ACQUISITIONS

3 Months Ended

Mar. 31, 2012

ACQUISITIONS [Abstract]

ACQUISITIONS

(2)       ACQUISITIONS

OnState

On January 1, 2012, the Company entered into an asset purchase agreement with OnState Communications Corporation (“OnState”) to acquire 100% of its assets and assume certain of its liabilities for total cash consideration of $3.3 million. OnState provides hosted business process outsourcing solutions to a variety of small businesses. OnState was headquartered in Boston, MA with a minimal employee base.

The Company paid $3.1 million towards the purchase price with the remaining $0.2 million payable during the second quarter of 2012. The $0.2 million was included within Other accrued expenses in the accompanying Consolidated Balance Sheets as of March 31, 2012. The Company paid $0.1 million of acquisition related expenses as part of the OnState purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income during the three months ended March 31, 2012.

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

		Preliminary Estimates of Acquisition Date Fair Value
Cash		$	36
Accounts Receivable			68
Property, plant and equipment			33
Software			2,100
Goodwill			1,132
			3,369
Accounts payable			93
	Total purchase price	$	3,276

The software acquired will be amortized over four years as soon as the software is placed into service. The goodwill recognized from the OnState acquisition is primarily attributable to incorporating the acquired software into current technology platforms in addition to the acquisition of the employees who developed the acquired software. Since this acquisition is considered an asset acquisition for tax purposes, the goodwill and software will be deductible.

iKnowtion

On February 27, 2012, the Company acquired an 80% interest in iKnowtion, LLC (“iKnowtion”). iKnowtion integrates proven marketing analytics methodologies and business consulting capabilities to help clients improve their return on marketing expenditures in such areas as demand generation, share of wallet, and channel mix optimization.iKnowtion is located in Boston, MA and has approximately 40 employees.

The up-front cash consideration paid was $1.0 million. The Company is also obligated to pay a working capital adjustment equivalent to any acquired working capital from iKnowtion in excess of a working capital floor as defined in the purchase and sale agreement. As of March 31, 2012, the working capital adjustment was estimated to be $0.2 million, which will be paid during the second quarter of 2012 and was included in Other accrued expenses in the accompanying Consolidated Balance Sheets.

The Company is also obligated to make earn-out payments over the next four years if iKnowtion achieves specified earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets,as defined by the purchase and sale agreement. The Company expects iKnowtion to achieve the maximum EBITDA targets and has calculated the fair value of these contingent payments to be approximately $4.3 million. The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 10% and expected future value of payments of $4.8 million. The fair value of the contingent consideration was $4.3 million as of March 31, 2012, of which $1.1 million and $3.2 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively.

The fair value of the 20% noncontrolling interest in iKnowtion of $1.4 million is preliminary and based on an estimate of 20% of the total purchase price.

In the event iKnowtion meets certain EBITDA targets for calendar year 2015, the purchase and sale agreement requires TeleTech to purchase the remaining 20% interest in iKnowtion in 2016 for an amount equal to a multiple of iKnowtions's 2015 EBITDA as defined in the purchase and sale agreement. The preliminary fair value of this feature is minimal and included in the fair value of the noncontrolling interest as of March 31, 2012.

The Company paid $0.1 million of acquisition related expenses as part of the iKnowtion purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income during the three months ended March 31, 2012.

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

		Preliminary Estimates of Acquisition Date Fair Value
Cash		$	1,337
Accounts Receivable			1,792
Property, plant and equipment			161
Other assets			95
Customer relationships			1,640
Goodwill			1,996
			7,021
Accounts payable			12
Accrued expenses			19
Deferred rent			164
			195
Noncontrolling interest			1,365
	Total purchase price	$	5,461

The iKnowtion customer relationships have an estimated useful life of 7 years. The goodwill recognized from the iKnowtion acquisition is primarily attributable to the acquired workforce of iKnowtion, expected synergies, and other factors. None of the goodwill is deductible for income tax purposes. The acquired goodwill and the operating results of iKnowtion are reported within the Customer Strategy Services segment from the date of acquisition.

eLoyalty

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

The up-front cash consideration in the eLoyalty transaction was $40.9 million, subject to certain balance sheet adjustments of ($2.9) million as defined in the purchase and sale agreement, for a total purchase price of $38.0 million, all of which was paid by December 31, 2011.

The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):

		Acquisition Date Fair Value
Cash		$	14
Accounts Receivable			7,702
Prepaid assets - cost deferrals			14,726
Property, plant and equipment			897
Other assets			869
Deferred tax asset			3,735
Customer relationships			11,700
Software			1,200
Noncompete agreements			900
Trade name			3,300
Consulting services backlog			500
Goodwill			18,516
			64,059
Accounts payable			2,156
Accrued expenses			1,211
Deferred revenue			22,525
Other			192
			26,084
	Total purchase price	$	37,975

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

The acquired businesses contributed revenues of $21.1 million and income from operations of $2.4 million to the Company for the quarter ended March 31, 2012.