10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012

or

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

For the transition period from                      to                     

Commission file number 0-27975

Mattersight Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware	36-4304577
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

200 S. Wacker Drive, Suite 820

Chicago, Illinois 60606

(Address of Registrant’s Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (877) 235-6925

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

Large accelerated filer  ¨	Accelerated filer  x	Non-accelerated filer  ¨	Smaller reporting company  ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of Common Stock held by non-affiliates of the registrant, based upon the closing price per share of registrant’s Common Stock on June 30, 2012, as reported by The NASDAQ Stock Market LLC, is approximately $121,542,015.

The number of shares of the registrant’s Common Stock outstanding as of March 8, 2013 was 17,022,157.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Mattersight’s Proxy Statement for its 2013 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of Mattersight’s fiscal year, are incorporated herein by reference into Part III where indicated; provided, that if such Proxy Statement is not filed with the Securities and Exchange Commission within 120 days after the fiscal year end covered by this Form 10-K, an amendment to this Form 10-K shall be filed no later than the end of such 120-day period.

TABLE OF CONTENTS

Item		Page
Item 1.	Business		2
Item 1A.	Risk Factors		5
Item 1B.	Unresolved Staff Comments		9
Item 2.	Properties		9
Item 3.	Legal Proceedings		9
Item 4.	Mine Safety Disclosures		9
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		9
Item 6.	Selected Financial Data		11
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		23
Item 8.	Financial Statements and Supplementary Data		24
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		56
Item 9A.	Controls and Procedures		56
Item 9B.	Other Information		56
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		56
Item 11.	Executive Compensation		58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		58
Item 13.	Certain Relationships and Related Transactions, and Director Independence		58
Item 14.	Principal Accounting Fees and Services		58
PART IV
Item 15.	Exhibits and Financial Statement Schedules		59
Signatures			60
Exhibit Index			I-1

PART I

Item 1. Business.

Overview

Mattersight Corporation (together with its subsidiaries and predecessors, “Mattersight,” “we,” “us,” or the “Company”) is a leader in enterprise analytics focused on customer and employee interactions and behaviors. Mattersight’s Behavioral Analytics Service captures and analyzes customer and employee interactions, employee desktop data, and other contextual information to improve operational performance and predict future customer and employee outcomes. Mattersight’s analytics are based on millions of proprietary algorithms and the application of unique behavioral models. The Company’s SaaS+ delivery model combines analytics in the cloud with deep customer partnerships to drive significant business value. Mattersight’s applications are used by leading companies in the healthcare, insurance, financial services, telecommunications, cable, utilities, education, hospitality, and government industries.

Through the performance of the Behavioral Analytics Service and related services (collectively, “Behavioral Analytics”), the Company generates two types of revenue:

(1) Managed services revenue, which is recurring, annuity revenue from long-term (generally three- to five-year) contracts and pilots, which are shorter term (generally three to twelve months) and includes subscription and amortized deployment revenue; and

(2) Consulting services revenue, which is generally project-based and sold on a time-and-materials or fixed-fee basis and includes follow-on consulting services revenue.

Set forth below is a more detailed description of the capabilities that the Company currently offers.

Behavioral Analytics

The Company’s multi-channel technology captures the unstructured data of voice interactions (conversations), related customer and employee data, and employee desktop activity, and applies millions of proprietary algorithms against those interactions. Each interaction contains hundreds of attributes that get scored and ultimately detect patterns of behavior or business process that provide the transparency and predictability necessary to enhance revenue, improve the customer experience, improve efficiency, and predict and navigate outcomes. Adaptive across industries, programs, and industry-specific processes, the Company’s Behavioral Analytics offerings enable its clients to drive measurable economic benefit through the improvement of contact center performance, customer satisfaction and retention, fraud reduction, and streamlined back office operations. Specifically, through its Behavioral Analytics offerings, Mattersight helps its clients:

• Automatically measure customer satisfaction and agent performance on every analyzed call;

• Identify and understand customer personality;

• Identify optimal customer/employee behavioral pairing for call routing;

• Improve rapport between agent and customer;

• Reduce call handle times while improving customer satisfaction;

• Identify opportunities to improve self-service applications;

• Improve cross-sell and up-sell success rates;

• Improve the efficiency and effectiveness of collection efforts;

• Measure and improve supervisor effectiveness and coaching;

• Improve agent effectiveness by analyzing key attributes of desktop usage;

• Predict likelihood of customer attrition;

• Predict customer satisfaction and Net Promoter Scores^® without customer surveys;

• Predict likelihood of debt repayment;

• Predict likelihood of a sale or cross-sell; and

• Identify fraud callers and improve authentication processes.

The Company has designed a highly-scalable, flexible, and adaptive application platform to enable the Company to implement and operate its Behavioral Analytics offerings for its clients. These offerings are primarily delivered through a SaaS+ model, as a managed subscription service from which Mattersight derives Managed services revenue and Consulting services revenue. Managed services revenue consists of revenue from deployment and subscription services and Consulting services revenue consists of revenue from post-deployment follow-on services, including coaching, training, and custom data analysis.

2

In addition to our Behavioral Analytics offerings, Mattersight also generates revenue from the following services:

(1) Marketing Managed Services, which consist of marketing application hosting services, from which the Company derives Managed services revenue; and

(2) CRM Services, which consist of operational consulting services that enhance business performance through improved process efficiencies and redesign of workflows, from which the Company derives Consulting services revenue.

Types of Revenue

Managed Services Revenue

Growth in Managed services revenue is primarily driven by the execution of new Behavioral Analytics contracts, under which we deploy and provide ongoing managed services related to our proprietary Behavioral Analytics System and provide related Business Monitoring services. Based on each client’s business requirements, the Behavioral Analytics System is configured and integrated into the client’s environment and then deployed in either a remote-hosted or, in one case, an on-premise hosted environment. Thereafter, the client’s selection of our Behavioral Analytics offerings is provided, on a subscription basis, for a period that is generally three to five years after the go-live date or, in the cases where the Company contracts with a client for a short-term pilot of the Behavioral Analytics Service prior to committing to a longer subscription period, the subscription or pilot periods generally range from three to twelve months after the go-live date. The fees and costs related to the initial deployment are deferred and amortized over the term of the contract.

We also generate Managed services revenue from Marketing Managed Services, specifically, from hosted customer and campaign data management. This source of Managed services revenue will continue to diminish over time as we focus on growth through Behavioral Analytics.

Consulting Services Revenue

In addition to the Consulting services revenue generated by the Consulting services provided under our Behavioral Analytics contracts, we derive a portion of this type of revenue from CRM Services for long-standing accounts. We expect Consulting services revenue from CRM Services to diminish over time as demand for these services continues to decline and we focus on growth through Behavioral Analytics. We bill for Consulting services on a time-and-materials or fixed-fee basis.

Business Segments

The Company operates in a single business segment, focused primarily on Behavioral Analytics. The Company operated in two business segments, the Behavioral Analytics Service Business Unit and the ICS Business Unit, until May 28, 2011, the date of the close of the sale of the ICS Business Unit, at which point the Company began operating in a single business segment. Financial information concerning our business segment is included in “Financial Statements and Supplementary Data” Part II, Item 8 of this Form 10-K.

International Operations

The Company’s services are delivered to clients in the U.S. and the United Kingdom. The Company’s revenue is and has been recognized in the U.S. subsidiary. The Company’s long-lived assets are and have been predominately located in the U.S. and consist of equipment, software, furniture and fixtures, and leasehold improvements (net of accumulated depreciation).

Methods of Distribution

Our Managed services revenue and Consulting services revenue are generated by direct contractual relationships with our clients.

Intellectual Property Rights

General

Our ability to protect our software, methodologies, and other intellectual property is important to our success and our competitive position. We view as proprietary the software (including source code), algorithms, analyses, and other ideas, concepts, and developments that we create in order to provide, improve, and enhance our service offerings, as well as the work product we create in the course of providing services for clients. We seek to protect our intellectual property rights in these developments and work product by relying on a combination of patent, copyright, trademark, and trade secret law, and confidentiality and non-disclosure agreements with our employees and third parties.

Patents

As of December 31, 2012, we hold seven U.S. patents and one European patent and have applied for several additional patents. These patents cover a broad range of our analytics capabilities, including methods for analyzing language to assess customer personality and analyzing data to improve employee performance. We regularly review new areas of development in order to assess patentability.

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Trademarks

We have obtained U.S. federal trademark registration for the MATTERSIGHT word mark and the MATTERSIGHT “eye” logo, which incorporates our tagline “See What Matters”. We believe that establishment of the MATTERSIGHT word mark and logo mark in the U.S. is material to our operations.

Licenses

A majority of our clients require that we grant to them licenses in and to the intellectual property rights associated with the work product we create in the course of providing services. In some cases, our clients require assignment of ownership in the intellectual property rights to such work product, typically where such work product embodies their confidential information or would provide them some competitive advantage in their industry. Absent an agreement to the contrary, each assignment of ownership in intellectual property rights would result in our inability to reuse the relevant work product with other clients. As a result, it is our practice to retain the rights in the underlying core intellectual property on which such work product is based, including methodologies, workplans, and software. Further, it is our policy to obtain from our clients a license to permit us to market custom software and other original materials to other clients. These arrangements may be nonexclusive or exclusive, and licensors to us may retain the right to sell products and services that compete with those of the Company.

Seasonality

Seasonal impact to our revenue and earnings is limited, as a significant portion of our revenue is earned through our Behavioral Analytics subscription services, which is a recurring annuity revenue stream that is not impacted by holidays and vacations.

Clients

During fiscal year 2012, our five and 10 largest clients accounted for 66% and 89% of our total revenue, respectively. In fiscal year 2012, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc.; Allstate Insurance Company; and Progressive Casualty Insurance Company, which accounted for 19%, 16%, and 13% of our total revenue, respectively. In fiscal year 2011, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc.; Allstate Insurance Company; and Health Care Service Corporation, which accounted for 22%, 15%, and 14% of our total revenue, respectively. For fiscal year 2010, there were four clients accounting for more than 10% of the total revenue: Vangent, Inc.; United HealthCare Services, Inc.; Health Care Service Corporation; and Allstate Insurance Company, which accounted for 20%, 15%, 14%, and 13% of total revenue, respectively. For fiscal years 2012, 2011, and 2010, eight, seven, and six clients, respectively, each accounted for over $1 million of total revenue. See Note Two “Summary of Significant Accounting Policies” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K.

Competition

Although we view the manner in which we provide Behavioral Analytics, and its benefits, to be unique, we nonetheless operate in a highly competitive and rapidly changing market and compete with a variety of organizations that offer services that may be viewed as similar to ours. These competitive organizations include data analytics solutions providers, voice recording and voice analytic services providers and software licensors, and strategic consulting firms. In our opinion, few competitors offer the full range and depth of services that we can provide, but they may compete with us on individual factors such as expertise, price, or capacity.

Many of our competitors have longer operating histories, more clients, longer relationships with their clients, greater brand or name recognition, and significantly greater financial, technical, marketing, and public relations resources than we do. As a result, our competitors may be in a better position to respond quickly to new or emerging technologies and changes in client requirements. They may also develop and promote their products and services more effectively than we do. New market entrants also pose a threat to our business. Existing or future competitors may develop or offer solutions that are comparable or superior to ours at a lower price.

Environmental Issues

There are no known material compliance issues with any Federal, state, or local environmental regulations.

Employees

As of December 31, 2012, we employed 230 persons, none of whom is represented by a union. We consider our employee relations to be good.

4

Available Information and Other

Our principal internet address is www.Mattersight.com. Our Annual, Quarterly, and Current Reports on Forms 10-K, 10-Q, and 8-K, and any amendments thereto, as well as the Forms 3, 4, and 5 beneficial ownership reports filed with respect to our stock, are made available free of charge on our website as soon as reasonably practicable after the reports have been filed with, or furnished to, the Securities and Exchange Commission (“SEC”). However, the information found on our website is not part of this or any other report filed by us with the SEC. These reports may also be obtained at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operation of the SEC’s public reference room may be obtained by calling the SEC at (800) SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, and other information regarding SEC registrants, including Mattersight.

Mattersight was incorporated in Delaware in May 1999. Our executive office is currently located at 200 S. Wacker Drive, Suite 820, Chicago, Illinois 60606 and our main telephone number is (877) 235-6925.

Item 1A. Risk Factors.

There are a number of risks and uncertainties that could adversely affect our business and our overall financial performance. In addition to the matters discussed elsewhere in this Form 10-K, we believe the more significant of such risks and uncertainties include the following:

We have not realized an operating profit in twelve years and there is no guarantee that we will realize an operating profit in the foreseeable future.

As of December 31, 2012, we had an accumulated deficit of $201.0 million. We expect to continue to use cash and incur operating expenses to support our growth, including costs associated with recruiting, training, and managing our sales force, costs to develop and acquire new technology, and promotional costs associated with reaching new clients. These investments, which typically are made in advance of revenue, may not yield an offsetting increase in revenue. As a result of these factors, our future revenue and income potential is uncertain.

Our financial results are subject to significant fluctuations because of many factors, any of which could adversely affect our stock price.

It is possible that in some future periods our operating results may be below the expectations of public market analysts and investors. In this event, the price of our Common Stock may fall. Our revenue and operating results may vary significantly due to a number of factors, many of which are not in our control. We may incur an impairment of goodwill if our financial results are adversely impacted by these factors and we continue to incur financial losses or our stock price declines. These factors include:

• Our ability to continue to grow our revenue and meet anticipated growth targets;

• Our ability to maintain our current relationships, and develop new relationships, with clients, service providers, and business partners;

• Unanticipated cancellations or deferrals of, or reductions in the scope of, major Behavioral Analytics contracts;

• The length of the sales cycle associated with our solutions;

• Our ability to successfully introduce new, and upgrade our existing, service offerings for clients; and

• Our ability to respond effectively to competition.

If we are unable to address these risks, our business, results of operations, and prospects could suffer.

We depend on a limited number of clients for a significant portion of our revenue, and the loss of a significant client or a substantial decline in the size or scope of deployments for a significant client, could have a material adverse effect on our business.

We derive, and expect to continue to derive for the foreseeable future, a significant portion of our total revenue from a limited number of clients. See “Clients” in Part I Item 1 and “Year Ended December 31, 2012 Compared with the Year Ended December 31, 2011” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II Item 7 of this Form 10-K. To the extent that any significant client uses less of our services or terminates its relationship with us, as may occur as clients respond to conditions affecting their own businesses, our total revenue could decline substantially and that could significantly harm our business. In addition, because a high percentage of our revenue is dependent on a relatively small number of clients, delayed payments by a few of our larger clients could result in a reduction of our available cash, which in turn may cause fluctuation in our Days Sales Outstanding (“DSO”).

5

We depend on good relations with our major clients, and any harm to these good relations may materially and adversely affect our business and our ability to compete effectively.

To attract and retain clients, we depend to a large extent on our relationships with our clients and our reputation for high quality analytics and related services. If a client is not satisfied with our services, it may be damaging to our reputation and business. Any defects or errors in our services or solutions or failure to meet our clients’ expectations could result in:

• Delayed or lost revenue;

• Obligations to provide additional services to a client at a reduced fee or at no charge;

• Negative publicity, which could damage our reputation and adversely affect our ability to attract or retain clients; and

• Claims for damages against us, regardless of our responsibility for such failure.

If we fail to meet our contractual obligations with our clients, then we could be subject to legal liabilities or loss of clients. Although our contracts include provisions to limit our exposure to legal claims related to the services and solutions we provide, these provisions may not protect us, or protect us sufficiently, in all cases.

We must maintain our reputation and expand our name recognition to remain competitive.

We believe that establishing and maintaining a good reputation and brand name is critical for attracting and expanding our targeted client base. This is particularly the case given the launch of our new brand under the name Mattersight Corporation, which was effective June 1, 2011. We continue to invest substantially in marketing in order to make our new name known in the marketplace for our services and solutions. If potential clients do not know what solutions we provide, or if our reputation is damaged, then we may become less competitive or lose our market share. Promotion and enhancement of our name will depend largely on both the efficacy of our relatively nascent marketing efforts and our success in providing high quality services, software, and solutions, neither of which can be assured.

Our clients use our solutions for critical applications. If clients do not perceive our solutions to be effective or of higher quality than those available from our competitors, or if our solutions result in errors, defects, or other performance problems, then our brand name and reputation could be materially and adversely affected.

Our industry is very competitive and, if we fail to compete successfully, our market share and business will be adversely affected.

We operate in a highly competitive and rapidly changing market and compete with a variety of organizations that offer services that may be viewed as similar to ours. These competitive organizations include data analytics solutions providers, voice recording and voice analytic service providers and software licensors, call routing solution providers, and strategic consulting firms. We compete with these organizations on factors such as expertise, price, and capacity.

Many of our competitors have longer operating histories, more clients, longer relationships with their clients, greater brand or name recognition, more registered patents, and significantly greater financial, technical, marketing, and public relations resources than we do. As a result, our competitors may be in a better position to respond quickly to new or emerging technologies and changes in client requirements. They may also develop and promote their products and services more effectively than we do. New market entrants also pose a threat to our business. Existing or future competitors may develop or offer solutions that are comparable or superior to ours at a lower price.

We must keep pace with the rapid rate of innovation in our industry in order to build our business.

The data analytics market, and particularly behavioral analytics, is relatively new and rapidly evolving. Our future business depends upon continued growth in the acceptance and use of Behavioral Analytics by our current and prospective clients. Their acceptance and usage in turn may depend upon factors such as: the actual or perceived benefits of adoption of Behavioral Analytics and related methodologies and technologies, including the predictability of a meaningful return on investment, cost efficiencies, or other measurable economic benefits; the actual or perceived reliability, scalability, ease of use, and access to such new technologies and methodologies; and the willingness to adopt new business methods incorporating a customer-centric approach. Furthermore, our future growth depends on our continuing ability to innovate in the field of data analytics and to incorporate emerging industry standards.

We cannot assure that we will be successful in anticipating or responding to these challenges on a timely or competitive basis or at all, or that our ideas and solutions will be successful in the marketplace. In addition, new or disruptive technologies and methodologies by our competitors may make our service or solution offerings uncompetitive. Any of these circumstances could significantly harm our business and financial results.

6

Because our services and solutions are sophisticated, we must devote significant time and effort to our sales and installation processes, with significant risk of loss if we are not successful.

Because our services and solutions are not simple, mass-market items with which our potential clients are already familiar, it is necessary for us devote significant time and effort to the process of educating our potential clients about the benefits and value of our services and solutions as part of the sales process. In addition, because our services and solutions are sophisticated and in most cases are not readily usable by clients without our assistance in system integration and configuration, training, and analysis, we must devote significant time during the installation and ongoing analysis process in order for our services and solutions to be successfully deployed. These efforts during both the sales and installation processes increase the time and difficulty of completing transactions, make it more difficult to efficiently deploy our limited resources, and create risk that we will have invested in an opportunity that ultimately does not come to fruition. If we are unable to demonstrate the benefits and value of our services and solutions to clients and efficiently convert our sales leads into successful sales and installations, our results of operations may be adversely affected.

The unauthorized disclosure of the confidential customer data that we maintain could result in a significant loss of business and subject us to substantial liability.

In providing Behavioral Analytics, we record and analyze telephone calls and other interactions between our clients’ call center and back office agents and their customers. These interactions may contain numerous references to highly sensitive confidential or personally-identifiable data of the customers of our clients, and many of our clients are required to comply with Federal and state laws concerning privacy and security, such as the Health Insurance Portability and Accountability Act of 1996 and the Gramm-Leach-Bliley Act of 1999. In addition, we have made certain contractual commitments to our clients regarding this confidential data.

Particularly with regard to clients in highly-regulated industries such as healthcare and financial services, many of our clients demand that we agree not to limit our liability in the event of a security breach resulting in the loss of or unauthorized access to personally-identifiable data. As a result, the disclosure or loss of such data despite the extensive precautions we undertake could result in the considerable diminution of our business and prospects and could subject us to substantial liability.

In addition, the laws and regulations and industry standards governing these matters are changing rapidly. It is possible that the resources we devote to comply with such laws and regulations, industry standards, and our clients’ particular requirements could increase materially. In our contracts, we generally agree to indemnify our clients for expenses and liabilities resulting from unauthorized disclosure of confidential data. In some instances, the amount of these indemnity obligations may be greater than the revenue we receive from the client under the applicable contract.

We are a very small public company with a relatively large cash balance.

While all public companies face the costs and burdens associated with being publicly traded, the costs and burden of being a public company is a significant portion of our annual revenues. Additionally, as of December 31, 2012, we have $14.4 million in cash, cash equivalents, and investments. Having a large cash balance relative to our market capitalization could make us a takeover target in the future, which could cause distractions for our management and our board of directors and otherwise prevent us from executing on our strategy to build long-term stockholder value.

Our financial results could be adversely affected by economic and political conditions and the effects of these conditions on our clients’ businesses and levels of business activity.

Economic and political conditions in the U.S. affect our clients’ businesses and the markets they serve. A severe and/or prolonged economic downturn or a negative or uncertain political climate could adversely affect our clients’ financial conditions and the levels of business activity of our clients and the industries we serve. This may reduce demand for our services or depress pricing of those services and have a material adverse effect on our results of operations. Changes in U.S. economic conditions could also shift demand to services for which we do not have competitive advantages, and this could negatively affect the amount of business that we are able to obtain. In addition, these economic conditions may cause our clients to delay payments for services we have provided to them, resulting in a negative impact to our cash flow. If we are unable to successfully anticipate changing economic and political conditions, then we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.

We rely heavily on our senior management team for the success of our business.

Given the highly specialized nature of our services, senior management must have a thorough understanding of our service offerings as well as the skills and experience necessary to manage the organization. If one or more members of our senior management team leaves and we cannot replace them with a suitable candidate quickly, then we could experience difficulty in managing our business properly, and this could harm our business prospects, client relationships, employee morale, and results of operations.

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Our ability to recruit talented professionals and retain our existing professionals is critical to the success of our business.

We believe that our success depends substantially on our ability to attract, train, motivate, and retain highly skilled management, strategic, technical, product development, data analysis, and other key professional employees. Our business straddles the information-technology and data analytics services industries, which are people-intensive and face shortages of qualified personnel, especially those with specialized skills or experience. We compete with other companies to recruit and hire from this limited pool, particularly in Austin, Texas, the location of our research and development team.

If we cannot hire and retain qualified personnel, or if a significant number of our current employees should leave, and we have difficulty replacing such persons, then we could potentially suffer the loss of client relationships or new business opportunities and our business could be seriously harmed. In addition, there is no guarantee that the employee and client non-solicitation and non-competition agreements we have entered into with our senior professionals would deter them from departing us for our competitors or that such agreements would be upheld and enforced by a court or other arbiter across all jurisdictions where we engage in business.

We have a limited ability to protect our intellectual property rights, which are important to our success and competitive position.

Our ability to protect our software, algorithms, methodologies, and other intellectual property is important to our success and our competitive position. We view as proprietary the software (including source code), algorithms, analysis, and other ideas, concepts, and developments that we create in order to provide, improve, and enhance our service offerings, as well as the work product we create in the course of providing services for clients. We seek to protect our intellectual property rights in these developments and work product by applying for patents, copyrights, and trademarks, as appropriate, as well as by enforcing applicable trade secret laws and contractual restrictions on scope of use, disclosure, copying, reverse engineering, and assignment.

Despite our efforts to protect our intellectual property rights from unauthorized use or disclosure, others may attempt to disclose, obtain, or use our rights. The steps we take may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property rights. In addition, we may not detect unauthorized use of, or take timely and effective actions to enforce and protect, our intellectual property rights.

We may be required to obtain licenses from others to refine, develop, market, and deliver current and new services and solutions. There can be no assurance that we will be able to obtain any of these licenses on commercially reasonable terms or at all, or that rights granted by these licenses ultimately will be valid and enforceable.

Others could claim that our services, products, or solutions infringe upon their intellectual property rights or violate contractual protections.

We or our clients may be subject to claims that our services, products, or solutions, or the products of our software providers or other alliance partners, infringe upon the intellectual property rights of others. Any such infringement claims may result in substantial costs, divert management attention and other resources, harm our reputation, and prevent us from offering some services, products, or solutions. A successful infringement claim against us could materially and adversely affect our business.

In our contracts, we agree to indemnify our clients for expenses and liabilities resulting from claimed infringement by our services, products, or solutions, in most cases excluding third-party components, of the intellectual property rights of others. In some instances, the amount of these indemnity obligations may be greater than the revenue we receive from the client under the applicable contract. In addition, we may develop work product in connection with specific projects for our clients. Although our contracts with our clients generally provide that we retain the ownership rights to our intellectual property, it is possible that clients may assert rights to, and seek to limit our ability to resell or reuse, this intellectual property. Furthermore, in some cases we assign to clients the copyright and, at times, other intellectual property rights, in and to some aspects of the software, documentation, or other work product developed for these clients in connection with these projects, which limits our ability to resell or reuse this intellectual property.

Increasing government regulation could cause us to lose clients or impair our business.

We are subject not only to laws and regulations applicable to businesses generally, but we are also subject to certain U.S. and foreign laws and regulations applicable to our service offerings, including, but not limited to, those related to data privacy and security, electronic commerce, and call recording. Laws and regulations enacted in the U.S., both at the state and Federal level, as well as significant new rules issued with respect thereto, impose substantial requirements relating to the privacy and security of personal data, as well as the reporting of breaches with respect to personal data. Legislation that may be enacted in the future may add further requirements in these and other areas. In addition, we may be affected indirectly by legislation to the extent that it impacts our existing and prospective clients. Any such laws and regulations therefore could affect our existing business relationships or prevent us from obtaining new clients.

8

It may be difficult for us to access debt or equity markets to meet our financial needs.

In the event, for any reason, we need to raise additional funds in the future, through public or private debt or equity financings, such funds may not be available or may not be available on terms favorable to us.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Our principal physical properties employed in our business consist of our leased office facilities in Chicago, Illinois; Edina, Minnesota; and Austin, Texas. Our executive offices are located at 200 South Wacker Drive, Suite 820, Chicago, Illinois 60606.

Our total employable space is approximately 39,000 square feet. We do not own any real estate and believe that our leased facilities are appropriate for our current business requirements.

Item 3. Legal Proceedings.

The Company, from time to time, has been subject to legal claims arising in connection with its business. While the results of these claims cannot be predicted with certainty, there are no asserted claims against the Company that, in the opinion of management, if adversely decided, would have a material effect on the Company’s financial position, results of operations, or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Our Common Stock, par value $0.01 per share (“Common Stock”), is traded on the NASDAQ Global Market under the symbol MATR. The following table sets forth, for the periods indicated, the quarterly high and low sales prices of our Common Stock on the NASDAQ Global Market.

	High		Low
Fiscal Year 2012
Fourth Quarter	$	5.97	$	4.58
Third Quarter		8.29		4.73
Second Quarter		9.50		6.39
First Quarter		8.75		4.58
Fiscal Year 2011
Fourth Quarter	$	5.17	$	4.08
Third Quarter		8.14		3.99
Second Quarter		7.95		5.27
First Quarter		7.95		6.00

There were approximately 95 owners of record of Common Stock as of March 8, 2013. The last reported sale price of the Common Stock on the NASDAQ Global Market on March 8, 2013 was $5.06.

See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” included in Part III Item 12 of this Form 10-K for more information about securities authorized for issuance under our various compensation plans.

Sale of Unregistered Securities

On December 19, 2011, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with IGC Fund VI, LP (the “IGC Fund”). Under the terms of the Purchase Agreement, on December 20, 2011, IGC Fund purchased 1,252,609 shares of Common Stock, at a price of $4.79 per share (the “Shares”). The aggregate consideration received from the sale of the Shares was approximately $6.0 million. No commissions were paid in connection with the sale of the Shares. The Shares were sold without registration under the Securities Act of 1933, as amended (the “Securities Act”), or state securities laws, in reliance on Rule 506 of the Securities Act and in reliance on similar exemptions under applicable state laws. IGC Fund is an accredited investor within the meaning of Rule 501(a) of Regulation D and the securities were sold without any general solicitation by the Company or its representatives. The Company filed a registration statement on Form S-3 with the SEC on May 18, 2012 following the closing of the sale of Shares to IGC Fund to enable the resale of the Shares pursuant to the Registration Rights Agreement entered into with IGC Fund on December 19, 2011.

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Stock Performance Graph

The following graph compares the cumulative total stockholder return on Common Stock with the cumulative total return of (i) a peer group of other publicly-traded information-technology consulting companies selected by the Company (the “Peer Group Index”), and (ii) the NASDAQ Global Market Index. Cumulative total stockholder return is based on the period from December 28, 2007 through the Company’s fiscal year end on Monday, December 31, 2012. The comparison assumes that $100 was invested on December 28, 2007 in each of Mattersight Common Stock, the Peer Group Index, and the NASDAQ Global Market Index, and that any and all dividends were reinvested.

Comparative Cumulative Total Return for Mattersight Corporation,

Peer Group Index, and NASDAQ Global Market Index

	12/28/07		12/26/08		12/24/09		12/31/10		12/30/11		12/30/12
Mattersight Common Stock	$	100.00	$	23.05	$	55.64	$	50.87	$	36.96	$	39.51
Peer Group Index(1)		100.00		31.13		100.37		167.28		145.33		145.76
NASDAQ Global Market Index		100.00		59.10		82.19		97.23		98.85		110.91

(1) The Peer Group Index consists of Verint Systems, Inc. and Nice Systems Limited. In fiscal year 2011, The Hackett Group, Sapient Corporation, Ciber, Inc., and Convergys Corporation were removed because they had previously been included in the Peer Group Index in order to provide peer comparison for our ICS Business Unit, which was divested. In fiscal year 2010, Nice Systems Limited was added to the Peer Group Index to replace Diamond Management & Technology Consultants, which was removed because its public information was no longer available.

Repurchase of Equity Securities

The following table provides information relating to the Company’s purchase of shares of its Common Stock in the fourth quarter of 2012. These purchases reflect shares withheld upon vesting of restricted stock or installment stock to satisfy tax-withholding obligations and shares acquired during the period as a result of stock option swaps.

Period	Total Number of Shares Purchased		Average Price Paid Per Share
September 30, 2012 – October 31, 2012		6,986	$	5.40
November 1, 2012 – November 30, 2012		27,026	$	5.11
December 1, 2012 – December 31, 2012		3,480	$	5.15
Total		37,492	$	5.17

In the first quarter of 2012, the Company announced its intention to commence a tender offer to purchase up to 111,605 shares of its 7% Series B Convertible Preferred Stock, par value $0.01 per share (the “Series B Stock”) at a cash purchase price of $8.60 per share, plus accrued and unpaid dividends.

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In accordance with the terms and conditions of the tender offer, Mattersight purchased 19,758 shares of the Series B Stock, at a price of $8.71 per share (representing $8.60 per share plus accrued and unpaid dividends), for an aggregate cost of approximately $172,092, excluding fees and expenses related to the tender offer. These shares represented approximately 1.2% of the Series B Stock outstanding as of April 13, 2012.

Dividends

Historically, we have not paid cash dividends on our Common Stock, and we do not expect to do so in the future. The Series B Stock accrues dividends at the rate of 7% per year, payable semi-annually in January and July if declared by the Company’s Board of Directors. During fiscal year 2012, the Company’s Board of Directors declared a cash dividend of $0.3 million payable July 2, 2012, for the dividend period January 1, 2012 to June 30, 2012. The Board of Directors resolved to suspend the dividend payment, which was accrued, for the dividend period July 1, 2012 through December 31, 2012 (the amount of this semi-annual dividend was approximately $0.3 million). During fiscal year 2011, the Company paid cash dividends of $1.9 million or $0.1785 per share on the Series B Stock, for the dividend periods January 1, 2011 through June 30, 2011, July 1, 2010 through December 31, 2010, and July 1, 2008 through December 31, 2008. Under the terms of the Series B Stock certificate of designations, unpaid dividends are cumulative and accrue at the rate of 7% per annum. Payment of future dividends on the Series B Stock will be determined by the Company’s Board of Directors based on the Company’s outlook and macro-economic conditions. If the Company’s Board of Directors were to declare a semi-annual cash dividend on the Series B Stock for dividend periods subsequent to January 1, 2013, the dividend payment would be approximately $0.3 million, on the 1,649,201 shares of Series B Stock issued and outstanding as of December 31, 2012.

The amount of each dividend accrual would decrease by any conversions of the Series B Stock into Common Stock, as Series B Stock conversions require us to pay accrued but unpaid dividends at the time of conversion. Conversions of Series B Stock became permissible at the option of the holder after June 19, 2002. For further discussion see “Liquidity and Capital Resources” included in Part II, Item 7 of this Form 10-K.

During fiscal year 2012, the Company purchased 19,758 shares of Series B Stock and paid accrued and unpaid dividends of $2 thousand. During fiscal year 2011, the Company purchased 1,872,805 shares of Series B Stock and paid accrued and unpaid dividends of $0.3 million under the terms of the Settlement Agreement entered into by Mattersight and Technology Crossover Ventures (“TCV”) to settle the previously disclosed arbitration. As a result of such purchase from TCV, there were 1,670,696 shares of Series B Stock issued and outstanding as of December 29, 2011.

Item 6. Selected Financial Data.

The following tables summarize our selected financial data. This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements of the Company and notes thereto, which are included elsewhere in this Form 10-K.

	(In thousands, except per share data)(1)
	December 31, 2012			December 31, 2011			January 1, 2011			December 26, 2009			December 27, 2008
Total revenue	$	33,863		$	29,095		$	30,885		$	32,563		$	37,483
Loss from continuing operations	$	(15,470	)	$	(10,560	)	$	(16,304	)	$	(15,354	)	$	(25,733	)
Basic loss from continuing operations per share	$	(1.01	)	$	(1.29	)	$	(1.28	)	$	(1.26	)	$	(2.61	)
Total assets	$	31,362		$	49,265		$	66,192		$	70,603		$	64,223
Long-term obligations	$	3,605		$	4,437		$	6,247		$	5,368		$	6,117
Series B Stock	$	8,411		$	8,521		$	18,100		$	18,442		$	18,460
Capital leases	$	2,305		$	2,823		$	2,217		$	2,410		$	2,975

(1) See Note One “Description of Business” and Note Two “Summary of Significant Accounting Principles” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K for business discussion.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the costs and timing of completion of client projects, our ability to collect accounts receivable, the timing and amounts of expected payments associated with cost reduction activities, and the ability to realize our net deferred tax assets, contingencies, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

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The fiscal year-end dates referenced herein for fiscal years 2012, 2011, and 2010 are December 31, 2012, December 31, 2011, and January 1, 2011, respectively.

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Discontinued Operations

ICS Business Unit Transaction

The sale by the Company of the ICS Business Unit and “eLoyalty” registered trademark / trade name to Magellan Acquisition Sub, LLC, a Colorado limited liability company and wholly-owned subsidiary of TeleTech Holdings, Inc., a Delaware corporation, closed on May 28, 2011, and the Company changed its name from eLoyalty Corporation to Mattersight Corporation effective May 31, 2011. Therefore, the results of operations of the ICS Business Unit are reported as discontinued operations for all periods presented. Additionally, certain corporate and general costs that had historically been allocated to the ICS Business Unit were reallocated to the Company and are reflected in all periods presented.

Revenue Recognition

Continuing Operations

Behavioral Analytics Revenue

Behavioral Analytics revenue consists of Managed services revenue and Consulting services revenue derived from the performance of Behavioral Analytics.

Managed services revenue consists of planning, deployment, training, and subscription fees derived from Behavioral Analytics contracts. Planning, deployment, and training fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the subscription period of the applicable subscription contract. The subscription periods of these contracts generally range from three to five years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of Behavioral Analytics prior to committing to a longer subscription period, the subscription or pilot periods generally range from three to twelve months after the go-live date. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in Prepaid expenses and Other long-term assets. Such costs are amortized over the subscription period of the contract. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

The amount of revenue generated from subscription fees is based on a number of factors, such as the number of users to whom the Behavioral Analytics Service is provided, the type and number of Behavioral Analytics offerings deployed to the client, and, in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. This revenue is recognized as the service is performed for the client.

Consulting services revenue primarily consists of fees charged to the Company’s clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training. These follow-on consulting services are generally performed for the Company’s clients on a fixed-fee basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared to the total estimated hours over the entire term of the contract.

Other Revenue

Other revenue consists of Marketing Managed Services revenue and CRM Services revenue.

Marketing Managed Services revenue is derived from marketing application hosting. This revenue is generally in the form of fixed monthly fees received from the Company’s clients and is recognized as the services are performed for the client. Any related setup fee would be recognized over the term of the hosting contract.

CRM Services revenue consists of fees generated from the Company’s operational consulting services, which are provided to the Company’s clients on a time-and-materials or fixed-fee basis. The Company recognizes revenue as the services are performed for time-and-materials projects. For fixed-fee projects, revenue is recognized based on the ratio of hours incurred to-date compared to the total estimated hours over the entire term of the contract.

Reimbursed Expenses

Reimbursed expenses revenue includes billable costs related to travel and other out-of-pocket expenses incurred while performing services for the Company’s clients. The cost of third-party product and support may be included within this category if the transaction does not satisfy the requirements for gross reporting. An equivalent amount of reimbursable expenses is included in Cost of revenue.

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Unearned Revenues

Payments received for Managed services contracts in excess of the amount of revenue recognized for these contracts are recorded as unearned revenue until revenue recognition criteria are met.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from clients not paying for unpaid or disputed invoices for contractual services provided. Additional allowances may be required if the financial condition of our clients deteriorates.

Discontinued Operations

ICS Business Unit

Managed services revenue included in the ICS Business Unit consisted of fees generated from the Company’s contact center support and monitoring services. Support and monitoring services generally were contracted for a fixed fee, and the revenue was recognized ratably over the term of the contract. Support fees that were contracted on a time-and-materials basis were recognized as the services were performed for the client.

For fixed fee Managed services contracts, where the Company provided support for third-party software and hardware, revenue was recorded at the gross amount of the sale. If the contract did not meet the requirements for gross reporting, then Managed services revenue was recorded at the net amount of the sale.

Consulting services revenue included in the ICS Business Unit consisted of the modeling, planning, configuring, or integrating of an Internet Protocol network solution within the Company’s clients’ contact center environments. These services were provided to clients on a time-and-materials or fixed-fee basis. For the integration of a system, the Company recognized revenue as the services were performed, with performance generally assessed on the ratio of hours incurred to date compared to the total estimated hours over the entire term of the contract. For all other consulting services, the Company recognized revenue as the services were performed for the client.

Revenue from the sale of Product, which was generated primarily from the resale of third-party software and hardware by the Company, was generally recorded at the gross amount of the sale when it was delivered to the client.

In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple deliverable revenue arrangements to:

(i) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

(ii) require an entity to allocate revenue in an arrangement using estimated selling prices (“ESP”) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (“VSOE”) or third-party evidence of selling price (“TPE”); and

(iii) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.

The Company elected to adopt this accounting guidance at the beginning of its first quarter of fiscal year 2011 on a prospective basis. The adoption of this guidance does not impact our revenue recognition with respect to Behavioral Analytics because the implementation services sold with our Managed services are not separated into multiple accounting units because there is no standalone fair value for these services. We recognize these services revenues over the anticipated subscription period. This accounting guidance does not change the units of accounting for the Company’s revenue transactions or the methods used to allocate consideration to the units of accounting. The revenue recognition for each of these offerings is discussed below.

For the ICS Business Unit, the Company utilized VSOE to allocate revenue to various elements in an arrangement. We determined VSOE based on our normal pricing and discounting practices for the product or service when sold separately. In determining VSOE, we required that a substantial majority of the selling prices for a product or consulting services fall within a reasonably narrow pricing range, generally evidenced by approximately 80% of such historical standalone transactions falling within plus or minus 20% of the median selling price. For the ICS Business Unit’s managed services, we established VSOE through the stated renewal approach. We were able to establish VSOE for our product and service offerings except for software. If we were not able to establish VSOE for an offering, we attempted to establish fair value by utilizing TPE, which was established by obtaining evidence from comparable offerings from a peer company. If the Company was unable to establish fair value using VSOE or TPE, then the Company used ESP in its allocation of revenue. To determine ESP, we applied significant judgment as we weighed a variety of factors, based on the facts and circumstances of the arrangement. These factors included internal costs, gross margin objectives, and existing portfolio pricing and discounting.

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Within discontinued operations, some of our sales arrangements had multiple deliverables containing software and related software components. Such sale arrangements were subject to the accounting guidance in ASC 985-605, Software Revenue Recognition.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. The Company uses historical information as the basis for the selection of expected life, expected volatility, expected dividend yield assumptions, and anticipated forfeiture rates. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing our annual impairment test, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is concluded that this is the case for one or more reporting units, we perform a detailed quantitative assessment using a two-step test approach. In the first step, the fair value of each reporting unit is compared with its carrying value. If the fair value exceeds the carrying value, then goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. A detailed determination of the fair value of a reporting unit may be carried forward from one year to the next if specific criteria have been met. The Company currently operates in a single business segment or reporting unit.

In 2012, after completing our annual qualitative review, we concluded that it was not more-likely-than-not that the carrying value of our reporting unit exceeded its fair value. Accordingly, we concluded that further quantitative analysis and testing was not required, and no goodwill impairment charge was required.

There has been no impairment identified as a result of the annual review of goodwill as of December 31, 2012 and December 31, 2011. The carrying value of goodwill was $1.0 million as of December 31, 2012 and December 31, 2011.

Intangible Assets

Intangible assets reflect costs related to patent and trademark applications, Marketing Managed Services customer relationships acquired in 2004, and the 2003 purchase of a license for certain intellectual property. Patent and trademark applications are amortized over 120 months. The other intangible assets are fully amortized. The original cost of intangible assets as of December 31, 2012 and December 31, 2011 was $2.9 million and $2.8 million, respectively. Accumulated amortization of intangible assets as of December 31, 2012 and December 31, 2011 was $2.7 million and $2.6 million, respectively. Currently, amortization expense of intangible assets is expected to be $47 thousand annually.

Severance and Related Costs

We recorded accruals for severance and related costs associated with our cost-reduction efforts undertaken during fiscal years 2008 through 2012. The portion of the accruals relating to employee severance represents contractual severance for identified employees and generally is not subject to a significant revision. The portion of the accruals that related to office space reductions, office closures, and associated contractual lease obligations are based in part on assumptions and estimates of the timing and amount of sublease rentals, which may be affected by overall economic and local market conditions. To the extent estimates of the success of our sublease efforts changed, adjustments increasing or decreasing the related accruals have been recognized.

Income Taxes

We have recorded income tax valuation allowances on our net deferred tax assets to account for the unpredictability surrounding the timing of realization of our U.S. and non-U.S. net deferred tax assets due to uncertain economic conditions. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to predictable levels of profitability.

The Company uses an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for the year, the basis of assets and liabilities and for tax loss carryforwards. The Company does not provide U.S. deferred income taxes on earnings of U.S. or foreign subsidiaries, which are expected to be indefinitely reinvested.

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The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit. There is additional guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods, and disclosure requirements.

Intraperiod tax allocation requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. While intraperiod tax allocation in general does not change the overall tax provision, it does affect the amount of tax provision included in each category. Included in our continuing operations income tax provision is tax expense of $38 thousand for the year ended December 31, 2012 and a tax benefit of $5.9 million for the year ended December 31, 2011. Included in our discontinued operations income tax provision is a tax benefit of $0.3 million for the year ended December 31, 2012 and tax expense of $6.8 million for the year ended December 31, 2011.

Other Significant Accounting Policies

For a description of the Company’s other significant accounting policies, see Note Two “Summary of Significant Accounting Policies” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K.

Forward-Looking Statements

Statements in this Form 10-K that are not historical facts are “forward-looking statements” and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements, which may be identified by use of words such as “plan,” “may,” “might,” “believe,” “expect,” “intend,” “could,” “would,” “should,” and other words and terms of similar meaning, in connection with any discussion of our prospects, financial statements, business, financial condition, revenues, results of operations, or liquidity, involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In addition to other factors and matters contained or incorporated in this document, important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements include, without limitation, those noted under “Risk Factors” included in Part I Item 1A of this Form 10-K for the year ended December 31, 2012, as well as the following:

• Uncertainties associated with the attraction of, and the ability to execute contracts with, new clients, the continuation of existing and new engagements with existing clients, and the timing of related client commitments;

• Reliance on a relatively small number of clients for a significant percentage of our revenue;

• Risks involving the variability and predictability of the number, size, scope, cost, and duration of, and revenue from, client engagements;

• Management of the other risks associated with increasingly complex client projects and new service offerings, including execution risk; and

• Management of growth and development and introduction of new service offerings.

We cannot guarantee any future results, levels of activity, performance, or achievements. The statements made in this Form 10-K represent our views as of the date of this Form 10-K, and it should not be assumed that the statements made in this Form 10-K remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements, except as may be required by law.

Business Outlook

Based upon Mattersight’s business development efforts and third-party market research, we believe there has been a fundamental shift in the way large enterprises view data. The trends suggest that large enterprises today appreciate that there is value in data that can be derived from their front and back offices, but they have not yet established efficient and effective methods to capture, analyze, and create value from this data. We seek to help large enterprises capitalize on this data with our Behavioral Analytics solutions and, as a leader in this rapidly growing market, we believe we are uniquely positioned to capitalize on this opportunity. We estimate the market potential in the U.S. for all of our current analytics offerings at over $10 billion per year. The market for enterprise analytics is very new and we currently estimate it to be less than 5% penetrated.

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Our business strategy to increase revenue, profitability, and capture market share includes the following elements:

• Increase up-sell and cross-sell ratios by deepening and broadening our relationships with existing clients;

• Win business with new clients, focusing on analyzing customer interactions, predictive behavioral routing, and back office activities in targeted industries;

• Continue to invest in innovative proprietary technology, new applications, and delivery methods;

• Continue bookings growth and improve operating leverage;

• Expand our sales and marketing efforts with seasoned enterprise sales agents and strategic marketing professionals; and

• Develop partnerships and strategic alliances to expand sales leverage, improve brand awareness, and reach new industries while providing value to our mutual clients.

Resulting from our delivery of measurable economic benefit to our clients, we have seen increasing penetration within existing accounts, due to an increase in adoption of our base Behavioral Analytics offerings across separate and distinct business units, as well as the adoption of new applications within existing business units. For this reason, we will continue to focus on further penetrating what we estimate to be a large existing base market with a less expensive cost of acquisition. In addition, our strategy to further invest in sales and marketing, coinciding with the fundamental shift in enterprise data utilization described above, has led to an increasing number of discussions with potential new clients and strategic partners.

Managed Services Backlog

As a result of the strategic and long-term nature of Managed services revenue, we believe it is appropriate to monitor the level of backlog associated with our Managed services contracts. The Behavioral Analytics Managed services backlog was $89.1 million as of December 31, 2012 and $96.3 million as of December 31, 2011. The decrease in backlog is due to fewer than anticipated contract bookings in the fourth quarter of 2012 and an adjustment of estimated long-term user counts under existing Behavioral Analytics contracts. We expect Behavioral Analytics Managed service backlog to increase in fiscal year 2013 based on the impact of anticipated renewals of existing contracts and anticipated contract signings with clients included in our current sales pipeline. We are currently reviewing backlog as a disclosure metric in its current form and may adjust it going forward.

Mattersight uses the term “backlog” to reflect the estimated future amount of Managed services revenue related to its Managed services contracts. The value of these contracts is based on anticipated usage volumes over the anticipated contract term. The anticipated contract term is based on the fixed term of the contract, plus contractually agreed upon, but optional, extension or renewal periods. Anticipated volumes may be greater or less than anticipated. In addition, these contracts typically are cancellable without cause based on the customer making a substantial early termination payment or forfeiture of prepaid contract amounts.

Year Ended December 31, 2012 Compared with the Year Ended December 31, 2011

Services Revenue

Services revenue is total revenue excluding reimbursable expenses that are billed to our clients. Our services revenue increased $4.7 million, or 16%, to $33.5 million in fiscal year 2012, from $28.8 million in fiscal year 2011.

Behavioral Analytics revenue was $32.1 million in fiscal year 2012 and was $27.3 million in fiscal year 2011. The $4.8 million, or 18%, increase in Behavioral Analytics revenue in fiscal year 2012 was primarily due to increased subscription fees associated with the conversion of several deployments to the subscription phase of the contract.

Other revenue decreased by $0.2 million, or 13%, to $1.3 million in fiscal year 2012, from $1.5 million in fiscal year 2011. The decrease in revenue was mainly due to the completion of several contracts for Marketing Managed Services.

The Company’s top five clients accounted for 66% of total revenue in fiscal year 2012 and 70% of total revenue in fiscal year 2011. The top 10 clients accounted for 89% of total revenue in fiscal year 2012 and 90% of total revenue in fiscal year 2011. In fiscal year 2012 and 2011, there were three clients that accounted for 10% or more of total revenue. In fiscal year 2012, Vangent, Inc., Allstate Insurance Company, and Progressive Casualty Insurance Company accounted for 19%, 16%, and 13% of total revenue, respectively. In fiscal year 2011, Vangent, Inc., Allstate Insurance Company, and Health Care Service Corporation accounted for 22%, 15%, and 14% of total revenue, respectively. Higher concentration of revenue with a single client or a limited group of clients creates increased revenue risk if one of these clients significantly reduces its demand for our services.

Cost of Revenue Before Reimbursed Expenses, Exclusive of Depreciation and Amortization

Cost of Services

Cost of services primarily consists of labor costs, including salaries, fringe benefits, and incentive compensation, royalties, and other client-related third-party outside services. Cost of services excludes depreciation and amortization.

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Cost of Behavioral Analytics revenue was $12.2 million, or 38% of Behavioral Analytics revenue in fiscal year 2012, compared to $12.2 million, or 45% of Behavioral Analytics revenue, in fiscal year 2011. The percentage decrease in the Cost of Behavioral Analytics revenue was primarily due to improved leverage of our cost structure resulting from higher subscription revenue in fiscal year 2012 compared to fiscal year 2011.

Cost of Other revenue was $0.7 million, or 53% of Other revenue in fiscal year 2012, compared to $1.0 million, or 66% of Other revenue, in fiscal year 2011. The decrease in cost was largely due to lower compensation expense of $0.2 million, driven by the lower demand for our CRM Services.

Sales, Marketing and Development

Sales, marketing and development expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, marketing, and product development personnel. The personnel costs included in this item are net of any labor costs directly related to the generation of revenue, which are represented in Cost of services.

Sales, marketing and development expenses increased $3.1 million, or 16%, to $23.1 million in fiscal year 2012 from $20.0 million in fiscal year 2011. This increase is due to higher headcount associated with the continued investment in our development, selling and marketing organizations.

General and Administrative

General and administrative expenses consist primarily of salaries, incentive compensation, and employee benefits for administrative personnel, as well as facilities costs, a provision for uncollectible amounts, and costs for our corporate technology infrastructure and applications.

General and administrative expenses decreased $0.8 million, or 10%, to $8.3 million in fiscal year 2012 from $9.1 million in fiscal year 2011. This decrease is due to lower compensation expense of $0.7 million, primarily due to the reduction in our administrative staff as a result of the sale of the ICS Business Unit.

Severance and Related Costs

Severance and related costs includes cost-reduction actions, principally consisting of personnel reductions and an office consolidation. Cash savings related to cost-reduction actions for fiscal year 2012 are anticipated to be $0.3 million annually. The cost-reduction actions taken during fiscal year 2011 resulted in annual cash savings of $0.1 million. Costs related to office space reductions and office closures were paid pursuant to contractual lease terms through January 2012.

Severance and related costs were $0.7 million in fiscal year 2012 and $0.3 million of income in fiscal year 2011. In fiscal year 2012, the $0.7 million of expense for continuing operations was related to severance and related costs for the elimination of one position. In fiscal year 2011, the $0.3 million of income for continuing operations was related to the favorable renegotiation of an office lease, partially offset by severance and related costs for the elimination of one position and an office consolidation.

Depreciation

Depreciation increased $0.2 million, or 6%, to $3.4 million in fiscal year 2012 compared to $3.2 million in fiscal year 2011. The increase of $0.2 million in depreciation is primarily related to increased capital expenditures in fiscal year 2012.

Amortization of Intangibles

Amortization of intangibles decreased $0.1 million, or 54%, to $0.1 million in fiscal year 2012 compared to $0.2 million in fiscal year 2011. The decrease in amortization is primarily related to a $0.1 million charge in fiscal year 2011 to write off patent applications that the Company determined it no longer wished to pursue.

Operating Loss

Primarily as a result of the factors described above, we experienced an operating loss of $15.0 million for fiscal year 2012, compared to an operating loss of $16.6 million for fiscal year 2011, a $1.6 million, or 9% improvement.

Interest and Other (Expense) Income, Net

Non-operating interest and other (expense) income was $0.4 million of expense in fiscal year 2012 and was $0.1 million of income in fiscal year 2011. In fiscal year 2012, the $0.4 million of expense was primarily related to interest expense on our short-term debt and capital lease obligation. In fiscal year 2011, the $0.1 million of income was primarily related to favorable exchange rates on intercompany settlements, partially offset by interest expense on our capital lease obligation.

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Income Tax (Provision) Benefit

The income tax provision was less than $0.1 million for fiscal year 2012 and the tax benefit was $5.9 million in fiscal year 2011. The $5.9 million tax benefit in fiscal year 2011 was primarily related to the tax accounting treatment of the gain on the sale of the ICS Business Unit. As of December 31, 2012, total net deferred tax assets of $63.8 million were fully offset by a valuation allowance. The level of uncertainty in predicting when we will achieve profitability, sufficient to utilize our net U.S. and non-U.S. operating losses and realize our remaining deferred tax assets, requires that an income tax valuation allowance be recognized in the financial statements.

Income from Discontinued Operations

The income from discontinued operations in fiscal year 2012 was $0.2 million, net of tax benefit of $0.3 million, and in fiscal year 2011 was $28.9 million, net of tax of $6.8 million.

The income from discontinued operations of $0.2 million in fiscal year 2012 was due to a favorable Internal Revenue Service (“IRS”) ruling on a previously accrued income tax liability, partially offset by settlement costs relating to litigation with a former employee of the ICS Business Unit. The pretax loss from discontinued operations of $0.8 million in fiscal year 2011 was due to the impact of the results of the ICS Business Unit and the transaction costs associated with the sale of the ICS Business Unit. The pretax gain from the sale of assets included in discontinued operations in fiscal year 2011 was $36.5 million.

Net (Loss) Income Available to Common Stockholders

We reported net loss available to common stockholders of $15.9 million in fiscal year 2012 compared to net income available to common stockholders of $10.6 million in fiscal year 2011. Accrued dividends to holders of our Series B Stock were $0.6 million in fiscal year 2012 and $1.3 million in fiscal year 2011. In fiscal years 2012 and 2011, the Company paid $0.1 million and $6.6 million on the Series B Stock fair value over stated value, respectively. In fiscal year 2012, there was net loss of $0.99 per share on a basic and diluted basis, compared to net income of $0.74 per share on a basic and diluted basis in fiscal year 2011. For 2011, the net income was a result of the gain from the completion of the sale of the ICS Business Unit.

Year Ended December 31, 2011 Compared with the Year Ended January 1, 2011

Services Revenue

Services revenue is total revenue excluding reimbursable expenses that are billed to our clients. Our services revenue decreased 5% to $28.8 million in fiscal year 2011 from $30.3 million in fiscal year 2010.

Behavioral Analytics revenue was $27.3 million in fiscal year 2011 and was $25.2 million in fiscal year 2010. Behavioral Analytics revenue increased $2.1 million in fiscal year 2011 due to increased subscription fees associated with the conversion of several deployments to the subscription phase of the contract.

Other revenue decreased by $3.5 million in fiscal year 2011 to $1.5 million, from $5.0 million in fiscal year 2010, a decrease of 70%. The decrease in revenue was mainly due to the completion of several contracts for Marketing Managed Services and CRM Services performed for clients in fiscal year 2010 and lower demand for CRM Services from existing clients who utilize these services.

The Company’s top five clients accounted for 70% of total revenue in fiscal years 2011 and 2010. The top 10 clients accounted for 90% of total revenue in fiscal year 2011, compared to 86% in fiscal year 2010. In fiscal years 2011 and 2010, there were three and four clients, respectively, that accounted for 10% or more of total revenue. In fiscal year 2011, Vangent, Inc., Allstate Insurance Company, and Health Care Service Corporation accounted for 22%, 15%, and 14% of total revenue, respectively. In fiscal year 2010, Vangent, Inc., United HealthCare Services, Inc., Health Care Service Corporation, and Allstate Insurance Company accounted for 20%, 15%, 14%, and 13% of total revenue, respectively. Higher concentration of revenue with a single client or a limited group of clients creates increased revenue risk if one of these clients significantly reduces its demand for our services.

Cost of Revenue Before Reimbursed Expenses, Exclusive of Depreciation and Amortization

Cost of Services

Cost of services primarily consists of labor costs, including salaries, fringe benefits, and incentive compensation, royalties, and other customer related third-party outside services. Cost of services excludes depreciation and amortization.

Cost of Behavioral Analytics revenue in fiscal year 2011 was $12.2 million, or 45% of Behavioral Analytics revenue, compared to $12.0 million, or 48% of Behavioral Analytics revenue, in fiscal year 2010. The increase in cost was primarily due to increased data center expenses of $0.2 million. The percentage decrease in the Cost of Behavioral Analytics revenue was primarily due to improved leverage of our cost structure resulting from higher revenue in fiscal year 2011 compared to fiscal year 2010.

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Cost of Other revenue in fiscal year 2011 was $1.0 million, or 66% of Other revenue, compared to $3.5 million, or 70% of Other revenue, in fiscal year 2010. The decrease in cost was largely due to lower compensation expense of $2.4 million, driven by the lower demand for our CRM services.

Sales, Marketing and Development

Sales, marketing and development expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, marketing, and product development personnel. The personnel costs included here are net of any labor costs directly related to the generation of revenue, which are represented in Cost of services.

Sales, marketing and development expenses increased $1.4 million, or 8%, to $20.0 million in fiscal year 2011 from $18.6 million in fiscal year 2010. This increase was due to investment in our sales organization. During 2011, we added 8 account executives, which increased the total number of account executives to 17.

General and Administrative

General and administrative expenses consist primarily of salaries, incentive compensation, and employee benefits for administrative personnel, as well as facilities costs, a provision for uncollectible amounts, and costs for our corporate technology infrastructure and applications.

General and administrative expenses decreased $1.0 million, or 10%, to $9.1 million in fiscal year 2011 from $10.1 million in fiscal year 2010. This decrease was due to lower compensation expense of $0.9 million, primarily due to the 30% reduction in our administrative staff as a result of the sale of the ICS Business Unit.

Severance and Related Costs

In 2011 and 2010, a number of cost reduction activities were undertaken, principally consisting of personnel reductions and an office consolidation. Cash savings related to cost reduction actions taken in fiscal year 2011 was $0.1 million annually. The cost reduction actions taken in fiscal year 2010 resulted in annual cash savings of $2.8 million. Costs related to office space reductions and office closures were paid pursuant to contractual lease terms through January 2012.

Severance and related costs were $0.3 million of income in fiscal year 2011 and $0.5 million of expense in fiscal year 2010. In fiscal year 2011, the $0.3 million of income for continuing operations was related to the favorable renegotiation of an office lease, partially offset by severance and related costs for the elimination of one position and an office consolidation. In fiscal year 2010, the Company recorded $0.5 million of expense, primarily related to the elimination of 26 positions and an adjustment to sublease recoveries.

Depreciation

Depreciation decreased $0.1 million, or 3%, to $3.2 million in fiscal year 2011 compared to $3.3 million in fiscal year 2010. The decrease in depreciation was primarily related to assets becoming fully amortized.

Amortization of Intangibles

Amortization of intangibles increased $0.1 million, or 100%, to $0.2 million in fiscal year 2011 compared to $0.1 million in fiscal year 2010. The increase in amortization was primarily related to a $0.1 million charge to write off patent applications that the Company determined it no longer wished to pursue.

Operating Loss

Primarily as a result of the factors described above, we experienced an operating loss of $16.6 million for fiscal year 2011, compared to an operating loss of $17.9 million for fiscal year 2010.

Interest and Other Income (Expense), Net

Non-operating interest and other income (expense) was $0.1 million of income in fiscal year 2011 and was $0.1 million of expense in fiscal year 2010. In fiscal year 2011, the $0.1 million of income was primarily related to favorable exchange rates on intercompany settlements, partially offset by interest expense on our capital lease obligation. In fiscal year 2010, the $0.1 million of expense was primarily related to interest expense for our capital lease obligations.

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Income Tax Benefit

The income tax benefit was $5.9 million and $1.7 million in fiscal years 2011 and 2010, respectively. The $5.9 million tax benefit primarily related to the tax accounting treatment of the gain on the sale of the ICS Business Unit. As of December 31, 2011, total net deferred tax assets of $55.8 million were fully offset by a valuation allowance. The level of uncertainty in predicting when we will achieve profitability, sufficient to utilize our net U.S. and non-U.S. operating losses and realize our remaining deferred tax assets, requires that an income tax valuation allowance be recognized in the financial statements.

Income from Discontinued Operations

The income from discontinued operations in fiscal year 2011 was $28.9 million, net of tax of $6.8 million and the income in fiscal year 2010 was $3.0 million, net of tax of $1.8 million.

The income from discontinued operations of $28.9 million in fiscal year 2011 was due to the impact of the results of the ICS Business Unit and the transaction costs associated with the sale of the ICS Business Unit. The pretax gain from the sale of assets included in discontinued operations in fiscal year 2011 was $36.5 million. The income from discontinued operations of $3.0 million in fiscal year 2010 was due to the impact of the results of the ICS Business Unit.

Net Income (Loss) Available to Common Stockholders

We reported net income available to common stockholders of $10.6 million in fiscal year 2011 compared to a net loss available to common stockholders of $14.6 million in fiscal year 2010. In fiscal year 2011, the Company paid $6.6 million on the Series B Stock fair value over stated value. Accrued dividends to holders of our Series B Stock were $1.3 million in both fiscal years 2011 and 2010. In fiscal year 2011, there was net income of $0.74 per share on a basic and diluted basis, compared to a net loss of $1.06 per share on a basic and diluted basis in fiscal year 2010.

Liquidity and Capital Resources

Introduction

Our principal capital requirements are to fund working capital needs, capital expenditures for Behavioral Analytics and infrastructure requirements, and other revenue generation and growth investments. As of December 31, 2012, our principal capital resources consisted of our cash and cash equivalents balance of $14.4 million, which includes $0.3 million in foreign bank accounts.

Our cash and cash equivalents position decreased $15.0 million, or 51%, as of December 31, 2012, from $29.4 million as of December 31, 2011.

The decrease in cash during fiscal year 2012 was primarily the result of the net loss before non-cash items, a decrease in unearned revenue reflecting the recognition of previously deferred revenue, the purchase of shares of Series B Stock, capital lease principal payments, capital expenditures, and the acquisition of treasury stock, partially offset by proceeds from our revolving line of credit agreement and a decrease in prepaid expenses. Restricted cash decreased $1.5 million for fiscal year 2012 and $1.0 million for fiscal year 2011, respectively. Prior to June 30, 2012, restricted cash was primarily used as collateral for letters of credit issued in support of future capital lease obligations. See “Credit Facility” description below.

The decrease in cash in fiscal year 2011 was primarily the result of the net loss before non-cash items, capital expenditures, cash dividend payments on Series B Stock, the acquisition of treasury stock, and capital lease principal payments.

Cash Flows from Operating Activities

Net cash used in operating activities of continuing operations during fiscal years 2012 and 2011 was $11.0 million and $10.5 million, respectively. During fiscal year 2012, cash outflows of $11.0 million from operating activities consisted primarily of the net loss before non-cash items of $7.9 million and a $4.6 million decrease in unearned revenue reflecting the recognition of previously deferred revenue, offset by a decrease in prepaid expense.

During fiscal year 2011, cash outflows of $10.5 million from operating activities consisted primarily of the net loss before depreciation, amortization, and non-cash items of $7.7 million, and an increase in prepaid costs of $2.3 million, which primarily consist of costs associated with unearned revenue.

Net cash provided by operating activities of discontinued operations during fiscal year 2012 was $24 thousand. Net cash used in operating activities of discontinued operations during fiscal year 2011 was $5.8 million. During fiscal year 2011, cash outflows of $5.8 million from operating activities of discontinued operations consisted primarily of a $5.1 million decrease in unearned revenue reflecting the recognition of previously deferred revenue, partially offset by lower prepaid costs of $1.1 million, due primarily to the amortization of deferred deployment costs.

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DSO for continuing operations was 26 days at December 31, 2012 and December 31, 2011. Because a high percentage of our revenue is dependent on a relatively small number of clients, delayed payments by a few of our larger clients could result in a reduction of our available cash, which in turn may cause fluctuation in our DSO. We do not expect any significant collection issues with our clients; see “Accounts Receivable Customer Concentration” for additional information on cash collections.

As of December 31, 2012, there were no outstanding liabilities for severance and related costs for continuing operations. See Note Four “Severance and Related Costs” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K.

Cash Flows from Investing Activities

The Company used $2.2 million of cash in continuing investing activities during fiscal year 2012 and $0.8 million during fiscal year 2011. Capital expenditures were primarily used to purchase computer hardware and software during fiscal year 2012 and 2011, respectively. We currently expect to incur new capital investments of between $4.0 million and $5.0 million for fiscal year 2013 and plan on funding approximately $3.0 million to $3.8 million of these purchases with capital leases.

There was no net cash used in discontinued investing activities during fiscal year 2012. Net cash provided by discontinued investing activities was $37.4 million during fiscal year 2011. Proceeds from the sale of assets held for sale were $37.6 million during fiscal year 2011, partially offset by cash usage of $0.2 million primarily due to capital expenditures for the purchase of computer hardware and software.

Cash Flows from Financing Activities

The Company used $1.8 million and $10.6 million of cash in continuing financing activities during fiscal year 2012 and 2011, respectively. Net cash outflows of $1.8 million during fiscal year 2012 were primarily attributable to: $3.7 million to purchase shares of Series B Stock, $2.3 million of principal payments under our capital lease obligations; $1.1 million of cash used to acquire treasury stock; and $0.6 million for cash dividend payments on Series B Stock, partially offset by proceeds from our revolving line of credit agreement of $3.7 million and a decrease in restricted cash of $1.5 million. See “Credit Facility” description below.

Net cash outflows of $10.6 million during fiscal year 2011 were primarily attributable to: $12.5 million of cash used to repurchase 1,872,805 shares of Series B Stock under the terms of Settlement Agreement; $2.2 million for cash dividend payments on Series B Stock, which included payment of previously accrued and unpaid dividends; $1.9 million of principal payments under our capital lease obligations; and $1.0 million of cash used to acquire treasury stock, offset by proceeds of $6.0 million from the purchase by IGC Fund of the Shares pursuant to the terms of the Purchase Agreement, and a decrease in restricted cash of $1.0 million.

There was no net cash used in discontinued financing activities during fiscal year 2012. Net cash used in discontinued financing activities was $0.7 million during fiscal year 2011. The usage in fiscal year 2011 was primarily related to $0.6 million of cash used to acquire treasury shares.

Historically, we have not paid cash dividends on our Common Stock, and we do not expect to do so in the future. A cash dividend on the Series B Stock of $0.3 million, for the period January 1, 2012 through June 30, 2012, was paid on July 2, 2012, and $0.3 million was paid on January 3, 2012 for the dividend period July 1, 2011 through December 31, 2011. The Board of Directors resolved to suspend the dividend payment, which was accrued, for the dividend period July 1, 2012 through December 31, 2012 (the amount of this semi-annual dividend was approximately $0.3 million. The dividend payment of $1.9 million paid on July 1, 2011 was for the dividend periods January 1, 2011 through June 30, 2011, July 1, 2010 through December 31, 2010, and July 1, 2008 through December 31, 2008. Under the terms of the Certificate of Designations for the Series B Stock, unpaid dividends are cumulative and accrue at the rate of 7% per annum, payable semi-annually in January and July. The amount of each dividend accrual will be decreased by any conversions of the Series B Stock into Common Stock, as such conversions require the Company to pay accrued but unpaid dividends at the time of conversion. Conversions of Series B Stock became permissible at the option of the holder after June 19, 2002.

In fiscal year 2012, the Company spent approximately $0.1 million related to its Series B Stock tender offer. The Company expects to acquire between $0.1 million and $0.3 million of treasury stock during the first quarter of 2013 to meet employee tax obligations associated with the Company’s stock-based compensation programs.

Liquidity

Our near-term capital resources consist of our current cash balance, together with anticipated future cash flows, financing from capital leases, and our revolving line of credit (See “Credit Facility” below). Our balance of cash and cash equivalents was $14.4 million as of December 31, 2012.

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We anticipate that our current unrestricted cash resources, together with operating revenue and capital lease financing, should be sufficient to satisfy our short-term working capital and capital expenditure needs for the next twelve months. Management will continue to assess opportunities to maximize cash resources by actively managing our cost structure and closely monitoring the collection of our accounts receivable. If, however, our operating activities, capital expenditure requirements, or net cash needs differ materially from current expectations due to uncertainties surrounding the current capital market, credit and general economic conditions, competition, or the termination of a large client contract, then there is no assurance that we would have access to additional external capital resources on acceptable terms.

Credit Facility

On June 29, 2012, the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers, entered into a Loan and Security Agreement with Silicon Valley Bank (the “Credit Facility”). The Credit Facility provides for a $10.0 million revolving line of credit maturing in 2014 and is secured by a security interest in the Company’s accounts receivable, equipment, inventory, cash, deposit accounts, securities, and all other investment property, supporting obligations, financial assets, and other personal property, with the exception of the Company’s intellectual property rights. The Company and its subsidiaries, subject to certain limits and restrictions, may from time to time request the issuance of letters of credit under the Credit Facility.

On June 29, 2012, the Company used the Credit Facility to repay in full the principal balance and accrued and unpaid interest outstanding under the promissory notes issued by the Company to various affiliates of TCV to settle the previously disclosed arbitration, in an amount equal to approximately $3.7 million. The principal amount outstanding under the Credit Facility will accrue interest at a floating annual rate equal to three quarters of one percentage point (0.75%) above the United States prime rate, payable monthly. In addition, the Company will pay a commitment fee on the Credit Facility and a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears.

The Credit Facility imposes various restrictions on the Company, including usual and customary limitations on the ability of the Company or any of its subsidiaries to incur debt and to grant liens upon their assets, and prohibits certain consolidations, mergers, and sales and transfers of assets by the Company and its subsidiaries. The Credit Facility includes usual and customary events of default for facilities of this nature (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payment of all amounts payable under the Credit Facility may be accelerated and/or the lenders’ commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the Credit Facility will automatically become immediately due and payable, and the lenders’ commitments will automatically terminate.

Upon the effectiveness of the Credit Facility with Silicon Valley Bank, the Company terminated its loan agreement with Bank of America, N.A., dated December 24, 2010, as amended, which was scheduled to expire by its terms on December 31, 2012.

See Note Ten “Short-Term Debt” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K.

Accounts Receivable Customer Concentration

As of December 31, 2012, four clients, Allstate Insurance Company, United HealthCare Services, Inc., CVS Pharmacy, Inc., and State Farm Bank, accounted for 23%, 17%, 13%, and 11% of total gross accounts receivable, respectively. Of these amounts, we have collected 100% from Allstate Insurance Company, 54% from United HealthCare Services, Inc., 100% from CVS Pharmacy, Inc., and 100% from State Farm Bank through March 8, 2013. Of the total December 31, 2012 gross accounts receivable, we have collected 91% as of March 8, 2013. Because we have a high percentage of our revenue dependent on a relatively small number of clients, delayed payments by a few of our larger clients could result in a reduction of our available cash.

Capital Lease Obligations

Capital lease obligations as of December 31, 2012 and December 31, 2011 were $2.3 million and $2.8 million, respectively. We are a party to a capital lease agreement with a leasing company to lease hardware and software. We expect to incur new capital lease obligations of between $3.0 million to $3.8 million for fiscal year 2013 as we continue to expand our investment in the infrastructure for Behavioral Analytics.

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Contractual Obligations

Cash will also be required for operating leases and non-cancellable purchase obligations, as well as various commitments reflected as liabilities on our balance sheet as of December 31, 2012. These commitments are as follows:

Continuing Operations

(In millions) Contractual Obligations	Total		Less Than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years
Letters of credit	$	1.2	$	1.2	$	—	$	—	$	—
Operating leases		2.8		0.9		1.6		0.3		—
Capital leases		2.6		1.8		0.6		0.2		—
Severance and related costs*		—		—		—		—		—
Purchase obligations		1.8		1.8		—		—		—
Total	$	8.4	$	5.7	$	2.2	$	0.5	$	—

* Less than $0.1 million.

Due to the existence of the Company’s net operating loss carryforward, as described in Note Eight “Income Taxes” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K, no net tax contractual obligations exist as of December 31, 2012.

Letters of Credit

The amounts set forth in the chart above reflect standby letters of credit issued as collateral for capital leases. Specifically, these amounts reflect the face amount of these letters of credit that expire in each period presented.

Leases

The amounts set forth in the chart above reflect future principal, interest, and executory costs of the leases entered into by the Company for technology and office equipment, as well as office and data center space. Liabilities for the principal portion of the capital lease obligations are reflected on our balance sheet as of December 31, 2012 and December 31, 2011.

Severance and Related Costs

Severance and related costs reflect payments the Company is required to make in future periods for severance and other related costs due to cost-reduction actions in fiscal year 2012 and prior periods. There were no liabilities for severance and related costs as of December 31, 2012. Liabilities for these required payments are reflected on our balance sheet as of December 31, 2012.

Purchase Obligations

Purchase obligations include $0.9 million of commitments reflected as liabilities on our balance sheet as of December 31, 2012, as well as $0.9 million of non-cancellable obligations to purchase goods or services in the future. As of December 31, 2011, purchase obligations include $1.4 million of commitments reflected as liabilities on our balance sheet, as well as $0.4 million of non-cancellable obligations to purchase goods or services in the future.

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350) — Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Historically, we have not experienced material fluctuations in our results of operations due to foreign currency exchange rate changes. We do not currently engage, nor is there any plan to engage, in hedging foreign currency risk.

We also have interest rate risk with respect to changes in variable interest rates on our revolving line of credit, and our cash and cash equivalents and restricted cash. Interest on the line of credit is currently based on either Silicon Valley Bank’s prime rate, or LIBOR, which varies in accordance with prevailing market conditions. A change in interest rate impacts the interest expense on the line of credit and cash flows. This interest rate risk will not have a material impact on our financial position or results of operations.

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Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF MATTERSIGHT CORPORATION

	Page
Financial Statements:
Reports of Grant Thornton LLP Independent Registered Public Accounting Firm		25
Consolidated Balance Sheets — as of December 31, 2012 and December 31, 2011		27
Consolidated Statements of Operations — for the fiscal years ended December 31, 2012,  December 31, 2011, and January 1, 2011		28
Consolidated Statements of Comprehensive (Loss) Income — for the fiscal years ended December  31, 2012, December 31, 2011, and January 1, 2011		29
Consolidated Statements of Cash Flows — for the fiscal years ended December 31, 2012,  December 31, 2011, and January 1, 2011		30
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) — for the fiscal years ended December 31, 2012, December 31, 2011, and January 1, 2011		31
Notes to Consolidated Financial Statements		32
Financial Statement Schedule:
Schedule II-Valuation and Qualifying Accounts — for the fiscal years ended December  31, 2012, December 31, 2011, and January 1, 2011		55

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Mattersight Corporation

We have audited the internal control over financial reporting of Mattersight Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2012, and our report dated March 14, 2013 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Chicago, IL

March 14, 2013

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Mattersight Corporation

We have audited the accompanying consolidated balance sheets of Mattersight Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive (loss) income, changes in shareholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2012. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Schedule II- Valuation and Qualifying Accounts. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mattersight Corporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2013 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

Chicago, IL

March 14, 2013

26

MATTERSIGHT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	December 31, 2012			December 31, 2011
ASSETS:
Current Assets:
Cash and cash equivalents	$	14,419		$	29,408
Restricted cash		—			1,500
Receivables, net		2,568			2,540
Prepaid expenses		4,359			5,302
Other current assets		305			288
Total current assets		21,651			39,038
Equipment and leasehold improvements, net		4,727			4,271
Goodwill		972			972
Intangibles, net		236			238
Other long-term assets		3,776			4,746
Total assets	$	31,362		$	49,265
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current Liabilities:
Short-term debt	$	3,703		$	3,567
Accounts payable		781			812
Accrued compensation and related costs		1,335			1,382
Unearned revenue		5,853			9,783
Other current liabilities		2,889			3,673
Total current liabilities		14,561			19,217
Long-term unearned revenue		2,374			3,036
Other long-term liabilities		1,231			1,401
Total liabilities		18,166			23,654
Series B Stock, $0.01 par value; 5,000,000 shares authorized and designated; 1,649,201 and 1,670,696 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively, with a liquidation preference of $8,705 and $8,819 at December 31, 2012 and December 31, 2011, respectively		8,411			8,521
Stockholders’ Equity:
Preferred Stock, $0.01 par value; 35,000,000 shares authorized; none issued and outstanding		—			—
Common Stock, $0.01 par value; 50,000,000 shares authorized; 18,407,848 and 18,037,552 shares issued at December 31, 2012 and December 31, 2011, respectively; and 17,114,880 and 16,935,204 outstanding at December 31, 2012 and December 31, 2011, respectively		184			180
Additional paid-in capital		216,667			212,618
Accumulated deficit		(201,000	)		(185,779	)
Treasury stock, at cost, 1,292,968 and 1,102,348 shares at December 31, 2012 and December 31, 2011, respectively		(7,027	)		(5,891	)
Accumulated other comprehensive loss		(4,039	)		(4,038	)
Total stockholders’ equity		4,785			17,090
Total liabilities and stockholders’ equity	$	31,362		$	49,265

See accompanying notes to consolidated financial statements.

27

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	For the Fiscal Years Ended
	2012			2011			2010
Revenue:
Behavioral Analytics revenue	$	32,138		$	27,257		$	25,246
Other revenue		1,314			1,519			5,014
Total services revenue		33,452			28,776			30,260
Reimbursed expenses		411			319			625
Total revenue		33,863			29,095			30,885
Operating expenses:
Cost of Behavioral Analytics revenue		12,208			12,188			11,999
Cost of Other revenue		702			1,000			3,511
Cost of services		12,910			13,188			15,510
Reimbursed expenses		411			319			625
Total cost of revenue, exclusive of depreciation and amortization shown below:		13,321			13,507			16,135
Sales, marketing and development		23,142			19,954			18,640
General and administrative		8,255			9,144			10,082
Severance and related costs		693			(336	)		494
Depreciation		3,419			3,218			3,291
Amortization of intangibles		81			177			132
Total operating expenses		48,911			45,664			48,774
Operating loss		(15,048	)		(16,569	)		(17,889	)
Interest and other (expense) income, net		(384	)		125			(121	)
Loss from continuing operations before income taxes		(15,432	)		(16,444	)		(18,010	)
Income tax (provision) benefit		(38	)		5,884			1,706
Loss from continuing operations		(15,470	)		(10,560	)		(16,304	)
Income from discontinued operations, net of tax		249			28,920			2,986
Net (loss) income		(15,221	)		18,360			(13,318	)
Series B Stock fair value over stated value		(69	)		(6,555	)		—
Dividends related to Series B Stock		(591	)		(1,252	)		(1,273	)
Net (loss) income available to Common Stock holders	$	(15,881	)	$	10,553		$	(14,591	)
Per share of Common Stock:
Basic loss from continuing operations (See Note Twenty-One)	$	(1.01	)	$	(1.29	)	$	(1.28	)
Basic income from discontinued operations	$	0.02		$	2.03		$	0.22
Basic net (loss) income available to Common Stock holders	$	(0.99	)	$	0.74		$	(1.06	)
Per share of Common Stock:
Diluted loss from continuing operations (See Note Twenty-One)	$	(1.01	)	$	(1.29	)	$	(1.28	)
Diluted income from discontinued operations	$	0.02		$	2.03		$	0.22
Diluted net (loss) income available to Common Stock holders	$	(0.99	)	$	0.74		$	(1.06	)
Shares used to calculate basic net (loss) income per share		16,002			14,225			13,701
Shares used to calculate diluted net (loss) income per share		16,002			14,225			13,701
Stock-based compensation, primarily restricted stock, is included in individual line items above:
Cost of Behavioral Analytics revenue	$	16		$	20		$	68
Sales, marketing and development		2,308			3,387			2,484
General and administrative		1,405			2,013			1,840
Severance and related costs		268			—			—
Discontinued operations		—			1,175			809

See accompanying notes to consolidated financial statements.

28

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

	For the Fiscal Years Ended
	2012			2011			2010
Net (loss) income	$	(15,221	)	$	18,360		$	(13,318	)
Other comprehensive loss:
Effect of currency translation		(1	)		(350	)		(59	)
Comprehensive net (loss) income	$	(15,222	)	$	18,010		$	(13,377	)

See accompanying notes to consolidated financial statements.

29

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the Fiscal Years Ended
	2012			2011			2010
Cash Flows from Operating Activities:
Net (loss) income	$	(15,221	)	$	18,360		$	(13,318	)
Less: net income from discontinued operations		249			28,920			2,986
Net loss from continuing operations		(15,470	)		(10,560	)		(16,304	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization		3,500			3,395			3,423
Stock-based compensation		3,729			5,420			4,392
Severance and related costs		268			—			—
Other		2			14			16
Changes in assets and liabilities:
Receivables		(27	)		(554	)		1,422
Prepaid expenses		1,879			(2,254	)		953
Other assets		(50	)		128			(19	)
Accounts payable		(31	)		445			(575	)
Accrued compensation and related costs		(47	)		(264	)		(1,311	)
Unearned revenue		(4,592	)		275			(1,641	)
Other liabilities		(177	)		(6,554	)		(1,798	)
Total Adjustments		4,454			51			4,862
Net cash used in continuing operations		(11,016	)		(10,509	)		(11,442	)
Net cash provided by (used in) discontinued operations		24			(5,787	)		8,431
Net cash used in operating activities		(10,992	)		(16,296	)		(3,011	)
Cash Flows from Investing Activities:
Capital expenditures and other		(2,160	)		(833	)		(1,219	)
Proceeds from sale/leaseback of assets		—			—			423
Net cash used in continuing investing activities		(2,160	)		(833	)		(796	)
Net cash provided by (used in) discontinued investing activities		—			37,427			(1,593	)
Net cash (used in) provided by investing activities		(2,160	)		36,594			(2,389	)
Cash Flows from Financing Activities:
Proceeds from line of credit		3,691			—			—
Decrease in restricted cash		1,500			960			1,285
Proceeds from stock compensation and employee stock purchase plans, net		802			126			202
Purchase of shares of Series B Stock		(3,743	)		(12,547	)		—
Principal payments under capital lease obligations		(2,311	)		(1,862	)		(1,578	)
Acquisition of treasury stock		(1,136	)		(1,008	)		(991	)
Payment of Series B Stock dividends		(595	)		(2,221	)		(1,297	)
(Fees) proceeds from issuance of Common Stock		(49	)		6,000			—
Net cash used in continuing financing activities		(1,841	)		(10,552	)		(2,379	)
Net cash used in discontinued financing activities		—			(678	)		(292	)
Net cash used in financing activities		(1,841	)		(11,230	)		(2,671	)
Effect of exchange rate changes on cash and cash equivalents by continuing operations		4			(299	)		(65	)
Effect of exchange rate changes on cash and cash equivalents by discontinued operations		—			(233	)		26
Effect of exchange rate changes on cash and cash equivalents		4			(532	)		(39	)
(Decrease) increase in cash and cash equivalents		(14,989	)		8,536			(8,110	)
Cash and cash equivalents, beginning of period		29,408			20,872			28,982
Cash and cash equivalents of continuing operations, end of period	$	14,419		$	29,408		$	20,872
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred	$	1,793		$	2,517		$	1,385
Capital equipment purchased on credit		1,793			2,517			1,385
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	371		$	187		$	157

See accompanying notes to consolidated financial statements.

30

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share data)

	Common Stock Issued						Additional Paid-in Capital			(Accumulated Deficit)			Treasury Stock			Accumulated Other Compre- hensive Loss			Total Stock- holders’ Equity (Deficit)
	Shares			Amount
Balance, December 26, 2009		14,871,521		$	149		$	203,627		$	(190,821	)	$	(3,295	)	$	(3,629	)	$	6,031
Issuance of Common Stock for option awards exercised		895			—			2			—			—			—			2
Issuance of Common Stock related to employee stock programs		731,010			6			325			—			—			—			331
Amortization/forfeitures of unearned compensation		(27,695	)		—			4,963			—			—			—			4,963
Purchase of treasury shares		—			—			—			—			(1,173	)		—			(1,173	)
Series B Stock conversions		67,091			1			341			—			—			—			342
Series B Stock dividend		—			—			(1,273	)		—			—			—			(1,273	)
Other comprehensive loss		—			—			—			—			—			(59	)		(59	)
Net loss		—			—			—			(13,318	)		—			—			(13,318	)
Balance, January 1, 2011		15,642,822		$	156		$	207,985		$	(204,139	)	$	(4,468	)	$	(3,688	)	$	(4,154	)
Proceeds from issuance of Common Stock		1,252,609			12			5,988			—			—			—			6,000
Issuance of Common Stock related to employee stock programs		1,258,289			12			155			—			—			—			167
Amortization/forfeitures of unearned compensation		(101,125	)		—			6,493			—			—			—			6,493
Retire treasury shares		(20,620	)		—			(224	)		—			224			—			—
Purchase of treasury shares		—			—			—			—			(1,647	)		—			(1,647	)
Series B Stock retired		—			—			(6,555	)		—			—			—			(6,555	)
Series B Stock conversions		5,577			—			28			—			—			—			28
Series B Stock dividend		—			—			(1,252	)		—			—			—			(1,252	)
Other comprehensive loss		—			—			—			—			—			(350	)		(350	)
Net income		—			—			—			18,360			—			—			18,360
Balance, December 31, 2011		18,037,552		$	180		$	212,618		$	(185,779	)	$	(5,891	)	$	(4,038	)	$	17,090
Issuance of Common Stock for option awards exercised		173,600			1			663			—			—			—			664
Fees for issuance of Common Stock		—			—			(49	)		—			—			—			(49	)
Issuance of Common Stock related to employee stock programs		481,407			5			445			—			—			—			450
Amortization/forfeitures of unearned compensation		(286,448	)		(2	)		3,655			—			—			—			3,653
Purchase of treasury shares		—			—			—			—			(1,136	)		—			(1,136	)
Series B Stock purchased		—			—			(82	)		—			—			—			(82	)
Series B Stock conversions		1,737			—			8			—			—			—			8
Series B Stock dividend		—			—			(591	)		—			—			—			(591	)
Other comprehensive loss		—			—			—			—			—			(1	)		(1	)
Net loss		—			—			—			(15,221	)		—			—			(15,221	)
Balance, December 31, 2012		18,407,848		$	184		$	216,667		$	(201,000	)	$	(7,027	)	$	(4,039	)	$	4,785

See accompanying notes to consolidated financial statements.

31

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)

Note One — Description of Business

Mattersight Corporation (together with its subsidiaries and predecessors, “Mattersight,” “we,” “us,” or the “Company”) is a leader in enterprise analytics focused on customer and employee interactions and behaviors. Mattersight’s Behavioral Analytics Service captures and analyzes customer and employee interactions, employee desktop data, and other contextual information to improve operational performance and predict future customer and employee outcomes. Mattersight’s analytics are based on millions of proprietary algorithms and the application of unique behavioral models. The Company’s SaaS+ delivery model combines analytics in the cloud with deep customer partnerships to drive significant business value. Mattersight’s applications are used by leading companies in the healthcare, insurance, financial services, telecommunications, cable, utilities, education, hospitality, and government industries.

Through Behavioral Analytics, the Company generates two types of revenue:

(1) Managed services revenue, which is recurring, annuity revenue from long-term (generally three- to five-year) contracts and pilots, which are shorter term (generally three to twelve months) and includes subscription and amortized deployment revenue; and

(2) Consulting services revenue, which is generally project-based and sold on a time-and-materials or fixed-fee basis and includes follow-on consulting services revenue.

Set forth below is a more detailed description of the capabilities that the Company currently offers.

Behavioral Analytics

The Company’s multi-channel technology captures the unstructured data of voice interactions (conversations), related customer and employee data, and employee desktop activity, and applies millions of proprietary algorithms against those interactions. Each interaction contains hundreds of attributes that get scored and ultimately detect patterns of behavior or business process that provide the transparency and predictability necessary to enhance revenue, improve the customer experience, improve efficiency, and predict and navigate outcomes. Adaptive across industries, programs, and industry-specific processes, the Company’s Behavioral Analytics offerings enable its clients to drive measurable economic benefit through the improvement of contact center performance, customer satisfaction and retention, fraud reduction, and streamlined back office operations. Specifically, through its Behavioral Analytics offerings, Mattersight helps its clients:

• Automatically measure customer satisfaction and agent performance on every analyzed call;

• Identify and understand customer personality;

• Identify optimal customer/employee behavioral pairing for call routing;

• Improve rapport between agent and customer;

• Reduce call handle times while improving customer satisfaction;

• Identify opportunities to improve self-service applications;

• Improve cross-sell and up-sell success rates;

• Improve the efficiency and effectiveness of collection efforts;

• Measure and improve supervisor effectiveness and coaching;

• Improve agent effectiveness by analyzing key attributes of desktop usage;

• Predict likelihood of customer attrition;

• Predict customer satisfaction and Net Promoter Scores^® without customer surveys;

• Predict likelihood of debt repayment;

• Predict likelihood of a sale or cross-sell; and

• Identify fraud callers and improve authentication processes.

32

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company has designed a highly-scalable, flexible, and adaptive application platform to enable the Company to implement and operate its Behavioral Analytics offerings for its clients. These offerings are primarily delivered through a SaaS+ model, as a managed subscription service from which Mattersight derives Managed services revenue and Consulting services revenue. Managed services revenue consists of deployment and subscription services and Consulting services revenue consists of post-deployment follow-on services, including coaching, training, and custom data analysis.

In addition to our Behavioral Analytics offerings, Mattersight also generates revenue from the following services:

(1) Marketing Managed Services, which consist of marketing application hosting services, from which the Company derives Managed services revenue; and

(2) CRM Services, which consist of operational consulting services that enhance business performance through improved process efficiencies and redesign of workflows, from which the Company derives Consulting services revenue.

Types of Revenue

Managed Services Revenue

Growth in Managed services revenue is primarily driven by the execution of new Behavioral Analytics contracts, under which we deploy and provide ongoing managed services related to our proprietary Behavioral Analytics System and provide related Business Monitoring services. Based on each client’s business requirements, the Behavioral Analytics System is configured and integrated into the client’s environment and then deployed in either a remote-hosted or, in one case, an on-premise hosted environment. Thereafter, the client’s selection of our Behavioral Analytics offerings is provided, on a subscription basis, for a period that is generally three to five years after the go-live date or, in the cases where the Company contracts with a client for a short-term pilot of the Behavioral Analytics Service prior to committing to a longer subscription period, the subscription or pilot periods generally range from three to twelve months after the go-live date. The fees and costs related to the initial deployment are deferred and amortized over the term of the contract.

We also generate Managed services revenue from Marketing Managed Services, specifically, from hosted customer and campaign data management. This source of Managed services revenue is likely to diminish over time as we focus on growth through Behavioral Analytics.

Consulting Services Revenue

In addition to the Consulting services revenue generated by the Consulting services provided under our Behavioral Analytics contracts, we derive a portion of this type of revenue from CRM Services for long-standing accounts. Consulting services revenue from CRM Services is anticipated to diminish over time as demand for these services continues to decline and we focus on growth through Behavioral Analytics. We bill for Consulting services on a time-and-materials or fixed-fee basis.

Note Two — Summary of Significant Accounting Policies

Fiscal Year-End

The fiscal year-end dates presented for fiscal years 2012, 2011, and 2010 are December 31, 2012, December 31, 2011, and January 1, 2011, respectively. Fiscal year 2010 consisted of fifty-three weeks instead of fifty-two weeks, which did not have a material impact on the Company’s financial position or results of operations.

By unanimous written consent effective December 26, 2012, the Company’s Board of Directors determined to change the Company’s fiscal year end from the last Saturday in December to December 31, beginning with fiscal 2012. Beginning with the fourth quarter of 2012, the Company’s fiscal quarters will end on calendar quarter ends.

Consolidation

The consolidated financial statements include the accounts of Mattersight and all of its subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those amounts.

33

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Reclassifications and Revisions

The Company changed the revenue classification of one contract from Other revenue to Behavioral Analytics revenue in the fourth quarter of 2011 to better reflect the type of services provided under this contract. Revenue for this contract has been reclassified in all historical periods.

As a result, the Company reclassified $0.5 million for fiscal year 2010 from Other revenue to Behavioral Analytics revenue. Cost of services for this contract has also been reclassified in all historical periods. As a result, the Company reclassified $0.3 million for fiscal year 2010 from Cost of Other revenue to Cost of Behavioral Analytics revenue.

Certain leadership, recruiting, and facility management expenses that have been previously reported as Sales, marketing and development have been reclassified to General and administrative. As a result, the Company reclassified $1.7 million for fiscal year 2010 from Sales, marketing and development to General and administrative.

The changes in the preceding paragraphs did not have an impact on net (loss) income and are not material to the financial statements.

Discontinued Operations

The sale by the Company of its ICS Business Unit and “eLoyalty” registered trademark / trade name to Magellan Acquisition Sub, LLC, a Colorado limited liability company and wholly-owned subsidiary of TeleTech Holdings, Inc., a Delaware corporation, closed on May 28, 2011, and the Company changed its name from eLoyalty Corporation to Mattersight Corporation effective June 1, 2011. Therefore, the results of operations of the ICS Business Unit are reported as discontinued operations for all periods presented. Additionally, certain corporate and general costs that had historically been allocated to the ICS Business Unit were reallocated to the Company and are reflected in all periods presented. Mattersight now reports financial results on a single business segment, primarily focused on Behavioral Analytics.

Revenue Recognition

Continuing Operations

Behavioral Analytics Revenue

Behavioral Analytics revenue consists of Managed services revenue and Consulting services revenue derived from the performance of Behavioral Analytics.

Managed services revenue consists of planning, deployment, training, and subscription fees derived from Behavioral Analytics contracts. Planning, deployment, and training fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the subscription period of the applicable subscription contract. The subscription periods of these contracts generally range from three to five years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of Behavioral Analytics prior to committing to a longer subscription period, the subscription or pilot periods generally range from three to twelve months after the go-live date. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in Prepaid expenses and Other long-term assets. Such costs are amortized over the subscription period of the contract. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

The amount of revenue generated from subscription fees is based on a number of factors, such as the number of users to whom the Behavioral Analytics Service is provided, the type and number of Behavioral Analytics offerings deployed to the client, and, in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. This revenue is recognized as the service is performed for the client.

Consulting services revenue primarily consists of fees charged to the Company’s clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training. These follow-on consulting services are generally performed for the Company’s clients on a fixed-fee basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared to the total estimated hours over the entire term of the contract.

34

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Revenue

Other revenue consists of Marketing Managed Services revenue and CRM Services revenue.

Marketing Managed Services revenue is derived from marketing application hosting. This revenue is generally in the form of fixed monthly fees received from the Company’s clients and is recognized as the services are performed for the client. Any related setup fee would be recognized over the term of the hosting contract.

CRM Services revenue consists of fees generated from the Company’s operational consulting services, which are provided to the Company’s clients on a time-and-materials or fixed-fee basis. The Company recognizes revenue as the services are performed for time-and-materials projects. For fixed-fee projects, revenue is recognized based on the ratio of hours incurred to-date compared to the total estimated hours over the entire term of the contract.

Discontinued Operations

ICS Business Unit

Managed services revenue included in the ICS Business Unit consisted of fees generated from the Company’s contact center support and monitoring services. Support and monitoring services generally were contracted for a fixed fee, and the revenue was recognized ratably over the term of the contract. Support fees that were contracted on a time-and-materials basis were recognized as the services were performed for the client.

For fixed fee Managed services contracts, where the Company provided support for third-party software and hardware, revenue was recorded at the gross amount of the sale. If the contract did not meet the requirements for gross reporting, then Managed services revenue was recorded at the net amount of the sale.

Consulting services revenue included in the ICS Business Unit consisted of the modeling, planning, configuring, or integrating of an Internet Protocol network solution within the Company’s clients’ contact center environments. These services were provided to clients on a time-and-materials or fixed-fee basis. For the integration of a system, the Company recognized revenue as the services were performed, with performance generally assessed on the ratio of hours incurred to date compared to the total estimated hours over the entire term of the contract. For all other consulting services, the Company recognized revenue as the services were performed for the client.

Revenue from the sale of Product, which was generated primarily from the resale of third-party software and hardware by the Company, was generally recorded at the gross amount of the sale when it was delivered to the client.

In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple deliverable revenue arrangements to:

(i) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

(ii) require an entity to allocate revenue in an arrangement using estimated selling prices (“ESP”) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (“VSOE”) or third-party evidence of selling price (“TPE”); and

(iii) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.

The Company elected to adopt this accounting guidance at the beginning of the first quarter of fiscal year 2011, on a prospective basis. The adoption of this guidance does not impact the Company’s revenue recognition with respect to Behavioral Analytics because the implementation services sold with its Managed services are not separated into multiple accounting units because there is no standalone fair value for these services. The Company recognizes these services revenues over the anticipated subscription period. This accounting guidance does not change the units of accounting for the Company’s revenue transactions or the methods used to allocate consideration to the units of accounting. The revenue recognition for each of these offerings is discussed below.

35

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the ICS Business Unit, the Company utilized VSOE to allocate revenue to various elements in an arrangement. The Company determined VSOE based on its normal pricing and discounting practices for the product or service when sold separately. In determining VSOE, the Company required that a substantial majority of the selling prices for a product or consulting services fall within a reasonably narrow pricing range, generally evidenced by approximately 80% of such historical standalone transactions falling within plus or minus 20% of the median selling price. For the ICS Business Unit’s managed services, the Company established VSOE through the stated renewal approach. The Company was able to establish VSOE for its product and service offerings except for software. If the Company was not able to establish VSOE for an offering, it attempted to establish fair value by utilizing TPE, which was established by obtaining evidence from comparable offerings from a peer company. If the Company was unable to establish fair value using VSOE or TPE, then the Company used ESP in its allocation of revenue. To determine ESP, the Company applied significant judgment as it weighed a variety of factors, based on the facts and circumstances of the arrangement. These factors included internal costs, gross margin objectives, and existing portfolio pricing and discounting.

Within discontinued operations, some of the Company’s sales arrangements had multiple deliverables containing software and related software components. Such sale arrangements were subject to the accounting guidance in ASC 985-605, Software Revenue Recognition.

Cost of Revenue before Reimbursed Expenses, Exclusive of Depreciation and Amortization

Cost of services primarily consists of labor costs, including salaries, fringe benefits, and incentive compensation, royalties, and other customer related third-party outside services. Cost of services excludes depreciation and amortization.

If the Company’s estimates indicate that a contract loss will occur, then a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated.

Sales, Marketing and Development

Sales, marketing and development expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, marketing, and solution development/support personnel. The personnel costs included here are net of any labor costs directly related to the generation of revenue, which are represented in Cost of services.

General and Administrative

General and administrative expenses consist primarily of salaries, incentive compensation, and employee benefits for administrative personnel, as well as facilities costs, a provision for uncollectible amounts, and costs for our corporate technology infrastructure and applications.

Severance and Related Costs

We recorded accruals for severance and related costs associated with our cost-reduction efforts undertaken during fiscal years 2008 through 2012. The portion of the accruals relating to employee severance represents contractual severance for identified employees and generally is not subject to a significant revision. The portion of the accruals that related to office space reductions, office closures, and associated contractual lease obligations are based in part on assumptions and estimates of the timing and amount of sublease rentals, which may be affected by overall economic and local market conditions. To the extent estimates of the success of our sublease efforts changed, adjustments increasing or decreasing the related accruals have been recognized.

(Loss) Income Per Common Share

The per common share basic net (loss) income available to common stockholders has been computed by dividing the net (loss) income available to common stockholders for each period presented by the weighted average shares outstanding. The per common share diluted (loss) income available to common stockholders has been computed by dividing the net (loss) income available to common stockholders by the weighted average shares outstanding plus the dilutive effect of common stock equivalents, which is primarily related to Series B Stock, using the “treasury stock” method. In periods in which there was a loss, the dilutive effect of common stock equivalents is not included in the diluted loss per share calculation as it was antidilutive.

Fair Value of Financial Instruments

The carrying values of current assets and liabilities approximated their fair values as of December 31, 2012 and December 31, 2011. Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

36

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and Cash Equivalents

The Company considers all highly liquid investments readily convertible into known amounts of cash (with original purchased maturities of three months or less) to be cash equivalents.

Restricted Cash

Restricted cash principally represents cash as security for the Company’s line of credit and letters of credit issued to support the Company’s capital lease obligations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, restricted cash, and receivables. Cash and cash equivalents and restricted cash consist of money market funds and deposits with high credit quality financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limit. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000 for interest-bearing accounts and up to the value of the account for non-interest bearing accounts. The Company’s receivables are derived from billings to clients located primarily in the U.S. and are denominated in U.S. dollars. For fiscal year 2012, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc., Allstate Insurance Company, and Progressive Casualty Insurance Company, which accounted for 19%, 16%, and 13% of total revenue, respectively. For fiscal year 2011, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc., Allstate Insurance Company, and Health Care Service Corporation, which accounted for 22%, 15%, and 14% of total revenue, respectively. For fiscal year 2010, there were four clients accounting for more than 10% of the total revenue: Vangent, Inc., United HealthCare Services, Inc., Health Care Service Corporation, and Allstate Insurance Company, which accounted for 20%, 15%, 14%, and 13% of total revenue, respectively. As of December 31, 2012, four clients, Progressive Casualty Insurance Company, United HealthCare Services, Inc., CVS Caremark Corporation, and Allstate Insurance Company accounted for 24%, 13%, 13%, and 10% of total gross accounts receivable, respectively. As of December 31, 2011, three clients, United HealthCare Services, Inc., Allstate Insurance Company, and CVS Caremark Corporation accounted for 25%, 22%, and 14% of total gross accounts receivable, respectively.

Equipment and Leasehold Improvements

Computers, software, furniture, and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the lesser of the useful life or the lease term. The useful life for computers and software is three years. For enterprise software applications where a longer useful life is deemed appropriate, five years is used. For furniture and equipment, a useful life of five years is used. Maintenance and repair costs are expensed as incurred. The cost and related accumulated depreciation of assets sold or disposed of are eliminated from the respective accounts and the resulting gain or loss is included in the statements of operations. The carrying value of equipment and leasehold improvements is periodically reviewed to assess recoverability based on future undiscounted cash flows. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value. There was no impairment as of December 31, 2012 and December 31, 2011.

The Company accounts for software developed for internal use in accordance with the guidance provided under ASC Topic 350, which addresses accounting for the costs of computer software developed or obtained for internal use. As such, costs incurred that relate to the planning and post-implementation phases of development are expensed. Costs incurred during the application development stage are capitalized and amortized over the asset’s estimated useful life, which is generally three to five years.

The Company leases certain equipment using both capital leases and operating leases. Assets leased under capital leases are recorded at the present value of future lease payments and depreciated on a straight line basis. All capital leases are for terms of either thirty or thirty-six months.

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing our annual impairment test, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is concluded that this is the case for one or more reporting units, we perform a detailed quantitative assessment using a two-step test approach. In the first step, the fair value of each reporting unit is compared with its carrying value. If the fair value exceeds the carrying value, then goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. A detailed determination of the fair value of a reporting unit may be carried forward from one year to the next if specific criteria have been met. The Company currently operates in a single business segment or reporting unit.

37

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In 2012, after completing our annual qualitative review, we concluded that it was not more-likely-than-not that the carrying value of our reporting unit exceeded its fair value. Accordingly, we concluded that further quantitative analysis and testing was not required, and no goodwill impairment charge was required.

There has been no impairment identified as a result of the annual review of goodwill as of December 31, 2012 and December 31, 2011. The carrying value of goodwill was $1.0 million as of December 31, 2012 and December 31, 2011.

Intangible Assets

Intangible assets reflect costs related to patent and trademark applications, Marketing Managed Services customer relationships acquired in 2004, and the 2003 purchase of a license for certain intellectual property. Patent and trademark applications are amortized over 120 months. The other intangible assets are fully amortized. There was an impairment charge of less than $0.1 million for fiscal year 2012 and $0.1 million during fiscal year 2011.

	December 31, 2012			December 31, 2011
Gross intangible assets	$	2.9		$	2.8
Accumulated amortization of intangible assets		(2.7	)		(2.6	)
Total	$	0.2		$	0.2

Other Long-Term Assets

Other long-term assets primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics. These costs are recognized over the terms of the respective contracts, generally three to five years. Costs included in long-term assets will be recognized over the remaining term of the contracts beyond the first twelve months.

Income Taxes

The Company uses an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for the year, the basis of assets and liabilities and for tax loss carryforwards. The Company does not provide for taxes on the undistributed earnings of its foreign subsidiaries which are expected to be indefinitely reinvested.

The Company has recorded income tax valuation allowances on net deferred tax assets to account for the unpredictability surrounding the timing of realization of U.S. and non-U.S. net deferred tax assets due to uncertain economic conditions. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to predictable levels of profitability.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit. There is additional guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods, and disclosure requirements.

Intraperiod tax allocation requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. While intraperiod tax allocation in general does not change the overall tax provision, it does affect the amount of tax provision included in each category.

38

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Short-Term Debt

On June 29, 2012, the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers, entered into the Credit Facility with Silicon Valley Bank. The Credit Facility provides for a $10.0 million revolving line of credit maturing in 2014 and is secured by a security interest in the Company’s accounts receivable, equipment, inventory, cash, deposit accounts, securities, and all other investment property, supporting obligations, financial assets, and other personal property, with the exception of the Company’s intellectual property rights. On June 29, 2012, the Company used approximately $3.7 million of the line of credit under the Credit Facility to repay in full the principal balance of $3.6 million and accrued and unpaid interest outstanding of $0.1 million under the promissory notes issued by the Company to various affiliates of TCV to settle previously disclosed arbitration. The $3.7 million principal amount outstanding under the Credit Facility will accrue interest at a floating annual rate equal to three quarters of one percentage point (0.75%) above the United States prime rate, payable monthly. In addition, the Company will pay a commitment fee on the Credit Facility and a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears. Short-term debt was $3.7 million as of December 31, 2012 and interest for fiscal year 2012 was $0.1 million. The Company was in compliance with all of its debt covenants under the Credit Facility as of December 31, 2012.

Unearned Revenue

Payments received for Managed services contracts in excess of the amount of revenue recognized for these contracts are recorded as unearned revenue until revenue recognition criteria are met.

Stockholders’ Equity

Stockholders’ equity includes Common Stock issued, additional paid-in capital, accumulated deficit, treasury stock, and accumulated other comprehensive loss. The 1.6 million shares of Series B Stock are not classified as permanent equity or a liability in the accompanying balance sheets. These shares of Series B Stock are conditionally redeemable and do not meet the definition of a mandatorily redeemable financial instrument. The holders of Series B Stock have the ability to initiate a redemption upon the occurrence of certain events that are considered outside the Company’s control.

Foreign Currency Translation

The functional currencies for the Company’s foreign subsidiaries are their local currencies. All assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end of period exchange rates. The resulting translation adjustments are recorded as a component of stockholders’ equity and comprehensive income (loss). Income and expense items are translated at average exchange rates prevailing during the period. Foreign currency net losses were less than $1 thousand for fiscal year 2012, $0.4 million for fiscal year 2011, and $0.1 million for fiscal year 2010. These foreign currency transactions from subsidiaries are included in interest and other income within the consolidated statements of operations.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. The Company uses historical information as the primary basis for the selection of expected life, expected volatility, expected dividend yield assumptions, and anticipated forfeiture rates. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

39

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Three — Discontinued Operations

The following table summarizes the components included within income from discontinued operations, net of tax within the Company’s Consolidated Statements of Operations for the periods indicated.

	For the Fiscal Years Ended
	2012			2011			2010
Net sales	$	—		$	22.9		$	57.3
Total expenses		(0.1	)		(23.7	)		(52.5	)
Gain from sale of assets		—			36.5			—
Benefit (provision) for income taxes		0.3			(6.8	)		(1.8	)
Income from discontinued operations		0.2			28.9			3.0

Intraperiod tax allocation requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. While intraperiod tax allocation in general does not change the overall tax provision, it may result in a gross-up of the individual components, thereby changing the amount of tax provision included in each category. Since continuing operations and discontinued operations both reported a pre-tax loss for the year ended December 31, 2012, an intraperiod tax allocation was not required for the year. Included in continuing operations income tax provision is tax expense of $38 thousand for the year ended December 31, 2012 and a tax benefit of $5.9 million and $1.7 million for the years ended December 31, 2011 and January 1, 2011, respectively. Included in discontinued operations income tax provision is a tax benefit of $0.3 million due to a favorable ruling from the Internal Revenue Service for the year ended December 31, 2012, and tax expense of $6.8 million for the year ended December 31, 2011, and $1.8 million for the year ended January 1, 2011. Depending upon the level of the Company’s future earnings and losses and their impact on income from discontinued operations, it is possible that these tax adjustments may change or even reverse in future periods.

Note Four — Severance and Related Costs

Severance costs are comprised primarily of contractual salary and related fringe benefits over the severance payment period. Facility costs include losses on contractual lease commitments, net of estimated sublease recoveries, and impairment of leasehold improvements and certain office assets.

Continuing Operations

For fiscal year 2012, the Company recorded $0.7 million of expense for continuing operations related to severance and related costs for the elimination of one position. For fiscal year 2011, the Company recorded $0.3 million of income for continuing operations related to the favorable renegotiation of an office lease, partially offset by the severance and related costs for the elimination of one position and an office consolidation. For fiscal year 2010, the Company recorded $0.5 million of expense for continuing operations related to severance and related costs for the elimination of 26 positions and an adjustment to sublease recoveries.

For fiscal year 2012, the Company made cash payments of $0.7 million related to cost-reduction actions and facility operating expense for continuing operations. For the fiscal year ended January 1, 2011, the Company made cash payments of $0.6 million related to cost-reduction actions for continuing operations. The cash payments in fiscal years 2012, 2011, and 2010 were primarily related to severance and related costs, office space reductions, and office closures.

40

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The severance and related costs and their utilization for the fiscal years ended 2010, 2011, and 2012 are as follows:

	Employee Severance			Facilities			Total
Balance, December 26, 2009	$	—		$	0.4		$	0.4
Charges		0.5			—			0.5
Adjustments		—			—			—
Charged to severance and related costs		0.5			—			0.5
Payments		(0.5	)		(0.1	)		(0.6	)
Other		—			—			—
Balance, January 1, 2011	$	—		$	0.3		$	0.3
Charges		—			(0.2	)		(0.2	)
Adjustments		—			(0.2	)		(0.2	)
Charged to severance and related costs		—			(0.4	)		(0.4	)
Payments		—			(0.2	)		(0.2	)
Other		—			0.3			0.3
Balance, December 31, 2011	$	—		$	—		$	—
Charges		0.7			—			0.7
Adjustments		—			—			—
Charged to severance and related costs		0.7			—			0.7
Payments		(0.7	)		—			(0.7	)
Other		—			—			—
Balance, December 31, 2012	$	—		$	—		$	—

As of December 31, 2012, all severance and related costs for continuing operations have been paid.

Discontinued Operations

During fiscal years 2012, 2011, and 2010, the Company recognized pre-tax charges (including adjustments) of $0.0 million, $0.2 million, and $0.7 million, respectively. For the fiscal year ended 2012, the Company recorded $0.0 million of expense related to severance and related costs of discontinued operations. For the fiscal year ended 2011, the Company recorded $0.2 million of expense related to severance and related costs of discontinued operations for the elimination of 11 positions. For the fiscal year ended 2010, the Company recorded $0.7 million of expense related to severance and related costs of discontinued operations for the elimination of 37 positions.

During fiscal years 2011 and 2010, the Company made cash payments of $0.2 million and $0.7 million, respectively, related to cost-reduction actions for discontinued operations. The cash payments made during fiscal years 2011 and 2010 were related to severance and related costs.

The severance and related costs and their utilization for the fiscal years ended 2010, 2011 and 2012 are as follows:

	Employee Severance			Facilities		Total
Balance, December 26, 2009	$	—		$	—	$	—
Charges		0.7			—		0.7
Adjustments		—			—		—
Charged to severance and related costs		0.7			—		0.7
Payments		(0.7	)		—		(0.7	)
Balance, January 1, 2011	$	—		$	—	$	—
Charges		0.2			—		0.2
Adjustments		—			—		—
Charged to severance and related costs		0.2			—		0.2
Payments		(0.2	)		—		(0.2	)
Balance, December 31, 2011	$	—		$	—	$	—
Charges		—			—		—
Adjustments		—			—		—
Charged to severance and related costs		—			—		—
Payments		—			—		—
Balance, December 31, 2012	$	—		$	—	$	—

41

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2012, all severance and related costs for discontinued operations have been paid.

Note Five — Receivables, Net

Receivables consist of the following:

	As of
	December 31, 2012		December 31, 2011
Amounts billed to clients	$	2.5	$	1.4
Unbilled revenue		0.1		1.1
		2.6		2.5
Allowances for doubtful accounts*		—		—
Receivables, net	$	2.6	$	2.5

* Less than $0.1 million.

Amounts billed to clients represent fees and reimbursable project-related expenses. Unbilled revenue represents fees, project-related expenses, materials, and subcontractor costs performed in advance of billings in accordance with contract terms. Unbilled revenue at December 31, 2012 and December 31, 2011 consists of amounts due from clients and is anticipated to be collected within normal terms. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments and clients indicating their intention to dispute their obligation to pay for contractual services provided by us. If the financial condition of the Company’s clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Note Six — Current Prepaid Expenses

Current prepaid expenses primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics contracts. These costs are recognized over the subscription periods of the respective contracts, generally three to five years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of the Behavioral Analytics Service prior to committing to a longer subscription period, the subscription or pilot periods generally range from three to twelve months after the go-live date. Costs included in current prepaid expenses will be recognized within the next twelve months. Current prepaid expenses consisted of the following:

	As of
	December 31, 2012		December 31, 2011
Deferred costs	$	1.8	$	2.5
Prepaid commissions		1.7		2.0
Other		0.9		0.8
Total	$	4.4	$	5.3

Note Seven — Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following:

	As of
	December 31, 2012			December 31, 2011
Computers and software	$	30.3		$	29.2
Furniture and equipment		0.6			0.5
Leasehold improvements		1.0			0.5
Equipment and leasehold improvements, gross		31.9			30.2
Accumulated depreciation and amortization		(27.2	)		(25.9	)
Equipment and leasehold improvements, net	$	4.7		$	4.3

Depreciation expense was $3.4 million, $3.2 million, and $3.3 million, for fiscal years 2012, 2011, and 2010, respectively. Assets acquired under capital leases were $1.8 million, $2.5 million, and $1.4 million, in fiscal years 2012, 2011, and 2010, respectively. Depreciation expense on capital lease assets was $2.2 million, $1.8 million, and $1.5 million, in fiscal years 2012, 2011, and 2010, respectively.

42

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Eight — Income Taxes

Loss before income taxes consisted of the following:

	For the Fiscal Years Ended
	2012			2011			2010
United States	$	(15.0	)	$	(15.8	)	$	(16.6	)
Foreign		(0.4	)		(0.6	)		(1.4	)
Total	$	(15.4	)	$	(16.4	)	$	(18.0	)

The income tax benefit consists of the following:

	For the Fiscal Years Ended
	2012		2011		2010
Current:
Federal	$	—	$	5.5	$	1.6
State		—		0.4		0.1
Foreign		—		—		—
Total current		—		5.9		1.7
Deferred:
Federal		—		—		—
State		—		—		—
Foreign		—		—		—
Total deferred		—		—		—
Income tax benefit	$	—	$	5.9	$	1.7

The 2012 earnings and gain from discontinued operations included $0.3 million of tax benefit due to a favorable ruling from the Internal Revenue Service. The 2011 earnings and gain from discontinued operations included $6.8 million of tax expense.

Total income tax benefit differed from the amount computed by applying the federal statutory income tax rate due to the following:

	For the Fiscal Years Ended
	2012			2011			2010
Federal tax benefit, at statutory rate	$	5.4		$	5.7		$	6.3
State tax benefit, net of federal benefit		0.4			0.4			0.1
Nondeductible expenses		0.3			(0.2	)		—
Other		0.3			—			—
Valuation allowance		(6.4	)		—			(4.7	)
Income tax benefit	$	—		$	5.9		$	1.7

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit. There is also guidance on derecognition, classification, interest, and penalties on income taxes, accounting in interim periods, and income tax disclosures.

A reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year are as follows:

	For the Fiscal Years Ended
	2012		2011			2010
Balance at beginning of year	$	12.9	$	12.8		$	12.8
Additions based on tax positions related to the current year		—		0.3			—
Additions for tax positions of prior years		—		—			—
Reductions for tax positions of prior years		—		(0.2	)		—
Reductions for tax positions as a result of lapse of statute		—		—			—
Settlements		—		—			—
Balance at end of year	$	12.9	$	12.9		$	12.8

43

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Due to the Company’s worldwide net operating loss carryforward position, all but $0.3 million of these unrecognized tax benefits will not impact the Company’s effective tax rate, if recognized. Any change in the amount of unrecognized tax benefits within the next twelve months is not expected to result in a significant impact on the results of operations or the financial position of the Company.

Due to the Company’s worldwide net operating loss carryforward position, accrued interest and penalties associated with uncertain tax positions as of December 31, 2012 are not material. Interest and penalties associated with uncertain tax positions are recorded as part of income tax expense.

The statutes of limitation for the Company’s income tax returns after 2001 effectively remain open for examination by the IRS because the net operating loss carryforward from those years can be examined by the IRS for a period of three years after filing the tax return for the year the loss is used. In 2011, an audit of fiscal years 2008 and 2009 was completed by the IRS. This audit resulted in a reduction of the Company’s net operating loss carryforward from these years and no tax liability. This reduction is reflected in this tax footnote.

Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company and its subsidiaries may have various state and foreign income tax returns for immaterial jurisdictions in the process of examination throughout the reporting period.

Deferred tax assets and liabilities were comprised of the following:

	As of
	December 31, 2012			December 31, 2011
Deferred tax assets:
Net operating loss carryforwards	$	60.4		$	52.1
Other accruals		4.7			4.6
Depreciation and amortization, including goodwill		0.1			1.0
Tax credit carryforward		0.5			0.8
Valuation allowance		(63.8	)		(55.8	)
Total deferred tax assets		1.9			2.7
Deferred tax liabilities:
Prepaid expenses		(2.0	)		(2.8	)
Total deferred tax liabilities		(2.0	)		(2.8	)
Net deferred tax asset (liability)	$	(0.1	)	$	(0.1	)

Deferred income taxes are not provided on certain undistributed earnings of foreign subsidiaries that are expected to be permanently reinvested in those companies. These earnings aggregated to an immaterial amount at each of December 31, 2012 and December 31, 2011.

Intraperiod tax allocation requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. While intraperiod tax allocation in general does not change the overall tax provision, it may result in a gross-up of the individual components, thereby changing the amount of tax provision included in each category. Since continuing operations and discontinued operations both reported a pre-tax loss for the year ended December 31, 2012, an intraperiod tax allocation was not required for the year. Included in continuing operations income tax provision is tax expense of $38 thousand for the year ended December 31, 2012 and a tax benefit of $5.9 million for the year ended December 31, 2011. Included in discontinued operations income tax provision is tax benefit of $0.3 million for the year ended December 31, 2012 and $6.8 million for the year ended December 31, 2011.

During fiscal year 2002, the Company established a valuation allowance related to deferred tax assets for the U.S. This was in addition to the valuation allowance established in 2001 for non-U.S. deferred tax assets. The Company continues to provide a valuation allowance on significantly all domestic and foreign deferred tax assets as the Company has determined that it is more likely than not that the deferred tax assets in these jurisdictions will not be realized. As of December 31, 2012, net deferred tax assets of $63.8 million were fully offset by a valuation allowance. The Company’s U.S. Federal net operating losses (“NOLs”) of $194.5 million and U.S. State NOLs of $130.2 million will expire beginning in 2022 and 2014, respectively. The Company’s non-U.S. NOLs of $0.9 million are subject to various expiration dates beginning in 2014. The Company also carries $0.5 million in Research and Development credit carryforwards that will expire beginning in 2021.

44

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s ability to utilize its NOLs could become subject to significant limitations under Section 382 of the Internal Revenue Code if the Company were to undergo an ownership change. An ownership change would occur if the stockholders who own or have owned, directly or indirectly, 5% or more of the Company’s Common Stock or are otherwise treated as 5% stockholders under Section 382 and the regulations promulgated thereunder increase their aggregate percentage ownership of the Company’s stock by more than 50 percentage points over the lowest percentage of the stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carryforwards. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL carryforwards. The Company has undergone a Section 382 analysis and does not believe there is a limitation on the use of NOLs under Section 382. If a change in ownership is deemed to have occurred during the past three years, then it may be possible that the Company’s NOL carryforward could be subject to limitation under Section 382 for tax return purposes. However, since its NOL carryforward is fully reserved with a valuation allowance, there would be no impact for financial statement purposes from a Section 382 limitation.

Note Nine — Other Long-Term Assets

Other long-term assets primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics. These costs are recognized over the terms of the respective contracts, generally three to five years. Costs included in long-term assets will be recognized over the remaining term of the contracts beyond the first twelve months. Other long-term assets consisted of the following:

	As of
	December 31, 2012		December 31, 2011
Deferred costs	$	1.8	$	2.4
Prepaid commissions		1.7		2.2
Other		0.3		0.1
Total	$	3.8	$	4.7

Note Ten — Short-Term Debt

On June 29, 2012, the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers, entered into the Credit Facility with Silicon Valley Bank. The Credit Facility provides for a $10.0 million revolving line of credit maturing in 2014 and is secured by a security interest in the Company’s accounts receivable, equipment, inventory, cash, deposit accounts, securities, and all other investment property, supporting obligations, financial assets, and other personal property, with the exception of the Company’s intellectual property rights. On June 29, 2012, the Company used approximately $3.7 million of the line of credit under the Credit Facility to repay in full the principal balance of $3.6 million and accrued and unpaid interest outstanding of $0.1 million under the promissory notes issued by the Company to various affiliates of TCV to settle previously disclosed arbitration. The $3.7 million principal amount outstanding under the Credit Facility will accrue interest at a floating annual rate equal to three quarters of one percentage point (0.75%) above the United States prime rate, payable monthly. In addition, the Company will pay a commitment fee on the Credit Facility and a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears. Short-term debt was $3.7 million as of December 31, 2012 and interest for fiscal year 2012 was $0.1 million. The Company was in compliance with all its debt covenants under the Credit Facility as of December 31, 2012.

Note Eleven — Employee Benefit Plans

The Company’s U.S. employees are eligible to participate in the Mattersight Corporation 401(k) Plan (the “401(k) Plan”) on the first day of the month coinciding with or following their date of hire. The 401(k) Plan allows employees to contribute up to 30% of their eligible compensation and up to 100% of their bonus compensation, subject to IRS statutory limits. For fiscal year 2012, the employer match contribution was $0.2 million. For fiscal years 2011 and 2010, Mattersight suspended the employer matching contributions for both U.S. and non-U.S. plans. The Company funds non-U.S. contributory plans as required by statutory regulations. Amounts funded by the Company were immaterial for non-U.S. plans for the periods presented.

Note Twelve — Capital Stock and Series B Stock

Under the terms of its Certificate of Incorporation, as amended, the Company’s authorized capital stock consists of (i) 50,000,000 shares of Common Stock, par value $0.01 per share, and (ii) 40,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”). Under the terms of the Certificate of Designations of 7% Series B Convertible Preferred Stock, the Company designated 5,000,000 shares of the Preferred Stock as its Series B Stock. 1,649,201 and 1,670,696 shares of Series B Stock were issued and outstanding as of December 31, 2012 and December 31, 2011, respectively.

45

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During fiscal year 2012, the Company announced its intention to commence a tender offer to purchase up to 111,605 shares of Series B Stock at a cash purchase price of $8.60 per share, plus accrued and unpaid dividends.

In accordance with the terms and conditions of the tender offer, Mattersight purchased 19,758 shares of its Series B Stock, at a price of $8.71 per share (representing $8.60 per share plus accrued and unpaid dividends), for an aggregate cost of approximately $172,092, excluding fees and expenses related to the tender offer. These shares represented approximately 1.2% of the Series B Stock outstanding as of April 13, 2012.

On December 20, 2011, under the terms of the Settlement Agreement with TCV, Mattersight repurchased 1,872,805 shares of Series B Stock from TCV to settle the previously disclosed arbitration.

On September 12, 2008, Mattersight completed a rights offering, which raised $14.8 million, net of expenses. Under the terms of the rights offering, persons who owned shares of Common Stock or Series B Stock as of the close of business on August 13, 2008 (the record date for the rights offering) received the right to purchase 0.19756 shares of Common Stock. These subscription rights expired on September 12, 2008. Pursuant to the terms of the rights offering, the Company issued 2,645,395 shares of Common Stock at $5.67 per share.

In December 2006, the Company completed an $18.0 million rights offering. Under terms of the rights offering, persons who owned shares of Common Stock or Series B Stock as of the close of business on November 20, 2006 (the record date for the rights offering) received the right to purchase 0.0910 shares of Common Stock. These subscription rights expired on December 15, 2006. Pursuant to the terms of the rights offering, the Company issued 1,001,342 shares of Common Stock at $17.97 per share.

In December 2001, at the time of issuance of the Series B Stock, a beneficial conversion adjustment was calculated (since the fair market value of a share of Common Stock at the time exceeded the purchase price of a share of Series B Stock) aggregating $4.0 million. The Series B Stock was recorded at the date of issuance net of issuance costs and the beneficial conversion adjustment. The discount attributable to the issuance costs was fully accreted on the date of issuance by charging additional paid-in capital and increasing the recorded amount of Series B Stock. The Series B Stock was accreted to its full redemption value of $23.3 million on a straight-line basis from the date of issuance to June 19, 2002 by charging additional paid-in capital $0.7 million per month and increasing the recorded amount of Series B Stock by a like amount.

The Series B Stock accrues dividends at a rate of 7% per annum, is entitled to a preference upon liquidation, and is convertible on a one-for-one basis into shares of Common Stock, subject to adjustment for stock splits, stock dividends, and similar actions. The Series B Stock generally votes on a one-for-one basis with the Common Stock, subject to adjustment for certain actions and specified matters as to which the Series B Stock is entitled to a separate class vote.

Note Thirteen — Stock-Based Compensation

The Company has two stock-based compensation plans: the Mattersight Corporation 1999 Stock Incentive Plan (the “1999 Plan”) and the Mattersight Corporation Employee Stock Purchase Plan (the “ESPP”). Historically, the Company issued stock awards under both the 1999 Plan and the Mattersight Corporation 2000 Stock Incentive Plan (the “2000 Plan”). However, the 2000 Plan expired in accordance with its terms on September 23, 2011, ten years after the effective date of the last amendment and restatement thereof, and no further awards have been issued thereunder. At that time, 20,620 treasury shares, representing all authorized and unissued treasury shares under the 2000 Plan, were cancelled.

Under the 1999 Plan, awards of restricted stock, installment stock, salary replacement, stock options, and stock appreciation rights may be granted to directors, officers, employees, consultants, independent contractors, and agents of the Company and its subsidiaries. Awards granted under the 1999 Plan are made at the discretion of the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). If shares or options awarded under the 1999 Plan are not issued due to cancellation of unvested or unexercised options or shares, then those shares or options again become available for issuance under the plan. Under the 1999 Plan, on the first day of each fiscal year, the aggregate number of shares available for issuance under the 1999 Plan is automatically increased by an amount equal to 5% of the total number of shares of Common Stock that are outstanding. At the 2008 Annual Meeting of Stockholders, stockholders approved the amendment and restatement of the 1999 Plan to increase the number of shares available for issuance under the 1999 Plan by 1,500,000.

Stock-based compensation expense was $3.7 million, $5.4 million, and $4.4 million, for fiscal years ended 2012, 2011, and 2010, respectively. The Company recognizes stock compensation expense on a straight-line basis over the vesting period. The Company has established its forfeiture rate based on historical experience. The Company does not recognize the windfall tax benefit related to the excess tax deduction because the Company currently does not anticipate realizing the tax savings associated with this deduction. The amount of this excess tax deduction was $0 for each of fiscal years ended December 31, 2012 and December 31, 2011.

46

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2012, there were a total of 1,086,444 shares of Common Stock available for future grants under the 1999 Plan and from treasury stock. The Company’s Common Stock is traded on the NASDAQ Global Market under the symbol MATR.

Restricted Stock

Restricted stock awards are shares of Common Stock granted to an individual. During the restriction period, the holder of granted restricted stock receives all of the benefits of ownership (right to dividends, voting rights, etc.), other than the right to sell or otherwise transfer any interest in the stock. Installment stock awards are grants to an individual of a contractual right to receive future shares of Common Stock in specified amounts on specified vesting dates, subject to the individual remaining a Mattersight employee on the specified vesting dates. The holder has no benefits of ownership in installment stock until such time as the installment stock actually vests. The Company recognized compensation expense related to restricted stock awards of $2.5 million, $4.8 million, and $3.1 million, for the fiscal years ended 2012, 2011, and 2010, respectively.

Restricted and installment stock award activity was as follows for the years ended January 1, 2011, December 31, 2011 and December 31, 2012:

	Shares			Weighted Average Price
Nonvested balance at December 26, 2009		985,208		$	7.14
Granted		570,100		$	6.03
Vested		(624,073	)	$	7.43
Forfeited		(28,195	)	$	10.89
Nonvested balance at January 1, 2011		903,040		$	6.12
Granted		1,246,955		$	6.58
Vested		(737,880	)	$	7.04
Forfeited		(126,002	)	$	6.51
Nonvested balance at December 31, 2011		1,286,113		$	6.33
Granted		445,496		$	7.54
Vested		(601,298	)	$	6.54
Forfeited		(308,948	)	$	6.37
Nonvested balance at December 31, 2012		821,363		$	6.81

	For the Fiscal Years Ended
	2012		2011		2010
Total fair value of restricted and installment stock awards vested	$	3.6	$	4.8	$	3.6

Following the completion of the sale of the ICS Business Unit on May 28, 2011, 21,278 unvested restricted stock awards and 8,750 stock options held by the employees of the ICS Business Unit were cancelled pursuant to the terms of the respective Restricted Stock Award and Stock Option Agreements.

As of December 31, 2012, there remains $4.6 million of unrecognized compensation expense related to restricted and installment stock awards. These costs are expected to be recognized over a weighted average period of 1.8 years. The Company estimated the forfeiture rate at 3% for fiscal years 2012, 2011, and 2010.

Stock Options

Stock option awards may be in the form of incentive or non-qualified options. Stock options are granted with an exercise price per share equal to the fair market value of a share of the Common Stock on the date of grant, and have a maximum term of 10 years. The stock option terms are set by the Compensation Committee and generally become exercisable over a period of four years. The vesting can begin in equal monthly or quarterly increments over the vesting period. The Company recognized compensation expense related to option awards of $1.1 million, $0.5 million, and $1.1 million for the fiscal years ended 2012, 2011, and 2010, respectively.

In addition, the 1999 Plan provides that each non-employee director, upon commencing service, shall receive a non-qualified stock option to purchase 50,000 shares of Common Stock that vests ratably over a period of 48 months. The 1999 Plan also provides that each non-employee director shall receive a non-qualified stock option to purchase 5,000 shares of Common Stock, which is granted annually, the day after the Company’s annual stockholders’ meeting (the “Annual Grant”). Stock options granted to non-employee directors have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date, and are exercisable for up to 10 years. By action of the Board of Directors, the 1999 Plan was amended such that, commencing with the 2013 annual stockholders’ meeting, the size of the Annual Grant to each non-employee director will be increased from 5,000 to 10,000 shares.

47

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During fiscal year 2012, options to purchase a total of 818,543 shares of Common Stock were granted. On March 31, 2012, a total of 600,000 options were granted to the Company’s executive officers. The options vested 6.25% on February 29, 2012, and the balance will vest ratably over the following 15 quarters, with a maximum term of 10 years. The exercise price per share was $5.79, the closing price of a share of Common Stock on the grant date. On May 17, 2012, certain employees received options to purchase from the Company a total of 73,336 shares of Common Stock. These options vested 6.25% on August 31, 2012, and the balance will vest ratably over the following 15 quarters, with a maximum term of 10 years. The exercise price per share was $7.99, the closing price of a share of Common Stock on the grant date. On May 18, 2012, the Company’s non-employee directors received options to purchase from the Company a total of 32,042 shares of Common Stock. These options will vest 25% on May 31, 2013, and the balance will vest ratably over the following 12 quarters, with a maximum term of 10 years. The exercise price per share was $7.70, the closing price of a share of Common Stock on the grant date.

On August 8, 2012, two executive officers received options to purchase a total of 113,165 shares of Common Stock. The exercise price per share was $7.71, the closing price of a share of Common Stock on the grant date. The options issued to the first executive vested 6.25% on August 31, 2012, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. The options issued to the second executive will vest 25% on August 31, 2013, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years.

During fiscal year 2011, options to purchase from the Company a total of 130,000 shares of Common Stock were granted. On May 20, 2011, each of the six then-current non-employee directors received an Annual Grant to purchase from the Company 5,000 shares of Common Stock. The options vested 25% on May 31, 2012, and the balance will vest ratably over the following 12 quarters, with a maximum term of 10 years. The exercise price per share was $6.27, the closing price of a share of Common Stock on the grant date. Then, pursuant to the terms of the Second Amended and Restated Executive Employment Agreement between Kelly D. Conway and the Company dated April 19, 2011, Mr. Conway was granted an option to purchase from the Company 50,000 shares of Common Stock on June 6, 2011, in connection with the close of the sale of the ICS Business Unit. The options vested 25% on May 31, 2012, and the balance will vest ratably over the following 12 quarters, with a maximum term of 10 years. The exercise price per share was $6.15, the closing price of a share of Common Stock on the grant date. Lastly, on December 20, 2011, the Board of Directors increased the size of the Board by adding an additional non-employee director, Phillip R. Dur. In connection with his appointment, Mr. Dur received an option to purchase 50,000 shares of Common Stock, vesting ratably over 48 months, with a maximum term of 10 years. The exercise price per share was $4.89, the closing price of a share of Common Stock on the grant date.

During fiscal year 2010, a total of 30,000 options were granted to non-employee directors. Each of the six then-current non-employee directors received an Annual Grant to purchase 5,000 shares of Common Stock that vested 25% on May 31, 2011; the balance vests quarterly over the following three years, with a maximum term of 10 years. The exercise price per share was $6.34, the closing price of a share of Common Stock on the grant date.

48

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Option activity was as follows for the years ended January 1, 2011, December 31, 2011, and December 31, 2012:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Weighted Average Fair Value of Option Grants
Outstanding as of December 26, 2009		1,231,205		$	13.57		6.4
Exercisable as of December 26, 2009		783,542		$	16.47
Granted		30,000		$	6.34			$	3.92
Exercised		(895	)	$	2.73
Forfeited		(7,918	)	$	176.96
Outstanding as of January 1, 2011		1,252,392		$	12.37		5.5
Exercisable as of January 1, 2011		976,562		$	14.05
Outstanding intrinsic value at January 1, 2011	$	1.1
Exercisable intrinsic value at January 1, 2011	$	0.8
Granted		130,000		$	5.69			$	3.44
Exercised		—		$	—
Forfeited		(154,457	)	$	18.07
Outstanding as of December 31, 2011		1,227,935		$	10.95		5.4
Exercisable as of December 31, 2011		986,626		$	12.30
Outstanding intrinsic value at December 31, 2011	$	0.3
Exercisable intrinsic value at December 31, 2011	$	0.2
Granted		818,543		$	6.33			$	3.77
Exercised		(173,600	)	$	3.84
Forfeited		(106,642	)	$	18.78
Outstanding as of December 31, 2012		1,766,236		$	9.03		7.4
Exercisable as of December 31, 2012		1,004,232		$	11.09
Outstanding intrinsic value at December 31, 2012	$	0.2
Exercisable intrinsic value at December 31, 2012	$	0.2

	For the Fiscal Years Ended
	2012		2011		2010
Total fair value of stock options vested	$	1.0	$	0.6	$	1.2
Intrinsic value of stock options exercised		0.4		—		—
Proceeds received from option exercises		0.7		—		0.1

As of December 31, 2012, there remained $2.7 million of unrecognized compensation expense related to stock options. These costs are expected to be recognized over a weighted average period of 2.0 years.

The fair value for options granted during fiscal years 2012, 2011, and 2010 was estimated on the date of grant using a Black Scholes option-pricing model. The Company used the following weighted average assumptions:

	For the Fiscal Years Ended
	2012			2011			2010
Risk-free interest rates		0.6	%		0.9	%		1.8	%
Expected dividend yield		—			—			—
Expected volatility		67	%		67	%		68	%
Expected lives		6.0 years			6.0 years			6.0 years

Historical Company information is the primary basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

49

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Stock Compensation

Employee Stock Purchase Plan

The ESPP is intended to qualify as an “employee stock purchase plan” under section 423 of the Internal Revenue Code. Under the ESPP, eligible employees are permitted to purchase shares of Common Stock at below-market prices. The purchase period opens on the first day and ends on the last business day of each calendar quarter. The shares of Common Stock issued during the fiscal year were as follows:

	For the Fiscal Years Ended
	2012		2011		2010
Shares of Common Stock issued		27,939		29,554		39,048
Expense related to ESPP (in thousands)	$	46	$	39	$	41

The fair value for ESPP purchases during fiscal years 2012, 2011, and 2010 was estimated using a Black Scholes model. The Company used the following weighted average assumptions:

	For the Fiscal Years Ended
	2012			2011			2010
Risk-free interest rates		0.06	%		0.06	%		0.13	%
Expected dividend yield		—			—			—
Expected volatility		49	%		49	%		51	%
Expected lives		0.24 years			0.25 years			0.25 years

Note Fourteen — (Loss) Income Per Share

The following table sets forth the computation of the (loss) income and shares used in the calculation of basic and diluted (loss) income per share:

	For the Fiscal Years Ended
	2012			2011			2010
Loss from continuing operations	$	(15.5	)	$	(10.6	)	$	(16.3	)
Series B Stock fair value over stated value		—			(6.5	)		—
Dividends related to Series B Stock (1)		(0.6	)		(1.2	)		(1.3	)
Loss from continuing operations available to Common Stock holders		(16.1	)		(18.3	)		(17.6	)
Income from discontinued operations		0.2			28.9			3.0
Net (loss) income available to Common Stock holders	$	(15.9	)	$	10.6		$	(14.6	)
	For the Fiscal Years Ended
	2012			2011			2010
Per share of Common Stock
Basic/diluted loss from continuing operations, as restated(3)	$	(1.01	)	$	(1.29	)	$	(1.28	)
Basic/diluted income from discontinued operations	$	0.02		$	2.03		$	0.22
Basic/diluted net (loss) income available to Common Stock holders	$	(0.99	)	$	0.74		$	(1.06	)
Weighted average shares outstanding (basic and diluted) (in millions)		16.00			14.23			13.70
Currently anti-dilutive common stock equivalents(2) (in millions)		1.97			3.25			4.00

(1) The Company’s Board of Directors declared a cash dividend of $0.1785 per share on the Series B Stock for the dividend period January 1, 2012 through June 30, 2012. The dividend payment of $0.3 million was paid on July 2, 2012. The dividend payment of $0.3 million for the period July 1, 2011 through December 31, 2011 was paid on January 3, 2012. The dividend payment of $1.9 million paid on July 1, 2011 was for the dividend periods January 1, 2011 through June 30, 2011, July 1, 2010 through December 31, 2010, and July 1, 2008 through December 31, 2008.

(2) In periods in which there was a loss, the effect of Common Stock equivalents, which is primarily related to the Series B Stock, was not included in the diluted loss per share calculation as it was antidilutive.

(3) The effects of the correction of the error reported in Note Twenty-One “Restatement —Basic and Diluted Loss Per Share from Continuing Operations” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K are reflected in all periods presented.

50

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Fifteen — Segments

The Company operates in a single business segment, focused primarily on Behavioral Analytics. The Company operated in two business segments, the Behavioral Analytics Service Business Unit and the ICS Business Unit, until May 28, 2011, the date of the close of the sale of the ICS Business Unit, at which point the Company began operating in a single business segment.

Note Sixteen — Fair Value Measurements

The Company reports certain assets and liabilities at fair value. Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2012 and December 31, 2011:

	Fair Value Measurements at December 31, 2012 Using
	Total carrying value at December 31, 2012		Quoted Prices in Active Markets (Level 1)		Other Observable (Level 2)		Significant Unobservable (Level 3)
Money market fund	$	13.4	$	13.4	$	—	$	—

	Fair Value Measurements at December 31, 2011 Using
	Total carrying value at December 31, 2011		Quoted Prices in Active Markets (Level 1)		Other Observable (Level 2)		Significant Unobservable (Level 3)
Money market fund	$	18.8	$	18.8	$	—	$	—

Note Seventeen — Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and short-term debt approximated their fair values as of December 31, 2012 and December 31, 2011 due to the short-term nature of these instruments. The Company considers all highly liquid investments readily convertible into known amounts of cash (with purchased maturities of three months or less) to be cash equivalents.

Note Eighteen — Leases

Capital Leases

The Company acquired $1.8 million and $2.5 million of computer equipment and leasehold improvements using capital leases during fiscal years 2012 and 2011, respectively. These assets were related primarily to investments in Behavioral Analytics. There was $2.2 million, $1.8 million, and $1.5 million of depreciation on capital leases during 2012, 2011, and 2010 respectively. All capital leases are for a term of either thirty or thirty-six months. The liabilities for these capital leases are included in “Other current liabilities” and “Other long-term liabilities” on the balance sheet.

The following is a schedule, by year, of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of December 31, 2012:

Year	Amount
2013	$	1.8
2014		0.6
2015		0.2
Thereafter		—
Total minimum lease payments	$	2.6
Less: estimated executory costs		(0.2	)
Net minimum lease payments	$	2.4
Less: amount representing interest		(0.1	)
Present value of minimum lease payments	$	2.3

51

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Capital leases included in equipment and leasehold improvements (see Note Seven):

	As of
	December 31, 2012			December 31, 2011
Computers and software	$	5.2		$	5.7
Accumulated depreciation and amortization		(3.2	)		(2.8	)
Computers and software, net	$	2.0		$	2.9

Capital leases consisted of the following:

	As of
	December 31, 2012		December 31, 2011
Other current liabilities	$	1.6	$	1.7
Other long-term liabilities		0.7		1.1
Total	$	2.3	$	2.8

Operating Leases

The Company leases various office facilities under leases expiring at various dates through February 28, 2015. Additionally, the Company leases various property and office equipment under operating leases, generally under three year terms, expiring at various dates. Rental expense for all operating leases approximated $1.1 million, $1.1 million, and $1.2 million, for fiscal years ended 2012, 2011, and 2010, respectively. These amounts exclude rental payments related to office space reductions, which were $0.1 million and $0.1 million in fiscal years 2011 and 2010, respectively.

Future minimum rental commitments under non-cancelable operating leases with terms in excess of one year are as follows:

Year	Amount
2013	$	0.9
2014		1.0
2015		0.6
2016		0.3
2017		—
Thereafter		—
Total minimum payments required	$	2.8

Note Nineteen — Litigation and Other Contingencies

The Company is a party to various agreements, including all client contracts, under which it may be obligated to indemnify the other party with respect to certain matters, including, but not limited to, indemnification against third-party claims of infringement of intellectual property rights with respect to software and other deliverables provided by the Company in the course of providing services to its clients. These obligations may be subject to various limitations on the remedies available to the other party, including, without limitation, limits on the amounts recoverable and the time during which claims may be made, and may be supported by indemnities given to the Company by applicable third parties. Payment by the Company under these indemnification clauses is generally subject to the other party making a claim that is subject to challenge by the Company and dispute resolution procedures specified in the particular agreement. Historically, the Company has not been obligated to pay any claim for indemnification under its agreements, and management is not aware of future indemnification payments that it would be obligated to make.

Under its By-Laws, subject to certain exceptions, the Company has agreed to indemnify its officers and directors for certain events or occurrences while the officer or director is, or was, serving at its request in such capacity or in certain related capacities. The Company has separate indemnification agreements with each of its directors and officers that requires it, subject to certain exceptions, to indemnify them to the fullest extent authorized or permitted by its By-Laws and the Delaware General Corporation Law. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company had no liabilities recorded for these agreements as of December 31, 2012.

52

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Twenty — Quarterly Data (Unaudited)

	For the Fiscal Year Ended 2012
	1st			2nd			3rd			4th			Year
Total revenue	$	9.0		$	8.0		$	8.1		$	8.8		$	33.9
Gross margin	$	5.5		$	4.8		$	5.0		$	5.2		$	20.5
Operating loss	$	(3.2	)(1)	$	(3.4	)	$	(3.8	)	$	(4.6	)	$	(15.0	)(1)
Loss from continuing operations	$	(3.3	)(1)	$	(3.5	)	$	(3.9	)	$	(4.7	)	$	(15.4	)(1)
(Loss) income from discontinued operations	$	(0.1	)	$	0.0		$	0.3		$	0.0		$	0.2
Net loss	$	(3.4	)(1)	$	(3.6	)	$	(3.6	)	$	(4.6	)	$	(15.2	)(1)
Net loss available to Common Stock holders	$	(3.5	)(1)	$	(3.7	)	$	(3.8	)	$	(4.9	)	$	(15.9	)(1)
Basic loss from continuing operations per share	$	(0.22	)	$	(0.23	)	$	(0.25	)	$	(0.30	)	$	(1.01	)
Basic (loss) income from discontinued operations per share	$	(0.01	)	$	0.00		$	0.02		$	0.00		$	0.02
Basic net loss per share available to Common Stock holders	$	(0.22	)	$	(0.23	)	$	(0.23	)	$	(0.30	)	$	(0.99	)
Diluted loss from continuing operations per share	$	(0.22	)	$	(0.23	)	$	(0.25	)	$	(0.30	)	$	(1.01	)
Diluted (loss) income from discontinued operations per share	$	(0.01	)	$	0.00		$	0.02		$	0.00		$	0.02
Diluted net (loss) income per share available to Common Stock holders	$	(0.22	)	$	(0.23	)	$	(0.23	)	$	(0.30	)	$	(0.99	)
Shares used to calculate basic and diluted net (loss) income per share (in millions)		15.75			15.97			16.07			16.22			16.00
	For the Fiscal Year Ended 2011
	1st			2nd			3rd			4th			Year
Total revenue	$	6.6		$	6.7		$	7.1		$	8.7		$	29.1
Gross margin	$	3.4		$	3.5		$	3.8		$	4.9		$	15.6
Operating loss	$	(4.9	)(2)	$	(4.3	)(2)	$	(4.3	)(2)	$	(3.1	)(2)	$	(16.6	)(2)
Loss from continuing operations	$	(4.7	)(2)	$	(0.8	)(2)	$	(2.5	)(2)	$	(2.6	)(2)	$	(10.6	)(2)
Income (loss) from discontinued operations	$	0.1		$	28.1		$	(0.5	)	$	1.2		$	28.9
Net (loss) income	$	(4.6	)(2)	$	27.3	(2)	$	(3.0	)(2)	$	(1.3	)(2)	$	18.4	(2)
Net (loss) income available to Common Stock holders	$	(4.9	)(2)	$	27.0	(2)	$	(3.3	)(2)	$	(8.2	)(2)	$	10.6	(2)
Basic loss from continuing operations per share, as restated(3)	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Basic income (loss) from discontinued operations per share	$	0.01		$	1.99		$	(0.03	)	$	0.08		$	2.03
Basic net (loss) income per share available to Common Stock holders	$	(0.36	)	$	1.91		$	(0.23	)	$	(0.56	)	$	0.74
Diluted loss from continuing operations per share, as restated(3)	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Diluted income (loss) from discontinued operations per share	$	0.01		$	1.99		$	(0.03	)	$	0.08		$	2.03
Diluted net (loss) income per share available to Common Stock holders	$	(0.36	)	$	1.91		$	(0.23	)	$	(0.56	)	$	0.74
Shares used to calculate basic and diluted net (loss) income per share (in millions)		13.95			14.11			14.30			14.54			14.23

(1) Includes $0.7 million of expense for the first quarter of fiscal year 2012 primarily related to severance and related costs associated with cost reduction plans. For fiscal year 2012 severance and related costs associated with cost reduction plans was $0.7 million.

(2) Includes $4 thousand of expense, $0.4 million of income, $0.1 million of expense, and $40 thousand of expense, for the first, second, third, and fourth quarters of fiscal year 2011, respectively, and $0.3 million of income for fiscal year 2011 primarily related to the favorable renegotiation of an office lease and severance and related costs associated with cost reduction plans.

(3) The effects of the correction of the error reported in Note Twenty-One “Restatement —  Basic and Diluted Loss Per Share from Continuing Operations” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K are reflected in all periods presented.

53

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Twenty-One— Restatement —Basic and Diluted Loss Per Share from Continuing Operations

During the second quarter of 2012, the Company identified an error relating to its calculation of basic and diluted loss per share from continuing operations in its previously issued financial statements. As described in Note Twelve “Capital Stock and Series B Stock”, the Company has paid periodic dividends on the Series B Stock and in 2011 repurchased certain shares of Series B Stock. Although the Company accounted for the dividends and repurchase in its consolidated financial statements, it did not deduct the dividends or, in 2011, the amounts paid in excess of liquidation value in connection with the repurchase of certain shares of Series B Stock, when calculating basic and diluted loss per share from continuing operations. The error occurred in 2011 and 2010, affecting the annual periods and all quarterly periods within these years.

To correct this error, the Company restated its previously issued Consolidated Statements of Operations for fiscal years 2011 and 2010. In accordance with Accounting Standards Codification 260, “Earnings Per Share”, the restatement deducts from such amounts dividends paid on the Series B Stock and, for 2011, amounts paid in excess of liquidation value in connection with the repurchase of certain shares of Series B Stock.

The change in presentation had no effect on any other amounts or financial statement line items. All prior periods have been restated to reflect such corrections.

The following tables summarize the corrections to basic and diluted loss per share from continuing operations for fiscal years 2011 and 2010.

	For the Fiscal Year Ended 2011
	As Reported			Adjustment			As Restated
Per share of Common Stock:
Basic loss from continuing operations	$	(0.74	)	$	(0.55	)	$	(1.29	)
Diluted loss from continuing operations	$	(0.74	)	$	(0.55	)	$	(1.29	)

	For the Fiscal Year Ended 2010
	As Reported			Adjustment			As Restated
Per share of Common Stock:
Basic loss from continuing operations	$	(1.19	)	$	(0.09	)	$	(1.28	)
Diluted loss from continuing operations	$	(1.19	)	$	(0.09	)	$	(1.28	)

The following table (unaudited) summarizes the corrections to basic and diluted loss per share of Common Stock from continuing operations for the quarters in fiscal year ended 2011 and fiscal year ended 2010:

	For the Fiscal Year Ended 2011
	1st			2nd			3rd			4th (1)			Year
Basic loss from continuing operations per share – as reported	$	(0.34	)	$	(0.05	)	$	(0.18	)	$	(0.17	)	$	(0.74	)
Basic loss from continuing operations per share – as restated	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Adjustment	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.47	)	$	(0.55	)
Diluted loss from continuing operations per share – as reported	$	(0.34	)	$	(0.05	)	$	(0.18	)	$	(0.17	)	$	(0.74	)
Diluted loss from continuing operations per share – as restated	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Adjustment	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.47	)	$	(0.55	)
	For the Fiscal Year Ended 2010
	1st			2nd			3rd			4th			Year
Basic loss from continuing operations per share – as reported	$	(0.36	)	$	(0.33	)	$	(0.27	)	$	(0.23	)	$	(1.19	)
Basic loss from continuing operations per share – as restated	$	(0.38	)	$	(0.35	)	$	(0.30	)	$	(0.25	)	$	(1.28	)
Adjustment	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.09	)
Diluted loss from continuing operations per share – as reported	$	(0.36	)	$	(0.33	)	$	(0.27	)	$	(0.23	)	$	(1.19	)
Diluted loss from continuing operations per share – as restated	$	(0.38	)	$	(0.35	)	$	(0.30	)	$	(0.25	)	$	(1.28	)
Adjustment	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.09	)

(1) The adjustment made in the fourth quarter of fiscal year 2011 includes amounts paid in excess of liquidation value in connection with the redemption of certain shares of Series B Stock in addition to periodic dividends on the Series B Stock.

54

MATTERSIGHT CORPORATION

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In millions)

Description of Allowance and Reserves	Balance at Beginning of Period		Additions Charged to Costs and Expenses			Additions Charged to Other Accounts		Deductions		Balance at End of Period
Valuation allowance for doubtful accounts*:
Fiscal year ended December 31, 2012	$	—		—			—		—	$	—
Fiscal year ended December 31, 2011	$	—		—			—		—	$	—
Fiscal year ended January 1, 2011	$	—		—			—		—	$	—
Valuation allowance for deferred tax assets:
Fiscal year ended December 31, 2012	$	55.8		8.0			—		—	$	63.8
Fiscal year ended December 31, 2011	$	62.7		(6.9	)		—		—	$	55.8
Fiscal year ended January 1, 2011	$	58.4		4.3			—		—	$	62.7

* Less than $0.1 million.

55

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Based on their evaluation for the period covered by this Form 10-K, Mattersight’s Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2012, the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) are effective.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Mattersight’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company conducted its evaluation of the effectiveness of internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on its evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the period covered by this Form 10-K.

(c) Attestation Report of the Registered Public Accounting Firm

Grant Thornton LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Form 10-K and, as part of their audit, has issued its report, included herein, on the effectiveness of our internal control over financial reporting. See “Report of Grant Thornton LLP Independent Registered Public Accounting Firm” on page 25, which is incorporated herein by reference.

(d) Changes in Internal Control over Financial Reporting

There has been no change in Mattersight’s internal control over financial reporting that occurred during the fourth quarter of fiscal year 2012 that has materially affected, or is reasonably likely to materially affect, Mattersight’s internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

For information about our corporate Directors and the committees of our Board of Directors, see the captions “Election of Directors” and “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement to be filed by Mattersight for its 2013 Annual Meeting of Stockholders, which is incorporated herein by reference in response to this item.

The following table includes the name, age (as of March 14, 2013), current position, and term of office of each of our executive officers.

Name	Age		Current Position	Executive Officer Since
Kelly D. Conway*		56	President and Chief Executive Officer		1999
Karen Bolton		48	Executive Vice President of Client Management		2011	**
Christopher J. Danson		45	Executive Vice President of Delivery		2011	**
Christine R. Carsen		42	Vice President, General Counsel and Corporate Secretary		2009
David R. Gustafson		35	Vice President of Marketing and Product Management		2012
Mark Iserloth		49	Vice President and Chief Financial Officer		2012
William B. Noon		48	Vice President of Finance		2009	***

* Member of the Board of Directors

56

** Mr. Danson was previously a named executive officer from December 2004 through February 2008 and Ms. Bolton was previously a named executive officer from September 2003 through February 2008. In February 2008, due to changes in their respective roles in connection with Company restructuring, it was determined that they no longer met the criteria therefor.

*** Mr. Noon was Vice President and Chief Financial Officer from February 2009 through July 22, 2012. Mr. Noon began serving as Vice President of Finance on July 23, 2012, when Mr. Iserloth joined the Company as Vice President and Chief Financial Officer.

Except as required by individual employment agreements between executive officers and the Company, there exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her removal or resignation.

The principal business experience of the executive officers for at least the last five years is as follows:

Kelly D. Conway has served as the President and Chief Executive Officer and a Director of the Company, which was spun out of Technology Solutions Company (“TSC”) in 2000, since its incorporation in May 1999. Mr. Conway joined TSC in November 1993 as Senior Vice President, assumed the position of Executive Vice President in July 1995, and became Group President in October 1998. Prior to joining TSC, Mr. Conway served as a Partner in the management consulting firm of Spencer, Shenk and Capers and also held various positions, including President and Chief Executive Officer, with Telcom Technologies, a manufacturer of automatic call distribution equipment.

Karen Bolton has been Vice President of Client Management since June 2011. Effective February 2012, Ms. Bolton’s title changed to Executive Vice President of Client Management. Ms. Bolton joined the Company in October 1998, prior to which she worked for IBM Global Services. Prior to joining IBM, she had been a member of a number of financial services institutions within Australia in various information technology roles.

Christopher J. Danson has been Vice President of Delivery since June 2011. Effective February 2012, Mr. Danson’s title changed to Executive Vice President of Delivery. Mr. Danson has spent more than 18 years with the Company, having spent the first seven years of his tenure with TSC. Prior to joining the Company, Mr. Danson worked as a Senior Systems Analyst at AT&T and at Whirlpool Corporation.

Christine R. Carsen has been Vice President, General Counsel and Corporate Secretary of the Company since May 2011. Ms. Carsen held the position of Vice President, Associate General Counsel, and Chief Privacy Officer from September 2007, when she joined the Company, and was appointed Corporate Secretary in February 2009. Prior to joining the Company, Ms. Carsen was a Partner at Winston & Strawn LLP from 2005 to 2007, having joined the firm as an associate in 2001. During her time at Winston & Strawn, Ms. Carsen focused on information-technology transactions, privacy matters, and general corporate and commercial transactions.

David R. Gustafson was promoted to the position of Vice President of Marketing and Product Management in February 2012. In this role, Mr. Gustafson has responsibility for marketing, product management, and sales support. In his thirteen years at Mattersight, Mr. Gustafson has held a number of positions, most recently Vice President of Business Delivery, responsible for the deployment and support of Mattersight’s solutions. Prior to joining Mattersight, Mr. Gustafson worked as a financial analyst at ABN AMRO North America in the office of the CFO.

Mark Iserloth joined the Company as Vice President and Chief Financial Officer effective July 23, 2012. In this role, Mr. Iserloth has responsibility for the Company’s Finance, Accounting, Human Resources, and other administrative functions. Prior to joining Mattersight in 2012, Mr. Iserloth was Chief Financial Officer of Trustwave Holdings, Inc. Prior to joining Trustwave, Mr. Iserloth was Chief Financial Officer of Initiate Systems, Inc.

William B. Noon has been Vice President of Finance since July 23, 2012. He served as Vice President and Chief Financial Officer of Mattersight from February 2009 through July 22, 2012. Since first joining Mattersight in 2000, Mr. Noon has held a number of other positions within the Finance function of Mattersight, including Vice President and Controller, Director, Financial Planning and Treasury.

The Company maintains a code of ethical business conduct (the “Code of Conduct”) applicable to all of our directors, officers, and other employees, including our Chief Executive Officer, Chief Financial Officer (who serves as our principal financial officer) and Vice President of Finance (who serves as our principal accounting officer). The Code of Conduct addresses ethical conduct, SEC disclosure, legal compliance, and other matters as contemplated by Section 406 of the Sarbanes-Oxley Act of 2002. A copy of the Code of Conduct is available on our website at www.Mattersight.com. We will make a copy of it available to any person, without charge, upon written request to Mattersight Corporation, 200 S. Wacker Drive, Suite 820, Chicago, Illinois 60606, Attn: Corporate Secretary. To the extent permitted by applicable rules of the NASDAQ Global Market, we intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to or waivers of the Code of Conduct for our Chief Executive Officer or Chief Financial Officer by posting such information on our website.

57

Item 11. Executive Compensation.

The information under “Compensation Discussion and Analysis,” “Executive Compensation,” and “Director Compensation” in the Proxy Statement to be filed by the Company for its 2013 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information under the heading “Security Ownership of Certain Beneficial Owners and Management — Beneficial Ownership Information” in the Proxy Statement to be filed by the Company for its 2013 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

The following table shows, as of December 31, 2012, information regarding outstanding awards under all compensation plans of the Company (including individual compensation arrangements) under which equity securities of the Company may be delivered:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1)		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Compensation Plans (excluding securities reflected in column (1) (2)
Equity compensation plans approved by security holders		1,766,236	$	9.03		1,086,444	(3)
Equity compensation plans not approved by security holders(4)		—	$	—		—
Total		1,766,236	$	9.03		1,086,444	(5)

(1) Reflects number of shares of Common Stock.

(2) All of the securities available for future issuance listed herein may be issued other than upon the exercise of outstanding options, warrants, or similar rights. All of these shares are available for award in the form of restricted stock, bonus stock, or similar awards under the Company’s applicable equity compensation plans.

(3) The Company’s plan that has been approved by its stockholders is the 1999 Plan, which includes an “automatic increase” feature whereby, as of the first day of each fiscal year, the number of shares of Common Stock available for awards, other than incentive stock options, automatically increases by an amount equal to five percent (5%) of the number of shares of Common Stock then outstanding.

(4) There are currently no equity compensation plans that have not been approved by security holders.

(5) Does not include (i) shares of restricted Common Stock held by employees, of which 821,363 shares were issued and outstanding as of December 31, 2012, which are included in the amount of issued and outstanding shares.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information under the heading “Transactions with Related Persons” in the Proxy Statement to be filed by Mattersight for its 2013 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

Item 14. Principal Accounting Fees and Services.

The information under the caption “Ratification of Selection of Independent Public Accountants—Principal Accounting Fees and Services” in the Proxy Statement to be filed by the Company for its 2013 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

58

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) Documents filed as part of this report:

(1) Financial Statements.

The consolidated financial statements filed as part of this report are listed and indexed under Item 8 of this Form 10-K and such list is incorporated herein by reference.

(2) Financial Statement Schedule.

The financial statement schedule filed as part of this report is listed and indexed under Item 8 of this Form 10-K and is incorporated herein by reference. We have omitted financial statement schedules other than that listed under Item 8 because such schedules are not required or applicable.

(3) Exhibits.

The list of exhibits filed with or incorporated by reference into this report is contained in the Exhibit Index to this report on Page I-1, which is incorporated herein by reference.

59

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 14, 2013.

MATTERSIGHT CORPORATION
By	/S/ KELLY D. CONWAY
	Kelly D. Conway
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 14, 2013.

Name	Capacity
/S/ KELLY D. CONWAY Kelly D. Conway	Director, President and Chief Executive Officer (Principal Executive Officer)
* Tench Coxe	Chairman of the Board and Director
* Philip R. Dur	Director
* Henry J. Feinberg	Director
* John T. Kohler	Director
* David B. Mullen	Director
* Michael J. Murray	Director
* John C. Staley	Director
/S/ MARK ISERLOTH Mark Iserloth	Vice President and Chief Financial Officer (Principal Financial Officer)
/S/ WILLIAM B. NOON William B. Noon	Vice President of Finance (Principal Accounting Officer)

*By:	/s/ MARK ISERLOTH
	Mark Iserloth, Attorney-in-Fact

60

EXHIBIT INDEX

We are including as exhibits to this Annual Report on Form 10-K certain documents that we have previously filed with the SEC as exhibits, and we are incorporating such documents as exhibits herein by reference from the respective filings identified in parentheses below. The management contracts and compensatory plans or arrangements required to be filed as exhibits to this Annual Report on Form 10-K pursuant to Item 14(c) are those listed below as Exhibits and noted by an asterisk.

Exhibit No.	Description of Exhibit
2.1	Acquisition Agreement dated as of March 17, 2011 by and among Magellan Acquisition Sub, LLC, TeleTech Holdings, Inc. and Mattersight Corporation (filed on May 12, 2011 as Exhibit 10.1 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2011).
2.2	Amendment No. 1 to Acquisition Agreement, dated as of May 27, 2011, by and among TeleTech Holdings, Inc., Magellan Acquisition Sub, LLC and Mattersight Corporation (filed on August 11, 2011 as Exhibit 10.2 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011).
2.3	Amendment No. 2 to Acquisition Agreement, dated as of June 20, 2011, by and among TeleTech Holdings, Inc., eLoyalty LLC (fka Magellan Acquisition Sub, LLC), and Mattersight Corporation (filed on August 11, 2011 as Exhibit 10.3 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011).
2.4	Amendment No. 3 to Acquisition Agreement, dated as of July 26, 2011, by and among TeleTech Holdings, Inc., eLoyalty LLC (fka Magellan Acquisition Sub, LLC), and Mattersight Corporation (filed on August 11, 2011 as Exhibit 10.4 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011).
2.5	Amendment No. 4 to Acquisition Agreement, dated as of September 7, 2011, by and among TeleTech Holdings, Inc., eLoyalty, LLC (f/k/a Magellan Acquisition Sub, LLC) and Mattersight Corporation (filed on November 10, 2011 as Exhibit 10.1 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2011).
2.6	Amendment No. 5 to Acquisition Agreement, dated as of October 17, 2011, by and among TeleTech Holdings, Inc., eLoyalty, LLC (f/k/a Magellan Acquisition Sub, LLC) and Mattersight Corporation (filed on November 10, 2011 as Exhibit 10.2 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2011).
3(i).1	Certificate of Incorporation of Mattersight Corporation, as amended (filed as Exhibit 3.1 to Mattersight’s Registration Statement on Form S-1 (Registration No. 333-94293) (the “S-1”)).
3(i).2	Certificate of Amendment to Mattersight Corporation’s Certificate of Incorporation effective December 19, 2001 (filed as Exhibit 3.3 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).
3(i).3	Certificate of Amendment to Mattersight Corporation’s Certificate of Incorporation effective December 19, 2001 (filed as Exhibit 3.4 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).
3(i).4	Certificate of Amendment to Mattersight Corporation’s Certificate of Incorporation effective May 31, 2011 (filed on May 31, 2011 as Exhibit 3.1 to Mattersight Corporation’s Current Report on Form 8-K).
3(ii).1	By-Laws of Mattersight Corporation (filed as Exhibit 3.2 to the S-1).
3(ii).2	Amendment to By-Laws of Mattersight Corporation (filed on November 16, 2007 as Exhibit 3.1 to Mattersight Corporation’s Current Report on Form 8-K).
4.1	Certificate of Designation of Series A Junior Participating Preferred Stock of Mattersight Corporation (included as Exhibit 4.2 to Amendment No. 1 to Mattersight Corporation’s Registration Statement on Form 8-A (File No. 0-27975) filed with the SEC on March 24, 2000).
4.2	Certificate of Increase of Series A Junior Participating Preferred Stock of Mattersight Corporation, filed December 19, 2001 (filed as Exhibit 3.5 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).
4.3	Certificate of Designation of 7% Series B Convertible Preferred Stock of Mattersight Corporation, filed December 19, 2001 (filed as Exhibit 3.6 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).

I-1

Exhibit No.	Description of Exhibit
4.4	Certificate of Adjustment dated January 10, 2002 (filed as Exhibit 4.3 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).
4.5	Form of Common Stock Certificate (incorporated by reference to Exhibit No. 4.1 to Mattersight Corporation’s Registration Statement on Form S-1/A filed on August 8, 2006).
4.6	Registration Rights Agreement dated December 19, 2011 by and between Mattersight Corporation and IGC Fund VI, L.P. (filed on December 22, 2011 as Exhibit 10.5 to Mattersight Corporation’s Current Report on Form 8-K).
10.1	Purchase Agreement dated December 19, 2011 by and between Mattersight Corporation and IGC Fund VI, L.P. (filed on December 22, 2011 as Exhibit 10.4 to Mattersight Corporation’s Current Report on Form 8-K).
10.2*	Mattersight Corporation 1999 Stock Incentive Plan (as Amended and Restated as of May 15, 2008) (filed as an Exhibit to Mattersight Corporation’s Definitive Proxy Statement on Schedule Def 14A).
10.3+	First Amendment to Mattersight Corporation 1999 Stock Incentive Plan (effective January 1, 2013).
10.4*	Form of Restricted Stock Award Agreement between applicable participant and Mattersight Corporation (filed as Exhibit 10.23 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended January 1, 2005).
10.5+	Current Form of Restricted Stock Award Agreement between applicable participant and Mattersight Corporation.
10.6*	Form of Installment Stock Award Agreement between applicable participant and Mattersight Corporation (filed as Exhibit 10.24 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended January 1, 2005).
10.7*	Form of Option Award Agreement between applicable participant and Mattersight Corporation (filed as Exhibit 10.8 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 30, 2006).
10.8+	Current Form of Option Award Agreement between applicable participant and Mattersight Corporation.
10.9	Loan and Security Agreement between Silicon Valley Bank, Mattersight Corporation, Mattersight Europe Holding Corporation, and Mattersight International Holdings, Inc., dated June 29, 2012 (filed on July 2, 2012 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).
10.10+	Amendment No. 1 to Loan Agreement, dated as of December 28, 2012, between Silicon Valley Bank and Mattersight Corporation.
10.11*	Form of Indemnification Agreement entered into between Mattersight Corporation and participant (filed as Exhibit 10.25 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 27, 2008).
10.12+	Current Form of Indemnification Agreement entered into between Mattersight Corporation and participant.
10.13*	Second Amended and Restated Employment Agreement, effective as of April 19, 2011 between Kelly D. Conway and Mattersight Corporation (filed as Exhibit 10.3 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2011).
10.14+	Executive Employment Agreement, effective as of May 23, 2012, between Christine R. Carsen and Mattersight Corporation.
10.15*	Letter Agreement between William B. Noon and Mattersight Corporation dated July 20, 2012 (filed as Exhibit 11.1 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012).
10.16*	Executive Employment Agreement, dated May 23, 2012, between William B. Noon and Mattersight Corporation (filed May 30, 2012 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).
10.17*	Amended Executive Employment Agreement, effective as of January 8, 2007, between Karen Bolton and Mattersight Corporation (filed as Exhibit 10.26 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 30, 2006).
10.18*	Amended and Restated Executive Employment Agreement, effective as of September 8, 2008, between Christopher J. Danson and Mattersight Corporation (filed as Exhibit 10.31 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 27, 2008).

I-2

Exhibit No.	Description of Exhibit
10.19*	Employment Agreement, effective as of June 6, 2011, between Tyson Marian and Mattersight Corporation (filed on August 11, 2011 as Exhibit 10.1 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011).
10.20*	Separation and Release Agreement, executed March 28, 2012, between Tyson Marian and Mattersight Corporation (filed as Exhibit 10.1 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012).
10.21*	Executive Employment Agreement, effective July 23, 2012, between Mark Iserloth and Mattersight Corporation (filed on July 23, 2012 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).
10.22+	Executive Employment Agreement, effective as of May 23, 2012, between David R. Gustafson and Mattersight Corporation.
10.23+	Summary of Director Compensation.
10.24+	Summary of 2013 Executive Officer Compensation.
21.1+	Subsidiaries of Mattersight Corporation.
23.1+	Consent of Grant Thornton LLP.
24.1+	Power of Attorney from Tench Coxe, Director.
24.2+	Power of Attorney from Philip R. Dur, Director.
24.3+	Power of Attorney from Henry J. Feinberg, Director.
24.4+	Power of Attorney from John T. Kohler, Director.
24.5+	Power of Attorney from Michael J. Murray, Director.
24.6+	Power of Attorney from John C. Staley, Director.
24.7+	Power of Attorney from David B. Mullen, Director.
31.1+	Certification of Kelly D. Conway under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+	Certification of Mark Iserloth under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+	Certification of Kelly D. Conway and Mark Iserloth under Section 906 of the Sarbanes-Oxley Act of 2002.
101+**	The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, is formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of December 31, 2012 and December 31, 2011; (ii) Consolidated Statements of Operations for the fiscal years ended December 31, 2012, December 31, 2011, and January 1, 2011; (iii) Consolidated Statements of Comprehensive (loss) income for the fiscal years ended December 31, 2012, December 31, 2011, and January 1, 2011; (iv) Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2012, December 31, 2011, and January 1, 2011; (v) Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the fiscal years ended December 31, 2012, December 31, 2011, and January 1, 2011; (vi) notes to the Consolidated Financial Statements; and (vii) Financial Statement Schedule II.

+ Filed herewith.

* Represents a management contract or compensatory plan or arrangement.

** The following XBRL information, is being furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any registration statement under the Securities Act of 1933, as amended.

I-3

EX-10.3

Exhibit 10.3

Exhibit A

FIRST AMENDMENT

TO THE

MATTERSIGHT CORPORATION 1999 STOCK INCENTIVE PLAN

(As Amended and Restated as of May 15, 2008)

WHEREAS, Mattersight Corporation (the “Company”) has established and maintains the eLoyalty Corporation 1999 Stock Incentive Plan, as Amended and Restated as of May 15, 2008 (the “Plan”);

WHEREAS, the Company now considers it necessary and desirable to amend the Plan, among other things, to alter the automatic stock option grant procedures with respect to non-employee directors of the Company;

NOW, THEREFORE, pursuant to the power of amendment contained in Section 6.6 of the Plan, the Plan, be and hereby is amended, effective January 1, 2013, in the following particulars:

1. By renaming the Plan as the “Mattersight Corporation Stock Incentive Plan” and by deleting the reference in Section 1.1 of the Plan to “eLoyalty Corporation” and inserting “Mattersight Corporation” in lieu thereof.

2. By adding the phrase “(or such other amount later approved by resolution of the Board)” after the number “50,000” where such number appears in the first sentence of Section 5.2(a) thereof.

3. By replacing the number “5,000” with the phrase “10,000 (or such other amount later approved by resolution of the Board)” in both places where such number appears in the first sentence of Section 5.2(b) thereof.

4. Except as set forth above, the Plan and its terms shall continue in full force and effect.

*            *             *

1

EX-10.5

Exhibit 10.5

RESTRICTED STOCK AWARD

Mattersight Corporation, a Delaware corporation (the “Company”), hereby grants to the individual whose name appears below (the “Participant”), pursuant to the provisions of the Mattersight Corporation 1999 Stock Incentive Plan (the “Plan”), a Restricted Stock Award (this “Award”) of shares of its Common Stock, $0.01 par value per share (the “Restricted Shares”), as set forth below but only upon and subject to the terms and conditions set forth herein, in the Plan, and in Annex I hereto.

All terms and conditions set forth in Annex I and the Plan are deemed to be incorporated herein in their entirety. All capitalized terms used in this Award and not otherwise defined herein have the respective meanings assigned to them in Annex I or the Plan.

Participant’s Name:

Number of Restricted Shares Subject to Award:

Date of Award Grant (“Award Date”):

Vesting Provisions:

(a) The Participant’s Restricted Shares will become vested in sixteen (16) equal quarterly increments equal to 6.25% of the Restricted Shares, beginning            , 2012, and ending            , 2015, provided that the Participant is employed by the Company on such dates. If the application of this paragraph (a) would result in the Participant vesting in a fraction of a share of Common Stock, such fractional share of Common Stock shall be rounded up to the next whole share, in which case adjustments may be made to future vesting increments to prevent exceeding the total number of Restricted Shares subject to the Award, as provided above.

(b) If the Participant’s employment or service with the Company terminates for any reason other than death, Disability or Retirement before all of the Participant’s Restricted Shares have become vested under this Award, then the Restricted Shares that have not become vested will be forfeited on and after the effective date of the termination.

(c) If the Participant’s employment or service with the Company is terminated on account of the Participant’s death or Disability, all Restricted Shares that have not otherwise vested under this Award will then become fully vested as of the date of such event. For purposes of this Award, “Disability” means a physical or mental condition of a Participant resulting from a bodily injury, disease, or mental disorder that renders the Participant eligible for benefits under the Company’s long-term disability plan (as in effect as of the date of the Participant’s termination of employment and regardless of whether the Participant is otherwise eligible for benefits under such plan), as determined by the Company in its sole discretion.

(d) If the Participant’s employment or service with the Company terminates by reason of the Participant’s retirement with the Company’s approval at age 55 or greater and with at least 5 years of continuous service with the Company or with the Company and its predecessor on a combined and uninterrupted basis (“Retirement”), an additional 20% of the Restricted Shares subject to this Award (but not in excess of the remaining number of Restricted Shares not yet vested under this Award) will then become fully vested as of the date of the Participant’s Retirement.

(e) Notwithstanding the foregoing, if the Participant terminates employment or service with the Company because he or she has become employed by an affiliate or subsidiary of the Company, then the Participant shall continue to vest in the Restricted Shares in accordance with the vesting schedule set forth in the preceding paragraph, and the Participant’s cessation of employment or service with the Company shall not be deemed a forfeiture event hereunder.

(f) The Board of Directors will have the right to determine, in its sole discretion, how a Participant’s leave of absence will affect the terms of this Award, including the vesting of Restricted Shares hereunder.

(g) The Company will not have any further obligations to the Participant under this Award if the Participant’s Restricted Shares are forfeited as provided herein.

Name Page 1 Restricted Stock Award

General:

This Award is subject to the provisions of the Plan, and will be interpreted in accordance therewith. In the event of a discrepancy between this Award, or any other material describing this Award or the Restricted Shares awarded hereunder, and the actual terms of the Plan, the Plan will govern in all respects. A copy of the Plan is available upon request by contacting the General Counsel and Corporate Secretary at the Company’s Chicago, Illinois office.

IN WITNESS WHEREOF, this Award has been executed as of the Award Date set forth above.

MATTERSIGHT CORPORATION
By:
	Kelly D. Conway
Its: President and Chief Executive Officer

Name Page 2 Restricted Stock Award

Annex I

to

Restricted Stock Award

1. Meaning of Certain Terms. As used herein, the following terms have the meanings set forth below. “Board” means the Company’s Board of Directors. “Code” means the Internal Revenue Code of 1986, as amended. References to this “Award”, the “Restricted Shares”, and “herein” are deemed to include the Restricted Stock Award and this Annex I to the Restricted Stock Award taken as a whole. This Annex I and the Restricted Stock Award are deemed to be one and the same instrument. The term “employment” shall have the meanings set forth in Section 1.4 of the Plan. Other capitalized terms used herein without definition shall have the respective meanings set forth in the Restricted Stock Award or the Plan, as appropriate.

2. Stock Certificates. Stock certificates will not be issued for the Restricted Shares. Rather, the Company will cause its transfer agent to maintain a book entry for the Restricted Shares in the Participant’s name. The Restricted Shares will be maintained in a book entry until they are either forfeited or vested. The Participant’s right to receive this Award hereunder is contingent upon the Participant’s execution and delivery to the Company of all stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate by the Company, which would permit transfer to the Company of all or a portion of the Restricted Shares in the event such Restricted Shares are forfeited in whole or in part. The Company, or its transfer agent, will release the Restricted Shares, as and when provided by Section 4 hereof.

3. Rights as Stockholder. On and after the Award Date, and except to the extent provided in Section 8 hereof, the Participant will be entitled to all of the rights of a stockholder with respect to the Restricted Shares, including the right to vote the Restricted Shares, the right to receive dividends and other distributions payable with respect to the Restricted Shares, and the right to participate in any capital adjustment applicable to all holders of Common Stock; provided, however, that a distribution with respect to shares of Common Stock, other than a regular cash dividend, will be deposited with the Company and will be subject to the same restrictions as the Restricted Shares. If the Participant forfeits any rights he or she may have under this Award, the Participant shall, on the day following the event of forfeiture, no longer have any rights as a stockholder with respect to the forfeited portion of the Restricted Shares or any interest therein (or with respect to any Restricted Shares not then vested), and the Participant shall no longer be entitled to receive dividends on such stock or vote the Restricted Shares as of any record date occurring thereafter.

4. Terms and Conditions of Distribution. The Company, or its transfer agent, will transfer the vested portion of the Restricted Shares to a brokerage account established by the Company on behalf of the Participant as soon as practicable after the Restricted Shares become vested. If the Participant dies before the Company has distributed any portion of vested Restricted Shares, the Company will transfer that portion of the vested Restricted Shares to a brokerage account established by the Company on behalf of the beneficiary designated by the Participant on a form provided by the Company for this purpose. If the Participant failed to designate a beneficiary, the Company will distribute certificates for the Restricted Shares in accordance with the Participant’s will or, if the Participant did not have a will, the Restricted Shares will be distributed in accordance with the laws of descent and distribution. The Company will distribute certificates for any undistributed portion of vested Restricted Shares no later than six months after the Participant’s death.

The Committee (as defined in Section 7) may require the Participant, or the alternate recipient identified in the preceding paragraph, will be required to satisfy any potential federal, state, local or other tax withholding liability. Such liability must be satisfied at the time the Restricted Shares become “substantially vested” (as defined in the regulations issued under Section 83 of the Code). In order to satisfy the withholding, the Company shall withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date in an amount necessary to satisfy the amount of applicable taxes required to be withheld; provided, however, that in the event the Participant is subject to Section 16 of the Exchange Act, the Committee may require that the method of satisfying such an obligation be in compliance with Section 16 and the rules and regulations thereunder.

The Company will not make any distribution under this Section 4 before the first date any portion of the Restricted Shares may be distributed to the Participant without penalty or forfeiture under federal or state laws or regulations governing short swing trading of securities. In determining whether a distribution would result in such a penalty or forfeiture, the Company and the Committee may rely upon information reasonably available to them or upon representations of the Participant’s legal or personal representative.

Name Page 1 Restricted Stock Award

5. No Right to Continue Employment or Service. Nothing in the Plan or this Award will be construed as creating any right in the Participant to continued employment or service with the Company, or as altering or amending the existing terms and conditions of the Participant’s employment or service.

6. Nontransferability. No interest of the Participant or any designated beneficiary in or under this Award will be assignable or transferable by voluntary or involuntary act or by operation of law, other than as set forth in Section 4 hereof. Distribution of Restricted Shares will be made only to the Participant; or, if the Committee has been provided with evidence acceptable to it that the Participant is legally incompetent, the Participant’s personal representative; or, if the Participant is deceased, to the designated beneficiary or other appropriate recipient in accordance with Section 4 hereof. The Committee may require personal receipts or endorsements of a Participant’s personal representative, designated beneficiary, or designated alternate recipient. Any effort to otherwise assign or transfer the rights under this Award will be wholly ineffective, and will be grounds for termination by the Committee of all rights of the Participant and his or her beneficiary in and under this Award.

7. Administration. The Compensation Committee of the Board of Directors of the Company (the “Committee”) has the authority to manage and supervise the administration of the Plan. The Participant’s rights under this Award are expressly subject to the terms and conditions of the Plan, including any required continued shareholder approval of the Plan, and to any guidelines the Committee adopts from time to time that are not inconsistent with the Plan.

8. Interpretation; Governing Law. Any interpretation by the Committee of the terms and conditions of the Plan, this Award, or any guidelines adopted as described in Section 7 hereof will be final. This Award and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the Code or the laws of the United States, will be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to the principles of conflicts of law, to the extent such principles would result in the application of another state’s laws.

9. Binding Effect. This Award will be binding upon and will inure to the benefit of the Company and the Participant and their respective heirs, executors, administrators, legal representatives, successors, and assigns.

10. Amendment and Waiver. The provisions of this Award may be amended or waived only with the prior written consent of the Company and the Participant, and no course of conduct or failure or delay in enforcing the provisions of this Award will affect the validity, binding effect or enforceability of this Award.

Name Page 2 Restricted Stock Award

EX-10.8

1999 Stock Incentive Plan Rev. 8/27/12

Exhibit 10.8

Mattersight Corporation

Non-Statutory

Stock Option Agreement

Mattersight Corporation, a Delaware corporation (the “Company”), hereby grants to the individual whose name appears below (the “Optionholder”), pursuant to the provisions of the Mattersight Corporation 1999 Stock Incentive Plan (the “Plan”), an option to purchase from the Company (the “Option”) such number of shares of its Common Stock, $0.01 par value (“Stock”), as set forth below at the price per share set forth below, but only upon and subject to the terms and conditions set forth herein, in the Plan, and in Annex I hereto. The Option is a non-statutory stock option, which means it is not intended to qualify as an “incentive stock option” under Code Section 422.

All terms and conditions set forth in Annex I and the Plan are deemed to be incorporated herein in their entirety. All capitalized terms used in this Agreement and not otherwise defined herein have the respective meanings assigned to them in Annex I or the Plan.

Optionholder’s Name:

Number of Shares

Subject to Option:

Exercise Price

Per Share:

Date of Option Grant

(“Option Date”):

Exercise Provisions:

(a) The Option will become exercisable as follows: (i) one (1) increment equal to 25% of the shares subject to the Option on August 31, 2013, and (ii) twelve (12) equal quarterly increments equal to 6.25% of the shares subject to the Option, beginning November 30, 2013 and ending August 31, 2016; provided that Optionholder is employed by the Company on such dates and (iii) as otherwise provided pursuant to paragraphs (b) through (f) of this Agreement or Section 6.8 of the Plan.

(b) If, on or after the Option Date, the Optionholder’s employment or service with the Company terminates for any reason whatsoever (including, without limitation, involuntary termination by the Company) other than death, Disability, or Retirement, the Option will remain exercisable with respect to the number of shares subject to the Option that are exercisable as of the effective date of the Optionholder’s termination of employment or service with the Company and may thereafter be exercised for a period of ninety (90) days from the effective date of the Optionholder’s termination of employment or service or until the Expiration Date, whichever period is shorter, after which the Option will terminate in its entirety. The Option shall terminate as of the effective date of the Optionholder’s termination of employment or service with respect to any shares subject thereto that are not exercisable as of such employment or service termination date.

- 1 -

1999 Stock Incentive Plan Rev. 8/27/12

(c) If the Optionholder’s employment or service with the Company terminates by reason of the Optionholder’s death, the Option will become exercisable as of the date of death with respect to any or all of the shares subject to the Option. The Option may thereafter be exercised by the Optionholder’s legal representative for a period of one (1) year from the date of death or until the Expiration Date, whichever period is shorter, after which the Option will terminate in its entirety.

(d) If the Optionholder’s employment or service with the Company terminates by reason of the Optionholder’s Disability, the Option will become exercisable as of the effective date of such termination with respect to any or all of the shares subject to the Option. The Option may thereafter be exercised for a period of ninety (90) days from the effective date of such termination or until the Expiration Date, whichever period is shorter, after which the Option will terminate in its entirety. For purposes of this Award, “Disability” means a physical or mental condition of a Participant resulting from a bodily injury, disease or mental disorder that renders the Participant eligible for benefits under the Company’s long-term disability plan (as in effect as of the date of the Participant’s termination of employment and regardless of whether the Participant is otherwise eligible for benefits under such plan), as determined by the Company in its sole discretion.

(e) If the Optionholder’s employment or service with the Company terminates by reason of the Optionholder’s retirement after the Optionholder has completed five (5) years of service as an employee of the Company and is at least 55 years of age (“Retirement”), the Option will remain exercisable with respect to the number of shares subject to the Option that are exercisable as of the effective date of the Optionholder’s Retirement, and may thereafter be exercised for a period of two (2) years from the effective date of the Optionholder’s Retirement or until the Expiration Date, whichever period is shorter, after which the Option will terminate in its entirety. The Option shall terminate as of the effective date of the Optionholder’s Retirement with respect to any shares subject thereto that are not exercisable as of such Retirement effective date.

(f) If the Optionholder dies following the termination of the Optionholder’s employment or service with the Company, the Option will be exercisable only to the extent that it is exercisable on the date of the Optionholder’s death and may thereafter be exercised only for that period of time for which the Option is exercisable immediately prior to the Optionholder’s death.

- 2 -

1999 Stock Incentive Plan Rev. 8/27/12

General:

This Agreement is subject to the provisions of the Plan, and will be interpreted in accordance therewith. In the event of a discrepancy between this Agreement, or any other material describing this Agreement or the Option awarded hereunder, and the actual terms of the Plan, the Plan will govern in all respects. A copy of the Plan is available upon request by contacting the General Counsel and Corporate Secretary at the Company’s Chicago, Illinois office.

IN WITNESS WHEREOF, this Agreement has been executed as the Option Date set forth above.

Mattersight Corporation
By:
	Kelly D. Conway
Its: President & Chief Executive Officer

- 3 -

1999 Stock Incentive Plan Rev. 8/27/12

Annex I

to

Stock Option Agreement

1. Meaning of Certain Terms. As used herein, the following terms have the meanings set forth below. “Board” means the Company’s Board of Directors. “Code” means the Internal Revenue Code of 1986, as amended. References to this “Agreement,” the “Option” and “herein” are deemed to include the Stock Option Agreement and this Annex I to Stock Option Agreement taken as a whole. This Annex I and the Stock Option Agreement are deemed to be one and the same instrument. The term “employment” shall have the meanings set forth in Section 1.4 of the Plan. Other capitalized terms used herein without definition shall have the respective meanings set forth in the Stock Option Agreement or the Plan, as appropriate.

2. Time and Manner of Exercise of Option.

2.1. Term and Termination of Option. The maximum term of the Option will be the date which is ten (10) years after the Option Date (the “Expiration Date”). The Option will terminate, to the extent not exercised or earlier terminated pursuant to the terms of this Agreement, on its Expiration Date. Notwithstanding any other term of this Agreement, in no event may the Option be exercised, in whole or in part, after the Expiration Date or its earlier termination.

2.2. Exercisability of Option. The Option will become exercisable on the date or dates as set forth in this Agreement.

2.3. Manner of Exercise. The Option may be exercised in whole or in part by the Optionholder in the manner described in or established by the Committee pursuant to Section 2.1(c) of the Plan.

2.4 Tax Withholding. The Company will be entitled to withhold, or secure payment from the Optionholder in lieu of withholding, the amount of any Federal, state, local or other withholding taxes due upon exercise of the Option, in accordance with Section 6.9 of the Plan.

3. Miscellaneous Provisions.

3.1. Option Confers No Rights as Stockholder. Neither the Optionholder nor any other person has or will have any rights as a security holder of the Company or any successor with respect to any shares of Common Stock or other securities which are or become subject to the Option hereunder unless and until the Optionholder becomes a holder of record with respect to such shares of Common Stock or other securities following proper exercise of the Option.

3.2. Option Confers No Rights to Continue Employment or Service. In no event will the granting of the Option or its acceptance by the Optionholder confer upon the Optionholder any right to continued employment or service with the Company, or any subsidiary or affiliate of the Company, or affect in any manner the right of the Company, or its subsidiary or affiliate, to terminate the employment or service of the Optionholder at any time without liability hereunder.

- 4 -

1999 Stock Incentive Plan Rev. 8/27/12

3.3. Designation as Nonqualified Stock Option. The Option is hereby designated as a non-statutory stock option and shall not constitute an “incentive stock option” within the meaning of section 422 of the Code; this Agreement will be interpreted and treated consistently with such designation.

3.4. Decisions of the Committee. Subject to Section 1.3 of the Plan, the Committee has the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Committee regarding the Plan or this Agreement shall be final, binding, and conclusive.

3.5. Non-transferability. Except as and to the extent otherwise expressly permitted by Section 6.8 of the Plan, the Option may not be transferred, assigned, or pledged.

3.6 Conformity with Plan. The Option is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan, which is incorporated herein by reference. In the event of any discrepancy between the Option, or a document that describes or explains the Option, and the Plan, the Plan will govern in all respects.

3.7. Successors. This Agreement will be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who acquire any rights under Section 6.8 of the Plan.

3.8. Notices. All notices, requests or other communications relating to the exercise of this Option (including, without limitation, the “cashless exercise” thereof or tax withholdings relating thereto) will be made in writing in such form and substance, and provided in accordance with such procedures, as may be prescribed by the Committee from time to time and then in effect. Any other notices, requests or other communications provided for in this Agreement will be made in writing either (1) by actual delivery to the party entitled thereto, or (2) by mailing in the U.S. mails, postage prepaid, to the last known address of the party entitled thereto. Any such other notices will be deemed to be received, in case (1), on the date of its actual receipt by the party entitled thereto and, in case (2), three (3) days after the date of its mailing.

3.9. Governing Law. This Agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, will be governed by the laws of the State of Delaware and construed in accordance therewith, without giving effect to principles of conflicts of laws, to the extent such principles would result in the application of another state’s laws.

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EX-10.10

Exhibit 10.10

FIRST AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This First Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 28^th day of December, 2012, by and among (a) SILICON VALLEY BANK, a California corporation with a loan production office located at 230 West Monroe, Suite 720, Chicago, Illinois 60606 (“Bank”), and (b) (i) MATTERSIGHT CORPORATION, a Delaware corporation (“Mattersight Corporation”), (ii). MATTERSIGHT EUROPE HOLDING CORPORATION, a Delaware corporation (“Mattersight Europe”), and (iii) MATTERSIGHT INTERNATIONAL HOLDING, INC., an Illinois corporation (“Mattersight International”; and together with Mattersight Corporation and Mattersight Europe, jointly and severally, individually and collectively, ‘‘Borrower”).

RECITALS

A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of June 29, 2012 (as the same may from time to time be amended, modified, supplemented or restated, the “Loan Agreement”).

B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement,

C. Borrower has requested that Bank amend the Loan Agreement to (a) extend the due date of Borrower’s annual operating budgets and financial projections, and (b) amend the definition entitled “Quick Assets” set forth in Section 13.1 thereof.

D. Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

AGREEMENT

Now, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2. Amendments to Loan Agreement.

2.1 The Loan Agreement shall be amended by deleting the following appearing as Section 6.2(h) thereof:

“(h) Board-Approved Projections. As soon as available, but no later than the last day of each fiscal year of Borrower, and contemporaneously with any updates or changes thereto, (i) annual operating budgets (including, without limitation, income statements, balance sheets and cash flow statements) for the immediately following fiscal year of Borrower, and (ii) annual financial projections for the immediately following fiscal year of Borrower as approved by the Board, together with any related business forecasts used in the preparation of such annual financial projections, all prepared in a form reasonably satisfactory to Bank; and”

and inserting in lieu thereof the following:

“(h) Board-Approved Projections. As soon as available, but no later than (x) February 15, 2013, with respect to Borrower’s fiscal year commencing January 1, 2013, and (y) the last day of each fiscal year of Borrower with respect to each fiscal year of Borrower thereafter, and contemporaneously with any updates or changes thereto, (i) annual operating budgets (including, without limitation, income statements, balance sheets and cash flow statements) for the immediately following fiscal year of Borrower, and (ii) annual financial projections for the immediately following fiscal year of Borrower as approved by the Board, together with any related business forecasts used in the preparation of such annual financial projections, all prepared in a form reasonably satisfactory to Bank; and”

2.2The Loan Agreement shall be amended by deleting the following definition appearing alphabetically in Section 13.1 thereof:

“        “Quick Assets” is, on any date, Borrower’s consolidated, unrestricted and unencumbered cash maintained with Bank or Bank’s Affiliates, plus net billed accounts receivable determined according to GAAP.”

and inserting in lieu thereof the following:

“        “Quick Assets” is, on any date, Borrower’s consolidated, unrestricted and unencumbered cash maintained with Bank or Bank’s Affiliates, plus gross billed accounts receivable determined according to GAAP.”

2.3The Loan Agreement shall be amended by deleting the Compliance Certificate attached as Exhibit C thereto and inserting the Compliance Certificate attached as Schedule 1 hereto.

3. Limitation of Amendments.

3.1The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:

4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

4.3 The organizational documents of Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

5. Ratification of Perfection Certificate. Each Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of June 29, 2012 between such Borrower and Bank, and acknowledges, confirms and agrees the disclosures and information such Borrower provided to Bank in said Perfection Certificate have not changed, as of the date hereof.

6. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

7. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

8. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, and (b) Borrower’s payment of Bank’s legal fees and expenses incurred in connection with this Amendment.

[Signature page follows.]

IN WITNESS WHEREOF, this Amendment is being executed as of the date first written above.

BORROWER:
MATTERSIGHT CORPORATION
By:	/s/ Christine R. Carsen
Name:	Christine R. Carsen
Title:	Vice President, General Counsel and Corporate Secretary
MATTERSIGHT EUROPE HOLDING CORPORATION
By:	/s/ Christine R. Carsen
Name:	Christine R. Carsen
Title:	Secretary
MATTERSIGHT INTERNATIONAL HOLDING, INC.
By:	/s/ Christine R. Carsen
Name:	Christine R. Carsen
Title:	Secretary
BANK:
SILICON VALLEY BANK
By:	/s/ Dennis P. Grant
Name:	Dennis P. Grant
Title:	RM

SCHEDULE 1

EXHIBIT C

COMPLIANCE CERTIFICATE

TO:         SILICON VALLEY BANK Date:

FROM: MATTERSIGHT CORPORATION, MATTERSIGHT EUROPE HOLDING CORPORATION, AND MATTERSIGHT INTERNATIONAL HOLDING, INC. (jointly and severally, individually and collectively, “Borrower”)

The undersigned authorized officer of Borrower certifies that under the terms and conditions of the Loan and Security Agreement among Borrower and Bank (the “Agreement”):

(1) Borrower is in complete compliance for the period ending                      with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, except as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower, except as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.

Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that is determined not just at the date this certificate is delivered, Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies’’ column.

Reporting Covenant	Required	Complies
Monthly consolidating financial statements with Compliance Certificate	Monthly within 30 days	Yes No
Annual consolidating financial statement (CPA Audited)	FYE within 150 days	Yes No
10-Q, 10-K and 8-K	Within 5 days after filing with SEC	Yes No
A/R, A/P Agings, and Deferred Revenue reports	Monthly within 30 days	Yes No
Board-approved Projections	Annually prior to FYE (FY 2013 due on 1/31/2013)	Yes No

Financial Covenant	Required	Actual	Complies
Minimum Adjusted Quick Ratio (at all times, to be tested monthly)	1.5:1,0	:1.0	Yes No

The following financial covenant analysis and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)

....................................................................................................................................................................................................

....................................................................................................................................................................................................

....................................................................................................................................................................................................

MATTERSIGHT CORPORATION	BANK USE ONLY
	Received by:
By:	AUTHORIZED SIGNER
Name:	Date:
Title:
	Verified:
MATTERSIGHT EUROPE HOLDING CORPORATION	AUTHORIZED SIGNER
	Date:
By:	Compliance Status:         Yes         No
Name:
Title:
MATTERSIGHT INTERNATIONAL HOLDING, INC.
By:
Name:
Title:

EX-10.12

Exhibit 10.12

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT is made effective as of the             day of             2011, between Mattersight Corporation, a Delaware corporation (the “Company”), and             (“Indemnitee”).

WHEREAS, it is essential to the Company and its stockholders to attract and retain qualified and capable directors, officers, employees, agents and fiduciaries;

WHEREAS, the Certificate of Incorporation of the Company (the “Certificate of Incorporation”) and the Company’s Bylaws require the Company to indemnify and advance expenses to its directors and officers to the extent not prohibited by law;

WHEREAS, historically, basic protection against undue risk of personal liability of directors and officers has been provided through insurance coverage affording reasonable protection at reasonable cost;

WHEREAS, it is presently uncertain whether, and to what extent, such insurance is or will continue to be available to the Company at a reasonable cost for the protection of Indemnitee;

WHEREAS, in recognition of Indemnitee’s need for protection against personal liability in order to induce Indemnitee to serve or continue to serve the Company in an effective manner, and, in the case of directors and officers, to supplement the Company’s directors’ and officers’ liability insurance coverage, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Certificate of Incorporation and Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Certificate of Incorporation and Bylaws or any change in the composition of the Company’s Board of Directors or any acquisition transaction relating to the Company), the Company wishes to provide Indemnitee with the benefits contemplated by this Agreement; and

WHEREAS, as a result of the provision of such benefits Indemnitee has agreed to serve or to continue to serve the Company;

NOW, THEREFORE, the parties hereto hereby agree as follows:

1. Definitions. The following terms, as used herein, shall have the following respective meanings:

(a) Claim: means any threatened, pending, or completed action, suit, arbitration, or proceeding, or any inquiry or investigation, whether brought by or in the right of the Company or otherwise, that Indemnitee in good faith believes might lead to the institution of any such action, suit, arbitration or proceeding, whether civil, criminal, administrative, investigative, or other, or any appeal therefrom.

(b) D&O Insurance: means any valid directors’ and officers’ liability insurance policy maintained by the Company for the benefit of Indemnitee.

(c) Company Determination: means a determination based on the facts known at the time, by: (i) a majority vote of a quorum of disinterested directors of the Company, or (ii) if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors of the Company so directs, by independent legal counsel in a written opinion, or (iii) a majority of the disinterested stockholders of the Company.

v.010413    

(d) Excluded Claim: means any payment for Losses or Expenses in connection with any Claim: (i) for the return by Indemnitee of any remuneration paid to Indemnitee without the previous approval of the stockholders of the Company which is illegal; or (ii) for an accounting of profits in fact made from the purchase or sale by Indemnitee of securities of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, or similar provisions of any state law; or (iii) resulting from Indemnitee’s knowingly fraudulent, dishonest or willful misconduct; or (iv) the payment of which by the Company under this Agreement is not permitted by applicable law.

(e) Expenses: means any reasonable expenses incurred by Indemnitee as a result of a Claim or Claims by reason of (or arising in part out of) Indemnifiable Events including, without limitation, attorneys’ fees and all other costs, expenses, and obligations paid or incurred in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing to defend, be a witness in, or participate in, any Claim by reason of (or arising in part out of) any Indemnifiable Event.

(f) Fines: means any fine, penalty, or, with respect to an employee benefit plan, any excise tax or penalty assessed with respect thereto.

(g) Indemnifiable Event: means any event or occurrence, occurring prior to, on, or after the date of this Agreement, related to the fact that Indemnitee is, was, or has agreed to serve as, a director or officer of the Company, or is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise; provided that Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, Indemnitee had no reasonable cause to believe his conduct was unlawful.

(h) Judicial Determination: means a final nonappealable determination of a court of competent jurisdiction.

(i) Losses: means any amounts or sums which Indemnitee is or becomes obligated to pay as a result of a Claim or Claims made against Indemnitee for Indemnifiable Events including, without limitation, damages, judgments and sums or amounts paid in settlement of a Claim or Claims, and Fines.

2. Basic Indemnification Agreement. In consideration of, and as an inducement to, Indemnitee’s rendering valuable services to the Company, the Company agrees that in the event Indemnitee is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of ( or arising in part out of) an Indemnifiable Event (including, without limitation, a Claim by or in the right of the Company), the Company will indemnify Indemnitee to the fullest extent authorized by law, against any and all Losses and Expenses (including all interest, assessments and other charges paid or payable in connection with or in respect of such Losses and Expenses) of such Claim, whether or not such Claim proceeds to judgment or is settled or otherwise is brought to a final disposition, subject in each case, to the further provisions of this Agreement.

v.010413    | 2

3. Limitations on Indemnification. Notwithstanding the provisions of Section 2, Indemnitee shall not be indemnified and held harmless from any Losses or Expenses (a) which have been determined by Judicial Determination to constitute an Excluded Claim; (b) to the extent Indemnitee is indemnified by the Company and has already received payment in full of all such Losses and Expenses pursuant to the Certificate of Incorporation and Bylaws, D&O Insurance or otherwise; or (c) other than pursuant to the last sentence of Section 4(d) or Section 12, in connection with any claim initiated by Indemnitee, unless such claim has been authorized by a Company Determination.

4. Indemnification Procedures.

(a) Promptly after receipt by Indemnitee of notice of any Claim, Indemnitee shall, if indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement thereof; provided, however, that the failure to give such notice promptly shall not affect or limit the Company’s obligations with respect to the matters described in the notice of such Claim, except to the extent that the Company is materially prejudiced thereby. Indemnitee agrees further not to make any admission or effect any settlement with respect to such Claim without the consent of the Company, except any Claim with respect to which Indemnitee has undertaken the defense in accordance with the second to last sentence of Section 4(d).

(b) If, at the time of the receipt of such notice, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Losses and Expenses payable as a result of such Claim.

(c) The Company shall pay the Expenses of any Claim in advance of the final disposition thereof and the Company, if appropriate, shall be entitled to assume the defense of such Claim, with counsel satisfactory to Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After the delivery of such notice, the Company will not be liable to Indemnitee under this Agreement for any legal or other Expenses subsequently incurred by Indemnitee in connection with such defense other than reasonable Expenses of investigation; provided that Indemnitee shall have the right to employ separate counsel in such Claim but the fees and expenses of such counsel incurred after delivery of notice from the Company of its assumption of such defense shall be at Indemnitee’s expense; provided further that if: (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such action, the reasonable fees and expenses of counsel shall be at the expense of the Company.

(d) All payments on account of the Company’s indemnification obligations under this Agreement shall be made within thirty (30) days after Indemnitee’s written request therefor unless a Company Determination is made that the Claims giving rise to Indemnitee’s request are Excluded Claims or otherwise not payable under this Agreement, provided that all payments on account of the Company’s obligation to pay Expenses under Section 4(c) of this Agreement prior to the final disposition of any Claim shall be made within 20 days after Indemnitee’s written request therefor and such obligation shall not be subject to Section 4(e) of this Agreement. In the event of a Company Determination that Indemnitee is not entitled to indemnification in connection with the proposed settlement of any Claim, Indemnitee shall have the right at his own expense to undertake defense of any such Claim, insofar as such proceeding involves Claims against Indemnitee, by written notice given to the Company within 10 days after the Company has notified Indemnitee in writing of its contention that Indemnitee is not entitled to indemnification; provided, however, that the failure to give such notice within such 10-day period shall not affect or limit the Company’s obligations with respect to any such Claim if such Claim is subsequently determined not to be an Excluded Claim or otherwise to be payable under this Agreement, except to the extent that the Company is materially prejudiced thereby. If it is subsequently determined in connection with such proceeding that the Claims are not Excluded Claims or that Indemnitee is otherwise entitled to be indemnified under the provisions of Section 2 hereof, the Company shall promptly indemnify Indemnitee in full against all Losses and Expenses arising out of such Claims or Indemnifiable Events.

v.010413    | 3

(e) Indemnitee hereby expressly undertakes and agrees to reimburse the Company for all Losses and Expenses paid by the Company in connection with any Claim against Indemnitee in the event and only to the extent that a Judicial Determination shall have been made that Indemnitee is not entitled to be indemnified by the Company for such Losses and Expenses because the Claim is an Excluded Claim or because Indemnitee is otherwise not entitled to payment under applicable law.

(f) In connection with any dispute as to whether Indemnitee is entitled to be indemnified hereunder the presumption shall be that Indemnitee is so entitled and the burden of proof and the burden of persuasion shall be on the Company to establish that Indemnitee is not so entitled by clear and convincing evidence. In addition, the Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Claim to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such Claim with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

5. Settlement. The Company shall have no obligation to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Claim effected without the Company’s prior written consent. The Company shall not settle any Claim in which it takes the position that Indemnitee is not entitled to indemnification in connection with such settlement without the consent of Indemnitee, nor shall the Company settle any Claim in any manner which would impose any Fine, admission of wrongdoing or any obligation on Indemnitee, without Indemnitee’s written consent. Neither the Company nor Indemnitee shall unreasonably withhold its or his consent to any proposed settlement.

6. No Presumption. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.

v.010413    | 4

7. Non-exclusivity, Etc. The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Certificate of Incorporation and Bylaws, the Company’s By-laws, the Delaware General Corporation Law, any vote of stockholders or disinterested directors or otherwise, both as to action in Indemnitee’s official capacity and as to action in any other capacity by holding such office, and shall continue after Indemnitee ceases to serve the Company as a director or officer for so long as Indemnitee shall be subject to any Claim by reason of (or arising in part out of) an Indemnifiable Event. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Certificate of Incorporation and By-Laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.

8. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, Indemnitee, if at any time an officer or director of the Company, shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director or officer of the Company.

9. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

10. Partial Indemnity, Etc.; Contribution in the Event of Joint Liability.

(a) If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Losses and Expenses of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to any Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.

(b) Whether or not the indemnification provided in Section 2 hereof is available, in respect of any threatened, pending or completed Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such Claim), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such Claim without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such Claim) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

v.010413    | 5

(c) Without diminishing or impairing the obligations of the Company set forth in Section 10(b), if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any Losses or Expenses in any threatened, pending or completed Claim in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of Losses and Expenses paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such Claim arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such Losses or Expenses, as well as any other equitable considerations which the Law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Claim), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

(d) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

11. Liability of Company. Indemnitee agrees that neither the stockholders nor the directors nor any officer, employee, representative or agent of the Company shall be personally liable for the satisfaction of the Company’s obligations under this Agreement and Indemnitee shall look solely to the assets of the Company for satisfaction of any claims hereunder.

12. Enforcement.

(a) Indemnitee’s right to indemnification and other rights under this Agreement shall be specifically enforceable by Indemnitee and shall be enforceable notwithstanding any adverse Company Determination and no such Company Determination shall create a presumption that Indemnitee is not entitled to be indemnified hereunder.

(b) In the event that any action is instituted by Indemnitee under this Agreement, or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and reasonable expenses, including reasonable counsel fees, incurred by Indemnitee with respect to such action, unless the court determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous.

13. Severability. In the event that any provision of this Agreement is determined by a court to require the Company to do or to fail to do an act which is in violation of applicable law, such provision (including any provision within a single section, paragraph or sentence) shall be limited or modified in its application to the minimum extent necessary to avoid a violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with their terms to the fullest extent permitted by law.

14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within such State.

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15. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consents to the jurisdiction of the courts of and in the States of Delaware and Illinois for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agrees that any action instituted under this Agreement shall be brought only in the state or Federal courts of the States of Delaware and Illinois.

16. Notices. All notices or other communications required or permitted hereunder shall be sufficiently given for all purposes if in writing and personally delivered, telegraphed, telexed, sent by facsimile transmission or sent by registered or certified mail, return receipt requested, with postage prepaid addressed as follows, or to such other address as the parties shall have given notice of pursuant hereto:

(a) If to the Company, to:

Mattersight Corporation

200 S. Wacker Drive

Suite 820

Chicago, Illinois 60606

Attention: General Counsel

Facsimile: (775) 252-9987

(b) If to Indemnitee, to:

Name

[current home address]

17. Counterparts. This Agreement may be signed in counterparts, each of which shall be an original and all of which, when taken together, shall constitute one and the same instrument.

18. Successors and Assigns. This Agreement shall be (i) binding upon all successors and assigns of the Company, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, and (ii) binding upon and inure to the benefit of any successors and assigns, heirs, and personal or legal representatives of Indemnitee.

19. Amendment; Waiver. No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in a writing signed by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

20. Entire Agreement. This Agreement constitutes the complete, final, and exclusive embodiment of the entire agreement between Indemnitee and the Company with regard to the subject matter hereof and supersedes all prior agreements or understandings whether written or oral, between Indemnitee and the Company. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a written instrument signed by Indemnitee and a duly authorized officer or director of the Company.

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IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement to be effective as of the day and year first above written.

	MATTERSIGHT CORPORATION
	By:
Name		Christine R. Carsen Vice President, General Counsel, and Corporate Secretary

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EX-10.14

Exhibit 10.14

EXECUTIVE EMPLOYMENT AGREEMENT

Mattersight Corporation (the “Company”), and Christine R. Carsen, an individual (“Employee”), enter into this Executive Employment Agreement (“Agreement”) as of May 23, 2012.

WHEREAS, the Company desires to continue to employ Employee to provide personal services to the Company and to continue to provide Employee with certain compensation and benefits in return for her services; and

WHEREAS, Employee wishes to continue to be employed by the Company and to continue to provide personal services to the Company in return for certain compensation and benefits.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between the parties hereto as follows:

1. Duties. The Company shall employ Employee as its Vice President General Counsel and Corporate Secretary, reporting directly to the Company’s President and Chief Executive Officer, and Employee accepts such employment upon the terms and conditions herein. Employee shall have such responsibilities, duties, and authority in all material respects as are assigned to Employee as of the date hereof and such other responsibilities, duties, and authority as the President and Chief Executive Officer may reasonably designate and are customarily associated with her positions.

(a) Outside Activities. During the term of employment, Employee shall perform faithfully the duties assigned to her to the best of her ability, and Employee shall devote her full and undivided business time and attention to the transaction of the Company’s business. Except in conformity with the requirements with the Company’s then-effective Code of Ethical Business Conduct, Employee will not during the term of this Agreement undertake or engage (other than as a passive investor) in any other employment, occupation, or business enterprise, whether as an agent, partner, proprietor, officer, director, employee, consultant, contractor, or otherwise, whether during or outside the business hours of the Company. Employee may engage in civic and not-for-profit activities so long as such activities do not interfere with the performance of her duties hereunder.

(b) No Adverse Interests. Except as permitted by Section 9(c), during the term of employment, Employee agrees not to acquire, assume, or participate in, directly or indirectly, any position, investment, or interest that is known or should be known by her to be adverse or antagonistic to the Company, its business, or prospects, financial or otherwise.

2. Term of Employment; Termination.

(a) At-Will Relationship. Employee’s employment relationship is at-will. Either Employee or the Company may terminate the employment relationship at any time, for any reason or no reason, with or without Cause or advance notice.

(b) Termination by the Company without Cause; Termination by Employee with Good Reason.

(i) Cause Definition. For purposes of this Agreement, “Cause” shall mean any of the following: (i) conviction, including a plea of guilty or no contest, of any felony or any crime involving moral turpitude or dishonesty; (ii) fraud upon the Company (or an affiliate), embezzlement or misappropriation of corporate funds; (iii) willful acts of dishonesty materially harmful to the Company; (iv) activities materially harmful to the Company’s reputation; (v) Employee’s willful misconduct, willful refusal to perform her duties, or substantial willful disregard of her duties, provided that the Company first provides Employee with written notice of such conduct and thirty (30) days to cure such conduct, if such conduct is reasonably susceptible to cure; or (vi) material breach of this Agreement, any other agreement with the Company, any policy of the Company, or any statutory duty or common law duty of loyalty owed to the Company that causes material harm to the Company; provided, no act or omission on Employee’s part shall be considered “willful” unless it is done by Employee without reasonable belief that the Employee’s action was in the best interests of the Company.

(ii) Good Reason Definition. For the purposes of this Agreement, “Good Reason” shall mean: (A) a reduction of Employee’s base salary below the amount set forth in Section 3 of this Agreement, or a reduction in the “Target Bonus” defined in Section 4 of this Agreement, if any, unless such reduction is shared proportionally by the three most highly-salaried officers of the Company in addition to Employee; (B) an involuntary relocation of Employee’s place of work to any location outside of the metropolitan area in which her primary office is located immediately prior to the relocation, excluding temporary periods of thirty (30) days or less and ordinary course business travel; (C) a significant diminution by the Company in Employee’s position (including offices, titles, and reporting relationships), authority, duties, or responsibilities (excluding diminutions resulting in the ordinary course from the Company becoming, pursuant to a Change of Control, (x) part of a larger organization in which Employee directly reports to the Chief Executive Officer of such organization; or (y) a subsidiary or equivalent separate functional business unit of a larger organization); (D) a material breach by the Company of this Agreement; or (E) failure by the Company to assign this Agreement to a successor upon a Change of Control. No Good Reason shall exist where: (1) Employee consents to the event that forms the basis for the Good Reason resignation; (2) Employee does not provide the Company’s President and Chief Executive Officer with written notice describing in detail the Good Reason within thirty (30) days after its occurrence; or (3) the Company cures the Good Reason within thirty (30) days after its receipt of such notice, if such conduct is reasonably susceptible to cure.

(iii) Severance Benefits. In the event that Employee’s employment is terminated without Cause by the Company or is terminated by Employee with Good Reason, Employee shall receive the following as her sole and exclusive severance benefits (collectively, the “Severance Benefits”):

(1) Severance Pay. Employee will receive a lump sum payment, within seven (7) days following the effective date of termination, equal to six (6) months of her then-current base salary, less standard payroll deductions and withholdings.

(2) Severance Bonus. Employee will be paid a bonus, within seven (7) days following the effective date of termination, equal to 50% of the average of (A) the annual bonus she was paid for the year immediately preceding the termination and (B) her Target Bonus under the Company’s then-current bonus plan, if any, less standard payroll deductions and withholdings.

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(3) Severance Health Premium Reimbursements. If Employee timely elects to continue her Company-provided group health insurance coverage pursuant to the federal COBRA law, the Company will reimburse Employee for the cost of such COBRA premiums to continue health insurance coverage at the same level of coverage for Employee and her dependents (if applicable) in effect as of the termination date, through the end of six (6) months or until such time as Employee qualifies for health insurance benefits through a new employer, whichever occurs first. Employee shall notify the Company in writing of such new employment not later than five (5) business days after securing it.

(4) Severance Vesting. The vesting of all restricted stock or stock option or other equity grants that Employee has previously received or may in the future receive from the Company, shall be accelerated so that, as of the date of the termination, such restricted stock and stock option grants shall vest as to the number of shares that would have vested had Employee provided an additional six (6) months of continuous service to the Company; provided, however, that if Employee is terminated without Cause within six (6) months following a Change in Control (as defined in Section 6.8(b) of the Company’s 1999 Stock Incentive Plan), Employee terminates her employment for Good Reason within six (6) months following a Change in Control, or Employee terminates her employment for the Good Reason described in clause (E) of Section 2(b)(ii), then such restricted stock and stock option grants shall vest as to the number of shares that would have vested had Employee provided an additional twelve (12) months of continuous service to the Company.

(iv) Severance Conditions. As a condition of and prior to the receipt of all or any of the Severance Benefits, Employee must execute and allow to become effective a general release of claims in the form attached hereto as Exhibit A within sixty (60) days after the effective date of termination and must comply with the terms of this Agreement. Upon any termination of Employee’s employment by the Company without Cause or by Employee for Good Reason, the Company and its affiliates (by and through their respective directors and senior executive officers) and Executive agree not to disparage the other party.

(c) Termination for Cause; Voluntary or Mutual Termination.

(i) No Severance. In the event Employee’s employment is terminated by the Company at any time for Cause, or Employee terminates her employment without Good Reason, or the parties mutually terminate their employment relationship, Employee will not be entitled to any Severance Benefits, pay in lieu of notice, or any other severance, compensation, benefits, equity, acceleration, or any other amounts, with the exception of any benefit to which Employee has a vested right under a written benefit plan.

(ii) Resignation. Employee may voluntarily terminate her employment with the Company at any time, without liability therefor. Employee agrees to use good faith to give the Company reasonable notice of any such voluntary termination. Upon receipt of any termination notice from Employee, the Company, at its election, may require Employee to resign her employment prior to the occurrence of any requested termination date.

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(d) Termination for Death or Disability.

(i) Termination. Employee’s employment will terminate upon her death or Disability.

(ii) Disability Definition. For the purposes of this Agreement, “Disability” shall have the meaning set forth in the Company’s then-current long-term disability benefit program or, if no such program is then in effect, shall mean a permanent disability rendering Employee unable to perform her duties for the Company for ninety (90) consecutive days or one hundred eighty (180) days in any twelve (12) month period, which determination shall be made after the period of disability, unless an earlier determination can be made, by an independent physician appointed by the Board.

(iii) Death or Disability Benefit. Following the death or Disability of Employee while employed by the Company, the Company will provide Employee (or, in the case of death, Employee’s estate) a lump sum amount payable within thirty (30) days thereafter, equal to: (A) Employee’s salary for twelve (12) months; (B) an amount equal to 100% of the average of (x) the annual bonus she was paid for the year immediately preceding the termination and (y) her Target Bonus under the Company’s then-current bonus plan, if any, less standard payroll deductions and withholdings; plus (C) the cost of such COBRA premiums to continue health insurance coverage at the same level of coverage for Employee and her dependents (if applicable) in effect as of the termination date, through the end of twelve (12) months. All restricted stock and stock option grants that Employee has then received from the Company or may in the future receive from the Company shall be vested as to half of the unvested shares (or such greater amount, if any, as is provided for in the agreement for the applicable grant), and all such stock options shall, notwithstanding any lesser period, if any, provided for in the agreement for the applicable grant, be exercisable for one (1) year following such termination (but not exceeding the term of such option).

(iv) Severance Conditions. As a condition of and prior to the receipt of all or any of the Severance Benefits provided for upon death or Disability, Employee (or, in the case of death, Employee’s estate) must execute and allow to become effective a general release of claims in the form attached hereto as Exhibit A within sixty (60) days of termination and must comply with the terms of this Agreement. Upon any termination of Employee’s employment for death or Disability, the Company and its affiliates (by and through their respective directors and senior executive officers) and Executive (or, in the case of death, Employee’s estate) agree not to disparage the other party.

(e) No Mitigation. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the Severance Benefits payable to Employee, and such amounts (other than as provided at Section 2(b)(iii)(2)) shall not be reduced whether or not the Employee obtains other employment.

(f) Accrued Obligations. Not later than ten (10) days after termination of Employee’s employment, the Company shall pay Employee: (i) her accrued and unpaid base salary at the rate in effect at the time of notice of termination; (ii) any previous year’s earned but unpaid bonus and other earned and unpaid incentive cash compensation; and (iii) accrued and unused vacation time, unpaid expense reimbursements, and other unpaid cash entitlements earned by Employee as of the date of termination pursuant to the terms of the applicable Company plan or program.

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3. Salary. For services rendered hereunder, the Company shall pay Employee a base salary at the per annum rate of $190,000, less standard payroll deductions and withholdings, and payable in accordance with the Company’s regular payroll schedule. Employee’s base salary (as well as her eligibility for incentive equity grants) shall be subject to annual review and her base salary may, at the discretion of the Company’s Board of Directors, be increased from time to time.

4. Bonuses. Employee will be offered the opportunity to participate in the Company’s then-current bonus plan. Subject to and in accordance with the terms and conditions of such plan and this paragraph, upon achievement of all bonus-related goals and objectives set by the Board of Directors and/or the Chief Executive Officer for the Company and for Employee (the “Bonus Objectives”), Employee shall receive a cash bonus equal to or greater than $65,000 (“Target Bonus”), less standard payroll deductions and withholding as are applicable to similarly situated employees. The Company shall have the sole discretion to (i) change or eliminate bonus plans or programs at any time (provided, however, that after the bonus plan and Target Bonus objectives have been established by the Board and/or the Chief Executive Officer for a given year, neither the Board nor the Chief Executive Officer shall later materially change the bonus plan or Bonus Objectives for such year to Employee’s detriment without Employee’s consent), (ii) determine whether the Bonus Objectives for a given year have been achieved, and (iii) determine (in accordance with this Section and such Bonus Objectives and bonus plan) the amount of bonus earned by Employee, if any. Bonuses are intended to retain valuable Company employees, and if Employee is not employed for any reason on the last day of the bonus year, she will not have earned the bonus and, except as expressly provided herein with respect to the Severance Bonus, no partial or pro-rata bonus will be paid. Any bonus paid pursuant to this Section 4 shall be paid net of standard payroll deductions and withholdings. The target payment date for any bonus measured on the basis of a calendar year shall be between January 1 and April 15 of the calendar year following the end of the performance period; provided, however, that such bonus shall be paid no later than April 15 of such calendar year following the end of the performance period.

5. Employee Benefits. Employee shall be entitled to participate in such employee benefit plans, including the Company’s 401(k) plan, life insurance, and medical benefits plans, and shall receive all other fringe benefits, as the Company may make available generally to its senior executive employees generally, for which Employee is eligible under the terms and conditions of such plans, in each case subject to the requirements, rules and regulations from time to time applicable thereto. Details about these benefits are set forth in summary plan descriptions and other materials.

6. Equity Awards. Employee may be eligible for awards under any Company equity incentive plan as may be approved by the Board of Directors and in effect from time to time. The specific terms and conditions of any grant made pursuant to this Section 6 shall be governed by any applicable plan document and any such grant agreement as Employee may be required to sign as a condition of grant.

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7. Parachute Tax. Notwithstanding anything in the foregoing to the contrary, if any of the payments to Employee (prior to any reduction below) provided for in this Agreement, together with any other payments which Employee has the right to receive from the Company or any corporation which is a member of an “affiliated group” as defined in Section 1504(a) of the Internal Revenue Code of 1986, as amended (“Code”), without regard to Section 1504(b) of the Code, of which the Company is a member (the “Payments”) would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), and if the Safe Harbor Amount is greater than the Taxed Amount, then the total amount of such Payments shall be reduced to the Safe Harbor Amount. The “Safe Harbor Amount” is the largest portion of the Payments that would result in no portion of the Payments being subject to the excise tax set forth at Section 4999 of the Code (“Excise Tax”). The “Taxed Amount” is the total amount of the Payments (prior to any reduction, above) notwithstanding that all or some portion of the Payments may be subject to the Excise Tax. Solely for the purpose of comparing which of the Safe Harbor Amount and the Taxed Amount is greater, the determination of each such amount shall be made on an after-tax basis, taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all of which shall be computed at the highest applicable marginal rate). If a reduction of the Payments to the Safe Harbor Amount is necessary, then the reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of the Employee’s participant’s stock awards.

8. Business Expenses. The Company shall reimburse Employee for all reasonable and necessary business expenses incurred by Employee in performing Employee’s duties that are submitted in compliance with the Company’s then-current policy on such business expense reimbursement. Employee shall provide the Company with supporting documentation sufficient to satisfy reporting requirements of such policy and the Internal Revenue Service. The Company’s determinations as to reasonableness and necessity shall be final.

9. Proprietary Information and Inventions; Restrictive Covenants. Employee acknowledges that the successful development, marketing, sale, and performance of the Company’s products and services require substantial time and expense. Such efforts generate for the Company valuable private, confidential, and proprietary information of the Company and its clients (whether current, former, or prospective), business partners, vendors, suppliers, and licensors (“Confidential Information”), including without limitation any and all (a) trade secrets, (b) financial information and pricing, (c) business strategies, plans, and proposals, (d) information relating to clients, including the terms of the Company’s agreements with clients, the discussions, negotiations, and proposals related to any such agreement, and the names of clients or prospective clients, (e) human resources information, including employee lists and personal employee information, and (f) technical information, including research and development, methodologies, training materials, software, documents, models, source code, designs, flowcharts and listings and any and all notes, analyses, compilations, studies, in each case in whatever form, whether oral, written, graphic, recorded, photographic, machine readable or otherwise, and whether or not marked or otherwise labeled “confidential” or specifically indicated as being confidential and/or proprietary in nature. The term “Confidential Information” also includes all notes, analyses, compilations, studies, interpretations or other materials to the extent such materials contain or are based on other Confidential Information. Employee acknowledges that, during her employment, she will obtain knowledge of such Confidential Information. Employee agrees to undertake the following obligations, which she acknowledges to be reasonably designed to protect the Company’s legitimate business interests (including its Confidential Information and its relationships with customers and other third parties) without unnecessarily or unreasonably restricting Employee’s post-employment opportunities:

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(a) Confidentiality. During the term of employment and at all times thereafter, Employee (i) shall treat all Confidential Information as highly confidential, (ii) shall not access or attempt to access any Confidential Information or use any Confidential Information except as is necessary to carry out Employee’s duties as an employee of the Company, (iii) shall not make copies of documents containing Confidential Information except as is necessary to carry out Employee’s duties as an employee of the Company, (iv) shall not reverse engineer, disassemble, decompile, translate, or attempt to discover any software, algorithms, or underlying ideas which embody Confidential Information, (v) shall not disclose, and will take all reasonable and necessary steps to prevent the disclosure of, any Confidential Information to any third party, or any other employee, agent, or representative of the Company, as applicable, except as is necessary to carry out Employee’s duties as an employee of the Company, and (vi) shall not use any Confidential Information in any manner that may cause injury or loss, or may be calculated to cause injury or loss, whether directly or indirectly, to the Company or its clients, business partners, vendors, suppliers, and licensors.

(b) Proprietary Information. During the term of employment, Employee shall disclose immediately to the Company all ideas, inventions, and business plans that Employee makes, conceives, discovers, develops, or reduces to practice at any time during the course of Employee’s employment with the Company, either alone or jointly with others, including but not limited to any including, but not limited to, any inventions, ideas, improvements, discoveries, methods, developments, designs, software, processes, products, and procedures (whether or not protectable upon application by patent, copyright, trademark, trade secret, or other proprietary rights) (collectively, “Work Product”), that (i) relate directly or indirectly to the Company’s business or the business of any client or supplier of the Company or any of the products or services being developed, manufactured, sold, or otherwise provided by the Company or that may be used in relation therewith, or (ii) result from any tasks assigned to Employee by the Company, or (iii) result from the use of the premises or personal property (whether tangible or intangible) owned, leased, licensed, or otherwise contracted for by the Company. Employee agrees that any Work Product shall be the exclusive property of the Company and, if subject to copyright, shall be “work made for hire” under the meaning of the U.S. Copyright Act of 1976, as amended (the “Act”). If and to the extent the Work Product is found as a matter of law not to be “work made for hire” within the meaning of the Act, Employee hereby expressly assigns to the Company or its subsidiaries, as appropriate, its successors, assign, or nominees, Employee’s entire right, title, and interest in and to any Work Product, and all copies thereof and all intellectual property rights therein without further consideration, free from any claim, lien for balance due, or rights of retention thereto on the part of Employee. Employee shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details, and data pertaining to the Work Product. Whether during the term of this Agreement or after, Employee will, at the Company’s request and expense (including reimbursement of Employee’s expenses and, if Employee is no longer in the employ of the Company, reasonable per diem compensation to Employee), fully cooperate with the Company and its authorized agents in securing, enforcing, and otherwise protecting throughout the world the Company’s interests in such Work Product, including, without limitation, by (A) executing such documents evidencing the Company’s ownership and Employee’s assignment of the foregoing rights, as may be deemed necessary by the Company to grant or evidence such ownership and rights and (B) assisting in defending any opposition proceedings, petitions for revocation, or applications for similar revocation in respect of any such rights.

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(c) Non-Competition

(i) With Competitors. While employed by the Company and during the one (1) year period immediately following termination of Employee’s employment for any reason, Employee will not, directly or indirectly, whether as a stockholder, agent, partner, proprietor, officer, director, employee, consultant, contractor, or in any capacity whatsoever, engage in, become financially interested in, be employed by, or have any business connection with any other person, corporation, firm, partnership, or other entity whatsoever known by her to compete directly with the Company, anywhere throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company. Notwithstanding the foregoing, during the term of her employment, Employee may own, as a passive investor, public securities of any competitor corporation, so long as her direct holdings in any one such corporation shall not in the aggregate constitute more than one percent (1%) of the voting stock of such corporation. This provision shall not be interpreted to limit Employee’s stock ownership in any way after the termination of her employment.

(ii) With Prohibited Clients. Without the prior written consent of the President and Chief Executive Officer or the authorized designee thereof, Employee shall not in any capacity, whether for herself or as an officer, director, partner, employee, agent of independent contractor of any person, firm, corporation or other entity: (i) for a period of twelve (12) months following termination of her employment with the Company and all affiliates for any reason performed services of the type performed by Employee during the term of employment, or any services substantially similar thereto, for any Prohibited Client (as defined below) in any country in which the Company has performed services (whether or not such services were performed in such country for the Prohibited Client) or sold products during the preceding three (3) years. The term “Prohibited Client” shall mean any client or prospective client of the Company to or for whom Employee directly or indirectly performed services, or prospect to whom Employee submitted, or assisted or participated in any way in the submission, of a proposal, during the two (2) year period preceding termination of Employee’s employment with the Company.

(d) Non-Solicitation. While employed by the Company and during the one (1) year period immediately following termination of Employee’s employment for any reason, Employee shall not induce or assist in the inducement of any employee away from the Company’s employ or from the faithful discharge of such employee’s contractual and fiduciary obligations to serve the Company’s interests with undivided loyalty. Furthermore, while employed by the Company and during the one (1) year period immediately following termination of Employee’s employment for any reason, Employee shall not, directly or indirectly, on behalf of Employee or any other person or entity, solicit any Client to become a client and/or customer of Employee or of any person or entity other than the Company. For purposes of this Agreement, a “Client” is a person, firm, company, corporation, or other entity to whom Employee was first introduced by the Company and is, becomes, or is known to be, an actual or potential client or customer of the Company.

(e) Return of Materials. Upon termination of the term of employment for any reason or upon the Company’s earlier request, Employee shall deliver to the Company all Confidential Information and other materials in her possession or delivered to her by the Company, including but not limited to computer programs, files, notes, records, memoranda, reports, lists, drawings, sketches, specifications, data, charts, and other documents, materials and things (“Materials”), whether or not containing Confidential Information, it being agreed that all Materials shall be and remain the sole and exclusive property of the Company. After return, Employee shall keep no copies, in any form of media, of any Materials or Confidential Information.

(f) Reasonable Alteration. In the event that a court or other adjudicative body should decline to enforce the provisions of any part of this Section 9, whether because of scope, duration or otherwise, Employee and the Company agree that the provisions shall be modified to restrict Employee’s competition with the Company to the maximum extent enforceable under applicable law.

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10. Remedies. Employee recognizes and agrees that a breach of any or all of the provisions of Section 9 will cause immediate and irreparable harm to the Company’s business advantage, including but not limited to the Company’s valuable business relations, for which damages cannot be readily calculated and for which damages are an inadequate remedy. Accordingly, Employee acknowledges that the Company shall therefore be entitled to an order enjoining any further breaches by the Employee, without the necessity of posting a bond.

11. Assistance in Litigation. Employee shall upon reasonable notice and without compulsion of law (e.g., subpoena), furnish accurate and complete information and other assistance to the Company as the Company may reasonably require in connection with any litigation, proceeding, or dispute to which the Company is, or may become, a party, or in which it may otherwise become involved, either during or after Employee’s employment; provided, if such assistance shall occur after termination of Employee’s employment, the Company shall reimburse Employee for her reasonable expenses incurred in connection with such assistance, including, without limitation, as relevant transportation, meals and lodging, and shall also pay Employee a consulting fee of $200 per hour, as compensation for her inconvenience and the disruption of her other endeavors.

12. Indemnification. Employee’s rights to indemnification will be as provided in the Indemnification Agreement between Employee and the Company dated February 12, 2009.

13. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of, and be enforceable by, Employee and the Company, and their respective successors, assigns, heirs, executors, and administrators. Employee acknowledges that the services to be rendered pursuant to this Agreement are unique and personal. Accordingly, Employee may not assign any of her rights or delegate any of her duties or obligations under this Agreement. The Company may assign its rights, duties or obligations under this Agreement to a subsidiary or affiliated company of the Company or purchaser or transferee of a majority of the Company’s outstanding capital stock or a purchaser of all, or substantially all, of the assets of the Company; provided, however, that such assignee shall be adequately capitalized and able to fulfill its financial obligations hereunder.

14. Notices. All notices required by this Agreement shall be in writing. Notices intended for the Company shall be sent by certified mail or nationally recognized overnight courier service, addressed to it at 200 S. Wacker Drive, Suite 820, Chicago, Illinois 60606, Attention: General Counsel, or its then-current principal office, and notices intended for Employee shall be either delivered personally to Employee or sent by certified mail or nationally recognized overnight courier service addressed to Employee at her address as listed on the Company’s payroll. Notices sent by certified mail in accordance with the foregoing shall be deemed given three (3) business days following delivery to the United States Postal Service, postage prepaid, and notices sent by overnight courier service in accordance with the foregoing shall be deemed given one (1) business day following delivery to such courier, delivery fees for overnight delivery prepaid.

15. Entire Agreement. This Agreement constitutes the complete, final, and exclusive embodiment of the entire agreement between Employee and the Company with regard to the subject matter hereof and supersedes all prior agreements or understandings whether written or oral. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a written instrument signed by Employee and a duly authorized officer or director of the Company.

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16. Waiver. If either party should waive any breach of any provisions of this Agreement, she or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

17. Applicable Law. This Agreement, and all questions concerning the construction, validity, and interpretation hereof, shall be governed by and construed in accordance with the laws of the State of Illinois without reference to its conflicts of law principles, to the extent such principles would result in the application of another state’s laws.

18. Mediation of Disputes. Neither party shall initiate arbitration or other legal proceedings (except for any claim under Section 9 of this Agreement), against the other party, or, in the case of Company, any of its directors, officers, employees, agents, or representatives, relating in any way to this Agreement, to Employee’s employment with Company, the termination of Employee’s employment or any or all other claims that one party might have against the other party until 30 days after the party against whom the claim is made (“Respondent”) receives written notice from the claiming party of the specific nature of any purported claim and the amount of any purported damages. Employee and Company further agree that if Respondent submits the claiming party’s claim to JAMS/Endispute, for nonbinding mediation, in Chicago, Illinois, prior to the expiration of such 30 day period, the claiming party may not institute arbitration or other legal proceedings against Respondent until the earlier of (i) the completion of nonbinding mediation efforts, or (ii) 90 days after the date on which Respondent received written notice of the claimant’s claim.

19. Binding Arbitration. Subject to Section 18, Employee and Company agree that all claims or disputes relating to Employee’s employment with Company or the termination of such employment, and any and all other claims that Employee might have against Company, any Company director, officer, employee, agent, or representative, and any and all claims or disputes that Company might have against Employee (except for any claims under Section 9 of this Agreement) shall be resolved under the Expedited Commercial Rules of the American Arbitration Association in Illinois. If either party pursues a claim and such claim results in an arbitrator’s decision, both parties agree to accept such decision as final and binding. Company and Employee agree that any litigation under Section 9 of this Agreement shall be brought in the Circuit Court for Cook County, Illinois.

20. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, illegal or unenforceable provision will be reformed, construed and enforced in such jurisdiction so as to render it valid, legal, and enforceable consistent with the general intent of the parties insofar as possible.

21. Right to Work. As required by law, this Agreement is subject to satisfactory proof of Employee’s right to work in the United States.

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22. Section 409A. The provisions of this Agreement are intended either (i) to be exempt from Section 409A of the Code under the short-term deferral exception, the separation pay exception, or such other exceptions that may be available under Section 409A of the Code and applicable authority or guidance promulgated thereunder or (ii) to comply with Section 409A of the Code, and shall be administered in a manner consistent with such intent. Notwithstanding any provision to the contrary, to the extent Employee is considered a specified employee under Section 409A of the Code and would be entitled during the six (6) month period beginning on her date of termination to a payment that is not otherwise excluded under Section 409A of the Code, such payment will not be made to Employee until the earlier of the six (6) month anniversary of her date of termination or her death. For purposes of Section 409A, each payment under this Agreement (including, but not limited to, those in Section 2(b)) shall be considered a separate payment.

23. Attorneys’ Fees. If the Company refuses to provide the Severance Benefits after a written demand by Employee and Employee substantially prevails in any dispute involving such Severance Benefits, then the Company shall pay or reimburse Employee for all reasonable legal fees and expenses incurred in such dispute.

EMPLOYEE ACKNOWLEDGES THAT SHE HAS READ, UNDERSTOOD, AND ACCEPTS THE PROVISIONS OF THIS AGREEMENT.

Mattersight Corporation (“Company”)		Christine R. Carsen (“Employee”)
By:	/s/ Kelly Conway	/s/ Christine R. Carsen
Title:	CEO

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Exhibit A

GENERAL RELEASE OF CLAIMS

1. General Release. Pursuant to this General Release of Claims (this “Agreement”), Employee, for herself, her heirs, administrators, representatives, executors, successors and assigns (each a “Releasor”) hereby irrevocably and unconditionally releases, acquits and forever discharges Mattersight Corporation (“Company”) and its direct or indirect subsidiaries, divisions, affiliates and related companies or entities, regardless of its or their form of business organization (the “Company Entities”), any predecessors, successors, joint ventures, and parents of any Company Entity, and any and all of their respective past or present shareholders, partners, directors, officers, employees, consultants, independent contractors, trustees, administrators, insurers, agents, attorneys, representatives and fiduciaries, including without limitation all persons acting by, through, under or in concert with any of them (all, collectively, the “Release Parties”) from any and all manner of actions, causes of actions, demands, claims, agreements, promises, debts, lawsuits, liabilities, rights, dues, controversies, charges, complaints, obligations, remedies, suits, losses, costs, expenses and fees whatever (including without limitation attorneys’ fees and costs), arising out of or relating to her employment relationship with the Company, its predecessors, successors or affiliates and the termination thereof, of any nature whatsoever, whether arising in contract, tort, or any other theory of action, whether arising in law or equity, whether known or unknown, choate or inchoate, mature or unmatured, contingent or fixed, liquidated or unliquidated, accrued or unaccrued, asserted or unasserted, whether arising under federal, state or local law and in particular including any claim for discrimination based upon race, color, ethnicity, sex, age (including the Age Discrimination in Employment Act of 1967), national origin, religion, disability, or any other unlawful criterion or circumstance, which Employee and any Releasor had, now have, or may have in the future against each or any of the Released Parties from the beginning of time until the date of this Agreement (individually, “Claim,” and collectively, “Claims”); provided, that this Agreement shall not apply to, nor release the Company from, any obligation of the Company contained in Employee’s Executive Employment Agreement dated as of [insert date] (as amended or supplemented from time to time, the “Employment Agreement”) that arises due to Employee’s termination of employment with the Company. The consideration offered in the Employment Agreement is accepted by Employee as being in full accord, satisfaction, compromise and settlement of any and all claims or potential claims, and Employee expressly agrees that she is not entitled to, and shall not receive, any further recovery of any kind from the Company or any of the other Release Parties, and that in the event of any further proceedings whatsoever based upon any matter released herein, neither the Company nor any of the other Release Parties shall have any further monetary or other obligation of any kind to Employee, including any obligation for any costs, expenses or attorneys’ fees incurred by or on behalf of Employee. Employee agrees that she has no present or future right to employment with the Company or any of the other Release Parties and that she will not apply for or otherwise seek employment with any of them.

2. Release of Known and Unknown Claims. Employee acknowledges that the release of Claims under this Agreement covers any and all rights and benefits Employee has or may have in the future, whether known or unknown, and Employee waives any and all rights under the laws of any state. Employee may hereafter discover facts in addition to or different from those which Employee now knows or believes to be true with respect to the subject matter of the Claims, but Employee, upon execution and non-revocation of this Agreement (pursuant to Section 4 hereof), shall be deemed to have fully, finally, and forever settled and released any and all Claims, known or unknown, suspected or unsuspected, contingent or noncontingent, whether or not concealed or hidden, which now exist, or heretofore have existed upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts.

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3. Release of Discrimination Claims. Without in any way limiting the generality of the foregoing, this Agreement constitutes a full release and disclaimer of any and all Claims arising out of or relating in any way to Employee’s employment, continued employment, retirement, resignation, or termination of employment with the Company Entities whether arising under or out of a statute including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 1981, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act of 1990, the Family and Medical Leave Act, the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Americans With Disabilities Act, any county, municipal, and any other federal, state or local statute, ordinance or regulation, all as may be amended from time to time, or common law claims or causes of action relating to alleged discrimination, breach of contract or public policy, wrongful or retaliatory discharge, and, to the extent arising out of or relating to Employee’s employment relationship with the Company, its predecessors, successors or affiliates and the termination thereof, tortious action, inaction, or interference of any sort, defamation, libel, slander, personal or business injury, including without limitation attorneys’ fees and costs. Employee has specifically waived her right to recover in her own lawsuit as well as the right to recover in a suit brought by any other person or entity on Employee’s behalf or on behalf of a class of persons in which Employee is or could be considered a member.

4. Employee’s Right to Revoke. The parties acknowledge that Employee shall have the right to revoke and cancel this Agreement if Employee, at any time within the seven-day period following its execution, revokes it. If Employee desires to revoke and cancel this Agreement, she must do so in writing and he shall return this document to the Company’s Chief Executive Officer, and all terms of the Agreement shall be void and of no effect.

5. Employee’s Right to Consult Attorney/21 Days to Consider. Employee is advised and encouraged by Company to consult with an attorney before signing this Agreement. Employee affirms that she has carefully read and fully understands this Agreement, has had sufficient time to consider it, has had an opportunity to ask questions and have it explained, and is entering into this Agreement freely and voluntarily, with an understanding that the general release will have the effect of waiving any action or recovery she might pursue for any claims arising on or prior to the date of the execution of this Agreement. Employee acknowledges that she received valuable consideration to which she was not otherwise entitled in exchange for entering this Agreement. This Agreement was given to Employee on [Insert Date]. Employee had until [Insert Date], a period in excess of twenty-one (21) days to consider it.

6. Governing Law. This Agreement shall be deemed to have been executed and delivered within the State of Illinois and the rights and obligations of the parties shall be construed and enforced in accordance with, and governed by, the laws of the State of Illinois without regard to any state’s rules regarding conflict of laws.

EMPLOYEE

Christine R. Carsen

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EX-10.22

Exhibit 10.22

EXECUTIVE EMPLOYMENT AGREEMENT

Mattersight Corporation (the “Company”), and David R. Gustafson, an individual (“Employee”), enter into this Executive Employment Agreement (“Agreement”) as of May 23, 2012.

WHEREAS, the Company desires to continue to employ Employee to provide personal services to the Company and to continue to provide Employee with certain compensation and benefits in return for his services; and

WHEREAS, Employee wishes to continue to be employed by the Company and to continue to provide personal services to the Company in return for certain compensation and benefits.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is hereby agreed by and between the parties hereto as follows:

1. Duties. The Company shall employ Employee as its Vice President of Marketing and Product Management, reporting directly to the Company’s President and Chief Executive Officer, and Employee accepts such employment upon the terms and conditions herein. Employee shall have such responsibilities, duties, and authority in all material respects as are assigned to Employee as of the date hereof and such other responsibilities, duties, and authority as the President and Chief Executive Officer may reasonably designate and are customarily associated with his positions.

(a) Outside Activities. During the term of employment, Employee shall perform faithfully the duties assigned to him to the best of his ability, and Employee shall devote his full and undivided business time and attention to the transaction of the Company’s business. Except in conformity with the requirements with the Company’s then-effective Code of Ethical Business Conduct, Employee will not during the term of this Agreement undertake or engage (other than as a passive investor) in any other employment, occupation, or business enterprise, whether as an agent, partner, proprietor, officer, director, employee, consultant, contractor, or otherwise, whether during or outside the business hours of the Company. Employee may engage in civic and not-for-profit activities so long as such activities do not interfere with the performance of his duties hereunder.

(b) No Adverse Interests. Except as permitted by Section 9(c), during the term of employment, Employee agrees not to acquire, assume, or participate in, directly or indirectly, any position, investment, or interest that is known or should be known by him to be adverse or antagonistic to the Company, its business, or prospects, financial or otherwise.

2. Term of Employment; Termination.

(a) At-Will Relationship. Employee’s employment relationship is at-will. Either Employee or the Company may terminate the employment relationship at any time, for any reason or no reason, with or without Cause or advance notice.

(b) Termination by the Company without Cause; Termination by Employee with Good Reason.

(i) Cause Definition. For purposes of this Agreement, “Cause” shall mean any of the following: (i) conviction, including a plea of guilty or no contest, of any felony or any crime involving moral turpitude or dishonesty; (ii) fraud upon the Company (or an affiliate), embezzlement or misappropriation of corporate funds; (iii) willful acts of dishonesty materially harmful to the Company; (iv) activities materially harmful to the Company’s reputation; (v) Employee’s willful misconduct, willful refusal to perform his duties, or substantial willful disregard of his duties, provided that the Company first provides Employee with written notice of such conduct and thirty (30) days to cure such conduct, if such conduct is reasonably susceptible to cure; or (vi) material breach of this Agreement, any other agreement with the Company, any policy of the Company, or any statutory duty or common law duty of loyalty owed to the Company that causes material harm to the Company; provided, no act or omission on Employee’s part shall be considered “willful” unless it is done by Employee without reasonable belief that the Employee’s action was in the best interests of the Company.

(ii) Good Reason Definition. For the purposes of this Agreement, “Good Reason” shall mean: (A) a reduction of Employee’s base salary below the amount set forth in Section 3 of this Agreement, or a reduction in the “Target Bonus” defined in Section 4 of this Agreement, if any, unless such reduction is shared proportionally by the three most highly-salaried officers of the Company in addition to Employee; (B) an involuntary relocation of Employee’s place of work to any location outside of the metropolitan area in which his primary office is located immediately prior to the relocation, excluding temporary periods of thirty (30) days or less and ordinary course business travel; (C) a significant diminution by the Company in Employee’s position (including offices, titles, and reporting relationships), authority, duties, or responsibilities (excluding diminutions resulting in the ordinary course from the Company becoming, pursuant to a Change of Control, (x) part of a larger organization in which Employee directly reports to the Chief Executive Officer of such organization; or (y) a subsidiary or equivalent separate functional business unit of a larger organization); (D) a material breach by the Company of this Agreement; or (E) failure by the Company to assign this Agreement to a successor upon a Change of Control. No Good Reason shall exist where: (1) Employee consents to the event that forms the basis for the Good Reason resignation; (2) Employee does not provide the Company’s President and Chief Executive Officer with written notice describing in detail the Good Reason within thirty (30) days after its occurrence; or (3) the Company cures the Good Reason within thirty (30) days after its receipt of such notice, if such conduct is reasonably susceptible to cure.

(iii) Severance Benefits. In the event that Employee’s employment is terminated without Cause by the Company or is terminated by Employee with Good Reason, Employee shall receive the following as his sole and exclusive severance benefits (collectively, the “Severance Benefits”):

(1) Severance Pay. Employee will receive a lump sum payment, within seven (7) days following the effective date of termination, equal to six (6) months of his then-current base salary, less standard payroll deductions and withholdings.

(2) Severance Bonus. Employee will be paid a bonus, within seven (7) days following the effective date of termination, equal to 50% of the average of (A) the annual bonus he was paid for the year immediately preceding the termination and (B) his Target Bonus under the Company’s then-current bonus plan, if any, less standard payroll deductions and withholdings.

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(3) Severance Health Premium Reimbursements. If Employee timely elects to continue his Company-provided group health insurance coverage pursuant to the federal COBRA law, the Company will reimburse Employee for the cost of such COBRA premiums to continue health insurance coverage at the same level of coverage for Employee and his dependents (if applicable) in effect as of the termination date, through the end of six (6) months or until such time as Employee qualifies for health insurance benefits through a new employer, whichever occurs first. Employee shall notify the Company in writing of such new employment not later than five (5) business days after securing it.

(4) Severance Vesting. The vesting of all restricted stock or stock option or other equity grants that Employee has previously received or may in the future receive from the Company, shall be accelerated so that, as of the date of the termination, such restricted stock and stock option grants shall vest as to the number of shares that would have vested had Employee provided an additional six (6) months of continuous service to the Company; provided, however, that if Employee is terminated without Cause within six (6) months following a Change in Control (as defined in Section 6.8(b) of the Company’s 1999 Stock Incentive Plan), Employee terminates his employment for Good Reason within six (6) months following a Change in Control, or Employee terminates his employment for the Good Reason described in clause (E) of Section 2(b)(ii), then such restricted stock and stock option grants shall vest as to the number of shares that would have vested had Employee provided an additional twelve (12) months of continuous service to the Company.

(iv) Severance Conditions. As a condition of and prior to the receipt of all or any of the Severance Benefits, Employee must execute and allow to become effective a general release of claims in the form attached hereto as Exhibit A within sixty (60) days after the effective date of termination and must comply with the terms of this Agreement. Upon any termination of Employee’s employment by the Company without Cause or by Employee for Good Reason, the Company and its affiliates (by and through their respective directors and senior executive officers) and Executive agree not to disparage the other party.

(c) Termination for Cause; Voluntary or Mutual Termination.

(i) No Severance. In the event Employee’s employment is terminated by the Company at any time for Cause, or Employee terminates his employment without Good Reason, or the parties mutually terminate their employment relationship, Employee will not be entitled to any Severance Benefits, pay in lieu of notice, or any other severance, compensation, benefits, equity, acceleration, or any other amounts, with the exception of any benefit to which Employee has a vested right under a written benefit plan.

(ii) Resignation. Employee may voluntarily terminate his employment with the Company at any time, without liability therefor. Employee agrees to use good faith to give the Company reasonable notice of any such voluntary termination. Upon receipt of any termination notice from Employee, the Company, at its election, may require Employee to resign his employment prior to the occurrence of any requested termination date.

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(d) Termination for Death or Disability.

(i) Termination. Employee’s employment will terminate upon his death or Disability.

(ii) Disability Definition. For the purposes of this Agreement, “Disability” shall have the meaning set forth in the Company’s then-current long-term disability benefit program or, if no such program is then in effect, shall mean a permanent disability rendering Employee unable to perform his duties for the Company for ninety (90) consecutive days or one hundred eighty (180) days in any twelve (12) month period, which determination shall be made after the period of disability, unless an earlier determination can be made, by an independent physician appointed by the Board.

(iii) Death or Disability Benefit. Following the death or Disability of Employee while employed by the Company, the Company will provide Employee (or, in the case of death, Employee’s estate) a lump sum amount payable within thirty (30) days thereafter, equal to: (A) Employee’s salary for twelve (12) months; (B) an amount equal to 100% of the average of (x) the annual bonus he was paid for the year immediately preceding the termination and (y) his Target Bonus under the Company’s then-current bonus plan, if any, less standard payroll deductions and withholdings; plus (C) the cost of such COBRA premiums to continue health insurance coverage at the same level of coverage for Employee and his dependents (if applicable) in effect as of the termination date, through the end of twelve (12) months. All restricted stock and stock option grants that Employee has then received from the Company or may in the future receive from the Company shall be vested as to half of the unvested shares (or such greater amount, if any, as is provided for in the agreement for the applicable grant), and all such stock options shall, notwithstanding any lesser period, if any, provided for in the agreement for the applicable grant, be exercisable for one (1) year following such termination (but not exceeding the term of such option).

(iv) Severance Conditions. As a condition of and prior to the receipt of all or any of the Severance Benefits provided for upon death or Disability, Employee (or, in the case of death, Employee’s estate) must execute and allow to become effective a general release of claims in the form attached hereto as Exhibit A within sixty (60) days of termination and must comply with the terms of this Agreement. Upon any termination of Employee’s employment for death or Disability, the Company and its affiliates (by and through their respective directors and senior executive officers) and Executive (or, in the case of death, Employee’s estate) agree not to disparage the other party.

(e) No Mitigation. In no event shall Employee be obligated to seek other employment or take any other action by way of mitigation of the Severance Benefits payable to Employee, and such amounts (other than as provided at Section 2(b)(iii)(2)) shall not be reduced whether or not the Employee obtains other employment.

(f) Accrued Obligations. Not later than ten (10) days after termination of Employee’s employment, the Company shall pay Employee: (i) his accrued and unpaid base salary at the rate in effect at the time of notice of termination; (ii) any previous year’s earned but unpaid bonus and other earned and unpaid incentive cash compensation; and (iii) accrued and unused vacation time, unpaid expense reimbursements, and other unpaid cash entitlements earned by Employee as of the date of termination pursuant to the terms of the applicable Company plan or program.

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3. Salary. For services rendered hereunder, the Company shall pay Employee a base salary at the per annum rate of $230,000, less standard payroll deductions and withholdings, and payable in accordance with the Company’s regular payroll schedule. Employee’s base salary (as well as his eligibility for incentive equity grants) shall be subject to annual review and his base salary may, at the discretion of the Company’s Board of Directors, be increased from time to time.

4. Bonuses. Employee will be offered the opportunity to participate in the Company’s then-current bonus plan. Subject to and in accordance with the terms and conditions of such plan and this paragraph, upon achievement of all bonus-related goals and objectives set by the Board of Directors and/or the Chief Executive Officer for the Company and for Employee (the “Bonus Objectives”), Employee shall receive a cash bonus equal to or greater than $180,000 (“Target Bonus”), less standard payroll deductions and withholding as are applicable to similarly situated employees. The Company shall have the sole discretion to (i) change or eliminate bonus plans or programs at any time (provided, however, that after the bonus plan and Target Bonus objectives have been established by the Board and/or the Chief Executive Officer for a given year, neither the Board nor the Chief Executive Officer shall later materially change the bonus plan or Bonus Objectives for such year to Employee’s detriment without Employee’s consent), (ii) determine whether the Bonus Objectives for a given year have been achieved, and (iii) determine (in accordance with this Section and such Bonus Objectives and bonus plan) the amount of bonus earned by Employee, if any. Bonuses are intended to retain valuable Company employees, and if Employee is not employed for any reason on the last day of the bonus year, he will not have earned the bonus and, except as expressly provided herein with respect to the Severance Bonus, no partial or pro-rata bonus will be paid. Any bonus paid pursuant to this Section 4 shall be paid net of standard payroll deductions and withholdings. The target payment date for any bonus measured on the basis of a calendar year shall be between January 1 and April 15 of the calendar year following the end of the performance period; provided, however, that such bonus shall be paid no later than April 15 of such calendar year following the end of the performance period.

5. Employee Benefits. Employee shall be entitled to participate in such employee benefit plans, including the Company’s 401(k) plan, life insurance, and medical benefits plans, and shall receive all other fringe benefits, as the Company may make available generally to its senior executive employees generally, for which Employee is eligible under the terms and conditions of such plans, in each case subject to the requirements, rules and regulations from time to time applicable thereto. Details about these benefits are set forth in summary plan descriptions and other materials.

6. Equity Awards. Employee may be eligible for awards under any Company equity incentive plan as may be approved by the Board of Directors and in effect from time to time. The specific terms and conditions of any grant made pursuant to this Section 6 shall be governed by any applicable plan document and any such grant agreement as Employee may be required to sign as a condition of grant.

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7. Parachute Tax. Notwithstanding anything in the foregoing to the contrary, if any of the payments to Employee (prior to any reduction below) provided for in this Agreement, together with any other payments which Employee has the right to receive from the Company or any corporation which is a member of an “affiliated group” as defined in Section 1504(a) of the Internal Revenue Code of 1986, as amended (“Code”), without regard to Section 1504(b) of the Code, of which the Company is a member (the “Payments”) would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), and if the Safe Harbor Amount is greater than the Taxed Amount, then the total amount of such Payments shall be reduced to the Safe Harbor Amount. The “Safe Harbor Amount” is the largest portion of the Payments that would result in no portion of the Payments being subject to the excise tax set forth at Section 4999 of the Code (“Excise Tax”). The “Taxed Amount” is the total amount of the Payments (prior to any reduction, above) notwithstanding that all or some portion of the Payments may be subject to the Excise Tax. Solely for the purpose of comparing which of the Safe Harbor Amount and the Taxed Amount is greater, the determination of each such amount shall be made on an after-tax basis, taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all of which shall be computed at the highest applicable marginal rate). If a reduction of the Payments to the Safe Harbor Amount is necessary, then the reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits. In the event that acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of the Employee’s participant’s stock awards.

8. Business Expenses. The Company shall reimburse Employee for all reasonable and necessary business expenses incurred by Employee in performing Employee’s duties that are submitted in compliance with the Company’s then-current policy on such business expense reimbursement. Employee shall provide the Company with supporting documentation sufficient to satisfy reporting requirements of such policy and the Internal Revenue Service. The Company’s determinations as to reasonableness and necessity shall be final.

9. Proprietary Information and Inventions; Restrictive Covenants. Employee acknowledges that the successful development, marketing, sale, and performance of the Company’s products and services require substantial time and expense. Such efforts generate for the Company valuable private, confidential, and proprietary information of the Company and its clients (whether current, former, or prospective), business partners, vendors, suppliers, and licensors (“Confidential Information”), including without limitation any and all (a) trade secrets, (b) financial information and pricing, (c) business strategies, plans, and proposals, (d) information relating to clients, including the terms of the Company’s agreements with clients, the discussions, negotiations, and proposals related to any such agreement, and the names of clients or prospective clients, (e) human resources information, including employee lists and personal employee information, and (f) technical information, including research and development, methodologies, training materials, software, documents, models, source code, designs, flowcharts and listings and any and all notes, analyses, compilations, studies, in each case in whatever form, whether oral, written, graphic, recorded, photographic, machine readable or otherwise, and whether or not marked or otherwise labeled “confidential” or specifically indicated as being confidential and/or proprietary in nature. The term “Confidential Information” also includes all notes, analyses, compilations, studies, interpretations or other materials to the extent such materials contain or are based on other Confidential Information. Employee acknowledges that, during his employment, he will obtain knowledge of such Confidential Information. Employee agrees to undertake the following obligations, which he acknowledges to be reasonably designed to protect the Company’s legitimate business interests (including its Confidential Information and its relationships with customers and other third parties) without unnecessarily or unreasonably restricting Employee’s post-employment opportunities:

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(a) Confidentiality. During the term of employment and at all times thereafter, Employee (i) shall treat all Confidential Information as highly confidential, (ii) shall not access or attempt to access any Confidential Information or use any Confidential Information except as is necessary to carry out Employee’s duties as an employee of the Company, (iii) shall not make copies of documents containing Confidential Information except as is necessary to carry out Employee’s duties as an employee of the Company, (iv) shall not reverse engineer, disassemble, decompile, translate, or attempt to discover any software, algorithms, or underlying ideas which embody Confidential Information, (v) shall not disclose, and will take all reasonable and necessary steps to prevent the disclosure of, any Confidential Information to any third party, or any other employee, agent, or representative of the Company, as applicable, except as is necessary to carry out Employee’s duties as an employee of the Company, and (vi) shall not use any Confidential Information in any manner that may cause injury or loss, or may be calculated to cause injury or loss, whether directly or indirectly, to the Company or its clients, business partners, vendors, suppliers, and licensors.

(b) Proprietary Information. During the term of employment, Employee shall disclose immediately to the Company all ideas, inventions, and business plans that Employee makes, conceives, discovers, develops, or reduces to practice at any time during the course of Employee’s employment with the Company, either alone or jointly with others, including but not limited to any including, but not limited to, any inventions, ideas, improvements, discoveries, methods, developments, designs, software, processes, products, and procedures (whether or not protectable upon application by patent, copyright, trademark, trade secret, or other proprietary rights) (collectively, “Work Product”), that (i) relate directly or indirectly to the Company’s business or the business of any client or supplier of the Company or any of the products or services being developed, manufactured, sold, or otherwise provided by the Company or that may be used in relation therewith, or (ii) result from any tasks assigned to Employee by the Company, or (iii) result from the use of the premises or personal property (whether tangible or intangible) owned, leased, licensed, or otherwise contracted for by the Company. Employee agrees that any Work Product shall be the exclusive property of the Company and, if subject to copyright, shall be “work made for hire” under the meaning of the U.S. Copyright Act of 1976, as amended (the “Act”). If and to the extent the Work Product is found as a matter of law not to be “work made for hire” within the meaning of the Act, Employee hereby expressly assigns to the Company or its subsidiaries, as appropriate, its successors, assign, or nominees, Employee’s entire right, title, and interest in and to any Work Product, and all copies thereof and all intellectual property rights therein without further consideration, free from any claim, lien for balance due, or rights of retention thereto on the part of Employee. Employee shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details, and data pertaining to the Work Product. Whether during the term of this Agreement or after, Employee will, at the Company’s request and expense (including reimbursement of Employee’s expenses and, if Employee is no longer in the employ of the Company, reasonable per diem compensation to Employee), fully cooperate with the Company and its authorized agents in securing, enforcing, and otherwise protecting throughout the world the Company’s interests in such Work Product, including, without limitation, by (A) executing such documents evidencing the Company’s ownership and Employee’s assignment of the foregoing rights, as may be deemed necessary by the Company to grant or evidence such ownership and rights and (B) assisting in defending any opposition proceedings, petitions for revocation, or applications for similar revocation in respect of any such rights.

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(c) Non-Competition

(i) With Competitors. While employed by the Company and during the one (1) year period immediately following termination of Employee’s employment for any reason, Employee will not, directly or indirectly, whether as a stockholder, agent, partner, proprietor, officer, director, employee, consultant, contractor, or in any capacity whatsoever, engage in, become financially interested in, be employed by, or have any business connection with any other person, corporation, firm, partnership, or other entity whatsoever known by him to compete directly with the Company, anywhere throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company. Notwithstanding the foregoing, during the term of his employment, Employee may own, as a passive investor, public securities of any competitor corporation, so long as his direct holdings in any one such corporation shall not in the aggregate constitute more than one percent (1%) of the voting stock of such corporation. This provision shall not be interpreted to limit Employee’s stock ownership in any way after the termination of his employment.

(ii) With Prohibited Clients. Without the prior written consent of the President and Chief Executive Officer or the authorized designee thereof, Employee shall not in any capacity, whether for himself or as an officer, director, partner, employee, agent of independent contractor of any person, firm, corporation or other entity: (i) for a period of twelve (12) months following termination of his employment with the Company and all affiliates for any reason performed services of the type performed by Employee during the term of employment, or any services substantially similar thereto, for any Prohibited Client (as defined below) in any country in which the Company has performed services (whether or not such services were performed in such country for the Prohibited Client) or sold products during the preceding three (3) years. The term “Prohibited Client” shall mean any client or prospective client of the Company to or for whom Employee directly or indirectly performed services, or prospect to whom Employee submitted, or assisted or participated in any way in the submission, of a proposal, during the two (2) year period preceding termination of Employee’s employment with the Company.

(d) Non-Solicitation. While employed by the Company and during the one (1) year period immediately following termination of Employee’s employment for any reason, Employee shall not induce or assist in the inducement of any employee away from the Company’s employ or from the faithful discharge of such employee’s contractual and fiduciary obligations to serve the Company’s interests with undivided loyalty. Furthermore, while employed by the Company and during the one (1) year period immediately following termination of Employee’s employment for any reason, Employee shall not, directly or indirectly, on behalf of Employee or any other person or entity, solicit any Client to become a client and/or customer of Employee or of any person or entity other than the Company. For purposes of this Agreement, a “Client” is a person, firm, company, corporation, or other entity to whom Employee was first introduced by the Company and is, becomes, or is known to be, an actual or potential client or customer of the Company.

(e) Return of Materials. Upon termination of the term of employment for any reason or upon the Company’s earlier request, Employee shall deliver to the Company all Confidential Information and other materials in his possession or delivered to him by the Company, including but not limited to computer programs, files, notes, records, memoranda, reports, lists, drawings, sketches, specifications, data, charts, and other documents, materials and things (“Materials”), whether or not containing Confidential Information, it being agreed that all Materials shall be and remain the sole and exclusive property of the Company. After return, Employee shall keep no copies, in any form of media, of any Materials or Confidential Information.

(f) Reasonable Alteration. In the event that a court or other adjudicative body should decline to enforce the provisions of any part of this Section 9, whether because of scope, duration or otherwise, Employee and the Company agree that the provisions shall be modified to restrict Employee’s competition with the Company to the maximum extent enforceable under applicable law.

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10. Remedies. Employee recognizes and agrees that a breach of any or all of the provisions of Section 9 will cause immediate and irreparable harm to the Company’s business advantage, including but not limited to the Company’s valuable business relations, for which damages cannot be readily calculated and for which damages are an inadequate remedy. Accordingly, Employee acknowledges that the Company shall therefore be entitled to an order enjoining any further breaches by the Employee, without the necessity of posting a bond.

11. Assistance in Litigation. Employee shall upon reasonable notice and without compulsion of law (e.g., subpoena), furnish accurate and complete information and other assistance to the Company as the Company may reasonably require in connection with any litigation, proceeding, or dispute to which the Company is, or may become, a party, or in which it may otherwise become involved, either during or after Employee’s employment; provided, if such assistance shall occur after termination of Employee’s employment, the Company shall reimburse Employee for his reasonable expenses incurred in connection with such assistance, including, without limitation, as relevant transportation, meals and lodging, and shall also pay Employee a consulting fee of $200 per hour, as compensation for his inconvenience and the disruption of his other endeavors.

12. Indemnification. Employee’s rights to indemnification will be as provided in the Indemnification Agreement between Employee and the Company dated March 1, 2012.

13. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of, and be enforceable by, Employee and the Company, and their respective successors, assigns, heirs, executors, and administrators. Employee acknowledges that the services to be rendered pursuant to this Agreement are unique and personal. Accordingly, Employee may not assign any of his rights or delegate any of his duties or obligations under this Agreement. The Company may assign its rights, duties or obligations under this Agreement to a subsidiary or affiliated company of the Company or purchaser or transferee of a majority of the Company’s outstanding capital stock or a purchaser of all, or substantially all, of the assets of the Company; provided, however, that such assignee shall be adequately capitalized and able to fulfill its financial obligations hereunder.

14. Notices. All notices required by this Agreement shall be in writing. Notices intended for the Company shall be sent by certified mail or nationally recognized overnight courier service, addressed to it at 200 S. Wacker Drive, Suite 820, Chicago, Illinois 60606, Attention: General Counsel, or its then-current principal office, and notices intended for Employee shall be either delivered personally to Employee or sent by certified mail or nationally recognized overnight courier service addressed to Employee at his address as listed on the Company’s payroll. Notices sent by certified mail in accordance with the foregoing shall be deemed given three (3) business days following delivery to the United States Postal Service, postage prepaid, and notices sent by overnight courier service in accordance with the foregoing shall be deemed given one (1) business day following delivery to such courier, delivery fees for overnight delivery prepaid.

15. Entire Agreement. This Agreement constitutes the complete, final, and exclusive embodiment of the entire agreement between Employee and the Company with regard to the subject matter hereof and supersedes all prior agreements or understandings whether written or oral. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a written instrument signed by Employee and a duly authorized officer or director of the Company.

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16. Waiver. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

17. Applicable Law. This Agreement, and all questions concerning the construction, validity, and interpretation hereof, shall be governed by and construed in accordance with the laws of the State of Illinois without reference to its conflicts of law principles, to the extent such principles would result in the application of another state’s laws.

18. Mediation of Disputes. Neither party shall initiate arbitration or other legal proceedings (except for any claim under Section 9 of this Agreement), against the other party, or, in the case of Company, any of its directors, officers, employees, agents, or representatives, relating in any way to this Agreement, to Employee’s employment with Company, the termination of Employee’s employment or any or all other claims that one party might have against the other party until 30 days after the party against whom the claim is made (“Respondent”) receives written notice from the claiming party of the specific nature of any purported claim and the amount of any purported damages. Employee and Company further agree that if Respondent submits the claiming party’s claim to JAMS/Endispute, for nonbinding mediation, in Chicago, Illinois, prior to the expiration of such 30 day period, the claiming party may not institute arbitration or other legal proceedings against Respondent until the earlier of (i) the completion of nonbinding mediation efforts, or (ii) 90 days after the date on which Respondent received written notice of the claimant’s claim.

19. Binding Arbitration. Subject to Section 18, Employee and Company agree that all claims or disputes relating to Employee’s employment with Company or the termination of such employment, and any and all other claims that Employee might have against Company, any Company director, officer, employee, agent, or representative, and any and all claims or disputes that Company might have against Employee (except for any claims under Section 9 of this Agreement) shall be resolved under the Expedited Commercial Rules of the American Arbitration Association in Illinois. If either party pursues a claim and such claim results in an arbitrator’s decision, both parties agree to accept such decision as final and binding. Company and Employee agree that any litigation under Section 9 of this Agreement shall be brought in the Circuit Court for Cook County, Illinois.

20. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, and such invalid, illegal or unenforceable provision will be reformed, construed and enforced in such jurisdiction so as to render it valid, legal, and enforceable consistent with the general intent of the parties insofar as possible.

21. Right to Work. As required by law, this Agreement is subject to satisfactory proof of Employee’s right to work in the United States.

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22. Section 409A. The provisions of this Agreement are intended either (i) to be exempt from Section 409A of the Code under the short-term deferral exception, the separation pay exception, or such other exceptions that may be available under Section 409A of the Code and applicable authority or guidance promulgated thereunder or (ii) to comply with Section 409A of the Code, and shall be administered in a manner consistent with such intent. Notwithstanding any provision to the contrary, to the extent Employee is considered a specified employee under Section 409A of the Code and would be entitled during the six (6) month period beginning on his date of termination to a payment that is not otherwise excluded under Section 409A of the Code, such payment will not be made to Employee until the earlier of the six (6) month anniversary of his date of termination or his death. For purposes of Section 409A, each payment under this Agreement (including, but not limited to, those in Section 2(b)) shall be considered a separate payment.

23. Attorneys’ Fees. If the Company refuses to provide the Severance Benefits after a written demand by Employee and Employee substantially prevails in any dispute involving such Severance Benefits, then the Company shall pay or reimburse Employee for all reasonable legal fees and expenses incurred in such dispute.

EMPLOYEE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD, AND ACCEPTS THE PROVISIONS OF THIS AGREEMENT.

Mattersight Corporation (“Company”)		David R. Gustafson (“Employee”)
By:	/s/ Kelly Conway	/s/ David R. Gustafson
Title:	CEO

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Exhibit A

GENERAL RELEASE OF CLAIMS

1. General Release. Pursuant to this General Release of Claims (this “Agreement”), Employee, for himself, his heirs, administrators, representatives, executors, successors and assigns (each a “Releasor”) hereby irrevocably and unconditionally releases, acquits and forever discharges Mattersight Corporation (“Company”) and its direct or indirect subsidiaries, divisions, affiliates and related companies or entities, regardless of its or their form of business organization (the “Company Entities”), any predecessors, successors, joint ventures, and parents of any Company Entity, and any and all of their respective past or present shareholders, partners, directors, officers, employees, consultants, independent contractors, trustees, administrators, insurers, agents, attorneys, representatives and fiduciaries, including without limitation all persons acting by, through, under or in concert with any of them (all, collectively, the “Release Parties”) from any and all manner of actions, causes of actions, demands, claims, agreements, promises, debts, lawsuits, liabilities, rights, dues, controversies, charges, complaints, obligations, remedies, suits, losses, costs, expenses and fees whatever (including without limitation attorneys’ fees and costs), arising out of or relating to his employment relationship with the Company, its predecessors, successors or affiliates and the termination thereof, of any nature whatsoever, whether arising in contract, tort, or any other theory of action, whether arising in law or equity, whether known or unknown, choate or inchoate, mature or unmatured, contingent or fixed, liquidated or unliquidated, accrued or unaccrued, asserted or unasserted, whether arising under federal, state or local law and in particular including any claim for discrimination based upon race, color, ethnicity, sex, age (including the Age Discrimination in Employment Act of 1967), national origin, religion, disability, or any other unlawful criterion or circumstance, which Employee and any Releasor had, now have, or may have in the future against each or any of the Released Parties from the beginning of time until the date of this Agreement (individually, “Claim,” and collectively, “Claims”); provided, that this Agreement shall not apply to, nor release the Company from, any obligation of the Company contained in Employee’s Executive Employment Agreement dated as of [insert date] (as amended or supplemented from time to time, the “Employment Agreement”) that arises due to Employee’s termination of employment with the Company. The consideration offered in the Employment Agreement is accepted by Employee as being in full accord, satisfaction, compromise and settlement of any and all claims or potential claims, and Employee expressly agrees that he is not entitled to, and shall not receive, any further recovery of any kind from the Company or any of the other Release Parties, and that in the event of any further proceedings whatsoever based upon any matter released herein, neither the Company nor any of the other Release Parties shall have any further monetary or other obligation of any kind to Employee, including any obligation for any costs, expenses or attorneys’ fees incurred by or on behalf of Employee. Employee agrees that he has no present or future right to employment with the Company or any of the other Release Parties and that he will not apply for or otherwise seek employment with any of them.

2. Release of Known and Unknown Claims. Employee acknowledges that the release of Claims under this Agreement covers any and all rights and benefits Employee has or may have in the future, whether known or unknown, and Employee waives any and all rights under the laws of any state. Employee may hereafter discover facts in addition to or different from those which Employee now knows or believes to be true with respect to the subject matter of the Claims, but Employee, upon execution and non-revocation of this Agreement (pursuant to Section 4 hereof), shall be deemed to have fully, finally, and forever settled and released any and all Claims, known or unknown, suspected or unsuspected, contingent or noncontingent, whether or not concealed or hidden, which now exist, or heretofore have existed upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts.

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3. Release of Discrimination Claims. Without in any way limiting the generality of the foregoing, this Agreement constitutes a full release and disclaimer of any and all Claims arising out of or relating in any way to Employee’s employment, continued employment, retirement, resignation, or termination of employment with the Company Entities whether arising under or out of a statute including, but not limited to, Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 1981, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act of 1990, the Family and Medical Leave Act, the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Americans With Disabilities Act, any county, municipal, and any other federal, state or local statute, ordinance or regulation, all as may be amended from time to time, or common law claims or causes of action relating to alleged discrimination, breach of contract or public policy, wrongful or retaliatory discharge, and, to the extent arising out of or relating to Employee’s employment relationship with the Company, its predecessors, successors or affiliates and the termination thereof, tortious action, inaction, or interference of any sort, defamation, libel, slander, personal or business injury, including without limitation attorneys’ fees and costs. Employee has specifically waived his right to recover in his own lawsuit as well as the right to recover in a suit brought by any other person or entity on Employee’s behalf or on behalf of a class of persons in which Employee is or could be considered a member.

4. Employee’s Right to Revoke. The parties acknowledge that Employee shall have the right to revoke and cancel this Agreement if Employee, at any time within the seven-day period following its execution, revokes it. If Employee desires to revoke and cancel this Agreement, he must do so in writing and he shall return this document to the Company’s Chief Executive Officer, and all terms of the Agreement shall be void and of no effect.

5. Employee’s Right to Consult Attorney/21 Days to Consider. Employee is advised and encouraged by Company to consult with an attorney before signing this Agreement. Employee affirms that he has carefully read and fully understands this Agreement, has had sufficient time to consider it, has had an opportunity to ask questions and have it explained, and is entering into this Agreement freely and voluntarily, with an understanding that the general release will have the effect of waiving any action or recovery he might pursue for any claims arising on or prior to the date of the execution of this Agreement. Employee acknowledges that he received valuable consideration to which he was not otherwise entitled in exchange for entering this Agreement. This Agreement was given to Employee on [Insert Date]. Employee had until [Insert Date], a period in excess of twenty-one (21) days to consider it.

6. Governing Law. This Agreement shall be deemed to have been executed and delivered within the State of Illinois and the rights and obligations of the parties shall be construed and enforced in accordance with, and governed by, the laws of the State of Illinois without regard to any state’s rules regarding conflict of laws.

EMPLOYEE

Christine R. Carsen

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EX-10.23

Exhibit 10.23

Summary of Director Compensation

Directors who are not employees of Mattersight or any of its subsidiaries (“Non-Employee Directors”) receive a fixed annual fee for their contributions to the board of directors, the amount of which is calculated for each director based on the following assumptions:

• $1,500 per board meeting (assuming four per year) plus an additional $500 per meeting for the Chairman of Board;

• $2,000 per Audit Committee meeting (assuming eight per year) plus an additional $500 per meeting for the Audit Committee chairman;

• $2,000 per Compensation Committee meeting (assuming four per year) plus an additional $500 per meeting for the Compensation Committee chairman; and

• $2,000 per Nominating and Corporate Governance Committee meeting (assuming three per year) plus an additional $500 per meeting for the Nominating and Corporate Governance Committee chairman.

The board of directors approved these modifications by unanimous written consent dated November 9, 2012, and these modifications were put into effect as of January 1, 2013.

The Company also reimburses directors for their travel-related expenses incurred in attending meetings of the board of directors and its committees; however, Mattersight has adopted the practice of holding meetings of the board of directors and its committees by video conference, thereby minimizing the need to reimburse for these expenses.

In addition to meeting attendance fees, Non-Employee Directors are eligible to receive automatic grants of stock options under the Mattersight Corporation 1999 Stock Incentive Plan (the “1999 Plan”), which provides for each Non-Employee Director to receive: (i) an option to purchase 50,000 shares of Mattersight Common Stock, $.01 par value (“Common Stock”) upon commencement of service as a director (an “Initial Grant”); and (ii) an option to purchase 5,000 shares of Common Stock on the day after each annual meeting of stockholders during which such service continues (an “Annual Grant”). By unanimous written consent dated November 9, 2012, the board of directors approved an increase in the Annual Grant from 5,000 shares to 10,000 shares, effective as of January 1, 2013.

Stock options granted to Non-Employee Directors have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date and a maximum term of ten years. Each Initial Grant vests ratably over a period of 48 months from the end of the month following the grant date. Each Annual Grant vests ratably over a period of 48 months, commencing with a vesting of 25% on May 31^st of the year following the grant date and 6.25% on each quarterly vesting date thereafter.

In addition to the foregoing options, at its February 2009 meeting, as ratified by Unanimous Written Consent, the board of directors agreed to an additional grant of stock options under the 1999 Plan. Each Non-Employee Director received an option to purchase 50,000 shares of Common Stock. These stock options have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date, which was February 18, 2009, and a maximum term of ten years, pursuant to the 1999 Plan. Vesting occurs ratably over a period of 16 quarters, with the first quarterly vesting having occurred on February 28, 2009.

EX-10.24

Exhibit 10.24

Summary of 2013 Executive Officer Compensation

The following shows the annual salary for each of Mattersight’s current executive officers:

Kelly D. Conway, President and Chief Executive Officer:	$	300,000
Karen Bolton, Executive Vice President of Client Management:	$	250,000
Christine R. Carsen, Vice President, General Counsel and Corporate Secretary:	$	200,000
Christopher J. Danson, Executive Vice President of Delivery:	$	275,000
David R. Gustafson, Vice President of Marketing and Product Management:	$	230,000
Mark Iserloth, Vice President and Chief Financial Officer:	$	250,000
William B. Noon, Vice President of Finance:	$	200,000

Each of these executive officers have target bonus percentages as set forth in their employment agreements with Mattersight. Additional information concerning the compensation of these executive officers is set forth in the Proxy Statement on Form 14A filed by Mattersight Corporation with the Securities and Exchange Commission.

EX-21.1

Exhibit 21.1

MATTERSIGHT SUBSIDIARIES

Name of Company	Jurisdiction of Incorporation
Mattersight Europe Holding Corporation	Delaware
Mattersight International Holding, Inc.	Illinois
Mattersight (Netherlands) B.V.	Netherlands
Mattersight (Canada) Corporation	Canada
Mattersight (Deutschland) GmbH	Germany
Mattersight (UK) Limited	England & Wales
Mattersight Corporation (Australia) Pty. Ltd.	Australia

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated March 14, 2013, with respect to the consolidated financial statements, schedule and internal control over financial reporting included in the Annual Report of Mattersight Corporation and Subsidiaries on Form 10-K for the year ended December 31, 2012. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Mattersight Corporation on Forms S-3 (File Nos. 333-70078 effective September 25, 2011, 333-100051 effective September 24, 2002, 333-138509 effective November 8, 2006, 333-152832 effective August 7, 2008 and 333-180153 effective May 18, 2012) and Forms S-8 (File Nos. 333-96473 effective February 9, 2000, 333-30374 effective February 14, 2000, 333-42284 effective July 26, 2000, 333-68530 effective August 28, 2001, 333-68540 effective August 28, 2001, 333-101031 effective November 6, 2002, 333-143114 effective May 21, 2007, 333-150671 effective May 6, 2008, and 333-172187 effective February 11, 2011).

/s/ GRANT THORNTON LLP

Chicago, Illinois

March 14, 2013

EX-24.1

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly D. Conway and Mark A. Iserloth, signing singly, as the undersigned’s true and lawful attorney-in-fact, with full power and authority and full power of substitution, re-substitution, or revocation, to:

(a) execute for, in the name and on behalf of the undersigned, in the undersigned’s capacity as a director and/or officer of the Company, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, together with any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 7 day of March, 2013.

/s/ Tench Coxe

Signature

Tench Coxe

Printed Name

EX-24.2

Exhibit 24.2

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly D. Conway and Mark A. Iserloth, signing singly, as the undersigned’s true and lawful attorney-in-fact, with full power and authority and full power of substitution, re-substitution, or revocation, to:

(a) execute for, in the name and on behalf of the undersigned, in the undersigned’s capacity as a director and/or officer of the Company, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, together with any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 12 day of March, 2013.

/s/ Philip R. Dur

Signature

Philip R. Dur

Printed Name

EX-24.3

Exhibit 24.3

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly D. Conway and Mark A. Iserloth, signing singly, as the undersigned’s true and lawful attorney-in-fact, with full power and authority and full power of substitution, re-substitution, or revocation, to:

(a) execute for, in the name and on behalf of the undersigned, in the undersigned’s capacity as a director and/or officer of the Company, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, together with any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 7 day of March, 2013.

/s/ Henry J. Feinberg

Signature

Henry J. Feinberg

Printed Name

EX-24.4

Exhibit 24.4

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly D. Conway and Mark A. Iserloth, signing singly, as the undersigned’s true and lawful attorney-in-fact, with full power and authority and full power of substitution, re-substitution, or revocation, to:

(a) execute for, in the name and on behalf of the undersigned, in the undersigned’s capacity as a director and/or officer of the Company, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, together with any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 11 day of March, 2013.

/s/ John T. Kohler

Signature

    John T. Kohler

Printed Name

EX-24.5

Exhibit 24.5

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly D. Conway and Mark A. Iserloth, signing singly, as the undersigned’s true and lawful attorney-in-fact, with full power and authority and full power of substitution, re-substitution, or revocation, to:

(a) execute for, in the name and on behalf of the undersigned, in the undersigned’s capacity as a director and/or officer of the Company, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, together with any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 12 day of March, 2013.

/s/ Michael J. Murray

Signature

Michael J. Murray

Printed Name

EX-24.6

Exhibit 24.6

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly D. Conway and Mark A. Iserloth, signing singly, as the undersigned’s true and lawful attorney-in-fact, with full power and authority and full power of substitution, re-substitution, or revocation, to:

(a) execute for, in the name and on behalf of the undersigned, in the undersigned’s capacity as a director and/or officer of the Company, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, together with any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 9 day of March, 2013.

/s/ John C. Staley

Signature

    John C. Staley

Printed Name

EX-24.7

Exhibit 24.7

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly D. Conway and Mark A. Iserloth, signing singly, as the undersigned’s true and lawful attorney-in-fact, with full power and authority and full power of substitution, re-substitution, or revocation, to:

(a) execute for, in the name and on behalf of the undersigned, in the undersigned’s capacity as a director and/or officer of the Company, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, together with any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) file the Form 10-K, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(c) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 11 day of March, 2013.

/s/ David B. Mullen

Signature

    David B. Mullen

Printed Name

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Kelly D. Conway, certify that:

1. I have reviewed this Annual Report on Form 10-K of Mattersight Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2013
By	/S/ KELLY D. CONWAY
	Kelly D. Conway
	President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Mark Iserloth, certify that:

1. I have reviewed this Annual Report on Form 10-K of Mattersight Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2013
By	/s/ MARK ISERLOTH
	Mark Iserloth
	Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report on Form 10-K of Mattersight Corporation (the “Company”) for the Year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kelly D. Conway, as Chief Executive Officer of the Company, and Mark Iserloth, as Chief Financial Officer of the Company, hereby certify, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2013

/s/ KELLY D. CONWAY

Kelly D. Conway

President & Chief Executive Officer

/s/ MARK ISERLOTH

Mark Iserloth

Vice President and Chief Financial Officer

This certification shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934. In addition, this certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation [Abstract]

Restricted and installment stock award activity

	Shares			Weighted Average Price
Nonvested balance at December 26, 2009		985,208		$	7.14
Granted		570,100		$	6.03
Vested		(624,073	)	$	7.43
Forfeited		(28,195	)	$	10.89
Nonvested balance at January 1, 2011		903,040		$	6.12
Granted		1,246,955		$	6.58
Vested		(737,880	)	$	7.04
Forfeited		(126,002	)	$	6.51
Nonvested balance at December 31, 2011		1,286,113		$	6.33
Granted		445,496		$	7.54
Vested		(601,298	)	$	6.54
Forfeited		(308,948	)	$	6.37
Nonvested balance at December 31, 2012		821,363		$	6.81

	For the Fiscal Years Ended
	2012		2011		2010
Total fair value of restricted and installment stock awards vested	$	3.6	$	4.8	$	3.6

Stock option activity

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Weighted Average Fair Value of Option Grants
Outstanding as of December 26, 2009		1,231,205		$	13.57		6.4
Exercisable as of December 26, 2009		783,542		$	16.47
Granted		30,000		$	6.34			$	3.92
Exercised		(895	)	$	2.73
Forfeited		(7,918	)	$	176.96
Outstanding as of January 1, 2011		1,252,392		$	12.37		5.5
Exercisable as of January 1, 2011		976,562		$	14.05
Outstanding intrinsic value at January 1, 2011	$	1.1
Exercisable intrinsic value at January 1, 2011	$	0.8
Granted		130,000		$	5.69			$	3.44
Exercised		—		$	—
Forfeited		(154,457	)	$	18.07
Outstanding as of December 31, 2011		1,227,935		$	10.95		5.4
Exercisable as of December 31, 2011		986,626		$	12.30
Outstanding intrinsic value at December 31, 2011	$	0.3
Exercisable intrinsic value at December 31, 2011	$	0.2
Granted		818,543		$	6.33			$	3.77
Exercised		(173,600	)	$	3.84
Forfeited		(106,642	)	$	18.78
Outstanding as of December 31, 2012		1,766,236		$	9.03		7.4
Exercisable as of December 31, 2012		1,004,232		$	11.09
Outstanding intrinsic value at December 31, 2012	$	0.2
Exercisable intrinsic value at December 31, 2012	$	0.2

	For the Fiscal Years Ended
	2012		2011		2010
Total fair value of stock options vested	$	1.0	$	0.6	$	1.2
Intrinsic value of stock options exercised		0.4		—		—
Proceeds received from option exercises		0.7		—		0.1

Fair value for options granted

	For the Fiscal Years Ended
	2012			2011			2010
Risk-free interest rates		0.6	%		0.9	%		1.8	%
Expected dividend yield		—			—			—
Expected volatility		67	%		67	%		68	%
Expected lives		6.0 years			6.0 years			6.0 years

Employee stock purchase plan

	For the Fiscal Years Ended
	2012		2011		2010
Shares of Common Stock issued		27,939		29,554		39,048
Expense related to ESPP (in thousands)	$	46	$	39	$	41

Fair value for ESPP purchases

	For the Fiscal Years Ended
	2012			2011			2010
Risk-free interest rates		0.06	%		0.06	%		0.13	%
Expected dividend yield		—			—			—
Expected volatility		49	%		49	%		51	%
Expected lives		0.24 years			0.25 years			0.25 years

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Receivables, Net (Details Textual) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Receivables Net (Textual) [Abstract]
Allowances for doubtful accounts	Less than $0.1 million
Total Allowances for doubtful accounts	$ 0.1

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Discontinued Operations (Details) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 29, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Oct. 01, 2011	Jul. 02, 2011	Apr. 02, 2011	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Components of income from discontinued operations, net of tax
Net sales										$ 22,900,000	$ 57,300,000
Total expenses									(100,000)	(23,700,000)	(52,500,000)
Gain from sale of assets										36,500,000
Benefit (provision) for income taxes									300,000	(6,800,000)	(1,800,000)
(Loss) income from discontinued operations	$ 0	$ 300,000	$ 0	$ (100,000)	$ 1,200,000	$ (500,000)	$ 28,100,000	$ 100,000	$ 249,000	$ 28,920,000	$ 2,986,000

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Stock-Based Compensation (Details) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended	12 Months Ended
	May 28, 2011	Dec. 31, 2012 Restricted stock [Member]	Dec. 31, 2011 Restricted stock [Member]	Jan. 01, 2011 Restricted stock [Member]
Restricted and installment stock award activity
Restricted stock nonvested, beginning balance		1,286,113	903,040	985,208
Restricted stock nonvested, weighted average price beginning balance		$ 6.33	$ 6.12	$ 7.14
Restricted stock, shares granted		445,496	1,246,955	570,100
Restricted stock nonvested, weighted average price, granted		$ 7.54	$ 6.58	$ 6.03
Restricted stock, shares vested		(601,298)	(737,880)	(624,073)
Restricted stock, weighted average price, vested		$ 6.54	$ 7.04	$ 7.43
Restricted stock, shares forfeited	(21,278)	(308,948)	(126,002)	(28,195)
Restricted stock nonvested, weighted average price, forfeited		$ 6.37	$ 6.51	$ 10.89
Restricted stock nonvested, ending balance		821,363	1,286,113	903,040
Restricted stock nonvested, weighted average price ending balance		$ 6.81	$ 6.33	$ 6.12
Total fair value of restricted and installment stock awards vested		$ 3.6	$ 4.8	$ 3.6

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Current Prepaid Expenses (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Summary of current prepaid expenses
Deferred costs	$ 1,800,000	$ 2,500,000
Prepaid commissions	1,700,000	2,000,000
Other	900,000	800,000
Total	$ 4,359,000	$ 5,302,000

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Fair Value Measurements (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Assets and liabilities carried at fair value measured on a recurring basis
Money market fund	$ 13.4	$ 18.8
Quoted Prices in Active Markets (Level 1) [Member]
Assets and liabilities carried at fair value measured on a recurring basis
Money market fund	13.4	18.8
Other Observable (Level 2) [Member]
Assets and liabilities carried at fair value measured on a recurring basis
Money market fund
Significant Unobservable (Level 3) [Member]
Assets and liabilities carried at fair value measured on a recurring basis
Money market fund

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Summary of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Summary of intangible assets net
Gross intangible assets	$ 2.9	$ 2.8
Accumulated amortization of intangible assets	(2.7)	(2.6)
Net intangible Assets	$ 0.2	$ 0.2

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Severance and Related Costs (Tables)

12 Months Ended

Dec. 31, 2012

Severance and Related Costs [Abstract]

Severance and related costs and their utilization continuing operation

	Employee Severance			Facilities			Total
Balance, December 26, 2009	$	—		$	0.4		$	0.4
Charges		0.5			—			0.5
Adjustments		—			—			—
Charged to severance and related costs		0.5			—			0.5
Payments		(0.5	)		(0.1	)		(0.6	)
Other		—			—			—
Balance, January 1, 2011	$	—		$	0.3		$	0.3
Charges		—			(0.2	)		(0.2	)
Adjustments		—			(0.2	)		(0.2	)
Charged to severance and related costs		—			(0.4	)		(0.4	)
Payments		—			(0.2	)		(0.2	)
Other		—			0.3			0.3
Balance, December 31, 2011	$	—		$	—		$	—
Charges		0.7			—			0.7
Adjustments		—			—			—
Charged to severance and related costs		0.7			—			0.7
Payments		(0.7	)		—			(0.7	)
Other		—			—			—
Balance, December 31, 2012	$	—		$	—		$	—

Severance and related costs and their utilization discontinued operation

	Employee Severance			Facilities		Total
Balance, December 26, 2009	$	—		$	—	$	—
Charges		0.7			—		0.7
Adjustments		—			—		—
Charged to severance and related costs		0.7			—		0.7
Payments		(0.7	)		—		(0.7	)
Balance, January 1, 2011	$	—		$	—	$	—
Charges		0.2			—		0.2
Adjustments		—			—		—
Charged to severance and related costs		0.2			—		0.2
Payments		(0.2	)		—		(0.2	)
Balance, December 31, 2011	$	—		$	—	$	—
Charges		—			—		—
Adjustments		—			—		—
Charged to severance and related costs		—			—		—
Payments		—			—		—
Balance, December 31, 2012	$	—		$	—	$	—

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Leases (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Schedule of future minimum lease payments under capital leases
2013	$ 1.8
2014	0.6
2015	0.2
Thereafter
Total minimum lease payments	2.6
Less: estimated executory costs	(0.2)
Net minimum lease payments	2.4
Less: amount representing interest	(0.1)
Present value of minimum lease payments	$ 2.3

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Stock-Based Compensation (Details 3) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Employee stock purchase plan
Shares of common stock issued	27,939	29,554	39,048
Expense related to ESPP	$ 46	$ 39	$ 41

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Equipment and Leasehold Improvements (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Components of equipment and leasehold improvements
Equipment and leasehold improvements, gross	$ 31,900,000	$ 30,200,000
Accumulated depreciation and amortization	(27,200,000)	(25,900,000)
Equipment and leasehold improvements, net	4,727,000	4,271,000
Computers and software [Member]
Components of equipment and leasehold improvements
Equipment and leasehold improvements, gross	30,300,000	29,200,000
Furniture and equipment [Member]
Components of equipment and leasehold improvements
Equipment and leasehold improvements, gross	600,000	500,000
Leasehold improvements [Member]
Components of equipment and leasehold improvements
Equipment and leasehold improvements, gross	$ 1,000,000	$ 500,000

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(Loss) Income Per Share (Details) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 29, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Oct. 01, 2011	Jul. 02, 2011	Apr. 02, 2011	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Calculation of basic and diluted Income (loss) per share
Net (loss) income	$ (4,600,000)	$ (3,600,000)	$ (3,600,000)	$ (3,400,000)	$ (1,300,000)	$ (3,000,000)	$ 27,300,000	$ (4,600,000)	$ (15,221,000)	$ 18,360,000	$ (13,318,000)
Loss from continuing operations	(4,700,000)	(3,900,000)	(3,500,000)	(3,300,000)	(2,600,000)	(2,500,000)	(800,000)	(4,700,000)	(15,470,000)	(10,560,000)	(16,304,000)
Series B Stock fair value over stated value									(69,000)	(6,555,000)
Dividends related to Series B Stock									(591,000)	(1,252,000)	(1,273,000)
Loss from continuing operations available to Common Stock holders									(16,100,000)	(18,300,000)	(17,600,000)
Income from discontinued operations, net of tax	0	300,000	0	(100,000)	1,200,000	(500,000)	28,100,000	100,000	249,000	28,920,000	2,986,000
Net (loss) income available to Common Stock holders	$ (4,900,000)	$ (3,800,000)	$ (3,700,000)	$ (3,500,000)	$ (8,200,000)	$ (3,300,000)	$ 27,000,000	$ (4,900,000)	$ (15,881,000)	$ 10,553,000	$ (14,591,000)
Per share of Common Stock
Basic/diluted loss from continuing operations, as restated	$ (0.30)	$ (0.25)	$ (0.23)	$ (0.22)	$ (0.64)	$ (0.20)	$ (0.08)	$ (0.36)	$ (1.01)	$ (1.29)	$ (1.28)
Basic income from discontinued operations	$ 0.00	$ 0.02	$ 0.00	$ (0.01)	$ 0.08	$ (0.03)	$ 1.99	$ 0.01	$ 0.02	$ 2.03	$ 0.22
Basic/diluted net (loss) income available to Common Stock holders	$ (0.30)	$ (0.23)	$ (0.23)	$ (0.22)	$ (0.56)	$ (0.23)	$ 1.91	$ (0.36)	$ (0.99)	$ 0.74	$ (1.06)
Weighted average shares outstanding (basic and diluted) (millions)									16,002	14,225	13,701
Currently antidilutive Common Stock equivalents									1,970,000	3,250,000	4,000,000

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Quarterly Data (Unaudited) (Details Textual) (USD $)	3 Months Ended						12 Months Ended
	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011	Oct. 01, 2011	Jul. 02, 2011	Apr. 02, 2011	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Quarterly Data (Unaudited) (Textual) [Abstract]
Expense	$ 700,000	$ 700,000	$ 40,000	$ 100,000		$ 4,000	$ 693,000	$ (336,000)	$ 494,000
Income					$ 400,000			$ 300,000

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Leases (Details 2) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Summary of capital leases
Other current liabilities	$ 1.6	$ 1.7
Other long-term liabilities	0.7	1.1
Total	$ 2.3	$ 2.8

XML

Restatement-Basic and Diluted Loss Per Share from Continuing Operations (Details) (USD $)	3 Months Ended								12 Months Ended			3 Months Ended								12 Months Ended		3 Months Ended								12 Months Ended		3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 29, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Oct. 01, 2011	Jul. 02, 2011	Apr. 02, 2011	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011	Dec. 31, 2011 As Reported [Member]	Oct. 01, 2011 As Reported [Member]	Jul. 02, 2011 As Reported [Member]	Apr. 02, 2011 As Reported [Member]	Jan. 01, 2011 As Reported [Member]	Sep. 25, 2010 As Reported [Member]	Jun. 26, 2010 As Reported [Member]	Mar. 27, 2010 As Reported [Member]	Dec. 31, 2011 As Reported [Member]	Jan. 01, 2011 As Reported [Member]	Dec. 31, 2011 Adjustment [Member]	Oct. 01, 2011 Adjustment [Member]	Jul. 02, 2011 Adjustment [Member]	Apr. 02, 2011 Adjustment [Member]	Jan. 01, 2011 Adjustment [Member]	Sep. 25, 2010 Adjustment [Member]	Jun. 26, 2010 Adjustment [Member]	Mar. 27, 2010 Adjustment [Member]	Dec. 31, 2011 Adjustment [Member]	Jan. 01, 2011 Adjustment [Member]	Dec. 31, 2011 As Restated [Member]	Oct. 01, 2011 As Restated [Member]	Jul. 02, 2011 As Restated [Member]	Apr. 02, 2011 As Restated [Member]	Jan. 01, 2011 As Restated [Member]	Sep. 25, 2010 As Restated [Member]	Jun. 26, 2010 As Restated [Member]	Mar. 27, 2010 As Restated [Member]	Dec. 31, 2011 As Restated [Member]	Jan. 01, 2011 As Restated [Member]
Per share of Common Stock:
Basic loss from continuing operations	$ (0.30)	$ (0.25)	$ (0.23)	$ (0.22)	$ (0.64)	$ (0.20)	$ (0.08)	$ (0.36)	$ (1.01)	$ (1.29)	$ (1.28)	$ (0.17)	$ (0.18)	$ (0.05)	$ (0.34)	$ (0.23)	$ (0.27)	$ (0.33)	$ (0.36)	$ (0.74)	$ (1.19)	$ (0.47)	$ (0.02)	$ (0.03)	$ (0.02)	$ (0.02)	$ (0.03)	$ (0.02)	$ (0.02)	$ (0.55)	$ (0.09)	$ (0.64)	$ (0.20)	$ (0.08)	$ (0.36)	$ (0.25)	$ (0.30)	$ (0.35)	$ (0.38)	$ (1.29)	$ (1.28)
Diluted loss from continuing operations	$ (0.30)	$ (0.25)	$ (0.23)	$ (0.22)	$ (0.64)	$ (0.20)	$ (0.08)	$ (0.36)	$ (1.01)	$ (1.29)	$ (1.28)	$ (0.17)	$ (0.18)	$ (0.05)	$ (0.34)	$ (0.23)	$ (0.27)	$ (0.33)	$ (0.36)	$ (0.74)	$ (1.19)	$ (0.47)	$ (0.02)	$ (0.03)	$ (0.02)	$ (0.02)	$ (0.03)	$ (0.02)	$ (0.02)	$ (0.55)	$ (0.09)	$ (0.64)	$ (0.20)	$ (0.08)	$ (0.36)	$ (0.25)	$ (0.30)	$ (0.35)	$ (0.38)	$ (1.29)	$ (1.28)

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(Loss) Income Per Share (Details Textual) (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Jul. 02, 2012	Jan. 03, 2012	Jul. 01, 2011
Income (Loss) Per Share (Textual) [Abstract]
Cash dividend declared on the Series B Stock	$ 0.1785
Dividend payment		$ 0.3	$ 0.3	$ 1.9

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Stock-Based Compensation (Details 1) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011	Dec. 26, 2009
Stock options activity
Option activity outstanding, beginning balance	1,227,935	1,252,392	1,231,205
Option activity, weighted average price, beginning balance	$ 10.95	$ 12.37	$ 13.57
Option activity shares, granted	818,543	130,000	30,000
Option activity weighted average exercise price, granted	$ 6.33	$ 5.69	$ 6.34
Option activity, exercised	(173,600)		(895)
Option activity weighted average exercise price, exercised	$ 3.84		$ 2.73
Option activity, forfeited	(106,642)	(154,457)	(7,918)
Option activity weighted average exercise price, forfeited	$ 18.78	$ 18.07	$ 176.96
Option activity outstanding, ending balance	1,766,236	1,227,935	1,252,392	1,231,205
Option activity, weighted average price, ending balance	$ 9.03	$ 10.95	$ 12.37	$ 13.57
Option activity, exercisable	1,004,232	986,626	976,562	783,542
Option activity weighted average price, exercisable	$ 11.09	$ 12.30	$ 14.05	$ 16.47
Outstanding intrinsic value	$ 0.2	$ 0.3	$ 1.1
Exercisable intrinsic value	0.2	0.2	0.8
Weighted average remaining contractual life	7 years 4 months 24 days	5 years 4 months 24 days	5 years 6 months	6 years 4 months 24 days
Weighted average fair value of option grants	$ 3.77	$ 3.44	$ 3.92
Total fair value of stock options vested	1,000,000	600,000	1,200,000
Intrinsic value of stock options exercised	400,000
Proceeds received from option exercises	$ 700,000		$ 100,000

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Leases

12 Months Ended

Dec. 31, 2012

Leases [Abstract]

Leases

Note Eighteen — Leases

Capital Leases

The Company acquired $1.8 million and $2.5 million of computer equipment and leasehold improvements using capital leases during fiscal years 2012 and 2011, respectively. These assets were related primarily to investments in Behavioral Analytics. There was $2.2 million, $1.8 million, and $1.5 million of depreciation on capital leases during 2012, 2011, and 2010 respectively. All capital leases are for a term of either thirty or thirty-six months. The liabilities for these capital leases are included in “Other current liabilities” and “Other long-term liabilities” on the balance sheet.

The following is a schedule, by year, of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of December 31, 2012:

Year	Amount
2013	$	1.8
2014		0.6
2015		0.2
Thereafter		—
Total minimum lease payments	$	2.6
Less: estimated executory costs		(0.2	)
Net minimum lease payments	$	2.4
Less: amount representing interest		(0.1	)
Present value of minimum lease payments	$	2.3

Capital leases included in equipment and leasehold improvements (see Note Seven):

	As of
	December 31, 2012			December 31, 2011
Computers and software	$	5.2		$	5.7
Accumulated depreciation and amortization		(3.2	)		(2.8	)
Computers and software, net	$	2.0		$	2.9

Capital leases consisted of the following:

	As of
	December 31, 2012		December 31, 2011
Other current liabilities	$	1.6	$	1.7
Other long-term liabilities		0.7		1.1
Total	$	2.3	$	2.8

Operating Leases

The Company leases various office facilities under leases expiring at various dates through February 28, 2015. Additionally, the Company leases various property and office equipment under operating leases, generally under three year terms, expiring at various dates. Rental expense for all operating leases approximated $1.1 million, $1.1 million, and $1.2 million, for fiscal years ended 2012, 2011, and 2010, respectively. These amounts exclude rental payments related to office space reductions, which were $0.1 million and $0.1 million in fiscal years 2011 and 2010, respectively.

Future minimum rental commitments under non-cancelable operating leases with terms in excess of one year are as follows:

Year	Amount
2013	$	0.9
2014		1.0
2015		0.6
2016		0.3
2017		—
Thereafter		—
Total minimum payments required	$	2.8

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Severance and Related Costs (Details) (Continuing Operations [Member], USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Severance and related costs and their utilization Continuing operations
Severance and Related Costs, Beginning Balance		$ 0.3	$ 0.4
Charges	0.7	(0.2)	0.5
Adjustments		(0.2)
Charged to severance and related costs	0.7	(0.4)	0.5
Payments	(0.7)	(0.2)	(0.6)
Other		0.3
Severance and Related Costs, Ending Balance			0.3
Employee Severance [Member]
Severance and related costs and their utilization Continuing operations
Severance and Related Costs, Beginning Balance
Charges	0.7		0.5
Adjustments
Charged to severance and related costs	0.7		0.5
Payments	(0.7)		(0.5)
Other
Severance and Related Costs, Ending Balance
Facilities [Member]
Severance and related costs and their utilization Continuing operations
Severance and Related Costs, Beginning Balance		0.3	0.4
Charges		(0.2)
Adjustments		(0.2)
Charged to severance and related costs		(0.4)
Payments		(0.2)	(0.1)
Other		0.3
Severance and Related Costs, Ending Balance			$ 0.3

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Leases (Tables)

12 Months Ended

Dec. 31, 2012

Leases [Abstract]

Schedule of future minimum lease payments under capital leases

Year	Amount
2013	$	1.8
2014		0.6
2015		0.2
Thereafter		—
Total minimum lease payments	$	2.6
Less: estimated executory costs		(0.2	)
Net minimum lease payments	$	2.4
Less: amount representing interest		(0.1	)
Present value of minimum lease payments	$	2.3

Summary of capital leases included in equipment and leasehold improvements

	As of
	December 31, 2012			December 31, 2011
Computers and software	$	5.2		$	5.7
Accumulated depreciation and amortization		(3.2	)		(2.8	)
Computers and software, net	$	2.0		$	2.9

Summary of capital leases

	As of
	December 31, 2012		December 31, 2011
Other current liabilities	$	1.6	$	1.7
Other long-term liabilities		0.7		1.1
Total	$	2.3	$	2.8

Future minimum rental commitments under non-cancelable operating leases

Year	Amount
2013	$	0.9
2014		1.0
2015		0.6
2016		0.3
2017		—
Thereafter		—
Total minimum payments required	$	2.8

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Stock-Based Compensation (Details Textual) (USD $)	1 Months Ended	12 Months Ended						1 Months Ended		1 Months Ended		1 Months Ended					12 Months Ended		1 Months Ended		12 Months Ended							12 Months Ended
	May 28, 2011	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011	Dec. 27, 2008	Dec. 31, 2012 Maximum [Member]	Dec. 31, 2012 1999 Plan [Member]	Aug. 31, 2012 First Employee [Member]	Aug. 08, 2012 First Employee [Member]	Aug. 31, 2012 Second Employee [Member]	Aug. 08, 2012 Second Employee [Member]	May 18, 2012 Non-employee Directors [Member]	May 17, 2012 Non-employee Directors [Member]	Dec. 20, 2011 Non-employee Directors [Member]	May 20, 2011 Non-employee Directors [Member]	Apr. 19, 2011 Non-employee Directors [Member]	Jan. 01, 2011 Non-employee Directors [Member]	May 31, 2012 Non-employee Directors [Member]	Mar. 31, 2012 Executive officers [Member]	May 28, 2011 Restricted stock [Member]	Dec. 31, 2012 Restricted stock [Member]	Dec. 31, 2011 Restricted stock [Member]	Jan. 01, 2011 Restricted stock [Member]	Dec. 31, 2012 Stock Options [Member]	Dec. 31, 2011 Stock Options [Member]	Jan. 01, 2011 Stock Options [Member]	Aug. 08, 2012 Stock Options [Member]	Dec. 31, 2012 Stock Options [Member] Non-employee Directors [Member]	Jan. 01, 2011 Stock Options [Member] Non-employee Directors [Member]	May 18, 2012 Stock Options [Member] Non-employee Directors [Member]	May 17, 2012 Stock Options [Member] Non-employee Directors [Member]	May 20, 2011 Stock Options [Member] Non-employee Directors [Member]
Stock-Based Compensation (Textual) [Abstract]
Allocated share-based Compensation Expense		$ 3,700,000	$ 5,400,000	$ 4,400,000																	$ 2,500,000	$ 4,800,000	$ 3,100,000	$ 1,100,000	$ 500,000	$ 1,100,000
Unrecognized compensation expense related to restricted and installment stock		2,700,000																			4,600,000
Expected weighted average period		2 years																			1 year 9 months 18 days
Stock options held by employees cancelled																				8,750
Common stock option vested									6.25%		25.00%	25.00%	6.25%			25.00%		25.00%	6.25%										25.00%
Period to vest options								15 quarters		12 quarters		12 quarters	15 quarters	P48M	12 Quarters	12 Quarters	16Quarters		15 quarters
Vested options maximum term period		4 years				10 years		10 years		10 years		10 years		10 years	10 years	10 years			10 years					48 months					10 years
Exercise price per share		$ 6.33	$ 5.69	$ 6.34				$ 7.71		$ 7.71			$ 7.79	$ 4.89	$ 6.27	$ 6.15			$ 5.79
Common stock available for future grants																			600,000		1,086,444			818,543			113,165		30,000	32,042	73,336	130,000
Maximum number of shares per employee														50,000	5,000	50,000
Maximum number of shares per non employee																	5,000
Non employees director received option to purchase stock																												50,000
Non-qualified stock option to purchase common stock							5,000
Stock-Based Compensation (Additional Textual) [Abstract]
Rate of forfeiture of shares		3.00%	3.00%	3.00%
Increase in stock awards		10,000
Treasury shares, cancelled			20,620
Percentage increase in aggregate number of shares available for issuance		5.00%
Increase in number of shares available for issuance					1,500,000
Amount of excess tax deduction		$ 0	$ 0
Par value of common stock		$ 0.01	$ 0.01
Unvested restricted stock awards cancelled	21,278																				308,948	126,002	28,195
Shares of common stock issued		27,939	29,554	39,048

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Loss before income taxes

	For the Fiscal Years Ended
	2012			2011			2010
United States	$	(15.0	)	$	(15.8	)	$	(16.6	)
Foreign		(0.4	)		(0.6	)		(1.4	)
Total	$	(15.4	)	$	(16.4	)	$	(18.0	)

Income tax benefit

	For the Fiscal Years Ended
	2012		2011		2010
Current:
Federal	$	—	$	5.5	$	1.6
State		—		0.4		0.1
Foreign		—		—		—
Total current		—		5.9		1.7
Deferred:
Federal		—		—		—
State		—		—		—
Foreign		—		—		—
Total deferred		—		—		—
Income tax benefit	$	—	$	5.9	$	1.7

Total income tax benefit

	For the Fiscal Years Ended
	2012			2011			2010
Federal tax benefit, at statutory rate	$	5.4		$	5.7		$	6.3
State tax benefit, net of federal benefit		0.4			0.4			0.1
Nondeductible expenses		0.3			(0.2	)		—
Other		0.3			—			—
Valuation allowance		(6.4	)		—			(4.7	)
Income tax benefit	$	—		$	5.9		$	1.7

Reconciliation of gross amounts of unrecognized tax benefits

	For the Fiscal Years Ended
	2012		2011			2010
Balance at beginning of year	$	12.9	$	12.8		$	12.8
Additions based on tax positions related to the current year		—		0.3			—
Additions for tax positions of prior years		—		—			—
Reductions for tax positions of prior years		—		(0.2	)		—
Reductions for tax positions as a result of lapse of statute		—		—			—
Settlements		—		—			—
Balance at end of year	$	12.9	$	12.9		$	12.8

Deferred tax assets and liabilities

	As of
	December 31, 2012			December 31, 2011
Deferred tax assets:
Net operating loss carryforwards	$	60.4		$	52.1
Other accruals		4.7			4.6
Depreciation and amortization, including goodwill		0.1			1.0
Tax credit carryforward		0.5			0.8
Valuation allowance		(63.8	)		(55.8	)
Total deferred tax assets		1.9			2.7
Deferred tax liabilities:
Prepaid expenses		(2.0	)		(2.8	)
Total deferred tax liabilities		(2.0	)		(2.8	)
Net deferred tax asset (liability)	$	(0.1	)	$	(0.1	)

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Severance and Related Costs (Details Textual) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 Positions	Dec. 31, 2011 Positions	Jan. 01, 2011 Positions
Continuing Operations [Member]
Severance and Related Costs (Textual) [Abstract]
Continuous operations expense related to severance and elimination	$ 0.7	$ (0.4)	$ 0.5
Number of positions eliminated	1	1	26
Cash payments related to cost-reduction actions	0.7	0.2	0.6
Expense related to severance and elimination	0.7	(0.2)	0.5
Discontinued operations [Member]
Severance and Related Costs (Textual) [Abstract]
Continuous operations expense related to severance and elimination		0.2	0.7
Number of positions eliminated		11	37
Cash payments related to cost-reduction actions		0.2	0.7
Pre-tax charges	0	0.2	0.7
Expense related to severance and elimination	$ 0	$ 0.2	$ 0.7

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Short-Term Debt (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Jun. 29, 2012	Dec. 31, 2011
Short-Term Debt (Textual) [Abstract]
Revolving line of credit		$ 3,700,000
Credit facility accrue interest rate	0.75%
Short-Term Debt (Additional Textual) [Abstract]
Maturity period of credit facility	2014
Repayment of principle amount of promissory notes through credit facility		3,600,000
Repayment of Interest amount of promissory notes through credit facility		100,000
Principle amount and accrued and unpaid interest outstanding under promissory notes	3,700,000
Commitment fee on credit facility	0.125%
Short-term debt	3,703,000		3,567,000
Revolving credit facility [Member]
Short-Term Debt (Textual) [Abstract]
Revolving line of credit		10,000,000
Line of credit [Member]
Short-Term Debt (Textual) [Abstract]
Credit facility accrue interest rate	0.75%
Line of credit under credit facility		3,700,000
Interest on short-term debt	$ 100,000

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Income Taxes (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Total income tax benefit
Federal tax benefit, at statutory rate	$ 5,400,000	$ 5,700,000	$ 6,300,000
State tax benefit, net of federal benefit	400,000	400,000	100,000
Nondeductible expenses	300,000	(200,000)	0
Other	300,000
Valuation allowance	(6,400,000)		(4,700,000)
Income tax (provision) benefit	$ (38,000)	$ 5,884,000	$ 1,706,000

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Summary of Significant Accounting Policies (Details Textual) (USD $) Share data in Millions, unless otherwise specified	1 Months Ended	3 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2012	Dec. 31, 2012 Client	Dec. 31, 2011 Client	Jan. 01, 2011 Client	Jun. 29, 2012
Summary Of Significant Accounting Policies [Line Items]
Line of credit under credit facility						$ 3,700,000
Short-term debt		3,703,000	3,703,000	3,567,000
Summary of Significant Accounting Policies (Textual) [Abstract]
Behavioral Analytics revenue					500,000
Amount reclassified from cost of other revenue to cost of behavioral revenue					300,000
Amount reclassified to general and administrative					1,700,000
Subscription contract period, minimum			3 years
Subscription contract period, maximum			5 years
Subscription pilot short term contract period, minimum			3 months
Subscription Pilot short term contract period, maximum			12 months
Historical standalone transactions, percentage			80.00%
Median selling price, Percentage			20.00%
Federal Deposit Insurance Corporation For interest-bearing accounts		250,000	250,000
Number of clients, revenue			3	3	4
Percentage on total revenue			10.00%	10.00%	10.00%
Number of clients, accounts receivable			4	3
Impairment charges on assets			0	0
Capital leases terms			Either thirty or thirty-six months
Impairment charge on goodwill			0	0
Carrying value of goodwill		972,000	972,000	972,000
Impairment charge on intangible assets			0	100,000
Amount of principal balance to be repaid	3,600,000
Amount on accrued and unpaid interest outstanding	100,000
Principle amount and accrued & unpaid interest outstanding under promissory notes		3,700,000	3,700,000
Credit facility accrue interest rate		0.75%	0.75%
Percentage of commitment fee on credit facility			0.125%
Maturity period of credit facility			2014
Interest for short-term debt		100,000
Percentage of likelihood for tax benefit recognized			50.00%
Shares exempt from the permanent equity or a liability			1.6
Foreign currency net losses			1,000	400,000	100,000
Revolving credit facility [Member]
Summary Of Significant Accounting Policies [Line Items]
Line of credit under credit facility						10,000,000
Short-term debt [Member]
Summary Of Significant Accounting Policies [Line Items]
Short-term debt		$ 3,700,000	$ 3,700,000
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			5 years
Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			3 years
Computers and software [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			3 years
Software [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			5 years
Furniture and equipment [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			5 years
Other Long Term Assets [Member] | Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			5 years
Other Long Term Assets [Member] | Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			3 years
Vangent, Inc [Member]
Summary Of Significant Accounting Policies [Line Items]
Entity-Wide Revenue, Major Customer, Percentage			19.00%	22.00%	20.00%
Allstate Insurance Company [Member]
Summary Of Significant Accounting Policies [Line Items]
Entity-Wide Revenue, Major Customer, Percentage			16.00%	15.00%	13.00%
Entity Wide Accounts Receivable by Major Customer Percentage			10.00%	22.00%
Health Care Service Corporation [Member]
Summary Of Significant Accounting Policies [Line Items]
Entity-Wide Revenue, Major Customer, Percentage				14.00%	14.00%
United HealthCare Services, Inc [Member]
Summary Of Significant Accounting Policies [Line Items]
Entity-Wide Revenue, Major Customer, Percentage					15.00%
Entity Wide Accounts Receivable by Major Customer Percentage			13.00%	25.00%
CVS Caremark Corporation [Member]
Summary Of Significant Accounting Policies [Line Items]
Entity Wide Accounts Receivable by Major Customer Percentage			13.00%	14.00%
Progressive Casualty Insurance Company [Member]
Summary Of Significant Accounting Policies [Line Items]
Entity-Wide Revenue, Major Customer, Percentage			13.00%
Entity Wide Accounts Receivable by Major Customer Percentage			24.00%

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note Two — Summary of Significant Accounting Policies

Fiscal Year-End

The fiscal year-end dates presented for fiscal years 2012, 2011, and 2010 are December 31, 2012, December 31, 2011, and January 1, 2011, respectively. Fiscal year 2010 consisted of fifty-three weeks instead of fifty-two weeks, which did not have a material impact on the Company’s financial position or results of operations.

By unanimous written consent effective December 26, 2012, the Company’s Board of Directors determined to change the Company’s fiscal year end from the last Saturday in December to December 31, beginning with fiscal 2012. Beginning with the fourth quarter of 2012, the Company’s fiscal quarters will end on calendar quarter ends.

Consolidation

The consolidated financial statements include the accounts of Mattersight and all of its subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those amounts.

Reclassifications and Revisions

The Company changed the revenue classification of one contract from Other revenue to Behavioral Analytics revenue in the fourth quarter of 2011 to better reflect the type of services provided under this contract. Revenue for this contract has been reclassified in all historical periods.

As a result, the Company reclassified $0.5 million for fiscal year 2010 from Other revenue to Behavioral Analytics revenue. Cost of services for this contract has also been reclassified in all historical periods. As a result, the Company reclassified $0.3 million for fiscal year 2010 from Cost of Other revenue to Cost of Behavioral Analytics revenue.

Certain leadership, recruiting, and facility management expenses that have been previously reported as Sales, marketing and development have been reclassified to General and administrative. As a result, the Company reclassified $1.7 million for fiscal year 2010 from Sales, marketing and development to General and administrative.

The changes in the preceding paragraphs did not have an impact on net (loss) income and are not material to the financial statements.

Discontinued Operations

The sale by the Company of its ICS Business Unit and “eLoyalty” registered trademark / trade name to Magellan Acquisition Sub, LLC, a Colorado limited liability company and wholly-owned subsidiary of TeleTech Holdings, Inc., a Delaware corporation, closed on May 28, 2011, and the Company changed its name from eLoyalty Corporation to Mattersight Corporation effective June 1, 2011. Therefore, the results of operations of the ICS Business Unit are reported as discontinued operations for all periods presented. Additionally, certain corporate and general costs that had historically been allocated to the ICS Business Unit were reallocated to the Company and are reflected in all periods presented. Mattersight now reports financial results on a single business segment, primarily focused on Behavioral Analytics.

Revenue Recognition

Continuing Operations

Behavioral Analytics Revenue

Behavioral Analytics revenue consists of Managed services revenue and Consulting services revenue derived from the performance of Behavioral Analytics.

Managed services revenue consists of planning, deployment, training, and subscription fees derived from Behavioral Analytics contracts. Planning, deployment, and training fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the subscription period of the applicable subscription contract. The subscription periods of these contracts generally range from three to five years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of Behavioral Analytics prior to committing to a longer subscription period, the subscription or pilot periods generally range from three to twelve months after the go-live date. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in Prepaid expenses and Other long-term assets. Such costs are amortized over the subscription period of the contract. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

The amount of revenue generated from subscription fees is based on a number of factors, such as the number of users to whom the Behavioral Analytics Service is provided, the type and number of Behavioral Analytics offerings deployed to the client, and, in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. This revenue is recognized as the service is performed for the client.

Consulting services revenue primarily consists of fees charged to the Company’s clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training. These follow-on consulting services are generally performed for the Company’s clients on a fixed-fee basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared to the total estimated hours over the entire term of the contract.

Other Revenue

Other revenue consists of Marketing Managed Services revenue and CRM Services revenue.

Marketing Managed Services revenue is derived from marketing application hosting. This revenue is generally in the form of fixed monthly fees received from the Company’s clients and is recognized as the services are performed for the client. Any related setup fee would be recognized over the term of the hosting contract.

CRM Services revenue consists of fees generated from the Company’s operational consulting services, which are provided to the Company’s clients on a time-and-materials or fixed-fee basis. The Company recognizes revenue as the services are performed for time-and-materials projects. For fixed-fee projects, revenue is recognized based on the ratio of hours incurred to-date compared to the total estimated hours over the entire term of the contract.

Discontinued Operations

ICS Business Unit

Managed services revenue included in the ICS Business Unit consisted of fees generated from the Company’s contact center support and monitoring services. Support and monitoring services generally were contracted for a fixed fee, and the revenue was recognized ratably over the term of the contract. Support fees that were contracted on a time-and-materials basis were recognized as the services were performed for the client.

For fixed fee Managed services contracts, where the Company provided support for third-party software and hardware, revenue was recorded at the gross amount of the sale. If the contract did not meet the requirements for gross reporting, then Managed services revenue was recorded at the net amount of the sale.

Consulting services revenue included in the ICS Business Unit consisted of the modeling, planning, configuring, or integrating of an Internet Protocol network solution within the Company’s clients’ contact center environments. These services were provided to clients on a time-and-materials or fixed-fee basis. For the integration of a system, the Company recognized revenue as the services were performed, with performance generally assessed on the ratio of hours incurred to date compared to the total estimated hours over the entire term of the contract. For all other consulting services, the Company recognized revenue as the services were performed for the client.

Revenue from the sale of Product, which was generated primarily from the resale of third-party software and hardware by the Company, was generally recorded at the gross amount of the sale when it was delivered to the client.

In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple deliverable revenue arrangements to:

(i) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

(ii) require an entity to allocate revenue in an arrangement using estimated selling prices (“ESP”) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (“VSOE”) or third-party evidence of selling price (“TPE”); and

(iii) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.

The Company elected to adopt this accounting guidance at the beginning of the first quarter of fiscal year 2011, on a prospective basis. The adoption of this guidance does not impact the Company’s revenue recognition with respect to Behavioral Analytics because the implementation services sold with its Managed services are not separated into multiple accounting units because there is no standalone fair value for these services. The Company recognizes these services revenues over the anticipated subscription period. This accounting guidance does not change the units of accounting for the Company’s revenue transactions or the methods used to allocate consideration to the units of accounting. The revenue recognition for each of these offerings is discussed below.

For the ICS Business Unit, the Company utilized VSOE to allocate revenue to various elements in an arrangement. The Company determined VSOE based on its normal pricing and discounting practices for the product or service when sold separately. In determining VSOE, the Company required that a substantial majority of the selling prices for a product or consulting services fall within a reasonably narrow pricing range, generally evidenced by approximately 80% of such historical standalone transactions falling within plus or minus 20% of the median selling price. For the ICS Business Unit’s managed services, the Company established VSOE through the stated renewal approach. The Company was able to establish VSOE for its product and service offerings except for software. If the Company was not able to establish VSOE for an offering, it attempted to establish fair value by utilizing TPE, which was established by obtaining evidence from comparable offerings from a peer company. If the Company was unable to establish fair value using VSOE or TPE, then the Company used ESP in its allocation of revenue. To determine ESP, the Company applied significant judgment as it weighed a variety of factors, based on the facts and circumstances of the arrangement. These factors included internal costs, gross margin objectives, and existing portfolio pricing and discounting.

Within discontinued operations, some of the Company’s sales arrangements had multiple deliverables containing software and related software components. Such sale arrangements were subject to the accounting guidance in ASC 985-605, Software Revenue Recognition.

Cost of Revenue before Reimbursed Expenses, Exclusive of Depreciation and Amortization

Cost of services primarily consists of labor costs, including salaries, fringe benefits, and incentive compensation, royalties, and other customer related third-party outside services. Cost of services excludes depreciation and amortization.

If the Company’s estimates indicate that a contract loss will occur, then a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated.

Sales, Marketing and Development

Sales, marketing and development expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, marketing, and solution development/support personnel. The personnel costs included here are net of any labor costs directly related to the generation of revenue, which are represented in Cost of services.

General and Administrative

General and administrative expenses consist primarily of salaries, incentive compensation, and employee benefits for administrative personnel, as well as facilities costs, a provision for uncollectible amounts, and costs for our corporate technology infrastructure and applications.

Severance and Related Costs

We recorded accruals for severance and related costs associated with our cost-reduction efforts undertaken during fiscal years 2008 through 2012. The portion of the accruals relating to employee severance represents contractual severance for identified employees and generally is not subject to a significant revision. The portion of the accruals that related to office space reductions, office closures, and associated contractual lease obligations are based in part on assumptions and estimates of the timing and amount of sublease rentals, which may be affected by overall economic and local market conditions. To the extent estimates of the success of our sublease efforts changed, adjustments increasing or decreasing the related accruals have been recognized.

(Loss) Income Per Common Share

The per common share basic net (loss) income available to common stockholders has been computed by dividing the net (loss) income available to common stockholders for each period presented by the weighted average shares outstanding. The per common share diluted (loss) income available to common stockholders has been computed by dividing the net (loss) income available to common stockholders by the weighted average shares outstanding plus the dilutive effect of common stock equivalents, which is primarily related to Series B Stock, using the “treasury stock” method. In periods in which there was a loss, the dilutive effect of common stock equivalents is not included in the diluted loss per share calculation as it was antidilutive.

Fair Value of Financial Instruments

The carrying values of current assets and liabilities approximated their fair values as of December 31, 2012 and December 31, 2011. Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Cash and Cash Equivalents

The Company considers all highly liquid investments readily convertible into known amounts of cash (with original purchased maturities of three months or less) to be cash equivalents.

Restricted Cash

Restricted cash principally represents cash as security for the Company’s line of credit and letters of credit issued to support the Company’s capital lease obligations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, restricted cash, and receivables. Cash and cash equivalents and restricted cash consist of money market funds and deposits with high credit quality financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limit. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000 for interest-bearing accounts and up to the value of the account for non-interest bearing accounts. The Company’s receivables are derived from billings to clients located primarily in the U.S. and are denominated in U.S. dollars. For fiscal year 2012, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc., Allstate Insurance Company, and Progressive Casualty Insurance Company, which accounted for 19%, 16%, and 13% of total revenue, respectively. For fiscal year 2011, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc., Allstate Insurance Company, and Health Care Service Corporation, which accounted for 22%, 15%, and 14% of total revenue, respectively. For fiscal year 2010, there were four clients accounting for more than 10% of the total revenue: Vangent, Inc., United HealthCare Services, Inc., Health Care Service Corporation, and Allstate Insurance Company, which accounted for 20%, 15%, 14%, and 13% of total revenue, respectively. As of December 31, 2012, four clients, Progressive Casualty Insurance Company, United HealthCare Services, Inc., CVS Caremark Corporation, and Allstate Insurance Company accounted for 24%, 13%, 13%, and 10% of total gross accounts receivable, respectively. As of December 31, 2011, three clients, United HealthCare Services, Inc., Allstate Insurance Company, and CVS Caremark Corporation accounted for 25%, 22%, and 14% of total gross accounts receivable, respectively.

Equipment and Leasehold Improvements

Computers, software, furniture, and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the lesser of the useful life or the lease term. The useful life for computers and software is three years. For enterprise software applications where a longer useful life is deemed appropriate, five years is used. For furniture and equipment, a useful life of five years is used. Maintenance and repair costs are expensed as incurred. The cost and related accumulated depreciation of assets sold or disposed of are eliminated from the respective accounts and the resulting gain or loss is included in the statements of operations. The carrying value of equipment and leasehold improvements is periodically reviewed to assess recoverability based on future undiscounted cash flows. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value. There was no impairment as of December 31, 2012 and December 31, 2011.

The Company accounts for software developed for internal use in accordance with the guidance provided under ASC Topic 350, which addresses accounting for the costs of computer software developed or obtained for internal use. As such, costs incurred that relate to the planning and post-implementation phases of development are expensed. Costs incurred during the application development stage are capitalized and amortized over the asset’s estimated useful life, which is generally three to five years.

The Company leases certain equipment using both capital leases and operating leases. Assets leased under capital leases are recorded at the present value of future lease payments and depreciated on a straight line basis. All capital leases are for terms of either thirty or thirty-six months.

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing our annual impairment test, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is concluded that this is the case for one or more reporting units, we perform a detailed quantitative assessment using a two-step test approach. In the first step, the fair value of each reporting unit is compared with its carrying value. If the fair value exceeds the carrying value, then goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. A detailed determination of the fair value of a reporting unit may be carried forward from one year to the next if specific criteria have been met. The Company currently operates in a single business segment or reporting unit.

In 2012, after completing our annual qualitative review, we concluded that it was not more-likely-than-not that the carrying value of our reporting unit exceeded its fair value. Accordingly, we concluded that further quantitative analysis and testing was not required, and no goodwill impairment charge was required.

There has been no impairment identified as a result of the annual review of goodwill as of December 31, 2012 and December 31, 2011. The carrying value of goodwill was $1.0 million as of December 31, 2012 and December 31, 2011.

Intangible Assets

Intangible assets reflect costs related to patent and trademark applications, Marketing Managed Services customer relationships acquired in 2004, and the 2003 purchase of a license for certain intellectual property. Patent and trademark applications are amortized over 120 months. The other intangible assets are fully amortized. There was an impairment charge of less than $0.1 million for fiscal year 2012 and $0.1 million during fiscal year 2011.

	December 31, 2012			December 31, 2011
Gross intangible assets	$	2.9		$	2.8
Accumulated amortization of intangible assets		(2.7	)		(2.6	)
Total	$	0.2		$	0.2

Other Long-Term Assets

Other long-term assets primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics. These costs are recognized over the terms of the respective contracts, generally three to five years. Costs included in long-term assets will be recognized over the remaining term of the contracts beyond the first twelve months.

Income Taxes

The Company uses an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for the year, the basis of assets and liabilities and for tax loss carryforwards. The Company does not provide for taxes on the undistributed earnings of its foreign subsidiaries which are expected to be indefinitely reinvested.

The Company has recorded income tax valuation allowances on net deferred tax assets to account for the unpredictability surrounding the timing of realization of U.S. and non-U.S. net deferred tax assets due to uncertain economic conditions. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to predictable levels of profitability.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit. There is additional guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods, and disclosure requirements.

Intraperiod tax allocation requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. While intraperiod tax allocation in general does not change the overall tax provision, it does affect the amount of tax provision included in each category.

Short-Term Debt

On June 29, 2012, the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers, entered into the Credit Facility with Silicon Valley Bank. The Credit Facility provides for a $10.0 million revolving line of credit maturing in 2014 and is secured by a security interest in the Company’s accounts receivable, equipment, inventory, cash, deposit accounts, securities, and all other investment property, supporting obligations, financial assets, and other personal property, with the exception of the Company’s intellectual property rights. On June 29, 2012, the Company used approximately $3.7 million of the line of credit under the Credit Facility to repay in full the principal balance of $3.6 million and accrued and unpaid interest outstanding of $0.1 million under the promissory notes issued by the Company to various affiliates of TCV to settle previously disclosed arbitration. The $3.7 million principal amount outstanding under the Credit Facility will accrue interest at a floating annual rate equal to three quarters of one percentage point (0.75%) above the United States prime rate, payable monthly. In addition, the Company will pay a commitment fee on the Credit Facility and a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears. Short-term debt was $3.7 million as of December 31, 2012 and interest for fiscal year 2012 was $0.1 million. The Company was in compliance with all of its debt covenants under the Credit Facility as of December 31, 2012.

Unearned Revenue

Payments received for Managed services contracts in excess of the amount of revenue recognized for these contracts are recorded as unearned revenue until revenue recognition criteria are met.

Stockholders’ Equity

Stockholders’ equity includes Common Stock issued, additional paid-in capital, accumulated deficit, treasury stock, and accumulated other comprehensive loss. The 1.6 million shares of Series B Stock are not classified as permanent equity or a liability in the accompanying balance sheets. These shares of Series B Stock are conditionally redeemable and do not meet the definition of a mandatorily redeemable financial instrument. The holders of Series B Stock have the ability to initiate a redemption upon the occurrence of certain events that are considered outside the Company’s control.

Foreign Currency Translation

The functional currencies for the Company’s foreign subsidiaries are their local currencies. All assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end of period exchange rates. The resulting translation adjustments are recorded as a component of stockholders’ equity and comprehensive income (loss). Income and expense items are translated at average exchange rates prevailing during the period. Foreign currency net losses were less than $1 thousand for fiscal year 2012, $0.4 million for fiscal year 2011, and $0.1 million for fiscal year 2010. These foreign currency transactions from subsidiaries are included in interest and other income within the consolidated statements of operations.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. The Company uses historical information as the primary basis for the selection of expected life, expected volatility, expected dividend yield assumptions, and anticipated forfeiture rates. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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Income Taxes (Details 3) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Reconciliation of gross amounts of unrecognized tax benefits
Balance at beginning of year	$ 12.9	$ 12.8	$ 12.8
Additions based on tax positions related to the current year		0.3
Additions for tax positions of prior years
Reductions for tax positions of prior years		(0.2)
Reductions for tax positions as a result of lapse of statute
Settlements
Balance at end of year	$ 12.9	$ 12.9	$ 12.8

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Quarterly Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2012

Quarterly Data (Unaudited) [Abstract]

Summary of quarterly data

	For the Fiscal Year Ended 2012
	1st			2nd			3rd			4th			Year
Total revenue	$	9.0		$	8.0		$	8.1		$	8.8		$	33.9
Gross margin	$	5.5		$	4.8		$	5.0		$	5.2		$	20.5
Operating loss	$	(3.2	)(1)	$	(3.4	)	$	(3.8	)	$	(4.6	)	$	(15.0	)(1)
Loss from continuing operations	$	(3.3	)(1)	$	(3.5	)	$	(3.9	)	$	(4.7	)	$	(15.4	)(1)
(Loss) income from discontinued operations	$	(0.1	)	$	0.0		$	0.3		$	0.0		$	0.2
Net loss	$	(3.4	)(1)	$	(3.6	)	$	(3.6	)	$	(4.6	)	$	(15.2	)(1)
Net loss available to Common Stock holders	$	(3.5	)(1)	$	(3.7	)	$	(3.8	)	$	(4.9	)	$	(15.9	)(1)
Basic loss from continuing operations per share	$	(0.22	)	$	(0.23	)	$	(0.25	)	$	(0.30	)	$	(1.01	)
Basic (loss) income from discontinued operations per share	$	(0.01	)	$	0.00		$	0.02		$	0.00		$	0.02
Basic net loss per share available to Common Stock holders	$	(0.22	)	$	(0.23	)	$	(0.23	)	$	(0.30	)	$	(0.99	)
Diluted loss from continuing operations per share	$	(0.22	)	$	(0.23	)	$	(0.25	)	$	(0.30	)	$	(1.01	)
Diluted (loss) income from discontinued operations per share	$	(0.01	)	$	0.00		$	0.02		$	0.00		$	0.02
Diluted net (loss) income per share available to Common Stock holders	$	(0.22	)	$	(0.23	)	$	(0.23	)	$	(0.30	)	$	(0.99	)
Shares used to calculate basic and diluted net (loss) income per share (in millions)		15.75			15.97			16.07			16.22			16.00
	For the Fiscal Year Ended 2011
	1st			2nd			3rd			4th			Year
Total revenue	$	6.6		$	6.7		$	7.1		$	8.7		$	29.1
Gross margin	$	3.4		$	3.5		$	3.8		$	4.9		$	15.6
Operating loss	$	(4.9	)(2)	$	(4.3	)(2)	$	(4.3	)(2)	$	(3.1	)(2)	$	(16.6	)(2)
Loss from continuing operations	$	(4.7	)(2)	$	(0.8	)(2)	$	(2.5	)(2)	$	(2.6	)(2)	$	(10.6	)(2)
Income (loss) from discontinued operations	$	0.1		$	28.1		$	(0.5	)	$	1.2		$	28.9
Net (loss) income	$	(4.6	)(2)	$	27.3	(2)	$	(3.0	)(2)	$	(1.3	)(2)	$	18.4	(2)
Net (loss) income available to Common Stock holders	$	(4.9	)(2)	$	27.0	(2)	$	(3.3	)(2)	$	(8.2	)(2)	$	10.6	(2)
Basic loss from continuing operations per share, as restated (3)	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Basic income (loss) from discontinued operations per share	$	0.01		$	1.99		$	(0.03	)	$	0.08		$	2.03
Basic net (loss) income per share available to Common Stock holders	$	(0.36	)	$	1.91		$	(0.23	)	$	(0.56	)	$	0.74
Diluted loss from continuing operations per share, as restated (3)	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Diluted income (loss) from discontinued operations per share	$	0.01		$	1.99		$	(0.03	)	$	0.08		$	2.03
Diluted net (loss) income per share available to Common Stock holders	$	(0.36	)	$	1.91		$	(0.23	)	$	(0.56	)	$	0.74
Shares used to calculate basic and diluted net (loss) income per share (in millions)		13.95			14.11			14.30			14.54			14.23

(1) Includes $0.7 million of expense for the first quarter of fiscal year 2012 primarily related to severance and related costs associated with cost reduction plans. For fiscal year 2012 severance and related costs associated with cost reduction plans was $0.7 million.

(2) Includes $4 thousand of expense, $0.4 million of income, $0.1 million of expense, and $40 thousand of expense, for the first, second, third, and fourth quarters of fiscal year 2011, respectively, and $0.3 million of income for fiscal year 2011 primarily related to the favorable renegotiation of an office lease and severance and related costs associated with cost reduction plans.

(3) The effects of the correction of the error reported in Note Twenty-One “Restatement —  Basic and Diluted Loss Per Share from Continuing Operations” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K are reflected in all periods presented.

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Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2012

Valuation and Qualifying Accounts [Abstract]

VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In millions)

Description of Allowance and Reserves	Balance at Beginning of Period		Additions Charged to Costs and Expenses			Additions Charged to Other Accounts		Deductions		Balance at End of Period
Valuation allowance for doubtful accounts*:
Fiscal year ended December 31, 2012	$	—		—			—		—	$	—
Fiscal year ended December 31, 2011	$	—		—			—		—	$	—
Fiscal year ended January 1, 2011	$	—		—			—		—	$	—
Valuation allowance for deferred tax assets:
Fiscal year ended December 31, 2012	$	55.8		8.0			—		—	$	63.8
Fiscal year ended December 31, 2011	$	62.7		(6.9	)		—		—	$	55.8
Fiscal year ended January 1, 2011	$	58.4		4.3			—		—	$	62.7

* Less than $0.1 million.

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Restatement-Basic and Diluted Loss Per Share from Continuing Operations

12 Months Ended

Dec. 31, 2012

Restatement-Basic and Diluted Loss Per Share from Continuing Operations [Abstract]

Restatement-Basic and Diluted Loss Per Share from Continuing Operations

Note Twenty-One— Restatement —Basic and Diluted Loss Per Share from Continuing Operations

During the second quarter of 2012, the Company identified an error relating to its calculation of basic and diluted loss per share from continuing operations in its previously issued financial statements. As described in Note Twelve “Capital Stock and Series B Stock”, the Company has paid periodic dividends on the Series B Stock and in 2011 repurchased certain shares of Series B Stock. Although the Company accounted for the dividends and repurchase in its consolidated financial statements, it did not deduct the dividends or, in 2011, the amounts paid in excess of liquidation value in connection with the repurchase of certain shares of Series B Stock, when calculating basic and diluted loss per share from continuing operations. The error occurred in 2011 and 2010, affecting the annual periods and all quarterly periods within these years.

To correct this error, the Company restated its previously issued Consolidated Statements of Operations for fiscal years 2011 and 2010. In accordance with Accounting Standards Codification 260, “Earnings Per Share”, the restatement deducts from such amounts dividends paid on the Series B Stock and, for 2011, amounts paid in excess of liquidation value in connection with the repurchase of certain shares of Series B Stock.

The change in presentation had no effect on any other amounts or financial statement line items. All prior periods have been restated to reflect such corrections.

The following tables summarize the corrections to basic and diluted loss per share from continuing operations for fiscal years 2011 and 2010.

	For the Fiscal Year Ended 2011
	As Reported			Adjustment			As Restated
Per share of Common Stock:
Basic loss from continuing operations	$	(0.74	)	$	(0.55	)	$	(1.29	)
Diluted loss from continuing operations	$	(0.74	)	$	(0.55	)	$	(1.29	)

	For the Fiscal Year Ended 2010
	As Reported			Adjustment			As Restated
Per share of Common Stock:
Basic loss from continuing operations	$	(1.19	)	$	(0.09	)	$	(1.28	)
Diluted loss from continuing operations	$	(1.19	)	$	(0.09	)	$	(1.28	)

The following table (unaudited) summarizes the corrections to basic and diluted loss per share of Common Stock from continuing operations for the quarters in fiscal year ended 2011 and fiscal year ended 2010:

	For the Fiscal Year Ended 2011
	1st			2nd			3rd			4th (1)			Year
Basic loss from continuing operations per share – as reported	$	(0.34	)	$	(0.05	)	$	(0.18	)	$	(0.17	)	$	(0.74	)
Basic loss from continuing operations per share – as restated	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Adjustment	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.47	)	$	(0.55	)
Diluted loss from continuing operations per share – as reported	$	(0.34	)	$	(0.05	)	$	(0.18	)	$	(0.17	)	$	(0.74	)
Diluted loss from continuing operations per share – as restated	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Adjustment	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.47	)	$	(0.55	)
	For the Fiscal Year Ended 2010
	1st			2nd			3rd			4th			Year
Basic loss from continuing operations per share – as reported	$	(0.36	)	$	(0.33	)	$	(0.27	)	$	(0.23	)	$	(1.19	)
Basic loss from continuing operations per share – as restated	$	(0.38	)	$	(0.35	)	$	(0.30	)	$	(0.25	)	$	(1.28	)
Adjustment	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.09	)
Diluted loss from continuing operations per share – as reported	$	(0.36	)	$	(0.33	)	$	(0.27	)	$	(0.23	)	$	(1.19	)
Diluted loss from continuing operations per share – as restated	$	(0.38	)	$	(0.35	)	$	(0.30	)	$	(0.25	)	$	(1.28	)
Adjustment	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.09	)

(1) The adjustment made in the fourth quarter of fiscal year 2011 includes amounts paid in excess of liquidation value in connection with the redemption of certain shares of Series B Stock in addition to periodic dividends on the Series B Stock.

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Current Prepaid Expenses (Details Textual)	12 Months Ended
	Dec. 31, 2012
Current Prepaid Expenses (Textual) [Abstract]
Recognition of current prepaid expense	Within next 12 months
Maximum [Member]
Prepaid Expenses And Other Asset [Line Items]
Expenses recognized over the contract terms	5 years
Subscription or pilot periods	12 months
Minimum [Member]
Prepaid Expenses And Other Asset [Line Items]
Expenses recognized over the contract terms	3 years
Subscription or pilot periods	3 months

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Restatement-Basic and Diluted Loss Per Share from Continuing Operations (Tables)

12 Months Ended

Dec. 31, 2012

Restatement-Basic and Diluted Loss Per Share from Continuing Operations [Abstract]

Summary of corrections to basic and diluted loss per share from continuing operations

	For the Fiscal Year Ended 2011
	As Reported			Adjustment			As Restated
Per share of Common Stock:
Basic loss from continuing operations	$	(0.74	)	$	(0.55	)	$	(1.29	)
Diluted loss from continuing operations	$	(0.74	)	$	(0.55	)	$	(1.29	)

	For the Fiscal Year Ended 2010
	As Reported			Adjustment			As Restated
Per share of Common Stock:
Basic loss from continuing operations	$	(1.19	)	$	(0.09	)	$	(1.28	)
Diluted loss from continuing operations	$	(1.19	)	$	(0.09	)	$	(1.28	)

The following table (unaudited) summarizes the corrections to basic and diluted loss per share of Common Stock from continuing operations for the quarters in fiscal year ended 2011 and fiscal year ended 2010:

	For the Fiscal Year Ended 2011
	1st			2nd			3rd			4th (1)			Year
Basic loss from continuing operations per share – as reported	$	(0.34	)	$	(0.05	)	$	(0.18	)	$	(0.17	)	$	(0.74	)
Basic loss from continuing operations per share – as restated	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Adjustment	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.47	)	$	(0.55	)
Diluted loss from continuing operations per share – as reported	$	(0.34	)	$	(0.05	)	$	(0.18	)	$	(0.17	)	$	(0.74	)
Diluted loss from continuing operations per share – as restated	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Adjustment	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.47	)	$	(0.55	)
	For the Fiscal Year Ended 2010
	1st			2nd			3rd			4th			Year
Basic loss from continuing operations per share – as reported	$	(0.36	)	$	(0.33	)	$	(0.27	)	$	(0.23	)	$	(1.19	)
Basic loss from continuing operations per share – as restated	$	(0.38	)	$	(0.35	)	$	(0.30	)	$	(0.25	)	$	(1.28	)
Adjustment	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.09	)
Diluted loss from continuing operations per share – as reported	$	(0.36	)	$	(0.33	)	$	(0.27	)	$	(0.23	)	$	(1.19	)
Diluted loss from continuing operations per share – as restated	$	(0.38	)	$	(0.35	)	$	(0.30	)	$	(0.25	)	$	(1.28	)
Adjustment	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.02	)	$	(0.09	)

(1) The adjustment made in the fourth quarter of fiscal year 2011 includes amounts paid in excess of liquidation value in connection with the redemption of certain shares of Series B Stock in addition to periodic dividends on the Series B Stock.

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Fiscal Year-End

Fiscal Year-End

The fiscal year-end dates presented for fiscal years 2012, 2011, and 2010 are December 31, 2012, December 31, 2011, and January 1, 2011, respectively. Fiscal year 2010 consisted of fifty-three weeks instead of fifty-two weeks, which did not have a material impact on the Company’s financial position or results of operations.

By unanimous written consent effective December 26, 2012, the Company’s Board of Directors determined to change the Company’s fiscal year end from the last Saturday in December to December 31, beginning with fiscal 2012. Beginning with the fourth quarter of 2012, the Company’s fiscal quarters will end on calendar quarter ends.

Consolidation

Consolidation

The consolidated financial statements include the accounts of Mattersight and all of its subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those amounts.

Reclassifications and Revisions

Reclassifications and Revisions

The Company changed the revenue classification of one contract from Other revenue to Behavioral Analytics revenue in the fourth quarter of 2011 to better reflect the type of services provided under this contract. Revenue for this contract has been reclassified in all historical periods.

As a result, the Company reclassified $0.5 million for fiscal year 2010 from Other revenue to Behavioral Analytics revenue. Cost of services for this contract has also been reclassified in all historical periods. As a result, the Company reclassified $0.3 million for fiscal year 2010 from Cost of Other revenue to Cost of Behavioral Analytics revenue.

Certain leadership, recruiting, and facility management expenses that have been previously reported as Sales, marketing and development have been reclassified to General and administrative. As a result, the Company reclassified $1.7 million for fiscal year 2010 from Sales, marketing and development to General and administrative.

The changes in the preceding paragraphs did not have an impact on net (loss) income and are not material to the financial statements.

Discontinued Operations

Discontinued Operations

The sale by the Company of its ICS Business Unit and “eLoyalty” registered trademark / trade name to Magellan Acquisition Sub, LLC, a Colorado limited liability company and wholly-owned subsidiary of TeleTech Holdings, Inc., a Delaware corporation, closed on May 28, 2011, and the Company changed its name from eLoyalty Corporation to Mattersight Corporation effective June 1, 2011. Therefore, the results of operations of the ICS Business Unit are reported as discontinued operations for all periods presented. Additionally, certain corporate and general costs that had historically been allocated to the ICS Business Unit were reallocated to the Company and are reflected in all periods presented. Mattersight now reports financial results on a single business segment, primarily focused on Behavioral Analytics.

Revenue Recognition Continuing Operations

Revenue Recognition

Continuing Operations

Behavioral Analytics Revenue

Behavioral Analytics revenue consists of Managed services revenue and Consulting services revenue derived from the performance of Behavioral Analytics.

Managed services revenue consists of planning, deployment, training, and subscription fees derived from Behavioral Analytics contracts. Planning, deployment, and training fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the subscription period of the applicable subscription contract. The subscription periods of these contracts generally range from three to five years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of Behavioral Analytics prior to committing to a longer subscription period, the subscription or pilot periods generally range from three to twelve months after the go-live date. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in Prepaid expenses and Other long-term assets. Such costs are amortized over the subscription period of the contract. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

The amount of revenue generated from subscription fees is based on a number of factors, such as the number of users to whom the Behavioral Analytics Service is provided, the type and number of Behavioral Analytics offerings deployed to the client, and, in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. This revenue is recognized as the service is performed for the client.

Consulting services revenue primarily consists of fees charged to the Company’s clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training. These follow-on consulting services are generally performed for the Company’s clients on a fixed-fee basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared to the total estimated hours over the entire term of the contract.

Other Revenue

Other revenue consists of Marketing Managed Services revenue and CRM Services revenue.

Marketing Managed Services revenue is derived from marketing application hosting. This revenue is generally in the form of fixed monthly fees received from the Company’s clients and is recognized as the services are performed for the client. Any related setup fee would be recognized over the term of the hosting contract.

CRM Services revenue consists of fees generated from the Company’s operational consulting services, which are provided to the Company’s clients on a time-and-materials or fixed-fee basis. The Company recognizes revenue as the services are performed for time-and-materials projects. For fixed-fee projects, revenue is recognized based on the ratio of hours incurred to-date compared to the total estimated hours over the entire term of the contract.

Revenue Recognition Discontinued Operations

Discontinued Operations

ICS Business Unit

Managed services revenue included in the ICS Business Unit consisted of fees generated from the Company’s contact center support and monitoring services. Support and monitoring services generally were contracted for a fixed fee, and the revenue was recognized ratably over the term of the contract. Support fees that were contracted on a time-and-materials basis were recognized as the services were performed for the client.

For fixed fee Managed services contracts, where the Company provided support for third-party software and hardware, revenue was recorded at the gross amount of the sale. If the contract did not meet the requirements for gross reporting, then Managed services revenue was recorded at the net amount of the sale.

Consulting services revenue included in the ICS Business Unit consisted of the modeling, planning, configuring, or integrating of an Internet Protocol network solution within the Company’s clients’ contact center environments. These services were provided to clients on a time-and-materials or fixed-fee basis. For the integration of a system, the Company recognized revenue as the services were performed, with performance generally assessed on the ratio of hours incurred to date compared to the total estimated hours over the entire term of the contract. For all other consulting services, the Company recognized revenue as the services were performed for the client.

Revenue from the sale of Product, which was generated primarily from the resale of third-party software and hardware by the Company, was generally recorded at the gross amount of the sale when it was delivered to the client.

In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple deliverable revenue arrangements to:

(i) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated;

(ii) require an entity to allocate revenue in an arrangement using estimated selling prices (“ESP”) of deliverables if a vendor does not have vendor-specific objective evidence of selling price (“VSOE”) or third-party evidence of selling price (“TPE”); and

(iii) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.

The Company elected to adopt this accounting guidance at the beginning of the first quarter of fiscal year 2011, on a prospective basis. The adoption of this guidance does not impact the Company’s revenue recognition with respect to Behavioral Analytics because the implementation services sold with its Managed services are not separated into multiple accounting units because there is no standalone fair value for these services. The Company recognizes these services revenues over the anticipated subscription period. This accounting guidance does not change the units of accounting for the Company’s revenue transactions or the methods used to allocate consideration to the units of accounting. The revenue recognition for each of these offerings is discussed below.

For the ICS Business Unit, the Company utilized VSOE to allocate revenue to various elements in an arrangement. The Company determined VSOE based on its normal pricing and discounting practices for the product or service when sold separately. In determining VSOE, the Company required that a substantial majority of the selling prices for a product or consulting services fall within a reasonably narrow pricing range, generally evidenced by approximately 80% of such historical standalone transactions falling within plus or minus 20% of the median selling price. For the ICS Business Unit’s managed services, the Company established VSOE through the stated renewal approach. The Company was able to establish VSOE for its product and service offerings except for software. If the Company was not able to establish VSOE for an offering, it attempted to establish fair value by utilizing TPE, which was established by obtaining evidence from comparable offerings from a peer company. If the Company was unable to establish fair value using VSOE or TPE, then the Company used ESP in its allocation of revenue. To determine ESP, the Company applied significant judgment as it weighed a variety of factors, based on the facts and circumstances of the arrangement. These factors included internal costs, gross margin objectives, and existing portfolio pricing and discounting.

Within discontinued operations, some of the Company’s sales arrangements had multiple deliverables containing software and related software components. Such sale arrangements were subject to the accounting guidance in ASC 985-605, Software Revenue Recognition.

Cost of Revenue before Reimbursed Expenses, Exclusive of Depreciation and Amortization

Cost of Revenue before Reimbursed Expenses, Exclusive of Depreciation and Amortization

Cost of services primarily consists of labor costs, including salaries, fringe benefits, and incentive compensation, royalties, and other customer related third-party outside services. Cost of services excludes depreciation and amortization.

If the Company’s estimates indicate that a contract loss will occur, then a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated.

Sales, Marketing and Development

Sales, Marketing and Development

Sales, marketing and development expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, marketing, and solution development/support personnel. The personnel costs included here are net of any labor costs directly related to the generation of revenue, which are represented in Cost of services.

General and Administrative

General and Administrative

General and administrative expenses consist primarily of salaries, incentive compensation, and employee benefits for administrative personnel, as well as facilities costs, a provision for uncollectible amounts, and costs for our corporate technology infrastructure and applications.

Severance and Related Costs

Severance and Related Costs

We recorded accruals for severance and related costs associated with our cost-reduction efforts undertaken during fiscal years 2008 through 2012. The portion of the accruals relating to employee severance represents contractual severance for identified employees and generally is not subject to a significant revision. The portion of the accruals that related to office space reductions, office closures, and associated contractual lease obligations are based in part on assumptions and estimates of the timing and amount of sublease rentals, which may be affected by overall economic and local market conditions. To the extent estimates of the success of our sublease efforts changed, adjustments increasing or decreasing the related accruals have been recognized.

(Loss) Income Per Common Share

(Loss) Income Per Common Share

The per common share basic net (loss) income available to common stockholders has been computed by dividing the net (loss) income available to common stockholders for each period presented by the weighted average shares outstanding. The per common share diluted (loss) income available to common stockholders has been computed by dividing the net (loss) income available to common stockholders by the weighted average shares outstanding plus the dilutive effect of common stock equivalents, which is primarily related to Series B Stock, using the “treasury stock” method. In periods in which there was a loss, the dilutive effect of common stock equivalents is not included in the diluted loss per share calculation as it was antidilutive.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying values of current assets and liabilities approximated their fair values as of December 31, 2012 and December 31, 2011. Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments readily convertible into known amounts of cash (with original purchased maturities of three months or less) to be cash equivalents.

Restricted Cash

Restricted Cash

Restricted cash principally represents cash as security for the Company’s line of credit and letters of credit issued to support the Company’s capital lease obligations.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, restricted cash, and receivables. Cash and cash equivalents and restricted cash consist of money market funds and deposits with high credit quality financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limit. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000 for interest-bearing accounts and up to the value of the account for non-interest bearing accounts. The Company’s receivables are derived from billings to clients located primarily in the U.S. and are denominated in U.S. dollars. For fiscal year 2012, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc., Allstate Insurance Company, and Progressive Casualty Insurance Company, which accounted for 19%, 16%, and 13% of total revenue, respectively. For fiscal year 2011, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc., Allstate Insurance Company, and Health Care Service Corporation, which accounted for 22%, 15%, and 14% of total revenue, respectively. For fiscal year 2010, there were four clients accounting for more than 10% of the total revenue: Vangent, Inc., United HealthCare Services, Inc., Health Care Service Corporation, and Allstate Insurance Company, which accounted for 20%, 15%, 14%, and 13% of total revenue, respectively. As of December 31, 2012, four clients, Progressive Casualty Insurance Company, United HealthCare Services, Inc., CVS Caremark Corporation, and Allstate Insurance Company accounted for 24%, 13%, 13%, and 10% of total gross accounts receivable, respectively. As of December 31, 2011, three clients, United HealthCare Services, Inc., Allstate Insurance Company, and CVS Caremark Corporation accounted for 25%, 22%, and 14% of total gross accounts receivable, respectively.

Equipment and Leasehold Improvements

Equipment and Leasehold Improvements

Computers, software, furniture, and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the lesser of the useful life or the lease term. The useful life for computers and software is three years. For enterprise software applications where a longer useful life is deemed appropriate, five years is used. For furniture and equipment, a useful life of five years is used. Maintenance and repair costs are expensed as incurred. The cost and related accumulated depreciation of assets sold or disposed of are eliminated from the respective accounts and the resulting gain or loss is included in the statements of operations. The carrying value of equipment and leasehold improvements is periodically reviewed to assess recoverability based on future undiscounted cash flows. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value. There was no impairment as of December 31, 2012 and December 31, 2011.

The Company accounts for software developed for internal use in accordance with the guidance provided under ASC Topic 350, which addresses accounting for the costs of computer software developed or obtained for internal use. As such, costs incurred that relate to the planning and post-implementation phases of development are expensed. Costs incurred during the application development stage are capitalized and amortized over the asset’s estimated useful life, which is generally three to five years.

The Company leases certain equipment using both capital leases and operating leases. Assets leased under capital leases are recorded at the present value of future lease payments and depreciated on a straight line basis. All capital leases are for terms of either thirty or thirty-six months.

Goodwill

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing our annual impairment test, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is concluded that this is the case for one or more reporting units, we perform a detailed quantitative assessment using a two-step test approach. In the first step, the fair value of each reporting unit is compared with its carrying value. If the fair value exceeds the carrying value, then goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. A detailed determination of the fair value of a reporting unit may be carried forward from one year to the next if specific criteria have been met. The Company currently operates in a single business segment or reporting unit.

In 2012, after completing our annual qualitative review, we concluded that it was not more-likely-than-not that the carrying value of our reporting unit exceeded its fair value. Accordingly, we concluded that further quantitative analysis and testing was not required, and no goodwill impairment charge was required.

There has been no impairment identified as a result of the annual review of goodwill as of December 31, 2012 and December 31, 2011. The carrying value of goodwill was $1.0 million as of December 31, 2012 and December 31, 2011.

Intangible Assets

Intangible Assets

Intangible assets reflect costs related to patent and trademark applications, Marketing Managed Services customer relationships acquired in 2004, and the 2003 purchase of a license for certain intellectual property. Patent and trademark applications are amortized over 120 months. The other intangible assets are fully amortized. There was an impairment charge of less than $0.1 million for fiscal year 2012 and $0.1 million during fiscal year 2011.

	December 31, 2012			December 31, 2011
Gross intangible assets	$	2.9		$	2.8
Accumulated amortization of intangible assets		(2.7	)		(2.6	)
Total	$	0.2		$	0.2

Other Long-Term Assets

Other Long-Term Assets

Other long-term assets primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics. These costs are recognized over the terms of the respective contracts, generally three to five years. Costs included in long-term assets will be recognized over the remaining term of the contracts beyond the first twelve months.

Income Taxes

Income Taxes

The Company uses an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for the year, the basis of assets and liabilities and for tax loss carryforwards. The Company does not provide for taxes on the undistributed earnings of its foreign subsidiaries which are expected to be indefinitely reinvested.

The Company has recorded income tax valuation allowances on net deferred tax assets to account for the unpredictability surrounding the timing of realization of U.S. and non-U.S. net deferred tax assets due to uncertain economic conditions. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to predictable levels of profitability.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit. There is additional guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods, and disclosure requirements.

Intraperiod tax allocation requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. While intraperiod tax allocation in general does not change the overall tax provision, it does affect the amount of tax provision included in each category.

Short-Term Debt

Short-Term Debt

On June 29, 2012, the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers, entered into the Credit Facility with Silicon Valley Bank. The Credit Facility provides for a $10.0 million revolving line of credit maturing in 2014 and is secured by a security interest in the Company’s accounts receivable, equipment, inventory, cash, deposit accounts, securities, and all other investment property, supporting obligations, financial assets, and other personal property, with the exception of the Company’s intellectual property rights. On June 29, 2012, the Company used approximately $3.7 million of the line of credit under the Credit Facility to repay in full the principal balance of $3.6 million and accrued and unpaid interest outstanding of $0.1 million under the promissory notes issued by the Company to various affiliates of TCV to settle previously disclosed arbitration. The $3.7 million principal amount outstanding under the Credit Facility will accrue interest at a floating annual rate equal to three quarters of one percentage point (0.75%) above the United States prime rate, payable monthly. In addition, the Company will pay a commitment fee on the Credit Facility and a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears. Short-term debt was $3.7 million as of December 31, 2012 and interest for fiscal year 2012 was $0.1 million. The Company was in compliance with all of its debt covenants under the Credit Facility as of December 31, 2012.

Unearned Revenue

Unearned Revenue

Payments received for Managed services contracts in excess of the amount of revenue recognized for these contracts are recorded as unearned revenue until revenue recognition criteria are met.

Stockholders' Equity

Stockholders’ Equity

Stockholders’ equity includes Common Stock issued, additional paid-in capital, accumulated deficit, treasury stock, and accumulated other comprehensive loss. The 1.6 million shares of Series B Stock are not classified as permanent equity or a liability in the accompanying balance sheets. These shares of Series B Stock are conditionally redeemable and do not meet the definition of a mandatorily redeemable financial instrument. The holders of Series B Stock have the ability to initiate a redemption upon the occurrence of certain events that are considered outside the Company’s control.

Foreign Currency Translation

Foreign Currency Translation

The functional currencies for the Company’s foreign subsidiaries are their local currencies. All assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end of period exchange rates. The resulting translation adjustments are recorded as a component of stockholders’ equity and comprehensive income (loss). Income and expense items are translated at average exchange rates prevailing during the period. Foreign currency net losses were less than $1 thousand for fiscal year 2012, $0.4 million for fiscal year 2011, and $0.1 million for fiscal year 2010. These foreign currency transactions from subsidiaries are included in interest and other income within the consolidated statements of operations.

Stock-Based Compensation

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. The Company uses historical information as the primary basis for the selection of expected life, expected volatility, expected dividend yield assumptions, and anticipated forfeiture rates. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Schedule of intangible assets net

	December 31, 2012			December 31, 2011
Gross intangible assets	$	2.9		$	2.8
Accumulated amortization of intangible assets		(2.7	)		(2.6	)
Total	$	0.2		$	0.2

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Description of Business

12 Months Ended

Dec. 31, 2012

Description of Business [Abstract]

Description of Business

Note One — Description of Business

Mattersight Corporation (together with its subsidiaries and predecessors, “Mattersight,” “we,” “us,” or the “Company”) is a leader in enterprise analytics focused on customer and employee interactions and behaviors. Mattersight’s Behavioral Analytics Service captures and analyzes customer and employee interactions, employee desktop data, and other contextual information to improve operational performance and predict future customer and employee outcomes. Mattersight’s analytics are based on millions of proprietary algorithms and the application of unique behavioral models. The Company’s SaaS+ delivery model combines analytics in the cloud with deep customer partnerships to drive significant business value. Mattersight’s applications are used by leading companies in the healthcare, insurance, financial services, telecommunications, cable, utilities, education, hospitality, and government industries.

Through Behavioral Analytics, the Company generates two types of revenue:

(1) Managed services revenue, which is recurring, annuity revenue from long-term (generally three- to five-year) contracts and pilots, which are shorter term (generally three to twelve months) and includes subscription and amortized deployment revenue; and

(2) Consulting services revenue, which is generally project-based and sold on a time-and-materials or fixed-fee basis and includes follow-on consulting services revenue.

Set forth below is a more detailed description of the capabilities that the Company currently offers.

Behavioral Analytics

The Company’s multi-channel technology captures the unstructured data of voice interactions (conversations), related customer and employee data, and employee desktop activity, and applies millions of proprietary algorithms against those interactions. Each interaction contains hundreds of attributes that get scored and ultimately detect patterns of behavior or business process that provide the transparency and predictability necessary to enhance revenue, improve the customer experience, improve efficiency, and predict and navigate outcomes. Adaptive across industries, programs, and industry-specific processes, the Company’s Behavioral Analytics offerings enable its clients to drive measurable economic benefit through the improvement of contact center performance, customer satisfaction and retention, fraud reduction, and streamlined back office operations. Specifically, through its Behavioral Analytics offerings, Mattersight helps its clients:

• Automatically measure customer satisfaction and agent performance on every analyzed call;

• Identify and understand customer personality;

• Identify optimal customer/employee behavioral pairing for call routing;

• Improve rapport between agent and customer;

• Reduce call handle times while improving customer satisfaction;

• Identify opportunities to improve self-service applications;

• Improve cross-sell and up-sell success rates;

• Improve the efficiency and effectiveness of collection efforts;

• Measure and improve supervisor effectiveness and coaching;

• Improve agent effectiveness by analyzing key attributes of desktop usage;

• Predict likelihood of customer attrition;

• Predict customer satisfaction and Net Promoter Scores ^® without customer surveys;

• Predict likelihood of debt repayment;

• Predict likelihood of a sale or cross-sell; and

• Identify fraud callers and improve authentication processes.

The Company has designed a highly-scalable, flexible, and adaptive application platform to enable the Company to implement and operate its Behavioral Analytics offerings for its clients. These offerings are primarily delivered through a SaaS+ model, as a managed subscription service from which Mattersight derives Managed services revenue and Consulting services revenue. Managed services revenue consists of deployment and subscription services and Consulting services revenue consists of post-deployment follow-on services, including coaching, training, and custom data analysis.

In addition to our Behavioral Analytics offerings, Mattersight also generates revenue from the following services:

(1) Marketing Managed Services, which consist of marketing application hosting services, from which the Company derives Managed services revenue; and

(2) CRM Services, which consist of operational consulting services that enhance business performance through improved process efficiencies and redesign of workflows, from which the Company derives Consulting services revenue.

Types of Revenue

Managed Services Revenue

Growth in Managed services revenue is primarily driven by the execution of new Behavioral Analytics contracts, under which we deploy and provide ongoing managed services related to our proprietary Behavioral Analytics System and provide related Business Monitoring services. Based on each client’s business requirements, the Behavioral Analytics System is configured and integrated into the client’s environment and then deployed in either a remote-hosted or, in one case, an on-premise hosted environment. Thereafter, the client’s selection of our Behavioral Analytics offerings is provided, on a subscription basis, for a period that is generally three to five years after the go-live date or, in the cases where the Company contracts with a client for a short-term pilot of the Behavioral Analytics Service prior to committing to a longer subscription period, the subscription or pilot periods generally range from three to twelve months after the go-live date. The fees and costs related to the initial deployment are deferred and amortized over the term of the contract.

We also generate Managed services revenue from Marketing Managed Services, specifically, from hosted customer and campaign data management. This source of Managed services revenue is likely to diminish over time as we focus on growth through Behavioral Analytics.

Consulting Services Revenue

In addition to the Consulting services revenue generated by the Consulting services provided under our Behavioral Analytics contracts, we derive a portion of this type of revenue from CRM Services for long-standing accounts. Consulting services revenue from CRM Services is anticipated to diminish over time as demand for these services continues to decline and we focus on growth through Behavioral Analytics. We bill for Consulting services on a time-and-materials or fixed-fee basis.

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Discontinued Operations (Tables)

12 Months Ended

Dec. 31, 2012

Discontinued Operations [Abstract]

Components of income (loss) from discontinued operations, net of tax

	For the Fiscal Years Ended
	2012			2011			2010
Net sales	$	—		$	22.9		$	57.3
Total expenses		(0.1	)		(23.7	)		(52.5	)
Gain from sale of assets		—			36.5			—
Benefit (provision) for income taxes		0.3			(6.8	)		(1.8	)
Income from discontinued operations		0.2			28.9			3.0

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Leases (Details Textual) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Leases (Textual) [Abstract]
Depreciation on capital leases	$ 2.2	$ 1.8	$ 1.5
Capital leases terms in months	Thirty or thirty-six months
Rental payments related to office space reductions		0.1	0.1
Rental expense for all operating leases	1.1	1.1	1.2
Computer Equipment [Member]
Leases (Textual) [Abstract]
Asset acquired under capital leases	1.8
Leasehold improvements [Member]
Leases (Textual) [Abstract]
Asset acquired under capital leases		$ 2.5

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(Loss) Income Per Share (Tables)

12 Months Ended

Dec. 31, 2012

(Loss) Income Per Share [Abstract]

Calculation of basic and diluted (loss) income per share

	For the Fiscal Years Ended
	2012			2011			2010
Loss from continuing operations	$	(15.5	)	$	(10.6	)	$	(16.3	)
Series B Stock fair value over stated value		—			(6.5	)		—
Dividends related to Series B Stock (1)		(0.6	)		(1.2	)		(1.3	)
Loss from continuing operations available to Common Stock holders		(16.1	)		(18.3	)		(17.6	)
Income from discontinued operations		0.2			28.9			3.0
Net (loss) income available to Common Stock holders	$	(15.9	)	$	10.6		$	(14.6	)
	For the Fiscal Years Ended
	2012			2011			2010
Per share of Common Stock
Basic/diluted loss from continuing operations, as restated (3)	$	(1.01	)	$	(1.29	)	$	(1.28	)
Basic/diluted income from discontinued operations	$	0.02		$	2.03		$	0.22
Basic/diluted net (loss) income available to Common Stock holders	$	(0.99	)	$	0.74		$	(1.06	)
Weighted average shares outstanding (basic and diluted) (in millions)		16.00			14.23			13.70
Currently anti-dilutive common stock equivalents (2) (in millions)		1.97			3.25			4.00

(1) The Company’s Board of Directors declared a cash dividend of $0.1785 per share on the Series B Stock for the dividend period January 1, 2012 through June 30, 2012. The dividend payment of $0.3 million was paid on July 2, 2012. The dividend payment of $0.3 million for the period July 1, 2011 through December 31, 2011 was paid on January 3, 2012. The dividend payment of $1.9 million paid on July 1, 2011 was for the dividend periods January 1, 2011 through June 30, 2011, July 1, 2010 through December 31, 2010, and July 1, 2008 through December 31, 2008.

(2) In periods in which there was a loss, the effect of Common Stock equivalents, which is primarily related to the Series B Stock, was not included in the diluted loss per share calculation as it was antidilutive.

(3) The effects of the correction of the error reported in Note Twenty-One “Restatement —Basic and Diluted Loss Per Share from Continuing Operations” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K are reflected in all periods presented.

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Receivables, Net (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Components of receivables
Amounts billed to clients	$ 2,500,000	$ 1,400,000
Unbilled revenue	100,000	1,100,000
Receivables, gross	2,600,000	2,500,000
Allowances for doubtful accounts
Receivables, net	$ 2,568,000	$ 2,540,000

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Stock-Based Compensation (Details 2) (Stock Option [Member])	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Stock Option [Member]
Fair value for options granted
Risk-free interest rates	0.60%	0.90%	1.80%
Expected dividend yield
Expected volatility	67.00%	67.00%	68.00%
Expected lives	6 years	6 years	6 years

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 14,419	$ 29,408
Restricted cash		1,500
Receivables, net	2,568	2,540
Prepaid expenses	4,359	5,302
Other current assets	305	288
Total current assets	21,651	39,038
Equipment and leasehold improvements, net	4,727	4,271
Goodwill	972	972
Intangibles, net	236	238
Other long-term assets	3,776	4,746
Total assets	31,362	49,265
Current Liabilities:
Short-term debt	3,703	3,567
Accounts payable	781	812
Accrued compensation and related costs	1,335	1,382
Unearned revenue	5,853	9,783
Other current liabilities	2,889	3,673
Total current liabilities	14,561	19,217
Long-term unearned revenue	2,374	3,036
Other long-term liabilities	1,231	1,401
Total liabilities	18,166	23,654
Series B Stock, $0.01 par value; 5,000,000 shares authorized and designated; 1,649,201 and 1,670,696 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively, with a liquidation preference of $8,705 and $8,819 at December 31, 2012 and December 31, 2011, respectively	8,411	8,521
Stockholders' Equity :
Preferred Stock, $0.01 par value; 35,000,000 shares authorized; none issued and outstanding
Common Stock, $0.01 par value; 50,000,000 shares authorized; 18,407,848 and 18,037,552 shares issued at December 31, 2012 and December 31, 2011, respectively; and 17,114,880 and 16,935,204 outstanding at December 31, 2012 and December 31, 2011, respectively	184	180
Additional paid-in capital	216,667	212,618
Accumulated deficit	(201,000)	(185,779)
Treasury stock, at cost, 1,292,968 and 1,102,348 shares at December 31, 2012 and December 31, 2011, respectively	(7,027)	(5,891)
Accumulated other comprehensive loss	(4,039)	(4,038)
Total stockholders' equity	4,785	17,090
Total liabilities and stockholders' equity	$ 31,362	$ 49,265

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Description of Business (Details)	12 Months Ended
	Dec. 31, 2012
Description of Business (Textual) [Abstract]
Subscription contract period, minimum	3 years
Subscription contract period, maximum	5 years
Maximum [Member]
Schedule of Description of Business [Line Items]
General range of subscription or pilot periods	12 months
Minimum [Member]
Schedule of Description of Business [Line Items]
General range of subscription or pilot periods	3 months

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Cash Flows from Operating Activities:
Net (loss) income	$ (15,221)	$ 18,360	$ (13,318)
Less: net income from discontinued operations	249	28,920	2,986
Net loss from continuing operations	(15,470)	(10,560)	(16,304)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	3,500	3,395	3,423
Stock-based compensation	3,729	5,420	4,392
Severance and related costs	268
Other	2	14	16
Changes in assets and liabilities:
Receivables	(27)	(554)	1,422
Prepaid expenses	1,879	(2,254)	953
Other assets	(50)	128	(19)
Accounts payable	(31)	445	(575)
Accrued compensation and related costs	(47)	(264)	(1,311)
Unearned revenue	(4,592)	275	(1,641)
Other liabilities	(177)	(6,554)	(1,798)
Total Adjustments	4,454	51	4,862
Net cash used in continuing operations	(11,016)	(10,509)	(11,442)
Net cash provided by (used in) discontinued operations	24	(5,787)	8,431
Net cash used in operating activities	(10,992)	(16,296)	(3,011)
Cash Flows from Investing Activities:
Capital expenditures and other	(2,160)	(833)	(1,219)
Proceeds from sale/leaseback of assets			423
Net cash used in continuing investing activities	(2,160)	(833)	(796)
Net cash provided by (used in) discontinued investing activities		37,427	(1,593)
Net cash (used in) provided by investing activities	(2,160)	36,594	(2,389)
Cash Flows from Financing Activities:
Proceeds from line of credit	3,691
Decrease in restricted cash	1,500	960	1,285
Proceeds from stock compensation and employee stock purchase plans, net	802	126	202
Purchase of shares of Series B Stock	(3,743)	(12,547)
Principal payments under capital lease obligations	(2,311)	(1,862)	(1,578)
Acquisition of treasury stock	(1,136)	(1,008)	(991)
Payment of Series B Stock dividends	(595)	(2,221)	(1,297)
(Fees) proceeds from issuance of Common Stock	(49)	6,000
Net cash used in continuing financing activities	(1,841)	(10,552)	(2,379)
Net cash used in discontinued financing activities		(678)	(292)
Net cash used in financing activities	(1,841)	(11,230)	(2,671)
Effect of exchange rate changes on cash and cash equivalents by continuing operations	4	(299)	(65)
Effect of exchange rate changes on cash and cash equivalents by discontinued operations		(233)	26
Effect of exchange rate changes on cash and cash equivalents	4	(532)	(39)
(Decrease) increase in cash and cash equivalents	(14,989)	8,536	(8,110)
Cash and cash equivalents, beginning of period	29,408	20,872	28,982
Cash and cash equivalents of continuing operations, end of period	14,419	29,408	20,872
Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred	1,793	2,517	1,385
Capital equipment purchased on credit	1,793	2,517	1,385
Supplemental Disclosures of Cash Flow Information:
Interest paid	$ 371	$ 187	$ 157

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Income Taxes (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Loss before income taxes
United States	$ (15,000,000)	$ (15,800,000)	$ (16,600,000)
Foreign	(400,000)	(600,000)	(1,400,000)
Loss from continuing operations before income taxes	$ (15,432,000)	$ (16,444,000)	$ (18,010,000)

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Current Prepaid Expenses (Tables)

12 Months Ended

Dec. 31, 2012

Current Prepaid Expense/Other Long-Term Assets [Abstract]

Summary of current prepaid expenses

	As of
	December 31, 2012		December 31, 2011
Deferred costs	$	1.8	$	2.5
Prepaid commissions		1.7		2.0
Other		0.9		0.8
Total	$	4.4	$	5.3

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Other Long -Term Assets (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Other long-term assets
Deferred costs	$ 1,800,000	$ 2,400,000
Prepaid commissions	1,700,000	2,200,000
Other	300,000	100,000
Total	$ 3,776,000	$ 4,746,000

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Segments

12 Months Ended

Dec. 31, 2012

Segments [Abstract]

Segments

Note Fifteen — Segments

The Company operates in a single business segment, focused primarily on Behavioral Analytics. The Company operated in two business segments, the Behavioral Analytics Service Business Unit and the ICS Business Unit, until May 28, 2011, the date of the close of the sale of the ICS Business Unit, at which point the Company began operating in a single business segment.

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Equipment and Leasehold Improvements (Tables)

12 Months Ended

Dec. 31, 2012

Equipment and Leasehold Improvements [Abstract]

Components of equipment and leasehold improvements

	As of
	December 31, 2012			December 31, 2011
Computers and software	$	30.3		$	29.2
Furniture and equipment		0.6			0.5
Leasehold improvements		1.0			0.5
Equipment and leasehold improvements, gross		31.9			30.2
Accumulated depreciation and amortization		(27.2	)		(25.9	)
Equipment and leasehold improvements, net	$	4.7		$	4.3

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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2012

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note Seventeen — Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and short-term debt approximated their fair values as of December 31, 2012 and December 31, 2011 due to the short-term nature of these instruments. The Company considers all highly liquid investments readily convertible into known amounts of cash (with purchased maturities of three months or less) to be cash equivalents.

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Employee Benefit Plans (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Employee Benefit Plans (Textual) [Abstract]
Contribution from eligible compensation plan	30.00%
Contribution from bonus compensation plan	100.00%
Employer match contribution expensed	$ 0.2

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Consolidated Statements of Changes in Stockholders' Equity (Deficit) (USD $) In Thousands, except Share data	Total	Common Stock Issued	Additional Paid-in Capital	(Accumulated Deficit)	Treasury Stock	Accumulated Other Comprehensive Loss
Beginning balance at Dec. 26, 2009	$ 6,031	$ 149	$ 203,627	$ (190,821)	$ (3,295)	$ (3,629)
Beginning balance, shares at Dec. 26, 2009		14,871,521
Issuance of Common Stock for option awards exercised	2		2
Issuance of Common Stock for option awards exercised, shares	895	895
Issuance of Common Stock related to employee stock programs	331	6	325
Issuance of Common Stock related to employee stock programs, shares		731,010
Amortization/forfeitures of unearned compensation	4,963		4,963
Amortization/forfeitures of unearned compensation, shares		(27,695)
Purchase of treasury shares	(1,173)				(1,173)
Series B Stock conversions	342	1	341
Series B Stock conversions, shares		67,091
Series B Stock dividend	(1,273)		(1,273)
Other comprehensive loss	(59)					(59)
Net (loss) income	(13,318)			(13,318)
Ending balance at Jan. 01, 2011	(4,154)	156	207,985	(204,139)	(4,468)	(3,688)
Ending balance, shares at Jan. 01, 2011		15,642,822
Proceeds from issuance of Common Stock	6,000	12	5,988
Proceeds from issuance of Common Stock, shares		1,252,609
Issuance of Common Stock related to employee stock programs	167	12	155
Issuance of Common Stock related to employee stock programs, shares		1,258,289
Amortization/forfeitures of unearned compensation	6,493		6,493
Amortization/forfeitures of unearned compensation, shares		(101,125)
Retire treasury shares			(224)		224
Retire treasury shares, shares	(20,620)	(20,620)
Purchase of treasury shares	(1,647)				(1,647)
Series B Stock retired	(6,555)		(6,555)
Series B Stock conversions	28		28
Series B Stock conversions, shares		5,577
Series B Stock dividend	(1,252)		(1,252)
Other comprehensive loss	(350)					(350)
Net (loss) income	18,360			18,360
Ending balance at Dec. 31, 2011	17,090	180	212,618	(185,779)	(5,891)	(4,038)
Ending balance, shares at Dec. 31, 2011		18,037,552
Issuance of Common Stock for option awards exercised	664	1	663
Issuance of Common Stock for option awards exercised, shares	173,600	173,600
Fees for issuance of Common Stock	(49)		(49)
Issuance of Common Stock related to employee stock programs	450	5	445
Issuance of Common Stock related to employee stock programs, shares		481,407
Amortization/forfeitures of unearned compensation	3,653	(2)	3,655
Amortization/forfeitures of unearned compensation, shares		(286,448)
Purchase of treasury shares	(1,136)				(1,136)
Series B Stock purchased	(82)		(82)
Series B Stock conversions	8		8
Series B Stock conversions, shares		1,737
Series B Stock dividend	(591)		(591)
Other comprehensive loss	(1)					(1)
Net (loss) income	(15,221)			(15,221)
Ending balance at Dec. 31, 2012	$ 4,785	$ 184	$ 216,667	$ (201,000)	$ (7,027)	$ (4,039)
Ending balance, shares at Dec. 31, 2012		18,407,848

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Preferred Stock, par value	$ 0.01	$ 0.01
Preferred Stock, shares authorized	35,000,000	35,000,000
Preferred Stock, shares issued
Preferred Stock, shares outstanding
Common Stock, par value	$ 0.01	$ 0.01
Common Stock, shares authorized and designated	50,000,000	50,000,000
Common Stock, shares issued	18,407,848	18,037,552
Common Stock, shares outstanding	17,114,880	16,935,204
Treasury stock, shares	1,292,968	1,102,348
Series B Preferred Stock
Preferred Stock, par value	$ 0.01	$ 0.01
Preferred Stock, shares authorized	5,000,000	5,000,000
Preferred Stock, shares issued	1,649,201	1,670,696
Preferred Stock, shares outstanding	1,649,201	1,670,696
Liquidation preference	$ 8,705	$ 8,819

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Short-Term Debt

12 Months Ended

Dec. 31, 2012

Short-Term Debt [Abstract]

Short-Term Debt

Note Ten — Short-Term Debt

On June 29, 2012, the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers, entered into the Credit Facility with Silicon Valley Bank. The Credit Facility provides for a $10.0 million revolving line of credit maturing in 2014 and is secured by a security interest in the Company’s accounts receivable, equipment, inventory, cash, deposit accounts, securities, and all other investment property, supporting obligations, financial assets, and other personal property, with the exception of the Company’s intellectual property rights. On June 29, 2012, the Company used approximately $3.7 million of the line of credit under the Credit Facility to repay in full the principal balance of $3.6 million and accrued and unpaid interest outstanding of $0.1 million under the promissory notes issued by the Company to various affiliates of TCV to settle previously disclosed arbitration. The $3.7 million principal amount outstanding under the Credit Facility will accrue interest at a floating annual rate equal to three quarters of one percentage point (0.75%) above the United States prime rate, payable monthly. In addition, the Company will pay a commitment fee on the Credit Facility and a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears. Short-term debt was $3.7 million as of December 31, 2012 and interest for fiscal year 2012 was $0.1 million. The Company was in compliance with all its debt covenants under the Credit Facility as of December 31, 2012.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 08, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	Mattersight Corp
Entity Central Index Key	0001094348
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 121,542,015
Entity Common Stock, Shares Outstanding		17,022,157

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note Eleven — Employee Benefit Plans

The Company’s U.S. employees are eligible to participate in the Mattersight Corporation 401(k) Plan (the “401(k) Plan”) on the first day of the month coinciding with or following their date of hire. The 401(k) Plan allows employees to contribute up to 30% of their eligible compensation and up to 100% of their bonus compensation, subject to IRS statutory limits. For fiscal year 2012, the employer match contribution was $0.2 million. For fiscal years 2011 and 2010, Mattersight suspended the employer matching contributions for both U.S. and non-U.S. plans. The Company funds non-U.S. contributory plans as required by statutory regulations. Amounts funded by the Company were immaterial for non-U.S. plans for the periods presented.

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Leases (Details 1) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Summary of capital leases included in equipment and leasehold improvements
Accumulated depreciation and amortization	$ (3.2)	$ (2.8)
Computers and software, net	2.0	2.9
Software [Member]
Summary of capital leases included in equipment and leasehold improvements
Computers and software	$ 5.2	$ 5.7

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Revenue:
Behavioral Analytics revenue	$ 32,138	$ 27,257	$ 25,246
Other revenue	1,314	1,519	5,014
Total services revenue	33,452	28,776	30,260
Reimbursed expenses	411	319	625
Total revenue	33,863	29,095	30,885
Operating expenses:
Cost of Behavioral Analytics revenue	12,208	12,188	11,999
Cost of Other revenue	702	1,000	3,511
Cost of services	12,910	13,188	15,510
Reimbursed expenses	411	319	625
Total cost of revenue, exclusive of depreciation and amortization shown below:	13,321	13,507	16,135
Sales, marketing and development	23,142	19,954	18,640
General and administrative	8,255	9,144	10,082
Severance and related costs	693	(336)	494
Depreciation	3,419	3,218	3,291
Amortization of intangibles	81	177	132
Total operating expenses	48,911	45,664	48,774
Operating loss	(15,048)	(16,569)	(17,889)
Interest and other (expense) income, net	(384)	125	(121)
Loss from continuing operations before income taxes	(15,432)	(16,444)	(18,010)
Income tax (provision) benefit	(38)	5,884	1,706
Loss from continuing operations	(15,470)	(10,560)	(16,304)
Income from discontinued operations, net of tax	249	28,920	2,986
Net (loss) income	(15,221)	18,360	(13,318)
Series B Stock fair value over stated value	(69)	(6,555)
Dividends related to Series B Stock	(591)	(1,252)	(1,273)
Net (loss) income available to Common Stock holders	(15,881)	10,553	(14,591)
Per share of Common Stock:
Basic loss from continuing operations	$ (1.01)	$ (1.29)	$ (1.28)
Basic income from discontinued operations	$ 0.02	$ 2.03	$ 0.22
Basic net (loss) income available to Common Stock holders	$ (0.99)	$ 0.74	$ (1.06)
Per share of Common Stock:
Diluted loss from continuing operations	$ (1.01)	$ (1.29)	$ (1.28)
Diluted income from discontinued operations	$ 0.02	$ 2.03	$ 0.22
Diluted net (loss) income available to Common Stock holders	$ (0.99)	$ 0.74	$ (1.06)
Shares used to calculate basic net (loss) income per share	16,002	14,225	13,701
Shares used to calculate diluted net (loss) income per share	16,002	14,225	13,701
Stock-based compensation, primarily restricted stock is included in individual line items above:
Stock-based compensation	3,700	5,400	4,400
Cost of Behavioral Analytics revenue
Stock-based compensation, primarily restricted stock is included in individual line items above:
Stock-based compensation	16	20	68
Sales, marketing and development
Stock-based compensation, primarily restricted stock is included in individual line items above:
Stock-based compensation	2,308	3,387	2,484
General and administrative
Stock-based compensation, primarily restricted stock is included in individual line items above:
Stock-based compensation	1,405	2,013	1,840
Severance and related costs
Stock-based compensation, primarily restricted stock is included in individual line items above:
Stock-based compensation	268
Discontinued operations
Stock-based compensation, primarily restricted stock is included in individual line items above:
Stock-based compensation		$ 1,175	$ 809

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Receivables, Net

12 Months Ended

Dec. 31, 2012

Receivables, Net [Abstract]

Receivables, Net

Note Five — Receivables, Net

Receivables consist of the following:

	As of
	December 31, 2012		December 31, 2011
Amounts billed to clients	$	2.5	$	1.4
Unbilled revenue		0.1		1.1
		2.6		2.5
Allowances for doubtful accounts*		—		—
Receivables, net	$	2.6	$	2.5

* Less than $0.1 million.

Amounts billed to clients represent fees and reimbursable project-related expenses. Unbilled revenue represents fees, project-related expenses, materials, and subcontractor costs performed in advance of billings in accordance with contract terms. Unbilled revenue at December 31, 2012 and December 31, 2011 consists of amounts due from clients and is anticipated to be collected within normal terms. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments and clients indicating their intention to dispute their obligation to pay for contractual services provided by us. If the financial condition of the Company’s clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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Severance and Related Costs

12 Months Ended

Dec. 31, 2012

Severance and Related Costs [Abstract]

Severance and Related Costs

Note Four — Severance and Related Costs

Severance costs are comprised primarily of contractual salary and related fringe benefits over the severance payment period. Facility costs include losses on contractual lease commitments, net of estimated sublease recoveries, and impairment of leasehold improvements and certain office assets.

Continuing Operations

For fiscal year 2012, the Company recorded $0.7 million of expense for continuing operations related to severance and related costs for the elimination of one position. For fiscal year 2011, the Company recorded $0.3 million of income for continuing operations related to the favorable renegotiation of an office lease, partially offset by the severance and related costs for the elimination of one position and an office consolidation. For fiscal year 2010, the Company recorded $0.5 million of expense for continuing operations related to severance and related costs for the elimination of 26 positions and an adjustment to sublease recoveries.

For fiscal year 2012, the Company made cash payments of $0.7 million related to cost-reduction actions and facility operating expense for continuing operations. For the fiscal year ended January 1, 2011, the Company made cash payments of $0.6 million related to cost-reduction actions for continuing operations. The cash payments in fiscal years 2012, 2011, and 2010 were primarily related to severance and related costs, office space reductions, and office closures.

The severance and related costs and their utilization for the fiscal years ended 2010, 2011, and 2012 are as follows:

	Employee Severance			Facilities			Total
Balance, December 26, 2009	$	—		$	0.4		$	0.4
Charges		0.5			—			0.5
Adjustments		—			—			—
Charged to severance and related costs		0.5			—			0.5
Payments		(0.5	)		(0.1	)		(0.6	)
Other		—			—			—
Balance, January 1, 2011	$	—		$	0.3		$	0.3
Charges		—			(0.2	)		(0.2	)
Adjustments		—			(0.2	)		(0.2	)
Charged to severance and related costs		—			(0.4	)		(0.4	)
Payments		—			(0.2	)		(0.2	)
Other		—			0.3			0.3
Balance, December 31, 2011	$	—		$	—		$	—
Charges		0.7			—			0.7
Adjustments		—			—			—
Charged to severance and related costs		0.7			—			0.7
Payments		(0.7	)		—			(0.7	)
Other		—			—			—
Balance, December 31, 2012	$	—		$	—		$	—

As of December 31, 2012, all severance and related costs for continuing operations have been paid.

Discontinued Operations

During fiscal years 2012, 2011, and 2010, the Company recognized pre-tax charges (including adjustments) of $0.0 million, $0.2 million, and $0.7 million, respectively. For the fiscal year ended 2012, the Company recorded $0.0 million of expense related to severance and related costs of discontinued operations. For the fiscal year ended 2011, the Company recorded $0.2 million of expense related to severance and related costs of discontinued operations for the elimination of 11 positions. For the fiscal year ended 2010, the Company recorded $0.7 million of expense related to severance and related costs of discontinued operations for the elimination of 37 positions.

During fiscal years 2011 and 2010, the Company made cash payments of $0.2 million and $0.7 million, respectively, related to cost-reduction actions for discontinued operations. The cash payments made during fiscal years 2011 and 2010 were related to severance and related costs.

The severance and related costs and their utilization for the fiscal years ended 2010, 2011 and 2012 are as follows:

	Employee Severance			Facilities		Total
Balance, December 26, 2009	$	—		$	—	$	—
Charges		0.7			—		0.7
Adjustments		—			—		—
Charged to severance and related costs		0.7			—		0.7
Payments		(0.7	)		—		(0.7	)
Balance, January 1, 2011	$	—		$	—	$	—
Charges		0.2			—		0.2
Adjustments		—			—		—
Charged to severance and related costs		0.2			—		0.2
Payments		(0.2	)		—		(0.2	)
Balance, December 31, 2011	$	—		$	—	$	—
Charges		—			—		—
Adjustments		—			—		—
Charged to severance and related costs		—			—		—
Payments		—			—		—
Balance, December 31, 2012	$	—		$	—	$	—

As of December 31, 2012, all severance and related costs for discontinued operations have been paid.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

Note Sixteen — Fair Value Measurements

The Company reports certain assets and liabilities at fair value. Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2012 and December 31, 2011:

	Fair Value Measurements at December 31, 2012 Using
	Total carrying value at December 31, 2012		Quoted Prices in Active Markets (Level 1)		Other Observable (Level 2)		Significant Unobservable (Level 3)
Money market fund	$	13.4	$	13.4	$	—	$	—

	Fair Value Measurements at December 31, 2011 Using
	Total carrying value at December 31, 2011		Quoted Prices in Active Markets (Level 1)		Other Observable (Level 2)		Significant Unobservable (Level 3)
Money market fund	$	18.8	$	18.8	$	—	$	—

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Capital Stock and Series B Stock

12 Months Ended

Dec. 31, 2012

Capital Stock and Series B Stock [Abstract]

Capital Stock and Series B Stock

Note Twelve — Capital Stock and Series B Stock

Under the terms of its Certificate of Incorporation, as amended, the Company’s authorized capital stock consists of (i) 50,000,000 shares of Common Stock, par value $0.01 per share, and (ii) 40,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”). Under the terms of the Certificate of Designations of 7% Series B Convertible Preferred Stock, the Company designated 5,000,000 shares of the Preferred Stock as its Series B Stock. 1,649,201 and 1,670,696 shares of Series B Stock were issued and outstanding as of December 31, 2012 and December 31, 2011, respectively.

During fiscal year 2012, the Company announced its intention to commence a tender offer to purchase up to 111,605 shares of Series B Stock at a cash purchase price of $8.60 per share, plus accrued and unpaid dividends.

In accordance with the terms and conditions of the tender offer, Mattersight purchased 19,758 shares of its Series B Stock, at a price of $8.71 per share (representing $8.60 per share plus accrued and unpaid dividends), for an aggregate cost of approximately $172,092, excluding fees and expenses related to the tender offer. These shares represented approximately 1.2% of the Series B Stock outstanding as of April 13, 2012.

On December 20, 2011, under the terms of the Settlement Agreement with TCV, Mattersight repurchased 1,872,805 shares of Series B Stock from TCV to settle the previously disclosed arbitration.

On September 12, 2008, Mattersight completed a rights offering, which raised $14.8 million, net of expenses. Under the terms of the rights offering, persons who owned shares of Common Stock or Series B Stock as of the close of business on August 13, 2008 (the record date for the rights offering) received the right to purchase 0.19756 shares of Common Stock. These subscription rights expired on September 12, 2008. Pursuant to the terms of the rights offering, the Company issued 2,645,395 shares of Common Stock at $5.67 per share.

In December 2006, the Company completed an $18.0 million rights offering. Under terms of the rights offering, persons who owned shares of Common Stock or Series B Stock as of the close of business on November 20, 2006 (the record date for the rights offering) received the right to purchase 0.0910 shares of Common Stock. These subscription rights expired on December 15, 2006. Pursuant to the terms of the rights offering, the Company issued 1,001,342 shares of Common Stock at $17.97 per share.

In December 2001, at the time of issuance of the Series B Stock, a beneficial conversion adjustment was calculated (since the fair market value of a share of Common Stock at the time exceeded the purchase price of a share of Series B Stock) aggregating $4.0 million. The Series B Stock was recorded at the date of issuance net of issuance costs and the beneficial conversion adjustment. The discount attributable to the issuance costs was fully accreted on the date of issuance by charging additional paid-in capital and increasing the recorded amount of Series B Stock. The Series B Stock was accreted to its full redemption value of $23.3 million on a straight-line basis from the date of issuance to June 19, 2002 by charging additional paid-in capital $0.7 million per month and increasing the recorded amount of Series B Stock by a like amount.

The Series B Stock accrues dividends at a rate of 7% per annum, is entitled to a preference upon liquidation, and is convertible on a one-for-one basis into shares of Common Stock, subject to adjustment for stock splits, stock dividends, and similar actions. The Series B Stock generally votes on a one-for-one basis with the Common Stock, subject to adjustment for certain actions and specified matters as to which the Series B Stock is entitled to a separate class vote.

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Litigation and Other Contingencies (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Litigation and Other Contingencies (Textual) [Abstract]
Recorded liabilities corresponding to agreements	$ 0

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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

Note Eight — Income Taxes

Loss before income taxes consisted of the following:

	For the Fiscal Years Ended
	2012			2011			2010
United States	$	(15.0	)	$	(15.8	)	$	(16.6	)
Foreign		(0.4	)		(0.6	)		(1.4	)
Total	$	(15.4	)	$	(16.4	)	$	(18.0	)

The income tax benefit consists of the following:

	For the Fiscal Years Ended
	2012		2011		2010
Current:
Federal	$	—	$	5.5	$	1.6
State		—		0.4		0.1
Foreign		—		—		—
Total current		—		5.9		1.7
Deferred:
Federal		—		—		—
State		—		—		—
Foreign		—		—		—
Total deferred		—		—		—
Income tax benefit	$	—	$	5.9	$	1.7

The 2012 earnings and gain from discontinued operations included $0.3 million of tax benefit due to a favorable ruling from the Internal Revenue Service. The 2011 earnings and gain from discontinued operations included $6.8 million of tax expense.

Total income tax benefit differed from the amount computed by applying the federal statutory income tax rate due to the following:

	For the Fiscal Years Ended
	2012			2011			2010
Federal tax benefit, at statutory rate	$	5.4		$	5.7		$	6.3
State tax benefit, net of federal benefit		0.4			0.4			0.1
Nondeductible expenses		0.3			(0.2	)		—
Other		0.3			—			—
Valuation allowance		(6.4	)		—			(4.7	)
Income tax benefit	$	—		$	5.9		$	1.7

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit. There is also guidance on derecognition, classification, interest, and penalties on income taxes, accounting in interim periods, and income tax disclosures.

A reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year are as follows:

	For the Fiscal Years Ended
	2012		2011			2010
Balance at beginning of year	$	12.9	$	12.8		$	12.8
Additions based on tax positions related to the current year		—		0.3			—
Additions for tax positions of prior years		—		—			—
Reductions for tax positions of prior years		—		(0.2	)		—
Reductions for tax positions as a result of lapse of statute		—		—			—
Settlements		—		—			—
Balance at end of year	$	12.9	$	12.9		$	12.8

Due to the Company’s worldwide net operating loss carryforward position, all but $0.3 million of these unrecognized tax benefits will not impact the Company’s effective tax rate, if recognized. Any change in the amount of unrecognized tax benefits within the next twelve months is not expected to result in a significant impact on the results of operations or the financial position of the Company.

Due to the Company’s worldwide net operating loss carryforward position, accrued interest and penalties associated with uncertain tax positions as of December 31, 2012 are not material. Interest and penalties associated with uncertain tax positions are recorded as part of income tax expense.

The statutes of limitation for the Company’s income tax returns after 2001 effectively remain open for examination by the IRS because the net operating loss carryforward from those years can be examined by the IRS for a period of three years after filing the tax return for the year the loss is used. In 2011, an audit of fiscal years 2008 and 2009 was completed by the IRS. This audit resulted in a reduction of the Company’s net operating loss carryforward from these years and no tax liability. This reduction is reflected in this tax footnote.

Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company and its subsidiaries may have various state and foreign income tax returns for immaterial jurisdictions in the process of examination throughout the reporting period.

Deferred tax assets and liabilities were comprised of the following:

	As of
	December 31, 2012			December 31, 2011
Deferred tax assets:
Net operating loss carryforwards	$	60.4		$	52.1
Other accruals		4.7			4.6
Depreciation and amortization, including goodwill		0.1			1.0
Tax credit carryforward		0.5			0.8
Valuation allowance		(63.8	)		(55.8	)
Total deferred tax assets		1.9			2.7
Deferred tax liabilities:
Prepaid expenses		(2.0	)		(2.8	)
Total deferred tax liabilities		(2.0	)		(2.8	)
Net deferred tax asset (liability)	$	(0.1	)	$	(0.1	)

Deferred income taxes are not provided on certain undistributed earnings of foreign subsidiaries that are expected to be permanently reinvested in those companies. These earnings aggregated to an immaterial amount at each of December 31, 2012 and December 31, 2011.

Intraperiod tax allocation requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. While intraperiod tax allocation in general does not change the overall tax provision, it may result in a gross-up of the individual components, thereby changing the amount of tax provision included in each category. Since continuing operations and discontinued operations both reported a pre-tax loss for the year ended December 31, 2012, an intraperiod tax allocation was not required for the year. Included in continuing operations income tax provision is tax expense of $38 thousand for the year ended December 31, 2012 and a tax benefit of $5.9 million for the year ended December 31, 2011. Included in discontinued operations income tax provision is tax benefit of $0.3 million for the year ended December 31, 2012 and $6.8 million for the year ended December 31, 2011.

During fiscal year 2002, the Company established a valuation allowance related to deferred tax assets for the U.S. This was in addition to the valuation allowance established in 2001 for non-U.S. deferred tax assets. The Company continues to provide a valuation allowance on significantly all domestic and foreign deferred tax assets as the Company has determined that it is more likely than not that the deferred tax assets in these jurisdictions will not be realized. As of December 31, 2012, net deferred tax assets of $63.8 million were fully offset by a valuation allowance. The Company’s U.S. Federal net operating losses (“NOLs”) of $194.5 million and U.S. State NOLs of $130.2 million will expire beginning in 2022 and 2014, respectively. The Company’s non-U.S. NOLs of $0.9 million are subject to various expiration dates beginning in 2014. The Company also carries $0.5 million in Research and Development credit carryforwards that will expire beginning in 2021.

The Company’s ability to utilize its NOLs could become subject to significant limitations under Section 382 of the Internal Revenue Code if the Company were to undergo an ownership change. An ownership change would occur if the stockholders who own or have owned, directly or indirectly, 5% or more of the Company’s Common Stock or are otherwise treated as 5% stockholders under Section 382 and the regulations promulgated thereunder increase their aggregate percentage ownership of the Company’s stock by more than 50 percentage points over the lowest percentage of the stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carryforwards. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL carryforwards. The Company has undergone a Section 382 analysis and does not believe there is a limitation on the use of NOLs under Section 382. If a change in ownership is deemed to have occurred during the past three years, then it may be possible that the Company’s NOL carryforward could be subject to limitation under Section 382 for tax return purposes. However, since its NOL carryforward is fully reserved with a valuation allowance, there would be no impact for financial statement purposes from a Section 382 limitation.

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Income Taxes (Details 1) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Current:
Federal		$ 5,500,000	$ 1,600,000
State		400,000	100,000
Foreign
Total current		5,900,000	1,700,000
Deferred:
Federal
State
Foreign
Total deferred
Income tax benefit	$ (38,000)	$ 5,884,000	$ 1,706,000

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Current Prepaid Expenses

12 Months Ended

Dec. 31, 2012

Current Prepaid Expense/Other Long-Term Assets [Abstract]

Current Prepaid Expenses

Note Six — Current Prepaid Expenses

Current prepaid expenses primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics contracts. These costs are recognized over the subscription periods of the respective contracts, generally three to five years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of the Behavioral Analytics Service prior to committing to a longer subscription period, the subscription or pilot periods generally range from three to twelve months after the go-live date. Costs included in current prepaid expenses will be recognized within the next twelve months. Current prepaid expenses consisted of the following:

	As of
	December 31, 2012		December 31, 2011
Deferred costs	$	1.8	$	2.5
Prepaid commissions		1.7		2.0
Other		0.9		0.8
Total	$	4.4	$	5.3

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Equipment and Leasehold Improvements

12 Months Ended

Dec. 31, 2012

Equipment and Leasehold Improvements [Abstract]

Equipment and Leasehold Improvements

Note Seven — Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following:

	As of
	December 31, 2012			December 31, 2011
Computers and software	$	30.3		$	29.2
Furniture and equipment		0.6			0.5
Leasehold improvements		1.0			0.5
Equipment and leasehold improvements, gross		31.9			30.2
Accumulated depreciation and amortization		(27.2	)		(25.9	)
Equipment and leasehold improvements, net	$	4.7		$	4.3

Depreciation expense was $3.4 million, $3.2 million, and $3.3 million, for fiscal years 2012, 2011, and 2010, respectively. Assets acquired under capital leases were $1.8 million, $2.5 million, and $1.4 million, in fiscal years 2012, 2011, and 2010, respectively. Depreciation expense on capital lease assets was $2.2 million, $1.8 million, and $1.5 million, in fiscal years 2012, 2011, and 2010, respectively.

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Other Long-Term Assets

12 Months Ended

Dec. 31, 2012

Current Prepaid Expense/Other Long-Term Assets [Abstract]

Other Long-Term Assets

Note Nine — Other Long-Term Assets

Other long-term assets primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics. These costs are recognized over the terms of the respective contracts, generally three to five years. Costs included in long-term assets will be recognized over the remaining term of the contracts beyond the first twelve months. Other long-term assets consisted of the following:

	As of
	December 31, 2012		December 31, 2011
Deferred costs	$	1.8	$	2.4
Prepaid commissions		1.7		2.2
Other		0.3		0.1
Total	$	3.8	$	4.7

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Income Taxes (Details Textual) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 29, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Oct. 01, 2011	Jul. 02, 2011	Apr. 02, 2011	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	$ 194,500,000								$ 194,500,000
Ownership change, percentage of common stock owned	5.00%								5.00%
Income Taxes (Textual) [Abstract]
Benefit (provision) for income taxes									300,000	(6,800,000)	(1,800,000)
Income from discontinued operations, net of tax	0	300,000	0	(100,000)	1,200,000	(500,000)	28,100,000	100,000	249,000	28,920,000	2,986,000
Tax benefits recognized in financial statements	50.00%								50.00%
Net operating loss carryforward	0.3								0.3
Change in the unrecognized tax benefits, period									Within Next Twelve Months
Statutes of limitation for the Companies income tax returns									3 years
State Impact of Federal Changes									Up to One Year
Income tax (provision) benefit									(38,000)	5,884,000	1,706,000
Net deferred tax assets	63,800,000				55,800,000				63,800,000	55,800,000
Research and development credit carryforwards	500,000								500,000
Expire date of research and development credit carryforwards									2021
Ownership of stockholders of company's common stock										50.00%
Potential ownership change, testing period									3 years
Impact of Net Operating Losses Carryforward									0
Common Stock [Member]
Operating Loss Carryforwards [Line Items]
Ownership change, percentage of common stock owned	5.00%								5.00%
Maximum [Member]
Operating Loss Carryforwards [Line Items]
Statutes of limitations of state jurisdictions									5 years
Minimum [Member]
Operating Loss Carryforwards [Line Items]
Statutes of limitations of state jurisdictions									3 years
Foreign Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	900,000								900,000
State [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	$ 130,200,000								$ 130,200,000
Expire date of Net Operating losses									2014
Domestic Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Expire date of Net Operating losses									2022

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Quarterly Data (Unaudited) (Details) (USD $) Share data in Millions, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 29, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Oct. 01, 2011	Jul. 02, 2011	Apr. 02, 2011	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Summary of quarterly data
Total revenue	$ 8,800,000	$ 8,100,000	$ 8,000,000	$ 9,000,000	$ 8,700,000	$ 7,100,000	$ 6,700,000	$ 6,600,000	$ 33,863,000	$ 29,095,000	$ 30,885,000
Gross margin	5,200,000	5,000,000	4,800,000	5,500,000	4,900,000	3,800,000	3,500,000	3,400,000	20,500,000	15,600,000
Operating loss	(4,600,000)	(3,800,000)	(3,400,000)	(3,200,000)	(3,100,000)	(4,300,000)	(4,300,000)	(4,900,000)	(15,048,000)	(16,569,000)	(17,889,000)
Loss from continuing operations	(4,700,000)	(3,900,000)	(3,500,000)	(3,300,000)	(2,600,000)	(2,500,000)	(800,000)	(4,700,000)	(15,470,000)	(10,560,000)	(16,304,000)
Income from discontinued operations, net of tax	0	300,000	0	(100,000)	1,200,000	(500,000)	28,100,000	100,000	249,000	28,920,000	2,986,000
Net (loss) income	(4,600,000)	(3,600,000)	(3,600,000)	(3,400,000)	(1,300,000)	(3,000,000)	27,300,000	(4,600,000)	(15,221,000)	18,360,000	(13,318,000)
Net loss available to Common Stock holders	$ (4,900,000)	$ (3,800,000)	$ (3,700,000)	$ (3,500,000)	$ (8,200,000)	$ (3,300,000)	$ 27,000,000	$ (4,900,000)	$ (15,881,000)	$ 10,553,000	$ (14,591,000)
Basic loss from continuing operations	$ (0.30)	$ (0.25)	$ (0.23)	$ (0.22)	$ (0.64)	$ (0.20)	$ (0.08)	$ (0.36)	$ (1.01)	$ (1.29)	$ (1.28)
Basic (loss) income from discontinued operations per share	$ 0.00	$ 0.02	$ 0.00	$ (0.01)	$ 0.08	$ (0.03)	$ 1.99	$ 0.01	$ 0.02	$ 2.03	$ 0.22
Basic net (loss) income available to Common Stock holders	$ (0.30)	$ (0.23)	$ (0.23)	$ (0.22)	$ (0.56)	$ (0.23)	$ 1.91	$ (0.36)	$ (0.99)	$ 0.74	$ (1.06)
Diluted loss from continuing operations per share	$ (0.30)	$ (0.25)	$ (0.23)	$ (0.22)	$ (0.64)	$ (0.20)	$ (0.08)	$ (0.36)	$ (1.01)	$ (1.29)	$ (1.28)
Diluted (loss) income from discontinued operations per share	$ 0.00	$ 0.02	$ 0.00	$ (0.01)	$ 0.08	$ (0.03)	$ 1.99	$ 0.01	$ 0.02	$ 2.03	$ 0.22
Diluted net (loss) income per share available to Common Stock holders	$ (0.30)	$ (0.23)	$ (0.23)	$ (0.22)	$ (0.56)	$ (0.23)	$ 1.91	$ (0.36)	$ (0.99)	$ 0.74	$ (1.06)
Shares used to calculate basic and diluted net (loss) income per share (in millions)	16.22	16.07	15.97	15.75	14.54	14.30	14.11	13.95	16.00	14.23

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Other Long -Term Assets (Details Textual)	12 Months Ended
	Dec. 31, 2012
Maximum [Member]
Other Long-Term Assets (Textual) [Abstract]
Costs recognized agreements term	5 years
Minimum [Member]
Other Long-Term Assets (Textual) [Abstract]
Costs recognized agreements term	3 years

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Income Taxes (Details 4) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deferred tax assets:
Net operating loss carryforwards	$ 60.4	$ 52.1
Other accruals	4.7	4.6
Depreciation and amortization, including goodwill	0.1	1.0
Tax credit carryforward	0.5	0.8
Valuation allowance	(63.8)	(55.8)
Total deferred tax assets	1.9	2.7
Deferred tax liabilities:
Prepaid expenses	(2.0)	(2.8)
Total deferred tax liabilities	(2.0)	(2.8)
Net deferred tax asset (liability)	$ (0.1)	$ (0.1)

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Receivables, Net (Tables)

12 Months Ended

Dec. 31, 2012

Receivables, Net [Abstract]

Components of receivables

	As of
	December 31, 2012		December 31, 2011
Amounts billed to clients	$	2.5	$	1.4
Unbilled revenue		0.1		1.1
		2.6		2.5
Allowances for doubtful accounts*		—		—
Receivables, net	$	2.6	$	2.5

* Less than $0.1 million.

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Severance and Related Costs (Details 1) (Discontinued operations [Member], USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Severance and related costs and their utilization Discontinued operation
Severance and Related Costs, Beginning Balance
Charges	0	0.2	0.7
Adjustments
Charged to severance and related costs		0.2	0.7
Payments		(0.2)	(0.7)
Severance and Related Costs, Ending Balance
Employee Severance [Member]
Severance and related costs and their utilization Discontinued operation
Severance and Related Costs, Beginning Balance
Charges		0.2	0.7
Adjustments
Charged to severance and related costs		0.2	0.7
Payments		(0.2)	(0.7)
Severance and Related Costs, Ending Balance
Facilities [Member]
Severance and related costs and their utilization Discontinued operation
Severance and Related Costs, Beginning Balance
Charges
Adjustments
Charged to severance and related costs
Payments
Severance and Related Costs, Ending Balance

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(Loss) Income Per Share

12 Months Ended

Dec. 31, 2012

(Loss) Income Per Share [Abstract]

(Loss) Income Per Share

Note Fourteen — (Loss) Income Per Share

The following table sets forth the computation of the (loss) income and shares used in the calculation of basic and diluted (loss) income per share:

	For the Fiscal Years Ended
	2012			2011			2010
Loss from continuing operations	$	(15.5	)	$	(10.6	)	$	(16.3	)
Series B Stock fair value over stated value		—			(6.5	)		—
Dividends related to Series B Stock (1)		(0.6	)		(1.2	)		(1.3	)
Loss from continuing operations available to Common Stock holders		(16.1	)		(18.3	)		(17.6	)
Income from discontinued operations		0.2			28.9			3.0
Net (loss) income available to Common Stock holders	$	(15.9	)	$	10.6		$	(14.6	)
	For the Fiscal Years Ended
	2012			2011			2010
Per share of Common Stock
Basic/diluted loss from continuing operations, as restated (3)	$	(1.01	)	$	(1.29	)	$	(1.28	)
Basic/diluted income from discontinued operations	$	0.02		$	2.03		$	0.22
Basic/diluted net (loss) income available to Common Stock holders	$	(0.99	)	$	0.74		$	(1.06	)
Weighted average shares outstanding (basic and diluted) (in millions)		16.00			14.23			13.70
Currently anti-dilutive common stock equivalents (2) (in millions)		1.97			3.25			4.00

(1) The Company’s Board of Directors declared a cash dividend of $0.1785 per share on the Series B Stock for the dividend period January 1, 2012 through June 30, 2012. The dividend payment of $0.3 million was paid on July 2, 2012. The dividend payment of $0.3 million for the period July 1, 2011 through December 31, 2011 was paid on January 3, 2012. The dividend payment of $1.9 million paid on July 1, 2011 was for the dividend periods January 1, 2011 through June 30, 2011, July 1, 2010 through December 31, 2010, and July 1, 2008 through December 31, 2008.

(2) In periods in which there was a loss, the effect of Common Stock equivalents, which is primarily related to the Series B Stock, was not included in the diluted loss per share calculation as it was antidilutive.

(3) The effects of the correction of the error reported in Note Twenty-One “Restatement —Basic and Diluted Loss Per Share from Continuing Operations” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K are reflected in all periods presented.

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Litigation and Other Contingencies

12 Months Ended

Dec. 31, 2012

Litigation and Other Contingencies [Abstract]

Litigation and Other Contingencies

Note Nineteen — Litigation and Other Contingencies

The Company is a party to various agreements, including all client contracts, under which it may be obligated to indemnify the other party with respect to certain matters, including, but not limited to, indemnification against third-party claims of infringement of intellectual property rights with respect to software and other deliverables provided by the Company in the course of providing services to its clients. These obligations may be subject to various limitations on the remedies available to the other party, including, without limitation, limits on the amounts recoverable and the time during which claims may be made, and may be supported by indemnities given to the Company by applicable third parties. Payment by the Company under these indemnification clauses is generally subject to the other party making a claim that is subject to challenge by the Company and dispute resolution procedures specified in the particular agreement. Historically, the Company has not been obligated to pay any claim for indemnification under its agreements, and management is not aware of future indemnification payments that it would be obligated to make.

Under its By-Laws, subject to certain exceptions, the Company has agreed to indemnify its officers and directors for certain events or occurrences while the officer or director is, or was, serving at its request in such capacity or in certain related capacities. The Company has separate indemnification agreements with each of its directors and officers that requires it, subject to certain exceptions, to indemnify them to the fullest extent authorized or permitted by its By-Laws and the Delaware General Corporation Law. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company had no liabilities recorded for these agreements as of December 31, 2012.

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Discontinued Operations (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Discontinued Operations (Textual) [Abstract]
Income tax benefit	$ (38,000)	$ 5,884,000	$ 1,706,000
Benefit (provision) for income taxes	$ 300,000	$ (6,800,000)	$ (1,800,000)

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2012

Fair Value Measurements [Abstract]

Assets and liabilities carried at fair value measured on a recurring basis

	Fair Value Measurements at December 31, 2012 Using
	Total carrying value at December 31, 2012		Quoted Prices in Active Markets (Level 1)		Other Observable (Level 2)		Significant Unobservable (Level 3)
Money market fund	$	13.4	$	13.4	$	—	$	—

	Fair Value Measurements at December 31, 2011 Using
	Total carrying value at December 31, 2011		Quoted Prices in Active Markets (Level 1)		Other Observable (Level 2)		Significant Unobservable (Level 3)
Money market fund	$	18.8	$	18.8	$	—	$	—

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Consolidated Statements of Comprehensive (Loss) Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Consolidated Statements of Comprehensive (Loss) Income [Abstract]
Net (loss) income	$ (15,221)	$ 18,360	$ (13,318)
Other comprehensive loss:
Effect of currency translation	(1)	(350)	(59)
Comprehensive net (loss) income	$ (15,222)	$ 18,010	$ (13,377)

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Valuation and Qualifying Accounts (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Valuation allowance for doubtful accounts [Member]
Description of allowance and reserves
Balance at beginning of period
Additions charged to cost and expenses
Additions charged to other accounts
Deductions
Balance at end of period
Valuation allowance for deferred tax assets [Member]
Description of allowance and reserves
Balance at beginning of period	55.8	62.7	58.4
Additions charged to cost and expenses	8.0	(6.9)	4.3
Additions charged to other accounts
Deductions
Balance at end of period	$ 63.8	$ 55.8	$ 62.7

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Discontinued Operations

12 Months Ended

Dec. 31, 2012

Discontinued Operations [Abstract]

Discontinued Operations

Note Three — Discontinued Operations

The following table summarizes the components included within income from discontinued operations, net of tax within the Company’s Consolidated Statements of Operations for the periods indicated.

	For the Fiscal Years Ended
	2012			2011			2010
Net sales	$	—		$	22.9		$	57.3
Total expenses		(0.1	)		(23.7	)		(52.5	)
Gain from sale of assets		—			36.5			—
Benefit (provision) for income taxes		0.3			(6.8	)		(1.8	)
Income from discontinued operations		0.2			28.9			3.0

Intraperiod tax allocation requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. While intraperiod tax allocation in general does not change the overall tax provision, it may result in a gross-up of the individual components, thereby changing the amount of tax provision included in each category. Since continuing operations and discontinued operations both reported a pre-tax loss for the year ended December 31, 2012, an intraperiod tax allocation was not required for the year. Included in continuing operations income tax provision is tax expense of $38 thousand for the year ended December 31, 2012 and a tax benefit of $5.9 million and $1.7 million for the years ended December 31, 2011 and January 1, 2011, respectively. Included in discontinued operations income tax provision is a tax benefit of $0.3 million due to a favorable ruling from the Internal Revenue Service for the year ended December 31, 2012, and tax expense of $6.8 million for the year ended December 31, 2011, and $1.8 million for the year ended January 1, 2011. Depending upon the level of the Company’s future earnings and losses and their impact on income from discontinued operations, it is possible that these tax adjustments may change or even reverse in future periods.

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Equipment and Leasehold Improvements (Details Textual) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
Equipment and Leasehold Improvements (Textual) [Abstract]
Depreciation expense	$ 3,419,000	$ 3,218,000	$ 3,291,000
Depreciation expense on capital lease assets	2,200,000	1,800,000	1,500,000
Assets held under capital leases [Member]
Equipment and Leasehold Improvements (Textual) [Abstract]
Assets acquired under capital leases	1,800,000	2,500,000	1,400,000
Depreciation expense on capital lease assets	$ 2,200,000	$ 1,800,000	$ 1,500,000

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Leases (Details 3) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012
Future minimum rental commitments under non-cancelable operating leases with terms in excess of one year
2013	$ 0.9
2014	1.0
2015	0.6
2016	0.3
2017
Thereafter
Total minimum payments required	$ 2.8

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Capital Stock and Series B Stock (Details) (USD $)	1 Months Ended			12 Months Ended				1 Months Ended	12 Months Ended			12 Months Ended	1 Months Ended
	Sep. 12, 2008	Dec. 31, 2006	Dec. 31, 2001	Dec. 31, 2012	Dec. 31, 2011	Aug. 13, 2008	Nov. 20, 2006	Dec. 20, 2011 Series B Preferred Stock	Dec. 31, 2012 Series B Preferred Stock	Dec. 31, 2011 Series B Preferred Stock	Dec. 31, 2001 Series B Preferred Stock	Dec. 31, 2012 Convertible Preferred Stock [Member]	Jun. 19, 2002 Series B [Member]
Class of Stock [Line Items]
Preferred Stock, shares authorized				35,000,000	35,000,000				5,000,000	5,000,000
Preferred Stock, shares issued									1,649,201	1,670,696
Preferred Stock, shares outstanding									1,649,201	1,670,696
Shares Repurchased								1,872,805	19,758
Redemption value of stock											$ 23,300,000
Additional paid-in capital charged													700,000
Rate of dividend accrued									7.00%			7.00%
Offer to purchase shares									111,605
Purchase price									$ 8.71
Purchase price excluding accrued and unpaid dividends									$ 8.60
Percentage of shares outstanding									1.20%
Capital Stock and Series B Stock (Textual) [Abstract]
Authorized capital stock				50,000,000	50,000,000
Common Stock, par value				$ 0.01	$ 0.01
Preferred Stock, par value				$ 0.01	$ 0.01				$ 0.01	$ 0.01
Right offering	14,800,000	18,000,000
Common stock right offering ratio						0.19756	0.0910
Expiration of subscription rights	Sep. 12, 2008	Dec. 15, 2006
Stock issued during period shares right offering	2,645,395	1,001,342
Share Price	$ 5.67	$ 17.97
Beneficial conversion adjustment			4,000,000
Aggregate cost of tender offer				$ 172,092

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Quarterly Data (Unaudited)

12 Months Ended

Dec. 31, 2012

Quarterly Data (Unaudited) [Abstract]

Quarterly Data (Unaudited)

Note Twenty — Quarterly Data (Unaudited)

	For the Fiscal Year Ended 2012
	1st			2nd			3rd			4th			Year
Total revenue	$	9.0		$	8.0		$	8.1		$	8.8		$	33.9
Gross margin	$	5.5		$	4.8		$	5.0		$	5.2		$	20.5
Operating loss	$	(3.2	)(1)	$	(3.4	)	$	(3.8	)	$	(4.6	)	$	(15.0	)(1)
Loss from continuing operations	$	(3.3	)(1)	$	(3.5	)	$	(3.9	)	$	(4.7	)	$	(15.4	)(1)
(Loss) income from discontinued operations	$	(0.1	)	$	0.0		$	0.3		$	0.0		$	0.2
Net loss	$	(3.4	)(1)	$	(3.6	)	$	(3.6	)	$	(4.6	)	$	(15.2	)(1)
Net loss available to Common Stock holders	$	(3.5	)(1)	$	(3.7	)	$	(3.8	)	$	(4.9	)	$	(15.9	)(1)
Basic loss from continuing operations per share	$	(0.22	)	$	(0.23	)	$	(0.25	)	$	(0.30	)	$	(1.01	)
Basic (loss) income from discontinued operations per share	$	(0.01	)	$	0.00		$	0.02		$	0.00		$	0.02
Basic net loss per share available to Common Stock holders	$	(0.22	)	$	(0.23	)	$	(0.23	)	$	(0.30	)	$	(0.99	)
Diluted loss from continuing operations per share	$	(0.22	)	$	(0.23	)	$	(0.25	)	$	(0.30	)	$	(1.01	)
Diluted (loss) income from discontinued operations per share	$	(0.01	)	$	0.00		$	0.02		$	0.00		$	0.02
Diluted net (loss) income per share available to Common Stock holders	$	(0.22	)	$	(0.23	)	$	(0.23	)	$	(0.30	)	$	(0.99	)
Shares used to calculate basic and diluted net (loss) income per share (in millions)		15.75			15.97			16.07			16.22			16.00
	For the Fiscal Year Ended 2011
	1st			2nd			3rd			4th			Year
Total revenue	$	6.6		$	6.7		$	7.1		$	8.7		$	29.1
Gross margin	$	3.4		$	3.5		$	3.8		$	4.9		$	15.6
Operating loss	$	(4.9	)(2)	$	(4.3	)(2)	$	(4.3	)(2)	$	(3.1	)(2)	$	(16.6	)(2)
Loss from continuing operations	$	(4.7	)(2)	$	(0.8	)(2)	$	(2.5	)(2)	$	(2.6	)(2)	$	(10.6	)(2)
Income (loss) from discontinued operations	$	0.1		$	28.1		$	(0.5	)	$	1.2		$	28.9
Net (loss) income	$	(4.6	)(2)	$	27.3	(2)	$	(3.0	)(2)	$	(1.3	)(2)	$	18.4	(2)
Net (loss) income available to Common Stock holders	$	(4.9	)(2)	$	27.0	(2)	$	(3.3	)(2)	$	(8.2	)(2)	$	10.6	(2)
Basic loss from continuing operations per share, as restated (3)	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Basic income (loss) from discontinued operations per share	$	0.01		$	1.99		$	(0.03	)	$	0.08		$	2.03
Basic net (loss) income per share available to Common Stock holders	$	(0.36	)	$	1.91		$	(0.23	)	$	(0.56	)	$	0.74
Diluted loss from continuing operations per share, as restated (3)	$	(0.36	)	$	(0.08	)	$	(0.20	)	$	(0.64	)	$	(1.29	)
Diluted income (loss) from discontinued operations per share	$	0.01		$	1.99		$	(0.03	)	$	0.08		$	2.03
Diluted net (loss) income per share available to Common Stock holders	$	(0.36	)	$	1.91		$	(0.23	)	$	(0.56	)	$	0.74
Shares used to calculate basic and diluted net (loss) income per share (in millions)		13.95			14.11			14.30			14.54			14.23

(1) Includes $0.7 million of expense for the first quarter of fiscal year 2012 primarily related to severance and related costs associated with cost reduction plans. For fiscal year 2012 severance and related costs associated with cost reduction plans was $0.7 million.

(2) Includes $4 thousand of expense, $0.4 million of income, $0.1 million of expense, and $40 thousand of expense, for the first, second, third, and fourth quarters of fiscal year 2011, respectively, and $0.3 million of income for fiscal year 2011 primarily related to the favorable renegotiation of an office lease and severance and related costs associated with cost reduction plans.

(3) The effects of the correction of the error reported in Note Twenty-One “Restatement —  Basic and Diluted Loss Per Share from Continuing Operations” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Form 10-K are reflected in all periods presented.

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Stock-Based Compensation (Details 4) (ESPP [Member], Employee Stock [Member])	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Jan. 01, 2011
ESPP [Member] | Employee Stock [Member]
Fair value for ESPP purchases
Risk-free interest rates	0.06%	0.06%	0.13%
Expected dividend yield
Expected volatility	49.00%	49.00%	51.00%
Expected lives	2 months 27 days	3 months	3 months

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Other Long -Term Assets (Tables)

12 Months Ended

Dec. 31, 2012

Current Prepaid Expense/Other Long-Term Assets [Abstract]

Other long-term assets

	As of
	December 31, 2012		December 31, 2011
Deferred costs	$	1.8	$	2.4
Prepaid commissions		1.7		2.2
Other		0.3		0.1
Total	$	3.8	$	4.7

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note Thirteen — Stock-Based Compensation

The Company has two stock-based compensation plans: the Mattersight Corporation 1999 Stock Incentive Plan (the “1999 Plan”) and the Mattersight Corporation Employee Stock Purchase Plan (the “ESPP”). Historically, the Company issued stock awards under both the 1999 Plan and the Mattersight Corporation 2000 Stock Incentive Plan (the “2000 Plan”). However, the 2000 Plan expired in accordance with its terms on September 23, 2011, ten years after the effective date of the last amendment and restatement thereof, and no further awards have been issued thereunder. At that time, 20,620 treasury shares, representing all authorized and unissued treasury shares under the 2000 Plan, were cancelled.

Under the 1999 Plan, awards of restricted stock, installment stock, salary replacement, stock options, and stock appreciation rights may be granted to directors, officers, employees, consultants, independent contractors, and agents of the Company and its subsidiaries. Awards granted under the 1999 Plan are made at the discretion of the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). If shares or options awarded under the 1999 Plan are not issued due to cancellation of unvested or unexercised options or shares, then those shares or options again become available for issuance under the plan. Under the 1999 Plan, on the first day of each fiscal year, the aggregate number of shares available for issuance under the 1999 Plan is automatically increased by an amount equal to 5% of the total number of shares of Common Stock that are outstanding. At the 2008 Annual Meeting of Stockholders, stockholders approved the amendment and restatement of the 1999 Plan to increase the number of shares available for issuance under the 1999 Plan by 1,500,000.

Stock-based compensation expense was $3.7 million, $5.4 million, and $4.4 million, for fiscal years ended 2012, 2011, and 2010, respectively. The Company recognizes stock compensation expense on a straight-line basis over the vesting period. The Company has established its forfeiture rate based on historical experience. The Company does not recognize the windfall tax benefit related to the excess tax deduction because the Company currently does not anticipate realizing the tax savings associated with this deduction. The amount of this excess tax deduction was $0 for each of fiscal years ended December 31, 2012 and December 31, 2011.

As of December 31, 2012, there were a total of 1,086,444 shares of Common Stock available for future grants under the 1999 Plan and from treasury stock. The Company’s Common Stock is traded on the NASDAQ Global Market under the symbol MATR.

Restricted Stock

Restricted stock awards are shares of Common Stock granted to an individual. During the restriction period, the holder of granted restricted stock receives all of the benefits of ownership (right to dividends, voting rights, etc.), other than the right to sell or otherwise transfer any interest in the stock. Installment stock awards are grants to an individual of a contractual right to receive future shares of Common Stock in specified amounts on specified vesting dates, subject to the individual remaining a Mattersight employee on the specified vesting dates. The holder has no benefits of ownership in installment stock until such time as the installment stock actually vests. The Company recognized compensation expense related to restricted stock awards of $2.5 million, $4.8 million, and $3.1 million, for the fiscal years ended 2012, 2011, and 2010, respectively.

Restricted and installment stock award activity was as follows for the years ended January 1, 2011, December 31, 2011 and December 31, 2012:

	Shares			Weighted Average Price
Nonvested balance at December 26, 2009		985,208		$	7.14
Granted		570,100		$	6.03
Vested		(624,073	)	$	7.43
Forfeited		(28,195	)	$	10.89
Nonvested balance at January 1, 2011		903,040		$	6.12
Granted		1,246,955		$	6.58
Vested		(737,880	)	$	7.04
Forfeited		(126,002	)	$	6.51
Nonvested balance at December 31, 2011		1,286,113		$	6.33
Granted		445,496		$	7.54
Vested		(601,298	)	$	6.54
Forfeited		(308,948	)	$	6.37
Nonvested balance at December 31, 2012		821,363		$	6.81

	For the Fiscal Years Ended
	2012		2011		2010
Total fair value of restricted and installment stock awards vested	$	3.6	$	4.8	$	3.6

Following the completion of the sale of the ICS Business Unit on May 28, 2011, 21,278 unvested restricted stock awards and 8,750 stock options held by the employees of the ICS Business Unit were cancelled pursuant to the terms of the respective Restricted Stock Award and Stock Option Agreements.

As of December 31, 2012, there remains $4.6 million of unrecognized compensation expense related to restricted and installment stock awards. These costs are expected to be recognized over a weighted average period of 1.8 years. The Company estimated the forfeiture rate at 3% for fiscal years 2012, 2011, and 2010.

Stock Options

Stock option awards may be in the form of incentive or non-qualified options. Stock options are granted with an exercise price per share equal to the fair market value of a share of the Common Stock on the date of grant, and have a maximum term of 10 years. The stock option terms are set by the Compensation Committee and generally become exercisable over a period of four years. The vesting can begin in equal monthly or quarterly increments over the vesting period. The Company recognized compensation expense related to option awards of $1.1 million, $0.5 million, and $1.1 million for the fiscal years ended 2012, 2011, and 2010, respectively.

In addition, the 1999 Plan provides that each non-employee director, upon commencing service, shall receive a non-qualified stock option to purchase 50,000 shares of Common Stock that vests ratably over a period of 48 months. The 1999 Plan also provides that each non-employee director shall receive a non-qualified stock option to purchase 5,000 shares of Common Stock, which is granted annually, the day after the Company’s annual stockholders’ meeting (the “Annual Grant”). Stock options granted to non-employee directors have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date, and are exercisable for up to 10 years. By action of the Board of Directors, the 1999 Plan was amended such that, commencing with the 2013 annual stockholders’ meeting, the size of the Annual Grant to each non-employee director will be increased from 5,000 to 10,000 shares.

During fiscal year 2012, options to purchase a total of 818,543 shares of Common Stock were granted. On March 31, 2012, a total of 600,000 options were granted to the Company’s executive officers. The options vested 6.25% on February 29, 2012, and the balance will vest ratably over the following 15 quarters, with a maximum term of 10 years. The exercise price per share was $5.79, the closing price of a share of Common Stock on the grant date. On May 17, 2012, certain employees received options to purchase from the Company a total of 73,336 shares of Common Stock. These options vested 6.25% on August 31, 2012, and the balance will vest ratably over the following 15 quarters, with a maximum term of 10 years. The exercise price per share was $7.99, the closing price of a share of Common Stock on the grant date. On May 18, 2012, the Company’s non-employee directors received options to purchase from the Company a total of 32,042 shares of Common Stock. These options will vest 25% on May 31, 2013, and the balance will vest ratably over the following 12 quarters, with a maximum term of 10 years. The exercise price per share was $7.70, the closing price of a share of Common Stock on the grant date.

On August 8, 2012, two executive officers received options to purchase a total of 113,165 shares of Common Stock. The exercise price per share was $7.71, the closing price of a share of Common Stock on the grant date. The options issued to the first executive vested 6.25% on August 31, 2012, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. The options issued to the second executive will vest 25% on August 31, 2013, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years.

During fiscal year 2011, options to purchase from the Company a total of 130,000 shares of Common Stock were granted. On May 20, 2011, each of the six then-current non-employee directors received an Annual Grant to purchase from the Company 5,000 shares of Common Stock. The options vested 25% on May 31, 2012, and the balance will vest ratably over the following 12 quarters, with a maximum term of 10 years. The exercise price per share was $6.27, the closing price of a share of Common Stock on the grant date. Then, pursuant to the terms of the Second Amended and Restated Executive Employment Agreement between Kelly D. Conway and the Company dated April 19, 2011, Mr. Conway was granted an option to purchase from the Company 50,000 shares of Common Stock on June 6, 2011, in connection with the close of the sale of the ICS Business Unit. The options vested 25% on May 31, 2012, and the balance will vest ratably over the following 12 quarters, with a maximum term of 10 years. The exercise price per share was $6.15, the closing price of a share of Common Stock on the grant date. Lastly, on December 20, 2011, the Board of Directors increased the size of the Board by adding an additional non-employee director, Phillip R. Dur. In connection with his appointment, Mr. Dur received an option to purchase 50,000 shares of Common Stock, vesting ratably over 48 months, with a maximum term of 10 years. The exercise price per share was $4.89, the closing price of a share of Common Stock on the grant date.

During fiscal year 2010, a total of 30,000 options were granted to non-employee directors. Each of the six then-current non-employee directors received an Annual Grant to purchase 5,000 shares of Common Stock that vested 25% on May 31, 2011; the balance vests quarterly over the following three years, with a maximum term of 10 years. The exercise price per share was $6.34, the closing price of a share of Common Stock on the grant date.

Option activity was as follows for the years ended January 1, 2011, December 31, 2011, and December 31, 2012:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Weighted Average Fair Value of Option Grants
Outstanding as of December 26, 2009		1,231,205		$	13.57		6.4
Exercisable as of December 26, 2009		783,542		$	16.47
Granted		30,000		$	6.34			$	3.92
Exercised		(895	)	$	2.73
Forfeited		(7,918	)	$	176.96
Outstanding as of January 1, 2011		1,252,392		$	12.37		5.5
Exercisable as of January 1, 2011		976,562		$	14.05
Outstanding intrinsic value at January 1, 2011	$	1.1
Exercisable intrinsic value at January 1, 2011	$	0.8
Granted		130,000		$	5.69			$	3.44
Exercised		—		$	—
Forfeited		(154,457	)	$	18.07
Outstanding as of December 31, 2011		1,227,935		$	10.95		5.4
Exercisable as of December 31, 2011		986,626		$	12.30
Outstanding intrinsic value at December 31, 2011	$	0.3
Exercisable intrinsic value at December 31, 2011	$	0.2
Granted		818,543		$	6.33			$	3.77
Exercised		(173,600	)	$	3.84
Forfeited		(106,642	)	$	18.78
Outstanding as of December 31, 2012		1,766,236		$	9.03		7.4
Exercisable as of December 31, 2012		1,004,232		$	11.09
Outstanding intrinsic value at December 31, 2012	$	0.2
Exercisable intrinsic value at December 31, 2012	$	0.2

	For the Fiscal Years Ended
	2012		2011		2010
Total fair value of stock options vested	$	1.0	$	0.6	$	1.2
Intrinsic value of stock options exercised		0.4		—		—
Proceeds received from option exercises		0.7		—		0.1

As of December 31, 2012, there remained $2.7 million of unrecognized compensation expense related to stock options. These costs are expected to be recognized over a weighted average period of 2.0 years.

The fair value for options granted during fiscal years 2012, 2011, and 2010 was estimated on the date of grant using a Black Scholes option-pricing model. The Company used the following weighted average assumptions:

	For the Fiscal Years Ended
	2012			2011			2010
Risk-free interest rates		0.6	%		0.9	%		1.8	%
Expected dividend yield		—			—			—
Expected volatility		67	%		67	%		68	%
Expected lives		6.0 years			6.0 years			6.0 years

Historical Company information is the primary basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Other Stock Compensation

Employee Stock Purchase Plan

The ESPP is intended to qualify as an “employee stock purchase plan” under section 423 of the Internal Revenue Code. Under the ESPP, eligible employees are permitted to purchase shares of Common Stock at below-market prices. The purchase period opens on the first day and ends on the last business day of each calendar quarter. The shares of Common Stock issued during the fiscal year were as follows:

	For the Fiscal Years Ended
	2012		2011		2010
Shares of Common Stock issued		27,939		29,554		39,048
Expense related to ESPP (in thousands)	$	46	$	39	$	41

The fair value for ESPP purchases during fiscal years 2012, 2011, and 2010 was estimated using a Black Scholes model. The Company used the following weighted average assumptions:

	For the Fiscal Years Ended
	2012			2011			2010
Risk-free interest rates		0.06	%		0.06	%		0.13	%
Expected dividend yield		—			—			—
Expected volatility		49	%		49	%		51	%
Expected lives		0.24 years			0.25 years			0.25 years