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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
/X/[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30,December 31, 1996
or
/ /[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d)(D) OF THE SECURITIES
EXCHANGE ACT OF 1934For1934
For the transition period from to
Commission File Number 0-28536
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BILLING INFORMATION CONCEPTS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2781950
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
9311 SAN PEDRO,7411 JOHN SMITH DRIVE, SUITE 400 78216200 78229
SAN ANTONIO, TEXAS (Zip code)
(Address of principal executive offices)
(210) 321-6900949-7000
(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. /X/|X| Yes / /|_| No
Indicated below is the number of shares outstanding of the registrant's
only class of common stock at August 2, 1996:February 4, 1997:
TITLE OF CLASS NUMBER OF SHARES
-------------- OUTSTANDING
---------------------------
Common Stock, $.01 par value 15,032,001
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------15,254,198
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2
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
INDEX
PAGE
----
PAGE
PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 31, 1996 and September 30, 1996.............................. 3
Condensed Consolidated Statements of Income - For the Three-Month Periods Ended
December 31, 1996 and 1995................................................................................ 4
Condensed Consolidated Statements of Cash Flows - For the Three-Month Periods Ended
December 31, 1996 and 1995................................................................................ 5
Notes to Interim Condensed Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................. 13
Item 2. Changes in Securities......................................................................................... 13
Item 3. Defaults Upon Senior Securities............................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........................................................... 13
Item 5. Other Information............................................................................................. 13
Item 6. Exhibits and Reports on Form 8-K.............................................................................. 14
SIGNATURES .............................................................................................................. 15
2
3
PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- September 30, 1995 and
June 30, 1996. . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income -- For the Three
and Nine-Month Periods Ended June 30, 1995 and 1996. . . . . . 4
Condensed Consolidated Statements of Cash Flows -- For the
Nine-Month Periods Ended June 30, 1995 and 1996. . . . . . . . 5
Notes to Interim Condensed Consolidated Financial Statements . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 19
(a) Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Current Reports on Form 8-K . . . . . . . . . . . . . . . 19
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
SEPTEMBER 30, JUNE 30,
1995 1996
------------- --------
Current assets:
Cash and cash equivalents. . . . . . . . . . . $ 26,770 $ 29,811
Accounts receivable. . . . . . . . . . . . . . 18,113 18,380
Purchased receivables. . . . . . . . . . . . . 55,228 66,692
Prepaids and other . . . . . . . . . . . . . . 624 853
--------- --------
Total current assets . . . . . . . . . . . . 100,735 115,736
Property and equipment, net . . . . . . . . . . 3,229 7,712
Equipment held under capital leases, net. . . . 1,556 1,198
Other assets, net . . . . . . . . . . . . . . . 1,375 1,321
--------- --------
Total assets . . . . . . . . . . . . . . . . $ 106,895 $125,967
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable:
Trade . . . . . . . . . . . . . . . . . . . . $ 12,604 $ 16,154
Billing customers . . . . . . . . . . . . . . 34,756 26,237
Accrued liabilities. . . . . . . . . . . . . . 12,362 19,435
Revolving line of credit for purchased
receivables. . . . . . . . . . . . . . . . . 23,030 29,016
Current portion of long-term debt. . . . . . . 285 427
Current portion of obligations under capital
leases . . . . . . . . . . . . . . . . . . . 398 445
--------- --------
Total current liabilities. . . . . . . . . . 83,435 91,714
Long-term debt, less current portion. . . . . . 1,048 1,057
Obligations under capital leases, less
current portion . . . . . . . . . . . . . . . 1,168 838
Other liabilities . . . . . . . . . . . . . . . 21 0
--------- --------
Total liabilities. . . . . . . . . . . . . . 85,672 93,609
Commitments and contingencies (Note 3)
Stockholder's equity:
Preferred shares, $10.00 par value, 10,000
shares authorized; 10,000 shares issued and
outstanding . . . . . . . . . . . . . . . . . 100 100
Common shares, no par value, 102,000 shares
authorized; 102,000 shares issued and
outstanding . . . . . . . . . . . . . . . . . 1 1
U.S. Long Distance Corp.'s investment in and
advances to the Company . . . . . . . . . . . 21,122 32,257
--------- --------
Total stockholder's equity . . . . . . . . . 21,223 32,358
--------- --------
Total liabilities and stockholder's equity . $ 106,895 $125,967
--------- --------
--------- --------
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
Current assets:
Cash and cash equivalents...................................................................... $ 30,456 $ 34,135
Accounts receivable............................................................................ 16,666 17,707
Purchased receivables.......................................................................... 61,532 70,920
Prepaids and other............................................................................. 996 883
---------- ----------
Total current assets......................................................................... 109,650 123,645
Property and equipment, net...................................................................... 14,607 9,380
Equipment held under capital leases, net......................................................... 3,452 3,519
Other assets, net................................................................................ 1,920 1,238
---------- ----------
Total assets................................................................................. $ 129,629 $ 137,782
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade......................................................................................... $ 11,791 $ 12,743
Billing customers............................................................................. 50,577 50,974
Accrued liabilities.............................................................................. 30,656 25,889
Revolving line of credit for purchased receivables............................................... 211 19,010
Current portion of long-term debt................................................................ 795 603
Current portion of obligations under capital leases.............................................. 893 896
---------- ----------
Total current liabilities................................................................... 94,923 110,115
Long-term debt, less current portion............................................................. 3,095 2,370
Obligations under capital leases, less current portion........................................... 2,430 2,666
---------- ----------
Total liabilities........................................................................... 100,448 115,151
Commitments and contingencies (Note 3)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued or
outstanding at December 31 or September 30.................................................... 0 0
Common stock, $0.01 par value, 60,000,000 shares authorized; 15,157,361 shares
issued and outstanding at December 31; 15,045,709 shares issued and outstanding
at September 30............................................................................... 152 151
Additional paid-in capital....................................................................... 21,428 19,790
Retained earnings................................................................................ 7,601 2,690
---------- ----------
Total stockholders' equity.................................................................. 29,181 22,631
---------- ----------
Total liabilities and stockholders' equity.................................................. $ 129,629 $ 137,782
========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
4
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1995DECEMBER 31,
-----------------------------
1996 1995
1996
------- ------- ------- -------------------- -----------
Operating revenues. . . . . . . . . . . . . . . $21,367 $25,729 $56,309 $76,030
Operating expenses:revenues............................................................................... $ 27,818 $ 23,354
Cost of services . . . . . . . . . . . . . . . 13,469 16,640 35,445 48,785services................................................................................. 17,958 15,306
--------- ---------
Gross profit..................................................................................... 9,860 8,048
Selling, general and administrative. . . . . . 2,242 3,239 6,561 8,595administrative expenses..................................................... 2,903 2,392
Advance funding program income . . . . . . . . (1,284) (1,805) (3,182) (4,773)income................................................................... (1,749) (1,324)
Advance funding program expense. . . . . . . . 358 222 982 820expense.................................................................. 324 278
Depreciation and amortization. . . . . . . . . 383 567 902 1,507
------- ------- ------- -------
Total operating expenses. . . . . . . . . . . 15,168 18,863 40,708 54,934
------- ------- ------- -------amortization expense............................................................ 521 439
--------- ---------
Income from operations. . . . . . . . . . . . . 6,199 6,866 15,601 21,096operations........................................................................... 7,861 6,263
Other income (expense):
Interest income. . . . . . . . . . . . . . . . 204 182 645 668income................................................................................ 242 231
Interest expense . . . . . . . . . . . . . . .expense............................................................................... (119) (80)
Other, net..................................................................................... (62) (70) (134) (224)
Other, net . . . . . . . . . . . . . . . . . . (15) (16) (83) (112)
------- ------- ------- -------(47)
--------- ---------
Total other income (expense). . . . . . . . . 127 96 428 332
------- ------- ------- -------.................................................................. 61 104
--------- ---------
Income before provision for income taxes. . . . 6,326 6,962 16,029 21,428taxes....................................................................... 7,922 6,367
Income tax expense. . . . . . . . . . . . . . . (2,405) (2,645) (6,095) (8,142)
------- ------- ------- -------expense............................................................................... (3,011) (2,419)
--------- ---------
Net income. . . . . . . . . . . . . . . . . . .income....................................................................................... $ 3,9214,911 $ 4,3173,948
========= =========
Net income per common share...................................................................... $ 9,934 $13,286
------- ------- ------- -------
------- ------- ------- -------0.30 $ -
Pro forma net income per common share (See Note 1)............................................... $ - $ 0.27
Weighted average common shares and common share equivalents outstanding.......................... 16,195 -
Pro forma weighted average common shares and common share equivalents
outstanding (See Note 1)....................................................................... - 14,853
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
5
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
JUNE 30,
-----------------
1995 1996
-------- --------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . $ 9,934 $ 13,286
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization. . . . . . . . . 902 1,507
Deferred compensation. . . . . . . . . . . . . 13 10
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable. . 2,520 (267)
Increase in prepaids and other. . . . . . . . (731) (229)
Increase in accounts payable. . . . . . . . . 2,520 3,550
Increase in accrued liabilities . . . . . . . 2,383 7,073
Decrease in other liabilities . . . . . . . . (56) (21)
-------- --------
Net cash provided by operating activities 17,485 24,909
-------- --------
Cash flows from investing activities:
Purchase of property and equipment. . . . . . . (880) (4,250)
Payments for purchased receivables from billing
customers, net. . . . . . . . . . . . . . . . (10,054) (11,464)
Collections of proceeds due (payments made) to
billing customers, net. . . . . . . . . . . . 3,749 (8,519)
Other investing activities. . . . . . . . . . . (730) (204)
-------- --------
Net cash used in investing activities. . . . . . (7,915) (24,437)
-------- --------
Cash flows from financing activities:
Draws (payments) on revolving line of credit
for purchased receivables, net. . . . . . . . (746) 5,986
Proceeds from issuance of debt. . . . . . . . . 485 0
Payments on debt. . . . . . . . . . . . . . . . (96) (240)
Payments on capital leases. . . . . . . . . . . (145) (283)
Transfers to affiliates . . . . . . . . . . . . (1,925) (2,894)
-------- --------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . (2,427) 2,569
-------- --------
Net increase in cash and cash equivalents. . . . 7,143 3,041
Cash and cash equivalents, beginning of period . 20,742 26,770
-------- --------
Cash and cash equivalents, end of period . . . . $ 27,885 $ 29,811
-------- --------
-------- --------
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
1996 1995
------------- -----------
Cash flows from operating activities:
Net income..................................................................................... $ 4,911 $ 3,948
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization................................................................ 521 439
Deferred compensation........................................................................ 0 3
Changes in operating assets and liabilities:
Decrease in accounts receivable............................................................. 1,041 2,478
Increase in prepaids and other.............................................................. (114) (150)
Increase (decrease) in accounts payable..................................................... (952) 5,630
Increase (decrease) in accrued liabilities.................................................. 1,307 (13,361)
Increase in other liabilities............................................................... 0 35
--------- ---------
Net cash provided by (used in) operating activities.............................................. 6,714 (978)
Cash flows from investing activities:
Purchase of property and equipment............................................................. (5,628) (233)
Collections of purchased receivables from billing customers, net............................... 9,388 5,711
Collections of proceeds due (payments made) to billing customers, net.......................... (397) 6,370
Collections of sales taxes due on behalf of billing customers, net............................. 4,311 4,521
Other investing activities..................................................................... (734) 59
--------- ---------
Net cash provided by investing activities........................................................ 6,940 16,428
Cash flows from financing activities:
Payments on revolving line of credit for purchased receivables, net............................ (18,799) (1,128)
Proceeds from issuance of long-term debt....................................................... 1,063 0
Payments on long-term debt..................................................................... (146) (64)
Payments on capital leases..................................................................... (238) (108)
Proceeds from issuance of common stock......................................................... 787 0
Transfers to affiliates........................................................................ 0 (2,339)
--------- ---------
Net cash used in financing activities............................................................ (17,333) (3,639)
--------- ---------
Net increase (decrease) in cash and cash equivalents............................................. (3,679) 11,811
Cash and cash equivalents, beginning of period................................................... 34,135 26,770
--------- ---------
Cash and cash equivalents, end of period......................................................... $ 30,456 $ 38,581
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
6
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein
have been prepared by Billing Information Concepts Corp. ("Billing") and
subsidiaries (collectively referred to as the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission
("SEC"). All adjustments have been made to the accompanying interim condensed
consolidated financial statements which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's operating
results. All adjustments are of a normal recurring nature.Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company's management, the accompanying
interim condensed consolidated financial statements reflect all adjustments
that are necessary for a fair presentation of the Company's financial position,
results of operations and cash flows for such periods. All such adjustments are
of a normal recurring nature. It is recommended that these interim condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Post
Effective Amendment No. 2 to the Company's Registration StatementAnnual
Report on Form 10/A
dated August 1,10-K for the year ended September 30, 1996. Results of
operations for interim periods are not necessarily indicative of results that
may be expected for any other interim periods or the full fiscal year. Certain
prior period amounts have been reclassified for comparative purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
On August 2, 1996, U.S. Long Distance Corp. ("USLD") distributed to its
stockholders all of the outstanding shares of common stock of Billing (the
"Distribution") with the result being that Billing became an independent,
publicly held company that owns and operates the billing clearinghouse and
information management services business previously owned by USLD. Since
Billing had no publicly held common shares outstanding prior to the
Distribution, net income per common share and weighted average common shares
outstanding for the quarter ended December 31, 1995 are presented on a pro
forma basis. The pro forma weighted average shares outstanding during the
quarter ended December 31, 1995 gives effect to the number of shares assumed to
be issued had the Distribution occurred at the beginning of the period and
differs from the number of shares assumed to be outstanding at the end of the
period due to the assumed conversions of options and warrants that were assumed
to be outstanding during the period. The unaudited pro forma per share data is
presented for informational purposes only and should not be considered
indicative of the operating results which the Company will achieve in the
future because, among other things, this data is based on historical rather
than prospective information and includes certain assumptions which are subject
to change.
NOTE 2. STATEMENT OF CASH FLOWS
Cash payments and non-cash activities during the periods indicated
were as follows:
NINE MONTHS ENDED
JUNE 30,
-----------------
1995 1996
------ ------
(IN THOUSANDS)
Cash payments for income taxes. . . . . $4,836 $4,836
Cash payments for interest. . . . . . . 1,138 1,086
Capital lease obligations incurred. . . 743
THREE MONTHS ENDED
DECEMBER 31,
------------------
1996 1995
---- -----
(IN THOUSANDS)
Cash payments for income taxes...................................................... $1,612 $ 0
Cash payments for interest.......................................................... 632 366
Tax benefit recognized in connection with stock option exercises.................... 852 0
6
7
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party wouldwill have a material adverse effect on the Company's
financial position or results of operations; however, due to the inherent
uncertainty of litigation, there can be no assurance that the resolution of any
particular claim or proceeding would not have a material adverse effect on the
Company's results of operations for the fiscal period in which such resolution
occurred.
TheAs of December 31, 1996, the Company is obligated to pay a company
approximately $14.6$10.0 million for license and service fees under a non-exclusive,
perpetual software license and related services agreements.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company and USLD share a common individual on their respective boards
of directors. Therefore, USLD is considered a related party for purposes of
financial disclosure. The Company provides billing and information management
services to U.S.
Long Distance Corp. ("USLD"), the former parent of the Company,for USLD and purchases long distance and 800telecommunications services from USLD.
Transactions under the agreements for these services have been reflected in the
accompanying consolidated financial statements at market prices. Transactions
between the Company and USLD are summarized as follows:
NINE MONTHS ENDED
JUNE
THREE MONTHS ENDED
DECEMBER 31,
------------------
1996 1995
---- -----
(IN THOUSANDS)
Sales to USLD...................................................................... $1,198 $1,362
Purchases from USLD................................................................ 901 595
In addition, at December 31 and September 30, -----------------
1995 1996,
------ ------
(IN THOUSANDS)
Sales to USLD . . . . . . . . . . . . . $3,794 $3,914
Purchases from USLD . . . . . . . . . . 1,093 2,437
6
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. RELATED PARTY TRANSACTIONS (CONTINUED)
In addition, the Company's accounts
receivable balance at September 30,
1995includes $779,000 and June 30, 1996$998,000, respectively, and the
billing customers accounts payable balance includes $1,127,000$1,083,000 and $951,000,$1,337,000,
respectively, related to billing services performed for USLD. The Company also
had $774,000 and $1,288,000 payable to USLD included in accrued liabilities at
December 31 and September 30, 1996, respectively, and $971,000 and $1,034,000
payable to USLD included in long-term debt at December 31 and September 30,
1996, respectively.
NOTE 5. REVOLVING LINE OF CREDIT
The Company obtained a $50.0 million revolving line of credit facility
with certain commercial lending institutions effective December 23, 1996 to
finance the purchase of accounts receivable under the Company's Advance Funding
Program and for general corporate purposes. The credit facility terminates on
December 20, 1999 and bears interest at a variable rate based on the prime rate
or federal funds rate as determined by a formula defined in the credit
agreement. The facility is secured by the related accounts payable to
billing customers balance at September 30, 1995receivable, the
stock of Billing's subsidiaries and June 30, 1996 includes
$890,000 and $876,000, respectively, related to funds collected on behalf of
USLD.
NOTE 5. SUBSEQUENT EVENTS
In connection with the spinoffvarious other assets of the Company adopted by USLD's Board of
Directors on July 10, 1996, USLD distributed (the "Distribution") 15,032,001
sharesCompany. Under
the most restrictive terms of the Company'scredit agreement, the Company is prohibited
from paying dividends on its common stock, is required to comply with certain
financial covenants and is subject to certain limitations on the existing stockholdersissuance of
USLD on
August 2, 1996 (the "Distribution Date"). On the Distribution Date, USLD
stockholders of record on July 29, 1996 received one share of the Company's
common stock for each share of USLD common stock held.
For purposes of governing certain ongoing relationships betweenadditional secured debt. The Company was in compliance with all such covenants
at December 31, 1996. The amount borrowed by the Company and USLD after the Distributionamount
available for borrowing under this credit facility was $211,000 and to provide for an orderly transition,$47.4
million, respectively, at December 31, 1996.
7
8
ITEM 2.
This Quarterly Report on Form 10-Q contains certain "forward-looking"
statements as such term is defined in the CompanyPrivate Securities Litigation Reform
Act of 1995 and USLD entered into certain agreements. Such agreements include:
(i) the Distribution Agreement, providing for, among other things, the
Distribution and the division between the Company and USLD of certain assets and
liabilities and material indemnification provisions; (ii) the Benefit Plans and
Employment Matters Allocation Agreement, providing for certain allocations of
responsibilities with respect to benefit plans, employee compensation, and labor
and employment matters; (iii) the Tax Sharing Agreement, pursuant to which the
Company and USLD agreed to allocate tax liabilities that relate to periods prior
to and after the Distribution Date; (iv) the Transitional Services and Sublease
Agreement, pursuant to which USLD will provide certain services on a temporary
basis and sublease certain office spaceinformation relating to the Company and its subsidiaries that
are based on the Company will
provide certain services to USLD on a temporary basis; (v)beliefs of the Zero Plus - Zero
Minus Billing and Information Management Services Agreement and the One Plus
Billing and Information Management Services Agreement, pursuant to which the
Company will provide billing clearinghouseCompany's management as well as assumptions
made by and information management servicescurrently available to USLD for an initial periodthe Company's management. When
used in this report, the words "anticipate," "believe," "estimate," "expect"
and "intend" and words or phrases of three years; and (vi) the Telecommunications
Agreement, pursuant to which USLD will provide long distance telecommunications
servicessimilar import, as they relate to the
Company for an initial period of three years. It isor its subsidiaries or Company management, are intended to identify
forward-looking statements. Such statements reflect the intention of USLDcurrent risks,
uncertainties and assumptions related to certain factors including, without
limitations, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein and in other
filings made by the Company that the Transitional Services and Sublease
Agreement, the Zero Plus - Zero Minus Billing and Information Management
Services Agreement, the One Plus Billing and Information Management Services
Agreement, and the Telecommunications Agreement reflect terms and conditions
similar to those that would have been arrived at by independent parties
bargaining at arm's length.
The Benefit Plans and Employment Matters Allocation Agreement ("Benefits
Agreement") provides for the allocation of certain responsibilities with respect
to employee compensation benefit and labor matters. The allocation of
responsibility and adjustments to be made pursuant to the Benefits Agreement
will be substantially consistent with the existing benefits provided to USLD
employees under USLD's various compensation plans. Among other things, the
Benefits Agreement provides that, effective as of the Distribution Date, the
Company will or will causeSecurities and Exchange Commission. Based
upon changing conditions, should any one or more of its subsidiaries to, assumethese risks or
retain,uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
the case may be, all liabilities of USLD, to the extent unpaid as of the
Distribution Date, under employee benefit plans, policies, arrangements,
contracts and agreements, with respect to employees who, onanticipated, believed, estimated, expected or after the
Distribution Date, are employees of the Company or its subsidiaries. The
Benefits Agreement also provides that, effective as of the Distribution Date,
USLD will, or will cause one or more of its subsidiaries to assume or retain, as
the case may be, all liabilities of USLD, to the extent unpaid as of the
Distribution Date, under employee benefit plans, policies, arrangements,
contracts and agreements, with respect to employees who on or after the
Distribution Date are employees of USLD or its subsidiaries.
7
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. SUBSEQUENT EVENTS (CONTINUED)
In addition, the Company will assume, with respect to employees who, on or
after the Distribution Date, are employees of the Company or any of its
subsidiaries, all responsibility for liabilities and obligations as of the
Distribution Date for medical and dental plan coverage and for vacation and
welfare plans. USLD will assume, with respect to the employees who, on or after
the Distribution Date, are employees of USLD or any of its subsidiaries, all
responsibilities for all liabilities and obligations as of the Distribution Date
for medical and dental plan coverage and for vacation and welfare plans.
Prior to the Distribution, the Company adopted the 1996 Comprehensive Stock
Plan and 1996 Non-Employee Director Plan under which officers and employees, and
non-employee directors, respectively, of the Company and its affiliates are
eligible to receive stock option grants. Immediately prior to the Distribution,
the Company granted, under the Billing Comprehensive Stock Plan and Billing Non-
Employee Director Plan, respectively, options to purchase Company common stock
to each holder of an outstanding option to purchase shares of USLD common stock
under the USLD Employee Stock Option Plan and USLD Non-Employee Director Plan,
respectively.intended. The Company options are exercisable for Company common stock on
the basis of one share of Company common stock for every one share of USLD
common stock subjectdoes not
intend to the outstanding USLD options. Company options to
purchase a total of approximately 1,575,000 shares of Company common stock were
granted in connection with the adjustment to the USLD options. In connection
with the grant of the Company options, the exercise price of the USLD options
will be adjusted to preserve the economic value of the USLD options existing
immediately prior to the Distribution after giving effect to the grant of the
Company options. The Company options will have vesting schedules mirroring the
vesting schedules of the related USLD options. Each Company option granted in
connection with the Distribution and held by a USLD employee after the
Distribution Date will terminate in accordance with the original USLD option
grant. Each Company option granted in connection with the Distribution and held
by a Company employee will terminate in accordance with the original USLD option
grant.
In addition, the Company has adopted the Billing Employee Stock Purchase
Plan, the Billing 401(k) Retirement Plan, the Billing Executive Compensation
Deferral Plan, the Billing Director Compensation Deferral Plan and the Billing
Executive Qualified Disability Plan. USLD, as sole stockholder of the Company,
approved the adoption of the Billing 1996 Employee Comprehensive Stock Plan, the
Billing 1996 Non-Employee Director Plan, the Billing Employee Stock Purchase
Plan and the Billing 401(k) Retirement Plan on July 10, 1996.
8
ITEM 2.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT ARE
BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY
AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-
LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS, UNCERTAINTIES AND
ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT LIMITATIONS,
COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER RELATIONS,
RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT, GOVERNMENTAL
REGULATION AND SUPERVISION, SEASONALITY, DISTRIBUTION NETWORKS, PRODUCT
INTRODUCTIONS AND ACCEPTANCE, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, ONETIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN. BASED UPON
CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT INTEND TO UPDATE
THESE FORWARD-LOOKING STATEMENTS.update these forward-looking statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three and nine-monththree-month periods ended June 30, 1995December
31, 1996 and 1996.1995. It should be read in conjunction with the Interim Condensed
Consolidated Financial Statements of the Company, the Notesnotes thereto and other
financial information included elsewhere in this report. For purposes of the
following discussion, references to year periods refer to the Company's fiscal
year ended September 30 and references to quarterly periods refer to the
Company's fiscal quarter ended June 30.December 31.
GENERAL
On July 10,August 2, 1996, USLD's BoardUSLD distributed to its stockholders all of Directors approved the
spinoffoutstanding shares of USLD's
commercialcommon stock of the Company (the "Distribution") which,
prior to the Distribution, was a wholly-owned subsidiary of USLD. Upon the
completion of the Distribution, Billing became an independent, publicly held
company that owns and operates the billing clearinghouse and information
management services business ("Billing Group Business") as a separate public company (the "Distribution"). To
effect the Distribution,previously owned by
USLD distributed to its stockholders on August 2, 1996
all(see "Effects of the outstanding sharesSpinoff of common stock of the Company, its recently
formed and wholly owned subsidiary that owns and operates the Billing Group Business (see Note 5 to the Interim Condensed Consolidated Financial
Statements)Business" below).
RESULTS OF OPERATIONS
The following table presents certain items in the Company's Condensed
Consolidated Statements of Income as a percentage of total revenues for the three and nine-
month periods ended June 30, 1995 and 1996:revenues:
THREE MONTHS ENDED
NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1995DECEMBER 31,
---------------------
1996 1995
1996
---- ---- ---- ------------- --------
Operating revenues. . . . . . . . . . .revenues........................................................................... 100.0% 100.0%
100.0% 100.0%
Operating expenses:
Cost of services . . . . . . . . . . . 63.0 64.7 62.9 64.2services............................................................................. 64.6 65.5
----- -----
Gross profit................................................................................. 35.4 34.5
Selling, general and administrative. . 10.5 12.6 11.7 11.3administrative expenses................................................. 10.4 10.2
Advance funding program income . . . . (6.0) (7.0)income............................................................... (6.3) (5.7) (6.3)
Advance funding program expense. . . . 1.7 0.9 1.7 1.1expense.............................................................. 1.2 1.2
Depreciation and amortization. . . . . 1.8 2.2 1.6 2.0
----- -----amortization expense........................................................ 1.9 1.9
----- -----
Income from operations. . . . . . . . 29.0% 26.7% 27.7% 27.7%operations....................................................................... 28.3 26.8
Other income, net............................................................................ 0.2 0.4
----- -----
Income before income taxes................................................................... 28.5 27.3
Income tax expense........................................................................... (10.8) (10.4)
----- -----
----- ----- ----- -----Net income................................................................................... 17.7% 16.9%
===== =====
8
9
OPERATING REVENUESOperating Revenues
The Company's revenues are primarily derived from providing billing
clearinghouse and information management services to direct dial long distance
carriers and operator services providers and otherproviders. Revenues are also derived from
enhanced billing services provided to companies that offer 900 services as well as the billing foror
other non-regulated telecommunications equipment and services. Revenues earnedFees charged by
the Company include processing and customer service inquiry fees, as well as any charges assessed to the Company by local
telephone companies for billing and collection services which are passed through
to the customer.fees. Processing
fees are assessed to customers either as a fee charged for each telephone call
record or other transaction processed or as a percentage of the customer's
revenue that is submitted by the Company to local telephone companies for
billing and collection. Processing fees also include any charges assessed to
the Company by local telephone companies for billing and collection services
that are passed through to the customer. Customer service inquiry fees are
assessed to customers either as a fee charged for each record processed by the
Company or as a fee charged for each billing inquiry made by end-users.
Billing services revenues increased 20.4%19.1% to $25.7$27.8 million in the thirdfirst
quarter of 19961997 compared to $21.4$23.4 million in the thirdfirst quarter of 1995. Billing
services revenues during the first nine months of 1996 increased 35.0% to
$76.0 million from $56.3 million during the comparable period of 1995.1996. The
revenue increases areincrease is primarily attributable to an increase in the number of
telephone call records processed and billed. Call record volume increases in all
periods were primarily the resultbilled on behalf of new business from new direct dial long
distance customers, as well as expanded business from existing direct dial long
distance customers. The revenue increase in the first nine months of 1996 from
the comparable prior year period is also due to the growth of enhanced billing
services revenues. Revenues derived from operator services customers in the
first nine monthsquarter of 1996 decreased1997 were virtually unchanged from the comparable period of 1995.prior year
quarter. This lack of operator services revenue growth is attributable to
several factors, including an increasing number of regulatory agencies that impose
guidelines or rules on operator services providers, such as the imposition of
rate ceilings, which limit or impair the growth of the operator services
industry. Additionally, there has been an increased awareness on the part of the consumer of the
ability of the telephone user to select a carrier of choice by dialing access
codes of carriers other than the carrier contracted by the telephone owner,
resulting in a lower number of billable telephone calls generated by the
Company's customers (800 dial-around).customers. Telephone call record volumes (exclusive of records
processed for billing management customers) were as follows:
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1995 1996 1995 1996
---- ---- ----- -----
(MILLIONS)
Direct dial long distance services. . . 69.1 98.4 168.6 289.4
Operator services . . . . . . . . . . . 34.8 32.7 102.0 96.7
Enhanced billing services . . . . . . . 1.5 1.8 2.6 6.9
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1996 1995
------ ------
(IN MILLIONS)
Direct dial long distance services.................................................. 119.2 88.6
Operator services................................................................... 30.0 31.5
Enhanced billing services........................................................... 1.8 2.1
Revenue per record for billing management customers, who have their own
billing and collection agreements with the local telephone companies, is
significantly less than revenue per record for the Company's other customers,
and thus, the volume of records processed for billing management customers is
not presented in the above table.
COST OF SERVICEStable above.
Cost of Services
Cost of services includes billing and collection fees charged to the
Company by local telephone companies and related transmission costs, as well as
all costs associated with the Company's customer service organization, including staffing
expenses and costs associated with 800telecommunications services. Billing and
collection fees charged by the local telephone companies include fees that are
assessed for each record submitted and for each bill rendered to its end-user
customers. The Company achieves discounted billing costs due to its aggregated
volumes and passescan pass these discounted costsdiscounts on to its customers.
The gross profit margin of 35.3%35.4% reported for the quarter ended June 30,December
31, 1996 decreasedincreased from 37.0%34.5% achieved in the comparable prior year quarter.
The
gross profit margin of 35.8% reported for the first nine months of 1996 compares
to 37.1% achieved in the comparable prior year period. These decreases wereThis increase was primarily attributable to higher customer service costslower billing and collection fees
which were partially offset by higher customer service costs. The lower billing
and collection fees. Thefees as a percentage of revenues were the result of growth of
the Company's higher customer service costs
were due to increased 800 services usagegross margin business.
Selling, General and staffing expenses incurred by the
Company in order to support the rapid growth in the volume of customer inquiries
resulting from the significant growth in the number of records processed.
10
SELLING, GENERAL AND ADMINISTRATIVEAdministrative Expenses
Selling, general and administrative ("SG&A") expenses are comprised of all
selling, marketing and administrative costs incurred in direct support of the
business operations of the Company. Additionally, a portion of the expense of
certain USLD corporate functions, such as treasury, financial reporting,
investor relations, legal, payroll and management information systems has been
allocated to the Company and is reflected in its historical financial results.operating results
for the quarter ended December 31, 1995.
9
10
SG&A expenses for the first quarter of 1997 were $2.9 million,
representing 10.4% of revenues, compared to $2.4 million in the first quarter
of 1996, or 10.2% of revenues. SG&A expenses as a percentage of revenues may
be higher or lowerincrease in the future as actualsubsequent periods due to costs incurred differ from costs historically allocated to the Company.
SG&A expenses for the third quarter of 1996 were $3.2 million, representing
12.6% of revenues, compared to $2.2 million in the third quarter of 1995, or
10.5% of revenues. SG&A expenses for the first nine months of 1996 were
$8.6 million, representing 11.3% of revenues, compared to $6.6 million in the
first nine months of 1995, or 11.7% of revenues. SG&A expenses for the third
quarter of 1996 included $361,000 of spinoff related charges, including expenses
associatedconnection with the
terminationCompany taking occupancy of the Company's fiscal 1996 employee
compensation plan that, otherwise, would have been recognized in the fourth
quarter of 1996. Had this expense not been incurred during the third quarter of
1996, SG&A expense as a percentage of revenue would have been 11.2%new facilities.
Advance Funding Program Income and 10.8%
for the third quarter and first nine months of 1996, respectively. The increase
in SG&A expenses as a percentage of revenues from quarter to quarter was
primarily attributable to an increase in the expense allocated to the Company
for USLD corporate functions as well as costs incurred by the Company in order
to conduct operations on a stand-alone basis. SG&A expenses as a percentage of
revenues for the first nine months of 1996 decreased from the comparable prior
year period primarily as a result of efficiencies associated with significant
revenue growth, as certain SG&A expenses, such as office administration and
accounting, do not change proportionately with revenue.
ADVANCE FUNDING PROGRAM INCOME AND EXPENSEExpense
Advance funding program income increased 32.1% to $1.8$1.7 million for the
thirdfirst quarter of 19961997 from $1.3 million for the thirdfirst quarter of 1995. Advance funding
program income increased to $4.8 million in the first nine months of 1996 from
$3.2 million in the first nine months of 1995.1996. The
period-to-period increases
wereincrease was primarily the result of financing a higher level of customer
receivables under the Company's advance funding program. The quarterlymonthly average
balance of purchased receivables was $59.5$69.2 million and $49.0$50.7 million for the
first nine
months ofquarter ended December 31, 1996 and 1995,comparable prior year quarter,
respectively.
Advance funding program expense decreasedincreased 16.5% to $222,000 for the third quarter
of 1996 from $358,000 for the third quarter of 1995. Advance funding program
expense$324,000 for the first
nine monthsquarter of 1996 was $820,000 compared to $982,0001997 from $278,000 for the comparable prior year period. In additionfirst quarter of 1996. Although
increasing from quarter to declining from period to
period,quarter, advance funding program expense declined
relative to advance funding program income reported in the respective periods. The period-to-period
decreases in advance funding program expense were primarily attributabledue to the Company financing a
higher levelpercentage of customerpurchased receivables with internally generated funds rather than with funds borrowed through the Company's revolving
credit facility. During the periods when the Company operated as a subsidiary
within the USLD consolidated group, the cash management function was centralized
and all the available cash among the consolidated entities was utilized to pay
down the revolving credit facility to reduce the expense of this facility as
much as possible. Subsequent to the Distribution, the Company will no longer
have access to funds generated by USLD's subsidiaries or to the funds that were
transferred to USLD as a result of the terms of the Distribution. In addition,
thefunds. The
Company anticipates making certain capital expenditures over the next two years
(see "Liquidity and Capital Resources"). and remitting certain sales taxes
during the next several quarters. Consequently, advance funding program expense
is expected to initially increase as a result of lower cash
balances.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses are incurred with respect to certain
assets including computer hardware and software, office equipment, furniture,
leasehold improvements, and costs incurred in securing contracts with local
telephone companies and agreements with financing institutions. Asset lives
generally range between three and seven years.
11
Depreciation and amortization expense was $567,000 in the third quarter of
1996, representing 2.2% of revenues, compared with $383,000 in the
corresponding prior year quarter, representing 1.8% of revenues. Depreciation
and amortization expense was $1.5 million in the first nine months of 1996
compared with $902,000 in the first nine months of 1995. Depreciation and
amortization expense as a percentage of revenues increased to 2.0% in the first
nine months of 1996 from 1.6% in the corresponding prior year period. Themay increase in depreciation and amortization expense as a percentage of revenuessubsequent periods due to increased borrowings under the
Company's credit facility.
Income from period to period is primarily attributable to the purchase of computer
equipment and software and office furniture and equipment to support the growth
of the Company.
INCOME FROM OPERATIONSOperations
Income from operations in the thirdfirst quarter of 19961997 increased to $6.9$7.9
million, or 26.7%28.3% of revenues, from $6.2$6.3 million, or 29.0%26.8% of revenues, in the
thirdfirst quarter of 1995.1996. The decreaseincrease in income from operations as a percentage
of revenues from quarter to quarter is primarily attributable to higher SG&A expenses as a percentage of revenues and a lowerhigher gross profit margin as discussed above. Income from operations during the first nine months
of 1996 increased to $21.1 million from $15.6 million during the comparable
period of 1995. Income from operations as a percentage of revenues was 27.7% for
the first nine months of both 1996 and 1995. Income from operations as a
percentage of revenues improved from the prior year period due to
higher net advance funding program income, and lower SG&A expenses as a percentage of
revenues, but this improvement was offset by a lower gross profit margin and
higher depreciation expenses as a percentage of revenues.
OTHER INCOME (EXPENSE)
Net other income decreased to $96,000 in the third quarter of 1996 from
$127,000 in the third quarter of 1995. Net other income decreased to $332,000 in
the first nine months of 1996 from $428,000 in the first nine months of 1995.
The period-to-period decreases were attributable to increased interest expense
due to additional equipment financing.
INCOME TAXES
The Company's effective tax rate was 38.0% in the third quarter and first
nine months of both 1996 and 1995. The Company's effective tax rate is higher
than the federal statutory rate due to the addition of state income taxes and
certain deductions taken for financial reporting purposes that are not
deductible for federal income tax purposes.
NET INCOME
The Company reported net income of $4.3 million in the third quarter of
1996 compared to net income of $3.9 million in the third quarter of 1995. The
Company reported net income of $13.3 million during the first nine months of
1996 compared to net income of $9.9 million during the comparable period of
1995. Net income in the third quarter and first nine months of 1996 represented
increases of 10.1% and 33.7% over the third quarter and first nine months of
1995, respectively.
12
discussed above.
EFFECTS OF SPINOFF OF BILLING GROUP BUSINESS
The unaudited Condensed Consolidated Statements of Income included in this
report reflect the operations of the Company for the threequarters ended December
31, 1996 and nine-month
periods ended June 30, 1995 and 1996.1995. Included below is supplemental unaudited consolidated pro
forma financial information that management believes is important to provide an
understanding of the results of operations and financial
position of the Company on a stand-alone
basis. A Pro Forma Condensed
Consolidated Balance Sheet at June 30, 1996 is presented below which gives
effect to the Distribution as if it had occurred on June 30, 1996. Pro Forma Condensed Consolidated Statements of Income are also presented
below by quarteron a quarterly and annual basis for 1995 and the nine-month period ended June 30, 1996. These Pro Forma Condensed
Consolidated Statements of Income are based on the historical statements of the
periods presented adjusted to reflect the items discussed in the accompanying
notes to the pro forma financial statements. The Pro Forma Condensed
Consolidated Statements of Income give effect to the Distribution as if it had
occurred at the beginning of 1995 and 1996. The number of weighted average shares
outstanding used in the calculation of the pro forma per share data is based on the weighted
number of shares outstanding during the period after givinggives
effect to the shares assumed to be issued had the Distribution occurred at the
beginning of each period presented. The pro forma adjustments reflect the terms of the
Distribution Agreement, which requires an aggregate cash transfer from the
Company to USLD of $14,013,000, including a cash transfer of $2,300,000 for
payment of the remaining estimated direct costs of the Distribution to be
incurred in the fourth quarter of 1996.
The unaudited consolidated pro forma financial information is presented
for informational purposes only and should be read in conjunction with the
accompanying notes to the pro forma financial statements and with the Company's
historical financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" set forth herein
and in the Post Effective Amendment No. 2 to the Company's Registration
Statement on Form 10/A dated August 1, 1996 and the Company's Annual Report on
Form 10-K for the year ended September 30, 1996. The pro forma financial
statements
are forward-looking and should not be considered indicative of the operating results or financial position which
the Company will achieve in the future because, among other things, these
statements are based on historical rather than prospective information and
include certain assumptions which are subject to change.
The unaudited Pro Forma Condensed Consolidated Statements of Income
and the
Pro Forma Condensed Consolidated Balance Sheet reflect, in management's opinion, all adjustments necessary to fairly state the
pro forma results of operations for the periods presented and financial position at June 30, 1996 to make the unaudited
pro forma statements not misleading.
1310
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(THOUSANDS OF DOLLARS)
(UNAUDITED)
ASSETS
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . $ 29,811 $(14,013)(A) $ 15,798
Accounts receivable. . . . . . . . . . . . 18,380 18,380
Purchased receivables. . . . . . . . . . . 66,692 66,692
Prepaids and other . . . . . . . . . . . . 853 853
-------- -------- --------
Total current assets. . . . . . . . . . . 115,736 (14,013) 101,723
Property and equipment, net. . . . . . . . 7,712 7,712
Equipment held under capital leases, net . 1,198 1,198
Other assets, net. . . . . . . . . . . . . 1,321 1,321
-------- -------- --------
Total assets. . . . . . . . . . . . . . . $125,967 $(14,013) $111,954
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade . . . . . . . . . . . . . . . . . . $ 16,154 $ 16,154
Billing customers . . . . . . . . . . . . 26,237 26,237
Accrued liabilities. . . . . . . . . . . . 19,435 19,435
Revolving line of credit for purchased
receivables. . . . . . . . . . . . . . . 29,016 29,016
Current portion of long-term debt. . . . . 427 427
Current portion of obligations under
capital leases . . . . . . . . . . . . . 445 445
-------- -------- --------
Total current liabilities . . . . . . . . 91,714 91,714
Long-term debt, less current portion. . . . 1,057 1,057
Obligations under capital leases, less
current portion . . . . . . . . . . . . . 838 838
-------- -------- --------
Total liabilities . . . . . . . . . . . . 93,609 93,609
STOCKHOLDERS' EQUITY:
Preferred shares, $10.00 par value, 10,000
shares authorized, 10,000 shares issued
and outstanding. . . . . . . . . . . . . 100 (100)(B) 0
Common shares, no par value, 102,000
shares authorized, 102,000 shares issued
and outstanding. . . . . . . . . . . . . 1 149 (C) 150
U.S. Long Distance Corp.'s investment in
and advances to the Company . . . . . . . 32,257 (32,257)(D) 0
Paid-in capital . . . . . . . . . . . . . . 0 18,195 (E) 18,195
-------- -------- --------
Total stockholders' equity. . . . . . . . 32,358 (14,013) 18,345
-------- -------- --------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . . . $125,967 $(14,013) $111,954
-------- -------- --------
-------- -------- --------
14
11
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
---------------------------------------------------------------------------------------- YEAR ENDED
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1994SEPT. 30,
--------- --------- --------- --------- -----------
1995 1995 1995
-------- -------- -------- ---------1996 1996 1996 1996
---- ---- ---- ---- ----
Operating revenues. . . . . . . . . . . . . . . . $17,010 $17,932 $21,367 $24,538revenues............................................... $ 23,354 $ 26,947 $ 25,729 $ 27,854 $ 103,884
Cost of services. . . . . . . . . . . . . . . . . 10,739 11,237 13,469 15,892
------- ------- ------- -------services................................................. 15,306 16,839 16,640 18,083 66,868
--------- --------- --------- --------- -----------
Gross profit . . . . . . . . . . . . . . . . . . 6,271 6,695 7,898 8,646profit.................................................... 8,048 10,108 9,089 9,771 37,016
Selling, general and administrative . . . . . . . 2,119 2,200 2,242 2,711expenses..................... 2,392 2,964 3,239 2,850 11,445
Advance funding program income. . . . . . . . . . (916) (982) (1,284) (1,400)income................................... (1,324) (1,644) (1,805) (1,791) (6,564)
Advance funding program expense (F) . . . . . . . 717 769 789 800(A).............................. 696 738 640 686 2,760
Depreciation and amortization . . . . . . . . . . 253 266 383 314
------- ------- ------- -------expense............................ 439 501 567 620 2,127
--------- --------- --------- --------- -----------
Income from operations . . . . . . . . . . . . . 4,098 4,442 5,768 6,221operations.......................................... 5,845 7,549 6,448 7,406 27,248
Other income (expense), net . . . . . . . . . . . 169net...................................... 104 132 127 98
------- ------- ------- -------96 (180) 152
--------- --------- --------- ---------- -----------
Income before provision for income taxes. . . . . 4,267 4,574 5,895 6,319taxes....................................... 5,949 7,681 6,544 7,226 27,400
Income tax expense (G). . . . . . . . . . . . . . (1,623) (1,739) (2,241) (2,402)
------- ------- ------- -------(B)........................................... (2,260) (2,919) (2,486) (2,746) (10,411)
--------- --------- --------- --------- -----------
Net income. . . . . . . . . . . . . . . . . . . .income....................................................... $ 2,6443,689 $ 2,8354,762 $ 3,6544,058 $ 3,917
------- ------- ------- -------
------- ------- ------- -------4,480 $ 16,989
========= ========= ========= ========= ===========
Net income per weighted average common share. . . $ 0.19 $ 0.20 $ 0.25 $ 0.26share...................................... $0.25 $0.31 $0.26 $0.28 $1.10
Weighted average common shares outstanding. . . . 14,208 14,497 14,759 14,886
15
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
------------------------------
DEC. 31, MAR. 31, JUNE 30,
1995 1996 1996
-------- -------- --------
Operating revenues. . . . . . . . . . . . . . $23,354 $26,947 $25,729
Cost of services. . . . . . . . . . . . . . . 15,306 16,839 16,640
------- ------- -------
Gross profit . . . . . . . . . . . . . . . . 8,048 10,108 9,089
Selling, general and administrative . . . . . 2,392 2,964 3,239
Advance funding program income. . . . . . . . (1,324) (1,644) (1,805)
Advance funding program expense (F) . . . . . 696 738 640
Depreciation and amortization . . . . . . . . 439 501 567
------- ------- -------
Income from operations . . . . . . . . . . . 5,845 7,549 6,448
Other income (expense), net . . . . . . . . . 104 132 96
------- ------- -------
Income before provision for income taxes. . . 5,949 7,681 6,544
Income tax expense (G). . . . . . . . . . . . (2,260) (2,919) (2,486)
------- ------- -------
Net income. . . . . . . . . . . . . . . . . . $ 3,689 $ 4,762 $ 4,058
------- ------- -------
------- ------- -------
Net income per weighted average common share. $ 0.25 $ 0.31 $ 0.26
Weighted average common shares outstanding. .outstanding....................... 14,853 15,189 15,715 15,783 15,385
Notes to unaudited pro forma condensed consolidated financial statements:statements of income:
(A) Cash transfer made to USLD pursuant to working capital formula set forth in
Distribution Agreement and an additional cash transfer for the remaining
direct costs to be incurred in the fourth quarter of 1996 in connection
with the Distribution estimated to be $2,300,000.
(B) The redemption of certain subsidiary preferred stock and repurchase of
certain subsidiary common stock by the Company from USLD.
(C) Issuance of Company Common Stock in connection with certain transactions
preliminary to the Distribution.
(D) Reclassified to paid-in capital.
(E) Reflects cash transfers in note (A) and stock transactions in notes (B) and
(C) above.
(F) Reflects an adjustment to increase interest expense for the assumed
borrowings for the cash transfer made to USLD of $11,713,000 in accordance
with the terms of the Distribution Agreement and cash payments for direct
costs incurred in connection with the Distribution estimated to beof approximately
$9,200,000. Interest expense was calculated at a rate of 8.25% per annum and 8.0% per annum for 1995 and the nine-month
period ended June 30, 1996, respectively.
(G)annum.
(B) Reflects related income tax effect of the interest expense adjustment in
note (F)(A).
1611
12
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increaseddecreased to $29.8$30.5 million at June 30,December 31, 1996
from $26.8$34.1 million at September 30, 1995.1996. The Company's working capital
position also
improvedincreased to $24.0$14.7 million at June 30,December 31, 1996 from $17.3$13.5 million at
September 30, 19951996 and its current ratio was 1.3:1.2:1 and 1.2:1.1:1 at June 30, 1996December 31 and
September 30, 1995,1996, respectively. Net cash provided by operating activities was
$24.9$6.7 million and $17.5$3.3 million in the first nine monthsquarter of 19961997 and 1995,1996,
respectively, and reflected the increase in net income from the prior year
period.
Thequarter.
In December 1996, the Company hasobtained a $45new $50 million revolving line of
credit facility with FINOVA
Capital Corporation ("FINOVA")certain lenders to draw upon to advance funds to its
billing customers prior to collection of the funds from the local telephone
companies.companies and for general corporate purposes. This new credit facility
terminates on December 31, 1996. The20, 1999 and provides the Company is currently
in discussions with potential lenders regarding a new line of credit facility
and believes that it will be able to obtain more favorable
terms than those of the existingCompany's previous credit facility. Management believes
that the capacity under the existing revolving credit facility iswill be sufficient to
fund advances to its billing customers for the foreseeable future. The amount
borrowed by the Company under thisits credit facility to finance the advance
funding program was $29.0 million$211,000 and $23.0$19.0 million at June 30, 1996December 31 and September 30,
1995,1996, respectively. At June
30,December 31, 1996, the amount available under the
Company's receivable financing facility was $16.0$47.4 million.
In addition to the revolving line of credit facility described above, the
Company is obligated as a guarantor of USLD's equipment financing agreements
with certain lenders. The aggregate unpaid principal amount of indebtedness
under such agreements at December 31, 1996 was approximately $9.6 million, due
in varying amounts through October 2000. The Company is also obligated under
its own equipment financing agreements. Under certain of the credit agreements,
the Company is prohibited from paying dividends on its common stock, is
required to comply with certain financial covenants and is subject to certain
limitations on the issuance of additional secured debt. Cross-default
provisions of certain of the Company's equipment loans may place the Company in
default of such loans in the event that USLD defaults under the equipment
finance agreements that the Company has guaranteed. The Company was in
compliance with all required covenants at December 31 and September 30, 1996.
Capital expenditures amounted to approximately $5.6 million in the first
quarter of 1997 and related primarily to the purchase of computer equipment and
software. During the first quarter of 1997, the Company financed approximately
$1.1 million of equipment through a term debt agreement with a lender. To
facilitate and support the growth anticipated in its business, the Company
plans to spendinvest a total of approximately $20 million to $25 million in capital
expenditures over the next 12 to 18 months, including approximately $18 million over the next two years,
to develop and create information systems that will enable it to offer "direct
billing" and "invoice ready" services to its customers. These expenditures, if
made, will be focused in the areas of software development, computer hardware
related staffing and local telephone company agreements. Recently, theThe Company has entered into a
non-exclusive, perpetual software license and related services agreements with
Saville Systems US, Inc. ("Saville") for the provision of certain of these
items. The Company's agreements with Saville include fees for licensing,
implementation and customization of the software, annual software maintenance
and assistance in utilizing the software products. In relation to this
development effort, the Company is currently discussing additional local
telephone company agreements with the local telephone companies for the
implementation of "invoice ready" billing services. The Company believes that
it will be able to fund expenditures for the new billing services with
internally generated funds and borrowings, but there can be no assurance that
such funds will be available and/or will be invested in these projects. Statements regarding anticipated billing system expenditures are forward-
looking statements which by their nature are subject to numerous uncertainties
that could cause actual results to vary.
Historically,As of
December 31, 1996, the Company has obtained financing forhad expended approximately $6.4 million in
support of these projects and a total of approximately $10.5 million in capital
expenditures through term debt agreements and capital lease agreements that were guaranteed
and cross-collateralized by USLD and its other subsidiaries. These debt
agreements were negotiated based on the strength of the consolidated financial
statements, earnings and cash flow of the USLD consolidated group. Most of these
debt agreements were secured by the assets of all the subsidiaries within the
consolidated group. The Company has received from certain lenders loan agreement
amendments orsince becoming a separate loan agreements whereby the subject indebtedness will be
secured by only the Company's or USLD's assets, as the case may be. In other
cases, the existing cross guarantees and security arrangements between the
Company and USLD will remain in place for the duration of the facility. In this
regard, USLD and the Company have agreed to pay each other a credit support fee.
In addition to the revolving line of credit facility provided to the
Company by FINOVA described above, the Company is a guarantor of USLD's
equipment financing agreements with BOT Financial Corporation, General Electric
Capital Corporation and Metlife Capital Corporation. The aggregate unpaid
principal amount of indebtedness under such agreements at June 30, 1996 was
approximately $9.0 million, due in varying amounts through October 2000. The
Company is also obligated under its own equipment financing agreements, which
are not material in amount. Under the FINOVA credit agreements, the Company is
prohibited from paying dividends on its common stock, is required to comply with
certain financial covenants and is subject to certain limitations on the
issuance of additional secured debt. Cross default provisions of the Company's
FINOVA credit facility and other equipment loans may place the Company in
default of such facility and loans in the event that USLD defaults under the
equipment finance agreements that the Company has guaranteed. Defaults under
these equipment finance agreements include the failure of USLD to maintain or
insure the equipment financed through such agreements or the failure to use such
equipment as provided in those agreements, the failure to furnish financial or
other information to the lender on a timely basis or any change of ownership or
corporate
17
reorganization of USLD without the consent of the lender, and customary events
of default such as the failure to make payments of principal and interest when
due, the filing of a bankruptcy petition by or against USLD or the entry of a
judgment against USLD. In addition, the equipment finance agreements with BOT
Financial Corporation and General Electric Capital Corporation require USLD to
maintain a required ratio of total liabilities to tangible net worth. The
Company and USLD were in compliance with all required covenants at June 30,
1996 and September 30, 1995.public company.
The Company's operating cash requirements consist principally of working
capital requirements, requirements under its advance funding program, scheduled
payments of principal on its outstanding indebtedness and capital expenditures.
The Company believes that it has the ability to continue to secure long-term
equipment financing and that this ability, combined with cash flows generated
from operations and periodic borrowings under its receivable financing
facility, with FINOVA, will be sufficient to fund capital expenditures, advance funding
requirements, working capital needs and debt repayment requirements for the
foreseeable future.
Additionally, management believes that it has the ability
to raise funds in the private and public equity markets.
1812
13
PART II.II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party would have a material adverse effect on the Company's
financial position or results of operations; however, due to the inherent
uncertainty of litigation, there can be no assurance that the resolution of any
particular claim or proceeding would not have a material adverse effect on the
Company's results of operations for the fiscal period in which such resolution
occurred.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
13
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
A list of allThe exhibits listed below are filed or included as part of this Quarterly
Report on Form 10-Q is as follows:
EXHIBITS DESCRIPTION PAGE
-------- ----------- ----
10.1 Distribution Agreement dated as of July 10, 1996
between the Company and USLD (incorporatedor incorporated by
reference from Exhibit 10.1 to the Post Effective
Amendment No. 2 to the Company's Registration
Statement on Form 10/A dated August 1, 1996)
10.2 Tax Sharing Agreement dated as of July 10, 1996
between the Company and USLD (incorporatedin this report. Where such filing is made by incorporation by
reference from Exhibit 10.2 to the Post Effective
Amendment No. 2 to the Company's Registration
Statement on Form 10/A dated August 1, 1996)
10.3 Benefit Plans and Employment Matters Allocation
Agreement dated as of July 10, 1996 between the
Company and USLD (incorporated by reference from
Exhibit 10.3 to the Post Effective Amendment No. 2 to
the Company's Registration Statement on Form 10/A
dated August 1, 1996)
10.4 Transitional Services and Sublease Agreement dated as
of July 10, 1996 between the Company and USLD
(incorporated by reference from Exhibit 10.4 to the
Post Effective Amendment No. 1 to the Company's
Registration Statement on Form 10/A dated July 23,
1996)
10.5 Zero Plus-Zero Minus Billing and Information
Management Services Agreement dated as of July 10,
1996 between the Company and USLD (incorporated by
reference from Exhibit 10.5 to the Post Effective
Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated July 23, 1996)
10.6 Telecommunications Agreement dated as of July 10,
1996 between the Company and USLD (incorporated by
reference from Exhibit 10.7 to the Post Effective
Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated July 23,a previously filed document, such document is identified in
parentheses.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Certificate of Incorporation of Billing (incorporated by reference from Exhibit 3.1 to the
Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11, 1996)
3.2 Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference from
Exhibit 3.2 to the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11, 1996)
3.3 Bylaws of Billing (incorporated by reference from Exhibit 3.3 to the Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated July 11, 1996)
4.1 Form of Stock Certificate of Common Stock (incorporated by reference from Exhibit 4.1 to the Amendment No. 1 to the
Company's Registration Statement on Form 10/A dated July 11, 1996)
10.1+ Credit Agreement dated December 20, 1996, among Billing Information Concepts, Inc., The Frost
National Bank and The Boatmen's National Bank of St. Louis (filed herewith)
10.3 Parent Guaranty dated December 20, 1996, between Billing Information Concepts Corp. and The Frost National Bank
(filed herewith)
10.4 Affiliate Guaranty dated December 20, 1996, between Enhanced Services Billing, Inc. and The Frost National Bank 10.5
Promissory Note dated December 20, 1996, between Billing Information Concepts, Inc. and The Boatmen's National Bank
of St. Louis (filed herewith)
10.6 Promissory Note dated December 20, 1996, between Billing Information Concepts, Inc. and The Frost National Bank
(filed herewith)
10.7 Stock Pledge Agreement dated December 20, 1996, between Billing Information Concepts Corp. and The Frost National
Bank (filed herewith)
10.8 Security Agreement dated December 20, 1996, between Billing Information Concepts, Inc. and The Frost National Bank
(filed herewith)
11.1 Computation of Earnings Per Share (filed herewith)
27.1 Financial Data Schedule (filed herewith)
21
- ----------
+ Confidential treatment will be requested with respect to certain portions of
this exhibit. Omitted portions will be filed separately with the Securities
and Exchange Commission.
(b) Current Reports on Form 8-K:
None.
1914
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BILLING INFORMATION CONCEPTS CORP.
(Registrant)
Date: AugustFebruary 12, 19961997 By: /s/ KELLY E. SIMMONS
------------------------------------------------------------------------------------
Kelly E. Simmons
SENIOR VICE PRESIDENT
CHIEF FINANCIAL OFFICERSenior Vice President
Chief Financial Officer
(Duly authorized and principal
financial officer)
15
16
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
3.1 Amended and Restated Certificate of Incorporation of Billing (incorporated by reference from
Exhibit 3.1 to the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated
July 11, 1996)
3.2 Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by
reference from Exhibit 3.2 to the Amendment No. 1 to the Company's Registration Statement on
Form 10/A dated July 11, 1996)
3.3 Bylaws of Billing (incorporated by reference from Exhibit 3.3 to the Amendment No. 1 to the
Company's Registration Statement on Form 10/A dated July 11, 1996)
4.1 Form of Stock Certificate of Common Stock (incorporated by reference from Exhibit 4.1 to the
Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11, 1996)
10.1* Credit Agreement dated December 20, 1996, among Billing Information Concepts, Inc., The Frost
National Bank and The Boatmen's National Bank of St. Louis
10.3 Parent Guaranty dated December 20, 1996, between Billing Information Concepts Corp. and The
Frost National Bank
10.4 Affiliate Guaranty dated December 20, 1996, between Enhanced Services Billing, Inc. and The
Frost National Bank
10.5 Promissory Note dated December 20, 1996, between Billing Information Concepts, Inc. and The
Boatmen's National Bank of St. Louis
10.6 Promissory Note dated December 20, 1996, between Billing Information Concepts, Inc. and The
Frost National Bank
10.7 Stock Pledge Agreement dated December 20, 1996, between Billing Information Concepts Corp. and
The Frost National Bank
10.8 Security Agreement dated December 20, 1996, between Billing Information Concepts, Inc. and The
Frost National Bank
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
*Confidential treatment will be requested with respect to certain portions of
this exhibit. Omitted portions will be filed separately with the Securities and
Exchange Commission.