<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED APRIL 2, 2000
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 CUSTOMER SERVICES, INC.
(Exact name of registrant as specified in its charter)
ILLINOIS 36-2777140
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification No.)
SIX PARKWAY NORTH CENTER, SUITE 400, DEERFIELD, ILLINOIS 60015
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 374-4980
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 49,412,458 shares outstanding as of May 12,
2000.
===============================================================================
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of April 2, 2000, and
January 2, 2000. ....................................................................... 3
Consolidated Condensed Statements of Operations for the Thirteen Weeks Ended
April 2, 2000, and April 4, 1999. ...................................................... 4
Consolidated Condensed Statements of Cash Flows for the Thirteen Weeks
Ended April 2, 5 2000, and April 4, 1999. .............................................. 5
Notes to Consolidated Condensed Financial Statements (As amended for
Note 7 - Segment Information). ......................................................... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(As amended for Comparison of First Quarter Results). .................................. 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................. 13
PART II. OTHER INFORMATION
Item 1. Litigation .............................................................................. 14
Item 2. Changes in Securites .................................................................... 14
Item 6. Exhibits and Reports on Form 8-K ........................................................ 14
</TABLE>
Page 2
<PAGE>
APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 2, JANUARY 2,
2000 2000
ASSETS (Unaudited) (Audited, Note 1)
- ------------------------------------------------------------------ ---------------------- ----------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 27,630 $ 18,876
Accounts receivable, net 71,368 72,031
Net assets of discontinued operations - 10,028
Other current assets 14,031 14,346
---------------------- ----------------------
Total current assets 113,029 115,281
PROPERTY AND EQUIPMENT 135,920 133,960
Less--accumulated depreciation 75,176 68,076
---------------------- ----------------------
Property and equipment, net 60,744 65,884
GOODWILL AND OTHER INTANGIBLE ASSETS 61,009 61,009
Less--accumulated amortization 9,533 8,468
---------------------- ----------------------
Goodwill and other intangible assets, net 51,476 52,541
OTHER ASSETS 6,911 2,774
---------------------- ----------------------
Total assets 232,160 236,480
====================== ======================
LIABILITIES AND
SHARE OWNERS' EQUITY
- ------------------------------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 16,482 $ 16,808
Accounts payable 4,628 7,588
Other current liabilities 43,973 38,928
---------------------- ----------------------
Total current liabilities 65,083 63,324
LONG-TERM DEBT, LESS CURRENT MATURITIES 100,873 115,987
DEFERRED INCOME TAXES 2,636 2,623
OTHER LIABILITIES 5,694 5,924
COMMITMENTS AND CONTINGENCIES
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; 49,370,371 shares issued
at April 2, 2000; 49,079,617 shares issued at
January 2, 2000 494 491
Additional paid-in capital 98,074 94,945
Accumulated deficit (37,492) (41,163)
Less--treasury shares at cost; 913,348 and 1,609,000 shares at
April 2, 2000, and January 2, 2000, respectively (3,202) (5,651)
---------------------- ----------------------
Total share owners' equity 57,874 48,622
---------------------- ----------------------
Total liabilities and share owners' equity $232,160 $236,480
====================== ======================
</TABLE>
See notes to consolidated condensed financial statements
Page 3
<PAGE>
APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN (13) WEEKS ENDED
-------------------------------
APRIL 2, APRIL 4,
2000 1999
------------ ---------------
<S> <C> <C>
NET REVENUE: $118,364 $107,420
OPERATING EXPENSES:
Cost of services 91,022 90,448
Selling, general and administrative
expenses 18,680 11,920
Restructuring charge - 1,987
------------ ----------------
Total operating expenses 109,702 104,355
------------ ----------------
Operating income 8,662 3,065
INTEREST EXPENSE, NET 2,736 3,407
------------ ----------------
Income from continuing operations
before income taxes 5,926 (342)
PROVISION FOR INCOME TAXES 2,370 (140)
------------ ----------------
Income from continuing
operations 3,556 (202)
DISCONTINUED OPERATIONS
Gain on Sale of Paragren Technologies,
Inc. less income tax provision of $77 115 -
------------ ----------------
NET INCOME 3,671 (202)
============ ================
INCOME (LOSS) PER SHARE:
Basic:
Continuing operations $ 0.07 $ (0.00)
Discontinued operations 0.00 (0.00)
------------ ----------------
Net income $ 0.07 $ (0.00)
============ ================
Diluted:
Continuing operations $ 0.07 $ (0.00)
Discontinued operations 0.00 (0.00)
------------ ----------------
Net income $ 0.07 $ (0.00)
============ ================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 47,638 48,915
Diluted 51,425 49,114
</TABLE>
See notes to consolidated condensed financial statements.
Page 4
<PAGE>
APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN (13) WEEKS ENDED
----------------------------------------------
APRIL 2, APRIL 4,
2000 1999
-------------------- -------------------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income from continuing operations $ 3,671 $ (202)
Depreciation and amortization 9,316 9,156
Deferred income taxes 107 590
Restructuring charge - 1,987
Change in operating assets and liabilities (7,915) (6,504)
-------------------- -------------------
Net cash provided by continuing operations 5,179 5,027
Cash used by discontinued operations - (3,413)
-------------------- -------------------
Net cash provided by operations 5,179 1,614
INVESTING ACTIVITIES:
Proceeds from sale of Paragren Technologies, Inc. 17,000 -
Purchases of property and equipment, net (2,650) (4,439)
-------------------- -------------------
Net cash provided (used) by investing activities 14,350 (4,439)
FINANCING ACTIVITIES:
Borrowings under revolving credit facilities - 10,000
Payments on long-term debt (15,440) (3,381)
Decrease in customer deposits (916) (3,764)
Sale of treasury shares 5,000 -
Stock and warrant transactions, including related
income tax benefits 581 217
-------------------- -------------------
Net cash (used) provided by financing activities (10,775) 3,072
-------------------- -------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 8,754 $ 247
==================== ===================
</TABLE>
See notes to consolidated condensed financial statements.
Page 5
<PAGE>
APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 April 2,
2000, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2000. The balance sheet at January 2, 2000, 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 the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended January 2, 2000.
2. GOODWILL AND INTANGIBLE ASSETS
At April 2, 2000, goodwill and intangible assets consisted of the following:
<TABLE>
<CAPTION>
ACCUMULATED NET
COST AMORTIZATION BOOK VALUE
----------------- ------------------ ------------------
(In thousands)
<S> <C> <C> <C>
Goodwill $28,916 $3,920 $24,996
Customer relationships 28,493 4,657 23,836
Assembled workforce 3,600 956 2,644
----------------- ------------------ ------------------
Total 61,009 $9,533 $51,476
================= ================== ==================
</TABLE>
3. OTHER CURRENT LIABILITIES
The components of other current liabilities included in the consolidated
condensed balance sheets are as follows:
<TABLE>
<CAPTION>
APRIL 2, JANUARY 2,
2000 2000
-------------- --------------
(000's omitted)
<S> <C> <C>
Payroll and related items $22,430 $22,248
Accrued Relocation 3,077 998
Telecommunication costs 3,470 3,619
Accrued professional fees 2,365 977
Acquisition-related costs 857 1,145
Customer deposits 803 1,489
Restructuring charges 1,611 2,250
Other 9,360 6,202
-------------- --------------
Total $43,973 $38,928
============== ==============
</TABLE>
Page 6
<PAGE>
APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
(UNAUDITED)
4. RESTRUCTURING CHARGE
During the first quarter of fiscal 1999, the Company recorded a
restructuring charge of $2.0 million. This restructuring plan involved closing 7
Sales Solutions Customer Contact Centers and reducing the salaried workforce by
approximately 15 employees. The $2.0 million restructuring charge included $1.4
million for the write-down of property and equipment and $0.6 million for
employee severance costs. The remaining restructuring reserve of $0.6 million at
April 4, 1999, was used prior to the end of fiscal 1999.
During the first quarter of fiscal 2000 the Company utilized $0.6
million of the $2.2 million restructuring accruals related to fiscal 1999
restructuring charges recorded in the second and third quarters of fiscal 1999.
The remaining balance of $1.6 million at April 2, 2000 represents $1.1 million
for the write-down of property and equipment, $0.1 million for employee
severance costs and $0.4 million for lease termination costs. The remaining
accruals will be utilized during fiscal 2000.
5. LEGAL PROCEEDINGS
The Company was previously engaged in two arbitration proceedings and
one lawsuit, all with the former owner of Paragen Technologies, Inc. In April
2000 all proceedings against such former owner were settled. The settlement did
not have a material impact on the Company's results of operations or
consolidated financial position.
On January 5, 2000, APAC, Inc. filed suit against the Company in the
U.S. District Court for the Northern District of Georgia (Atlanta Division)
alleging that the Company's use of "APAC" in the Company's name infringes a
trademark of APAC, Inc. The suit asserts violations of the federal Lanham Act
and various Georgia state statutes, as well as a breach by the Company of an
agreement between APAC, Inc. and the Company. The Company has answered the
complaint and intends to defend itself vigorously.
Additionally, the Company is subject to occasional lawsuits,
governmental investigations and claims arising out of the normal conduct of its
business. Management does not believe the outcome of any pending claims will
have a materially adverse impact on the Company's consolidated financial
position.
6. DISCONTINUED OPERATIONS
In December 1998, the Company's management approved a plan to sell Paragren.
Accordingly, Paragren was reported as a discontinued operation, and the
consolidated condensed financial statements, have been reclassified to segregate
the operating results and net assets of the business. The net loss from
discontinued operations for the first three months of fiscal 1999 of $2.3
million was offset against provisions for anticipated loss recorded at January
3, 1999.
In January 2000, pursuant to an agreement executed in December 1999, the Company
sold the stock of Paragren Technologies, Inc. and received $17 million in cash
proceeds. In addition, the Company may receive up to an additional $3 million in
proceeds subject to the terms of escrow and earn-out agreements. After selling
expenses and other costs, $11 million of the proceeds were used to reduce
outstanding borrowings under the Term Loan in accordance with the financial
covenants concerning the sale of assets. The operations and anticipated disposal
of Paragren did not affect the Company's results of operations in the first
quarter of fiscal 2000 as the loss provision established in fiscal 1998, was
sufficient to absorb this. The Company recorded a gain on the sale of Paragren
of $0.1 million in the first quarter of fiscal 2000.
Page 7
<PAGE>
APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT AS OTHERWISE INDICATED)
(UNAUDITED)
7. SEGMENT INFORMATION
The Company has three reportable segments organized around operating divisions
providing separate and distinct services to clients. The operating divisions are
managed separately because the service offerings require different technology
and marketing strategies and have different operating models and performance
metrics. The Customer Care division provides inbound customer service, direct
mail response, "help" line support and customer order processing. The Customer
Acquisition division provides outbound sales support to customers and
businesses, market research, targeted marketing plan development and customer
lead generation, acquisition and retention. CustomerAssistance.com provides Web
based customer relationship management products and services for Fortune 1000
and "dot.com" companies. All operating net revenue and expenses are included in
the results of the business segments. Other income and expense, principally
interest expense and gain and loss on the disposal of assets, are excluded from
the determination of business segment results.
Segment information for continuing operations after full allocation of
selling, general and administrative expenses for the thirteen weeks ended
April 2, 2000, and April 4, 1999, is as follows:
<TABLE>
<CAPTION>
CUSTOMER CUSTOMER
PERIOD ENDED CARE ACQUISITION CUSTOMERASSISTANCE.COM COMBINED
------------------------------------ ------------ --------------- ---------------------- --------
(In thousands)
<S> <C> <C> <C> <C>
THIRTEEN WEEKS:
April 2, 2000
Net revenue $74,170 $43,523 $ 671 $118,364
Operating income 5,365 5,678 (2,381) 8,662
April 4, 1999*:
Net revenue $66,223 $41,197 - $107,420
Operating income (loss) 5,907 (2,842) - 3,065
Restructuring charge - 1,987 - 1,987
</TABLE>
*Restated to conform to current year presentation.
Page 8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DESCRIPTION OF BUSINESS
The Company provides multi-channel customer relationship management ("CRM")
solutions for corporate clients operating in the parcel delivery, financial
services, insurance, retail, health care and pharmaceuticals, and
telecommunications industries throughout the United States. The Customer Care
business unit, provides inbound customer service, direct mail response,
integrated voice response, "help" line support and customer order processing
through its own customer interaction centers as well as through facilities
managed by the Company but owned /operated by its clients. The Customer
Acquisition business unit, provides customer lead generation, acquisition and
retention through outbound sales support to consumers and businesses, market
research and targeted marketing plan development. In December 1999, the Company
formed a wholly-owned subsidiary, CustomerAssistance.com, Inc., which provides
electronic CRM ("e-CRM") products and services including e.PACTM, a
multi-channel platform that supports a broad range of integrated,
e-commerce-based interaction capabilities. As of January 2, 2000, the Company
operated and managed approximately 10,500 workstations in 56 customer
interaction centers.
In January 2000, pursuant to an agreement executed in December 1999, the Company
sold the stock of Paragren Technologies, Inc. and received $17 million in cash
proceeds. In addition, the Company may receive up to an additional $3 million in
proceeds subject to the terms of escrow and earn-out agreements. After selling
expenses and other costs, $11 million of the proceeds were used to reduce
outstanding borrowings under the Term Loan in accordance with the financial
covenants concerning the sale of assets. The operations and anticipated disposal
of Paragren did not affect the Company's results of operations in the first
quarter of fiscal 2000 as the loss provision established in fiscal 1998, was
sufficient to absorb these losses. The Company recorded a gain on the sale of
Paragren of $0.1 million in the first quarter of fiscal 2000.
Page 9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth consolidated condensed statements of income data
as a percent of net revenue from services provided by the Company for the
thirteen week periods ended April 2, 2000, and April 4, 1999.
<TABLE>
<CAPTION>
THIRTEEN (13) WEEKS ENDED
------------- -- -----------------
APRIL 2, APRIL 4,
2000 1999*
------------- -----------------
<S> <C> <C>
NET REVENUE:
Customer Care 62.7% 61.6%
Customer Acquisition 36.7 38.4
CustomerAssistance.com 0.6
------------- -----------------
Total net revenue 100.0 100.0
OPERATING EXPENSES:
Cost of services 76.9 84.2
Selling, general and administrative
expenses 15.8 11.1
Restructuring charges - 1.8
------------- -----------------
Total operating expenses 92.7 97.1
------------- -----------------
Operating income 7.3 2.9
INTEREST EXPENSE, NET 2.3 3.2
------------- -----------------
Income from continuing operations
before income taxes 5.0 (0.3)
PROVISION FOR INCOME TAXES 2.0 (0.1)
------------- -----------------
Income from continuing operations
GAIN ON SALE OF PARAGREN TECHNOLOGIES,
INC., NET .2 -
------------- -----------------
NET INCOME 3.2% (0.2)%
============= =================
</TABLE>
*Restated to conform to current year presentation.
COMPARISON OF FIRST QUARTER RESULTS
Net revenue increased 10% to $118.4 million in the first quarter of fiscal
2000 from $107.4 million in the same period of fiscal 1999, an increase of
$11.0 million. Customer Care net revenue increased by $7.9 million or 12.0%
over comparable fiscal 1999 levels. The increase in Customer Care net revenue
was due primarily to volume from new clients. Customer Acquisition net
revenue increased by $2.4 million or 5.6 %. This increase in Customer
Acquisition net revenue was primarily due to rate increases for existing
clients and a more favorable business mix. CustomerAssistance.com contributed
$0.7 million of revenue.
Cost of Services increased $0.6 million in the first quarter of fiscal 2000, or
0.6% to $91.0 million from $90.4 million in the first quarter of fiscal 1999.
This modest increase on a 10% revenue growth was due to operational improvements
in both Customer Care and Customer Acquisition. Customer Acquisition gross
profit margins improved to 26.9% in the first quarter of fiscal 2000 from 9.6%
in the previous year on improved business mix, better capacity utilization,
increased productivity and a reduction in fixed costs which resulted from the
restructuring plans implemented in the first quarter of fiscal 1999 that reduced
the number of workstations and corresponding excess capacity. Customer Care also
contributed with an increase in gross
Page 10
<PAGE>
profit to 21.6% in fiscal 2000 from 19.7% in the first quarter of fiscal
1999. This increase resulted from improvements in personnel efficiencies
through workforce management and better capacity utilization.
Selling, general and administrative expenses increased to $18.7 million in
the first three months of fiscal 2000 from $11.9 million in fiscal 1999
before restructuring charges, an increase of $6.8 million or 57.1%. As a
percent of net revenue, selling, general and administrative expenses
increased to 15.8% in fiscal 2000 from 11.1% in fiscal 1998. This increase
was primarily due to investments in the areas of people, technology and
facilities specifically, adding marketing, salesforce and senior management
personnel, new product development and technology platform, management and
infrastructure required for CustomerAssistance.com, and the new headquarters
facilities and associated personnel relocation.
During the first quarter of fiscal 1999, the Company recorded a restructuring
charge of $2.0 million in connection with the closure of 7 customer
interaction centers and reductions in the salaried workforce. The facility
closure charge included $1.4 million for the write-down of property and
equipment and $0.6 million for employee severance costs. This accrual was
completely utilized by the end of fiscal 1999.
The Company generated operating income of $8.7 million in the first quarter
of fiscal 2000 compared to $5.1 million (before restructuring charges) for
fiscal 1999. For the Customer Care business unit, operating income for the
first quarter of 2000 was $5.4 million, or 7.2% of net revenue, compared to
operating income of $5.9 million, or 8.9% of net revenue, for the same period
in the prior year, due to increased net revenue and improved gross margins
offset by higher selling, general and administrative expenses as previously
discussed. The Customer Acquisition business unit generated operating income
of $5.7 million in the first quarter of fiscal 2000, compared to an
operating loss of $0.9 million before restructuring charges, for the same
period in fiscal 1999. The positive operating performance of the Customer
Acquisition business unit in fiscal 2000 was primarily due to increased net
revenue and the significant improvement in gross margins related to the
successful implementation of the restructuring plans initiated in fiscal 1999
to reduce excess capacity and improve operating performance.
Net interest expense for the first quarter of fiscal 2000 decreased by $0.7
million compared to the same period in fiscal 1999. This decrease reflects
the reduction in term debt from the end of the first quarter of fiscal 1999
to April 2, 2000 and positive results from the Company's working capital
management efforts that have contributed to increased cash balances.
The Company's effective income tax rate is 40.0 % at the end of the first
quarter of fiscal 2000 which is in line with the overall effective rate of
40% for fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth consolidated statements of cash flow data for
the Company for the thirteen week periods ended April 2, 2000, and April 4,
1999 respectively.
<TABLE>
<CAPTION>
2000 1999
----------- -------------
(In millions)
<S> <C> <C>
Net cash provided by operating activities $ 5.2 $ 1.6
Net cash provided (used) by investing activities 14.4 (4.4)
Net cash provided (used) by financing activities (10.8) 3.0
----------- -------------
Net increase in cash $ 8.8 $ .2
=========== =============
</TABLE>
Page 11
<PAGE>
Cash provided by operations during the first quarter of fiscal 2000 totaled
$5.2 million, an increase of $3.6 million from the comparable period in
fiscal 1999. This increase was principally due to improved operating results,
and the elimination of cash usage by Paragren Technologies, Inc., a
discontinued operation. The Company spent $2.7 million and $4.4 million
during the first three months of fiscal 2000 and 1999, respectively, for
capital expenditures, primarily information technology in fiscal 2000, and
construction of additional call center capacity for Customer Care clients and
to upgrade equipment in existing centers in 1999. These capital expenditures
were funded with cash provided by operations. In conjunction with the move to
the new headquarters facility in Deerfield, the Company has committed to
spend approximately $5 million for furniture, renovations and technology
equipment of which $1.0 million was incurred in the first quarter of fiscal
2000. On March 28, 2000 the Company sold an aggregate of 695,652 common
shares held in treasury to Clark E. McLeod for $5,000,000 in cash, or $7.1875
per share.
At January 2, 2000, the Company had a $75.0 million Revolving Credit Facility
("Revolving Facility") available for general working capital purposes and
capital expenditures. On January 20, 2000, the Company amended the Credit
Facility, reducing the Revolving Facility to $50.0 million. Availability of
up to $10.0 million of the $50.0 million total is restricted subject to the
attainment of trailing four quarters EBITDA of at least $60.0 million. As of
April 2, 2000, there were no borrowings outstanding under the Revolving
Facility. The Company made $15.0 million of repayments on its term loan
during the first three months of fiscal 2000, $11 million of which was made
as a result of the sale of Paragren, resulting in a balance outstanding at
April 2, 2000, of $115.0 million. $12.0 million in principal payments will be
made over the remainder of fiscal 2000.
The Company expects that cash from future operations and available borrowings
under the Revolving Facility will be sufficient to meet normal operating
needs as well as fund any planned capital expenditures during fiscal year
2000.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. This Report on Form 10-Q may contain
forward-looking statements that reflect the Company's current views with respect
to future events and financial performance. These forward-looking statements are
subject to certain risks and uncertainties, which could cause future results to
differ materially from historical results or those anticipated. The words
"believe," "expect," "anticipate," "intend," "estimate," "goals," "would,"
"could," "should," and other expressions which indicate future events and trends
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. If no date is provided, such statements speak only as of the date of this
Report on Form 10-Q. The Company undertakes no obligation to publicly update or
revise any forward-looking statements in connection with new information or
future events or otherwise. Factors that could cause future results to differ
materially from historical results or those anticipated include, but are not
limited to, reliance by the Company on a small number of principal clients for a
substantial proportion of its total revenue; possible changes in or events
affecting the businesses of the Company's clients, including changes in
customers' interest in, and use of, clients' products and services; fluctuations
in quarterly results of operations due to the timing of clients' initiation and
termination of large programs; changes in competitive conditions affecting the
Company's industry; the ability of the Company's clients to terminate contracts
with the Company on relatively short notice; changes in the availability and
cost of qualified employees; variations in the performance of the Company's
automated systems and other technological factors; changes in government
regulations affecting the teleservices and telecommunications industries; and
competition from other outside providers of customer relationship management
solutions and in-house customer relationship operations. See the Company's
filings with the Securities and Exchange Commission for further discussion of
the risks and uncertainties associated with the Company's business, in
particular the discussion under the caption "Information Regarding
Forward-Looking Statements" in Item 7 (Management's Discussion and Analysis of
Page 12
<PAGE>
Financial Condition and Results of Operations) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in financial and commodity market prices and rates. The Company is
exposed to market risk in the areas of changes in U. S. interest rates. This
exposure is directly related to its normal operating and funding activities.
Because the Company's obligations under its bank credit agreement bear
interest at floating rates, the Company is sensitive to changes in prevailing
interest rates. The Company uses derivative instruments to manage its
long-term debt interest rate exposure, rather than for trading purposes. A
10% increase or decrease in market interest rates that effect the Company's
financial instruments would not have a material impact on earnings during the
remainder of fiscal 2000, and would not materially affect the fair value of
the Company's financial instruments.
Page 13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LITIGATION
The Company was previously engaged in two arbitration proceedings
and one lawsuit, all with the former owner of Paragen Technologies, Inc. In
April 2000 all proceedings against such former owner were settled. The
settlement did not have a material impact on the Company's results of
operations or consolidated financial position.
On January 5, 2000, APAC, Inc. filed suit against the Company in the
U.S. District Court for the Northern District of Georgia (Atlanta Division)
alleging that the Company's use of "APAC" in the Company's name infringes a
trademark of APAC, Inc. The suit asserts violations of the federal Lanham Act
and various Georgia state statutes, as well as a breach by the Company of an
agreement between APAC, Inc. and the Company. The Company has answered the
complaint and intends to defend itself vigorously.
Additionally, the Company is subject to occasional lawsuits,
governmental investigations and claims arising out of the normal conduct of
its business. Management does not believe the outcome of any pending claims
will have a materially adverse impact on the Company's consolidated financial
position.
ITEM 2. CHANGES IN SECURITES
On March 28, 2000 the Company sold an aggregate of 695,652 common
shares held in treasury to Clark E. McLeod for $5,000,000 in cash, or $7.1875
per share, in reliance on the exemption from registration provided by Section
4(2) of the Securities Act of 1933. The sale of the shares did not involve
any underwriters, underwriting discounts or commissions. In connection with
this transaction, a restrictive legend was affixed to the stock certificate
representing the shares, and the purchaser made representations to the
Company regarding his qualifications as an "accredited investor" within the
meaning of Regulation D under the Securities Act and his intention to acquire
the shares for investment and not with a view to any distribution thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following documents are furnished as exhibits and numbered
pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit
Number Description
------------------- -----------------------------------------------------------------------------------------
<S> <C>
3.2 Amended and Restated Bylaws of APAC Customer Services, Inc. as amended through April
30, 2000 is incorporated by reference to APAC Customer Services, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended April 2, 2000, filed May 17, 2000.
10.1 Second Amended and Restated 1995 Incentive Stock Plan is incorporated by reference to
APAC Customer Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
April 2, 2000, filed May 17, 2000.
27.1 Financial Data Schedule is incorporated by reference to APAC Customer Services, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended April 2, 2000, filed May 17, 2000.
</TABLE>
(b) REPORTS ON FORM 8-K. None.
Page 14
<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.
APAC CUSTOMER SERVICES, INC.
Date: May 18, 2000 By: /s/ Peter M. Leger
---------------------------------
President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 18, 2000 By: /s/ Gary S. Holter
-----------------------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 18, 2000 By: /s/ Kenneth R. Batko
------------------------------------
Vice President and Controller
(Principal Accounting Officer)
Page 15
