<PAGE>
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.
<PAGE>
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
<PAGE>
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------- ------------
<S> <C> <C>
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
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
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
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ---------------------
1998 1997 1998 1997
------- -------- ------- --------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1998 1997
---- ----
<S> <C> <C>
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
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
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:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
---------------------- -------------------------
1998 1997 1998 1997
-------- --------- -------- -------
<S> <C> <C> <C> <C>
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
-------- -------- -------- ----------
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001013149
<NAME> ICT GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 14,029 16,611
<SECURITIES> 0 0
<RECEIVABLES> 23,119 16,359
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 41,173 34,617
<PP&E> 39,138 26,703
<DEPRECIATION> 15,764 11,387
<TOTAL-ASSETS> 69,517 54,689
<CURRENT-LIABILITIES> 14,656 8,489
<BONDS> 0 0
0 0
0 0
<COMMON> 116 115
<OTHER-SE> 43,988 41,846
<TOTAL-LIABILITY-AND-EQUITY> 69,517 54,689
<SALES> 0 0
<TOTAL-REVENUES> 54,918 43,357
<CGS> 0 0
<TOTAL-COSTS> 32,706 24,171
<OTHER-EXPENSES> 20,698 17,696
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 24 (267)
<INCOME-PRETAX> 1,490 1,757
<INCOME-TAX> 580 688
<INCOME-CONTINUING> 910 1,069
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 910 1,069
<EPS-PRIMARY> 0.08 0.09
<EPS-DILUTED> 0.08 0.09
</TABLE>
