<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
For Annual and Transition Reports Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
[x] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended September 30, 2000
or
[_] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
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 and zip code)
Registrant's telephone number, including area code: (610) 520-5300
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, no par value per share
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No ________
-------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of December 21, 2000, 8,445,000 shares of Common stock were outstanding.
The aggregate market value of the shares of Common stock owned by non-affiliates
of the Registrant as of December 21, 2000 was approximately $41.4 million (based
upon the closing sales price of these shares as reported by the NASDAQ Stock
Market's national market). Calculation of the number of shares held by non-
affiliates is based on the assumption that the affiliates of the Company include
only directors, executive officers and stockholders filing Schedules 13D or 13G
with the Company. The information provided shall in no way be construed as an
admission that any person whose holdings are excluded from the figure is an
affiliate or that any person whose holdings are included is not an affiliate and
any such admission is hereby disclaimed. The information provided is included
solely for record keeping purposes by the Securities and Exchange Commission.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders are incorporated by reference in Part III.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item
No. Page
PART I
<S> <C>
1. Business............................................................................................... 3
2. Properties............................................................................................. 8
3. Legal Proceedings...................................................................................... 9
4. Submissions of Matters to a Vote of Security Holders................................................... 9
Executive Officers of the Company...................................................................... 9
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters.................................. 10
6. Selected Financial Data................................................................................ 10
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 11
7A. Quantitative and Qualitative Disclosures about Market Risk..............................................18
8. Financial Statements and Supplementary Data............................................................ 18
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 18
PART III
10. Directors and Executive Officers of the Registrant.................................................... 18
11. Executive Compensation................................................................................ 18
12. Security Ownership of Certain Beneficial Owners and Management........................................ 19
13. Certain Relationships and Related Transactions........................................................ 19
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................... 19
Signatures........................................................................................... 20
Exhibit Index........................................................................................ 21
</TABLE>
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References to a given fiscal year in this Annual Report on Form 10-K are to
the fiscal year ending on September 30/th/ of that year. For example, the
phrases "fiscal 2000" or "2000 fiscal year" refer to the fiscal year ended
September 30, 2000.
PART I
ITEM 1. BUSINESS
--------
General
RMH Teleservices, Inc. and its subsidiaries (collectively, "RMH",
"Company", "we" or "us") is a leading provider of outsourced customer
relationship management, or CRM, services, offering our clients multi-channel
customer interaction solutions that permit our clients to more effectively
manage their relationships with their customers. Our customer acquisition,
service and retention programs enable our clients to generate increased sales,
strengthen their customer relationships and keep their customers for longer
periods of time. We offer our services to companies in intensely competitive
industries with significant customer relationship needs such as
telecommunications, financial services, insurance and technology. We have many
long-term client relationships, reflecting the high quality service we provide.
We maintain our competitive advantage through our well-trained workforce,
vertical industry expertise and integrated technology solutions. We operate over
3,600 workstations within a network of 21 state-of-the-art customer interaction
centers and two quality assurance centers throughout the United States and
Canada. Our net revenue and income from operations for the fiscal year ended
September 30, 2000 were $132.1 million and $5.6 million, respectively. This
represents an increase of 64.5% and 142.5% respectively, compared to the fiscal
year ended September 30, 1999.
Our Services
Our services allow our clients to generate increased sales, strengthen
their customer relationships and provide a high level of support to their
customers. We design and implement customized CRM programs for our clients to
determine the optimal solution for their particular needs and quickly implement
high quality customer care solutions. Our services include customer
acquisition, customer service and customer retention.
Customer Acquisition. Our customer acquisition services are designed to secure
new customers for our clients and can include a wide range of activities
depending on our client needs. A sampling of these services includes:
Sales. We offer direct sales services, which we often offer with other
acquisition services such as lead generation and appointment setting.
Order Processing. We receive orders for and process purchases of products or
services in accordance with client specifications.
Product Inquiry. We process and fulfill information requests for product or
service offerings.
Lead Generation and Appointment Setting. Using information provided by our
clients, we identify and prioritize customer leads and schedule customer
interactions with client representatives.
Customer Service. Our customer service programs are designed to maintain
and extend the customer relationship and maximize the long-term value of our
clients' relationships with their customers. Our customer service offerings
include the following:
Technical Support. We offer help desk, product or service support including
troubleshooting and other first-tier support services.
Billing Information. We respond to billing and other account inquiries from
our clients' customers.
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Product/Service Support. We manage customer complaints and product or service
problems to promote faster resolution and follow predetermined procedures to
ensure that the problems have been resolved.
Verification. We confirm changes requested by customers in products or
services.
Customer Retention. Our customer retention services enable our clients to
respond more effectively to their customers' needs and concerns, reward
customers for their continued patronage and reinstate customers who have
previously canceled their service. These services include:
Satisfaction Surveys. We conduct satisfaction assessments to ascertain
customer opinions regarding the quality of client product or service
offerings.
Customer Winback. We interact with our clients' customers who have allowed
their service to lapse and attempt to regain their business and learn their
reasons for discontinuing service.
Sales Confirmation. We confirm the receipt of products or services.
Our Clients
Telecommunications. We provide a variety of CRM services for the nation's
leading local, long-distance and wireless telecommunications companies. We
expect the demand for CRM services within the telecommunications industry to
increase as the industry evolves and responds to deregulation and as the number
of products (e.g., long distance, cellular, paging and "800" services) and call
features (e.g., call waiting, caller identification and voice mail) increases.
We received 36.1%, 12.8% and 2.3%, of our net revenues in fiscal 2000, 1999 and
1998 respectively, from services provided to our telecommunications clients.
One client accounted for 20.1% and another client accounted for 10.2% of net
revenues for fiscal 2000.
Financial Services. We provide CRM services to several large credit card
issuers, banks and other financial and membership service institutions in the
United States. Our services include customer account acquisition and retention
programs, programs to sell credit card enhancement features such as higher
credit limits, lower interest rates and lower fees and discounts on selected
goods and services purchased through a variety of interest group clubs. We also
cross-sell additional services such as home equity loans and related banking
services. We received 33.7%, 46.9% and 31.6% of our net revenues in fiscal 2000,
1999 and 1998, respectively, from services provided to our financial services
clients. One client accounted for 13.8% and another client accounted for 11.8%
of net revenues for fiscal 2000.
Insurance. We have been providing CRM services to the insurance industry in
the United States for over 15 years. We believe this sector is extremely
attractive to us due to its large size and the strength of our relationships
with our insurance clients. We market such products as accidental death and
dismemberment policies, graded benefit life insurance and other niche insurance
products, such as pet insurance. As of September 30, 2000, we employed 147
agents licensed to sell insurance in one or more of a total of 47 states. We
received 30.0%, 40.3% and 66.1% of our net revenues in fiscal 2000, 1999 and
1998, respectively, from services provided to our insurance clients. One client
accounted for 29.2% of net revenues for fiscal 2000.
Technology. We recently began offering CRM services to the technology
sector and now provide CRM services to some of the nation's leading technology
companies, primarily in the areas of hardware, software and Internet support.
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Our Technology
We have designed software and hardware systems, as well as our network
infrastructure, to offer integrated, high-quality solutions to our clients. We
have made significant investments in technology and continue to invest
strategically in proven systems and software technologies in order to enhance
our operational efficiency and maintain high quality service delivery. These
technologies reduce our costs and improve sales and customer service by
providing our CRM representatives with enhanced access to real-time customer and
product information.
Our customer interaction centers and network systems both use a flexible
database architecture permitting the easy sharing of data among users of the
system. As a result, we are able to configure our scalable systems to work cost-
effectively at low and high volumes and permit the efficient addition of
capacity. Our staff of highly skilled information technology professionals is
focused on technological integration to meet our clients' needs. We integrate
our client's legacy systems with our own systems to provide cost-effective,
timely solutions which allow them to maximize their investment and minimize
their costs. Where appropriate, we develop proprietary software systems to
customize our services. We have implemented procedures to protect our systems
against power loss, fire and other casualties.
Quality Assurance
We believe that providing quality services is critical to acquiring and
retaining clients. We have centralized our quality assurance program into two
quality assurance centers which have dedicated quality assurance personnel who
monitor all CRM representatives to ensure achievement of performance standards.
Sales confirmations are digitally recorded with the customer's consent to ensure
accuracy and to provide a record of each sale. Our personnel review the audio
file of each completed sale for compliance with client specifications. This
system is designed to respond to a client request to review details of a
particular sale in minutes and is able to identify the program, the date and
time of the interaction and the CRM representative who recorded the sale.
Our information systems enable us to provide our clients with customized
reports on the status of their CRM programs. Clients also participate in the
monitoring process and are able to electronically access relevant information.
Access to this data enables our clients to modify or enhance an ongoing campaign
in order to improve its effectiveness.
Competition
The CRM industry is highly fragmented and competitive. Our competitors
range from small firms catering to specialized programs and short-term projects
to large independent firms. We also compete with the internal operations of many
of our existing and potential clients. We believe that we distinguish ourselves
from our competition by providing high quality CRM services at affordable prices
that meet our clients needs for scalability and time to market. We believe the
principal competitive factors in our industry are performance, reporting
capabilities, experience, quality of service and price.
Our Internet Joint Venture
We have entered into a joint venture with Advanta Partners, LP, a venture
capital firm controlled by Advanta Corp., a financial services firm based in
Springhouse, Pennsylvania, to create an entity called 365biz.com LP. We own a
49% interest in the venture. 365biz.com provides Web design, hosting and
membership services to small and medium-sized businesses. Additionally,
365biz.com provides a variety of online options and features including Internet
access, e-mail accounts, search engine posting and e-commerce related services.
The venture was launched in response to the growing demand for flexible and
inexpensive Internet business solutions.
5
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History
Our company was founded in 1983 and completed an initial pubic offering of
shares of Common stock in September 1996. RMH is a Pennsylvania corporation and
its principal business office is located at 40 Morris Avenue, Bryn Mawr,
Pennsylvania 19010. Our telephone number is (610) 520-5300.
Government Regulation
Telemarketing sales practices are regulated in the United States and
Canada. In the United States, the Telephone Consumer Protection Act, enforced by
the Federal Communications Commission, imposes, among other things, restrictions
on unsolicited automated telephone calls to residential telephone subscribers,
and its regulations require CRM firms to develop a written policy implementing a
"do not call" list and to train its CRM personnel to comply with these
restrictions. The Telephone Consumer Protection Act creates a right of action
for both consumers and state attorneys general. A court may award damages or
impose penalties of $500 per violation, which may be trebled for willful or
knowing violations. On September 27, 2000, the United States House of
Representatives passed a bill titled the "Know Your Caller Act of 2000," to
amend the Telephone Consumer Protection Act to prohibit telemarketers from
interfering with the caller identification service of any person to whom a
telephone solicitation is made. Currently, we train our service representatives
to comply with the regulations of the Telephone Consumer Protection Act and
program our call management system to avoid initiating telephone calls during
restricted hours or to individuals maintained on our "do not call" list.
The Federal Trade Commission regulates both general sales practices and
telemarketing specifically and has broad authority to prohibit a variety of
advertising or marketing practices that may constitute "unfair or deceptive acts
or practices." Pursuant to its general enforcement powers, the Federal Trade
Commission can obtain a variety of types of equitable relief, including
injunctions, refunds, disgorgement, the posting of bonds and bars from
continuing to do business for a violation of the acts and regulations it
enforces.
The Federal Trade Commission also administers the Telemarketing and
Consumer Fraud and Abuse Prevention Act under which the Federal Trade Commission
has issued regulations prohibiting a variety of deceptive, unfair or abusive
practices in direct telephone sales. Generally, these rules prohibit
misrepresentations of the cost, quantity, terms, restrictions, performance or
characteristics of products or services offered by telephone solicitation or of
refund, cancellation or exchange policies. The regulations also regulate the use
of prize promotions in direct telephone sales to prevent deception and require
that a telemarketer identify promptly and clearly the seller on whose behalf the
CRM representative is calling, the purpose of the call, the nature of the goods
or services offered and that no purchase or payment is necessary to win a prize.
The regulations also require that providers of services maintain records on
various aspects of its business. On February 23, 2000, the Federal Trade
Commission requested public comment on its telemarketing rules. This broad
review will result in a report addressing a variety of telemarketing-related
issues, including, but not limited to, changes in technology, composition of the
industry, efforts at self-regulation, industry trends and the effectiveness of
law enforcement and legislation. The report is scheduled to be released in the
first quarter of 2001.
Most states have enacted statutes similar to the Federal Trade Commission
Act prohibiting unfair or deceptive acts or practices. For example, telephone
sales in certain states are not final until a written contract is delivered to
and signed by the buyer, and such a contract often may be canceled within three
business days. At least one state also prohibits direct telephone sales from
requiring credit card payment, and several other states require certain
providers of such services to obtain licenses, post bonds or submit sales
scripts to the state's attorney general. Under these general enabling statutes,
depending on the willfulness and severity of the violation, penalties can
include imprisonment, fines and a range of equitable remedies such as consumer
redress or the posting of bonds before continuing in business.
Additionally, some states have enacted laws and others are considering
enacting laws targeted directly at direct telephone sales practices. Some
examples include laws regulating electronic monitoring
6
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of telephone calls, laws prohibiting any interference by direct telephone sales
with telephone devices that identify the caller before the call is answered and
laws regarding the maintenance of "Do Not Call" lists. Most of these statutes
allow a private right of action for the recovery of damages or provide for
enforcement by state agencies permitting the recovery of significant civil or
criminal penalties, costs and attorneys' fees. There can be no assurance that
any such laws, if enacted, will not adversely affect or limit our current or
future operations.
Some state public utility commissions are authorized to assess
administrative penalties against agents of telephone corporations relating to
unauthorized changes in providers of telephone service.
In Canada, the Canadian Radio-Television and Telecommunications Commission
enforces rules regarding unsolicited communications using automatic dialing and
announcing devices, live voice and fax. The rules only operate in certain areas.
Companies that violate any of the restrictions on unsolicited calls may have
their telephone service terminated after two business days' notice from the
telephone company. On June 30, 2000, the Canadian Radio-Television and
Telecommunications Commission requested comment on its proposal to extend these
rules so that they apply uniformly throughout Canada.
The industries we serve are also subject to government regulation, and,
from time to time, bills are introduced in Congress which, if enacted, could
affect our operations. We and our employees who sell insurance products are
required to be licensed by various state insurance commissions for the
particular type of insurance product to be sold and are required to participate
in regular continuing education programs.
We believe that we operate in compliance with all applicable laws and
regulations, but we cannot guarantee that we will be in compliance with all
applicable laws and regulations at all times.
7
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ITEM 2. PROPERTIES
----------
Our corporate headquarters facility is located in Bryn Mawr, Pennsylvania
in an approximately 45,000 square-foot building leased to us through December
2001.
We also lease all of the facilities used in our customer interaction
centers. We believe that our existing facilities are suitable and adequate for
our current operations, but additional facilities will be required to support
growth. As of December 20, 2000, we operated the following customer interaction
centers:
<TABLE>
<CAPTION>
Date of Current
Location Opening/Acquisition Workstations
-------- ------------------- ------------
<S> <C> <C>
Ardmore, PA March 1985 120
Lansdowne, PA October 1990 112
Pleasantville, NJ November 1992 96
Scranton, PA July 1993 88
Wilkes-Barre, PA April 1994 96
Reading, PA February 1995 120
Ocean Township, NJ November 1995 96
Allentown, PA April 1996 106
Harrisburg, PA October 1996 96
Delran, NJ March 1997 304
York, PA June 1997 184
Ewing Township, NJ July 1998 140
Largo, FL October 1998 191
Oromocto, New Brunswick March 1999 313
Brantford, Ontario July 1999 450
Austin, TX August 1999 96
St. John, New Brunswick August 1999 344
Sarnia, Ontario June 2000 300
Sault Ste. Marie, Ontario June 2000 241
Yuma, AZ September 2000 50
Thunder Bay, Ontario December 2000 150
-----
Total 3,693
-----
</TABLE>
We also operate two centralized quality assurance centers which are located
at our Delran, New Jersey (90 quality assurance workstations) and Sarnia,
Ontario (100 quality assurance workstations) customer interaction centers. We
believe that suitable additional or alternative space will be available as
needed on commercially reasonable terms.
8
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ITEM 3. LEGAL PROCEEDINGS
-----------------
We may from time to time become involved in litigation incidental to our
business activities. However, we are not currently subject to any material
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not Applicable.
Executive Officers of the Company
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John A. Fellows........................... 36 Director and Chief Executive Officer
Noah S. Asher............................. 38 Executive Vice President & Chief Financial Officer
Robert M. Berwanger....................... 44 Executive Vice President & Chief Operating Officer
Michael J. Scharff........................ 54 Executive Vice President
Paul J. Burkitt........................... 39 Senior Vice President of Sales and Marketing
Paul W. Little............................ 38 Senior Vice President of Human Resources
</TABLE>
John A. Fellows joined us as Chief Executive Officer in September 1998 and
was elected to the board of directors in December 1998. Prior to joining us,
Mr. Fellows was President of Telequest Teleservices, an Arlington, Texas based
teleservices company, from April 1997 to August 1998. From April 1993 to April
1997, Mr. Fellows was a Vice President of Paging Network, Inc., a wireless
messaging company. Before joining PageNet, Mr. Fellows held various management
positions at Pepsico, Inc.
Noah S. Asher joined us in February 1999 as Executive Vice President and
Chief Financial Officer. Mr. Asher was employed with Bell Atlantic's
International Wireless Division from March 1995 to February 1999, where he
served in several capacities in the United States and Mexico, including Chief
Financial Officer from 1995 to 1996 and Vice President of Latin American
Operations from 1996 to 1999. From 1989 to 1995, Mr. Asher served in various
financial positions with Scott Paper Company. Mr. Asher served as an auditor
with Coopers & Lybrand from 1984 to 1987.
Robert M. Berwanger joined us in March 1997 as Executive Vice President and
Chief Operating Officer. Prior to such time, he spent 14 years in the CRM
industry at AT&T Solutions Customer Care where his responsibilities included
building and managing large customer interaction center operations, establishing
and maintaining customer relationships with Fortune 500 companies, deploying
leading edge technology, developing new business and managing profitability.
Michael J. Scharff joined us in 1988 as our Controller. Mr. Scharff became
Vice President of Finance and Treasurer in 1994 and was named Senior Vice
President of Finance and Chief Financial Officer in 1995. In 1996, Mr. Scharff
became Executive Vice President and currently is responsible for site selection
and customer interaction center expansion as well as facilities and purchasing.
Over the years, Mr. Scharff has, at various times, headed our information
technology, human resources, facilities and purchasing functions.
Paul J. Burkitt joined us in February 1999 as Senior Vice President of
Sales and Marketing. From April 1997 to February 1999, Mr. Burkitt served as
Vice President, Business Development for Tokai Financial, a financial leasing
company, where he was responsible for the company's sales and marketing efforts.
From August 1994 to March 1997, Mr. Burkitt worked for Telespectrum World Wide,
a teleservices company, as Executive Vice President of Sales and Marketing.
Paul W. Little joined us in May 1999 as the Senior Vice President of Human
Resources. From June 1990 to May 1999, Mr. Little served as Director of Human
Resources of Paging Network, Inc., a wireless messaging company.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
SHAREHOLDER MATTERS
-------------------
We completed our initial public offering on September 18, 1996 selling
3,220,000 shares of our Common stock at a price of $12.50 per share. Since the
initial public offering, our Common stock has been quoted on the Nasdaq National
Market under the symbol "RMHT." Prior to our initial public offering, our
Common stock was not listed or quoted on any organized market system. The
following table sets forth for the periods indicated the high and low sale
prices of our Common stock as reported on the Nasdaq National Market during the
fiscal years ended September 30, 1999 and 2000.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
First Fiscal Quarter of 1999................................................... $ 2.63 $ 1.13
Second Fiscal Quarter of 1999.................................................. 2.50 1.75
Third Fiscal Quarter of 1999................................................... 4.50 1.88
Fourth Fiscal Quarter of 1999.................................................. 5.97 3.75
First Fiscal Quarter of 2000 .................................................. 7.13 2.69
Second Fiscal Quarter of 2000 ................................................. 13.25 5.00
Third Fiscal Quarter of 2000 .................................................. 15.00 5.88
Fourth Fiscal Quarter of 2000 ................................................. 25.00 13.75
</TABLE>
As of December 20, 2000, there were approximately 25 shareholders of record
of the Common stock, which excludes shareholders whose shares are held in
nominee or "street" name by brokers. We have not declared dividends on the
Common stock during the past two fiscal years. We currently intend to retain
future earnings to finance our growth and development and therefore do not
anticipate paying any cash dividends in the foreseeable future. In addition,
our credit facility prohibits the payment of cash dividends under certain
circumstances without prior written consent of the lender. Payment of any
future dividends will depend upon our future earnings and capital requirements
and other factors that the Board of Directors consider appropriate. During
fiscal 2000, options previously granted at prices ranging from $1.45 to $12.50
per share were exercised resulting in 75,865 shares being issued for a total
amount of $261,000.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Financial Statements of the Company and Notes thereto
included elsewhere in this Report.
<TABLE>
<CAPTION>
For The Year Ended September 30,
--------------------------------
2000 1999 1998 1997 1996
-------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Revenues.......................................... $132,140 $80,318 $52,434 $45,937 $32,316
-------- ------- ------- ------- -------
Operating expenses
Cost of services..................................... 100,988 60,637 39,646 31,749 22,212
Selling, general and administrative ................. 25,579 17,383 12,461 9,469 6,669
Special bonuses (1).................................. --- --- --- --- 6,087
-------- ------- ------- ------- -------
Total operating expenses............................ 126,567 78,020 52,107 41,218 34,968
-------- ------- ------- ------- -------
Operating income (loss)............................. 5,573 2,298 327 4,719 (2,652)
Equity in losses of joint venture..................... 650 88 --- --- ---
Interest income (expense), net (2).................... (110) 285 541 473 (1,893)
-------- ------- ------- ------- -------
Income (loss) before income taxes (benefit) and
extraordinary item................................. 4,813 2,495 868 5,192 (4,545)
Income taxes (benefit) (3)........................... 1,803 936 364 1,825 (1,222)
-------- ------- ------- ------- -------
Income (loss) before extraordinary item............. 3,010 1,559 504 3,367 (3,323)
Extraordinary item, net of tax benefit (4)............ --- --- --- --- 582
-------- ------- ------- ------- -------
Net income (loss)..................................... 3,010 1,559 504 3,367 (3,905)
Preferred stock dividends............................. --- --- --- --- 308
-------- ------- ------- ------- -------
Net income (loss) available to Common
shareholders ........................................ $ 3,010 $ 1,559 $ 504 $ 3,367 $(4,213)
======== ======= ======= ======= =======
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Basic Income (Loss) Per Common Share:
Income (loss) before extraordinary item................ $ .36 $ .19 $ .06 $ .41 $ (.47)
Extraordinary item..................................... --- --- --- --- (.08)
======== ======= ======= ======= -------
Basic Income (loss) per Common share.................... $ .36 $ .19 $ .06 $ .41 $ (.55)
======== ======= ======= ======= =======
Diluted Income (Loss) Per Common Share:
Income (loss) before extraordinary item................ $ .34 $ .19 $ .06 $ .41 $ (.47)
Extraordinary item...................................... --- --- --- --- $ (.08)
-------- ------- ------- ------- -------
Diluted income (loss) per Common share................. $ .34 $ .19 $ .06 $ .41 $ (.55)
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
September 30,
--------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $19,226 $16,531 $18,162 $17,384 $12,899
Total assets 40,428 39,395 27,335 25,286 22,555
Long-term debt, less current maturities --- --- --- --- ---
Capitalized lease obligations, less current maturities --- --- --- --- 2
Loans payable to shareholders --- --- --- --- ---
Shareholders' equity 27,110 23,788 22,187 21,683 18,315
</TABLE>
(1) Special bonuses in fiscal 1996 were one-time bonuses and related payroll
taxes of $6,087,000 to two persons, who were our founders and were
executive officers in fiscal 1996; based upon the successful completion of
our initial public offering of common stock.
(2) In fiscal 1996 interest expense includes a one-time charge of $1,177,000
relating to interest expense on a note payable to the founders.
(3) Prior to fiscal 1996, our Company operated as an S corporation for income
tax purposes. In connection with a recapitalization of our Company in
fiscal 1996, the S corporation status was terminated.
(4) The $582,000 extraordinary expense, net of an income tax benefit,
represents the write-off of certain deferred financing costs associated
with the early extinguishment of bank indebtedness.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Safe Harbor For Forward Looking Statements
From time-to-time, we may publish statements which 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 provides a safe harbor for forward-
looking statements. In order to comply with the terms of the safe harbor, we
note that a variety of factors could cause our actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the our forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development and results of our business
include, but are not limited to: (i) reliance on principal client relationships
in the telecommunications, financial services, insurance, and technology
industries; (ii) fluctuations in quarterly results of operations due to the
timing of clients' telemarketing campaigns, the commencement and expiration of
contracts, the timing of opening new customer interaction centers and expansion
of existing customer interaction centers, the amount of new business generated
by us, changes in our revenue mix among our various clients, bonus arrangements
continuing to be negotiated with clients, and if negotiated, any amount being
earned, the timing of additional selling, general and administrative expenses to
acquire and support such new business, and changes in competitive conditions
affecting the telemarketing industry; (iii) difficulties of managing growth
profitably; (iv) dependence on the services of our executive officers and other
key operations and technical personnel; (v) changes in the availability of
qualified employees; (vi) fluctuations in US dollar and Canadian dollar exchange
rates; (vii) performance of automated call-processing systems and other
11
<PAGE>
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; (xi) competition from providers of other marketing formats, such as
direct mail and emerging strategies such as interactive shopping and marketing
over the Internet; and (xii) realization of revenues, unexpected expenses, and
viability of RMH's joint venture 365biz.com LP.
The following discussion of our historical results of operations and
liquidity and capital resources should be read in conjunction with "Selected
Financial Data" and the Financial Statements of the Company and Notes thereto
appearing elsewhere in this document.
Overview
We are a leading provider of outsourced customer relationship management,
or CRM, services, offering our clients multi-channel customer interaction
solutions that more effectively manage the relationships between our clients and
their customers. Our customer acquisition, service and retention programs
enable our clients to generate increased sales, strengthen their customer
relationships and keep their customers for longer periods of time. We offer our
services to companies in intensely competitive industries with significant
customer relationship needs such as telecommunications, financial services,
insurance and technology. We have many long-term client relationships,
reflecting the high quality service we provide. We maintain our competitive
advantage through our well-trained workforce, vertical industry expertise and
integrated technology solutions. We operate over 3,600 workstations within a
network of 21 state-of-the-art customer interaction centers and two quality
assurance centers throughout the United States and Canada.
Our clients include local, long-distance and wireless telecommunications
companies, credit card issuers, banks and other financial and membership service
institutions, and insurance and technology companies in the United States. We
have derived, and believe that we will continue to derive, a significant portion
of our revenues from a limited number of clients. For fiscal 2000, three
clients accounted for 29.0%, 29.0% and 13.8% of revenues. In fiscal 1999, two
clients accounted for 40.3% and 33.7% of revenues. The volume of work performed
for specific clients may vary from period to period.
We recognize revenue from our CRM services as they are performed, generally
based on hours incurred. In some instances, we are compensated based on the
number of sales we generate or the number of hours we work plus a percentage of
the sales we generate. Many of our client arrangements provide for bonuses in
the event we exceed certain performance targets. The terms of our contracts
with our customers typically range from a few months to five years, and are
generally cancelable by either party upon sixty days prior written notice.
Certain of our contracts have penalties for early cancellation by our clients.
Our cost of services includes cost incurred at our customer interaction
centers including labor and associated benefits and taxes, telecommunication
costs, rents, utilities, maintenance and depreciation of property and equipment.
RMH Teleservices International Inc., a wholly owned subsidiary of our
company incorporated in the Province of New Brunswick, Canada for the purpose of
conducting our business operations in Canada, has received financial incentives
from the Canadian provincial governments of Ontario and New Brunswick totaling
$3.9 million in fiscal 2000 and expects to receive an additional $1.5 million
over the next three years. These incentives offset various start-up, payroll
and operating costs associated with the new Canadian customer interaction
centers. We incurred these costs associated with the Oromocto, Brantford, Saint
John, Sarnia and Sault Ste. Marie call centers totaling $1.9 million in fiscal
1999 and $1.3 million in fiscal 2000. These costs were offset against the
financial incentives received from the Canadian provincial governments of
Ontario and New Brunswick. The remaining amounts are primarily being amortized
against payroll costs over the next three years.
12
<PAGE>
Selling, general and administrative expenses consist of all expenses that
support the ongoing operation of our company. These expenses include corporate
management and infrastructure costs, sales and marketing activities, client
support services and allowances for doubtful accounts.
Equity in losses of joint venture reflects our portion of the losses of our
Internet joint venture, 365biz.com, under the equity method of accounting.
Interest income (expense), net, represents interest income earned by
investing cash in marketable securities and cash equivalents net of interest
expense, primarily incurred on borrowings on our line of credit.
Results of Operations
The following table sets forth statements of operations and other data as a
percentage of net revenues from services provided by us for the periods
indicated:
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Cost of services 76.4 75.5 75.6
Selling, general and administrative 19.4 21.6 23.8
----- ----- -----
Total operating expenses 95.8 97.1 99.4
----- ----- -----
Operating income 4.2 2.9 0.6
Equity in losses of joint venture 0.4 0.1 ---
Interest income (expense), net (0.1) 0.3 1.1
----- ----- -----
Income before income taxes 3.7 3.1 1.7
Income taxes 1.4 1.2 0.7
----- ----- -----
Net income 2.3% 1.9% 1.0%
===== ===== =====
</TABLE>
Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September 30,
1999
Net Revenues. Net revenues increased to $132.1 million in fiscal 2000 from
$80.3 million in fiscal 1999. This represents a revenue increase of 64.5% for
fiscal 2000 as compared to fiscal 1999. Of this increase, approximately $2.2
million was attributable to net increased service volumes from existing clients
and $49.6 million was attributable to new clients. Included in net revenue for
fiscal 2000 are performance-related bonuses of $6.5 million.
Cost of Services. Cost of services increased to $101.1 million in fiscal
2000 from $60.6 million in fiscal 1999. As a percentage of net revenues, cost of
services increased to 76.4% in fiscal 2000 as compared to 75.5% in fiscal 1999.
The increase in cost of services as a percentage of net revenues in fiscal 2000
was attributable to startup costs of new customer interaction centers incurred
during the year, for which only minimal revenue was realized during the year.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $25.6 million in fiscal 2000 from $17.4 million in fiscal
1999. As a percentage of net revenues, selling, general and administrative
expenses decreased to 19.4% in fiscal 2000 from 21.6% in fiscal 1999. The
dollar increase was primarily the result of increasing staffing and operating
costs required to support both the growth in our net revenues and the ongoing
requirements of our clients with respect to technology and programming
requirements. The percentage decrease was primarily the result of better
utilization of infrastructure and increasing revenues being serviced by our
infrastructure.
13
<PAGE>
Equity in Losses of Joint Venture. This reflects our portion of the losses
of our start-up Internet joint venture, 365biz.com, under the equity method of
accounting.
Interest Income (Expense), net. Interest expense, net of interest income
in fiscal 2000 was $110,000 and was incurred on borrowings on our line of credit
and advances on equipment leases. Interest income in fiscal 1999 was $285,000
and was earned by investing cash in marketable securities and cash equivalents
Income Taxes. Income tax expense in fiscal 2000 was $1.8 million and in
fiscal 1999 was $936,000, and represents income taxes based upon an effective
tax rate of 38% in both fiscal 2000 and 1999. This tax rate is reflective of
both the United States and Canadian Federal tax rates and the state and
provincial tax rates in effect where we do business coupled with certain
implemented tax planning strategies.
Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended September 30,
1998
Net Revenues. Net revenues increased to $80.3 million in fiscal 1999 from
$52.4 million in fiscal 1998. This represents a revenue increase of 53.2%. Of
such increase in net revenues, approximately $16.5 million was attributable to
net increased service volumes from existing clients and $11.4 million was
attributable to new clients. Included in the net revenue for fiscal 1999 are
performance-related bonuses of $292,000.
Cost of Services. Cost of services increased to $60.6 million in fiscal
1999 from $39.6 million in fiscal 1998. As a percentage of net revenues, cost
of services decreased to 75.5% in fiscal 1999 from 75.6% in fiscal 1998. The
decrease during fiscal 1999 was the result of relocating a portion of our
business to lower labor cost regions offset by pricing pressures incurred
together with opening several new customer interaction centers and increasing
capacity in two other customer interaction centers which operated at less than
full capacity during fiscal 1999.
Selling, General, and Administrative. Selling, general and administrative
expenses increased to $17.4 million in fiscal 1999 from $12.5 million in fiscal
1998. As a percentage of net revenues, selling, general and administrative
expenses decreased to 21.6% in fiscal 1999 from 23.8% in fiscal 1998. The
dollar increase was primarily the result of increasing staffing and operating
costs required to support both the growth in our revenues and the ongoing
requirements of our clients with respect to technology and programming
requirements. The percentage decrease was primarily the result of better
utilization of infrastructure and increasing revenues being serviced by our
infrastructure.
Equity in Losses of Joint Venture. This reflects our portion of the losses
of our start-up Internet joint venture, 365biz.com, under the equity method of
accounting.
Interest Income (Expense), net. Interest income net of interest expense
was $285,000 in fiscal 1999 and $541,000 in fiscal 1998, and was earned by
investing the remaining proceeds of our initial public offering in short term
investments.
Income Tax Expense. Income tax expense was $936,000 in fiscal 1999 and
$364,000 in fiscal year 1998, and represents income taxes based upon our
effective tax rate of 38% in fiscal 1999 and 42% in fiscal 1998.
Liquidity and Capital Resources
Historically, our primary sources of liquidity have been cash flow from
operations and borrowings under our credit facilities. These funds, combined
with the proceeds of our initial public offering in September 1996, have
provided the liquidity to finance our growth.
14
<PAGE>
In September 2000, we amended our credit facility with PNC Bank, N.A.
originally entered into on March 21, 1997. The amount available under the credit
facility is $20 million. The interest rate on outstanding balances under the
credit facility is the lower of the LIBOR rate plus 95 basis points and PNC
Bank's prime rate minus 100 basis points. The credit facility expires September
30, 2001, subject to renewal. The credit facility contains financial covenants
and certain restrictions which restrict our ability to incur additional debt or
dispose of our assets. As of September 30, 2000, we did not have any borrowings
outstanding on our credit facility.
Under a separate agreement with PNC Bank, N.A. we have up to $5 million
available for leasing customer interaction center equipment. The agreement,
which expired on September 30, 2000, was renewed for an additional amount of $5
million and requires that the leases be operating in nature and not exceed 60
months. Under this agreement, as of September 30, 2000, we entered into
operating leases for equipment with an aggregate total cost of $4.8 million.
Previously, under similar separate agreements with PNC Bank, N.A. dated
February 22, 1997, and March 10, 1998, which expired on April 1, 1998 and April
1, 1999 respectively, we entered into operating leases for equipment with an
aggregate total cost of $4.1 million and $5.5 million, respectively, under
similar terms.
In June 1999, RMH Teleservices International, Inc. entered into an
agreement with GATX Technology Finance Inc. for a $5.0 million CDN lease
facility which was increased in September 1999 to $10.0 million CDN. During
fiscal 2000 this facility was increased to $15.0 million CDN. Under the terms of
this lease facility, leases must meet the accounting definition of an operating
lease with rent to be paid over a period not to exceed 60 months. As of
September 30, 2000, we have entered into operating leases for equipment under
this agreement with an aggregate total cost of $8.2 million CDN.
Net cash provided by operating activities was approximately $11.6 million
in fiscal 2000 and net cash used in operating activities was $11.7 million in
fiscal 1999. The cash provided by operations in the fiscal 2000 period resulted
from our net income for the period coupled with a decrease in our accounts
receivable and other assets and increase in accounts payable and accrued
expenses offset by an increase in prepaid expenses. The amounts of net cash
provided in fiscal 2000 and net cash used in fiscal 1999 are due in part to the
combination of several factors including internal billing difficulties with
several clients, a collection issue with one client and a ramp up late in the
fourth quarter of 1999 caused by commencement of services for a large client
without a comparable increase in collection. These factors caused unusually
large amounts of accounts receivables in fiscal 1999 which were resolved in
fiscal 2000.
Cash used in operating activities was approximately $11.7 million in fiscal
1999 and provided by operations was $144,000 for fiscal 1998. The reduction in
cash provided by operations was the result of an increase in accounts receivable
offset by an increase in net income and accrued expenses.
Our CRM services operations will continue to require significant capital
expenditures. Our capital expenditures were $2.9 in fiscal 2000, $1.8 million
in fiscal 1999 and $1.2 million in fiscal 1998. We financed equipment under
operating leases totaling $8.2 million in fiscal 2000, $6.5 million in fiscal
1999 and $2.5 million in fiscal 1998. We expect to lease equipment valued at
approximately $15 to $20 million in fiscal 2001.
As required under a certain client contract, we spent $1.6 million in
fiscal 2000 and $2.0 million in fiscal 1999. We expect to spend approximately
an additional $189,000 by March 31, 2001 under this client contract.
We believe that funds generated from our operations and the amounts
available to us under our credit and lease facilities, will be sufficient to
finance our current operations and planned capital expenditures at least through
September 30, 2001.
15
<PAGE>
We have a joint venture, 365biz.com LP, with Advanta Partners, LP, a
venture capital firm affiliated with Advanta Corp., a financial services company
based in Springhouse, Pennsylvania, called 365biz.com LP. 365biz.com provides
Web design, hosting and membership services to small and medium sized businesses
that do not currently have a web presence. Additionally, the joint venture will
provide a variety of online options and features including internet access, e-
mail accounts, search engine posting and e-commerce related services. Advanta
Partners was a related party given its previously held stock interest in us.
Based on the terms of the limited partnership agreement, in order to obtain a 49
percent minority ownership interest in the joint venture, we are committed to
provide the joint venture capital funding of $1,099,000, of which $1,023,000 has
been provided as of September 30, 2000. The remaining commitment is expected to
be paid in the year ending September 30, 2001. In addition, we extended
$222,000 of trade credit for services we provided to the joint venture.
The limited partnership agreement provides that we will be allocated 33.3%
of the joint venture's initial losses and subsequent profits, if any, until such
time as we and Advanta Partners' equity accounts equal their original funding
commitments. At that time, profits and losses will be allocated based upon
ownership percentages.
We have accounted for the joint venture under the equity method of
accounting, thereby recognizing our share of the joint venture's losses to date
per the limited partnership agreement. During fiscal 2000, we elected to
increase our investment in the joint venture above our original commitment and
to reduce by an equal amount the trade credits available to the venture. Upon
doing so, we began recording our share of the joint venture's losses at our new
allocation percentage of 49 percent. The joint venture represented $148,000 of
our net revenues for fiscal 2000.
The following is summarized financial information for 365biz.com LP:
<TABLE>
<CAPTION>
For the period
For the year ended from inception to
September 30, September 30,
2000 1999
--------------------- -------------------
<S> <C> <C>
Sales $ 27,000 $ --
Loss from operations 1,228,000 264,000
Net loss 1,228,000 264,000
September 30, September 30,
2000 1999
--------------------- -------------------
Current assets $ 50,000 $ --
Noncurrent assets 1,107,000 307,000
Current liabilities 1,119,000 106,000
Noncurrent liabilities -- --
Equity 38,000 201,000
</TABLE>
Quarterly Results of Operations
The following table sets forth consolidated statement of operations data
for each of the four quarters of fiscal 1999 and 2000, as well as such data
expressed as a percentage of net revenues. This quarterly information is
unaudited, but has been prepared on a basis consistent with our audited
Financial Statements
16
<PAGE>
presented elsewhere and, in our opinion, includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented. The results for any quarter are not
necessarily indicative of results for any future period.
Quarterly Consolidated Statements of Operations Data
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------
Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30
1998 1999 1999 1999 1999 2000 2000 2000
------- ------- ------- ------- ------- ------- ------- -------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $15,837 $17,290 $20,627 $26,564 $28,673 $31,420 $34,799 $37,248
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Cost of services 11,950 13,144 15,585 19,958 22,334 24,039 26,476 28,139
Selling, general and administrative 3,583 3,663 4,411 5,726 5,502 6,025 6,567 7,485
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses 15,533 16,807 19,996 25,684 27,836 30,064 33,043 35,624
------- ------- ------- ------- ------- ------- ------- -------
Operating income 304 483 631 880 837 1,356 1,756 1,624
Equity in losses of joint venture --- --- --- 88 56 95 335 164
Interest income (expense), net 107 69 72 37 (64) --- 14 (60)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 411 552 703 829 717 1,261 1,435 1,400
Income taxes 154 207 264 311 269 473 546 515
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 257 $ 345 $ 439 $ 518 $ 448 $ 788 $ 889 $ 885
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Quarterly Consolidated Statements of Operations Data Expressed as a Percentage
of Net Revenues
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------
Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30
1998 1999 1999 1999 1999 2000 2000 2000
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Cost of services 75.5 76.0 75.5 75.1 77.9 76.5 76.1 75.5
Selling, general and administrative 22.6 21.2 21.4 21.6 19.2 19.2 18.9 20.1
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses 98.1 97.2 96.9 96.7 97.1 95.7 95.0 95.6
----- ----- ----- ----- ----- ----- ----- -----
Operating income 1.9 2.8 3.1 3.3 2.9 4.3 5.0 4.4
Equity in losses of joint venture --- --- --- 0.3 0.2 0.3 1.0 0.4
Interest income (expense), net 0.7 0.4 0.3 0.1 (0.2) --- 0.1 (0.2)
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes 2.6 3.2 3.4 3.1 2.5 4.0 4.1 3.8
Income taxes 1.0 1.2 1.3 1.1 0.9 1.5 1.5 1.4
----- ----- ----- ----- ----- ----- ----- -----
Net income 1.6% 2.0% 2.1% 2.0% 1.6% 2.5% 2.6% 2.4%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
We have experienced and expect to continue to experience quarterly
variations in operating results, principally as a result of the commencement and
expiration of contracts, our revenue mix, the amount and timing of new business,
our ability to successfully open new customer interaction centers or to expand
existing centers in a timely fashion, the loss or unavailability of economic
incentives provided by local, state or provincial government authorities, the
timing of additional selling, general and administrative expenses and
competitive conditions in our industry.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137,
"Accounting for Derivative Investments and Hedging Activities". Deferral of
the effective Date of FASB Statement No. 133 - an amendment of FASB Statement
No. 133," which we must adopt in the year ending September 30, 2001, provides a
comprehensive and consistent
17
<PAGE>
standard for the recognition and measurement of derivatives and hedging
activities. As we do not currently hold derivative instruments or engage in
hedging activities, the adoption of this pronouncement is expected to have no
impact on our financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Interest rate risk. Our exposure to market risk for changes in interest
rates relates primarily to our investment portfolio. We do not use derivative
financial instruments in our investment portfolio. We place our investments with
high credit quality issuers and limit the amount of credit exposure with any one
issuer. We are averse to principal loss and seek to preserve our invested funds
by limiting default risk, market risk and reinvestment risk.
We mitigate default risk by investing in only the highest quality
securities and by constantly positioning our portfolio to respond appropriately
to a significant reduction in a credit rating of any investment issuer,
guarantor or depository. Our portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity. As of
September 30, 2000 our cash equivalents consisted of approximately $4,673,000
invested in domestic money market accounts.
We have additional exposure to the risk of changes in interest rates as
they relate to our variable-rate line of credit. However, as of September 30,
2000 there were no borrowings outstanding under this line of credit. As of
September 30, 1999, we had $3,700,000 outstanding under this line of credit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Financial statements and supplementary financial information specified by
this Item, together with the Report of our independent public accountants
thereon, are included in this Annual Report on Form 10-K on pages F-1 through F-
25 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item with respect to our directors and
with respect to Item 405 of Regulation S-K is incorporated herein by reference
to the information set forth in our Proxy Statement for the Annual Meeting of
Shareholders (the "Proxy Statement"). The information required by this Item
with respect to our executive officers is furnished in a separate item captioned
"Executive Officers" and included in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item is incorporated herein by reference
to the information set forth in the Proxy Statement.
18
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
----------------------------------------------------
MANAGEMENT
----------
The information required by this Item is incorporated herein by reference
to the information set forth in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this Item is incorporated herein by reference
to the information set forth in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Documents filed as a part of this Report:
<TABLE>
<CAPTION>
(1) Financial Statements. Page
----
<S> <C> <C>
Report of Independent Public Accountants.................... F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Operations....................... F-3
Consolidated Statements of Shareholders' Equity............. F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
(2) Financial Statement Schedules.
Information is included in the consolidated financial statements
(3) Exhibits
See attached
(b) Reports on Form 8-K
None
19
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 22, 2000 By: /s/ John A. Fellows
--------------------------------------
John A. Fellows
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ---
<S> <C>
/s/ John A. Fellows Director and Chief Executive Officer December 22, 2000
------------------------
John A. Fellows (Principal Executive Officer)
/s/ Noah S. Asher Executive Vice President and
------------------------
Noah S. Asher Chief Financial Officer December 22, 2000
(Principal Financial and Accounting Officer)
/s/ Herbert Kurtz Chairman of the Board of Directors December 22, 2000
------------------------
Herbert Kurtz
/s/ Jeffrey Jensen Director December 22, 2000
------------------------
Jeffrey Jensen
/s/ Gregory Lakin Director December 22, 2000
------------------------
Gregory Lakin
/s/ David P. Madigan Director December 22, 2000
------------------------
David P. Madigan
</TABLE>
20
<PAGE>
EXHIBIT INDEX
Exhibit
No.
3.1 Articles of Incorporation of the Company, as amended (incorporated
by reference to the Company's Registration Statement on Form S-1,
File No. 333-07501).
3.2 Form of Amended and Restated Bylaws of the Company (incorporated by
reference to the Company's Registration Statement on Form S-1, File
No. 333-07501).
10.1 1996 Stock Incentive Plan (incorporated by reference to the
Company's Registration Statement on Form S-1, File No. 333-40946).
10.2 Shareholder Agreement by and between the Company and R-TInvestors
dated March 28, 2000 (incorporated by reference to the Company's
Current Report on Form 8-K dated April 24,2000)
10.3 Letter Agreement with PNC Bank, N.A., dated March 21, 1997
(incorporated by reference to the Company's Form 10-Q filed for the
period ended March 31, 1997).
10.4 First Amendment to Credit Agreement with PNC Bank, N.A. dated May
28, 1999 (incorporated by reference to the Company's Form 10-Q filed
for the period ended June 30, 1999).
*10.5 Second Amendment to Credit Agreement with PNC Bank, N.A., dated
September 28, 1999.
10.6 Third Amendment to Credit Agreement with PNC Bank, N.A., dated
November 24, 1999 (incorporated by reference to the Company's Form
10-K filed for the period ended September 30, 1999).
10.7 Fourth Amendment to Credit Agreement with PNC Bank, N.A., dated May
25, 2000 (incorporated by reference to the Company's Form 10-Q filed
for the period ended June 30, 2000).
*10.8 Fifth Amendment to Credit Agreement with PNC Bank, N.A., dated
September 27, 2000.
10.9 Agreement: Loan of CAN $2 million from the Province of New
Brunswick, Canada, dated March 31, 1999 (incorporated by reference
to the Company's Form 10-Q filed for the period ended March 31,
1999).
10.10 Agreement: Loan forgiveness from the Province of New Brunswick,
Canada, dated March 31, 1999 (incorporated by reference to the
Company's Form 10-Q filed for the period ended March 31, 1999).
10.11 Agreement: Grant of CAN $1 million from the Province of Ontario,
Canada, dated March 17, 1999 (incorporated by reference to the
Company's Form 10-Q filed for the period ended March 31, 1999).
10.12 $8.0 million Operating Lease Facility Agreement between the Company
and PNC Leasing Corp. dated May 11, 1999 (incorporated by reference
to the Company's Form 10-Q filed for the period ended June 30,
1999).
10.13 Addendum to Master Lease Agreement between the Company and PNC
Leasing Corp. dated May 28, 1999 (incorporated by reference to the
Company's Form 10-Q filed for the period ended June 30, 1999).
10.14 Addendum to Master Lease Agreement between the Company and PNC
Leasing Corp. dated October 1, 2000.
10.15 Master Lease Agreement between RMH Teleservices International Inc.
and GATX Technology Finance Inc. dated June 1, 1999 (incorporated by
reference to the Company's Form 10-Q filed for the Period ended June
30, 1999).
10.16 Employment Agreement by and between the Company and John Fellows,
dated August 14, 1998 (incorporated by reference to the Company's
Form 10-K filed for the period ended September 30, 1998).
21
<PAGE>
<TABLE>
<S> <C>
10.17 Employment Agreement by and between the Company and Robert Berwanger, dated March 18, 1998
(incorporated by reference to the Company's Form 10-K filed for the period ended September
30, 1998).
10.18 Addendum to Employment Agreement by and between the Company and Robert Berwanger, dated
April 20, 1998.
10.19 Employment Agreement by and between the Company and Michael Scharff, dated August 27, 1998
(incorporated by reference to the Company's Form 10-K filed for the period ended September
30, 1998).
10.20 Employment Agreement by and between the Company and Noah S. Asher, dated January 27, 1999.
(incorporated by reference to the Company's Form 10-K filed for the period ended September
30, 1999).
10.21 Employment Agreement by and between the Company and Paul J. Burkitt, dated January 26, 1999.
(incorporated by reference to the Company's Form 10-K filed for the period ended September
30, 1999).
*10.22 Employment Agreement by and between the Company and Paul W. Little, dated April 14, 1999.
10.23 Limited Partnership Agreement of 365biz.com LP dated November 19, 1999 (incorporated by
reference to the Company's Form 10-K filed for the year ended September 30, 1999).
*10.24 Amendment to the Limited Partnership Agreement of 365biz.com LP dated September 27, 2000.
10.25 Agreement: Targeted Wage Subsidy - Human Resources Development Canada, Province of Ontario
(incorporated by reference to the Company's Form 10-Q filed for the period ended June 30,
2000).
10.26 Agreement: Youth Employment Initiatives - Human Resources Development Canada, Province of
Ontario (incorporated by reference to the Company 's Form 10-Q filed for the period ended
June 30, 2000).
10.27 Agreement: Conditional Grant, Province of New Brunswick, Canada (incorporated by reference
to the Registrant's Form 10-Q filed for the period ended June 30, 2000).
+*10.28 Amended and Restated Agreement for Independent Verification of Telemarketing Sales effective
as of July 8, 1999 by and between MCI WORLDCOM Network Services, Inc. and the Company.
+*10.29 Side Agreement, dated July 15, 1999, by and between MCI WORLDCOM Network Services, Inc. and
the Company.
+*10.30 Telemarketing Agreement, dated July 1, 1998, by and between the Company and BrandDirect
Marketing, Inc.
+*10.31 Amendment No. 1, dated August 24, 1998, to Telemarketing Agreement, dated July 1, 1998, by
and between the Company and BrandDirect Marketing, Inc.
+*10.32 Amendment No. 3, dated January 29, 1999, to Telemarketing Agreement, dated July 1, 1998, by
and between the Company and BrandDirect Marketing, Inc.
+*10.33 Service Agreement dated as of June 1, 1998 by and between the Company and Consumer
Membership Services, Inc.
*21.1 Subsidiaries of the Registrant
*23.1 Consent of Arthur Andersen LLP
</TABLE>
22
<PAGE>
*27.1 Financial Data Schedule for year ended September 30, 2000.
* Filed herewith
+ Portions of this exhibit have been omitted pursuant to a request
for confidential treatment.
23
