Acquisition of Alpine Access, Inc.

9 Months Ended

Sep. 30, 2012

Acquisition of Alpine Access, Inc.

Note 2. Acquisition of Alpine Access, Inc.

On August 20, 2012, the Company acquired 100% of the outstanding common shares and voting interest of Alpine, pursuant to the terms of the merger agreement. Alpine is an industry leader in the at-home agent space – recruiting, training, managing and delivering award-winning customer contact management services through a secured and proprietary virtual call center environment with its operations located in the United States and Canada. The results of Alpine’s operations have been included in the Company’s consolidated financial statements since its acquisition on August 20, 2012. The Company acquired Alpine to: create significant competitive differentiation for quality, speed to market, scalability and flexibility driven by proprietary, internally-developed software, systems, processes and other intellectual property which uniquely overcome the challenges of the at-home delivery model; strengthen the Company’s current service portfolio and go-to-market offering while expanding the breadth of clients with minimal client overlap; broaden the addressable market opportunity within existing and new verticals as well as clients; expand the addressable pool of skilled labor; leverage operational best practices across the Company’s global platform, with the potential to convert more of its fixed cost to variable cost; and to further enhance the growth and margin profile of the Company to drive shareholder value. This resulted in the Company paying a substantial premium for Alpine resulting in the recognition of goodwill.

The acquisition date fair value of the consideration transferred totaled $149.0 million, which was funded through cash on hand of $41.0 million and borrowings of $108.0 million under the Company’s credit agreement, dated May 3, 2012. See Note 12, Borrowings, for further information.

The Company accounted for the acquisition in accordance with ASC 805 (“ASC 805”) “Business Combinations”, whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed from Alpine based on their estimated fair values as of the closing date. Certain amounts are provisional and are subject to change, including the following items:

• the approval of the final working capital adjustment by the authorized representative of Alpine’s shareholders, and

• the amount of goodwill.

The Company expects to complete its analysis of the purchase price allocation during the fourth quarter of 2012.

The following table summarizes the estimated acquisition date fair values of the assets acquired and liabilities assumed, all included in the Americas segment (in thousands):

	Amount
Cash and cash equivalents	$	1,859
Receivables		11,831
Prepaid expenses		617
Total current assets		14,307
Property and equipment		11,326
Goodwill		80,766
Intangibles		57,720
Deferred charges and other assets		916
Accounts payable		(880	)
Accrued employee compensation and benefits		(3,774	)
Income taxes payable		(141	)
Deferred revenue		(94	)
Other accrued expenses and current liabilities		(601	)
Total current liabilities		(5,490	)
Other long-term liabilities (1)		(10,592	)
	$	148,953

⁽¹⁾  Primarily includes long-term deferred tax liabilities.

Fair values are based on management’s estimates and assumptions including variations of the income approach, the cost approach and the market approach. The following table presents the Company’s purchased intangibles assets as of August 20, 2012, the acquisition date (in thousands):

	Amount Assigned		Weighted Average Amortization Period (years)
Customer relationships	$	46,000		8
Trade names		10,600		8
Non-compete agreements		670		2
Favorable lease agreement		450		2
	$	57,720		8

The $80.8 million of goodwill was assigned to the Company’s Americas operating segment. Pursuant to Federal income tax regulations, no amount of intangibles or goodwill from this acquisition will be deductible for tax purposes.

The fair value of receivables acquired is $11.8 million, with the gross contractual amount of $11.8 million.

The amount of Alpine’s revenues and net loss since the August 20, 2012 acquisition date, included in the Company’s Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2012 were as follows (in thousands):

	From August 20, 2012 Through September 30, 2012
Revenues	$	10,095
(Loss) from continuing operations before income taxes	$	(1,935	)
(Loss) from continuing operations, net of taxes	$	(1,907	)

The loss from continuing operations before income taxes of $1.9 million includes $1.3 million in severance costs, depreciation resulting from the adjustment to fair value of the acquired property and equipment and amortization of the fair values of the acquired intangibles.

The following table presents the unaudited pro forma combined revenues and net earnings as if Alpine had been included in the consolidated results of the Company for the entire three and nine month periods ended September 30, 2012 and 2011. The pro forma financial information is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2012 and 2011 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenues	$	292,580	$	318,932	$	885,878	$	966,926
Income from continuing operations, net of taxes	$	9,622	$	16,380	$	24,296	$	41,164
Income from continuing operations per common share:
Basic	$	0.22	$	0.36	$	0.57	$	0.89
Diluted	$	0.22	$	0.36	$	0.57	$	0.89

These amounts have been calculated to reflect the additional depreciation, amortization and interest expense that would have been incurred assuming the fair value adjustments and borrowings occurred on January 1, 2012 and January 1, 2011, together with the consequential tax effects. In addition, these amounts exclude costs incurred which are directly attributable to the acquisition, and which do not have a continuing impact on the combined companies’ operating results. Included in these costs are severance, advisory and legal costs, net of the tax effects.

Acquisition-related costs associated with Alpine, comprised of severance costs and transaction and integration costs, and included in “General and administrative” costs in the accompanying Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2012 were as follows (none in the comparable periods in 2011) (in thousands):

	Three Months Ended September 30, 2012		Nine Months Ended September 30, 2012
Severance costs:
Americas	$	320	$	320
Corporate		377		377
		697		697
Transaction and integration costs:
Corporate		3,045		3,095
		3,045		3,095
Total acquisition-related costs	$	3,742	$	3,792