<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: JUNE 30, 1997
Commission File Number 0-21333
RMH TELESERVICES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2250564
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
40 MORRIS AVENUE, BRYN MAWR, PA 19010
(Address of principal executive offices) (Zip Code)
(610) 520-5300
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all report(s) 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
--------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 8,120,000 shares of Common
Stock outstanding at August 5, 1997.
<PAGE> 2
INDEX TO FORM 10-Q
RMH Teleservices, Inc. and Subsidiaries
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets,
June 30, 1997 and September 30, 1996..................... 1
Consolidated Statements of Operations for the three
months ended June 30, 1997 and 1996 and the nine months
ended June 30, 1997 and 1996............................. 2
Consolidated Statements of Cash Flows for the
nine months ended June 30, 1997 and 1996................. 4
Notes to Consolidated Financial Statements............... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 9
PART II. OTHER INFORMATION
<PAGE> 3
RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1997 1996
------ ------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,425,000 $ 10,047,000
Short term investments 4,450,000 --
Accounts receivable, net of allowance
for doubtful accounts of $37,000
and $10,000 9,980,000 5,549,000
Prepaid expenses and other assets 426,000 327,000
Deferred income taxes 1,112,000 1,112,000
Total current assets 20,393,000 17,035,000
------------ ------------
PROPERTY AND EQUIPMENT 9,247,000 8,894,000
Less - Accumulated depreciation and
amortization (4,439,000) (3,438,000)
------------ ------------
Net property and equipment 4,808,000 5,456,000
------------ ------------
OTHER ASSETS 118,000 64,000
------------ ------------
$ 25,319,000 $ 22,555,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND June 30, September 30,
SHAREHOLDERS' EQUITY 1997 1996
-------------------- ------------ ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of capitalized lease
obligations $ 12,000 $ 46,000
Accounts payable 588,000 1,682,000
Accrued expenses 3,688,000 2,409,000
------------ ------------
Total current liabilities 4,288,000 4,137,000
------------ ------------
CAPITALIZED LEASE OBLIGATIONS -- 2,000
------------ ------------
DEFERRED INCOME TAXES 100,000 100,000
------------ ------------
SHAREHOLDERS' EQUITY:
Common Stock 48,638,000 48,638,000
Common Stock warrant outstanding 450,000 450,000
Accumulated deficit (28,157,000) (30,772,000)
Total shareholders' equity 20,931,000 18,316,000
------------ ------------
$ 25,319,000 $ 22,555,000
============ ============
</TABLE>
The accompanying notes and the notes to the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
consolidated financial statements.
1
<PAGE> 4
RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, June 30,
1997 1996
----------- -----------
<S> <C> <C>
REVENUES $12,698,000 $ 8,778,000
----------- -----------
OPERATING EXPENSES:
Cost of services 8,858,000 5,889,000
Selling, general and administrative 2,553,000 1,688,000
----------- -----------
Total operating expenses 11,411,000 7,577,000
----------- -----------
Operating income 1,287,000 1,201,000
INTEREST INCOME (EXPENSE) 133,000 (227,000)
----------- -----------
Income before income taxes 1,420,000 974,000
INCOME TAXES 477,000 391,000
----------- -----------
NET INCOME 943,000 583,000
PREFERRED STOCK DIVIDENDS -- 87,000
----------- -----------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 943,000 $ 496,000
=========== ===========
NET INCOME PER SHARE $ .11
===========
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 4) 8,262,000
===========
PRO FORMA DATA:
INCOME BEFORE INCOME TAXES AS REPORTED $ 974,000
PRO FORMA INCOME TAXES (NOTE 3) 354,000
PREFERRED STOCK DIVIDENDS 87,000
-----------
PRO FORMA NET INCOME AVAILABLE TO COMMON $ 533,000
===========
SHAREHOLDERS
PRO FORMA NET INCOME PER SHARE (NOTE 4) $ .11
===========
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 4) 4,642,000
===========
</TABLE>
The accompanying notes and the notes to the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
consolidated financial statements.
2
<PAGE> 5
RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30, June 30,
1997 1996
------------ ------------
<S> <C> <C>
REVENUES $ 33,770,000 $ 23,562,000
------------ ------------
OPERATING EXPENSES:
Cost of services 23,060,000 16,325000
Selling, general and administrative 7,023,000 4,807,000
------------ ------------
Total operating expenses 30,083,000 21,132,000
------------ ------------
Operating income 3,687,000 2,430,000
INTEREST INCOME (EXPENSE) 346,000 (375,000)
------------ ------------
Income before income taxes 4,033,000 2,055,000
INCOME TAXES 1,418,000 391,000
------------ ------------
NET INCOME 2,615,000 1,664,000
PREFERRED STOCK DIVIDENDS -- 87,000
------------ ------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 2,615,000 $ 1,577,000
============ ============
NET INCOME PER SHARE $ .32
============
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 4) 8,262,000
============
PRO FORMA DATA:
INCOME BEFORE INCOME TAXES AS REPORTED $ 2,055,000
PRO FORMA INCOME TAXES (NOTE 3) 744,000
PREFERRED STOCK DIVIDENDS 87,000
------------
PRO FORMA NET INCOME AVAILABLE TO COMMON $ 1,224,000
============
SHAREHOLDERS
PRO FORMA NET INCOME PER SHARE (NOTE 4) $ .26
============
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 4) 4,642,000
============
</TABLE>
The accompanying notes and the notes to the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
consolidated financial statements.
3
<PAGE> 6
RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For The Nine Months Ended
June 30, June 30,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,615,000 $ 1,577,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 1,001,000 772,000
Deferred income tax -- 242,000
Imputed interest and dividends -- 54,000
Changes in operating assets and liabilities-
Accounts receivable (4,431,000) 137,000
Prepaid expenses and other assets (99,000) (54,000)
Other assets (54,000) 51,000
Accounts payable and accrued expenses 185,000 (422,000)
------------ ------------
Net cash provided by (used in)
operating activities (783,000) 2,357,000
------------ ------------
INVESTING ACTIVITIES:
Purchases of short-term investments (4,450,000) --
Purchases of property and equipment (1,067,000) (1,952,000)
------------ ------------
Net cash used in investing activities (5,517,000) (1,952,000)
------------ ------------
FINANCING ACTIVITIES:
Proceeds of assets refinanced 714,000 --
Net (repayments) on lines of credit -- (975,000)
Proceeds from long-term debt -- 15,100,000
Repayments on long-term debt -- (1,887,000)
Repayments on capitalized lease obligations (36,000) (830,000)
Borrowings from Founders -- 1,006,000
Repayments to Founders -- (112,000)
Proceeds from sale of Preferred and Common Stock -- 9,500,000
Redemption of Common Stock -- (16,676,000)
Distribution to Founders -- (4,600,000)
Deferred financing costs -- (506,000)
------------ ------------
Net cash provided by financing activities 678,000 20,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (5,622,000) 425,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,047,000 322,000
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,425,000 $ 747,000
============ ============
</TABLE>
The accompanying notes and the notes to the financial statements included in the
Registrant's Annual Report Form 10-K are an integral part of these consolidated
financial statements.
4
<PAGE> 7
RMH TELESERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The consolidated financial statements have been prepared by the Registrant
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC) and, in the opinion of management, include all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the financial position
and results of operations. Operating results for the three and nine month
periods ended June 30, 1997 and 1996, are not necessarily indicative of the
results that may be expected for the complete fiscal year. 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 such SEC rules and regulations. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Registrant's Annual Report on Form 10-K for the
year ended September 30, 1996.
RMH Teleservices, Inc. (the Company) provides outbound and inbound teleservices
to major corporations, such as those in the insurance, financial services and
telecommunications industries. The Company was founded in 1983 by two
individuals (the Founders). On May 24, 1996, the Company completed a leveraged
recapitalization (the Recapitalization) pursuant to which a portion of the
Common Stock owned by the Founders was redeemed and two investors (the
Investors) purchased Preferred and Common Stock (see Note 2). These transactions
were accounted for as a sale of newly issued stock by the Company and a
redemption of previously outstanding shares. Accordingly, the historical bases
of the Company's assets and liabilities have been retained.
NOTE 2 - RECAPITALIZATION & INITIAL PUBLIC OFFERING OF COMMON STOCK:
On May 24, 1996, the Company authorized (i) 20,000,000 shares of Common Stock,
no par value, consisting of 10,000,000 shares of Class A Voting Common Stock
(the Class A Common) and 10,000,000 shares of Class B Non-Voting Common Stock
(the Class B Common), and (ii) 10,000,000 shares of Preferred Stock, of which
1,000,000 shares were designated as Series A Preferred Stock (the Series A
Preferred) and 6,500,000 shares were designated as Series B Preferred Stock (the
Series B Preferred). The previously outstanding Common Stock was converted into
10,000,000 shares of Class A Common. All references in the accompanying
financial statements to the number of Common shares have been retroactively
restated to reflect the recapitalization.
5
<PAGE> 8
Common Stock Redemption
On May 24, 1996, the Company redeemed 8,500,000 shares of Class A Common for
$20,136,521, as follows:
<TABLE>
<S> <C>
Cash payment $16,001,646
Final redemption price adjustment (paid in August 1996) 436,980
Issuance of 6%, $3,000,000 subordinated note
payable to Founders (the Founders' Note) 2,022,639
Issuance of 1,000,000 shares of 6%, Series A Preferred 524,450
Deferred tax liability for difference in basis of
Founders' Note 476,831
Transaction costs 673,975
-----------
$20,136,521
===========
</TABLE>
On May 23, 1996, the Company distributed $4,600,000 of accounts receivable to
the Founders as a Subchapter S distribution of previously taxed income. The
Company has collected these receivables on behalf of the Founders.
The Founders' Note initially had a face amount of $3,000,000 and was
subordinated to all other liabilities. The face amount of the Founders' Note was
increased to $4,000,000 due to the achievement of certain financial goals as
defined in the note. The Founders' Note bore interest at an annual rate of 6%,
payable quarterly, and was due in two equal installments on May 24, 2003 and
2004. Upon the completion of the Company's initial public offering, the
Founders' Note was satisfied through the issuance of 320,000 shares of Common
Stock at the offering price.
The Series A Preferred had 1,000,000 shares outstanding, a face amount of
$1,000,000 and, upon completion of the Company's initial public offering, the
Series A Preferred was converted into 80,000 shares of Common Stock at the
offering price.
Sale of Preferred and Common Stock
On May 24, 1996, the Company issued Preferred and Common Stock for $9,500,000 to
the Investors, as follows:
<TABLE>
<S> <C>
Series B Preferred Stock $3,783,059
Class A Voting Common Stock 3,278,666
Class B Non-Voting Common Stock 2,438,275
----------
$9,500,000
==========
</TABLE>
6
<PAGE> 9
The Company issued 6,500,000 shares of Series B Preferred for an aggregate of
$6,500,000 or $1.00 per share. Upon completion of the Company's initial public
offering, the Series B Preferred was redeemed for $6,500,000 plus accrued
dividends of $182,356.
The Company issued 1,720,427 shares of Class A Common and 1,279,573 shares of
Class B Common for an aggregate of $3,000,000 or $1.00 per share. The Common
Stock was valued at $1.91 per share based on the relative estimated fair values
of the Series B Preferred and Class A and B Common Stock issued to the
Investors. The Class B Common shares were converted into an equal number of
Class A Common shares upon the completion of the initial public offering and the
division of Common Stock between two classes was eliminated.
Initial Public Offering of Common Stock
On September 18, 1996, the Company completed an initial public offering of 3.22
million shares of Common Stock, raising net proceeds of approximately $36.3
million.
NOTE 3 - INCOME TAXES:
Prior to May 24, 1996, the Company was an S Corporation for Federal and
Pennsylvania income tax purposes and, accordingly, income was passed through to
the shareholders and taxed at the individual level. The Company was not an S
Corporation in New Jersey and, therefore, the Company paid income taxes on its
taxable income in that state. The S Corporation status was terminated on May 24,
1996. The pro forma data in the consolidated statements of operations provides
information as if the Company had been treated as a C Corporation for income tax
purposes for the three and nine month periods ended June 30, 1996, based on the
tax laws in effect during the period presented. For the three and nine month
periods ended June 30, 1997, the Company had been fully subject to federal and
state income taxes.
NOTE 4 - EARNINGS PER SHARE:
The earnings per share are based upon the weighted average number of common
shares and common share equivalents, if applicable, during each of the periods
presented. Pro forma earnings per share for the three and nine month periods
ended June 30, 1996, assumes the recapitalization and respective number of
shares were outstanding throughout the quarter.
NOTE 5 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Company is dependent on several large customers for a significant portion of
its revenues. Four customers accounted for 79.4% and 81.9% and 79.8% and 85.7%
of revenues for the three and nine month periods ended June 30, 1997 and 1996,
respectively. The loss of one or more of these customers could have a materially
adverse effect on the Company's business. During the three and nine month
periods ended June 30, 1997 and 1996, revenues from customers within the
insurance industry accounted for 69.9% and 74.1% and 71.9% and 74.0% of
revenues, respectively.
7
<PAGE> 10
As a result of the issuance of the Common Stock to one of the Investors (see
Note 2), the Company is now affiliated with one of its customers. This customer
represented 9.5% and 7.8% and 7.9% and 11.1% of revenues for the three and nine
month periods ended June 30, 1997 and 1996, respectively.
Concentration of credit risk is limited to accounts receivable and is subject to
the financial conditions of the Company's customers. Three of the Company's
largest customers are engaged in transactions with each other and represent a
single credit risk to the Company. The Company does not require collateral or
other security to support customer receivables. At June 30, 1997, the accounts
receivable from the customers that represent a single credit risk were
$7,286,678.
8
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor for Forward-Looking Statements
From time-to-time, the Company may publish statements that are not historical
facts but are forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, research and development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provided a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include, but are not limited to: (i)
reliance on principal client relationships in the insurance and financial
services industries; (ii) fluctuations in quarterly results of operations due to
the timing of clients' telemarketing campaigns, the timing of opening new call
centers and expansion of existing call centers and changes in competitive
conditions affecting the telemarketing industry; (iii) difficulties of managing
growth profitably; (iv) pressure on gross margins as a result of the ability of
certain clients to negotiate pricing discounts; (v) dependence on the services
of the Company's executive officers and other key operations and technical
personnel; (vi) changes in the availability of qualified employees; (vii)
performance of automated call-processing systems and other technological
factors; (viii) reliance on independent long-distance companies; (ix) changes in
government regulations affecting the teleservices and telecommunications
industries; (x) competition from other outside providers of teleservices and
in-house telemarketing operations of existing and potential clients; and (xi)
competition from providers of other marketing formats, such as direct mail and
emerging strategies such as interactive shopping and marketing over the
Internet.
Overview
The Company is a leading provider of outbound and inbound teleservices to major
corporations, such as those in the insurance, financial services and
telecommunications industries. Founded in 1983, the Company opened its first
call center in 1985 to support the marketing efforts of its consulting
customers. At the present time, outbound business-to-consumer teleservices is
the predominant business of the Company.
RMH's results of operations in any single interim period should not be viewed as
an indication of future results of operations. The Company may experience
quarterly variations in net revenue and operating income as a result of the
timing of clients' telemarketing campaigns, the commencement and expiration of
contracts, the amount of new business generated by the Company, the timing of
additional selling, general and administrative expenses to acquire and support
such new business and changes in the Company's revenue mix among its various
customers.
9
<PAGE> 12
Results of Operations
Revenues - Revenues increased to $12,698,000 and $33,770,000, for the three and
nine month periods ended June 30, 1997, from $8,778,000 and $23,562,000 for the
comparable periods in 1996. This represents revenue increases of 44.7% and 43.3%
for the three and nine month periods ended June 30, 1997, respectively, as
compared to the comparable periods in 1996. Of such increase in revenues,
approximately $3,365,000 and $9,157,000 were attributable to increased calling
volumes from existing clients and $555,000 and $1,051,000 to new clients for the
three and nine month periods, respectively. To meet the demands of increased
call volumes, the Company added a new 230-workstation call center in York, PA,
during the three month period ended June 30, 1997.
Cost of Services - Cost of Services increased to $8,858,000 and $23,060,000, for
the three and nine month periods ended June 30, 1997, from $5,889,000 and
$16,325,000 for the comparable periods in 1996. As a percentage of revenues,
cost of services increased to 69.8% for the three month period ended June 30,
1997, as compared to 67.1% for the comparable period in 1996 and decreased to
68.3% for the nine month period ended June 30, 1997, as compared to 69.3% for
the comparable period in 1996. The Company believes that the increase in cost of
services, as a percentage of revenues, during the quarter is attributable to
specific pricing pressures incurred in its insurance business coupled with the
costs of opening two new call centers which were less than fully utilized during
the quarter. Furthermore, the Company charged to expense certain costs relating
to a specific inbound campaign that warranted greater staffing and training
during its initial start-up phase, which took place during this quarter. The
decrease in cost of services, as a percentage of revenues, during the nine month
period was the result of spreading fixed costs over a larger revenue base and
lower long distance telephone and health care costs incurred during this period,
coupled with the greater utilization of the existing call centers on a
period-to-period comparative basis. The Company anticipates that cost of
services, as a percentage of revenue, may increase during the remainder of the
year to the degree that large volume opportunities warrant appropriate pricing
discounts or to the extent that the Company requires a longer period of time to
generate acceptable levels of utilization at its new call centers.
Selling, General and Administrative - Selling, general and administrative
expenses increased to $2,553,000 and $7,023,000 for the three and nine month
periods ended June 30, 1997, from $1,688,000 and $4,807,000 for the comparable
periods in 1996. As a percentage of revenues, selling, general and
administrative expenses increased to 20.1% and 20.8% during the three and nine
months ended June 30, 1997, as compared to 19.2% and 20.4% for the comparable
periods in 1996. The dollar increase was primarily the result of increased
staffing and operating costs required to support the growth in the Company's
revenues and continued expansion into inbound teleservices.
10
<PAGE> 13
Interest Income (Expense) - Interest income for the three and nine month periods
ended June 30, 1997, amounted to $133,000 and $346,000, respectively, and was
earned by investing the remaining proceeds of the Company's initial public
offering in short term cash investments. Interest expense for the three and nine
month periods ended June 30, 1996, was $227,000 and $375,000 resulting primarily
from the interest charged on borrowings incurred in connection with the
Recapitalization and, to a lesser degree, interest incurred to finance both
equipment purchases and other working capital needs.
Income Tax Expense - Income tax expense for the three and nine month periods
ended June 30, 1997, was $477,000 and $1,418,000 and represents income taxes
based upon what the Company believes to be its effective tax rate. This tax rate
is reflective of both the Federal tax rate in effect and those State tax rates
in effect where the Company does business coupled with certain tax planning
strategies implemented in fiscal 1996. Prior to May 24, 1996, the Company was an
S Corporation for Federal and Pennsylvania income tax purposes and, accordingly,
income was passed through to the shareholders and taxed at the individual level.
The S Corporation status was terminated on May 24, 1996, and a net deferred
income tax liability of $241,500 was recorded as additional income tax expense
on that date. The income tax provision for both the three and nine month periods
ended June 30, 1996 reflects the deferred tax provision of $241,500 and a tax
provision on the pre-tax income earned from May 24, 1996 through June 30, 1996.
The pro forma data in the consolidated Statements of Operations provides
information as if the Company had been treated as a C Corporation for income tax
purposes for the three and nine month periods ended June 30, 1996, based on the
tax laws in effect during the period presented.
11
<PAGE> 14
Liquidity and Capital Resources
Historically, the Company's primary sources of liquidity have been cash flow
from operations and borrowings under its credit facilities. These funds,
combined with borrowings under capitalized lease obligations, have provided the
liquidity to finance the growth of the Company.
On May 24, 1996, the Company completed a leverage recapitalization (the
"Recapitalization"), which included the purchase of a significant equity
interest in the Company by Advanta Partners, LP ("Advanta Partners"). See Note 2
to the Registrant's Consolidated Financial Statements for the three and nine
month periods ended June 30, 1997.
In conjunction with the Recapitalization, the Company distributed to Raymond J.
Hansell and MarySue Lucci (the "Founders") $4.6 million of accounts receivable.
As part of the Recapitalization, the Company also distributed $16.4 million in
cash, $1.0 million in Series A Preferred Stock, and a 6% subordinated note to
the Founders in the initial principal amount of $3.0 million, (which was
subsequently increased by $1.0 million) all for the redemption of an aggregate
of 8,500,000 shares of Common Stock owned by the Founders. In addition, Advanta
Partners and Glengar International Investors Limited invested $9.5 million in
Series B Preferred Stock and Class A and Class B Common Stock.
On September 24, 1996, the Company completed an initial public offering and
raised net proceeds of approximately $36.3 million. The Company used
approximately $27.9 million of these proceeds to repay all bank indebtedness,
redeem its Series B Preferred Stock and pay certain one-time Special Bonuses to
the Founders. The remaining $9.5 million in proceeds will be used for working
capital and general corporate purposes. Upon completion of the Company's initial
public offering, the Founders exchanged the Series A Preferred Stock and the
Founders' Note for 400,000 shares of Common Stock.
On March 21, 1997, the Company entered into a new $4 million line of credit
facility (the "Credit Line") with PNC Bank (the "Bank"). The Credit Line
replaces the Company's former Term Loan and Credit Facility originated in
conjunction with the Recapitalization. The Credit Line expires on April 1, 1998,
or such later date, if extended by the Bank, and outstanding balances bear
interest at the Company's option of the LIBOR rate plus 95 basis points or at
the prime rate minus one-half. The Credit Line is secured by all of the assets
of the Company and contains financial covenants and certain restrictions on the
Company's ability to incur additional debt or dispose of its assets. As of June
30, 1997, the Company had no borrowings outstanding on the Credit Line.
This Credit Line compares favorably with the former Term Loan and Credit
Facility which bore interest at either the LIBOR rate plus 250 to 300 basis
points or the prime rate plus 100 to 150 basis points and required on annual fee
of $15,000 and an annual commitment fee of one-half of 1% on the average unused
portion of the revolver. Although total borrowing capability is $4 million under
the Company's Credit Line versus $6 million under its former revolver, the
Company believes that the existing line will be sufficient to finance its
current operations at least through the end of September 30, 1998.
12
<PAGE> 15
Under a separate agreement dated February 22, 1997, with PNC Leasing
Corporation, the Company has up to $6 million available for purposes of leasing
call center equipment. The $6 million commitment expires on December 31, 1997,
and requires that such leases meet the accounting definition of an operating
lease with rent to be paid over a period not to exceed sixty months. As of June
30, 1997, the Company has financed $2,452,000 of equipment purchases under this
facility.
Net cash utilized by operating activities was $783,000 during the nine month
period ended June 30, 1997. During the nine month period ended June 30, 1996
cash provided by operating activities was $2,357,000. The cash utilized by
operations in the 1997 period resulted from the Company's net income growth plus
non-cash depreciation charges being offset by the growth in its accounts
receivable.
The Company's teleservices operations will continue to require significant
capital expenditures. Capital expenditures during the nine month period ended
June 30, 1997, were $1,067,000. The Company expects to allocate no more than
$1.0 million on capital expenditures during the remainder of the fiscal year
ending September 30, 1997, primarily for call center capacity expansion and
other enhancements of technology used throughout its call center operations.
During the nine months ended June 30, 1997, the Company chose to finance
approximately $859,000 of additional capital expenditures through an operating
lease agreement with its former bank. In addition, the Company financed
approximately $2,452,000 of new call center and other equipment with PNC Leasing
Corporation. At the end of each respective lease term and at the Company's
option, the Company may acquire the specific equipment at the current fair
market value. In the future, the Company will continue to evaluate the benefits
and costs of leasing such equipment and may decide to finance future capital
expenditures by utilizing the remaining $3,548,000 available from PNC Leasing
Corporation.
The Company believes that funds generated from operations, together with the
remaining proceeds of its initial public offering, available credit under the
credit facility and leasing agreement, will be sufficient to finance its current
operations and planned capital expenditures at least through September 30, 1998.
13
<PAGE> 16
PART II
OTHER INFORMATION
Item 1: Legal Proceedings
(a) None.
Item 2: Changes in Securities
(a) None.
(b) None.
(c) The Company has not sold any securities that were not
registered under the Securities Act.
Item 3: Defaults upon Senior Securities
(a) None.
Item 4: Submission of Matters to a Vote of Security Holders
(a) None.
Item 5: Other Information
(a) None.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
14
<PAGE> 17
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 thereunto duly authorized.
RMH Teleservices, Inc.
DATE: August 5, 1997 BY: /s/ Raymond J. Hansell
---------------------------
Raymond J. Hansell
Chief Executive Officer
DATE: August 5, 1997 BY: /s/ Richard C. Altus
-------------------------
Richard C. Altus
Chief Financial Officer
(Principal Financial and Accounting Officer)
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 4,425,000
<SECURITIES> 4,450,000
<RECEIVABLES> 10,017,000
<ALLOWANCES> 37,000
<INVENTORY> 0
<CURRENT-ASSETS> 20,393,000
<PP&E> 9,247,000
<DEPRECIATION> 4,439,000
<TOTAL-ASSETS> 25,319,000
<CURRENT-LIABILITIES> 4,288,000
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0
0
<COMMON> 48,638,000
<OTHER-SE> (27,707,000)
<TOTAL-LIABILITY-AND-EQUITY> 25,319,000
<SALES> 0
<TOTAL-REVENUES> 33,770,000
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<INCOME-PRETAX> 4,033,000
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