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ACQUISITIONS | 6 Months Ended
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Jun. 30, 2013
ACQUISITIONS [ABSTRACT] |
ACQUISITIONS | (2) ACQUISITIONS OnState On January 1, 2012, the Company entered into an asset purchase agreement with OnState Communications Corporation (“OnState”) to acquire 100% of its assets and assume certain of its liabilities for total cash consideration of $3.3 million. OnState provides hosted business process outsourcing solutions to a variety of small businesses. OnState was headquartered in Boston, MA with a minimal employee base. As of June 30, 2013, the Company ha d paid $3.1 million towards the purchase price. The remaining purchase price will be paid out once the potential for covered losses has expired per the purchase agreement, which is expected to be in 2013. The $0.2 million was included within Other accrued expenses in the accompanying Consolidated Balance Sheets as of June 30, 2013. The Company paid $0.1 million of acquisition related expenses as part of the OnState purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income (Loss) during the first quarter of 20 1 2. The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
|  |  | Acquisition Date Fair Value
Cash |  | $ | 36
Accounts Receivable |  |  | 68
Property, plant and equipment |  |  | 33
Software |  |  | 2,100
Goodwill |  |  | 1,132
|  |  |  | 3,369
Accounts payable |  |  | 93
| Total purchase price |  | $ | 3,276
The software acquired will be amortized over four years once it is placed into service. The goodwill recognized from the OnState acquisition is primarily attributable to the synergies resulting from incorporating the acquired software into the Company's current technology platforms in addition to the acquisition of the employees who developed the acquired software. Since this acquisition is an asset acquisition for tax purposes, the goodwill of $1.1 million and software are deductible over their respective tax lives. The acquired goodwill of OnState is reported within the Customer Technology Services segment from the date of acquisition. iKnowtion On February 27, 2012, the Company acquire d an 80% interest in iKnowtion, LLC (“iKnowtion”). iKnowtion integrates proven marketing analytics methodologies and business consulting capabilities to help clients improve their return on marketing expenditures in such areas as demand generation, share of wallet, and channel mix optimization. iKnowtion is located in Boston, MA and has approximately 40 employees. The up-front cash consideration paid was $1.0 million. The Company was also obligated to pay a working capital adjustment equivalent to any acquired working capital from iKnowtion in excess of a working capital floor as defined in the purchase and sale agreement. The working capital adjustment was $0.2 million and was paid during the second quarter of 2012. The Company is also obligated to make earn-out payments over the next four years if iKnowtion achieves specified earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets, as defined by the purchase and sale agreement. The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 21% and expected future value of payments of $4.3 million. The $4.3 million of expected future payments was calculated using a probability weighted EBITDA assessment with higher probability associated with iKnowtion achieving the maximum EBITDA targets. As of the acquisition date, the fair value of the contingent payments was approximately $2.9 million. As of June 30, 2013, $1.1 million of contingent consideration has been paid and the fair value of the remaining contingent consideration was $2.9 million, of which $1.1 million and $1.8 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively. The fair value of the 20% noncontrolling interest in iKnowtion at the date of acquisition was $0.9 million and was estimated based on a 20% interest of the fair value of a 100% interest in iKnowtion and was discounted for a lack of control at a rate of 23.1%. In the event iKnowtion meets certain EBITDA targets for calendar year 2015, the purchase and sale agreement requires TeleTech to purchase the remaining 20% interest in iKnowtion in 2016 for an amount equal to a multiple of iKnowtions's 2015 EBITDA as defined in the purchase and sale agreement. These terms represent a contingent redemption feature. T he fair value of the redemption feature is based on a comparison of EBITDA multiples and the EBITDA multiple to purchase the remaining 20% of iKnowtion approximates EBITDA multiples in the market for similar acquisitions. The Company paid $0.1 million of acquisition related expenses as part of the iKnowtion purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Compreh ensive Income (Loss) during the three and six months ended June 3 0, 2012. The following summarizes the fair values of the identifiable assets acquired and liabilities and noncontrolling interest assumed as of the acquisition date (in thousands).
|  |  | Acquisition Date Fair Value
Cash |  | $ | 1,337
Accounts Receivable |  |  | 1,792
Property, plant and equipment |  |  | 161
Other assets |  |  | 90
Customer relationships |  |  | 1,400
Goodwill |  |  | 447
|  |  |  | 5,227
Accounts payable |  |  | 18
Accrued expenses |  |  | 19
Other |  |  | 164
|  |  | 201
Noncontrolling interest |  |  | 941
| Total purchase price |  | $ | 4,085
The iKnowtion customer relationships have an estimated useful life of 5 years. The goodwill recognized from the iKnowtion acquisition was attributable primarily to the acquired workforce of iKnowtion, expected synergies, and other factors. The tax basis of the acquired intangibles and goodwill are deductible for income tax purposes. The acquired goodwill and the operating results of iKnowtion are reported within the Customer Strategy Services segment from the date of acquisition. Guidon On October 4, 2012, the Company acquired 100% of the stock of Guidon Performance Solutions' (“Guidon”) parent company. Guidon provides operational consulting services and designs solutions for operational and cultural transformation for global clients. Guidon is located in Mesa, AZ and has approximately 25 employees. The up-front cash consideration paid was $5.6 million. The Company was also obligated to pay a working capital adjustment equivalent to any acquired working capital from Guidon in excess of a working capital floor defined in the stock purchase agreement. The working capital payment was less than $0.1 million and was paid during the fourth quarter of 2012. The Company is also obligated to make earn-out payments over the next two years if Guidon achieves specified EBITDA targets as defined in the stock purchase agreement. The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions included in the fair value calculation include a discount rate of 21% and expected future value of payments of $2.8 million. The $2.8 million of expected future payments was calculated using a probability weighted EBITDA assessment with higher probability associated with Guidon achieving the maximum EBITDA targets. As of the acquisition date, the fair value of the contingent payments was approximately $2.1 million. As of June 30, 2013, the fair value of the contingent consideration was $2.4 million, of which $1.3 million and $1.1 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively. The Company paid $0.1 million of acquisition related expenses as part of the Guidon purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2012. The following summarizes the fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):
|  |  | Acquisition Date Fair Value
Cash |  | $ | 376
Accounts Receivable |  |  | 1,375
Property, plant and equipment |  |  | 49
Other assets |  |  | 228
Customer relationships |  |  | 2,490
Goodwill |  |  | 3,619
|  |  |  | 8,137
Accounts payable |  |  | 202
Accrued expenses |  |  | 122
Other |  |  | 65
|  |  |  | 389
| Total purchase price |  | $ | 7,748
The Guidon customer relationships have an estimated useful life of 5 years. The goodwill recognized from the Guidon acquisition was attributable primarily to the acquired workforce of Guidon, expected synergies, and other factors. The tax basis of the acquired intangibles and goodwill are deductible for income tax purposes. The acquired goodwill and the operating results of Guidon are reported within the Customer Strategy Services segment from the date of acquisition. TSG On December 31, 2012, the Company acquired a 100% interest in Technology Solutions Group, Inc. (“TSG”). TSG designs and implements custom communications systems for a variety of business types and sizes. TSG is located in Aurora, IL and has approximately 90 employees. The up-front cash consideration paid was $32.7 million. The Company is also obligated to pay a working capital adjustment equivalent to any acquired working capital from TSG in excess of a working capital floor as defined in the stock purchase agreement. The working capital adjustment wa s $0.6 million and was paid during the second quarter of 2013. The Company is also obligated to make earn-out payments over three years if TSG achieves specified EBITDA targets, as defined by the stock purchase agreement. The fair value of the contingent payments was measured based on significant inputs not observable in the market (Level 3 inputs). Key assumptions included in the fair value calculation include a discount rate of 4.6% and expected future value of payments of $7.3 million. The $7.3 million of expected future payments was calculated using a probability weighted EBITDA assessment with higher probability associated with TSG achieving the maximum EBITDA targets. As of the acquisition date, the fair value of the contingent payments was approximately $6.7 million. As of June 30, 2013 the fair value of the contingent consideration was $6.9 million of which $2.4 million and $4.5 million were included in Other accrued expenses and Other long-term liabilities in the accompanying Consolidated Balance Sheets, respectively. The Company paid $0.1 million of acquisition related expenses as part of the TSG purchase. These costs were recorded in Selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income (Loss) during the year ended December 31, 2012. The following summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities and noncontrolling interest assumed as of the acquisition date (in thousands). The estimates of fair value of identifiable assets acquired and liabilities assumed, are preliminary, pending completion of a valuation, thus are subject to revisions that may result in adjustments to the values presented below:
|  | Preliminary Estimate of Acquisition Date Fair Value
Cash | $ | 1,995
Accounts receivable |  | 4,871
Prepaid assets - cost deferrals |  | 3,665
Property, plant and equipment |  | 583
Other assets |  | 1,886
Customer relationships |  | 15,300
Noncompete agreements |  | 2,300
Trade name |  | 1,100
Consulting services backlog |  | 800
Goodwill |  | 19,421
|  |  | 51,921
Accounts payable |  | 3,091
Accrued expenses |  | 1,539
Deferred revenue |  | 7,295
|  |  | 11,925
| Total purchase price | $ | 39,996
The TSG customer relationships have an estimated useful life of 10 years. The goodwill recognized from the TSG acquisition was attributable primarily to the acquired workforce of TSG, expected synergies, and other factors. The tax basis of the acquired intangibles and goodwill are deductible for income tax purposes. The acquired goodwill and the operating results of TSG are reported within the Customer Technology Services segment from the date of acquisition. The acquired businesses noted above contributed revenues of $14.5 million and $27.6 million and income from operations of $1.7 million and $2.2 million, inclusive of $0.9 million and $1.7 million of acquired intangible amortization, to the Company for the three and six months ended June 30, 2013, respectively. The acquired businesses noted above contributed revenues of $2.1 million and $2.7 million and income from operations of $0.3 million and $0.4 million, inclusive of $0.1 million and $0.1 million of acquired intangible amortization, to the Company for the three and six months ended June 30, 2012, respectively. WebMetro Subsequent to June 30, 2013, the Company entered into a conditional binding agreement to acquire 100% of the stock of WebMetro for $16.4 million subject to a customary working capital adjustment and earn-out payments tied to the 2013 and 2014 financial results of WebMetro for a maximum purchase price of $21.7 million. The agreement is conditional based on final negotiations. WebMetro is a top digital marketing agency that provides online direct marketing services. The operating results of Webmetro will be reported within the Customer Growth Services segment.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. 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This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 88-16 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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