SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 20, 1998
APAC TELESERVICES, INC.
(Exact name of registrant as specified in charter)
Illinois 0-26786 36-2777140
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification No.)
One Parkway North Center, Suite 510, Deerfield, IL 60015
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code 847/374-4980
N/A
(Former name or former address, if changed since last report)
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
Consolidated balance sheets of ITI Holdings, Inc. and subsidiary for
the periods ending December 31, 1997, 1996 and 1995 and statements of
operations, stockholders' deficit and cash flows for the years ended
December 31, 1997 and 1996 and the period from September 1, 1995, to
December 31, 1995.
(b) Pro Forma financial information
Unaudited Pro Forma Condensed Consolidated Financial Statements for
APAC TeleServices, Inc.
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.
Date: August 3, 1998 APAC TELESERVICES, INC.
By: /s/ John I. Abernethy
John I. Abernethy
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NUMBER PAGE NUMBER
(99) 1. Consolidated balance sheets of ITI Holdings, Inc. and
subsidiary for the periods ending December 31, 1997, 1996
and 1995 and statements of operations, stockholders' deficit
and cash flows for the years ended December 31, 1997 and
1996 and the period from September 1, 1995, to December 31,
1995.
(99) 2. Unaudited Pro Forma Condensed Consolidated Financial
Statements for APAC TeleServices, Inc.
ITI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
ITI Holdings, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of ITI Holdings,
Inc. (a Delaware corporation) and subsidiary as of December 31, 1997, 1996
and 1995, and the related consolidated statements of operations, stockholders'
deficit and cash flows for the years ended December 31, 1997 and 1996, and
for the period from September 1, 1995, to December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ITI Holdings, Inc.
and subsidiary as of December 31, 1997, 1996 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1996,
and for the period from September 1, 1995, to December 31, 1995, in conformity
with generally accepted accounting principles.
Omaha, Nebraska,
April 13, 1998 (except
with respect to the matter
discussed in Note 13, as
to which the date is
May 20, 1998)
ITI HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
ASSETS 1997 1996 1995
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,041,032 $ 1,204,085 $ 711,920
Accounts receivable, net of allowance for
doubtful accounts of $608,221, $455,778 and
$366,053 in 1997, 1996 and 1995, respectively 30,731,288 25,813,609 23,410,281
Prepayments and other current assets 1,825,938 1,741,446 1,433,633
------------ ------------- -----------
35,598,258 28,759,140 25,555,834
------------ ------------- -----------
EQUIPMENT, FURNITURE AND FIXTURES, net 20,244,036 21,915,513 17,660,725
------------ ------------- -----------
OTHER ASSETS:
Deposits and other 136,970 191,047 125,328
Intangible assets, net of accumulated
amortization of $6,462,070, $3,848,421 and
$971,850 in 1997, 1996 and 1995, respectively 17,037,930 19,651,579 22,528,150
Deferred financing costs, net of accumulated
amortization of $993,397, $626,904 and $126,959
in 1997, 1996 and 1995, respectively 1,473,140 1,823,940 2,301,018
------------ ------------- -----------
18,648,040 21,666,566 24,954,496
------------ ------------- -----------
$ 74,490,334 $ 72,341,219 $ 68,171,055
============ ============= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 55,739,358 $ 126,026 $ -
Revolving line of credit 15,000,000 12,340,000 3,500,000
Accounts payable and accrued expenses 14,203,176 13,696,200 9,368,694
Customer deposits 402,384 576,951 915,833
Due to former principal stockholders 931,613 482,501 299,868
Current portion of obligations under
capital leases 1,158,277 1,278,852 1,062,802
------------ ------------ ------------
87,434,808 28,500,530 15,147,197
------------ ------------ ------------
LONG-TERM DEBT, net of current portion 4,671,570 55,522,925 54,317,042
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Class A Common Stock: $.01 par value,
400,000 shares authorized, 301,715, 298,025 and
290,000 shares issued, and 291,935, 292,950 and
290,000 shares outstanding in 1997, 1996 and
1995, respectively 3,017 2,980 2,900
Class B Common Stock: $.01 par value,
500,000 shares authorized, 125,581, 122,376 and
113,539 shares issued, and 109,231, 110,675 and
113,539 shares outstanding in 1997, 1996 and
1995, respectively 1,255 1,223 1,135
Additional paid-in capital 31,499,268 31,016,937 29,959,785
Accumulated deficit (47,049,994) (41,126,558) (31,121,614)
Notes receivable from stockholders (824,691) (952,307) (135,390)
Less- Treasury stock, at cost (1,244,899) (624,511) -
------------ ------------- -----------
(17,616,044) (11,682,236) (1,293,184)
------------ ------------- -----------
$ 74,490,334 $ 72,341,219 $ 68,171,055
============ ============= ===========
The accompanying notes are an integral part
of these consolidated balance sheets.
</TABLE>
ITI HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE PERIOD FROM SEPTEMBER 1, 1995, TO DECEMBER 31, 1995
<CAPTION>
Period From
September 1,
Year Ended Year Ended 1995, to
December 31, December 31, December 31,
1997 1996 1995
<S> <C> <C> <C>
REVENUES $145,573,772 $124,147,703 $42,529,444
------------ ------------ -----------
OPERATING EXPENSES:
Cost of services 81,871,761 72,056,973 23,845,587
Selling, general and administrative expenses 61,301,311 54,763,286 15,019,950
------------ ------------ -----------
Total operating expenses 143,173,072 126,820,259 38,865,537
------------ ------------ -----------
Operating income (loss) 2,400,700 (2,672,556) 3,663,907
OTHER INCOME (EXPENSE):
Interest expense, including amortization of
deferred financing costs of $366,493,
$499,945 and $126,959 in 1997, 1996 and
for the period from September 1, 1995, to
December 31, 1995, respectively (7,592,434) (6,449,664) (2,175,506)
Interest income 156,774 68,336 41,047
Other, net (888,476) (951,060) (151,062)
------------ ------------ -----------
Total other expense (8,324,136) (7,332,388) (2,285,521)
------------ ------------ -----------
Income (loss) before income taxes (5,923,436) (10,004,944) 1,378,386
------------ ------------ -----------
PROVISION FOR INCOME TAXES - - -
------------ ------------ -----------
NET INCOME (LOSS) $ (5,923,436) $(10,004,944) $ 1,378,386
============ ============ ===========
The accompanying notes are an integral part
of these consolidated statements.
</TABLE>
ITI HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE PERIOD FROM SEPTEMBER 1, 1995, TO DECEMBER 31, 1995
<CAPTION>
Period From
September 1,
Year Ended Year Ended 1995, to
December 31, December 31, December 31,
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(5,923,436) $(10,004,944) $ 1,378,386
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 9,552,081 8,724,647 2,448,556
Bad debt expense 505,659 300,000 -
Loss on disposal of assets 330,000 - -
Changes in current assets and liabilities-
Increase in accounts receivable (5,423,338) (2,703,328) (564,049)
(Increase) decrease in prepayments and other
current assets (84,492) (307,813) 217,945
(Increase) decrease in deposits and other 54,077 (65,719) (7,941)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 781,521 4,171,257 (3,620,925)
----------- ------------ -----------
Total adjustments 5,715,508 10,119,044 (1,526,414)
----------- ------------ -----------
Net cash provided by (used in) operating activities (207,928) 114,100 (148,028)
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,230,463) (7,245,064) (1,314,710)
----------- ------------ -----------
Net cash used in investing activities (5,230,463) (7,245,064) (1,314,710)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit 2,660,000 8,840,000 -
Proceeds from long-term debt obligations 6,027,789 413,211 -
Payments on long-term debt obligations (136,789) - -
Payment of debt issuance costs (15,693) (22,867) (141,229)
Payment of capitalized lease obligations (1,249,598) (1,223,107) (763,383)
Proceeds from issuance of common stock 482,400 1,057,320 -
Purchase of treasury stock (620,387) (624,511) -
Proceeds (payments) of notes receivable- Stockholders, net 127,616 (816,917) -
----------- ------------ -----------
Net cash provided by (used in) financing activities 7,275,338 7,623,129 (904,612)
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,836,947 492,165 (2,367,350)
CASH AND CASH EQUIVALENTS, beginning of period 1,204,085 711,920 3,079,270
----------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 3,041,032 $ 1,204,085 $ 711,920
=========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 7,236,101 $ 5,366,655 $ 2,065,892
=========== ============ ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations $ - $ 2,357,855 $ 327,509
=========== ============ ===========
The accompanying notes are an integral part
of these consolidated statements.
</TABLE>
ITI HOLDINGS, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM SEPTEMBER 1, 1995, TO DECEMBER 31, 1995
<CAPTION>
Class A Class B Notes
Common Stock Common Stock Additional Receivable
--------------- --------------- Paid-In Accumulated From Treasury
Shares Amount Shares Amount Capital Deficit Stockholders Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
September 1, 1995 290,000 $2,900 113,539 $1,135 $29,959,785 $(32,500,000) $(135,390) $ - $ (2,671,570)
Net income - - - - - 1,378,386 - - 1,378,386
------- ------ ------- ------ ----------- ------------ ----------- ----------- ------------
BALANCE,
December 31, 1995 290,000 2,900 113,539 1,135 29,959,785 (31,121,614) (135,390) - (1,293,184)
Net loss - - - - - (10,004,944) - - (10,004,944)
Issuance of common
stock 8,025 80 8,837 88 1,057,152 - (916,428) - 140,892
Purchase of
treasury stock - - - - - - 99,511 (624,511) (525,000)
------- ------ ------- ------ ----------- ------------ --------- ----------- ------------
BALANCE,
December 31, 1996 298,025 2,980 122,376 1,223 31,016,937 (41,126,558) (952,307) (624,511) (11,682,236)
Net loss - - - - - (5,923,436) - - (5,923,436)
Issuance of common
stock 3,690 37 3,205 32 482,331 - (406,124) - 76,276
Purchase of
treasury stock - - - - - - 533,740 (620,388) (86,648)
------- ------ ------- ------ ----------- ------------ --------- ----------- ------------
BALANCE,
December 31, 1997 301,715 $3,017 125,581 $1,255 $31,499,268 $(47,049,994) $(824,691) $(1,244,899) $(17,616,044)
======= ====== ======= ====== =========== ============ ========= =========== ============
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
ITI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION AND OPERATIONS:
ITI Holdings, Inc. (the Company), through its wholly owned subsidiary, ITI
Investments, Inc., was founded in 1995 to acquire the assets and business of ITI
Marketing Services, Inc. effective August 31, 1995. ITI Investments, Inc. was
subsequently renamed ITI Marketing Services, Inc. (ITI). In connection with the
acquisition, the Company allocated $32.5 million of the purchase price to in-
process research and development and immediately charged that amount to expense.
ITI is a Direct-to-Customer(sm) firm specializing in helping Fortune 1000
companies cultivate customers and build business. The Company focuses on
two key capabilities: customer capture, which entails prospecting for new
business, selling to identified prospects and processing sales orders; and
customer care, which covers the service, retention and growth of an existing
customer base. By utilizing a number of Direct-to-Customer(sm) channels:
phone, mail and Internet, ITI creates programs designed to build, maintain and
enhance customer sales and service opportunities in the financial services,
communications, insurance, energy, government and technology industries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The consolidated financial statements present the accounts of the Company and
its wholly owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are recorded at cost and are depreciated using
the straight-line method over their estimated useful lives (primarily five
years). Capitalized leases are amortized using the straight-line method over
the lives of the related leases.
- 2 -
Financial Instruments
The recorded value of the Company's financial instruments represents their
estimated fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash and cash equivalents.
Revenue Recognition
The Company recognizes revenues as services are performed for its customers.
Intangible Assets
As a result of the business combination accounted for using the purchase method
of accounting, all identifiable assets and liabilities were recorded at fair
value. Purchased research and development related to the value assigned in the
purchase price allocation to in-process research and development was charged to
expense upon the closing of the business combination.
Acquisition costs in excess of the fair values assigned to the net assets
acquired are being amortized over a period of 4 to 9 years using the straight-
line method for the years ended December 31, 1997 and 1996, and over a period of
1 to 20 years for the 4 months ended December 31, 1995.
Deferred Financing Costs
Deferred financing costs are amortized using the level yield method over the
life of the related debt.
Income Taxes
The Company files a consolidated tax return. Income taxes are provided on the
liability method, under which the net deferred tax asset or liability
is determined based on the tax effects of the differences between the book and
tax basis of the various assets and liabilities and operating loss carryforwards
of the Company and gives current recognition to changes in tax rates and laws.
A valuation allowance is established to offset deferred tax assets due to the
uncertainty of realizing their benefit.
3. ACQUISITION:
On August 31, 1995, Golder, Thoma, Cressey, Rauner Fund IV, Limited Partnership
(GTCR), a private fund managed by Golder, Thoma, Cressey, Rauner, Inc. (GTCR
Inc.), and certain members of the management of the Company purchased stock in
the Company and acquired the assets and business of the Company's predecessor
for total consideration of approximately $80.4 million.
- 3 -
Funding for the acquisition was provided by proceeds from (i) the issuance of
common stock and (ii) borrowings under the Company's credit facility.
The acquisition has been accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based upon their fair values at the date of
acquisition.
The summary of the net assets acquired follows:
<TABLE>
<CAPTION>
<S> <C>
Working capital, net $10,227,718
Equipment, furniture and fixtures 17,368,253
Other assets 117,388
Research and development 32,500,000
Intangible assets 23,500,000
Capital lease obligations (3,315,717)
-----------
$80,397,642
===========
</TABLE>
4. EQUIPMENT, FURNITURE AND FIXTURES:
Equipment, furniture and fixtures consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Operating equipment $10,721,746 $ 8,787,352 $ 6,448,863
Leasehold improvements 8,138,668 7,986,710 5,425,293
Other equipment, furniture and fixtures 8,791,756 5,929,573 3,432,845
Capital leases 5,861,684 5,875,679 3,506,852
Construction in progress - 34,077 196,619
----------- ----------- -----------
33,513,854 28,613,391 19,010,472
Less- Accumulated depreciation 13,269,818 6,697,878 1,349,747
----------- ----------- -----------
$20,244,036 $21,915,513 $17,660,725
=========== =========== ===========
</TABLE>
- 4 -
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Bank notes payable (Term Notes), interest at 350 basis
points over LIBOR (9.47%, 9.06% and 9.48% at
December 31, 1997, 1996 and 1995, respectively),
due in semiannual installments of $3,500,000
beginning on June 30, 1998, until December 31, 2000,
with $7,000,000 installments due on June 30, 2001,
and August 31, 2001. This note is collateralized
by all assets of the Company. $35,000,000 $35,000,000 $35,000,000
Bank notes payable (Subordinated Notes), interest
at 12%, due in full on August 31, 2001. 17,500,000 17,500,000 17,500,000
Bank note payable (Junior Subordinated Term Note),
interest at 12%, due in full on February 28, 2002. 2,000,000 - -
Industrial Development Authority note payable,
interest at 8.5%, due in full on August 1, 1998. 47,000 - -
County Development note payable, interest at 4%,
monthly payments of $13,586 (principal and interest)
until November 1, 2003. Lump-sum payment of $65,587
(principal and interest) due on December 1, 2003. 878,617 413,211 -
Bank notes payable (Acquisition Note), interest at
350 basis points over LIBOR (9.47% at December 31,
1997), due in semiannual installments of $450,000
beginning on June 30, 1999, until December 31, 2000,
with $600,000 installments due on June 30, 2001, and
August 31, 2001. This note is collateralized by all
assets of the Company. 3,000,000 - -
Note payable, interest at 9%, monthly payments of $8,303
(principal and interest) until September 30, 2002. 378,594 - -
Capitalized lease obligations 2,764,994 4,014,592 2,879,844
----------- ----------- -----------
61,569,205 56,927,803 55,379,844
Less- Current portion 56,897,635 1,404,878 1,062,802
----------- ----------- -----------
Total long-term debt $ 4,671,570 $55,522,925 $54,317,042
=========== =========== ===========
</TABLE>
The Company's credit facilities, as amended, include $15.0 million of Variable
Rate Senior Secured Revolving Notes (Revolver). Availability under the Revolver
is based on a borrowing base calculated by reference to the Company's accounts
receivable. Advances under the Revolver bear interest at 350 basis points over
LIBOR. The Revolver matures on August 31, 2001. As of December 31, 1997, the
Company had borrowings outstanding of $15 million.
The Revolver, the Acquisition Notes and the Term Notes are secured by
substantially all of the tangible and intangible assets of the Company.
- 5 -
Additionally, GTCR provides limited guarantees. The Revolver, Acquisition
Notes, Term Notes and Subordinated Notes contain various affirmative and
negative covenants that limit the Company's ability to, among other things:
incur additional indebtedness, incur additional liens, enter into any sales and
leaseback transactions, merge with or sell its assets to any other person or
entity, discount its receivables, change its business, make certain restricted
payments or investments, issue capital stock with certain attributes, enter into
transactions with its affiliates, make capital expenditures, enter
into operating leases, make guarantees, pay dividends, purchase securities and
amend its certificate of incorporation or bylaws. The Company is also required
to comply with certain financial covenants, including: minimum gross revenues,
a current ratio, a minimum consolidated net worth, a ratio of consolidated total
indebtedness to consolidated EBITDA, a minimum consolidated EBITDA and a ratio
of consolidated EBITDA to fixed charges. As of December 31, 1997, the Company
is in violation of certain covenants that give the lenders the right to
accelerate the due date of their loans. Accordingly, these loans have been
reclassified to current.
Future scheduled principal payments on the long-term debt are as follows:
1998 $55,739,358
1999 210,723
2000 223,197
2001 236,550
Thereafter 2,394,383
-----------
$58,804,211
===========
6. RELATED-PARTY TRANSACTIONS:
Pursuant to a letter agreement, the Company has agreed to pay to GTCR Inc. a
consulting fee of $200,000 per annum and an additional fee equal to 1% of the
amount of any additional funds that may be invested in the Company by GTCR Inc.
or any of its affiliates.
- 6 -
7. LEASES:
ITI leases computer, telephone and office equipment which have been capitalized
at the net present value of future minimum lease payments using the interest
rate implicit in each lease. The future minimum lease payments of these
capitalized leases are as follows:
1998 $1,349,485
1999 1,690,279
----------
Total minimum lease payments 3,039,764
Less- Amount representing interest 274,770
----------
Present value of minimum lease payments $2,764,994
==========
ITI leases office space, automobiles and equipment under noncancelable operating
leases with varying terms. Rent expense related to all operating leases during
the years ended December 31, 1997 and 1996 and for the period from September 1,
1995, to December 31, 1995, was $5,069,127, $4,303,496 and $1,439,049,
respectively. The future minimum lease payments of leases with an initial or
remaining term in excess of one year are as follows:
<TABLE>
<CAPTION>
Operating Equipment
Facilities and Other Total
<S> <C> <C> <C>
1998 $ 3,279,918 $356,988 $ 3,636,906
1999 2,569,465 291,273 2,860,738
2000 2,279,311 189,837 2,469,148
2001 1,725,087 76,753 1,801,840
Thereafter 4,427,742 11,622 4,439,364
----------- -------- -----------
$14,281,523 $926,473 $15,207,996
=========== ======== ===========
</TABLE>
8. SIGNIFICANT CUSTOMERS:
During the years ended December 31, 1997 and 1996, and for the period from
September 1, 1995, to December 31, 1995, the Company had sales to one customer
which represented 20%, 23% and 25% of revenues and to its top five customers
that accounted for approximately 56%, 55% and 61% of revenues, respectively.
9. EMPLOYEE RETIREMENT SAVINGS PLAN:
The Company continued the Employee Retirement Savings Plan (401(k) plan) in
effect at the time of the acquisition. Employees are eligible after one year of
service and the attainment of age 18. Employees may make elective deferral
contributions of not less than 2% and not more than 16% of eligible wages. The
401(k) plan does not contain a provision for matching contributions by the
Company. All 401(k) plan administrative expenses are paid by the Company.
- 7 -
10. STOCKHOLDERS' DEFICIT:
Class A Common Stock and Class B Common Stock
The Class A Common Stock, as a class, is entitled to 10% of the number of votes
on all matters to be voted on by the stockholders of the Company. In the event
of a liquidation of the Company, the holders of the Class A Common
Stock are entitled to receive a liquidation payment equal to the sum of (i) the
original purchase price of the Class A Common Stock; (ii) an amount equal to a
10% annual accrual rate on the original purchase price of the Class A Common
Stock from the date of purchase; and (iii) 10% of all remaining assets to be
distributed to the holders of Common Stock.
The Class B Common Stock, as a class, is entitled to 90% of the number of votes
on all matters to be voted on by the stockholders of the Company. In the event
of liquidation, the Class B Common Stock is entitled to receive, after
satisfaction of the liquidation preference on the Class A Common Stock, 90% of
all remaining assets to be distributed to the holders of Common Stock.
Warrants
The Company's principal lender owns a warrant to purchase 8,323 shares of the
Company's Class B Common Stock at an initial exercise price of $.0001 per share
(such number of shares and exercise price subject to adjustment) on or prior to
August 31, 2005.
Stock Split
On July 15, 1996, the Company effected a 100-for-1 stock split of its common
stock to stockholders of record on that same date. All share information has
been restated to reflect this split.
Treasury Stock
During the years ended December 31, 1997 and 1996, and for the period from
September 1, 1995, to December 31, 1995, the Company repurchased 9,780 shares,
5,075 shares and 0 shares, respectively, of its previously outstanding Class A
Common Stock and 16,350 shares, 11,701 shares and 0 shares, respectively, of its
previously outstanding Class B Common Stock at prices reflective of their fair
market value at the time of the transactions.
- 8 -
11. INCOME TAXES:
Deferred tax (liabilities) assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Net operating loss carryforwards $ 5,458,439 $ 3,378,796 $ -
Purchased research and development 9,331,111 10,067,778 10,804,445
Other items, net 65,674 324,054 121,713
------------ ------------ ------------
14,855,224 13,770,628 10,926,157
Valuation allowance (14,855,224) (13,770,628) (10,926,157)
------------ ------------ ------------
$ - $ - $ -
============ ============ ============
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $16,000,000 which will expire in varying periods through 2011.
The effective income tax rate for the period from September 1, 1995, to
December 31, 1995, differs from statutory tax rates due to the utilization
of net operating loss carryforwards.
12. COMMITMENTS AND CONTINGENCIES:
The Company is subject to a number of lawsuits and claims for various amounts
which arise out of the normal course of its business. In the opinion of
management, the disposition of claims currently pending will not have a material
adverse effect on the Company's financial position or results of operations.
13. SUBSEQUENT EVENT:
On May 20, 1998, the Company and its shareholders finalized the sale of 100% of
the outstanding common stock to APAC Teleservices, Inc. In conjunction with the
sale of the common stock, the Company repaid its credit facilities.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following pro forma financial statements of APAC TeleServices, Inc. and
Subsidiaries ("the Company") reflect the acquisition of ITI Holdings, Inc.
("ITI"), the sole shareholder of ITI Marketing Services, Inc. These pro forma
financial statements are filed as an amendment to the Company's Current Report
on Form 8-K dated May 20, 1998, and filed on June 4, 1998, which described the
acquisition of ITI.
The pro forma balance sheet as of March 29, 1998, and the pro forma statements
of operations and income of the Company and ITI for the fifty-two weeks ended
December 28 and 31, 1997, respectively, and the thirteen weeks ended March 29
and 31, 1998, respectively, have been prepared to illustrate the effect of the
acquisition. The acquisition is being accounted for as a purchase and the
transaction is treated as if it had occurred on March 29, 1998, in the pro forma
balance sheet and as of December 30, 1996, for the pro forma statements of
operations and income. The pro forma balance sheet as of March 29, 1998, and
the pro forma statement of income for the thirteen weeks ended March 29 and 31,
1998, respectively, were prepared from unaudited financial statements for the
quarters then ended. The pro forma statement of operations for the fifty-two
weeks ended December 28 and 31, 1997, respectively, were prepared from audited
financial statements for the years then ended.
The pro forma financial statements are presented for illustrative purposes only
and are not necessarily indicative of the consolidated financial position or
consolidated results of operations of the Company that would have been reported
had the acquisition occurred on the dates indicated, nor do they represent a
forecast of the consolidated financial position of the Company at any future
date or the consolidated results of operations of the Company for any future
period. Furthermore, no effect has been given in the pro forma statements of
operations and income for synergies or cost savings, if any, that may be
realized through the combination of the Company and ITI. Amounts allocated to
the Company's assets and liabilities will be based upon the estimated fair
values at the completion of the acquisition. A preliminary allocation of a
purchase price has been made to ITI's assets and liabilities in the pro forma
financial statements based on a preliminary valuation. The final allocations
may be different from the amounts reflected herein. The pro forma financial
statements, including the notes thereto should be read in conjunction with the
audited financial statements of ITI included elsewhere in this Report and the
consolidated financial statements of the Company included in its Annual Report
on Form 10-K for the year ended December 28, 1997, and its Quarterly Report on
Form 10-Q for the quarter ended March 29, 1998.
<TABLE>
APAC TELESERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 29,1998
(IN THOUSANDS)
<CAPTION>
ITI PRO FORMA COMBINED
APAC HOLDINGS, INC. ADJUSTMENTS PRO FORMA
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
$155,312 (a)
(72,500) (b)
Cash $1,043 $2,509 (81,423) (c) $4,941
Accounts receivable, net 66,762 30,481 (3,223) (c) 94,020
Deferred tax assets 590 -- 6,080 (c) 6,670
Other current assets 2,185 445 -- 2,630
Total current 70,580 33,435 4,246 108,261
PROPERTY AND EQUIPMENT 138,579 34,645 (16,448) (c) 156,776
Less--accumulated depreciation 45,503 14,977 (14,977) (c) 45,503
Property and equipment, net 93,076 19,668 (1,471) 111,273
GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill 12,022 3,250 99,601 (c) 114,873
Other intangible assets 1,500 20,250 20,150 (c) 41,900
Total goodwill and other intangible 13,522 23,500 119,751 156,773
Less--accumulated amortization 1,182 7,115 (7,115) (c) 1,182
Goodwill and other intangible assets, 12,340 16,385 126,866 155,591
(1,372) (c)
OTHER ASSETS 2,672 1,509 2,188 (a) 4,997
Total assets $178,668 $70,997 $130,457 $380,122
LIABLILITES AND
SHARE OWNERS' EQUITY
CURRENT LIABILITIES:
($57,500) (b)
Current maturies of long-term debt $201 $58,832 12,000 (a) $13,533
(15,000) (b)
Revolving credit facility 13,200 15,000 7,500 (a) 20,700
Accounts payable 7,685 4,330 -- 12,015
Income taxes payable 3,146 -- -- 3,146
Other current liabilities 18,422 13,355 22,277 (c) 54,054
Total current 42,654 91,517 (30,723) 103,448
LONG-TERM DEBT, LESS CURRENT MATURITIES 1,816 2,460 138,000 (a) 142,276
DEFERRED INCOME TAXES 4,130 -- 200 (c) 4,330
SHARE OWNERS' EQUITY:
Preferred shares -- -- -- --
Common shares 489 4 (4) (c) 489
Additional paid-in 92,155 31,867 (31,867) (c) 92,155
Retained earnings (deficit) 37,424 (52,425) 52,425 (c) 37,424
Notes receivable from share owners -- (1,001) 1,001 (c) --
Less--treasury shares -- (1,425) 1,425 (c) --
Total share owners' equity 130,068 (22,980) 22,980 130,068
Total liabilities and share owners' equity $178,668 $70,997 $130,457 $380,122
See Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
APAC TELESERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE THIRTEEN WEEKS ENDED MARCH 29, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
ITI PRO FORMA COMBINED
APAC HOLDINGS, INC. ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
NET REVENUE $91,481 $40,067 $-- $131,548
OPERATING EXPENSES:
9,600 (h)
Cost of services 70,684 21,327 (540) (d) 101,071
(9,600) (h)
Selling, general and administrative expenses 12,209 14,990 1,220 (e) 18,819
Total operating expenses 82,893 36,317 680 119,890
Income (loss) from operations 8,588 3,750 (680) 11,658
INTEREST EXPENSE, NET 471 2,039 750 (f) 3,260
Income (loss) before income taxes 8,117 1,711 (1,430) 8,398
PROVISION FOR INCOME TAXES 3,200 -- 500 (g) 3,700
NET INCOME (LOSS) $4,917 $1,711 ($1,930) $4,698
NET INCOME PER SHARE:
Basic $0.10 $0.10
Diluted $0.10 $0.09
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 48,812 48,812
Diluted 49,804 49,804
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
APAC TELESERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
ITI PRO FORMA COMBINED
APAC HOLDINGS, INC. ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
NET REVENUE $356,390 $145,574 $-- $501,964
OPERATING EXPENSES:
39,000 (h)
Cost of services 269,326 81,872 (2,050) (d) 388,148
(39,000) (h)
Selling, general and administrative expenses 48,784 61,301 4,880 (e) 75,965
Acquired in-process research and development 19,800 -- -- 19,800
Provision for software impairment 3,238 -- -- 3,238
Total operating expenses 341,148 143,173 2,830 487,151
Income (loss) from operations 15,242 2,401 (2,830) 14,813
INTEREST EXPENSE, NET 1,489 8,324 3,920 (f) 13,733
Income (loss) before income taxes and cumulative
effect of accounting change 13,753 (5,923) (6,750) 1,080
PROVISION FOR INCOME TAXES (CREDIT) 12,770 -- (3,330) (g) 9,440
Income (loss) before income taxes 983 (5,923) (3,420) (8,360)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE, LESS INCOME TAXES OF $1,349 (2,200) -- -- (2,200)
NET LOSS ($1,217) ($5,923) ($3,420) ($10,560)
NET INCOME (LOSS) PER SHARE:
Basic:
Income (loss) before cumulative effect
accounting change $0.02 ($0.17)
Cumulative effect of accounting change (0.05) (0.05)
Net loss ($0.03) ($0.22)
Diluted:
Income (loss) before cumulative effect
accounting change $0.02 ($0.17)
Cumulative effect of accounting change (0.05) (0.05)
Net loss ($0.03) ($0.22)
WEIGHTED AVERAGE SHARES OUTSTANDING
OUTSTANDING:
Basic 47,453 47,453
Diluted 48,505 48,505
See Notes to Unaudited Consolidated Condensed Financial Statements.
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
The pro forma financial statements and related notes give effect to the
acquisition of ITI accounted for as a purchase. The pro forma balance sheet
assumes that the acquisition was completed as of March 29, 1998, and the pro
forma statements of operations and income assume that the acquisition was
completed on December 30, 1996.
All interim financial data used to develop the pro forma balance sheet and
statements of income are unaudited, but in the opinion of management, reflect
all adjustments necessary (consisting only of normal recurring entries) for a
fair presentation thereof. The unaudited pro forma statements of operations and
income are not necessarily indicative of operating results which would have been
achieved had the acquisition been consummated as of December 30, 1996, and
should not be construed as representative of future earnings.
Under purchase accounting, the total purchase price will be allocated to ITI's
assets and liabilities based on their relative fair values. Allocations are
subject to valuations as of the date of the closing of the acquisition based on
an appraisal which is not yet completed. Accordingly, the final allocations may
be different from the amounts reflected herein. For purposes of the pro forma
financial statements, the preliminary allocation of the purchase price is
summarized as follows (in millions):
<TABLE>
<CAPTION>
<S> <C> <C>
Purchase price $153.9
Assets acquired:
Current assets $30.2
Property and equipment, net 18.2
Other assets .1
Tangible assets acquired $48.5 (48.5)
Liabilities assumed:
Current liabilities, less debt $17.7
Notes payable and capital
lease obligations 3.8
Total liabilities assumed $21.5 21.5
Accrued purchase liabilities 22.3
Deferred tax asset (6.1)
Deferred tax liabilities 0.2
Intangible assets acquired $143.3
</TABLE>
The following adjustments were recorded in the pro forma financial statements:
(a) To record proceeds from $150.0 million Term Loan and $7.5 million in
borrowings from Revolving Credit Facility under the Company's new $225.0
million Senior Secured Credit Facility. Proceeds received are net of $2.2
million of debt issuance costs.
(b) To reflect the repayment of ITI's outstanding debt.
(c) To record the purchase of all of the outstanding common stock of ITI for
$81.4 million in cash and the preliminary allocation of the purchase price
based upon the estimated fair values of ITI's assets and liabilities. The
preliminary purchase price has resulted in the assignment of $143.3 million
to intangible assets which consist of $3.6 million for assembled workforce,
$36.8 million for customer relationships and $102.9 for goodwill.
Intangible assets are amortized over their estimated useful lives which
range from 7 to 25 years.
(d) To record amortization of purchase liability for unfavorable rate variance
on acquired telephone contract.
(e) To record amortization of goodwill and other intangible assets acquired.
(f) To reflect interest expense and amortization of debt issuance costs on Term
Loan used to finance the acquisition. Interest rate on Term Loan is 7.01%.
(g) To record provision for income taxes on operating results of ITI and on the
changes in telephone costs, interest expense and deductible amortization on
intangible assets recorded as pro forma adjustments. The income tax
benefit recorded on ITI's loss from operations for the year ended December
31, 1997, has been recognized as a pro forma adjustment to reflect the
Company's ability to utilize ITI's deferred tax asset (net operating loss
carryforward) within a consolidated group for Federal income tax purposes.
(h) To reclassify call center administration and support costs reported by ITI
as selling, general and administrative expenses to cost of services to
conform with the Company's classification of similar costs.
