<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended JUNE 30, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___________________
to ______________________.
Commission File Number: 0-14315
-------
AEGIS COMMUNICATIONS GROUP, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2050538
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
7880 BENT BRANCH DRIVE, SUITE 150, IRVING, TEXAS 75063
------------------------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (972) 830-1800
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Title of Each Class Number of Shares Outstanding
------------------- on August 11, 2000
------------------
<S> <C>
COMMON STOCK $.01 PAR VALUE 52,046,051
</TABLE>
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1999 and June 30, 2000 (unaudited).................................. 3
Unaudited Consolidated Statements of Operations
Three and Six Months Ended June 30, 1999 and June 30, 2000....................... 5
Unaudited Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and June 30, 2000................................. 6
Notes to Unaudited Consolidated Financial Statements................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................ 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 20
Item 5. Other Information..................................................................... 20
Item 6. Exhibits and Reports on Form 8-K...................................................... 20
SIGNATURES.................................................................................................... 22
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEGIS COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,043 $ 552
Accounts receivable - trade, less allowance for doubtful
accounts of $1,058 in 1999 and $1,251 in 2000 54,839 61,358
Current deferred tax assets 715 715
Prepaid expenses and other current assets 2,417 1,547
-------------- --------------
Total current assets 64,014 64,172
Property and equipment, net of accumulated depreciation
of $32,175 in 1999 and $38,178 in 2000 33,488 37,065
Cost in excess of net assets acquired, net of accumulated
amortization of $5,461 in 1999 and $6,650 in 2000 48,203 47,015
Deferred tax assets 12,884 17,429
Deferred financing costs, net 1,762 1,508
Other assets 234 228
-------------- --------------
$ 160,585 $ 167,417
============== ==============
</TABLE>
See accompanying notes.
3
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current portions of long-term obligations $ 2,243 $ 2,237
Accounts payable 6,332 11,334
Accrued compensation expense and related liabilities 5,629 7,542
Accrued interest expense 250 614
Other accrued expenses 10,464 13,173
Other current liabilities 2,380 2,192
-------------- ---------------
Total current liabilities 27,298 37,092
Revolving line of credit 32,334 39,000
Long-term obligations, net of current portions 1,554 2,020
Subordinated indebtedness due to affiliates 9,801 10,369
Commitments and contingencies - -
Redeemable convertible preferred stock
46,750, 9.626% cumulative Series F shares issued and
outstanding in 1999 and 2000 41,970 44,241
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; 29,778
convertible, $.36 cumulative Series B shares issued and outstanding in
1999 and 2000; 83,206 and 89,528, 15% cumulative Series D shares issued
and outstanding in 1999 and 2000, respectively; and, 47,381 and 50,981,
15% cumulative Series E shares issued and
outstanding in 1999 and 2000, respectively 2 2
Common stock, $.01 par value, 100,000,000 shares
authorized; 52,492,616 and 52,807,051 shares issued and
outstanding in 1999 and 2000, respectively, including
761,000 treasury shares in 1999 and 2000 525 528
Additional paid-in capital 92,882 94,205
Treasury shares, at cost (1,918) (1,918)
Cumulative translation adjustment 88 88
Retained deficit (43,951) (58,210)
-------------- ---------------
Total shareholders' equity 47,628 34,695
-------------- ---------------
$ 160,585 $ 167,417
============== ===============
</TABLE>
See accompanying notes.
4
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -----------------------------
1999 2000 1999 2000
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 58,023 $ 70,014 $ 119,839 $ 142,583
Cost of services, excluding depreciation
and amortization shown below 43,136 51,421 86,726 102,621
------------ ------------- ------------- -------------
Gross profit 14,887 18,593 33,113 39,962
Selling, general and administrative expenses 16,246 24,444 33,178 41,220
Depreciation 3,066 3,944 6,206 6,998
Acquisition goodwill amortization 596 595 1,469 1,189
Non-cash asset impairment charge - - 20,399 -
Restructuring and other non-recurring charges - 3,539 541 3,539
------------ ------------- ------------- -------------
Total operating expenses 19,908 32,522 61,793 52,946
------------ ------------- ------------- -------------
Operating loss (5,021) (13,929) (28,680) (12,984)
Interest expense, net 1,838 1,356 3,580 2,550
------------ ------------- ------------- -------------
Loss before income taxes (6,859) (15,285) (32,260) (15,534)
Income tax benefit (2,411) (4,693) (3,982) (4,545)
------------ ------------- ------------- -------------
Net loss (4,448) (10,592) (28,278) (10,989)
Preferred stock dividends - 1,658 - 3,270
------------ ------------- ------------- -------------
Net loss after preferred stock dividends $ (4,448) $ (12,250) $ (28,278) $ (14,259)
============ ============= ============= =============
Basic and diluted loss per share of common stock $ (0.08) $ (0.24) $ (0.54) $ (0.27)
============ ============= ============= =============
Weighted average shares of common stock
outstanding 52,403 52,002 52,358 51,878
</TABLE>
See accompanying notes.
5
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------
1999 2000
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (28,278) $ (10,989)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 7,675 8,187
Deferred income taxes (3,982) (4,545)
Non-cash asset impairment charge 20,399 -
Other 25 (9)
Changes in operating assets and liabilities:
Accounts receivable (574) (6,519)
Notes receivable -- related parties (27) -
Prepaid and other current assets (1,344) 870
Other assets (124) 6
Accounts payable and other accrued liabilities (447) 9,988
Other current liabilities (800) (188)
-------------- ---------------
Net cash used in operating activities (7,477) (3,199)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,115) (8,546)
-------------- ---------------
Net cash used in investing activities (7,115) (8,546)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, net 1,900 6,666
Proceeds from affiliate debt 6,719 568
Principal payments on long-term debt (2,921) -
Payments on capital lease obligations (1,088) (1,314)
Proceeds from issuance of common stock 100 150
Proceeds from exercise of stock options 129 184
Deferred financing costs (119) -
-------------- ---------------
Net cash provided by financing activities 4,720 6,254
-------------- ---------------
Net decrease in cash and cash equivalents (9,872) (5,491)
Cash and cash equivalents at beginning of period 10,701 6,043
-------------- ---------------
Cash and cash equivalents at end of period $ 829 $ 552
============== ===============
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Fixed assets acquired under capital leases $ - $ 1,774
Conversion of affiliate debt to preferred stock $ 12,132 $ -
Conversion of dividends into preferred instruments $ - $ 3,270
</TABLE>
See accompanying notes.
6
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE NOTED)
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of
Aegis Communications Group, Inc. and its subsidiaries (the "Company") for the
three and six-month periods ended June 30, 1999 and 2000, have been prepared
in accordance with generally accepted accounting principles and, in the
opinion of the Company's management, contain all material, normal and
recurring adjustments necessary to present accurately the consolidated
financial condition of the Company and the consolidated results of its
operations for the periods indicated. Significant accounting policies
followed by the Company were disclosed in the notes to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. The consolidated results of operations for
the periods reported are not necessarily indicative of the results to be
experienced for the entire current year.
2. SALE OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
On December 10, 1999, the Company completed the sale of 46,750
shares of newly issued Preferred F senior voting convertible preferred stock
(the "Preferred F Shares") to Questor Partners Fund II, L.P., Questor
Side-by-Side Partners II, L.P., and Questor Side-by-Side Partners II 3(c)(1),
L.P. (collectively the "Questor Investors") for an aggregate purchase price
of $46,750 (the "Questor Transaction"). The Company used the net proceeds
from the sale of the Preferred F Shares to repay outstanding bank debt and
pay transaction expenses. The dividends on the Preferred F Shares, to the
extent that dividends have not been paid, are added to the investment value
of such shares. No cash payments of dividends have been paid by the Company
on the Preferred F Shares; rather dividends totaling $2,549 have been added
to the investment value of such shares since their issuance on December 10,
1999. The Preferred F Shares are convertible into shares of Common Stock on
the basis of one share of Common Stock per $1.00 of investment value of the
Preferred F Shares. The Preferred F Shares have a liquidation preference
equal to the investment value of such shares. As a result of the sale of the
Preferred F Shares and subsequent increases to the investment value of such
shares, on an as-converted basis, the Questor Investors collectively
beneficially own approximately 49% of the Company's issued and outstanding
Common Stock and approximately 38% of the Company's Common Stock and Common
Stock equivalents outstanding at June 30, 2000. The Preferred F Shares vote
on an as-converted basis and represent approximately 49% of the voting equity
stock. Because the Preferred F Shares are redeemable at the option of the
Questor Investors in the event of a change of control, the Series F Preferred
Stock is classified as neither a debt nor an equity instrument on the balance
sheet at June 30, 2000.
3. PREFERRED STOCK DIVIDENDS
Shares of the Company's Series B Voting Convertible Preferred Stock (the
"Preferred B Shares") earn dividends payable in cash at the annual rate of
$0.36 per share. The Company's Series D and E Preferred Stock earn cumulative
dividends payable in-cash or in-kind in additional shares of the respective
series of Preferred Stock at the annual rate of 15%. The Preferred F Shares
are entitled to receive dividends, in preference to all other capital stock
of the Company, except for the Preferred B Shares, at the rate of 9.626% per
annum, which accrue and cumulate from their original issue date. The
dividends on the Preferred F Shares accrue on each share from its issuance on
a daily basis, whether or not earned or declared. To the extent that
dividends have not been paid in-cash on any March 31, June 30, September 30
or December 31 of any year, all such dividends are added to the investment
value of each share. The Preferred F Shares also participate, on an
as-converted basis, with the Common Stock in any dividends that may be
declared and paid after the payment of preferential dividends.
7
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE NOTED)
3. PREFERRED STOCK DIVIDENDS (CONTINUED)
For the six months ended June 30, 2000, accrued dividends totaling
$992 on the Series D and E Preferred Stock were paid in-kind and accrued
dividends totaling $2,278 on the Preferred F Shares were added to the
investment value of such shares.
4. SEGMENTS
The Company has adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." The Company classifies its operations
into two segments, customer solutions and marketing research, which are
managed separately because each provide different services. The accounting
policies of the operating segments are the same as described in the summary
of significant accounting policies disclosed in the notes to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. The customer solutions segment provides
large corporations as well as emerging e-commerce companies with
multi-channel customer contact programs including Internet-enabled customer
care and inbound and outbound call handling services including customer
service, help desk, customer acquisition and retention, multilingual
communications programs, facilities management, order provisioning, and
database management. The marketing research segment provides its clients,
representing a broad range of industries, with customized marketing research
including customer satisfaction studies, quantitative and qualitative
research, new product development, data management and field marketing
services such as mystery shopping. Business segment information is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------------
1999 2000 1999 2000
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Customer solutions $ 52,070 $ 62,412 $ 108,179 $ 128,371
Marketing research 5,953 7,602 11,660 14,212
-------------- --------------- -------------- --------------
Total $ 58,023 $ 70,014 $ 119,839 $ 142,583
============== =============== ============== ==============
OPERATING LOSS:
Customer solutions $ (4,473) $ (10,173) $ (6,658) $ (8,436)
Marketing research (548) (217) (1,082) (1,009)
Non-cash asset impairment charge - - (20,399) -
Restructuring and other non-recurring charges - (3,539) (541) (3,539)
-------------- --------------- -------------- --------------
Total $ (5,021) $ (13,929) $ (28,680) $ (12,984)
============== =============== ============== ==============
DEPRECIATION AND AMORTIZATION:
Customer solutions $ 2,911 $ 3,844 $ 5,880 $ 6,786
Marketing research 155 100 326 212
Acquisition goodwill amortization 596 595 1,469 1,189
-------------- --------------- -------------- --------------
Total $ 3,662 $ 4,539 $ 7,675 $ 8,187
============== =============== ============== ==============
TOTAL ASSETS:
Customer solutions $ 140,615 $ 152,794
Marketing research 15,268 14,623
-------------- --------------
Total $ 155,883 $ 167,417
============== ==============
</TABLE>
8
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE NOTED)
5. RESTRUCTURING, OTHER NON-RECURRING AND SPECIAL CHARGES
On July 9, 1998, ATC Communications Group, Inc. ("ATC") completed
the acquisition of IQI, Inc., a New York corporation ("IQI") to form Aegis
Communications Group, Inc. ("Aegis"). The acquisition was effected through
the merger (the "Merger") of a wholly-owned subsidiary of ATC with and into
IQI pursuant to an Agreement and Plan of Merger, dated as of April 7, 1998
(the "Merger Agreement"). On July 29, 1998, the Company announced that it
would record pre-tax restructuring charges of $13,000 related to the Merger.
Current and future expenses related to the restructuring decision which meet
the specific generally accepted accounting principles ("GAAP") criterion for
accrual have been referred to herein as "restructuring" charges, and a
restructuring accrual was recorded to the extent the related amounts had not
been paid. Expenses related to the restructuring decision which do not meet
the specific GAAP criterion for accrual have been referred to herein as
"other" charges. "Other" charges were not accrued, but were recognized as the
related expenses were incurred. Accordingly, the Company recorded pre-tax
charges of approximately $8,395 ($5,247, net of taxes) in the year
ended December 31, 1998 and approximately $541 ($330, net of taxes) in the
quarter ended March 30, 1999, as a part of the total restructuring. These
charges were primarily attributable to one-time write-offs of redundant
hardware and software, severance costs and the consolidation of certain
administrative functions including costs to relocate offices and employees.
The Company's results for the three and six months ended June 30,
2000 include special charges of $12,031 ($8,511, net of taxes) recorded in
the quarter ended June 30, 2000. The special charges were recorded in
connection with the recent transition in the Company's executive management
team and actions taken to implement a broad-based turnaround plan designed to
improve productivity and promote profitable revenue growth. During the second
quarter, Aegis substantially completed the transition of its executive
management team with the appointments of Hugh E. Sawyer as President and
Chief Executive Officer and Michael J. Graham as Executive Vice President and
Chief Financial Officer. The special charges are related to the costs
necessary to transition the executive management team, the unanticipated
costs of certain employee healthcare benefits, and the costs necessary for
actions taken following the new management team's initial assessment of the
Aegis operating platform. This analysis prompted the Company to take
aggressive steps to focus on its most profitable assets and streamline the
Aegis organization by reducing headcount not directly responsible for
improving profitability, client service, or employee retention. The following
chart details special charges recorded in the income statement during the
quarter ended June 30, 2000:
<TABLE>
<CAPTION>
<S> <C>
Cost of services:
Compensation expense settlements $ 400
Selling, general and administrative expenses:
Unanticipated costs of certain employee benefits 6,439
Reserve for doubtful accounts 500
Elimination of non-performing assets 315
Depreciation:
Write-offs of undepreciated salvage value of outmoded equipment 838
Restructuring and other non-recurring charges:
Executive transition and severance costs 2,240
Resolution of lease litigation and disputes related to an insurance claim 1,299
------------
Total pre-tax special charges 12,031
Tax benefit (3,520)
------------
Total special charges, net of taxes $ 8,511
============
</TABLE>
9
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE NOTED)
6. NON-CASH ASSET IMPAIRMENT CHARGE
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the estimated future cash flows (undiscounted and without
interest charges) estimated to be generated by those assets are less than the
assets' carrying value. SFAS No. 121 also requires that when a group of
assets being tested for impairment was acquired as part of a business
combination that was accounted for using the purchase method of accounting,
any goodwill that arose as part of the transaction must be included as part
of the asset grouping. In accordance with SFAS No. 121, the Company reviews
long-lived assets whenever events or changes in facts and circumstances
indicate that the carrying value of the assets may not be recoverable. As a
result of the performance of the Company's Elrick & Lavidge ("E&L") marketing
research division since its acquisition (in a purchase accounting
transaction) by IQI in July 1997, in the first quarter of 1999, the Company
performed an analysis (based on E&L's estimated future cash flows) of the
carrying value of the goodwill associated with the purchase of E&L. As a
result of this evaluation, it was determined that the carrying value of the
goodwill associated with the purchase of E&L was impaired. Accordingly, in
the quarter ended March 31, 1999, the Company adjusted the carrying value of
E&L's long-lived assets to their fair value resulting in a non-cash asset
impairment charge of $20,399, which reduced the amount of goodwill on the
Company's balance sheet. This reduction has resulted in a decrease in the
Company's goodwill amortization expense of approximately $1,100 annually.
7. CREDIT FACILITY
In conjunction with the December 10, 1999 closing of the Questor
Transaction and the associated repayment of bank debt, we entered into the
Third Amended and Restated Credit Agreement (the "Credit Agreement") with
Bank of Nova Scotia ("Scotiabank") and Credit Suisse First Boston ("CSFB"),
thereby curing all outstanding defaults. Under the amended agreement, these
lenders expanded their aggregate revolving credit facility commitments from
$30,000 to $45,000 at closing. The Company met certain financial targets in
the fourth quarter of 1999, which resulted in a $1,500 increase in the
commitment under the credit facility, and the Company met certain financial
targets in the first quarter of 2000, which resulted in an additional $2,500
increase in the commitment.
As a result of the special charges recorded in the second quarter of
2000, the Company was in default of certain covenants of the Credit Agreement
at June 30, 2000. On July 28, 2000, following negotiations with Scotiabank
and CSFB, we entered into the First Amendment to the Credit Agreement (the
"First Amendment"), which: i) waived the Company's default under certain
financial covenants of the Credit Agreement; and ii) amended and restated
certain covenants of the agreement related to the interest rate, availability
under the revolving line of credit, and certain financial targets. As a
result of the default and subsequent Credit Agreement amendment, the
Company's borrowing base under the First Amendment is limited to $49,000, and
the Company's interest rate will be slightly higher in the second half of
2000.
10
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND WHERE NOTED)
8. DEFERRED TAX ASSET
The Company has a deferred tax asset of $18,144 at June 30, 2000. In
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), management periodically
evaluates the realizability of the deferred tax asset. As part of this
evaluation, management has considered past operating results, exclusive of
special, restructuring and other non-recurring type charges, as well as other
positive evidence, in determining that a valuation allowance was not
necessary at June 30, 2000. However, should the Company's future operating
results be significantly below assumptions used in the evaluation of the
deferred tax asset, it may be necessary to consider the need for a valuation
allowance in the future.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The accompanying unaudited consolidated financial statements, in the
opinion of the Company's management, contain all material, normal and
recurring adjustments necessary to present accurately the consolidated
financial condition of the Company and the consolidated results of its
operations for the periods indicated. The consolidated results of operations
for the periods reported are not necessarily indicative of the results to be
experienced for the entire current year.
RESULTS OF OPERATIONS
The following table sets forth certain unaudited statements of
operations data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ---------------------------
1999 2000 1999 2000
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of services, excluding depreciation
and amortization shown below 74.3% 73.4% 72.4% 72.0%
----------- ------------- ----------- ------------
Gross profit 25.7% 26.6% 27.6% 28.0%
Selling, general and administrative expenses 28.0% 34.9% 27.7% 28.9%
Depreciation 5.3% 5.6% 5.2% 4.9%
Acquisition goodwill amortization 1.0% 0.8% 1.2% 0.8%
Non-cash asset impairment charge - - 17.0% -
Restructuring and other non-recurring charges - 5.1% 0.5% 2.5%
----------- ------------- ----------- ------------
Total operating expenses 34.3% 46.5% 51.6% 37.1%
----------- ------------- ----------- ------------
Operating loss (8.7%) (19.9%) (23.9%) (9.1%)
Interest expense, net 3.2% 1.9% 3.0% 1.8%
----------- ------------- ----------- ------------
Loss before income taxes (11.8%) (21.8%) (26.9%) (10.9%)
Income tax benefit (4.2%) (6.7%) (3.3%) (3.2%)
----------- ------------- ----------- ------------
Net loss (7.7%) (15.1%) (23.6%) (7.7%)
Preferred stock dividends - 2.4% - 2.3%
----------- ------------- ----------- ------------
Net loss after preferred stock dividends (7.7%) (17.5%) (23.6%) (10.0%)
=========== ============= =========== ============
</TABLE>
The Company's results for the three and six months ended June 30,
2000 include special charges of approximately $12.0 million ($8.5 million,
net of taxes) recorded in the quarter ended June 30, 2000. The special
charges were recorded in connection with the recent transition in the
Company's executive management team and actions taken to implement a
broad-based turnaround plan designed to improve productivity and promote
profitable revenue growth. During the second quarter, Aegis substantially
completed the transition of its executive management team with the
appointments of Hugh E. Sawyer as President and Chief Executive Officer and
Michael J. Graham as Executive Vice President and Chief Financial Officer.
The special charges are related to the costs necessary to transition the
executive management team, the unanticipated costs of certain employee
healthcare benefits, and the costs necessary for actions taken following the
new management team's initial assessment of the Aegis operating platform.
This analysis prompted the Company to take aggressive steps to focus on its
most profitable assets and streamline the Aegis organization by reducing
headcount not directly responsible for improving profitability, client
service, or employee retention. The following chart details special charges
recorded in the income statement during the quarter ended June 30, 2000:
12
<PAGE>
SECOND QUARTER 2000 SPECIAL CHARGES
(IN THOUSANDS)
<TABLE>
<S> <C>
Cost of services:
Compensation expense settlements $ 400
Selling, general and administrative expenses:
Unanticipated costs of certain employee benefits 6,439
Reserve for doubtful accounts 500
Elimination of non-performing assets 315
Depreciation:
Write-offs of undepreciated salvage value of outmoded equipment 838
Restructuring and other non-recurring charges:
Executive transition and severance costs 2,240
Resolution of lease litigation and disputes related to an insurance claim 1,299
------------
Total pre-tax special charges 12,031
Tax benefit (3,520)
------------
Total special charges, net of taxes $ 8,511
============
</TABLE>
Total revenues generated during the quarter ended June 30, 2000 were
$70.0 million as compared to $58.0 million in the second quarter a year ago,
an increase of $12.0 million, or 21%. Net loss after preferred stock
dividends for the second quarter of 2000 was approximately $12.3 million, or
$0.24 per share, as compared to a net loss in the second quarter of 1999 of
$4.4 million, or $0.08 per share. The increase in the net loss after
preferred stock dividends was primarily related to special charges of $8.5
million, net of taxes, discussed in the table above.
For the six months ended June 30, 2000, total revenues were
approximately $142.6 million as compared to $119.8 million in the prior year
period, an increase of $22.8 million, or 19%. Net loss after preferred stock
dividends for the six-month period of 2000 was $14.3 million, or $0.27 per
share, as compared to a net loss in the six-month period of 1999 of $28.3
million, or $0.54 per share. The decrease in the net loss after preferred
stock dividends was primarily related to a non-cash asset impairment charge
of $20.4 million in 1999, partially offset by special charges of $8.5
million, net of taxes, in 2000 discussed in the table above.
The increases in revenues for the quarter and six months ended June
30, 2000 were due primarily to increases in inbound customer solutions
revenues of approximately $13.3 million, or 49%, for the quarter and $31.2
million, or 60%, for the six-month period. These increases were somewhat
offset by a decline in outbound customer solutions revenues of approximately
$3.0 million, or 12%, for the quarter and $11.0 million, or 20%, for the
six-month period. Marketing research revenues increased $1.6 million, or 28%,
for the quarter and approximately $2.6 million, or 22%, for the six months
ended June 30, 2000 versus the prior year periods. For the periods ended June
30, 1999 and 2000, our actual mix of revenues was as follows:
13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------
1999 % 2000 %
------------ --------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Inbound customer solutions $ 26,969 46.5% $ 40,273 57.5%
Outbound customer solutions 25,101 43.3% 22,139 31.6%
------------ ------------
Customer solutions total 52,070 89.7% 62,412 89.1%
Marketing research 5,953 10.3% 7,602 10.9%
------------ -----------
Total revenues $ 58,023 100.0% $ 70,014 100.0%
============ ============
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------
1999 % 2000 %
------------ --------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Inbound customer solutions $ 52,016 43.4% $ 83,256 58.4%
Outbound customer solutions 56,163 46.9% 45,115 31.6%
------------ -------------
Customer solutions total 108,179 90.3% 128,371 90.0%
Marketing research 11,660 9.7% 14,212 10.0%
------------ -------------
Total revenues $119,839 100.0% $142,583 100.0%
============ =============
</TABLE>
For the quarter ended June 30, 2000, approximately 28% of our
revenues were generated by our largest telecommunications client and
approximately 16% by our largest financial services client, as compared to
approximately 19% and 17%, respectively, for the quarter ended June 30, 1999.
For the six months ended June 30, 2000, approximately 30% of our revenues
were generated by our largest telecommunications client and approximately 15%
by our largest financial services client, as compared to approximately 21%
and 16%, respectively, for six months ended June 30, 1999. Revenues from our
largest telecommunications client are derived from separate contractual
arrangements with several different business units of this client.
Aegis seeks to secure recurring revenues from long-term
relationships with targeted corporate clients that utilize telecommunications
and marketing research strategies as integral, ongoing elements in their
marketing and customer service programs. In addition to providing services on
an outsourcing basis, in which we provide all or a substantial portion of a
client's customer solutions and/or marketing research needs, we also continue
to perform project-based services for certain clients. Project-based
services, however, are frequently short-term and there can be no assurance
that these clients will continue existing projects or provide new ones.
For the quarter ended June 30, 2000, gross profit earned on revenues
increased approximately $3.7 million, or 25%, from the quarter ended June 30,
1999. Gross profit for the six months ended June 30, 2000 increased
approximately $6.8 million, or 21%, versus the prior year period primarily
due to the increases in revenues discussed above. Gross profit as a
percentage of revenues ("gross margin") for the quarter and six months ended
June 30, 2000 was 26.6% and 28.0%, respectively, as compared to 25.7% and
27.6% in the comparable prior year periods. The increases in gross margin are
primarily due to improved capacity utilization resulting from the recovery of
business following the loss of volume from the Company's two largest
telecommunications clients and a large financial services client in the prior
year periods, and lower operating costs resulting from the implementation of
our site migration plan. The gross margin increases were partially offset by
special charges of $0.4 million related to compensation expense settlements.
As part of our site migration plan, we closed our Addison, Texas
facility in August 1999. Work being performed at this center was migrated to
two new client service centers in St. Joseph, Missouri and Sierra Vista,
Arizona during the second quarter of 1999. Our site strategy focuses on
locating client service centers in areas where we believe Aegis can more
effectively attract and retain employees and efficiently control front-line
costs. In keeping with this site strategy, during the quarter ended June 30,
2000, we began the build-out of a new 400-workstation client service center
in Terre Haute, Indiana. The new center will open concurrent with the closing
of our 120-seat center in Virginia Beach, Virginia by August 31, 2000.
Selling, general and administrative ("SG&A") expenses increased $8.2
million, or 50%, in the quarter and $8.0 million, or 24%, in the six months
ended June 30, 2000 versus the comparable periods of 1999. As a percentage of
revenues, SG&A expenses for the quarter and six months ended June 30, 2000
were 34.9% and 28.9%, respectively, versus 28.0% and 27.7%, respectively, in
the comparable three and
14
<PAGE>
six-month periods of 1999. The increases in SG&A expenses and SG&A expenses
as a percentage of revenues are primarily attributable to $6.4 million in
special charges associated with unanticipated costs of certain employee
healthcare benefits. The Company is currently in negotiations with insurers
and healthcare providers to put in place a plan that will eliminate such
unanticipated costs in the future.
Depreciation and amortization expenses increased $0.9 million, or
24%, in the quarter and approximately $0.5 million, or 7%, in the six months
ended June 30, 2000 as compared to the prior year periods. The increases in
depreciation and amortization expenses are due primarily to $0.8 million in
special charges associated with write-offs of the salvage value of outmoded
equipment. As a percentage of revenues, depreciation and amortization
expenses were 6.5% in the quarter and 5.7% in the first six months of 2000
versus 6.3% and 6.4%, respectively, in the prior year periods. Excluding
special charges, the decreases in depreciation and amortization expenses as a
percentage of revenues are due primarily to the increases in revenues over the
prior year periods and the reduction of acquisition goodwill amortization
expense resulting from a non-cash asset impairment charge taken at March 31,
1999. See "Notes to Unaudited Consolidated Financial Statements - Non-Cash
Asset Impairment Charge."
Net interest expense decreased $0.5 million, or 26%, in the first
quarter of 2000 and $1.0 million, or 29%, in the six months ended June 30,
2000 as compared to the prior year periods due to the reduction of long-term
debt resulting from the use of proceeds from the Company's sale of $46.75
million of convertible preferred stock on December 10, 1999.
Our statutory state and federal income tax benefit rate for the
quarters and six months ended June 30, 1999 and 2000 was approximately 40.0%.
Our effective tax rate on reported taxable income or loss differs from the
statutory rate due primarily to the non-deductibility, for tax purposes, of
our goodwill amortization expense and of the non-cash asset impairment charge
taken at March 31, 1999.
The Company has a deferred tax asset of $18.1 million at June 30,
2000. Management periodically evaluates the realizability of the deferred tax
asset. As part of this evaluation, we have considered past operating results,
exclusive of special, restructuring and other non-recurring type charges, as
well as other positive evidence, in determining that a valuation allowance
was not necessary at June 30, 2000. However, should the Company's future
operating results be significantly below assumptions used in the evaluation
of the deferred tax asset, it may be necessary to consider the need for a
valuation allowance in the future.
Preferred dividends increased to approximately $1.7 million for the
quarter and $3.3 million for the six months ended June 30, 2000 from nil in
the prior year periods as a result of the conversion of affiliated debt to
Series D and E Preferred Shares and the sale of Preferred F Shares since June
30, 1999. For the three and six-month periods ended June 30, 2000, dividends
on the Preferred F Shares were not paid in cash, but were added to the
investment value of such shares. Dividends on the Series D and E Preferred
Shares are currently being paid in additional shares of Series D and E
Preferred Shares, respectively. See "Notes to Unaudited Consolidated
Financial Statements - Sale of Redeemable Convertible Preferred Stock" and
"-Preferred Stock Dividends."
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following unaudited table sets forth certain information from
the Company's statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------
1999 2000
-------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net cash used in operating activities $ (7,477) $ (3,199)
Net cash used in investing activities (7,115) (8,546)
Net cash provided by financing activities 4,720 6,254
-------------- ---------------
Net change in cash and cash equivalents $ (9,872) $ (5,491)
============== ===============
</TABLE>
We have historically utilized cash flow from operations, available
borrowing capacity under our credit facilities, subordinated indebtedness
provided by certain of our shareholders (primarily Thayer Equity) and the
issuance of convertible preferred stock to meet our liquidity needs. Thayer
Equity has previously provided Aegis with financial support through
subordinated debt financing, the conversion of subordinated debt into
preferred stock, and providing loan guarantees; however, there can be no
assurance, should we experience future liquidity issues, that Thayer Equity
will continue to provide such financial support. We anticipate that the
funding provided in the Questor Transaction and the funds available under our
revolving line of credit, as amended, will enable us to meet our liquidity
needs for the foreseeable future. See "Questor Transaction" and "Credit
Facility" below.
Cash used in operating activities improved approximately $4.3
million, or 57%, during the six months ended June 30, 2000 as compared to the
prior year period due to decreased operating losses resulting from increased
revenues and improved gross margins. We used $3.2 million in net cash in our
operating activities during the six months ended June 30, 2000 primarily due
to operating losses recorded in the period and increases in the Company's
accounts receivable.
Cash used in investing activities during the first six months of
2000 increased $1.4 million, or 20%, from the same period in 1999 primarily
due to capital expenditures on two new telecommunications switches put into
service in the first quarter of 2000. Capital expenditures primarily have
consisted of new telecommunications equipment and information technology
hardware and software required in the maintenance, upgrade and expansion of
our operations including the build-out of new client service centers and the
upgrade or replacement of workstations in our existing facilities. Capital
expenditures during the first six months of 2000 were funded with proceeds
from bank borrowings under an expanded revolving line of credit and available
cash. See "Credit Facility" below.
Cash provided by financing activities during the first six months of
2000 increased $1.5 million, or 33%, from the same period in 1999 primarily
due to a decrease in principal payments on long-term debt resulting from the
elimination of long-term debt in December 1999. During the six months ended
June 30, 2000, financing activities consisted primarily of proceeds of
approximately $6.7 million from our bank revolving line of credit, which were
somewhat offset by payments of capital lease obligations of $1.3 million. See
"Credit Facility" below.
QUESTOR TRANSACTION
In an effort to reduce outstanding debt on our balance sheet,
thereby providing us the needed flexibility to renegotiate our bank revolving
credit agreement (and cure then outstanding defaults), and provide access to
working capital to fund future operations, on December 10, 1999, we completed
the sale of 46,750 shares of newly issued Preferred F Shares to the Questor
Investors for an aggregate purchase
16
<PAGE>
price of $46.75 million. The Preferred F Shares are entitled to receive
dividends, in preference to all other capital stock of the Company, except
for the Company's Series B Voting Convertible Preferred Stock, par value
$0.01 per share (the "Preferred B Shares"), at the rate of 9.626% per annum,
which accrue and cumulate from their original issue date. The dividends on
the Preferred F Shares accrue on each share from its issuance on a daily
basis, whether or not earned or declared. To the extent that dividends have
not been paid in-cash on any March 31, June 30, September 30 or December 31
of any year, all such dividends are added to the investment value of such
share. The Preferred F Shares also participate, on an as-converted basis,
with the Common Stock in any dividends that may be declared and paid after
the payment of preferential dividends. The Preferred F Shares vote on an
as-converted basis. We used the proceeds from the sale of the Preferred F
Shares to repay outstanding bank debt and pay transaction expenses. For the
six months ended June 30, 2000, accrued dividends on the Preferred F Shares
were added to the investment value of such shares.
As a result of the sale of the Preferred F Shares and subsequent
increases to the investment value of such shares, on an as-converted basis,
the Questor Investors collectively beneficially own approximately 49% of the
Company's issued and outstanding Common Stock and approximately 38% of the
Company's Common Stock and Common Stock equivalents outstanding. The
Preferred F Shares vote on an as-converted basis and represent approximately
49% of our voting equity stock.
CREDIT FACILITY
In conjunction with the December 10, 1999 closing of the Questor
Transaction and the associated repayment of bank debt, we entered into the
Third Amended and Restated Credit Agreement (the "Credit Agreement") with
Bank of Nova Scotia ("Scotiabank") and Credit Suisse First Boston ("CSFB"),
thereby curing all outstanding defaults. Under the amended agreement, these
lenders expanded their aggregate revolving credit facility commitments from
$30.0 million to $45.0 million at closing. We met certain financial targets
in the fourth quarter of 1999, which resulted in a $1.5 million increase in
the commitment under the credit facility, and we met certain financial
targets in the first quarter of 2000, which resulted in an additional $2.5
million increase in the commitment.
As a result of the special charges recorded in the second quarter of
2000 (see "Results of Operations" above), the Company was in default of
certain covenants of the Credit Agreement at June 30, 2000. On July 28, 2000,
following negotiations with Scotiabank and CSFB, we entered into the First
Amendment to the Credit Agreement (the "First Amendment"), which: i) waived
the Company's default under certain financial covenants of the Credit
Agreement; and ii) amended and restated certain covenants of the agreement
related to the interest rate, availability under the revolving line of
credit, and certain financial targets. As a result of the default and
subsequent Credit Agreement amendment, the Company's borrowing base under the
First Amendment is limited to $49.0 million and, at current levels of
indebtedness, we estimate the Company's interest expense in the second half
of 2000 will be approximately $0.3 million higher than under the
pre-amendment Credit Agreement.
NOTE RECEIVABLE
At June 30, 2000, Michael G. Santry, a director of the Company,
owed the Company approximately $2.1 million, including accrued interest,
under a secured promissory note dated September 16, 1997. The note bears
interest at an annual rate of 7% and is secured by 7,000 shares of our Common
Stock, options to purchase 1,750,000 shares of our Common Stock held by Mr.
Santry and other collateral. On May 26, 2000, under the terms of an amended
and restated promissory note and an amended pledge agreement, the Company
extended the term of the loan until March 31, 2001 and Mr. Santry agreed to
pay accrued but unpaid interest on the loan for the period October 1, 1999
through June 30, 2000, pay rent on office space sub-leased from the Company,
and make certain other payments to the Company. In July 2000, Mr. Santry
defaulted on certain payment conditions of the amended and restated secured
promissory note. As a result, the Company exercised its rights under the
amended and restated secured promissory note to cancel options to purchase
437,500 shares of our Common Stock (at a
17
<PAGE>
purchase price of $2.81 per share) held by Mr. Santry. Mr. Santry resigned as
a director of the Company on August 9, 2000. Mr. Santry remains obligated
under the amended and restated promissory note, which remains secured by the
collateral described above, less the cancelled options. Because Mr. Santry
was an affiliate of the Company and the amount of the loan had been
outstanding for more than one year, the balance of the note receivable was
reclassified as a reduction to additional paid-in capital in shareholders'
equity in the fourth quarter of 1999.
GROWTH STRATEGIES
We primarily compete in the customer solutions market that provides
large corporations, as well as emerging e-commerce companies, with outsourced
multi-channel support (customer interaction support across multiple
communications channels including the Internet, e-mail and the telephone).
The customer solutions market is a component of the customer relationship
management ("CRM") industry and is spread among many competitors including a
large number of in-house organizations and numerous independent providers
like Aegis. The customer solutions market is very competitive. In order to
compete more effectively in this market, in March 2000, we introduced the
Aegis E.CARE.PLUS-SM- suite of web-enabled customer care capabilities that will
transform a number of our production workstations into multi-channel capable
workstations able to handle a variety of customer interactions, especially
those originating from the Internet. The transformation of such workstations
into e-care stations will require capital expenditures and may require
additional borrowing, including utilizing funds available under the Company's
existing credit facility.
We also anticipate the continued implementation of our site strategy
and center migration plan, which focuses on locating client service centers
in areas where we believe Aegis can more effectively attract and retain
employees and efficiently control front-line costs. Our growth and continued
implementation of our growth strategies may necessitate additional client
service centers and such facilities will have furniture, equipment and
technological requirements consistent with our existing facilities. Any
additional client service centers will require capital expenditures and may
require additional borrowing under the Company's existing credit facility. In
addition, expenses associated with such centers may temporarily dampen
operating income.
Although no assurances can be made in this regard, based on our
ability to secure such financing to date, our current credit facility and
anticipated cash flow from operations, management anticipates that for the
foreseeable future we should be able to sufficiently fund the combination of
our future working capital needs, expenditures associated with the roll-out
of our e-care capabilities, the capital equipment requirements of the
build-out of the Terre Haute, Indiana facility (which is expected to be
completed by August 31, 2000) and of facilities needed to meet unanticipated
growth, and potential acquisition opportunities.
YEAR 2000 ISSUE
The inability of software and computers and other equipment
utilizing microprocessors to recognize and properly process data fields
containing a two-digit year is commonly referred to as the Year 2000 problem.
The Year 2000 problem arises from the way dates are recorded and computed in
most applications, operating systems, hardware and embedded chips. If the
problem is not corrected, systems that use a date in its prescribed function
may have failed or produced erroneous results before or on the year 2000 or
may fail or produce erroneous results after the year 2000.
All Year 2000 remediation efforts for our business were completed on
time and within budget estimates without any material adverse impact on our
operations. Through December 31, 1999, we incurred and expensed approximately
$2.3 million in remediation costs associated with our Year 2000 compliance
activities. The total cost associated with required modifications to become
Year 2000 compliant has not been material to our results of operations to
date.
18
<PAGE>
Our internal operations and business are also dependent upon the
computer-controlled systems of third parties such as our suppliers, clients
and other service providers. While problems may arise in the future and we
cannot assure you that we will not have a Year 2000 problem, we are unaware
of any material impact on our business caused by a Year 2000 problem either
in our systems or those of third parties.
The above description of the Year 2000 Issue contains
forward-looking statements including, without limitation, statements relating
to our expectations that are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Readers are cautioned
that forward-looking statements contained in the Year 2000 Issue should be
read in conjunction with the Company's disclosures under the heading:
"FORWARD LOOKING STATEMENTS" beginning below.
FORWARD LOOKING STATEMENTS
The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995: Statements contained in this document that are
not based on historical facts are "forward-looking statements". Terms such as
"anticipates", "believes", "estimates", "expects", "plans", "predicts",
"may", "should", "will", the negative thereof and similar expressions are
intended to identify forward-looking statements. Such statements are by
nature subject to uncertainties and risks, including but not limited to: the
Company's reliance on certain major clients; unanticipated losses of or
delays in implementation of client programs; higher than anticipated
implementation costs associated with new client programs; the successful
combination of revenue growth with operating expense reduction to result in
improved profitability and cash flow; government regulation and tax policy;
economic conditions; competition and pricing; dependence on the Company's
labor force; reliance on technology; telephone and internet service
dependence; and other operational, financial or legal risks or uncertainties
detailed in the Company's SEC filings from time to time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended June 30, 2000, the Company did not experience
any material changes in market risk exposures that affect the quantitative
and qualitative disclosures presented in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Recently, the Company became aware of an effort by the United
Steelworkers of America ("USWA") to organize the Company's call center
workforce located in Elkins, West Virginia. The Company believes that a
unionized workforce is contrary to the Company's best interests, and is
contrary to its employees', customers' and shareholders' best interests as
well. Accordingly, the Company intends to vigorously oppose the unionization
effort. A representative election was previously scheduled for August 1,
2000. On July 27, 2000, the USWA filed an unfair labor practice charge
against Aegis with the National Labor Relations Board's ("NLRB") Region 6
office in Pittsburgh, Pennsylvania. The charge alleges that Aegis engaged in
unlawful conduct to discourage employees in Elkins from engaging in union
activity. The USWA seeks an order from the NLRB directing Aegis to cease and
desist from such practices in the future. As a consequence of the USWA's
action, the representative election has been postponed for an indefinite
period of time. Aegis has not yet been informed of the specific factual bases
for the USWA's charge; however, based on presently available information,
Aegis believes that the charge is without merit and intends to vigorously
dispute all allegations raised therein.
ITEM 5. OTHER INFORMATION
Michael G. Santry resigned from the Company's Board of Directors,
effective August 9, 2000.
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<S> <C>
(A) Exhibits
3.1 Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 of the Company's Form 10-K Annual Report for
the year ended December 31, 1999).
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2
of the Company's Form 8-K Current Report filed on December 20, 1999).
4.1 Specimen of Share Certificate of Company's Common Stock (Incorporated
by reference to Exhibit 4.1 of the Company's Form 10-Q for the
quarterly period ended September 30, 1998).
4.2 Form of Series B Preferred Stock certificate, as amended. (Incorporated
by reference to the Company's Form 10-K Annual Report for the year
ended June 30, 1994).
4.3 Elimination Certificate for Series D Junior Participating Preferred
Stock (Incorporated by reference to Exhibit 4.3 of the Company's Form
8-K Current Report filed on December 20, 1999).
4.4 Series D and E Preferred Stock Certificate of Designation (Incorporated
by reference to Exhibit 4.10 of the Company's Form 10-Q Quarterly
Report for the quarterly period ended June 30, 1999).
4.5 Amendment of Series D & E Certificate of Designation of the Company
(Incorporated by reference to Exhibit 4.2 of the Company's Form 8-K
Current Report filed on December 20, 1999).
4.6 Series F Preferred Stock Certificate of Designation (Incorporated by
reference to the Exhibit 4.1 of the Company's Form 8-K Current Report
filed on December 20, 1999)
10.41 Employment Agreement between Michael J. Graham and the Company dated
May 8, 2000 (filed herewith).
20
<PAGE>
10.42 Second Amended and Restated Promissory Note dated May 26, 2000 by and
between Aegis Communications Group, Inc. and Michael G. Santry (filed
herewith).
10.43 Second Amended Pledge Agreement dated May 26, 2000 by and between Aegis
Communications Group, Inc. and Michael G. Santry (filed herewith).
10.44 First Amendment, dated as of July 28, 2000, to the Third Amended and
Restated Credit Agreement by and among IQI, Inc., Aegis Communications
Group, Inc. as guarantor, the various financial institutions parties
thereto, the Bank of Nova Scotia, as documentation agent and
administrative agent for the lenders, and Credit Suisse First Boston,
as syndication agent for the lenders (filed herewith).
27.1 Financial Data Schedule (filed herewith).
(B) Reports on Form 8-K
None.
</TABLE>
21
<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, hereunto duly authorized.
AEGIS COMMUNICATIONS GROUP, INC.
(The Registrant)
Dated: August 14, 2000 By: /s/ Michael J. Graham
--------------------------------
Michael J. Graham
Executive Vice President and
Chief Financial Officer
6/30/2000 Quarter
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS INDEX
Number Description of Exhibit
------ ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1 of the Company's
Form 10-K Annual Report for the year ended December 31, 1999).
3.2 Amended and Restated Bylaws (Incorporated by reference to
Exhibit 3.2 of the Company's Form 8-K Current Report filed on
December 20, 1999).
4.1 Specimen of Share Certificate of Company's Common Stock
(Incorporated by reference to Exhibit 4.1 of the Company's
Form 10-Q for the quarterly period ended September 30, 1998).
4.2 Form of Series B Preferred Stock certificate, as amended.
(Incorporated by reference to the Company's Form 10-K Annual
Report for the year ended June 30, 1994).
4.3 Elimination Certificate for Series D Junior Participating
Preferred Stock (Incorporated by reference to Exhibit 4.3 of
the Company's Form 8-K Current Report filed on December 20,
1999).
4.4 Series D and E Preferred Stock Certificate of Designation
(Incorporated by reference to Exhibit 4.10 of the Company's
Form 10-Q Quarterly Report for the quarterly period ended June
30, 1999).
4.5 Amendment of Series D & E Certificate of Designation of the
Company (Incorporated by reference to Exhibit 4.2 of the
Company's Form 8-K Current Report filed on December 20, 1999).
4.6 Series F Preferred Stock Certificate of Designation
(Incorporated by reference to the Exhibit 4.1 of the Company's
Form 8-K Current Report filed on December 20, 1999)
10.41 Employment Agreement between Michael J. Graham and the Company
dated May 8, 2000, as amended (filed herewith).
10.42 Second Amended and Restated Promissory Note dated May 26, 2000
by and between Aegis Communications Group, Inc. and Michael G.
Santry (filed herewith).
10.43 Second Amended Pledge Agreement dated May 26, 2000 by and
between Aegis Communications Group, Inc. and Michael G. Santry
(filed herewith).
10.44 First Amendment, dated as of July 28, 2000, to the Third
Amended and Restated Credit Agreement by and among IQI, Inc.,
Aegis Communications Group, Inc. as guarantor, the various
financial institutions parties thereto, the Bank of Nova
Scotia, as documentation agent and administrative agent for
the lenders, and Credit Suisse First Boston, as syndication
agent for the lenders (filed herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
23
