<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, 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
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ICT GROUP, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2458937
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation 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, 12,041,150 shares outstanding as of
November 3, 2000.
<PAGE>
ICT GROUP, INC.
INDEX
PART 1 FINANCIAL INFORMATION PAGE
Item 1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
Three months and nine months ended
September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows -
Nine months ended September 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 5 OTHER INFORMATION 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)
September 30, December 31,
2000 1999
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,236 $12,239
Accounts receivable, net 38,504 28,796
Prepaid expenses and other 3,849 2,600
Deferred income taxes 556 556
------- -------
Total current assets 52,145 44,191
------- -------
PROPERTY AND EQUIPMENT
Communications and computer equipment 55,574 41,970
Furniture and fixtures 11,498 9,557
Leasehold improvements 5,352 4,678
------- -------
72,424 56,205
Less: Accumulated depreciation and
amortization (33,595) (26,784)
------- -------
38,829 29,421
------- -------
DEFERRED INCOME TAXES 2,858 2,858
OTHER ASSETS 1,821 1,603
------- -------
$95,653 $78,073
======= =======
The accompanying notes are an integral part of these statements.
3
<PAGE>
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
2000 1999
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,000 $ 4,000
Current portion of capitalized lease
obligations 314 525
Accounts payable 12,638 7,869
Accrued expenses 8,264 5,031
------- -------
Total current liabilities 29,216 17,425
------- -------
LONG-TERM DEBT 12,500 10,000
------- -------
CAPITALIZED LEASE OBLIGATIONS 71 308
------- -------
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value 5,000 shares
authorized, none issued -- --
Common Stock, $0.01 par value, 40,000 shares
authorized, 12,021 and 11,810 shares issued
and outstanding 120 118
Additional paid-in capital 49,757 49,403
Retained earnings 6,056 1,554
Accumulated other comprehensive loss (2,067) (735)
------- -------
Total shareholders' equity 53,866 50,340
------- -------
$95,653 $78,073
======== =======
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,
------------------------- ---------------------------
2000 1999 2000 1999
------ ------ -------- -------
<S> <C> <C> <C> <C>
NET REVENUES $51,445 $37,084 $140,856 $114,271
------- ------- -------- --------
OPERATING EXPENSES:
Cost of services 29,557 20,357 79,936 62,586
Selling, general and administrative 18,927 14,944 52,698 45,513
------- ------- -------- --------
48,484 35,301 132,634 108,099
------- ------- -------- --------
Operating income 2,961 1,783 8,222 6,172
INTEREST EXPENSE, NET 374 191 841 666
------- ------- -------- --------
Income before income taxes 2,587 1,592 7,381 5,506
INCOME TAXES 1,009 621 2,879 2,147
------- ------- -------- --------
NET INCOME $1,578 $971 $4,502 $3,359
======= ======= ======== ========
EARNINGS PER SHARE:
Basic earnings per share $0.13 $0.08 $0.38 $0.29
======= ======= ======== ========
Diluted earnings per share $0.13 $0.08 $0.36 $0.28
======= ======= ======== ========
Shares used in computing basic earnings per share 11,975 11,677 11,877 11,734
======= ======= ======== ========
Shares used in computing diluted earnings per share 12,514 12,232 12,429 12,194
======= ======= ======== ========
</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)
Nine Months Ended
September 30,
------------------------------
2000 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,502 $ 3,359
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,879 6,001
(Increase) decrease in:
Accounts receivable (9,708) 25
Prepaid expenses and other (1,249) (234)
Other assets (286) (26)
Increase (decrease) in:
Accounts payable 4,769 (1,158)
Accrued expenses 3,233 541
------- -------
Net cash provided by operating
activities 8,140 8,508
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,219) (5,746)
------- -------
Net cash used in investing activities (16,219) (5,746)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 9,500 -
Payments on long-term debt (3,000) (3,000)
Payments on capitalized lease obligations (448) (497)
Proceeds from exercise of stock options 356 23
------- -------
Net cash provided by (used in)
financing activities 6,408 (3,474)
------- -------
EFFECT OF FOREIGN EXCHANGE RATE CHANGE ON CASH
AND CASH EQUIVALENTS (1,332) (52)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,003) (764)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,239 14,255
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,236 $13,491
======= =======
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, 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 nine
months ended September 30, 2000 and 1999, Common stock equivalents outstanding
used in computing Diluted EPS were 552,000 and 460,000 respectively. For the
three months ended September 30, 2000 and 1999, Common stock equivalents
outstanding used in computing Diluted EPS were 539,000 and 556,000,
respectively. For the nine months ended September 30, 2000 and 1999, options to
purchase 352,000 and 137,000 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 September 30, 2000 and 1999, options to purchase
65,000 and 49,000 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. For the three and
nine months ended September 30, 2000 and 1999, comprehensive income was as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2000 1999 2000 1999
------ ------- ------ --------
<S> <C> <C> <C> <C>
Net Income $1,578,000 $ 971,000 $4,502,000 $3,359,000
Foreign currency translation adjustments (481,000) 32,000 (813,000) (32,000)
---------- ---------- ---------- ----------
Comprehensive income $1,097,000 $1,003,000 $3,689,000 $3,327,000
========== ========== ========== ==========
</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
customer acquisition services. The International Services segment provides
international multilingual inbound and outbound customer acquisition services,
customer care services, marketing, research and other value-added services and
includes business conducted by Spantel primarily for the US Hispanic market. The
Customer Management Services segment provides marketing, research, consulting,
customer acquisition, and customer care services on behalf of customers
operating in the Company's target industries.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Revenues:
Domestic TeleServices $21,580 $18,788 $ 61,803 $ 65,320
International Services 14,393 5,858 35,180 16,586
Customer Management Services 15,472 12,438 43,873 32,365
------- ------- ------- --------
$51,445 $37,084 $140,856 $114,271
======= ======= ======== ========
Operating Income (loss):
Domestic TeleServices $ 488 $ 215 $ 1,966 $ 3,447
International Services 1,696 (90) 2,651 (390)
Customer Management Services 777 1,658 3,605 3,115
------- ------- ------- --------
$ 2,961 $ 1,783 $ 8,222 $ 6,172
======= ======= ======== ========
Total Assets:
Domestic TeleServices $46,818 $41,376 $ 46,818 $ 41,376
International Services 25,608 13,223 25,608 13,223
Customer Management Services 17,925 15,838 17,925 15,838
Corporate 5,302 4,696 5,302 4,696
------- ------- ------- --------
$95,653 $75,133 $ 95,653 $ 75,133
======= ======= ======== ========
Depreciation and Amortization:
Domestic TeleServices $ 754 $ 873 $ 2,155 $ 2,606
International Services 668 399 1,843 1,145
Customer Management Services 582 420 1,668 1,217
Corporate 342 418 1,213 1,033
------- ------- ------- --------
$ 2,346 $ 2,110 $ 6,879 $ 6,001
======= ======= ======== ========
Capital Expenditures:
Domestic TeleServices $(1,458) $ 434 $ 4,481 $ 1,800
International Services 3,581 813 5,495 2,094
Customer Management Services (608) 207 5,123 1,280
Corporate (365) 67 1,120 572
------- ------- ------- --------
$ 1,150 $ 1,521 $ 16,219 $ 5,746
======= ======= ======== ========
</TABLE>
8
<PAGE>
The following table represents information about the Company by
geographic area:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Revenues:
United States $39,974 $32,375 $112,165 $101,352
Canada 6,047 2,071 16,628 6,051
Europe 4,465 2,251 9,708 6,117
Australia 959 387 2,355 751
------- ------- -------- --------
$51,445 $37,084 $140,856 $114,271
======= ======= ======== ========
Operating Income (loss):
United States $ 1,801 $ 1,882 $ 6,671 $ 7,136
Canada 809 213 1,920 418
Europe 562 (252) 110 (1,140)
Australia (211) (60) (479) (242)
------- ------- -------- --------
$ 2,961 $ 1,783 $ 8,222 $ 6,172
======= ======= ======== ========
Identifiable Assets:
United States $70,497 $61,699 $ 70,497 $ 61,699
Canada 10,536 6,159 10,536 6,159
Europe 12,214 6,962 12,214 6,962
Australia 2,406 313 2,406 313
------- ------- -------- --------
$95,653 $75,133 $ 95,653 $ 75,133
======= ======= ======== ========
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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:
|_| Expand Value-Added Services
|_| Develop Strategic Alliances and Acquisitions
|_| Increase International Presence
|_| Focus on Industry Specialization
|_| Maintain Technology Investment
|_| Continue Commitment to Quality Service
|_| Pursue e-Commerce Opportunities
In February 2000, ICT announced the formation of iCT ConnectedTouch.com, LLC a
new wholly owned subsidiary formed to provide customer relationship management
software and technology hosting services as an application service provider to
in-house operations and to provide related consulting services. The Company owns
10,000,000 interests in ConnectedTouch, consisting of all the issued and
outstanding interests in ConnectedTouch.
10
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 and 1999:
-----------------------------------------------
Net Revenues. Net revenues increased 39% to $51.4 million for the three
months ended September 30, 2000 from $37.1 million for the three months ended
September 30, 1999 as growth was strong in all three of the company's business
segments. Net revenues from the Domestic TeleServices segment increased 15% to
$21.6 million from $18.8 million in the three months ending September 30, 1999
and accounted for 42% of company revenues versus 51% for the same period in the
prior year. Almost all of this growth was from new customers. International
Services revenues grew 146% to $14.4 million from $5.9 million in the three
months ending September 30, 1999 and accounted for 28% of Company revenues
versus 16% for the same period in the prior year. Approximately $5.5 million of
this growth was from new clients with the balance from existing customers.
Customer Management Services revenues grew 24% to $15.5 million from $12.4
million in the three months ending September 30, 1999 and accounted for 30% of
Company revenues versus 33% for the same period in the prior year. Most of the
increase came from new customers. Net revenues from internet support services
provided by ICT operating divisions to dot.com companies, ISPs, ASPs, and
traditional clients that have added an Internet channel for sales and service
totaled $3.5 million, or 7% of total Company net revenues during the third
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 45% to $29.6 million for the three
months ended September 30, 2000 from $20.4 million in the three months ended
September 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 57% in the third quarter of 2000 from
55% 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 27% to $18.9 million for the three months
ended September 30, 2000 from $14.9 million for the three months ended September
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 37% in the third 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 $374,000 in the third
quarter of 2000 versus $191,000 in the third quarter of 1999, reflects the
interest expense related to capital leases and borrowings against the Company's
equipment line of credit primarily for capital expansion offset by investment
interest 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.
Provision for Income Taxes. Provision for income taxes increased
$388,000 to $1.0 million for the third quarter of 2000 from $621,000 in the
third quarter of 1999. For both 2000 and 1999, the provision for income taxes
was approximately 39% of income before taxes.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 and 1999:
----------------------------------------------
Net Revenues. Net revenues increased 23% to $140.9 million for the nine
months ended September 30, 2000 from $114.3 million for the nine months ended
September 30, 1999. Revenues from the Domestic TeleServices segment decreased 5%
to $61.8 million from $65.3 million in the nine months ending September 30, 1999
and accounted for 44% of company revenues versus 57% 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 restrained marketing
activities in the early part of 2000. 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 112% to $35.2 million from $16.6 million in the nine months ending
11
<PAGE>
September 30, 1999 and accounted for 25% of Company revenues versus 15% for the
same period in the prior year. Approximately $13.0 million of this growth was
from new clients with the balance from existing customers. Customer Management
Services revenues grew 36% to $43.9 million from $32.4 million in the nine
months ending September 30, 1999 and accounted for 31% of Company revenues
versus 28% for the same period in the prior year. Most of the increase came from
new customers with the balance coming from existing customers. Net revenues from
internet support services provided by ICT operating divisions to dot.com
companies, ISPs, ASPs, and traditional clients that have added an Internet
channel for sales and service totaled $9.3 million, or 7% of total Company net
revenues during the first nine 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 28% to $79.9 million for the nine
months ended September 30, 2000 from $62.6 million in the nine months ended
September 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 57% in the first nine 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 16% to $52.7 million for the nine months ended
September 30, 2000 from $45.5 million for the nine months ended September 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 37% in the first nine 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 $841,000 in the first
nine months of 2000 versus $666,000 in the first nine 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 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.
Provision for Income Taxes. Provision for income taxes increased
$732,000 to $2.9 million for the first nine months of 2000 from $2.1 million in
the first nine 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.
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 telesales typically slows or
decreases in the third quarter as the volume of business decreases during the
summer months. In the third quarter of 2000, strong growth in International
Services and Customer Management Services business offset a decline in Domestic
Teleservices revenue. In addition, the Company's operating expenses increased
during the third quarter in anticipation of higher demand for its services
during the fourth quarter.
12
<PAGE>
Liquidity and Capital Resources
Cash provided by operating activities was $8.1 million for the nine
months ended September 30, 2000 versus $8.5 million of cash provided by
operating activities for the nine months ended September 30, 1999. The $368,000
decrease is the result of the growth in accounts receivable as net revenues
continue to grow. Accounts receivable grew approximately $9.7 million more in
the first nine months of 2000 compared to the first nine months of 1999,
corresponding to the $14.4 million growth in revenue from the third quarter of
1999 to the third quarter of 2000. 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 $16.2 million for the nine months
ended September 30, 2000 compared to $5.7 million for the first nine months of
1999. The increase over the prior year is attributable to a significant
investment in software licenses for iCT ConnectedTouch.com(sm) and the
significant investment in capital expenditures made to increase capacity to
support the revenue growth of the Company. The Company added 1,304 workstations
in the first nine months of 2000, and operates 5,472 workstations at September
30, 2000. In the first nine months of 1999 the Company added 448 workstations,
and operated 3,864 workstations at September 30, 1999.
Cash provided by financing activities was $6.4 million for the nine
months ended September 30, 2000 versus cash used in financing activities of $3.5
million for the comparable 1999 period. The $9.9 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 September 30, 2000 were
$385,000. At September 30, 2000, term debt obligations were $11.0 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
into 2001.
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 Company assumes no
obligation to update such forward-looking 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 dismissed without prejudice both defendants' motion for
summary judgement and plaintiffs motion for class certification with leave
granted to both plaintiffs and defendants to re-file such motions upon the
completion of discovery.
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 5. Other Information
The Company formed iCT ConnectedTouch.com LLC ("ConnectedTouch") in
February 2000 as a Pennsylvania limited liability company. ConnectedTouch is a
wholly owned subsidiary of the Company engaged in the business of providing
customer relationship management software and technology hosting services as an
application service provider to in-house operations and to provide related
consulting services. The Company owns 10,000,000 interests in ConnectedTouch,
consisting of all the issued and outstanding interests in ConnectedTouch. The
ownership of an "interest" in a Pennsylvania limited liability company is
similar to the ownership of a share of common stock in a corporate entity.
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In May 2000, ConnectedTouch adopted a 2000 Equity Compensation Plan
(the "Plan") pursuant to which ConnectedTouch reserved for issuance options to
purchase up to 2,000,000 interests in ConnectedTouch. The Plan permits the
issuance of these options to employees of the Company or ConnectedTouch and to
members of the Board of Directors of the Company and ConnectedTouch.
On October 19, 2000 ConnectedTouch issued options to purchase 961,000
interests under the Plan to sixty-seven (67) individuals consisting of employees
of the Company and ConnectedTouch and each member of the Company's Board of
Directors. These options were issued at an exercise price of $.30 per interest,
the fair market value of the interests at the time of grant as determined by an
independent financial advisor retained by the Company. These interests become
exercisable only if ConnectedTouch completes an initial public offering of its
stock within ten (10) years after the date of grant. If ConnectedTouch does
complete such a public offering, the options vest and become exercisable in full
at such time. The respective rights and obligations of the option holders,
including without limitation, such matters as the termination of the options
upon the termination of the option holder's employment or upon the occurrence of
a change of control or other corporate event affecting ConnectedTouch, are set
forth in the Plan and in the option agreements between such individuals and
ConnectedTouch.
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, 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: November 10, 2000 By: /s/ John J. Brennan
----------------------------------------
John J. Brennan
Chairman, President and
Chief Executive Officer
Date: November 10, 2000 By: /s/ Vincent A. Paccapaniccia
----------------------------------------
Vincent A. Paccapaniccia
Senior Vice President,
Finance and Administration,
Chief Financial Officer and
Assistant Secretary
