Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2004 or

For the transition period from              to             .

Commission File Number: 0-20807

ICT GROUP, INC.

(Exact name of registrant as specified in its charter)

267-685-5000

(Registrant’s telephone number, including area code.)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common Shares, $0.01 par value, 12,532,791 shares outstanding as of April 23, 2004.

Table of Contents

ICT GROUP, INC.

INDEX

2

Table of Contents

ICT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents

ICT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents

ICT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

ICT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1: BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the complete fiscal year. For additional information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2003.

Note 2: CORPORATE RESTRUCTURING

In December 2002, the Company announced a corporate restructuring and recorded a $8,894,000 pre-tax restructuring charge in connection with a plan to reduce its cost structure by closing all or part of ten operations centers prior to the end of their existing lease terms. The restructuring costs included severance of $1,078,000, site closure costs totaling $7,243,000, which were the estimated costs for closing the operations centers, including $6,151,000 in obligations under signed real estate and equipment lease agreements and $1,092,000 in costs related to early lease terminations, and the write-off of $573,000 of leasehold improvements, security deposits and certain fixed assets. The discount rate used to present value the remaining payments due under the leases was the risk free interest rate, which was the yield on U.S. treasury obligations with a similar life as the remaining lease payments. The Company had assumed that no sublease income would be available to offset future rent payments given the current market conditions in the locations of the identified operations centers at that time, and the inability to locate any tenants. The planned facilities closings were completed by the end of the second quarter of 2003.

The change in the restructuring accrual during the three months ended March 31, 2004 is summarized as follows (amounts in thousands):

During the first quarter of 2004, the Company did not enter into any sublease arrangements nor did it negotiate any termination settlements for the facilities that remain under contract. The only cash payments made related to the ongoing lease obligations. The Company also paid the remaining portion of severance during the three months ended March 31, 2004.

The Company continues to evaluate and update its estimation of the remaining liabilities.

At March 31, 2004 and December 31, 2003, $1,728,000 and $1,862,000 of the restructuring accrual is recorded in other liabilities in the consolidated balance sheet, which represents lease obligation payments to be made beyond one year. The balance of the restructuring accrual is included in accrued expenses at March 31, 2004 and December 31, 2003.

6

Table of Contents

Note 3: LINE OF CREDIT

On December 2, 2003, the Company renewed its existing three-year $85,000,000 revolving credit facility (the Credit Facility), which was scheduled to expire in April 2004. The renewal extends the $85,000,000 borrowing capacity under the Credit Facility for an additional three-year period and expires in December 2006. The renewed Credit Facility retains all of the substantive provisions of the credit facility that was scheduled to expire in 2004. The Credit Facility includes sub-limits for both foreign denominated loans and letters of credit. Under the Credit Facility, the Company has two borrowing options, either a “Base Rate” option, defined as the higher of federal funds plus 0.5% or prime plus a spread ranging from 0% to 0.75%, or a Eurocurrency rate option, defined as LIBOR plus a spread ranging from 1.25% to 2.25%. The amount of the spread under each borrowing option depends on the Company’s ratio of funded debt to EBITDA (net income before interest expense, interest income, income taxes, and depreciation and amortization). The Company is also required to pay a quarterly commitment fee ranging from 0.25% to 0.50% of the unused amount. The Credit Facility contains certain affirmative and negative covenants including financial covenants requiring the maintenance of specified levels of consolidated leverage, consolidated fixed charges and minimum net worth. The Credit Facility can be drawn upon through December 2, 2006, at which time all amounts outstanding are repayable.

At March 31, 2004, $31,000,000 of borrowings were outstanding under the Credit Facility and were classified as long term liabilities. There were no outstanding foreign currency loans nor were there any outstanding letters of credit at March 31, 2004. The amount of the unused Credit Facility at March 31, 2004 was $54,000,000. The Company was in compliance with all covenants as of March 31, 2004.

Note 4: EARNINGS (LOSS) PER SHARE AND STOCK-BASED COMPENSATION

The Company follows Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings Per Share.” Basic earnings per share (Basic EPS) is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings per share (Diluted EPS) is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding, after giving effect to the potential dilution from the exercise of securities, such as stock options, into shares of common stock as if those securities were exercised. For the three months ended March 31, 2004, the additional weighted average number of common stock equivalents deemed outstanding for the purposes of computing Diluted EPS was 438,000. For the three months ended March 31, 2004, options to purchase 241,000 shares of Common Stock were outstanding but not included in the computation of Diluted EPS as the result would be antidilutive. Given the Company’s loss for the three months ended March 31, 2003, Diluted EPS is the same as Basic EPS as all common stock equivalents would be antidilutive. Accordingly, options to purchase 1,474,000 shares of common stock were not included in the computation of Diluted EPS.

The Company follows the intrinsic value method of accounting for stock-based employee compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company records deferred compensation for option grants to employees for the amount, if any, by which the market price per share exceeds the exercise price per share at the measurement date, which is generally the grant date. Typically, the exercise price of the options equals the market price at the date of grant. For the three-month periods ended March 31, 2004 and 2003, the Company did not record any stock-based compensation expense. For option grants to non-employees, the Company applies fair value accounting in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” and EITF Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”

7

Table of Contents

Had compensation cost for the Company’s stock-based compensation plans been determined under SFAS No. 123, the Company’s net income (loss) and earnings (loss) per share would have changed to the following pro forma amounts:

The weighted average fair value of the options granted during the three months ended March 31, 2004 and 2003 is estimated at $9.65 and $6.61 per share, respectively, on the date of grant. These estimates are derived from the Black-Scholes option-pricing model with the following weighted average assumptions: