##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from            to
 
 Commission File Number 001-11919
 
 TeleTech Holdings, Inc.
  Delaware
    
    84-1291044(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 9197 South Peoria Street
Englewood, Colorado 80112
  o þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2007 FORM 10-Q
TABLE OF CONTENTS
 Page No.EXPLANATORY NOTE
    
    
    iiPART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of September 30, 2007 (unaudited)
and December 31, 2006
    
    
    1Condensed Consolidated Statements of Operations and Comprehensive Income
for the three and nine months ended September 30, 2007 and 2006 (unaudited)
    
    
    2Condensed Consolidated Statement of Stockholders Equity as of and for the
nine months ended September 30, 2007 (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2007 and 2006 (unaudited)
    
    
    4Notes to the Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    65Item 4. Controls and Procedures
    
    
    67PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    71Item 1A. Risk Factors
    
    
    72Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    81Item 3. Defaults Upon Senior Securities
    
    
    82Item 4. Submission of Matters to a Vote of Security Holders
    
    
    82Item 5. Other Information
    
    
    82Item 6. Exhibits
    
    
    83SIGNATURES
    
    
    84EXHIBIT INDEX
    
    
    85Certification of CEO Pursuant to Section 302Certification of Interim CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of Interim CFO Pursuant to Section 906
  i




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EXPLANATORY NOTE
  Summary of Adjustments
  Pre-Tax Accounting Adjustments
    
    
    
    
    
    
    Provision
    
    
    TotalEquity-Based
    
    
    
    
    
    
    
    
    
    
    Total Pre-Tax
    
    
    for Income
    
    
    AccountingYear Ended December 31,
    
    Compensation
    
    
    Leases
    
    
    Other
    
    
    Adjustments
    
    
    Tax1
    
    
    Adjustments1996
    
    $
    763
    
    
    $
    132
    
    
    $
    
    
    
    $
    895
    
    
    $
    (334
    )
    
    $
    5611997
    
    
    1,776
    
    
    
    515
    
    
    
    
    
    
    
    2,291
    
    
    
    (862
    )
    
    
    1,4291998
    
    
    2,396
    
    
    
    1,552
    
    
    
    
    
    
    
    3,948
    
    
    
    (1,412
    )
    
    
    2,5361999
    
    
    12,779
    
    
    
    1,112
    
    
    
    
    
    
    
    13,891
    
    
    
    (5,022
    )
    
    
    8,8692000
    
    
    26,684
    
    
    
    3,022
    
    
    
    
    
    
    
    29,706
    
    
    
    (9,004
    )
    
    
    20,7022001
    
    
    5,648
    
    
    
    679
    
    
    
    10
    
    
    
    6,337
    
    
    
    (2,354
    )
    
    
    3,9832002
    
    
    6,105
    
    
    
    150
    
    
    
    817
    
    
    
    7,072
    
    
    
    (1,479
    )
    
    
    5,5932003
    
    
    2,214
    
    
    
    492
    
    
    
    3
    
    
    
    2,709
    
    
    
    (4,390
    )
    
    
    (1,681
    )2004
    
    
    237
    
    
    
    477
    
    
    
    (3
    )
    
    
    711
    
    
    
    (340
    )
    
    
    371Cumulative effect at December 31, 2004
    
    
    58,602
    
    
    
    8,131
    
    
    
    827
    
    
    
    67,560
    
    
    
    (25,197
    )
    
    
    42,3632005
    
    
    965
    
    
    
    (922
    )
    
    
    392
    
    
    
    435
    
    
    
    1,437
    
    
    
    1,8722006
    
    
    611
    
    
    
    (1,437
    )
    
    
    (111
    )
    
    
    (937
    )
    
    
    1,798
    
    
    
    861First quarter 2007
    
    
    (209
    )
    
    
    (75
    )
    
    
    (863
    )
    
    
    (1,147
    )
    
    
    711
    
    
    
    (436
    )Second quarter 2007
    
    
    (272
    )
    
    
    227
    
    
    
    (559
    )
    
    
    (604
    )
    
    
    1,056
    
    
    
    452Total
    
    $
    59,697
    
    
    $
    5,924
    
    
    $
    (314
    )
    
    $
    65,307
    
    
    $
    (20,195
    )
    
    $
    45,112
 
 (1)
    
    In any given year, the Provision for Income Tax may not
directly correlate with the amount of total pre-tax
accounting adjustments. The provision as shown reflects
the tax benefits of the pre-tax accounting adjustments,
permanent tax differences, and rate differences for foreign
jurisdictions. These benefits are offset in part by
changes in deferred tax valuation allowances and other
adjustments restating the amount or period in which income
taxes were originally recorded. Equity-Based Compensation Accounting
  ii




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Accounting for Stock Issued to
Employees Accounting for Stock-Based
Compensation Share-Based Payment
  Lease Accounting
 Accounting for Leases Accounting for Asset Retirement Obligations
 Other Accounting Adjustments
  Income Tax Adjustments and Income Tax Payables
  iii




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Accounting for Income Taxes
   iv




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 TELETECH HOLDINGS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 (Amounts in thousands, except share amounts)
 (Unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006As restatedASSETSCurrent assetsCash and cash equivalents
    
    $
    70,684
    
    
    $
    58,352Accounts receivable, net
    
    
    238,623
    
    
    
    235,958Prepaids and other current assets
    
    
    61,273
    
    
    
    37,886Deferred tax assets, net
    
    
    5,925
    
    
    
    11,081Income tax receivables
    
    
    28,924
    
    
    
    15,875Total current assets
    
    
    405,429
    
    
    
    359,152Long-term assetsProperty, plant and equipment, net
    
    
    168,992
    
    
    
    161,061Goodwill
    
    
    45,054
    
    
    
    57,859Contract acquisition costs, net
    
    
    7,511
    
    
    
    9,674Deferred tax assets, net
    
    
    46,659
    
    
    
    46,166Other long-term assets
    
    
    34,548
    
    
    
    30,509Total long-term assets
    
    
    302,764
    
    
    
    305,269Total assets
    
    $
    708,193
    
    
    $
    664,421LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    30,656
    
    
    $
    31,287Accrued employee compensation and benefits
    
    
    88,563
    
    
    
    75,445Other accrued expenses
    
    
    38,421
    
    
    
    37,649Income tax payables
    
    
    23,069
    
    
    
    29,734Deferred tax liabilities, net
    
    
    436
    
    
    
    395Other short-term liabilities
    
    
    11,324
    
    
    
    9,520Total current liabilities
    
    
    192,469
    
    
    
    184,030Long-term liabilitiesLine of credit
    
    
    38,500
    
    
    
    65,000Grant advances
    
    
    6,187
    
    
    
    8,001Deferred tax liabilities
    
    
    88
    
    
    
    137Other long-term liabilities
    
    
    42,373
    
    
    
    38,662Total long-term liabilities
    
    
    87,148
    
    
    
    111,800Total liabilities
    
    
    279,617
    
    
    
    295,830Minority interest
    
    
    4,700
    
    
    
    5,877Commitments and contingencies (Note 11)Stockholders equityPreferred stock  $0.01 par value; 10,000,000 shares authorized;
zero shares outstanding as of September 30, 2007 and
December 31, 2006, respectively
    
    
    
    
    
    
    Common stock  $.01 par value; 150,000,000 shares authorized;
69,797,571 and 70,103,437 shares outstanding
as of September 30, 2007 and December 31, 2006, respectively
    
    
    698
    
    
    
    701Additional paid-in capital
    
    
    331,028
    
    
    
    298,327Treasury stock at cost: 12,077,609and 10,492,209 shares, respectively
    
    
    (143,205
    )
    
    
    (96,200
    )Accumulated other comprehensive income
    
    
    46,377
    
    
    
    10,525Retained earnings
    
    
    188,978
    
    
    
    149,361Total stockholders equity
    
    
    423,876
    
    
    
    362,714Total liabilities and stockholders equity
    
    $
    708,193
    
    
    $
    664,421
  1




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations and Comprehensive Income
 (Amounts in thousands, except per share amounts)
 (Unaudited)
 Three-Months Ended
    
    
    Nine-Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006As restated
    
    
    
    
    
    
    As restatedRevenue
    
    $
    335,727
    
    
    $
    303,839
    
    
    $
    998,075
    
    
    $
    874,096Operating expensesCost of services (exclusive of depreciation and
amortization presented separately below)
    
    
    246,558
    
    
    
    218,421
    
    
    
    721,028
    
    
    
    645,174Selling, general and administrative
    
    
    46,968
    
    
    
    49,587
    
    
    
    147,675
    
    
    
    146,079Depreciation and amortization
    
    
    14,250
    
    
    
    13,355
    
    
    
    41,598
    
    
    
    37,781Restructuring charges, net
    
    
    2,588
    
    
    
    515
    
    
    
    2,850
    
    
    
    1,455Impairment losses
    
    
    2,274
    
    
    
    
    
    
    
    15,789
    
    
    
    478Total operating expenses
    
    
    312,638
    
    
    
    281,878
    
    
    
    928,940
    
    
    
    830,967Income from operations
    
    
    23,089
    
    
    
    21,961
    
    
    
    69,135
    
    
    
    43,129Other income (expense), netInterest income
    
    
    650
    
    
    
    662
    
    
    
    1,535
    
    
    
    1,350Interest expense
    
    
    (1,395
    )
    
    
    (2,507
    )
    
    
    (4,457
    )
    
    
    (4,966
    )Loss on sale of business
    
    
    (6,122
    )
    
    
    
    
    
    
    (6,122
    )
    
    
    Other, net
    
    
    41
    
    
    
    677
    
    
    
    (1,294
    )
    
    
    (276
    )Total other income (expense), net
    
    
    (6,826
    )
    
    
    (1,168
    )
    
    
    (10,338
    )
    
    
    (3,892
    )Income before income taxes and minority interest
    
    
    16,263
    
    
    
    20,793
    
    
    
    58,797
    
    
    
    39,237Provision for income taxes
    
    
    (1,082
    )
    
    
    (7,173
    )
    
    
    (16,193
    )
    
    
    (8,846
    )Income before minority interest
    
    
    15,181
    
    
    
    13,620
    
    
    
    42,604
    
    
    
    30,391Minority interest
    
    
    (808
    )
    
    
    (583
    )
    
    
    (1,750
    )
    
    
    (1,659
    )Net income
    
    $
    14,373
    
    
    $
    13,037
    
    
    $
    40,854
    
    
    $
    28,732Other comprehensive income (loss)Foreign currency translation adjustments
    
    $
    7,710
    
    
    $
    1,205
    
    
    $
    19,197
    
    
    $
    4,484Derivatives valuation, net of tax
    
    
    5,683
    
    
    
    (86
    )
    
    
    16,721
    
    
    
    (2,018
    )Other
    
    
    (22
    )
    
    
    (17
    )
    
    
    (66
    )
    
    
    (49
    )Total other comprehensive income (loss)
    
    
    13,371
    
    
    
    1,102
    
    
    
    35,852
    
    
    
    2,417Comprehensive income
    
    $
    27,744
    
    
    $
    14,139
    
    
    $
    76,706
    
    
    $
    31,149Weighted average shares outstandingBasic
    
    
    70,214
    
    
    
    69,085
    
    
    
    70,367
    
    
    
    68,979Diluted
    
    
    72,343
    
    
    
    70,277
    
    
    
    72,909
    
    
    
    70,210Net income per shareBasic
    
    $
    0.20
    
    
    $
    0.19
    
    
    $
    0.58
    
    
    $
    0.42Diluted
    
    $
    0.20
    
    
    $
    0.19
    
    
    $
    0.56
    
    
    $
    0.41
  2




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statement of Stockholders Equity
 (Amounts in thousands)
 (Unaudited)
 AccumulatedAdditional
    
    Other
    
    
    
    
    
    TotalPreferred Stock
    
    Common Stock
    
    Treasury
    
    Paid-in
    
    Comprehensive
    
    Retained
    
    StockholdersShares
    
    Amount
    
    Shares
    
    Amount
    
    Stock
    
    Capital
    
    Income
    
    Earnings
    
    EquityBalance as of December 31, 2006
(As restated)
    
    
    
    
    
    $
    
    
    
    
    70,103
    
    
    $
    701
    
    
    $
    (96,200
    )
    
    $
    298,327
    
    
    $
    10,525
    
    
    $
    149,361
    
    
    $
    362,714Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,854
    
    
    
    40,854Cumulative effect of adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,237
    )
    
    
    (1,237
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,197
    
    
    
    
    
    
    
    19,197Derivatives valuation, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,721
    
    
    
    
    
    
    
    16,721Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    1,280
    
    
    
    13
    
    
    
    
    
    
    
    15,580
    
    
    
    
    
    
    
    
    
    
    
    15,593Excess tax benefit from exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,018
    
    
    
    
    
    
    
    
    
    
    
    8,018Equity based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,103
    
    
    
    
    
    
    
    
    
    
    
    9,103Treasury stock repurchases
    
    
    
    
    
    
    
    
    
    
    (1,586
    )
    
    
    (16
    )
    
    
    (47,005
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,021
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    (66
    )Balance as of September 30, 2007
    
    
    
    
    
    $
    
    
    
    
    69,797
    
    
    $
    698
    
    
    $
    (143,205
    )
    
    $
    331,028
    
    
    $
    46,377
    
    
    $
    188,978
    
    
    $
    423,876
  3




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 (Amounts in thousands)
 (Unaudited)
 Nine-Months EndedSeptember 30,2007
    
    
    2006As restatedCash flows from operating activitiesNet income
    
    $
    40,854
    
    
    $
    28,732Adjustment to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    41,598
    
    
    
    37,781Amortization of contract acquisition costs
    
    
    2,017
    
    
    
    2,327Provision for doubtful accounts
    
    
    609
    
    
    
    1,714Loss on disposal of assets
    
    
    6,228
    
    
    
    241Impairment losses
    
    
    15,789
    
    
    
    478Deferred income taxes
    
    
    975
    
    
    
    (5,286
    )Minority interest
    
    
    1,750
    
    
    
    1,659Equity-based compensation expense
    
    
    9,103
    
    
    
    5,734Changes in assets and liabilities:Accounts receivable
    
    
    (786
    )
    
    
    (200
    )Prepaids and other assets
    
    
    (14,751
    )
    
    
    (11,961
    )Accounts payable and accrued expenses
    
    
    2,001
    
    
    
    13,019Other liabilities
    
    
    (5,102
    )
    
    
    (2,130
    )Net cash provided by operating activities
    
    
    100,285
    
    
    
    72,108Cash flows from investing activitiesAcquisition of a business, net of cash acquired of $0.5 million
    
    
    
    
    
    
    (46,412
    )Purchases of property, plant and equipment
    
    
    (43,788
    )
    
    
    (51,219
    )Proceeds from disposition of business
    
    
    3,237
    
    
    
    Payment for contract acquisition costs
    
    
    
    
    
    
    (179
    )Purchases of intangible assets
    
    
    
    
    
    
    (1,357
    )Other
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (40,551
    )
    
    
    (99,167
    )Cash flows from financing activitiesProceeds from lines of credit
    
    
    394,800
    
    
    
    380,700Payments on lines of credit
    
    
    (421,300
    )
    
    
    (329,650
    )Payments on long-term debt and capital lease obligations
    
    
    (933
    )
    
    
    (1,103
    )Payments of debt issuance costs
    
    
    (17
    )
    
    
    (811
    )Payments to minority shareholder
    
    
    (2,693
    )
    
    
    (1,498
    )Proceeds from exercise of stock options
    
    
    15,593
    
    
    
    10,802Excess tax benefit from exercise of stock options
    
    
    8,018
    
    
    
    2,108Purchases of treasury stock
    
    
    (47,021
    )
    
    
    (14,648
    )Net cash (used in) provided by financing activities
    
    
    (53,553
    )
    
    
    45,900Effect of exchange rate changes on cash and cash equivalents
    
    
    6,151
    
    
    
    1,537Increases in cash and cash equivalents
    
    
    12,332
    
    
    
    20,378Cash and cash equivalents, beginning of period
    
    
    58,352
    
    
    
    32,314Cash and cash equivalents, end of period
    
    $
    70,684
    
    
    $
    52,692Supplemental disclosuresCash paid for interest
    
    $
    4,131
    
    
    $
    3,402Cash paid for income taxes
    
    $
    15,750
    
    
    $
    8,716Non-cash investing and financing activitiesProperty and equipment acquired through capital leases
    
    $
    2,030
    
    
    $
    479Asset retirement obligations offset by corresponding assets
    
    $
    144
    
    
    $
    367Landlord incentives credited to deferred rent
    
    $
    1,978
    
    
    $
    
  4




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 (1) OVERVIEW AND BASIS OF PRESENTATION
 Overview
  Basis of Presentation
    Recently Issued Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109
 Fair Value
Measurements
 5




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement No. 115
  Business Combinationsa replacement of
FASB Statement No. 141
 Non-controlling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51
 Disclosures about Derivative Instruments and Hedging
Activities
 (2) RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
 Background and Scope of the Review
  6




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Summary of Findings
   Pre-Tax Accounting Adjustments
    
    
    
    
    
    
    Provision
    
    
    TotalEquity-Based
    
    
    
    
    
    
    
    
    
    
    Total Pre-Tax
    
    
    for Income
    
    
    AccountingYear Ended December 31,
    
    Compensation
    
    
    Leases
    
    
    Other
    
    
    Adjustments
    
    
    Tax1
    
    
    Adjustments1996
    
    $
    763
    
    
    $
    132
    
    
    $
    
    
    
    $
    895
    
    
    $
    (334
    )
    
    $
    5611997
    
    
    1,776
    
    
    
    515
    
    
    
    
    
    
    
    2,291
    
    
    
    (862
    )
    
    
    1,4291998
    
    
    2,396
    
    
    
    1,552
    
    
    
    
    
    
    
    3,948
    
    
    
    (1,412
    )
    
    
    2,5361999
    
    
    12,779
    
    
    
    1,112
    
    
    
    
    
    
    
    13,891
    
    
    
    (5,022
    )
    
    
    8,8692000
    
    
    26,684
    
    
    
    3,022
    
    
    
    
    
    
    
    29,706
    
    
    
    (9,004
    )
    
    
    20,7022001
    
    
    5,648
    
    
    
    679
    
    
    
    10
    
    
    
    6,337
    
    
    
    (2,354
    )
    
    
    3,9832002
    
    
    6,105
    
    
    
    150
    
    
    
    817
    
    
    
    7,072
    
    
    
    (1,479
    )
    
    
    5,5932003
    
    
    2,214
    
    
    
    492
    
    
    
    3
    
    
    
    2,709
    
    
    
    (4,390
    )
    
    
    (1,681
    )2004
    
    
    237
    
    
    
    477
    
    
    
    (3
    )
    
    
    711
    
    
    
    (340
    )
    
    
    371Cumulative effect at
December 31, 2004
    
    
    58,602
    
    
    
    8,131
    
    
    
    827
    
    
    
    67,560
    
    
    
    (25,197
    )
    
    
    42,3632005
    
    
    965
    
    
    
    (922
    )
    
    
    392
    
    
    
    435
    
    
    
    1,437
    
    
    
    1,8722006
    
    
    611
    
    
    
    (1,437
    )
    
    
    (111
    )
    
    
    (937
    )
    
    
    1,798
    
    
    
    861Total
    
    $
    60,178
    
    
    $
    5,772
    
    
    $
    1,108
    
    
    $
    67,058
    
    
    $
    (21,962
    )
    
    $
    45,096
 
 (1)
    
    In any given year, the Provision for Income Tax may not
directly correlate with the amount of total pre-tax
accounting adjustments. The provision as shown reflects
the tax benefits of the pre-tax accounting adjustments,
permanent tax differences, and rate differences for foreign
jurisdictions. These benefits are offset in part by
changes in deferred tax valuation allowances and other
adjustments restating the amount or period in which income
taxes were originally recorded. 7




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 Equity-Based Compensation Expense Adjustments
  Pre-Tax Equity Based Compensation ExpenseModificationsMeasurement
    
    
    to Employee
    
    
    Non-Employee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total ExpenseYear Ended December 31,
    

Date Changes
    
    
    Grants
    
    
    Grants
    
    
    Other
    
    
    Total
    
    
    Income Taxes
    
    
    Net of Tax1996
    
    $
    21
    
    
    $
    
    
    
    $
    742
    
    
    $
    
    
    
    $
    763
    
    
    $
    (283
    )
    
    $
    4801997
    
    
    223
    
    
    
    422
    
    
    
    1,131
    
    
    
    
    
    
    
    1,776
    
    
    
    (659
    )
    
    
    1,1171998
    
    
    454
    
    
    
    199
    
    
    
    1,743
    
    
    
    
    
    
    
    2,396
    
    
    
    (888
    )
    
    
    1,5081999
    
    
    2,714
    
    
    
    3,030
    
    
    
    6,559
    
    
    
    476
    
    
    
    12,779
    
    
    
    (4,739
    )
    
    
    8,0402000
    
    
    7,380
    
    
    
    13,411
    
    
    
    4,069
    
    
    
    1,824
    
    
    
    26,684
    
    
    
    (9,895
    )
    
    
    16,7892001
    
    
    4,921
    
    
    
    815
    
    
    
    (135
    )
    
    
    47
    
    
    
    5,648
    
    
    
    (2,094
    )
    
    
    3,5542002
    
    
    5,865
    
    
    
    76
    
    
    
    (10
    )
    
    
    174
    
    
    
    6,105
    
    
    
    (2,264
    )
    
    
    3,8412003
    
    
    499
    
    
    
    1,237
    
    
    
    231
    
    
    
    247
    
    
    
    2,214
    
    
    
    (822
    )
    
    
    1,3922004
    
    
    357
    
    
    
    82
    
    
    
    (425
    )
    
    
    223
    
    
    
    237
    
    
    
    (235
    )
    
    
    2Cumulative effect at
December 31, 2004
    
    
    22,434
    
    
    
    19,272
    
    
    
    13,905
    
    
    
    2,991
    
    
    
    58,602
    
    
    
    (21,879
    )
    
    
    36,7232005
    
    
    276
    
    
    
    303
    
    
    
    311
    
    
    
    75
    
    
    
    965
    
    
    
    (164
    )
    
    
    8012006
    
    
    (15
    )
    
    
    425
    
    
    
    49
    
    
    
    152
    
    
    
    611
    
    
    
    137
    
    
    
    748Total
    
    $
    22,695
    
    
    $
    20,000
    
    
    $
    14,265
    
    
    $
    3,218
    
    
    $
    60,178
    
    
    $
    (21,906
    )
    
    $
    38,272
 Measurement Date Changes Accounting for Stock Issued to Employees
   Modifications to Employee Grants
 
    
    Severance agreements offered to certain terminated employees that allowed for continued
vesting and the right to exercise stock options beyond the standard time period permitted
under the terms of the stock option agreement;
    
    Employment agreements that provided for the accelerated vesting of stock options;
    
    Continued vesting and the ability to exercise stock options for certain employees not
terminated from the Companys database in a timely manner following their departure from
TeleTech due to administrative errors; and
    
    Options granted to certain employees that were not entered into the Companys equity
tracking system until after their dates of termination, primarily due to administrative
delays in processing stock option requests and the lack of communication of employee
termination dates to the Companys third party plan administrator.
 8




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 Non-Employee Grants
 Other
 Tax Consequences Under Internal Revenue Code
      Accounting for
Income Taxes
 Lease Accounting
 Accounting for Leases
 9




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 Other Accounting Adjustments
  Income Tax Adjustments and Income Tax Payables
    10




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Three-Months Ended September 30, 2006As previouslyreported
    
    
    Adjustments
    
    
    As restatedRevenue
    
    $
    303,804
    
    
    $
    35
    
    
    $
    303,839Operating expensesCost of services (exclusive of depreciation and
amortization presented separately below)
    
    
    219,744
    
    
    
    (2,281
    )
    
    
    218,421Selling, general and administrative
    
    
    49,271
    
    
    
    316
    
    
    
    49,587Depreciation and amortization
    
    
    12,925
    
    
    
    426
    
    
    
    13,355Restructuring charges, net
    
    
    515
    
    
    
    
    
    
    
    515Total operating expenses
    
    
    282,455
    
    
    
    (1,539
    )
    
    
    281,878Income from operations
    
    
    21,349
    
    
    
    1,574
    
    
    
    21,961Other income (expense), netInterest income
    
    
    662
    
    
    
    
    
    
    
    662Interest expense
    
    
    (2,410
    )
    
    
    (97
    )
    
    
    (2,507
    )Other, net
    
    
    189
    
    
    
    (474
    )
    
    
    677Total other income (expense), net
    
    
    (1,559
    )
    
    
    (571
    )
    
    
    (1,168
    )Income before income taxes and minority interest
    
    
    19,790
    
    
    
    1,003
    
    
    
    20,793Provision for income taxes
    
    
    (6,428
    )
    
    
    (745
    )
    
    
    (7,173
    )Income before minority interest
    
    
    13,362
    
    
    
    258
    
    
    
    13,620Minority interest
    
    
    (583
    )
    
    
    
    
    
    
    (583
    )Net income
    
    $
    12,779
    
    
    $
    258
    
    
    $
    13,037Other comprehensive income (loss)Foreign currency translation adjustments
    
    $
    1,206
    
    
    $
    (1
    )
    
    $
    1,205Derivatives valuation, net of tax
    
    
    (86
    )
    
    
    
    
    
    
    (86
    )Other
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Total other comprehensive income (loss)
    
    
    1,120
    
    
    
    (18
    )
    
    
    1,102Comprehensive income
    
    $
    13,899
    
    
    $
    240
    
    
    $
    14,139Weighted average shares outstandingBasic
    
    
    69,085
    
    
    
    
    
    
    
    69,085Diluted
    
    
    70,366
    
    
    
    (89
    )
    
    
    70,277Net income per shareBasic
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.19Diluted
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.19
 11




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Nine-Months Ended September 30, 2006As previouslyreported
    
    
    Adjustments
    
    
    As restatedRevenue
    
    $
    874,560
    
    
    $
    (464
    )
    
    $
    874,096Operating expensesCost of services (exclusive of depreciation and
amortization presented separately below)
    
    
    649,718
    
    
    
    (4,544
    )
    
    
    645,174Selling, general and administrative
    
    
    145,132
    
    
    
    947
    
    
    
    146,079Depreciation and amortization
    
    
    36,705
    
    
    
    1,076
    
    
    
    37,781Restructuring charges, net
    
    
    1,455
    
    
    
    
    
    
    
    1,455Impairment losses
    
    
    478
    
    
    
    
    
    
    
    478Total operating expenses
    
    
    833,488
    
    
    
    (2,521
    )
    
    
    830,967Income from operations
    
    
    41,072
    
    
    
    2,057
    
    
    
    43,129Other income (expense), netInterest income
    
    
    1,350
    
    
    
    
    
    
    
    1,350Interest expense
    
    
    (4,491
    )
    
    
    (475
    )
    
    
    (4,966
    )Other, net
    
    
    2,028
    
    
    
    (2,304
    )
    
    
    (276
    )Total other income (expense), net
    
    
    (1,113
    )
    
    
    (2,779
    )
    
    
    (3,892
    )Income before income taxes and minority interest
    
    
    39,959
    
    
    
    (722
    )
    
    
    39,237Provision for income taxes
    
    
    (7,889
    )
    
    
    (957
    )
    
    
    (8,846
    )Income before minority interest
    
    
    32,070
    
    
    
    (1,679
    )
    
    
    30,391Minority interest
    
    
    (1,659
    )
    
    
    
    
    
    
    (1,659
    )Net income
    
    $
    30,411
    
    
    $
    (1,679
    )
    
    $
    28,732Other comprehensive income (loss)Foreign currency translation adjustments
    
    $
    4,487
    
    
    $
    (3
    )
    
    $
    4,484Derivatives valuation, net of tax
    
    
    (2,018
    )
    
    
    
    
    
    
    (2,018
    )Other
    
    
    
    
    
    
    (49
    )
    
    
    (49
    )Total other comprehensive income (loss)
    
    
    2,469
    
    
    
    (52
    )
    
    
    2,417Comprehensive income
    
    $
    32,880
    
    
    $
    (1,731
    )
    
    $
    31,149Weighted average shares outstandingBasic
    
    
    68,979
    
    
    
    
    
    
    
    68,979Diluted
    
    
    70,228
    
    
    
    (18
    )
    
    
    70,210Net income per shareBasic
    
    $
    0.44
    
    
    $
    (0.02
    )
    
    $
    0.42Diluted
    
    $
    0.43
    
    
    $
    (0.02
    )
    
    $
    0.41
 12




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  December 31, 2006Aspreviouslyreported
    
    
    Adjustments
    
    
    As restatedASSETSCurrent assetsCash and cash equivalents
    
    $
    60,484
    
    
    $
    (2,132
    )
    
    $
    58,352Accounts receivable, net
    
    
    237,353
    
    
    
    (1,395
    )
    
    
    235,958Prepaids and other current assets
    
    
    34,552
    
    
    
    3,334
    
    
    
    37,886Deferred tax assets, net
    
    
    12,212
    
    
    
    (1,131
    )
    
    
    11,081Income taxes receivable
    
    
    16,543
    
    
    
    (668
    )
    
    
    15,875Total current assets
    
    
    361,144
    
    
    
    (1,992
    )
    
    
    359,152Long-term assetsProperty, plant and equipment, net
    
    
    156,047
    
    
    
    5,014
    
    
    
    161,061Goodwill
    
    
    58,234
    
    
    
    (375
    )
    
    
    57,859Contract acquisition costs, net
    
    
    9,674
    
    
    
    
    
    
    
    9,674Deferred tax assets, net
    
    
    44,585
    
    
    
    1,581
    
    
    
    46,166Other long-term assets
    
    
    29,032
    
    
    
    1,477
    
    
    
    30,509Total long-term assets
    
    
    297,572
    
    
    
    7,697
    
    
    
    305,269Total assets
    
    $
    658,716
    
    
    $
    5,705
    
    
    $
    664,421LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    30,738
    
    
    $
    549
    
    
    $
    31,287Accrued employee compensation and benefits
    
    
    76,071
    
    
    
    (626
    )
    
    
    75,445Other accrued expenses
    
    
    39,165
    
    
    
    (1,516
    )
    
    
    37,649Income taxes payable
    
    
    26,211
    
    
    
    3,523
    
    
    
    29,734Deferred tax liabilities
    
    
    309
    
    
    
    86
    
    
    
    395Other short-term liabilities
    
    
    9,521
    
    
    
    (1
    )
    
    
    9,520Total current liabilities
    
    
    182,015
    
    
    
    2,015
    
    
    
    184,030Long-term liabilitiesLine of credit
    
    
    65,000
    
    
    
    
    
    
    
    65,000Grant advances
    
    
    8,000
    
    
    
    1
    
    
    
    8,001Deferred tax liabilities
    
    
    6,741
    
    
    
    (6,604
    )
    
    
    137Other long-term liabilities
    
    
    27,676
    
    
    
    10,986
    
    
    
    38,662Total long-term liabilities
    
    
    107,417
    
    
    
    4,383
    
    
    
    111,800Total liabilities
    
    
    289,432
    
    
    
    6,398
    
    
    
    295,830Minority interest
    
    
    5,877
    
    
    
    
    
    
    
    5,877Commitments and contingenciesStockholders equityCommon stock
    
    
    701
    
    
    
    
    
    
    
    701Additional paid-in capital
    
    
    258,719
    
    
    
    39,608
    
    
    
    298,327Treasury stock
    
    
    (96,200
    )
    
    
    
    
    
    
    (96,200
    )Accumulated other comprehensive income
    
    
    5,730
    
    
    
    4,795
    
    
    
    10,525Retained earnings
    
    
    194,457
    
    
    
    (45,096
    )
    
    
    149,361Total stockholders equity
    
    
    363,407
    
    
    
    (693
    )
    
    
    362,714Total liabilities and stockholders equity
    
    $
    658,716
    
    
    $
    5,705
    
    
    $
    664,421
 13




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Nine Months Ended September 30, 2006As previouslyreported
    
    
    Adjustments
    
    
    As restatedCash flows from operating activitiesNet cash provided by (used in):Net income
    
    $
    30,411
    
    
    $
    (1,679
    )
    
    $
    28,732Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    36,705
    
    
    
    1,076
    
    
    
    37,781Amortization of contract acquisition costs
    
    
    2,327
    
    
    
    
    
    
    
    2,327Provision for doubtful accounts
    
    
    1,714
    
    
    
    
    
    
    
    1,714Loss on disposal of assets
    
    
    241
    
    
    
    
    
    
    
    241Impairment losses
    
    
    478
    
    
    
    
    
    
    
    478Deferred income taxes
    
    
    (5,810
    )
    
    
    524
    
    
    
    (5,286
    )Minority interest
    
    
    1,659
    
    
    
    
    
    
    
    1,659Equity compensation expense
    
    
    5,024
    
    
    
    710
    
    
    
    5,734Changes in working capital and other assets and liabilities,
net of changes due to acquisitions:Accounts receivable
    
    
    (1,404
    )
    
    
    1,204
    
    
    
    (200
    )Prepaids and other assets
    
    
    (12,578
    )
    
    
    617
    
    
    
    (11,961
    )Accounts payable and other accrued expenses
    
    
    13,534
    
    
    
    (515
    )
    
    
    13,019Other liabilities
    
    
    311
    
    
    
    (2,441
    )
    
    
    (2,130
    )Net cash provided by operating activities
    
    
    72,612
    
    
    
    (504
    )
    
    
    72,108Cash flows from investing activitiesAcquisition of a business, net of cash acquired of $0.5 million
    
    
    (46,412
    )
    
    
    
    
    
    
    (46,412
    )Purchases of property, plant and equipment
    
    
    (51,219
    )
    
    
    
    
    
    
    (51,219
    )Payment for contract acquisition costs
    
    
    (179
    )
    
    
    
    
    
    
    (179
    )Purchases of intangible assets
    
    
    (1,357
    )
    
    
    
    
    
    
    (1,357
    )Net cash used in investing activities
    
    
    (99,167
    )
    
    
    
    
    
    
    (99,167
    )Cash flows from financing activitiesProceeds from line of credit
    
    
    380,700
    
    
    
    
    
    
    
    380,700Payments on line of credit
    
    
    (329,650
    )
    
    
    
    
    
    
    (329,650
    )Payments on long-term debt and capital lease obligations
    
    
    (286
    )
    
    
    (817
    )
    
    
    (1,103
    )Payments of debt issuance costs
    
    
    (811
    )
    
    
    
    
    
    
    (811
    )Payments to minority shareholder
    
    
    (1,498
    )
    
    
    
    
    
    
    (1,498
    )Proceeds from exercise of stock options
    
    
    10,802
    
    
    
    
    
    
    
    10,802Excess tax benefit from exercise of stock options
    
    
    3,041
    
    
    
    (933
    )
    
    
    2,108Purchases of treasury stock
    
    
    (14,648
    )
    
    
    
    
    
    
    (14,648
    )Net cash provided by financing activities
    
    
    47,650
    
    
    
    (1,750
    )
    
    
    45,900Effect of exchange rate changes on cash and cash equivalents
    
    
    1,592
    
    
    
    (55
    )
    
    
    1,537Net increase in cash and cash equivalents
    
    
    22,687
    
    
    
    (2,309
    )
    
    
    20,378Cash and cash equivalents at beginning of year
    
    
    32,505
    
    
    
    (191
    )
    
    
    32,314Cash and cash equivalents at end of year
    
    $
    55,192
    
    
    $
    (2,500
    )
    
    $
    52,692
 14




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 (3) ACQUISITIONS
    Assets acquiredCurrent assets
    
    $
    14,548Property, plant and equipment
    
    
    4,410Intangible assets
    
    
    9,100Goodwill
    
    
    24,438Total assets acquired
    
    
    52,496Liabilities assumed
    
    
    (6,123
    )Total liabilities assumed
    
    
    (6,123
    )Net assets acquired
    
    $
    46,373
  Value
    
    
    Amortization PeriodTrade name
    
    $
    1,800
    
    
    None; indefinite lifeCustomer relationships
    
    
    7,300
    
    
    10 yearsTotal
    
    $
    9,100
  15




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  (Unaudited)Nine Months EndedSeptember 30, 2006As restatedRevenue
    
    $
    908,191Income from operations
    
    $
    45,735Net income
    
    $
    29,322Weighted average shares outstandingBasic
    
    
    68,979Diluted
    
    
    70,210Net income per shareBasic
    
    $
    0.43Diluted
    
    $
    0.42
   (4) DISPOSITION
   Current assets
    
    $
    3,870Property plant and equipment
    
    
    4,464Current liabilities assumed
    
    
    (608
    )Net assets disposed of
    
    
    7,726Fair value of consideration received
    
    
    (2,691
    )Costs incurred in relation to the sale
    
    
    1,087Net loss recorded on sale
    
    $
    6,122
  16




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
   (5) SEGMENT INFORMATION
  North American BPO
    
    International BPOUnited States
    
    ArgentinaCanada
    
    AustraliaIndia
    
    BrazilPhilippines
    
    ChinaCosta RicaEnglandGermanyMalaysiaMexicoNew ZealandNorthern IrelandScotlandSingaporeSpain
 17




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
      Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006As restated
    
    
    
    
    
    
    As restatedRevenueNorth American BPO
    
    $
    229,231
    
    
    $
    206,651
    
    
    $
    689,468
    
    
    $
    575,819International BPO
    
    
    101,198
    
    
    
    90,336
    
    
    
    291,714
    
    
    
    264,277Database Marketing and Consulting
    
    
    5,298
    
    
    
    6,852
    
    
    
    16,893
    
    
    
    34,000Total
    
    $
    335,727
    
    
    $
    303,839
    
    
    $
    998,075
    
    
    $
    874,096Income (loss) from operationsNorth American BPO
    
    $
    25,430
    
    
    $
    24,909
    
    
    $
    87,777
    
    
    $
    55,184International BPO
    
    
    4,475
    
    
    
    1,969
    
    
    
    9,449
    
    
    
    (1,078
    )Database Marketing and Consulting
    
    
    (6,816
    )
    
    
    (4,917
    )
    
    
    (28,091
    )
    
    
    (10,977
    )Total
    
    $
    23,089
    
    
    $
    21,961
    
    
    $
    69,135
    
    
    $
    43,129
 18




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006As restated
    
    
    
    
    
    
    As restatedRevenueUnited States
    
    $
    100,286
    
    
    $
    108,456
    
    
    $
    311,659
    
    
    $
    317,984Latin America
    
    
    56,957
    
    
    
    46,302
    
    
    
    167,630
    
    
    
    121,738Philippines
    
    
    56,690
    
    
    
    33,994
    
    
    
    157,574
    
    
    
    75,997Canada
    
    
    49,798
    
    
    
    48,311
    
    
    
    154,196
    
    
    
    157,001Europe
    
    
    36,059
    
    
    
    35,699
    
    
    
    109,946
    
    
    
    105,274Asia Pacific
    
    
    35,937
    
    
    
    31,077
    
    
    
    97,070
    
    
    
    96,102Total
    
    $
    335,727
    
    
    $
    303,839
    
    
    $
    998,075
    
    
    $
    874,096
 (6) SIGNIFICANT CLIENTS AND OTHER CONCENTRATIONS
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    200615.2
    %
    
    
    15.1
    %
    
    
    14.8
    %
    
    
    16.2
    %
  September 30,
    
    December 31,2007
    
    2006$
    33,214
    
    
    $
    31,977
  19




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 (7) GOODWILL
  ForeignDecember 31,
    
    
    
    
    
    
    Currency
    
    
    September 30,2006
    
    
    Impairments
    
    
    Impact
    
    
    2007As restatedNorth American BPO
    
    $
    35,885
    
    
    $
    
    
    
    $
    
    
    
    $
    35,885International BPO
    
    
    8,613
    
    
    
    
    
    
    
    556
    
    
    
    9,169Database Marketing
and Consulting
    
    
    13,361
    
    
    
    (13,361
    )
    
    
    
    
    
    
    Total
    
    $
    57,859
    
    
    $
    (13,361
    )
    
    $
    556
    
    
    $
    45,054
 Goodwill and Other Intangible
Assets
     20




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 (8) DERIVATIVES
    LocalCurrency
    
    
    U.S. Dollar
    
    
    Dates Contracts areAmount
    
    
    Amount
    
    
    ThroughCanadian Dollar
    
    
    173,250
    
    
    $
    155,989
    
    
    December 2010Philippine Peso
    
    
    5,540,000
    
    
    
    116,638
    
    
    June 2009Argentine Peso
    
    
    89,111
    
    
    
    26,778
    
    
    June 2009Mexican Peso
    
    
    248,500
    
    
    
    22,042
    
    
    June 2009$
    321,447
    21




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 (9) INCOME TAXES
 Accounting for Income Taxes
 Accounting for Contingencies
      22




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 Tax Jurisdiction
    
    Tax Year EndedUnited States
    
    2002 to presentArgentina
    
    2003 to presentAustralia
    
    2003 to presentBrazil
    
    2002 to presentCanada
    
    2003 to presentMexico
    
    2003 to presentPhilippines
    
    2002 to presentSpain
    
    2003 to present
     (10) RESTRUCTURING CHARGES AND IMPAIRMENT LOSSES
 Restructuring Charges
     23




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
     Closure ofDelivery
    
    
    Reduction inCenters
    
    
    Force
    
    
    TotalBalance as of December 31, 2006
    
    $
    1,087
    
    
    $
    191
    
    
    $
    1,278Expense
    
    
    86
    
    
    
    3,363
    
    
    
    3,449Payments
    
    
    (113
    )
    
    
    (2,229
    )
    
    
    (2,342
    )Reversals
    
    
    (599
    )
    
    
    
    
    
    
    (599
    )Non-cash items
    
    
    
    
    
    
    (350
    )
    
    
    (350
    )Balance as of September 30, 2007
    
    $
    461
    
    
    $
    975
    
    
    $
    1,436
 Impairment Losses
   (11) COMMITMENTS AND CONTINGENCIES
 Letters of Credit
  Guarantees
  24




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Legal Proceedings
  (12) NET INCOME PER SHARE
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006As restated
    
    
    
    
    
    As restatedShares used in basic earnings per share calculation
    
    
    70,214
    
    
    
    69,085
    
    
    
    70,367
    
    
    
    68,979Effect of dilutive securities  RSUs
    
    
    78
    
    
    
    
    
    
    
    43
    
    
    
    Effect of dilutive securities  Stock options
    
    
    2,051
    
    
    
    1,192
    
    
    
    2,499
    
    
    
    1,231Shares used in dilutive earnings per share calculation
    
    
    72,343
    
    
    
    70,277
    
    
    
    72,909
    
    
    
    70,210
  (13) EQUITY-BASED COMPENSATION PLANS
 ShareBased Payment
 25




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TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 Stock Options
  Restricted Stock Units
   (14) SUBSEQUENT EVENT
   26




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##### Table of Contents



TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Current assets
    
    $
    (840
    )Property, plant and equipment
    
    
    (1,601
    )Non-current assets
    
    
    (1,196
    )Liabilities assumed
    
    
    1,911Net assets disposed of
    
    
    (1,726
    )Fair value of consideration received, net of costs of sale
    
    
    8,731Gain recorded on sale
    
    $
    7,005
 Securities Class Action
 Beasley v. TeleTech Holdings, Inc., et. al. Brown v. TeleTech
Holdings, Inc., et al., In re: TeleTech Litigation
 Credit Facility Amendments
  27




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATIONS
 Introduction
 
   Executive Summary
  28




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##### Table of Contents




    
    Integration of front- and back-office business processes to provide an enhanced customer
experience.  Companies have realized that integrated business processes allow customer
needs to be met more quickly and efficiently resulting in higher customer satisfaction and
brand loyalty thereby improving their competitive position.
    
    Increasing percentage of company operations being outsourced to most capable third-party
providers.  Having experienced success with outsourcing a portion of their business
processes, companies are increasingly outsourcing a larger percentage of this work. To
achieve these benefits, companies are consolidating their business processes with
third-party providers that have an extensive operating history, global reach, world-class
capabilities and an ability to scale and meet their evolving needs.
    
    Increasing adoption of outsourcing across broader groups of industries.  Early adopters
of the business process outsourcing trend, such as the media and communications industries,
are being joined by companies in other industries, including healthcare, retailing and
financial services. These companies are beginning to adopt outsourcing to improve their
business processes and competitiveness.
    
    Focus on speed-to-market by companies launching new products or entering new geographic
locations.  As companies broaden their product offerings and seek to enter new emerging
markets, they are looking for outsourcing providers that can provide speed-to-market while
reducing their capital and operating risk. To achieve these benefits, companies are seeking
BPO providers with an extensive operating history, an established global footprint and the
financial strength to invest in innovation to deliver more strategic capabilities and the
ability to scale and meet customer demands quickly.
 Our Strategy
   
    
    Deepen and broaden our relationships with existing clients.
    
    Win business with new clients and focus on targeted industries where we expect
accelerating adoption of business process outsourcing.
    
    Continue to invest in innovative proprietary technology and new business offerings.
    
    Continue to improve our operating margins.
    
    Selectively pursue acquisitions that extend our capabilities and/or industry expertise.
 29




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Our Third Quarter 2007 Financial Results
      Restatement of Financial Statements
 Accounting for Stock Issued to Employees Accounting for Share Based Payment
 30




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##### Table of Contents



Pre-Tax Accounting Adjustments
    
    
    
    
    
    
    Provision
    
    
    TotalEquity-Based
    
    
    
    
    
    
    
    
    
    
    Total Pre-Tax
    
    
    for Income
    
    
    AccountingYear Ended December 31,
    
    Compensation
    
    
    Leases
    
    
    Other
    
    
    Adjustments
    
    
    Tax1
    
    
    Adjustments1996
    
    $
    763
    
    
    $
    132
    
    
    $
    
    
    
    $
    895
    
    
    $
    (334
    )
    
    $
    5611997
    
    
    1,776
    
    
    
    515
    
    
    
    
    
    
    
    2,291
    
    
    
    (862
    )
    
    
    1,4291998
    
    
    2,396
    
    
    
    1,552
    
    
    
    
    
    
    
    3,948
    
    
    
    (1,412
    )
    
    
    2,5361999
    
    
    12,779
    
    
    
    1,112
    
    
    
    
    
    
    
    13,891
    
    
    
    (5,022
    )
    
    
    8,8692000
    
    
    26,684
    
    
    
    3,022
    
    
    
    
    
    
    
    29,706
    
    
    
    (9,004
    )
    
    
    20,7022001
    
    
    5,648
    
    
    
    679
    
    
    
    10
    
    
    
    6,337
    
    
    
    (2,354
    )
    
    
    3,9832002
    
    
    6,105
    
    
    
    150
    
    
    
    817
    
    
    
    7,072
    
    
    
    (1,479
    )
    
    
    5,5932003
    
    
    2,214
    
    
    
    492
    
    
    
    3
    
    
    
    2,709
    
    
    
    (4,390
    )
    
    
    (1,681
    )2004
    
    
    237
    
    
    
    477
    
    
    
    (3
    )
    
    
    711
    
    
    
    (340
    )
    
    
    371Cumulative effect at December 31, 2004
    
    
    58,602
    
    
    
    8,131
    
    
    
    827
    
    
    
    67,560
    
    
    
    (25,197
    )
    
    
    42,3632005
    
    
    965
    
    
    
    (922
    )
    
    
    392
    
    
    
    435
    
    
    
    1,437
    
    
    
    1,8722006
    
    
    611
    
    
    
    (1,437
    )
    
    
    (111
    )
    
    
    (937
    )
    
    
    1,798
    
    
    
    861First Quarter 2007
    
    
    (209
    )
    
    
    (75
    )
    
    
    (863
    )
    
    
    (1,147
    )
    
    
    711
    
    
    
    (436
    )Second Quarter 2007
    
    
    (272
    )
    
    
    227
    
    
    
    (559
    )
    
    
    (604
    )
    
    
    1,056
    
    
    
    452Total
    
    $
    59,697
    
    
    $
    5,924
    
    
    $
    (314
    )
    
    $
    65,307
    
    
    $
    (20,195
    )
    
    $
    45,112
 
 (1)
    
    In any given year, the Provision for Income Tax may not directly correlate with
the amount of total pre-tax accounting adjustments. The provision as shown
reflects the tax benefits of the pre-tax accounting adjustments, permanent tax
differences, and rate differences for foreign jurisdictions. These benefits are
offset in part by changes in deferred tax valuation allowances and other
adjustments restating the amount or period in which income taxes were originally
recorded. Equity-Based Compensation
 Accounting for Stock Issued to
Employees; Accounting for Stock-Based
Compensation, Share-Based Payment
 Background
  31




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##### Table of Contents




    
    Reviewing hard copy and electronic files obtained from us as well as other sources that
totaled hundreds of thousands of pages of hard copy and electronic documents;
    
    Conducting interviews of 34 past and present employees, officers and directors, some of
whom were interviewed more than once;
    
    Engaging outside consultants to conduct various statistical analyses of our equity
awards;
    
    Reviewing Board and Committee minutes and related materials from 1996 through August
2007;
    
    Reviewing actions by unanimous written consent (UWCs) and other granting actions
relating to equity awards from 1996 through August 2007;
    
    Reviewing our public filings and equity compensation plans;
    
    Frequent communications by the Chairman of the Audit Committee with the Audit
Committees independent counsel and its accounting consultants; and
    
    Numerous telephonic and in-person meetings of the Audit Committee.
   Historical Equity-Based Compensation Practices
  
    
    Annual pool grants in conjunction with our annual merit review process, which generally
occurred within a few months following our year end (referred to as annual grants);
    
    Individual grants to newly hired or promoted Section 16 Officers and employees and, from
time to time, grants in recognition of performance or as incentives;
    
    Options granted or assumed in connection with acquisitions; and
    
    Options granted to non-employee directors and, from time to time, consultants.
  
    
    There was no willful misconduct in connection with our equity compensation granting
process.
    
    There was no evidence of improper conduct by the Chairman and Chief Executive Officer,
the Vice Chairman, any current member of senior management, any past or present member of
the Compensation Committee, or any other outside director.
 32




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##### Table of Contents




    
    There was no regular or systematic practice of using hindsight to select grant dates and
no pattern of consistently hitting lows.
  
    
    Certain employees/officers involved in the administration of our stock options, none of
which are actively employed by us, did not adequately meet all of the demands of their
positions and/or did not adequately appreciate their responsibilities in the stock option
granting process, particularly in the period prior to 2002.
    
    There were control and other deficiencies in our equity compensation granting process.
    
    Our policies were not sufficient to ensure compliance with all applicable accounting and
disclosure rules relevant to equity compensation.
    
    There were episodic instances of selecting grant dates with some hindsight.
 o
    
    There was some evidence that certain employees/officers involved in selecting
grant dates, none of which are actively employed by us, had some understanding of the
accounting implications of selecting dates with hindsight. However, there was no
conclusive evidence demonstrating that those involved in selecting dates knowingly
and/or purposely violated accounting or disclosure rules.
 
    
    There were instances where we failed to appreciate that certain required granting
actions needed to be completed before a measurement date for a grant could be established
under applicable equity compensation accounting rules.
    
    Certain stock option awards were not properly recorded under applicable equity
compensation accounting rules, including in connection with:
 o
    
    modification of grants;o
    
    a recipients status as a consultant or an employee; ando
    
    treatment of performance-based vesting conditions.
 Delegation of Authority
  33




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##### Table of Contents



Measurement Dates
   34




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##### Table of Contents



Equity-Based Compensation Expense Adjustments
  
    
    Measurement date mistakes were made in connection with annual pool grants where the
allocation of the grants to individual recipients was not known with finality until after
the stated grant date;
    
    Measurement date mistakes were made on new hire and promotional grants to Section 16
Officers , employees and non-employee directors as a result of delayed or missing approvals
and grants made prior to the start date;
    
    Certain stock option awards were modified after the establishment of a measurement date
to accelerate the vesting of the employees stock options or to allow the exercise of stock
options beyond the standard 90-day period following termination of employment; and
    
    Certain grants previously accounted for as employee awards were determined to have been
made for non-employee consulting services and should have been accounted for under SFAS No.
123, Accounting for Stock-Based Compensation (SFAS 123).
  Pre-Tax Equity Based Compensation ExpenseModificationsYear Ended December 31,
    
    MeasurementDate Changes
    
    
    to Employee
Grants
    
    
    Non-
Employee Grants
    
    
    Other
    
    
    Total1996
    
    $
    21
    
    
    $
    
    
    
    $
    742
    
    
    $
    
    
    
    $
    7631997
    
    
    223
    
    
    
    422
    
    
    
    1,131
    
    
    
    
    
    
    
    1,7761998
    
    
    454
    
    
    
    199
    
    
    
    1,743
    
    
    
    
    
    
    
    2,3961999
    
    
    2,714
    
    
    
    3,030
    
    
    
    6,559
    
    
    
    476
    
    
    
    12,7792000
    
    
    7,380
    
    
    
    13,411
    
    
    
    4,069
    
    
    
    1,824
    
    
    
    26,6842001
    
    
    4,921
    
    
    
    815
    
    
    
    (135
    )
    
    
    47
    
    
    
    5,6482002
    
    
    5,865
    
    
    
    76
    
    
    
    (10
    )
    
    
    174
    
    
    
    6,1052003
    
    
    499
    
    
    
    1,237
    
    
    
    231
    
    
    
    247
    
    
    
    2,2142004
    
    
    357
    
    
    
    82
    
    
    
    (425
    )
    
    
    223
    
    
    
    237Cumulative effect at December 31, 2004
    
    
    22,434
    
    
    
    19,272
    
    
    
    13,905
    
    
    
    2,991
    
    
    
    58,6022005
    
    
    276
    
    
    
    303
    
    
    
    311
    
    
    
    75
    
    
    
    9652006
    
    
    (15
    )
    
    
    425
    
    
    
    49
    
    
    
    152
    
    
    
    611First quarter 2007
    
    
    28
    
    
    
    859
    
    
    
    (478
    )
    
    
    (618
    )
    
    
    (209
    )Second quarter 2007
    
    
    62
    
    
    
    186
    
    
    
    (13
    )
    
    
    (507
    )
    
    
    (272
    )Total
    
    $
    22,785
    
    
    $
    21,045
    
    
    $
    13,774
    
    
    $
    2,093
    
    
    $
    59,697
 Measurement Date Adjustments
  35




---



##### Table of Contents




    
    Board and Committee meeting minutes and related materials;
    
    evidence relating to the dates UWCs were prepared and circulated for signature and/or
signed by Compensation Committee members;
    
    personnel files of employees who were granted options;
    
    e-mail communications and other electronic files from our computer system and in back-up
media;
    
    documentation relating to the allocation of annual grants to individual employees;
    
    information as to the respective hire dates of employees receiving the option grants,
including (if the grant was a new hire grant) the date of any offer letter;
    
    correspondence, memoranda and other documentation supporting option grants;
    
    information concerning the dates that stock options were entered into our (or our
third-party administrators) stock option tracking systems; and
    
    information obtained from current and former officers, directors, employees and outside
professionals.
 36




---



##### Table of Contents



New Hire, Promotional & Merit Grants to
    
    
    New Hire, Promotional & Merit Grants toAnnual Pool Grants
    
    
    Employees
    
    
    Section 16 OfficersTotal
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    TotalShares
    
    
    Compensation
    
    
    
    
    
    
    Shares
    
    
    Compensation
    
    
    
    
    
    
    Shares
    
    
    CompensationGrants Issued
    
    
    Granted in
    
    
    Expense By
    
    
    Grants Issued
    
    
    Granted in
    
    
    Expense By
    
    
    Grants Issued
    
    
    Granted in
    
    
    Expense Byin Period
    
    
    Period
    
    
    Period
    
    
    in Period
    
    
    Period
    
    
    Period
    
    
    in Period
    
    
    Period
    
    
    PeriodPre-IPO through 1996
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    542
    
    
    
    5,047,544
    
    
    $
    21
    
    
    
    
    
    
    
    
    
    
    $
    1997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    997,000
    
    
    
    511
    
    
    
    
    
    
    
    
    
    
    
    1998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    1,627,000
    
    
    
    421
    
    
    
    
    
    
    
    
    
    
    
    1999
    
    
    273
    
    
    
    1,038,953
    
    
    
    741
    
    
    
    114
    
    
    
    2,451,204
    
    
    
    4,381
    
    
    
    9
    
    
    
    1,706,749
    
    
    
    7642000
    
    
    327
    
    
    
    895,478
    
    
    
    1,167
    
    
    
    346
    
    
    
    2,485,887
    
    
    
    11,636
    
    
    
    5
    
    
    
    600,000
    
    
    
    8,6812001
    
    
    530
    
    
    
    1,339,385
    
    
    
    1,096
    
    
    
    58
    
    
    
    564,225
    
    
    
    3,817
    
    
    
    9
    
    
    
    1,160,000
    
    
    
    9222002
    
    
    569
    
    
    
    1,108,100
    
    
    
    1,250
    
    
    
    65
    
    
    
    999,300
    
    
    
    4,088
    
    
    
    8
    
    
    
    735,000
    
    
    
    6862003
    
    
    242
    
    
    
    457,100
    
    
    
    289
    
    
    
    45
    
    
    
    1,082,200
    
    
    
    634
    
    
    
    3
    
    
    
    407,300
    
    
    
    1,0362004
    
    
    256
    
    
    
    1,091,000
    
    
    
    145
    
    
    
    83
    
    
    
    1,408,000
    
    
    
    379
    
    
    
    5
    
    
    
    550,000
    
    
    
    107Cumulative effect
at December 31,
2004
    
    
    2,197
    
    
    
    5,930,016
    
    
    
    4,688
    
    
    
    1,393
    
    
    
    16,662,360
    
    
    
    25,888
    
    
    
    39
    
    
    
    5,159,049
    
    
    
    12,1962005
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    79
    
    
    
    1,002,500
    
    
    
    410
    
    
    
    4
    
    
    
    1,220,000
    
    
    
    1912006
    
    
    133
    
    
    
    591,950
    
    
    
    1,492
    
    
    
    61
    
    
    
    770,500
    
    
    
    2,464
    
    
    
    
    
    
    
    
    
    
    
    2,957First quarter 2007
    
    
    
    
    
    
    
    
    
    
    313
    
    
    
    89
    
    
    
    1,210,000
    
    
    
    1,551
    
    
    
    6
    
    
    
    635,000
    
    
    
    730Second quarter 2007
    
    
    
    
    
    
    
    
    
    
    309
    
    
    
    9
    
    
    
    232,500
    
    
    
    895
    
    
    
    1
    
    
    
    15,000
    
    
    
    819Totals
    
    
    2,330
    
    
    
    6,521,966
    
    
    $
    6,855
    
    
    
    1,631
    
    
    
    19,877,860
    
    
    $
    31,208
    
    
    
    50
    
    
    
    7,029,049
    
    
    $
    16,893
 Grants Made to Employees ofAcquired Companies
    
    
    Non-employee Director Grants
    
    
    Grants to ConsultantsTotal
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    TotalShares
    
    
    Compensation
    
    
    
    
    
    
    Shares
    
    
    Compensation
    
    
    
    
    
    
    Shares
    
    
    CompensationGrants Issued
    
    
    Granted in
    
    
    Expense By
    
    
    Grants Issued in
    
    
    Granted in
    
    
    Expense By
    
    
    Grants Issued
    
    
    Granted in
    
    
    Expense Byin Period
    
    
    Period
    
    
    Period
    
    
    Period
    
    
    Period
    
    
    Period
    
    
    in Period
    
    
    Period
    
    
    PeriodPre-IPO through 1996
    
    
    9
    
    
    
    15,600
    
    
    $
    
    
    
    
    6
    
    
    
    262,500
    
    
    $
    
    
    
    
    3
    
    
    
    105,000
    
    
    $
    7421997
    
    
    131
    
    
    
    276,000
    
    
    
    97
    
    
    
    4
    
    
    
    75,000
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    1,1301998
    
    
    116
    
    
    
    1,547,899
    
    
    
    152
    
    
    
    7
    
    
    
    106,250
    
    
    
    80
    
    
    
    7
    
    
    
    547,744
    
    
    
    1,7431999
    
    
    177
    
    
    
    1,491,785
    
    
    
    320
    
    
    
    6
    
    
    
    133,750
    
    
    
    14
    
    
    
    1
    
    
    
    10,000
    
    
    
    6,5592000
    
    
    295
    
    
    
    848,230
    
    
    
    1,117
    
    
    
    5
    
    
    
    131,000
    
    
    
    14
    
    
    
    3
    
    
    
    40,000
    
    
    
    4,0692001
    
    
    
    
    
    
    
    
    
    
    1,203
    
    
    
    5
    
    
    
    155,000
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    (135
    )2002
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    6
    
    
    
    95,000
    
    
    
    14
    
    
    
    11
    
    
    
    55,000
    
    
    
    (10
    )2003
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    7
    
    
    
    100,000
    
    
    
    2
    
    
    
    6
    
    
    
    30,000
    
    
    
    2312004
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    6
    
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34Cumulative effect
at December 31,
2004
    
    
    728
    
    
    
    4,179,514
    
    
    
    3,018
    
    
    
    52
    
    
    
    1,138,500
    
    
    
    176
    
    
    
    31
    
    
    
    787,744
    
    
    
    14,3632005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    60,000
    
    
    
    
    
    
    
    1
    
    
    
    5,000
    
    
    
    202006
    
    
    45
    
    
    
    197,000
    
    
    
    132
    
    
    
    4
    
    
    
    60,000
    
    
    
    402
    
    
    
    
    
    
    
    
    
    
    
    85First quarter 2007
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Second quarter 2007
    
    
    
    
    
    
    
    
    
    
    231
    
    
    
    4
    
    
    
    60,000
    
    
    
    678
    
    
    
    
    
    
    
    
    
    
    
    (13
    )Totals
    
    
    773
    
    
    
    4,376,514
    
    
    $
    3,467
    
    
    
    64
    
    
    
    1,318,500
    
    
    $
    1,256
    
    
    
    32
    
    
    
    792,744
    
    
    $
    14,457
 Total Equity GrantsTotal Pre-TaxEquity-Based
    
    
    ExpenseCompensation
    
    
    PreviouslyGrants Issued in
    
    
    Shares Granted
    
    
    Expense By
    
    
    Recorded ByPeriod
    
    
    in Period
    
    
    Period
    
    
    Period
    
    
    Net AdjustmentPre-IPO through 1996
    
    
    560
    
    
    
    5,430,644
    
    
    $
    763
    
    
    $
    
    
    
    $
    7631997
    
    
    185
    
    
    
    1,348,000
    
    
    
    1,776
    
    
    
    
    
    
    
    1,7761998
    
    
    220
    
    
    
    3,828,893
    
    
    
    2,396
    
    
    
    
    
    
    
    2,3961999
    
    
    580
    
    
    
    6,832,441
    
    
    
    12,779
    
    
    
    
    
    
    
    12,7792000
    
    
    981
    
    
    
    5,000,595
    
    
    
    26,684
    
    
    
    
    
    
    
    26,6842001
    
    
    602
    
    
    
    3,218,610
    
    
    
    6,917
    
    
    
    1,269
    
    
    
    5,6482002
    
    
    659
    
    
    
    2,992,400
    
    
    
    6,105
    
    
    
    
    
    
    
    6,1052003
    
    
    303
    
    
    
    2,076,600
    
    
    
    2,214
    
    
    
    
    
    
    
    2,2142004
    
    
    350
    
    
    
    3,129,000
    
    
    
    695
    
    
    
    458
    
    
    
    237Cumulative effect
at December 31,
2004
    
    
    4,440
    
    
    
    33,857,183
    
    
    
    60,329
    
    
    
    1,727
    
    
    
    58,6022005
    
    
    88
    
    
    
    2,287,500
    
    
    
    674
    
    
    
    (291
    )
    
    
    9652006
    
    
    243
    
    
    
    1,619,450
    
    
    
    7,532
    
    
    
    6,921
    
    
    
    611First quarter 2007
    
    
    95
    
    
    
    1,845,000
    
    
    
    2,682
    
    
    
    2,891
    
    
    
    (209
    )Second quarter 2007
    
    
    14
    
    
    
    307,500
    
    
    
    2,919
    
    
    
    3,191
    
    
    
    (272
    )Totals
    
    
    4,880
    
    
    
    39,916,633
    
    
    $
    74,136
    
    
    $
    14,439
    
    
    $
    59,697
 37




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##### Table of Contents



Annual
Pool Grants
 New
Hire, Promotional and Merit Grants to Employees
 New
Hire, Promotional and Merit Grants to Section 16 Officers
 Grants
Made to Employees of Acquired Companies
 Non-Employee
Director Grants
 Grants to Consultants Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services
 Modifications
to Employee Grants
 
    
    Severance agreements offered to certain terminated employees that allowed for continued
vesting and the right to exercise stock options beyond the standard time period permitted
under the terms of the stock option agreement;
    
    Employment agreements that provided for the accelerated vesting of stock options;
 38




---



##### Table of Contents




    
    Continued vesting and the ability to exercise stock options for certain employees not
terminated from our database in a timely manner following their departure from TeleTech
due to administrative errors; and
    
    Options granted to certain employees that were not entered into our equity tracking
system until after their dates of termination, primarily due to administrative delays in
processing stock option requests and the lack of communication of employee termination
dates to our third party plan administrator.
 Impact of the Mistakes on our Financial Statements
   Pre-Tax Equity-Based
    
    
    
    
    
    
    Net ChargeCompensation
    
    
    Income
    
    
    to NetYear Ended December 31,
    
    Expense
    
    
    Taxes
    
    
    Income1996
    
    $
    763
    
    
    $
    (283
    )
    
    $
    4801997
    
    
    1,776
    
    
    
    (659
    )
    
    
    1,1171998
    
    
    2,396
    
    
    
    (888
    )
    
    
    1,5081999
    
    
    12,779
    
    
    
    (4,739
    )
    
    
    8,0402000
    
    
    26,684
    
    
    
    (9,895
    )
    
    
    16,7892001
    
    
    5,648
    
    
    
    (2,094
    )
    
    
    3,5542002
    
    
    6,105
    
    
    
    (2,264
    )
    
    
    3,8412003
    
    
    2,214
    
    
    
    (822
    )
    
    
    1,3922004
    
    
    237
    
    
    
    (235
    )
    
    
    2Cumulative effect at December 31, 2004
    
    
    58,602
    
    
    
    (21,879
    )
    
    
    36,7232005
    
    
    965
    
    
    
    (164
    )
    
    
    8012006
    
    
    611
    
    
    
    137
    
    
    
    748First quarter 2007
    
    
    (209
    )
    
    
    316
    
    
    
    107Second quarter 2007
    
    
    (272
    )
    
    
    213
    
    
    
    (59
    )Total
    
    $
    59,697
    
    
    $
    (21,377
    )
    
    $
    38,320
 Tax Consequences Under Internal Revenue Code
   39




---



##### Table of Contents



Accounting for Income Taxes
 40




---



##### Table of Contents



Judgments
     41




---



##### Table of Contents



Pre-Tax Sensitivity Analysis (amounts in thousands)Hypothetical Equity-
    
    Hypothetical Equity-Equity-Based
    
    Equity-Based
    
    Total Equity-
    
    Based
    
    BasedCompensation
    
    Compensation
    
    Based
    
    Compensation
    
    CompensationExpense Previously
    
    Expense
    
    Compensation
    
    Expense at Lowest
    
    Expense at HighestRecorded
    
    Adjustments
    
    Expense
    
    Closing Price
    
    Closing PricePre-IPO through 1996
    
    $
    
    
    
    $
    763
    
    
    $
    763
    
    
    $
    763
    
    
    $
    7721997
    
    
    
    
    
    
    1,776
    
    
    
    1,776
    
    
    
    1,755
    
    
    
    2,0461998
    
    
    
    
    
    
    2,396
    
    
    
    2,396
    
    
    
    2,346
    
    
    
    3,1171999
    
    
    
    
    
    
    12,779
    
    
    
    12,779
    
    
    
    10,912
    
    
    
    13,5242000
    
    
    
    
    
    
    26,684
    
    
    
    26,684
    
    
    
    22,940
    
    
    
    32,6612001
    
    
    1,269
    
    
    
    5,648
    
    
    
    6,917
    
    
    
    4,776
    
    
    
    8,9452002
    
    
    
    
    
    
    6,105
    
    
    
    6,105
    
    
    
    3,075
    
    
    
    7,8342003
    
    
    
    
    
    
    2,214
    
    
    
    2,214
    
    
    
    1,972
    
    
    
    2,9982004
    
    
    458
    
    
    
    237
    
    
    
    695
    
    
    
    641
    
    
    
    1,152Cumulative
effect at December 31,
2004
    
    
    1,727
    
    
    
    58,602
    
    
    
    60,329
    
    
    
    49,180
    
    
    
    73,0492005
    
    
    (291
    )
    
    
    965
    
    
    
    674
    
    
    
    584
    
    
    
    7892006
    
    
    6,921
    
    
    
    611
    
    
    
    7,532
    
    
    
    7,413
    
    
    
    7,665First quarter 2007
    
    
    2,891
    
    
    
    (209
    )
    
    
    2,682
    
    
    
    2,665
    
    
    
    2,689Second quarter 2007
    
    
    3,191
    
    
    
    (272
    )
    
    
    2,919
    
    
    
    2,901
    
    
    
    2,925Totals
    
    $
    14,439
    
    
    $
    59,697
    
    
    $
    74,136
    
    
    $
    62,743
    
    
    $
    87,117
 Lease Accounting
 Accounting for Leases Accounting for Asset Retirement Obligations
 Other Accounting Adjustments
  Income Tax Adjustments and Income Tax Payables
  42




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##### Table of Contents



Cost of Restatement
  Cost of Securities Class Action Lawsuits
  Regulatory Inquiries Related to Historical Equity-Based Compensation Practices
  43




---



##### Table of Contents



NASDAQ Delisting Proceedings
  Amendment of Credit Facility
   Business Overview
  44




---



##### Table of Contents



North American BPO
    
    International BPOUnited States
    
    ArgentinaCanada
    
    AustraliaIndia
    
    BrazilPhilippines
    
    ChinaCosta RicaEnglandGermanyMalaysiaMexicoNew ZealandNorthern IrelandScotlandSingaporeSpain
    BPO Services
    45




---



##### Table of Contents




    
    Capitalizing on the favorable trends in the global outsourcing environment, which we
believe will include more companies that want to:
 -
    
    Adopt or increase BPO services;-
    
    Consolidate outsourcing providers with those that have a solid financial
position, capital resources to sustain a long-term relationship and globally diverse
delivery capabilities across a broad range of solutions;-
    
    Modify their approach to outsourcing based on total value delivered versus the
lowest priced provider; and-
    
    Better integrate front and back office processes.
 
    
    Deepening and broadening relationships with existing clients;
    
    Winning business with new clients and focusing on targeted high growth industry verticals;
    
    Continuing to diversify revenue into higher-margin offerings such as professional
services, talent acquisition, learning services and our hosted TeleTech OnDemand
capabilities;
    
    Increasing capacity utilization during peak and non-peak hours;
    
    Scaling our work-from-home initiative to increase operational flexibility; and
    
    Completing select acquisitions that extend our core BPO capabilities or vertical
expertise.
    46




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##### Table of Contents



47




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##### Table of Contents



September 30, 2007
    
    December 31, 2006Total
    
    
    
    
    
    
    
    
    
    TotalProduction
    
    
    
    
    
    % In
    
    Production
    
    
    
    
    
    % InWorkstations
    
    In Use
    
    Use
    
    Workstations
    
    In Use
    
    UseNorth American BPO
    
    
    15,789
    
    
    
    10,919
    
    
    
    69
    %
    
    
    13,137
    
    
    
    10,362
    
    
    
    79
    %International BPO
    
    
    11,838
    
    
    
    8,029
    
    
    
    68
    %
    
    
    10,121
    
    
    
    8,129
    
    
    
    80
    %Total
    
    
    27,627
    
    
    
    18,948
    
    
    
    69
    %
    
    
    23,258
    
    
    
    18,491
    
    
    
    80
    %
  Database Marketing and Consulting
   Goodwill and Other Intangible Assets
 Overall
   48




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Revenue Recognition
   Production Rate 
 PerformanceBased 
 Hybrid 
    49




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##### Table of Contents



Income Taxes
 Accounting for Income Taxes
   Accounting for Uncertainty in Income Taxes
 Allowance for Doubtful Accounts
  Impairment of LongLived Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
 50




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##### Table of Contents



Goodwill
 Goodwill and Other Intangible
Assets
    51




---



##### Table of Contents



Restructuring Liability
 Accounting for Costs Associated
with Exit or Disposal Activities
  EquityBased Compensation
 ShareBased Payment Accounting for Stock Issued to Employees
  52




---



##### Table of Contents



Contingencies
 Accounting for Contingencies
 Explanation of Key Metrics and Other Items
 Cost of Services
  Selling, General and Administrative
  Restructuring Charges, Net
  Interest Expense
  Other Income
  Other Expenses
  53




---



##### Table of Contents



Presentation of NonGAAP Measurements
 Free Cash Flow
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006As restated
    
    
    
    
    
    
    As restatedFree cash flow
    
    $
    33,864
    
    
    $
    14,276
    
    
    $
    56,497
    
    
    $
    20,889Purchases of property, plant and equipment
    
    
    14,768
    
    
    
    22,753
    
    
    
    43,788
    
    
    
    51,219Net cash provided by operating activities
    
    $
    48,632
    
    
    $
    37,029
    
    
    $
    100,285
    
    
    $
    72,108
  54




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##### Table of Contents



Results of Operations
 Three Months Ended September 30, 2007 As Compared to Three Months Ended 2006
 Operating Review
  Three-Months Ended September 30,% ofSegment
    
    
    
    
    
    
    % of Segment2007
    
    
    Revenue
    
    
    2006
    
    
    Revenue
    
    
    $ Change
    
    
    % ChangeAs restated
    
    
    As restatedRevenueNorth American BPO
    
    $
    229,231
    
    
    
    68.3
    %
    
    $
    206,651
    
    
    
    68.0
    %
    
    $
    22,580
    
    
    
    10.9
    %International BPO
    
    
    101,198
    
    
    
    30.1
    %
    
    
    90,336
    
    
    
    29.7
    %
    
    
    10,862
    
    
    
    12.0
    %Database Marketing and Consulting
    
    
    5,298
    
    
    
    1.6
    %
    
    
    6,852
    
    
    
    2.3
    %
    
    
    (1,554
    )
    
    
    -22.7
    %$
    335,727
    
    
    
    100.0
    %
    
    $
    303,839
    
    
    
    100.0
    %
    
    $
    31,888
    
    
    
    10.5
    %Cost of servicesNorth American BPO
    
    $
    166,106
    
    
    
    72.5
    %
    
    $
    146,019
    
    
    
    70.7
    %
    
    $
    20,087
    
    
    
    13.8
    %International BPO
    
    
    76,920
    
    
    
    76.0
    %
    
    
    67,982
    
    
    
    75.3
    %
    
    
    8,938
    
    
    
    13.1
    %Database Marketing and Consulting
    
    
    3,532
    
    
    
    66.7
    %
    
    
    4,420
    
    
    
    64.5
    %
    
    
    (888
    )
    
    
    -20.1
    %$
    246,558
    
    
    
    73.4
    %
    
    $
    218,421
    
    
    
    71.9
    %
    
    $
    28,137
    
    
    
    12.9
    %Selling, general and administrativeNorth American BPO
    
    $
    28,409
    
    
    
    12.4
    %
    
    $
    28,227
    
    
    
    13.7
    %
    
    $
    182
    
    
    
    0.6
    %International BPO
    
    
    14,350
    
    
    
    14.2
    %
    
    
    15,875
    
    
    
    17.6
    %
    
    
    (1,525
    )
    
    
    -9.6
    %Database Marketing and Consulting
    
    
    4,209
    
    
    
    79.4
    %
    
    
    5,485
    
    
    
    80.0
    %
    
    
    (1,276
    )
    
    
    -23.3
    %$
    46,968
    
    
    
    14.0
    %
    
    $
    49,587
    
    
    
    16.3
    %
    
    $
    (2,619
    )
    
    
    -5.3
    %Depreciation and amortizationNorth American BPO
    
    $
    8,017
    
    
    
    3.5
    %
    
    $
    7,496
    
    
    
    3.6
    %
    
    $
    521
    
    
    
    7.0
    %International BPO
    
    
    5,053
    
    
    
    5.0
    %
    
    
    4,102
    
    
    
    4.5
    %
    
    
    951
    
    
    
    23.2
    %Database Marketing and Consulting
    
    
    1,180
    
    
    
    22.3
    %
    
    
    1,757
    
    
    
    25.6
    %
    
    
    (577
    )
    
    
    -32.8
    %$
    14,250
    
    
    
    4.2
    %
    
    $
    13,355
    
    
    
    4.4
    %
    
    $
    895
    
    
    
    6.7
    %Restructuring charges, netNorth American BPO
    
    $
    1,269
    
    
    
    0.6
    %
    
    $
    
    
    
    
    0.0
    %
    
    $
    1,269
    
    
    
    100.0
    %International BPO
    
    
    400
    
    
    
    0.4
    %
    
    
    408
    
    
    
    0.5
    %
    
    
    (8
    )
    
    
    -2.0
    %Database Marketing and Consulting
    
    
    919
    
    
    
    17.3
    %
    
    
    107
    
    
    
    1.6
    %
    
    
    812
    
    
    
    758.9
    %$
    2,588
    
    
    
    0.8
    %
    
    $
    515
    
    
    
    0.2
    %
    
    $
    2,073
    
    
    
    402.5
    %Impairment lossesNorth American BPO
    
    $
    
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %International BPO
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Database Marketing and Consulting
    
    
    2,274
    
    
    
    42.9
    %
    
    
    
    
    
    
    0.0
    %
    
    
    2,274
    
    
    
    100.0
    %$
    2,274
    
    
    
    0.7
    %
    
    $
    
    
    
    
    0.0
    %
    
    $
    2,274
    
    
    
    100.0
    %Income (loss) from operationsNorth American BPO
    
    $
    25,430
    
    
    
    11.1
    %
    
    $
    24,909
    
    
    
    12.1
    %
    
    $
    521
    
    
    
    2.1
    %International BPO
    
    
    4,475
    
    
    
    4.4
    %
    
    
    1,969
    
    
    
    2.2
    %
    
    
    2,506
    
    
    
    127.3
    %Database Marketing and Consulting
    
    
    (6,816
    )
    
    
    -128.7
    %
    
    
    (4,917
    )
    
    
    -71.8
    %
    
    
    (1,899
    )
    
    
    -38.6
    %$
    23,089
    
    
    
    6.9
    %
    
    $
    21,961
    
    
    
    7.2
    %
    
    $
    1,128
    
    
    
    5.1
    %Other income (expense), net
    
    $
    (6,826
    )
    
    
    -2.0
    %
    
    $
    (1,168
    )
    
    
    -0.4
    %
    
    $
    (5,658
    )
    
    
    -484.4
    %Provision for income taxes
    
    $
    (1,082
    )
    
    
    -0.3
    %
    
    $
    (7,173
    )
    
    
    -2.4
    %
    
    $
    6,091
    
    
    
    84.9
    %
 55




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##### Table of Contents



Revenue
    Cost of Services
    Selling, General and Administrative
    56




---



##### Table of Contents



Depreciation and Amortization
   Restructuring Charges
      Impairment Losses
  Other Income (Expense)
  57




---



##### Table of Contents



Income Taxes
  58




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##### Table of Contents



Nine months Ended September 30, 2007 As Compared to Nine Months Ended 2006
  Nine-Months Ended September 30,% ofSegment
    
    
    
    
    
    
    % of Segment2007
    
    
    Revenue
    
    
    2006
    
    
    Revenue
    
    
    $ Change
    
    
    % ChangeAs restated
    
    
    As restatedRevenueNorth American BPO
    
    $
    689,468
    
    
    
    69.1
    %
    
    $
    575,819
    
    
    
    65.9
    %
    
    $
    113,649
    
    
    
    19.7
    %International BPO
    
    
    291,714
    
    
    
    29.2
    %
    
    
    264,277
    
    
    
    30.2
    %
    
    
    27,437
    
    
    
    10.4
    %Database Marketing and Consulting
    
    
    16,893
    
    
    
    1.7
    %
    
    
    34,000
    
    
    
    3.9
    %
    
    
    (17,107
    )
    
    
    -50.3
    %$
    998,075
    
    
    
    100.0
    %
    
    $
    874,096
    
    
    
    100.0
    %
    
    $
    123,979
    
    
    
    14.2
    %Cost of servicesNorth American BPO
    
    $
    488,260
    
    
    
    70.8
    %
    
    $
    420,897
    
    
    
    73.1
    %
    
    $
    67,363
    
    
    
    16.0
    %International BPO
    
    
    221,574
    
    
    
    76.0
    %
    
    
    205,295
    
    
    
    77.7
    %
    
    
    16,279
    
    
    
    7.9
    %Database Marketing and Consulting
    
    
    11,194
    
    
    
    66.3
    %
    
    
    18,982
    
    
    
    55.8
    %
    
    
    (7,788
    )
    
    
    -41.0
    %$
    721,028
    
    
    
    72.2
    %
    
    $
    645,174
    
    
    
    73.8
    %
    
    $
    75,854
    
    
    
    11.8
    %Selling, general and administrativeNorth American BPO
    
    $
    88,912
    
    
    
    12.9
    %
    
    $
    79,475
    
    
    
    13.8
    %
    
    $
    9,437
    
    
    
    11.9
    %International BPO
    
    
    45,433
    
    
    
    15.6
    %
    
    
    46,612
    
    
    
    17.6
    %
    
    
    (1,179
    )
    
    
    -2.5
    %Database Marketing and Consulting
    
    
    13,330
    
    
    
    78.9
    %
    
    
    19,992
    
    
    
    58.8
    %
    
    
    (6,662
    )
    
    
    -33.3
    %$
    147,675
    
    
    
    14.8
    %
    
    $
    146,079
    
    
    
    16.7
    %
    
    $
    1,596
    
    
    
    1.1
    %Depreciation and amortizationNorth American BPO
    
    $
    23,096
    
    
    
    3.3
    %
    
    $
    20,137
    
    
    
    3.5
    %
    
    $
    2,959
    
    
    
    14.7
    %International BPO
    
    
    14,596
    
    
    
    5.0
    %
    
    
    11,748
    
    
    
    4.4
    %
    
    
    2,848
    
    
    
    24.2
    %Database Marketing and Consulting
    
    
    3,906
    
    
    
    23.1
    %
    
    
    5,896
    
    
    
    17.3
    %
    
    
    (1,990
    )
    
    
    -33.8
    %$
    41,598
    
    
    
    4.2
    %
    
    $
    37,781
    
    
    
    4.3
    %
    
    $
    3,817
    
    
    
    10.1
    %Restructuring charges, netNorth American BPO
    
    $
    1,269
    
    
    
    0.2
    %
    
    $
    126
    
    
    
    0.0
    %
    
    $
    1,143
    
    
    
    907.1
    %International BPO
    
    
    662
    
    
    
    0.2
    %
    
    
    1,222
    
    
    
    0.5
    %
    
    
    (560
    )
    
    
    -45.8
    %Database Marketing and Consulting
    
    
    919
    
    
    
    5.4
    %
    
    
    107
    
    
    
    0.3
    %
    
    
    812
    
    
    
    758.9
    %$
    2,850
    
    
    
    0.3
    %
    
    $
    1,455
    
    
    
    0.2
    %
    
    $
    1,395
    
    
    
    95.9
    %Impairment lossesNorth American BPO
    
    $
    154
    
    
    
    0.0
    %
    
    $
    
    
    
    
    0.0
    %
    
    $
    154
    
    
    
    100.0
    %International BPO
    
    
    
    
    
    
    0.0
    %
    
    
    478
    
    
    
    0.2
    %
    
    
    (478
    )
    
    
    -100.0
    %Database Marketing and Consulting
    
    
    15,635
    
    
    
    92.6
    %
    
    
    
    
    
    
    0.0
    %
    
    
    15,635
    
    
    
    100.0
    %$
    15,789
    
    
    
    1.6
    %
    
    $
    478
    
    
    
    0.1
    %
    
    $
    15,311
    
    
    
    3203.1
    %Income (loss) from operationsNorth American BPO
    
    $
    87,777
    
    
    
    12.7
    %
    
    $
    55,184
    
    
    
    9.6
    %
    
    $
    32,593
    
    
    
    59.1
    %International BPO
    
    
    9,449
    
    
    
    3.2
    %
    
    
    (1,078
    )
    
    
    -0.4
    %
    
    
    10,527
    
    
    
    976.5
    %Database Marketing and Consulting
    
    
    (28,091
    )
    
    
    -166.3
    %
    
    
    (10,977
    )
    
    
    -32.3
    %
    
    
    (17,114
    )
    
    
    -155.9
    %$
    69,135
    
    
    
    6.9
    %
    
    $
    43,129
    
    
    
    4.9
    %
    
    $
    26,006
    
    
    
    60.3
    %Other income (expense), net
    
    $
    (10,338
    )
    
    
    -1.0
    %
    
    $
    (3,892
    )
    
    
    -0.4
    %
    
    $
    (6,446
    )
    
    
    -165.6
    %Provision for income taxes
    
    $
    (16,193
    )
    
    
    -1.6
    %
    
    $
    (8,846
    )
    
    
    -1.0
    %
    
    $
    (7,347
    )
    
    
    -83.1
    %
 59




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##### Table of Contents



Revenue
    Cost of Services
    Selling, General and Administrative
    60




---



##### Table of Contents



Depreciation and Amortization
   Restructuring Charges
      Impairment Losses
  Other Income (Expense)
  61




---



##### Table of Contents



Income Taxes
  Liquidity and Capital Resources
     Cash and Cash Equivalents
  62




---



##### Table of Contents



Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  Cash Flows from Financing Activities
  Free Cash Flow
  Obligations and Future Capital Requirements
  Lessthan 1
    
    
    1 to 3
    
    
    3 to 5
    
    
    Over 5Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLine of credit
    
    $
    
    
    
    $
    
    
    
    $
    38,500
    
    
    $
    
    
    
    $
    38,500Capital lease obligations
    
    
    1,645
    
    
    
    3,290
    
    
    
    2,345
    
    
    
    
    
    
    
    7,280Purchase obligations
    
    
    16,528
    
    
    
    13,222
    
    
    
    5,377
    
    
    
    
    
    
    
    35,127Operating lease commitments
    
    
    30,723
    
    
    
    57,401
    
    
    
    38,721
    
    
    
    34,457
    
    
    
    161,302Total
    
    $
    48,896
    
    
    $
    73,913
    
    
    $
    84,943
    
    
    $
    34,457
    
    
    $
    242,209
 
    
    Contractual obligations to be paid in a foreign currency are translated at the period
end exchange rate.
    
    The contractual obligation table excludes our FIN48 liabilities of $2.4 million because
we cannot reliably estimate the timing of cash payments.
 63




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##### Table of Contents



Purchase Obligations
  Income Tax Obligations
  Future Capital Requirements
    Debt Instruments and Related Covenants
   64




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##### Table of Contents



Client Concentration
   Recently Issued Accounting Pronouncements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
  Foreign Currency Risk
  65




---



##### Table of Contents



66




---



##### Table of Contents



Fair Value of Debt and Equity Securities
  
 ITEM 4. CONTROLS AND PROCEDURES
  Background
  Evaluation of Disclosure Controls and Procedures
   67




---



##### Table of Contents




    
    Completion of the Audit Committees Review and our own internal review of 100%, or
4,347, of the equity awards made from our IPO in 1996 through August 2007 and an additional
539 pre-IPO grants for subsequent modifications, cancellations, and other accounting
issues;
    
    Our review of 100% of real estate lease arrangements entered into since our IPO in
August 1996 to properly record asset retirement obligations and deferred rent, along with a
review of all material lease agreements to properly identify capital versus operating
leases;
    
    Our efforts to remediate the material weaknesses in internal control over financial
reporting described below; and
    
    The performance of additional procedures by management designed to ensure the
reliability of our financial reporting.
  Managements Report on Internal Control Over Financial Reporting
  68




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##### Table of Contents



Internal Control  Integrated Framework
 Insufficient Complement of Personnel with Appropriate Accounting Knowledge and Training.
 Equity-Based Compensation Accounting
 Lease Accounting
   Remediation Plan
  Insufficient Complement of Personnel with Appropriate Accounting Knowledge and Training.
 
    
    In March 2008, we hired a new Assistant General Counsel with experience at major law
firms, a public company, the SEC and a public accounting firm, who will provide advice with
regard to the disclosures in our periodic reports and our equity-based compensation
practices;
    
    In May 2008, we hired a new Vice President and Controller who is a licensed CPA with
extensive experience in public accounting and public company accounting operations;
 69




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##### Table of Contents




    
    We are actively seeking to hire two assistant corporate controllers who will report
directly to the Vice President and Controller. One will be responsible for external/SEC
reporting, technical accounting issues (in accordance with U.S. GAAP) and Sarbanes-Oxley
compliance and the other will oversee general ledger operations and monthly/quarterly
closing processes;
    
    We are also actively seeking to hire additional accounting personnel with knowledge of,
and technical expertise in U.S. GAAP; and
    
    We are implementing personnel resource plans and training designed to ensure that we
have sufficient personnel with knowledge, experience, and training in the application of
U.S. GAAP.
 Equity-Based Compensation Accounting
 
    
    Making annual equity awards at a set time each year and allocating annual grants to
recipients before the grant;
    
    Making all grants that require Compensation Committee approval, including new hire,
promotion and special circumstance grants, at a duly convened meeting, absent extraordinary
circumstances warranting action by unanimous written consent, and providing the
Compensation Committee with information on the accounting treatment and any non-standard
terms of each proposed grant;
    
    Designating a senior member of the Human Capital Department who, supported by designated
members of the Legal, Tax and Accounting Departments, shall be responsible for ensuring
that the accounting treatment, recipient notification requirements, and required disclosure
have been determined for each equity award before the award is authorized by the
Compensation Committee;
    
    Other than as approved under new grant procedures, prohibiting any changes to grants
after their approval date, other than to withdraw a grant to an individual in its entirety
because of a change in circumstances between approval and issuance of the grant (or to
correct clear clerical errors);
    
    Undertaking a training program for pertinent personnel in the terms of the Companys
equity compensation plans and improved policies and procedures;
    
    Expanding internal audit procedures relating to grant approval and documentation;
    
    We are actively seeking to hire additional accounting personnel with specific education
and experience in accounting for equity-based compensation; and
    
    Reviewing the new equity compensation grant practices after one year of operation.
 Lease Accounting
 
    
    We have instituted additional levels of managerial review over all lease agreements and
the associated accounting;
    
    We are establishing processes to evaluate all new or modified leases, including the
preparation of a summary of key terms for each lease in order to ensure complete and
accurate recording of real estate lease arrangements in accordance with U.S. GAAP; and
    
    We are actively seeking to hire additional accounting personnel with specific education
and experience in lease accounting.
 70




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##### Table of Contents



Inherent Limitations of Internal Controls
  
    
    Judgments in decision-making can be faulty, and control and process breakdowns can occur
because of simple errors or mistakes.
    
    Controls can be circumvented by individuals, acting alone or in collusion with each
other, or by management override.
    
    The design of any system of controls is based in part on certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
    
    Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with associated policies or procedures.
    
    The design of a control system must reflect the fact that resources are constrained, and
the benefits of controls must be considered relative to their costs.
  Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  71




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Securities Class Action
 Beasley v. TeleTech Holdings, Inc., et. al. Brown v. TeleTech
Holdings, Inc., et al., In re: TeleTech Litigation
 NASDAQ Delisting Proceedings
  
 ITEM 1A.  RISK FACTORS
  Risks Relating to Our Business
 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 a reduction in our revenue and operating results
  72




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Client consolidations could result in a loss of clients or contract concessions that would
adversely affect our operating results
  Our business may be affected by the performance of our clients and general economic conditions
  Unauthorized disclosure of sensitive or confidential client and customer data could expose us to
protracted and costly litigation, penalties and cause us to lose clients
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Our financial results depend on our capacity utilization, in particular our ability to forecast our
clients customer demand and make corresponding decisions regarding staffing levels, investments
and operating expenses
  
    
    Our ability to maintain and increase capacity in each of our delivery centers during
peak and non-peak hours;
    
    Our ability to predict our clients customer demand for our services and thereby to make
corresponding decisions regarding staffing levels, investments and other operating
expenditures in each of our delivery center locations;
    
    Our ability to hire and assimilate new employees and manage employee turnover; and
    
    Our need to devote time and resources to training, professional development and other
non-chargeable activities.
  Our business depends on uninterrupted service to clients
  Many of our contracts utilize performance pricing that link some of our fees to the attainment of
various performance or business targets, which could increase the variability of our revenue and
operating margin
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Our contracts provide for early termination, which could have a material adverse effect on our
operating results
  We may not be able to offset increased costs with increased service fees under long-term contracts
  Our business may be affected by our ability to obtain financing
  Our business may be affected by risks associated with international operations and expansion
  
    
    Management of personnel overseas;
    
    Longer payment cycles;
    
    Difficulties in accounts receivable collections;
    
    Foreign currency exchange rates;
    
    Difficulties in complying with foreign laws;
    
    Unexpected changes in regulatory requirements;
    
    Political and social instability, as demonstrated by terrorist threats, regime change,
increasing tension in the Middle East, and other countries and the resulting need for
enhanced security measures; and
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
    
    Potentially adverse tax consequences.
  Our financial results may be impacted by foreign currency exchange risk
    Our global operations expose us to numerous and sometimes conflicting legal and regulatory
requirements
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Our financial results and projections may be impacted by our ability to maintain and find new
locations for our delivery centers in countries with stable wage rates
  The business process outsourcing markets are highly competitive, and we might not be able to
compete effectively
  
    
    Initiate, develop and maintain new client relationships;
    
    Expand existing client programs;
    
    Staff and equip suitable delivery center facilities in a timely manner; and
    
    Develop new solutions and enhance existing solutions we provide to our clients.
  
    
    Large multinational providers, including the service arms of large global technology
providers;
    
    Offshore service providers in lower-cost locations that offer services similar to those
we offer, often at highly competitive prices;
    
    Niche solution or service providers that compete with us in a specific geographic
market, industry segment or service area; and
    
    Most importantly, the in-house operations of clients or potential clients.
  We may not be able to develop our services and solutions in response to changes in technology and
client demand
  
    
    Expand our existing solutions and offerings;
    
    Achieve cost efficiencies in our existing delivery center operations; and
    
    Introduce new solutions that leverage and respond to changing technological
developments.
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If we fail to recruit, hire, train and retain key executives or qualified employees, our business
will be adversely affected
   Our Chairman and Chief Executive Officer has practical control over all matters requiring action by
our stockholders
  If we fail to integrate businesses and assets that we may acquire through joint ventures or
acquisitions, we may lose clients and our liquidity, capital resources and profitability may be
adversely affected
  
    
    We may encounter difficulties integrating acquired software, operations and personnel
and our managements attention could be diverted from other business concerns;
    
    We may not be able to successfully incorporate acquired technology and rights into our
service offerings and maintain uniform standards, controls, procedures and policies;
    
    The businesses or assets we acquire may fail to achieve the revenue and earnings we
anticipated, causing us to incur additional debt to fund operations and to write down the
value of acquisitions on our financial statements;
    
    We may assume liabilities associated with the sale of the acquired companys products or
services;
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
    
    Our resources may be diverted in asserting and defending our legal rights and we may
ultimately be liable for contingent and other liabilities, not previously disclosed to us,
of the companies that we acquire;
    
    Acquisitions may disrupt our ongoing business and dilute our ownership interest;
    
    Acquisitions may result in litigation from former employees or third parties; and
    
    Due diligence may fail to identify significant issues with product quality, product
architecture, ownership rights and legal contingencies, among other matters.
   We face risks relating to our completed and continued actions to remediate the weaknesses in our
financial reporting and disclosure controls, which could result in a material misstatement of our
consolidated financial statements and have a material adverse effect on our operating results and
stock price
  Risks Relating to Our Common Stock
 The market price for our common stock may be volatile
  
    
    Actual or anticipated variations in our quarterly results;
    
    Announcements of new contracts or contract cancellations;
    
    Changes in financial estimates by securities analysts;
    
    Our ability to meet the expectations of securities analysts;
    
    Conditions or trends in the business process outsourcing industry;
    
    Changes in the market valuations of other business process outsourcing companies;
    
    Developments in countries where we have significant delivery centers, GigaPOPs or
operations;
    
    The ability of our clients to pay for our services;
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
    
    Other events or factors, many of which are beyond our control.
  You may suffer significant dilution as a result of our outstanding stock options and our equity
incentive programs
  Risks Relating to the Review of Our Historical Equity-Based Compensation Practices
 The review of our historical equity-based compensation practices, together with the preparation of
the restated financial restatements, has consumed a considerable amount of Board member and
management time and caused us to incur substantial expenses
  The ongoing government inquiries relating to our historical equity-based compensation practices are
time consuming and expensive and could result in fines and penalties
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If we do not maintain compliance with the SEC reporting requirements and the NASDAQ Global Select
Market listing requirements, our common stock could be delisted, which could, among other things,
reduce the price and liquidity of our common stock
  We and our officers and directors have been named as parties to a class action lawsuit relating to
our historical equity-based compensation practices and resulting restatements, and additional
lawsuits may be filed in the future
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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Issuer Purchases of Equity Securities
  Total Number
    
    
    Approximateof Shares
    
    
    Dollar Value ofPurchased as
    
    
    Shares that MayTotal
    
    
    Average
    
    
    Part of Publicly
    
    
    Yet Be PurchasedNumber of
    
    
    Price Paid
    
    
    Announced
    
    
    Under the PlansShares
    
    
    per Share
    
    
    or Plans
    
    
    or ProgramsPeriod
    
    Purchased
    
    
    (or Unit)
    
    
    Programs
    
    
    (in thousands)July 1, 2007 - July 31, 2007
    
    
    306,100
    
    
    $
    30.41
    
    
    
    306,100
    
    
    $
    16,642August 1, 2007 - August 31, 2007
    
    
    27,100
    
    
    $
    29.69
    
    
    
    27,100
    
    
    $
    65,837September 1, 2007 - September 30, 2007
    
    
    548,400
    
    
    $
    24.04
    
    
    
    548,400
    
    
    $
    52,652Total
    
    
    881,600
    
    
    
    
    
    
    
    881,600
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
 Exhibit No.
    
    Exhibit Description31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)31.2
    
    
    Certification of Interim Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350)32.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)32.2
    
    
    Certification of Interim Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350)
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SIGNATURES
  TELETECH HOLDINGS, INC.
(Registrant)Date: July 16, 2008
    By:
    /s/Kenneth D. TuchmanKenneth D. TuchmanChairman and Chief Executive OfficerDate: July 16, 2008
    By:
    /s/John R. Troka, Jr.John R. Troka, Jr.Interim Chief Financial Officer 84




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EXHIBIT INDEX
 Exhibit No.
    
    Exhibit Description31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)31.2
    
    
    Certification of Interim Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350)32.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)32.2
    
    
    Certification of Interim Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350)
 85