United States
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 period ended March 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From _________________ to _____________________
Commission file number 0-26786
APAC TELESERVICES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2777140
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or
organization)
One Parkway North Center,
Suite 510
Deerfield, Illinois 60015
(Address of principal (Zip Code)
executive office)
(847) 945-0055
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether 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 periods 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 issuer's classes of
common stock, as of the latest practicable date.
Common Shares, $0.01 par value-- 46,804,450 shares outstanding as of April 28,
1997.
This Form 10-Q consists of 12 sequentially numbered pages. The Exhibit Index
appears on page 10.
INDEX
APAC TELESERVICES, INC.
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets--March 30, 1997 and 3
December 29, 1996
Condensed Statements of Income--Thirteen Weeks
Ended March 30, 1997 4
and March 31, 1996
Condensed Statements of Cash Flows--Thirteen
Weeks Ended 5
March 30, 1997 and March 31, 1996
Notes to Condensed Financial Statements--March 6
30, 1997
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
EXHIBITS 11-12
PART I. FINANCIAL INFORMATION
APAC TELESERVICES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
1997 1996
ASSETS (Unaudited) (Audited, Note 1)
(000's omitted, except share data)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 88 $ 141
Accounts receivable, net 58,465 59,473
Prepaid expenses 2,710 2,025
Deferred preoperating costs, net 565 645
Total Current Assets 61,828 62,284
PROPERTY, PLANT AND EQUIPMENT 108,979 96,522
Less--Accumulated depreciation and (21,965) (18,078)
amortization
Property, Plant and Equipment, Net 87,014 78,444
OTHER ASSETS 1,710 653
Total Assets $150,552 $141,381
LIABILITIES AND
SHARE OWNERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 18,425 $ 16,047
Accounts payable 12,561 17,080
Income taxes payable 2,953 453
Other current liabilities 10,899 15,350
Total Current Liabilities 44,838 48,930
LONG-TERM DEBT, NET 1,307 1,325
DEFERRED INCOME TAXES 3,800 2,920
SHARE OWNERS' EQUITY
Preferred Shares, $0.01 par value;
50,000,000 shares
authorized; none issued and
outstanding
Common Shares, $0.01 par value;
200,000,000
shares authorized, 46,727,000
shares issued and 467 465
outstanding at March 30, 1997;
46,540,000 shares
issued and outstanding at
December 29, 1996
Other share owners' equity 100,140 87,741
Total Share Owners' Equity 100,607 88,206
Total Liabilities and Share Owners' $150,552 $ 141,381
Equity
See Notes to Condensed Financial Statements.
</TABLE>
APAC TELESERVICES, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
MARCH 30, MARCH 31,
1997 1996
(000's omitted, except per share data)
<S> <C> <C>
Net revenue $90,318 $48,144
Operating expenses:
Cost of services 65,363 34,386
Selling, general and
administrative expenses 10,953 6,191
Total operating expenses 76,316 40,577
Income from operations 14,002 7,567
Interest income (expense), net (329) 228
Income before income taxes 13,673 7,795
Provision for income taxes 5,200 3,080
Net income $ 8,473 $ 4,715
Net income per share $0.18 $0.10
Weighted average number of
shares outstanding 48,001 47,678
See Notes to Condensed Financial Statements.
</TABLE>
APAC TELESERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
MARCH 30, MARCH 31,
1997 1996
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $8,473 $4,715
Depreciation and amortization 4,058 2,016
Deferred income taxes 1,040 (220)
Change in operating assets and liabilities (8,526) (8,409)
Net Cash Provided (Used) by Operations 5,045 (1,898)
INVESTING ACTIVITIES
Sales of short-term investments - 9,300
Purchases of property, plant and equipment, net (12,457) (11,333)
Net Cash Used by Investing Activities (12,457) (2,033)
FINANCING ACTIVITIES
Net borrowings from revolving credit facility 2,420 -
Payments on long-term debt (60) (290)
Increase in book overdraft 1,070 -
Exercise of employee stock options, including
related tax benefit 3,754 58
Proceeds from employee stock purchase plan 174 -
Net Cash Provided (Used) by Financing
Activities 7,358 (232)
NET DECREASE IN CASH AND CASH EQUIVALENTS ($54) ($4,163)
See Notes to Condensed Financial Statements.
</TABLE>
APAC TELESERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 30, 1997
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the thirteen week period ended March 30, 1997, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 28, 1997. The Balance Sheet at December 29, 1996, has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. For additional information, refer
to financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 29, 1996.
NOTE 2--SHARE OWNERS' EQUITY AND EARNINGS PER SHARE
Net income per share amounts are computed based upon the weighted average number
of common shares and common share equivalents outstanding during each of the
periods presented. In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128 (Earnings per Share) which the Company is required to adopt
effective for the year ending December 28, 1997. Had the Company adopted SFAS
No. 128 for the thirteen week period ended March 30, 1997, basic and
comprehensive earnings per share would be the same as earnings per share
disclosed.
NOTE 3--RELATED PARTY TRANSACTIONS
In February 1996, several shareholders of the Company sold an aggregate of
6,770,000 Common Shares in an underwritten public offering pursuant to a
registration rights agreement which was entered into by the Company and such
shareholders prior to the Company's initial public offering. The offering
costs, totaling approximately $360,000, were paid by the Company and have been
classified under selling, general and administrative expenses for the thirteen
week period ended March 31, 1996. The Company did not receive any proceeds from
the sale of these Common Shares.
APAC TELESERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
APAC TeleServices, Inc. provides telephone-based sales, marketing and customer
management solutions for corporate clients operating in the telecommunications,
insurance, financial services, parcel delivery, utilities and entertainment
industries throughout the United States. The Company's client base is comprised
of large companies with growing needs for cost-effective means of contacting and
servicing current and prospective customers. The Company has two primary
service offerings. The Sales Solutions division provides outbound sales support
to consumers and businesses, database analysis and management, market research,
targeted marketing plan development and customer lead generation, acquisition
and retention. The Service Solutions division provides inbound customer
service, direct mail response, "help" line support and customer order
processing.
APAC's results of operations in any single interim period should not be viewed
as an indication of future results of operations. The Company may experience
quarterly variations in net revenue and operating income as a result of the
timing of clients' marketing campaigns and customer service programs, 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 service offerings. While the effects of seasonality on APAC's business
have been obscured by its growing net revenue, the Company's business tends to
be slower in the first and third quarters of its fiscal year due to client
marketing programs which are typically slower in the post-holiday and summer
months.
The following table sets forth income statement data as a percent of net revenue
from services provided by the Company for the thirteen week periods ended March
30, 1997 and March 31, 1996.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
MARCH 30, MARCH 31,
1997 1996
<S> <C> <C>
Net revenue:
Sales Solutions 50.7% 54.3%
Service Solutions 49.3 45.7
Total net revenue 100.0 100.0
Operating expenses:
Cost of services 72.4 71.4
Selling, general and
administrative expenses 12.1 12.9
Total operating expenses 84.5 84.3
Income from operations 15.5 15.7
Interest income (expense), net (0.4) 0.5
Income before income taxes 15.1 16.2
Provision for income taxes 5.7 6.4
Net income 9.4% 9.8%
</TABLE>
APAC TELESERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
RESULTS OF OPERATIONS
Net revenue increased 87.6% in the first quarter of 1997 to $90.3 million, up
$42.2 million over the first quarter of 1996. Net revenue for the Sales
Solutions division increased 75.5% to $45.8 million for the first quarter of
1997, compared to $26.1 million for the first quarter of 1996, as a result of
increased call volume from existing clients primarily in the telecommunications
industry. The Service Solutions division's net revenue was $44.5 million, up
102.3% from $22.0 million in the same period a year ago as a result of higher
call volumes associated with AT&T inbound call activity and long-term contracts
to manage four United Parcel Service's ("UPS") customer service facilities and
process customer orders for John H. Harland Corporation ("Harland"). Calls
taken for UPS reached mature levels in the fourth quarter of 1996 while the
first quarter of 1997 reflects calls taken for new accounts with AT&T and
Harland, which call volumes were not present in the same period a year ago.
Cost of services as a percent of net revenue increased to 72.4% in the first
quarter of 1997 compared to 71.4% in the first quarter of 1996. This increase
primarily reflects the mutual decision between UPS and the Company to change the
staffing requirements in the UPS customer service facilities. UPS has the
ability under its facilities management agreement with the Company to determine
service levels. During the first quarter of 1997, UPS reduced the number of
billable service representatives and support positions by approximately 20%
resulting in the Company absorbing payroll costs that otherwise would have been
billed to UPS. The Company is taking steps to reduce payroll costs to restore
historical margins on the UPS contract over the balance of the year by
eliminating service representatives and other support positions.
While selling, general and administrative expenses increased 76.9% in the first
quarter of 1997 to $11.0 million, up $4.8 million over the first quarter of
1996, expenses as a percent of revenue decreased to 12.1% in the first quarter
of 1997 compared to 12.9% a year earlier. The decrease in expenses as a percent
of revenue is the result of economies of scale associated with spreading fixed
costs over a larger revenue base. Actual growth in overhead was due to
continued investments in systems and management to support the Company's
increased revenue base and expenses associated with long-term service contracts.
The $557,000 unfavorable change in interest from the first quarter of 1996 to
the first quarter of 1997 reflects income earned on temporary investments in
1996 with cash raised in the initial public offering of the Company's common
stock, compared to expense incurred on outstanding borrowings in 1997 as a
result of expansion of call center operations in the fourth quarter of 1996 and
the first quarter of 1997.
The provisions for income taxes of $5.2 million in the first quarter of 1997 and
$3.1 million in the first quarter of 1996 are based upon the Company's estimated
annual effective tax rates of 38.0% and 39.5%, respectively. The decrease in
the effective tax rate from 1996 to 1997 is due to tax planning strategies
initiated in the fourth quarter of 1996 which have reduced state income taxes
payable.
LIQUIDITY AND CAPITAL RESOURCES
Operations provided $5.0 million in cash in the first quarter of 1997 compared
to the use of $1.9 million of cash in the first quarter of 1996. Approximately
fifty-five percent of the $6.9 million increase in cash flow in 1997 was
generated by an increase in net income, while the balance was due to higher
depreciation and related tax benefits arising from capital investment in 1996
and first quarter of 1997. Capital expenditures in the first quarter of 1997
amounted to $12.5 million. Funds used to expand call center operations and the
Company's data management systems were provided by cash from operations, bank
borrowings of $2.4 million and proceeds from the sale of $3.9 million in common
stock to employees. A year earlier $11.3 million of investment in call center
operations was funded with proceeds from the sale of $9.3 million in short-term
investments and liquidation of $4.2 million in cash equivalent balances.
The Company has a $40.0 million revolving credit facility available for general
working capital purposes and capital expenditures. As of March 30, 1997, $18.3
million was outstanding under the credit facility. The Company expects that
cash from future operations and available borrowings will be sufficient to meet
normal operating needs as well as fund business growth for the balance of 1997.
FORWARD-LOOKING STATEMENTS
Statements contained herein regarding APAC's expected growth, prospective
business opportunities and future expansion plans are forward-looking statements
that involve substantial risks and uncertainties. In accordance with the
Private Securities Litigation Reform Act of 1995, the following are important
factors that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements. There can be no
assurance that the Company will be able to maintain or accelerate its growth
rate, effectively manage its rapid growth or maintain its profitability. There
also can be no assurance that the Company can build-out facilities in a timely
and economic manner. In the future, the Company may experience excess peak
period capacity when it opens a new call center or terminates or completes a
large client program. The Company's agreements with its clients generally do
not assure that the Company will generate a specific level of revenue, do not
designate the Company as the client's exclusive service provider, and are
terminable by the clients on relatively short notice. In addition, the amount
of revenue the Company generates from a particular client generally is dependent
upon customers' interest in, and use of, the client's products or services.
Readers are encouraged to review the Risk Factors section of APAC's most recent
Prospectus dated November 4, 1996, and the section captioned "Information
Regarding Forward-Looking Statements" in its Annual Report on Form 10-K for the
year ended December 29, 1996 which describe other important factors that may
impact the Company's business, results of operations and financial condition.
PART II. OTHER INFORMATION
APAC TELESERVICES, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are furnished as exhibits and numbered pursuant to
Item 601 of Regulation S-K: Exhibit (11)--Statement Re: Computation of
Earnings Per Share on page 11 and Exhibit (27)--Financial Data Schedule on page
12.
(b) The Company was not required to file any reports on Form 8-K for the
thirteen week period ended March 30, 1997. Subsequent to March 30, 1997, the
Company filed a Current Report on Form 8-K on April 25, 1997 which disclosed its
revenues and earnings for the thirteen week period ended March 30, 1997.
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.
APAC TELESERVICES, INC.
Date: May 13, 1997 By: /s/ Theodore G. Schwartz
Chairman, President and
Chief Executive Officer
Date: May 13, 1997 By: /s/ Marc S. Simon
Chief Financial Officer
EXHIBITS
APAC TELESERVICES, INC.
EXHIBIT (11) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
MARCH 30, MARCH 31,
1997 1996
(000's omitted, except for per share data)
<S> <C> <C>
Primary shares:
Average shares outstanding 46,586 46,200
Net effect of dilutive stock
options - based upon the
treasury stock method using
average market price 1,415 1,478
Total shares 48,001 47,678
Net income $8,473 $4,715
Net income per share $0.18 $0.10
Fully diluted shares:
Average shares outstanding 46,586 46,200
Net effect of dilutive stock
options - based upon the
treasury stock method using
quarter-end market price 1,415 1,843
Total shares 48,001 48,043
Net income $8,473 $4,715
Net income per share $0.18 $0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains thirteen week summary financial information extracted
from APAC TeleServices, Inc.'s 1997 first quarter Form 10-Q and is qualified in
its entirety by reference to such Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-30-1997
<CASH> 88
<SECURITIES> 0
<RECEIVABLES> 58,465
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,828
<PP&E> 108,979
<DEPRECIATION> 21,965
<TOTAL-ASSETS> 150,552
<CURRENT-LIABILITIES> 44,838
<BONDS> 1,307
0
0
<COMMON> 467
<OTHER-SE> 100,140
<TOTAL-LIABILITY-AND-EQUITY> 150,552
<SALES> 0
<TOTAL-REVENUES> 90,318
<CGS> 0
<TOTAL-COSTS> 65,363
<OTHER-EXPENSES> 10,953
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,673
<INCOME-TAX> 5,200
<INCOME-CONTINUING> 8,473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,473
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0
</TABLE>
