<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
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 MARCH 31, 1997
[ ] 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: 0-20941
PRECISION RESPONSE CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2194806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1505 N.W. 167TH STREET, MIAMI, FLORIDA 33169
(Address of principal executive offices) (Zip code)
(305) 626-4600
(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 [ ]
ON MAY 12, 1997, THE REGISTRANT HAD 21,512,000 OUTSTANDING SHARES OF
COMMON STOCK, $0.01 PAR VALUE.
<PAGE> 2
PRECISION RESPONSE CORPORATION
INDEX
PART I.
<TABLE>
<CAPTION>
ITEM NO. PAGE(S)
- -------- -------
<S> <C>
1. FINANCIAL STATEMENTS
Balance Sheets -
March 31, 1997 (Unaudited) and December 31, 1996 3
Statements of Operations (Unaudited) -
Three months ended March 31, 1997 and 1996 4
Statements of Cash Flows (Unaudited) -
Three months ended March 31, 1997 and 1996 5
Notes to Financial Statements 6-7
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 8-13
PART II.
2. CHANGES IN SECURITIES 14
6. EXHIBITS AND REPORTS ON FORM 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRECISION RESPONSE CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
(UNAUDITED)
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31,996 $ 7,262
Accounts receivable, net of allowances
of $2,876 and $2,650, respectively 37,230 30,049
Deferred income taxes 1,720 1,321
Prepaid expenses and other current assets 3,529 2,999
--------- ---------
Total current assets 74,475 41,631
Property and equipment, net 60,304 42,034
Other assets 4,627 4,750
--------- ---------
Total assets $ 139,406 $ 88,415
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 2,468 $ 2,624
Accounts payable 15,916 17,294
Accrued compensation expenses 2,583 4,078
Income taxes payable -- 1,645
Other accrued expenses 3,136 1,721
Customer deposits 1,819 2,420
--------- ---------
Total current liabilities 25,922 29,782
Long-term obligations, less current maturities 5,369 4,190
Deferred income taxes 2,498 1,493
--------- ---------
Total liabilities 33,789 35,465
--------- ---------
Commitments and contingencies -- --
Shareholders' equity:
Common stock, $0.01 par value; 100,000,000
shares authorized; 21,512,000 and
20,000,000 issued and outstanding,
respectively 215 200
Additional paid-in capital 97,082 47,808
Retained earnings 8,686 5,394
Unearned compensation (366) (452)
--------- ---------
Total shareholders' equity 105,617 52,950
--------- ---------
Total liabilities and shareholders' equity $ 139,406 $ 88,415
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
PRECISION RESPONSE CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUES $ 38,015 $ 11,626
------------ ------------
OPERATING EXPENSES:
Cost of services 27,497 8,672
Selling, general and administrative expenses 5,203 2,064
------------ ------------
Total operating expenses 32,700 10,736
------------ ------------
Operating income 5,315 890
OTHER INCOME (EXPENSE):
Interest income 345 --
Interest expense (173) (136)
------------ ------------
INCOME BEFORE INCOME TAXES 5,487 754
Income tax provision 2,195 --
------------ ------------
NET INCOME $ 3,292 $ 754
============ ============
NET INCOME PER COMMON SHARE $ 0.16
============
PROFORMA DATA:
Income before proforma income taxes $ 754
Proforma provision for income
taxes relating to S corporation 312
------------
PROFORMA NET INCOME $ 442
============
PROFORMA NET INCOME PER
COMMON SHARE $ 0.03
============
Weighted average number of common
shares outstanding 21,024,300 16,527,061
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
PRECISION RESPONSE CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,292 $ 754
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 2,078 325
Provision for bad debts and sales allowances 535 26
Amortization of unearned compensation 86 --
Deferred income tax expense 606 --
Changes in operating assets and liabilities:
Accounts receivable (7,716) (2,998)
Prepaid expenses and other current assets (530) 154
Other assets 609 (44)
Accounts payable (1,378) 877
Accrued compensation expenses (1,495) (162)
Income taxes payable (1,645) --
Other accrued expenses 1,415 (33)
Customer deposits (601) 111
-------- --------
Net cash used in operating activities (4,744) (990)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment, net (18,363) (479)
Software development costs (785) --
-------- --------
Net cash used in investing activities (19,148) (479)
-------- --------
Cash flows from financing activities:
Proceeds from revolving credit loan -- 1,750
Payments on long-term obligations (664) (340)
Net proceeds from issuance of common stock 49,290 --
Net advances to shareholders -- (156)
-------- --------
Net cash provided by financing activities 48,626 1,254
-------- --------
Net increase (decrease) in cash and cash equivalents 24,734 (215)
Cash and cash equivalents at beginning of period 7,262 266
-------- --------
Cash and cash equivalents at end of period $ 31,996 $ 51
======== ========
Supplemental schedule of non-cash investing and financing activities:
Installment loans and capital lease obligations $ 1,687 $ 407
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
PRECISION RESPONSE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Precision Response Corporation (the "Company") is a full-service
provider of teleservicing, database marketing and management, and fulfillment
services on an outsourced basis to large corporations.
2. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements were prepared in
accordance with generally accepted accounting principles for interim financial
information and the rules and regulations of the Securities and Exchange
Commission (the "SEC"). The unaudited interim financial information reflects all
normal recurring adjustments, which are, in the opinion of management, necessary
for a fair presentation of the interim financial statements. The balance sheet
at December 31, 1996 included herein has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Operating results for the three months ended March 31,
1997 and 1996 are not necessarily indicative of results that may be expected for
the full fiscal years. These unaudited financial statements should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's annual report on Form 10-K for the fiscal year ended December 31,
1996 filed with the SEC on March 31, 1997.
Certain amounts in the 1996 financial statements have been reclassified
to conform with the current year presentation.
3. PUBLIC OFFERING
Effective January 29, 1997 (the actual closing date was February 4,
1997), the Company and certain selling shareholders completed an equity offering
of 4,740,000 shares of the Company's common stock (the "Common Stock") at an
offering price of $35.125 per share (the "Second Equity Offering"). Of the
4,740,000 shares of Common Stock, 1,500,000 shares were sold by the Company. Net
proceeds to the Company from the Second Equity Offering in the amount of $49.2
million, after deducting $3.5 million in costs associated with the offering, are
being used for call center expansion, other capital expenditures necessary to
support the Company's growth, working capital and other general corporate
purposes.
4. REVENUES
Revenues for the three months ended March 31, 1997 included $32.8
million of the Company's traditional teleservicing, database marketing and
management and fulfillment services. Additional revenues of $5.2 million were
generated during the quarter from the transfer of teleservicing-based software
applications, primarily in conjunction with the Company's teleservicing
activities. These transfers produced significantly higher margins than would
have been the case had the Company developed unique applications for these
customers. Such transfers of existing teleservicing-based applications were made
in lieu of developing new but functionally similar applications over time for
these customers.
6
<PAGE> 7
5. PROPERTY AND EQUIPMENT
Property and equipment is comprised of both owned property and property
under capital leases, the details of which are set forth below (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------------------------------- --------------------------------------
OWNED LEASED TOTAL OWNED LEASED TOTAL
----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Telecommunications
equipment $ 15,058 $ 5,759 $ 20,817 $ 9,312 $ 4,940 $ 14,252
Computer equipment 23,141 5,741 28,882 16,601 4,933 21,534
Leasehold improvements 13,025 -- 13,025 8,289 -- 8,289
Furniture and fixtures 4,892 973 5,865 2,741 973 3,714
Other 186 60 246 995 -- 995
-------- -------- -------- -------- -------- --------
56,302 12,533 68,835 37,938 10,846 48,784
Accumulated
depreciation
and amortization (6,120) (2,411) (8,531) (4,736) (2,014) (6,750)
-------- -------- -------- -------- -------- --------
$ 50,182 $ 10,122 $ 60,304 $ 33,202 $ 8,832 $ 42,034
======== ======== ======== ======== ======== ========
</TABLE>
6. PROFORMA DISCLOSURES
On July 16, 1996, the Company converted from an S corporation to a C
corporation and adopted the asset and liability method of accounting for income
taxes. Proforma net income for the three months ended March 31, 1996 includes a
proforma provision for Federal and state income taxes as if the Company were
subject to such taxes as a C corporation for the entire period. This proforma
provision is computed using a combined Federal and state tax rate of 37.6%.
7. STOCK OPTIONS
During the first quarter of 1997, the Company granted options to
purchase 278,000 shares of Common Stock to three employees pursuant to the
Company's Amended and Restated 1996 Incentive Stock Plan. These options were
granted at the fair market value of the Common Stock at the date of grant at
exercise prices ranging from $33.38 to $35.38 per share, with terms of seven
years and vesting rates of 20% per year, except for an option to purchase
200,000 shares granted to an executive officer of the Company which vests at the
rate of one-third on each of the third, fifteenth and twenty-seventh month
anniversaries of the date of grant. During the first quarter of 1997, options to
purchase 7,000 shares at an exercise price of $0.01 per share and 5,000 shares
at an exercise price of $14.50 per share were exercised and outstanding options
covering 16,000 shares were canceled.
During the first quarter of 1997, the Company granted an option to
purchase 2,500 shares of Common Stock to a non-employee director pursuant to the
1996 Non-employee Director Stock Option Plan. This option has an exercise price
of $33.75 per share (the fair market value of the Common Stock at the date of
grant), a term of ten years and vests in equal installments over three years.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and notes thereto included elsewhere in this report.
OVERVIEW AND BASIS OF PRESENTATION
The Company currently offers its customers single source, integrated
solutions for their teleservicing, database marketing and management and
fulfillment needs. The Company's primary source of revenue is teleservicing
activities which are comprised of both inbound (customer-initiated) and outbound
(Company-initiated) calls. The majority of teleservicing revenues are derived
from inbound calls, which represented 91% of teleservicing revenues and 63% of
total revenues for the three months ended March 31, 1997 as compared to 82% of
teleservicing revenues and 56% of total revenues for the three months ended
March 31, 1996.
Information services provided by the database marketing and management
group typically include the design, development and implementation of software
applications for use in a particular client program and the integration of the
Company's systems with those of its clients. Additionally, although the
Company's core business is providing teleservices on an outsourced basis to its
clients, certain clients prefer to "co-source" certain programs whereby the
Company and the client will jointly manage programs, with the Company making
available to the client certain software, systems and services.
Fulfillment services include high-speed laser and electronic document
printing, lettershop and mechanical inserting, sorting, packaging and mailing
capabilities. While fulfillment services represent a relatively small portion of
the Company's total revenues, they are an important element in the Company's
overall marketing strategy of providing its customers with a "one-stop" solution
to their telephone-based customer service and direct marketing needs.
Costs associated with servicing the Company's clients, consisting
primarily of certain costs incurred in the operations of call centers and the
fulfillment facility, such as rent for real property and leased equipment,
insurance, property taxes and certain departmental overhead directly related to
revenue-producing departments, were reclassified from selling, general and
administrative expenses to cost of services beginning in the fourth quarter of
1996, with all previously reported periods restated accordingly.
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data,
as a percentage of revenues, for the periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
1997 1996
----------- ---------
<S> <C> <C>
SELECTED OPERATING RESULTS:
Revenues 100.0% 100.0%
Cost of services 72.3 74.5
Selling, general and administrative expenses 13.7 17.8
------- -------
Operating income 14.0 7.7
Interest income 0.9 --
Interest expense (0.5) (1.2)
------- -------
Income before income taxes 14.4 6.5
Income tax provision (1) 5.8 --
------- -------
Net income (1) 8.6% 6.5%
======= =======
PROFORMA DATA (1):
Income before proforma income taxes 6.5%
Proforma provision for income
taxes relating to S corporation 2.7
-------
Proforma net income 3.8%
=======
</TABLE>
- -----------
(1) On July 16, 1996, the Company converted from an S corporation to a C
corporation. Accordingly, the Company was an S corporation during the three
months ended March 31, 1996 and was not subject to Federal and state income
taxes. Proforma net income includes a provision for income taxes using a
combined Federal and state tax rate of 37.6%.
REVENUES
Revenues increased by $26.4 million, or 227%, for the three months
ended March 31, 1997 in comparison to the same period of the prior year. The
principal components of revenues are teleservicing activities (representing
68.9% and 68.5% of revenues for the three months ended March 31, 1997 and 1996,
respectively) and information services (representing 24.2% and 17.2% of revenues
for the three months ended March 31, 1997 and 1996, respectively), with the
balance primarily represented by fulfillment services. The number of call
centers in operation increased from three as of March 31, 1996 to eight as of
March 31, 1997. Since March 31, 1996, the Company has opened six new call
centers and converted one smaller call center to administrative offices.
Workstation capacity increased substantially from 980 as of March 31, 1996 to
approximately 4,400 as of March 31, 1997, including 940 workstations added in
late March 1997 which, as a result of the timing of the new call center's
opening, did not generate any revenues for the three-month period ended March
31, 1997. In addition, the workstations in the call center opened in late
December 1996 were still in the process of "ramping up" at the end of the first
quarter of 1997.
Teleservicing activities, principally inbound services, accounted for
the majority of the revenue growth during the three months ended March 31, 1997
with an increase of $18.2 million, or 229%, to $26.2 million from $8.0 million
in the comparable period of the prior year. Major factors contributing to the
increase in teleservicing revenues were primarily the addition of several new
programs for existing clients in the telecommunications industry as well as the
addition of new clients, principally in the direct broadcasting and
telecommunications equipment industries.
9
<PAGE> 10
Revenues from information services increased by $7.2 million, or 360%,
to $9.2 million for the three months ended March 31, 1997 from $2.0 million in
the comparable period of 1996 due to the increased development of systems for
clients and the transfers of teleservicing-based application software.
COST OF SERVICES
Cost of services generally include all direct and some indirect costs
incurred in connection with the Company's revenue-producing departments,
including, but not limited to, labor, telephone expenses directly related to
revenue-generating activities, equipment under operating leases used in the call
centers and fulfillment facility, direct overhead for all such operational
facilities, such as rent, security and insurance, and depreciation and
amortization of property and equipment used in operations. Cost of services
increased by $18.8 million, or 217.1%, for the three months ended March 31, 1997
as compared to the same period of the prior year, principally as a result of the
growth in operations. The decrease in cost of services, as a percentage of
revenues, from 74.5% for the three months ended March 31, 1996 to 72.3% for the
three months ended March 31, 1997 was attributable to greater operational
efficiencies derived from mature client programs and to significantly higher
margins associated with the transfer of teleservicing-based application
software, partially offset by volume pricing for certain large teleservicing
programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses generally include the
costs of central services the Company provides to support and manage its
operations, including senior management, sales and marketing, human resources,
as well as finance and accounting functions. The increase of $3.1 million, or
152%, in selling, general and administrative expenses for the three months ended
March 31, 1997 as compared to the same period of the prior year was primarily
due to increases in sales commissions and administrative salaries and benefits
to support the Company's growth. As a percentage of revenues, selling, general
and administrative expenses decreased from 17.8% for the three months ended
March 31, 1996 to 13.7% for the three months ended March 31, 1997 principally as
a result of the absorption of such costs by an increased base of revenues.
INTEREST, NET
Interest income, net of interest expense, was $172,000 for the three
months ended March 31, 1997 as compared to interest expense, net of interest
income, totaling $136,000 for the three months ended March 31, 1996. This
improvement reflected additional interest income generated during the three
months ended March 31, 1997 from the investment of a portion of the net proceeds
from the Second Equity Offering and the absence of borrowings from the Company's
existing credit facility during the current quarter. See Note 3 - Public
Offering of the notes to the financial statements. The proceeds from borrowings
during the three months ended March 31, 1996 were primarily obtained from the
then existing revolving loan and capital lease financing.
INCOME TAXES
Prior to the Company's initial public offering of its Common Stock
completed in July 1996 (the "Initial Public Offering"), the Company was an S
corporation and, accordingly, was not subject to Federal and state income taxes.
Therefore, the three-month period ended March 31, 1996 does not include a
provision for Federal and state income taxes.
10
<PAGE> 11
PROFORMA NET INCOME
Proforma net income increased by $2.8 million, or 645%, to $3.3 million
for the three months ended March 31, 1997 from $0.4 million in the comparable
period of the prior year primarily as a result of the increase in pretax income
stemming from the Company's growth in operations. Proforma net income for the
three months ended March 31, 1996 includes a proforma provision for Federal and
state income taxes as if the Company were subject to such taxes as a C
corporation for that period. The Company was a C corporation throughout the
three months ended March 31, 1997; therefore, net income during the three months
ended March 31, 1997 includes the appropriate provision under such income tax
status.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Initial Public Offering, the Company funded its operations
and capital expenditures primarily through cash flows from operations, bank
borrowings and capital lease financing. During the first quarter of 1997, the
Company obtained additional liquidity from the net proceeds of the Second Equity
Offering.
Effective January 29, 1997 (the actual closing date was February 4,
1997), the Company and certain selling shareholders completed the Second Equity
Offering at an offering price of $35.125 per share. Of the 4,740,000 shares of
Common Stock, 1,500,000 shares were sold by the Company. Net proceeds to the
Company from the Second Equity Offering in the amount of $49.2 million, after
deducting $3.5 million in costs associated with the offering, are being used for
call center expansion, other capital expenditures necessary to support the
Company's growth, working capital and other general corporate purposes.
The Company has a revolving credit facility (the "Senior Revolving
Facility") which provides for revolving loans in an aggregate principal amount
not to exceed $15.0 million and matures in May 1999. The Company may borrow up
to 85% of eligible accounts receivable. The Senior Revolving Facility is
primarily collateralized by accounts receivable. Based upon eligible accounts
receivable and no outstanding borrowings under the Senior Revolving Facility as
of March 31, 1997, availability thereunder was $15.0 million as of March 31,
1997. The Senior Revolving Facility accrues interest at the Company's option at
the prime rate plus 0.5% or the LIBOR rate plus 3.0%. The Company pays a fee of
0.25% per annum on unused commitments under the Senior Revolving Facility. The
Company is required, under the terms of the Senior Revolving Facility, to
maintain certain financial covenants, including minimum tangible net worth and
earnings. The agreement also contains certain restrictions on additional
indebtedness, capital expenditures and the declaration and payment of dividends.
Net cash used in operating activities was $4.7 million and $1.0 million
for the three months ended March 31, 1997 and March 31, 1996, respectively. The
$3.7 million increase in net cash used in operating activities during the three
months ended March 31, 1997 in comparison to the same period of the prior year
was primarily due to the use of cash to finance accounts receivable relating to
the significant growth in revenues and the payment of estimated income taxes as
a result of the Company's C corporation income tax status.
The Company's working capital as of March 31, 1997 and December 31,
1996 was $48.6 million and $11.8 million, respectively. Major factors
contributing to the $36.8 million increase in working capital for the three
months ended March 31, 1997 were net proceeds provided by the Second Equity
Offering and a $7.2 million increase in accounts receivable. The $1.4 million
reduction in accounts
11
<PAGE> 12
payable was due, in part, to the Company's favorable cash position resulting
from the Second Equity Offering. The net increase in accounts receivable was due
to the Company's growth in operations.
Net cash used in investing activities in the amounts of $19.1 million
and $0.5 million for the three months ended March 31, 1997 and 1996,
respectively, was principally for capital expenditures. Workstation capacity
increased from 3,220 as of December 31, 1996 to 4,400 as of March 31, 1997. The
major increases in capital expenditures for the three months ended March 31,
1997 were telecommunications and computer equipment principally attributable to
the increase in the Company's total workstation capacity and, to a lesser
extent, leasehold improvements for the new call center to house the additional
workstations. In addition, the Company expended $0.8 million during the
three-month period ended March 31, 1997 for the internal development of software
which is being used as part of the Company's teleservicing programs or otherwise
marketed to clients.
Capital expenditures, including the capitalized value of property and
equipment, were $20.8 million and $0.9 million for the three months ended March
31, 1997 and 1996, respectively. Capital expenditures for 1997 are expected to
total $45.0 million for the fiscal year. This capital program, which is subject
to continuing change and review, currently includes the projected opening of
four new call centers throughout the remainder of 1997 with an anticipated
aggregate workstation capacity of 1,500. Workstation capacity as of December 31,
1997 is expected to approximate 5,900.
Net cash provided by financing activities was $48.6 million and $1.3
million for the three months ended March 31, 1997 and 1996, respectively. During
the three months ended March 31, 1997, the Company raised additional capital
from the Second Equity Offering and used a portion of the net proceeds provided
by such offering principally to fund anticipated workstation capacity growth.
Borrowings during the three months ended March 31, 1996 were primarily from the
Company's then existing revolving credit loan and were principally used for
working capital needs.
The Company believes that funds generated from operations, the net
proceeds from the Second Equity Offering, available borrowings under the Senior
Revolving Facility and lease financing will be sufficient to finance its planned
capital expenditures and anticipated growth at least through 1997. The Company's
long-term capital requirements will depend on many factors, including, but not
limited to, the rate at which the Company expands its business. To the extent
that the funds generated from the sources described above are insufficient to
fund the Company's activities in the short or long term, the Company would need
to raise additional funds through public or private financings. No assurance can
be given that additional financing will be available or that, if available, it
will be available on terms favorable to the Company.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company experiences quarterly variations in revenues and operating
income principally as a result of the timing of clients' marketing campaigns and
customer service programs, the commencement of new contracts, changes in the
Company's revenue mix among its various services offered to clients and the
timing of additional operating expenses to acquire and support new business.
While the effects of seasonality on the Company's business are typically
obscured by the addition of new clients and growing revenues, the Company's
business tends to be slower in the first and third quarters of its fiscal year
as client marketing programs are typically slower in the post-holiday and summer
months.
12
<PAGE> 13
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements (within the meaning of
Section 21E. of the Securities Exchange Act of 1934, as amended), representing
the Company's current expectations and beliefs concerning future events. When
used in this report, the words "believes," "estimates," "plans," "expects,"
"intends," "anticipates," and similar expressions as they relate to the Company
or its management are intended to identify forward-looking statements. The
actual results of the Company could differ materially from those indicated by
the forward-looking statements because of various risks and uncertainties
related to and including, without limitation, the Company's effective and timely
initiation and development of new client relationships, the maintenance of
existing client relationships and programs, the successful marketing of the
Company's information services and teleservicing-based application software, the
opening of new call centers in accordance with strategic plans, the recruitment
and retention of qualified personnel, the continued enhancement of
telecommunications, computer and information technologies and operational and
financial systems, the continued and anticipated growth in industry trends
towards outsourcing of telephone-based marketing and customer service operations
(particularly in the telecommunications, transportation, consumer products and
food and beverage industries), changes in competition and the forms of direct
sales and marketing techniques, general economic conditions, costs of telephone
services, financing and leasing of equipment, the adequacy of cash flows from
operations and available financings to fund capital needs and future growth,
changes in governmental rules and regulations applicable to the Company and
other risks in the Company's other filings with the Securities and Exchange
Commission. These risks and uncertainties are beyond the ability of the Company
to control; in many cases, the Company cannot predict the risks and
uncertainties that could cause actual results to differ materially from those
indicated by the forward-looking statements.
13
<PAGE> 14
PART II.
ITEM 2. CHANGES IN SECURITIES
(c) Sales of Unregistered Securities
The Company did not issue or sell any unregistered securities during
the quarter ended March 31, 1997, except as follows:
(i) The Company granted options to purchase 278,000 shares of Common
Stock to three employees pursuant to the Company's Amended and
Restated 1996 Incentive Stock Plan. Of these options, 200,000 were
granted at an exercise price of $35.38 per share and 78,000 were
granted at an exercise price of $33.38 per share. These options
have a term of seven years and vest at the rate of 20% per year,
except for an option to purchase 200,000 shares granted to an
executive officer of the Company which vests at the rate of
one-third on each of the third, fifteenth and twenty-seventh month
anniversaries of the date of grant.
(ii) The Company also granted an option to purchase 2,500 shares of
Common Stock to a non-employee director pursuant to the 1996
Non-employee Director Stock Option Plan. This option has an
exercise price of $33.75 per share, a term of ten years and vests
in equal installments over three years.
The foregoing stock options were granted by the Company in reliance
upon the exemption from registration available under Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<S> <C> <C>
3.2 Amendment to Article II, Section 6 of the Bylaws of the Company
effective on February 19, 1997
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 1997.
14
<PAGE> 15
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 thereunto duly authorized.
PRECISION RESPONSE CORPORATION
(Registrant)
By: /s/ Paul M. O'Hara
--------------------------------------------
Paul M. O'Hara
Senior Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 15, 1997
15
<PAGE> 1
EXHIBIT 3.2
-----------
AMENDMENT TO BYLAWS
The first sentence of Article II, Section 6 of the Bylaws of the
Company is amended and restated to read in its entirety as follows: "The number
of directors of this corporation shall be not less than four (4) nor more than
eight (8)."
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 31,996
<SECURITIES> 0
<RECEIVABLES> 40,106
<ALLOWANCES> 2,876
<INVENTORY> 0
<CURRENT-ASSETS> 74,475
<PP&E> 68,835
<DEPRECIATION> 8,531
<TOTAL-ASSETS> 139,406
<CURRENT-LIABILITIES> 25,922
<BONDS> 5,369
0
0
<COMMON> 215
<OTHER-SE> 105,402
<TOTAL-LIABILITY-AND-EQUITY> 139,406
<SALES> 0
<TOTAL-REVENUES> 38,015
<CGS> 0
<TOTAL-COSTS> 27,497
<OTHER-EXPENSES> 4,668
<LOSS-PROVISION> 535
<INTEREST-EXPENSE> 173
<INCOME-PRETAX> 5,487
<INCOME-TAX> 2,195
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,292
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
