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 September 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
- --------------------------------- ----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
800 Town Center Drive, Langhorne PA 19047
- ------------------------------------- ----------------------------------
(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, 12,220,525 shares outstanding as of
November 2, 2001.
ICT GROUP, INC.
INDEX
PART 1 FINANCIAL INFORMATION PAGE
Item 1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000 3
Consolidated Statements of Operations -
Three months and nine months ended
September 30, 2001 and 2000 5
Consolidated Statements of Cash Flows -
Nine months ended September 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 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)
September 30, December 31,
2001 2000
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $9,370 $8,539
Accounts receivable, net 45,488 42,411
Prepaid expenses and other 3,860 3,074
Deferred income taxes 307 307
----------- -----------
Total current assets 59,025 54,331
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PROPERTY AND EQUIPMENT, net
Communications and computer equipment 59,051 54,023
Furniture and fixtures 12,900 11,838
Leasehold improvements 6,953 6,614
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78,904 72,475
Less: Accumulated depreciation and amortization (44,424) (36,315)
----------- -----------
34,480 36,160
----------- -----------
DEFERRED INCOME TAXES 1,689 1,689
OTHER ASSETS 2,421 1,557
----------- -----------
$97,615 $93,737
=========== ===========
The accompanying notes are an integral part of these statements.
3
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
2001 2000
----------- -----------
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 71 292
Accounts payable 9,714 10,433
Accrued expenses 10,131 7,829
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Total current liabilities 23,916 31,054
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LINE OF CREDIT 13,000 -
----------- -----------
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,
12,193 and 12,074 shares issued and outstanding 122 121
Additional paid-in capital 50,064 49,797
Retained earnings 13,200 8,283
Accumulated other comprehensive loss (2,687) (1,518)
----------- -----------
Total shareholders' equity 60,699 56,683
----------- -----------
$97,615 $93,737
=========== ===========
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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
-------- -------- -------- --------
REVENUES $ 55,816 $ 51,445 $171,592 $140,856
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of services 32,134 29,557 96,332 79,936
Selling, general and administrative 22,492 18,927 66,678 52,698
-------- -------- -------- --------
54,626 48,484 163,010 132,634
-------- -------- -------- --------
Operating income 1,190 2,961 8,582 8,222
INTEREST EXPENSE 237 374 807 841
-------- -------- -------- --------
Income before income taxes 953 2,587 7,775 7,381
INCOME TAXES 334 1,009 2,858 2,879
-------- -------- -------- --------
NET INCOME $ 619 $ 1,578 $ 4,917 $ 4,502
======== ======== ======== ========
EARNINGS PER SHARE:
Basic earnings per share $ 0.05 $ 0.13 $ 0.41 $ 0.38
======== ======== ======== ========
Diluted earnings per share $ 0.05 $ 0.13 $ 0.39 $ 0.36
======== ======== ======== ========
Shares used in computing basic earnings per share 12,183 11,975 12,129 11,877
======== ======== ======== ========
Shares used in computing diluted earnings per share 12,733 12,514 12,659 12,429
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
5
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,917 $4,502
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,174 6,879
(Increase) in:
Accounts receivable (3,077) (9,708)
Prepaid expenses and other (786) (1,249)
Other assets (929) (286)
Increase (Decrease) in:
Accounts payable (719) 4,769
Accrued expenses 2,302 3,233
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Net cash provided by operating activities 9,882 8,140
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,429) (16,219)
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Net cash used in investing activities (6,429) (16,219)
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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) (3,000)
Payments on capitalized lease obligations (221) (448)
Proceeds from exercise of stock options 268 356
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Net cash (used in) provided by financing activities (1,453) 6,408
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EFFECT OF FOREIGN EXCHANGE RATE CHANGE ON CASH
AND CASH EQUIVALENTS (1,169) (1,332)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 831 (3,003
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,539 12,239
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CASH AND CASH EQUIVALENTS, END OF PERIOD $9,370 $9,236
======= =======
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 nine month periods ended
September 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 nine
months ended September 30, 2001 and 2000, Common stock equivalents outstanding
used in computing Diluted EPS were 530,000 and 552,000 respectively. For the
three months ended September 30, 2001 and 2000, Common stock equivalents
outstanding used in computing Diluted EPS were 550,000 and 539,000,
respectively. For the nine months ended September 30, 2001 and 2000, options to
purchase 249,000 and 352,000 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 September 30, 2001 and 2000, options to purchase
33,000 and 65,000 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 Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net Income $ 619,000 $1,578,000 $4,917,000 $4,502,000
Foreign currency translation adjustments 140,000 (481,000) (739,000) (813,000)
---------- ---------- ---------- ----------
Comprehensive income $ 759,000 $1,097,000 $4,178,000 $3,689,000
========== ========== ========== ==========
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. 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 Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
Domestic CRM Services $ 41,403 $ 37,052 $ 124,479 $ 105,676
International CRM Services 14,413 14,393 47,113 35,180
--------- --------- --------- ---------
$ 55,816 $ 51,445 $ 171,592 $ 140,856
========= ========= ========= =========
Operating Income:
Domestic CRM Services $ 337 $ 1,265 $ 3,983 $ 5,571
International CRM Services 853 1,696 4,599 2,651
--------- --------- --------- ---------
$ 1,190 $ 2,961 $ 8,582 $ 8,222
========= ========= ========= =========
Total Assets:
Domestic CRM Services $ 64,111 $ 64,743 $ 64,111 $ 64,743
International CRM Services 28,253 25,608 28,253 25,608
Corporate 5,251 5,302 5,251 5,302
--------- --------- --------- ---------
$ 97,615 $ 95,653 $ 97,615 $ 95,653
========= ========= ========= =========
Depreciation and Amortization:
Domestic CRM Services $ 1,608 $ 1,336 $ 4,406 $ 3,823
International CRM Services 820 668 2,130 1,843
Corporate 629 342 1,638 1,213
--------- --------- --------- ---------
$ 3,057 $ 2,346 $ 8,174 $ 6,879
========= ========= ========= =========
Capital Expenditures:
Domestic CRM Services $ 2,257 $ (2,066) $ 4,824 $ 9,604
International CRM Services 951 3,581 751 5,495
Corporate 400 (365) 854 1,120
--------- --------- --------- ---------
$ 3,608 $ 1,150 $ 6,429 $ 16,219
========= ========= ========= =========
8
The following table represents information about the Company
by geographic area:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
United States $ 44,124 $ 39,974 $ 133,802 $ 112,165
Canada 6,102 6,047 20,958 16,628
Europe 4,787 4,465 14,458 9,708
Australia 803 959 2,374 2,355
--------- --------- --------- ---------
$ 55,816 $ 51,445 $ 171,592 $ 140,856
========= ========= ========= =========
Operating Income (loss):
United States $ 676 $ 1,801 $ 5,436 $ 6,671
Canada 653 809 2,901 1,920
Europe (15) 562 636 110
Australia (124) (211) (391) (479)
--------- --------- --------- ---------
$ 1,190 $ 2,961 $ 8,582 $ 8,222
========= ========= ========= =========
Identifiable Assets:
United States $ 69,362 $ 70,497 $ 69,362 $ 70,497
Canada 10,934 10,536 10,934 10,536
Europe 14,981 12,214 14,981 12,214
Australia 2,338 2,406 2,338 2,406
--------- --------- --------- ---------
$ 97,615 $ 95,653 $ 97,615 $ 95,653
========= ========= ========= =========
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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, 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. The Company now plans to merge this wholly owned subsidiary into the
Company. The Company expects to continue to provide hosted technology solutions
and consultative services for in-house CRM sales and service operations through
the Company's core operating units.
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 September 30, 2001 and 2000:
Revenues. Revenues increased 8% to $55.8 million for the three months
ended September 30, 2001 from $51.4 million for the three months ended September
30, 2000. Revenue growth was constrained by the events of September 11, 2001 as
we worked with our clients and curtailed outbound sales and marketing activities
for the week following the event. Revenues from the Domestic CRM Services
segment increased 12% to $41.4 million from $37.1 million in the three months
ending September 30, 2000 and accounted for 74% of company revenues versus 72%
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
were $14.4 million in both the three months ending September 30, 2001 and 2000,
and accounted for 26% of Company revenues versus 28% for the same period in the
prior year.
Cost of Services. Cost of services, which consist primarily of direct
labor and telecommunications costs, increased 9% to $32.1 million for the three
months ended September 30, 2001 from $29.6 million in the three months ended
September 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 were approximately 58% in
both the third quarter of 2001 and the third quarter of 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 19% to $22.5 million for the three months
ended September 30, 2001 from $18.9 million for the three months ended September
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 40% for the three months ended September 30, 2001
versus 37% for the three months ending September 30, 2000. The increase as a
percentage of revenues is due to fixed costs over revenues that were lower than
expected in light of the events of September 11, 2001.
Interest Expense, net. Net interest expense of $237,000 in the third
quarter of 2001 versus $374,000 in the third quarter of 2000, reflects the
interest expense related to borrowings against the Company's line of credit and
capital leases 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
lower interest rates.
Provision for Income Taxes. Provision for income taxes decreased to
$334,000 for the third quarter of 2001 from $1.0 million in the third quarter of
2000. For the third quarter of 2001, the provision for income taxes was
approximately 35% of income before income taxes. For the third quarter of 2000,
the provision for income taxes was approximately 39% of income before income
taxes. The Company was able to decrease it's effective tax rate due to lower
corporate income tax rates in Canada and a proportionately higher amount of
pretax income in Ireland which is subject to a lower corporate income tax rate.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2001 and 2000:
Revenues. Revenues increased 22% to $171.6 million for the nine months
ended September 30, 2001 from $140.9 million for the nine months ended September
30, 2000. Revenue growth was constrained by the events of September 11, 2001 as
we worked with our clients and curtailed outbound sales and marketing activities
for the week following the event. Revenues from the Domestic CRM Services
segment increased 18% to $124.5 million from $105.7 million in the nine months
ending September 30, 2000 and accounted for 73% of company revenues versus 75%
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 34% to $47.1 million from $35.2 million in the nine months ending September
30, 2000 and accounted for 27% of Company revenues versus 25% 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 21% to $96.3 million for the nine
months ended September 30, 2001 from $79.9 million in the nine months ended
September 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 56% in the
first nine months of 2001 from 57% 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 27% to $66.7 million for the nine months ended
September 30, 2001 from $52.7 million for the nine months ended September 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 39%
for the nine months ended September 30, 2001 versus 37% for the nine months
ending September 30, 2000. The increase as a percentage of revenues is due to
fixed costs over revenues that were lower than expected in light of the events
of September 11, 2001.
Interest Expense, net. Net interest expense of $807,000 in the first
nine months of 2001 versus $841,000 in the first nine months of 2000, reflects
the interest expense related to borrowings against the Company's line of credit
and capital leases for capital expansion offset by investment income. The
decrease in net interest expense is primarily the result of decreased average
outstanding balances on borrowings in 2001 as compared to 2000, and lower
interest rates.
Provision for Income Taxes. Provision for income taxes was $2.9 million
for both the first nine months of 2001 and 2000. For the first nine months of
2001, the provision for income taxes was approximately 37% of income before
income taxes. For the first nine months of 2000, the provision for income taxes
was approximately 39% of income before income taxes. The Company was able to
decrease it's effective tax rate due to lower corporate income tax rates in
Canada and a proportionately higher amount of pretax income in Ireland which is
subject to a lower corporate income tax rate.
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. The third quarter of 2001 was constrained by the events of
September 11, 2001. 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 $9.9 million for the nine
months ended September 30, 2001 versus $8.1 million of cash provided by
operating activities for the nine months ended September 30, 2000. The
approximate $1.7 million increase is the result of higher depreciation and
amortization in the first nine months of 2001 compared to the first nine months
of 2000, and a slowing of the growth in accounts receivable partially offset by
a decrease in accounts payable. In the third quarter of 2000, revenues grew 33%
compared to revenues in the fourth quarter of 1999 causing an increase in
accounts receivable of $9.7 million for the nine months ending September 30,
2000. Revenues in the third quarter of 2001 were lower than fourth quarter 2000
revenues, largely due to the aftermath of the events of September 11, 2001
resulting in lower growth of accounts receivable for the nine months ending
September 30, 2001. Part of this decrease in the growth was offset by a decrease
in accounts payable as spending for capital expenditures was down significantly
in the nine months ending September 30, 2001 compared to spending for the nine
months ending September 30, 2000.
Cash used in investing activities was $6.4 million for the nine months
ended September 30, 2001 compared to $16.2 million for the first nine months of
2000. The decrease over the prior year is attributable to a lower investment in
capital expenditures. In the first nine 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 255 workstations
in the first nine months of 2001, and operates 6,176 workstations at September
30, 2001. In the first nine months of 2000 the Company added 1,304 workstations,
and operated 5,472 workstations at September 30, 2000.
Cash used in financing activities was $1.5 million for the nine months
ended September 30, 2001 versus cash provided by financing activities of $6.4
million for the comparable 2000 period. The $7.9 million decrease is due to the
significantly lower capital expenditures financed in the first nine months of
2001 versus the comparable 2000 period. Consequently, the Company paid down debt
of $1.5 million during the first nine months of 2001 versus net borrowings of
$6.5 million in the first nine 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. At September 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. The agreement
contains customary affirmative and negative covenants, including the maintenance
of certain financial ratios and a minimum net worth. 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 $2.3 million and increases by 2%
per year throughout the lease term.
13
Recent Accounting Pronouncements
In September 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.
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.
15
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
public offering effective September 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 September 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 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 September 30, 2001.
16
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: November 12, 2001 By: /s/ John J. Brennan
-------------------
John J. Brennan
Chairman and Chief
Executive Officer
Date: November 12, 2001 By: /s/ Vincent A. Paccapaniccia
----------------------------
Vincent A. Paccapaniccia
Senior Vice President,
Finance and Administration,
Chief Financial Officer and Assistant Secretary