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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998
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 0-20807
ICT GROUP, INC.
(Exact name of registrant as specified in its charter.)
Pennsylvania 23-2458937
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Town Center Drive
Langhorne, Pennsylvania 19047
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215-757-0200
Title of each class: Name of each exchange on which registered:
None None
-------------------- ------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
----------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days: YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $14,731,356. Such aggregate market value was
computed by reference to the closing price of the Common Stock as reported on
the National Market of The Nasdaq Stock Market on March 19, 1999. For purposes
of this calculation only, the registrant has defined affiliates as including all
directors and executive officers. In making such calculation, registrant is not
making a determination of the affiliate or non-affiliate status of any holders
of shares of Common Stock.
The number of shares of the registrant's Common Stock outstanding as of March
19, 1999 was 11,642,925.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement relating to the 1999 Annual
Meeting of Shareholders are incorporated by reference into Part III hereof.
ICT GROUP, INC.
FORM 10-K ANNUAL REPORT
For Fiscal Year Ended December 31, 1998
TABLE OF CONTENTS
PART I
Page
Item 1. Business...............................................................................................................1
Item 2. Properties.............................................................................................................9
Item 3. Legal proceedings......................................................................................................9
Item 4. Submission of Matters to a Vote of Security Holders...................................................................10
PART II
Item 5. Market for registrant's common equity and related stockholder matters.................................................10
Item 6. Selected financial data...............................................................................................11
Item 7. Management's discussion and analysis of financial condition and results of operations.................................12
Item 7A. Qualitative and quantitative disclosure about market risk.............................................................16
Item 8. Financial statements and supplementary data ..........................................................................16
Item 9. Changes in and disagreements with accountants on accounting and financial disclosure..................................16
PART III
Item 10. Directors and executive officers of the registrant....................................................................16
Item 11. Executive compensation................................................................................................16
Item 12. Security ownership of certain beneficial owners and management........................................................16
Item 13. Certain relationships and related transactions........................................................................16
PART IV
Item 14. Exhibits, financial statement schedules, and reports on form 8-K......................................................17
-i-
This document contains certain forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include certain information
relating to outsourcing trends as well as other trends in the telemarketing
industry and the overall domestic economy, the Company's business strategy
including the markets in which it operates, the services it provides, its
ability to attract new clients and the customers it targets, the benefits of
certain technologies the Company has acquired or plans to acquire and the
investment it plans to make in technology, the Company's plans regarding
international expansion, the implementation of quality standards, the
seasonality of the Company's business, variations in operating results and
liquidity, as well as information contained elsewhere in this document where
statements are preceded by, followed by or include the words "believes,"
"plans," "intends," "expects," "anticipates" or similar expressions. For such
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. The forward-looking statements in this document are subject to
risks and uncertainties that could cause the assumptions underlying such
forward-looking statements and the actual results to differ materially from
those expressed in or implied by the statements.
The most important factors that could prevent the Company from achieving its
goals--and cause the assumptions underlying the forward-looking statements and
the actual results of the Company to differ materially from those expressed in
or implied by those forward-looking statements--include, but are not limited to,
the following: (i) the competitive nature of the telemarketing industry and the
ability of the Company to continue to distinguish its services from other
telemarketing companies and other marketing activities on the basis of quality,
effectiveness, reliability and value; (ii) economic conditions which could alter
the desire of businesses to out source certain sales and service functions and
the ability of the Company to obtain additional contracts to manage outsourced
sales and service functions; (iii) the ability of the Company to offer
value-added services to businesses in its targeted industries and the ability of
the Company to benefit from its industry specialization strategy; (iv) risks
associated with investments and operations in foreign countries including, but
not limited to, those related to relevant local economic conditions, exchange
rate fluctuations, relevant local regulatory requirements, political factors,
generally higher telecommunications costs, barriers to the repatriation of
earnings and potentially adverse tax consequences; (v) technology risks
including the ability of the Company to select or develop new and enhanced
technology on a timely basis, anticipate and respond to technological shifts and
implement new technology to remain competitive; (vi) the ability of the Company
to successfully identify, complete and integrate strategic acquisitions that
expand or complement its business; and (vii) the results of operations which
depend on numerous factors including, but not limited to, the timing of clients'
telemarketing campaigns, the commencement and expiration of contracts, the
timing and amount of new business generated by the Company, the Company's
revenue mix, the timing of additional selling, general and administrative
expenses and the general competitive conditions in the telemarketing industry
and the overall economy.
PART I
ITEM 1. BUSINESS
ICT Group, Inc. (the "Company" or "ICT") is an independent provider of
call center teleservices, which consist of outbound and inbound telemarketing
and customer support services, together with related value-added services such
as marketing, research, management and consulting services, to domestic and
international businesses. The Company's call center management experience,
technological leadership and expertise in target industries enable it to provide
its clients with high quality, cost-effective call center services. In addition
to supporting customers' teleservices programs from its own call centers, the
Company believes there is a trend by businesses to outsource many of their
internal telephone sales, customer service and product support functions, and is
pursuing additional opportunities to manage clients' call centers on a contract
basis. The Company believes it was among the first U.S. teleservices firms to
establish international call centers with multilingual capabilities, which it
intends to further expand to meet the global needs of multinational clients.
Industry Overview
The call center teleservices market includes traditional telemarketing
activities such as outbound and inbound telephone marketing, as well as customer
support, call center management and value-added marketing, research and
consulting services. Telemarketing and other call center services have evolved
significantly in recent years, as businesses have increasingly focused on
utilizing highly personalized services to target consumer and business customers
to create sales growth, provide customer support services and aid customer
retention. Direct Marketing magazine estimates that telemarketing industry
expenditures in the United States grew to approximately $77 billion in 1995. The
Company believes
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that all but a small percentage of this spending was incurred for services
performed by in-house call centers; however, companies are increasingly
outsourcing existing and new call center operations to specialists.
In today's competitive marketplace, the Company believes that
businesses are increasingly recognizing the competitive advantages of utilizing
telemarketing and other call center services to reach and communicate with their
customers. With response rates several times higher than those associated with
direct mail activities, telemarketing provides an effective channel through
which businesses are able to contact targeted customers. As a result, call
centers have become robust channels for the marketing and sale of a wide variety
of products and services, as sophisticated telemarketers are able to market
effectively and collect valuable market and customer data. Moreover, businesses
utilize call center services for a range of other functions, including, but not
limited to, providing customer support, generating customer leads, conducting
direct sales activities, managing customer retention programs and testing
telemarketing program effectiveness.
Industries that have traditionally used teleservices for targeted
marketing include insurance, financial services, publishing and
telecommunications. As technology continues to improve the capabilities and
productivity of call center representatives, companies in these industries are
increasing their use of call centers and expanding the breadth of the
applications they employ. For example, in the financial services industry, where
telemarketing historically was used primarily for customer acquisition in the
credit card business, call center services are now being employed to market a
wide range of products and services, including, but not limited to, consumer and
business loans and mutual funds. In addition, businesses in industries that have
not customarily utilized call center services are becoming significant users, as
illustrated by the increasing use of call centers by pharmaceutical and health
care services companies to perform direct marketing and database management
functions, by information services companies for marketing and customer support
activities and by energy services organizations which, as a result of
deregulation, are reviewing customer retention and product marketing activities.
Moreover, multinational companies in a variety of industries, including, but not
limited to, computer hardware and software, insurance and financial services
have begun to utilize call center services on a global basis.
The teleservices market has changed from a largely unregulated
environment dominated by small, technologically unsophisticated companies to
today's increasingly regulated and global marketplace in which technological
sophistication is essential. At the same time, the use of telemarketing and
other call center services is expanding into new applications and industries,
and large corporations are increasingly seeking to partner with independent
teleservices specialists for the management and enhancement of the call center
aspects of their marketing, sales and customer service activities. The Company
believes these trends present attractive opportunities for large,
technologically sophisticated teleservices firms such as ICT that provide a full
range of call center services.
The ICT Approach
ICT believes that it has distinguished itself in the call center
teleservices industry by focusing on target industries and by providing its
domestic and international customers with comprehensive support. With extensive
experience in telemarketing, as well as experience in other fields such as
marketing, research and consulting, the Company's management team has emphasized
call center management experience, economies of scale, technological leadership
and expertise in target industries as a means of establishing ICT as a
consistent provider of cost-effective call center teleservices. By focusing on
target industries, the Company believes it has developed significant expertise
marketing products and services for customers in those target industries. ICT
believes this approach positions it to secure call center management
relationships with businesses seeking to out source the management of existing
or new call center operations. In addition, the Company continues to introduce
value-added services, such as industry-focused marketing, research and
consulting services, and to increase its international presence in order to
provide multilingual teleservices domestically and internationally.
Strategy
With the increasing use of teleservices by businesses and the trend
toward outsourcing call center activities, ICT believes significant
opportunities exist to expand its business. The Company's growth strategy
includes the following key elements:
o Pursue Outsourced Call Center Management Opportunities. ICT believes
the current trend toward outsourcing call center activities will continue, and
it intends to pursue additional opportunities to manage new or existing call
center operations on an outsourced basis, either independently or through joint
bids with strategic partners, such as staffing agencies
2
and systems integration firms. Management Services accounted for approximately
$11.3 million, or 9%, of consolidated revenues in 1998.
o Increase International Presence. The Company plans to broaden its
geographic reach and further develop its expertise in telemarketing in
international markets by focusing on businesses with multinational operations.
ICT currently provides multilingual telemarketing services in the United States,
Europe, Latin America and Canada. ICT intends to expand its operations in these
areas and to explore additional international operations in areas such as the
Pacific Rim. International TeleServices accounted for approximately $13.4
million, or 11%, of consolidated revenues in 1998, including revenues generated
by Spantel from telemarketing in the U.S. Hispanic market.
o Develop Strategic Alliances and Acquisitions. ICT intends to continue
pursuing strategic alliances with, and acquisitions of, domestic and
international businesses that provide complementary call center teleservices.
The Company initiated its multilingual expansion in 1994 through the acquisition
of the business of Spantel, which provides services to Spanish-speaking markets
in the United States and Latin America, and the establishment of Eurotel to
provide multilingual teleservices to pan-European markets. In May 1995, the
Company acquired the business composing its ICT Financial Marketing Services
division, which provides telebanking services.
o Expand Value-Added Marketing Services. The Company will continue to
complement its core telemarketing expertise with additional value-added
services, such as marketing, research and consulting services, with the goal of
providing comprehensive teleservices to businesses in its targeted industries.
o Focus on Industry Specialization. The Company believes it has gained
a competitive advantage by concentrating on servicing businesses in a limited
number of targeted industries and intends to maintain its industry
specialization. In addition, the Company believes that industry specialization
will enable it to attract new clients because of its industry expertise.
o Maintain Technology Investment. The Company intends to continue
making substantial investments in technology to maintain its technological
strength within the teleservices industry. ICT has been an industry leader in
the implementation of innovative teleservices technologies to lower its
effective cost per call and to improve its sales and customer service. The
Company has made significant investments in information and communications
technologies and believes it was among the first to offer fully automated
teleservices and to implement predictive dialing equipment that it believes is
now recognized industry-wide to be essential in handling consumer outbound
telemarketing.
o Continue Commitment to Quality Service. ICT has consistently
emphasized quality service and extensive employee training by investing in
quality assurance personnel and procedures. The Company intends to continue its
commitment to providing quality service, as illustrated by its achieving ISO
9002 certification in its TeleServices division and North American components of
its International division in 1998. Additional certifications in Management
Services and European operations are being pursued in 1999.
ICT's Services
ICT delivers its telemarketing, marketing, research, and call center
management consulting services through four business divisions which are
supported by the Company-wide marketing, sales, systems and corporate units.
ICT's domestic sales force is organized into a series of industry sectors
focused on selling the full range of the Company's services to clients in their
respective target industries. ICT believes this organizational structure allows
the Company to provide comprehensive solutions to its clients' teleservices
needs, since it enables ICT's sales and customer service personnel to develop
in-depth knowledge of the needs of businesses in their designated industries.
ICT's suite of services presently includes traditional telemarketing
services, consisting of consumer outbound telemarketing, consumer inbound
telemarketing and business-to-business telemarketing, as well as value-added
services, consisting of marketing, research and consulting services. In
addition, ICT pursues opportunities to manage third parties' call center
activities on an outsourced basis, and offers domestic and international
multilingual telemarketing services that provide sales and service support to
non-English speaking markets in the United States, Europe, Latin America and
Canada.
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Domestic TeleServices
Traditional domestic telemarketing services are offered through the
Company's TeleServices division, which is comprised of the TeleDirect and
TeleSolutions business units.
ICT TeleDirect. ICT TeleDirect provides inbound and outbound direct
sales telemarketing services to the insurance and financial products and
services, credit card and endorsed products sectors.
ICT TeleSolutions. ICT TeleSolutions provides teleservices support
activities primarily for the telecommunications, information services, energy
services, publishing and consumer goods industries.
International TeleServices
The Company offers domestic and international multilingual
telemarketing services through ICT TeleServices International. Additionally, the
Company established ICT Australia in the first quarter of 1999. These business
units are designed to offer outbound and inbound services, customer care
management services, marketing, research and other value-added services to
clients. The growth of multinational corporations and the increase in
non-English speaking residents in the United States has increased the demand for
the multilingual capabilities that ICT provides. The division currently consists
of the following units:
ICT Eurotel. Eurotel provides pan-European, multilingual telephone
marketing and information services to Europe from its call centers in Dublin,
Ireland and London, England.
ICT Spantel. Spantel provides bi-lingual English, and Spanish
telemarketing services from its Miami, Florida call center to the rapidly
growing marketplace of Spanish-speaking American and Latin American consumers
and businesses.
ICT Canada. The Company opened its first Canadian call center in
January 1996 with service representatives who are fluent in French and English.
As of December 31, 1998, ICT Canada has call centers located in Saint John,
Moncton, and Riverview New Brunswick, Canada and in Halifax and Sydney, Nova
Scotia, Canada.
Marketing Services
ICT provides businesses in its target industries with marketing,
research and consulting services thus leveraging its traditional telemarketing
services and enabling it to offer comprehensive solutions for its clients'
teleservices needs through ICT Marketing Services. The Division presently
consist of the following units:
ICT Financial Marketing Services. This unit's management team consists
of professionals who have client-side banking experience in branch management
and operations, marketing, advertising, research, electronic funds transfer,
home and branchless banking, customer service and systems support. As of
December 31, 1998, ICT Financial Marketing Services operated a dedicated
inbound/outbound call center in Amherst, New York.
ICT Medical Marketing Services. Through this business unit, ICT
provides service for the increasingly complex needs of healthcare and
pharmaceutical clients. ICT's dedicated call center is equipped with computer
and telecommunications software and hardware to service both outbound and
inbound client applications. Work stations are staffed by dedicated medical
staff to meet the sophisticated product and customer profiles of specific
clients. As of December 31, 1998, ICT Medical Marketing Services operated a
dedicated call center in Langhorne, Pennsylvania to support these industries.
ICT Research Services. This business unit provides businesses with
value added market research survey design, data collection and consulting
services. ICT's Research Services makes extensive use of advanced technology,
including integrated predictive dialing and Computer Assisted Telephone
Interviewing ("CATI"), to obtain market and customer data cost effectively. As
of December 31, 1998, ICT Research Services operated two call centers.
4
Management Services
The Management Services division was established in mid-1996 to pursue
outsourcing opportunities that exist for customer care management. This division
offers services such as site and system equipment selection, facility launch,
program planning and implementation, staffing, technical support and ongoing
customer care management. Depending on client needs, ICT will assume sole or
shared responsibilities for the management of a call center's operations.
Through Management Services, ICT can either assume the management and
operations of an in-house call center facility or move in-house operations to
new or existing ICT facilities. ICT has also established strategic alliances
with Alltel, Aspect Telecommunications and Information Management Associates,
Inc. ("IMA") to expand opportunities for customer care service.
Call Center Facilities
The following table lists the Company's call center facilities as of
December 31, 1998:
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Locations
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Newark, DE; Fort Lauderdale, FL; Lakeland, FL; Miami, FL; Louisville,
KY(2); Oxford, ME; Pittsfield, ME; Amherst, NY(2); Depew, NY;
Lancaster, OH; Milford, OH; Sharonville, OH; Allentown, PA; Dubois,
PA; Eddystone, PA; Langhorne, PA(3); Trevose, PA; Chesapeake, VA;
Norfolk, VA; Virginia Beach, VA; Martinsburg, WV; Parkersburg, WV;
Westover, WV; Halifax, Nova Scotia, Canada; Moncton, New Brunswick,
Canada; Riverview, New Brunswick, Canada; Saint John, New Brunswick,
Canada; Sydney, Nova Scotia, Canada; Dublin, Ireland; and London, U.K.
----------------------------------------------------------------------
Target Industries
ICT's domestic sales force is assigned to specific industry sectors,
which enables its sales personnel to develop in-depth industry and product
knowledge. Several of the industries that ICT serves are undergoing deregulation
and consolidation, which provides the Company with additional opportunities as
businesses search for low cost solutions for their marketing, sales and customer
support needs. In 1998, business within the insurance and financial services
industries accounted for 68% of the Company's revenues. The industries targeted
by the Company and the principal services provided are described below.
Insurance
ICT works with large consumer insurance companies to market and provide
customer support services for products such as life, accident, health, and
property and casualty insurance. The Company's insurance group operates
numerous dedicated call centers and in 1998, the Company sold approximately 2.1
million insurance policies on behalf of its clients. ICT employs approximately
360 agents collectively holding over 7,000 state or Canadian provincial
insurance licenses. The Company has a full-service agent licensing and a
continuing education department, which enables its agents to obtain licenses in
47 states and eight Canadian provinces and to maintain their compliance with
insurance regulations. Clients include, but are not limited to, MMIG, JCPenney
Life Insurance Company, Providian, and American Security Group.
Financial Services
ICT provides banks and other financial services clients with a wide
range of services, including card-holder acquisition, active account generation,
account balance transfer, account retention and customer service. With the
acquisition in 1995 of its Financial Marketing Services operations, ICT began
offering additional banking services, such as marketing and servicing home
equity loans, lines of credit, loan-by-phone, checking and deposit account
acquisition, mortgage loans and other traditional banking products. ICT
Financial Marketing Services provides consulting and telebanking services to
financial services clients from its dedicated inbound/outbound call center in
Amherst, New York. Among ICT's financial services clients in 1998 are Advanta,
Fleet, Old Kent, GMAC, First Card, First USA, MBNA, and Metris.
5
Publishing
ICT provides services such as subscription sales, subscription
renewals, book club membership sales and customer service to clients in the
publishing industry. ICT's program management professionals with publishing
experience also develop custom programs for assisting clients in their marketing
and sales efforts. The publishing division clients are supported in ICT's
TeleSolutions call centers. ICT's publishing clients in 1998 include, but are
not limited to, TV Guide, McGraw Hill, Publishers Clearinghouse, R.R. Donnelley
and Cahners.
Telecommunications
ICT provides telemarketing programs for major telecommunications
companies for long distance, cellular and cable products and services, regional
telecommunications companies marketing advanced telephone features, and
companies which provide billing support services to telecommunications carriers.
Through its various divisions, the Company is able to offer a range of services
including customer service, sales and survey campaigns. Within the
telecommunications industry, ICT clients in 1998 include, but are not limited
to, Bell Atlantic, Integretel, and Comcast.
Pharmaceuticals and Health Care Services
Leveraging ICT's insurance market position into the managed care
industry, the Company, through its ICT Medical Marketing Services business unit,
serves pharmaceutical manufacturers, medical advertising agencies, health
insurance companies, hospitals and other health care related suppliers, using
telemarketing services for the sale and marketing of products to both health
care professionals (hospitals, physicians, pharmacists and nurses) and health
care consumers (patients and prospective patients). The applications the Company
offers in this market segment consist of business-to-business,
business-to-professional and business-to-consumer, utilizing inbound and
outbound services to sell products, to conduct market research, develop
marketing databases and provide customer service. Clients in this category in
1998 include, but are not limited to, SmithKline Beecham, Aetna/U.S. Healthcare
and Pacificare.
Computer Software and Hardware
ICT provides sophisticated marketing resources for both outbound and
inbound applications on behalf of clients in the computer software and hardware
industries. Outbound applications include, but are not limited to, new customer
acquisition, customer retention and sales lead generation. Inbound applications
include, but are not limited to, customer service, first-level customer
technical support and the sale of personal computer-related products. ICT's
clients frequently integrate outbound and inbound call campaigns, seeking to
achieve favorable compounding results. Computer industry clients in 1998
include, but are not limited to, Sony Computer Entertainment, Intel and Oracle.
Technology
ICT invests heavily in system and software technologies designed to
improve call center production thereby lowering the effective cost per call made
or received, and to improve sales and customer service effectiveness by
providing its sales and service representatives with real-time access to
customer and product information. Since January 1993, the Company has invested
over $32.0 million in information and communications systems and software
enabling it to use state-of-the-art call center technology. ICT believes it was
one of the first fully automated teleservices company and among the first to
implement predictive dialing equipment, which the Company believes is now deemed
essential by the teleservices industry in handling consumer outbound
telemarketing. A predictive dialing system is an integrated computer and
telephone switch that is used to dial a pre-programmed list of customers. The
system will detect when a customer answers the call and will immediately
transfer the call and the appropriate data to an available agent. ICT realizes
significant cost savings through the use of innovative call handling technology,
automatic call distributors ("ACD") and advanced scripting software, all of
which optimize agent utilization. An ACD is a phone switch that accepts an
inbound call from the public network and routes that call to the most
advantageous, available resource to handle the call. Scripting software is used
in call centers to provide the agent with the appropriate information to use
during the call and to specify the content and sequence of the information
captured from the customer.
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The Company utilizes a scalable set of UNIX processors to support its
outbound and inbound call center operations. The term scalable in the computer
industry generally means that a system or product line is configured to work
cost-effectively at both low and high volume. Dedicated UNIX processors are used
for inbound call centers while predictive dialing systems, networked to UNIX
processors at the Company's corporate data center, are used at each outbound
call center. The predictive dialing systems support local call and data
management: the UNIX processors provide centralized list management, data
consolidation, report generation and interfaces with client order processing
systems.
ICT Group uses a series of telemarketing software to prepare outbound
and inbound scripts, manage, update and reference client data files, collect
statistical transaction and performance data and assist in the preparation of
internal and client reports. This telemarketing software includes ICT Group's
proprietary call transaction management system ("CTMS") as well as IMA's Edge
TeleBusiness Software systems. The use of the Edge system as well as Oracle's
database management system provides a scalable and robust suite of applications
to support our client's business needs.
ICT Group installed digital recording and monitoring technology in 1998
that provides for sophisticated recording capabilities. Deployment of this
technology is expected to generate significant cost reduction in Quality
Assurance costs in 1999 and beyond.
ICT has recently initiated the evaluation of technologies that will
allow integration of its application and telephony technology with the Internet.
The Company intends to take advantage of these technologies to provide a totally
integrated inbound and outbound solution to clients.
Quality Assurance, Personnel and Training
ICT emphasizes quality service and extensive employee training as a way
to compete effectively and invests heavily in quality assurance personnel and
practices. ICT's quality assurance and training departments are responsible for
the development and enforcement of call center policies and procedures, the
selection and training of telephone service representatives, the training and
professional development of call center management personnel, monitoring of
calls and verification and editing of all sales. Through the Company's quality
assurance department, both the Company and its clients are able to perform real
time on-site and remote call monitoring to maintain quality and efficiency.
Sales confirmations are recorded (with the customer's consent) in order to
verify the accuracy and authenticity of transactions. Additionally, ICT is able
to provide to its clients immediate updates on the progress of an ongoing
telemarketing effort. Access to this data allows ICT and its clients to identify
potential campaign shortfalls and to immediately modify or enhance a
telemarketing effort. In 1998 the Company completed the installation of digital
recording technology in all US outbound centers. This installation allows the
consolidation of all verification activities into a centralized location and
effectively created a "third party" verification center. Verification results
are now available to Operations and Client Services by the end of the calling
day. Also, each center can access the recordings for review with supervisory
staff or the service representative. The Company's commitment to providing
quality service is further illustrated by its current effort toward
certification with ISO 9002 standards, which are administered by the
International Organization for Standardization and represent an international
consensus on the essential features of a quality system to ensure the effective
operation of a business. The Company's TeleServices division and the North
American components of its International division achieved ISO 9002 registration
in October 1998. The Company expects to receive Certification of ICT Management
Services and European operations in 1999.
Management believes that a key driver of ICT's success is the quality
of its employees. The Company tailors its recruiting and training techniques
toward the industries it serves. Service representatives receive a detailed
review of each program in which they are to participate along with training
regarding the background, structure and philosophy of the client that is
sponsoring the program. As is typical in the telemarketing industry, over 90% of
the Company's service representatives are part-time employees. As of March 12,
1999, ICT employed 5,346 persons, of which more than 4,700 were service
representatives. None of ICT's employees are represented by a labor union,
however, negotiations are currently underway with a union to represent ICT
employees at one of our Canadian centers. The Company considers its relations
with its employees to be good.
Clients
The Company generally operates under month-to-month contractual
relationships with its telesales clients. The pricing component of a contract is
often comprised of an initial fee, a base service charge and separate charges
for ancillary services. Service charges are usually based upon an hourly rate
for outbound calls and per-minute rates for inbound calls. On
7
occasion, the Company performs services for which it is paid commissions based
on completed sales under contracts terminable by the Company with 30 or fewer
days notice. ICT's Management Services and other customer care operations
typically enter into longer term, contractual relationships that may contain
provisions for early contract terminations. The Management Services division's
revenues represented approximately $11.3 million, or 9%, of the Company's
consolidated revenues in 1998.
ICT targets those companies which it believes have the greatest
potential to generate recurring revenues to the Company based on their ongoing
direct sales and customer service needs. At December 31, 1998, ICT provided
direct sales and customer service to approximately 270 clients. The Company's
largest clients in recent years have been MMIG and JCPenney Life Insurance
Company, which together accounted for approximately 22% of the Company's net
revenues in 1998. No other client accounted for more than 10% of the Company's
net revenues in 1998.
Competition
The teleservices industry is intensely competitive and the Company's
principal competition in its primary markets comes from large telemarketing
service organizations, including, but not limited to, Convergys Corporation,
SITEL Corporation, TeleTech Holdings, Inc., APAC TeleService, Inc. and West
Telemarketing Corporation. The Company competes with numerous independent
telemarketing firms, some of which are as large or larger than ICT, as well as
the in-house telemarketing and customer service operations of many of its
clients or potential clients. In addition, most businesses that are significant
consumers of telemarketing services utilize more than one teleservice firm at a
time and reallocate work among various firms from time to time. Some of this
work is contracted on an individual project basis, with the effect that the
Company and other firms seeking such business are required to compete with each
other frequently as individual projects are initiated. Furthermore, the Company
believes there is a trend among businesses with telemarketing operations toward
outsourcing the management of those operations to others and that this trend may
attract new competitors, including, but not limited to, competitors that are
substantially larger and better capitalized than ICT, into the Company's market.
Government Regulation
Both the federal and state governments regulate telemarketing sales
practices. The Federal Telephone Consumer Protection Act of 1991 (the "TCPA,"),
enforced by the Federal Communications Commission, imposes restrictions on
unsolicited telephone calls to residential telephone subscribers. Under the
TCPA, it is unlawful to initiate telephone solicitations to residential
telephone subscribers before 8:00 a.m or after 9:00 p.m. local time at the
subscriber's location, or to use automated telephone dialing systems or
artificial or prerecorded voices to certain subscribers. Additionally, the TCPA
requires telemarketing firms to develop a written policy implementing a
"do-not-call" list, and to train its telemarketing personnel to comply with
these restrictions. The TCPA creates a right of action for both consumers and
state attorneys general. A court may award actual damages or minimum statutory
damages of $500 for certain violations, which may be trebled for willful or
knowing violations. Currently, the Company trains its service representatives to
comply with the regulations of the TCPA and programs its call management system
to avoid initiating telephone calls during restricted hours or to individuals
maintained on an applicable do-not-call list.
The Federal Trade Commission (the "FTC") regulates both general sales
practices and telemarketing specifically. Under the Federal Trade Commission Act
(the "FTC Act"), the FTC has broad authority to prohibit a variety of
advertising or marketing practices that may constitute "unfair or deceptive acts
and practices." Pursuant to its general enforcement powers, the FTC can obtain a
variety of types of equitable relief, including injunctions, refunds,
disgorgement, the posting of bonds, and bars from continuing to do business, for
a violation of the acts and regulations it enforces.
The FTC also administers the Federal Telemarketing and Consumer Fraud
and Abuse Prevention Act of 1994 (the "TCFAPA"). Under the TCFAPA, the FTC has
issued regulations prohibiting deceptive, unfair or abusive practices in
telemarketing sales. Generally, these rules prohibit misrepresentations of the
cost, quantity, terms, restrictions, performance or characteristics of products
or services offered by telephone solicitation or of refund, cancellation or
exchange policies. The regulations also regulate the use of prize promotions in
telemarketing to prevent deception and require that a telemarketer identify
promptly and clearly the seller on whose behalf the telemarketer is calling, the
purpose of the call, the nature of the goods or services offered and, if
applicable, that no purchase or payment is necessary to win a prize. The
regulations also require that telemarketers maintain records on various aspects
of their business. Analogous restrictions apply to industries regulated by the
SEC. The Company believes that it is in compliance with the TCPA and its
implementing regulations, as well
8
as with the regulations promulgated pursuant to the TCFAPA. Failure to comply
with either the TCPA or the TCFAPA could adversely affect or limit the Company's
current or future operations
Most states have enacted statutes similar to the FTC Act generally
prohibiting unfair or deceptive acts and practices. Additionally, some states
have enacted laws and others are considering enacting laws targeted directly at
telemarketing practices. For example, telephone sales in certain states are not
final until a written contract is delivered to and signed by the buyer, and such
a contract often may be canceled within three business days. At least one state
also prohibits telemarketers from requiring credit card payment, and several
other states require certain telemarketers to obtain licenses, post bonds or
submit sales scripts to the states attorneys general. Under the more general
statutes, depending on the willfulness and severity of the violation, penalties
can include imprisonment, fines and a range of equitable remedies such as
consumer redress or the posting of bonds before continuing in business. Many of
the statutes directed specifically at telemarketing practices provide for a
private right of action for the recovery of damages or provide for enforcement
by state agencies permitting the recovery of significant civil or criminal
penalties, costs and attorneys' fees. There can be no assurance that any such
laws, if enacted, will not adversely affect or limit the Company's current or
future operations.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Langhorne,
Pennsylvania in leased facilities consisting of approximately 29,500 square feet
of office space rented under leases that expire in December 2000. The Company
also leases all of the facilities used in its call center operations, as well as
office space in Chicago, Illinois, and Seattle, Washington for its sales
offices. The leases for the Company's facilities expire generally between May
1999 and January 2005 and typically contain renewal options. The Company
believes that its existing facilities are suitable and adequate for its current
operations, but additional facilities will be required to support growth. The
Company believes that suitable additional or alternative space will be available
as needed on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to
its business. In the opinion of management, no litigation to which the Company
is currently a party is likely to have a material adverse effect on the
Company's results of operations, financial condition or liquidity, if decided
adversely to the Company.
As previously reported by the Company, on October 23, 1997, a
shareholder, purporting to act on behalf of a class of ICT shareholders filed a
complaint in the United States District Court for the Eastern District of
Pennsylvania against the Company and certain of its directors. The complaint
alleges that the defendants violated the federal securities laws, and seeks
compensatory and other damages, including rescission of stock purchases made by
the plaintiff and other class members in connection with the Company's initial
public offering effective June 14, 1996. The defendants believe the complaint is
without merit, deny all of the allegations of wrongdoing and are vigorously
defending the suit. On February 2, 1998, the defendants filed a motion to
dismiss the complaint. On May 19, 1998, the complaint was dismissed by a judge
for the United States District Court for the Eastern District of Pennsylvania
with leave to plaintiff to file an amended complaint on narrow accounting
allegations. On June 22, 1998, plaintiffs filed a First Amended Class Action
Complaint purporting to bring negligence claims in connection with the Company's
initial public offering. The defendants continue to deny all allegations of
wrongdoing, believe the amended complaint is without merit and are vigorously
defending the suit. On November 3, 1998, the court granted a motion appointing
Rowan Klein and Michael Mandat as lead plaintiffs. On February 2, 1999, the
court dismissed the case without prejudice, directing that the case remain in
status quo, that the statute of limitations be tolled and that the parties
continue with discovery and advise the court if assistance by the court is
needed. The parties are proceeding with discovery.
On July 12, 1996, Main Street Marketing of America Incorporated ("Main
Street Marketing") brought a demand for arbitration against the Company in the
state of Pennsylvania claiming damages as result of the Company's alleged breach
of a service agreement under which the Company agreed to provide Main Street
Marketing with various data entry and data processing services relating to Main
Street Marketing's magazine subscription program. Main Street Marketing alleges
that the Company committed various breaches of the service agreement and has
demanded an award in excess of $3 million. The Company has responded to this
demand for arbitration by denying liability and counterclaiming in an amount in
excess of $125,000. Discovery has progressed in this matter, but has not yet
been completed. It is not possible at this stage of the proceeding to evaluate
the probable outcome of this litigation.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the National Market segment of the
Nasdaq Stock Market under the symbol "ICTG." The following table sets forth, for
the periods indicated, the high and low sales prices as quoted on the Nasdaq
Stock Market.
Period High Low
------ ---- ---
Fiscal 1997:
First Quarter 5 7/8 4 1/4
Second Quarter 5 1/4 3 3/8
Third Quarter 6 3/8 4
Fourth Quarter 6 5/8 3 1/2
Fiscal 1998:
First Quarter 5 5/8 3 3/4
Second Quarter 5 1/2 3 3/4
Third Quarter 4 3/8 2
Fourth Quarter 2 7/8 1 7/8
As of March 19, 1999, there were 53 holders of record of the Company's
Common Stock. On March 19, 1999, the closing sale price of the Common Stock as
reported by the Nasdaq Stock Market was $2.875.
The Company has never declared or paid any cash dividends on its
capital stock. The Company currently intends to retain its earnings to finance
future growth and working capital needs, and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.
10
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the financial
statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and the consolidated financial statements and related
notes thereto included in Item 8.
For Year Ended December 31
---------------------------------------------------------
1994 1995 1996 1997 1998
----------------------------------------------------------
(In thousands, except per share amounts)
Statement of Operations Data:
Net revenues $ 34,123 $52,116 $ 71,599 $91,653 $120,982
-------- ------- -------- ------- --------
Operating expenses:
Cost of services 19,593 28,639 38,537 50,662 69,588
Selling, general and administrative 13,121 21,073 30,708 37,009 47,012
Nonrecurring compensation expense -- -- 12,689 -- --
-------- ------- -------- ------- --------
Total operating expenses 32,714 49,712 81,934 87,671 116,600
Operating income (loss) 1,409 2,404 (10,335) 3,982 4,382
Interest expense (income), net 511 834 180 (398) 406
-------- ------- -------- ------- --------
Income (loss) before taxes $ 898 $ 1,570 $(10,515) $ 4,380 $ 3,976
-------- ------- -------- ------- --------
Income taxes (benefit) -- -- (2,998) 1,708 1,550
-------- ------- -------- ------- -------
Net income (loss) $ 898 $ 1,570 $ (7,517) $ 2,672 $ 2,426
======== ======= ======== ======= =======
Diluted earnings (loss) per share $ .09 $ .17 $ (.72) $ .22 $ .20
======== ======= ======== ======= =======
Shares used in computing diluted
earnings per share 9,490 9,490 10,407 12,044 12,023
Pro Forma data: ======== ======= ======== ======= =======
Historical income (loss) before $ 898 $ 1,570 $(10,515)
income taxes
Pro forma income tax expense (benefit) (1) 406 667 (3,767)
-------- ------- --------
Pro forma net income (loss) (1) 492 $ 903 $ (6,748)
======== ======= ========
Pro forma diluted earnings (loss) per share (1) $ .05 $ .10 $ (.65)
======== ======= ========
Shares used in computing pro forma
diluted earnings (loss) per share 9,490 9,490 10,407
======== ======= ========
As of December 31
--------------------------------------------------------------------
1994 1995 1996 1997 1998
--------------------------------------------------------------------
(In thousands)
Balance Sheet Data:
Cash and cash equivalents $ 11 $ 447 $ 18,298 $ 17,711 $14,225
Working capital (deficit) (462) (1,601) 27,066 25,530 27,093
Total assets 12,044 18,481 49,112 61,578 75,876
Long-term debt, less current maturities 941 881 1,057 4,799 14,000
Capitalized lease obligations,
less current maturities 807 1,632 1,296 1,498 833
Shareholders' equity 2,270 3,843 41,020 43,368 45,785
- -----------
(1) A pro forma provision for taxes for periods prior to the effective date
of the Company's offering has been computed as if the Company had been
fully subject to federal and state income taxes.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth statement of operations data as a
percentage of net revenues for the periods indicated:
Year Ended December 31
---------------------- ----------------- -----------------
1998 1997 1996
---------------------- ----------------- -----------------
Net revenues 100.0% 100.0% 100.0%
------ ------ ------
Operating expenses
Cost of services 57.5 55.3 53.8
Selling, general and administrative 38.9 40.4 42.9
Nonrecurring compensation expense --- --- 17.7
--- --- ----
Total operating expense 96.4 95.7 114.4
------ ------ -----
Operating income (loss) 3.6 4.3 (14.4)
Interest expense .8 .5 .9
Interest income (.5) (1.0) (.6)
------ ------ -----
Income (loss) before income taxes 3.3 4.8 (14.7)
Income tax expense (benefit) (1) 1.3 1.9 (5.3)
------ ------ -----
Net income (loss) (1) 2.0% 2.9% (9.4%)
====== ====== ======
(1) Reflects pro forma income tax benefit for the year ended December 31, 1996
prior to the termination of the Company's S Corporation status. See Note 3
to Consolidated Financial Statements for information concerning the
computation of the pro forma income tax benefit and pro forma net loss.
12
Years Ended December 31, 1998 and 1997
Net Revenues. Net revenues increased 32% in 1998 to $121.0 million from
$91.7 million in 1997 primarily due to growth in TeleServices and Management
Services revenues. TeleService division revenues increased 29% to $92.4 million
in 1998 from $71.4 million in 1997 resulting from continued strong growth in the
domestic market. International TeleService revenues grew 4% to $13.4 million in
1998 from $12.9 million in 1997. Domestic TeleService revenues grew 35% to $79.0
million in 1998 from $58.5 million in 1997 as a result of growth in the
financial services and telecommunications industries. Marketing services
revenues increased 20% to $17.3 million in 1998 from $14.4 million in 1997 as a
result of growth in the financial services industry. Management Services
revenues increased 92% to $11.3 million in 1998 from $5.9 million in 1997
reflecting the addition and expansion of several customer care contracts.
Cost of Services. Cost of services increased 37% to $69.6 million in
1998 from $50.7 million in 1997, resulting from increased business activity in
each of the business units. As a percentage of revenues, cost of services
increased to 57.5% in 1998 from 55.3% in 1997 primarily due to lower average
prices and increased labor costs the Company incurred as a result of the
favorable economic climate and historically low unemployment levels. These
conditions made it more difficult for the Company to attract sufficient call
center staff.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 27% to $47.0 million in 1998 from $37.0
million in 1997 due to an increased number of call centers and related
workstation capacity and additional sales and systems support. As a percentage
of revenues, selling, general and administrative expenses declined to 38.9% in
1998 from 40.4% in 1997 as the Company has consolidated certain call centers
into larger centers, spread fixed costs of operations over the larger centers
and generally managed fixed expenses to support a larger revenue base.
Interest Expense (Income). Net interest expense of $406,000 versus net
interest income of $398,000 in 1998 and 1997, respectively, reflects the
interest expense related to capital leases and borrowings against the Company's
line of credit for capital expansion offset by investment income. The increase
in net interest expense is the result of increased average outstanding balances
on the line of credit and decreased average invested funds in 1998 as compared
to 1997. In 1998, the Company financed capital equipment purchases under its
line of credit. In 1998, the Company borrowed approximately $12.2 million under
its line of credit which was converted to term debt.
Income Taxes. Income Taxes decreased $159,000 to $1.5 million for 1998
from $1.7 million in 1997. In both 1998 and 1997, the provision for income taxes
was approximately 39% of income before income taxes.
Years Ended December 31, 1997 and 1996
Net Revenues. Net revenues increased 28% in 1997 to $91.7 million from
$71.6 million in 1996 primarily due to growth in TeleServices revenues.
TeleService division revenues increased 30% to $71.4 million in 1997 from $54.9
million in 1996 resulting from continued strong growth in both international and
domestic markets. International TeleService revenues grew 77% to $12.9 million
in 1997 from $7.3 million in 1996. Domestic TeleService revenues grew 23% to
$58.5 million in 1997 from $47.6 million in 1996 as a result of growth in the
insurance, financial services and telecommunications industries. Marketing
services revenues increased 15% to $14.4 million in 1997 from $12.5 million in
1996 as a result of growth in the healthcare and pharmaceutical industries. The
Marketing Services business unit results have been restated to include the
Medical Marketing Services division which was formerly included as a part of
Domestic TeleServices. Management Services revenues increased 43% to $5.9
million in 1997 from $4.1 million in 1996 as a result of the Management Services
division commencing operations in the latter half of the second quarter of 1996.
Cost of Services. Cost of services increased 31% to $50.7 million in
1997 from $38.5 million in 1996, resulting from increased business activity in
each of the business units. As a percentage of revenues, cost of services
increased to 55.3% in 1997 from 53.8% in 1996 primarily due to the mix in the
structure of call center management projects in 1997 compared to 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 21% to $37.0 million in 1997 from $30.7
million in 1996 due to an increased number of call centers and related
workstation capacity and additional sales and systems support. As a percentage
of revenues, selling, general and administrative expenses declined
13
to 40.4% in 1997 from 42.9% in 1996 as the Company has better managed the timing
of opening additional call centers and adding workstation capacity; consolidated
certain call centers into larger centers, spread fixed costs of operations over
the larger centers and generally managed fixed expenses to support a larger
revenue base.
Interest Expense (Income). Interest income increased $402,000 to
$877,000 in 1997 from $475,000 in 1996 as a result of the investment of funds
obtained through the Company's initial public offering in June 1996. Interest
expense decreased $176,000 to $479,000 in 1997 from $655,000 in 1996. Subsequent
to the Company's initial public offering in June 1996, the Company repaid all
indebtedness under its revolving line of credit and term loans with its bank and
subordinated debt. During 1997, the Company financed certain capital equipment
purchases under its equipment line of credit. For the year ended December 31,
1997, borrowings under the equipment line of credit were approximately $5.5
million.
Income Taxes. Prior to the effective date of the Company's initial
public offering, the Company was subject to taxation under Subchapter S of the
Internal Revenue Code. As a result, the net income of the Company, for federal
and state tax purposes, had been reported by and taxed directly to the Company's
shareholders. Subsequent to its initial public offering, the Company has been
fully subject to federal and state income taxes. For the year ended December 31,
1997, the provision for income taxes was $1.7 million or approximately 39% of
income before taxes. For the year ended December 31, 1996, the pro forma income
tax benefit was $3.8 million or approximately 35.8% of the loss before taxes.
Quarterly Results and Seasonality
The Company has experienced and expects to continue to experience
significant quarterly variations in operating results, principally as a result
of the timing of clients' telemarketing campaigns, the commencement and
expiration of contracts, the timing and amount of new business generated by the
Company, the Company's revenue mix, the timing of additional selling, general
and administrative expenses to support the growth and development of existing
and new business units and the competitive conditions in the telemarketing
industry.
The Company's business tends to be strongest in the fourth quarter due
to the high level of client telemarketing activity prior to the holiday season.
In the first quarter, business generally levels off or slows from the previous
quarter as a result of reduced telemarketing activities and client transitions
to new marketing programs during the first quarter of the calendar year. In
addition, the Company typically expands it's operations in the first quarter to
support anticipated business growth beginning in the second quarter. As a
result, selling, general and administrative costs typically increase in the
first quarter without a commensurate increase in revenues which results in
decreased profitability for the first quarter versus the previous fourth
quarter. Also, demand for the Company's services typically slows or decreases in
the third quarter as the volume of telemarketing projects decreases during the
summer months. In addition, the Company's operating expenses increase during the
third quarter in anticipation of higher demand for its services during the
fourth quarter.
Liquidity and Capital Resources
Cash provided by operations in 1998 was $292,000 compared to $6.2
million in 1997. The decrease of approximately $5.9 million resulted from
increased earnings before noncash charges offset by increased working capital
requirements.
Cash used in investing activities in 1998 was $14.8 million as compared
to $10.6 million in 1997. The increase of approximately $4.2 million is
primarily attributable to an increase in the number of workstations to 3,416 at
December 31, 1998 from 2,520 at December 31, 1997, related call center buildout,
upgraded telephony equipment, the implementation of digital recording
technology, and continued development and implementation of Oracle and IMA/Edge
Software.
Cash provided by financing activities was $11.1 million in 1998 as
compared to $4.1 million in 1997. In 1998, the Company financed approximately
$12.2 million of capital expenditures through bank term loans. These proceeds
were partially offset by payment of approximately $1.1 million under the bank
term loans and capitalized lease obligations.
The Company's telemarketing activities will continue to require
significant capital expenditures. Historically, equipment purchases have been
financed through the Company's equipment line of credit and through capitalized
lease obligations with various equipment vendors and lending institutions. The
lease obligations are payable in varying installments through 2001. Outstanding
obligations under capitalized leases at December 31, 1998 were $1.5 million.
14
In 1998, the Company signed a three-year, $45.0 million credit
agreement with BankBoston, N.A. and Summit Bancorp. At December 31, 1998,
outstanding obligations under the credit agreement were $18.0 million, leaving
$27.0 million available to the Company.
The Company believes that cash on hand, together with cash flow
generated from operations and funds available under the credit agreement will be
sufficient to finance its current operations and planned capital expenditures at
least through 1999.
Year 2000 Compliance
The "Year 2000 problem" describes the concern that certain computer
applications, which use two digits rather than four to represent dates, will
interpret the year 2000 as 1900 and malfunction on January 1, 2000. In this
section, ICT Group summarizes the expected impact of the Year 2000 problem on
the Company.
ICT Group's Internal Systems:
ICT Group has evaluated its information technology infrastructure and
has developed a plan to ensure its Year 2000 compliance. This plan includes,
among other things, retiring several systems to be replaced with new internally
developed Year 2000 compliant software systems, upgrading the remaining software
systems to be Year 2000 compliant and, if necessary, upgrading the Company's
hardware systems to be Year 2000 compliant. These efforts are planned for
completion by September 1999, and the Company expects to meet this deadline. ICT
Group also is evaluating information regarding its non-information technology
infrastructure (office building systems, copiers, etc.) for Year 2000 readiness.
Information received to date indicates that this infrastructure will be Year
2000 compliant by the end of 1999.
Readiness of Third Parties:
ICT Group has requested information from all its third party vendors on
their Year 2000 readiness to determine the extent to which their failure to
remedy their own Year 2000 problems will affect the Company. The information ICT
Group had received from its third party vendors to date indicates that they will
be Year 2000 compliant by the end of 1999.
Cost of Year 2000 Compliance:
As of December 31, 1998, the Company incurred approximately $450,000 of
costs in addressing the Year 2000 issue. The Company also currently expects the
total costs to become Year 2000 will not exceed $1.0 million. Approximately half
of these costs have been or will be charged to expense and the balance will be
for new equipment, which will be capitalized.
Risk Associated with the Year 2000
The magnitude of the Company's Year 2000 problem, the costs of the
Company's Year 2000 project and the dates on which the Company believes it will
complete its Year 2000 compliance are based on management's knowledge to date
and its best estimates. The Company is not aware, at this time, of any Year 2000
non-compliance issues related to the Company that will not be fixed by the Year
2000 which would materially affect the Company. However, these estimates were
derived using numerous assumptions and some risks that the Company faces
include: the failure of internal information systems, defects in its work
environment, and an inability of telecommunications carriers to supply
telecommunication services. There can be no assurance that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel, the ability to identify and
correct all Year 2000 impacted areas, and other similar uncertainties.
Contingency Plans:
The Company is in the process of developing contingency plans to
address a worst case Year 2000 scenario. This contingency plan is expected to be
completed by the end of the second quarter of 1999.
15
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's operations are exposed to market risks primarily as a
result of changes in interest rates and foreign currency exchange rates. The
Company does not use derivative financial instruments for speculative or trading
purposes.
Interest Rate Risk
The Company's exposure to market risk for changes in interest
rates relates to its long term debt obligations. The fixed rate of 7%
on the Company's long term debt at December 31, 1998 approximates
market rates; thus, the fair value of the debt approximates its
reported value. In the past the Company has not entered into financial
instruments such as interest rates swaps or interest rate lock
agreements. However, it may consider these instruments to manage the
impact of changes in interest rates based on management's assessment of
future interest rates, volatility of the yield curve and the Company's
ability to access the capital markets in a timely manner.
Foreign Currency Risk
The Company does not use foreign currency exchange contracts
or purchase currency options to hedge local currency cash flows. The
Company has operations in Canada, Ireland, and the United Kingdom which
are subject to foreign currency fluctuations. As currency rates change,
translation of income statements of these operations from local
currencies to US dollars affects year-to-year comparability of
operating results. The Company's foreign operations represent 8% of the
Company's consolidated revenues for the year ended December 31, 1998.
In addition, foreign operations produced 10.1% of the call volume
associated with domestic revenues. Management does not expect the risk
of foreign currency fluctuations is not expected to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company being filed under this Item 8
can be found beginning on page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item will be contained in the
Registrant's Proxy Statement for the 1999 Annual Meeting of Shareholders (the
"Proxy Statement"), which is hereby incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item will be contained in the Proxy
Statement, which is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item will be contained in the Proxy
Statement, which is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item will be contained in the Proxy
Statement, which is hereby incorporated herein by reference.
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements and Financial Statement Schedules
See Index to Financial Statements at page F-1.
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
Exhibits
The following is a list of exhibits filed as part of this annual report
on Form 10-K. Where so indicated by footnote, exhibits which were previously
filed are incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated parenthetically
except for in those situations where the exhibit number was the same as set
forth below.
3.1 Articles of Incorporation. (2)
3.2 Bylaws. (2)
9.1 Voting Trust Agreement among John J. Brennan, Donald P. Brennan and the Company, dated
February 2, 1996. (1) (Exhibit 10.11)
9.2 Amendment No. 1 to Voting Trust Agreement among John J. Brennan, Donald P. Brennan and the
Company, dated May 9, 1996. (2) (Exhibit 10.17)
9.3 Form of Voting Agreement between the Company and certain option holders. (1) (Exhibit 10.13)
10.1 ICT Group, Inc. 1987 Stock Option Plan. (1) (2)+
10.2 ICT Group, Inc. Equity Incentive Plan. (1)+
10.3 ICT Group, Inc. Equity Compensation Plan. (2)+
10.4 ICT Group, Inc. 1996 Non-Employee Directors Plan. (2)+
10.5 Employment Agreement between John J. Brennan and the Company, dated May 8, 1996.(2)+
10.7 Employment Agreement between John L. Magee and the Company, dated April 1, 1987. (1)+
10.8 Employment Agreement between John D. Campbell and the Company, dated October 1, 1987. (1)+
10.9 Employment Agreement between Maurice J. Kerins and the Company, dated April 1, 1987. (1)+
10.10 Employment Agreement between Robert F. Small and the Company, dated April 1, 1987. (1)+
10.11 Shareholders Agreement among John J. Brennan, Donald P. Brennan and the Company, dated February 2,
1996. (1) (Exhibit 10.12)
10.12 Amended and Restated Loan Agreement between the Company and First Valley Bank, dated April 11, 1996.
(1) (Exhibit 10.14)
10.13 $45,000,000 Credit Agreement dated as of April 21, 1998 among
the Company, Eurotel Marketing Limited, Yardley Enterprises,
Inc., Harvest Resources, Inc., ICT/Canada Marketing, Inc., the
Lenders referred to therein, BankBoston, N.A. as
Administrative Agent and Summit Bank as Co-Agent (3) (Exhibit
10.13)
10.14 Employment Agreement between Vincent Paccapaniccia and the Company, dated August 24, 1998*
17
10.15 First Amendment to Credit Agreement among the Company, Eurotel Marketing Limited, Yardley
Enterprises, Inc., Harvest Resources, Inc., ICT/Canada Marketing, Inc., the Lenders referred to therein,
BankBoston, N.A. as Administrative Agent and Summit Bank as Co-Agent (3) (Exhibit 10.13) dated December
22, 1998*
21 List of Subsidiaries*
23 Consent of Independent Public Accountants*
27 Financial Data Schedule*
- ----------
* Filed herewith.
+ Compensation plans and arrangements for executives and others.
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1
on April 26, 1996 (Registration No. 333-4150).
(2) Filed as an exhibit to Amendment No. 2 to the Company's Registration
Statement on Form S-1 on June 4, 1996 (Registration No. 333-4150).
(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
May 13, 1998.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ICT GROUP, INC.
(Registrant)
Dated: March 29, 1999
By: /s/ John J. Brennan
-----------------------
John J. Brennan
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
By: /s/ John J. Brennan Chairman, President, Chief March 29, 1999
-------------------------------------- Executive Officer and Director
John J. Brennan (principal executive officer)
By: /s/ Vincent A. Paccapaniccia Senior Vice President, Finance and March 29, 1999
-------------------------------------- Administration, Chief Financial Officer
Vincent A. Paccapaniccia and Secretary (principal financial and
accounting officer)
By: /s/ Donald P. Brennan Director March 29, 1999
--------------------------------------
Donald P. Brennan
By: /s/ Bernard Somers Director March 29, 1999
--------------------------------------
Bernard Somers
By: /s/ John Stoops Director March 29, 1999
--------------------------------------
John Stoops
ICT GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
FINANCIAL STATEMENT SCHEDULE:
II. VALUATION AND QUALIFYING ACCOUNTS F-21
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ICT Group, Inc.:
We have audited the accompanying consolidated balance sheets of ICT Group, Inc.
(a Pennsylvania corporation) and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements and schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ICT Group, Inc.
and Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Financial Statement Schedule is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 12, 1999
F-2
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
--------------------------------
ASSETS 1998 1997
--------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents $ 14,255,253 $ 17,711,028
Accounts receivable, net of allowance for doubtful accounts
of $514,897 and $345,897 26,343,681 17,684,071
Prepaid expenses and other 1,557,915 1,867,527
Deferred income taxes 194,739 178,876
--------------- ---------------
Total current assets 42,351,588 37,441,502
PROPERTY AND EQUIPMENT, net 28,634,260 19,443,611
DEFERRED INCOME TAXES 3,155,279 3,314,999
OTHER ASSETS 1,735,191 1,377,658
--------------- ---------------
$ 75,876,318 $ 61,577,770
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,000,000 $ 1,385,691
Current portion of capitalized lease obligations 665,487 744,333
Accounts payable 6,884,079 5,822,638
Accrued expenses 3,708,736 3,959,202
--------------- ---------------
Total current liabilities 15,258,302 11,911,864
--------------- ---------------
LONG-TERM DEBT 14,000,000 4,799,289
--------------- ---------------
CAPITALIZED LEASE OBLIGATIONS 832,931 1,498,418
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 40,000,000 shares authorized,
11,642,475 and 11,542,300 shares issued and outstanding 116,425 115,423
Additional paid-in capital 49,334,130 49,257,879
Deferred compensation (53,716) (107,428)
Accumulated deficit (3,191,000) (5,617,828)
Accumulated other comprehensive income (420,754) (279,847)
--------------- ----------------
Total shareholders' equity 45,785,085 43,368,199
--------------- ---------------
$ 75,876,318 $ 61,577,770
=============== ===============
The accompanying notes are an integral part of these statements.
F-3
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
December 31
------------------------------------------------
1998 1997 1996
------------- --------------- ---------------
NET REVENUES $ 120,981,890 $ 91,652,978 $ 71,599,435
------------- --------------- ---------------
OPERATING EXPENSES:
Cost of services 69,587,985 50,662,062 38,536,578
Selling, general and administrative 47,011,939 37,008,848 30,707,788
Nonrecurring compensation expense -- -- 12,689,651
------------- --------------- ---------------
116,599,924 87,670,910 81,934,017
------------- --------------- ---------------
Operating income (loss) 4,381,966 3,982,068 (10,334,582)
INTEREST EXPENSE 1,019,511 478,726 655,207
INTEREST INCOME (613,682) (876,668) (475,325)
------------- --------------- ---------------
Income (loss) before income taxes 3,976,137 4,380,010 (10,514,464)
INCOME TAXES (BENEFIT) 1,549,309 1,708,204 (2,997,748)
------------- --------------- ---------------
NET INCOME (LOSS) $ 2,426,828 $ 2,671,806 $ (7,516,716)
============= =============== ===============
EARNINGS PER SHARE:
Basic earnings (loss) per share $ 0.21 $ 0.23 $ (0.72)
============= =============== ===============
Diluted earnings (loss) per share $ 0.20 $ 0.22 $ (0.72)
============= =============== ===============
Shares used in computing basic earnings
(loss) per share 11,569,931 11,542,234 10,407,271
============= =============== ===============
Shares used in computing diluted earnings
(loss) per share 12,023,152 12,044,341 10,407,271
============= =============== ===============
PRO FORMA DATA (unaudited):
Historical loss before income taxes $ (10,514,464)
Pro forma income tax benefit (3,766,748)
---------------
Pro forma net loss $ (6,747,716)
===============
Pro forma basic and diluted loss per share $ (0.65)
===============
Shares used in computing pro forma basic and diluted
loss per share 10,407,271
===============
The accompanying notes are an integral part of these statements.
F-4
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional Deferred
----------------------- Paid-in Compen-
Shares Amount Capital sation
---------- --------- ------------- -----------
BALANCE, DECEMBER 31, 1995 9,000,000 $ 90,000 $ 310,000 $ --
Deferred compensation related to grants of
stock options -- -- 268,565 (268,565)
Amortization of deferred compensation -- -- -- 107,425
Issuance of stock options -- -- 12,689,651 --
Distribution to S Corporation shareholders -- -- -- --
Termination of S Corporation status -- -- 1,493,837 --
Sale of Common stock in initial public offering, net of
offering costs 2,411,552 24,116 34,522,799 --
Exercise of stock options, including tax benefit 126,748 1,267 53,638 --
Comprehensive income:
Net loss -- -- -- --
Currency translation adjustment -- -- -- --
Total comprehensive income
---------- ---------- ------------- -----------
BALANCE, DECEMBER 31, 1996 11,538,300 115,383 49,338,490 (161,140)
Cancellation of stock options -- -- (84,648) --
Amortization of deferred compensation -- -- -- 53,712
Exercise of stock options 4,000 40 4,037 --
Comprehensive income:
Net income -- -- -- --
Currency translation adjustment -- -- -- --
Total comprehensive income
---------- ---------- ------------- -----------
BALANCE, DECEMBER 31, 1997 11,542,300 115,423 49,257,879 (107,428)
Amortization of deferred compensation -- -- -- 53,712
Exercise of stock options 100,175 1,002 76,251 --
Comprehensive income:
Net income -- -- -- --
Currency translation adjustment -- -- -- --
Total comprehensive income
---------- ---------- ------------ -----------
BALANCE, DECEMBER 31, 1998 11,642,475 $ 116,425 $ 49,334,130 $ (53,716)
========== ========== ============= ===========
- -----------------
(RESTUBBED TABLE)
- -----------------
Accumulative
Retained Other Comp- Total
Earnings rehensive Shareholders'
(Deficit) Income Equity
------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 $ 3,438,912 $ 4,122 $ 3,843,034
Deferred compensation related to grants of
stock options -- -- --
Amortization of deferred compensation -- -- 107,425
Issuance of stock options -- -- 12,689,651
Distribution to S Corporation shareholders (2,717,993) -- (2,717,993)
Termination of S Corporation status (1,493,837) -- --
Sale of Common stock in initial public offering, net of
offering costs -- -- 34,546,915
Exercise of stock options, including tax benefit -- -- 54,905
-------------
Comprehensive income:
Net loss (7,516,716) -- (7,516,716)
Currency translation adjustment -- 13,123 13,123
--------------
Total comprehensive income (7,503,593)
------------ ----------- --------------
BALANCE, DECEMBER 31, 1996 (8,289,634) 17,245 41,020,344
Cancellation of stock options -- -- (84,648)
Amortization of deferred compensation -- -- 53,712
Exercise of stock options -- -- 4,077
-------------
Comprehensive income:
Net income 2,671,806 -- 2,671,806
Currency translation adjustment -- (297,092) (297,092)
-------------
Total comprehensive income 2,374,714
------------ ----------- -------------
BALANCE, DECEMBER 31, 1997 (5,617,828) (279,847) 43,368,199
Amortization of deferred compensation -- -- 53,712
Exercise of stock options -- -- 77,253
-------------
Comprehensive income:
Net income 2,426,828 -- 2,426,828
Currency translation adjustment -- (140,907) (140,907)
-------------
Total comprehensive income 2,285,921
------------ ----------- -------------
BALANCE, DECEMBER 31, 1998 $ (3,191,000) $ (420,754) $ 45,785,085
============ =========== =============
The accompanying notes are an integral part of these statements.
F-5
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
December 31
------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,426,828 $ 2,671,806 $ (7,516,716)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities-
Nonrecurring compensation expense -- -- 12,689,651
Minority interest in subsidiary's earnings -- -- 37,316
Depreciation and amortization 5,667,166 3,859,914 2,792,231
Deferred income tax expense (benefit) 143,857 (242,216) (3,329,922)
(Increase) decrease in-
Accounts receivable (8,659,610) (4,144,986) (4,558,453)
Receivable from related party -- -- 132,977
Prepaid expenses and other 309,612 (985,159) (11,386)
Other assets (406,491) (38,438) (323,535)
Increase (decrease) in-
Accounts payable 1,061,441 3,015,999 1,074,134
Accrued expenses (250,466) 2,036,003 (121,301)
Deferred revenues -- -- (421,209)
-------------- -------------- --------------
Net cash provided by operating activities 292,337 6,172,923 443,787
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (14,755,145) (10,585,839) (6,893,311)
Purchase of minority interest in subsidiary -- -- (129,420)
-------------- -------------- --------------
Net cash used in investing activities (14,755,145) (10,585,839) (7,022,731)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on lines of credit -- -- (6,201,152)
Proceeds from long-term debt 12,161,222 5,515,066 2,919,390
Payments on long-term debt (346,202) (671,444) (3,044,282)
Payments on capitalized lease obligations (744,333) (724,694) (834,752)
Payments on subordinated notes -- -- (300,000)
Distribution to S Corporation shareholders -- -- (2,717,993)
Net proceeds from initial public offering -- -- 34,546,915
Proceeds from exercise of stock options 77,253 4,077 48,520
-------------- -------------- --------------
Net cash provided by financing activities 11,147,940 4,123,005 24,416,646
-------------- -------------- --------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS (140,907) (297,092) 13,123
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,455,775) (587,003) 17,850,825
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 17,711,028 18,298,031 447,206
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 14,255,253 $ 17,711,028 $ 18,298,031
============== ============== ==============
The accompanying notes are an integral part of these statements.
F-6
ICT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND:
ICT Group, Inc. and Subsidiaries (the "Company") is an independent provider of
call center teleservices, which consist of outbound and inbound telemarketing
and customer support services, together with related value-added services such
as marketing, research, management and consulting services, to businesses
domestically and internationally. The Company provides these services to
customers in an increasing array of industries including, but not limited to,
insurance and financial services, publishing, telecommunications, consumer
products and services, pharmaceuticals, health care services, energy services
and computer software and hardware.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of ICT Group, Inc.
and its subsidiaries. All material intercompany balances and transactions have
been eliminated.
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 52,
substantially all assets and liabilities of the Company's foreign subsidiaries
are translated at the period-end currency exchange rate and revenues and
expenses are translated at an average currency exchange rate for the period. The
resulting translation adjustment is accumulated in a separate component of
shareholders' equity.
Use of Estimates
The preparation of 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 financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenues on programs as services are performed, generally
based on hours incurred. Amounts collected from customers prior to the
performance of services are recorded as deferred revenues.
F-7
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments purchased
with an original maturity of three months or less. Cash equivalents at December
31, 1998 consist of an overnight repurchase agreement, money market accounts and
investment-grade commercial paper.
Property and Equipment
December 31
--------------------------------
1998 1997
-------------- ---------------
Communications and computer equipment $ 37,269,157 $ 26,076,846
Furniture and fixtures 7,257,311 4,579,251
Leasehold improvements 3,031,414 2,146,640
-------------- ---------------
47,557,882 32,802,737
Less - Accumulated depreciation and
amortization (18,923,622) (13,359,126)
-------------- ---------------
$ 28,634,260 $ 19,443,611
============== ===============
Property and equipment are recorded at cost. Depreciation and amortization are
provided over the estimated useful lives of the applicable assets using the
straight-line method. The lives used are as follows:
Communications and computer equipment 5 years
Furniture and fixtures 5-7 years
Leasehold improvements Lease term
Depreciation expense was $5,564,496, $3,721,321 and $2,599,051 for the years
ended December 31, 1998, 1997 and 1996, respectively. Repairs and maintenance
are charged to expense as incurred. Additions and betterments are capitalized
Equipment under capital leases included in property and equipment is $5,946,468,
with related accumulated amortization of $4,315,682 and $3,367,301 at
December 31, 1998 and 1997, respectively.
Other Assets
December 31
--------------------------------
1998 1997
-------------- ---------------
Deposits $ 867,701 $ 549,807
Goodwill, net of accumulated amortization
of $217,941 and $157,455 689,994 750,480
Other 177,496 77,371
-------------- ---------------
$ 1,735,191 $ 1,377,658
============== ===============
F-8
Goodwill is amortized over 15 years on a straight-line basis. The Company
evaluates the realizability of goodwill based on estimates of undiscounted
future cash flows over the remaining useful life of the assets acquired. If the
amount of such estimated undiscounted future cash flows is less than the net
book value of the assets acquired, the assets are written down to the amount of
the estimated undiscounted cash flows. The Company believes that there has been
no impairment of goodwill as of December 31, 1998.
Accrued Expenses
December 31
--------------------------------
1998 1997
-------------- ---------------
Payroll and related benefits $ 1,786,945 $ 1,942,455
Telecommunications expense 871,761 890,243
Income tax payable 103,367 755,285
Interest 325,646 42,608
Other 621,017 328,611
-------------- ---------------
$ 3,708,736 $ 3,959,202
============== ===============
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," the objective of which is to recognize the amount
of current and deferred income taxes payable or refundable at the date of the
financial statements as a result of all events that have been recognized in the
financial statements as measured by enacted tax laws.
Prior to the closing of the Company's initial public offering in June 1996, the
Company had elected to be taxed under Subchapter S of the Internal Revenue Code.
As a result, the Company was not subject to federal and state income taxes, and
the taxable income of the Company was included in the shareholders' tax returns.
Shortly before the closing of the initial public offering, the Company
terminated its status as an S corporation and is now subject to federal and
state income taxes. For the year ended December 31, 1996, the Company recorded a
tax expense of $1,015,386 as a result of establishing a net deferred tax
liability upon its conversion to a C corporation.
Supplemental Cash Flow Information
For the years ended December 31, 1998, 1997 and 1996, the Company paid interest
of $736,473, $440,660, and $748,591, respectively. Capital lease obligations of
$947,208, and $475,067 were incurred on equipment leases entered into in 1997
and 1996, respectively. For the years ended December 31, 1998 and 1997, the
Company paid income taxes of $1,968,387 and $919,637, respectively.
F-9
Major Customers and Concentration of Credit Risk
In 1998, 1997 and 1996, one customer accounted for approximately 22%, 31% and
35% of net revenues, respectively. In 1998, 1997 and 1996, net revenues from
customers within the insurance industry accounted for 34%, 42% and 42% of total
net revenues, respectively, and customers within the financial services industry
accounted for 33%, 24% and 26% of total net revenues, respectively. The loss of
the Company's major customer or a downturn in the insurance or financial
services industries could have a material adverse effect on the Company's
business.
Concentration of credit risk is limited to trade receivables and is subject to
the financial conditions of certain major customers. The Company does not
require collateral from its customers.
Initial Public Offering
The Company completed an initial public offering (the "Offering") of its Common
stock effective June 14, 1996. The Company sold 2,411,552 shares of Common stock
at an initial public offering price of $16 per share. An additional 463,448
shares of Common stock (including 375,000 shares purchased by the underwriters
upon the exercise of an overallotment option) were sold by certain shareholders
of the Company. The net proceeds to the Company, after underwriting discounts
and commissions, were approximately $34,500,000.
Earnings Per Share
The Company has presented earnings per share pursuant to SFAS No. 128, "Earnings
Per Share," and the Securities and Exchange Commission Staff Accounting Bulletin
No. 98.
Basic earnings (loss) per share ("Basic EPS") is computed by dividing the net
income (loss) for each year by the weighted average number of shares of Common
stock outstanding for each year. Diluted earnings (loss) per share ("Diluted
EPS") is computed by dividing net income (loss) for each year by the weighted
average number of shares of Common stock and the dilutive effect of Common stock
equivalents during each year. For the years ended December 31, 1998 and 1997,
the dilutive effect of Common stock equivalents used in computing Diluted EPS
was 453,221 and 502,107, respectively. For the years ended December 31, 1998 and
1997, options to purchase 782,429 and 618,418 shares of Common Stock were
outstanding, but not included in the computation of Diluted EPS as the result
would be antidilutive. For the year ended December 31, 1996, Common stock
equivalents are not included, as their effect is antidilutive.
Recently Issued Accounting Pronouncements
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income".
This statement requires companies to classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet.
F-10
In 1998, the Company adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information"("SFAS No. 131"). This statement establishes
additional standards for segment reporting in financial statements. The Company
has provided additional disclosure for its segments in accordance with SFAS No.
131 (see Note 10).
3. PRO FORMA INCOME TAX PROVISION (UNAUDITED):
Shortly before the closing of the Offering, the Company terminated its status as
an S corporation and, as a result, the Company is now subject to federal and
state income taxes. Accordingly, for informational purposes, the accompanying
statement of operations for the year ended December 31, 1996 includes an
unaudited pro forma adjustment for the income taxes that would have been
recorded if the Company had not been an S corporation, based on the tax laws in
effect during the respective period.
4. DEBT:
December 31
------------------------------
1998 1997
------------ ----------
Term loan, interest at 7%, principal payments of
$333,333 per month through June 2003 ..................... $18,000,000 $ --
Equipment lines of credit, interest at prime less
one-half point, converted to term loan in
December, 1998 ........................................... -- 6,184,980
----------- -----------
18,000,000 6,184,980
Less - Current portion (4,000,000) (1,385,691)
----------- -----------
$14,000,000 $ 4,799,289
=========== ===========
Future maturities of long-term debt are as follows at December 31, 1998:
1999 ........................................... $ 4,000,000
2000 ........................................... 4,000,000
2001 ........................................... 4,000,000
2002 ........................................... 4,000,000
2003 ........................................... 2,000,000
-----------
$18,000,000
===========
In April 1998, the Company entered into an agreement with two banks under which
the Company obtained a line of credit for an aggregate of $45.0 million (the
"Line of Credit"). Upon execution of the agreement, all principal amounts
outstanding under prior agreements, plus accrued interest and fees incurred in
connection with the new agreement, were rolled into the Line of Credit. The
agreement was amended in December 1998 to allow for an annual calendar term out.
Borrowings may be used for acquisitions, working capital, capital expenditures,
and other corporate purposes. The Line of Credit can be drawn upon through April
2001, at which time all amounts outstanding are repayable, unless the Company
has elected to term out eligible borrowings as described below. Interest on
borrowings is calculated at a variable rate and payable quarterly.
F-11
Under the terms of the amended agreement, the Company has the option, once each
year, to convert amounts borrowed for capital expenditures to term loans.
Amounts converted to term loans are repayable monthly in fifty-four equal
principal payments plus interest. Interest on the term loans is variable at a
base rate, as defined, minus .5%. The Company may elect to convert such variable
rate to a fixed rate, as defined, plus 1.50%. In December 1998, the Company
elected to convert borrowings under the Line of Credit into a term loan. The
term loan is repayable in 54 monthly installments of $333,333 plus interest at a
fixed rate of 7%, commencing January 1999.
The Company must pay a commitment fee of .25% on the average daily balance of
any unused amount of the Line of Credit, payable quarterly. The amount of the
unused Line of Credit at December 31, 1998 totaled $27,000,000. The Company
incurred interest expense of $650,908 under the Line of Credit for the year
ended December 31, 1998. The weighted average interest on borrowings under the
Line of Credit for the year ended December 31, 1998 was 7.4%.
Borrowings under the Line of Credit are secured by substantially all of the
Company's assets. The Company is required to maintain certain financial ratios
and a specified level of net worth, as defined, and payments of dividends and
repurchases of stock are limited.
5. CAPITALIZED LEASE OBLIGATIONS:
The Company leases certain equipment under capital leases. Future minimum lease
payments as of December 31, 1998, are as follows:
1999 .......................................... $ 794,070
2000 .......................................... 599,824
2001 .......................................... 308,107
----------
Total minimum lease payments .................. 1,702,001
Less - Amount representing interest ........... (203,583)
----------
Present value of minimum lease payments ....... 1,498,418
Less - Current portion ........................ (665,487)
----------
$ 832,931
==========
F-12
6. INCOME TAXES:
Effective June 11, 1996, the Company terminated its status as an S corporation
and was subject to federal and state income taxes from the date of termination
to December 31, 1996.
The components of the income (loss) before income taxes are as follows:
Year Ended December 31
------------------------------------------------
1998 1997 1996
---------- ---------- ------------
Domestic ...... $4,038,383 $3,192,559 $(10,997,820)
Foreign ....... (62,246) 1,187,451 483,356
---------- ---------- ------------
$3,976,137 $4,380,010 $(10,514,464)
========== ========== ============
The components of the provision (benefit) for income taxes are as follows:
Year Ended December 31
-----------------------------------------
1998 1997 1996
---------- ---------- -----------
Current:
Federal .......................... $1,271,126 $1,339,098 $ --
State ............................ 9,746 10,540 --
Foreign .......................... 124,580 462,831 173,342
--------- ---------- -----------
1,405,452 1,812,469 173,342
---------- ---------- -----------
Deferred:
Federal .......................... 121,725 (90,898) (3,759,300)
State ............................ 22,132 (13,367) (427,176)
Foreign .......................... -- -- --
---------- ---------- -----------
143,857 (104,265) (4,186,476)
---------- ---------- -----------
Reinstatement of deferred income tax
liability .......................... -- -- 1,015,386
---------- ---------- -----------
$1,549,309 $1,708,204 $(2,997,748)
========== ========== ===========
The approximate income tax effect of each type of temporary difference is as
follows:
December 31
--------------------------
1998 1997
----------- -----------
Gross deferred tax assets:
Nonrecurring compensation expense . $ 4,006,203 $4,081,260
Accruals and reserves not currently
deductible for tax ............. 301,059 178,876
Deferred compensation ............. 83,791 63,955
----------- ----------
$ 4,391,053 $4,324,091
=========== ==========
Gross deferred tax liabilities:
Cash basis of accounting .......... $ (287,364) $ (584,897)
Depreciation methods .............. (619,265) (59,921)
Other ............................. (134,406) (185,398)
----------- ----------
$(1,041,035) $ (830,216)
=========== ==========
F-13
The Company has recorded no valuation reserve for deferred tax assets as of
December 31, 1998. Although realization is not assured, management believes it
is more likely than not that all of the deferred tax assets will be realized.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near-term if estimates of future taxable income are reduced.
In June 1996, the Company recorded a nonrecurring compensation charge of $12.7
million relating to the extension of stock options (see Note 8). In connection
with the compensation charge, the Company recorded a deferred tax benefit of
$4.7 million based on the then excess of the Company's stock price ($16 per
share) over the exercise price of the extended options. To the extent the stock
price is below $16 per share when the options are exercised, the actual tax
deduction the Company will receive will be less than the carrying amount of the
deferred tax asset. Based on the Company's stock price at December 31, 1998 of
$2.56 per share, an impairment of $3.3 million would have occurred had all of
the extended options been exercised. To the extent non-extended options are
exercised that result in a tax deduction, the potential impairment of the
deferred tax asset would be reduced.
The reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
Year Ended December 31,
----------------------
1998 1997 1996
---- ---- ----
Federal statutory tax rate ................... 34.0% 34.0% (34.0)%
Income not subject to corporate taxes
due to S Corporation status ................ -- -- 2.3
Reinstatement of deferred taxes upon
conversion to C Corporation status ......... -- -- 9.7
State income taxes, net of federal tax benefit 1.3 4.0 (5.2)
Other ........................................ 3.7 1.0 (1.3)
---- ---- ----
39.0% 39.0% (28.5)%
==== ==== ====
7. PROFIT SHARING PLAN:
The Company maintains a trusteed profit sharing plan (Section 401(k)) for all
qualified employees, as defined. The Company matches 50% of employee
contributions, up to a maximum of 6% of the employee's compensation; however, it
may also make additional contributions to the Plan based upon profit levels and
other factors. No such additional contributions were made in 1998, 1997 or 1996.
Employees are fully vested in their contributions, while full vesting for the
Company's contributions occurs upon death, disability, retirement or completion
of five years of service. In 1998, 1997 and 1996, the Company's contributions
were $323,060, $296,529 and $289,499, respectively. The Plan's trustees are the
management of the Company.
F-14
8. EQUITY PLANS:
Stock Option Plans
The Company's 1996 Equity Compensation Plan authorizes up to 1,120,000 shares of
Common Stock for issuance in connection with the granting to employees and
consultants of incentive and nonqualified stock options, restricted stock, stock
appreciation rights and other awards based on the Company's Common Stock. The
options to be granted and the option prices are established by the Board of
Directors or a committee composed of two or more of its members. Incentive stock
options are granted at prices not less than fair market value. Options are
exercisable for periods not to exceed ten years, as determined by the Board of
Directors or its committee. As of December 31, 1998, 730,700 shares of Common
Stock were available for grant under the plan.
The Company's 1996 Non-Employee Director Plan authorizes up to 30,000 shares of
Common Stock for issuances of nonqualified stock options to non-employee
directors. As of December 31, 1998, 26,000 shares of Common Stock are available
for grant under this plan.
As of December 31, 1998, there were options to purchase 724,675 shares of Common
Stock outstanding in connection with the Company's 1987 Stock Option Plan. No
future grants will be made under this plan.
In April 1987, the Company issued outside the plan an option to purchase 90,000
shares at an exercise price of $.04 per share. This option vested upon the
Offering resulting in compensation expense of $1,436,000. This option expired in
December 1996.
Equity Incentive Plan
In December 1995, the Company adopted an Equity Incentive Plan that provided for
the issuance of up to 270,000 Equity Incentive Units ("Units"). In December
1995, the Company awarded 159,300 Units with a purchase price of $1.02 per Unit.
Each Unit allows the holder the right to purchase one share of Common Stock at a
specified price. Units are exercisable for a period not to exceed ten years from
the date of grant. Concurrent with the Offering, the Units vested resulting in
compensation expense of $2,386,491. As of December 31, 1998, there were 106,875
Units outstanding. No more Units will be granted under the Equity Incentive
Plan.
F-15
Information with respect to the options granted under the stock option plans and
Units is as follows:
Weighted
Exercise Average Exercise
Shares Price Price
--------- --------------- ----------------
Outstanding, December 31, 1995 ................. 1,160,550 $ .04 - $ 1.02 $ .30
Granted ................................. 79,000 1.57 - 16.25 6.73
Exercised ............................... (126,748) .04 - 1.57 .38
Canceled ................................ (101,925) .04 - 1.57 .18
--------- --------------- -----
Outstanding, December 31, 1996 ................. 1,010,877 .04 - 16.25 .81
Granted ................................. 148,500 4.125 - 16.00 6.48
Exercised ............................... (4,000) 1.02 1.02
Canceled ................................ (34,852) 1.02 - 1.57 1.09
--------- --------------- -----
Outstanding, December 31, 1997 ................. 1,120,525 .04 - 16.25 1.55
Granted ................................. 235,200 4.75 - 4.88 4.87
Exercised ............................... (100,175) .04 - 1.57 .77
Canceled ................................ (19,900) 1.57 - 4.88 3.08
--------- --------------- -----
Outstanding, December 31, 1998 ................. 1,235,650 $ .04 - $16.25 $2.22
========= =============== =====
The following table summarizes information about stock options and units
outstanding at December 31, 1998:
Options Outstanding Options Exercisable
---------------------------------------- -----------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Price Number Remaining Exercise Number Exercise
Outstanding Life Price Exercisable Price
- ----------------- ----------- ----------- ---------- ------------- ---------
$ .04 to $ 1.57 ....... 831,550 3 $ .27 826,150 $ .26
$ 4.13 to $ 5.25 ....... 348,100 9 4.85 107,100 4.84
$10.00 to $16.25 ....... 56,000 8 14.82 28,300 14.94
========= ========= ====== ======= ======
$ .04 to $16.25 ....... 1,235,650 5 $ 2.22 961,550 $ 1.20
========= ========= ====== ======= ======
In January 1996, the Company granted options to employees and recorded deferred
compensation for the difference between the deemed value per share for
accounting purposes and the exercise price per share. The deferred compensation
is being amortized over the four-year vesting period.
F-16
Extension of Option Terms; Compensation Expense
During 1996, the Company extended the exercise period for options to purchase an
aggregate of 555,750 shares to 2001 and 2002, resulting in compensation expense
of $8,867,160. This charge and the expense from the Units and the option to
purchase 90,000 shares that vested upon the closing of the Offering resulted in
a compensation expense of $12,689,651 in 1996.
Company Option Plans
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and the related interpretations in accounting for
its stock option plans. The disclosure requirement of SFAS No. 123, "Accounting
for Stock-Based Compensation," was adopted by the Company in 1996. Had
compensation cost for the Company's stock-based compensation plans been
determined under SFAS No. 123, the Company's net income (loss) would have been
increased or decreased to the pro forma amounts indicated below. Because the
SFAS No. 123 method of accounting is not required to be applied to options
granted prior to January 1, 1995, the resulting pro forma compensation charge
may not be representative of that to be expected in future years.
Year Ended December 31
-----------------------------------------------
1998 1997 1996
------------- ------------- --------------
Net income (loss), as reported $ 2,426,828 $ 2,671,806 $ (6,747,716)
Pro forma net income (loss) .. $ 2,175,662 $ 2,497,235 $ (6,880,891)
Diluted EPS, as reported ..... $ .20 $ .22 $ (.65)
Pro forma Diluted EPS ........ $ .18 $ .21 $ (.66)
The weighted average fair value of the options granted in 1998, 1997 and 1996 is
estimated at $2.12, $3.64 and $5.35 per share, respectively, on the date of
grant using the Black-Scholes option pricing model with the following
assumptions: no expected dividend yield, volatility of 85%, weighted average
risk-free interest rate of 5% in 1998 and 6% in 1997 and 1996, and an expected
life of 7 years.
9. COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities and certain equipment under operating
leases. Rent expense was $7,087,136, $4,951,149 and $3,627,630 for the years
ended December 31, 1998, 1997 and 1996, respectively. Future minimum rentals for
all operating leases are as follows:
1999 ............................. $5,089,499
2000 ............................. 4,572,225
2001 ............................. 3,677,488
2002 ............................. 3,262,030
2003 ............................. 2,279,676
2004 and thereafter ............................. 1,394,165
F-17
The Company enters into agreements with its telephone long-distance carriers
ranging from one to three years, which provide for, among other things, annual
minimum purchases and termination penalties.
From time to time, the Company is involved in certain legal actions arising in
the ordinary course of business. In the Company's opinion, the outcome of such
actions will not have a material adverse effect on the Company's financial
position or results of operations.
In October 1997, a shareholder, purporting to act on behalf of a class of ICT
shareholders filed a complaint in the United States District Court for the
Eastern District of Pennsylvania against the Company and certain of its
directors. The complaint alleges that the defendants violated the federal
securities laws, and seeks compensatory and other damages, including rescission
of stock purchases made by the plaintiff and other class members in connection
with the Company's Offering in June 1996. The defendants believe the complaint
is without merit, deny all of the allegations of wrong doing and are vigorously
defending the suit. In February 1998, the defendants filed a motion to dismiss
the complaint. In May 1998, the complaint was dismissed by a judge for the
United States District Court for the Eastern District of Pennsylvania with leave
to plaintiff to file an amended complaint on narrow accounting allegations. In
June 1998, plaintiffs filed a First Amended Class Action Complaint purporting to
bring negligence claims in connection with the Company's Offering. The
defendants continue to deny all allegations of wrongdoing, believe the amended
complaint is without merit and are vigorously defending the suit. In November
1998, the court granted a motion appointing Rowan Klein and Michael Mandat as
lead plaintiffs. In February 1999, the court dismissed the case without
prejudice, directing that the case remain in status quo, that the statute of
limitations be tolled and that the parties continue with discovery and advise
the court if assistance by the court is needed. The parties are proceeding with
discovery.
In July 1996, Main Street Marketing of America Incorporated ("Main Street
Marketing") brought a demand for arbitration against the Company claiming
damages as a result of the Company's alleged breach of a service agreement under
which the Company agreed to provide Main Street Marketing with various data
entry and data processing services relating to Main Street Marketing's magazine
subscription program. Main Street Marketing alleges that the Company committed
various breaches of the service agreement and has demanded an award in excess of
$3 million. The Company has responded to this demand for arbitration by denying
liability and counterclaiming in an amount in excess of $125,000. Discovery has
progressed in this matter, but has not yet been completed. It is not possible at
this stage of the proceeding to evaluate the probable outcome of this
litigation.
The Company has renewable employment agreements with six key executives with
terms ranging from one to three years. The agreements provide for, among other
things, severance payments ranging from six months to three years.
10. OPERATING AND GEOGRAPHIC INFORMATION:
Under the disclosure requirements of SFAS No. 131, the Company classifies its
operations into four business segments: Domestic TeleServices, International
TeleServices, Marketing Services and Management Services. The operating segments
are managed separately because each operating segment represents a strategic
business unit that offers different services. The accounting policies of the
operating segments are the same as described in the summary of significant
accounting policies (see Note 2). Segment assets include amounts specifically
identified to each segment. Corporate assets consist primarily of property and
equipment. The Domestic TeleServices segment provides inbound and outbound
telemarketing services. The International TeleServices segment provides
international multilingual inbound and outbound telemarketing services, customer
management services, marketing, research and other value-added services, and
includes business conducted by Spantel for the U.S. Hispanic unit. The Marketing
Services segment provides marketing, research and consulting teleservices on
behalf of customers operating in the Company's target industries. The Management
Services segment offers call center services such as site and system equipment
selection, facility launch, program planning and implementation, staffing,
technical support and ongoing customer care management. Prior to 1997, the
Company only tracked revenues for its business segments. As such, the operating
results and identifiable assets have not been presented for 1996.
F-18
For the Year Ended December 31,
------------------------------------
1998 1997 1996
-------- --------- ---------
(In thousands)
Revenues:
Domestic TeleServices .............. $ 79,030 $ 58,480 $ 47,621
International TeleServices ......... 13,373 12,867 7,349
Marketing Services ................. 17,272 14,425 12,511
Management Services ................ 11,307 5,881 4,118
Corporate .......................... -- -- --
--------- --------- ---------
$ 120,982 $ 91,653 $ 71,599
========= ========= =========
Operating income (loss):
Domestic TeleServices .............. $ 5,791 $ 4,306 $
International TeleServices ......... (1,263) 161
Marketing Services ................ (832) (608)
Management Services ............... 686 123
--------- --------- ---------
$ 4,382 $ 3,982 $ (10,335)
========= ========= =========
Total Assets:
Domestic TeleServices .............. $ 41,786 $ 37,662 $
International TeleServices ......... 13,356 9,777
Marketing Services ................ 9,944 7,098
Management Services ............... 6,052 3,190
Corporate ......................... 4,738 3,851
--------- --------- ---------
$ 75,876 $ 61,578 $ 49,112
========= ========= =========
Depreciation and Amortization:
Domestic TeleServices .............. $ 2,583 $ 2,177 $
International TeleServices ......... 1,005 563
Marketing Services ................ 831 352
Management Services ............... 279 --
Corporate ......................... 969 768
--------- --------- ---------
$ 5,667 $ 3,860 $ 2,792
========= ========= =========
Capital Expenditures:
Domestic TeleServices .............. $ 4,496 $ 4,106 $
International TeleServices ......... 4,046 3,276
Marketing Services ................ 2,876 1,007
Management Services ............... 1,451 --
Corporate 1,886 2,197
--------- --------- ---------
$ 14,755 $ 10,586 $ 6,893
========= ========= =========
F-19
The following table represents information about the Company by geographic area:
For the Year Ended December 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
Revenues:
United States ....... $ 111,067 $ 81,248 $ 65,319
Canada .............. 4,676 5,902 3,124
Europe .............. 5,239 4,503 3,156
--------- --------- ---------
$ 120,982 $ 91,653 $ 71,599
========= ========= =========
Operating income (loss):
United States ....... $ 5,655 $ 3,513 $ (10,787)
Canada .............. 1,463 1,151 719
Europe .............. (2,736) (682) (287)
--------- --------- ---------
$ 4,382 $ 3,982 $ (10,335)
========= ========= =========
Identifiable assets:
United States ....... $ 68,107 $ 55,107 $ 45,273
Canada .............. 3,078 1,955 1,625
Europe .............. 4,691 4,516 2,214
--------- --------- ---------
$ 75,876 $ 61,578 $ 49,112
========= ========= =========
F-20
ICT GROUP, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Balance,
Beginning of Charged to Balance,
Description Year Expense Deductions End of Year
- --------------------------------- ------------ ---------- ---------- -----------
Allowance for doubtful accounts:
1998 ................................. $345,897 $456,697 $(287,697) $514,897
1997 ................................. 354,524 315,539 (324,166) 345,897
1996 ................................. 211,773 446,289 (303,538) 354,524
F-21
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
21 List of Subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule