<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1999
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)
(610) 520-5300
(Registrant's telephone number, including area code)
Indicate by check whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the Registrant's classes of
Common stock, as of the latest practicable date: 8,366,721 shares of Common
Stock outstanding as of January 27, 2000.
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets at
December 31, 1999 and September 30, 1999 ....................... 3
Consolidated Statements of Operations for the
Three Months Ended December 31, 1999 and 1998 .................. 4
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1999 and 1998 .................. 5
Notes to Consolidated Financial Statements ..................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 16
Item 2. Changes in Securities and Use of Proceeds....................... 16
Item 3. Defaults Upon Senior Securities................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............. 16
Item 5. Other Information............................................... 16
Item 6. Exhibits and Reports on Form 8-K................................ 16
SIGNATURES............................................................... 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30, LIABILITIES AND December 31, September 30,
ASSETS 1999 1999 SHAREHOLDERS' EQUITY 1999 1999
------ ------------ ------------- -------------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 3,760,000 $ 696,000 Line of credit $ --- $ 3,700,000
Accounts receivable, net of Accounts payable 3,392,000 2,326,000
allowance for doubtful accounts Income taxes payable 901,000 614,000
of $171,000 and $150,000, Accrued expenses 6,212,000 8,106,000
respectively 21,124,000 28,194,000 Deferred income taxes 861,000 861,000
------------ ------------
Prepaid expenses and other current Total current liabilities 11,366,000 15,607,000
assets 2,943,000 3,248,000 ------------ ------------
----------- -----------
Total current assets 27,827,000 32,138,000
----------- -----------
INVESTMENT IN JOINT
VENTURE 322,000 378,000
----------- -----------
PROPERTY AND EQUIPMENT 12,761,000 12,301,000
Less - Accumulated depreciation
and amortization (8,588,000) (8,123,000) SHAREHOLDERS' EQUITY:
----------- ----------- Common stock 49,292,000 49,288,000
Deferred compensation (148,000) (158,000)
Net property and equipment 4,173,000 4,178,000 Accumulated deficit (24,894,000) (25,342,000)
----------- ----------- ------------- ------------
DEFERRED INCOME TAXES 44,000 44,000 Total shareholders' equity 24,250,000 23,788,000
----------- ----------- ------------- ------------
3,250,000 2,657,000
OTHER ASSETS ----------- -----------
$35,616,000 $39,395,000 $ 35,616,000 $ 39,395,000
=========== =========== ============ =============
</TABLE>
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
3
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
For the Three Months Ended
December 31
---------------------------
1999 1998
----------- -----------
REVENUES $28,673,000 $15,837,000
----------- -----------
OPERATING EXPENSES:
Cost of services 22,334,000 11,950,000
Selling, general and administrative 5,502,000 3,583,000
----------- -----------
Total operating expenses 27,836,000 15,533,000
----------- -----------
Operating income 837,000 304,000
EQUITY IN LOSSES OF JOINT VENTURE 56,000 -
INTEREST EXPENSE (INCOME), NET 64,000 (107,000)
----------- -----------
Income before income taxes 717,000 411,000
INCOME TAXES 269,000 154,000
----------- -----------
NET INCOME $ 448,000 $ 257,000
=========== ===========
BASIC INCOME PER COMMON SHARE $0.05 $0.03
=========== ===========
DILUTED INCOME PER COMMON SHARE $0.05 $0.03
=========== ===========
SHARES USED IN COMPUTING BASIC
INCOME PER COMMON SHARE 8,286,000 8,120,000
=========== ===========
SHARES USED IN COMPUTING DILUTED
INCOME PER COMMON SHARE 8,626,000 8,263,000
=========== ===========
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
4
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
-----------
<TABLE>
<CAPTION>
For the Three Months Ended
December 31
-----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 448,000 $ 257,000
Adjustments to reconcile net income to net cash provided
by (used in) operating activities-
Amortization of deferred compensation 10,000 ---
Depreciation and amortization 465,000 367,000
Equity in losses of joint venture 56,000 ---
Changes in operating assets and liabilities--
Accounts receivable 7,070,000 (3,482,000)
Prepaid expenses and other current assets 305,000 103,000
Other assets (593,000) ---
Accounts payable and accrued expenses (541,000) (980,000)
----------- -----------
Net cash provided by (used in) operating activities 7,220,000 (3,735,000)
----------- -----------
INVESTING ACTIVITIES:
Purchases and development of property and equipment (460,000) (210,000)
Purchases of marketable securities --- (2,686,000)
Maturities of marketable securities --- 3,779,000
----------- -----------
Net cash provided by (used in) investing activities (460,000) 883,000
----------- -----------
FINANCING ACTIVITIES:
Net repayments on line of credit (3,700,000) ---
Common stock options exercised 4,000 ---
----------- -----------
Net cash used in financing activities (3,696,000) ---
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,064,000 (2,852,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 696,000 4,179,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,760,000 $ 1,327,000
=========== ===========
</TABLE>
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
5
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION:
- ----------------------------------------------
RMH Teleservices, Inc. and its subsidiaries ("RMH" or the "Company") is a
leading provider of inbound and outbound telemarketing, inbound customer service
and e-commerce customer contact programs for major corporations on both a
business-to-business and business-to-consumer basis. Founded in 1983, the
Company is headquartered in Bryn Mawr, Pennsylvania and has 19 facilities
throughout the United Stated and Canada.
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows of
the Company. Operating results for the three month periods ended December 31,
1999 and 1998 are not necessarily indicative of the results that may be expected
for the full 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 SEC rules and
regulations. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1999.
NOTE 2 - EARNINGS PER SHARE:
- ----------------------------
The Company has provided basic and diluted income per share pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS No. 128 requires dual presentation of basic and diluted earnings
per share. According to SFAS No. 128, basic earnings per share is calculated by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution from
the exercise or conversion of securities into Common stock, such as stock
options and warrants.
6
<PAGE>
The following is a reconciliation of the numerators and denominators of the
basic and diluted income per share computations:
<TABLE>
<CAPTION>
For the Three Months Ended December 31
------------------------------------------------------------------------------
1999 1998
------------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic income per
Common share:
Net income $448,000 8,286,000 $0.05 $257,000 8,120,000 $0.03
===== =====
Effect of dilutive
securities:
Stock warrants --- --- --- 142,000
Stock options --- 292,000 --- 1,000
Restricted stock --- 48,000 --- ---
-------- --------- ----- -------- --------- -----
Diluted income per
Common share:
Net income and
Assumed conversion
of dilutive securities $448,000 8,626,000 $0.05 $257,000 8,263,000 $0.03
======== ========= ===== ======== ========= =====
</TABLE>
Options to purchase approximately 30,000 and 599,000 shares of Common stock with
an average exercise price of $6.20 and $3.47 were outstanding during the three
month periods ended December 31, 1999 and 1998, respectively, but were not
included in the computation of diluted income per Common share because the
exercise prices of the options were greater than the average market price of the
Common shares during the periods. The options, which expire at various times
through December 2009, were still outstanding as of December 31, 1999.
NOTE 3 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
- ---------------------------------------------------------
The Company is dependent on several large customers for a significant portion of
its revenues. Three customers accounted for 68.5% and 57.9% of revenues for the
three month periods ended December 31, 1999 and 1998, respectively. The loss of
one or more of these customers could have a materially adverse effect on the
Company's business.
Concentration of credit risk is limited to accounts receivable and is subject to
the financial conditions of the Company's customers. The Company does not
require collateral or other securities to support customer receivables. The
Company's customer with the largest outstanding balance had an amount owing of
$8,873,000 at December 31, 1999. The second, third and fourth largest of the
Company's customers are engaged in transactions with each other and represent a
single credit risk to the Company. At December 31, 1999, the accounts receivable
from the customers that represent a single credit risk were $5,399,000.
7
<PAGE>
NOTE 4 - COMPREHENSIVE INCOME:
- ------------------------------
The Company's comprehensive income includes net income and gains and losses from
foreign currency translation adjustments. The foreign currency translation gains
and losses for the three month periods ended December 31, 1999 and 1998 were not
material.
NOTE 5 - CUSTOMER CONTRACT:
- ---------------------------
In August 1999, the Company entered into a contract with a new customer to
provide in-bound teleservices over a four-year period. In connection with the
execution of this contract, the Company made a $2,000,000 payment to the
customer during the three months ended September 30, 1999 and an additional
$1,000,000 payment in the three months ended December 31, 1999. The payments are
refundable on a pro-rata basis over the contract term if the agreement is
terminated. The payments are included in other noncurrent assets in the
accompanying consolidated balance sheets, and are being amortized to cost of
services over the contract term. In addition, the Company is obligated to spend
$800,000 for the development of a voice response unit application to be used in
providing certain services to the customer. These development costs will be
recorded during the remaining nine months of the year ending September 30, 2000
and the Company can recover such costs through billings to the customer based on
usage of the system.
8
<PAGE>
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 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, 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, financial services and
telecommunications 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) dependence on the services of the Company's
executive officers and other key operations and technical personnel; (v) changes
in the availability of qualified employees; (vi) performance of automated call-
processing systems and other technological factors; (vii) the impact of the Year
2000 issues on the Company; (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) expected revenues and expenses of RMH's joint
venture, 365biz.com L.P.
Overview
- --------
The Company is a leading outsourcing provider of outbound and inbound
teleservices predominantly to major corporations 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.
In December 1998, RMH Teleservices International Inc. ("RMHTI"), a wholly owned
subsidiary, was incorporated in the Province of New Brunswick, Canada for the
purpose of conducting the Company's business operations in Canada. In the second
quarter of fiscal 1999, RMHTI entered into leases for premises in Oromocto, New
Brunswick and Brantford, Ontario for new call centers. In the fourth quarter of
fiscal 1999, RMHTI entered into a lease for premises in Saint John, New
Brunswick. The call center in Oromocto, New Brunswick commenced operations in
March 1999 with 200 seats, and in June 1999 was expanded to 313 seats. The call
center in Brantford, Ontario began initial operations in July 1999 with 250
seats and in October 1999 was expanded to 380 seats. The call center in Saint
John, New Brunswick commenced operations in August 1999 with 144 seats. RMHTI
has received financial incentives from the Canadian provincial governments of
Ontario and New Brunswick totaling $3.1 million and expects to receive an
additional $1.4 million over the next three years. These incentives offset
various start-up, payroll and operating costs associated with the new Canadian
call centers. In the first quarter of fiscal 2000, the Company incurred start-up
and payroll costs associated with these three new call centers totaling
$230,000, which 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.
In addition to the call centers in Canada, the Company operates 15 call centers
in the United States which had an aggregate of 1,929 seats at December 31, 1999.
9
<PAGE>
The Company'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 revenues 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.
Results of Operations
- ---------------------
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
- --------------------------------------------------------------------------------
1998
- ----
Revenues - Revenues increased to $28,673,000 for the three months ended December
31, 1999 from $15,837,000 for the three months ended December 31, 1998, an
increase of $12,836,000 or 81.1%. Of such increase in revenues, approximately
$4,936,000 was attributable to increased calling volumes from existing clients
and $7,900,000 was attributable to new clients. To meet client demand, the
Company added 130 workstations in Brantford, Ontario, Canada during the quarter
ended December 31, 1999. The Company currently plans on opening at least three
additional call centers by September 30, 2000.
Cost of Services - Cost of services increased to $22,334,000 for the three
months ended December 31, 1999 from $11,950,000 for the three months ended
December 31, 1998. As a percentage of revenues, cost of services increased to
77.9% for the three months ended December 31, 1999 as compared to 75.5% for the
three months ended December 31, 1998. The Company believes that the increase in
cost of services, as a percentage of revenues during the quarter, is
attributable to less than optimal utilization of capacity in certain call
centers coupled with the upward pressure on labor rates as a result of the tight
labor market. The Company anticipates that cost of services, as a percentage of
revenues, may increase during the year to the degree that longer periods of time
are required to generate acceptable levels of utilization at its new call
centers, and/or the Company experiences continuous upward pressures on hourly
wages as a result of tighter or more competitive labor markets.
Selling, General and Administrative - Selling, general and administrative
expenses increased to $5,502,000 for the three months ended December 31, 1999
from $3,583,000 for the three months ended December 31, 1998. As a percentage of
revenues, selling, general and administrative expenses decreased to 19.2% for
the three months ended December 31, 1999 from 22.6% for the three months ended
December 31, 1998. The decrease was primarily the result of the Company's
ability to better leverage the infrastructure required to support the Company's
growth.
Interest Expense (Income) - Interest expense for the three months ended December
31, 1999, was $64,000 incurred on borrowings on the Company's line of credit.
Interest income for the three months ended December 31, 1998 was $107,000, and
was earned by investing the remaining proceeds of the Company's initial public
offering in marketable securities and cash equivalents.
Income Tax Expense - Income tax expense for the three months ended December 31,
1999 and 1998 was $269,000 and $154,000, respectively, and represents income
taxes based upon an effective tax rate of 37.5%. This tax rate is reflective of
both the Federal tax rates and the state and provincial tax rates in effect
where the Company does business coupled with certain implemented tax planning
strategies.
10
<PAGE>
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 the proceeds of the Company's initial public offering in September
1996, have provided the liquidity to finance the growth of the Company.
On March 21, 1997, the Company entered into a $4.0 million line of credit
facility (the "Credit Facility") with PNC Bank (the "Bank"). The Credit Facility
replaced the Company's former term loan and credit facility. The Credit Facility
originally expired on April 1, 1998, but was subsequently extended by the Bank.
On September 28, 1999, the term of the Credit Facility was extended to
September 30, 2000, subject to renewal, and the amount available under the
Credit Facility was increased to $10.0 million. On November 24, 1999, the amount
available under the Credit Facility was increased to $15.0 million. Outstanding
balances bear interest at the Company's option at either the LIBOR rate plus 95
basis points or at the Bank's prime rate minus fifty basis points. The Credit
Facility contains financial covenants and certain restrictions which, among
others, restrict the Company's ability to incur additional debt or dispose of
its assets. As of December 31, 1999, the Company had no amounts outstanding on
the Credit Facility.
Under a separate agreement dated February 22, 1997, with PNC Leasing
Corporation, the Company had up to $6.0 million available for purposes of
leasing call center equipment. The $6.0 million commitment expired on April 1,
1998, and required that such leases meet the accounting definition of an
operating lease with rent to be paid over a period not to exceed sixty months.
Under this agreement, the Company entered into operating leases for equipment
with an aggregate total cost of $4.1 million.
Under a separate agreement dated March 10, 1998, with PNC Leasing
Corporation, the Company established an additional lease facility of $6.0
million available for purposes of leasing call center equipment. The $6.0
million commitment expired on April 1, 1999, and required that such leases meet
the accounting definition of an operating lease with rent to be paid over a
period not to exceed sixty months. Under this agreement, the Company entered
into operating leases for equipment with an aggregate total cost of $5.5
million.
Under a separate agreement dated May 28, 1999, with PNC Leasing
Corporation, the Company established an additional lease facility of $8.0
million available for purposes of leasing call center equipment. This commitment
was subsequently reduced to $5.0 million simultaneously with the September 1999
increase in the Credit Facility from $4.0 million to $10.0 million. The $5.0
million commitment expires on September 30, 2000 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. Under this agreement, as of December 31,
1999, the Company has entered into operating leases for equipment with an
aggregate total cost of $2.2 million.
In June 1999, RMHTI entered into an agreement with GATX Technology Finance
Inc. for a $5.0 million CDN lease facility. 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 sixty months. Under this agreement,
as of December 31, 1999, the Company has entered into operating leases for
equipment with an aggregate total cost of $3.7 million CDN.
Cash provided by operating activities was approximately $7.2 million for
the three months ended December 31, 1999 and cash used in operations was
approximately $3.7 million for the three months ended December 31, 1998. The
increase in cash provided by operations was the result of an increase in net
income and a reduction in accounts receivable offset by a reduction in accrued
expenses and an increase in other assets.
The Company's teleservices operations will continue to require significant
capital expenditures. Capital expenditures during the three months ended
December 31, 1999 and 1998 were $460,000 and $210,000, respectively. The Company
expects to spend approximately $6.0 million on capital expenditures during the
remainder of fiscal 2000, primarily for the enhancement of technology used
throughout its operations and additional call center
11
<PAGE>
expansion. However, in conjunction with such expenditures, the Company is
evaluating whether to lease or buy such assets and may decide to enter into
operating leases for their acquisition.
As required under a certain customer contract, the Company spent $2.0 million in
the three months ended September 30, 1999 and $1.0 million in the three months
ended December 31, 1999. The Company expects to spend up to an additional $0.8
million under that customer contract.
The Company believes that funds generated from operations, together with the
available credit under the Credit Facility and the lease lines of credit, will
be sufficient to finance its current operations and planned capital expenditures
at least through December 31, 2000.
The Company has entered into a joint venture with Advanta Partners to create a
new entity called 365biz.com LP. RMH owns a 49.5% interest in the venture.
365biz.com will provide Web design, hosting and membership services to small and
medium sized businesses. Additionally, 365biz.com will provide 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 Web solutions. The
Company is committed to provide the joint venture additional capital funding of
$0.5 million which is expected to be paid in the year ending September 30, 2000.
In addition, the Company will extend up to $1.0 million of normal trade credit
for services the Company is expected to provide to the joint venture.
Segment Information
- -------------------
The Company operates in three business segments as follows:
Insurance
The Insurance segment works with large consumer insurance companies and their
agents throughout the United States to market such products as accidental death
and dismemberment policies, graded benefit life insurance and other niche
insurance products primarily to credit card customers. The Company has also
assisted clients in marketing supplemental dental and vision coverage to credit
card holders.
Financial Services
The Financial Services segment provides teleservices to several of the largest
credit card issuers, banks and other financial and membership service
institutions in the United States. The Company's 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. The Company also cross-sells additional
services such as home equity loans and related banking services.
Telecommunications
The Telecommunications segment provides a variety of teleservices for the
nation's leading local, long-distance and wireless telecommunications companies.
The reportable segments have been identified as they have separate management
teams and predominantly serve separate classes of customers via specific call
centers. The accounting policies of the reportable segments are the same as
those of the consolidated Company. The Company evaluates the performance of its
operating segments based on operating income (loss) and corporate assets and
costs are allocated to the segments based upon segment revenue. Intersegment
sales and transfers are not significant.
12
<PAGE>
Financial information for each business segment as of December 31, 1999 and 1998
and for the three months then ended is as follows:
1999 1998
----------- -----------
Revenue:
Insurance $ 7,427,000 $ 9,006,000
Financial services 8,204,000 6,761,000
Telecommunications 13,043,000 70,000
----------- -----------
$28,673,000 $15,837,000
=========== ===========
Operating income (loss):
Insurance $ 676,000 $ (82,000)
Financial services (594,000) 133,000
Telecommunications 755,000 253,000
----------- -----------
$ 837,000 $ 304,000
=========== ===========
Total assets:
Insurance $15,657,000 $18,921,000
Financial services 11,028,000 7,212,000
Telecommunications 8,931,000 479,000
----------- -----------
$35,616,000 $26,612,000
=========== ===========
Depreciation and amortization:
Insurance $ 67,000 $ 223,000
Financial services 219,000 135,000
Telecommunications 179,000 9,000
----------- -----------
$ 465,000 $ 367,000
=========== ===========
Capital expenditures:
Insurance $ 124,000 $ 77,000
Financial services 80,000 89,000
Telecommunications 256,000 44,000
----------- -----------
$ 460,000 $ 210,000
=========== ===========
Geographic information:
Property and equipment:
United States $ 3,444,000 $ 3,890,000
Canada 729,000 ---
----------- -----------
$ 4,173,000 $ 3,890,000
=========== ===========
The Company's revenues during the three months ended December 31, 1999 and 1998
were generated entirely from customers within the United States.
13
<PAGE>
From time to time, when customer demand of a particular segment exceeds that
segment's resources, the additional volume is serviced by other segments' call
centers and revenue is recorded in the servicing segment. Revenue based on
clients' industries without regard to the segment providing the service is as
follows:
For the Three Months Ended
December 31
----------------------------
1999 1998
-------------- -------------
Insurance $ 9,166,000 $9,006,000
Financial Services 8,994,000 6,761,000
Telecommunications 10,513,000 70,000
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 Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No.
133," which must be adopted by the Company in the year ending September 30,
2001, provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. As the Company does not
currently hold derivative instruments or engage in hedging activities, the
adoption of this pronouncement is expected to have no impact on the Company's
financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants issued SOP
98-5, "Reporting on the Costs of Start-up Activities," which is effective for
fiscal years beginning after December 15, 1998 and provides guidance on the
financial reporting of start-up activities and organization costs. It requires
costs of start-up activities and organization costs to be charged to expense as
incurred. SOP 98-5 was adopted by the Company during the three months ended
December 31, 1999. The adoption of this pronouncement did not have a material
impact on the Company's financial position or results of operations.
Year 2000
- ---------
The Company has completed implementation of its year 2000 remediation plan on a
timely basis and such remediation plan as implemented addressed all mission
critical systems. The Company is not aware of any adverse effects of year 2000
issues on the Company, including its systems and operations. The Company has no
information that indicates that a significant vendor may be unable to sell to
the Company; a significant customer may be unable to purchase from the Company;
or a significant service provider may be unable to provide services to the
Company, because of year 2000 compliance problems.
14
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with high credit quality issuers
and limits the amount of credit exposure with any one issuer. The Company is
averse to principal loss and ensures the safety and preservation of its invested
funds by limiting default risk, market risk and reinvestment risk.
The Company mitigates default risk by investing in only the safest and highest
credit quality securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer, guarantor or depository. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
As of December 31, 1999, the company held no cash equivalents or marketable
securities. The table below represents principal (or notional) amounts and
related weighted average interest rates for the Company's investment portfolio
as of December 31, 1998. All investments mature in one year or less.
Principal Amount Fair Value
----------------- -----------
(in thousands)
Assets
Cash equivalents:
Variable rate $1,287 $1,287
Average interest rate 5.01% 5.01%
Marketable Securities:
Fixed rate $5,825 $5,686
Average interest rate 5.48% 5.48%
------ ------
Total Investments $7,112* $6,973
- ----------------- ====== ======
* Includes $123,000 of unaccrued interest to be received at maturity.
15
<PAGE>
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 2: Changes in Securities and Use of Proceeds
a. None.
b. None.
c. The Company has not sold any securities that were not registered
under the Securities Act.
d. The Company's Registration Statement on Form S-1 (File No. 333-
07501) (the "Registration Statement") was declared effective by
the Commission on September 18, 1996. Pursuant to the
Registration Statement, the Company registered an aggregate of
3,220,000 shares of Common stock, with no par value. All of the
shares registered by the Registration Statement were sold at
$12.50 per share, realizing aggregate proceeds of $40,250,000 and
net aggregate proceeds of $36,317,000 (after deduction of
underwriters' discounts, commissions and other offering expenses
of $3,933,000). None of these expenses were paid to directors,
officers, general partners or their associates or to 10%
shareholders of the Company. Of the net proceeds of the offering,
$15,300,000 were used to repay indebtedness and $6,000,000 were
used to pay a special bonus to Raymond J. Hansell and MarySue
Lucci, the Company's founders and owners of in excess of 10% of
the Common Stock. The amount of $6,400,000 was used to fund the
redemption of Series B Preferred Stock by Advanta Partners LP, an
owner of 10% or more of the Common Stock, and the amount of
$281,000 to fund the redemption of Series B Preferred Stock by
Glengar International Investments Limited. The remainder of the
proceeds were invested in short-term investments pending their
withdrawal for general corporate purposes.
Item 3: Defaults upon Senior Securities
None.
Item 4: Submission of Matters to a Vote of Security Holders
None.
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8-K
a. Exhibits
27.0 Financial Data Schedule
b. Reports on Form 8-K:
None
16
<PAGE>
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.
(Registrant)
DATED: February 14, 2000 BY: /s/ John A. Fellows
----------------------------
John A. Fellows
Chief Executive Officer
DATED: February 14, 2000 BY: /s/ Noah S. Asher
--------------------------
Noah S. Asher
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,760,000
<SECURITIES> 0
<RECEIVABLES> 21,295,000
<ALLOWANCES> 171,000
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<CURRENT-ASSETS> 27,827,000
<PP&E> 12,761,000
<DEPRECIATION> 8,588,000
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<CURRENT-LIABILITIES> 11,366,000
<BONDS> 0
0
0
<COMMON> 49,292,000
<OTHER-SE> (25,042,000)
<TOTAL-LIABILITY-AND-EQUITY> 35,616,000
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<INCOME-PRETAX> 717,000
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<INCOME-CONTINUING> 448,000
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