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, 1998 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 ------- ICT GROUP, INC. ----------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-2458937 - ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 800 Town Center Drive, Langhorne PA 19047 - ---------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) 215-757-0200 -------------------------------------------------- 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, 11,572,825 shares outstanding as of August 3, 1998. ICT GROUP, INC. INDEX PART 1 FINANCIAL INFORMATION PAGE Item 1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Consolidated Balance Sheets - June 30, 1998 and December 31, 1997 3 Consolidated Statements of Operations - Three months and six months ended June 30, 1998 and 1997 5 Consolidated Statements of Cash Flows - Six months ended June 30, 1998 and 1997 6 Notes to Consolidated Financial Statements 7 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II OTHER INFORMATION Item 1 LEGAL PROCEEDINGS 13 Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 Item 6 EXHIBITS AND REPORTS ON FORM 8-K 13 SIGNATURES 14 2 ICT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) June 30, December 31, 1998 1997 ------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $14,029 $17,711 Accounts receivable, net 23,119 17,684 Grant receivable 1,320 788 Prepaid expenses and other 2,526 1,079 Deferred income taxes 179 179 ------- ------- Total current assets 41,173 37,441 ------- ------- PROPERTY AND EQUIPMENT, net Communications and computer equipment 31,072 26,077 Furniture and fixtures 5,890 4,579 Leasehold improvements 2,176 2,147 ------- ------- 39,138 32,803 Less: Accumulated depreciation and amortization (15,764) (13,359) ------- ------- Net property and equipment 23,374 19,444 ------- ------- DEFERRED INCOME TAXES 3,315 3,315 ------- ------- OTHER ASSETS 1,655 1,378 ------- ------- $69,517 $61,578 ======= ======= 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, 1998 1997 -------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $1,908 $1,386 Current portion of capitalized lease obligations 705 744 Accounts payable 8,358 5,823 Accrued expenses 3,685 3,959 ------- ------- Total current liabilities 14,656 11,912 ------- ------- LONG-TERM DEBT 9,592 4,799 ------- ------- CAPITALIZED LEASE OBLIGATIONS 1,165 1,499 ------- ------- SHAREHOLDERS' EQUITY: Preferred stock, $0.01 par value 5,000 shares authorized, none issued -- -- Common Stock, $0.01 par value, 40,000 shares authorized, 11,573 and 11,542 shares issued and outstanding 116 115 Additional paid-in capital 49,261 49,258 Deferred compensation (81) (107) Accumulated deficit (4,708) (5,618) Cumulative translation adjustment (484) (280) ------- ------- Total shareholders' equity 44,104 43,368 ------- ------- $69,517 $61,578 ======= ======= 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, ----------------------- --------------------- 1998 1997 1998 1997 ------- -------- ------- -------- NET REVENUES $27,898 $22,865 $54,918 $43,357 ------- ------- ------- ------- OPERATING EXPENSES: Cost of services 16,404 12,756 32,706 24,171 Selling, general and administrative 11,034 9,256 20,698 17,696 ------- ------- ------- ------- 27,438 22,012 53,404 41,867 ------- ------- ------- ------- Operating income 460 853 1,514 1,490 INTEREST EXPENSE (INCOME), NET 62 (129) 24 (267) ------- ------- ------- ------- Income before income taxes 398 982 1,490 1,757 INCOME TAXES 154 386 580 688 ------- ------- ------- ------- NET INCOME $244 $596 $910 $1,069 ======= ======= ======= ======= EARNINGS PER SHARE: Basic earnings per share $0.02 $0.05 $0.08 $0.09 ======= ======= ======= ======= Diluted earnings per share $0.02 $0.05 $0.08 $0.09 ======= ======= ======= ======= Shares used in computing basic earnings per share 11,562 11,542 11,548 11,542 ======= ======= ======= ======= Shares used in computing diluted earnings per share 12,022 12,034 12,033 12,031 ======= ======= ======= ======= 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, ----------------- 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $910 $1,069 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,431 1,816 (Increase) decrease in: Accounts receivable (5,435) (2,820) Prepaid expenses and other (1,447) (677) Grant receivable (532) (2) Other assets (277) (121) Increase (decrease) in: Accounts payable 2,535 1,119 Accrued expenses (274) 1,189 ------- ------- Net cash provided by (used in) operating activities (2,089) 1,573 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (6,335) (5,433) ------- ------- Net cash used in investing activities (6,335) (5,433) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 5,671 2,915 Payments on long-term debt (356) (171) Payments on capitalized lease obligations (373) (416) Proceeds from exercise of stock options 4 4 ------- ------- Net cash provided by financing activities 4,946 2,332 ------- ------- EFFECT OF FOREIGN EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS (204) (159) ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (3,682) (1,687) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 17,711 18,298 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $14,029 $16,611 ======= ======= 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, 1998 and 1997 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, 1997. 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, 1998 and 1997, Common Stock equivalents outstanding used in computing Diluted EPS were 485,000 and 489,000, respectively. For the three and six months ended June 30, 1998 and 1997, Common Stock equivalents outstanding used in computing Diluted EPS were 460,000 and 492,000, respectively. Note 3: RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which requires that all components of comprehensive income be reported in the financial statements. SFAS No. 130 became effective for fiscal years beginning after December 15, 1997, with initial application as of the beginning of the Company's 1998 fiscal year. SFAS No. 130 requires reclassification of prior period financial statements to reflect application of the provisions of the new standard. For the three and six months ended June 30, 1998 and 1997, comprehensive income was as follows: 3 Months Ended 6 Months Ended June 30, June 30, ---------------------- ------------------------- 1998 1997 1998 1997 -------- --------- -------- ------- Net Income $244,000 $596,000 $910,000 $1,069,000 Foreign currency translation adjustments (101,000) (43,000) (124,000) (70,000) -------- -------- -------- ---------- Comprehensive income $143,000 $553,000 $786,000 $ 999,000 -------- -------- -------- ---------- Note 4: DEBT On April 21, 1998, the Company and several of its subsidiaries entered into an agreement with two banks under which the Company obtained a line of credit for an aggregate of $45.0 million (the "1998 Line of Credit "). The 1998 Line of Credit can be drawn upon through April 21, 2001. Borrowings may be used for acquisitions, working capital, capital expenditures, and other corporate purposes. Interest is calculated at a variable rate(7.75% at June 30, 1998). Borrowings are secured by the Company's accounts receivable and certain fixed assets. The Company is required to maintain certain financial ratios and a specified level of net worth, as defined, and payments of dividends and repurchases of stock are limited. Borrowings under the 1998 Line of Credit totaled $11.5 million at June 30, 1998. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JUNE 30, 1998 GENERAL ICT Group, Inc. ("ICT" or "the Company") is an independent multinational provider of call center teleservices, which consists of outbound and inbound telemarketing and customer support services, together with related value-added services such as marketing, research, management and consulting services. The Company's call center management experience, technological leadership and expertise in target industries enable it to provide clients with high quality, cost-effective call center services. In addition to supporting customers' teleservice programs from its own call centers, the Company is pursuing additional opportunities to manage clients' call centers on a contract basis. The Company has broadened its market position from its original outbound consumer telemarketing orientation to its present range of call center services through both internal growth and a series of strategic acquisitions. The Company's growth strategy includes the following key elements: |_| Pursue Outsourced Call Center Management Opportunities |_| Increase International Presence |_| Develop Strategic Alliances and Acquisitions |_| Expand Value-Added Marketing Services |_| Maintain Industry Specialization |_| Technology Investment |_| Continue Commitment to Quality Service 8 RESULTS OF OPERATIONS Three Months Ended June 30, 1998 and 1997: Net Revenues. Net revenues increased 22% to $27.9 million for the three months ended June 30, 1998 from $22.9 million for the three months ended June 30, 1997 resulting from continued growth primarily from financial services clients. Revenues from the TeleServices division increased 15% to $21.0 million for the three months ended June 30, 1998 from $18.3 million in the three months ended June 30, 1997 resulting from continued growth in the domestic markets. Domestic TeleServices revenues grew 22% to $18.1 million in 1998 from $14.8 million in 1997 primarily as a result of growth in the financial services industry. (1997 Domestic TeleServices revenues and Marketing Services revenues have been restated for the move of our health care unit, Medical Marketing Services, from the Domestic TeleServices division to the Marketing Services division.) International TeleServices revenues declined to $2.9 million in 1998 from $3.4 million in 1997 primarily due to reduced revenues from ICT Canada. Marketing Services revenues increased 32% to $4.4 million in 1998 from $3.3 million in 1997. Management Services revenues increased 100% to $2.6 million in 1998 from $1.3 million in 1997 reflecting the addition and expansion of several customer service contracts. Cost of Services. Cost of services, which consist primarily of direct labor and telecommunications costs, increased 29% to $16.4 million for the three months ended June 30, 1998 from $12.8 million in the three months ended June 30, 1997. This increase is primarily the result of the cost of the direct labor force required to support the increased revenue volume. Also, the favorable economic climate and historically low unemployment levels have made it difficult for the Company to attract and retain sufficient call center staff to support the volume of business available from our clients. The Company's effective pay rate increased during the second quarter as overtime and other incentives were paid to increase production hours from existing telephone sales and customer service representatives. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 19% to $11.0 million for the three months ended June 30, 1998 from $9.3 million for the three months ended June 30, 1997 due to increased numbers of call 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 declined approximately 1% from the second quarter of 1997 to 1998 due to the timing of the opening of additional call centers and adding workstation capacity, consolidating certain call centers into larger centers, and spreading fixed costs of operations over larger centers, and generally controlling fixed expenses to support a larger revenue base. Interest Income, net. Net interest expense of $62,000 versus net interest income of $129,000 in the second quarter of 1998 and 1997, respectively, reflects the interest expense related to capital leases and borrowings against the Company's equipment line of credit for capital expansion offset by investment income. The decrease in net interest income is the result of increased average outstanding balances on the equipment line of credit and decreased average invested funds in 1998 as compared to 1997. In 1998, the Company intends to finance capital equipment purchases under its equipment line of credit. In the second quarter of 1998, the Company borrowed approximately $3.0 million under its equipment line. Provision for Income Taxes. Provision for income taxes decreased $232,000 to $154,000 for the second quarter of 1998 from $386,000 in the second quarter of 1997. For the second quarter of 1998 and 1997, the provision for income taxes was approximately 39% of income before taxes. 9 Six Months Ended June 30, 1998 and 1997: Net Revenues. Net revenues increased 27% to $54.9 million for the six months ended June 30, 1998 from $43.4 million for the six months ended June 30, 1997 resulting from continued strong growth from financial services clients. Revenues from the TeleServices division increased 22% to $41.7 million for the six months ended June 30, 1998 from $34.2 million in the six months ended June 30, 1997 resulting from continued strong growth in the domestic markets. Domestic TeleServices revenues grew 29% to $35.9 million in 1998 from $27.8 million in 1997 primarily as a result of growth in the financial services and telecommunications industries. (1997 Domestic TeleServices revenues and Marketing Services revenues have been restated for the move of our health care unit, Medical Marketing Services, from the Domestic TeleServices division to the Marketing Services division.) International TeleServices revenues were $5.8 million in 1998, down from $6.4 million in 1997 primarily due to reduced revenues from ICT Canada. Marketing Services revenues increased 33% to $8.4 million in 1998 from $6.3 million in 1997. Management Services revenues increased 72% to $4.8 million in 1998 from $2.8 million in 1997 reflecting the addition and expansion of several customer service contracts. Cost of Services. Cost of services, which consist primarily of direct labor and telecommunications costs, increased 35% to $32.7 million for the six months ended June 30, 1998 from $24.1 million in the six months ended June 30, 1997. This increase is a result of the cost of the increased direct labor force required to support the increased revenue volume. Also, the favorable economic climate and historically low unemployment levels have made it difficult for the Company to attract and retain sufficient call center staff to support the volume of business available from our clients. The Company's effective pay rate increased during the second quarter as overtime and other incentives were paid to increase production hours from existing telephone sales and customer service representatives. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 17% to $20.7 million for the six months ended June 30, 1998 from $17.7 million for the six months ended June 30, 1997 due to increased numbers of call 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 declined approximately 3% from the first six months of 1997 to 1998 due to the timing of opening of additional call centers and adding workstation capacity, consolidating certain call centers into larger centers, and spreading fixed costs of operations over larger centers, and generally controlling fixed expenses to support a larger revenue base. Interest Income, net. Net interest expense of $24,000 versus net interest income of $267,000 in the first six months of 1998 and 1997, respectively, reflects the interest expense related to capital leases and borrowings against the Company's equipment line of credit for capital expansion offset by investment income. The decrease in net interest income is the result of increased average outstanding balances on the equipment line of credit and decreased average invested funds in 1998 as compared to 1997. In 1998, the Company intends to finance capital equipment purchases under its equipment line of credit. In the first six months of 1998, the Company borrowed approximately $5.7 million under its equipment line. Provision for Income Taxes. Provision for income taxes decreased $108,000 to $580,000 for the first six months of 1998 from $688,000 in the first six months of 1997. For the first six months of 1998 and 1997, the provision for income taxes was approximately 39% of income before taxes. 10 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 clients' telemarketing 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 to support the growth and development of new business units and the competitive conditions in the telemarketing industry. The favorable economic climate and historically low unemployment levels have made it difficult for the Company to attract sufficient call center staff. Improvement in the results of operations are dependent on the ability to attract and retain sufficient call center staff. The Company's business tends to be strongest in the fourth quarter due to the high level of client telemarketing activity prior to the holiday season. In the first quarter, business generally slows as a result of reduced telemarketing activities and client transitions to new marketing programs during the first quarter of the calendar year. In addition, the Company typically expands its operations in the first quarter to support anticipated business growth beginning in the second quarter. As a result, selling, general and administrative costs typically increase in the first quarter without a commensurate increase in revenues which results in decreased profitability for the first quarter versus the previous fourth quarter. Also, demand for the Company's services typically slows or decreases in the third quarter as the volume of telemarketing projects 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. As a result of the favorable economic climate, the Company anticipates it will continue to experience increased labor and additional capacity costs to deliver its services during the balance of 1998. It has accelerated the opening of two new call centers early in the third quarter and intends to open two more call centers later in the third quarter. The Company believes it will offset some of the increased costs through the implementation of technology improvements within its operations and will be reviewing the pricing and terms of existing and prospective contracts and the markets we serve with the intent to further offset the increased costs of delivering teleservices. Liquidity and Capital Resources Cash used in operating activities was $2.1 million for the six months ended June 30, 1998 versus $1.6 million of cash provided by operating activities for the six months ended June 30, 1997. The approximate $3.7 million decrease resulted from increased working capital requirements as the Company's revenues continue to grow. The increase in accounts receivable was primarily due to the timing of cash collections at quarter end. Cash used in investing activities was $6.3 million for the six months ended June 30, 1998 compared to $5.4 million for the six months ended June 30,1997. The $6.3 million of capital expenditures is primarily attributable to an increase in the number of workstations to 3,096 at June 30, 1998 from 2,520 at December 31, 1997, upgraded telephony equipment, the implementation of digital recording technology, and continued development and implementation of Oracle and IMA/Edge Software. Cash provided by financing activities increased to $4.9 million for the six months ended June 30, 1998 from $2.3 million for the comparable 1997 period. In the first six months of 1998, the Company borrowed $5.7 million from its equipment line of credit to fund its capital expenditures. The Company's telemarketing activities will continue to require significant capital expenditures. Historically, equipment purchases have been financed through the Company's equipment line of credit and through capitalized lease obligations with various equipment vendors and lending institutions. The lease obligations are payable in varying installments through 2001. Outstanding obligations under capitalized leases at June 30, 1998 were $1.9 million. In 1998, the Company signed a three year, $45 million credit agreement with BankBoston, N.A. and Summit Bancorp as discussed in Note 4. At June 30, 1998, outstanding obligations under the 1998 Line of Credit were $11.5 million. 11 The Company believes that cash on hand, together with cash flow generated from operations and funds available under the 1998 Line of Credit will be sufficient to finance its current operations and planned capital expenditures at least through 1998. Year 2000 Compliance The Company is currently in the process of evaluating its information technology infrastructure for any Year 2000 impact. The Company does not expect that the cost to modify its information technology infrastructure to become Year 2000 compliant will be material to its financial condition or results of operations. The Company does not anticipate any material disruption in its operations as a result of any failure by the Company to be in compliance. The Company is beginning to receive information concerning the Year 2000 compliance status from its suppliers and customers. In the event that any of the Company's significant suppliers or customers do not successfully and timely complete Year 2000 compliance, the Company's business or operations could be adversely affected. FORWARD LOOKING STATEMENTS This report contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include certain information relating to the company's expansion plans and the opportunities available to the Company to expand its business, the financing of capital equipment purchases, variations in operating results, increased labor and capacity costs, the timing of opening new call centers, the offset of costs through technology improvements and pricing structures, and liquidity and capital resources, as well as information contained elsewhere in this Report where statements are preceded by, followed by or include the words "believes," "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, in addition to those discussed in the company's final prospectus filed with the Securities and Exchange Commission on June 17, 1996 pursuant to Rule 424(b) of the Securities Act of 1933, the following: (i) The competitive nature of the telemarketing industry and the ability of the Company to continue to distinguish its services from other telemarketing 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 local economic conditions, exchange rate fluctuations, local regulatory requirements, political factors, generally higher telecommunication 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' telemarketing 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 telemarketing industry and the overall economy. 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 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. The defendants believe the complaint is without merit and 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. The motion has the effect of a stay of discovery and all other proceedings while it is pending. A pretrial conference was held on March 30, 1998, at which time the court heard oral arguments on the motion. On May 19, 1998 the complaint was dismissed by a judge for the United States District Court for the Eastern District of Pennsylvania. 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. Defendants filed a motion to dismiss on July 6, 1998. On July 28, 1998, the court denied the motion without prejudice to raising the arguments at a later stage in the litigation. Defendants filed a motion for reconsideration on August 3, 1998. Item 4. Submission of Matters to a Vote of Security Holders The Company's 1998 Annual Meeting of Shareholders was held on May 19, 1998. At the meeting, the following items were submitted to a vote of shareholders. (A) The following nominee was elected to serve on the Board of Directors: Name of Nominee Votes Cast For Votes Withheld --------------- -------------- -------------- Bernard Somers 10,853,715 10,465 Donald P. Brennan is a director continuing in office with his term expiring in 1999. John J. Brennan and John A. Stoops are directors continuing in office with their terms expiring in 2000. (B) The appointment of Arthur Andersen LLP as independent public accountants of the company for 1998 was ratified with 10,847,680 votes for, 13,475 votes against and 3,025 abstentions. 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: 27 Financial Data Schedule (b) The registrant was not required to file any reports on Form 8-K for the three months ended June 30, 1998. 13 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 13, 1998 By: /s/ John J. Brennan ------------------- John J. Brennan Chairman, President and Chief Executive Officer Date: August 13, 1998 By: /s/ Carl E. Smith ----------------- Carl E. Smith Senior Vice President, Finance and Administration Chief Financial Officer 14