| TELETECH HOLDINGS INC set forth, in Item 1A Risk Factors and Item 7 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations, a detailed discussion of risks and uncertainties relating to our business |
| We caution investors not to place undue reliance on these forward-looking statements, which speak only as of the date on which they were made |
| We undertake no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events, or otherwise, except as required by law |
| In various places throughout this Form 10-K we use certain non-GAAP financial measures when describing our performance |
| We believe such non-GAAP financial measures are informative to the users of our financial information |
| We discuss non-GAAP financial measures in Item 7 of this Form 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Presentation of Non-GAAP Measurements |
| History of Business We (“TeleTech,” “Management,” or the “Company”) are a provider of outsourced customer management services on a global basis |
| Our company was organized as a Delaware corporation on December 22, 1994 to continue the operations of its predecessor |
| Since the IPO, we have grown from nine customer management centers (“CMCs” or “Centers”) in four countries to 75 CMCs in 16 countries |
| Our two primary businesses are Customer Management Services and Database Marketing and Consulting |
| Our Customer Management Services business provides outsourced customer support and marketing services for a variety of industries via CMCs throughout the world (“Customer Care”), while our Database Marketing and Consulting business provides outsourced database management, direct marketing, and related customer acquisition and retention services for automotive dealerships and manufacturers operating in North America |
| Our principal executive offices are located at 9197 South Peoria Street, Englewood, Colorado 80112, and the telephone number at that address is (303) 397-8100 |
| Electronic copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and current Reports on Form 8-K are available free of charge by visiting the “Investors” section of our Web site at www |
| These reports are posted as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”) |
| In addition, we will provide electronic or paper copies of our SEC filings, free of charge, upon request |
| We grew in revenue and profitability from the Company’s founding through 2000, primarily driven by increases in large, global client contracts |
| Although revenue growth continued from 2000 to 2002, we began to experience operating losses beginning in 2001, which continued through 2003 |
| Those losses were the result of the following factors, among others: • Sales cycles increasing as a result of a global economic downturn; • Certain client contracts terminating or being scaled back resulting in excess CMC capacity; • Pricing and contract terms experiencing pressure as a result of the maturation of the customer management industry; • International operations experiencing difficulties, including an unsuccessful acquisition in Spain during 2000, excess capacity in the United Kingdom, and excess capacity coupled with certain unprofitable client programs in Latin America; 1 _________________________________________________________________ [37]Table of Contents • Decreased profitability of a large North American client program prior to transitioning the work to lower cost locations; and • Charges related to workforce reductions, asset impairments, and the closure of certain CMCs |
| To address these circumstances, in mid-2003 we developed a business plan with the objective of returning operations to profitability |
| Under that plan, we have taken the following actions, among others, over the last two years: • Appointed new operations and sales management teams; • Invested in our sales and account management teams; • Established product and sales teams to focus on the development of new products and services; • Expanded our lower cost, English-speaking services in Argentina, Canada, India, Mexico, and the Philippines; • Transitioned certain client programs to lower cost locations to improve profitability; • Terminated client contracts that we determined could not be reasonably returned to our desired level of profitability; • Implemented a plan to improve workforce utilization and operational efficiencies; and • Reduced our global operating costs, including reducing our global workforce and general and administrative expenses |
| The results of implementing those measures have been: • Eight consecutive quarters of profitability; and • A reduction in our total outstanding indebtedness of dlra95 million since December 31, 2003 |
| Description of Business We operate two distinct businesses — Customer Management Services and Database Marketing and Consulting |
| We further classify our Customer Management Services into North American Customer Care (providing customer management services to clients based in the United States (“US”)) and International Customer Care (consisting of clients in all other countries), resulting in three segments, which reflect our management of the Company, our internal financial reporting, and our operating focus |
| Financial information about our segments and geographic locations can be found in Note 2 to the Consolidated Financial Statements |
| Customer Management Services Our Customer Management Services business manages customer interactions on behalf of our clients via multi-channel CMCs throughout the world, using telephone, e-mail, integrated voice response, and Web-based services |
| Approximately 95prca of our Customer Management Services revenue comes from inbound customer interactions, and, therefore, the restrictions under the Do Not Call registry do not have a material impact on our business |
| Our Customer Management Services business includes: • Customer Acquisition Services: We provide new account services including processing and fulfilling pre-sale information requests, verifying sales, activating services, and directing customers to product or service sources |
| • Customer Provisioning Services: We manage front and back-office processes from order to installation |
| 2 _________________________________________________________________ [38]Table of Contents • Customer Support Services: We manage customer support interactions ranging from basic services such as billing support and account maintenance, to complex transactions such as insurance claims processing, technical support, and help-desk support |
| • Customer Development Services: We assist our clients with identifying high-value customers and seek to increase clients’ sales through up-selling and cross-selling their products and/or services |
| • Customer Retention Programs: We work in conjunction with clients to develop targeted customer satisfaction and loyalty programs to help manage customer attrition and/or turnover |
| • Other Customer-Related Programs: We assist our clients with account collections, collecting market research from customers, and performing outbound-call campaigns |
| Many clients request a combination of the above services |
| Additionally, we work to develop new products and services to meet client needs, which we refer to as “solutions |
| ” We offer clients an alternative to using in-house resources to manage customer relationships |
| Clients utilize our customer management experience, infrastructure, technology, and resources to increase their customer’s satisfaction |
| Our core competencies include: • Infrastructure deployment, including the development of data centers and CMCs; • Workforce development, including recruitment, education, and management of client-dedicated customer service representatives (“CSRs”); • Process control implementation, including formulating and engineering quality control systems; • Technology consulting and implementation, including the integration of hardware, software, network, and computer-telephony technology; and • Database management, including the accumulation, management, and analysis of customer information to aid in the development of marketing strategies |
| We offer services under three programs; (i) Fully Outsourced, which are turnkey CMCs leased, equipped, and staffed by us, (ii) Facilities Management, which are CMCs owned or leased and equipped by our clients and staffed by us, and (iii) Infrastructure Outsourced, which are CMCs leased and equipped by us and staffed by our clients |
| Fully Outsourced CMCs may be dedicated to a single client (“Dedicated Centers”) or serve multiple clients (“Multi-Client Centers”) |
| As of December 31, 2005, and excluding CMCs we announced plans to exit (see Note 7 to the Consolidated Financial Statements), we had 27cmam042 workstations in 75 CMCs, of which 14 were Dedicated Centers, 33 were Multi-client Centers, and 28 were Managed Centers representing 6cmam410; 15cmam961; and 4cmam671 workstations of capacity, respectively |
| Markets and Clients |
| We focus on large global corporations in the following industries: Automotive, Communications and Media, Financial Services, Government, Healthcare, Logistics, Retail, Technology, and Travel |
| The Communications and Media industry comprises approximately 49prca of our total revenue and represents the largest portion of our client programs |
| We had two clients who individually represented more than 10prca of 2005 total revenue: Sprint Nextel (formerly Nextel Communications, Inc |
| ; the Company contracts with IBM, who contracts with Sprint Nextel) and Verizon Communications (“Verizon”), which accounted for 17prca and 10prca of 2005 consolidated revenue, respectively |
| Certain of our communications clients, which represent approximately one-third of our annual revenue, also provide to us telecommunication services |
| We believe each of these supplier contracts is negotiated on an arms-length basis and may be negotiated at different times and with different legal entities |
| Expenditures under these supplier contracts represent less than one percent of total costs |
| We also have a significant client relationship with Ford Motor Company (“Ford”) |
| We provide Customer Management Services to internal Ford divisions and units |
| This client relationship, established in the form of a 3 _________________________________________________________________ [39]Table of Contents joint venture named Percepta, represented dlra88dtta2 million of 2005 revenue |
| We have a 55prca ownership interest in this venture |
| At the onset of this relationship in 2000, we issued stock purchase warrants to Ford entitling Ford to purchase 750cmam000 shares of our common stock for dlra12dtta47 per share |
| These warrants expired unexercised on December 31, 2005 |
| Also, the agreement provides that at any time after December 31, 2004, we have the right to require Ford to purchase its interest in the operations at fair market value |
| Ford also has the right to require us to sell our interest in the operations at fair value to Ford |
| At December 31, 2005, the net book value of the operating assets and liabilities was dlra8dtta5 million and for the year ended December 31, 2005, the income before taxes from this client relationship was dlra7dtta6 million |
| As discussed below, our Database Marketing and Consulting business has a client relationship with Ford that is unrelated to Percepta |
| Sales and Marketing |
| We typically provide Customer Management Services pursuant to written contracts with terms ranging from one to eight years and our contracts often contain renewal and/or extension options |
| Under the majority of our significant contracts, we generate revenue based on the amount of time CSRs devote to a client’s program |
| In addition, clients typically are required to pay fees relating to the implementation of the program including initial education and training of CSRs, setup of the program, and development and integration of computer software and technology |
| Clients also may be required to pay fees relating to the management of the program and the recruiting, hiring, and training of new CSRs to backfill vacant positions |
| Such fees may be billed as a separate charge upon commencement of the client relationship, or may be bundled into the recurring production rate billed to the client over the life of the contract |
| Contracts may, depending upon our assessment of the associated risks and opportunities, include provisions such as: (i) performance-based pricing provisions, whereby the client may pay more or we may have to issue a credit, depending upon our ability to meet agreed upon performance metrics, and (ii) a requirement for our clients to pay a fee in the event of early termination |
| Most contracts have price adjustment terms allowing for cost of living adjustments and/or market changes in CSR labor costs |
| Additionally, our client contracts generally contain provisions that designate the manner by which we receive payment for our services and allow us or the client to terminate the contract upon the occurrence of certain events |
| We employ a team sales approach and seek to hire business development professionals with experience in our targeted industries in order to best negotiate these contracts to fulfill the Company’s goals |
| We provide Customer Management Services through operations located in the US, Argentina, Australia, Brazil, Canada, China, Germany, India, Malaysia, Mexico, New Zealand, the Philippines, Singapore, Spain, the United Kingdom, and Venezuela |
| We apply predetermined site selection criteria to identify locations conducive to operating CMCs in a cost-effective manner |
| We pursue local government incentives such as tax abatements, cash grants, low-interest loans, training grants, and low-cost utilities |
| Following site evaluations and cost analyses, as well as client considerations, a specific site is located and a lease is negotiated and finalized |
| Once we take occupancy of a site, we use a standardized development process designed to control development costs and to minimize the time it takes to open a new CMC The site is retrofitted to requirements that incorporate engineering, cost control, and scheduling concepts while placing emphasis on the quality of the work environment |
| Upon completion, we integrate the new CMC into our corporate real estate and asset management processes |
| Generally, we can establish a new, fully operational CMC within 120 days after a lease is finalized and signed |
| On a quarterly basis, we assess the expected long-term capacity utilization of our Centers |
| Accordingly, we may consolidate or close under-performing Centers, including those impacted by the loss of a major client program, in order to maintain or improve targeted utilization and profit margins |
| Quality Assurance |
| These departments evaluate, on a real-time basis, a certain percentage of the customer interactions during a day, across all of the customer interaction mediums utilized 4 _________________________________________________________________ [40]Table of Contents within the Center |
| Using criteria mutually determined with the client, quality assurance professionals monitor, evaluate, and provide feedback to the CSRs on a weekly basis |
| As appropriate, representatives are recognized for superior performance or scheduled for additional training and coaching |
| Our technology platforms are designed to maximize the utilization of the CMCs and increase the efficiency of the CSRs |
| We use interaction routing technology designed to expedite response times, and workforce management systems designed to establish CSR staffing levels that most efficiently meet call volume demands |
| In addition, our technology platform allows for tracking of each customer interaction, filing the information within a relational database, and generating reports on demand so that both our clients and our internal operations teams can analyze the performance of the client program and gather information regarding customer behaviors |
| We have invested in designing and developing industry-specific, open-systems software applications and tools and, as a result, maintain a library of reusable software code for use in future developments |
| We run our application software on an open-system, client-server architecture and use a variety of products developed by third-party vendors |
| We continue to invest resources into the development and implementation of emerging customer management and technical support technologies |
| Human Resources |
| To sustain an adequate level of service and support for our clients’ customers, our CSRs undergo training before managing customer interactions and for many client programs, receive ongoing training on a regular basis |
| In addition to learning about the clients’ corporate culture and specific product or service offerings, CSRs receive training in the numerous media we use to execute our clients’ customer management program |
| We primarily employ full-time CSRs with competitive salaries and wages and a full range of employee benefits |
| We compete primarily with the in-house customer management operations of our current and potential clients |
| We also compete with certain companies that provide Customer Management Services on an outsourced basis, including Accenture, Convergys Corporation, EDS, IBM, SITEL Corporation, and Sykes Enterprises Incorporated, among others |
| We may work with some of these companies on a sub-contract basis |
| We compete primarily on the basis of experience, global locations, quality and scope of services, speed and flexibility of implementation, technological expertise, price, and contractual terms |
| A number of competitors may have greater capabilities and resources than ours |
| Additionally, niche providers or new entrants could capture a segment of the market by developing new systems or services that could impact our market potential |
| International Operations |
| Our international operations consist of customer management services provided to clients from facilities outside of the US, including Asia Pacific, Canada, Europe, and Latin America |
| See Note 2 to Consolidated Financial Statement for a discussion of the manner in which the countries we operate are reported on a segment basis |
| Our businesses in these countries are operated and managed as described above |
| Outbound programs represent a higher percentage of our client programs internationally than in North America |
| Additionally, competition in our international locations includes smaller, local providers of Customer Management Services in addition to the global providers listed above |
| In April 2003, we formed a joint venture agreement with Bharti Enterprises Limited (“Bharti”) to provide in-country and offshore customer management solutions in India |
| Initially, TeleTech and Bharti each had a 50prca ownership interest in the joint venture with TeleTech having the ability to acquire up to 80prca of the venture |
| In February 2004, we acquired an additional 10prca interest in the venture, bringing our total ownership interest to 60prca |
| Database Marketing and Consulting Our Database Marketing and Consulting segment provides outsourced database management, direct marketing, and related customer acquisition and retention services for automotive dealerships and automobile manufacturers operating in North America |
| The services provided by our Database Marketing and Consulting 5 _________________________________________________________________ [41]Table of Contents segment primarily consist of marketing campaigns utilizing direct mail and outbound teleservices to promote automobile service business from a dealership’s existing customer base |
| We provide Database Marketing and Consulting services to automotive dealers and manufacturers in the US and Canada |
| We have contracts with more than 4cmam000 automobile dealers representing 28 different automotive brand names |
| Additionally, we provide services directly to automobile manufacturers primarily related to national sales and service promotions |
| Under an agreement with Ford, we are a preferred provider to Ford dealerships which represent approximately 40prca of dealerships we serve |
| We employ sales professionals located in major automotive markets throughout the US and Canada |
| We have developed expertise in the operational aspects of database management, direct marketing, and teleservices |
| Our core competencies include; (i) developing databases with dealership-specific information; (ii) updating dealership data through our automated computer system; (iii) compiling related data; (iv) maintaining automobile maintenance schedules; and (v) providing systems for customer solicitation using direct mail and outbound teleservice |
| We monitor and measure the ongoing quality and accuracy of our processes and systems associated with our products through operating metrics |
| These metrics are routinely evaluated against the current business environment |
| We have invested significant resources in designing and developing proprietary, industry-specific software applications and tools and, as a result, maintain a library of reusable software code for use in future developments |
| We continue to invest resources to develop and implement emerging automotive customer services |
| We aim to recruit and hire personnel who have experience with automotive manufacturers and/or dealerships to enable us to provide our clients with an understanding of dealership operations and processes |
| Our employees receive training before managing customer interactions and, for many client programs, receive ongoing training on a regular basis |
| We compete with a variety of companies, including large national or multi-national companies and smaller regional or local companies, including Autobytel, eLeads, Moore Corporation Limited, On-line Administrators, and RL Polk |
| In addition, Ford will be offering a product that competes with our Database Marketing and Consulting services |
| As the trend toward dealership consolidation continues, dealerships may decide to create internal economies of scale, and could choose to satisfy their database management and direct marketing needs internally |
| In addition, we compete with the in-house database marketing and consulting services of our automotive dealership clients |
| Approximately 80prca of these employees held full-time positions |
| Our industry is labor-intensive and traditionally experiences significant personnel turnover |
| Our employees in Spain are subject to collective bargaining agreements mandated under national labor laws |
| Seasonality Historically we have experienced a seasonal impact in the fourth quarter primarily related to higher volumes from a few clients with seasonality in their business, particularly the package delivery business |
| Also, we typically experience higher labor related costs primarily during the first quarter due to payroll taxes |
| As discussed below, we earned a significant amount of revenue during the fourth quarter of 2005 from a short-term US government program to provide disaster relief services related to hurricanes in the US Although we have a multi-year contract with the US General Services Administration, there can be no assurance that the need for such services in the future will arise or that we would be selected to provide such services |
| “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources |
| ” Item 1A Risk Factors |
| You should not construe the following cautionary statements as an exhaustive list |
| We cannot always predict what factors would cause actual results to differ materially from those indicated in our forward-looking statements |
| All cautionary statements should be read as being applicable to all forward-looking statements wherever they appear |
| We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise |
| In light of these risks, uncertainties, and assumptions, the forward-looking events discussed herein might not occur |
| Forward-looking information may prove to be inaccurate |
| Some of the information presented in this Annual Report on Form 10-K constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 |
| These forward-looking statements include, but are not limited to, statements that include terms such as “may,” “will,” “intend,” “anticipate,” “estimate,” “expect,” “continue,” “believe,” “plan,” or the like, as well as all statements that are not historical facts |
| Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from current expectations |
| Although we believe our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results will not differ materially from expectations |
| Factors that could cause actual results to differ from expectations or have a material adverse effect upon our business include: Our revenues are generated from a limited number of clients |
| We rely on strategic, long-term relationships with large, global companies in targeted industries |
| As a result, we derive a substantial portion of our revenue from relatively few clients |
| Additionally, client consolidations could result in a loss of clients |
| There can be no assurance that we will not become more dependent on a few significant clients, that we will be able to retain any of our largest clients, that the volumes or profit margins of our most significant programs will not be reduced, or that we would be able to replace such clients or programs with clients or programs that generate comparable revenue and profits |
| In substantially all of our client programs, we generate revenue based, in large part, on the amount of time our CSRs devote to our clients’ customers |
| Consequently, the amount of revenue generated from any particular client program is dependent upon consumers’ interest in, and use of, the client’s products and/or services |
| There can be no assurance that our clients will continue to market products and services or develop new products and services that require them to use our services |
| Our financial results may be adversely impacted by the global economy |
| Our ability to enter into new multi-year contracts with large clients may be impacted by the general macroeconomic environment in which our clients and their customers operate |
| Weakening economic conditions, both global and local in nature, could result in increased sales cycles, delays in finalizing new business opportunities, slower growth, and reduced revenue from existing contracts |
| An economic downturn could negatively impact the financial condition of our clients, thereby increasing our risk of not receiving payment for services |
| There can be no assurance that weakening economic conditions or acts of terrorism throughout the world will not adversely impact our results of operations and/or financial position |
| Our business is subject to federal, state, and international regulations |
| Changes in US federal, state, and international outsourcing requirements, restrictions, and disclosures may affect the sale of our services, including expansion of overseas operations |
| In the US, some of our services must comply with various federal and state requirements and regulations regarding the method and practices of placing outbound telephone calls |
| There can be no assurance that changes in these regulations and requirements, or new restrictive regulations and requirements, will not slow growth of these services or require us to incur substantial costs |
| Most of our contracts do not ensure that we will generate a minimum level of revenue, and the profitability of each client program may fluctuate, sometimes significantly, throughout the various stages of a program |
| Our objective is to sign multi-year contracts with our clients |
| However, our contracts generally enable the clients to terminate the contract or reduce customer interaction volumes |
| Our larger contracts generally require the client to pay a contractually agreed amount in the event of early termination |
| Additionally, certain contracts have performance-related bonus and/or penalty provisions, whereby the client may pay us a bonus or we may have to issue a credit based upon our ability to meet agreed upon performance metrics |
| There can be no assurance that we will be able to collect early termination fees, avoid performance penalties, or earn performance bonuses |
| Our business may be affected by our ability to obtain financing |
| From time to time, we may need to obtain debt or equity financing for capital expenditures, for payment of existing obligations, or to replenish cash reserves |
| Additionally, our existing debt agreements require us to comply with certain financial covenants |
| There can be no assurance that we will be able to obtain debt or equity financing, or that any such financing would be on terms acceptable to us |
| There can be no assurance that we will be able to meet the financial covenants under our debt agreements or, in the event of noncompliance, will be able to obtain waivers or amendments from the lenders |
| Our business may be affected by risks associated with international operations and expansion |
| One component of our growth strategy is continued international expansion |
| There are certain risks inherent with conducting international business including management of personnel overseas, longer payment cycles, difficulties in accounts receivable collections, difficulties in complying with foreign laws, unexpected changes in regulatory requirements, political and social instability, and potentially adverse tax consequences |
| Any one or more of these factors could have a material adverse effect on our international operations and, consequently, on our business, consolidated results of operations, or consolidated financial condition |
| There can be no assurance that we will be able to manage our international operations successfully |
| Our future success will be dependent upon being able to find cost effective locations in which to operate, both domestically and internationally |
| There is no assurance that we will be able to find cost effective locations, obtain favorable lease terms, and build or retrofit facilities in a timely or economic manner |
| Our financial results may be adversely affected by increases in business costs |
| Some of our larger contracts allow us to increase our service fees if, and to the extent, certain cost or price indices increase |
| Increases in our service fees that are based upon increases in cost or price indices may not fully compensate us for increases in labor and other costs incurred in providing services |
| There can be no assurance that we will be able to recover increases in our costs through increased service fees |
| Our financial results depend on our ability to manage capacity utilization |
| Our profitability is influenced significantly by our CMC capacity utilization |
| We attempt to maximize utilization |
| However, because the majority of our business is inbound, we have significantly higher utilization during peak (weekday) periods than during off-peak (night and weekend) periods |
| We have experienced periods of idle capacity, particularly in our Multi-Client CMCs |
| Historically, we experience idle peak period capacity upon opening a new CMC or termination or completion of a large client program |
| On a quarterly basis, we assess the expected long-term capacity utilization of our Centers |
| We may consolidate or close under-performing centers in order to maintain or improve targeted utilization and margins |
| In the event we close CMCs in the future, we may be required to record restructuring or impairment charges, which would adversely impact our results of operations |
| There can be no assurance that we will be able to achieve or maintain optimal CMC capacity utilization |
| Our business operates in a highly competitive market |
| The market in which we operate is fragmented and highly competitive and competition may intensify in the future |
| We compete with small firms offering specific applications, divisions of large entities, large independent firms, and, most significantly, the in-house operations of clients or potential clients |
| A number of competitors may develop greater capabilities and 8 _________________________________________________________________ [44]Table of Contents resources than ours |
| Because our primary competitors are the in-house operations of existing or potential clients, our performance and growth could be adversely affected if our existing or potential clients decide to provide in-house Customer Management Services for customer care they currently outsource, or retain or increase their in-house customer care and product support capabilities |
| In addition, competitive pressures from current or future competitors also could cause our services to lose market acceptance or result in significant price erosion, which could have a material adverse effect upon our business, results of operations, and financial condition |
| There can be no assurance that additional competitors, some with greater resources than ours, will not enter our market |
| Our future success requires continued growth |
| Continued future growth will depend on a number of factors, including our ability to: (i) initiate, develop, and maintain new client relationships; (ii) expand existing client programs; (iii) staff and equip suitable CMC facilities in a timely manner; and (iv) develop new solutions and enhance existing solutions we provide to our clients |
| There can be no assurance that we will be able to effectively manage expanded operations or maintain our profitability |
| Our financial results may be affected by rapidly changing technology |
| Our business is highly dependent on our computer and telecommunications equipment and software capabilities |
| Our failure to maintain our technological capabilities or to respond effectively to technological changes could have a material adverse effect on our business, consolidated results of operations, or consolidated financial condition |
| Our continued growth and future profitability will be highly dependent on a number of factors, including our ability to: (i) expand our existing solutions offerings; (ii) achieve cost efficiencies in our existing CMC operations; and (iii) introduce new solutions that leverage and respond to changing technological developments |
| Our ability to effectively market and implement software solutions developed by our Database Marketing and Consulting segment, including recoverability of capitalized costs based on estimated future cash flows, is a factor in our future success |
| There can be no assurance that technologies or services developed by our competitors will not render our products or services non-competitive or obsolete, that we can successfully develop and market any new services or products, that any such new services or products will be commercially successful, or that the integration of new technological capabilities will achieve their intended cost reductions |
| Our success depends on key personnel |
| Our success will depend upon our ability to recruit, hire, and retain experienced executive personnel who can successfully execute our business plans |
| There can be no assurance that we will be able to hire, motivate, and retain highly effective executive employees on economically feasible terms who can successfully execute our business plans |
| Our business is dependent on our ability to maintain our workforce |
| Our success is largely dependent on our ability to recruit, hire, train, and retain qualified employees |
| Our industry is labor-intensive and experiences high employee turnover |
| A significant increase in the employee turnover rate could increase recruiting and training costs, thereby decreasing operating effectiveness and productivity |
| Also, if we obtain several significant new clients or implement several new, large-scale programs, we may need to recruit, hire, and train qualified personnel at an accelerated rate |
| We may not be able to continue to hire, train, and retain sufficient qualified personnel to adequately staff new customer management programs |
| In addition, certain CMCs are located in geographic areas with relatively low unemployment rates, which could make it more difficult and costly to hire qualified personnel |
| There can be no assurance that we will be able maintain our workforce at necessary levels |
| Our success may be affected by our ability to complete and integrate acquisitions and joint ventures |
| We may pursue strategic acquisitions of companies with services, technologies, industry specializations, or geographic coverage that extend or complement our existing business |
| We may face increased competition for acquisition opportunities, which may inhibit our ability to complete suitable acquisitions on favorable terms |
| We may pursue strategic alliances in the form of joint ventures and partnerships, which involve many of the same risks as acquisitions as well as additional risks associated with possible lack of control if we do not have a majority ownership position |
| There can be no assurance that we will be successful in integrating acquisitions or joint ventures into our existing businesses, or that any acquisition or joint venture will enhance our business, results of operations, or financial condition |
| 9 _________________________________________________________________ [45]Table of Contents Our business depends on uninterrupted service to clients |
| Our operations are dependent upon our ability to protect our computer and telecommunications equipment and software systems against damage or interruption from fire, power loss, cyber attacks, telecommunications interruption or failure, natural disaster, and other similar events |
| Our operations may also be adversely affected by damage to our facilities resulting from fire, natural disaster, or other events |
| Additionally, severe weather can cause interruption in our ability to deliver our services, such as when our employees cannot attend work, resulting in a loss of revenue |
| In the event we experience a temporary or permanent interruption at one or more of our locations (including our corporate headquarters building), through the reasons noted above or otherwise, our business could be materially adversely affected and we may be required to pay contractual damages or face the loss of certain clients altogether |
| We maintain property and business interruption insurance |
| However, there can be no assurance that such insurance will adequately compensate us for any losses we may incur |
| Our financial results may experience variability |
| We experience quarterly variations in operating results because of a variety of factors, many of which are outside our control |
| In addition, we make decisions regarding staffing levels, investments, and other operating expenditures based on our revenue forecasts |
| If our revenue is below expectations in any given quarter, our operating results for that quarter would likely be materially adversely affected |
| There can be no assurance that future quarterly or annual operating results will reflect past operating results |
| Our financial results may be impacted by foreign currency exchange risk |
| We serve an increasing number of our US clients from CMCs in Argentina, Canada, India, Mexico, and the Philippines |
| Contracts with these clients are typically priced in US dollars while the costs incurred to operate these CMCs are denominated in the foreign currency of the country from which the clients are served, representing a foreign currency exchange risk to us |
| Although we enter into financial hedge instruments to manage and reduce the impact of changes in certain foreign currency exchange rates, we do not hedge 100prca of these risks |
| If the US dollar weakens, the operating income of these CMCs, once translated into US dollars, decreases in comparison to prior years to the extent we have not hedged 100prca |
| If the US dollar was to materially weaken, our consolidated financial results may be adversely impacted |
| While our hedging strategy effectively offset a portion of these foreign currency changes during 2005, there can be no assurance that we will continue to successfully partially hedge this foreign currency exchange risk or that the US dollar will not materially weaken |
| Our financial results may be adversely impacted by our Database Marketing and Consulting segment |
| Prior to 2005, our Database Marketing and Consulting segment had historically experienced high levels of profitability |
| We have plans to return this segment to profitability |
| A part of our plan provided for entering into a new agreement with Ford for 2006 wherein we would provide services to Ford’s automotive dealerships on a preferred, not on an exclusive basis as was the previous agreement, in return for pricing flexibility |
| There can be no assurance that we will be successful in executing our plans to return this segment to prior levels of profitability |
| We have approximately dlra13 million of goodwill for this segment whose ultimate recoverability is dependent upon the profitability of this segment |
| Our consolidated financial results and consolidated financial position, including our ability to obtain financing, may be adversely impacted if we are unable to return that segment to previous profitability levels |