United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the period ended March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From _________________ to
_____________________
Commission file number 0-26786
APAC TELESERVICES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2777140
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
One Parkway North Center,
Suite 510 60015
Deerfield, Illinois
(Address of principal (Zip Code)
executive office)
(847) 945-0055
(Registrant's telephone number, including
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether 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 (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Shares, $0.01 Par Value--46,238,362 shares outstanding as of May 15,
1996.
INDEX
APAC TELESERVICES, INC.
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets--March 31, 1996 and December 31, 1995
Condensed Statements of Income--Thirteen Weeks Ended March 31, 1996
and April 2, 1995
Condensed Statements of Cash Flows--Thirteen Weeks Ended
March 31, 1996 and April 2, 1995
Notes to Condensed Financial Statements--March 31, 1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
PART I. FINANCIAL INFORMATION
APAC TELESERVICES, INC.
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1996 1995
ASSETS (Unaudited) (Audited,
Note 1)
(000's omitted, except
share data)
CURRENT ASSETS
Cash and cash equivalents $ 23 $ 4,186
Short-term investments 16,700 26,000
Accounts receivable, net 30,915 18,736
Deferred preoperating costs 776 1,142
Prepaid expenses 393 652
Total Current Assets 48,807 50,716
PROPERTY, PLANT AND EQUIPMENT 43,438 32,105
Less--Accumulated depreciation and amortization (10,086) (8,489)
Property, Plant and Equipment, Net 33,352 23,616
Total Assets $ 82,159 $ 74,332
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and notes payable $ 3,623 $ 3,068
Income taxes payable 3,581 1,263
Other current liabilities 13,744 13,340
Total Current Liabilities 20,948 17,671
LONG-TERM DEBT, NET 1,411 1,474
DEFERRED INCOME TAXES 2,320 2,480
SHAREHOLDERS' EQUITY
Preferred shares, $0.01 par value; 50,000,000 shares
authorized; none issued and outstanding
Common shares, $0.01 par value; 100,000,000
shares authorized; 46,209,120 shares issued and
outstanding at March 31, 1996; 46,200,000 shares
issued and outstanding at December 31, 1995 462 462
Other shareholders' equity 57,018 52,245
Total Shareholders' Equity 57,480 52,707
Total Liabilities and Shareholders' Equity $ 82,159 $ 74,332
See Notes to Condensed Financial Statements.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THIRTEEN WEEKS ENDED
MARCH 31, APRIL 2,
1996 1995
(000's omitted, except
for per share data)
Net revenue $48,144 $17,865
Operating expenses:
Cost of services 34,386 11,481
Selling, general and
administrative expenses 6,191 3,616
Total operating expenses 40,577 15,097
Income from operations 7,567 2,768
Interest income (expense) 228 (242)
Income before income taxes 7,795 2,526
Income taxes 3,080 -
Net income $ 4,715 $ 2,526
Pro forma income data:
Net income as reported $ 2,526
Pro forma adjustment to
recognize "C" corporation
provision for income taxes (989)
Pro forma net income $ 1,537
Net income per share:
Net income as reported $ 0.10 $ 0.06
Pro forma adjustment - (0.02)
Net income as adjusted $ 0.10 $ 0.04
Weighted average number of shares
outstanding 47,678 40,086
See Notes to Condensed Financial Statements.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THIRTEEN WEEKS ENDED
MARCH 31, APRIL 2,
1996 1995
(000's omitted)
OPERATING ACTIVITIES
Net income $ 4,715 $ 2,526
Depreciation and amortization 2,016 754
Deferred income taxes (220) -
Change in operating assets and liabilities (8,409) 1,569
Net Cash Provided (Used) by Operations (1,898) 4,849
INVESTING ACTIVITIES
Sales of short-term investments 9,300 -
Purchases of property, plant and equipment (11,333) (4,561)
Net Cash Used by Investing Activities (2,033) (4,561)
FINANCING ACTIVITIES
Proceeds from long-term debt - 1,490
Payments on long-term debt (290) (505)
Net proceeds under Revolving Credit facility - 1,460
Decrease in book overdraft - (1,310)
Exercise of employee stock options 58 -
Dividends paid - (482)
Net Cash Provided (Used) by Financing Activities (232) 653
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ($4,163) $ 941
See Notes to Condensed Financial Statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the thirteen week period ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the fiscal year
ended December 29, 1996. The Balance Sheet at December 31, 1995, has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. For additional information, refer
to financial statements and footnotes thereto included in the annual report on
Form 10-K for the year ended December 31, 1995.
NOTE 2--INCOME TAXES
Prior to its initial public offering completed on October 16, 1995, the Company
had elected to be treated for Federal and certain state income tax purposes as
an S corporation. As a result, earnings of the Company have been taxed directly
to the shareholders of the Company, rather than to the Company. The pro forma
income data in the Statements of Income provides information as if the Company
had been treated as a C corporation for income tax purposes for the quarter
ended April 2, 1995.
NOTE 3--RELATED PARTY TRANSACTIONS
In February, 1996, Theodore G. Schwartz, Chairman and Chief Executive Officer of
the Company, and two Schwartz Family Trusts sold 2,875,000 shares of the
Company's Common Shares reducing the family's ownership to 65%. Costs
associated with the Schwartz family's secondary offering of Common Shares
amounting to approximately $350,000 have been incurred and expensed by the
Company and are included in selling, general and administrative expenses for the
quarter ended March 31, 1996.
NOTE 4--SUBSEQUENT EVENTS
On April 9, 1996, the Company announced a two-for-one stock split in the form of
a dividend payable on May 15, 1996, to holders of Common Shares of record on
April 26, 1996. Shareholders' equity and per share data have been retroactively
adjusted to reflect the stock split.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
APAC provides telephone-based sales, marketing and customer management services.
The Company has two primary service offerings. Sales Solutions provides
outbound sales support to consumers and businesses, database analysis and
management, market research, targeted marketing plan development and
customer lead generation, acquisition and retention. Service Solutions
provides inbound customer service, direct mail response, "help" line support
and catalog order processing.
RESULTS OF OPERATIONS
Net revenue in the first quarter of 1996 increased $30.3 million or 169.5% over
the first quarter of 1995. Approximately fifty percent of the revenue growth
occurred within the Service Solutions group relating to the commencement of a
four year contract to operate and manage four United Parcel Services' (UPS)
customer service facilities. The remaining increase was due to higher Sales
Solutions call volume from existing clients and the addition of new clients
from within the telecommunications industry.
Cost of services as a percentage of net revenue increased to 71.4% in the first
quarter of 1996 compared to 64.3% a year earlier. The increase in cost of
service reflects the shift in service mix to UPS, which has a lower gross margin
compared to the Company's other service offerings. Another factor contributing
to higher cost of services was recruiting, training and facility costs incurred
in advance of full-scale operations on the start up of eleven new Sales
Solutions calling centers during the first quarter of 1996.
Selling, general and administrative expenses in the first quarter of 1996
increased $2.6 million or 71.2% over the first quarter of 1995. Approximately
sixty-five percent of the growth was due to investments in systems and
management to support the Company's increased revenue base, with the balance
due primarily to expenses associated with the new UPS business and the
secondary offering of the Company's stock. As a percentage of revenue,
selling, general and administrative expenses decreased to 12.9% in the first
quarter of 1996 compared to 20.2% a year earlier as revenue grew at a faster
rate than increases in selling general and administrative expenses.
The $470,000 change from interest expense in the first quarter of 1995 to
interest income in the first quarter of 1996 reflects income earned on
short-term investments in 1996 and expense eliminated as a result of debt
retired in 1995 with cash raised in the initial public offering of the
Company's stock in October, 1995.
The $3.1 million increase in the provision for income taxes resulted from a
change in the Company's tax status from an S corporation to a C corporation in
connection with the initial public offering of the Company's stock. Prior to
the initial public offering, the Company included its income and expenses with
those of its shareholders for Federal and certain state income tax purposes (an
S corporation election). The Company's effective tax rate of 39.5% for the
first quarter of 1996 and pro forma tax rate of 39.2% for the first quarter of
1995 reflect Federal taxes at the statutory rate of 35% plus state taxes net of
Federal benefit and state job creation credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $16.7 million in cash and short-term investments at March 31,
1996. The Company also has a $10.0 million revolving credit agreement and a
$21.2 million line of credit that can be used to finance capital expenditures.
There was no borrowing under either of these credit lines in the first quarter
of 1996.
During the first quarter of 1996 operations used $1.9 million in cash compared
to $4.8 million in cash provided by operations in the first quarter of 1995.
Despite a $2.2 million or 87% increase in quarterly net income for 1996 as
compared to a year earlier, cash provided by operations decreased by $6.7
million due to higher accounts receivable balances generated through larger
sales volumes and extended billing cycles with several new clients. Capital
expenditures for 1996 amounted to $11.3 million. Funds for operating needs and
capital to add approximately 1,250 workstations in eleven new calling centers
opened in the first quarter were provided by use of cash and cash equivalent
balances of $4.2 million and proceeds from the sale of $9.3 million in short-
term investments. The Company expects that cash generated by future operations
and short-term investments will be sufficient to meet normal operating
needs as well as fund business growth for the balance of 1996.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are furnished as exhibits and numbered pursuant to
Item 601 of Regulation S-K: Exhibit (11) -- Statement Re: Computation of
Earnings Per Share and Exhibit (27) -- Financial Data Schedule.
(b) The registrant was not required to file any reports on Form 8-K for the
thirteen weeks ended March 31, 1996.
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, hereunto duly authorized.
APAC TELESERVICES, INC.
Date: May 15, 1996 By: /s/ Theodore G. Schwartz
Chairman, President and
Chief Executive Officer
Date: May 15, 1996 By: /s/ Marc S. Simon
Chief Financial Officer