 31, 2015, the cumulative authorized
repurchase allowance was $662.3 million, of which we have purchased 42.8 million shares for
$642.8 million.
18
Issuer Purchases of Equity Securities During the Fourth Quarter of 2015
The following table provides information about our repurchases of equity securities during the quarter ended
December 31, 2015:
Period
September 30, 2015
October 1, 2015 - October 31, 2015
November 1, 2015 - November 30, 2015
December 1, 2015 - December 31, 2015
Total
Shares
Total Number of Approximate Dollar
Value of Shares that
May Yet Be
Purchased as
Part of Publicly Purchased Under
Announced
the Plans or
Programs (In
thousands)
Total Number
of Shares
Purchased
Average Price
Paid per Share
23,400 $
— $
— $
23,400
26.86
—
—
Plans or
Programs
$
23,400 $
— $
— $
23,400
20,220
19,591
19,591
19,591
In 2016, through March 7, 2016, we purchased 217,346 additional shares at a cost of $5.6 million. The
stock repurchase program does not have an expiration date and the Board authorizes additional stock
repurchases under the program from time to time. On February 18, 2016, the Board of Directors authorized
an increase in the share repurchase allowance of $25 million.
Equity Compensation Plan Information
The following table sets forth, as of December 31, 2015, the number of shares of our common stock to be
issued upon exercise of outstanding options, RSUs, warrants and rights, the weighted-average exercise
price of outstanding options, warrants and rights, and the number of securities available for future issuance
under equity-based compensation plans.
Number of
Plan Category
Rights (a)
Securities to be
Issued Upon
Exercise of
Outstanding
Options, RSUs,
Warrants and
Price of
Weighted-
Number of Securities
Average Exercise Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
Warrants and
Outstanding
Rights (b)
Options,
Equity compensation plans approved by security
holders
Equity compensation plans not approved by security
holders
Total
1,796,630 (1) $
21.11 (2 )
990,069
— $
—
1,796,630
—
990,069
(1)
Includes options to purchase 241,164 shares and 1,555,466 RSUs issued under our equity incentive
plans.
(2) Weighted average exercise price of outstanding stock options excludes RSUs, which have no exercise
price.
Stock Performance Graph
The graph depicted below compares the performance of TeleTech common stock with the performance of
the NASDAQ Composite Index; the Russell 2000 Index; and customized peer group over the period
beginning on December 31, 2010 and ending on December 31, 2015. We have chosen a “Peer Group”
composed of Convergys Corporation (NYSE: CVG), Sykes Enterprises, Incorporated (NASDAQ: SYKE)
and Teleperformance (NYSE Euronext: RCF). We believe that the companies in the Peer Group are
relevant to our current business model, market capitalization and position in the overall BPO industry.
19
The graph assumes that $100 was invested on December 31, 2010 in our common stock and in each
comparison index, and that all dividends were reinvested. We declared two $0.18 per share dividends on
our common stock during 2015. Stock price performance shown on the graph below is not necessarily
indicative of future price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among TeleTech Holdings, Inc., The NASDAQ Composite Index,
The Russell 2000 Index, And A Peer Group
TeleTech Holdings, Inc.
NASDAQ Composite
Russell 2000
Peer Group
December 31,
2010 2011 2012 2013 2014 2015
$ 100 $ 79 $ 86 $ 116 $ 115 $ 137
$ 100 $ 101 $ 117 $ 166 $ 189 $ 200
$ 100 $ 96 $ 111 $ 155 $ 162 $ 155
$ 100 $ 80 $ 109 $ 165 $ 177 $ 223
20
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements and
the related notes appearing elsewhere in this Form 10-K (amounts in thousands except per share amounts).
2015
2014
2013
2012
2011
Year Ended December 31,
Statement of Operations Data
Revenue
Cost of services
Selling, general and
administrative
Depreciation and amortization
Other operating expenses
Income from operations
Other income (expense)
(Provision for) benefit from
income taxes
Noncontrolling interest
Net income attributable to
TeleTech stockholders
Weighted average shares
outstanding
Basic
Diluted
Net income per share
attributable to TeleTech
stockholders
Basic
Diluted
Dividends issued per common
share
Balance Sheet Data
Total assets
Total long-term liabilities
$ 1,286,755 $ 1,241,781 (3) $ 1,193,157 (8) $ 1,162,981 (13) $ 1,179,388 (17)
(846,631)
(834,803)
(886,492)
(928,247)
(848,362)
(194,606)
(63,808)
(198,553)
(56,538)
(193,423)
(46,064)
(9,914) (1)
90,180
(4,291)
(3,723) (4)
96,475
3,984 (5)
(5,640) (9)
101,399
(9,330) (10)
(182,634)
(41,166)
(25,833) (14)
78,545
(4,683)
(188,802)
(44,889)
(3,881) (18)
93,454
(1,900)
(20,004) (2)
(4,219)
(23,042) (6)
(5,124)
(20,598) (11)
(4,083)
61 (15)
(3,908)
(13,279) (19)
(4,101)
$
61,666 $
72,293 $
67,388
$
70,015
$
74,174
48,370
49,011
49,297
50,102
51,338
52,244
54,738
55,540
56,669
57,963
$
$
1.27 $
1.26 $
1.47 $
1.44 $
1.31
1.29
$
$
1.28
1.26
$
$
1.31
1.28
$
0.36 $
— $
—
$
—
$
—
$
$
843,327 $
191,473 $
852,475 (7) $
187,780 (7) $
842,342 (12) $
175,564 (12) $
847,173 (16) $
175,431 (16) $
746,978 (20)
106,720 (20)
(1)
(2)
(3)
(4)
(5)
Includes $1.8 million expense related to reductions in force, a $0.4 million expense related to the
impairment of property and equipment, and a $7.7 million expense related to the impairment of
goodwill.
Includes a $0.7 million benefit related to restructuring charges, $1.2 million net of expense related
to changes in valuation allowance and a related release of a deferred tax liability, $1.5 million of
expense related to provisions for uncertain tax positions, $2.6 million of benefit related to
impairments, $1.3 million of expense related to state net operating losses and credits, and $0.4
million of benefit related to other discrete items.
Includes $30.0 million in revenue generated by Sofica and rogenSi which were acquired in 2014.
Includes $3.3 million expense related to reductions in force and $0.4 million expense related to the
impairment of property and equipment.
Includes a net $6.7 million benefit related to fair value adjustments to the contingent consideration
based on revised estimates of performance against targets for four of our acquisitions.
21
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
Includes a $1.3 million benefit related to restructuring charges, a $0.4 million benefit related to a
valuation allowance for equity compensation, a $1.2 million benefit related to the closing of statute
of limitations in Canada, $3.8 million of expense related to future contingent payments, $1.3 million
of expense related to the resolution of an audit in the Netherlands, and $0.2 million of expense
related to other discrete items.
The Company spent $23.8 million net of cash acquired of $3.5 million in 2014 for the acquisitions of
Sofica and rogenSi. Upon acquisitions of Sofica and rogenSi, the Company acquired $59.5 million
in assets and assumed $11.1 million in liabilities ($5.4 million in long-term liabilities). The Company
also assumed a purchase price payable of $22.4 million related to this acquisition. Of the $22.4
million purchase price payable, $13.2 million was included in long-term liabilities.
Includes $51.4 million in revenue generated by WebMetro which was acquired in 2013 and TSG
which was acquired on December 31, 2012.
Includes $4.1 million expense related to reductions in force, $0.3 million related to facilities exit
charges, $0.1 million expense related to the impairment of property and equipment and $1.1 million
expense related to the impact of intangible assets.
Includes a $3.7 million charge related to the deconsolidation of a subsidiary and a $1.9 million
charge related to a fair value adjustment to the contingent consideration based on revised estimates
of performance against targets for three of our acquisitions.
Includes a $1.8 million benefit related to restructuring charges, a $1.5 million benefit related to return
to provision adjustments, and $1.8 million of expense related to valuation allowance increases.
The Company spent $8.9 million net of cash acquired of $6.4 million in 2013 for the acquisition of
WebMetro. Upon acquisition of WebMetro, the Company acquired $27.5 million in assets and
assumed $9.7 million in liabilities ($0.8 million in long-term liabilities). The Company also assumed
a purchase price payable of $2.5 million related to this acquisition. Of the $2.5 million purchase price
payable, $1.8 million was included in long-term liabilities.
Includes $8.9 million in revenue generated by OnState, iKnowtion and Guidon which were acquired
in 2012.
Includes $22.5 million expense related to reductions in force, $0.4 million expense related to facilities
exit charges, and $2.9 million expense related to the impairment of property and equipment.
Includes a $7.6 million benefit related to Australia and New Zealand Transfer Pricing Arrangements,
a $1.4 million benefit from the release of uncertain tax positions, a $9.2 million benefit related to
restructuring charges, a $1.9 million benefit related to return to provision adjustments and $0.1
million of expense related to other discrete items.
The Company spent $35.8 million, net of cash acquired of $3.7 million, in 2012 for the acquisitions
of OnState, iKnowtion, Guidon, and TSG through an increase in borrowings on its line of credit.
Upon acquisition of these companies, the Company acquired $65.6 million in assets and assumed
$12.4 million in liabilities ($3.1 million in long-term liabilities). The Company also assumed a
purchase price payable of $12.7 million related to these acquisitions. Of the $12.7 million purchase
price payable, $10.8 million was included in long-term liabilities.
Includes $80.0 million in revenue generated by PRG and eLoyalty which were acquired in late 2010
and mid-2011, respectively.
Includes $3.6 million expense related to reductions in force, $0.1 million expense related to facilities
exit charges, and $0.2 million expense related to the impairment of property and equipment.
Includes an $8.6 million expense related to the adverse decision by the Canada Revenue Agency
regarding the Company’s request for relief from double taxation, an $11.7 million benefit related to
the Company’s mediated settlement with the IRS related to U.S. tax refund claims, a $1.4 million
benefit related to the 2010 foreign earnings repatriation, and $0.2 million benefit for other discrete
items.
The Company spent $38.0 million for the acquisition of eLoyalty through an increase in borrowings
on its line of credit. Upon acquisition of eLoyalty, the Company acquired $64.1 million in assets and
assumed $26.1 million in liabilities ($22.7 million in long-term liabilities).
22
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Executive Summary
TeleTech Holdings, Inc. (“TeleTech”, “the Company”, “we”, “our” or “us”) is a customer engagement
management service provider that delivers integrated consulting, technology, growth and customer care
solutions on a global scale. Our suite of products and services allows us to design and deliver engaging,
outcome-based customer experiences across numerous interaction channels. Our solutions are supported
by 44,000 employees delivering services in 24 countries from 67 delivery centers on six continents. Our
revenue for fiscal 2015 was $1,287 million.
Since our establishment in 1982, we have helped clients strengthen their customer relationships, brand
recognition and loyalty through customer engagement solutions. We deliver thought leadership, technology
and innovation that create customer strategies designed to differentiate our clients from their competition;
data analytics that personalize interactions and increase customer value; and integration services that
connect clients’ customer relationship management (“CRM”) system to a cloud-based collaboration
platform, leading to customer interactions that are seamless and relevant.
Our services are value-oriented, outcome-based, and delivered on a global scale across all of our business
segments: Customer Management Services (“CMS”), Customer Growth Services (“CGS”), Customer
Technology Services (“CTS”) and Customer Strategy Services (“CSS”). Our integrated customer
experience managed services platform differentiates the Company by combining strategic consulting, data
analytics, process optimization, system design and integration, operational excellence, and technology
solutions and services.
We have developed tailored expertise in the automotive, communications, financial services, government,
healthcare, logistics, media and entertainment, retail, technology, travel and transportation industries. We
target customer-focused industry leaders in the Global 1000 and serve approximately 300 global clients.
To improve our competitive position in a rapidly changing market and stay strategically relevant to our
clients, we continue to invest in innovation and growth businesses, diversifying our heritage business
process outsourcing services of our CMS segment into higher-value consulting, data analytics, digital
marketing and technology-enabled services. Of the $1,287 million in revenue we reported in 2015,
approximately 29% or $373 million came from the CGS, CTS and CSS segments (our “Emerging
Segments”), focused on customer-centric strategy, growth or technology-based services, with the
remainder of our revenue coming from the heritage business process outsourcing focused CMS segment.
We have four operating and reportable segments, which provide an integrated set of services including:
Customer Strategy Services
We typically begin by engaging our clients at a strategic level. Through our strategy, change management
and analytics-driven consulting expertise we help our clients design, build and execute their customer
engagement strategies. We help our clients to better understand and predict their customers’ behaviors
and preferences along with their current and future economic value. Using proprietary analytic models, we
provide the insight clients need to build the business case for customer centricity, to better optimize their
marketing spend and then work alongside them to help implement our recommendations. A key component
of this segment involves instilling a high performance culture through management and leadership
alignment and process optimization.
23
Customer Technology Services
Once the design of the customer engagement is completed, our ability to architect, deploy and host or
manage the client’s customer management environments becomes a key enabler to achieving and
sustaining the client’s customer engagement vision. Given the proliferation of mobile communication
technologies and devices, we enable our clients’ operations to interact with their customers across the
growing array of channels including email, social networks, mobile, web, SMS text, voice and chat. We
design, implement and manage cloud, on-premise or hybrid customer management environments to deliver
a consistent and superior experience across all touch points on a global scale that we believe result in
higher quality, lower costs and reduced risk for our clients. Through our proprietary Humanify™ technology,
we also provide data-driven context aware SaaS-based solutions that link customers seamlessly and
directly to appropriate resources, any time and across any channel.
Customer Management Services
We design and manage clients’ front-to-back office processes to deliver just-in-time, personalized, multi-
channel interactions. Our front-office solutions seamlessly integrate voice, chat, email, e-commerce and
social media to optimize the customer experience for our clients. In addition, we manage certain client back-
office processes to enhance their customer-centric view of relationships and maximize operating
efficiencies. Our delivery of integrated business processes via our onshore, offshore or work-from-home
associates reduces operating costs and allows customer needs to be met more quickly and efficiently,
resulting in higher satisfaction, brand loyalty and a stronger competitive position for our clients.
Customer Growth Services
We offer integrated sales and marketing solutions to help our clients boost revenue in new, fragmented or
underpenetrated business-to-consumer or business-to-business markets. We deliver approximately $2
billion in client revenue annually via the acquisition, growth and retention of customers through a
combination of our highly trained, client-dedicated sales professionals and our proprietary Revana Analytic
Multichannel PlatformTM. This platform continuously aggregates individual customer information across all
channels into one holistic view so as to ensure more relevant and personalized communications. As a result
of our acquisition of the digital agency WebMetro, we have developed an integrated marketing-to-sales
platform that links online searches to live sales through a closed loop, multichannel interface. This platform
uses proprietary tools and methodology to capture and use more than 400 marketing and sales data points
to engage with customers in relevant conversations.
Based on our clients’ requirements, we provide our services on an integrated cross-business segment and
on a discrete basis.
Additional information with respect to our segments and geographic footprint is included in Part II, Item 8.
Financial Statements and Supplementary Data, Note 3 to the Consolidated Financial Statements.
Our 2015 Financial Results
In 2015, our revenue increased 3.6% to $1,287 million over the same period in 2014, despite a decrease
of 5.1% or $63.7 million due to foreign currency fluctuations, primarily the Australian dollar and the Brazilian
Real. The increase in revenue is comprised of growth in the CGS, CTS and CSS segments which
collectively grew 17.3%, offset by a decrease in the CMS segment due to the foreign currency fluctuations.
Revenue adjusted for the $63.7 million decrease related to foreign exchange increased 8.8% over the prior
year.
Our 2015 income from operations decreased $6.3 million to $90.2 million or 7.0% of revenue, from $96.5
or 7.8% of revenue for 2014. The decrease is primarily due to the $14.9 million adverse impact of foreign
currency fluctuations, a goodwill impairment of $7.7 million for our WebMetro and Latin America reporting
units in the third and fourth quarters of 2015 (see Part II, Item 8. Financial Statements and Supplementary
Data, Note 6 to the Consolidated Financial Statements), $6.5 million of additional investment in sales,
research and development, and lower capacity utilization due to the build out of a super site for one of our
largest clients. These were partially offset by organic revenue growth and income from the recent
acquisitions. Income from operations in 2015 and 2014 included $9.9 million and $3.7 million of
restructuring charges and asset impairments, respectively.
24
Our offshore delivery centers serve clients based in the U.S. and in other countries and span six countries
with 22,500 workstations representing 64% of our global delivery capabilities. Revenue for our CMS and
CGS segments that is provided in these offshore locations was $450 million and represented 43% of our
revenue for 2015, as compared to $457 million and 43% of our revenue for 2014.
At December 31, 2015, we had $60.3 million of cash and cash equivalents, total debt of $107.3 million, and
a total debt to total capitalization ratio of 19.6%.
We internally target capacity utilization in our delivery centers at 80% to 90% of our available workstations.
As of December 31, 2015, the overall capacity utilization in our multi-client centers was 71%. The table
below presents workstation data for our multi-client centers as of December 31, 2015 and 2014. Dedicated
and Managed Centers (7,109 and 5,261 workstations, at December 31, 2015 and 2014, respectively) are
excluded from the workstation data as unused workstations in these facilities are not available for sale. Our
utilization percentage is defined as the total number of utilized multi-client production workstations
compared to the total number of available multi-client production workstations. We may change the
designation of shared or dedicated centers based on the normal changes in our business environment and
client needs.
December 31, 2015
December 31, 2014
Total
Total
Production
Workstations
In Use
% In
Use
Production
Workstations
In Use
% In
Use
Multi-client centers
Sites open >1 year
Sites open <1 year
Total multi-client centers
26,790 18,971
1,197
28,267 20,168
1,477
71 %
81 %
71 %
24,948 21,093
982
25,930 22,075
982
85 %
100 %
85 %
The reduction in utilization in 2015 compared to 2014 is due to the build out of a new supersite for one of
our largest clients which was completed in 2015.
While we continue to see demand from all geographic regions to utilize our offshore delivery capabilities
and expect this trend to continue with our clients, some of our clients have regulatory pressures to bring
the services onshore to the United States. In light of this trend, we plan to continue to selectively retain and
grow capacity and expand into new offshore markets while maintaining appropriate capacity in the United
States. As we grow our offshore delivery capabilities and our exposure to foreign currency fluctuations
increases, we continue to actively manage this risk via a multi-currency hedging program designed to
minimize operating margin volatility.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of our financial condition and results of operations are based upon
our Consolidated Financial Statements, which have been prepared in accordance with accounting
principles generally accepted in the U.S. (“GAAP”). The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses as well as the disclosure of contingent assets and liabilities. We regularly review our estimates
and assumptions. These estimates and assumptions, which are based upon historical experience and on
various other factors believed to be reasonable under the circumstances, form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Reported amounts and disclosures may have been different had management used different
estimates and assumptions or if different conditions had occurred in the periods presented. Below is a
discussion of the policies that we believe may involve a high degree of judgment and complexity.
25
Revenue Recognition
We recognize revenue when evidence of an arrangement exists, the delivery of service has occurred, the
fee is fixed or determinable and collection is reasonably assured. The BPO inbound and outbound service
fees are based on either a per minute, per hour, per transaction or per call basis. Certain client programs
provide for adjustments to monthly billings based upon whether we achieve, exceed or fail certain
performance criteria. Adjustments to monthly billings consist of contractual bonuses/penalties, holdbacks
and other performance based contingencies. Revenue recognition is limited to the amount that is not
contingent upon delivery of future services or meeting other specified performance conditions.
Revenue also consists of services for agent training, program launch, professional consulting, fully-hosted
or managed technology and learning innovation. These service offerings may contain multiple element
arrangements whereby we determine if those service offerings represent separate units of accounting. A
deliverable constitutes a separate unit of accounting when it has standalone value and delivery or
performance of the undelivered items is considered probable and substantially within our control. If those
deliverables are determined to be separate units of accounting, revenue is recognized as services are
provided. If those deliverables are not determined to be separate units of accounting, revenue for the
delivered services are bundled into one unit of accounting and recognized over the life of the arrangement
or at the time all services and deliverables have been delivered and satisfied. We allocate revenue to each
of the deliverables based on a selling price hierarchy of vendor specific objective evidence (“VSOE”), third-
party evidence, and then estimated selling price. VSOE is based on the price charged when the deliverable
is sold separately. Third-party evidence is based on largely interchangeable competitor services in
standalone sales to similarly situated customers. Estimated selling price is based on our best estimate of
what the selling prices of deliverables would be if they were sold regularly on a standalone basis. Estimated
selling price is established considering multiple factors including, but not limited to, pricing practices in
different geographies, service offerings, and customer classifications. Once we allocate revenue to each
deliverable, we recognize revenue when all revenue recognition criteria are met.
Periodically, we will make certain expenditures related to acquiring contracts or provide up-front discounts
for future services. These expenditures are capitalized as contract acquisition costs and amortized in
proportion to the expected future revenue from the contract, which in most cases results in straight-line
amortization over the life of the contract. Amortization of these contract acquisition costs is recorded as a
reduction to revenue.
During 2014, new guidance was issued 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. The new guidance is effective for
years beginning after December 15, 2017 and can be adopted retrospectively or as a cumulative effect
adjustment. We are currently determining our implementation approach and assessing the impact on the
consolidated financial statements.
Income Taxes
Accounting for income taxes requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions that have been included in the Consolidated Financial
Statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax basis of assets and liabilities using tax rates in effect
for the year in which the differences are expected to reverse. When circumstances warrant, we assess the
likelihood that our net deferred tax assets will more likely than not be recovered from future projected
taxable income.
We continually review the likelihood that deferred tax assets will be realized in future tax periods under the
“more-likely-than-not” criteria. In making this judgment, we consider all available evidence, both positive
and negative, in determining whether, based on the weight of that evidence, a valuation allowance is
required.
26
We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to
determine if the weight of available evidence indicates that it is more likely than not that the tax position will
be sustained on audit. The second step is to estimate and measure the tax benefit as the amount that has
a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. We evaluate
these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several
factors including changes in facts or circumstances, changes in applicable tax law, and settlement of issues
under audit.
Interest and penalties relating to income taxes and uncertain tax positions are accrued net of tax in Provision
for income taxes in the accompanying Consolidated Statements of Comprehensive Income (Loss).
In the future, our effective tax rate could be adversely affected by several factors, many of which are outside
our control. Our effective tax rate is affected by the proportion of revenue and income before taxes in the
various domestic and international jurisdictions in which we operate. Further, we are subject to changing
tax laws, regulations and interpretations in multiple jurisdictions in which we operate, as well as the
requirements, pronouncements and rulings of certain tax, regulatory and accounting organizations. We
estimate our annual effective tax rate each quarter based on a combination of actual and forecasted results
of subsequent quarters. Consequently, significant changes in our actual quarterly or forecasted results may
impact the effective tax rate for the current or future periods.
Impairment of Long-Lived Assets
We evaluate the carrying value of property, plant and equipment and definite-lived intangible assets for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An asset is considered to be impaired when the forecasted undiscounted cash flows of an
asset group are estimated to be less than its carrying value. The amount of impairment recognized is the
difference between the carrying value of the asset group and its fair value. Fair value estimates are based
on assumptions concerning the amount and timing of estimated future cash flows and assumed discount
rates.
Goodwill and Indefinite-Lived Intangible Assets
We evaluate goodwill and indefinite-lived intangible assets for possible impairment at least annually or
whenever events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable.
We use a three step process to assess the realizability of goodwill. The first step, Step 0, is a qualitative
assessment that analyzes current economic indicators associated with a particular reporting unit. For
example, we analyze changes in economic, market and industry conditions, business strategy, cost factors,
and financial performance, among others, to determine if there would be a significant decline to the fair
value of a particular reporting unit. A qualitative assessment also includes analyzing the excess fair value
of a reporting unit over its carrying value from impairment assessments performed in previous years. If the
qualitative assessment indicates a stable or improved fair value, no further testing is required.
If a qualitative assessment indicates that a significant decline to fair value of a reporting unit is more likely
than not, or if a reporting unit’s fair value has historically been closer to its carrying value, we will proceed
to Step 1 testing where we calculate the fair value of a reporting unit based on discounted future probability-
weighted cash flows. If Step 1 indicates that the carrying value of a reporting unit is in excess of its fair
value, we will proceed to Step 2 where the fair value of the reporting unit will be allocated to assets and
liabilities as it would in a business combination. Impairment occurs when the carrying amount of goodwill
exceeds its estimated fair value calculated in Step 2.
We estimate fair value using discounted cash flows of the reporting units. The most significant assumptions
used in these analyses are those made in estimating future cash flows. In estimating future cash flows, we
use financial assumptions in our internal forecasting model such as projected capacity utilization, projected
changes in the prices we charge for our services, projected labor costs, as well as contract negotiation
status. The financial and credit market volatility directly impacts our fair value measurement through our
weighted average cost of capital that we use to determine our discount rate. We use a discount rate we
consider appropriate for the country where the business unit is providing services.
27
Similar to goodwill, the Company may first use a qualitative analysis to assess the realizability of its
indefinite-lived intangible assets. The qualitative analysis will include a review of changes in economic,
market and industry conditions, business strategy, cost factors, and financial performance, among others,
to determine if there would be a significant decline to the fair value of an indefinite-lived intangible asset. If
a quantitative analysis is completed, an indefinite-lived intangible asset (such as a trade name) is evaluated
for possible impairment by comparing the fair value of the asset with its carrying value. Fair value was
estimated as the discounted value of future revenues arising from a trade name using a royalty rate that a
market participant would pay for use of that trade name. An impairment charge is recorded if the trade
name’s carrying value exceeds its estimated fair value.
Restructuring Liability
We routinely assess the profitability and utilization of our delivery centers and existing markets. In some
cases, we have chosen to close under-performing delivery centers and complete reductions in workforce
to enhance future profitability. Severance payments that occur from reductions in workforce are in
accordance with postemployment plans and/or statutory requirements that are communicated to all
employees upon hire date; therefore, we recognize severance liabilities when they are determined to be
probable and reasonably estimable. Other liabilities for costs associated with an exit or disposal activity are
recognized when the liability is incurred, rather than upon commitment to a plan.
Derivatives
We enter into foreign exchange forward and option contracts to reduce our exposure to foreign currency
exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations. We
enter into interest rate swaps to reduce our exposure to interest rate fluctuations associated with our
variable rate debt. Upon proper qualification, these contracts are accounted for as cash flow hedges under
current accounting standards. From time-to-time, we also enter into foreign exchange forward contracts to
hedge our net investment in a foreign operation.
All derivative financial instruments are reported in the accompanying Consolidated Balance Sheets at fair
value. Changes in fair value of derivative instruments designated as cash flow hedges are recorded in
Accumulated other comprehensive income (loss), a component of Stockholders’ Equity, to the extent they
are deemed effective. Based on the criteria established by current accounting standards, all of our cash
flow hedge contracts are deemed to be highly effective. Changes in fair value of any net investment hedge
are recorded in cumulative translation adjustment in Accumulated other comprehensive income (loss) in
the accompanying Consolidated Balance Sheets offsetting the change in cumulative translation adjustment
attributable to the hedged portion of our net investment in the foreign operation. Any realized gains or losses
resulting from the foreign currency cash flow hedges are recognized together with the hedged transactions
within Revenue. Any realized gains or losses resulting from the interest rate swaps are recognized in
interest income (expense). Gains and losses from the settlements of our net investment hedges remain in
Accumulated other comprehensive income (loss) until partial or complete liquidation of the applicable net
investment.
We also enter into fair value derivative contracts to reduce our exposure to foreign currency exchange rate
fluctuations associated with changes in asset and liability balances. Changes in the fair value of derivative
instruments designated as fair value hedges affect the carrying value of the asset or liability hedged, with
changes in both the derivative instrument and the hedged asset or liability being recognized in Other income
(expense), net in the accompanying Consolidated Statements of Comprehensive Income (Loss).
While we expect that our derivative instruments will continue to be highly effective and in compliance with
applicable accounting standards, if our hedges did not qualify as highly effective or if we determine that
forecasted transactions will not occur, the changes in the fair value of the derivatives used as hedges would
be reflected currently in earnings.
Contingencies
We record a liability for pending litigation and claims where losses are both probable and reasonably
estimable. Each quarter, management reviews all litigation and claims on a case-by-case basis and assigns
probability of loss and range of loss.
28
Explanation of Key Metrics and Other Items
Cost of Services
Cost of services principally include costs incurred in connection with our customer management services,
including direct labor, telecommunications, technology costs, sales and use tax and certain fixed costs
associated with the delivery centers. In addition, cost of services includes income related to grants we may
receive from local or state governments as an incentive to locate delivery centers in their jurisdictions which
reduce the cost of services for those facilities.
Selling, General and Administrative
Selling, general and administrative expenses primarily include costs associated with administrative services
such as sales, marketing, product development, legal settlements, legal, information systems (including
core technology and telephony infrastructure) and accounting and finance. It also includes outside
professional fees (i.e., legal and accounting services), building expense for non-delivery center facilities
and other items associated with general business administration.
Restructuring Charges, Net
Restructuring charges, net primarily include costs incurred in conjunction with reductions in force or
decisions to exit facilities, including termination benefits and lease liabilities, net of expected sublease
rentals.
Interest Expense
Interest expense includes interest expense, amortization of debt issuance costs associated with our Credit
Facility, and the accretion of deferred payments associated with our acquisitions.
Other Income
The main components of other income are miscellaneous income not directly related to our operating
activities, such as foreign exchange gains and reductions in our contingent consideration liabilities.
Other Expenses
The main components of other expenses are expenditures not directly related to our operating activities,
such as foreign exchange losses and increases in our contingent consideration liabilities.
RESULTS OF OPERATIONS
Year Ended December 31, 2015 Compared to December 31, 2014
The tables included in the following sections are presented to facilitate an understanding of Management’s
Discussion and Analysis of Financial Condition and Results of Operations and present certain information
by segment for the years ended December 31, 2015 and 2014 (amounts in thousands). All inter-company
transactions between the reported segments for the periods presented have been eliminated.
Customer Management Services
Year Ended December 31,
Revenue
Operating Income
Operating Margin
2015
$ 913,272
58,018
2014
$ 923,497
76,792
$ Change % Change
(1.1) %
(24.4) %
$ (10,225)
(18,774)
6.4 %
8.3 %
The change in revenue for the Customer Management Services segment was attributable to a $69.3 million
net increase in client programs and acquisitions offset by program completions of $25.6 million. Revenue
was further impacted by a $53.9 million reduction due to foreign currency fluctuations, primarily the
Australian dollar and the Brazilian Real.
29
The operating income as a percentage of revenue decreased to 6.4% in 2015 as compared to 8.3% in
2014. The operating margin, as with revenue, was negatively impacted by $13.0 million of foreign currency
fluctuations and a $4.5 million increase in spending on a number of growth related investments in CMS
including sales, marketing and research and development. The decrease is also attributable to a $1.8
million goodwill impairment for the Latin America reporting unit (see part II, Item 8. Financial Statements
and Supplementary Data, Note 6 to the Consolidated Financial Statements), and the build out of a super
site for one of our largest clients. Included in the operating income was amortization related to acquired
intangibles of $0.8 million and $0.8 million for the years ended December 31, 2015 and 2014, respectively.
Customer Growth Services
Revenue
Operating Income
Operating Margin
Year Ended December 31,
2015
$ 129,021
3,077
2014
$ 115,434
7,255
$ Change % Change
11.8 %
(57.6) %
$ 13,587
(4,178)
2.4 %
6.3 %
The increase in revenue for the Customer Growth Services segment was due to $29.4 million increase in
client programs offset by program completions of $10.4 million and a $5.4 million reduction due to foreign
currency fluctuations.
The operating income as a percentage of revenue decreased to 2.4% in 2015 as compared to 6.3% in
2014. This decrease was primarily driven by a $5.9 million goodwill impairment for the WebMetro reporting
unit (see Part II, Item 8. Financial Statements and Supplementary Data, Note 6 to the Consolidated
Financial Statements), a $1.8 million decrease due to foreign currency fluctuations and the completion of
established programs. These were partially offset by increased profits from additional business booked
during 2015 which began operating in 2015. Included in the operating income was amortization related to
acquired intangibles of $2.7 million and $2.7 million for the year ended December 31, 2015 and 2014,
respectively.
Customer Technology Services
Revenue
Operating Income
Operating Margin
Year Ended December 31,
2015
$ 157,606
13,339
2014
$ 139,182
4,519
$ Change % Change
13.2 %
195.2 %
$ 18,424
8,820
8.5 %
3.2 %
The increase in revenue for the Customer Technology Services segment was related to increases in both
the Cisco and Avaya offerings including recurring revenue for the cloud and managed services solutions.
The operating income as a percentage of revenue increased to 8.5% in 2015 as compared to 3.2% in 2014.
The improvement in operating income margin is attributable to increased revenue in combination with lower
selling, general and administrative expenses. Also as the revenue grows for the cloud and managed
services solutions, the margins increase due to higher utilization of fixed expenses. Included in the
operating income was amortization related to acquired intangibles of $4.2 million and $4.4 million for the
year ended December 31, 2015 and 2014, respectively.
Customer Strategy Services
Revenue
Operating Income
Operating Margin
Year Ended December 31,
2015
$ 86,856
15,746
2014
$ 63,668
7,909
$ Change % Change
36.4 %
99.1 %
$ 23,188
7,837
18.1 %
12.4 %
30
The increase in revenue for the Customer Strategy Services segment was primarily related to the
acquisition of rogenSi in August 2014, as well as organic growth across several of our geographies and
practices including our Customer Insights and Service Optimization practices offset by a $3.9 million
reduction due to foreign currency fluctuations.
The operating income as a percentage of revenue increased to 18.1% in 2015 as compared to 12.4% in
2014. The operating margin increase was related to the acquisition of rogenSi and stronger year over year
margins in the Customer Insights, Service Optimization and CX Consulting practices. Included in the
operating income was amortization expense related to acquired intangibles of $2.9 million and $2.1 million
for the year ended December 31, 2015 and 2014, respectively.
Interest Income (Expense)
Interest income decreased to $1.1 million in 2015 from $1.8 million in 2014. Interest expense increased to
$7.5 million during 2015 from $6.9 million for the comparable period in 2014, primarily due to high
outstanding debt.
Other Income (Expense), Net
Included in the year ended December 31, 2015, was a net $26 thousand expense related to fair value
adjustments of the contingent consideration based on revised estimates of performance against targets for
two of our acquisitions (see Part II, Item 8. Financial Statements and Supplementary Data, Note 9 to the
Consolidated Financial Statements).
Included in the year ended December 31, 2014, was a combined net $6.7 million benefit related to fair value
adjustments of the contingent consideration based on revised estimates of performance against targets for
four of our acquisitions (see Part II, Item 8. Financial Statements and Supplementary Data, Note 9 to the
Consolidated Financial Statements).
Income Taxes
The reported effective tax rate for 2015 was 23.3% as compared to 22.9% for 2014. The effective tax rate
for 2015 was impacted by earnings in international jurisdictions currently under an income tax holiday, $2.6
million of benefit related to impairments, $0.7 million benefit related to restructuring charges, $1.2 million
net of expense related to changes in valuation allowance and a related release of a deferred tax liability,
$1.3 million of expense related to state net operating losses and credits, $1.5 million of expense related to
provisions for uncertain tax positions, and $0.4 million benefit related to other discrete items. Without these
items our effective tax rate for the year ended December 31, 2015 would have been 20.4%. In the year
ended December 31, 2014, our effective tax rate was 22.9%. Without a $1.3 million benefit related to
restructuring charges, a $1.2 million benefit related to the closing of statute of limitations in Canada, a $0.4
million benefit related to a valuation allowance for equity compensation, $3.8 million of expense related to
future contingent payments, $1.3 million of expense related to the resolution of an audit in the Netherlands,
and $0.2 million of expense related to other discrete items, our effective tax rate for the year ended
December 31, 2014 would have been 19.8%.
Year Ended December 31, 2014 Compared to 2013
The tables included in the following sections are presented to facilitate an understanding of Management’s
Discussion and Analysis of Financial Condition and Results of Operations and present certain information
by segment for the years ended December 31, 2014 and 2013 (amounts in thousands). All inter-company
transactions between the reported segments for the periods presented have been eliminated.
31
Customer Management Services
Revenue
Operating Income
Operating Margin
Year Ended December 31,
2014
$ 923,497
76,792
2013
$ 890,883
75,689
$ Change % Change
3.7 %
1.5 %
$ 32,614
1,103
8.3 %
8.5 %
The increase in revenue for the Customer Management Services segment was attributable to a $79.5
million net increase in client programs and acquisitions offset by program completions of $20.8 million.
Revenue was further impacted by a $26.1 million reduction due to foreign currency fluctuations, primarily
the Australian dollar and the Brazilian Real.
The operating income as a percentage of revenue decreased slightly to 8.3% in 2014 as compared to 8.5%
in 2013. Adjusted for the negative $5.5 million of foreign currency impact, the operating margin increased
on operational efficiencies, increased revenue and the related increase in capacity utilization. Included in
the operating income was amortization related to acquired intangibles of $0.8 million and zero for the years
ended December 31, 2014 and 2013, respectively.
Customer Growth Services
Revenue
Operating Income
Operating Margin
Year Ended December 31,
2014
$ 115,434
7,255
2013
$ 100,996
3,024
$ Change % Change
14.3 %
139.9 %
$ 14,438
4,231
6.3 %
3.0 %
The increase in revenue for the Customer Growth Services segment was due to the combination of net
increases in client programs and the acquisition of WebMetro in August 2013 of $20.7 million collectively,
offset by program completions of $5.1 million and a $1.2 million reduction due to foreign currency
fluctuations.
The operating income as a percentage of revenue increased to 6.3% in 2014 as compared to 3.0% in 2013.
This increase was primarily driven by operational improvements and a shift in program mix to higher margin
outcome based programs. Included in the operating income was amortization related to acquired
intangibles of $2.7 million and $1.5 million for the year ended December 31, 2014 and 2013, respectively.
Customer Technology Services
Revenue
Operating Income
Operating Margin
Year Ended December 31,
2014
$ 139,182
4,519
2013
$ 152,485
19,965
$ Change % Change
(8.7) %
(77.4) %
$ (13,303)
(15,446)
3.2 %
13.1 %
Revenue for the Customer Technology Services segment decreased by $13.3 million compared to the prior
year. The decrease in revenue was primarily attributable to a $13.1 million decrease in revenue from the
Avaya based offerings offset, in part, by approximately $2.4 million of additional CISCO Cloud revenue.
32
The operating income as a percentage of revenue decreased to 3.2% in 2014 as compared to 13.1% in
2013. The decrease in operating income was primarily the result of a $5.6 million decline tied to the lower
Avaya platform revenue, $3.3 million of additional selling, general and administrative expenses related to
investments in sales, marketing and research and development expenses related to the build out of the
CISCO cloud solution, $1.4 million related to one-time charges for technology and managed service
expenses, a $1.3 million increase in depreciation expense tied to the increased number of cloud solutions
in service, and $1.0 million in severance and other cost associated with the integration of TSG into the
Customer Technology Services segment. Included in the operating income was amortization related to
acquired intangibles of $4.4 million and $4.1 million for the year ended December 31, 2014 and 2013,
respectively.
Customer Strategy Services
Revenue
Operating Income
Operating Margin
Year Ended December 31,
2014
$ 63,668
7,909
2013
$ 48,793
2,721
$ Change % Change
30.5 %
190.7 %
$ 14,875
5,188
12.4 %
5.6 %
The increase in revenue for the Customer Strategy Services segment was related to organic growth across
our geographies and our consulting practices including our strategy, operations and technology, analytics
and learning innovations practices and the acquisition of rogenSi in August 2014.
The operating income as a percentage of revenue increased to 12.4% in 2014 as compared to 5.6% in
2013. The improvement in the CSS operating income was primarily the result of the 30.5% increase in
revenue in combination with the restructure and full integration of this segment’s multiple acquisitions
initiated in the third quarter of 2013. Additionally the increase in operating income was partially related to
the impairment charges of $1.1 million recorded as a result of decreased revenues resulting from the
deconsolidation of a subsidiary in the prior period (see Part II, Item 8. Financial Statements and
Supplementary Data, Note 11 to the Consolidated Financial Statements). Included in the operating income
was amortization expense related to acquired intangibles of $2.1 million and $1.6 million for the year ended
December 31, 2014 and 2013, respectively.
Interest Income (Expense)
Interest income decreased to $1.8 million in 2014 from $2.6 million in 2013. Interest expense decreased to
$6.9 million during 2014 from $7.5 million for the comparable period in 2013, primarily due to decreased
accretion of deferred acquisition costs.
Other Income (Expense), Net
Included in the year ended December 31, 2014, was a combined net $6.7 million benefit related to fair value
adjustments of the contingent consideration based on revised estimates of performance against targets for
four of our acquisitions (see Part II, Item 8. Financial Statements and Supplementary Data, Note 9 to the
Consolidated Financial Statements).
Included in the year ended December 31, 2013, was a $3.7 million charge related to the deconsolidation of
a subsidiary (see Part II, Item 8. Financial Statements and Supplementary Data, Note 23 to the
Consolidated Financial Statements).
33
Income Taxes
The reported effective tax rate for 2014 was 22.9% as compared to 22.4% for 2013. The effective tax rate
for 2014 was impacted by earnings in international jurisdictions currently under an income tax holiday, a
$1.3 million benefit related to restructuring charges, a $0.4 million benefit related to a valuation allowance
for equity compensation, a $1.2 million benefit related to the closing of statute of limitations in Canada, $3.8
million of expense related to future contingent payments, $1.3 million of expense related to the resolution
of an audit in the Netherlands, and $0.2 million of expense related to other discrete items. Without these
items our effective tax rate for the year ended December 31, 2014 would have been 19.8%. In the year
ended December 31, 2013, our effective tax rate was 22.4%. Without a $1.8 million benefit related to
restructuring charges, a $1.5 million benefit related to return to provision adjustments and $1.8 million of
expense related to changes in valuation allowance, our effective tax rate for the year ended December 31,
2013 would have been 21.5%.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash generated from operations, our cash and cash equivalents,
and borrowings under our credit facility, dated June 3, 2013 which was amended and restated effective
February 11, 2016 (the “Credit Facility”). During the year ended December 31, 2015, we generated positive
operating cash flows of $133.8 million. We believe that our cash generated from operations, existing cash
and cash equivalents, and available credit will be sufficient to meet expected operating and capital
expenditure requirements for the next 12 months.
We manage a centralized global treasury function in the United States with a focus on concentrating and
safeguarding our global cash and cash equivalents. While the majority of our cash is held outside the U.S.,
we prefer to hold U.S. Dollars in addition to the local currencies of our foreign subsidiaries. We expect to
use our offshore cash to support working capital and growth of our foreign operations. While there are no
assurances, we believe our global cash is protected given our cash management practices, banking
partners and utilization of diversified, high quality investments.
We have global operations that expose us to foreign currency exchange rate fluctuations that may positively
or negatively impact our liquidity. We are also exposed to higher interest rates associated with our variable
rate debt. To mitigate these risks, we enter into foreign exchange forward and option contracts and interest
rate swaps through our cash flow hedging program. Please refer to Item 7A. Quantitative and Qualitative
Disclosures About Market Risk, Foreign Currency Risk, for further discussion.
We primarily utilize our Credit Facility to fund working capital, general operations, stock repurchases,
dividends, and other strategic activities, such as the acquisitions described in Note 2 of the Notes to
Consolidated Financial Statements. As of December 31, 2015 and 2014, we had borrowings of $100.0
million and $100.0 million, respectively, under our Credit Facility, and our average daily utilization was
$319.6 million and $285.9 million for the years ended December 31, 2015 and 2014, respectively. After
consideration for issued letters of credit under the Credit Facility, totaling $3.4 million, and the current level
of availability based on the covenant calculations, our remaining borrowing capacity was approximately
$415 million as of December 31, 2015. As of December 31, 2015, we were in compliance with all covenants
and conditions under our Credit Facility.
The amount of capital required over the next 12 months will depend on our levels of investment in
infrastructure necessary to maintain, upgrade or replace existing assets. Our working capital and capital
expenditure requirements could also increase materially in the event of acquisitions or joint ventures,
among other factors. These factors could require that we raise additional capital through future debt or
equity financing. We can provide no assurance that we will be able to raise additional capital with
commercially reasonable terms acceptable to us.
The following discussion highlights our cash flow activities during the years ended December 31, 2015,
2014, and 2013.
34
Cash and Cash Equivalents
We consider all liquid investments purchased within 90 days of their original maturity to be cash equivalents.
Our cash and cash equivalents totaled $60.3 million and $77.3 million as of December 31, 2015 and 2014,
respectively. We diversify the holdings of such cash and cash equivalents considering the financial
condition and stability of the counterparty institutions.
We reinvest our cash flows to grow our client base, and expand our infrastructure, and for investment in
research and development, strategic acquisitions and the purchase of our outstanding stock.
Cash Flows from Operating Activities
For the years 2015, 2014 and 2013 we reported net cash flows provided by operating activities of
$133.8 million, $94.1 million and $138.0 million, respectively. The increase of $39.7 million from 2014 to
2015 was primarily due to a $21.1 million increase in cash collected from accounts receivable, a $20.1
million decrease in payments made for operating expenses offset by decreases in deferred revenue of
$13.1 million. The net decrease of $43.9 million from 2013 to 2014 was primarily due to a $48.3 million
decrease in cash collected from accounts receivable and an increase of $5.6 million in payments made for
operating expenses.
Cash Flows from Investing Activities
For the years 2015, 2014 and 2013, we reported net cash flows used in investing activities of $77.2 million,
$91.9 million and $59.5 million, respectively. The net decrease in cash used in investing activities from
2014 to 2015 was primarily due to decreased spending on acquisitions and investments of $13.6 million.
The net increase in cash used in investing activities from 2013 to 2014 was primarily due to increased
spending on acquisitions of $15.3 million along with a $17.3 million increase in capital expenditures.
Cash Flows from Financing Activities
For the years 2015, 2014 and 2013, we reported net cash flows used in financing activities of $52.9 million,
$74.2 million and $70.7 million, respectively. The change in net cash flows from 2014 to 2015 was primarily
due to a $39.8 million decrease in purchases of our outstanding common stock offset by $17.4 million of
dividends paid during 2015 and a $3.3 million increase for payments of contingent consideration related to
acquisitions. The change in net cash flows from 2013 to 2014 was primarily due to $8.5 million of payments
for contingent consideration related to acquisitions and an increase of $1.5 million in dividends paid to
noncontrolling interests, partially offset by a $8.0 million increase in net borrowings from our line of credit.
Free Cash Flow
Free cash flow (see “Presentation of Non-GAAP Measurements” below for the definition of free cash flow)
was $67.2 million, $26.4 million and $87.6 million for the years 2015, 2014 and 2013, respectively. The
increase from 2014 to 2015 was primarily due to the increase in cash flows provided by operating activities
and a decrease in spend for capital expenditures and acquisitions. The decrease from 2013 to 2014
resulted primarily from a decrease in cash flow from operating activities and a $17.3 million increase in
capital expenditures.
Presentation of Non-GAAP Measurements
Free Cash Flow
Free cash flow is a non-GAAP liquidity measurement. We believe that free cash flow is useful to our
investors because it measures, during a given period, the amount of cash generated that is available for
debt obligations and investments other than purchases of property, plant and equipment. Free cash flow is
not a measure determined by GAAP and should not be considered a substitute for “income from
operations,” “net income,” “net cash provided by operating activities,” or any other measure determined in
accordance with GAAP. We believe this non-GAAP liquidity measure is useful, in addition to the most
directly comparable GAAP measure of “net cash provided by operating activities,” because free cash flow
includes investments in operational assets. Free cash flow does not represent residual cash available for
discretionary expenditures, since it includes cash required for debt service. Free cash flow also includes
cash that may be necessary for acquisitions, investments and other needs that may arise.
35
The following table reconciles net cash provided by operating activities to free cash flow for our consolidated
results (amounts in thousands):
Year Ended December 31,
Net cash provided by operating activities
Less: Purchases of property, plant and equipment
Free cash flow
2015
2014
$ 133,750 $ 94,090 $ 137,979
50,364
$ 67,155 $ 26,449 $ 87,615
67,641
66,595
2013
Obligations and Future Capital Requirements
Future maturities of our outstanding debt and contractual obligations as of December 31, 2015 are
summarized as follows (amounts in thousands):
Less than
1 Year
1 to 3
Years
3 to 5
Years
Over 5
Years
Total
Credit Facility(1)
Equipment financing arrangements
Contingent consideration
Purchase obligations
Operating lease commitments
Other debt
Total
$ 2,479 $ 103,118 $
— $ 105,597
2,907
—
13,758
—
14,620
—
142,519
29,976
4,069
—
$ 55,262 $ 171,228 $ 27,004 $ 29,976 $ 283,470
— $
78
—
2,289
23,591
1,046
1,194
9,421
4,355
36,571
1,242
1,635
4,337
7,976
52,381
1,781
(1)
Includes estimated interest payments based on the weighted-average interest rate, unused
commitment fees, current interest rate swap arrangements, and outstanding debt as of December 31,
2015. On February 11, 2016, we entered into an agreement to extend the maturity of our credit facility
to February 11, 2021. See “Debt Instruments and Related Covenants” below.
Contractual obligations to be paid in a foreign currency are translated at the period end exchange rate.
Purchase obligations primarily consist of outstanding purchase orders for goods or services not yet
received, which are not recognized as liabilities in our Consolidated Balance Sheets until such goods
and/or services are received.
The contractual obligation table excludes our liabilities of $3.7 million related to uncertain tax positions
because we cannot reliably estimate the timing of future cash payments. See Part II, Item 8. Financial
Statements and Supplementary Data, Note 10 to the Consolidated Financial Statements for further
discussion.
Our outstanding debt is primarily associated with the use of funds under our Credit Agreement to fund
working capital, repurchase our common stock, dividends and other cash flow needs across our global
operations.
Purchase Obligations
Occasionally we contract with certain of our communications clients to provide us with telecommunication
services. These clients currently represent approximately 17% of our total annual revenue. We believe
these contracts are negotiated on an arm’s-length basis and may be negotiated at different times and with
different legal entities.
36
Future Capital Requirements
We expect total capital expenditures in 2016 to be within the range of $60 to $70 million. Approximately
65% of these expected capital expenditures are to support growth in our business and 35% relate to the
maintenance of existing assets. The anticipated level of 2016 capital expenditures is primarily driven by
new client contracts and the corresponding requirements for additional delivery center capacity as well as
enhancements to our technological infrastructure.
We may consider restructurings, dispositions, mergers, acquisitions and other similar transactions. Such
transactions could include the transfer, sale or acquisition of significant assets, businesses or interests,
including joint ventures or the incurrence, assumption, or refinancing of indebtedness and could be material
to the consolidated financial condition and consolidated results of our operations. Our capital expenditures
requirements could also increase materially in the event of acquisition or joint ventures. In addition, as of
December 31, 2015, we were authorized to purchase an additional $19.6 million of common stock under
our stock repurchase program (see Item 5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities). Our stock repurchase program does not have an
expiration date.
The launch of large client contracts may result in short-term negative working capital because of the time
period between incurring the costs for training and launching the program and the beginning of the accounts
receivable collection process. As a result, periodically we may generate negative cash flows from operating
activities.
Debt Instruments and Related Covenants
On February 11, 2016, we entered into a First Amendment to our June 3, 2013 Amended and Restated
Credit Agreement and Amended and Restated Security Agreement (collectively the “Credit Agreement”) for
a senior secured revolving credit facility (the “Credit Facility”) with a syndicate of lenders led by Wells Fargo
Bank, National Association, as agent, swing line and fronting lender.
The Credit Agreement provides for a secured revolving credit facility that matures on February 11, 2021
with an initial maximum aggregate commitment of $900.0 million, and an accordion feature of up to $1.2
billion in the aggregate, if certain conditions are satisfied. At our discretion, direct borrowing options under
the Credit Agreement include (i) Eurodollar loans with one, two, three, and six month terms, (ii) overnight
base rate loans, and (iii) alternate currency loans. The Credit Agreement also provides for a foreign
subsidiary borrowing capacity sub-limit for loans or letters of credit of up to 50% of the total commitment
amount, in both U.S. dollars and certain foreign currencies.
We primarily utilize our Credit Facility to fund working capital, general operations, stock repurchases,
dividends, acquisitions, and other strategic activities.
Base rate loans bear interest at a rate equal to the greatest of (i) Wells Fargo’s prime rate, (ii) one half of
1% in excess of the federal funds effective rate, or (iii) 1.25% in excess of the one month London Interbank
Offered Rate (“LIBOR”); and Eurodollar loans bear interest at LIBOR, in each case adding a margin based
upon our net leverage ratio. Alternate currency loans bear interest at rates applicable to their respective
currencies.
The applicable margins from February 11, 2016 until a compliance certificate is provided by us in connection
with the delivery to the lenders of our quarterly financial statements for the quarter ended March 31, 2016,
are 0.000% per annum for base rate loans and 1.000% per annum for Eurodollar loans or alternate currency
loans. Thereafter the borrowing margins are determined by reference to our net leverage ratio, as set forth
in the table below:
37
Net Leverage Ratio
Applicable Margin for
LIBOR Fixed Rate Loans
Applicable Margin for
Base Rate Loans
Greater than or equal to 3.00 to 1.00
Greater than or equal to 2.50 to 1.00 but less
than 3.00 to 1.00
Greater than or equal to 2.00 to 1.00 but less
than 2.50 to 1.00
Greater than or equal to 1.00 to 1.00 but less
than 2.00 to 1.00
Less than 1.00 to 1.00
1.750%
1.500%
1.375%
1.125%
1.000%
0.750%
0.500%
0.375%
0.125%
0.000%
Letter of credit fees are one eighth of 1% of the stated amount of the letter of credit on the date of issuance,
renewal or amendment, plus an annual fee equal to the borrowing margin for Eurodollar loans.
The Credit Facility commitment fees are payable to the lenders in an amount equal to the unused portion
of the Credit Facility multiplied by 0.125% per annum from February 11, 2016 until a compliance certificate
is provided by us in connection with the delivery to the lenders of our quarterly financial statements for the
quarter ended March 31, 2016, and thereafter are determined by reference to our net leverage ratio, as set
forth in the table below:
Net Leverage Ratio
Greater than or equal to 3.00 to 1.00
Greater than or equal to 2.50 to 1.00 but less than 3.00 to 1.00
Greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00
Greater than or equal to 1.00 to 1.00 but less than 2.00 to 1.00
Less than 1.00 to 1.00
Applicable Commitment Fee
Rate
0.250%
0.200%
0.175%
0.150%
0.125%
Indebtedness under the Credit Agreement is guaranteed by certain of our domestic subsidiaries and is
secured by security interests (subject to permitted liens) in the U.S. accounts receivable and cash of our
Company and certain of its domestic subsidiaries. The indebtedness may also be secured by tangible
assets of our Company and its domestic subsidiaries, if borrowings by foreign subsidiaries exceed $100.0
million and the total net leverage ratio is greater than 3.00 to 1.00. We also pledged 65% of the voting stock
and all of the non-voting stock, if any, of certain of our material foreign subsidiaries.
The Credit Agreement contains customary affirmative, negative, and financial covenants. These covenants
include, but are not limited to, the following, in each case subject to exceptions set forth in the Credit
Agreement: incurring additional indebtedness or, guaranteeing of indebtedness; creating, incurring,
assuming or permitting to exist liens on property and assets; making loans and investments and entering
into certain types of mergers, consolidations and acquisitions; making capital distributions or paying,
redeeming or repurchasing subordinated debt; entering into certain affiliate transactions; and entering into
agreements that would restrict the ability of the Company’s subsidiaries to pay dividends and make
distributions.
In addition, the Company is obligated to maintain a maximum net leverage ratio of 3.25 to 1.00, and a
minimum Interest Coverage Ratio of 2.50 to 1.00.
38
The Credit Facility also contains certain customary information and reporting requirements, and events of
default, including without limitation events of default based on payment obligations, material inaccuracies
of representations and warranties, covenant defaults, cross defaults to certain other debt, certain ERISA
events, changes in control, monetary judgments, and insolvency proceedings. Upon the occurrence of an
event of default, the lenders may accelerate the maturity of all amounts outstanding under the Credit
Facility.
As of December 31, 2015 and 2014, we had borrowings of $100.0 million and $100.0 million, respectively,
under the Credit Facility. During 2015, 2014 and 2013, borrowings accrued interest at an average rate of
approximately 1.2%, 1.2%, and 1.4% per annum, respectively, excluding unused commitment fees. Our
daily average borrowings during 2015, 2014 and 2013 were $319.6 million, $285.9 million and $238.1
million, respectively. As of December 31, 2015, and 2014, based on the current level of availability based
on the covenant calculations and the issued letters of credit, our remaining borrowing capacity was
approximately $415 million and $390 million, respectively.
From time-to-time, we may have unsecured, uncommitted bank lines of credit to support working capital for
a few foreign subsidiaries. As of December 31, 2015 and 2014, we had no foreign loans outstanding.
Client Concentration
During 2015, one of our clients represented 10% of our total annual revenue. Our five largest clients
accounted for 35%, 38% and 40% of our annual revenue for the years ended December 31, 2015, 2014
and 2013, respectively. We have long-term relationships with our top five clients, ranging from two to 19
years, with the majority of these clients having completed multiple contract renewals with us. The relative
contribution of any single client to consolidated earnings is not always proportional to the relative revenue
contribution on a consolidated basis and varies greatly based upon specific contract terms. In addition,
clients may adjust business volumes served by us based on their business requirements. We believe the
risk of this concentration is mitigated, in part, by the long-term contracts we have with our largest clients.
Although certain client contracts may be terminated for convenience by either party, we believe this risk is
mitigated, in part, by the service level disruptions and transition/migration costs that would arise for our
clients.
The contracts with our five largest clients expire between 2016 and 2020. Additionally, a particular client
may have multiple contracts with different expiration dates. We have historically renewed most of our
contracts with our largest clients, but there can be no assurance that future contracts will be renewed or, if
renewed, will be on terms as favorable as the existing contracts.
Recently Issued Accounting Pronouncements
We discuss the potential impact of recent accounting pronouncements in Part II, Item 8. Financial
Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements.
39
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our consolidated financial position, consolidated
results of operations, or consolidated cash flows due to adverse changes in financial and commodity market
prices and rates. Market risk also includes credit and non-performance risk by counterparties to our various
financial instruments. We are exposed to market risks due to changes in interest rates and foreign currency
exchange rates (as measured against the U.S. dollar); as well as credit risk associated with potential non-
performance of our counterparty banks. These exposures are directly related to our normal operating and
funding activities. We enter into derivative instruments to manage and reduce the impact of currency
exchange rate changes, primarily between the U.S. dollar/Canadian dollar, the U.S. dollar/Philippine peso,
the U.S. dollar/Mexican peso, and the Australian dollar/Philippine peso. We enter into interest rate
derivative instruments to reduce our exposure to interest rate fluctuations associated with our variable rate
debt. To mitigate against credit and non-performance risk, it is our policy to only enter into derivative
contracts and other financial instruments with investment grade counterparty financial institutions and,
correspondingly, our derivative valuations reflect the creditworthiness of our counterparties. As of the date
of this report, we have not experienced, nor do we anticipate, any issue related to derivative counterparty
defaults.
Interest Rate Risk
We entered into interest rate derivative instruments to reduce our exposure to interest rate fluctuations
associated with our variable rate debt. The interest rate on our Credit Agreement is variable based upon
the Prime Rate and LIBOR and, therefore, is affected by changes in market interest rates. As of
December 31, 2015, we had $100.0 million of outstanding borrowings under the Credit Agreement. Based
upon average daily outstanding borrowings during the years ended December 31, 2015 and 2014, interest
accrued at a rate of approximately 1.2% and 1.2% per annum, respectively. If the Prime Rate or LIBOR
increased by 100 basis points, there would be $1.0 million of additional interest expense per $100.0 million
of outstanding borrowing under the Credit Agreement.
The Company’s interest rate swap arrangements as of December 31, 2015 and 2014 were as follows:
Contract
Contract
Swap 1
Swap 2
Foreign Currency Risk
Notional
Amount
Variable Rate
Received
$ 25 million 1 - month LIBOR
15 million 1 - month LIBOR
Commencement Maturity
Fixed Rate
Paid
2.55 % April 2012
3.14 % May 2012
Date
Date
April 2016
May 2017
$ 40 million
Our subsidiaries in Bulgaria, Canada, Costa Rica, Mexico, Poland, and the Philippines use the local
currency as their functional currency for paying labor and other operating costs. Conversely, revenue for
these foreign subsidiaries is derived principally from client contracts that are invoiced and collected in U.S.
dollars or other foreign currencies. As a result, we may experience foreign currency gains or losses, which
may positively or negatively affect our results of operations attributed to these subsidiaries. For the years
ended December 31, 2015, 2014 and 2013, revenue associated with this foreign exchange risk was 30%,
31% and 32% of our consolidated revenue, respectively.
40
The following summarizes relative (weakening) strengthening of local currencies that are relevant to our
business:
Year Ended December 31,
Canadian Dollar vs. U.S. Dollar
Philippine Peso vs. U.S. Dollar
Mexican Peso vs. U.S. Dollar
Australian Dollar vs. U.S. Dollar
Euro vs. U.S. Dollar
Philippine Peso vs. Australian Dollar
2014
2013
2015
(19.3) %
(4.7) %
(17.5) %
(11.8) %
(11.5) %
6.3 %
(8.7) %
(0.9) %
(13.0) %
(8.8) %
(13.3) %
7.2 %
(7.3) %
(7.6) %
(0.3) %
(16.9) %
4.0 %
7.9 %
In order to mitigate the risk of these non-functional foreign currencies weakening against the functional
currencies of the servicing subsidiaries, which thereby decreases the economic benefit of performing work
in these countries, we may hedge a portion, though not 100%, of the projected foreign currency exposure
related to client programs served from these foreign countries through our cash flow hedging program.
While our hedging strategy can protect us from adverse changes in foreign currency rates in the short term,
an overall weakening of the non-functional revenue foreign currencies would adversely impact margins in
the segments of the servicing subsidiary over the long term.
Cash Flow Hedging Program
To reduce our exposure to foreign currency exchange rate fluctuations associated with forecasted revenue
in non-functional currencies, we purchase forward and/or option contracts to acquire the functional currency
of the foreign subsidiary at a fixed exchange rate at specific dates in the future. We have designated and
account for these derivative instruments as cash flow hedges for forecasted revenue in non-functional
currencies.
While we have implemented certain strategies to mitigate risks related to the impact of fluctuations in
currency exchange rates, we cannot ensure that we will not recognize gains or losses from international
transactions, as this is part of transacting business in an international environment. Not every exposure is
or can be hedged and, where hedges are put in place based on expected foreign exchange exposure, they
are based on forecasts for which actual results may differ from the original estimate. Failure to successfully
hedge or anticipate currency risks properly could adversely affect our consolidated operating results.
Our cash flow hedging instruments as of December 31, 2015 and 2014 are summarized as follows (in
thousands). All hedging instruments are forward contracts, except as noted.
As of December 31, 2015
Philippine Peso
Mexican Peso
Local
Currency
Notional
Amount
16,362,000
2,637,000
U.S. Dollar
Notional
Amount
% Maturing
in the next
12 months
361,571 (1)
173,124
534,695
45.4 %
28.7 %
Contracts
Maturing
Through
October 2020
October 2020
$
41
As of December 31, 2014
Canadian Dollar
Philippine Peso
Mexican Peso
New Zealand Dollar
Local
Currency
Notional
Amount
U.S. Dollar
Notional
Amount
1,500 $
17,428,000
2,532,000
490
$
1,441
398,046 (1)
179,089
381
578,957
(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 December 31, 2015 and December 31,
2014.
The fair value of our cash flow hedges at December 31, 2015 was a liability (in thousands):
Philippine Peso
Mexican Peso
Maturing in the
December 31, 2015 Next 12 Months
(10,183)
(9,866)
(20,049)
(20,102)
(25,620)
(45,722) $
$
Our cash flow hedges are valued using models based on market observable inputs, including both forward
and spot foreign exchange rates, implied volatility, and counterparty credit risk. The fair value of our cash
flow hedges decreased by $14.2 million from December 31, 2014 to December 31, 2015. The decrease in
fair value from December 31, 2014 largely reflects a broad strengthening in the U.S. dollar during 2015.
We recorded net (losses)/gains of $(12.4) million, $(2.4) million, and $8.0 million for settled cash flow hedge
contracts for the years ended December 31, 2015, 2014, and 2013, respectively. These (losses)/gains were
reflected in Revenue in the accompanying Consolidated Statements of Comprehensive Income (Loss). If
the exchange rates between our various currency pairs were to increase or decrease by 10% from current
period-end levels, we would incur a material gain or loss on the contracts. However, any gain or loss would
be mitigated by corresponding increases or decreases in our underlying exposures.
Other than the transactions hedged as discussed above and in Note 8 in the accompanying Consolidated
Financial Statements, the majority of the transactions of our U.S. and foreign operations are denominated
in their respective local currency. However, transactions are denominated in other currencies from time-to-
time. We do not currently engage in hedging activities related to these types of foreign currency risks
because we believe them to be insignificant as we endeavor to settle these accounts on a timely basis. For
the years ended 2015 and 2014, approximately 23% and 24%, respectively, of revenue was derived from
contracts denominated in currencies other than the U.S. Dollar. Our results from operations and revenue
could be adversely affected if the U.S. Dollar strengthens significantly against foreign currencies.
Fair Value of Debt and Equity Securities
We did not have any investments in marketable debt or equity securities as of December 31, 2015 or
2014.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are located beginning on page F-1 of this report and
incorporated herein by reference.
42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
This Form 10-K includes the certifications of our Chief Executive Officer (the “CEO”) and Chief Financial
Officer (the “CFO”) required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”).
See Exhibits 31.1 and 31.2. This Item 9A includes information concerning the controls and control
evaluations referred to in those certifications.
Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
as amended) are designed to provide reasonable assurance that information required to be disclosed in
reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in SEC rules and forms and that such information is accumulated and
communicated to management, including our CEO and CFO, to allow timely decisions regarding required
disclosures.
Based on their evaluation, as of December 31, 2015, the end of the period covered by this Form 10-K, the
Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were
not effective because of the material weaknesses in our internal control over financial reporting described
in “Management’s Report on Internal Control over Financial Reporting” below.
Notwithstanding such material weaknesses in internal control over financial reporting, our CEO and CFO
have concluded that our consolidated financial statements included in this Form 10-K present fairly, in all
material respects, our financial position, results of operations and cash flows for the periods presented in
conformity with accounting principles generally accepted in the United States and Article 10 of Regulation
S-X of under the Exchange Act.
Inherent Limitations of Internal Controls
Our management, including the CEO and CFO, believes that any disclosure controls and procedures or
internal controls and procedures, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of internal control are met. Further, the design of internal
controls must consider the benefits of controls relative to their costs. Inherent limitations within internal
controls include the realities that judgments in decision-making can be faulty, and that breakdowns can
occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by unauthorized override of controls. Over
time, controls may become inadequate because of changes in conditions or deterioration in the degree of
compliance with associated policies or procedures. While the objective of the design of any system of
controls is to provide reasonable assurance of the effectiveness of controls, such design is also based in
part upon certain assumptions about the likelihood of future events, and such assumptions, while
reasonable, may not take into account all potential future conditions. Thus, even effective internal control
over financial reporting can only provide reasonable assurance of achieving their objectives. Therefore,
because of the inherent limitations in cost effective internal controls, misstatements due to error or fraud
may occur and may not be prevented or detected.
43
Management’s Report on Internal Control over Financial Reporting
Management, under the supervision of our CEO and CFO, is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures which (a) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, (c)
provide reasonable assurance that receipts and expenditures are being made only in accordance with
appropriate authorization of management and the Board of Directors, and (d) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could
have a material effect on the financial statements.
In connection with the preparation of this Annual Report on Form 10-K, our management, under the
supervision and with the participation of our CEO and CFO, conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2015 based on the framework established
in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). As a result of that evaluation, our management concluded that the
Company’s internal control over financial reporting was not effective as of December 31, 2015, the end of
the period covered by this Form 10-K, because of the material weaknesses in our internal control over
financial reporting described below under “Material Weaknesses in Internal Control over Financial
Reporting”.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual
or interim financial statements will not be prevented or detected on a timely basis.
We identified the following material weaknesses that existed as of December 31, 2015:
Control Environment: We did not maintain an effective control environment as we did not have a
sufficient complement of qualified personnel commensurate with our financial reporting requirements.
The material weakness resulted from employee turnover and organizational changes experienced
subsequent to the filing of our Form 10-K for the year ended December 31, 2014. This material
weakness contributed to the following control deficiencies, each of which is considered to be a material
weakness.
Account Reconciliations: We did not maintain effective controls over account reconciliations, including
the failure to reconcile certain accounts and to review underlying financial information in the correct
reporting period. As a result of this material weakness, we failed to identify errors in the accuracy and
completeness of the preparation and review of account reconciliations associated with unbilled
revenue, accrued expenses and telecommunications expense. This material weakness resulted in
errors that were not material to our annual or interim consolidated financial statements during 2015.
Journal Entries: As previously disclosed, we did not design and maintain effective controls over the
appropriate review and approval of journal entries at certain of our acquired entities, including
maintaining appropriate supporting documentation. During the quarter ending December 31, 2015
management identified additional deficiencies, related to the appropriate review and approval of journal
entries. Specifically, we did not design and maintain effective controls over the appropriate review and
approval of journal entries, including proper segregation of duties related to the ability to create and
post journal entries. This material weakness did not result in the identification of any adjustments to the
annual or interim consolidated financial statements.
Revenue: We did not maintain processes, procedures and internal controls that were adequately
designed, documented, and executed over our revenue process which could lead to misstatements in
accurate and timely recording or reporting of revenue. This material weakness did not result in the
identification of any adjustments to the annual or interim consolidated financial statements.
44
Impairments: We did not design and maintain effective internal controls over the review of the cash
flow forecasts used in the accounting for long-lived asset recoverability and goodwill impairment and
determination of the an impairment charge in accordance with generally accepted accounting
principles. Specifically, the Company did not design and maintain effective internal controls related to
determining the fair value of reporting units for the purpose of performing goodwill impairment testing
and management’s review of the data, model and assumptions used in its cash flow forecasts for long-
lived asset recoverability and goodwill impairment. This control deficiency resulted in an immaterial
misstatement to goodwill during the year-ended December 31, 2014 and immaterial out-of-period
adjustments to goodwill during each of the quarters ended September 30, 2015 and December 31,
2015.
While these control deficiencies did not result in errors that were material to our annual or interim financial
statements, they could result in material misstatements of our consolidated financial statements and
disclosures which would not be prevented or detected.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited
by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their
report, which is included in “Part II — Item 8 — Financial Statements and Supplementary Data.”
Remediation Plan for Material Weakness
In response to the identified material weaknesses, our management, with the oversight of the Audit
Committee of our board of directors, has dedicated significant resources and efforts to improve our control
environment and has taken immediate action to remediate the material weaknesses identified. While
certain remedial actions have been completed, we continue to actively plan for and implement additional
control procedures. The remediation efforts, outlined below, are intended both to address the identified
material weaknesses and to enhance our overall financial control environment.
Remediation Actions for Control Environment:
We hired additional personnel and established appropriate roles and responsibilities within our
global finance and accounting organization to improve our knowledge and expertise over financial
reporting. Since mid-year 2015, we have been actively upgrading key accounting leadership
personnel in the United States, Philippines, and Mexico. Our focus is on upgrading personnel that
have responsibilities for the knowledge of and technical expertise in US GAAP. In the last six
months we appointed a new Global Controller, VP accounting operations, two assistant controllers
with responsibility for our reporting segments, and additional technical accounting staff. We are
also in the process of augmenting our financial reporting function by hiring a senior executive,
reporting to the Global Controller, with significant public company experience who will have
accountability for all SEC reporting, US GAAP technical accounting issues, and Sarbanes-Oxley
compliance.
In addition, we engaged an independent third party expert to assist us in our review of our control
structure, including a comprehensive risk assessment with respect to our internal controls, and to
provide constructive recommendations for optimization of our controls and control environment,
including our implementation of a periodic monitoring process for the design and operating
effectiveness of our control activities. We expect to implement the expert recommendations and
upgrade our control structure in 2016, but we can provide no assurance as to the timing of when
the material weaknesses will be remediated as a result of these changes
We have implemented a comprehensive training for our accounting managers designed to ensure
that we have sufficient complement of qualified personnel with knowledge, experience, and training
in the application of generally accepted accounting principles, and will include a program of
continuous education for new staff and refresher courses for existing staff on a going forward basis.
Remediation Actions for Account Reconciliations
Beginning in the quarter ended September 30, 2015, we implemented enhanced control
procedures over our reconciliation process.
45
Beginning in the quarter ended December 31, 2015, we implemented additional balance sheet and
income statement analytic controls designed to further enhance our controls and detect any
material misstatements.
Remediation Actions for Journal Entries
We will review our accounting system configuration and implement the necessary system controls
to eliminate the ability for a user to create and post a journal entry.
We have integrated our acquired companies onto our accounting system which will allow for system
controls to prevent a user from posting and approving their journal entries.
Remediation Actions for Revenue Processes
We are optimizing our revenue accounting organization structure to improve our control
environment including the establishment of a revenue quality assurance organization.
We will implement enhanced control procedures and additional controls over our revenue process
including, but not limited to, system controls and specific transaction controls.
Remediation for Impairment
We engaged a third party expert to assist in our review of the completeness and accuracy of our
valuation methodology and will continue to apply the enhancements in our valuation models on a
going forward basis.
We will assess, develop and implement specific guidance and procedures for the expected level of
reviews to be performed in connection with valuation models that we use for impairment testing,
including consideration of the data and assumptions used in these models.
These material weaknesses will not be considered remediated until the applicable remedial controls operate
for a sufficient period of time and management has concluded, through testing, that these controls are
operating effectively.
We believe the measures described above will remediate the control deficiencies we have identified and
strengthen our internal control over financial reporting. We are committed to continuing to improve our
internal control processes and will continue to review, optimize and enhance our financial reporting controls
and procedures. As we continue to evaluate and work to improve our internal control over financial
reporting, we may determine to take additional measures to address control deficiencies or determine to
modify, or in appropriate circumstances not to complete, certain of the remediation measures described
above.
Changes in Internal Control
The changes made in our internal controls related to account reconciliations, as described under
Remediation Plan for Material Weaknesses, were the only changes in internal controls over financial
reporting that occurred during the quarter ended December 31, 2015 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
None.
ITEM 9B. OTHER INFORMATION
46
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information in our 2016 Definitive Proxy Statement on Schedule 14A, which will be filed no later than
120 days after December 31, 2015 (the “2016 Proxy Statement”) regarding our executive officers under the
heading “Information Regarding Executive Officers” is incorporated herein by reference. We have both a
Code of Ethical Conduct for Executive and Financial Managers and a Code of Conduct. The Code of Ethical
Conduct for Executive and Financial Officers applies to our Chief Executive Officer, Chief Financial Officer,
presidents of our business segments, Controller, Treasurer, the General Counsel, Chief Audit executive,
senior financial officers of each operating segment and other persons performing similar functions. The
Code of Conduct applies to all directors, officers, employees and members of our supply chain (as
applicable). Both the Code of Ethical Conduct for Executive and Financial Officers and the Code of Conduct
are posted on our website at www.teletech.com on the Corporate Governance page. We will post on our
website any amendments to or waivers of the Code of Ethical Conduct for Executive and Financial Officers
and our Code of Conduct, in accordance with applicable laws and regulations.
There have been no material changes to the procedures by which stockholders may recommend nominees
to the board of directors. The remaining information called for by this Item 10 is incorporated by reference
herein from our 2016 Proxy Statement.
The information in our 2016 Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information regarding these matters is included in Part II, Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Also the information in our
2016 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information in our 2016 Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
The information in our 2016 Proxy Statement is incorporated herein by reference.
47
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements.
The Index to Consolidated Financial Statements is set forth on page F-1 of this report.
2. Financial Statement Schedules.
All schedules for TeleTech have been omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule, or because the information is
included in the respective Consolidated Financial Statements or notes thereto.
3. Exhibits.
EXHIBIT INDEX
Exhibit No.
3.01**
Description
Restated Certificate of Incorporation of TeleTech Holdings, Inc. filed with the State of
Delaware on August 1, 1996 (incorporated by reference to Exhibit 3.1 to TeleTech’s
Amendment No. 2 to Form S-1 Registration Statement (Registration No. 333-04097) filed
on July 5, 1996)
3.02**
10.04**
10.06**
10.24**
10.25**
10.27**
10.28**
10.29**
Second Amended and Restated Bylaws of TeleTech (incorporated by reference to
Exhibit 3.02 to TeleTech’s Current Report on Form 8-K filed on May 28, 2009)
TeleTech Holdings, Inc. Amended and Restated 1999 Stock Option and Incentive Plan
(incorporated by reference as Exhibit 10.04 to TeleTech’s Annual Report on Form 10-K for
the year ended December 31, 2012)
TeleTech Holdings, Inc. 2010 Equity Incentive Plan (incorporated by reference as Appendix
A to TeleTech’s Definitive Proxy Statement, filed April 12, 2010)
Form of Restricted Stock Unit Agreement (Section 16 Officers) (incorporated by reference
as Exhibit 4.3 to TeleTech’s Form S-8 Registration Statement (Registration No. 333-
167300) filed on June 3, 2010)
Form of Restricted Stock Unit Agreement (Non-Section 16 Employees) (incorporated by
reference as Exhibit 4.4 to TeleTech’s Form S-8 Registration Statement (Registration
No. 333-167300) filed on June 3, 2010)
Form of Global Restricted Stock Unit Agreement (Operating Committee Member)
(incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed
on May 1, 2013)
Form of Global Restricted Stock Unit Agreement (Non-Operating Committee Member)
(incorporated by reference as Exhibit 10.2 to TeleTech’s Current Report on Form 8-K filed
on May 1, 2013)
Form of TeleTech Holdings, Inc. Restricted Stock Unit Award Agreement (other
employees) effective July 1, 2014 (incorporated by reference as Exhibit 10.29 to
TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2014)
48
Exhibit No.
10.30**
Description
Form of TeleTech Holdings, Inc. Restricted Stock Unit Award Agreement (Directors and
Executive Committee Members) effective July 1, 2014 (incorporated by reference as
Exhibit 10.30 to TeleTech’s Annual Report on Form 10-K for the year ended December 31,
2014)
10.31**
Form of Non-Qualified Stock Option Agreement (Non-Employee Director) (incorporated by
reference as Exhibit 10.08 to TeleTech’s Annual Report on Form 10-K for the year ended
December 31, 2007)
10.32*
Independent Director Compensation Arrangements (effective January 1, 2016)
10.33**
10.40**
10.41**
10.50**
10.52**
10.54**
10.60**
10.62**
10.63**
10.80**
10.81**
Form of
Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on February 22, 2010)
Indemnification Agreement with Directors (incorporated by reference as
Employment Agreement between Kenneth D. Tuchman and TeleTech dated October 15,
2001 (incorporated by reference as Exhibit 10.68 to TeleTech’s Annual Report on Form 10-
K for the year ended December 31, 2001)
Amendment to Employment Agreement between Kenneth D. Tuchman and TeleTech dated
December 31, 2008 (incorporated by reference as Exhibit 10.17 to TeleTech’s Annual
Report on Form 10-K for the year ended December 31, 2008)
Employment Agreement between James E. Barlett and TeleTech dated October 15, 2001
(incorporated by reference as Exhibit 10.66 to TeleTech’s Annual Report on Form 10-K for
the year ended December 31, 2001)
Amendment to Employment Agreement between James E. Barlett and TeleTech dated
December 31, 2008 (incorporated by reference as Exhibit 10.13 to TeleTech’s Annual
Report on Form 10-K for the year ended December 31, 2008)
Second Amendment, dated as of April 19, 2011, to TeleTech Holdings, Inc. Restricted
Stock Unit Agreement by and between TeleTech Holdings, Inc. and James E. Barlett dated
June 22, 2007 (incorporated by reference as Exhibit 10.1 to TeleTech’s Current Report on
Form 8-K filed April 22, 2011)
Employment Agreement between Regina Paolillo and TeleTech Holdings, Inc. effective as
of November 3, 2011 (incorporated by reference as Exhibit 10.1 to TeleTech’s Current
Report on Form 8-K filed October 27, 2011)
Restricted Stock Unit Agreement dated as of November 15, 2011 between TeleTech
Holdings, Inc. and Regina Paolillo (RSU Performance Agreement) (incorporated by
reference as Exhibit 10.2 to TeleTech’s Current Report on Form 8-K/A filed November 21,
2011)
Non-Qualified Stock Option Agreement dated as of November 15, 2011 between TeleTech
Holdings, Inc. and Regina Paolillo (Option Agreement)(incorporated by reference as
Exhibit 10.3 to TeleTech’s Current Report on Form 8-K/A filed November 21, 2011)
Employment Agreement between Keith Gallacher and TeleTech Services Corporation
effective as of June 3, 2013 (incorporated by reference as Exhibit 10.2 to TeleTech’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
Employment Agreement between Robert N. Jimenez and TeleTech Services Corporation
effective as of April 20, 2015 (incorporated by reference as Exhibit 10.81 to TeleTech’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015)
49
Exhibit No.
10.90**
Description
First Amendment to Amended and Restated Credit Agreement and First Amendment to
Amended and Restated Security Agreement (collectively, “New Credit Agreement”) for
the senior secured revolving credit facility (the “New Credit Facility”) with a syndicate of
lenders (collectively, “Lenders”) led by Wells Fargo Bank, National Association, as agent,
swing line and fronting lender. The New Credit Agreement amends the Company’s prior
Amended and Restated Credit Agreement and Amended and Restated Security
Agreement dated as of June 3, 2013 (the “Prior Credit Facility”). (Incorporated by
reference to Exhibit 10.90 to TeleTech’s Form 8-K filed on February 16, 2016)
21.1*
List of subsidiaries
23.1*
Consent of Independent Registered Public Accounting Firm
24.1*
Power of Attorney
31.1*
Rule 13a-14(a) Certification of CEO of TeleTech
31.2*
Rule 13a-14(a) Certification of CFO of TeleTech
32.1*
32.2*
Written Statement of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (18 U.S.C. Section 1350)
Written Statement of 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
* Filed or furnished herewith.
**
Identifies exhibit that consists of or includes a management contract or compensatory plan or
arrangement.
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible
***
Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2015 and 2014,
(ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015,
2014 and 2013, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31,
2015, 2014 and 2013, (iv) Consolidated Statements of Cash Flows for the years ended December 31,
2015, 2014 and 2013, and (v) Notes to Consolidated Financial Statements.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized on
March 14, 2016.
TELETECH HOLDINGS, INC.
By:
/s/ KENNETH D. TUCHMAN
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
on March 14, 2016, by the following persons on behalf of the registrant and in the capacities indicated:
Signature
Title
/s/ KENNETH D. TUCHMAN
Kenneth D. Tuchman
PRINCIPAL EXECUTIVE OFFICER
Chief Executive Officer and Chairman of the Board
/s/ REGINA M. PAOLILLO
Regina M. Paolillo
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
Chief Financial Officer
*
James E. Barlett
*
Tracy L. Bahl
*
Gregory A. Conley
*
Robert Frerichs
*
Marc L. Holtzman
*
Shrikant Mehta
DIRECTOR
DIRECTOR
DIRECTOR
DIRECTOR
DIRECTOR
DIRECTOR
* By /s/ Regina M. Paolillo under Power of Attorney as attached hereto as Exhibit 24.1
51
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF TELETECH HOLDINGS, INC.
Page No.
F-2
F-4
F-5
F-6
F-7
F-8
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31,
2015, 2014 and 2013
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015,
2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013
Notes to the Consolidated Financial Statements
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of TeleTech Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
comprehensive income (loss), of stockholders’ equity and of cash flows present fairly, in all material
respects, the financial position of TeleTech Holdings, Inc. and its subsidiaries at December 31, 2015 and
2014, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2015 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company did not maintain, in all material respects, effective internal
control over financial reporting as of December 31, 2015, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) because material weaknesses in internal control over financial reporting existed as
of that date related to (i) an ineffective control environment, as the Company did not have a sufficient
complement of qualified personnel commensurate with the Company’s reporting requirements. This
material weakness contributed to material weaknesses related to (ii) ineffective controls over account
reconciliations, including review of underlying financial information, (iii) ineffective design of controls over
review and approval of journal entries, including lack of appropriate supporting documentation and proper
segregation of duties over creation and posting of journal entries, (iv) ineffective controls over the accurate
and timely recognition of revenue, and (v) ineffective design and execution of controls over the review of
cash flow forecasts used in the accounting for long-lived asset recoverability and goodwill impairment
analyses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis. The material weaknesses
referred to above are described in Management's Report on Internal Control over Financial Reporting
appearing under Item 9A. We considered these material weaknesses in determining the nature, timing,
and extent of audit tests applied in our audit of the 2015 consolidated financial statements, and our opinion
regarding the effectiveness of the Company’s internal control over financial reporting does not affect our
opinion on those consolidated financial statements. The Company's management is responsible for these
financial statements, for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in management's report referred to
above. Our responsibility is to express opinions on these financial statements and on the Company's
internal control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in
which it classifies deferred income taxes in 2015.
F-2
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
March 14, 2016
F-3
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net
Prepaids and other current assets
Deferred tax assets, net
Income tax receivable
Total current assets
Long-term assets
Property, plant and equipment, net
Goodwill
Deferred tax assets, net
Other intangible assets, net
Other long-term assets
Total long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued employee compensation and benefits
Other accrued expenses
Income tax payable
Deferred revenue
Other current liabilities
Total current liabilities
Long-term liabilities
Line of credit
Deferred tax liabilities, net
Deferred rent
Other long-term liabilities
Total long-term liabilities
Total liabilities
Commitments and contingencies (Note 14)
December 31, December 31,
2015
2014
$
60,304 $
$
$
283,474
64,180
—
7,114
415,072
168,289
114,183
52,082
51,215
42,486
428,255
843,327 $
43,323 $
71,634
33,160
9,125
26,184
23,480
206,906
100,000
3,333
11,791
76,349
191,473
398,379
77,316
276,432
64,702
22,501
4,532
445,483
150,212
128,705
31,512
59,905
36,658
406,992
852,475
37,019
70,069
34,430
10,141
29,887
17,085
198,631
100,000
4,675
8,956
74,149
187,780
386,411
Mandatorily redeemable noncontrolling interest
4,131
2,814
Stockholders’ equity
Preferred stock; $0.01 par value; 10,000,000 shares authorized; zero shares
outstanding as of December 31, 2015 and December 31, 2014
Common stock; $0.01 par value; 150,000,000 shares authorized; 48,481,323 and
48,452,852 shares outstanding as of December 31, 2015 and December 31, 2014,
respectively
Additional paid-in capital
Treasury stock at cost: 33,570,930 and 33,599,401 shares as of December 31, 2015
and December 31, 2014, respectively
Accumulated other comprehensive income (loss)
Retained earnings
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
—
—
485
347,251
485
356,792
(533,744)
(101,365)
720,989
7,201
440,817
843,327 $
(527,595)
(52,274)
677,859
7,983
463,250
852,475
The accompanying notes are an integral part of these consolidated financial statements.
F-4
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands, except per share amounts)
Revenue
Operating expenses
Cost of services (exclusive of depreciation and amortization presented
separately below)
Selling, general and administrative
Depreciation and amortization
Restructuring charges, net
Impairment losses
Total operating expenses
Income from operations
Other income (expense)
Interest income
Interest expense
Loss on deconsolidation of subsidiary
Other income (expense), net
Total other income (expense)
Income before income taxes
Provision for income taxes
Net income
Year Ended December 31,
2014
2013
2015
$
1,286,755 $
1,241,781 $
1,193,157
928,247
194,606
63,808
1,814
8,100
1,196,575
886,492
198,553
56,538
3,350
373
1,145,306
846,631
193,423
46,064
4,435
1,205
1,091,758
90,180
96,475
101,399
1,090
(7,538)
—
2,157
(4,291)
1,769
(6,946)
—
9,161
3,984
2,560
(7,513)
(3,655)
(722)
(9,330)
85,889
100,459
92,069
(20,004)
(23,042)
(20,598)
65,885
77,417
71,471
Net income attributable to noncontrolling interest
(4,219)
(5,124)
(4,083)
Net income attributable to TeleTech stockholders
$
61,666 $
72,293 $
67,388
Other comprehensive income (loss)
Net income
Foreign currency translation adjustments
Derivative valuation, gross
Derivative valuation, tax effect
Other, net of tax
Total other comprehensive income (loss)
Total comprehensive income (loss)
$
65,885 $
(38,200)
(15,768)
7,228
(2,707)
(49,447)
16,438
77,417 $
(23,120)
(16,970)
6,978
1,076
(32,036)
45,381
71,471
(26,342)
(29,465)
11,554
598
(43,655)
27,816
Less: Comprehensive income attributable to noncontrolling interest
(3,026)
(4,163)
(3,995)
Comprehensive income (loss) attributable to TeleTech
stockholders
$
13,412 $
41,218 $
23,821
Weighted average shares outstanding
Basic
Diluted
48,370
49,011
49,297
50,102
51,338
52,244
Net income per share attributable to TeleTech stockholders
Basic
Diluted
$
$
1.27 $
1.26 $
1.47 $
1.44 $
1.31
1.29
The accompanying notes are an integral part of these consolidated financial statements.
F-5
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Amounts in thousands)
Stockholders’ Equity of the Company
Accumulated
Other
Preferred Stock
Shares Amount Shares Amount
Common Stock
Treasury
Stock
Additional
Paid-in Capital
Comprehensive Retained
Earnings
Income (Loss)
Noncontrolling
interest
Total Equity
— $ —
—
—
52,288 $
—
—
522 $ (428,716) $
350,714 $
22,981 $ 540,791 $
12,978 $
67,388
3,601
499,270
70,989
503 $ (477,399) $
356,381 $
(20,586) $ 606,502 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
455
91
5
1
6,530
1,294
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,481)
—
(25)
—
(56,507)
—
—
—
3,715
—
—
—
—
(11,509)
(433)
787
13,107
—
—
—
—
—
—
—
(26,254)
(17,911)
—
—
—
—
—
598
— $
—
—
—
50,353 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
396
58
4
1
5,979
876
—
—
—
—
—
—
—
—
—
—
(11,362)
(434)
1,015
11,192
—
—
(4,183)
(4,183)
(4,140)
(425)
(1,677)
—
(1,677)
—
—
—
—
—
—
—
—
—
(121)
(121)
(88)
(26,342)
—
—
—
—
(17,911)
(4,974)
862
787
34
13,141
—
—
(56,532)
598
8,081 $
4,512
473,482
76,805
72,293
—
—
—
(4,275)
(4,275)
—
(936)
—
(936)
(22,771)
(9,993)
—
—
—
—
—
—
—
—
—
—
—
—
(349)
(23,120)
—
—
—
—
(9,993)
(5,379)
443
1,015
14
11,206
—
—
(57,074)
1,076
—
—
—
—
(2,354)
—
(23)
—
(57,051)
—
—
—
—
1,076
— $ —
—
—
48,453 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
372
342
—
—
(686)
—
485 $ (527,595) $
—
—
—
—
—
—
4
3
—
—
(7)
—
—
—
—
—
—
—
5,768
5,307
—
—
(17,224)
—
356,792 $
—
(52,274) $ 677,859 $
—
61,666
7,983 $
3,382
463,250
65,048
—
—
—
—
—
(10,016)
(9,737)
(823)
11,035
—
—
—
(17,423)
—
(17,423)
—
—
(3,960)
(3,960)
—
(1,113)
—
(1,113)
(37,844)
(8,540)
—
—
—
—
—
(2,707)
—
—
—
—
—
—
—
—
(356)
(38,200)
—
—
—
—
(8,540)
(4,244)
(4,427)
(823)
152
11,187
—
—
(17,231)
(2,707)
— $
—
48,481 $
485 $ (533,744) $
347,251 $
(101,365) $ 720,989 $
7,201 $
440,817
Balance as of December 31,
2012
Net income
Dividends distributed to
noncontrolling interest
Purchases of outstanding
noncontrolling interest
Adjustments to redemption
value of mandatorily
redeemable noncontrolling
interest
Deconsolidation of a
subsidiary
Foreign currency translation
adjustments
Derivatives valuation, net of
tax
Vesting of restricted stock
units
Exercise of stock options
Excess tax benefit from
equity-based awards
Equity-based compensation
expense
Purchases of common
stock
Other, net of tax
Balance as of December 31,
2013
Net income
Dividends distributed to
noncontrolling interest
Adjustments to redemption
value of mandatorily
redeemable noncontrolling
interest
Foreign currency translation
adjustments
Derivatives valuation, net of
tax
Vesting of restricted stock
units
Exercise of stock options
Excess tax benefit from
equity-based awards
Equity-based compensation
expense
Purchases of common
stock
Other, net of tax
Balance as of December 31,
2014
Net income
Dividends to shareholders
($0.18 per common share)
Dividends distributed to
noncontrolling interest
Adjustments to redemption
value of mandatorily
redeemable noncontrolling
interest
Foreign currency translation
adjustments
Derivatives valuation, net of
tax
Vesting of restricted stock
units
Exercise of stock options
Excess tax benefit from
equity-based awards
Equity-based compensation
expense
Purchases of common
stock
Other, net of tax
Balance as of December 31,
2015
The accompanying notes are an integral part of these consolidated financial statements.
F-6
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year Ended December 31,
2014
2015
2013
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Amortization of contract acquisition costs
Amortization of debt issuance costs
Imputed interest expense and fair value adjustments to contingent
consideration
Provision for doubtful accounts
(Gain) loss on disposal of assets
Impairment losses
Deferred income taxes
Excess tax benefit from equity-based awards
Equity-based compensation expense
(Gain) loss on foreign currency derivatives
Loss on deconsolidation of subsidiary, net of cash of zero, zero, and $897,
respectively
Changes in assets and liabilities, net of acquisitions:
Accounts receivable
Prepaids and other assets
Accounts payable and accrued expenses
Deferred revenue and other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Proceeds from sale of long-lived assets
Purchases of property, plant and equipment, net of acquisitions
Investments in non-marketable equity investments
Acquisitions, net of cash acquired of zero, $3,525, and $6,423, respectively
Net cash used in investing activities
Cash flows from financing activities
Proceeds from line of credit
Payments on line of credit
Proceeds from other debt
Payments on other debt
Payments of contingent consideration related to acquisitions
Dividends paid to shareholders
Payments to noncontrolling interest
Proceeds from exercise of stock options
Excess tax benefit from equity-based awards
Payments of debt issuance costs
Purchase of treasury stock
Net cash used in financing activities
$
65,885 $
77,417 $
71,471
63,808
900
712
716
1,465
(166)
8,100
9,317
(662)
11,304
(1,469)
56,538
856
705
(6,233)
633
141
373
9,514
(1,399)
11,307
(1,548)
46,063
1,160
659
3,301
695
—
1,205
6,892
(1,343)
13,234
234
—
—
2,758
(19,867)
(5,379)
11,941
(12,855)
133,750
202
(66,595)
(9,000)
(1,776)
(77,169)
(41,005)
(5,300)
(8,115)
206
94,090
135
(67,641)
—
(24,416)
(91,922)
7,291
(5,374)
(2,549)
(7,718)
137,979
—
(50,364)
—
(9,166)
(59,530)
2,262,350
(2,262,350)
—
(3,222)
(11,883)
(17,423)
(4,593)
825
662
(35)
(17,231)
(52,900)
2,077,400
(2,077,400)
—
(4,504)
(8,547)
—
(5,962)
443
1,399
—
(57,074)
(74,245)
1,533,550
(1,541,550)
3,709
(5,789)
—
—
(4,455)
862
1,343
(1,800)
(56,532)
(70,662)
Effect of exchange rate changes on cash and cash equivalents
(20,693)
(8,624)
(14,255)
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosures
Cash paid for interest
Cash paid for income taxes
Non-cash investing and financing activities
Acquisition of long-lived assets through capital leases
Acquisition of equipment through increase in accounts payable, net
Landlord incentives credited to deferred rent
Contract acquisition costs credited to accounts receivable
(17,012)
77,316
60,304 $
(80,701)
158,017
77,316 $
(6,468)
164,485
158,017
6,052 $
15,178 $
5,404 $
14,545 $
4,220
16,757
10,492 $
386 $
— $
1,055 $
696
4,170 $
— $
471
—
2,762
1,016
1,000
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-7
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(1)
OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
TeleTech Holdings, Inc. and its subsidiaries (“TeleTech” or the “Company”) is a customer engagement
management services provider, delivering integrated consulting, technology, growth and customer care
solutions on a global scale. Our suite of products and services allows us to design and deliver engaging,
outcome-based customer experiences across numerous interaction channels. TeleTech’s 44,000
employees serve clients in the automotive, communication, financial services, government, healthcare,
logistics, media and entertainment, retail, technology, transportation and travel industries via operations in
the U.S., Australia, Belgium, Brazil, Bulgaria, Canada, China, Costa Rica, Germany, Hong Kong, Ireland,
Israel, Lebanon, Macedonia, Mexico, New Zealand, the Philippines, Poland, Singapore, South Africa,
Thailand, Turkey, the United Arab Emirates, and the United Kingdom.
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.
During the three months ended June 30, 2015, the Company recorded an additional expense of $1.75
million as an additional estimated tax liability that should have been recorded in prior periods related to
ongoing discussions with relevant government authorities related to site compliance with tax advantaged
status. The total amount of $1.75 million should have been recorded as additional tax expense in the
amount of $466 thousand in 2012, $406 thousand in 2013, $645 thousand in 2014 and $234 thousand in
the first quarter of 2015.
During the three months ended June 30, 2015, the Company recorded an additional $3.2 million loss related
to foreign currency translation within Other comprehensive income (loss) that should have been recorded
in 2014 and the three months ended March 31, 2015 to correct for an error in translating the financial results
of Sofica Group AD, which the Company acquired on February 28, 2014. Of the $3.2 million recorded,
approximately $1.7 million and $1.5 million should have been recorded in the year ended December 31,
2014, and the three months ended March 31, 2015, respectively. The Company also recorded an additional
$2.7 million loss to “Other, net of tax” within Other comprehensive income (loss) in the three months ended
March 31, 2015 and the nine months ended September 30, 2015 related to the annual actuarial analysis
for the Company’s Philippines pension liability that should have been recorded in the fourth quarter of 2014.
During the three months ended December 31, 2015, the Company recorded an additional $2.9 million
impairment to correct for an error in the goodwill impairment annual assessment and quarterly assessment
for the WebMetro reporting unit. The Company should have recorded a $2.3 million impairment in the three
months ended December 31, 2014 and an additional $0.6 million impairment in the three months ended
September 30, 2015.
The Company has evaluated the aggregate impact of these adjustments and concluded that these
adjustments were not material to the previously issued or current period Consolidated Financial Statements.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally
accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions in determining
the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the
Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting
period. On an on-going basis, the Company evaluates its estimates including those related to derivatives
and hedging activities, income taxes including the valuation allowance for deferred tax assets, self-
insurance reserves, litigation reserves, restructuring reserves, allowance for doubtful accounts, contingent
consideration, 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.
F-8
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Concentration of Credit Risk
The Company is exposed to credit risk in the normal course of business, primarily related to accounts
receivable and derivative instruments. Historically, the losses related to credit risk have been immaterial.
The Company regularly monitors its credit risk to mitigate the possibility of current and future exposures
resulting in a loss. The Company evaluates the creditworthiness of its clients prior to entering into an
agreement to provide services and as necessary through the life of the client relationship. The Company
does not believe it is exposed to more than a nominal amount of credit risk in its derivative hedging activities,
as the Company diversifies its activities across six well-capitalized, investment-grade financial institutions.
Fair Value of Financial Instruments
Fair values of cash equivalents and accounts receivable and payable approximate the carrying amounts
because of their short-term nature.
Cash and Cash Equivalents
The Company considers all cash and highly liquid short-term investments with an original maturity of
90 days or less to be cash equivalents. The Company manages a centralized global treasury function in
the United States with a focus on concentrating and safeguarding its global cash and cash equivalents.
While the majority of the Company’s cash is held outside the U.S., the Company prefers to hold U.S. Dollars
in addition to the local currencies of the foreign subsidiaries. The Company believes that it has effectively
mitigated and managed its risk relating to its global cash through its cash management practices, banking
partners, and utilization of diversified, high quality investments. However, the Company can provide no
assurances that it will not sustain losses.
Accounts Receivable
An allowance for doubtful accounts is determined based on the aging of the Company’s accounts
receivable, historical experience, client financial condition, and management judgment. The Company
writes off accounts receivable against the allowance when the Company determines a balance is
uncollectible.
Derivatives
The Company enters into foreign exchange forward and option contracts to reduce its exposure to foreign
currency exchange rate fluctuations that are associated with forecasted revenue earned in foreign locations.
The Company also enters into interest rate derivatives which 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. The Company formally documents at
the inception of the hedge all relationships between hedging instruments and hedged items as well as its
risk management objective and strategy for undertaking various hedging activities.
All derivative financial instruments are reported at fair value and recorded in Prepaids and other current
assets, Other assets, Other current liabilities, and Other liabilities in the accompanying Consolidated
Balance Sheets as applicable for each period end. Changes in fair value of derivative instruments
designated as cash flow hedges are recorded in Accumulated other comprehensive income (loss), a
component of Stockholders’ Equity, to the extent they are deemed effective. Ineffectiveness is measured
based on the change in fair value of the forward contracts and the fair value of the hypothetical derivatives
with terms that match the critical terms of the risk being hedged. Based on the criteria established by current
accounting standards, the Company’s cash flow hedge contracts are deemed to be highly effective. Any
realized gains or losses resulting from the foreign currency cash flow hedges are recognized together with
the hedged transaction within Revenue. Any realized gains or losses from the interest rate swaps are
recognized in interest income (expense). Gains and losses from the settlements of the Company’s net
investment hedges remain in Accumulated other comprehensive income (loss) until partial or complete
liquidation of the applicable net investment.
F-9
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The Company also enters into fair value derivative contracts that hedge against foreign currency exchange
gains and losses primarily associated with short-term payables and receivables. Changes in the fair value
of derivative instruments designated as fair value hedges affect the carrying value of the asset or liability
hedged, with changes in both the derivative instrument and the hedged asset or liability being recognized
in Other income (expense), net in the accompanying Consolidated Statements of Comprehensive Income
(Loss).
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization.
Maintenance, repairs and minor renewals are expensed as incurred.
Depreciation and amortization are computed on the straight-line method based on the following estimated
useful lives:
Building
Computer equipment and software
Telephone equipment
Furniture and fixtures
Leasehold improvements
Other
25 years
3 to 7 years
4 to 7 years
5 years
Lesser of economic useful life (typically 10 years) or
original lease term
3 to 7 years
The Company evaluates the carrying value of property, plant and equipment for impairment whenever
events or changes in circumstances indicate that the carrying amounts may not be recoverable. An asset
is considered to be impaired when the forecasted undiscounted cash flows of an asset group are estimated
to be less than its carrying value. The amount of impairment recognized is the difference between the
carrying value of the asset group and its fair value. Fair value estimates are based on assumptions
concerning the amount and timing of forecasted future cash flows.
Software Development Costs
The Company capitalizes costs incurred to acquire or develop software for internal use. Capitalized
software development costs are amortized using the straight-line method over the estimated useful life
equal to the lesser of the license term or 4 years. The amortization expense is recorded in Depreciation
and amortization in the accompanying Consolidated Statements of Comprehensive Income (Loss).
Goodwill
The Company evaluates goodwill for possible impairment at least annually on December 1, and whenever
events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. The Company uses a three step process to assess the realizability of goodwill. The first step,
Step 0, is a qualitative assessment that analyzes current economic indicators associated with a particular
reporting unit. For example, the Company analyzes changes in economic, market and industry conditions,
business strategy, cost factors, and financial performance, among others, to determine if there would be a
significant decline to the fair value of a particular reporting unit. A qualitative assessment also includes
analyzing the excess fair value of a reporting unit over its carrying value from impairment assessments
performed in previous years. If the qualitative assessment indicates a stable or improved fair value, no
further testing is required.
If a qualitative assessment indicates that a significant decline to fair value of a reporting unit is more likely
than not, or if a reporting unit’s fair value has historically been closer to its carrying value, the Company will
proceed to Step 1 testing where the Company calculates the fair value of a reporting unit. If Step 1 indicates
that the carrying value of a reporting unit is in excess of its fair value, the Company will proceed to Step 2
where the fair value of the reporting unit will be allocated to assets and liabilities as they would in a business
combination. Impairment occurs when the carrying amount of goodwill exceeds its estimated fair value
calculated in Step 2.
F-10
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Other Intangible Assets
The Company has other intangible assets that include customer relationships (definite-lived) and trade
names (indefinite-lived and definite-lived) and non-compete agreements (definite-lived). Definite-lived
intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from
four to 11 years. The Company evaluates the carrying value of its definite-lived intangible assets whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. A definite-
lived intangible asset is considered to be impaired when the forecasted undiscounted cash flows of its asset
group are estimated to be less than its carrying value.
The Company evaluates indefinite-lived intangible assets for possible impairment at least annually or
whenever events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. Similar to goodwill, the Company may first use a qualitative analysis to assess the realizability
of its indefinite-lived intangible assets. The qualitative analysis will include a review of changes in economic,
market and industry conditions, business strategy, cost factors, and financial performance, among others,
to determine if there would be a significant decline to the fair value of an indefinite-lived intangible asset. If
a quantitative analysis is completed, an indefinite-lived intangible asset (a trade name) is evaluated for
possible impairment by comparing the fair value of the asset with its carrying value. Fair value is estimated
as the discounted value of future revenues arising from a trade name using a royalty rate that a market
participant would pay for use of that trade name. An impairment charge is recorded if the trade name’s
carrying value exceeds its estimated fair value.
Self Insurance Liabilities
The Company self-insures for certain levels of workers’ compensation, employee health, property, errors
and omissions, cyber risks, and general liability insurance. The Company records estimated liabilities for
these insurance lines based upon analyses of historical claims experience. The most significant assumption
the Company makes in estimating these liabilities is that future claims experience will emerge in a similar
pattern with historical claims experience. The liabilities related to workers’ compensation and employee
health insurance are included in Accrued employee compensation and benefits in the accompanying
Consolidated Balance Sheets. The liability for other general liability insurance is included in Other accrued
expenses in the accompanying Consolidated Balance Sheets.
Restructuring Liabilities
The Company routinely assesses the profitability and utilization of its delivery centers and existing markets.
In some cases, the Company has chosen to close under-performing delivery centers and complete
reductions in workforce to enhance future profitability. Severance payments that occur from reductions in
workforce are in accordance with the Company’s postemployment plans and/or statutory requirements that
are communicated to all employees upon hire date; therefore, severance liabilities are recognized when
they are determined to be probable and reasonably estimable. Other liabilities for costs associated with an
exit or disposal activity are recognized when the liability is incurred, rather than upon commitment to a plan.
Income Taxes
Accounting for income taxes requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions that have been included in the Consolidated Financial
Statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. Gross deferred tax assets may then
be reduced by a valuation allowance for amounts that do not satisfy the realization criteria established by
current accounting standards.
The Company accounts for uncertain tax positions using a two-step approach to recognizing and measuring
uncertain tax positions. The first step is to determine if the weight of available evidence indicates that it is
more likely than not that the tax position will be sustained on audit. The second step is to estimate and
measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate
settlement with the tax authority. The Company evaluates these uncertain tax positions on a quarterly basis.
F-11
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
This evaluation is based on the consideration of several factors including changes in facts or circumstances,
changes in applicable tax law, and settlement of issues under audit. The Company recognizes interest and
penalties related to uncertain tax positions as a part of the Provision for income taxes in the accompanying
Consolidated Statements of Comprehensive Income (Loss).
The Company provides for U.S. income tax expense on the earnings of foreign subsidiaries unless the
subsidiaries’ earnings are considered permanently reinvested outside the U.S.
Equity-Based Compensation Expense
Equity-based compensation expense for all share-based payment awards granted is determined based on
the grant-date fair value net of an estimated forfeiture rate on a straight-line basis over the requisite service
period of the award, which is typically the vesting term of the share-based payment award. The Company
estimates the forfeiture rate annually based on its historical experience of forfeited awards.
Foreign Currency Translation
The assets and liabilities of the Company’s foreign subsidiaries, whose functional currency is not the
U.S. Dollar, are translated at the exchange rates in effect on the last day of the period and income and
expenses are translated using the monthly average exchange rates in effect for the period in which the
items occur. Foreign currency translation gains and losses are recorded in Accumulated other
comprehensive income (loss) within Stockholders’ Equity. Foreign currency transaction gains and losses
are included in Other income (expense), net in the accompanying Consolidated Statements of
Comprehensive Income (Loss).
Revenue Recognition
The Company recognizes revenue when evidence of an arrangement exists, the delivery of service has
occurred, the fee is fixed or determinable and collection is reasonably assured. The BPO inbound and
outbound service fees are based on either a per minute, per hour, per transaction or per call basis. Certain
client programs provide for adjustments to monthly billings based upon whether the Company achieves,
exceeds or fails certain performance criteria. Adjustments to monthly billings consist of contractual
bonuses/penalties, holdbacks and other performance based contingencies. Revenue recognition is limited
to the amount that is not contingent upon delivery of future services or meeting other specified performance
conditions.
Revenue also consists of services for agent training, program launch, professional consulting, fully-hosted
or managed technology and learning innovation services. These service offerings may contain multiple
element arrangements whereby the Company determines if those service offerings represent separate
units of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value
and delivery or performance of the undelivered items is considered probable and substantially within our
control. If those deliverables are determined to be separate units of accounting, revenue is recognized as
services are provided. If those deliverables are not determined to be separate units of accounting, revenue
for the delivered services are bundled into one unit of accounting and recognized over the life of the
arrangement or at the time all services and deliverables have been delivered and satisfied. The Company
allocates revenue to each of the deliverables based on a selling price hierarchy of vendor specific objective
evidence (“VSOE”), third-party evidence, and then estimated selling price. VSOE is based on the price
charged when the deliverable is sold separately. Third-party evidence is based on largely interchangeable
competitor services in standalone sales to similarly situated customers. Estimated selling price is based on
the Company’s best estimate of what the selling prices of deliverables would be if they were sold regularly
on a standalone basis. Estimated selling price is established considering multiple factors including, but not
limited to, pricing practices in different geographies, service offerings, and customer classifications. Once
the Company allocates revenue to each deliverable, the Company recognizes revenue when all revenue
recognition criteria are met.
F-12
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Deferred Revenue and Costs
The Company records amounts billed and received, but not earned, as deferred revenue. These amounts
are recorded in Deferred revenue or as a component of Other long-term liabilities in the accompanying
Consolidated Balance Sheets based on the period over which the Company expects to render services.
We defer revenue for initial training that occurs upon commencement of a new contract if that training is
billed separately because the training is not considered to provide standalone value from other services.
Accordingly, the corresponding training costs, consisting primarily of labor and related expenses, are also
deferred. In these circumstances, both the training revenue and costs are amortized straight-line over the
life of the contract as a component of Revenue and Cost of services, respectively. In situations where these
initial training costs are not billed separately, but rather included in the hourly service rates paid by the client
over the life of the contract, no deferral is necessary as the revenue is being recognized over the life of the
contract and the associated training costs are expensed as incurred.
Rent Expense
The Company has negotiated certain rent holidays, landlord/tenant incentives and escalations in the base
price of rent payments over the initial term of its operating leases. The initial term includes the “build-out”
period of leases, where no rent payments are typically due. The Company recognizes rent holidays and
rent escalations on a straight-line basis to rent expense over the lease term. The landlord/tenant incentives
are recorded as an increase to deferred rent liabilities and amortized on a straight line basis to rent expense
over the initial lease term.
Asset Retirement Obligations
Asset retirement obligations relate to legal obligations associated with the retirement of long-lived assets
resulting from the acquisition, construction, development and/or normal use of the underlying assets.
The Company records all asset retirement obligations at estimated fair value. The Company’s asset
retirement obligations primarily relate to clauses in its delivery center operating leases which require the
Company to return the leased premises to its original condition. The associated asset retirement obligations
are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated
useful life of the asset. The liability, reported within Other long-term liabilities, is accreted through charges
to operating expenses. If the asset retirement obligation is settled for an amount other than the carrying
amount of the liability, the Company recognizes a gain or loss on settlement.
Recently Issued Accounting Pronouncements
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 was 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 August 2015, the FASB issued ASU 2015-04, “Deferral of Effective Date”. ASU 2015-04 defers the
effective date of ASU 2014-09 for revised revenue recognition by one year which means it will be effective
for fiscal years, and interim periods within those years, beginning after December 15, 2017.
F-13
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”.
ASU 2015-03 requires all costs incurred in connection with the issuance of debt to be presented in the
balance sheet as a direct deduction from the carrying value of the associated debt liability. This ASU is
effective for interim and annual periods beginning on or after December 15, 2015 and early adoption is
permitted. Beginning in 2016, the Company will apply the new guidance as applicable and does not expect
adoption of this standard to have a material impact on its financial position, results of operations or related
disclosures.
In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period
Adjustments”. ASU 2015-16 requires that the cumulative impact of all measurement period adjustments be
recorded in the period in which the adjustment is identified. This change eliminates the requirement to
restate prior financial statements. The ASU is effective for interim and annual periods beginning on or after
December 15, 2015 and can be early adopted for periods for which the financial statements have not yet
been issued. The Company took advantage of the early adoption provision and adopted the standard during
the quarter ended September 30, 2015. It did not have a material impact on its financial position, results of
operations or related disclosures.
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”,
which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and
liabilities be classified as non-current in a statement of financial position. The Company early adopted ASU
2015-17 effective December 31, 2015 on a prospective basis. Adoption of this ASU resulted in a
reclassification of the Company’s net current deferred tax asset to the net non-current deferred tax asset in
its Consolidated Balance Sheet as of December 31, 2015. No prior periods were retrospectively adjusted.
See additional discussion in Note 10 Income Taxes.
In February 2016, the FASB issued ASU 2016-02 “Leases”, which amends the existing accounting
standards for lease accounting, including requiring lessees to recognize most leases on their balance
sheets related to the rights and obligations created by those leases and making targeted changes to lessor
accounting. The ASU also requires new disclosures to regarding the amounts, timing, and uncertainty of
cash flows arising from leases. The ASU is effective for interim and annual periods beginning on or after
December 15, 2018 and early adoption is permitted. The new leases standard requires a modified
retrospective transition approach for all leases existing at, or entered into after, the date of initial application,
with an option to use certain transition relief. The Company is currently determining its implementation
approach and assessing the impact on the consolidated financial statements and related disclosures.
(2)
ACQUISITIONS
rogenSi
In the third quarter of 2014, as an addition to the Customer Strategy Services (“CSS”) segment, the
Company acquired substantially all operating assets of rogenSi Worldwide PTY, Ltd., a global leadership,
change management, sales, performance training and consulting company.
The total purchase price was $34.3 million, subject to certain working capital adjustments, and consists of
$18.0 million in cash at closing and an estimated $14.5 million in three earn-out payments, contingent on
the acquired companies and TeleTech’s CSS segment achieving certain agreed earnings before interest,
taxes, depreciation and amortization (“EBITDA”) targets, as defined in the sale and purchase agreement.
Additionally, the estimated purchase price included a $1.8 million hold-back payment for contingencies as
defined in the sale and purchase agreement which will be paid in the first quarter of 2016, if required. The
total contingent consideration possible per the sale and purchase agreement ranges from zero to $17.6
million and the earn-out payments are payable in early 2015, 2016 and 2017, based on July 1, 2014 through
December 31, 2014, and full year 2015 and 2016 performance, respectively.
The fair value of the contingent consideration was measured by applying a probability weighted discounted
cash flow model based on significant inputs not observable in the market (Level 3 inputs). Key assumptions
include a discount rate of 4.6% and expected future value of payments of $15.3 million. The $15.3 million
of expected future payments was calculated using a probability weighted EBITDA assessment with the
highest probability associated with rogenSi achieving the targeted EBITDA for each earn-out year.
F-14
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of the acquisition date, the fair value of the contingent consideration was approximately $14.5 million.
During the fourth quarter of 2014, the third quarter of 2015, and the fourth quarter of 2015, the Company
recorded fair value adjustments of the contingent consideration of $0.5 million, $0.8 million, and $(0.3)
million, respectively, based on revised estimates noting higher or lower probability of exceeding the EBITDA
targets (see Note 9). As of December 31, 2015, the fair value of the contingent consideration was $9.8
million, of which $5.7 million and $4.1 million were included in Other accrued expenses and Other long-
term liabilities in the accompanying Consolidated Balance Sheets, respectively.
The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of
the acquisition date (in thousands):
Cash
Accounts receivable, net
Other assets
Property, plant and equipment
Deferred tax assets, net
Customer relationships
Tradename / trademarks
Non-compete agreements
Goodwill
Accounts payable
Accrued employee compensation and benefits
Accrued expenses
Other
Acquisition Date
Fair Value
$
2,670
6,417
2,880
578
449
6,331
5,545
927
17,260
43,057
708
2,203
1,146
4,597
8,654
Total purchase price
$
34,403
In the third quarter of 2015, the Company finalized its valuation of rogenSi for the acquisition date assets
acquired and liabilities assumed. The only material adjustment was an increase to the balances for
tradename/ trademarks, customer relationships and non-compete agreements by $3.4 million and a
resulting decrease to goodwill of $3.4 million. In connection with this valuation finalization, a reduction to
amortization expense of $0.3 million was recorded during the quarter ended September 30, 2015.
The rogenSi customer relationships and non-compete agreements will be amortized over useful life of 70
months and 30 months, respectively. The goodwill recognized from the rogenSi acquisition is attributable,
but not limited to, the acquired workforce and expected synergies within CSS. None of the tax basis of the
acquired intangibles and goodwill will be deductible for income tax purposes. The acquired goodwill and
the operating results of rogenSi are reported within the CSS segment from the date of acquisition.
Sofica
In the first quarter of 2014, as an addition to the Customer Management Services (“CMS”) segment, 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.
F-15
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The purchase price of $14.2 million included $9.4 million in cash consideration (including working capital
adjustments) and an estimated $3.8 million in earn-out payments, payable in 2015 and 2016, contingent
on Sofica achieving specified EBITDA targets, as defined by the stock purchase agreement. The total
contingent consideration possible per the stock purchase agreement ranges from zero to $7.5 million.
Additionally, the 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, if required.
The fair value of the contingent consideration was measured based on significant inputs not observable in
the market (Level 3 inputs). Key assumptions include a discount rate of 5.0% and expected future value of
payments of $4.0 million. The $4.0 million of expected future payments was calculated using a 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 $3.8 million. During the third and fourth quarters of 2014, the Company recorded fair
value adjustments of the contingent consideration of $1.8 million and $0.6 million, respectively based on
revised estimates noting higher probability of exceeding the EBITDA targets (see Note 9). During the
second quarter of 2015, the Company recorded a negative fair value adjustment for contingent
consideration of $0.5 million based on revised estimates noting lower profitability than initially estimated.
As of December 31, 2015, the fair value of the remaining contingent consideration was $3.2 million, which
was included in Other accrued expenses in the accompanying Consolidated Balance Sheets.
In the first quarter of 2015, the Company finalized its valuation of Sofica for the acquisition date assets
acquired and liabilities assumed. There were no material measurement period adjustments in 2015.
Other Acquisitions
WebMetro
In the third quarter of 2013, as an addition to the Customer Growth Services (“CGS”) segment, the Company
acquired 100% of WebMetro, a California corporation (“WebMetro”), a digital marketing agency.
The total purchase price was $17.8 million.
The Company was obligated to make earn-out payments during 2014 and 2015 if WebMetro achieved
specified EBITDA targets, as defined by the stock purchase agreement. 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 5.3% and expected future value of payments of $2.6 million. The
$2.6 million of expected future payments was calculated using probability weighted EBITDA assessment
with the highest probability associated with WebMetro achieving the targeted EBITDA for each earn-out
year. As of the acquisition date, the fair value of the contingent payments was approximately $2.5 million.
The first contingent payment of $1.0 million was completed in the second quarter of 2014. During the third
quarter of 2014, the Company recorded a fair value adjustment to reduce the contingent consideration by
$1.7 million based on revised estimates noting the achievement of the EBITDA target was remote (see
Note 9). As of December 31, 2014, the fair value of the remaining contingent consideration was zero.
In the third quarter of 2014, the Company finalized its valuation of WebMetro for the acquisition date assets
acquired and liabilities assumed. There were no material measurement period adjustments in 2014.
Financial Impact of Acquired Businesses
The acquired businesses purchased in 2014 and 2013 noted above contributed revenues of $65.9 million,
$43.2 million, and $6.4 million, and income from operations of $0.6 million, $5.3 million, and $0.9 million
inclusive of $4.2 million, $3.3 million, and $0.8 million of acquired intangible amortization, to the Company
for the years ended December 31, 2015, 2014 and 2013, respectively.
F-16
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Investments
CaféX
In the first quarter of 2015, the Company invested $9.0 million in CafeX Communications, Inc. (“CaféX”)
through the purchase of a portion of the Series B Preferred Stock of CaféX. CaféX is a provider of omni-
channel web-based real time communication (WebRTC) solutions that enhance mobile applications and
websites with in-app video communication and screen share technology to increase customer satisfaction
and enterprise efficiency. TeleTech anticipates deploying the CaféX technology as part of the TeleTech
customer experience offerings within the CMS business segment and as part of its Humanify platform. At
December 31, 2015, the Company owns 17.2% of the total equity of CaféX. The investment is accounted
for under the cost method of accounting. The Company evaluates its investments for possible other-than-
temporary impairment at least annually or whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The Company tested the investment in CaféX for
impairment and concluded that the investment was not impaired at December 31, 2015.
(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):
Year Ended December 31, 2015
Gross
Revenue
Intersegment
Sales
Net
Revenue
Depreciation
&
44,633 $
Income from
Amortization Operations
58,018
3,077
13,339
15,746
90,180
6,065
9,775
3,335
63,808 $
— $
—
(232)
—
913,272 $
129,021
157,606
86,856
(232) $ 1,286,755 $
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
Total
$
913,272 $
129,021
157,838
86,856
$ 1,286,987 $
F-17
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Year Ended December 31, 2014
Gross
Revenue
Intersegment
Sales
Net
Revenue
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
Total
$
923,497 $
115,434
139,218
63,668
$ 1,241,817 $
Year Ended December 31, 2013
Depreciation
&
Income from
Amortization Operations
76,792
7,255
4,519
7,909
96,475
40,577 $
6,048
7,489
2,424
56,538 $
— $
—
(36)
—
(36) $ 1,241,781 $
923,497 $
115,434
139,182
63,668
Gross
Revenue
Intersegment
Sales
Net
Revenue
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
$
892,145 $
100,996
152,769
49,643
(1,262) $
—
(284)
(850)
890,883 $
100,996
152,485
48,793
Total
$ 1,195,553 $
(2,396) $ 1,193,157 $
Depreciation
&
33,884 $
Income from
Amortization Operations
75,689
3,024
19,965
2,721
101,399
4,127
6,201
1,852
46,064 $
For the Year Ended December 31,
2014
2013
2015
Capital Expenditures
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
Total
Total Assets
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
Total
Goodwill
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
Total
$
56,570 $
4,681
4,216
1,128
$
66,595 $
49,630 $
3,195
14,423
393
67,641 $
40,007
3,421
6,450
486
50,364
2015
December 31,
2014
2013
$
512,100 $
75,291
159,850
96,086
$
843,327 $
514,957
88,394
159,441
89,683
852,475
$
$
554,015
86,416
157,040
44,871
842,342
2015
December 31,
2014
2013
$
22,009 $
24,439
42,709
25,026
$
114,183 $
25,871 $
30,395
42,709
29,730
128,705
$
19,819
30,128
42,709
10,087
102,743
F-18
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following tables present certain financial data based upon the geographic location where the services
are provided (in thousands):
As of and for the
Year Ended December 31,
2014
2013
2015
Revenue
United States
Philippines
Latin America
Europe / Middle East / Africa
Asia Pacific
Canada
Total
Property, plant and equipment, gross
United States
Philippines
Latin America
Europe / Middle East / Africa
Asia Pacific
Canada
Total
Other long-term assets
United States
Philippines
Latin America
Europe / Middle East / Africa
Asia Pacific
Canada
Total
$
679,959 $
343,013
147,267
78,182
32,554
5,780
556,239
354,942
176,906
72,644
18,489
13,937
$ 1,286,755 $ 1,241,781 $ 1,193,157
603,297 $
348,339
172,270
83,944
28,294
5,637
$
415,918 $
140,712
49,464
14,567
23,181
16,239
382,508 $
119,482
67,193
13,367
26,502
19,299
$
660,081 $
628,351 $
337,311
101,123
75,618
12,311
28,195
20,941
575,499
$
34,007 $
5,220
1,161
811
165
1,122
$
42,486 $
27,728 $
5,202
1,456
692
1,309
271
36,658 $
34,891
4,408
5,299
311
779
38
45,726
(4)
ACCOUNTS RECEIVABLE AND SIGNIFICANT CLIENTS
Accounts receivable, net in the accompanying Consolidated Balance Sheets consists of the following (in
thousands):
Accounts receivable
Less: Allowance for doubtful accounts
Accounts receivable, net
December 31,
2015
2014
$ 285,650 $ 279,857
(3,425)
$ 283,474 $ 276,432
(2,176)
Activity in the Company’s Allowance for doubtful accounts consists of the following (in thousands):
December 31,
2014 2013
2015
$ 3,425 $ 3,815 $ 3,635
695
(315)
(200)
$ 2,176 $ 3,425 $ 3,815
1,465
(2,035)
(679)
633
(681)
(342)
Balance, beginning of year
Provision for doubtful accounts
Uncollectible receivables written-off
Effect of foreign currency
Balance, end of year
F-19
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Significant Clients
The Company had one client that contributed in excess of 10% of total revenue in the years ended
December 31, 2015, 2014 and 2013. This client operates in the communications industry and is included
in the Customer Management Services segment. The revenue from this client as a percentage of total
revenue was as follows:
2015
Year Ended December 31,
2014
2013
Telecommunications client
10 %
11 %
12 %
Accounts receivable from this client was as follows (in thousands):
Year Ended December 31,
2014
2013
2015
Telecommunications client
$
23,953
$
38,400
$
24,120
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 December 31, 2015.
(5)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
December 31,
Land and buildings
Computer equipment and software
Telephone equipment
Furniture and fixtures
Leasehold improvements
Motor vehicles
Construction-in-progress and other
Property, plant and equipment, gross
Less: Accumulated depreciation and amortization
Property, plant and equipment, net
$
2015
38,833 $
2014
38,833
334,127
38,925
57,411
158,844
175
36
628,351
(478,139)
$ 168,289 $ 150,212
359,581
41,035
62,606
157,788
238
-
660,081
(491,792)
Depreciation and amortization expense for property, plant and equipment was $54.0 million, $46.9 million
and $38.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Included in the computer equipment and software is internally developed software of $18.4 million net and
$17.1 million net as of December 31, 2015 and 2014, respectively.
F-20
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(6)
GOODWILL
Goodwill consisted of the following (in thousands):
Effect of
December 31, Acquisitions /
Foreign
2014
Adjustments Impairments Currency
December 31,
2015
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
$
25,871 $
30,395
42,709
29,730
Total
$
128,705 $
— $
—
—
(3,600)
(3,600) $
(1,769) $ (2,093) $
(5,956)
—
—
—
—
(1,104)
(7,725) $ (3,197) $
22,009
24,439
42,709
25,026
114,183
Effect of
December 31, Acquisitions /
Foreign
2013
Adjustments Impairments Currency
December 31,
2014
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
$
19,819 $
30,128
42,709
10,087
Total
$
102,743 $
6,358 $
267
—
21,210
27,835 $
(306) $
—
—
(1,567)
— $
—
—
—
— $ (1,873) $
25,871
30,395
42,709
29,730
128,705
The adjustment recorded during 2015 relates to the finalization of the purchase price valuation for the
rogenSi acquisition which resulted in a decrease in the goodwill balance. See Note 2 for further
information.
Impairment
The Company has eleven reporting units with goodwill and performs a goodwill impairment test on at least
an annual basis. The Company conducts its annual goodwill impairment test during the fourth quarter, or
more frequently, if indicators of impairment exist.
The Company concluded that goodwill for all reporting units was not impaired at December 1, 2014. While
no impairment indicators were identified, due to the small margin of fair value in excess of carrying value
for two reporting units, Revana (approximately 6%) and WebMetro (approximately 11%) both of which are
a part of the CGS segment, these reporting units remain at considerable risk for future impairment if
projected operating results are not met or other inputs into the fair value measurement change.
At September 30, 2015, the Company updated its quantitative assessment of these reporting units fair
value using an income based approach. The determination of fair value requires significant judgments
including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-
term growth rates for the businesses, the useful lives over which the cash flows will occur and determination
of appropriate discount rates (based in part on 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. As of September 30, 2015, the updated fair
value for Revana is in excess of its carrying value (approximately 23%) and no further analysis is required.
At September 30, 2015, the updated fair value for WebMetro was below the carrying value which
necessitated an interim impairment analysis. The Company tested all of the assets of this reporting unit for
impairment.
Definite-lived long-lived assets consisted of fixed assets, internally developed software, and an intangible
asset related to the WebMetro customer relationships. The Company determined that the undiscounted
future cash flows would be sufficient to cover the net book value of all definite-lived long-lived assets.
F-21
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the goodwill impairment analysis, the Company calculated the fair value of the WebMetro reporting unit
and compared that to the updated carrying value and determined that the fair value was not in excess of
its carrying value. Key assumptions used in the fair value calculation for goodwill impairment testing include,
but are not limited to, a compounded annual revenue growth rate of 20% for years 2016 through 2019, a
perpetuity growth rate of 4.0% based on the current inflation rate combined with the GDP growth rate for
the reporting unit’s geographical region and a discount rate of 17.0%, 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 were based on the Company’s internal business plan adjusted as appropriate
for the Company’s view of market participant assumptions. The current business plan assumes the
occurrence of certain events, including increased revenue growth for the next several years. Significant
differences in the outcome of some or all of these assumptions may impact the calculated fair value of this
reporting unit resulting in a different outcome to goodwill impairment in a future period.
Since the fair value of the reporting unit was not in excess of its carrying value, the Company calculated
the implied fair value of goodwill and compared that value to the carrying value of goodwill. Implied fair
value of goodwill is equal to the excess of the reporting unit’s fair value over the amounts assigned to its
net identifiable assets and liabilities. Upon completing this assessment, the Company determined that the
implied fair value of goodwill was below the carrying value and thus a $3.1 million impairment was recorded
in the three months ended September 30, 2015, and was included in Impairment losses in the Consolidated
Statements of Comprehensive Income (Loss).
For the annual goodwill impairment analysis, the Company elected to perform a Step 1 evaluation for all of
its reporting units, which includes comparing a reporting unit’s estimated fair value to its carrying value. The
determination of fair value requires significant judgments including estimation of future cash flows, which is
dependent on internal forecasts, estimation of the long-term growth rates for the businesses, the useful
lives over which the cash flows will occur and determination of appropriate discount rates (based in part on
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. As of December 1, 2015, the date of the annual impairment testing, the Company concluded that for
nine of the reporting units the fair values were in excess of their respective carrying values and the goodwill
for those reporting units was not impaired.
The process of evaluating the fair value of the reporting units is highly subjective and requires significant
judgment and estimates as the reporting units operate in a number of markets and geographical regions.
We used an income approach to determine our best estimates of fair value which incorporated the following
significant assumptions:
Revenue projections, including revenue growth during the forecast periods ranging from 3% to
20%;
EBITDA margin projections held relatively flat over the forecast periods ranging from 10% to 20%;
Estimated income tax rates of 10% to 40%;
Estimated capital expenditures ranging from $0.1 million to $30 million; and
Discount rates ranging from 11.6% to 15.8% based on various inputs, including the risks associated
with the specific reporting units, the country of operations as well as their revenue growth and
EBITDA margin assumptions.
As of December 1, 2015, during the annual goodwill impairment analysis the Company determined that for
the WebMetro reporting unit there was an error in the discounted cash flow analysis regarding the inclusion
of amortization of the intangible assets into future years including the perpetuity income calculation. When
this error was corrected, the WebMetro fair value was below the carrying value including the impairment
recorded as of September 30, 2015. The Company determined the error occurred in past periods and
recalculated the adjusted fair value as of December 1, 2014. Based on this analysis, the fair value was
below the carrying value as of December 1, 2014 and a Step 2 impairment analysis was completed. The
Company completed the goodwill analysis based on the key assumptions that were used as of December
1, 2014.
F-22
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Since the fair value of the reporting unit was not in excess of its carrying value, the Company calculated
the implied fair value of goodwill and compared that value to the carrying value of goodwill. Upon completing
this assessment, the Company determined that the implied fair value of goodwill was below the carrying
value and thus a $2.3 million impairment should have been recorded as of December 1, 2014. Based on
these revisions, the third quarter 2015 assessment was also adjusted and additional $0.6 million impairment
should have been recorded as of September 30, 2015. These impairments were recorded in the current
year in the three months ended December 31, 2015, and were included in Impairment losses in the
Consolidated Statements of Comprehensive Income (Loss). As of December 31, 2015, the entire goodwill
balance for WebMetro has now been impaired
As of December 1, 2015, the updated fair value for the Latin America reporting unit was below the carrying
value which necessitated an impairment analysis. The Company tested all of the assets of this reporting
unit for impairment.
Definite-lived long-lived assets consisted of fixed assets and an intangible asset related to customer
relationships. The Company determined that the undiscounted future cash flows would be sufficient to cover
the net book value of all definite-lived long-lived assets
For the goodwill impairment analysis, the Company calculated the fair value of the Latin America reporting
unit and compared that to the updated carrying value and determined that the fair value was not in excess
of its carrying value. Key assumptions used in the fair value calculation for goodwill impairment testing
include, but are not limited to, a compounded annual revenue growth rate of negative 22% for 2016 followed
by 6% for years 2017 through 2020, a perpetuity growth rate of 4% based on the current inflation rate
combined with the GDP growth rate for the reporting unit’s geographical region and a discount rate of
15.8%, which is equal to the reporting unit’s equity risk premium adjusted for its size, country and company
specific risk factors. Estimated future cash flows under the income approach were based on the Company’s
internal business plan adjusted as appropriate for the Company’s view of market participant assumptions.
Since the fair value of the Latin America reporting unit was not in excess of its carrying value, the
Company calculated the implied fair value of goodwill and compared that value to the carrying value of
goodwill. Upon completing this assessment, the Company determined that the implied fair value of
goodwill was below the carrying value and the entire goodwill balance of $1.8 million was impaired and
recorded in the three months ended December 31, 2015, and included in Impairment losses in the
Consolidated Statements of Comprehensive Income (Loss).
(7)
OTHER INTANGIBLE ASSETS
Other intangible assets which are included in Other long-term assets in the accompanying Consolidated
Balance Sheets consisted of the following (in thousands):
Acquisitions Effect of
Customer relationships, gross
Customer relationships - accumulated
amortization
Other intangible assets, gross
Other intangible assets - accumulated
amortization
Trade name - indefinite life
Other intangible assets, net
$
December 31,
2014
63,914 $
$
Foreign
Amortization Adjustments Currency
and
— $
(2,982) $ 1,325 $
December 31,
2015
62,257
(20,326)
13,113
(7,401)
—
—
986
(2,453)
(349)
(30,180)
13,750
(6,509)
9,713
59,905 $
(2,345)
—
(9,746) $
—
5,544
99
(1,114)
3,548 $ (2,492) $
(8,755)
14,143
51,215
F-23
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Effect of
Customer relationships, gross
Customer relationships - accumulated
amortization
Other intangible assets, gross
Other intangible assets - accumulated
amortization
Trade name - indefinite life
December 31,
2013
50,830 $
$
Amortization Acquisitions Currency
— $
14,115 $ (1,031) $
Foreign
December 31,
2014
63,914
(13,547)
11,634
(6,779)
—
—
1,607
—
(128)
(3,818)
9,713
(2,691)
—
(9,470) $
—
—
—
—
15,722 $ (1,159) $
(20,326)
13,113
(6,509)
9,713
59,905
Other intangible assets, net
$
54,812 $
The adjustments recorded during 2015 relate to the finalization of the purchase price valuation for the
rogenSi acquisition which resulted in an increase to the trade name and decrease in the customer
relationships intangible assets. See Note 2 for further information.
Customer relationships are being amortized over the remaining weighted average useful life of 4.7 years
and other intangible assets are being amortized over the remaining weighted average useful life of 2.4
years. Amortization expense related to intangible assets was $9.7 million, $9.6 million and $7.2 million for
the years ended December 31, 2015, 2014 and 2013, respectively.
Expected future amortization of other intangible assets as of December 31, 2015 is as follows
(in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
9,648
7,900
5,987
5,495
3,263
4,779
$ 37,072
In connection with the reorganization of the CSS segment an interim impairment analysis was completed
during the second quarter of 2013. The indefinite-lived intangible asset evaluated for impairment consisted
of the PRG trade name. The Company calculated the fair value of the trade name using a relief from royalty
method based on forecasted revenues sold under the trade name using significant inputs not observable
in the market (Level 3 inputs). The valuation assumptions included an estimated royalty rate of 6.0%, a
discount rate specific to the trade name of 38.0% and a perpetuity growth rate of 7.0%. Based on the
calculated fair value of $5.3 million, the Company recorded impairment expense of $1.1 million in the three
months ended June 30, 2013. The Company reevaluated the PRG trade name for impairment as of
December 31, 2013. The Company used the same method to fair value the PRG trade name and similar
inputs described above. The forecasted revenues used to fair value the PRG trade name changed resulting
in a fair value of $5.7 million. This fair value was approximately 7% higher than the book value of $5.3
million. As a result, the Company continues to evaluate the PRG trade name for impairment.
Definite-lived long-lived assets consisted of fixed assets and an intangible asset related to the PRG
customer relationships. The Company determined that the undiscounted future cash flows would be
sufficient to cover the net book value of all definite-lived long-lived assets upon reorganization of the
Customer Strategy Services segment and as of December 31, 2013.
F-24
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(8)
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 December 31, 2015, the Company had
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 years ended December 31, 2015, 2014 and 2013 (in thousands and net of tax):
Year Ended December 31,
2014
2013
2015
Aggregate unrealized net gain/(loss) at beginning of period
Add: Net gain/(loss) from change in fair value of cash flow hedges
Less: Net (gain)/loss reclassified to earnings from effective hedges
Aggregate unrealized net gain/(loss) at end of period
$
$
(18,345) $
(16,349)
7,809
(26,885) $
(8,352) $
(12,121)
2,128
(18,345) $
9,559
(13,721)
(4,190)
(8,352)
The Company’s foreign exchange cash flow hedging instruments as of December 31, 2015 and 2014 are
summarized as follows (in thousands). All hedging instruments are forward contracts.
As of December 31, 2015
Philippine Peso
Mexican Peso
Local
Currency
Notional
Amount
16,362,000
2,637,000
U.S. Dollar
Notional
Amount
% Maturing
in the next
12 months
361,571 (1)
173,124
534,695
45.4 %
28.7 %
$
Contracts
Maturing
Through
October 2020
October 2020
As of December 31, 2014
Canadian Dollar
Philippine Peso
Mexican Peso
New Zealand Dollar
Local
Currency
Notional
Amount
U.S. Dollar
Notional
Amount
1,500 $
17,428,000
2,532,000
490
$
1,441
398,046 (1)
179,089
381
578,957
(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 December 31, 2015 and December 31,
2014.
F-25
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The Company’s interest rate swap arrangements as of December 31, 2015 and 2014 were as follows:
Contract
Contract
Swap 1
Swap 2
Fair Value Hedges
Notional
Amount
Variable Rate
Received
$ 25 million 1 - month LIBOR
15 million 1 - month LIBOR
Fixed Rate
Paid
2.55 % April 2012
3.14 % May 2012
Date
Date
April 2016
May 2017
Commencement Maturity
$ 40 million
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 December 31, 2015 and 2014, the total
notional amount of the Company’s forward contracts used as fair value hedges was $241.0 million and
$242.5 million, respectively.
Derivative Valuation and Settlements
The Company’s derivatives as of December 31, 2015 and 2014 were as follows (in thousands):
December 31, 2015
Designation:
Derivative contract type:
Derivative classification:
Fair value and location of derivative in the Consolidated Balance
Sheet:
Prepaids and other current assets
Other long-term assets
Other current liabilities
Other long-term liabilities
Total fair value of derivatives, net
Designation:
Derivative contract type:
Derivative classification:
Designated
as Hedging
Instruments
Foreign
Exchange
Cash Flow Cash Flow
Interest
Rate
Not Designated
as Hedging
Instruments
Foreign
Exchange
Fair Value
$
39 $
66
(20,088)
(25,739)
$ (45,722) $
— $
—
(549)
(102)
(651) $
2,489
—
(116)
—
2,373
December 31, 2014
Designated
as Hedging
Instruments
Foreign
Exchange
Cash Flow Cash Flow
Interest
Rate
Not Designated
as Hedging
Instruments
Foreign
Exchange
Fair Value
Fair value and location of derivative in the Consolidated Balance
Sheet:
Prepaids and other current assets
Other long-term assets
Other current liabilities
Other long-term liabilities
Total fair value of derivatives, net
$
192 $
389
(12,680)
(17,070)
$ (29,169) $
— $
—
(988)
(452)
(1,440) $
797
—
(5)
—
792
F-26
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The effect of derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for
the years ended December 31, 2015 and 2014 were as follows (in thousands):
Designation:
Derivative contract type:
Derivative classification:
Amount of gain or (loss) recognized in Other
comprehensive income (loss) - effective portion, net of
tax
Amount and location of net gain or (loss) reclassified from
Accumulated OCI to income - effective portion:
Year Ended December 31,
2015
2014
Designated as Hedging Designated as Hedging
Instruments
Instruments
Foreign
Interest Foreign
Exchange
Cash Flow Cash Flow Cash Flow Cash Flow
Exchange
Rate
Interest
Rate
$
(7,198) $
(611) $ (11,926) $
(195)
Revenue
Interest expense
$ (12,410) $
— $
—
(1,053)
(2,429) $
—
—
(1,060)
Designation:
Derivative contract type:
Derivative classification:
Not Designated as Hedging Instruments Not Designated as Hedging Instruments
Foreign Exchange
Foreign Exchange
Forward
Contracts
Fair Value
Forward
Contracts
Fair Value
Year Ended December 31,
2015
2014
Amount and location of net gain or
(loss) recognized in the Consolidated
Statement of Comprehensive Income
(Loss):
Cost of services
Other income (expense), net
$
(9)
FAIR VALUE
—
—
$
— $
(6,127)
$
—
—
—
(386)
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
—
Level 2
—
Level 3
—
Quoted prices in active markets for identical assets or liabilities.
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.
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 December 31, 2015 and 2014 of 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.
F-27
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Investments – The Company measures investments, including cost and equity method investments, at fair
value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The fair values
of these investments are determined based on valuation techniques using the best information available,
and may include market observable inputs, and discounted cash flow projections. An impairment charge is
recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-
than-temporary. As of December 31, 2015, the investment is recorded at $9.0 million which approximates
fair value.
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 December 31, 2015 and
2014, the Company had $100.0 million and $100.0 million, respectively, of borrowings outstanding under
the Credit Agreement. During 2015 and 2014, 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 based on level
2 inputs.
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 December 31, 2015, 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 December 31, 2015 and 2014 (in thousands):
As of December 31, 2015
Fair Value Measurements Using
Quoted Prices in Significant
Active Markets
for Identical
Assets
(Level 1)
Other
Significant
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Cash flow hedges
Interest rate swaps
Fair value hedges
$
Total net derivative asset (liability)
$
— $
—
—
— $
(45,722) $
(651)
2,373
(44,000) $
As of December 31, 2014
Fair Value Measurements Using
Quoted Prices in Significant
Active Markets
for Identical
Assets
(Level 1)
Other
Significant
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
At Fair Value
(45,722)
(651)
2,373
(44,000)
— $
—
—
— $
At Fair Value
(29,169)
(1,440)
792
(29,817)
— $
—
—
— $
Cash flow hedges
Interest rate swaps
Fair value hedges
$
Total net derivative asset (liability)
$
— $
—
—
— $
(29,169) $
(1,440)
792
(29,817) $
F-28
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following is a summary of the Company’s fair value measurements as of December 31, 2015 and 2014
(in thousands):
As of December 31, 2015
Fair Value Measurements Using
Quoted Prices in
Active Markets for Significant Other
Identical Assets
(Level 1)
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets
Derivative instruments, net
Total assets
Liabilities
Deferred compensation plan liability
Derivative instruments, net
Contingent consideration
Total liabilities
As of December 31, 2014
$
$
$
$
— $
— $
— $
—
—
— $
— $
— $
—
—
(9,821) $
(44,000)
—
(53,821) $
—
—
(13,450)
(13,450)
Fair Value Measurements Using
Quoted Prices in
Active Markets for Significant Other
Identical Assets
(Level 1)
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets
Derivative instruments, net
Total assets
Liabilities
Deferred compensation plan liability
Derivative instruments, net
Contingent consideration
Total liabilities
$
$
$
$
— $
— $
— $
—
—
— $
— $
— $
—
—
(8,478) $
(29,817)
—
(38,295) $
—
—
(24,744)
(24,744)
Deferred Compensation Plan - The Company maintains a non-qualified deferred compensation plan
structured as a Rabbi trust for certain eligible employees. Participants in the deferred compensation plan
select from a menu of phantom investment options for their deferral dollars offered by the Company each
year, which are based upon changes in value of complementary, defined market investments. The deferred
compensation liability represents the combined values of market investments against which participant
accounts are tracked.
Contingent Consideration — The Company recorded contingent consideration related to the acquisitions
of iKnowtion, Guidon, TSG, WebMetro, Sofica and rogenSi. These contingent payables were recognized
at fair value using a discounted cash flow approach and a discount rate of 21.0%, 21.0%, 4.6%, 5.3%,
5.0%, or 4.6%, respectively. The discount rates vary dependent on the specific risks of each acquisition
including the country of operation, the nature of services and complexity of the acquired business, and
other factors. These measurements were based on significant inputs not observable in the market. The
Company will accrete interest expense each period using the effective interest method until the future value
of these contingent payables reaches their expected future value of $13.8 million. Interest expense related
to all recorded contingent payables is included in Interest expense in the Consolidated Statements of
Comprehensive Income (Loss).
F-29
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
During the second and fourth quarters of 2014, the Company recorded fair value adjustments of the
contingent consideration associated with the TSG reporting unit within the CTS segment based on revised
estimates noting achievement of the targeted 2014 and 2015 EBITDA was remote. Accordingly, a $4.0
million and $3.9 million, respectively, reductions in the payable were recorded as of June 30, 2014 and
December 31, 2014 and were included in Other income (expense) in the Consolidated Statements of
Comprehensive Income (Loss).
During the third and fourth quarters of 2014, the Company recorded fair value adjustments of the contingent
consideration associated with the Sofica reporting unit within the CMS segment of $1.8 million and $0.6
million, respectively, as the Company’s revised estimates reflected Sofica exceeding its EBITDA targets for
both 2014 and 2015. Accordingly, the $1.8 million and $0.6 million increases in the payable were recorded
as of September 30, 2014 and December 31, 2014 and were included in Other income (expense) in the
Consolidated Statements of Comprehensive Income (Loss).
During the third quarter of 2014, the Company recorded a fair value adjustment of the contingent
consideration associated with the WebMetro reporting unit within the CGS segment based on revised
estimates noting achievement of the targeted 2014 EBITDA was remote. Accordingly, a $1.7 million
reduction in the payable was recorded as of September 30, 2014 and was included in Other income
(expense) in the Consolidated Statements of Comprehensive Income (Loss).
During the fourth quarter of 2014 and the third quarter of 2015, the Company recorded fair value
adjustments of the contingent consideration associated with the rogenSi reporting unit within the CSS
segment based on revised estimates reflecting rogenSi exceeding its EBITDA targets for 2014 and 2015.
Accordingly a $0.5 million and a $0.8 million increase in the payable were recorded as of December 31,
2014 and September 30, 2015, respectively, and were included in Other income (expense) in the
Consolidated Statements of Comprehensive Income (Loss).
During the second quarter of 2015, the Company recorded a fair value adjustment of the contingent
consideration associated with the Sofica reporting unit within the CMS segment based on revised estimates
reflecting Sofica earnings will be lower than anticipated for 2015. Accordingly a $0.5 million decrease in the
payable was recorded as of September 30, 2015 and was included in Other income (expense) in the
Consolidated Statements of Comprehensive Income (Loss).
During the fourth quarter of 2015, the Company recorded a fair value adjustment of the contingent
consideration associated with the rogenSi reporting unit within the CSS segment based on revised
estimates reflecting rogenSi earnings will be lower than anticipated for 2015. Accordingly a $0.3 million
decrease in the payable was recorded as of December 31, 2015 and was included in Other income
(expense) in the Consolidated Statements of Comprehensive Income (Loss).
A rollforward of the activity in the Company’s fair value of the contingent consideration is as follows
(in thousands):
December 31,
2014
Acquisitions Payments Adjustments
Imputed
Interest /
December 31,
2015
iKnowtion
Guidon
TSG
WebMetro
Sofica
rogenSi
Total
$
$
2,265 $
1,000
—
—
6,317
15,162
24,744 $
— $ (1,800) $
—
—
—
—
—
— $ (12,010) $
(1,000)
—
—
(2,838)
(6,372)
35 $
—
—
—
(326)
1,007
716 $
500
—
—
—
3,153
9,797
13,450
F-30
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31,
2013
Acquisitions Payments Adjustments
Imputed
Interest /
December 31,
2014
iKnowtion
Guidon
TSG
WebMetro
Sofica
rogenSi
Total
$
$
3,470 $
2,637
12,933
2,708
—
—
21,748 $
— $ (1,400) $
(1,426)
—
(5,292)
—
(1,026)
—
—
3,830
14,543
—
18,373 $ (9,144) $
195 $
(211)
(7,641)
(1,682)
2,487
619
(6,233) $
2,265
1,000
—
—
6,317
15,162
24,744
(10)
INCOME TAXES
The sources of pre-tax operating income are as follows (in thousands):
Year Ended December 31,
Domestic
Foreign
Total
2015
2014
$ 25,402 $ 20,569 $ 10,816
81,253
$ 85,889 $ 100,459 $ 92,069
2013
79,890
60,487
The components of the Company’s Provision for (benefit from) income taxes are as follows (in thousands):
Year Ended December 31,
2013
2014
2015
$ 4,094 $
1,829
4,764
10,687
(699) $
270
13,957
13,528
(320)
150
13,876
13,706
(1,895)
1,085
10,127
9,317
4,674
195
2,023
6,892
$ 20,004 $ 23,042 $ 20,598
10,148
423
(1,057)
9,514
Current provision for (benefit from)
Federal
State
Foreign
Total current provision for (benefit from)
Deferred provision for (benefit from)
Federal
State
Foreign
Total deferred provision for (benefit from)
Total provision for (benefit from) income taxes
F-31
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following reconciles the Company’s effective tax rate to the federal statutory rate (in thousands):
Year Ended December 31,
Income tax per U.S. federal statutory rate (35%)
State income taxes, net of federal deduction
Change in valuation allowances
Foreign income taxes at different rates than the U.S.
Foreign withholding taxes
Losses in international markets without tax benefits
Nondeductible compensation under Section 162(m)
Liabilities for uncertain tax positions
Permanent difference related to foreign exchange gains
(Income) losses of foreign branch operations
Non-taxable earnings of noncontrolling interest
Foreign dividend less foreign tax credits
Increase in deferred tax liability - branch losses in UK
Decrease (increase) to deferred tax asset - change in tax rate
State income tax credits and net operating losses
Foreign earnings taxed currently in U.S.
Other
Income tax per effective tax rate
2013
2014
2015
$ 30,062 $ 35,161 $ 32,224
210
3,266
(20,529)
2,504
779
1,847
77
(122)
1,447
(1,172)
(2,587)
(954)
(68)
615
2,907
154
$ 20,004 $ 23,042 $ 20,598
1,525
256
(17,824)
257
1,649
817
1,435
(11)
225
(1,141)
(1,428)
(75)
(443)
(142)
2,696
85
1,603
3,923
(14,490)
958
1,999
512
1,756
162
(517)
(1,349)
(4,425)
(2,530)
(526)
(1,477)
2,839
1,504
The Company’s deferred income tax assets and liabilities are summarized as follows (in thousands):
Deferred tax assets, gross
Accrued workers compensation, deferred compensation and employee
benefits
Allowance for doubtful accounts, insurance and other accruals
Amortization of deferred rent liabilities
Net operating losses
Equity compensation
Customer acquisition and deferred revenue accruals
Federal and state tax credits, net
Depreciation and amortization
Unrealized losses on derivatives
Other
Total deferred tax assets, gross
Valuation allowances
Total deferred tax assets, net
Deferred tax liabilities
Depreciation and amortization
Contract acquisition costs
Future losses in UK
Intangible assets
Other
Total deferred tax liabilities
Net deferred tax assets
Year Ended December 31,
2015
2014
$ 10,509 $ 17,030
4,554
2,201
11,296
2,997
16,241
10,621
—
11,686
12,749
89,375
(10,721)
78,654
4,860
2,500
19,522
3,505
16,610
10,057
6,265
16,644
2,655
93,127
(10,139)
82,988
—
(25,667)
—
(6,082)
(2,490)
(34,239)
(7,035)
(11,768)
(2,530)
(7,628)
(355)
(29,316)
$ 48,749 $ 49,338
Quarterly, the Company assesses the likelihood by jurisdiction that its net deferred tax assets will be
recovered. Based on the weight of all available evidence, both positive and negative, the Company records
a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit
will not be realized.
F-32
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2015 the Company had approximately $40.4 million of net deferred tax assets in the
U.S. and $8.4 million of net deferred tax assets related to certain international locations whose
recoverability is dependent upon their future profitability. As of December 31, 2015 the deferred tax
valuation allowance was $10.1 million and related primarily to tax losses in foreign jurisdictions and
U.S. federal and state tax credits which do not meet the “more-likely-than-not” standard under current
accounting guidance. The utilization of these federal and state tax credits are subject to numerous factors
including various expiration dates, generation of future taxable income over extended periods of time and
state income tax apportionment factors which are subject to change.
During November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”,
which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and
liabilities be classified as non-current in a statement of financial position. The Company early adopted ASU
2015-17 effective December 31, 2015 on a prospective basis. Adoption of this ASU resulted in a
reclassification of the Company’s net current deferred tax asset to the net non-current deferred tax asset in
its Consolidated Balance Sheet as of December 31, 2015. No prior periods were retrospectively adjusted.
When there is a change in judgment concerning the recovery of deferred tax assets in future periods, a
valuation allowance is recorded into earnings during the quarter in which the change in judgment occurred.
In 2015, the Company made adjustments to its deferred tax assets and corresponding valuation
allowances. The net change to the valuation allowance consisted of the following: a $2.9 million decrease
in certain state credits and NOLs that are now expected to be utilized prior to expiration, a $4.3 million
increase in valuation allowance in Belgium, Canada, Costa Rica, Israel, Macedonia, New Zealand and
United Kingdom for deferred tax assets that do not meet the “more-likely-than-not” standard, and a $1.8
million release of valuation allowance in various other jurisdictions related to the utilization or write-off of
deferred tax assets.
Activity in the Company’s valuation allowance accounts consists of the following (in thousands):
Year Ended December 31,
Beginning balance
Additions of deferred income tax expense
Reductions of deferred income tax expense
Ending balance
2013
2014
2015
$ 10,721 $ 10,792 $ 20,909
4,218
(14,335)
$ 10,139 $ 10,721 $ 10,792
4,300
(4,882)
946
(1,017)
As of December 31, 2015, after consideration of all tax loss and tax credit carry back opportunities, the
Company had tax affected tax loss carry forwards worldwide expiring as follows (in thousands):
2016
2017
2018
2019
After 2019
No expiration
Total
$
1,616
133
316
295
12,688
4,473
$ 19,521
As of December 31, 2015, domestically, the Company had federal tax credit carry forwards in the amount
of $1.6 million that if unused will expire in 2021, $2.2 million that if unused will expire in 2022, $2.2 million
that if unused will expire in 2023, $0.9 million that if unused will expire in 2024, and $1.7 million that if
unused will expire in 2025. The Company also had state tax credit carry-forwards of $0.3 million that if
unused will expire between 2016 and 2023.
F-33
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
As of December 31, 2015 the cumulative amount of foreign earnings considered permanently invested
outside the U.S. was $493.4 million. Those earnings do not include earnings from certain subsidiaries which
the Company intends to repatriate to the U.S. or are otherwise considered available for distribution to the
U.S. Accordingly, no provision for U.S. federal or state income taxes or foreign withholding taxes has been
provided on these undistributed earnings. If these earnings become taxable in the U.S, the Company would
be subject to incremental tax expense, after any applicable foreign tax credit, and foreign withholding tax
expense. It is not practicable to estimate the additional taxes that may become payable upon the eventual
remittance of these foreign earnings.
The Company has been granted “Tax Holidays” as an incentive to attract foreign investment by the
governments of the Philippines and Costa Rica. Generally, a Tax Holiday is an agreement between the
Company and a foreign government under which the Company receives certain tax benefits in that country,
such as exemption from taxation on profits derived from export-related activities. In the Philippines, the
Company has been granted multiple agreements with an initial period of four years and additional periods
for varying years, expiring at various times between 2011 and 2020. The aggregate benefit to income tax
expense for the years ended December 31, 2015, 2014 and 2013 was approximately $12.2 million,
$20.2 million and $14.6 million, respectively, which had a favorable impact on diluted net income per share
of $0.25, $0.27 and $0.28, respectively.
Accounting for Uncertainty in Income Taxes
In accordance with ASC 740, the Company has recorded a reserve for uncertain tax positions. The total
amount of interest and penalties recognized in the accompanying Consolidated Balance Sheets and
Consolidated Statements of Comprehensive Income (Loss) as of December 31, 2015, 2014 and 2013 was
approximately $709 thousand, $132 thousand and $77 thousand, respectively.
The Company had a reserve for uncertain tax benefits, on a net basis, of $3.7 million and $1.9 million for
the years ended December 31, 2015 and 2014, respectively. The liability for uncertain tax positions was
not changed in 2015 for tax positions that were resolved favorably or expired.
The tabular reconciliation of the reserve for uncertain tax benefits on a gross basis without interest for the
three years ended December 31, 2015 is presented below (in thousands):
Balance as of December 31, 2012
Additions for current year tax positions
Reductions in prior year tax positions
Balance as of December 31, 2013
Additions for current year tax positions
Reductions in prior year tax positions
Balance as of December 31, 2014
Additions for current year tax positions
Reductions in prior year tax positions
Balance as of December 31, 2015
$
$
358
—
—
358
1,303
—
1,661
1,048
—
2,709
At December 31, 2015, the amount of uncertain tax benefits that, if recognized, would reduce tax expense
was $3.7 million. Within the next 12 months, it is expected that the amount of unrecognized tax benefits will
be reduced by $1.2 million as a result of the expiration of various statutes of limitation.
F-34
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The Company and its domestic and foreign subsidiaries (including Percepta LLC and its domestic and
foreign subsidiaries) file income tax returns as required in the U.S. federal jurisdiction and various state and
foreign jurisdictions. The following table presents the major tax jurisdictions and tax years that are open as
of December 31, 2015 and subject to examination by the respective tax authorities:
Tax Jurisdiction
United States
Argentina
Australia
Brazil
Canada
Mexico
Philippines
Spain
Tax Year Ended
2012 to present
2010 to present
2011 to present
2010 to present
2008 to present
2010 to present
2013 to present
2011 to present
During the first quarter of 2014, a benefit of $1.2 million was recorded due to the closing of statutes of
limitations in Canada.
During the third quarter of 2014, the Company settled an audit with the taxing authorities in the Netherlands
for tax years 2010 and 2011. An expense of $1.3 million was recorded in the quarter as a result of that
settlement and the related impact through 2014.
In accordance with ASC 740, the Company recorded a liability during the second quarter of 2015 of $1.75
million, inclusive of penalties and interest, for an uncertain tax position. See Note 1.
The Company’s U.S. income tax returns filed for the tax years ending December 31, 2012 to present,
remain open tax years. The IRS has concluded its audit in the United States for tax years 2009, 2011 and
2012 resulting in no changes to the Company’s financial statements or tax liabilities as previously reported.
The Company has been notified of the intent to audit, or is currently under audit of incomes taxes in the
following jurisdictions: the United States, specifically for the acquired entity TSG, for the tax year 2012
(prior to acquisition), Canada for tax years 2009 and 2010, and New Zealand for tax year 2013. Although
the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management
that the resolution of these audits will not have a material effect on the Company’s Consolidated Financial
Statements.
(11)
RESTRUCTURING CHARGES AND IMPAIRMENT LOSSES
Restructuring Charges
During the years ended December 31, 2015, 2014 and 2013, the Company undertook a number of
restructuring activities primarily associated with reductions in the Company’s capacity and workforce in
several of its segments to better align the capacity and workforce with current business needs.
A summary of the expenses recorded in Restructuring, net in the accompanying Consolidated Statements
of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013, respectively, is as
follows (in thousands):
Reduction in force
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
Total
2015
Year Ended December 31,
2014
2013
$
$
1,482
22
13
297
1,814
$
$
2,182
56
709
389
3,336
$
$
3,832
43
73
189
4,137
F-35
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Facility exit charges
Customer Management Services
Customer Growth Services
Customer Technology Services
Customer Strategy Services
Total
2015
Year Ended December 31,
2014
2013
$
$
—
—
—
—
—
$
$
14
—
—
—
14
$
$
298
—
—
—
298
A rollforward of the activity in the Company’s restructuring accruals for the years ended December 31, 2015
and 2014, respectively, is as follows (in thousands):
Balance as of December 31, 2013
Expense
Payments
Changes in estimates
Balance as of December 31, 2014
Expense
Payments
Changes due to foreign currency
Changes in estimates
Balance as of December 31, 2015
Closure of
Delivery
Centers
Reduction
in Force
Total
$
$
— $ 1,353 $ 1,353
3,456
14
(2,632)
(14)
—
(106)
2,071
—
1,814
—
(2,869)
—
(210)
—
—
—
806
— $
3,442
(2,618)
(106)
2,071
1,814
(2,869)
(210)
—
806 $
The remaining restructuring accruals are expected to be paid or extinguished during 2016 and are all
classified as current liabilities within Other accrued expenses in the Consolidated Balance Sheets.
Impairment Losses
During each of the periods presented, the Company evaluated the recoverability of its leasehold
improvement assets at certain delivery centers. An asset is considered to be impaired when the anticipated
undiscounted future cash flows of its asset group are estimated to be less than the asset group’s carrying
value. The amount of impairment recognized is the difference between the carrying value of the asset group
and its fair value. To determine fair value, the Company used Level 3 inputs in its discounted cash flows
analysis. Assumptions included the amount and timing of estimated future cash flows and assumed
discount rates. During 2015, 2014 and 2013, the Company recognized impairment losses related to
leasehold improvement assets of $0.4 million, $0.4 million, and $0.1 million, respectively, in its Customer
Management Services segment.
During the third and fourth quarters of 2015, the Company recorded impairment charges of $3.1 million and
$2.8 million, respectively, related to the goodwill balance for the WebMetro reporting unit within the CGS
segment. See Note 6 for further information. These expenses were included in the Impairment losses in
the Consolidated Statements of Comprehensive Income (Loss).
During the fourth quarter of 2015, the Company recorded an impairment charge of $1.8 million related to
the goodwill balance for the Latin America reporting unit within the CMS segment. See Note 6 for further
information. This expense was included in the Impairment losses in the Consolidated Statements of
Comprehensive Income (Loss).
During the second quarter of 2013, the Company recorded an impairment charge of $1.1 million related to
the PRG trade name intangible asset within the CSS segment. See Note 7 for further information. This
expense was included in the Impairment losses in the Consolidated Statements of Comprehensive Income
(Loss).
F-36
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(12)
INDEBTEDNESS
Credit Facility
On February 11, 2016, we entered into a First Amendment to our June 3, 2013 Amended and Restated
Credit Agreement and Amended and Restated Security Agreement (collectively the “Credit Agreement”) for
a senior secured revolving credit facility (the “Credit Facility”) with a syndicate of lenders led by Wells Fargo
Bank, National Association. The Credit Agreement provides for a secured revolving credit facility that
matures on February 11, 2021 with an initial maximum aggregate commitment of $900.0 million, and an
accordion feature of up to $1.2 billion in the aggregate, if certain conditions are satisfied. At our discretion,
direct borrowing options under the Credit Agreement include Eurodollar loans, overnight base rate loans,
and alternate currency loans. The Credit Agreement also provides for a foreign subsidiary borrowing
capacity sub-limit for loans or letters of credit of up to 50% of the total commitment amount, in both U.S.
dollars and certain foreign currencies.
Base rate loans bear interest at a rate equal to the greatest of (i) Wells Fargo’s prime rate, (ii) one half of
1% in excess of the federal funds effective rate, and (iii) 1.25% in excess of the one month London Interbank
Offered Rate (“LIBOR”); plus in each case a margin of 0% to 0.75 based on our net leverage ratio.
Eurodollar loans bear interest at LIBOR plus a margin of 1.0% to 1.75% based on our net leverage ratio.
Alternate currency loans bear interest at rates applicable to their respective currencies.
The applicable margins from February 11, 2016 until a compliance certificate is provided by us in connection
with the delivery to the lenders of our quarterly financial statements for the quarter ended March 31, 2016,
are 0.000% per annum for base rate loans and 1.000% per annum for Eurodollar loans or alternate currency
loans.
Letter of credit fees are one eighth of 1% of the stated amount of the letter of credit on the date of issuance,
renewal or amendment, plus an annual fee equal to the borrowing margin for Eurodollar loans.
The Credit Facility commitment fees are payable to the lenders in an amount equal to the unused portion
of the Credit Facility multiplied by 0.125% per annum from February 11, 2016 until a compliance certificate
is provided by us in connection with the delivery to the lenders of our quarterly financial statements for the
quarter ended March 31, 2016, and thereafter at a rate of 0.250% to 0.125% based on our net leverage
ratio.
Indebtedness under the Credit Agreement is guaranteed by certain of our domestic subsidiaries and is
collateralized by (subject to permitted liens) the U.S. accounts receivable and cash of our Company and
certain of its domestic subsidiaries. The indebtedness may also be collateralized by tangible assets of our
Company and its domestic subsidiaries, if borrowings by foreign subsidiaries exceed $100.0 million and the
total net leverage ratio is greater than 3.00 to 1.00. We also pledged 65% of the voting stock and all of the
non-voting stock, if any, of certain of our material foreign subsidiaries.
In addition, the Company is obligated to maintain a maximum net leverage ratio of 3.25 to 1.00, and a
minimum Interest Coverage Ratio of 2.50 to 1.00.
The Company primarily utilizes its Credit Agreement to fund working capital, general operations, stock
repurchases, dividends, and other strategic activities, such as the acquisitions described in Note 2. As of
December 31, 2015, and 2014, the Company had borrowings of $100.0 million and $100.0 million,
respectively, under its Credit Agreement, and its average daily utilization was $319.6 million and $285.9
million for the years ended December 31, 2015 and 2014, respectively. After consideration for issued letters
of credit under the Credit Agreement, totaling $3.4 million, based on the current level of availability based
on the covenant calculations the Company’s remaining borrowing capacity was approximately $415 million
as of December 31, 2015. As of December 31, 2015, the Company was in compliance with all covenants
and conditions under its Credit Agreement.
From time-to-time, the Company has unsecured, uncommitted lines of credit to support working capital for
a few foreign subsidiaries. As of December 31, 2015 and 2014, no foreign loans were outstanding.
F-37
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(13)
DEFERRED REVENUE AND COSTS
Deferred revenue in the accompanying Consolidated Balance Sheets consist of the following
(in thousands):
December 31,
Deferred Revenue - Current
Deferred Revenue - Long-term
Total Deferred Revenue
2014
2015
$ 26,184 $ 29,887
18,771
$ 44,007 $ 48,658
17,823
Deferred costs in the accompanying Consolidated Balance Sheets consist of the following (in thousands):
December 31,
Deferred Costs - Current
Deferred Costs - Long-term
Total Deferred Costs
(14)
COMMITMENTS AND CONTINGENCIES
Letters of Credit
2014
2015
$ 16,905 $ 16,845
12,214
$ 28,377 $ 29,059
11,472
As of December 31, 2015, outstanding letters of credit under the Credit Agreement totaled $3.4 million and
primarily guaranteed workers’ compensation and other insurance related obligations. As of December 31,
2015, letters of credit and contract performance guarantees issued outside of the Credit Agreement totaled
$4.3 million.
Guarantees
Indebtedness under the Credit Agreement is guaranteed by certain of the Company’s present and future
domestic subsidiaries.
Legal Proceedings
From time to time, the Company has been involved in legal actions, both as plaintiff and defendant, which
arise in the ordinary course of business. The Company accrues for exposures associated with such legal
actions to the extent that losses are deemed both probable and reasonably estimable. To the extent specific
reserves have not been made for certain legal proceedings, their ultimate outcome, and consequently, an
estimate of possible loss, if any, cannot reasonably be determined at this time.
Based on currently available information and advice received from counsel, the Company believes that the
disposition or ultimate resolution of any current legal proceedings, except as otherwise specifically reserved
for in its financial statements, will not have a material adverse effect on the Company’s financial position,
cash flows or results of operations.
(15)
LEASES
The Company has various operating leases primarily for delivery centers, equipment, and office space,
which generally contain renewal options. Rent expense under operating leases was approximately
$37.7 million, $33.2 million and $33.3 million for the years ended December 31, 2015, 2014 and 2013,
respectively.
In 2008, the Company sub-leased one of its delivery centers to a third party for the remaining term of the
original lease. The sub-lease began on January 1, 2009 and rental income is recognized on a straight-line
basis over the term of the sub-lease through 2021. Future minimum sub-lease rental receipts are shown in
the table below.
F-38
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The future minimum rental payments and receipts required under non-cancelable operating leases as of
December 31, 2015 are as follows (in thousands):
Operating Sub-Lease
Leases
Income
2016
2017
2018
2019
2020
Thereafter
Total
$
36,571 $
30,796
21,585
13,824
9,767
29,976
(2,234)
(2,234)
(2,470)
(2,470)
(2,470)
(206)
$ 142,519 $ (12,084)
The Company records operating lease expense on a straight-line basis over the life of the lease as
described in Note 1. The deferred lease liability as of December 31, 2015 and 2014 was $11.8 million and
$9.0 million, respectively.
Asset Retirement Obligations
The Company records asset retirement obligations (“ARO”) for several of its delivery center leases.
Capitalized costs related to ARO’s are included in Other long-term assets in the accompanying
Consolidated Balance Sheets while the ARO liability is included in Other long-term liabilities in the
accompanying Consolidated Balance Sheets. Following is a summary of the amounts recorded
(in thousands):
ARO liability total
$
1,941 $
(136) $
49 $
(213) $
1,641
Balance at
December 31, Additions and
2014
Modifications Accretion Settlements
Balance at
December 31, Additions and
2013
Modifications Accretion Settlements
Balance at
December 31,
2015
Balance at
December 31,
2014
ARO liability total
$
1,888 $
39 $
14 $
— $
1,941
Increases to ARO result from a new lease agreement or modifications on an ARO from a preexisting lease
agreement. Modifications to ARO liabilities and accumulated accretion occur when lease agreements are
amended or when assumptions change, such as the rate of inflation. Modifications are accounted for
prospectively as changes in estimates. Settlements occur when leased premises are vacated and the actual
cost of restoration is paid. Differences between the actual costs of restoration and the balance recorded as
ARO liabilities are recognized as gains or losses in the accompanying Consolidated Statements of
Comprehensive Income (Loss).
(16)
MANDATORILY REDEEMABLE NONCONTROLLING INTEREST
The Company holds an 80% interest in iKnowtion. In the event iKnowtion meets certain EBITDA targets for
calendar year 2015, the purchase and sale agreement requires TeleTech to purchase the remaining 20%
interest in iKnowtion in 2016 for an amount equal to a multiple of iKnowtion’s 2015 EBITDA as defined in
the purchase and sale agreement. These terms represent a contingent redemption feature which the
Company determined is probable of being achieved.
F-39
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The Company has recorded the mandatorily redeemable noncontrolling interest at the redemption value
based on the corresponding EBITDA multiples as prescribed in the purchase and sale agreement at the
end of each reporting period. At the end of each reporting period the changes in the redemption value are
recorded in retained earnings. Since the EBITDA multiples as defined in the purchase and sale agreement
are below the current market multiple, the Company has determined that there is no preferential treatment
to the noncontrolling interest shareholders resulting in no impact to earnings per share.
A rollforward of the mandatorily redeemable noncontrolling interest is as follows (in thousands):
Mandatorily redeemable noncontrolling interest, January 1
Net income attributable to mandatorily redeemable noncontrolling interest
Working capital distributed to mandatorily redeemable noncontrolling interest
Change in redemption value
Mandatorily redeemable noncontrolling interest, December 31
Year Ended December 31,
2015
2,814
837
(633)
1,113
4,131
$
$
2014
2,509
613
(1,244)
936
2,814
$
$
(17)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents changes in the accumulated balance for each component of Other
comprehensive income (loss), including current period other comprehensive income (loss) and
reclassifications out of accumulated other comprehensive income (loss) (in thousands):
Foreign
Currency
Translation
Adjustment
Derivative
Valuation, Net
of Tax
Other, Net
of Tax
Totals
Accumulated other comprehensive income (loss) at
December 31, 2012
$
15,673 $
9,559 $
(2,251) $
22,981
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income (loss)
Net current period other comprehensive income (loss)
(26,254)
(13,721)
29
(39,946)
—
(26,254)
(4,190)
(17,911)
569
598
(3,621)
(43,567)
Accumulated other comprehensive income (loss) at
December 31, 2013
Accumulated other comprehensive income (loss) at
December 31, 2013
$
(10,581) $
(8,352) $
(1,653) $ (20,586)
$
(10,581) $
(8,352) $
(1,653) $ (20,586)
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income (loss)
Net current period other comprehensive income (loss)
(22,771)
(12,121)
44
(34,848)
—
(22,771)
2,128
(9,993)
1,032
1,076
3,160
(31,688)
Accumulated other comprehensive income (loss) at
December 31, 2014
Accumulated other comprehensive income (loss) at
December 31, 2014
$
(33,352) $
(18,345) $
(577) $ (52,274)
$
(33,352) $
(18,345) $
(577) $ (52,274)
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income (loss)
Net current period other comprehensive income (loss)
(37,844)
(16,349)
(3,614)
(57,807)
—
(37,844)
7,809
(8,540)
907
(2,707)
8,716
(49,091)
Accumulated other comprehensive income (loss) at
December 31, 2015
$
(71,196) $
(26,885) $
(3,284) $ (101,365)
F-40
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following table presents the classification of the amount reclassified from Accumulated other
comprehensive income (loss) to the statement of comprehensive income (loss) (in thousands):
Derivative valuation
Gain (loss) on foreign currency forward
exchange contracts
Loss on interest rate swaps
Tax effect
Other
Actuarial loss on defined benefit plan
Tax effect
For the Year Ended December 31, Comprehensive Income
2015
2014
2013
(Loss) Classification
Statement of
$ (12,410) $
(1,053)
5,654
(7,809) $
$
(2,429) $ 7,973 Revenue
(1,047)
(1,060)
Interest expense
(2,736) Provision for income taxes
1,361
(2,128) $ 4,190 Net income (loss)
$
$
(1,008) $
101
(907) $
(1,098) $
66
(1,032) $
(605) Cost of services
36 Provision for income taxes
(569) Net income (loss)
(18)
NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted shares for the periods indicated
(in thousands):
2015
Year Ended December 31,
2013
2014
Shares used in basic earnings per share calculation
48,370
49,297
51,338
Effect of dilutive securities:
Stock options
Restricted stock units
Performance-based restricted stock units
Total effects of dilutive securities
Shares used in dilutive earnings per share calculation
275
338
28
641
49,011
413
392
—
805
50,102
417
489
—
906
52,244
For the years ended December 31, 2015, 2014 and 2013, 0.1 million, 0.1 million and 0.1 million,
respectively, of options to purchase shares of common stock were outstanding but not included in the
computation of diluted net income per share because the exercise price exceeded the value of the shares
and the effect would have been anti-dilutive. For the years ended December 31, 2015, 2014 and 2013,
restricted stock units of 0.4 million, 0.2 million, and 0.2 million, respectively, were outstanding but not
included in the computation of diluted net income per share because the effect would have been anti-
dilutive. For the years ended December 31, 2015, 2014 and 2013, there were no performance-based
restricted stock units outstanding but not included in the computation of diluted net income per share. For
the years ended December 31, 2015, 2014 and 2013, restricted stock units that vest based on the Company
achieving specified operating income performance targets of 0.1 million, 0.1 million and 0.1 million,
respectively, were outstanding but not included in the computation of diluted net income per share because
they were determined not to be contingently issuable.
F-41
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(19)
EMPLOYEE COMPENSATION PLANS
Employee Benefit Plan
The Company currently has one 401(k) profit-sharing plan that allows participation by U.S. employees who
have completed six months of service, as defined, and are 21 years of age or older. Participants may defer
up to 75% of their gross pay, up to a maximum limit determined by U.S. federal law. Participants are also
eligible for a matching contribution. The Company may from time to time, at its discretion, make a “matching
contribution” based on the amount and rate of the elective deferrals. The Company determines how much,
if any, it will contribute for each dollar of elective deferrals. Participants vest in matching contributions over
a three-year period. Company matching contributions to the 401(k) plan(s) totaled $5.2 million, $4.8 million
and $4.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Equity Compensation Plans
In February 1999, the Company adopted the TeleTech Holdings, Inc. 1999 Stock Option and Incentive Plan
(the “1999 Plan”). An aggregate of 14.0 million shares of common stock were reserved for issuance under
the 1999 Plan, which permitted the award of incentive stock options, non-qualified stock options, stock
appreciation rights, shares of restricted common stock and restricted stock units (“RSUs”). The 1999 Plan
also provided for annual equity-based compensation grants to members of the Company’s Board of
Directors. Options granted to employees generally vested over four to five years and had a contractual life
of ten years. Options issued to Directors vested immediately and had a contractual life of ten years. In
May 2009, the Company adopted a policy to issue RSUs to Directors, which generally vest over one year.
In May 2010, the Company adopted the 2010 Equity Incentive Plan (the “2010 Plan”). Upon adoption of the
2010 Plan, all authorized and unissued equity in the 1999 Plan was cancelled. An aggregate of 4.0 million
shares of common stock has been reserved for issuance under the 2010 Plan, which permits the award of
incentive stock options, non-qualified stock options, stock appreciation rights, shares of restricted common
stock and RSUs. As of December 31, 2015, a total of 4.0 million shares were authorized and 1.0 million
shares were available for issuance under the 2010 Plan.
For the years ended December 31, 2015, 2014, and 2013, the Company recorded total equity-based
compensation expense under all equity-based arrangements (stock options and RSUs) of $11.3 million,
$11.3 million and $13.3 million, respectively. For 2015, 2014 and 2013, of the total compensation expense,
$2.9 million, $2.3 million and $2.2 million was recognized in Cost of services and $8.4 million, $9.0 million
and $11.1 million, was recognized in Selling, general and administrative in the Consolidated Statements of
Comprehensive Income (Loss), respectively. For the years ended December 31, 2015, 2014, and 2013,
the Company recognized a tax benefit under all equity-based arrangements (stock options and RSUs) of
$6.7 million, $6.3 million and $5.8 million, respectively.
Restricted Stock Units
2013, 2014 and 2015 RSU Awards: The Company granted RSUs in 2013, 2014 and 2015 to new and
existing employees that vest over four or five years. The Company also granted RSUs in 2013, 2014 and
2015 to members of the Board of Directors that vest over one year.
During 2011, the Company granted 100,000 performance-based RSUs to a key employee that vest based
on the Company achieving specified revenue and operating income performance in 2014. The Company
determined the performance targets were not met; and therefore these RSU’s did not vest and were
forfeited. During 2014, the Company granted to a different key employee RSU’s based on revenue and
operating income performance for a reporting segment of the Company; these performance conditions were
partially met and therefore 8,394 RSU’s were issued. These RSU vest over a four year period.
During 2015, the Company granted performance-based RSUs to an executive the amount of which is
determinable based on a reporting segment of the Company achieving incremental operating income for
each year from 2015-2017. During 2015, based on operating income performance for a reporting segment
of the Company approximately $0.4 million of RSUs were earned. These RSUs are anticipated to be
granted in March 2016 and will vest 12 months from the grant date.
F-42
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Summary of RSUs: Settlement of the RSUs shall be made in shares of the Company’s common stock by
delivery of one share of common stock for each RSU then being settled. The Company calculates the fair
value for RSUs based on the closing price of the Company’s stock on the date of grant and records
compensation expense over the vesting period using a straight-line method. The Company factors an
estimated forfeiture rate in calculating compensation expense on RSUs and adjusts for actual forfeitures
upon the vesting of each tranche of RSUs. The Company also factors in the present value of the estimated
dividend payments that will have accrued as these RSU’s are vesting.
The weighted average grant-date fair value of RSUs, including performance-based RSUs, granted during
the years ended December 31, 2015, 2014, and 2013 was $26.52, $26.92, and $21.66, respectively. The
total intrinsic value and fair value of RSUs vested during the years ended December 31, 2015, 2014, and
2013 was $13.0 million, $12.4 million, and $12.3 million, respectively.
A summary of the status of the Company’s non-vested RSUs and performance-based RSUs and activity
for the year ended December 31, 2015 is as follows:
Unvested as of December 31, 2014
Granted
Vested
Cancellations/expirations
Unvested as of December 31, 2015
Weighted
Average
Grant Date
Fair Value
Shares
1,823,078 $
768,590 $
(531,789) $
(504,413) $
1,555,466 $
23.02
26.52
22.71
21.79
25.25
All RSU’s vested during the year ended December 31, 2015 were issued out of treasury stock. As of
December 31, 2015, there was approximately $28.6 million of total unrecognized compensation expense
and approximately $43.4 million in total intrinsic value related to non-vested RSU grants. The unrecognized
compensation expense will be recognized over the remaining weighted-average vesting period of 1.6 years
using the straight-line method.
Stock Options
During the year ended December 31, 2011, the Company granted 150,000 stock options to a key employee.
The stock option award is made up of four separate tranches. Each tranche will vest based on certain stock
price targets (market conditions). The grant date fair values of each tranche were calculated using a Monte
Carlo simulation model in addition to a time-based binomial lattice model. The following table provides the
assumptions used in the time-based binomial lattice model for each tranche granted:
Risk-free interest rate
Expected life in years
Expected volatility
Dividend yield
Weighted-average volatility
Year Ended December 31,
2011
2.1
- 2.7
1.3
%
54.4
—
54.4
%
%
%
The Company estimated the expected term based on historical averages of option exercises and
expirations. The calculation of expected volatility is based on the historical volatility of the Company’s
common stock over the expected term. The risk-free interest rate is based on the yield on the grant
measurement date of a traded zero-coupon U.S. Treasury bond, as reported by the U.S. Federal Reserve,
with a term equal to the expected term of the stock option granted. The Company factored an estimated
forfeiture rate and adjusted for actual forfeitures upon the vesting of each tranche of options.
F-43
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
A summary of stock option activity for the year ended December 31, 2015 is as follows:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contract
Term in Years
Aggregate
Intrinsic
Value
(000’s)
Shares
Outstanding as of December 31, 2014
Exercises
Post-vest cancellations/expirations
Outstanding as of December 31, 2015
1,151,999 $ 13.67
(894,168) $ 11.59
(16,667) $ 17.31
241,164 $ 21.11
$ 13,894
3.94
$
1,641
Vested and exercisable as of December 31, 2015
107,831 $ 25.80
1.54
$
228
During the third quarter of 2015, Mr. Kenneth D. Tuchman, the Chairman and Chief Executive Officer of
TeleTech, exercised the option he received from the Company in 2005 to purchase 800,000 shares of
TeleTech stock at the strike price of $11.35 per share. To effectuate a “cashless exercise” of the option, on
August 24, 2015, Mr. Tuchman entered into a Stock Purchase Agreement with TeleTech, under the terms
of which he exercised the option at the end of business on August 31, 2015 and, upon issuance of the
option shares, sold to TeleTech, in a simultaneous transaction, a number of shares necessary to pay the
option exercise price plus any tax withholding obligations. The option shares were valued at the market
price of the close of business on that date. Mr. Tuchman’s option, granted under TeleTech’s 1999 Stock
Option and Incentive Plan, was fully vested and set to expire in November, 2015, The Stock Purchase
Agreement was approved by the independent members of TeleTech’s Board of Directors who deemed it to
be in the best interest of the Company and all its shareholders.
There were no stock options granted during 2015, 2014 or 2013. The total intrinsic value of options
exercised during the years ended December 31, 2015, 2014 and 2013 was $13.9 million, $0.8 million and
$1.0 million, respectively. The total fair value of stock options vested during the years ended December 31,
2015, 2014 and 2013 was zero, respectively.
As of December 31, 2015, there was approximately $300 thousand of unrecognized compensation expense
related to non-vested stock options. The unrecognized compensation expense will be recognized over the
remaining weighted-average derived service period of 2.6 years using the straight-line method.
Cash received from option exercises under the Plans for the years ended December 31, 2015, 2014 and
2013 was $0.8 million, $0.4 million and $0.9 million, respectively. The recognized tax benefit from option
exercises for the years ended December 31, 2015, 2014 and 2013 was $1.0 million, $0.3 million and
$0.4 million, respectively. Shares issued for options exercised during the year ended December 31, 2015
were issued out of treasury stock.
(20)
STOCK REPURCHASE PROGRAM
Stock Repurchase Program
The Company has a stock repurchase program, which was initially authorized by the Company’s Board of
Directors in November 2001. As of December 31, 2015, the cumulative authorized repurchase allowance
was $662.3 million. During the year ended December 31, 2015, the Company purchased 686 thousand
shares for $17.2 million. Since inception of the program, the Company has purchased 42.8 million shares
for $642.8 million. As of December 31, 2015, the remaining allowance under the program was
approximately $19.6 million. For the period from January 1, 2016 through March 7, 2016, the Company
purchased 217,346 additional shares at a cost of $5.6 million. The stock repurchase program does not have
an expiration date. On February 18, 2016, the Board of Directors authorized an increase in the share
repurchase allowance of $25 million.
F-44
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(21)
RELATED PARTY TRANSACTIONS
The Company entered into an agreement under which Avion, LLC (“Avion”) and Airmax LLC (“Airmax”)
provide certain aviation flight services as requested by the Company. Such services include the use of an
aircraft and flight crew. Kenneth D. Tuchman, Chairman and Chief Executive Officer of the Company, has
a direct 100% beneficial ownership interest in Avion and Airmax. During 2015, 2014 and 2013, the
Company expensed $1.7 million, $1.0 million and $0.6 million, respectively, to Avion and Airmax for
services provided to the Company. There was $120 thousand outstanding to Avion and Airmax as of
December 31, 2015.
During 2014, the Company entered into a vendor contract with Convercent Inc. to provide learning
management and web and telephony based global helpline solutions. The majority owner of Convercent is
a company which is owned and controlled by Kenneth D. Tuchman, Chairman and Chief Executive Officer
of the Company. During 2015 and 2014, the Company paid $100 thousand and $20 thousand, respectively,
to Convercent and is expecting to spend another $100 thousand during 2016.
During 2015, the Company entered into a vendor contract with Netlink to help the Company develop a key
stroke monitoring solution. Shrikant Mehta, one of the Board of Directors, has an ownership interest in
Netlink. During 2015, the Company paid $98 thousand to Netlink for these services.
During 2015, the Company entered into a contract to purchase software from CaféX, which is a company
that TeleTech holds a 17.2% equity investment in. During the second quarter of 2015, the Company
purchased $0.4 million of software from CaféX. See Note 2 for further information regarding this investment.
(22)
OTHER FINANCIAL INFORMATION
Self-insurance liabilities of the Company which are included in Accrued employee compensation and
benefits and Other accrued expenses in the accompanying Consolidated Balance Sheets were as follows
(in thousands):
December 31,
Worker’s compensation
Employee health and dental insurance
Other insurance
Total self-insurance liabilities
(23)
DECONSOLIDATION OF A SUBSIDIARY
2014
2015
$ 2,320 $ 2,007
4,769
1,068
$ 7,951 $ 7,844
4,429
1,202
During the second quarter of 2013, the Company concluded that it no longer had controlling influence over
Peppers & Rogers Gulf WLL (“PRG Kuwait”), a once consolidated subsidiary in the CSS segment, because
the Company was no longer confident that it could exercise its beneficial ownership rights. Upon
deconsolidation of PRG Kuwait, the Company wrote off all PRG Kuwait assets and liabilities resulting in a
loss of $3.7 million which was recorded in Loss on deconsolidation of subsidiary in the Consolidated
Statements of Comprehensive Income (Loss). The $3.7 million loss included $1.3 million of goodwill
allocated to PRG Kuwait immediately prior to deconsolidation based on PRG Kuwait’s relative fair value of
the CSS segment. Effective April 2014, the Company entered into a stock and membership interest
purchase agreement with PRG Kuwait’s other shareholder to sell its 48% interest in PRG Kuwait for $175
thousand. That agreement has not yet closed.
F-45
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(24)
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present certain quarterly financial data for the year ended December 31, 2015
(in thousands except per share amounts).
First
Second Third
Fourth
Quarter
Quarter
Quarter
Quarter
Revenue
Cost of services
Selling, general and administrative
Depreciation and amortization
Restructuring charges, net
Impairment losses
Income from operations
Other income (expense)
Provision for income taxes
Non-controlling interest
Net income attributable to TeleTech stockholders
Weighted average shares outstanding
Basic
Diluted
Net income per share attributable to TeleTech
stockholders
Basic
Diluted
$ 325,521 $ 310,223 $ 309,195 $ 341,816
245,668
48,575
17,279
185
5,034
25,075
(590)
(6,566)
(916)
$ 18,772 $ 14,696 $ 11,195 $ 17,003
225,978
48,418
15,486
622
3,066
15,625
(1,995)
(1,192)
(1,243)
232,984
50,237
15,363
809
—
26,128
(1,688)
(4,405)
(1,263)
223,617
47,376
15,680
198
—
23,352
(18)
(7,841)
(797)
48,370
49,158
48,325
49,064
48,345
48,936
48,439
48,853
$
$
0.39 $
0.38 $
0.30 $
0.30 $
0.23 $
0.23 $
0.35
0.35
Included in the fourth quarter is an additional $2.9 million expense related to the correction of an error in
goodwill impairment annual assessment that should have been recorded in the fourth quarter of 2014 and
the third quarter of 2015. See Note 1 for further information.
Included in Other income (expense) in the second, the third and the fourth quarters are a $0.5 million
benefit, a $0.8 million expense and a $0.3 million benefit related to fair value adjustments to the contingent
consideration related to revised estimates of the performance against the targets for two of the Company’s
acquisitions.
Included in the Provision for Income Taxes is a $0.3 million benefit in the first quarter, a $0.1 million benefit
in the second quarter, a $0.2 million benefit in the third quarter and a $0.1 million benefit in the fourth quarter
related to restructuring charges. Also included are a $0.3 million of benefit in the first quarter, $0.2 million
of expense in the second quarter and $1.2 million of expense in the fourth quarter related to changes in
valuation allowances. Additionally, in the second quarter there was $1.5 million of expense related to the
recording of an uncertain tax position. Finally, there was a $0.5 million benefit in the first quarter related to
tax rate changes, a $1.3 million benefit in the third quarter and a $1.3 million benefit in the fourth quarter
related to impairments and $1.3 million of expense in the fourth quarter related to various state NOL’s.
Included in the second quarter is a $1.75 million additional estimated tax liability that should have been
recorded in prior periods related to ongoing discussions with relevant government authorities related to site
compliance with tax advantaged status. See Note 1 for further information.
F-46
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
The following tables present certain quarterly financial data for the year ended December 31, 2014
(in thousands except per share amounts).
First
Second Third
Fourth
Quarter
Quarter
Quarter
Quarter
Revenue
Cost of services
Selling, general and administrative
Depreciation and amortization
Restructuring charges, net
Impairment losses
Income from operations
Other income (expense)
(Provision for) benefit from income taxes
Non-controlling interest
Net income attributable to TeleTech stockholders
Weighted average shares outstanding
Basic
Diluted
Net income per share attributable to TeleTech
stockholders
Basic
Diluted
$ 302,221 $ 295,490 $ 305,900 $ 338,170
240,146
50,537
15,386
1,600
373
30,128
2,138
(8,971)
(1,329)
$ 20,218 $ 16,862 $ 13,247 $ 21,966
220,244
49,847
13,893
593
—
21,323
(856)
(5,778)
(1,442)
213,787
50,367
13,170
540
—
24,357
(178)
(2,876)
(1,085)
212,315
47,802
14,089
617
—
20,667
2,880
(5,417)
(1,268)
50,045
50,973
49,351
50,111
49,093
49,940
48,714
49,514
$
$
0.40 $
0.40 $
0.34 $
0.34 $
0.27 $
0.27 $
0.45
0.44
Included in Other income (expense) in the second and the fourth quarters are a $4.0 million benefit and a
net $2.7 million benefit related to fair value adjustments to the contingent consideration related to revised
estimates of the performance against the targets for four of the Company’s acquisitions.
Included in the Provision for Income Taxes is a $0.2 million benefit in the first quarter, a $0.2 million
benefit in the second quarter, a $0.2 million benefit in the third quarter and a $0.6 million benefit in the
fourth quarter related to restructuring charges. Also included are a $0.6 million of benefit in the first
quarter and $0.2 million of expense in the third quarter related to changes in valuation allowances.
Additionally, in the second quarter there was $1.6 million of expense, $0.7 million of expense in the third
quarter and $1.6 million of expense in the fourth quarter related to changes in the value of future
contingent payments. Finally, there was $1.2 million of benefit in the first quarter related to the closing of
a statute of limitations and $1.3 million of expense in the third quarter related to the Netherlands audit.
F-47
EXHIBIT INDEX
Exhibit No.
Description
3.01**
3.02**
10.04**
10.06**
10.24**
10.25**
10.27**
10.28**
10.29**
10.30**
10.31**
Restated Certificate of Incorporation of TeleTech Holdings, Inc. filed with the State of
Delaware on August 1, 1996 (incorporated by reference to Exhibit 3.1 to TeleTech’s
Amendment No. 2 to Form S-1 Registration Statement (Registration No. 333-04097)
filed on July 5, 1996)
Second Amended and Restated Bylaws of TeleTech (incorporated by reference to
Exhibit 3.02 to TeleTech’s Current Report on Form 8-K filed on May 28, 2009)
TeleTech Holdings, Inc. Amended and Restated 1999 Stock Option and Incentive
Plan (incorporated by reference as Exhibit 10.04 to TeleTech’s Annual Report on
Form 10-K for the year ended December 31, 2012)
TeleTech Holdings, Inc. 2010 Equity Incentive Plan (incorporated by reference as
Appendix A to TeleTech’s Definitive Proxy Statement, filed April 12, 2010)
Form of Restricted Stock Unit Agreement (Section 16 Officers) (incorporated by
reference as Exhibit 4.3 to TeleTech’s Form S-8 Registration Statement (Registration
No. 333-167300) filed on June 3, 2010)
Form of Restricted Stock Unit Agreement (Non-Section 16 Employees) (incorporated
by reference as Exhibit 4.4 to TeleTech’s Form S-8 Registration Statement
(Registration No. 333-167300) filed on June 3, 2010)
Form of Global Restricted Stock Unit Agreement (Operating Committee Member)
(incorporated by reference to Exhibit 10.1 to TeleTech’s Current Report on Form 8-K
filed on May 1, 2013)
Form of Global Restricted Stock Unit Agreement (Non-Operating Committee
Member) (incorporated by reference as Exhibit 10.2 to TeleTech’s Current Report on
Form 8-K filed on May 1, 2013)
Form of TeleTech Holdings, Inc. Restricted Stock Unit Award Agreement (other
employees) effective July 1, 2014 (incorporated by reference as Exhibit 10.29 to
TeleTech’s Annual Report on Form 10-K for the year ended December 31, 2014)
Form of TeleTech Holdings, Inc. Restricted Stock Unit Award Agreement (Directors
and Executive Committee Members) effective July 1, 2014 (incorporated by reference
as Exhibit 10.30 to TeleTech’s Annual Report on Form 10-K for the year ended
December 31, 2014)
Form of Non-Qualified Stock Option Agreement (Non-Employee Director)
(incorporated by reference as Exhibit 10.08 to TeleTech’s Annual Report on Form 10-
K for the year ended December 31, 2007)
10.32*
Independent Director Compensation Arrangements (effective January 1, 2016)
10.33**
Form of Indemnification Agreement with Directors (incorporated by reference as
Exhibit 10.1 to TeleTech’s Current Report on Form 8-K filed on February 22, 2010)
F-48
Exhibit No.
Description
10.40**
10.41**
10.50**
10.52**
10.54**
10.60**
10.62**
10.63**
10.80**
10.80**
10.90**
Employment Agreement between Kenneth D. Tuchman and TeleTech dated
October 15, 2001 (incorporated by reference as Exhibit 10.68 to TeleTech’s Annual
Report on Form 10-K for the year ended December 31, 2001)
Amendment to Employment Agreement between Kenneth D. Tuchman and TeleTech
dated December 31, 2008 (incorporated by reference as Exhibit 10.17 to TeleTech’s
Annual Report on Form 10-K for the year ended December 31, 2008)
Employment Agreement between James E. Barlett and TeleTech dated October 15,
2001 (incorporated by reference as Exhibit 10.66 to TeleTech’s Annual Report on
Form 10-K for the year ended December 31, 2001)
Amendment to Employment Agreement between James E. Barlett and TeleTech
dated December 31, 2008 (incorporated by reference as Exhibit 10.13 to TeleTech’s
Annual Report on Form 10-K for the year ended December 31, 2008)
Second Amendment, dated as of April 19, 2011, to TeleTech Holdings, Inc.
Restricted Stock Unit Agreement by and between TeleTech Holdings, Inc. and James
E. Barlett dated June 22, 2007 (incorporated by reference as Exhibit 10.1 to
TeleTech’s Current Report on Form 8-K filed April 22, 2011)
Employment Agreement between Regina Paolillo and TeleTech Holdings, Inc.
effective as of November 3, 2011 (incorporated by reference as Exhibit 10.1 to
TeleTech’s Current Report on Form 8-K filed October 27, 2011)
Restricted Stock Unit Agreement dated as of November 15, 2011 between TeleTech
Holdings, Inc. and Regina Paolillo (RSU Performance Agreement) (incorporated by
reference as Exhibit 10.2 to TeleTech’s Current Report on Form 8-K/A filed
November 21, 2011)
Non-Qualified Stock Option Agreement dated as of November 15, 2011 between
TeleTech Holdings, Inc. and Regina Paolillo (Option Agreement)(incorporated by
reference as Exhibit 10.3 to TeleTech’s Current Report on Form 8-K/A filed
November 21, 2011)
Employment Agreement between Keith Gallacher and TeleTech Services
Corporation effective as of June 3, 2013 (incorporated by reference as Exhibit 10.2 to
TeleTech’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
Employment Agreement between Robert N. Jimenez and TeleTech Services
Corporation effective as of April 20, 2015 (incorporated by reference as Exhibit 10.81
to TeleTech’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015)
First Amendment to Amended and Restated Credit Agreement and First Amendment
to Amended and Restated Security Agreement (collectively, “New Credit
Agreement”) for the senior secured revolving credit facility (the “New Credit Facility”)
with a syndicate of lenders (collectively, “Lenders”) led by Wells Fargo Bank, National
Association, as agent, swing line and fronting lender. The New Credit Agreement
amends the Company’s prior Amended and Restated Credit Agreement and
Amended and Restated Security Agreement dated as of June 3, 2013 (the “Prior
Credit Facility”). (Incorporated by reference to Exhibit 10.90 to TeleTech’s Form 8-K
filed on February 16, 2016)
-
21.1*
List of subsidiaries
F-49
Exhibit No.
23.1*
Description
Consent of Independent Registered Public Accounting Firm
24.1*
Power of Attorney
31.1*
Rule 13a-14(a) Certification of CEO of TeleTech
31.2*
Rule 13a-14(a) Certification of CFO of TeleTech
32.1*
32.2*
Written Statement of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (18 U.S.C. Section 1350)
Written Statement of 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
*
**
Filed or furnished herewith.
Identifies exhibit that consists of or includes a management contract or compensatory plan or
arrangement.
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible
***
Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2015 and 2014,
(ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015,
2014 and 2013, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31,
2015, 2014 and 2013, (iv) Consolidated Statements of Cash Flows for the years ended December 31,
2015, 2014 and 2013, and (v) Notes to Consolidated Financial Statements.
F-50
Exhibit 31. 1
I, Kenneth D. Tuchman, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of TeleTech Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/s/ Kenneth D. Tuchman
Kenneth D. Tuchman
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: March 14, 2016
Exhibit 31.2
I, Regina M. Paolillo, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of TeleTech Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/s/ Regina M. Paolillo
Regina M. Paolillo
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 14, 2016
Written Statement of Chief Executive Officer
Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
Exhibit 32.1
The undersigned, the Chief Executive Officer of TeleTech Holdings, Inc. (the “Company”), hereby certifies
that, to his knowledge on the date hereof:
a.
b.
The Annual Report on Form 10-K of the Company for the year ended December 31, 2015 filed
on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
By:
/s/ Kenneth D. Tuchman
Kenneth D. Tuchman
Chief Executive Officer
Date: March 14, 2016
Written Statement of Chief Financial Officer
Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
Exhibit 32.2
The undersigned, the Chief Financial Officer of TeleTech Holdings, Inc. (the “Company”), hereby certifies
that, to his knowledge on the date hereof:
a.
b.
The Annual Report on Form 10-K of the Company for the year ended December 31, 2015 filed
on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
By:
/s/ Regina M. Paolillo
Regina M. Paolillo
Chief Financial Officer
Date: March 14, 2016
Corporate Information
Directors
Kenneth D. Tuchman
Founder; Chairman of the Board
James E. Barlett
Vice Chairman; former Chairman, President and Chief Executive Officer, Galileo International
Tracy L. Bahl
Executive Vice President, Health Plans, CVS Health; former Director, MedExpress; former
Executive Chairman, Emdeon; former Chief Executive Officer, Uniprise
Gregory A. Conley
Former Chief Executive Officer, Aha! Software; former Chief Executive Officer,
Odyssey Group, SA
Robert N. Frerichs
Director, Merkle, Inc.; former International Chairman, Accenture, Inc.; former Chairman,
Aricent Group; former Chairman, Avanade
Marc L. Holtzman
Chairman, Kazkommertsbank; Chairman, Bank of Kigali Limited; former Director, FTI Consulting;
former Chairman, Meridian Capital HK; former Vice Chairman, Barclays Capital
Shrikant Mehta
Chief Executive Officer, Combine International, Inc., Director, Lenderlive,
Little Switzerland and NETLINK
Executive Officers
Kenneth D. Tuchman
Chief Executive Officer
Regina M. Paolillo
Executive Vice President; Chief Administrative and Financial Officer
Martin F. DeGhetto
Executive Vice President; Customer Management Services
Charles “Keith” Gallacher
Executive Vice President; Global Markets and Industries
Judi A. Hand
Executive Vice President; Customer Growth Services
Robert N. Jimenez
Executive Vice President; Customer Strategic Services
Steven C. Pollema
Senior Vice President; Customer Technology Services
Margaret B. McLean
Senior Vice President, General Counsel and Chief Risk Officer
Audit Committee
Gregory A. Conley, Chairman
Robert N. Frerichs
Marc L. Holtzman
Compensation Committee
Tracy L. Bahl, Chairman
Gregory A. Conley
Robert N. Frerichs
Nominating and Governance Committee
Shrikant Mehta, Chairman
Tracy L. Bahl
Executive Committee
James E. Barlett, Chairman
Tracy L. Bahl
Shrikant Mehta
Stock Listing
NASDAQ Global Select Market
Symbol: TTEC
Website
teletech.com
2016 Annual Meeting of Stockholders
The Annual Meeting of Stockholders will be
held Wednesday, May 25, 2016, beginning at
1:00 p.m. MDT at:
TeleTech Holdings, Inc.
Global Headquarters
9197 South Peoria Street
Englewood, CO 80112-5833
Transfer Agent and Registrar
Broadridge Corporate Issuer Solutions, Inc.
1717 Arch Street, Suite 1300
Philadelphia, PA 19103
Telephone: 855.206.5002
Facsimile: 215.553.5402
Email: shareholder@broadridge.com
Investor Information
Investor information, including TeleTech’s
Annual Report, press releases, and filings
with the U.S. Securities and Exchange
Commission, may be obtained from
TeleTech’s website, teletech.com
or by contacting TeleTech Investor
Relations at:
1.800.835.3832
investor.relations@teletech.com
Independent Accountants
PricewaterhouseCoopers LLP,
Denver, Colorado
Annual Report Cover References:
2015 global contact centre benchmarking report.
(2015). Retrieved February 7, 2016, from http://www.
dimensiondata.com/
Apczynski, T. (2011, September 12). Infographic: Love ‘Em or
Hate ‘Em, Call Centers Are Here to Stay. Retrieved February 7,
2016, from https://www.zendesk.com/blog/call-centers-are-
here-to-stay/
Ellis, B. (2011, November 3). Waiting for the cable guy is
costing us $38 billion. Retrieved February 7, 2016, from
http://money.cnn.com/2011/11/03/pf/cost_of_waiting/index.
htm?iid=HP_River
Irabor, R. (2015, June 30). 17 Stats on the Current State of
Customer Experience. Retrieved February 7, 2016, from http://
www.sailthru.com/marketing-blog/17-stats-current-state-
customer-experience/
Isn’t it about time IVR was reinvented? (2016). Retrieved
February 7, 2016, from http://www.inferencesolutions.com/
isnt-it-about-time-ivr-reinvented/
Marsh, A. (2013, March 05). 40 Stats Shaping the Future of
Contact Centers. Retrieved February 7, 2016, from http://blog.
vpi-corp.com/blog/featured/40-stats-shaping-the-future-of-
contact-centers/
Reports - ContactBabel. (n.d.). Retrieved February 7, 2016, from
http://www.contactbabel.com/reports.cfm
TeleTech is a leading global provider of customer experience, engagement, and growth solutions.
Founded in 1982, the company helps its clients acquire, retain, and grow profitable customer
relationships. Using customer-centric strategy, technology, processes, and operations, TeleTech
partners with business leadership across marketing, sales, and customer care to design and deliver
a simple, more human customer experience across every interaction channel.
Servicing over 80 countries, TeleTech’s 46,000 employees live by a set of customer-focused values
that guide relationships with clients, their customers, and each other.
To learn more about how TeleTech is bringing humanity to the customer experience, visit us at
TeleTech.com.
9197 South Peoria Street | Englewood, CO 80112-5833 | 303.397.8100 or 1.800.835.3832
Global Headquarters
teletech.com
LEAD EVERY DAY | DO THE RIGHT THING | REACH FOR AMAZING | SEEK FIRST TO UNDERSTAND | ACT AS ONE | LIVE LIFE PASSIONATELY