<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 September 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,tstanding as of 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, 11,597,275 shares outstanding as of
November 5, 1998.
<PAGE>
ICT GROUP, INC.
INDEX
PART 1 FINANCIAL INFORMATION PAGE
Item 1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations -
Three months and nine months ended
September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows -
Nine months ended September 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 14
Item 6 EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
2
<PAGE>
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 14,199 $ 17,711
Accounts receivable, net 25,083 17,684
Grant receivable 631 788
Prepaid expenses and other 2,159 1,079
Deferred income taxes 179 179
-------- --------
Total current assets 42,251 37,441
-------- --------
PROPERTY AND EQUIPMENT, net
Communications and computer equipment 36,834 26,077
Furniture and fixtures 6,725 4,579
Leasehold improvements 2,222 2,147
-------- --------
45,781 32,803
Less: Accumulated depreciation and amortization (17,298) (13,359)
-------- --------
Net property and equipment 28,483 19,444
-------- --------
DEFERRED INCOME TAXES 3,315 3,315
-------- --------
OTHER ASSETS 1,702 1,378
-------- --------
$ 75,751 $ 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>
September 30, December 31,
1998 1997
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,667 $ 1,386
Current portion of capitalized lease obligations 685 744
Accounts payable 8,955 5,823
Accrued expenses 4,222 3,959
-------- --------
Total current liabilities 16,529 11,912
-------- --------
LONG-TERM DEBT 13,333 4,799
-------- --------
CAPITALIZED LEASE OBLIGATIONS 1,001 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,
11,581 and 11,542 shares issued and outstanding 116 115
Additional paid-in capital 49,263 49,258
Deferred compensation (67) (107)
Accumulated deficit (4,140) (5,618)
Cumulative translation adjustment (284) (280)
-------- --------
Total shareholders' equity 44,888 43,368
-------- --------
$ 75,751 $ 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 Nine Months Ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES $ 30,664 $ 21,715 $ 85,582 $ 65,072
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of services 17,298 11,690 50,004 35,861
Selling, general and administrative 12,256 8,986 32,954 26,682
-------- -------- -------- --------
29,554 20,676 82,958 62,543
-------- -------- -------- --------
Operating income 1,110 1,039 2,624 2,529
INTEREST EXPENSE (INCOME), NET 180 (77) 204 (344)
-------- -------- -------- --------
Income before income taxes 930 1,116 2,420 2,873
INCOME TAXES 363 435 943 1,123
-------- -------- -------- --------
NET INCOME $ 567 $ 681 $ 1,477 $ 1,750
======== ======== ======== ========
EARNINGS PER SHARE:
Basic earnings per share $ 0.05 $ 0.06 $ 0.13 $ 0.15
======== ======== ======== ========
Diluted earnings per share $ 0.05 $ 0.06 $ 0.12 $ 0.15
======== ======== ======== ========
Shares used in computing basic earnings per share 11,577 11,542 11,560 11,542
======== ======== ======== ========
Shares used in computing diluted earnings per share 12,014 12,056 11,998 12,040
======== ======== ======== ========
</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>
Nine Months Ended
September 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,477 $ 1,750
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,980 2,842
(Increase) decrease in:
Accounts receivable (7,399) (2,018)
Prepaid expenses and other (1,080) (1,191)
Grant receivable 157 (77)
Other assets (324) 26
Increase in:
Accounts payable 3,132 1,109
Accrued expenses 263 684
-------- --------
Net cash provided by operating activities 206 3,125
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (12,978) (8,983)
-------- --------
Net cash used in investing activities (12,978) (8,983)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 10,171 5,515
Payments on long-term debt (356) (368)
Payments on capitalized lease obligations (557) (581)
Proceeds from exercise of stock options 6 4
-------- --------
Net cash provided by financing activities 9,264 4,570
-------- --------
EFFECT OF FOREIGN EXCHANGE RATE CHANGE ON CASH
AND CASH EQUIVALENTS (4) (223)
-------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (3,512) (1,511)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 17,711 18,298
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,199 $ 16,787
======== ========
</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 nine month periods ended
September 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 nine
months ended September 30, 1998 and 1997, Common Stock equivalents outstanding
used in computing Diluted EPS were 438,000 and 498,000, respectively. For the
three months ended September 30, 1998 and 1997, Common Stock equivalents
outstanding used in computing Diluted EPS were 437,000 and 514,000,
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
nine months ended September 30, 1998 and 1997, comprehensive income was as
follows:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
------------------------ ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 567,000 $ 681,000 $ 1,477,000 $ 1,750,000
Foreign currency translation adjustments 122,000 (39,000) (2,000) (136,000)
----------- ----------- ----------- -----------
Comprehensive income $ 689,000 $ 642,000 $ 1,475,000 $ 1,614,000
----------- ----------- ----------- -----------
</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 (7.25% at September 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 $16.0 million at September 30, 1998.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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
|_| Focus On Industry Specialization
|_| Maintain Technology Investment
|_| Continue Commitment to Quality Service
8
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 and 1997:
Net Revenues. Net revenues increased 41% to $30.7 million for the three
months ended September 30, 1998 from $21.7 million for the three months ended
September 30, 1997 resulting from continued growth primarily from financial
services, telecommunications, and energy services clients. Revenues from the
TeleServices division increased 35% to $22.9 million for the three months ended
September 30, 1998 from $16.9 million in the three months ended September 30,
1997 resulting from continued growth in the domestic markets. Domestic
TeleServices revenues grew 43% to $19.6 million in 1998 from $13.7 million in
1997. (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 rose to $3.3 million in 1998 from $3.2
million in 1997 as higher revenues from Spantel, our Hispanic teleservices
business unit, were partially offset by reduced revenues from ICT Canada.
Marketing Services revenues increased 26% to $4.5 million in 1998 from $3.6
million in 1997. Management Services revenues increased 165% to $3.3 million in
1998 from $1.3 million in 1997 reflecting the addition and expansion of several
customer care contracts.
Cost of Services. Cost of services, which consist primarily of direct
labor and telecommunications costs, increased 48% to $17.3 million for the three
months ended September 30, 1998 from $11.7 million in the three months ended
September 30, 1997. The amount of increase relative to net revenue growth is
primarily the result of business mix and higher costs for the direct labor force
required to support the increased revenue volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 36% to $12.3 million for the three months
ended September 30, 1998 from $9.0 million for the three months ended September
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 third 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 Expense, net. Net interest expense of $180,000 versus net
interest income of $77,000 in the third 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 increase in net interest expense 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 third quarter of 1998, the Company borrowed $4.5 million under
its equipment line.
Income Taxes. Income taxes decreased $72,000 to $363,000 for the third
quarter of 1998 from $435,000 in the third quarter of 1997. For the third
quarter of 1998 and 1997, the provision for income taxes was approximately 39%
of income before income taxes.
9
<PAGE>
Nine Months Ended September 30, 1998 and 1997:
Net Revenues. Net revenues increased 32% to $85.6 million for the nine
months ended September 30, 1998 from $65.1 million for the nine months ended
September 30, 1997 resulting from continued strong growth from financial
services clients. Revenues from the TeleServices division increased 26% to $64.5
million for the nine months ended September 30, 1998 from $51.2 million in the
nine months ended September 30, 1997 resulting from continued strong growth in
the domestic markets. Domestic TeleServices revenues grew 34% to $55.5 million
in 1998 from $41.5 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 $9.0 million in 1998, down from $9.6 million in 1997
primarily due to reduced revenues from ICT Canada. Marketing Services revenues
increased 31% to $12.9 million in 1998 from $9.9 million in 1997. Management
Services revenues increased 101% to $8.1 million in 1998 from $4.1 million in
1997 reflecting the addition and expansion of several customer care contracts.
Cost of Services. Cost of services, which consist primarily of direct
labor and telecommunications costs, increased 39% to $50.0 million for the nine
months ended September 30, 1998 from $35.9 million in the nine months ended
September 30, 1997. This increase is a result of the cost of the increased
direct labor force and telecommunication costs required to support the increased
revenue volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 24% to $33.0 million for the nine months ended
September 30, 1998 from $26.7 million for the nine months ended September 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 2% from the first nine months of 1997 versus the same period in
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 Expense, net. Net interest expense of $204,000 versus net
interest income of $344,000 in the first nine 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 increase in net interest expense 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 nine months of 1998, the Company borrowed approximately
$10.2 million under its equipment line.
Income Taxes. Income taxes decreased $180,000 to $943,000 for the first
nine months of 1998 from $1,123,000 in the first nine months of 1997. For the
first nine months of 1998 and 1997, the provision for income taxes was
approximately 39% of income before income 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 in 1998 have
made it more difficult this year 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 levels off or slows from the previous
quarter 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.
Liquidity and Capital Resources
Cash provided by operating activities was $206,000 for the nine months
ended September 30, 1998 versus $3.1 million of cash provided by operating
activities for the nine months ended September 30, 1997. The approximate $2.9
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 $13.0 million for the nine months
ended September 30, 1998 compared to $9.0 million for the nine months ended
September 30,1997. The $13.0 million of capital expenditures is primarily
attributable to an increase in the number of workstations to 3,220 at September
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 $9.3 million for the
nine months ended September 30, 1998 from $4.6 million for the comparable 1997
period. In the first nine months of 1998, the Company borrowed $10.2 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 September 30, 1998 were $1.7 million. In
1998, the Company signed a three year, $45.0 million credit agreement with
BankBoston, N.A. and Summit Bancorp as discussed in Note 4. At September 30,
1998, outstanding obligations under the 1998 Line of Credit were $16.0 million.
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 1999.
11
<PAGE>
Year 2000 Compliance
The "Year 2000 problem" describes the concern that certain computer
applications, which use two digits rather than four to represent dates, will
interpret the year 2000 as 1900 and malfunction on January 1, 2000. In this
section, ICT Group summarizes the expected impact of the Year 2000 problem on
the Company.
ICT Group's Internal Systems:
ICT Group has evaluated its information technology infrastructure and has
developed a plan to ensure its Year 2000 compliance. This plan includes, among
other things, retiring several systems to be replaced with new internally
developed Year 2000 compliant software systems, upgrading the remaining software
systems to be Year 2000 compliant and testing and, if necessary, upgrading the
Company's hardware systems to be Year 2000 compliant. These efforts are planned
for completion by June 1999. All of these efforts are currently on schedule. ICT
Group also is evaluating information regarding its non-information technology
infrastructure (office building systems, copiers, etc.) for Year 2000 readiness.
Information received to date indicates that this infrastructure will be Year
2000 compliant by the end of 1999.
Readiness of Third Parties:
ICT Group has requested information from all of its third party vendors on their
Year 2000 readiness to determine the extent to which their failure to remedy
their own Year 2000 problems will affect the Company. The information that ICT
Group has received from its third party vendors to date indicates that they will
be Year 2000 compliant by the end of 1999.
Cost of Year 2000 Compliance:
By December 31, 1998 the Company currently expects that it will have incurred
approximately $450,000 of costs in addressing the Year 2000 issue. The Company
also currently expects the total costs to become Year 2000 compliant will not
exceed $1.0 million. Approximately half of these costs will be expensed and the
balance will be for new equipment which will be capitalized.
Risks Associated with the Year 2000:
The magnitude of the Company's Year 2000 problem, the costs of the Company's
Year 2000 project and the dates on which the Company believes it will complete
its Year 2000 compliance are based on management's knowledge to date and its
best estimates. The Company is not aware, at this time, of any Year 2000
non-compliance that will not be fixed by the Year 2000 and that will materially
affect the Company. However, these estimates were derived using numerous
assumptions and some risks that the Company faces include: the failure of
internal information systems, defects in its work environment, a slow down in
customer's ability to make payments, the inability to receive heat or
electricity and the inability of telecommunications carriers to supply
telecommunication services. There can be no assurance that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel, the ability to identify and
correct all Year 2000 impacted areas, and other similar uncertainties.
Contingency Plans:
The Company is in the process of developing contingency plans to address a worst
case Year 2000 scenario. This contingency plan is expected to be completed by
the 2nd quarter of 1999.
12
<PAGE>
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.
13
<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. On May 19, 1998 the complaint was dismissed by a judge for
the United States District Court for the Eastern District of
Pennsylvania with leave to plaintiff to file an amended complaint on
narrow accounting allegations. On June 22, 1998, plaintiff 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, which was denied on September 1,
1998 with leave to reassert the arguments contained therein after
completion of discovery. Accordingly, the parties are proceeding with
discovery. The defendants responded to a document request served on
them by plaintiff, and produced documents on October 8, 1998.
Plaintiff's documents have not yet been produced. Plaintiff is also
pursuing discovery from third parties.
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 September 30, 1998.
14
<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: November 12, 1998 By: /s/ John J. Brennan
-------------------------
John J. Brennan
Chairman, President and
Chief Executive Officer
Date: November 12, 1998 By: /s/ Vincent A. Paccapaniccia
------------------------------
Vincent A. Paccapaniccia
Senior Vice President,
Finance and Administration
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001013149
<NAME> ICT GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 14,199 16,787
<SECURITIES> 0 0
<RECEIVABLES> 25,083 15,557
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 42,251 34,580
<PP&E> 45,781 30,253
<DEPRECIATION> 17,298 12,440
<TOTAL-ASSETS> 75,751 57,042
<CURRENT-LIABILITIES> 16,529 8,461
<BONDS> 0 0
0 0
0 0
<COMMON> 116 115
<OTHER-SE> 44,772 42,476
<TOTAL-LIABILITY-AND-EQUITY> 75,751 57,042
<SALES> 0 0
<TOTAL-REVENUES> 85,582 65,072
<CGS> 0 0
<TOTAL-COSTS> 50,004 35,861
<OTHER-EXPENSES> 32,954 26,682
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 204 (344)
<INCOME-PRETAX> 2,420 2,873
<INCOME-TAX> 943 1,123
<INCOME-CONTINUING> 1,477 1,750
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,477 1,750
<EPS-PRIMARY> .13 .15
<EPS-DILUTED> .12 .15
</TABLE>
