<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[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 No. 0-21107
---------------------------
TELESPECTRUM WORLDWIDE INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2845501
- -------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
443 South Gulph Road
King of Prussia, Pennsylvania 19406
- ----------------------------- -----
(Address of principal executive offices) (ZIP Code)
610-878-7400
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 of 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
--- ---
The number of outstanding shares of the Registrant's Common Stock, par value
$.01 per share, on November 13, 1998 was 25,689,671.
================================================================================
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
Table of Contents
-----------------
<TABLE>
<CAPTION>
Item No. Page
PART I -- FINANCIAL INFORMATION
<S> <C>
1. Financial Statements (unaudited):
Condensed Consolidated Results of Operations
For the Three Months Ended September 30, 1998 and
For the Three Months Ended September 30, 1997 3
Condensed Consolidated Results of Operations
For the Nine Months Ended September 30, 1998 and
For the Nine Months Ended September 30, 1997 4
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 5
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and
For the Nine Months Ended September 30, 1997 6
Notes to Condensed Consolidated Financial Statements 7
2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
PART II - OTHER INFORMATION 23
</TABLE>
2
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands -- Except Per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUES $ 44,476 $ 40,660
-------- --------
OPERATING EXPENSES:
Cost of services 38,152 46,488
Selling, general and administrative 3,200 8,033
Amortization of goodwill 294 1,833
-------- --------
Total operating expenses 41,646 56,354
-------- --------
Operating income (loss) 2,830 (15,694)
INTEREST INCOME (EXPENSE) (162) (636)
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 2,668 (16,330)
BEFORE INCOME TAXES
INCOME TAX BENEFIT (EXPENSE) -- 2,811
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 2,668 (13,519)
INCOME FROM DISCONTINUED OPERATIONS -- 238
-------- --------
NET INCOME (LOSS) $ 2,668 $(13,281)
======== ========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.10 $ (0.54)
DISCONTINUED OPERATIONS 0.00 0.01
-------- --------
NET INCOME (LOSS) $ 0.10 $ (0.53)
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands -- Except Per Share Amounts)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUES $ 124,391 $ 134,120
--------- ---------
OPERATING EXPENSES:
Cost of services 118,377 127,490
Selling, general and administrative 14,800 15,141
Amortization of goodwill 884 5,425
--------- ---------
Total operating expenses 134,061 148,056
--------- ---------
Operating income (loss) (9,670) (13,936)
INTEREST INCOME (EXPENSE) (1,095) (810)
--------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (10,765) (14,746)
INCOME TAX BENEFIT (EXPENSE) 247 2,091
--------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS (10,518) (12,655)
INCOME FROM DISCONTINUED OPERATIONS 479 1,454
--------- ---------
NET INCOME (LOSS) $ (10,039) $ (11,201)
========= =========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ (0.41) $ (0.50)
DISCONTINUED OPERATIONS 0.02 0.06
--------- ---------
NET INCOME (LOSS) $ (0.39) $ (0.44)
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands -- Except Share Amounts)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
-------------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 774
Accounts receivable, net of
allowance for doubtful accounts of
$3,077 and $969, respectively 40,253 37,360
Income tax refund receivable -- 2,912
Prepaid expenses and other 2,402 1,539
Net assets of discontinued operations -- 36,399
--------- ---------
Total current assets 42,655 78,984
PROPERTY AND EQUIPMENT, NET 34,207 36,731
GOODWILL, NET 27,080 27,964
OTHER ASSETS 805 1,042
--------- ---------
Total assets $ 104,747 $ 144,721
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Secured credit facility $ 2,849 $ 29,000
Current maturities of long-term debt 938 1,160
Accounts payable 3,376 4,718
Accrued expenses 8,703 9,125
Accrued compensation 6,197 7,638
Notes payable to sellers of businesses 765 990
Other current liabilities 5,688 5,698
--------- ---------
Total current liabilities 28,516 58,329
--------- ---------
LONG-TERM DEBT 3,002 3,800
--------- ---------
OTHER NONCURRENT LIABILITIES 927 2,215
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 5,000,000 shares authorized,
no shares issued or outstanding -- --
Common Stock, $.01 par value, 200,000,000 shares authorized,
25,671,205 and 25,213,074 shares issued and outstanding, respectively 257 252
Additional paid-in capital 239,623 237,186
Accumulated deficit (166,868) (156,825)
Deferred compensation (530) --
Cumulative currency translation adjustment (180) (236)
--------- ---------
Total stockholders' equity 72,302 80,377
--------- ---------
Total liabilities and stockholders' equity $ 104,747 $ 144,721
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(10,039) $(11,201)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 6,193 7,554
Amortization of goodwill 884 5,425
Provision for bad debts 2,361 1,119
Deferred compensation 326 --
Other items, net 932 (1,555)
Changes in operating assets and liabilities-
Accounts receivable (5,254) (9,639)
Income tax receivable 1,180 532
Prepaid expenses and other 3,112 (994)
Accounts payable (1,280) (4,117)
Accrued compensation (1,983) 3,536
Other accrued expenses (1,374) 3,722
Deferred revenue (153) --
Other liabilities (2,603) (297)
Net operating activities of discontinued operations (432) 5,057
--------- --------
Net cash used in operating activities (8,130) (858)
--------- --------
Cash Flows From Investing Activities:
Purchases of property and equipment (4,313) (23,230)
Proceeds from sale of businesses 38,048 --
Acquisition of Initial Operating Businesses, net of cash acquired -- --
Payments related to acquisition of Initial Operating Businesses (378) (28,339)
Acquisition of TeleSpectrum FX (IVR) -- (5,327)
Investment in business held for sale -- (4,502)
Net investing activities of discontinued operations (275) (1,234)
--------- --------
Net cash provided by (used in) investing activities 33,082 (62,632)
--------- --------
Cash Flows From Financing Activities:
Net borrowings (repayments) on secured credit facility (26,151) 35,900
Net borrowings (repayments) of long-term debt (243) 313
Payments of capital lease obligations (778) (894)
Proceeds from exercise of stock options and sale of common stock 1,446 --
--------- --------
Net cash provided by (used in) financing activities (25,726) 35,319
--------- --------
Net decrease in cash and cash equivalents (774) (28,171)
Cash and cash equivalents, beginning of period 774 28,171
--------- --------
Cash and cash equivalents, end of period $ -- $ --
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
- --------------------------------------------------------------------------------
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared by
Telespectrum Worldwide Inc. and subsidiaries (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). The
December 31, 1997 balance sheet was derived from audited financial statements,
however, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and regulations.
The Company believes that the financial statements include all adjustments of a
normal and recurring nature necessary to present fairly the results of
operations, financial position and cash flows for the periods presented. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Form 10-K for the year ended
December 31, 1997.
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany balances and
transactions have been eliminated. There have been no material changes in
accounting policies from those stated in the Company's Form 10-K for the year
ended December 31, 1997. Certain reclassifications have been made to the three
and nine months ended September 30, 1997 condensed consolidated results of
operations to conform to the presentation used in the current period.
2. Company Background
The Company provides services to its customers through its two business
segments, Telemarketing and Customer Care. The Company was incorporated in
Delaware on April 26, 1996 and on August 12, 1996 completed its initial public
offering. Concurrent with the offering, the Company began material operations
with the acquisition of the assets of a number of businesses. The results of
operations of the Market Research Segment and Direct Mail and Fulfillment
Segment have been accounted for as discontinued operations (see Note 5).
3. Goodwill Impairment Charge
In the fourth quarter of 1997, the Company performed an in-depth evaluation of
the carrying value of goodwill due to the Company's operating performance and
the overall significant changes in the industry outlook, and recorded a goodwill
impairment charge of $139,072,000, which represented the goodwill associated
with its Telemarketing Segment. As of September 30, 1998, the Company's
remaining goodwill of $27,080,000 relates exclusively to its Customer Care
Segment, which the Company believes is realizable.
Whenever events or circumstances arise that indicate an impairment may have
occurred, the Company estimates the future discounted cash flows of the business
segment to which goodwill relates. When such estimate of the future discounted
cash flows, net of the estimated fair value of the net tangible assets, is less
than the carrying amount of goodwill, the difference is charged to operations.
For purposes of determining future discounted cash flows of the business
segments to which goodwill relates, the Company, based upon historical results,
current projections and internal earnings targets, determines the projected
operating cash flows, net of income taxes, of the individual business segment.
These projected future cash flows are then discounted at a rate corresponding to
the Company's estimated cost of capital.
7
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
- --------------------------------------------------------------------------------
4. Earnings Per Share
The Company has adopted SFAS No. 128 "Earnings per Share." SFAS No. 128 requires
a dual presentation of "basic" and "diluted" EPS on the face of the income
statement. Basic EPS is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding for the period. Diluted EPS
includes the effect, if any, from the potential exercise or conversion of
securities, such as stock options, which would result in the issuance of shares
of common stock.
There was no material difference between basic and diluted earnings (loss) per
share. The table below sets forth the reconciliation of the weighted average
number of shares outstanding used to compute basic and diluted earnings (loss)
per share (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares used in computing basic earnings (loss)
per share..................................... 25,671 25,213 25,468 25,213
Dilutive effect of options......................... 1,810 -- -- --
------ ------ ------ ------
Shares used in computing diluted earnings
(loss) per share.............................. 27,481 25,213 25,468 25,213
====== ====== ====== ======
</TABLE>
5. Discontinued Operations
In December 1997, the Company committed to a plan to dispose of its Market
Research Segment and Direct Mail and Fulfillment Segment. As required by APB
Opinion No. 30, "Reporting the Results of Operations, Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," the Company has accounted for the results of
operations and net assets of the Market Research Segment and Direct Mail and
Fulfillment Segment as discontinued operations. The operating results for the
three and nine months ended September 30, 1998 and September 30, 1997, and the
net assets at September 30, 1998 and December 31, 1997 have been restated to
reflect discontinued operations.
In the first quarter of 1998, the Company sold substantially all of the assets
and liabilities of the Market Research segment and the Direct Mail and
Fulfillment segment for approximately $38,000,000 in cash, which resulted in a
loss of approximately $907,000, which was recorded as of December 31, 1997. The
Company used the proceeds from these sales to repay all outstanding borrowings
on the secured credit facility.
The following table summarizes the operating results of the discontinued
operations (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues......................................... $ -- $5,140 $4,189 $15,456
Operating expenses............................... -- 4,780 3,463 13,254
------ ------ -------
Income before income taxes....................... -- 360 726 2,202
Income tax provision............................. -- 122 247 748
--- --- ---
Income from discontinued operations.............. -- $ 238 $ 479 $ 1,454
== ====== ====== =======
</TABLE>
8
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
- --------------------------------------------------------------------------------
6. Capitalized Software Development Costs
The Company capitalizes software development costs in accordance with SFAS No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." The Company capitalizes software development costs
subsequent to the establishment of technological feasibility and until the
product is available for general release. Costs incurred prior to the
establishment of technological feasibility are charged to product development
expense. Development costs associated with product enhancements that extend the
original product's life or significantly improve the original product's
marketability are also capitalized once technological feasibility has been
established. Software development costs are amortized on a product-by-product,
straight-line basis over the estimated useful lives of the products (three
years), beginning with the initial release to customers. The Company continually
evaluates whether events or circumstances have occurred that indicate that the
remaining useful life of the capitalized software development costs should be
revised or that the remaining balance of such assets may not be recoverable. The
Company evaluates the recoverability of capitalized software based on the
estimated future revenues of each product. As of September 30, 1998, the Company
believes that no revisions to the remaining useful life or write-downs of
capitalized software development costs ($430,000 net book value at September 30,
1998) are required.
7. Secured Credit Facility
On April 14, 1998, the Company entered into a four-year Loan and Security
Agreement with Mellon, which provides for a $20 million credit facility (the
"Credit Facility"). Under the terms of the Credit Facility, the Company can
borrow up to the lesser of $20 million or an amount that is determined as 80% of
the net accounts receivable aged 90 days or less. The Company can elect at the
time it makes borrowings to pay interest at prime plus 0.50% or at LIBOR plus
2.50% and will pay a commitment fee of 0.375% on the unused borrowing capacity.
The Credit Facility also makes available to the Company letters of credit at a
fee of 1% per annum on the face amount of each letter of credit and in an
aggregate amount not to exceed the lower of $1.5 million or the amount available
under the credit facility. Borrowings under the Credit Facility are
collateralized by substantially all of the assets of the Company. The Credit
Facility also contains various financial and non-financial covenants. At
September 30, 1998, the Company had $2,849,000 outstanding and $17,151,000
available under the Credit Facility.
8. Supplemental Cash Flow Information
The Company paid $64,000 and $572,000 of interest expense for the three months
ended September 30, 1998 and September 30, 1997 and $664,000 and $916,000 for
the nine months ended September 30, 1998 and September 30, 1997, respectively.
The Company did not pay any income taxes during the three and nine months ended
September 30, 1998 and September 30, 1997.
In March 1997, the Company settled the earn-out agreement with the seller of one
of its initial operating businesses under which the Company paid $25.0 million
in March 1997 and agreed to pay $600,000 over a two year period in equal
installments of which, the Company has paid $425,000 through September 30, 1998.
9
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
- --------------------------------------------------------------------------------
9. Concentrations of Risk
The Financial Instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers comprising the Company's customer base, and
their dispersion across many different industries and geographies. The Company
does not require collateral or other securities to support customer accounts
receivable. The Company performs periodic reviews of its clients' condition to
reduce the collection risk.
The Company does not believe a significant credit risk exists for unreserved
accounts receivable at September 30, 1998. The Company had two clients which
accounted for approximately 11.5% and 11.4% of total revenues for the three
months ended September 30, 1998, respectively, and 19.4% and 2.4% of total
accounts receivable at September 30, 1998, respectively. The Company also had
one other client which accounted for 11.8% of total accounts receivable at
September 30, 1998. No client accounted for more than 10% of total revenues for
the nine months ended September 30, 1998.
10. Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," which is
effective for financial statements issued for fiscal years beginning after
December 15, 1997. The Company's comprehensive income includes net income (loss)
and unrealized gains and losses from foreign currency translation. Total
comprehensive income (loss) for the three months ended September 30, 1998 and
1997 was $2,710,000 and $(13,349,000), respectively, and for the nine months
ended September 30, 1998 and 1997 was $(9,983,000) and $(11,321,000),
respectively.
10
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.These statements address, among other things, the Company's business
strategy, including its use of cash and cash equivalents; reliance on certain
customers; projected capital expenditures; liquidity; Year 2000 disclosure,
including statements regarding readiness, remediation, consequences and
contingency plans; increased sales in future periods; the continuation of
fluctuations in results of operations, as well as information contained
elsewhere in this Report where statements are preceded by, followed by or
include the words "believes," "expects," "anticipates," "plans" or similar
expressions. These statements are based on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside the Company's control, that could cause actual results
to differ materially from such statements. The Company undertakes no obligation
to update or revise forward-looking statements, whether as a result of new
information, future events or otherwise.
RECENT DEVELOPMENTS
Litigation with NTC
In July 1998, the Company commenced litigation in Federal court against Parcel
Consultants Incorporated d/b/a NTC ("NTC"). The Company filed suit as part of
its efforts to collect approximately $4.7 million owed to it for outbound
telemarketing services performed on behalf of NTC. NTC filed a counter suit
against the Company alleging breach of contract and fraud. The Company believes
that NTC's claims against the Company are without merit. The Company has
reserved approximately $2.1 million of its reserve for uncollected accounts
receivable against the amount owed from NTC. Based on current facts and
circumstances, the Company believes that the reserve is adequate, however, the
Company cannot assure that it will be successful in collecting the remaining
portion owed by NTC.
CRW Merger Agreement
On September 4, 1998, the Company signed a definitive agreement to merge with
CRW Financial, Inc. ("CRW"), its largest shareholder. It is expected that CRW's
only principal asset at the time of the merger will be approximately 6.9 million
shares of the Company's common stock. Under the proposed merger, the Company
would issue 4.6 million new shares of the Company's common stock in exchange for
all outstanding CRW common stock at an exchange ratio of .709. This exchange
will be accounted for as a treasury stock transaction. The Company would also
continue or convert existing rights which would result in rights to purchase an
additional 2.0 million new shares of the Company's common stock with aggregate
exercise proceeds of approximately $5.6 million. The Company and CRW expect to
obtain any required governmental and shareholder approvals for the merger by the
end of the first quarter of 1999.
Changes in the Company's Board of Directors
On September 10, 1998, the Board of Directors of the Company expanded its number
of positions and appointed Michael E. Julian and David L. Kriegel to the fill
the new positions. On October 14, 1998, the Board of Directors accepted the
resignation of William F. Rhatigan from his position as a member of the Board of
Directors of the Company.
11
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
FOURTH QUARTER 1997 AND FIRST HALF 1998
Operational Losses
The Company incurred a net loss of $160 million for the year ended December 31,
1997. Included in the net loss was a $139 million goodwill impairment charge and
$11.6 million in charges related to call center closings. Notwithstanding the
foregoing charges, the Company incurred operating losses in 1997. The Company
also incurred a loss of $10.1 million in the first quarter of 1998 and $2.6
million in the second quarter of 1998. The Company mainly attributes these
losses to the costs associated with expanding its telemarketing call center
capacity in the first and second quarters of 1997 to meet its growth
expectations and the costs associated with subsequently reducing its capacity in
the third and fourth quarters of 1997 and first and second quarters of 1998.
Discontinued Operations
In the first quarter of 1998, the Company sold substantially all of the assets
and liabilities of the Market Research Segment and the Direct Mail and
Fulfillment Segment for approximately $38,000,000 in cash, which resulted in a
loss of approximately $907,000, which was recorded as of December 31, 1997. The
Company used the proceeds from these sales to repay all outstanding borrowings
on the secured credit facility.
Goodwill Impairment
In the fourth quarter of 1997, the Company performed an in-depth evaluation of
the carrying value of goodwill due to the Company's operating performance and
the overall significant changes in the industry outlook, and recorded a goodwill
impairment charge of $139,072,000, which represented the goodwill associated
with its Telemarketing Segment. As of September 30, 1998, the Company's
remaining goodwill of $27,080,000 relates exclusively to its Customer Care
Segment, which the Company believes is realizable.
12
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
RESULTS OF OPERATIONS
Comparison of the results of operations for the three months ended September 30,
1998 to the three months ended September 30, 1997.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
------------------------------------------------------
AS A AS A
THREE MONTHS ENDED PERCENTAGE OF THREE MONTHS ENDED PERCENTAGE OF
SEPT. 30, 1998 REVENUES SEPT. 30,1997 REVENUES
------------------ ------------- ------------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Telemarketing ............................... $ 34.1 77 % $ 32.1 79 %
Customer care ............................... 10.4 23 % 8.6 21 %
------- ---- ------- ----
Total revenue .................................... 44.5 100 % 40.7 100 %
Cost of services:
Telemarketing ............................... 29.4 66 % 38.3 94 %
Customer care ............................... 8.8 20 % 8.2 20 %
------- ---- ------- ----
Total cost of services ........................... 38.2 86 % 46.5 114 %
Total selling, general and administrative ........ 3.2 7 % 8.1 20 %
Amortization of goodwill ......................... 0.3 1 % 1.8 4 %
------- ---- ------- ----
Total operating expenses ......................... 41.7 94 % 56.4 138 %
Operating income (loss) .......................... 2.8 6 % (15.7) (38)%
Interest (expense) income, net ................... (0.1) -- % (0.6) (2)%
------- ---- ------- ----
Income (loss) before taxes ....................... 2.7 6 % (16.3) (40)%
Income tax benefit (expense) ..................... -- -- % 2.87 %
------- ---- ------- ----
Income (loss) from continuing operations ......... 2.7 6 % (13.5) (33)%
Income from discontinued operations
(net of tax) .................................. -- -- % 0.2 -- %
------- ---- ------- ----
Net income (loss) ................................ $ 2.7 6 % $ (13.3) (33)%
======= ==== ======= ====
</TABLE>
13
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
The Company's results of operations classify its former Market Research and
Direct Mail and Fulfillment Segments as discontinued operations (see Note 5 to
the Condensed Consolidated Financial Statements). These Segments were sold in
the first quarter of 1998.
REVENUES
Total revenues for the three months ended September 30, 1998 amounted to $44.5
million, an increase of $3.8 million or 9% from $40.7 million for the three
months ended September 30, 1997. This increase in aggregate revenues was driven
by the addition of fulfillment revenues for telemarketing clients within the
Telemarketing Segment and an increase in call volume within the Customer Care
Segment.
Telemarketing Segment
Telemarketing revenues of $34.1 million accounted for 77% of the Company's total
revenues for the three months ended September 30, 1998 and represents an
increase of $2.0 million or 6% from $32.1 million for the same prior year
period. The increase in Telemarketing revenues is principally attributable to
the addition of fulfillment revenues for telemarketing clients. The Company
provides product fulfillment services via a third party for its telemarketing
clients. Fulfillment revenues for telemarketing clients were $3.1 million for
the three months ended September 30, 1998 and were zero for the three months
ended September 30, 1997. A decrease in telemarketing revenues from loss of
clients of $10.1 and from reduced services for existing clients of $5.7 million
was offset by an increase of $17.8 million attributable to services initiated
for new clients (including fulfillment revenues for telemarketing clients). On
July 8, 1998, a large Telemarketing client of the Company suspended operations
pending regulatory review. The Company was able to replace the majority of this
revenue from increased business from existing clients as well as with business
from new clients.
Customer Care Segment
Customer Care revenues of $10.4 million accounted for 23% of total revenue for
the three months ended September 30, 1998 and represents an increase of $1.8
million or 21% from $8.6 million for the same prior year period. Of this
increase, $3.4 million was attributable to services initiated for new clients,
partially offset by a decreases in revenues attributable to the loss of clients
of $0.3 million and to reduced services for existing clients of $1.3 million.
COST OF SERVICES
Cost of services amounted to $38.2 million for the three months ended September
30, 1998, a decrease of $8.3 million or 18% from $46.5 million for the same
prior year period. As a percentage of total revenues, cost of services were 86%
and 114% for the three months ended September 30, 1998 and 1997, respectively.
Telemarketing Segment
Telemarketing costs of services accounted for 77% of the Company's total cost of
services from continuing operations for the three months ended September 30,
1998 and represents a decrease of $8.9 million or 23% when compared to
Telemarketing cost of services of $38.3 million for the same prior year period.
As a percentage of Telemarketing revenues, Telemarketing cost of services were
86% and 119% for the three months ended September 30, 1998 and 1997,
respectively. The Company attributes this decrease in cost of services as a
percentage of revenues primarily to the reduction of the Company's productive
capacity which resulted in higher utilization of telemarketing personnel and
facilities.
14
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Customer Care Segment
Customer Care cost of services accounted for 23% of the Company's total cost of
services from continuing operations for the three months ended September 30,
1998. This represents an increase of $0.6 million or 7% when compared to
Customer Care cost of services of $8.2 million for the same prior year period.
As a percentage of Customer Care revenue, Customer Care cost of services were
85% for the three months ended September 30, 1998 and 95% for the three months
ended September 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses amounted to $3.2 million,
a decrease of $4.9 million or 60% when compared to SG&A expenses of $8.1 million
for the same prior year period. As a percentage of total revenue, SG&A expenses
were 7% and 20% for the three months ended September 30, 1998 and 1997,
respectively.
SG&A expenses for the three months ended September 30, 1997 include $4.0 million
of call center closing and certain other charges. These charges include $0.8
million for the write-down of certain property and equipment to fair value, $0.4
million related to employee severance agreements, $0.9 million associated with
an increase to the reserve for the allowance for doubtful accounts, $1.5 million
for revision to estimates of the costs of certain employee benefit programs and
certain other items totaling $0.4 million. SG&A expenses, without this prior
year net charge of $4.0 million, would have decreased $0.9 million or 22% for
the three months ended September 30, 1998 when compared to the same prior year
period.
AMORTIZATION OF GOODWILL
Amortization of Goodwill amounted to $0.3 million, a decrease of $1.5 million or
83% when compared to amortization of goodwill of $1.8 million for the same prior
year period. As a percentage of total revenues, amortization of goodwill was 1%
and 4% for the three months ended September 30, 1998 and 1997, respectively. The
decrease in amortization of goodwill resulted from the Company recording a
goodwill impairment charge of $139.1 million in the fourth quarter of 1997,
which represented the goodwill associated with the Telemarketing Segment. As of
September 30, 1998, the remaining net goodwill of $27.1 million relates
exclusively to the Customer Care Segment.
INTEREST (EXPENSE) INCOME
Net interest expense for the three months ended September 30, 1998 amounted to
$0.1 million, a decrease of $0.5 million when compared to net interest expense
of $0.6 million for the same prior year period. The decrease in net interest
expense resulted from reduced borrowings outstanding under the credit facility
during the three months ended September 30, 1998 as compared to the three months
ended September 30, 1997.
INCOME TAX (EXPENSE) BENEFIT
Income tax (expense) benefit is a function of pretax income (loss) and the
combined effective tax rate of federal and state income taxes. This combined
rate was 0% and 17% for the three months ended September 30, 1998 and 1997,
respectively. The income tax benefit for the three months ended September 30,
1997 is a result of an offset of a provision recorded during the first three
months of 1997. As of September 30, 1998, the Company has a net operating loss
carryforward of approximately $8.0 million. Also, as of September 30, 1998, the
Company has approximately $123.0 million of future income tax deductible amounts
(to be amortized principally over 15 years) related to the 1997 goodwill
impairment and call center charges. Due to the uncertain realization of these
deferred tax assets, the Company has recorded a full valuation allowance as of
September 30, 1998.
15
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Income from Discontinued Operations
In February 1998 the Company sold its former Market Research Segment business
and in March 1998 the Company consummated the sale of its former Direct Mail and
Fulfillment Segment business. For the three months ended September 30, 1998,
there were no operations for these segments. For the three months ended
September 30, 1997, the Company has accounted for the results of operations of
the Market Research Segment and Direct Mail and Fulfillment Segment as
discontinued operations. Income from discontinued operations for the three
months ended September 30, 1997 amounted to $0.2 million (net of tax).
16
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
Comparison of the results of operations for the nine months ended September 30,
1998 to the nine months ended September 30, 1997.
<TABLE>
<CAPTION>
Results Of Operations
(Dollars In Millions)
---------------------------------------
Nine Months As A Nine Months As A
Ended Percentage Of Ended Percentage Of
Sept. 30, 1998 Revenues Sept. 30,1997 Revenues
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Telemarketing........................................ $ 93.3 75% $109.3 82%
Customer care........................................ 31.1 25% 24.8 18%
------ ---- ------ -----
Total revenue............................................. 124.4 100% 134.1 100%
Cost of services:
Telemarketing........................................ 89.5 72% 104.1 78%
Customer care........................................ 28.9 23% 23.4 17%
------ ---- ------ -----
Total cost of services.................................... 118.4 95% 127.5 95%
Total selling, general and administrative................. 14.8 12% 15.1 11%
Amortization of goodwill.................................. 0.9 1% 5.4 4%
------ ---- ------ -----
Total operating expenses.................................. 134.1 108% 148.0 110%
Operating income (loss)................................... (9.7) (8)% (13.9) (10)%
Interest (expense) income, net............................ (1.1) (1)% (0.8) (1)%
------ ----- ------ -----
Income (loss) before taxes................................ (10.8) (9)% (14.7) (11)%
Income tax benefit (expense).............................. 0.3 --% 2.1 2%
------ ----- ------ ----
Income (loss) from continuing operations.................. (10.5) (9)% (12.6) (9)%
Income from discontinued operations
(net of tax)........................................... 0.5 1% 1.4 1%
------ --- ------ ----
Net income (loss)......................................... $(10.0) (8)% $(11.2) (8)%
====== ===== ====== =====
</TABLE>
17
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
The Company's results of operations classify its former Market Research and
Direct Mail and Fulfillment business Segments as discontinued operations (see
Note 5 to the Condensed Consolidated Financial Statements). These Segments were
sold in the first quarter of 1998.
Revenues
Total revenues for the nine months ended September 30, 1998 amounted to $124.4
million, a decrease of $9.7 million or 7% from $134.1 million for the nine
months ended September 30, 1997. This decrease in aggregate revenues was driven
by the reduction of calling hours within the Telemarketing Segment.
Telemarketing Segment
Telemarketing revenues of $93.3 million accounted for 75% of the Company's total
revenues for the nine months ended September 30, 1998 and represents a decrease
of $16.0 million or 15% from $109.3 million for the same prior year period. The
decrease in Telemarketing revenues is principally attributable to decreased
calling hours. Of this decrease, $41.2 million was attributable to the loss of
clients of which one client, MBNA America ("MBNA"), represented $29.8 million of
the entire loss, and a decrease of $13.6 million attributable to reduced
services for existing clients. The decrease of revenues was partially offset by
an increase of $33.8 million attributable to services initiated for new clients
and the addition of fulfillment revenues of $5.0 million. The Company provides
product fulfillment services via a third party for its telemarketing clients. On
July 8, 1998, a large Telemarketing client of the Company suspended operations
pending regulatory review. This client represented 6% of the Company's revenues
for the nine months ended September 30, 1998. The Company was able to replace
the majority of this revenue from increased business from existing clients as
well as business with new clients.
Customer Care Segment
Customer Care revenues of $31.1 million accounted for 25% of total revenues for
the nine months ended September 30, 1998 and represents an increase of $6.3
million or 25% from $24.8 million for the same prior year period. Of this
increase, $8.6 million was attributable to services initiated for new clients,
partially offset by a decrease in revenues attributable to the loss of clients
of $1.6 million and a decrease of $0.7 million attributable of reduced services
for existing clients..
Cost of Services
Cost of services amounted to $118.4 million for the nine months ended September
30, 1998, a decrease of $9.1 million or 7% from $127.5 million for the same
prior year period. As a percentage of total revenues, cost of services were 95%
for the nine months ended September 30, 1998 and 1997.
Telemarketing Segment
Telemarketing cost of services accounted for 76% of the Company's total cost of
services from continuing operations for the nine months ended September 30, 1998
and represents a decrease of $14.6 million or 14% when compared to Telemarketing
cost of services of $104.1 million for the same prior year period. Cost of
services for the nine months ended September 30, 1998 includes $0.8 million
related to employee severance and termination benefits related to the closing of
fifteen Telemarketing call centers. As a percentage of Telemarketing revenues,
Telemarketing cost of services were 96% and 95% for the nine months ended
September 30, 1998 and 1997, respectively.
18
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Customer Care Segment
Customer Care cost of services accounted for 24% of the Company's total cost of
services from continuing operations for the nine months ended September 30,
1998. This represents an increase of $5.5 million or 24% when compared to
Customer Care cost of services of $23.4 million for the same prior year period.
As a percentage of Customer Care revenue, Customer Care cost of services were
93% and 94% for the nine months ended September 30, 1998 and 1997, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses amounted to $14.8 million,
a decrease of $0.3 million or 2% when compared to SG&A expenses of $15.1 million
for the same prior year period. As a percentage of total revenue, SG&A expenses
were 12% and 11% for the nine months ended September 30, 1998 and 1997,
respectively.
SG&A expenses include charges of $3.0 million and $4.0 million for the nine
months ended September 30, 1998 and 1997, respectively, relating to call center
closings and certain other charges. SG&A expenses, without the charges , would
have increased $0.7 million or 6% for the nine months ended September 30, 1998
when compared to the same prior year period. As a percentage of revenue, SG&A
expenses, without the charges, would have been 9% and 8% for the nine months
ended September 30, 1998 and 1997, respectively.
Amortization of Goodwill
Amortization of Goodwill amounted to $0.9 million, a decrease of $4.5 million or
83% when compared to amortization of goodwill of $5.4 million for the same prior
year period. As a percentage of total revenues, amortization of goodwill was 1%
and 4% for the nine months ended September 30, 1998 and 1997, respectively. The
decrease in amortization of goodwill resulted from the Company recording a
goodwill impairment charge of $139.1 million in the fourth quarter of 1997,
which represented the goodwill associated with the Telemarketing Segment. As of
September 30, 1998, the remaining net goodwill of $27.1 million relates
exclusively to the Customer Care Segment.
Interest (Expense) Income
Net interest expense for the nine months ended September 30, 1998 amounted to
$1.1 million, an increase of $0.3 million or 38% when compared to net interest
expense of $0.8 million from the same prior year period. The increase in net
interest expense resulted from increased borrowings outstanding under the credit
facility during the nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997.
Income Tax (Expense) Benefit
Income tax (expense) benefit is a function of pretax income (loss) and the
combined effective tax rate of federal and state income taxes. This combined
rate was 3% and 14% for the nine months ended September 30, 1998 and 1997,
respectively. Income tax benefit for the nine months ended September 30, 1998
amounted to $0.3 million a difference of $1.8 million when compared to income
tax benefit of $2.1 million for the same prior year period. The 1998 income tax
benefit is a result of an offset recorded for the $0.3 million tax provision of
the discontinued operations. As of September 30, 1998, the Company has a net
operating loss carryforward of approximately $8.0 million. Also, as of September
30, 1998, the Company has approximately $123.0 million of future income tax
deductible amounts (to be amortized principally over 15 years) related to the
1997 goodwill impairment and call center charges. Due to the uncertain
realization of these deferred tax assets, the Company has recorded a full
valuation allowance as of September 30, 1998.
19
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Income from Discontinued Operations
In February 1998 the Company sold its former Market Research Segment business
and in March 1998 the Company consummated the sale of its former Direct Mail and
Fulfillment Segment business. For the nine months ended September 30, 1998 and
1997, the Company has accounted for the results of operations of the Market
Research Segment and Direct Mail and Fulfillment Segment as discontinued
operations. Income from discontinued operations for the nine months ended
September 30, 1998 and 1997 amounted to $0.5 million and $1.4 million (net of
tax), respectively. Revenues for the nine months ended September 30, 1998
amounted to $4.2 million a decrease of $11.3 million or 73% when compared to
revenues of $15.5 million for the same prior year period. Operating expenses for
the nine months ended September 30, 1998 amounted to $3.5 million a decrease of
$9.8 million or 74% when compared to operating expenses of $13.3 million for the
same prior year period.
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Dollars in Millions Nine Months Ended Nine Months Ended
Cash Flows Provided By (Used In): Sept. 30,1998 Sept. 30,1997
- --------------------------------- ----------------- ---------------
<S> <C> <C>
Operating Activities .................. $ (8.1) $ (0.9)
Investing Activities .................. 33.1 (62.6)
Financing Activities .................. (25.7) 35.3
</TABLE>
For the nine months ended September 30, 1997
At September 30, 1997 the Company had a zero cash balance. The Company generated
$35.3 million through financing activities. The Company borrowed $35.9 million
under its Credit Facility. During this period the Company used net $0.6 million
to repay other debt and capital lease obligations.
During this period the Company used $62.6 million for investing activities. The
Company used $25.0 million in settlement of an earn-out obligation under the
terms of the purchase agreement of one of the Initial Operating Businesses, $1.7
million related to purchase price adjustments under terms of the Initial
Operating Businesses' purchase agreements, and $1.6 million related to accrued
separation costs for certain former owners of the Initial Operating Businesses.
The Company also used $5.3 million to purchase the net assets of TeleSpectrum
FX(IVR), and $23.2 million for the purchase of property and equipment associated
with the commencement of the Company's call center expansion and centralization
initiatives. In addition the Company used $4.5 million to purchase a business,
which was subsequently sold, and $1.2 million related to capital investments for
discontinued operations.
During this period the Company used $0.9 million from operating activities
consisting of $5.9 million used in continuing operations and $5.0 million
generated from discontinued operations.
20
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
For the nine months ended September 30, 1998
At September 30, 1998, the Company had a zero cash balance. During the nine
months ended September 30, 1998, the Company used $0.7 million in cash which
consisted of $8.1 million in net cash used in operating activities, $33.1
million net cash provided by investing activities and $25.7 million of net cash
used in financing activities.
The $8.1 million of cash used in operating activities consisted of $7.7 million
used in continuing operations and $0.4 million used in discontinued operations.
The $7.7 million of cash used in continuing operations was principally related
to operating losses and the funding of working capital requirements.
The $33.1 million of cash provided by investing activities consisted of $38.0
million of cash received in February and April of 1998 from the sale of the
Market Research and the Direct Mail and Fulfillment Segments. During the nine
months ended September 30, 1998 purchases of property and equipment were $4.3
million. The Company used $0.3 million related to capital investments for
discontinued operations.
The net cash used in financing activities primarily consisted of $26.1 million
of net payments made against the Company's Credit Facility dated January 24,
1997, as amended. In addition, the Company made payments on debt and capital
lease obligations totaling approximately $1.0 million and received proceeds from
the exercise of stock options and sale of common stock totaling $1.4 million.
On April 14, 1998, the Company entered into a four-year Loan and Security
Agreement with Mellon, which provides for a $20 million credit facility (the
"Credit Facility"). Under the terms of the Credit Facility, the Company can
borrow up to the lesser of $20 million or an amount that is determined as 80% of
the net accounts receivable aged 90 days or less. The Company can elect at the
time it makes borrowings to pay interest at prime plus 0.50% or at LIBOR plus
2.50% and will pay a commitment fee of 0.375% on the unused borrowing capacity.
The Credit Facility also makes available to the Company letters of credit at a
fee of 1% per annum on the face amount of each letter of credit and in an
aggregate amount not to exceed the lesser of $1.5 million or the amount
available under the credit facility. Borrowings under the Credit Facility are
collateralized by substantially all of the assets of the Company. The Credit
Facility also contains various financial and non-financial covenants. At
September 30, 1998, the Company had $2,849,000 outstanding and $17,151,000
available under the Credit Facility.
The Company believes that its cash flow from operations, together with
borrowings available under its April 1998 Credit Facility will be sufficient to
meet its operating and capital needs into 1999.
21
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Year 2000 Issue
Introduction. The Year 2000 issue results from the writing of computer programs
using two digits rather than four to define the applicable year. Because of this
programming convention, computer software, hardware or firmware may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures, miscalculations or errors causing disruptions of operations or
other business problems, including, among others, a temporary inability to
process transactions or engage in other normal business activities.
The Company's State of Readiness. The Company has undertaken a comprehensive
program, including the hiring of an outside consulting firm, to address the Year
2000 issue with respect to the following: (i) the Company's information
technology and operating systems (including call processing, network, server,
security and application systems); (ii) the Company's non-Information Technology
systems (such as buildings, plant, equipment and other infrastructure systems
that may contain embedded microchip technology); and (iii) the systems of its
major vendors, telecommunication service providers and utilities (insofar as
they relate to the Company's business).
At this time, the Company is at various levels of assessment, replacement and
remediation with the majority of the aforementioned areas. Our core business
systems are in the process of receiving Year 2000 compliant upgrades (vendor
supplied) or are being rewritten entirely. The Company believes that its
business systems will be ready to successfully recognize years beginning with
2000. Although having received compliance information from many suppliers, the
Company is unable to predict the extent to which those suppliers will be
affected by the Year 2000 issue, or to the extent to which it may be vulnerable
to a suppliers' inability to remediate any issues in a timely manner. This
matter is most prevalent with our telecommunication service suppliers.
Additionally, as the Company maintains computer interfaces with all of its
customers, it can not predict any adverse effects due to the failure of its
customers to adequately address their Year 2000 issues.
Costs to Address the Company's Year 2000 Issue. The Company has not yet
completed compiling the total costs needed for Year 2000 compliance and is
unable to estimate such costs at this time. Many of its systems requiring
remediation or replacement are simultaneously receiving performance upgrades or
feature enhancements where specific Year 2000 costs can not be separated. The
financial impact of these expenses has not been material, and the Company does
not expect future remediation costs to be material to the Company's consolidated
financial position or results of operations. However, the Company is unable to
estimate the costs that it may incur as a result of Year 2000 problems suffered
by the parties with which it deals, such as telecommunications and other vendors
and customers, and there can be no assurance that the Company will successfully
address the Year 2000 problems present in its own systems.
Risks Presented by Year 2000 Problems. The Company cannot fully assess the risks
of its Year 2000 issue at this time. The Company may identify areas of its
business that are at risk of Year 2000 disruption. The absence of any such
determination at this point represents only the status currently in the
implementation of the Company's Year 2000 plan, and should not be construed to
mean that there is no area of the Company's business which is at risk of a Year
2000 related disruption. As noted above, many of the Company's business critical
vendors (particularly telecommunications vendors) and customers may not
appropriately address their Year 2000 issues, which could result in a
significant interruption of operations and have a material adverse affect on the
Company's financial condition and results of operations.
22
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
The Company's Contingency Plans. The Company's Year 2000 plan calls for the
development of contingency plans for areas of the business that are susceptible
to a substantive risk of a disruption resulting from a Year 2000 related event.
Because the Company has only recently begun its review, including the hiring of
an outside consulting firm, and accordingly has not fully assessed its risk from
potential Year 2000 failures, the Company has not yet developed detailed
contingency plans specific to Year 2000 events for any specific area of
business. The Company does, however, maintain contingency plans, outside of the
scope of the Year 2000 issue, designed to address various other business
interruptions. The Company is prepared for the possibility that it may hereafter
identify certain areas of business at risk. Consistent with its Year 2000 Plan,
the Company will develop specific Year 2000 contingency plans for such areas of
business as and if such determinations are made.
Forward-looking Statements. The statements in the Company's Year 2000 disclosure
contain forward-looking statements and should be read in conjunction with the
Company's disclosure in the beginning of this section, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in the following legal proceedings:
1. TeleSpectrum Worldwide Inc. vs. Parcel Consultants
Incorporated d/b/a NTC and Anthony Provensano. The complaint
was filed in July 1998, in the Federal Court in
Philadelphia. The Company is seeking to collect $4,742,000
for services performed and an award for violation of the
Federal RICO statutes.
2. Parcel Consultants Incorporated d/b/a NTC vs. TeleSpectrum
Worldwide Inc. The complaint was filed in July 1998, in New
Jersey State Court and subsequently transferred to the
Federal Court in Philadelphia. Plaintiff alleges breach of
contract and fraud. The Company disputes the allegations and
is defending the claim.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
23
<PAGE>
TeleSpectrum Worldwide Inc. and Subsidiaries
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following is a list of exhibits filed as part of
this quarterly report on Form 10-Q. Where so indicated
by footnote, exhibits which were previously filed are
incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous
filing is indicated in parentheses.
3.01 Restated Certificate of Incorporation of
TeleSpectrum Worldwide Inc. is incorporated
by reference to exhibit 3.01 of the Company's
Registration Statement on Form S-1 (File No.
333-04349).
3.02 Bylaws of TeleSpectrum Worldwide Inc. are
incorporated by reference to exhibit 3.02 of
the Company's Registration Statement on Form
S-1 (File No. 333-04349).
27.01 Financial Data Schedule.
(b) Form 8-K
The Company filed a Current Report on Form 8-K with the
Commission on September 10, 1998.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TeleSpectrum Worldwide Inc.
--------------------------------------
(Registrant)
Date: November 16, 1998
-----------------
______________________________________
Richard C. Schwenk, Jr.
TeleSpectrum Worldwide Inc.
Executive Vice President and
Chief Financial Officer
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RESULTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 43,331
<ALLOWANCES> (3,078)
<INVENTORY> 0
<CURRENT-ASSETS> 42,655
<PP&E> 50,689
<DEPRECIATION> (16,482)
<TOTAL-ASSETS> 104,747
<CURRENT-LIABILITIES> 28,516
<BONDS> 0
0
0
<COMMON> 257
<OTHER-SE> 72,045
<TOTAL-LIABILITY-AND-EQUITY> 104,747
<SALES> 124,391
<TOTAL-REVENUES> 124,391
<CGS> 134,061
<TOTAL-COSTS> 134,061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,325
<INTEREST-EXPENSE> 1,095
<INCOME-PRETAX> (10,765)
<INCOME-TAX> 247
<INCOME-CONTINUING> (10,518)
<DISCONTINUED> 479
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,039)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
