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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, 2002

OR

o            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.)

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 o

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

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)
YES x NO o

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2002 was approximately $104,424,000. 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 June 28, 2002. 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 14, 2003 was 12,393,950.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant’s definitive Proxy Statement relating to the 2003 Annual Meeting of Shareholders are incorporated by reference into Part III hereof.

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ICT GROUP, INC.

FORM 10-K ANNUAL REPORT
For Fiscal Year Ended December 31, 2002

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This document contains certain forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include statements relating to the Company’s intention with regard to a follow-on offering, the appropriateness of the Company’s reserves for contingencies, the realizability of the Company’s deferred tax assets, the Company’s continued provision of services to Aegon Direct Marketing Services, Inc., the Company’s ability to finance its operations and capital requirements into 2004, certain information relating to outsourcing trends as well as other trends in the CRM services 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 “will,” “should,” “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.

Some factors that could prevent the Company from achieving its goals--and cause the assumptions underlying the forward-looking statements and the Company’s actual results to differ materially from those expressed in or implied by those forward-looking statements--include, but are not limited to, the following: (i) equity market conditions; (ii) the competitive nature of the CRM services industry and the ability of the Company to continue to distinguish its services from other CRM service companies and other marketing activities on the basis of quality, effectiveness, reliability and value; (iii) economic conditions which could alter the desire of businesses to outsource certain sales and service functions and the ability of the Company to obtain additional contracts to manage outsourced sales and service functions; (iv) 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; (v) 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; (vi) 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; (vii) the results of the Company’s operations which depend on numerous factors including, but not limited to, the timing of clients’ teleservices 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 CRM services industry and the overall economy, (viii) terrorist attacks and their aftermath, (ix) the outbreak of war, (x) the Company’s capital and financing needs and (xi) the cost to defend or settle litigation against the Company or judgments, orders, rulings and other developments in litigation against the Company.

PART I

ITEM 1.          BUSINESS

ICT Group, Inc. (the “Company” or “ICT”) is a leading global provider of integrated customer relationship management (CRM) solutions. The Company provides integrated sales, marketing and customer care solutions designed to help its clients identify, acquire, retain, service, measure, and maximize the lifetime value of their customer relationships. ICT’s comprehensive, balanced mix of outsourced CRM solutions includes inbound and outbound sales, up-selling/cross-selling, customer care and retention and technical support/help desk services as well as marketing research, including telephone interviewing, coding and analysis as well as database design and marketing analysis.

ICT also offers a comprehensive suite of CRM technologies on a hosted basis, for use by clients at their own in-house facilities, or on a co-sourced basis, in conjunction with its fully compatible, Web-enabled customer contact centers. These include: automatic call distribution (ACD), contact management, automated e-mail management and processing, sales force and marketing automation, interactive voice response services, alert notification and Web self-help for the delivery of consistent, quality customer care in a multi-channel environment.

ICT was incorporated in the Commonwealth of Pennsylvania in 1987. The Company’s internet address is www.ictgroup.com. Quarterly reports on Form 10-Q, current reports on Form 8-K and Annual Reports on

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Form 10-K are available at no charge through the Company’s website. Such reports are available as soon as reasonably practical after they are filed with the SEC.

Industry Overview:

The CRM services market includes traditional activities such as inbound and outbound telesales and customer care, e-business support and marketing services including market research and database marketing and analysis. Customer contact center outsourcing has evolved significantly in recent years. Competitive pressures, advancements in technology and an accelerating trend toward outsourcing customer care has resulted in the demand for more complex, interactive and multi-channel CRM solutions. Outsourced CRM service providers are now expected to serve more as a business “partner,” offering clients value-added contact center strategies rather than traditional commodity-based sales and service applications.

ICT believes it is a leader in responding to this trend and has already expanded its portfolio of value-added services to include niche, industry-specialized sales, customer care and marketing support services designed to improve clients’ profitability and maximize their per-customer revenue. As an example, ICT recently introduced Direct Response Medical Detailing (DrMD^SM), a data modeling, multi-channel detailing program designed to influence prescribing activity and increase pharmaceutical clients’ return on investment for certain prescription products.

ICT Approach:

ICT believes that it has distinguished itself in the CRM solutions industry by having a balanced growth strategy, vertical market and customer-centric focus, comprehensive portfolio of services, and substantial resources to support future expansion. The Company continues to expand its worldwide network of state-of-the-art CRM contact centers in order to deliver globally integrated, multi-channel CRM sales and service solutions to meet the specific needs of its clients.

With extensive experience providing outsourced sales, marketing and customer care services, the Company is well-positioned for continued growth in a large and growing market. By leveraging its strong management team, proven business model, global infrastructure, CRM operating and technology investments, and expertise in target industries, ICT intends to advance its leading position as a global supplier of integrated CRM solutions. The Company also plans to:

•          Expand its cost-effective, off-shore CRM contact center operations

•          Continue investing in its outsourced customer care services

•          Further develop its value-added marketing services

•          Deepen relationships with existing customers

•          Further expand its presence in international markets

Strategy

The Company’s growth strategy includes the following key elements:

•          Expand Value-Added Services. The Company will continue to complement its core telesolutions expertise with additional value-added services, such as database marketing, research and consulting services, as well as a complete suite of comprehensive CRM services. The Company’s goal is to help its clients acquire new customers and maximize the lifetime value of their existing customer relationships.

•          Increase International Presence. The Company plans to broaden its geographic reach and further develop its expertise in CRM services in international markets by focusing on businesses with multinational operations. ICT currently provides services to customers in the United States, Europe, Latin America, Mexico, Canada and Australia. ICT intends to expand its operations in these areas, as well as seek to add additional geographic markets.

•          Maintain Focus on Industry Specialization. Management 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 this specialization will enable it to attract new clients because of its industry expertise.

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•          Develop Strategic Alliances and Acquisitions. ICT intends to continue pursuing strategic alliances with, and acquisitions of, domestic and international businesses that provide complementary CRM services.

•          Maintain Technology Investment. The Company intends to continue making substantial investments in technology to maintain its technological strength within the CRM services industry. ICT has been an industry leader in the implementation of innovative CRM technologies to lower its effective cost per contact and to improve its sales and customer service. The Company has made significant investments in information and communications technologies and the Company believes it was among the first to offer fully automated CRM services, collaborative web browsing services and to implement predictive dialing equipment.

•          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 and maintaining ISO 9002 certification in its domestic and international sales and service focused business units.

ICT’s Services

ICT delivers its CRM solutions through two business segments that are supported by the Company-wide marketing, sales, systems and corporate units. The Domestic CRM segment provides inbound and outbound CRM sales, and CRM services consisting of database marketing, marketing research, contact center consulting, technology hosting and ongoing customer care management services on behalf of customers operating in the Company’s target industries. The International CRM segment provides the same services in Europe, Canada, Mexico, Barbados and Australia and includes business conducted by Spantel for the U.S. Hispanic market. In addition, a portion of International CRM’s assets, depreciation and amortization and capital expenditures are used to provide services, generate revenue and provide operating income for the Domestic CRM segment. ICT’s sales force and operating units are organized into a series of industry sectors focused on selling and supporting 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’ 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. In both business segments, the Company provides CRM sales and CRM services to its clients.

Domestic CRM

Traditional teleservices, as well as marketing, research and consulting services, and ongoing customer care services are offered in the United States through the Company’s Domestic CRM segment, which is comprised of the following business units.

ICT TeleServices. ICT TeleServices provides telesales support activities primarily for clients in the insurance, financial services, telecommunications and media industries. This unit is supported by numerous contact centers located throughout the United States, as well as contact centers located in Canada and the Caribbean.

ICT Financial Marketing Services. This business unit’s management team consists of professionals who have client-side banking experience. As of December 31, 2002, ICT Financial Marketing Services operated dedicated inbound/outbound contact centers in Amherst, New York and Morrilton, Arkansas.

ICT Medical Marketing Services. Through this business unit, ICT provides service for the increasingly complex needs of healthcare and pharmaceutical clients. This unit is staffed by dedicated personnel to meet the sophisticated product and customer profiles of specific clients. As of December 31, 2002, ICT Medical Marketing Services operated dedicated contact centers in Allentown, Pennsylvania and Langhorne, Pennsylvania.

ICT Research and Database Marketing Services. This business unit provides businesses across a wide range of industries with value added market research and database marketing services. This unit makes extensive use of advanced technology, including integrated predictive dialing and Computer Assisted Telephone Interviewing software, to obtain market and customer data cost effectively. As of December 31, 2002, this unit conducted surveys from centers in Depew, New York and Conway, Arkansas.

Customer Care Management Services. This business unit was established to pursue outsourcing opportunities for customer care management. Depending on client needs, ICT will assume sole or shared

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responsibilities for the management of a client’s customer care operations. As of December 31, 2002, this business unit operated contact centers in Lakeland, Florida, and Spokane, Washington.

International CRM

The Company offers multilingual teleservices and customer care services through five business units comprising ICT International Services. 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 segment currently consists of the following business units:

ICT Eurotel. Eurotel provides pan-European, multilingual teleservices and customer care services to Europe from its contact centers in Athlone, Ireland, Dublin, Ireland and London, England.

ICT Spantel. Spantel provides bi-lingual English and Spanish teleservices from its Miami, Florida and Nogales, Arizona contact centers to the rapidly growing marketplace of Spanish-speaking American consumers and businesses. Additionally, ICT acquired a contact center operation in Mexico City from Grupo Teleinter, S.A. de C.V. in October 2002. This acquisition provides ICT not only with entry into the Mexican market but also potential expansion into Latin America and South America. The acquisition also provides ICT with cost-effective operations to support the U.S. Hispanic market.

ICT Canada. ICT Canada provides telesales and customer care support via service representatives who are fluent in French and/or English. As of December 31, 2002, ICT Canada has contact centers located in Miramichi, Moncton and Riverview, New Brunswick, Canada; Lower Sackville, New Glasgow and Sydney, Nova Scotia, Canada; Cornerbrook, Carbonear and St. John’s, Newfoundland, Canada; and Lindsay and Peterborough, Ontario, Canada.

ICT Australia. This unit provides telesales and customer care support for multinational companies in the Pacific Rim. As of December 31, 2002, ICT Australia operated a contact center in Sydney, Australia.

ICT Barbados. This unit provides telesales support for existing and prospective clients serving consumers in the US from its contact center in Bridgetown, Barbados.

Contact Center Facilities

The following table lists the Company’s contact center facilities as of December 31, 2002:

As part of the restructuring announcement in the fourth quarter 2002, the Company plans to close all or part of ten of the contact centers listed above prior to their scheduled lease termination date.

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 2002, business within the

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insurance and financial services industries accounted for 56% of the Company’s revenue. 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 sales and customer support services for products such as life, accident, health, and property and casualty insurance. The Company’s insurance group operates numerous dedicated contact centers in the United States and Canada. ICT employs approximately 400 agents licensed in life, accident and health and property and casualty, including bilingual agents, in the U.S. and Canada. The Company has a full-service agent licensing department and a continuing education department, which enables the Company and its agents to obtain licenses in 48 states and 8 Canadian provinces and to maintain their compliance with insurance regulations. Significant insurance clients in 2002 include, but are not limited to, Aegon, Prudential and Sears Life Alliance.

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. ICT’s Financial Marketing Services operations offers 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. Among ICT’s financial services clients in 2002 are Capital One, Chase, Citibank, Discover, Fleet, Washington Mutual and Wells Fargo.

Telecommunications/Utilities

ICT provides teleservices and customer care management services for major telecommunications companies for long distance, cellular and cable products and services, regional telecommunications companies, and companies which provide billing support services to telecommunications carriers. Within the telecommunications/utilities industry, ICT clients in 2002 include, but are not limited to, Verizon, Integretel, Virgin Mobile and Rogers Wireless/AT&T.

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, health insurance companies, and other health care related suppliers, 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 services 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 care service. Clients in this category in 2002 include Pfizer, Blue Cross/Blue Shield and Therasense.

Information Technology

ICT provides sophisticated marketing resources primarily for inbound applications on behalf of clients in the computer software and hardware industries. These applications include, but are not limited to, customer service, first-level customer technical support and customer retention. ICT’s clients frequently integrate outbound and inbound call campaigns, seeking to achieve favorable compounding results. Information technology clients in 2002 include, but are not limited to, AOL and Microsoft.

Technology

ICT invests heavily in system and software technologies designed to improve contact center production thereby lowering the effective cost per contact 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. ICT believes it was one of the first fully automated teleservices companies and among the first to implement predictive dialing equipment for outbound telemarketing and market research and to provide collaborative web browsing services.

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The Company utilizes a scalable set of UNIX and NT processors to support its outbound and inbound contact 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 and NT processors are used for inbound contact centers while predictive dialing systems, networked to UNIX and NT processors at the Company’s corporate data center, are used at each outbound contact center. The predictive dialing systems support local call and data management: the UNIX and NT processors provide centralized list management, data consolidation, report generation and interfaces with client order processing systems.

ICT Group uses a series of CRM 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 CRM software includes ICT Group’s proprietary list management system (“LMS”) as well as Siebel’s Contact Management system. The use of the Siebel suite applications as well as Oracle’s database management system provides a scalable and robust suite of applications to support our client’s business needs. Continued deployment of the Siebel vertical market offerings and thin client solutions will be a focus for ICT.

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 contact center policies and procedures, the selection and training of telephone service representatives, the training and professional development of contact center management personnel, monitoring of calls and verification and editing of all sales. Through the Company’s quality assurance department, headquartered in Bellmullet, Ireland with other offices in Miramichi, Canada and Langhorne, Pennsylvania, 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 program. Access to this data allows ICT and its clients to identify potential campaign shortfalls and to immediately modify or enhance the program. In 1998, the Company completed the installation of digital recording technology in all US outbound centers. Additionally, as of December 31, 2002, digital recording technology has been installed in all outbound centers in Canada, Europe and Australia. This installation allows the consolidation of all verification activities into geographically centralized locations 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.

ICT continued this commitment to excellence by piloting digital recording for verification purposes in its inbound centers. As a result of this implementation, digital recording was rolled out to all inbound sales programs. As with outbound data, inbound sales data will be consolidated into an existing Central Verification Center. The Company’s commitment to providing quality service is further illustrated by its 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. With the exception of Mexico and Australia, all domestic and international sales and service focused business units are ISO 9002 compliant.

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. As part of the setup of each client program, 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 CRM services industry, over 90% of the Company’s service representatives are part-time employees. As of January 31, 2003, ICT employed approximately 11,200 people, of which approximately 10,600 were service representatives. None of ICT’s employees are currently represented by a labor union. The Company considers its relations with its employees to be good.

Clients

The Company generally operates under month-to-month contractual relationships with its teleservices clients. The pricing component of a contract is often comprised of a base service charge and separate charges for ancillary services. Services are generally based upon an hourly rate for outbound calls and per-minute rates for inbound calls. On occasion, the Company performs services for which it is paid incentives based on completed sales. ICT’s customer care clients typically enter into longer term, contractual relationships that may contain provisions for early contract terminations.

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ICT targets those companies which it believes have the greatest potential to generate recurring revenue to the Company based on their ongoing direct sales and customer service needs. At December 31, 2002, ICT provided direct sales, market research and customer service to approximately 110 clients. The Company’s largest client in recent years had been Aegon Direct Marketing Services, Inc., which accounted for approximately 17% of the Company’s revenue in 2001. On March 18, 2002, the Company announced that it would no longer provide outbound telesales services to Aegon in North America. The Company intends to continue providing Aegon with telesales and customer service support in Australia and customer service support in Europe and Canada. Aegon accounted for 9% of the Company’s revenue in 2002. Two other clients, Capital One and AOL, each accounted for 11% of the Company’s revenue in 2002.

Competition

The CRM services industry is very competitive and the Company’s principal competition in its primary markets comes from large service organizations, including, but not limited to, Convergys Corporation, SITEL Corporation, TeleTech Holdings, Inc., APAC TeleService, Inc. and West Corporation. The Company competes with numerous independent firms, some of which are as large or larger than ICT, as well as the in-house operations of many of its clients or potential clients. In addition, most businesses that are significant consumers of these services utilize more than one teleservices 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 in-house contact center 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. Additionally, ICT faces other competitors in its hosted CRM and marketing service product offerings.

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 adopted the Telemarketing Sales Rule (TSR) whose regulations prohibit 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.

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In December 2002, the FTC announced the creation of a set of regulations that amend in several respects the TSR previously adopted under the TCFAPA. These new regulations become effective on March 29, 2003. Most notably, the new regulations authorize the creation and implementation of a national do-not-call list. In addition, these regulations impose new limits on the use of predictive dialers, the technology that automatically dials a certain number of telephone numbers and routes the connected calls to telephone sales representatives as they become available. Although this technology utilizes complex algorithms in an attempt to ensure that no consumers are contacted without available telephone sales representatives to handle the calls, this situation occasionally occurs, resulting in what is known as an “abandoned” call. The new regulations place limits on the permissible numbers of such abandoned calls, and requires that telemarketers play a recorded message to all consumers who receive such calls. The new regulations also create new limitations on the use of credit card account numbers and other consumer information, and require telemarketers to transmit caller identification information to consumers. In response to these changes in the TSR, the Company has created an internal task force for ensuring that the Company is in compliance with the new regulations.

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 state’s attorney 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.

Activity at the state level regarding laws that impact the teleservices industry has intensified over the past several years. States have enacted a variety of laws regulating marketing via telephone. Do Not Call Lists, restricted hours or days, registration, request to continue solicitation and no rebuttal laws are common in many states. Currently, twenty-eight states have enacted Do Not Call legislation. ICT complies with all of these laws. The Company’s Compliance Committee, comprised of members from the Quality Assurance, Legal and IT departments, is responsible for compliance. Participation on the Direct Marketing Association and the American Telemarketing Associates Legislative Committees ensure timely notification of proposed legislation.

ITEM 2.          PROPERTIES

As of December 31, 2002, the Company’s corporate headquarters were located in Newtown, Pennsylvania in leased facilities consisting of approximately 105,000 square feet of office space rented under a lease that expires in 2017. In addition to the corporate headquarters staff, certain other divisional and operations personnel are located in the facility. The Company also leases all of the facilities used in its contact center operations. The leases for the Company’s other facilities expire generally between January 2003 and March 2017 and typically contain renewal options. As part of the restructuring announced in the fourth quarter of 2002, the Company plans to close all or part of ten contact centers prior to their scheduled lease termination date. Management believes that its existing facilities are suitable and adequate for its current operations, but additional facilities will be required to support growth. Management 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. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Management believes that it has defenses in each of the cases set forth below in which it is named as a defendant and is vigorously contesting each of these matters. An unfavorable resolution of one or more of the following lawsuits could adversely affect its business, results of operations, or financial condition.

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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 alleged that the defendants violated the federal securities laws, and sought 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 believed the complaint was without merit, denied all of the allegations of wrongdoing and vigorously defended the suit. The Company and the plaintiffs reached an agreement to settle this litigation. A definitive Stipulation and Agreement of Settlement was signed by both the Plaintiffs and the Company and submitted to the Court. On December 3, 2002 the Court approved the proposed settlement. The settlement resulted in no out of pocket cost to the Company as the amount was covered in full by the Company’s insurance.

In 1998, William Shingleton filed a class action lawsuit against the Company in the Circuit Court of Berkley County, West Virginia alleging that the Company had violated the West Virginia Wage Payment and Collection Act for failure to pay promised signing and incentive bonuses and wage increases, failure to compensate employees for short breaks or “transition” periods and improper deductions for the cost of purchasing telephone headsets. The complaint also included a count for fraud, alleging that the failure to pay for short break and “transition time” violated specific representations made by the Company to its employees. The Company filed a response denying liability. In 2001, the Court granted Plaintiffs’ motion to expand the class to include all current and former hourly employees at all four of the Company’s West Virginia facilities and to add twelve current and former executives of the Company as defendants. The Plaintiffs then asserted a new allegation that, in addition to not paying employees for break and “transition time”, the Company failed to pay employees for production hours worked. The Court has entered two separate orders granting partial summary judgment against the Company and, in the case of one of the orders, against three of the individual defendants, finding that employees were not paid for all hours attributable to short breaks and idle time of less than 30 minutes in duration. In addition to compensatory claims for unpaid wages, the Plaintiffs are seeking liquidated damages under the West Virginia Wage Payment and Collection Act and punitive damages for allegedly fraudulent conduct on the part of the Company and the individual defendants. The method of calculating liquidated damages under the West Virginia Wage Payment and Collection Act is one of the matters in dispute between the parties and there is a significant difference in the amount of potential liquidated damages using the methods the Plaintiffs and the Company contend apply. On October 11, 2002, the Plaintiffs filed a Motion For Sanctions requesting the Court to find certain evidentiary presumptions and to order the defendants to obtain a surety bond in the initial amount of approximately $11.3 million, reflecting the Plaintiffs’ contention of the amount of compensatory and liquidated damages due. The Plaintiffs subsequently amended their request that the Company post a surety bond by asking the Court to increase the amount of the bond to approximately $21 million, alleging that the number of class members had increased and, therefore, the potential amount of compensatory and liquidated damages also had increased. The Court has not ruled on the merits of the Plaintiffs’ request. The Company is vigorously defending its position that it should not be required to post such a bond and believes it has meritorious arguments in support of such position. The Company is also vigorously defending the other undecided issues in the suit, including the manner in which any liquidated damages are to be calculated and the allegations of fraud. The Company believes it has meritorious arguments that, if successful, would significantly reduce the amount of any liquidated damages and that it has meritorious defenses to the fraud allegations. If, however, the Plaintiffs’ method of calculating liquidated damages is followed by the Court, or if there is a finding that the Company is liable for punitive damages as a result of engaging in fraudulent conduct, it could result in a loss which significantly exceeds the $1.35 million accrual that the Company has recorded in its financial statements and could have a material adverse impact on the Company’s operating results for the period in which such actual loss becomes known and on its financial condition. In the event the Company was to agree to an out-of- court settlement of this matter for an amount in excess of the amount the Company then has accrued in its financial statements, the Company would take a charge to its operating results for the period in which such settlement occurs. The Company is unable at this time to determine whether such settlement will occur and the amount of any such potential settlement. At a status conference held on January 27, 2003, the Court vacated its prior scheduling order and did not set a new schedule. As a result, there is no discovery deadline and the case will not come to trial in March 2003 as previously scheduled.

ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

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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.

As of March 14, 2003, there were 43 holders of record of the Company’s Common Stock, which excludes shareholders whose shares are held in nominee or “street” name by brokers. On March 14, 2003, the closing sale price of the Common Stock as reported by The Nasdaq Stock Market was $10.38.

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. Additionally, the Company’s bank agreement limits the payment of dividends.

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ITEM 6.          SELECTED FINANCIAL DATA

The following selected financial data are derived from the consolidated 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.