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 quarterly period ended June 30, 2001 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: 0-20807
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ICT GROUP, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2458937
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
800 Town Center Drive, Langhorne PA 19047
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(Address of principal executive offices) (Zip Code)
215-757-0200
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Registrant's telephone number, including area code.
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 (or for such shorter period 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, 12,177,625 shares outstanding as of
August 6, 2001.
ICT GROUP, INC.
INDEX
PART 1 FINANCIAL INFORMATION PAGE
Item 1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000 3
Consolidated Statements of Operations -
Three months and six months ended
June 30, 2001 and 2000 5
Consolidated Statements of Cash Flows -
Six months ended June 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS 15
Item 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
Item 6 EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
2
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, December 31,
2001 2000
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,804 $ 8,539
Accounts receivable, net 43,339 42,411
Prepaid expenses and other 3,209 3,074
Deferred income taxes 307 307
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Total current assets 56,659 54,331
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PROPERTY AND EQUIPMENT, net
Communications and computer equipment 56,738 54,023
Furniture and fixtures 11,628 11,838
Leasehold improvements 6,930 6,614
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75,296 72,475
Less: Accumulated depreciation and
amortization (41,387) (36,315)
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33,909 36,160
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DEFERRED INCOME TAXES 1,689 1,689
OTHER ASSETS 2,460 1,557
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$94,717 $93,737
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The accompanying notes are an integral part of these statements.
3
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, December 31,
2001 2000
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of line of credit $ 4,000 $ 8,500
Current portion of long-term debt -- 4,000
Current portion of capitalized lease obligations 141 292
Accounts payable 8,351 10,433
Accrued expenses 9,426 7,829
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Total current liabilities 21,918 31,054
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LINE OF CREDIT 13,000 --
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LONG-TERM DEBT -- 6,000
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SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value 5,000 shares authorized,
none issued -- --
Common Stock, $0.01 par value, 40,000 shares authorized,
12,174 and 12,074 shares issued and outstanding 122 121
Additional paid-in capital 50,010 49,797
Retained earnings 12,581 8,283
Accumulated other comprehensive loss (2,914) (1,518)
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Total shareholders' equity 59,799 56,683
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$94,717 $93,737
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The accompanying notes are an integral part of these statements.
4
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2001 2000 2001 2000
------- ------- -------- -------
NET REVENUES $58,004 $48,126 $115,776 $89,411
------- ------- -------- -------
OPERATING EXPENSES:
Cost of services 32,139 26,929 64,198 50,379
Selling, general and administrative 22,058 18,090 44,186 33,771
------- ------- -------- -------
54,197 45,019 108,384 84,150
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Operating income 3,807 3,107 7,392 5,261
INTEREST EXPENSE, NET 212 300 570 467
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Income before income taxes 3,595 2,807 6,822 4,794
INCOME TAXES 1,330 1,095 2,524 1,870
------- ------- -------- -------
NET INCOME $ 2,265 $ 1,712 $ 4,298 $ 2,924
======= ======= ======== =======
EARNINGS PER SHARE:
Basic earnings per share $0.19 $0.14 $0.36 $0.25
======= ======= ======== =======
Diluted earnings per share $0.18 $0.14 $0.34 $0.24
======= ======= ======== =======
Shares used in computing basic earnings per share 12,130 11,841 12,103 11,824
======= ======= ======== =======
Shares used in computing diluted earnings per share 12,684 12,361 12,611 12,387
======= ======= ======== =======
The accompanying notes are an integral part of these statements.
5
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
-------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,298 $2,924
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,117 4,529
(Increase) in:
Accounts receivable (928) (7,833)
Prepaid expenses and other (135) (290)
Other assets (948) (96)
Increase (Decrease) in:
Accounts payable (2,082) 4,016
Accrued expenses 1,597 1,610
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Net cash provided by operating activities 6,919 4,860
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,821) (15,069)
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Net cash used in investing activities (2,821) (15,069)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 8,500 -
Proceeds from long-term-debt - 9,500
Payments on long-term debt (10,000) (2,000)
Payments on capitalized lease obligations (151) (331)
Proceeds from exercise of stock options 214 184
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Net cash provided by (used in) financing activities (1,437) 7,353
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EFFECT OF FOREIGN EXCHANGE RATE CHANGE ON CASH
AND CASH EQUIVALENTS (1,396) (545)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,265 (3,401)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,539 12,239
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CASH AND CASH EQUIVALENTS, END OF PERIOD $9,804 $8,838
====== ======
The accompanying notes are an integral part of these statements.
6
ICT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with 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 three and six month periods ended June
30, 2001 and 2000 are not necessarily indicative of the results that may be
expected for the complete fiscal year. For additional information, refer to the
consolidated financial statements and footnotes thereto included in the Form
10-K for the year ended December 31, 2000.
Note 2: EARNINGS PER SHARE
The Company has presented earnings per share pursuant to Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," and the Securities
and Exchange Commission Staff Accounting Bulletin No. 98. Basic earnings per
share ("Basic EPS") is computed by dividing the net income for each period by
the weighted average number of shares of Common stock outstanding for each
period. Diluted earnings per share ("Diluted EPS") is computed by dividing the
net income for each period by the weighted average number of shares of Common
stock and Common stock equivalents outstanding for each period. For the six
months ended June 30, 2001 and 2000, Common stock equivalents outstanding used
in computing Diluted EPS were 508,000 and 560,000 respectively. For the three
months ended June 30, 2001 and 2000, Common stock equivalents outstanding used
in computing Diluted EPS were 554,000 and 520,000, respectively. For the six
months ended June 30, 2001 and 2000, options to purchase 50,500 and 353,000
shares of Common stock were outstanding, but not included in the computation of
Diluted EPS as the result would be antidilutive. For the three months ended June
30, 2001 and 2000, options to purchase 30,500 and 365,000 shares of Common stock
were outstanding, but not included in the computation of Diluted EPS as the
result would be antidilutive.
Note 3: COMPREHENSIVE INCOME (LOSS)
The Company follows SFAS No. 130, "Reporting Comprehensive Income". This
statement requires companies to classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net Income $2,265,000 $1,172,000 $4,298,000 $2,924,000
Foreign currency translation adjustments (207,000) (234,000) (879,000) (332,000)
---------- ---------- ---------- ----------
Comprehensive income $2,058,000 $1,478,000 $3,419,000 $2,592,000
========== ========== ========== ==========
7
Note 4: OPERATING AND GEOGRAPHIC INFORMATION
Under the disclosure requirements of SFAS No. 131, the Company classifies its
operations into two business segments: Domestic CRM Services and International
CRM Services. Previously, the Company reported disclosure for three operating
segments. The Company reassessed its operating segments and determined that two
operating segments more appropriately reflect the Company's business operations.
Specifically, the Company has combined the previously reported Domestic
TeleServices and Customer Management Services segments of its business into a
single segment called Domestic CRM Services. The Company has also renamed the
International Services segment as International CRM Services. The operating
segments are managed separately because each operating segment represents a
strategic business unit that offers its services in different geographic
markets. Segment assets include amounts specifically identified to each segment.
Corporate assets consist primarily of property and equipment. The Domestic CRM
Services segment provides inbound and outbound telesales, database marketing,
marketing research, contact center consulting, technology hosting, and ongoing
customer care management services on behalf of customers operating in the
Company's target industries. The International CRM Services segment provides the
same services in Europe, Canada, and Australia and includes business conducted
by Spantel for the US Hispanic market.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------
2001 2000 2001 2000
------- ------- -------- -------
Net Revenues:
Domestic CRM Services $42,320 $36,644 $ 83,076 $68,624
International CRM Services 15,684 11,482 32,700 20,787
------- ------- -------- -------
$58,004 $48,126 $115,776 $89,411
======= ======= ======== =======
Operating Income:
Domestic CRM Services $ 1,847 $ 2,166 $ 3,646 $ 4,306
International CRM Services 1,960 941 3,746 955
------- ------- -------- -------
$ 3,807 $ 3,107 $ 7,392 $ 5,261
======= ======= ======== =======
Total Assets:
Domestic CRM Services $61,501 $65,833 $ 61,501 $65,833
International CRM Services 28,179 22,206 28,179 22,206
Corporate 5,037 5,392 5,037 5,392
------- ------- -------- -------
$94,717 $93,431 $ 94,717 $93,431
======= ======= ======== =======
Depreciation and Amortization:
Domestic CRM Services $ 1,430 $ 1,293 $ 2,798 $ 2,487
International CRM Services 786 597 1,310 1,175
Corporate 559 527 1,009 871
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$ 2,775 $ 2,417 $ 5,117 $ 4,533
======= ======= ======== =======
Capital Expenditures:
Domestic CRM Services $ 1,126 $ 4,870 $ 2,567 $11,670
International CRM Services 811 1,705 (200) 1,914
Corporate 199 860 454 1,485
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$ 2,136 $ 7,435 $ 2,821 $15,069
======= ======= ======== =======
8
The following table represents information about the Company
by geographic area:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------
2001 2000 2001 2000
------- ------- -------- -------
Net Revenues:
United States $45,695 $38,487 $ 89,678 $72,191
Canada 6,954 5,999 14,856 10,581
Europe 4,629 2,832 9,671 5,243
Australia 726 808 1,571 1,396
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$58,004 $48,126 $115,776 $89,411
======= ======= ======== =======
Operating Income (loss):
United States $ 2,429 $ 2,419 $ 4,760 $ 4,870
Canada 1,219 1,089 2,248 1,111
Europe 292 (218) 651 (452)
Australia (133) (183) (267) (268)
------- ------- -------- -------
$ 3,807 $ 3,107 $ 7,392 $ 5,261
======= ======= ======== =======
Identifiable Assets:
United States $66,537 $70,787 $ 66,537 $70,787
Canada 11,717 10,808 11,717 10,808
Europe 14,140 10,636 14,140 10,636
Australia 2,323 1,200 2,323 1,200
------- ------- -------- -------
$94,717 $93,431 $ 94,717 $93,431
======= ======= ======== =======
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 2001
GENERAL
ICT Group, Inc. (the "Company" or "ICT") is a leading global supplier
of customer relationship management (CRM) solutions. The Company provides
integrated telesolutions, e-solutions and market solutions helping its clients
identify, acquire, retain, service, measure, and maximize the lifetime value of
their customer relationships. ICT's telesolutions offering includes outbound
telesales and inbound customer support for sales and service applications,
domestically and internationally. Its e-solutions offering provides real-time
interaction-driven customer support for Internet sales and service applications
through Web-enabled customer contact center services, e-mail management and
processing, and multi-channel CRM services. Market research, database marketing,
and data mining capabilities are available through its market solutions
offering, including questionnaire design, telephone interviewing, and data
coding, tabulating, and analysis services.
The Company's customer management services experience, Internet and CRM
technology capabilities and expertise in select target industries enables it to
provide its clients with high quality cost-effective solutions. These solutions
have been traditionally available from the Company on an outsourced basis, using
ICT's customer contact centers, and now the Company provides an option for
businesses to purchase or lease them on a hosted or co-sourced basis.
Accordingly, ICT has begun offering these services through a hosted arrangement,
using the client's staff and facility, or on a co-sourced basis, using both the
client's operation and ICT's technologically compatible customer contact
centers. To accomplish this, the Company launched iCT ConnectedTouch, LLC in
2000. This wholly-owned subsidiary provides hosted technology solutions and
consultative services for in-house CRM sales and service operations.
The Company's growth strategy includes the following key elements:
[ ] Expand Value-Added Services
[ ] Develop Strategic Alliances and Acquisitions
[ ] Increase International Presence
[ ] Focus on Industry Specialization
[ ] Maintain Technology Investment
[ ] Continue Commitment to Quality Service
[ ] Target the In-Sourced CRM Market
[ ] Pursue e-Commerce Opportunities
10
RESULTS OF OPERATIONS
Three Months Ended June 30, 2001 and 2000:
Net Revenues. Net revenues increased 21% to $58.0 million for the three
months ended June 30, 2001 from $48.1 million for the three months ended June
30, 2000. Revenues from the Domestic CRM Services segment increased 15% to $42.3
million from $36.6 million in the three months ending June 30, 2000 and
accounted for 73% of company revenues versus 76% for the same period in the
prior year. Business from existing clients was flat as growth from certain
existing customers was offset by declines with other existing clients. As a
result, all of the net growth was from new customers due to the addition of
several new contracts. International CRM Services revenues grew 37% to $15.7
million from $11.5 million in the three months ending June 30, 2000 and
accounted for 27% of Company revenues versus 24% for the same period in the
prior year. Most of the increase was from expanded business with existing
customers.
Cost of Services. Cost of services, which consist primarily of direct
labor and telecommunications costs, increased 19% to $32.1 million for the three
months ended June 30, 2001 from $26.9 million in the three months ended June 30,
2000. This increase is primarily the result of increased direct labor and
telecommunications costs required to support the increased revenue volume. As a
percentage of revenues, cost of services decreased to 55% in the second quarter
of 2001 from 56% in the same quarter of 2000 which was primarily the result of a
decrease in labor cost per production hour due to productivity improvements and
the migration of contact centers to lower cost labor areas.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 22% to $22.1 million for the three months
ended June 30, 2001 from $18.1 million for the three months ended June 30, 2000
primarily due to the increased number of contact centers and workstation
capacity and additional sales and systems support implemented to support
business growth. As a percentage of revenues, selling, general and
administrative expenses were 38% for both the three months ended June 30, 2001
and 2000.
Interest Expense, net. Net interest expense of $212,000 in the second
quarter of 2001 versus $300,000 in the second quarter of 2000, reflects the
interest expense related to capital leases and borrowings against the Company's
line of credit offset by investment income. The decrease in net interest expense
is primarily the result of decreased average outstanding balances on line of
credit borrowings to fund capital expenditures in 2001 as compared to 2000, and
decreased interest rates.
Provision for Income Taxes. Provision for income taxes increased
$235,000 to $1.3 million for the second quarter of 2001 from $1.1 million in the
second quarter of 2000. For the second quarter of 2001, the provision for income
taxes was approximately 37% of income before income taxes. For the second
quarter of 2000, the provision for income taxes was approximately 39% of income
before income taxes.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2001 and 2000:
Net Revenues. Net revenues increased 29% to $115.8 million for the six
months ended June 30, 2001 from $89.4 million for the six months ended June 30,
2000. Revenues from the Domestic CRM Services segment increased 21% to $83.1
million from $68.6 million in the six months ending June 30, 2000 and accounted
for 72% of company revenues versus 77% for the same period in the prior year.
Business from existing clients was flat as growth from certain existing
customers was offset by declines with other existing clients. As a result, all
of the net growth was from new customers due to the addition of several new
contracts. International CRM Services revenues grew 57% to $32.7 million from
$20.8 million in the six months ending June 30, 2000 and accounted for 28% of
Company revenues versus 23% for the same period in the prior year. Most of the
increase was from expanded business with existing customers.
11
Cost of Services. Cost of services, which consist primarily of direct
labor and telecommunications costs, increased 27% to $64.2 million for the six
months ended June 30, 2001 from $50.4 million in the six months ended June 30,
2000. This increase is primarily the result of increased direct labor and
telecommunications costs required to support the increased revenue volume. As a
percentage of revenues, cost of services decreased to 55% in the first six
months of 2001 from 56% in the same period of 2000 which was primarily the
result of a decrease in labor cost per production hour due to productivity
improvements and the migration of contact centers to lower cost labor areas.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 31% to $44.2 million for the six months ended
June 30, 2001 from $33.8 million for the six months ended June 30, 2000 due to
the increased number of contact centers and workstation capacity and additional
sales and systems support implemented to support business growth. As a
percentage of revenues, selling, general and administrative expenses were 38%
for both the six months ended June 30, 2001 and 2000.
Interest Expense, net. Net interest expense of $570,000 in the first
six months of 2001 versus $467,000 in the first six months of 2000, reflects the
interest expense related to capital leases and borrowings against the Company's
line of credit for capital expansion offset by investment income. The increase
in net interest expense is primarily the result of increased average outstanding
balances on borrowings in 2001 as compared to 2000, partially offset by lower
interest rates.
Provision for Income Taxes. Provision for income taxes increased
$654,000 to $2.5 million for the first six months of 2001 from $1.9 million in
the first six months of 2000. For the first six months of 2001, the provision
for income taxes was approximately 37% of income before income taxes. For the
first six months of 2000, the provision for income taxes was approximately 39%
of income before income taxes.
Quarterly Results and Seasonality
The Company has experienced and expects to continue to experience
significant quarterly variations in operating results, principally as a result
of the timing of client programs, the commencement and expiration of contracts,
the timing and amount of new business generated by the Company, the Company's
revenue mix, the timing of additional selling, general and administrative
expenses to support the growth and development of existing and new business
units and competitive industry conditions.
Historically, the Company's business tends to be strongest in the
second and fourth quarters due to the high level of client sales activity in the
spring and prior to the holiday season. In the first quarter, CRM Services
business generally levels off or slows from the previous quarter as a result of
reduced client sales activity and client transitions to new marketing programs
during the first quarter of the calendar year. Historically, the Company has
expanded its operations in the first quarter to support anticipated business
growth beginning in the second quarter, however growth in the second quarter of
2001 was somewhat constrained by the slowing growth in our International CRM
Services business. Demand for the Company's services typically slows or
decreases in the third quarter as the volume of business decreases during the
summer months. In addition, the Company's operating expenses increase during the
third quarter in anticipation of higher demand for its services during the
fourth quarter.
12
Liquidity and Capital Resources
Cash provided by operating activities was $6.9 million for the six
months ended June 30, 2001 versus $4.9 million of cash provided by operating
activities for the six months ended June 30, 2000. The approximate $2.0 million
increase is the result of higher net income in the first six months of 2001
compared to the first six months of 2000, and a slowing of the growth in
accounts receivable partially offset by a decrease in accounts payable. In the
second quarter of 2000, revenues grew 24% compared to revenues in the fourth
quarter of 1999 causing an increase in accounts receivable of $7.8 million for
the six months ending June 30, 2000. Revenues in the second quarter of 2001 were
flat compared to fourth quarter 2000 revenues, resulting in lower growth of
accounts receivable for the six months ending June 30, 2001. Part of this
decrease in the growth was offset by a decrease in accounts payable as spending
for capital expenditures is down significantly in the six months ending June 30,
2001 compared to spending for the six months ending June 30, 2000.
Cash used in investing activities was $2.8 million for the six months
ended June 30, 2001 compared to $15.1 million for the first half of 2000. The
decrease over the prior year is attributable to a lower investment in capital
expenditures and the decision to utilize operating leases as a means to finance
a portion of the capital additions. Approximately $4.8 million of capital
expenditures were financed by operating leases in the first six months of 2001
versus none in the first six months of 2000. Also, in the first six months of
2000 a significant investment was made in software licenses for iCT
ConnectedTouch, LLC, the Company's wholly owned subsidiary that provides hosted
technology solutions and consultative services for in-house CRM service
operations. The Company added 167 workstations in the first six months of 2001,
and operates 6,088 workstations at June 30, 2001. In the first six months of
2000 the Company added 751 workstations, and operated 4,919 workstations at June
30, 2000.
Cash used in financing activities was $1.4 million for the six months
ended June 30, 2001 versus cash provided by financing activities of $7.4 million
for the comparable 2000 period. The $8.8 million decrease is due to the
significantly lower capital expenditures in the first six months of 2001 versus
the comparable 2000 period. Consequently, the Company paid down debt of $1.5
million during the first six months of 2001 versus net borrowing of $7.5 million
in the first six months of 2000.
The Company's operations will continue to require significant capital
expenditures. Historically, equipment purchases have been financed through cash
generated from operations, the Company's line of credit, operating leases, and
through capitalized lease obligations with various equipment vendors and lending
institutions. The capitalized lease obligations are payable in varying
installments through 2001. Outstanding obligations under capitalized leases at
June 30, 2001 were $141,000. At June 30, 2001, $17.0 million was outstanding
under the Company's line of credit.
On April 26, 2001, the Company announced it had secured a new
three-year $85 million revolving credit facility from five banks. This facility
replaced the existing $45 million credit facility which was due to expire in the
third quarter of 2001. The Company believes that cash on hand, together with
cash flow generated from operations, the availability of operating leases, and
funds available under the new credit facility will be sufficient to finance its
current operations and planned capital expenditures at least into 2003.
In January 2001, the Company signed a lease for a new corporate
headquarters facility. The lease is scheduled to commence in February 2002, is
for approximately 105,000 square feet, and has a term of 15 years. Minimum
annual rent in the first year of the lease is $2,325,600 and increases by 2% per
year throughout the lease term.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133, as amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133", which was adopted by the Company on
January 1, 2001, provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The Company
does not currently hold derivative instruments or engage in hedging activities,
and as such, the adoption of this pronouncement did not have any impact on the
Company's financial position or results of operations.
13
In December 1999, the U.S. Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"). This pronouncement provides the
staff's views in applying generally accepted accounting principles to selected
revenue recognition issues. Accordingly, guidance is provided with respect to
the recognition, presentation and disclosure of revenue in the financial
statements. Adoption of SAB 101, as amended by SAB Nos. 101A and 101B, was
effective in the fourth quarter of 2000. The adoption had no effect on the
Company's financial condition or results of operations.
14
FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements that are
subject to risks and uncertainties. Forward-looking statements include certain
information relating to outsourcing trends as well as other trends in the CRM
services and the overall domestic economy, the Company's business strategy
including the markets in which it operates, the services it provides, its
ability to attract new clients and the customers it targets, the benefits of
certain technologies the Company has acquired or plans to acquire and the
investment it plans to make in technology, the Company's plans regarding
international expansion, the implementation of quality standards, the
seasonality of the Company's business, variations in operating results and
liquidity, as well as information contained elsewhere in this document where
statements are preceded by, followed by or include the words "believes,"
"plans," "intends," "expects," "anticipates" or similar expressions. For such
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. The forward-looking statements in this document are subject to
risks and uncertainties that could cause the assumptions underlying such
forward-looking statements and the actual results to differ materially from
those expressed in or implied by the statements.
The most important factors that could prevent the Company from achieving its
goals--and cause the assumptions underlying the forward-looking statements and
the actual results of the Company to differ materially from those expressed in
or implied by those forward-looking statements--include, but are not limited to,
the following: (i) the competitive nature of the CRM services industry and the
ability of the Company to continue to distinguish its services from other CRM
service companies and other marketing activities on the basis of quality,
effectiveness, reliability and value; (ii) economic conditions which could alter
the desire of businesses to outsource certain sales and service functions and
the ability of the Company to obtain additional contracts to manage outsourced
sales and service functions; (iii) the ability of the Company to offer
value-added services to businesses in its targeted industries and the ability of
the Company to benefit from its industry specialization strategy; (iv) risks
associated with investments and operations in foreign countries including, but
not limited to, those related to relevant local economic conditions, exchange
rate fluctuations, relevant local regulatory requirements, political factors,
generally higher telecommunications costs, barriers to the repatriation of
earnings and potentially adverse tax consequences; (v) technology risks
including the ability of the Company to select or develop new and enhanced
technology on a timely basis, anticipate and respond to technological shifts and
implement new technology to remain competitive; (vi) the ability of the Company
to successfully identify, complete and integrate strategic acquisitions that
expand or complement its business; and (vii) the results of operations which
depend on numerous factors including, but not limited to, the timing of clients'
teleservices campaigns, the commencement and expiration of contracts, the timing
and amount of new business generated by the Company, the Company's revenue mix,
the timing of additional selling, general and administrative expenses and the
general competitive conditions in the CRM services industry and the overall
economy.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation incidental to
its business. In the opinion of management, no litigation to which the Company
is currently a party is likely to have a material adverse effect on the
Company's results of operations, financial condition or liquidity, if decided
adversely to the Company.
As previously reported by the Company, on October 23, 1997, a
shareholder, purporting to act on behalf of a class of ICT shareholders filed a
complaint in the United States District Court for the Eastern District of
Pennsylvania against the Company and certain of its directors. The complaint
alleges that the defendants violated the federal securities laws, and seeks
compensatory and other damages, including rescission of stock purchases made by
the plaintiff and other class members in connection with the Company's initial
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public offering effective June 14, 1996. The defendants believe the complaint is
without merit, deny all of the allegations of wrongdoing and are vigorously
defending the suit. On February 2, 1998, the defendants filed a motion to
dismiss the complaint. On May 19, 1998, the complaint was dismissed by a judge
for the United States District Court for the Eastern District of Pennsylvania
with leave to plaintiff to file an amended complaint on narrow accounting
allegations. On June 22, 1998, plaintiffs filed a First Amended Class Action
Complaint purporting to bring negligence claims in connection with the Company's
initial public offering. The defendants continue to deny all allegations of
wrongdoing, believe the amended complaint is without merit and are vigorously
defending the suit. On November 3, 1998, the court granted a motion appointing
Rowan Klein and Michael Mandat as lead plaintiffs. On February 2, 1999, the
court dismissed the case without prejudice, directing that the case remain in
status quo, that the statute of limitations be tolled and that the parties
continue with discovery and advise the court if assistance by the court is
needed. Since that time the defendants filed a motion for summary judgement
seeking to have the case dismissed on the grounds that there is no material
issue of fact. Plaintiffs filed a response in opposition to defendant's motion
and also filed a motion to have the matter certified as a class action. In
September 2000, the Court entered orders dismissing the defendants motion for
summary judgement and plaintiffs motion for class certification without
prejudice, with leave to re-file such motions upon the completion of discovery.
The Company anticipates that further discovery will be conducted.
As previously reported by the Company, on July 12, 1996 Main Street
Marketing of America Incorporated ("Main Street Marketing") brought a demand for
arbitration against the Company in the Commonwealth of Pennsylvania before the
American Arbitration Association claiming damages as a result of the Company's
alleged breach of a service agreement under which the Company provided Main
Street Marketing with various data entry, data processing and customer support
services relating to Main Street Marketing's magazine subscription program
during 1995 and 1996. Main Street Marketing alleged that the Company committed
various breaches of the service agreement and demanded a monetary award in
excess of $15 million. The Company responded to this demand for arbitration by
denying liability and filing a counterclaim in the amount of $125,000. The
arbitration hearing in this matter commenced on July 30, 2001. Prior to the
completion of the hearing, Main Street Marketing and the Company agreed to
settle and finally resolve all claims of the parties and to release each other
from any further liability with respect thereto.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 2001 Annual Meeting of Shareholders was held on May 22,
2001. At the meeting, the following items were submitted to a vote of
shareholders.
(A) The following nominees were elected to serve on the Board of
Directors:
Name of Nominee Votes Cast For Votes Withheld
--------------- -------------- --------------
Bernard Somers 11,327,774 9,320
Seth J. Lehr 11,327,774 9,320
Donald P. Brennan is a director continuing in office with his term
expiring in 2002. John J. Brennan and John A. Stoops are directors
continuing in office with their terms expiring in 2003.
(B) The appointment of Arthur Andersen LLP as independent public
accountants of the company for 2001 was ratified with 11,325,299 votes
for, 11,595 votes against and 200 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) The registrant was not required to file any reports on Form 8-K for
the three months ended June 30, 2001.
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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.
ICT GROUP, INC.
Date: August 14, 2001 By: /s/ John J. Brennan
-------------------
John J. Brennan
Chairman, President and
Chief Executive Officer
Date: August 14, 2001 By: /s/ Vincent A. Paccapaniccia
----------------------------
Vincent A. Paccapaniccia
Senior Vice President,
Finance and Administration,
Chief Financial Officer and Assistant Secretary
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