Minacs Annual Report

http://annual report
1999
mxw: your company
Since 1981, many of the world’s most successful companies, governments, and
organizations have entrusted their customer relationships to Minacs Worldwide.
The Company has steadily grown to become one of the most innovative companies
delivering a fully integrated suite of customer relationship management (CRM) solutions.
From customer acquisition to retention and growth, Minacs’ solutions help companies
maintain customer service and quality levels, acquire and grow their customer bases,
and ultimately increase their revenues and profitability.
Minacs combines its experience in the art of customer communications with the science
of a solid infrastructure that ensures every client program is efficient and effective. From
state-of-the-art facilities in Canada and the United States, Minacs services customers
located around the world. The Company offers a variety of CRM and e-business solutions,
meeting the simplest to the most sophisticated customer relationship requirements.
Publicly traded on the Toronto Stock Exchange (MXW), Minacs has embarked on an
exciting journey of growth. The Company’s newest solutions offerings focus on the
e-business marketplace, where the customer is paramount to the success of enterprises
annual report 1999
2
seeking to do business in today’s rapidly evolving marketplace.
Minacs Worldwide is focused on building customer relationships for the New Economy.
Developing and fostering unique long-term partnerships is the business model behind the
Company’s success. Minacs’ commitment to quality, technological superiority, and
value-added service has made Minacs a world leader in the customer relationship solutions
marketplace.
Worldwide
MXW
Leader
financial highlights
4
our mission
5
president’s message
6
message from the chair
10
minacs worldwide markets
12
minacs advantage
13
our people
16
the quality experience
18
management’s discussion & analysis
20
corporate governance
26
minacs growth at a glance
28
management’s responsibility for financial reporting
31
auditors’ report
33
consolidated balance sheets
35
consolidated statements of operations
& retained earnings
36
consolidated statements of cash flows
37
notes to consolidated financial statements
39
corporate directory
50
index
Superior Services
Excellence
First Choice
financial highlights
Revenues
$67.6 million
$35.9 million
†1997
1998
1999
$14.1 million
Gross Margin
$26.5 million
annual report 1999
$14.1 million
million
†1997
4
1998
1999
$4.4
EBITDA
$5.6 million
$2.8 million
†1997
1998
1999
$0.6 million
†
1997 - 8 months only
our mission
Record Results
Our financial results are a compelling record of our accomplishments this past year. We
increased revenues by 88%, an extraordinary achievement that underscores the growing
demand for our customer relationship solutions. For the year, revenues were $67.6 million, up
from $35.9 million in 1998. In addition, we reported $5.6 million in EBITDA, substantially up
from $2.8 million the year before. This 99% increase is mainly due to the significant growth in
revenues during the last six months of the year, primarily the result of new long-term contracts.
To support our significant revenue growth and to position Minacs Worldwide for new
opportunities, we implemented advanced customer relationship solutions capabilities, and
expanded our Halifax, NS and Richmond Hill, ON sites. We launched a revitalized business
development initiative targeting key vertical markets and added sales and marketing resources
to support our business goals. Early success is evident in the unprecedented growth across our
sales channels.
Subsequent to the year-end, we executed an important next step in our strategy to increase and
diversify our access to capital markets. In March 2000, we completed a $15 million special
warrants offering. Due to demand, the offering, originally announced at $12.6 million, was
expanded to 21.5 million special warrants. I am very pleased with the success of this offering.
Our financial partners have demonstrated their confidence with the Minacs strategic plan by
infusing significant investment into our company. We are working to reward their confidence
with increasing profitability, fueled by our international expansion and leadership in the emerging
sectors of CRM and e-business. The proceeds from the equity offering have substantially
strengthened our balance sheet, and will be used to fund our growth and expansion.
Behind the accomplishments and transformations in 1999 was our dedicated effort to position
Our Strategy
In this increasingly competitive market, Minacs is well positioned to capitalize on emerging
trends. Our business development strategy is focused on growing and further penetrating our
markets, and establishing Minacs as the first choice in customer relationship management
solutions globally. We are working with clients and government organizations to break new
ground in Europe, Latin America, and Asia Pacific. We are building on our strategic blueprint for
constructing a future where real world and e-world assets become inseparable.
With enterprises shifting emphasis from commanding marketshare to owning the customer
relationship, the complexity and mission of customer care centres has taken a dramatic turn.
Our centres are building relationships that transcend individual transactions, ensuring customer
satisfaction and repeat buying. Minacs has taken customer care into the all-encompassing
Customer Relationship Management, that improves our clients’ service levels, reduces cost, and
builds long-term relationships. Minacs Worldwide has amassed many years of experience in
customer communications and relationship building. By integrating innovative CRM solutions on
behalf of our clients, we will lead the way in this rapidly-changing market.
annual report 1999
Minacs at the forefront of the rapidly changing customer relationship solutions market.
7
Perhaps most exciting of all, we are seizing new opportunities in the e-business environment.
Currently, we provide Web-enabled customer services that are helping our clients better serve
their customers across multiple mediums. To further enhance our Web capabilities, we are
introducing an advanced portfolio of modular Internet-based customer care, communications,
services, and e-commerce solutions in the summer of 2000. Our commitment to serving
customers across any medium efficiently and effectively will drive our growth through the coming
years. Our focus is to become the leading global provider of integrated customer relationship
management services by taking advantage of the rapid growth of the Internet; increasing our
global presence; growing our relationships with existing clients; attracting new clients in the
e-commerce arena and broadening our service offerings.
Our People, Our Success
Minacs’ success is founded on our expertise and commitment to customer relationship building.
Our clients choose Minacs, and stay with us, because we know that the real measure of
excellence is always the quality of our people, and the way they relate to customers and clients.
The leadership of our people, their professional talents and uncommon dedication to excellence in
customer care is, without question, the cornerstone of this Company’s success. I would like to
extend my sincere gratitude to every Minacs Worldwide employee. Together, we have made this
critical year a resounding success. Our year-end results are a testament to your hard work and
talent. Congratulations, and thank you.
A Promising Future
Our success depends on being able to reinvent the business model, implement new technology,
encourage employee development, and learn with every step.
As we explore a new world of opportunities through the coming months and years, we will
continue to build on what we do best: developing positive relationships with our employees,
annual report 1999
clients, partners, and shareholders. Today, we are pursuing strategic partnerships with some of
8
Minacs Worldwide, and your confidence in our future, is matched by management’s strong
the world’s leading systems integrators and technology companies. At the same time, we remain
focused on further developing the kind of customer relationship management solutions that will
lead the way in helping companies service their customers in the New Economy.
I welcome our Minacs Worldwide shareholders. Some of you are previous shareholders of
Phonettix Intelecom, while many of you are new shareholders in the Company. Your support of
dedication to creating long-term shareholder value.
Since the reverse takeover of Phonettix Intelecom, Minacs has increased shareholder value in the
face of significant business challenges. As much as we accomplished over the last year, there is
still much more to do. Our growth plan for the coming years is driven by the overriding priority of
creating rewarding and profitable experiences for our stakeholders. I welcome the challenges and
opportunities that lie ahead.
Elaine Minacs
President & CEO
message from the chair
Minacs Worldwide Inc. enters the new millennium positioned as a leader among
outsourced solutions companies. We are working from a strong base, with a powerful
franchise in Canada and the U.S., and a strong reputation to help deliver our growth in
global markets.
Our industry is undergoing exciting changes, and the pace of change is quickening.
Every day, there are new products, companies or mergers that underscore the
profound changes in our sector — signposts of the New Economy. Three of the
important drivers of this change are: the Internet and its related technologies,
globalization, and consolidation. These trends, which are likely to intensify in 2000 and
beyond, have eliminated many of the traditional barriers in the communications and
knowledge-based sectors, creating unprecedented opportunities for Minacs.
To address the challenges of the new millennium, Elaine Minacs has built a talented
management team, one that is aligned with the interests of our shareholders and
committed to providing clients with the superior services, products and access required
in the transition to the New Economy. Minacs’ highly focused strategy, coupled with our
sound business practices, will create the greatest value for our shareholders, our
annual report 1999
clients and our people.
This year, I have had the opportunity to meet with representatives of many of Minacs’
clients including General Motors Corporation, the U.S. State Department, Nestlé
Canada, MBNA, StarChoice, Levi Strauss & Company, the Ontario Drive Clean
Program, and others. The loyalty and support of our clients are very much appreciated.
Minacs has a strong sense of urgency and excitement about our plans, progress and
future possibilities in addressing the needs of our current and future clients.
10
I have witnessed first-hand the excellence and dedication of Minacs’ personnel; clearly,
they represent Minacs’ sustainable competitive advantage. In this same vein, I have had
the privilege this year to work with Minacs’ Board of Directors. The recent success of
this organization is a credit to their commitment, depth of experience, drive, creativity
and vision. My thanks and the appreciation of the entire Minacs organization are
extended to all Board members for their individual contributions to our success.
The Minacs Board of Directors is confident that the stage is set for a new millennium of
success. Together with Elaine Minacs, I look forward to reporting on our progress
throughout 2000 and beyond.
John F. Bankes
Chair, Board of Directors
the minacs worldwide markets
Today, more than ever, companies are realizing the economic and
competitive advantages of managing one-to-one relationships
with their customers. Customer contact centres are increasingly
becoming strategic opportunities for leading companies around the
world. As the New Economy takes shape and transforms the way companies do business, the
customer contact centre outsourcing market has rapidly evolved and come of age. A new
landscape has emerged, where companies are investing in sophisticated customer
relationship management and e-business services. Minacs Worldwide is well positioned to lead
this market into the New Economy.
From Customer Contact Centres to Customer Relationship Management
The customer contact centre industry has experienced rapid expansion in recent years,
fueled by a growing trend toward outsourcing by companies seeking more effective
methods of servicing customers and marketing their products and services.
According to industry analysts, the North American outsourced contact centre industry
generated approximately US$20 billion in revenues in 1998. These revenues encompass
outsourcers’ handling of customer contacts through telephone, e-mail, facsimile, the
World Wide Web, and mail communications. Analysts’ forecasts indicate that this market
will grow at approximately 20% compounded annually over at least the next five years.
annual report 1999
12
The development of integrated customer relationship management (CRM), however,
increases this market potential significantly, as companies move from handling contacts
to managing their customer relationships. CRM is a more comprehensive solution to
customer contact handling. Though the philosophy is not new, CRM has rapidly evolved
into a burgeoning industry, due in most part to the availability of sophisticated
technologies, providing more advanced businesses with the infrastructure to fully deliver
this capability as a competitive advantage.
Changing consumer lifestyles, resulting in heightened demand for convenience,
communications choices, and self-selection, often through teleservicing and the Internet,
are the impetus for recent and expected growth. The customer contact centre industry
growth is a result of overall changes in global corporate philosophies that increasingly call
for the shift of customer contact centres into leading business strategies.
As the e-business marketplace evolves, companies will increase their investments in CRM
and e-customer strategies in order to build more comprehensive customer profiles and
knowledge bases.
Growth
MARKETS
Global
ERNA NEUFELD
ASSISTANT VICE PRESIDENT, OPERATIONS
“The traditional call centre is a thing of the past; our customer
relationship management centres incorporate advanced technologies
and processes that enhance every customer’s experience. By
implementing MinacsCRM, our clients are leveraging revenuegenerating relationships with their customers.”
minacs advantage
The Minacs Solutions portfolio encompasses a complete range of customer acquisition,
customer building, relationship management, and multi-medium contact centre services,
all sharing the common Minacs advantage: providing a world-class experience for every
customer of every client.
Minacs Solutions deliver expert management of customer contacts across multiple
media: telephone, interactive voice response (IVR), fax, Internet, e-mail and traditional
mail. Every Minacs Solution, regardless of industry or specialization, is designed to
provide clients with the Minacs experience: intensifying their customers’ loyalty and their
competitive advantages.
As a leading company delivering world-class customer solutions, Minacs Worldwide
establishes strategic relationships with its clients by becoming integral to their operations.
customer requirements to Minacs, clients avoid the complexity and cost associated with
coordinating these services from multiple suppliers or providing them in-house.
Minacs builds customer relationships that transcend individual transactions, ensure
customer satisfaction, and repeat buying. As the nation’s dominant provider of
outsourced Customer Relationship Management solutions, Minacs designs integrated
annual report 1999
Minacs is unique in the breadth of integrated services offered. By outsourcing their
contact centre applications that bridge the gap between the old and new economies.
13
Minacs’ customer care and services have long provided world class business-to-business
and business-to-consumer contact centre solutions for many of the world’s leading
corporations and governments, 24 hours a day, 7 days a week. Comprising Help Desk,
Customer Loyalty, Direct Marketing Response, Credit Card Services and Appointment
Scheduling, Minacs’ services help companies increase their customers’ satisfaction.
Handling customer contacts from around the world in 15 languages, Minacs provides
technical diagnosis, issue resolution, and information dissemination. MinacsCRM,
e-Business Solutions, and Fulfillment Services comprise the complete and integrated
range of the Minacs Advantage.
Opportunity
Expansion
Diverse
ERIC GREENWOOD
CHIEF INFORMATION OFFICER
“The integration of call centre and Web applications through the
use of live agents is the next generation of on-line competitiveness.
Serving customers over the Web with the implementation of
e-business solutions provides incredible opportunities for Minacs.
We embrace technologies that are proven, and integrate them
with new ways of delivering CRM.”
MinacsCRM
Effective Customer Relationship Management (CRM) is viewed by Minacs as the creation,
maintenance, and enhancement of the personal experience between a company and its
customers, throughout every stage of the customer-company relationship.
CRM is a discipline incorporating the application of discrete software technologies, with the
goal to reduce sales cycle and selling costs, increase revenue, identify new markets and
channels for expansion, and improve customer value, satisfaction, profitability, and retention.
Minacs has mastered both the discipline and the technology.
A multi-million dollar investment in technology, coupled with a highly trained workforce
dedicated to maximizing every customer interaction, has enabled the development of
MinacsCRM. The advanced technology inherent in every MinacsCRM solution collects and
analyzes demographic and historical preference profiles that drive customer acquisition,
retention, loyalty initiatives and campaigns across marketing, sales and service areas of an
organization. MinacsCRM is viewed as critical in creating a market advantage; by
implementing MinacsCRM, companies experience increased sales and satisfaction, as they
annual report 1999
build powerful, long-lasting, mutually profitable customer relationships.
Minacs provides the design, development, and management of comprehensive database
solutions that deliver meaningful and relevant information back to clients, often to support
client marketing initiatives. MinacsCRM integrates both ISO 9001 quality practices and the
highest universal agent knowledge base with leading-edge technology.
14
E-mail Handling
e-Customer Care
SOLUTIONS
Minacs WebCentre
Customer Loyalty
Minacs e-Business Solutions
Minacs Worldwide’s premier Web-enabled customer contact centres place the
companies they serve at the forefront of e-customer relationship solutions.
Customers everywhere are demanding multiple access alternatives – on time, every time,
any time – to the companies they do business with, especially across expanding
electronic mediums. Minacs WebCentre is a comprehensive suite of modular solutions
designed completely for Internet-based customer communications, services, and
commerce. Each Minacs WebCentre offering is customized for individual business
models, regardless of scope, industry and specialization.
Minacs WebCentre’s many capabilities and services include:
•
Sophisticated e-mail management and intelligent routing;
•
Live assistance via text chat, Web call-back, and scalability for Voice over IP;
•
Enhanced Web browsing for enhanced customer interaction; and
•
Enhanced e-commerce with secure links and credit authorization.
Fulfillment
A complete fulfillment operation, where information is captured from customer contact
centres and downloaded to a sophisticated fulfillment division, effectively delivers product
information and product distribution support. Minacs handles millions of pieces of product
and information inventory. An integrated distribution and return management process
Minacs’ end-to-end customer services and solutions ease the burden of supply chain
management, delivering complete Customer Relationship Management on behalf of
clients. The Minacs Advantage is the customer-driven business architecture that meets
the challenges faced by e-companies and traditional organizations, providing them with
increasing profitability and revenues, and the infrastructure to build and grow life-long
relationships with their customers.
annual report 1999
ensures seamless fulfillment for a completely integrated customer service experience.
15
CRM
Internet
Interactive Voice Response (IVR)
Help Desk Solutions
Quality
e-fulfillment
people: the foundation of the minacs experience
Minacs Worldwide is distinguished by the diversity of the skills, backgrounds and
expertise of its people, and their steadfast commitment to superior customer care.
The quality of employees that the Company attracts and retains is one of the most
compelling testaments to its success.
Minacs employs approximately 1800 people across Canada and the United States.
Comprehensive and highly unique programs, where employees are the Company’s most
important stakeholders, form the basis of its ability to maintain the lowest employee
turnover rate in the industry.
Ensuring that qualified and committed personnel are always available for ever-growing
client programs, Minacs’ innovative recruitment system is built on over twenty years of
experience attracting customer-focused, skilled representatives in almost every industry
segment. By matching individuals to appropriate positions, high levels of productivity,
employee satisfaction, and low turnover are assured. Minacs’ commitment to employee
development is reflected in its significant investment in comprehensive employee
training programs. Succession planning, leadership training, and participation in industry
events and conferences, ensure that employees are in a continuous cycle of
development, leadership and management preparedness.
annual report 1999
SHELDAN RANDELL
TEAM LEADER
“We’re building relationships not only with the customers we
serve, but with each other.We motivate and coach each other
through day- to- day challenges. I believe this is why our people are
always looking for ways to improve and develop their skills.
Teamwork creates positive energy.”
16
Talent
Training
PEOPLE
Skill
Commitment
Motivation
Value
Trust
Satisfaction
the quality experience
From its beginnings, Minacs' commitment to quality has been one of the Company's
most important strategic advantages. In recognition of the Company's superior quality
initiatives, Elaine Minacs, President & CEO, was named Canadian Woman Entrepreneur
of the Year for Quality. Soon after, Minacs became the first customer contact centre
outsourcer in North America to receive ISO 9001 certification.
The Minacs Quality program includes successful semi-annual external audits,
streamlined, efficient operations, rigorous monitoring, traceability and accountability. As
an ISO 9001 registered organization, quality is inherent in every Minacs solution.
Minacs Worldwide continues to lead the industry in quality practices, as the Company
works to migrate its current quality system to ISO 9001:2000. Minacs’ commitment to
continuous improvement has placed the Company in the enviable position of
participating in the ISO validation project, providing Minacs with direct input to the ISO
Technical Committee, responsible for rewriting the ISO standard. Slated for introduction
during the last quarter of 2000, this new version of the international ISO standard
seeks to raise the bar even higher for international quality standards achievement.
annual report 1999
18
Quality Assurance
QUALITY
100%
Excellence
Monitoring
Awards
Accountable
World Class
Standards
management’s discussion and analysis
This Management's Discussion and Analysis of Financial Results (MD&A) is based on the
combined consolidated financial report for Minacs Worldwide Inc. and Phonettix Intelecom Ltd.
This MD&A should be read in conjunction with the Company's fiscal 1999 audited consolidated
financial statements and accompanying notes. All dollar amounts are in Canadian dollars.
DUNCAN COWIE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
“For 1999, we increased EBITDA nearly 100% over the previous
year, an outstanding achievement for the Company. In spite of
absorbing the operating losses of the acquired business and
investing in its restructuring, our EBITDA rose to a record level.”
OVERVIEW
Business of the Company
Minacs Worldwide is the largest Canadian provider of integrated outsourced customer relationship
services, specializing in contact centre operations and e-customer care solutions, utilizing various
communications technologies including telecommunications and the Internet. The Company was
founded in 1981 and expanded internationally in the mid-1990s. The Company provides multilingual
contact-handling services, as well as e-business and Web-based customer relationship
management solutions, for major and multinational companies in the automotive, technology,
packaged goods, financial services, retail industries, and in the government sector. Minacs
Worldwide operates contact centre facilities in Ontario and Nova Scotia in Canada, and Michigan in
the United States. The Company has approximately 1400 workstations installed and approximately
1800 employees.
Major Events Impacting the Business for 1999:
annual report 1999
•
•
•
•
20
•
•
Strong growth in sales (88% increase over 1998) of the Company's core services
and solutions
Continued growth in the customer contact centre outsourcing market, with an increasing
trend towards customer relationship management and services
Reverse takeover of Phonettix Intelecom; Minacs Worldwide becomes listed on the Toronto
Stock Exchange (MXW)
Restructuring and optimization of combined business proceeds through second half of 1999;
by December 31 restructuring is largely completed
Board of Directors is appointed, comprising prominent business leaders
Management team is expanded, including the addition of industry experts and accomplished
leaders
Acquisition of Phonettix Intelecom Ltd.
On July 20, 1999, The Minacs Group completed the reverse takeover of Phonettix Intelecom
Ltd., a call centre outsourcing company listed on the Toronto Stock Exchange.
Under the terms of the reverse takeover, 99,991,428 common shares of Phonettix Intelecom
were issued to the shareholders of The Minacs Group in return for all of the outstanding equity of
The Minacs Group. Phonettix Intelecom Ltd. was an Alberta incorporated company, which was
continued under the Ontario Business Corporations Act on April 19, 1996. Articles of
Amendment were filed on July 21, 1999 changing the company name from Phonettix Intelecom
Ltd. to Minacs Worldwide Inc. The Company's name change was approved by shareholders as
part of the transaction.
RESULTS OF OPERATIONS
Financial Highlights (in millions of Cdn. dollars, except per share amounts)
Year ended December 31
Revenues
1999
1998
Increase
$ 67.6
$ 35.9
88%
26.5
14.1
88%
5.6
2.8
99%
0.05
—
0.01
—
Gross profit
EBITDA
Earnings per share:
EBITDA
Net income
$
0.05
0.01
$
Fiscal Year Period
The Company changed its fiscal year-end to December 31, following the reverse takeover of
Phonettix Intelecom Ltd. The Minacs Group of companies previously had a December 31
year-end. The Phonettix group of companies previously reported on an August 31 year-end.
As a result, historical comparisons are consistent with the principal business entities of the
consolidated group.
Operating Results for the Year Ended December 31, 1999,
Compared to 1998
Revenues
Revenues for the fiscal year ended December 31, 1999 were $67.6 million, an increase of
88% over revenues in 1998 of $35.9 million. The increase in revenues is attributed
predominantly to organic growth in the business, with $8.8 million, or 13% of revenues,
attributed to the acquisition of Phonettix Intelecom. During the year, Minacs added new client
programs to its operations, as well as expanded certain of its business with existing clients.
Minacs' operations in the United States continued to contribute a significant portion of
business, with revenues in the United States totaling $27.6 million in 1999. This represents
an increase of 128% over revenues in the United States in 1998, which were $12.1 million.
Revenues in the United States in 1999 accounted for 44% of the Company's overall revenue.
Gross Profit
The Company's gross profit represents the amount of revenues that the Company can utilize
to meet operating expenses. In 1999, gross profit amounted to $26.5 million, an increase
of 88% over 1998's gross profit of $14.1 million. As a percentage of revenue, the
Company's gross margin in 1999 was 39%, unchanged from 1998. The Company is
committed to maintaining a gross margin of approximately 40% going forward.
annual report 1999
Minacs Worldwide derives its revenues from selling customer relationship solutions and
services including complete inbound, outbound, and blended customer contact centre
services, technical help desk, and Internet-based customer care.
21
Direct Expenses
Direct expenses were $41.1 million in 1999 compared to $21.8 million in 1998. Direct
expenses include costs associated with the implementation and ongoing operations of the
Company's customer relationship solutions programs for its clients. These expenses include
the wages and benefits of customer service representatives, telephone and other
communications fees, and certain marketing expenses. As a percentage of revenues, direct
expenses in both 1999 and 1998 were 61% of revenues. The Company carefully monitors
its direct expenses to ensure that its operations are conducted as efficiently as possible, and
aims to provide salaries and benefits in line with industry norms.
Operating Expenses
Operating expenses in 1999 were $20.8 million, compared to $11.3 million for 1998.
Operating expenses include general and administration, marketing and sales, and
professional fees. Operating expenses in 1999 increased primarily due to the Company's
growth in revenues, and the additional operating costs of its expanded facilities. As part of
its growth strategy, the Company added significant resources in the marketing and sales,
information systems and finance areas of the organization in the second half of the year.
These resources will assist the Company in achieving its growth targets for the coming year.
In order to improve the bottom line, the Company closely monitors its operating expenses. In
the second half of the year, the Company expended approximately $1.0 million in the
restructuring of the acquired business. Restructuring included the closure of Phonettix'
Montreal, QU and Toronto, ON, and the relocation of client programs into the Company's
Halifax, NS facility. The restructuring will result in that business unit returning positive
earnings in 2000. Management is working to implement additional measures designed to
realize further operating efficiencies, with the goal to reduce operating expenses as a
percentage of revenues over the next three years. By 2001, the Company intends to reduce
its operating expenses to less than 25% of revenues.
annual report 1999
22
Earnings Before Interest, Taxes, Depreciation & Amortization
Management views EBITDA (earnings before interest, taxes, depreciation and amortization)
as an important measure of profitability, particularly for growth companies such as
Minacs Worldwide.
In 1999, the Company earned $5.6 million in EBITDA, or 8.4% of revenues, representing an
increase of 99% over the $2.8 million (7.9% of revenues) in EBITDA in 1998. The
improvement in EBITDA is the result of increased revenues and demand for the Company's
services. Management has implemented a comprehensive financial performance strategy
that includes particular emphasis on EBITDA, aiming to bring EBITDA to 15% of
revenues by 2001.
Depreciation & Amortization
Depreciation expense in 1999 increased to $3.2 million, up from $0.7 million in 1998. This
increase is due to the addition of $16.3 million in capital assets in the year. The investments
in capital assets were made to support the significant growth in revenues, implementation of
new customer relationship solutions capabilities, and to expand the operating sites in
Halifax, NS and Richmond Hill, ON. The Company re-estimated the useful life of its net fixed
assets, resulting in an incremental charge to depreciation of $0.6 million.
The amortization of goodwill and deferred expenses contributed to this expense in 1999. The
goodwill stemming from the acquisition of Phonettix was $3.0 million and is being amortized
on a straight-line basis over 10 years. Deferred expense from the development and
implementation of the customer relationship solutions technologies at one of the Company's
client sites is being amortized over the term of the contract. The impact on amortization
expense of these two items was $0.2 million in 1999, compared to $0 in 1998.
Interest
Interest relates to the interest incurred on Minacs' long-term debt and operating loans. In
1999, interest amounted to $0.9 million, compared to $0.3 million in 1998. Reliance on
bank borrowings expanded in 1999 to $23.0 million by year-end, compared to $2.0 million
in 1998. The borrowings were applied to fund the acquisition of Phonettix, the investment in
capital assets and for general corporate purposes.
Management anticipates the absolute amount of interest expense to increase only marginally
in 2000 as the Company accesses its senior debt facility to fund the growth of the business.
Income Taxes
Deferred income taxes resulted from recognizing the deferred tax benefit of these acquired
operating loss carry forwards and from claiming capital cost allowance and other expenses
for income tax purposes.
Net Earnings
For the year, net income was $0.6 million, or $0.01 per share. These financial results
include the operations of Phonettix Intelecom, and the impact of that company's operating
loss, from July 20, 1999. For the year, approximately $1.0 million was spent in the
rationalization of the acquired business. Additionally, the Company re-estimated the useful life
of its net fixed assets, resulting in an incremental charge to depreciation of $0.6 million.
Excluding these charges, net income would have been $2.2 million, or $0.02 per share.
This compares to net income of $0.9 million, and $0.01 per share, in 1998. The decrease
in net income relates predominantly to the impact of Phonettix' operating results.
annual report 1999
Income taxes, including current and deferred, were $0.6 million in 1999, compared to $0.7
million in 1998. The Company's effective income tax rate was approximately 42.4% in 1999
compared to 40% in 1998. The increase in the effective tax rate was due to the profit in
certain business units not being offset by business losses in the others. Prior to the end of
1999, a corporate reorganization was completed to address this issue and to provide
access to the acquired business' tax loss carry forwards. The total tax loss carry forwards
acquired in the reverse takeover of Phonettix exceed $24.0 million. The tax benefit on $16.0
million ($7.0 million benefit) was recognized as an asset at the time of the acquisition.
23
quarterly results
Minacs Worldwide Inc.
Consolidated Statements of Income/Loss by Quarter
In thousands of CDN$
Three Months Ended
Mar-98
Jun-98
Sep-98
Dec-98
Revenues
$ 5,657)
$ 6,521)
$ 11,061
$ 12,738
1,788)
2,196)
5,360
4,814
259)
(477)
2,451
633
(24)
(753)
1,687
147
Mar-99
Jun-99
$ 14,609)
$ 13,611)
$ 19,461)
$ 19,986)
Gross Profit
6,296)
4,998)
7,493)
7,772)
EBITDA
3,299)
945)
1,066)
360)
Net Income
1,837)
113)
(917)
(432)
Gross Profit
EBITDA
Net Income
Three Months Ended
Revenues
annual report 1999
24
Sep-99
Dec-99
LIQUIDITY AND FINANCIAL RESOURCES
Minacs Worldwide's primary capital requirements have involved capital expenditures and working capital.
The Company has met its liquidity needs through operating activities and long- and short-term debt.
Subsequent to year-end, the Company augmented its financial resources with a special warrants equity
offering, by refinancing its senior debt, and with the appropriate use of sale and leaseback transactions.
The proceeds of these financings will be used to fund the Company's international expansion strategy, as
well as the continued development of its customer relationship solutions and e-business services, as well
as general business purposes. The equity and sale and leaseback transactions have been completed.
To support the Company's significant revenue growth, capital expenditures of $12.0 million were made in
1999, compared to $2.5 million in 1998. These capital expenditures reflect the implementation of major
new customer relationship solutions capabilities, the expansion of the Company's Halifax, NS and Richmond
Hill, ON facilities, and $4.3 million of fixed assets acquired through the Phonettix acquisition. The
investment in technology improvements and advancements are delivering greater efficiencies for Minacs
Worldwide, as well as providing the backbone for leading edge customer relationship services that are
raising the Company's competitive capabilities.
As at December 31 1999, the Company had a working capital deficit of ($27.8) million. As
at the same period in 1998, the working capital deficit was ($1.1) million. The increase in
the working capital deficit is the result of the acquisition of Phonettix Intelecom, the
significant investments in fixed assets, and the bank borrowings being moved to a demand
basis. The proceeds from the Company's recent special warrants equity offering, funds
provided under existing debt facilities, and cash flows from operations are expected to provide
Minacs with the liquidity to meet its anticipated cash needs for at least the next year. Future
acquisitions may require additional debt or equity financing.
OUTLOOK
The Company's long-term growth strategy includes sales and marketing initiatives and
partnering opportunities designed to increase revenues and net income. In addition to
continued organic growth, the Company's plans include potential acquisitions to generate
approximately 40% of the projected revenue growth.
In 1999, the high amount of capital expenditures related to investments in telephony
equipment, computer technology and other expenditures to support the business expansion.
Although the Company intends to continue to invest in technology initiatives to enhance its
solutions offerings, the proportion of capital expenses both as an absolute amount and as a
percentage of revenues is expected to decrease significantly in 2000. The Company's plans
call for an investment of approximately $8.0 million in capital assets in the coming year.
Going into 2000 and beyond, the Company is working to increase revenues by approximately
50%. Management is actively assessing opportunities to expand into other geographic
regions. Wholly committed to creating and maximizing long-term shareholder value, the
Company maintains its focus on delivering customer relationship solutions for new and
existing clients.
FORWARD LOOKING STATEMENTS
Certain information and statements contained in this Annual Report are forward-looking,
based on management's estimates and assumptions. Though management believes that the
expectations reflected in these forward-looking statements are reasonable, there can be no
assurance that these expectations will prove to be correct. As such, these forward-looking
statements are subject to risks and uncertainties that could cause the Company's actual
results to differ materially from anticipated events. Information and statements identified as
forward-looking include, and are not limited to, statements regarding financial results, future
events and trends.
annual report 1999
Management is optimistic for the Company's continued growth and success. Financial
strategies have been implemented to help bring the profitability of the recently acquired
business up to an appropriate level. Restructuring and optimization will continue through the
first half of 2000. When completed, the annualized impact is anticipated to be an
approximately $6.0 million improvement to the bottom line, starting from Phonettix'
annualized loss of ($5.0 million).
25
CORPORATE GOVERNANCE
In 1995, the Toronto Stock Exchange adopted non-compulsory Guidelines for Improved
Corporate Governance in Canada which require Canadian incorporated listed companies to
disclose their corporate governance practices with reference to those Guidelines. In 1999
the Guidelines were amended; listed companies are now required to disclose their corporate
governance practices with specific reference to each of the TSE Guidelines.
The Minacs Board of Directors is responsible for the stewardship of the business and affairs
of the Company and, in light of that responsibility, reviews, discusses and approves matters
related to the Company’s operations, strategic direction, and organizational structure to
ensure that the best interests of the Company and its stakeholders are being served.
Minacs Worldwide maintains a strong conviction that sound corporate governance practices
are essential to the effective operation of the Company, to the successful achievement of its
ambitious targets and to the enhancement of the interests of Minacs’ shareholders. Minacs
has fully addressed, in its Management Information Circular dated April 12, 2000, its
corporate governance practices.
The following table sets out the 14 elements of the TSE Guidelines for Improved
Corporate Governance in Canada and Minacs’ alignment therewith:
TSE Guidelines
1.
Does Minacs Align?
Board should explicitly assume
responsibility for stewardship of
Minacs and specifically for:
annual report 1999
(a)
adoption of a strategic planning
process;
Yes, the Board conducts an annual review of Minacs’ strategic
plan.
(b)
identification of principal risks
implementing appropriate
risk management systems;
Yes, principal business risks are assessed by the Board and
during the review of the strategic plan. The Board reviews
risk management systems with management and the external
auditors.
(c)
succession planning, including
appointing, training and
monitoring senior management;
Yes, Minacs has a documented succession planning process
that is reviewed by the Board periodically.
(d)
communications policy;
Yes, quarterly media releases of financial results are approved
by the Board. Other media releases and communications are
coordinated by Minacs’ Director, Marketing and Corporate
Communications.
(e)
integrity of internal control and
management information systems.
Yes, comprehensive review of internal controls and management
information systems is completed annually.
26
2.
Majority of Directors should be
“unrelated” (free from conflicting
interest).
Yes, the current Board consists of eight Directors, five of whom
are unrelated.
3.
Disclose for each Director whether
he or she is related and how that
conclusion was reached.
Yes, the Company’s Management Information Circular dated
April 12, 2000 sets out the principal occupation/employment
of each proposed Director. Six of the eight proposed Directors
are independent of Minacs.
4.
(a)
Yes, this responsibility is assigned to the Governance &
Nominating Committee.
Appoint a Committee
responsible for proposing new
nominees for appointment/
assessment of Directors;
(b)
Composed exclusively of
outside Directors, a majority of
whom are unrelated.
Does Minacs Align?
Yes, see response to point 9 below.
5.
Implement a process for assessing
the effectiveness of the Board, its
Committees and individual Directors.
Yes, in 2000, a survey will be circulated among the
Directors to solicit comments evaluating Board and
Committee performance, the timeliness and quality of
materials and effectiveness of meetings. The Chair of the
Board regularly consults with each outside Director to review
Board effectiveness.
6.
Provide orientation and education
programs for new Directors.
Yes, Minacs has an orientation program which includes
interviews, special presentations, site visits and a corporate
information manual.
7.
Consider size of Board with a view
to improving effectiveness.
Yes, the Directors have made a determination that a Board
of eight directors is efficient and effective.
8.
Review the adequacy and form of
compensation of Directors in light of
risks and responsibilities.
Yes, Directors’ compensation is reviewed annually by the
Governance & Nominating Committee in consultation with
the Human Resources & Compensation Committee.
Directors’ compensation is designed to align the interests of
Directors with the return to shareholders. Only unrelated
Directors receive Directors’ compensation.
9.
Board Committees should generally
be composed of outside Directors,
a majority of whom are unrelated.
Yes, Audit Committee: All members are outside and
unrelated Directors.
Governance & Nominating Committee: 3 members are
outside Directors, 1 member is a related Director
Human Resources & Compensation Committee:
All members are outside and unrelated Directors.
10. Appoint a Committee responsible
for Governance & for TSE corporate
governance issues and the
TSE Guidelines.
Yes, this responsibility, among others, is assigned to the
Nominating Committee.
11. (a)
Define limits to management’s
responsibilities by developing
mandates for the Board and
the CEO.
Yes, the Company has prepared Terms of Reference for the
Board. The Board has prepared a series of mandates
including short and long-term objectives for the CEO.
Board should approve the
CEO’s corporate objectives.
Yes, the CEO’s corporate objectives are set out in the
strategic plan, which is approved by the Board. The Human
Resources & Compensation Committee sets the CEO’s
compensation based on, among other things, performance
against the plan.
(b)
annual report 1999
TSE Guidelines
27
12. Establish procedures to enable the
Board to function independently of
management.
Yes, the Governance & Nominating Committee provides
the desired independent structure. It is the forum to
receive any expression of concern from a Director, including
a concern regarding the independence of the Board from
management. The Board has the opportunity to meet in
camera (without management present) at each meeting.
13. (a)
The Audit Committee should
have a specifically defined
mandate;
Yes, detailed Terms of Reference have been developed for
the Audit Committee. This Committee is responsible for
Minacs’ approach and practices in respect of financial
performance and reporting.
All members of the Audit
Committee should be outside
Directors.
Yes, all members of the Audit Committee are
outside Directors.
(b)
14. Implement a system to enable
individual Directors to engage
outside advisors, at Minacs’
expense.
Yes, individual Directors are entitled to engage outside
advisors at Minacs’ expense, in consultation with the
Governance & Nominating Committee.
minacs growth at a glance
Number of Workstations
1000
600
1997
1998
1999
300
Revenue per Workstation*
(in thousands of CDN dollars)
$ 96.8
$ 82.9
annual report 1999
†1997
1999
28
1998
$ 48.8
Minacs Locations
10
7
1997
1998
1999
4
* weighted average
† 1997 - 8 months only
FINANCIAL REPORT
1999
The accompanying financial statements and the information contained in this annual report are
the responsibility of management and have been approved by the Board of Directors. Financial
and operating data elsewhere in this annual report are consistent with the information contained
in the financial statements.
These financial statements and all other information have been prepared by management in
accordance with accounting principles generally accepted in Canada. Some amounts included in
the financial statements are based on management's best estimates and have been derived with
careful judgement.
In fulfilling its responsibilities, management has developed and maintains a system of internal
controls. These controls ensure that assets are safeguarded from loss or unauthorized use and
that financial records are reliable for the purpose of preparing financial statements.The Board of
Directors carries out its responsibility for the financial statements through the Audit Committee
which consists of non-management Directors.The Audit Committee periodically reviews and
discusses financial reporting matters with the Company's auditors, Deloitte and Touche, LLP, as
well as with management.
The financial statements have been audited by Deloitte and Touche, LLP, Chartered Accountants.
Elaine Minacs
President & Chief Executive Officer
Duncan Cowie
Vice President and Chief Financial Officer
MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL REPORTING
Management’s Responsibility
for Financial Reporting
annual report 1999
32
Auditors’ Report
To the Shareholders of Minacs Worldwide Inc.
We have audited the consolidated balance sheets of Minacs Worldwide Inc. as at December
31, 1999 and 1998 and the consolidated statements of operations and retained earnings
and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
In our opinion, these consolidated financial statements present fairly, in all material respects,
the financial position of the Company as at December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years then ended in accordance with accounting
principles generally accepted in Canada.
Deloitte and Touche, LLP
Chartered Accountants
Toronto, Ontario
February 14, 2000
(Except as to Note 1, February 29, 2000)
AUDITORS’ REPORT
We conducted our audit in accordance with auditing standards generally accepted in Canada.
Those standards require that we plan and perform an audit to obtain reasonable assurance
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.
annual report 1999
34
Consolidated Balance Sheets
as at December 31, (CDN$)
1999
1998
ASSETS
CURRENT ASSETS
Cash
Accounts Receivable
Note Receivable
Prepaid Expenses
Current portion of loan receivable
$
(Note 6)
LOAN RECEIVABLE (Note 6)
FUTURE INCOME TAXES
DEFERRED EXPENSES (Note 8)
OTHER ASSETS
CAPITAL ASSETS (Note 1, 5)
GOODWILL (Note 7)
Total Assets
27,454
12,155,578
—
772,735
20,520
12,976,287
$
123,781
4,796,884
500,000
1,268,143
20,520
6,709,328
258,234
7,123,810
2,718,138
433,882
17,356,035
2,868,009
$ 43,734,395
278,754
—
—
63,522
4,135,240
—
$ 11,186,844
$ 12,054,300
13,644,706
3,360,554
—
—
11,320,214
390,080
40,769,854
$ 1,617,351
4,799,442
—
12,390
689,585
380,385
305,374
7,804,527
—
295,036
131,585
748,482
—
41,944,957
156,479
97,311
264,756
834,477
268,151
9,425,701
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (Note 1, 9)
Accounts Payable and Accrued Liabilities (Note 1)
Accrued Restructuring Costs
Deferred Revenue
Income Taxes Payable
Current portion of Long-Term Debt (Note 1, 10)
Current portion of obligations under Capital Leases
(Note 12)
SHAREHOLDERS’ EQUITY
Share Capital (Note 11)
Cumulative Translation Adjustment
Retained Earnings
Total Liabilities & Shareholders’ Equity
424,318
(18,622)
1,383,742
1,789,438
$ 43,734,395
On behalf of the Board:
John F. Bankes
Chair
Elaine Minacs
Director
246,848
59,207
1,455,088
1,761,143
$ 11,186,844
CONSOLIDATED
STATEMENTS
MINORITY INTEREST
FUTURE INCOME TAXES
DUE TO RELATED PARTIES (Note 14)
OBLIGATIONS UNDER CAPITAL LEASES
LONG-TERM DEBT (Note 10)
(Note 12)
12 months ended December 31 (CDN$)
Consolidated Statements
of Operations and Retained Earnings
1999
Revenues
Direct Expenses
Gross Profit
Selling, General and Administrative Expenses
Earnings before Interest, Depreciation and Amortization
$ 67,668,260
41,108,172
26,560,088
20,887,394
5,672,695
$ 35,977,955
21,818,658
14,159,297
11,313,946
2,845,351
3,222,105
957,441
1,493,149
257,902
1,235,247
748,871
339,080
1,757,400
—
1,757,400
434,555
199,192
633,747
677,212
23,414
700,626
601,500
—
601,500
1,056,774
121,282
935,492
1,455,088
672,846
1,383,742
0.01
519,596
—
1,455,088
0.01
Depreciation and Amortization
Interest
Earnings before Income Taxes and Undernoted Items
Loss on Sale of Investment
Earnings before Income Taxes
Provision for Income Taxes
Current
Future
Net Earnings before Minority Interest
Minority Interest
Net Earnings for the Year
Opening Retained Earnings
Dividend Paid
Closing Retained Earnings
Earnings per Share (Note 16)
annual report 1999
36
1998
$
$
$
$
Consolidated Statements of
Cash Flows
12 months ended December 31, (CDN$)
1999
1998
OPERATING ACTIVITIES
Net earnings for the period
Items not affecting cash:
Depreciation and Amortization
Future Income Taxes
Changes in working capital balances
$
601,500
$
935,492
3,222,105
199,192
(1,323,643)
2,699,154
748,871
23,414
(1,929,760)
(221,983)
475,365
(2,730,528)
(12,029,538)
156,479
(1,227,593)
(15,355,815)
17,707
32,960
(2,575,432)
—
—
(2,524,765)
2,775,231
10,436,949
21,000
(672,846)
12,560,334
876,007
1,617,351
—
—
2,493,358
(96,327)
123,781
27,454
$
(253,390)
377,171
123,781
$
126,178
INVESTING ACTIVITIES
Other Assets
Deferred Expenses
Capital Assets
Acquisition of Minority Interest
Investment in Phonettix Intelecom Ltd
FINANCING ACTIVITIES
Long-term Debt and Capital Leases
Bank Indebtedness
Options Excercised
Dividends
DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS - END OF YEAR
$
Income Taxes Paid
$
2,168,333
annual report 1999
SUPPLEMENTAL DISCLOSURE
37
annual report 1999
38
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been presented on the going concern basis which
contemplates the realization of the Company's assets and the discharge of its obligations, in
the normal course of the business in the foreseeable future.
The Company had profitable operations for the year ended December 31, 1999. At that
date the working capital deficiency was $27,793,567.
Subsequent to the year-end, the Company took a number of actions to diversify and expand
its capital structure which will result in the improvement of the working capital ratio. These
included the following:
•
In January 2000, the Company entered into agreements covering the Sale and
Leaseback of specific capital assets totaling $4,665,391. The effect of these
transactions was to reduce bank borrowings by $3,109,343, and accounts payable
by $1,556,048, and to reduce capital assets by $4,665,391, subsequent to the
year-end. The additional lease payment commitments have not been reflected in Note
17 to the financial statements.
•
On February 10, 2000, the Company signed an engagement letter with Octagon
Capital Corporation to raise $12,600,000 through a Special Warrants offering. The
Special Warrants will be exercisable into units comprising one common share of the
Company plus one-half common share purchase warrant. Full purchase warrants are
exercisable at $0.90 for a 24-month period. The transaction was closed on March
15, 2000. Prior to closing, the transaction was increased to $15,355,000 million
gross proceeds.
•
On February 29, 2000, the Company entered into a non-binding letter of intent with a
major Canadian financial institution to refinance its senior debt, with $15,000,000 in
operating facilities and $30,000,000 in long-term committed revolving and acquisition
facilities.
2. ACQUISITION OF PHONETTIX INTELECOM LTD.
On July 20, 1999, Phonettix Intelecom Ltd. and The Minacs Group Inc. entered into an
agreement whereby Phonettix Intelecom Ltd. acquired a 100% interest in The Minacs Group
Inc. In return for their shares in The Minacs Group Inc., the shareholders of The Minacs
Group Inc. were issued 99,991,428 common shares of Phonettix Intelecom Ltd.
NOTES TO CONSOLIDATED STATEMENTS
The proceeds from these transactions will be applied to improve working capital, reduce
current bank borrowings and reduce the current portion of long-term debt.
As a result of the issuance of 99,991,428 common shares of Phonettix Intelecom Ltd., the
former shareholders of The Minacs Group Inc. control Phonettix Intelecom Ltd. through
ownership of 80% of the common shares.
Subsequent to the acquisition, on July 20, 1999, Phonettix Intelecom Ltd. was continued
under the name Minacs Worldwide Inc. Effective November 30, 1999, The Minacs Group
Inc. was amalgamated with its subsidiary, Minacs Intellicom Inc., and continued as Minacs
Intellicom Inc.
Legally, Minacs Worldwide Inc. is regarded as the parent company; however, according to
generally accepted accounting principles, since the former shareholders of The Minacs Group
Inc. now control Minacs Worldwide Inc. after the acquisition, Minacs Intellicom Inc.
(previously The Minacs Group Inc.) is identified as the acquirer and Minacs Worldwide Inc. is
treated as the acquired company. These consolidated financial statements are issued under
the name Minacs Worldwide Inc. but are considered a continuation of the financial
statements of Minacs Intellicom Inc. (previously The Minacs Group Inc.). Being the acquiring
company, the net assets of The Minacs Group Inc. are included in the consolidated balance
sheet at their book value, and the net assets of Minacs Worldwide Inc. are included at their
fair market value.
The cost of the purchase allocated to the net assets of Phonettix Intelecom Ltd. as at the
date of acquisition was:
Net liabilities assumed
Acquisition costs
$
Less cost allocated to
issuance of shares
Allocated to:
Goodwill
Future income taxes
—
$
10,126,960
$
3,003,150
7,123,810
10,126,960
$
annual report 1999
40
8,899,367
1,227,593
10,126,960
The purchase price was paid through the assumption of net liabilities and issuance of
99,991,428 common shares.
3. NATURE OF BUSINESS
The Company is incorporated under the laws of Ontario. Through multiple locations in both
Canada and the United States, it provides multi-medium customer relationship solutions and
services as an integral part of its clients' operations. The company manages customer
contacts via telephone, interactive voice response (IVR), fax, Internet, e-mail and traditional
mail, through the provision of outsourcing services and through contact management
services.
4. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries,
as at December 31, 1999. The subsidiaries of the Company are: Minacs Intellicom Inc., The
Minacs Group (USA) Inc., Minacs Limited (U.K.), 1171120 Ontario Limited, Millman Insurance
Limited, Direct Advantage Ltd., DMS Market Services (Maritimes) Inc., Direct Advantage Ltd.
(UK), Phonettix Intelecom Ltd. (Ireland), Millman Advertising Limited, Phonettix Intelecom
Healthcare Technologies Ltd., and Phonettix Intelecom Ltd. (UK).
Capital assets
Capital assets are recorded at cost. Depreciation is provided on an annual basis as follows:
Automotive equipment
Computer equipment
Computer software
Furniture and equipment
Leasehold improvements
Telephone equipment
Call centre equipment
Straight
Straight
Straight
Straight
Straight
renewal
Straight
Straight
line over
line over
line over
line over
line over
period
line over
line over
5 to 7 years
3 to 5 years
3 to 5 years
7 to 10 years
lease term and one
5 to 7 years
7 to 10 years
Goodwill
Goodwill is amortized using the straight line method over 10 to 25 years.
Deferred expenses
Deferred expenses relate to the costs incurred in the development of applications and process
efficiencies, prior to their being brought into production under various contracts. Amortization is
provided on a straight line basis over the term of the contract (generally 3 to 5 years).
The Company has adopted the new Canadian Institute of Chartered Accountants standard for
accounting for income taxes. The new standard requires the use of the asset and liability
method for accounting for the tax effect of temporary differences between the carrying amount
of the Company's assets and liabilities. Temporary differences arise when the realization of an
asset or settlement of a liability would give rise to either an increase or a decrease in the
Company's income taxes payable for the year or later period.
Future income taxes are recorded at the income tax rates, which are expected to apply when
the future tax liability is settled or the future income tax asset is realized. Valuation allowances
are established when necessary to reduce future income tax assets to the amount expected to
be realized. Income tax expense consists of the income taxes payable for the period and the
change in future income tax assets and liabilities.
annual report 1999
Future income taxes
41
Revenue recognition
Income is recognized as earned over the terms of the related contracts.
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 amount of
assets and liabilities and disclosures 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.
Foreign exchange translation
The Company has translated foreign currency assets and liabilities into Canadian dollars at the
exchange rate prevailing at December 31, 1999. Foreign currency translation gains and losses are
accumulated in a separate component of shareholders' equity.
Gains and losses relating to foreign exchange transactions during the course of the year are
translated at the average exchange rate prevailing during the year, and included in the determination
of income for the year.
Stock options
The Company does not record compensation expense upon the granting or exercising of
stock options.
5. CAPITAL ASSETS
1999
Accumulated
Depreciation
And
Amortization
Cost
annual report 1999
Land
Buildings
Automotive equipment
Computer equipment
Computer software
Furniture and equipment
Leasehold improvements
Telephone equipment
$
—
—
23,399
5,327,588
2,881,112
3,138,219
4,262,586
5,501,034
Call centre equipment
1,275,904
$ 22,409,842
$
—
—
23,399
1,803,514
868,863
867,175
851,067
481,427
158,362
$ 5,053,807
1998
Net Book
Value
$
—
—
—
3,524,074
2,012,249
2,271,044
3,411,519
5,019,607
1,117,542
$ 17,356,035
Net Book
Value
$
246,438
374,253
15,856
833,857
271,141
754,153
318,184
271,788
1,049,570
$ 4,135,240
42
Included in these figures are the Assets under Capital Leases, with a net book value of
$1,139,713 (1998: $ 1,206,791).
During the year the remaining economic life of the capital assets were re-estimated, resulting in an
incremental charge to depreciation of approximately $600,000.
6. LOAN RECEIVABLE
1999
Interest-free housing loan to an officer and
shareholder, repayable $20,520 annually
Less: Current portion
1998
$
278,754
20,520
$
299,274
20,520
$
258,234
$
278,754
7. GOODWILL
1999
1998
Goodwill
$ 3,003,150
$
–—
Less: Accumulated amortization
135,141
$ 2,868,009
$
–—
–—
8. DEFERRED EXPENSES
1999
Deferred expenses
Less: Accumulated amortization
$ 2,826,990
108,852
$ 2,718,138
1998
$
$
240,201
240,201
–—
9. BANK INDEBTEDNESS
Bank indebtedness includes the following demand operating loans:
Minacs Worldwide Inc.
The Minacs Group (U.S.A.) Inc.
These loans are secured as described in Note 10.
$11,040,000
1,014,300
$12,054,300
Interest
Prime + 1.5%
Prime + 0.5%
annual report 1999
Amount
Drawn
43
10.
LONG-TERM DEBT
The Company has entered into a general security agreement with its bank providing the bank
with a security interest in its assets as collateral for the long-term debt and bank
indebtedness (Note 9). In addition, the Company has guaranteed the loans of its subsidiaries.
In December 1999 the Bank extended additional term and operating facilities totaling
$2,600,000. Following this date, the term facilities, while continuing under the below noted
schedule, were moved to a demand basis (see Note 1).
1999
Minacs Worldwide Inc. Term loan, repayable at $319,441 monthly plus
interest at a chartered bank's prime rate
plus 1.5% to 2.25%;
$ 11,299,015
Mortgage, repayable $2,086 principal and
interest monthly, bearing interest at 7.5%
maturing October, 2013;
The Minacs Group (USA) Inc. Bank loan, repayable at $2,539 monthly including
interest at 7.23%, maturing September 30, 2000;
Less: Current portion
1998
$
373,794
—
223,646
21,199
$ 11,320,214
$ 11,320,214
$
—
51,096
648,536
380,385
268,151
$
Based upon the existing repayment terms, principal repayments required on long-term debt
for the next five years are as follows:
annual report 1999
44
2000
2001
2002
2003
2004
$
4,059,910
3,601,558
2,308,746
1,350,000
—
$ 11,320,214
11. SHARE CAPITAL
(a) Authorized Share Capital
The authorized capital stock of Minacs Worldwide Inc. consists of:
Unlimited number of preferred shares issuable in series
Unlimited number of common shares
The authorized capital stock of The Minacs Group Inc. consists of:
1,495,000
251,619
Class A Special shares, voting, 8% non-cumulative,
redeemable and retractable at the amount paid-up
Class B special shares, non-voting, 8% non-cumulative,
redeemable and retractable at $1 per share
Unlimited number of common shares
Number
1,495,000
251,619
200
1,746,819
Amount
$
8
246,720
120
$ 246,848
(1,746,819)
—
24,997,857
—
—
99,991,428
91,667
125,080,952
156,479
—
21,000
$ 424,318
(c) Transactions during the year ended December 31, 1998:
There were no share transactions for The Minacs Group Inc. during the year
ended December 31, 1998
annual report 1999
(b) Issued Share Capital
December 31, 1997
Class A special shares – The Minacs Group Inc.
Class B special shares – The Minacs Group Inc.
Common shares – The Minacs Group Inc.
December 31, 1998
The Minacs Group Inc.
(reverse takeover of Phonettix Intelecom Ltd.)
Minacs Worldwide Inc. (previously Phonettix
Intelecom Ltd.)
Minacs Intellicom Inc. (previously
The Minacs Group Inc.)
acquisition of minority interest
Shares issued in reverse takeover (Note 2)
Stock options exercised
December 31, 1999
45
(d) Transactions during the year ended December 31, 1999:
i)
The issued and outstanding shares of The Minacs Group Inc. (1,746,819 Class A and
B special shares and common shares) were converted to the issued and outstanding
shares of Minacs Worldwide Inc. (previously Phonettix Intelecom Ltd.) (24,997,857
common shares). The share capital of the Company at the time of the reverse
takeover transaction is The Minacs Group Inc. share capital amount of $246,839.
ii)
The minority interest in The Minacs Group Inc. was acquired in the reverse takeover
transaction for a value of $156,479.
iii)
99,991,428 common shares of Minacs Worldwide Inc. (previously Phonettix
Intelecom Ltd.) were issued in the reverse takeover transaction (see Note 2).
iv)
During the year 91,667 shares were issued pursuant to the exercise of stock
options.
(e) Stock Option Plan:
As at December 31, 1999, the Company's stock option plan allows for grants with an
exercise price based on the market price at the time of granting.
December 31, 1998
Options Assumed on Acquisition of Phonettix Intelecom Ltd.
Transactions Post-Acquisition
Granted
Less: Exercised
Cancelled
December 31, 1999
Options Issued
and Outstanding
—
799,500
4,848,000
(91,667)
(356,583)
5,199,250
annual report 1999
Options granted prior to the acquisition date (and outstanding after that date), by Phonettix
Intelecom Ltd., totaling 799,500, had been granted to employees, consultants, officers
and directors. These options expire from January 2001 to January 2004, at prices that
range from $0.55 to $2.60
Options granted following the acquisition date, by Minacs Worldwide Inc., totaling
4,848,000, had been granted to employees, consultants, officers and directors. These
options expire in October 2009, and are priced at $0.43.
46
As at December 31, 1999, options for 5,199,250 shares were granted and outstanding.
These options expire from January 2001 to October 2009. The total outstanding options
range in price from $0.43 to $2.60, with a weighted average exercise price of $0.47.
12. OBLIGATIONS UNDER CAPITAL LEASES
Interest on obligations under capital leases accrues at various rates ranging from 6.14% to
8.75%. The following is a schedule of future minimum lease payments for these capital
leases:
2000
2001
2002
2003
2004
Total minimum lease payments
$
Less amount representing interest
Present value of net minimum lease payments
463,466
374,891
346,434
95,154
—
1,279,945
141,383
1,138,562
Less amounts due within one year
$
390,080
748,482
13. INCOME TAXES
At December 31, 1999 the Company had loss carry forwards of approximately
$24,738,000. These are available for utilization against future taxable income, and expire as
follows:
2000
$
1,062,000
2001
176,000
2002
992,000
2003
2,138,000
2004
14,000
2005
5,380,000
2006
14,976,000
$ 24,738,000
14. DUE TO RELATED PARTIES
The amount due to an officer and director is interest free, unsecured and has no specific
terms of repayment.
annual report 1999
The Company has recognized the tax effect of $16.0 million of the loss carry forwards on its
balance sheet. The remaining balance is subject to a valuation allowance.
47
15. RELATED PARTY TRANSACTIONS
Minacs Worldwide Inc. is related to 1351715 Ontario Limited which is the controlling
shareholder of the Company. The Company pays rents to 1351715 Ontario Limited for the
use of certain facilities, as follows:
Rent
1999
1998
$ 22,369
N/A
16. EARNINGS PER SHARE
Fully diluted earnings per share has not been presented as the effects of the stock options
would be anti-dilutive. The earnings per share for 1998 has been adjusted to reflect the
reverse takeover.
17. COMMITMENTS
The Company has leased premises with minimum annual lease payments for the next five
years as follows:
2000
$ 1,453,101
2001
1,471,476
2002
1,418,313
2003
1,418,313
2004
1,350,412
18. SEGMENTED FINANCIAL INFORMATION
The Company has significant operations in both Canada and the U.S. In both markets,
revenues are recognized from advanced contact centre applications.
CANADA
annual report 1999
48
U.S.
TOTAL
Revenues
$ 40,003,255
$ 27,665,005
$ 67,668,260
Capital Assets and
Goodwill
$ 17,385,312
$
$ 20,224,044
2,838,732
19. RISK MANAGEMENT
The Company is exposed to financial risks that arise from fluctuations in interest rates,
foreign currency exchange rates and from credit risks as the result of non-performance by
counterparties.
Interest rate risk
The Company's external long-term debt (see Notes 9 and 10) is at floating interest rates, and as
a result, the Company is exposed to changes in interest rates. Increases or decreases in these
rates could impact the Company's earnings.
Foreign exchange risk
The Company is exposed to foreign exchange risk from fluctuations in foreign currency rates.
Increases or decreases in these rates could impact the Company's earnings.
Credit risk
The Company is exposed to credit risk from customers in the normal course of business. Given
the Company's stringent credit policy and its client base, the Company does not anticipate any
collection problems.
Economic dependence
The Company derives a significant portion of its revenue from contracts with three customers.
20. UNCERTAINTIES DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits rather than four
to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other
date, resulting in errors when information using year 2000 is processed. In addition, similar
problems may arise in some systems that use certain dates in 1999 to represent something
other than a date. Although the change in date has occurred, it is not possible to be certain that
all the aspects of the year 2000 issue affecting the entity, including those related to customers,
suppliers, or other third parties, will have been fully resolved.
In the year ended August 31, 1997 Phonettix Intelecom Ltd. entered into an agreement to
receive aggregate contributions of up to $3,500,000 from Connections Nova Scotia. The
contribution is receivable over a period ending December 31, 2000, based on the creation of
certain job levels in the province of Nova Scotia. Prior to the July 20, 1999 acquisition date an
amount of $250,218 receivable was accrued and offset against direct and operating costs.
22. CONTINGENCY
The Company and its subsidiaries have been named in a number of routine litigation matters.
The Company believes that it has provided adequately for these matters and accordingly their
ultimate disposition is not expected to have a material effect on its consolidated earnings or
financial position.
23. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the current year's
presentation.
annual report 1999
21. GOVERNMENT CONTRIBUTION
49
BOARD OF DIRECTORS
Chair:
John F. Bankes, Managing Director, Artemis Management Group Inc.
Directors:
Governor James J. Blanchard, Partner, Verner, Bernhard, McPherson and Hand. Former U.S. Ambassador to Canada
William Dimma, Corporate Director
Anthony Keenan, President & CEO, Tiger North America Inc.
Ronald Kitchen, Managing Partner, Kitchen, Kitchen, Simeson & McFarlane
Dorothy Millman, Vice-Chair, Minacs Worldwide Inc.
Elaine Minacs, President & CEO, Minacs Worldwide Inc.
Derek Ridout, Corporate Director and Former President & CEO, Silcorp Limited
OFFICERS
Elaine Minacs, President & Chief Executive Officer
John F. Bankes, Chair of the Board
Gail Cooper, Senior Vice President, Human Resources
Duncan Cowie, Vice President & Chief Financial Officer
Lyell Farquharson, Chief Operating Officer
Eric Greenwood, Chief Information Officer
Dorothy Millman, Vice-Chair
Meda Mitchell, Vice President, Sales & Marketing
Geoff Oakie, Vice President, Controller
AUDIT COMMITTEE
Anthony Keenan (Chair)
Ronald Kitchen
Derek Ridout
GOVERNANCE &
NOMINATING COMMITTEE
Derek Ridout (Chair)
Governor James J. Blanchard
William Dimma
Dorothy Millman
HUMAN RESOURCES &
COMPENSATION COMMITTEE
William Dimma (Chair)
Ronald Kitchen
Anthony Keenan
TRANSFER AGENT
Montreal Trust Company of Canada, 151 Front Street W., Suite 605, Toronto, Ontario, M5J 2N1
INVESTOR RELATIONS
Please send inquiries to:
Minacs Worldwide Investor Relations, [email protected], www.minacs.com/investors, Phone: 905.943.8640
ANNUAL SHAREHOLDERS’ MEETING
Wednesday, May 10, 2000
10:00 a.m.
TSE Conference Centre, Exchange Tower, 130 King Street West, Toronto, Ontario M5X 1E3
STOCK INFORMATION
Toronto Stock Exchange: MXW
CORPORATE HEAD OFFICE
505 Cochrane Drive
Markham, Ontario
Canada L3R 8E3
Telephone: 1.888.minacs1 (1.888.646.2271)
Fax: 905.943.8679
U.S. HEAD OFFICE
1800 Opdyke Court
Auburn Hills, Michigan, 48326
Telephone: 1.877.646.2277
Fax: 1.877.646.2273
OTHER LOCATIONS
Halifax, Nova Scotia
Richmond Hill, Ontario
Pickering, Ontario
Oshawa, Ontario
Ottawa, Ontario
Pontiac, Michigan
WEB SITE
www.minacs.com