<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, 2000 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 incorporation (I.R.S. Employer
or organization) Identification No.)
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, 11,925,200 shares outstanding as of
August 4, 2000.
<PAGE>
ICT GROUP, INC.
INDEX
PART 1 FINANCIAL INFORMATION PAGE
Item 1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
Three months and six months ended
June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS 15
Item 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 15
Item 6 EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
2
<PAGE>
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,838 $12,239
Accounts receivable, net 36,629 28,796
Prepaid expenses and other 2,890 2,600
Deferred income taxes 556 556
------- -------
Total current assets 48,913 44,191
------- -------
PROPERTY AND EQUIPMENT, net
Communications and computer equipment 55,272 41,970
Furniture and fixtures 11,278 9,557
Leasehold improvements 4,724 4,678
------- -------
71,274 56,205
Less: Accumulated depreciation and amortization (31,263) (26,784)
------- -------
40,011 29,421
------- -------
DEFERRED INCOME TAXES 2,858 2,858
OTHER ASSETS 1,649 1,603
------- -------
$93,431 $78,073
======= =======
</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,
2000 1999
-------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,000 $ 4,000
Current portion of capitalized lease obligations 361 525
Accounts payable 11,885 7,869
Accrued expenses 6,641 5,031
------- -------
Total current liabilities 26,887 17,425
------- -------
LONG-TERM DEBT 13,500 10,000
------- -------
CAPITALIZED LEASE OBLIGATIONS 141 308
------- -------
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value 5,000 shares authorized,
none issued -- --
Common Stock, $0.01 par value, 40,000 shares authorized,
11,884 and 11,810 shares issued and outstanding 119 118
Additional paid-in capital 49,586 49,403
Retained earnings 4,478 1,554
Accumulated other comprehensive loss (1,280) (735)
------- -------
Total shareholders' equity 52,903 50,340
------- -------
$93,431 $78,073
======= =======
</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,
------------------------- ------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET REVENUES $48,126 $40,236 $89,411 $77,187
------- ------- ------- -------
OPERATING EXPENSES:
Cost of services 26,929 21,841 50,379 42,229
Selling, general and administrative 18,090 15,916 33,771 30,569
------- ------- ------- -------
45,019 37,757 84,150 72,798
------- ------- ------- -------
Operating income 3,107 2,479 5,261 4,389
INTEREST EXPENSE, NET 300 227 467 475
------- ------- ------- -------
Income before income taxes 2,807 2,252 4,794 3,914
INCOME TAXES 1,095 878 1,870 1,526
------- ------- ------- -------
NET INCOME $ 1,712 $ 1,374 $ 2,924 $ 2,388
======= ======= ======= =======
EARNINGS PER SHARE:
Basic earnings per share $ 0.14 $ 0.12 $ 0.25 $ 0.21
======= ======= ======= =======
Diluted earnings per share $ 0.14 $ 0.11 $ 0.24 $ 0.20
======= ======= ======= =======
Shares used in computing basic earnings per share 11,841 11,643 11,827 11,643
======= ======= ======= =======
Shares used in computing diluted earnings per share 12,361 12,151 12,387 12,124
======= ======= ======= =======
</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,
-------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,924 $ 2,388
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,529 3,891
(Increase) in:
Accounts receivable (7,833) (785)
Prepaid expenses and other (290) (224)
Other assets (96) (170)
Increase in:
Accounts payable 4,016 253
Accrued expenses 1,610 2,169
------- -------
Net cash provided by operating activities 4,860 7,522
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15,069) (4,225)
------- -------
Net cash used in investing activities (15,069) (4,225)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 9,500 -
Payments on long-term debt (2,000) (2,000)
Payments on capitalized lease obligations (331) (334)
Proceeds from exercise of stock options 184 -
------- -------
Net cash provided by (used in) financing activities 7,353 (2,334)
------- -------
EFFECT OF FOREIGN EXCHANGE RATE CHANGE ON CASH
AND CASH EQUIVALENTS (545) (104)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,401) 859
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,239 14,255
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,838 $15,114
======= =======
</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, 2000 and 1999 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, 1999.
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, 2000 and 1999, Common stock equivalents outstanding used
in computing Diluted EPS were 560,000 and 481,000 respectively. For the three
months ended June 30, 2000 and 1999, Common stock equivalents outstanding used
in computing Diluted EPS were 520,000 and 592,000, respectively. For the six
months ended June 30, 2000 and 1999, options to purchase 353,000 and 243,000
shares of Common stock were outstanding, but not included in the computation of
Diluted EPS as the result would be antidilutive. For the three months ended June
30, 2000 and 1999, options to purchase 365,000 and 407,000 shares of Common
stock were outstanding, but not included in the computation of Diluted EPS as
the result would be antidilutive.
Note 3: COMPREHENSIVE INCOME (LOSS)
The Company follows SFAS No. 130, "Reporting Comprehensive Income". This
statement requires companies to classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $1,712,000 $1,374,000 $2,924,000 $2,388,000
Foreign currency translation adjustments (234,000) (33,000) (332,000) (64,000)
---------- ---------- ---------- ----------
Comprehensive income $1,478,000 $1,341,000 $2,592,000 $2,324,000
========== ========== ========== ==========
</TABLE>
7
<PAGE>
Note 4: OPERATING AND GEOGRAPHIC INFORMATION
Under the disclosure requirements of SFAS No. 131, the Company classifies its
operations into three business segments: Domestic TeleServices, International
Services, and Customer Management Services. The operating segments are managed
separately because each operating segment represents a strategic business unit
that offers different services. Segment assets include amounts specifically
identified to each segment. Corporate assets consist primarily of property and
equipment. The Domestic TeleServices segment provides inbound and outbound
telemarketing services. The International Services segment provides
international multilingual inbound and outbound telemarketing services, customer
management services, marketing, research and other value-added services and
includes business conducted by Spantel for the US Hispanic market. The Customer
Management Services segment provides marketing, research, consulting
teleservices, and ongoing customer care management on behalf of customers
operating in the Company's target industries.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Revenues:
Domestic TeleServices $22,169 $23,260 $40,223 $46,532
International Services 11,482 5,144 20,787 10,728
Customer Management Services 14,475 11,832 28,401 19,927
------- ------- ------- -------
$48,126 $40,236 $89,411 $77,187
======= ======= ======= =======
Operating Income (loss):
Domestic TeleServices $ 992 $ 1,437 $ 1,478 $ 3,232
International Services 941 (269) 955 (300)
Customer Management Services 1,174 1,311 2,828 1,457
------- ------- ------- -------
$ 3,107 $ 2,479 $ 5,261 $ 4,389
======= ======= ======= =======
Total Assets:
Domestic TeleServices $47,607 $43,106 $47,607 $43,106
International Services 22,206 13,776 22,206 13,776
Customer Management Services 18,226 16,500 18,226 16,500
Corporate 5,392 4,892 5,392 4,892
------- ------- ------- -------
$93,431 $78,275 $93,431 $78,275
======= ======= ======= =======
Depreciation and Amortization:
Domestic TeleServices $ 728 $ 910 $ 1,397 $ 1,733
International Services 597 488 1,175 746
Customer Management Services 561 430 1,086 797
Corporate 527 438 871 615
------- ------- ------- -------
$ 2,413 $ 2,266 $ 4,529 $ 3,891
======= ======= ======= =======
Capital Expenditures:
Domestic TeleServices $ 3,437 $ 78 $ 5,939 $ 1,366
International Services 1,705 665 1,914 1,281
Customer Management Services 1,433 73 5,731 1,073
Corporate 860 31 1,485 505
------- ------- ------- -------
$ 7,435 $ 847 $15,069 $ 4,225
======= ======= ======= =======
</TABLE>
8
<PAGE>
The following table represents information about the Company by
geographic area:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------
2000 1999 2000 1999
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net Revenues:
United States $38,487 $36,391 $72,191 $68,977
Canada 5,999 1,848 10,581 3,980
Europe 2,832 1,689 5,243 3,866
Australia 808 308 1,396 364
------- ------- ------- -------
$48,126 $40,236 $89,411 $77,187
======= ======= ======= =======
Operating Income (loss):
United States $ 2,419 $ 3,055 $ 4,870 $ 5,254
Canada 1,089 168 1,111 205
Europe (218) (634) (452) (888)
Australia (183) (110) (268) (182)
------- ------- ------- -------
$ 3,107 $ 2,479 $ 5,261 $ 4,389
======= ======= ======= =======
Identifiable Assets:
United States $70,787 $66,897 $70,787 $66,897
Canada 10,808 5,105 10,808 5,105
Europe 10,636 5,998 10,636 5,998
Australia 1,200 275 1,200 275
------- ------- ------- -------
$93,431 $78,275 $93,431 $78,275
======= ======= ======= =======
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 2000
GENERAL
ICT Group, Inc. (the "Company" or "ICT") is a global supplier of
customer relationship management (CRM) services. The Company provides integrated
telesolutions, e-solutions and market solutions helping its clients identify,
acquire, retain, service, measure, and maximize the lifetime value of their
customer relationships. ICT's telesolutions offering includes outbound telesales
and inbound customer support for sales and service applications, domestically
and internationally. Its e-solutions offering provides real-time
interaction-driven customer support for Internet sales and service applications
through Web-enabled customer contact center services, e-mail management and
processing, and multi-channel CRM services. Market research, database marketing,
and data mining capabilities are available through its market solutions
offering, including questionnaire design, telephone interviewing, and data
coding, tabulating, and analysis services.
The Company's customer management services experience, Internet and CRM
technology capabilities and expertise in select target industries enables it to
provide its clients with high quality cost-effective customer management
services. While these solutions are available on an outsourced basis, using
ICT's customer contact centers, the Company intends to also offer these services
through a hosted arrangement, using the client's facility, or co-sourced
arrangement, using both the client's facility and ICT's technologically
compatible customer contact centers.
With the growth of the Internet as a means of transacting business and
the poor customer service experienced by many on-line buyers, ICT believes
significant opportunities exist to expand its business. The Company's growth
strategy includes the following key elements:
|_| Pursue e-Commerce Opportunities
|_| Expand Value-Added Services
|_| Develop Strategic Alliances and Acquisitions
|_| Increase International Presence
|_| Focus on Industry Specialization
|_| Maintain Technology Investment
|_| Continue Commitment to Quality Service
In February 2000, ICT announced the formation of iCT ConnectedTouch.com, LLC a
new wholly owned subsidiary formed to provide highly focused innovative
E-solutions designed to maximize the value of customer relationships for
business-to-business and business-to-consumer e-business sales and service
operations. iCT ConnectedTouch.comsm is focused on supporting 1) dot.com
companies and bricks-and-mortar e-commerce companies, 2) Internet support
service companies including Internet Service Providers (ISPs) and Application
Service Providers (ASPs), as well as 3) traditional clients that have added an
Internet channel for sales and service.
10
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 and 1999:
Net Revenues. Net revenues increased 20% to $48.1 million for the three
months ended June 30, 2000 from $40.2 million for the three months ended June
30, 1999. Revenues from the Domestic TeleServices segment decreased 5% to $22.2
million from $23.3 million in the three months ending June 30, 1999 and
accounted for 46% of company revenues versus 58% for the same period in the
prior year. This was primarily the result of a slowdown in telesales campaigns
which utilize credit card files as privacy concerns continued to restrain
marketing activities. The decline in revenues from the Domestic TeleServices
segment was more than offset by strong growth in the International Services and
Customer Management Services segments. International Services revenues grew 123%
to $11.5 million from $5.1 million in the three months ending June 30, 1999 and
accounted for 24% of Company revenues versus 13% for the same period in the
prior year. Approximately $4.6 million of this growth was from new clients with
the balance from existing customers. Customer Management Services revenues grew
22% to $14.5 million from $11.8 million in the three months ending June 30, 1999
and accounted for 30% of Company revenues versus 29% for the same period in the
prior year. Almost all of the increase came from new customers. Net revenues
from support services provided by ICT Group operating divisions to dot.com
companies, ISPs, ASPs, and traditional clients that have added an Internet
channel for sales and service totaled $3.8 million, or 8% of total company net
revenues during the first quarter of 2000. These revenues are included in the
three business segments disclosed above.
Cost of Services. Cost of services, which consist primarily of direct
labor and telecommunications costs, increased 23% to $26.9 million for the three
months ended June 30, 2000 from $21.8 million in the three months ended June 30,
1999. This increase is primarily the result of increased direct labor required
to support the increased revenue volume. As a percentage of revenues, cost of
services increased to 56% in the second quarter of 2000 from 54% in the same
quarter of 1999 as an increase in labor cost per production hour offset savings
in telecommunication costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 14% to $18.1 million for the three months
ended June 30, 2000 from $15.9 million for the three months ended June 30, 1999
due to increased numbers of contact centers and workstation capacity and
additional sales and systems support implemented to support business growth. As
a percentage of revenues, selling, general and administrative expenses declined
to 38% in the second quarter of 2000 from 40% in the same quarter of 1999. The
Company was able to leverage the existing infrastructure to support volume
growth.
Interest Expense, net. Net interest expense of $300,000 in the second
quarter of 2000 versus $227,000 in the second quarter of 1999, 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 primarily the result of increased average
outstanding balances on line of credit borrowings to fund capital expenditures
in 2000 as compared to 1999, and increased interest rates.
Provision for Income Taxes. Provision for income taxes increased
$217,000 to $1.1 million for the second quarter of 2000 from $878,000 in the
second quarter of 1999. For both 2000 and 1999, the provision for income taxes
was approximately 39% of income before taxes.
11
<PAGE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 2000 and 1999:
Net Revenues. Net revenues increased 16% to $89.4 million for the six
months ended June 30, 2000 from $77.2 million for the six months ended June 30,
1999. Revenues from the Domestic TeleServices segment decreased 14% to $40.2
million from $46.5 million in the six months ending June 30, 1999 and accounted
for 45% of company revenues versus 60% for the same period in the prior year.
This was primarily the result of a slowdown in telesales campaigns which utilize
credit card files as privacy concerns continued to restrain marketing
activities. The decline in revenues from the Domestic TeleServices segment was
more than offset by strong growth in the International Services and Customer
Management Services segments. International Services revenues grew 94% to $20.8
million from $10.7 million in the six months ending June 30, 1999 and accounted
for 23% of Company revenues versus 14% for the same period in the prior year.
Approximately $7.5 million of this growth was from new clients with the balance
from existing customers. Customer Management Services revenues grew 43% to $28.4
million from $19.9 million in the six months ending June 30, 1999 and accounted
for 32% of Company revenues versus 26% for the same period in the prior year.
Approximately half of the increase came from existing customers with the balance
coming from new customers. Net revenues from support services provided by ICT
Group operating divisions to dot.com companies, ISPs, ASPs, and traditional
clients that have added an Internet channel for sales and service totaled $5.9
million, or 7% of total company net revenues during the first six months of
2000. These revenues are included in the three business segments disclosed
above.
Cost of Services. Cost of services, which consist primarily of direct
labor and telecommunications costs, increased 19% to $50.4 million for the six
months ended June 30, 2000 from $42.2 million in the six months ended June 30,
1999. This increase is primarily the result of increased direct labor required
to support the increased revenue volume. As a percentage of revenues, cost of
services increased to 56% in the first six months of 2000 from 55% in the same
period of 1999 as an increase in labor cost per production hour offset savings
in telecommunication costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 10% to $33.8 million for the six months ended
June 30, 2000 from $30.6 million for the six months ended June 30, 1999 due to
increased numbers of contact centers and workstation capacity and additional
sales and systems support implemented to support business growth. As a
percentage of revenues, selling, general and administrative expenses declined to
38% in the first six months of 2000 from 40% in the same period of 1999. The
Company was able to leverage the existing infrastructure to support volume
growth.
Interest Expense, net. Net interest expense of $467,000 in the first
six months of 2000 versus $475,000 in the first six months of 1999, 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 expense is primarily the result of decreased average
outstanding balances on term borrowings in 2000 as compared to 1999, partially
offset by higher interest rates.
Provision for Income Taxes. Provision for income taxes increased
$344,000 to $1.9 million for the first six months of 2000 from $1.5 million in
the first six months of 1999. For both 2000 and 1999, the provision for income
taxes was approximately 39% of income before taxes.
Quarterly Results and Seasonality
The Company has experienced and expects to continue to experience
significant quarterly variations in operating results, principally as a result
of the timing of client programs, the commencement and expiration of contracts,
the timing and amount of new business generated by the Company, the Company's
revenue mix, the timing of additional selling, general and administrative
expenses to support the growth and development of existing and new business
units and competitive industry conditions.
12
<PAGE>
The Company's business tends to be strongest in the second and fourth
quarters due to the high level of client sales activity in the spring and prior
to the holiday season. In the first quarter, telesales activity generally levels
off or slows from the previous quarter as a result of reduced client sales
activity and client transitions to new marketing programs during the first
quarter of the calendar year. 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 business 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 $4.9 million for the six
months ended June 30, 2000 versus $7.5 million of cash provided by operating
activities for the six months ended June 30, 1999. The approximate $2.6 million
decrease is the result of the growth in accounts receivable as revenues continue
to grow. Accounts receivable grew approximately $7.0 million more in the first
six months of 2000 compared to the first six months of 1999. This increase was
partially offset by higher net income and depreciation, as well as growth in
accounts payable and accrued expenses.
Cash used in investing activities was $15.1 million for the six months
ended June 30, 2000 compared to $4.2 million for the first half of 1999. The
increase over the prior year is attributable to a significant investment in
software licenses for iCT ConnectedTouch.comsm and the decision not to utilize
operating leases as a means to finance capital additions. Approximately $4.0
million of capital additions in the first half of 1999 were financed by
operating leases. Also, the Company added 751 workstations in the first six
months of 2000, and operates 4,919 workstations at June 30, 2000. In the first
six months of 1999 the Company added 394 workstations, and operated 3,810
workstations at June 30, 1999.
Cash provided by financing activities was $7.4 million for the six
months ended June 30, 2000 versus cash used in financing activities of $2.3
million for the comparable 1999 period. The $9.7 million increase is primarily
the result of borrowings totaling $9.5 million to fund capital expenditures.
The Company's operations will continue to require significant capital
expenditures. Historically, equipment purchases have been financed through the
Company's equipment line of credit, operating leases, and through capitalized
lease obligations with various equipment vendors and lending institutions. The
capitalized lease obligations are payable in varying installments through 2001.
Outstanding obligations under capitalized leases at June 30, 2000 were $502,000.
At June 30, 2000, term debt obligations were $12.0 million and borrowings under
the line of credit were $9.5 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 2000.
13
<PAGE>
FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements that are
subject to risks and uncertainties. Forward-looking statements include certain
information relating to outsourcing trends as well as other trends in the CRM
services and the overall domestic economy, the Company's business strategy
including the markets in which it operates, the services it provides, its
ability to attract new clients and the customers it targets, the benefits of
certain technologies the Company has acquired or plans to acquire and the
investment it plans to make in technology, the Company's plans regarding
international expansion, the implementation of quality standards, the
seasonality of the Company's business, variations in operating results and
liquidity, as well as information contained elsewhere in this document where
statements are preceded by, followed by or include the words "believes,"
"plans," "intends," "expects," "anticipates" or similar expressions. For such
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. The forward-looking statements in this document are subject to
risks and uncertainties that could cause the assumptions underlying such
forward-looking statements and the actual results to differ materially from
those expressed in or implied by the statements.
The most important factors that could prevent the Company from achieving its
goals--and cause the assumptions underlying the forward-looking statements and
the actual results of the Company to differ materially from those expressed in
or implied by those forward-looking statements--include, but are not limited to,
the following: (i) the competitive nature of the CRM services industry and the
ability of the Company to continue to distinguish its services from other CRM
service companies and other marketing activities on the basis of quality,
effectiveness, reliability and value; (ii) economic conditions which could alter
the desire of businesses to outsource certain sales and service functions and
the ability of the Company to obtain additional contracts to manage outsourced
sales and service functions; (iii) the ability of the Company to offer
value-added services to businesses in its targeted industries and the ability of
the Company to benefit from its industry specialization strategy; (iv) risks
associated with investments and operations in foreign countries including, but
not limited to, those related to relevant local economic conditions, exchange
rate fluctuations, relevant local regulatory requirements, political factors,
generally higher telecommunications costs, barriers to the repatriation of
earnings and potentially adverse tax consequences; (v) technology risks
including the ability of the Company to select or develop new and enhanced
technology on a timely basis, anticipate and respond to technological shifts and
implement new technology to remain competitive; (vi) the ability of the Company
to successfully identify, complete and integrate strategic acquisitions that
expand or complement its business; and (vii) the results of operations which
depend on numerous factors including, but not limited to, the timing of clients'
teleservices campaigns, the commencement and expiration of contracts, the timing
and amount of new business generated by the Company, the Company's revenue mix,
the timing of additional selling, general and administrative expenses and the
general competitive conditions in the CRM services industry and the overall
economy.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation incidental to its
business. In the opinion of management, no litigation to which the Company is
currently a party is likely to have a material adverse effect on the Company's
results of operations, financial condition or liquidity, if decided adversely to
the Company.
As previously reported by the Company, on October 23, 1997, a
shareholder, purporting to act on behalf of a class of ICT shareholders filed a
complaint in the United States District Court for the Eastern District of
Pennsylvania against the Company and certain of its directors. The complaint
alleges that the defendants violated the federal securities laws, and seeks
compensatory and other damages, including rescission of stock purchases made by
the plaintiff and other class members in connection with the Company's initial
public offering effective June 14, 1996. The defendants believe the complaint is
without merit, deny all of the allegations of wrongdoing and are vigorously
defending the suit. On February 2, 1998, the defendants filed a motion to
dismiss the complaint. On May 19, 1998, the complaint was dismissed by a judge
for the United States District Court for the Eastern District of Pennsylvania
with leave to plaintiff to file an amended complaint on narrow accounting
allegations. On 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. On November 3, 1998, the court granted a motion appointing
Rowan Klein and Michael Mandat as lead plaintiffs. On February 2, 1999, the
court dismissed the case without prejudice, directing that the case remain in
status quo, that the statute of limitations be tolled and that the parties
continue with discovery and advise the court if assistance by the court is
needed. Since that time the defendants filed a motion for summary judgement
seeking to have the case dismissed on the grounds that there is no material
issue of fact. Plaintiffs filed a response in opposition to defendant's motion
and discovery was conducted by the parties. Plaintiffs also filed a motion
seeking to have the case certified as a class action, to which defendants have
objected. The court has not ruled on defendants' motion for summary judgement or
plaintiffs motion for class certification.
On July 12, 1996, Main Street Marketing of America Incorporated (" Main
Street Marketing") brought a demand for arbitration against the Company in the
Commonwealth of Pennsylvania claiming damages as a result of the Company's
alleged breach of a service agreement under which the Company agreed to provide
Main Street Marketing with various data entry and data processing services
relating to Main Street Marketing's magazine subscription program. Main Street
Marketing alleges that the Company committed various breaches of the service
agreement and has demanded an award in excess of $15 million. The Company has
responded to this demand for arbitration by denying liability and
counterclaiming in an amount in excess of $125,000. Discovery has progressed in
this matter, but has not yet been completed. It is not possible at this stage of
the proceeding to evaluate the probable outcome of this litigation.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 2000 Annual Meeting of Shareholders was held on May 24,
2000. At the meeting, the following items were submitted to a vote of
shareholders.
(A) The following nominees were elected to serve on the Board of
Directors:
Name of Nominee Votes Cast For Votes Withheld
--------------- -------------- --------------
John J. Brennan 10,946,252 12,095
John A. Stoops 10,946,252 12,095
Bernard Somers is a director continuing in office with his
term expiring in 2001. Donald Brennan is a director continuing
in office with his term expiring in 2002. After the meeting,
the size of the Board of Directors was expanded from four to
five and Seth J. Lehr was appointed to fill the vacancy
created by such expansion.
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(B) A proposal to amend the Company's 1996 Equity Compensation
Plan to increase the number of shares reserved for issuance
thereunder from 1,120,000 to 1,620,000 was ratified with
10,814,140 votes for, 139,782 votes against, and 4,425
abstentions.
(C) A proposal to amend the Company's 1996 Non-Employee Directors
Plan to increase the number of shares reserved for issuance
thereunder from 30,000 to 50,000 was ratified with 10,840,755
votes for, 113,167 votes against, and 4,425 abstentions.
(D) The appointment of Arthur Andersen LLP as independent
accountants of the company for 2000 was ratified with
10,932,651 votes for, 22,671 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, 2000.
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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 9, 2000 By: /s/ John J. Brennan
----------------------------
John J. Brennan
Chairman, President and
Chief Executive Officer
Date: August 9, 2000 By: /s/ Vincent A. Paccapaniccia
----------------------------
Vincent A. Paccapaniccia
Senior Vice President,
Finance and Administration,
Chief Financial Officer and Assistant Secretary
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