<PAGE>
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
[X] QUARTERLY REPORT PURSUANT TO Section 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO Section 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21055
TELETECH HOLDINGS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1291044
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 LINCOLN STREET, SUITE 1400
DENVER, COLORADO 80203
(Address of principal (Zip Code)
executive office)
(303) 894-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock August 8, 1997
Common Stock, par value $.01 per share 56,265,486
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TELETECH HOLDINGS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 1997 and December 31, 1996 3
Condensed consolidated statements of income--Three months ended June 30,
1997 and 1996 5
Condensed consolidated statements of income--Six months ended June 30,
1997 and 1996 6
Condensed consolidated statements of cash flows--Six months ended
June 30, 1997 and 1996 7
Notes to condensed consolidated financial statements--June 30, 1997 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II . OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
PART I. FINANCIAL INFORMATION
2
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
------
December 31, June 30,
1996 1997
------------ -------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents...... $ 5,564 $ 4,335
Short-term investments......... 71,573 66,952
Accounts receivable, net of
allowance for doubtful
accounts of $1,462 and
$1,766, respectively...... 31,731 38,475
Prepaids and other assets...... 4,141 1,267
Deferred tax asset............. 1,128 1,699
-------- --------
Total current assets...... 114,137 112,728
-------- --------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$11,231 and $14,948,
respectively................... 23,684 38,620
-------- --------
OTHER ASSETS:
Deferred contract costs (net
of amortization of $1,658
and $2,361, respectively)...... 703 -
Goodwill (net of amortization
of $238 and $493,
respectively)................. 3,257 7,286
Long-term accounts receivable... - 4,274
Investment in affiliated company
accounted for under the equity
method.......................... 679 782
Other assets.................... 918 950
-------- --------
Total assets............... $143,378 $164,640
-------- --------
-------- --------
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31, June 30,
1996 1997
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt.............................. 4,985 5,667
Accounts payable............................................... 6,108 7,995
Accrued employee compensation.................................. 8,484 7,368
Accrued income taxes........................................... 2,952 543
Other accrued expenses......................................... 3,246 7,464
Customer advances, deposits and deferred income................ 787 982
------ -------
Total current liabilities................................... 26,562 30,019
DEFERRED TAX LIABILITIES 564 717
LONG-TERM DEBT, net of current portion:
Capital lease obligations...................................... 9,675 9,041
Other debt..................................................... 262 162
------ -------
Total liabilities........................................... 37,063 39,939
------ -------
STOCKHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized zero shares
issued and outstanding...................................... - -
Common stock, $.01 par value, 150,000,000 shares
authorized, 55,811,840 and 56,364,296 shares issued,
55,713,030 and 56,265,486 shares outstanding................ 558 564
Additional paid-in capital...................................... 92,030 99,138
Cumulative translation adjustment............................... 98 (183)
Unearned compensation-restricted stock.......................... (254) (190)
Treasury stock, 98,810 shares, at cost.......................... (988) (988)
Retained earnings............................................... 14,871 26,360
------ -------
Total stockholders' equity..................................... 106,315 124,701
------- -------
Total liabilities and stockholders' equity................ $143,378 $ 164,640
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Three Months Ended
June 30,
1996 1997
REVENUES $ 34,599 $ 65,134
----------- ----------
OPERATING EXPENSES:
Costs of services......................... 20,526 40,911
Selling, general and
administrative expenses............... 10,517 14,490
----------- ----------
Total operating expenses.................. 31,043 55,401
----------- ----------
INCOME FROM OPERATIONS 3,556 9,733
----------- ----------
OTHER INCOME (EXPENSE):
Interest expense.......................... (226) (314)
Investment income......................... 103 818
Equity in income (loss) of
affiliated company.................... (56) 50
Other................................. 101 (5)
----------- ----------
( 78) 549
----------- ----------
Income before income taxes................ 3,478 10,282
PROVISION FOR INCOME TAXES 1,415 4,086
----------- ----------
Net income................................ $ 2,063 $ 6,196
----------- ----------
----------- ----------
WEIGHTED AVERAGE SHARES
OUTSTANDING............................... 54,328 59,580
----------- ----------
----------- ----------
NET INCOME PER COMMON SHARE................... $.04 $.10
----------- ----------
----------- ----------
The accompanying notes are an integral part of these statements.
5
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Six Months Ended
June 30,
--------------------------
1996 1997
----------- ----------
REVENUES $ 56,619 $124,332
----------- ----------
OPERATING EXPENSES:
Costs of services................ 31,721 78,373
Selling, general and
administrative expenses...... 18,619 27,879
----------- ----------
Total operating expenses......... 50,340 106,252
----------- ----------
INCOME FROM OPERATIONS 6,279 18,080
----------- ----------
OTHER INCOME (EXPENSE):
Interest expense................. (460) (617)
Investment income................ 214 1,691
Equity in income (loss) of
affiliated company........... (56) 103
Other............................ ( 242) (26)
----------- ----------
(544) 1,151
----------- ----------
Income before income taxes....... 5,735 19,231
PROVISION FOR INCOME TAXES 2,417 7,742
----------- ----------
Net income....................... $ 3,318 $ 11,489
----------- ----------
----------- ----------
WEIGHTED AVERAGE SHARES
OUTSTANDING...................... 54,328 59,534
----------- ----------
----------- ----------
NET INCOME PER COMMON SHARE.......... $.06 $.19
----------- ----------
----------- ----------
The accompanying notes are an integral part of these statements.
6
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(DOLLARS IN THOUSANDS)
(Unaudited)
1996 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income......................................... $ 3,318 $11,489
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization...................... 2,380 4,675
Allowance for doubtful accounts.................... 482 304
Equity in (income) loss of affiliated company...... 56 (103)
Deferred taxes on income........................... (161) (571)
Deferred compensation expense...................... 63 64
Changes in assets and liabilities-
Accounts receivable.............................. (15,704) (10,924)
Prepaids and other assets........................ (1,216) 58
Deferred contract costs.......................... (2,067) -
Accounts payable and accrued liabilities......... 9,065 2,053
Customer advances and deferred income............ 926 -
--------- --------
Net cash provided by (used in)
operating activities............................. (2,858) 7,045
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. $ (4,022) $(15,890)
Purchase of Access 24.............................. (2,431) -
Proceeds from sale of interest in Access 24 UK
Limited......................................... 3,946 -
Purchase of TMI.................................... - ( 2,337)
Return of deposit on new Call Center............... - 3,000
Changes in accounts payable and accrued
liabilities relating to investing activities.. - 912
Decrease in short-term investments................. 2,057 4,621
--------- --------
Net cash used in investing activities.............. (450) (9,694)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings.............. $ 8,000 $ -
Net decrease in bank overdraft..................... (1,427) -
Payments on long-term debt and capital leases...... (2,081) (2,507)
Exercise of stock options including tax benefit.... - 4,208
--------- --------
Net cash provided by financing activities.......... 4,492 1,701
--------- --------
Effect of exchange rate changes on cash................ 101 (281)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 1,285 (1,229)
CASH AND CASH EQUIVALENTS,
beginning of period................................ 42 5,564
--------- --------
CASH AND CASH EQUIVALENTS,
end of period...................................... $ 1,327 $ 4,335
--------- --------
--------- --------
The accompanying notes are an integral part of these statements.
7
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE (1)--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. The condensed consolidated
financial statements reflect all adjustments (consisting of only normal
recurring accruals) which, in the opinion of management , are necessary to
present fairly the financial position, results of operations and cash flows
of TeleTech Holdings, Inc. and subsidiaries as of June 30, 1997 and 1996
and for the periods then ended. Operating results for the three and six
month periods ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.
The unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated and combined financial
statements and footnotes thereto included in the Company's Form 10-K for
the year ended December 31, 1996.
NOTE (2)--EARNINGS PER SHARE
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, for purposes of determining the average number of common
shares outstanding for periods prior to completion of the Company's initial
public offering in August 1996, common stock and common stock equivalent
shares issued by the Company at prices below the initial public offering
price during the 12 month period prior to the offering date (using the
treasury stock method) have been included in the calculation as if they
were outstanding for all periods presented. The shares of convertible
preferred stock were considered common stock equivalents due to the
mandatory conversion provision.
The weighted average number of common shares for the three and six
months ended June 30, 1997 and 1996 were calculated as follows:
Three Months Six Months Ended
Ended June 30, June 30,
1996 1997 1996 1997
---- ---- ---- ----
Average common shares outstanding 41,746 56,014 41,746 55,864
Convertible Preferred Stock 9,300 - 9,300 -
Equivalent common shares from
outstanding stock options 3,282 3,566 3,282 3,670
--------- ------- ------ --------
54,328 59,580 54,328 59,534
--------- ------- ------ --------
--------- ------- ------ --------
In February 1997, the Financial Accounting Standards Board issued SFAS
128, "Earnings Per Share". Under SFAS 128 primary earnings per share
previously required under Accounting Principles Board No. 15 is replaced
with basic earnings per share. Basic earnings per share is computed by
dividing reported earnings available to common stockholders by weighted
average shares outstanding. No dilution for any potentially dilutive
securities is included. Fully diluted earnings per share as defined under
Accounting Principles Board No. 15 is called diluted earnings per share
under SFAS 128. Diluted earnings per share reflects the potential dilution
assuming the issuance of common shares for all dilutive potential common
shares outstanding during the period. SFAS 128 is effective for financial
statements for periods ending after December 15, 1997. The pro forma
earnings per share for the three and six months ended June 30, 1997 and
1996 utilizing the requirements of SFAS 128 is as follows:
8
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997-CONTINUED
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
---- ---- ---- ----
Basic Earnings Per Share $0.04 $0.11 $0.06 $0.21
Diluted Earnings Per Share 0.04 0.10 0.06 0.19
For purposes of the calculation of basic earnings per share for the
three and six months ended June 30, 1996 net income was reduced by $211,000
and $422,000, respectively, representing dividends on preferred stock, to
arrive at net income available for common shareholders.
NOTE (3)--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NONCASH
INVESTING AND FINANCING ACTIVITIES (IN THOUSANDS):
Six Months Ended June 30,
---------------------------
1996 1997
------- --------
Cash paid for interest $ 438 $ 633
Cash paid for income taxes $ 1,050 $ 9,360
Noncash investing and financing activities:
Assets acquired through capital leases $ 5,752 $ 2,148
Stock issued in purchase of Access 24 $ 4,851 $ -
Stock issued in purchase of TMI $ - $ 1,797
Restricted stock issued under employment
agreements $ 380 $ -
NOTE (4)--ACQUISITION OF TELEMERCADEO INTERNATIONAL, S.A.:
In May 1997 the Company acquired 100% of the common stock of
Telemercadeo Integral, S.A. ("TMI") for consideration of $4.2 million,
consisting of 100,000 shares of the Company's common stock and cash of $2.2
million. TMI is an inbound customer care provider in Mexico. The
acquisition was accounted for using the purchase method. The excess of
cost of the acquistion over the underlying net assets of TMI is being
amortized using the straight-line method over 25 years. The operations of
TMI for all periods prior to the acquistion are immaterial to the results
of the Company and accordingly no pro forma financial information has been
presented.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
INTRODUCTION
Management's discussion and analysis of financial condition and
results of operations in this Form 10-Q should be read in conjunction with
the risk factors included in the Company's Form 10-K for the year ended
December 31, 1996. Specifically, the Company has experienced, and in the
future could experience, quarterly variations in revenues and earnings as a
result of a variety of factors, many of which are outside the Company's
control, including: the timing of new contracts; the timing of new product
or service offerings or modifications in client strategies; the expiration
or termination of existing contracts; the timing of increased expenses
incurred to obtain and support new business; and the seasonal pattern of
certain of the businesses serviced by the Company. In addition, the
Company has concentrated its marketing efforts towards obtaining larger,
more complex, strategic customer care programs. As a result, the time
required to negotiate and execute an agreement with the client has
increased. This may lead to short-term delays in the anticipated start-up
of new client programs and in the Company achieving full capacity
utilization. The Company's planned staffing levels, investments and other
operating expenditures are also based on revenue forecasts. If revenues
are below expectations in any given quarter as a result of such delay or
for other reasons, the Company's operating results would likely be
adversely affected for that quarter.
During the second quarter of 1997 the Company and GTE announced that
they entered into a five-year master agreement, which is renewable for two
additional one-year terms, under which the Company will provide support for a
new national sales service and marketing unit of GTE. Initially, the Company
is expected to use approximately 1,200 production workstations in several
dedicated call centers in support of this contract. The Company anticipates
that GTE will become a major customer and that revenues from GTE will exceed
10% of the Company's consolidated revenues for the year ended December 31,
1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30,
1996
Revenues increased $30.5 million or 88.3% to $65.1 million for the
three months ended June 30, 1997 from $34.6 million for the three months
ended June 30, 1996. The increase resulted primarily from $25.4 million in
revenues from new clients and $16.0 million in increased revenue from
existing clients. These increases were offset in part by contract
expirations and other client reductions. Revenues for the three months
ended June 30, 1997 include approximately $20.8 million from facilities
management contracts as compared with $6.6 million for the three months
ended June 30, 1996.
Costs of services increased $20.4 million, or 99.3%, to $40.9 million
for the three months ended June 30, 1997 from $20.5 million for the three
months ended June 30, 1996. Costs of services as a percentage of revenues
increased from 59.3% for the three months ended June 30, 1996 to 62.8% for
the three months ended June 30, 1997. The increase in the costs of
services as a percentage of revenues is a result of the significant
incremental revenues received in 1997 from the Company's facilities
management programs. Facilities management programs, under which the
Company provides services from facilities owned or leased by the clients,
have higher costs of services as a percentage of revenues than fully
outsourced programs.
Selling, general and administrative expenses increased $4.0 million,
or 37.8% to $14.5 million for the three months ended June 30, 1997 from
$10.5 million for the three months ended June 30, 1996. This increase is
primarily the result of increased revenues during the period. Selling,
general and administrative expenses as a percentage of revenues decreased
from 30.4% for the three months ended June 30, 1996 to 22.2% for the three
months ended June 30, 1997 primarily as a result of spreading fixed costs
over a larger revenue base as well as the impact of the increased revenue
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
during the quarter from the Company's facilities management programs, which
have insignificant incremental selling, general and administrative
expenses.
As a result of the foregoing factors, income from operations increased
$6.2 million or 173.7%, to $9.7 million for the three months ended June 30,
1997 from $3.6 million for the three months ended June 30, 1996. Operating
income as a percentage of revenues increased from 10.3% for the three
months ended June 30, 1996 to 14.9% for the three months ended June 30,
1997. This is primarily the result of the spreading of fixed costs over a
larger revenue base.
Other income totaled $549,000 for the three months ended June 30, 1997
compared with other expense of $78,000 during the three months ended June 30,
1996. This is primarily related to the $715,000 increase in investment
income to $818,000 for the three months ended June 30,1997 from $103,000 for
the three months ended June 30, 1996. This increase is a result of the
increase in short-term investments resulting from the Company's July 1996 and
October 1996 public stock offerings.
As a result of the foregoing factors, net income increased $4.1 million or
200.3%, to $6.2 million for the three months ended June 30, 1997 from $2.1
million for the three months ended June 30, 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues increased $67.7 million or 119.6% to $124.3 million for the six
months ended June 30, 1997 from $56.6 million for the six months ended June 30,
1996. The increase resulted from $40.9 million in revenues from new clients and
$43.9 million in increased revenue from existing clients. These increases were
offset in part by contract expirations and other client reductions. Revenues
for the six months ended June 30, 1997 include approximately $42.7 million from
facilities management contracts as compared with $7.1 million in the six months
ended June 30, 1996.
Costs of services increased $46.7 million, or 147.1%, to $78.4 million for
the six months ended June 30, 1997 from $31.7 million for the six months ended
June 30, 1996. Costs of services as a percentage of revenues increased from
56.0% for the six months ended June 30, 1996 to 63.0% for the six months ended
June 30, 1997. The increase in the costs of services as a percentage of
revenues is a result of the significant incremental revenues received in 1997
from the Company's facilities management programs. Facilities management
programs, under which the Company provides services from facilities owned or
leased by the clients, have higher costs of services as a percentage of
revenues than fully outsourced programs.
Selling, general and administrative expenses increased $9.3 million, or
49.7% to $27.9 million for the six months ended June 30, 1997 from $18.6
million for the six months ended June 30, 1996. This increase is primarily the
result of increased revenues during the period. Selling, general and
administrative expenses as a percentage of revenues decreased from 32.9% for
the six months ended June 30, 1996 to 22.4% for the six months ended June 30,
1997 primarily as a result of spreading fixed costs over a larger revenue base
as well as the impact of the Company's facilities management programs, which
have insignificant incremental selling, general and administrative expenses.
As a result of the foregoing factors, income from operations increased
$11.8 million or 187.9%, to $18.1 million for the six months ended June 30, 1997
from $6.3 million for the six months ended June 30, 1996. Operating income as a
percentage of revenues increased from 11.1% for the six months ended June 30,
1996 to 14.5% for the six months ended June 30, 1997. This is primarily the
result of the spreading of fixed costs over a larger revenue base.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Other income totaled $1.2 million for the six months ended June 30, 1997
compared with other expense of $544,000 during the six months ended June 30,
1996. This is primarily related to the $1.5 million increase in investment
income to $1.7 million for the six months ended June 30,1997 from $214,000 for
the six months ended June 30, 1996. This increase is a result of the increase
in short-term investments resulting from the Company's July 1996 and October
1996 public stock offerings.
As a result of the foregoing factors, net income increased $8.2 million or
246.3%, to $11.5 million for the six months ended June 30, 1997 from $3.3
million for the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997 the Company had cash and cash equivalents of $4.3
million and short-term investments of $67.0 million. Cash provided by
operating activities was $7.0 million for the six months ended June 30, 1997.
Cash used in investing activities was $9.7 million for the six months
ended June 30, 1997 resulting primarily from $15.9 million in capital
expenditures and $2.3 million in cash used to acquire TMI offset in part by
the reduction in short-term investments of $4.6 million and the return of a
$3.0 million temporary deposit on a new call center which was made by the
Company in December 1996.
Cash provided by financing activities was $1.7 resulting primarily from
$4.2 million of proceeds from the exercise of stock options and the related tax
benefit offset in part by debt and capital lease repayments.
The Company has a $15 million unsecured revolving operating line of credit
which expires on May 31, 1998. At June 30, 1997, there were no outstanding
borrowings under this agreement. In addition, the Company has two master lease
agreements. Under one agreement the Company may lease equipment up to an
aggregate value of $15.0 million. As of June 30, 1997, amounts outstanding
under this agreement were approximately $8.0 million. Under the second
agreement, the Company's borrowings are approved, and specific terms are set, on
a case-by-case basis.
The Company currently expects total capital expenditures in 1997 to be
approximately $36 million of which $18.0 million was expended in the first six
months of 1997 (inclusive of expenditures under capital leases), most of which
will be used for the expansion and development of the Company's call centers .
The Company believes that existing cash on hand together with cash from
operations and available borrowings under the line of credit and master lease
agreements, will be sufficient to finance the Company's operations, planned
capital expenditures and anticipated growth through mid 1998.
RECENT DEVELOPMENTS
The Company's facilities management contract with United Parcel Service
("UPS") accounted for 24% and 26% of the Company's revenues during the three
and six month periods ended June 30, 1997, respectively. On August 4, 1997
the International Brotherhood of Teamsters commenced a strike against UPS.
UPS reports that it continues to operate on a contingency basis, relying on
management and other non union employees, and that the strike has caused a
significant loss in its volume. The Company's contracts with UPS do not
ensure that TeleTech will generate any minimum level of revenue. In
addition, the amount of revenue the Company generates is dependent upon
customers' use of UPS's services. A decline in the volume of UPS customer
calls as a result of the strike would likely lead to reductions in the
Company's operations for UPS and a corresponding decline in revenues
generated by the Company from the UPS contracts. A prolonged strike could
force the Company to reduce or even discontinue operations at any or all of
the three UPS sites the Company manages.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
This could have a material adverse impact on the Company's future revenues
and profitablility levels. At this time management does not believe that the
Company will suffer a material adverse impact if the strike does not continue
beyond two weeks, however the long-term effects of the strike on UPS's
business are unknown. If the strike were to result in a significant loss of
UPS's market share, the Company could incur a long-term reduction in the
level of revenues attributable to the UPS project. At this time the Company
is unable to determine the long-term effects of this strike.
FORWARD-LOOKING STATEMENTS
All statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" or elsewhere in this quarterly
report, that are not statements of historical facts are forward-looking
statements that involve substantial risks and uncertainties. Forward looking
statements include (i) the anticipated level of capital expenditures for
1997; (ii) the Company's belief that existing cash, short-term investments
and available borrowing will be sufficient to finance the Company's near term
operations; (iii) the significance of GTE, the anticipated percentage of 1997
revenues represented by the GTE contract and the number of workstations to be
dedicated initially to the GTE program (iv) the anticipated short-term and
long-term impact of the UPS strike; and (iv) statements relating to the
Company or its operations that are preceded by terms such as "anticipates",
"expects", "believes" and similar expressions.
The Company's actual results, performance or achievements may differ
materially from those implied by such forward-looking statements as a result of
various factors, including the following: TeleTech's agreements with its
clients do not ensure that TeleTech will generate a specific level of revenue
and may be canceled by the clients on short notice. The amount of revenue
TeleTech generates from a particular client is dependent upon customers'
interest in and use of the client's products or services, some of which are
recently-introduced or untested. Any event that adversely affects the demand
for and customers' use of a client's products or services, whether increased
competition, labor shortage or strike, unavailability of raw materials or
otherwise, may adversely affect the Company's revenues attributable to such
client's program. The loss of a significant client or the termination,
completion or substantial reduction of a significant client program may have a
material adverse effect on TeleTech's capacity utilization and results of
operations.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As disclosed in the Company's 1996 Annual Report on Form 10-K, in late
November 1996, CompuServe Incorporated ("CompuServe") terminated all the
programs the Company provided to CompuServe effective January 31, 1997. In
December 1996, the Company filed suit against CompuServe to enforce certain
contract termination provisions and to collect the termination fee specified in
the agreement with CompuServe. CompuServe filed a counterclaim in December 1996
alleging that the Company breached other provisions of the agreement and seeking
unspecified monetary damages.
In March 1997, CompuServe asserted a right to offset $4.3 million of
accounts receivable it owes to the Company for services it rendered to
CompuServe against the amount that may be awarded to CompuServe on its
counterclaim, in the event it were to be successful in its counterclaim against
the Company and the Company were to be unsuccessful in its claims against
CompuServe. While the Company believes that the adjudication of CompuServe's
counterclaim will not have a material adverse effect on the Company's financial
condition or results of operations, the proceedings are still in an early stage
and the ultimate outcome is uncertain. It is possible that a settlement or
trial may take in excesss of 12 months and accordingly the Company has
reclassified the CompuServe receivable as a long-term asset in the accompanying
June 30, 1997 condensed consolidated balance sheet.
From time to time the Company is involved in litigation, most of which is
incidental to its business. In the Company's opinion, no litigation to which
the Company currently is a party is likely to have a material adverse effect on
the Company's results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 20, 1997, the Company held its annual meeting of stockholders, at
which there were 49,595,037 shares present or represented by proxy, which is
approximately 89% of the shares entitled to vote, . At the annual meeting, the
following matters were approved by more than the requisite number of
stockholders:
All of the directors of the Company were re-elected. The number of votes
cast for and withheld for each director were as follows:
Votes Cast
-------------------------------
For Withheld
------------- ------------
Kenneth D. Tuchman 49,571,489 23,548
Rod Dammeyer 49,571,839 23,198
Alan Silverman 49,571,839 23,198
Sturart M. Sloan 49,571,839 23,198
Samuel Zell 49,570,839 24,198
A performance-based comensation arrangement for the Company's President and
Chief Executive Officer was approved with 47,930,476 shares voted for the
arrangement, 73,771 shares voted against and 21,394 shares abstaining. In
addition, there were 1,569,396 broker non-votes.
The engagement of Arthur Andersen LLP as the Company's independent auditors
for fiscal 1997 was ratified by the affirmative vote of 49,579,006 shares, with
9,536 shares voted against and 6,495 shares abstaining and no broker non-votes.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following document is filed as an exhibit to this report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELETECH HOLDINGS, INC.
------------------------
(Registrant)
Date: August 8, 1997 /s/ KENNETH D. TUCHMAN
--------------------- -----------------------
Kenneth D. Tuchman
Chairman of the Board, President and
Chief Executive Officer
Date: August 8, 1997 /s/ STEVEN B. COBURN
--------------------- -----------------------
Steven B. Coburn, Chief Financial
Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TELETECH HOLDINGS, INC.'S 1997 SECOND QUARTER FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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<SECURITIES> 66,952
<RECEIVABLES> 40,241
<ALLOWANCES> 1,766
<INVENTORY> 0
<CURRENT-ASSETS> 112,728
<PP&E> 53,568
<DEPRECIATION> 14,948
<TOTAL-ASSETS> 164,640
<CURRENT-LIABILITIES> 30,019
<BONDS> 9,203
0
0
<COMMON> 564
<OTHER-SE> 124,137
<TOTAL-LIABILITY-AND-EQUITY> 164,640
<SALES> 124,332
<TOTAL-REVENUES> 124,332
<CGS> 78,373
<TOTAL-COSTS> 106,252
<OTHER-EXPENSES> (1,768)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 617
<INCOME-PRETAX> 19,231
<INCOME-TAX> 7,742
<INCOME-CONTINUING> 11,489
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<NET-INCOME> 11,489
<EPS-PRIMARY> 0.19
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