UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2004
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 incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 100 Brandywine Boulevard, Newtown PA | 18940 | |
| (Address of principal executive offices) | (Zip Code) |
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, 12,620,100 shares outstanding as of November 4, 2004.
INDEX
| PAGE | ||||||
| PART I | FINANCIAL INFORMATION | |||||
| Item 1 | CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) | |||||
|
Consolidated Balance Sheets - |
3 | |||||
|
Consolidated Statements of Operations - |
4 | |||||
|
Consolidated Statements of Cash Flows - |
5 | |||||
| Notes to Consolidated Financial Statements | 6 | |||||
| Item 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 | ||||
| Item 3 | QUANTITATIVE AND QUALITITATIVE DISCLOSURES ABOUT MARKET RISK | 21 | ||||
| Item 4 | CONTROLS AND PROCEDURES | 22 | ||||
| PART II | OTHER INFORMATION | |||||
| Item 1 | LEGAL PROCEEDINGS | 23 | ||||
| Item 6 | EXHIBITS | 23 | ||||
| SIGNATURES | 24 | |||||
2
ICT GROUP, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
(Unaudited)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 4,055 | $ | 12,091 | ||||
| Marketable securities |
4,000 | 5,500 | ||||||
| Accounts receivable, net |
64,282 | 48,409 | ||||||
| Prepaid expenses and other |
11,988 | 11,875 | ||||||
| Deferred income taxes |
4,612 | 4,531 | ||||||
| Total current assets |
88,937 | 82,406 | ||||||
| PROPERTY AND EQUIPMENT: |
||||||||
| Communications and computer equipment |
107,055 | 92,928 | ||||||
| Furniture and fixtures |
24,269 | 21,448 | ||||||
| Leasehold improvements |
18,565 | 16,694 | ||||||
| 149,889 | 131,070 | |||||||
| Less: Accumulated depreciation and amortization |
(96,245 | ) | (83,458 | ) | ||||
| 53,644 | 47,612 | |||||||
| DEFERRED INCOME TAXES |
2,196 | 2,196 | ||||||
| OTHER ASSETS |
6,035 | 3,498 | ||||||
| $ | 150,812 | $ | 135,712 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 16,976 | $ | 13,265 | ||||
| Accrued expenses |
13,287 | 13,895 | ||||||
| Income taxes payable |
2,257 | 846 | ||||||
| Accrued litigation |
4,400 | 4,400 | ||||||
| Total current liabilities |
36,920 | 32,406 | ||||||
| LINE OF CREDIT |
40,000 | 30,000 | ||||||
| OTHER LIABILITIES |
2,450 | 2,755 | ||||||
| SHAREHOLDERS’ EQUITY: |
||||||||
| Preferred stock, $0.01 par value, 5,000 shares authorized, none issued |
— | — | ||||||
| Common stock, $0.01 par value, 40,000 shares authorized, 12,620 and 12,483 shares issued and outstanding |
126 | 125 | ||||||
| Additional paid-in capital |
51,900 | 51,485 | ||||||
| Retained earnings |
18,934 | 18,084 | ||||||
| Accumulated other comprehensive income |
482 | 857 | ||||||
| Total shareholders’ equity |
71,442 | 70,551 | ||||||
| $ | 150,812 | $ | 135,712 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
3
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||
| REVENUE |
$ | 80,395 | $ | 73,320 | $ | 233,004 | $ | 220,442 | ||||||
| OPERATING EXPENSES: |
||||||||||||||
| Cost of services |
47,548 | 44,112 | 139,156 | 132,802 | ||||||||||
| Selling, general and administrative |
31,097 | 28,690 | 89,616 | 85,692 | ||||||||||
| Litigation costs |
887 | 668 | 1,892 | 7,694 | ||||||||||
| Restructuring charge reversal |
— | (215 | ) | — | (592 | ) | ||||||||
| 79,532 | 73,255 | 230,664 | 225,596 | |||||||||||
| Operating income (loss) |
863 | 65 | 2,340 | (5,154 | ) | |||||||||
| INTEREST EXPENSE, net of interest income of $29 and $24 for the three months and $90 and $87 for the nine months |
451 | 389 | 1,070 | 846 | ||||||||||
| Income (loss) before income taxes |
412 | (324 | ) | 1,270 | (6,000 | ) | ||||||||
| INCOME TAX PROVISION (BENEFIT) |
136 | (107 | ) | 420 | (2,176 | ) | ||||||||
| NET INCOME (LOSS) |
$ | 276 | $ | (217 | ) | $ | 850 | $ | (3,824 | ) | ||||
| EARNINGS (LOSS) PER SHARE: |
||||||||||||||
| Basic earnings (loss) per share |
$ | 0.02 | $ | (0.02 | ) | $ | 0.07 | $ | (0.31 | ) | ||||
| Diluted earnings (loss) per share |
$ | 0.02 | $ | (0.02 | ) | $ | 0.07 | $ | (0.31 | ) | ||||
| Shares used in computing basic earnings (loss) per share |
12,595 | 12,396 | 12,552 | 12,396 | ||||||||||
| Shares used in computing diluted earnings (loss) per share |
12,849 | 12,396 | 12,892 | 12,396 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
ICT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income (loss) |
$ | 850 | $ | (3,824 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
12,847 | 13,481 | ||||||
| Tax benefit of stock option exercises |
102 | — | ||||||
| Asset impairment |
— | 280 | ||||||
| Amortization of deferred financing costs |
157 | 227 | ||||||
| (Increase) decrease in: |
||||||||
| Accounts receivable |
(15,753 | ) | 4,820 | |||||
| Prepaid expenses and other |
(164 | ) | (5,798 | ) | ||||
| Other assets |
(116 | ) | (33 | ) | ||||
| Increase (decrease) in: |
||||||||
| Accounts payable |
3,750 | (857 | ) | |||||
| Accrued expenses and other liabilities |
180 | (6,375 | ) | |||||
| Income taxes payable |
1,383 | (2,315 | ) | |||||
| Accrued litigation |
— | 6,725 | ||||||
| Net cash provided by operating activities |
3,236 | 6,331 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Net sales of marketable securities |
1,500 | — | ||||||
| Purchases of property and equipment |
(18,511 | ) | (15,108 | ) | ||||
| Business acquisition |
(3,011 | ) | — | |||||
| Net cash used in investing activities |
(20,022 | ) | (15,108 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Borrowings under line of credit |
34,000 | 15,000 | ||||||
| Payments on line of credit |
(24,000 | ) | (10,500 | ) | ||||
| Proceeds from exercise of stock options |
314 | 23 | ||||||
| Net cash provided by financing activities |
10,314 | 4,523 | ||||||
| EFFECT OF FOREIGN EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS |
(1,564 | ) | (1,315 | ) | ||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS |
(8,036 | ) | (5,569 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
12,091 | 10,779 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 4,055 | $ | 5,210 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
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. Certain prior period amounts in the financial statements have been reclassified to conform to current period presentation. Operating results for the three and nine-month periods ended September 30, 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: MARKETABLE SECURITIES
The Company maintains certain investments in marketable securities. The Company classifies its marketable securities as available-for-sale. Available for sale securities are carried at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss), net of the related tax effect, if any. Any declines in the fair value of the securities that are considered “other than temporary” are recognized currently in the statement of operations as an impairment of the security. Subsequent recoveries in the fair value, if any, are not recognized in the statement of operations, but as a component of accumulated other comprehensive income (loss), as indicated above. The following is a summary of the Company’s available-for-sale securities at September 30, 2004 and December 31, 2003.
| (in thousands)
|
Amortized Cost |
Unrealized Gains (Losses) |
Estimated Fair Value | ||||||
| As of September 30, 2004 |
|||||||||
| Auction rate securities |
$ | 4,000 | $ | — | $ | 4,000 | |||
| As of December 31, 2003 |
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