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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number: 0-28536
BILLING CONCEPTS CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2781950
(State of Incorporation) (I.R.S. Employer
Identification No.)
7411 JOHN SMITH DRIVE, SUITE 200, SAN ANTONIO, TEXAS 78229
(Address of Principal Executive Office) (Zip Code)
(210) 949-7000
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's outstanding Common Stock
held by non-affiliates of the Registrant as of December 10, 1999 was
approximately $274,585,893. There were 38,538,371 shares of the Registrant's
Common Stock outstanding as of December 10, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 2000
Annual Meeting of Stockholders to be held on March 22, 2000, are incorporated by
reference in Part III hereof.
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BILLING CONCEPTS CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
ITEM PAGE
NUMBER NUMBER
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Index..................................................................... 2
PART I
1. Business.................................................................. 3
2. Properties................................................................ 14
3. Legal Proceedings......................................................... 14
4. Submission of Matters to a Vote of Security Holders....................... 15
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters.... 16
6. Selected Financial Data................................................... 17
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................. 19
7A. Quantitative and Qualitative Disclosure About Market Risk................. 28
8. Financial Statements and Supplementary Data............................... 28
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 49
PART III
10. Directors and Executive Officers of the Company........................... 50
11. Executive Compensation.................................................... 50
12. Security Ownership of Certain Beneficial Owners and Management............ 50
13. Certain Relationships and Related Transactions............................ 50
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 51
Signatures................................................................ 54
2
PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN "FORWARD-LOOKING" STATEMENTS AS
SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 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 AND IN OTHER
FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. 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.
INTRODUCTION
Billing Concepts Corp. (the "Company" or "BCC") is a business services and
technology company with operations in three principal segments - LEC Billing
("Billing"), Software ("Aptis," Inc.) and Internet. See Note 14 of "Notes to
Consolidated Financial Statements" for certain financial information by business
segment.
LEC BILLING
GENERAL
Billing provides third-party billing clearinghouse and information
management services to the telecommunications industry. The Company maintains
contractual billing arrangements with over 1,300 local telephone companies that
provide access lines to, and collect for services from, end users of
telecommunication services. The Company processes telephone call records and
other transactions and collects the related end-user charges from these local
telephone companies on behalf of its customers. This process is known within the
industry as "Local Exchange Carrier billing" or "LEC billing." Billing's
customers include direct dial long distance telephone companies, operator
services providers, information providers, competitive local exchange companies,
Internet service providers and integrated communications services providers.
In general, the Company performs four types of LEC billing services under
different billing and collection agreements with the local telephone companies.
First, the Company performs direct dial long distance billing, which is the
billing of "1+" long distance telephone calls to individual residential
customers and small commercial accounts. Although such carriers can bill end
users directly, Billing provides these carriers with a cost-effective means of
billing and collecting residential and small commercial accounts through the
local telephone companies. Second, the Company offers zero plus - zero minus LEC
billing services to customers providing operator services largely to the
hospitality, penal and private pay telephone industries. Billing processes
records for telephone calls that require operator assistance and/or alternative
billing options such as collect and person-to-person calls, third-party billing
and calling card billing. Since operator services providers have only the
billing number and not the name or address of the billed party, they must have
access to the services of the local telephone companies to collect their
charges. The Company provides this access to its customers through its
contractual billing arrangements with the local telephone companies that bill
and collect on behalf of these operator services providers. This service is the
original form of local telephone company billing provided by the Company and has
driven the development of the systems and infrastructure utilized by all of the
Company's LEC billing services. Third, the Company performs enhanced LEC billing
services whereby it bills a wide array of charges that can be applied to a local
telephone company telephone bill, including charges for 900 access pay-per-call
transactions, cellular services, paging services, voice mail services, Internet
access, Caller ID and other nonregulated telecommunications equipment. Finally,
in addition to its full-service LEC billing product, Billing also offers billing
management services to customers who have their own billing and collection
agreements with the local telephone companies. These management services may
include data processing, accounting, end-user customer service and
telecommunication tax processing and reporting.
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The Company acts as an aggregator of telephone call records and other
transactions from various sources and, due to its large volume, it receives
discounted billing costs with the local telephone companies and can pass on
these discounts to its customers. Additionally, Billing can provide its services
to those long distance carriers and operator services providers who would
otherwise not be able to make the investments in billing and collection
agreements with the local telephone companies, fees, systems, infrastructure and
volume commitments required to establish and maintain the necessary
relationships with the local telephone companies. The Company is obligated to
pay certain local telephone companies a total of approximately $5.2 million,
$3.4 million and $0.9 million during fiscal 2000, 2001 and 2002, respectively,
for future minimum usage charges under billing and collection agreements that,
unless automatically renewed, expire at varying dates through the end of fiscal
2002. The billing and collection agreements do not provide for any penalties
other than payment of the obligation should the usage levels not be met. The
Company has met all such volume commitments in the past and anticipates
exceeding the future minimum usage volumes with all of these vendors.
INDUSTRY BACKGROUND
Billing clearinghouse and information management services, or LEC billing,
in the telecommunications industry developed out of the 1984 breakup of American
Telephone & Telegraph ("AT&T") and the Bell System. In connection with the
breakup, the local telephone companies that make up the Regional Bell Operating
Companies ("RBOCs"), Southern New England Telephone, Cincinnati Bell and the
General Telephone Operating Companies ("GTE") were required to provide billing
and collections on a nondiscriminatory basis to all carriers that provided
telecommunication services to their end-user customers. Due to both the cost of
acquiring and the minimum charges associated with many of the local telephone
company billing and collection agreements, only the largest long distance
carriers, including AT&T, MCI Telecommunications Corporation, now MCI Worldcom
("MCI"), and Sprint Incorporated ("Sprint"), could afford the option of billing
directly through the local telephone companies. Several companies, including
Billing, entered into these billing and collection agreements and became
aggregators of telephone call records for operator services providers and second
and third-tier long distance carriers, thereby becoming "third-party
clearinghouses."
The operator services industry began to develop in 1986 with deregulation
that allowed a zero-plus call (automated calling card call) or zero-minus call
(collect, third-party billing, operator assisted calling card or
person-to-person call) to be routed away from AT&T to a competitive long
distance services provider. Since a zero-plus or zero-minus call is placed by an
end user whose billing information is unrelated to the telephone being used to
place the call, a long distance carrier would not typically have adequate
information to produce a bill. This information typically resides with the
billed party's local telephone company. In order to bill its telephone call
records, a long distance services provider carrying zero-plus and zero-minus
telephone calls must either obtain billing and collection agreements with the
local telephone companies or utilize the services of a third-party clearinghouse
that has the billing and collection agreements required.
Third-party clearinghouses such as Billing process these telephone call
records and other transactions and submit them to the local telephone companies
for inclusion in their monthly bills to end users. As the local telephone
companies collect payments from end users, they remit them to the third-party
clearinghouses that, in turn, remit payments to their carrier customers.
DEVELOPMENT OF BUSINESS
On August 2, 1996, U.S. Long Distance Corp. ("USLD") distributed to its
stockholders all of the outstanding shares of common stock of the Company (the
"Distribution"), which, prior to the Distribution, was a wholly owned subsidiary
of USLD. Upon completion of the Distribution, BCC became an independent,
publicly held company that owns and operates the billing clearinghouse and
information management services business previously operated by USLD through
certain of its subsidiaries (the "Billing Group"), including Billing Concepts,
Inc., formerly known as Zero Plus Dialing, Inc. ("ZPDI").
In 1988, USLD acquired ZPDI and its billing and collection agreements with
several local telephone companies. USLD used these billing and collection
agreements to bill and collect through the local telephone companies for its own
operator services call record transactions. As USLD's operator services business
expanded, ZPDI entered into additional billing and collection agreements with
other local telephone companies, including the RBOCs, GTE and other independent
local telephone companies. The Company recognized the expense and time related
to obtaining and administering these billing and collection agreements and began
offering its services as a third-party clearinghouse to other operator services
businesses who did not have any proprietary agreements with the local telephone
companies. In 1992, Billing entered into a
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new set of billing and collection agreements with the local telephone companies
and began offering LEC billing services to direct dial long distance services
providers. The Company has billing and collection agreements covering over 1,300
local telephone companies with access lines into approximately 95% of the United
States, Canada and Puerto Rico.
A key factor in the evolution of the Company's business has been the
ongoing development of its information management systems. In 1990, the Company
developed a comprehensive information system capable of processing, tracing and
accounting for telephone call record transactions (see "Business - Operations").
Management believes that this proprietary system provides the Company's
customers with more detailed information and yields a better collection rate
than its competitors. Also in 1990, the Company became the first third-party
billing clearinghouse to finance its customers' accounts receivable (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Advance Funding Program and Receivable Funding Facility"). In 1991,
USLD separated the day-to-day management and operations of the Company from its
long distance and operator services businesses (the "Telecommunications Group").
The purpose of this separation was to satisfy some of the Company's customers
who were also competitors of USLD's long distance and operator services
businesses. These customers had two main concerns: (i) that USLD's long distance
and operator services businesses could gain knowledge of its competitors through
call records processed by Billing and (ii) that Billing was somehow subsidizing
USLD's long distance and operator services businesses with which these customers
compete. Subsequent to the separation, the Billing Group and the
Telecommunications Group operated independently, except for certain corporate
activities conducted by USLD's corporate staff.
In 1993, the Company began to offer billing management services to direct
dial long distance carriers and information services providers who have their
own billing and collection agreements with the local telephone companies. These
customers collect charges directly from the local telephone companies and, for
marketing purposes, may desire to place their own logo, name and customer
service number on the long distance bill page. Billing management services
provided by the Company to such customers may include contract management,
transaction processing, information management and reporting, tax compliance and
customer service.
In 1994, the Company began offering enhanced billing clearinghouse and
information management services to other businesses within the
telecommunications industry. These businesses include telecommunications
equipment providers, information providers and other communication services
providers of non-regulated services and products such as 900 access pay-per-call
transactions, cellular long distance services, paging services, voice mail
services, Internet access, Caller ID and other non-regulated telecommunications
equipment charges. The Company entered into additional billing and collection
agreements with the local telephone companies to process these types of
transactions.
PROCESS
LEC billing refers to billing for transactions that are included in the
monthly local telephone bill of the end user as opposed to a direct bill that
the end user would receive directly from the telecommunications or other
services provider. The Company's customers submit telephone call record data in
batches on a daily to monthly basis, but typically in weekly intervals. The data
is submitted either electronically or via magnetic tape. Billing, through its
proprietary software, processes the telephone call record data to determine the
validity of each record and to include for each record certain telecommunication
taxes and applicable customer identification information and sets up an account
receivable for each batch of call records processed. The Company then submits,
through a third-party vendor, the relevant billable telephone call records and
other transactions to the appropriate local telephone company for billing and
collection. Billing monitors and tracks each account receivable by customer and
by batch throughout the billing and collection process. The local telephone
companies then include these telephone call records and other transactions in
their monthly local telephone bills and remit the collected funds to the Company
for payment to its customers. The complete cycle can take up to 18 months from
the time the records are submitted for billing until all bad debt reserves are
"trued up" with actual bad debt experience. However, the billing and collection
agreements provide for the local telephone companies to purchase the accounts
receivable, with recourse, within a 40 to 90 day period. The payment cycle from
the time call records are transmitted to the local telephone companies to the
initial receipt of funds by the Company is, on average, approximately 55 days.
Approximately 90% of the value of the call records is received in the initial
payments by the local telephone companies.
The Company does not record an allowance for doubtful accounts for LEC
billing trade receivables, but does accrue an estimated liability for end-user
customer service refunds and local telephone company adjustments related to
certain customers. The Company reviews the activity of its customer base to
detect potential losses. If there is uncertainty
5
with an account, the Company can discontinue paying the customer in order to
hold funds to cover future end-user customer service refunds, bad debt and
unbillable adjustments. If a customer discontinues doing business with the
Company, and there are insufficient funds being held to cover future refunds and
adjustments, the Company's only recourse is through legal action. Since these
adjustments are associated with customer receivable activity, the related
accrual is included in the "Accounts payable - billing customers" caption on the
balance sheet. An allowance for doubtful accounts is not necessary for LEC
billing trade receivables since these receivables are collected from the funds
received from the local telephone company before remittance is made to the
customer.
The Company processes the tax records associated with each customer's
submitted telephone call records and other transactions and files certain
federal excise and state and local telecommunications-related tax returns
covering such records and transactions on behalf of many of its customers. The
Company currently submits more than 2,900 tax returns on behalf of its customers
each month.
Billing provides end-user inquiry and investigation (customer service) for
billed telephone call records. This service allows end users to inquire
regarding calls for which they were billed. The Company's customer service
telephone number is included in the local telephone company bill to the end
user, and the Company's customer service representatives are authorized to
resolve end-user disputes regarding such calls.
Billing earns its revenues based on (i) a processing fee that is assessed
to customers either as a fee charged for each telephone call record or other
transaction processed or as percentage of the customer's revenue that is
submitted by the Company to the local telephone companies for billing and
collection and (ii) a customer service inquiry fee that is 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. Any charges assessed to the
Company by local telephone companies for billing and collection services are
also included in revenues and are passed through to the customer.
Through its advance funding program, Billing offers its customers the
option to receive, within five days of the customer's submission of records to
Billing, a significant portion of the revenue associated with such records. The
customer pays interest for the period of time between the purchase of records by
the Company and the time the local telephone company submits payment to Billing
for the subject records. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations Advance Funding Program and Receivable
Financing Facility."
OPERATIONS
The Company's LEC billing services are highly automated through the
Company's proprietary computer software and state-of-the-art data transmission
protocols. Except for the end-user inquiry and investigation service (customer
service), the staff required to provide the Company's LEC billing services is
largely administrative and the number of employees is not directly volume
sensitive. Many of Billing's customers submit their records to the Company using
electronic transmission protocols directly into the Company's electronic
bulletin board, which is accessible through the Internet via the Company's
"BCWebTrack" website. These records are automatically accessed by Billing's
proprietary software, processed, and submitted to the local telephone companies
electronically. Upon completion of the billing process, the Company provides
reports through its BCWebTrack website relating to billable records and returns
any unbillable records to its customers electronically through the BCWebTrack
Record Manager.
The Company operates two independent computer systems to ensure continual,
uninterrupted processing of LEC billing services. One system is dedicated to
daily processing activities, and the other serves as a back-up to the primary
system and provides storage for up to 12 months of billing detail, which is
immediately accessible to Billing's customer service representatives who handle
billing inquiries. Detail of records older than 12 months is stored on CD-ROM
and magnetic tape for at least seven years. Since timely submission of call
records to the local telephone companies is critical to prompt collections and
high collection rates, Billing has made a significant investment in computer
systems so that its customers' call records are processed and submitted to the
local telephone companies in a timely manner, generally within 24 hours of
receipt by Billing.
The Company's contracts with its customers provide for the LEC billing
services required by the customer, specifying, among other things, the services
to be provided and the cost and term of the services. Once the customer executes
an agreement, Billing updates tables within each of the local telephone
companies' billing systems to control the type of
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records processed, the products or services allowed by the local telephone
companies, and the printing of the customer's name on the end user's monthly
bill. While these local telephone company tables are being updated, the
Company's technical support staff tests the customer's records through its
proprietary software to ensure that the records can be transmitted to the local
telephone companies.
Billing maintains a relatively small direct sales force of seven people
and accomplishes most of its marketing efforts through active participation in
telecommunications industry trade shows, educational seminars and workshops. The
Company advertises to a limited extent in trade journals and other industry
publications.
CUSTOMERS
The Company provides LEC billing services and direct billing systems sales
and development to the following categories of telecommunications services
providers:
o Interexchange Carriers or Long Distance Companies: Facilities-based
carriers that possess their own telecommunications switching equipment and
networks and provide traditional direct dial telecommunications services.
Certain long distance companies provide operator assisted services as well as
direct dial services. These calls are billed to the end user by the local
telephone company in the case of residential and small commercial accounts.
o Switchless Resellers: Marketing organizations, affinity groups, or even
aggregator operations that buy direct dial long distance services in volume at
wholesale rates from a facilities based long distance company and sell them back
to individual customers at market rates. These calls are billed to the end user
by the local telephone company in the case of residential and small commercial
accounts.
o Operator Services Providers: Carriers who handle "live" operator
assisted or "automated" operator assisted calls from remote locations using a
centralized telecommunications switching device. These calls are billed to local
telephone company calling cards, collect, to third-party numbers or
person-to-person.
o Customer Owned Coin-Operated Telephone Providers: Privately owned,
intelligent pay telephones that handle "automated" operator assisted calls that
are billed to a local telephone company calling card, collect or to a
third-party number.
o Customer Premise Equipment Providers: Carriers who install equipment at
aggregator locations, such as hotels, university dormitories and penal
institutions, which handle calls originated from that location device. These
calls are subsequently billed to local telephone company calling cards, collect,
to third-party numbers or person-to-person.
o Information Providers: Companies that provide various forms of
information, entertainment or voice mail services to subscribers. These services
are typically billed to the end user by the local telephone company based on a
900 pay-per-call or a monthly recurring service fee.
o Competitive Local Exchange Carriers ("CLEC"): Carriers that provide
local exchange services to subscribers who were previously served exclusively by
the incumbent local exchange carrier.
o Incumbent Local Exchange Carrier ("ILEC"): The existing local telephone
company who has previously offered service as a regulated monopoly company.
o Internet Service Providers ("ISP"): Companies that offer Internet access
and Internet-based services.
o Integrated Communications Providers ("ICP"): Carriers who offer multiple
communications services through a combination of owned network facilities and
resale of other network facilities. These multiple services are typically
bundled and priced as a package of services.
o Other Customers: Suppliers of various forms of telecommunications
equipment and pager and cellular telephone companies.
7
COMPETITION
The Company competes with several other billing clearinghouses in
servicing the telecommunications industry. Management believes that Billing is
the largest participant in the third-party clearinghouse industry in the United
States followed by OAN Services, Inc. Management believes that competition among
the clearinghouses is driven by the quality of information reporting, collection
history, the speed of collections and the price of services.
The Company believes that there are several significant challenges that
face potential new entrants in the LEC billing industry. The cost to acquire the
necessary billing and collection agreements is significant, as is the cost to
develop and implement the required systems for processing telephone call records
and other transactions. Additionally, most billing and collection agreements
require a user to make substantial monthly or annual volume commitments. Given
these factors, the average cost of billing and collecting a record could hinder
efforts to compete effectively on price until a new entrant could generate
sufficient volume. The price charged by most local telephone companies for
billing and collection services is based on volume commitments and actual
volumes being processed.
Since most customers in the billing clearinghouse industry are under
contract with Billing or one of its competitors, management believes that the
majority of the existing market may be committed for up to five years. In
addition, a new entrant must be financially sound and have system integrity
because funds collected by the local telephone companies flow through the
third-party clearinghouse, which then distributes the cash to the customer whose
traffic is being billed. Management believes that the Company enjoys a good
reputation within the industry for the timeliness and accuracy of its
collections and disbursements to customers.
The Company believes that the principal competitive factors in its market
include responsiveness to client needs, timeliness of implementation, quality of
service, price, project management capability and technical expertise. The
Company also believes that its ability to compete depends in part on a number of
competitive factors outside its control, including the development by others of
software that is competitive with the Company's services and products, the price
at which competitors offer comparable services and products, the extent of
competitors' responsiveness to customer needs and the ability of the Company's
competitors to hire, retain and motivate key personnel. As a result, the
Company's competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than can the Company. In
addition, the clearinghouse industry continues to come under pressure from
competitors offering a means of billing end users directly as consumer demand
increases for bundled services that can be directly billed cost-effectively due
to the larger size of such convergent accounts. The ongoing consolidation in the
communications industry is also making it more feasible for the resulting larger
companies to have their own LEC billing agreements or bill consumers directly.
The Company does not currently hold any patents and relies upon a
combination of contractual non-disclosure obligations and statutory and common
law copyright, trademark and trade secret laws to establish and maintain its
proprietary rights to its products. The Company believes that, because of the
rapid pace of technological change in the telecommunications and software
industries, the legal protections for its products are less significant factors
in the Company's success than the knowledge, ability and experience of the
Company's employees, the frequency of product enhancements and the timeliness
and quality of support services provided by the Company. The Company generally
enters into confidentiality agreements with its employees, consultants, clients
and potential clients and limits access to, and distribution of, its proprietary
information.
RESEARCH AND DEVELOPMENT
Billing internally funds research and development activities with respect
to efforts associated with creating new and enhanced billing services products.
Billing is currently exploring customer care software applications that allow
consumers to view their bills and request adjustments or make payments via the
Internet. Research and development expenses in both 1999 and 1998 were $1.2
million compared to $0.6 million in 1997. Billing intends to continue its
research and development efforts in the future and therefore expects that
research and development expenses will remain at levels similar to 1999.
8
SOFTWARE
GENERAL
Aptis develops, markets and supports convergent billing and customer care
software applications. Aptis' customers include Network Service Providers
("NSPs"), Internet Service Providers ("ISPs"), Integrated Communications
Providers ("ICPs") and other providers of enhanced data services via the
Internet. Aptis offers products and services to these companies through
licensing agreements and outsourcing arrangements.
Aptis has developed, and continues to enhance, sophisticated software
applications in order to meet the current and evolving billing requirements of
its customers. The Company's software applications support complex billing of
NSP, ISP and ICP customers in a multi-service environment. Aptis' convergent
billing platform has the capability to produce a single convergent bill whereby
multiple services and products such as local exchange, long distance, wireless
and data communications can be billed directly to the end user under one,
unified billing statement. The software also has the flexibility to be
configured to meet a company's unique business rules and product set.
In addition to its software products, a full range of professional
services are also available through the Company. These services include
consulting, development and systems operations services centered on the Internet
and communications industry and its software products. Aptis also provides
ongoing support, maintenance and training related to customers' billing and
customer care systems. In addition to its software applications and services,
Aptis is a reseller of IBM AS/400 hardware that is used as the hardware platform
to host certain Aptis software applications.
DEVELOPMENT OF BUSINESS
BCC entered the software market in June 1997 in conjunction with the
acquisition of Computer Resources Management, Inc. ("CRM"). At that time the
software division was re-named Billing Concepts Systems, Inc. (`BCS"). CRM had
developed and sold billing applications to the long distance and convergent
services markets. Additionally, in October 1998, BCC acquired Expansion Systems
Corp. ("ESC") and integrated it into BCS. ESC had developed a customer care and
billing application for ISPs that automates the registration of new Internet
subscribers and creates bills for customers' services. In December 1998, BCC
completed the merger of Communications Software Consultants, Inc. ("CommSoft").
CommSoft was an international software development and consulting firm
specializing in the telecommunications industry. In April 1999, BCC announced
that BCS would operate under the name Aptis. Through these actions, Aptis has
expanded its potential markets to include companies focused on providing
sophisticated broadband Internet Protocol ("IP") and enhanced data services.
INDUSTRY BACKGROUND
In the competitive communications marketplace today, companies
increasingly realize the value of a direct customer relationship as a means of
growing its revenues. Many companies who have relied on LEC billing have grown
significantly and are looking to implement solutions that will give them the
option to bill customers themselves. Companies who have systems which bill
customers are looking to replace them with solutions that provide sophisticated
capabilities such as convergent billing and product bundling. The Company
provides such direct billing solutions through its software operations.
Increased competition has ISPs rushing to offer a proliferation of
services that did not exist a few years ago: on-line chat, e-commerce support,
broadband services, Voice over Internet Protocol (VoIP), on-line backup, MP3,
Web site design and marketing and application leasing and maintenance. Several
causes of this rush relate to the facts that customer need is acute and demand
is strong. Also, revenues from traditional dial-up services are dramatically
declining due in part to competition from free services. Bandwidth is difficult
to acquire for smaller ISPs, and their costs are steadily increasing.
9
Adding new service offerings is a necessity to stay in business. Finding a
way to maintain high levels of accessibility to the Internet, developing new
avenues for generating revenue, and streamlining operations to lower costs are
the preeminent management challenges for ISPs. In light of the changing business
environment, ISPs are creating larger, more loyal customer bases and need to be
able to bill them.
New Internet services and the need for innovative billing options also has
added to the demand for customer care and billing systems. IP and enhanced
service providers are faced with commoditization of services, rapid introduction
of new and more complex services and demands to generate more revenues from new
and existing customers. Many of these services are being offered by companies
who already offer other communications and/or enhanced data services and who
want to combine usage onto a single customer account, which is known in the
industry as convergent billing. This demand for convergent billing of Internet,
enhanced data and communications services has driven growth and spending by
Internet and communications companies on customer care and billing solutions.
PRODUCTS AND SERVICES
With the expansion into the software development business in 1997, the
Company broadened its product offerings to include customer care and billing
solutions and entered additional markets not previously served. Aptis ICP TM
(Integrated Communications Product) is the Company's comprehensive software
suite that is a fully integrated, comprehensive and adaptable billing and
customer care solution designed to meet the evolving needs of integrated
communications providers, including and emphasizing the CLEC market and those
companies offering VoIP and/or enhanced data communications. Aptis ICP is a
Web-enabled, remotely accessible software solution that integrates existing
product technology. Aptis ICP has enhanced the convergent architecture model by
providing a common application that provides key functionality in all
communications industry segments and provides tools for order fulfillment,
service assurance and billing and rating. Aptis ICP enables virtually all
communications carriers (facilities-based, competitive, incumbent, resale,
wholesale or any combination) to facilitate growth and market expansion. As an
example, the hierarchical account structure inherent in the system easily
accommodates mergers and acquisitions, new market penetration and large,
multi-level corporate billing. In addition, the common application in Aptis ICP
provides the framework for optional software functionality to be added . Aptis
ICP offers components that deliver enhanced capabilities for every segment of
the communications industry, including Internet, cable television, local, long
distance and wireless. These components may be further customized to achieve
operational goals by adding tools for provisioning, polling, point-of-sale,
facilities inventory management, data transfer interfaces and more. Further,
open application programming interfaces (APIs) provide pre-integration with
other third-party applications.
With the acquisition of ESC in October 1998, Aptis added TotalBill TM to
its product suite. With TotalBill version 3.0, Aptis introduces a broader IP and
data focused product strategy that incorporates distributed server architecture,
multi-platform availability and a host of other features such as upgraded
hierarchical account structures, anytime billing and an automated workflow
engine. TotalBill 3.0 is a browser-based, Oracle billing and customer management
software solution specifically designed for Internet and enhanced data service
providers. Taking full advantage of a distributed server environment, TotalBill
provides separate registration, application, data and reports servers. This
architecture enables distributed workloads, ensures greater scalability and
allows for geographically dispersed service centers and allows Aptis to bring an
innovative measured-service billing solution to the emerging ASP (Application
Service Provider) market. With TotalBill version 3.0, Aptis is updating and
upgrading billing features such as hierarchical and anytime billing.
Hierarchical billing enables service providers the flexibility and scalability
needed to facilitate and manage complex billing scenarios for businesses with
dispersed and growing offices, departments and employees. Anytime billing
enables providers to generate bills via predetermined user intervals or by
individually processing bills on demand in order to meet customized billing
cycles. TotalBill 3.0 also will rate virtually any metered IP service or
scenario, including flat rate, usage based and volume discounting. TotalBill's
innovative standards-based workflow engine acts as a master process control to
provide customized provisioning and interfaces with internal and external
entities. TotalBill's workflow engine allows service providers to automate many
of the processes normally associated with billing and collecting revenues.
Instant-Reg TM, the customer profile management component of TotalBill
3.0, provides a highly flexible customer self-care and provisioning system that
can be incorporated into the provider's existing Internet Web site or in a
portal environment. This feature allows customers to register, self-maintain and
modify their profile, which frees internal resources for other tasks and reduces
expensive customer support costs.
10
With the acquisition of CommSoft in December 1998, Aptis obtained
CommSoft's flagship product, which is an account number based, table-driven
suite of software applications that facilitates the administration of every
aspect of a company's business operations from application to service order, to
billing, and collections. It is a suite of business operation software for local
telephone, long distance, paging, cellular and PCS services. More specifically,
the core modules of the product include Subscriber Management and Billing,
Rating and Call Plans, Customer Care, and Telephone Plant Inventory Systems. In
addition to the billing product, Aptis acquired modules for Carrier Access
Billing, Full Function Accounting and complete Inventory Management. CommSoft's
14 plus years of success with local and wireless telephone companies, coupled
with Aptis' 10 plus years of success, primarily with long distance companies and
CLECs, is a complementary match of experience. By combining CommSoft's menu of
products with those of Aptis, the Company has a broader depth of telecom
functionality to offer its customers.
In 1998, Aptis focused attention on its professional services resources,
growing this staff significantly to support current and new customers. This
organization provides consulting, application development, training, call center
services and back office support to customers in the IP and communications
industry. The organization has entered into a number of long-term arrangements
to provide outsourced services and consulting services to the ICP and TotalBill
customers.
OPERATIONS
Aptis ICP and TotalBill are delivered to customers in a number of ways.
Aptis offers various outsourcing and facilities management options that allow
providers to take advantage of Aptis facilities and resources. In these
situations, the provider would pay a right-to-use fee for access to the
software, and pay for other services on an as-used basis. These arrangements can
include full systems hosting and operations with back office services or any
subset of services. Both applications also may be available to be delivered to
customers to use in their own premises by licensing the applications. Customers
purchase a license that entitles them use of the application in a defined
enterprise, and they acquire their own hardware and operations resources. In
most situations, Aptis provides additional services for the implementation,
conversion and training required to make the application operational from its
professional services staff. If a customer desires some unique enhancements to
the application, professional services staff provides the service at an
additional fee.
Aptis revenues are earned from license fees, right-to-use fees,
maintenance fees, professional services fees and facilities management fees.
License fees and right-to-use fees are based on the modules licensed and the
number of customers supported by the application. Maintenance fees are a
percentage of the total license fees. Professional services fees include time
and materials charges and facilities management fees. Aptis revenues also
include retail sales of IBM AS/400 hardware and operating software.
CUSTOMERS
Aptis provides direct billing systems sales and development to the
following categories of communications services providers:
o Network Service Providers ("NSP"): Companies providing
business-to-business enhanced data services based on next generation network
architecture.
o Internet Service Providers ("ISP"): Companies that offer Internet
access and Internet-based services.
o Integrated Communications Providers ("ICP"): Carriers who offer multiple
communications services through a combination of owned network facilities and
resale of other network facilities. These multiple services are typically
bundled and priced as a package of services.
o Interexchange Carriers or Long Distance Companies: Facilities-based
carriers that possess their own telecommunications switching equipment and
networks and provide traditional direct dial telecommunications services.
Certain long distance companies provide operator assisted services as well as
direct dial services. The local telephone company in the case of residential and
small commercial accounts bills these calls to the end user.
11
o Switchless Resellers: Marketing organizations, affinity groups, or even
aggregator operations that buy direct dial long distance services in volume at
wholesale rates from a facilities based long distance company and sell them back
to individual customers at market rates. The local telephone company in the case
of residential and small commercial accounts bills these calls to the end user.
o Competitive Local Exchange Carriers ("CLEC"): Carriers that provide
local exchange services to subscribers who were previously served exclusively by
the incumbent local exchange carrier.
o Incumbent Local Exchange Carrier ("ILEC"): The existing local
telephone company who has previously offered service as a regulated monopoly
company.
o Wireless Carriers: Carriers that provide direct dial telecommunications
services by means of cellular or PCS technology that is not dependent on
traditional landlines.
o Cable Companies: Facilities-based companies that possess their own
cable networks to provide cable television access and may also offer telephone
and Internet services.
In 1999, an aggressive marketing and advertising campaign was implemented
to increase industry understanding and awareness of Aptis' capabilities and
vision. As a means of highlighting Aptis' expanded capabilities, a new identity,
positioning and messaging were created. This new identity is consistently
pervasive through all advertising and marketing materials. A program designed to
insure high visibility and contact with the industry began in July 1998 and is
supported by advertising, public relations and participation in key industry
events. Aptis added significant direct sales resources to the organization,
industry experience, knowledgeable individuals and strategic partnerships with
other vendors serving the industry. Aptis will continue to pursue key marketing
relationships with companies providing complementary products and services.
Aptis maintains a direct sales force of fifteen people and accomplishes most of
its marketing efforts through active participation in Internet and
communications industry trade shows, educational seminars and workshops. The
Company advertises in trade journals and other industry publications.
Management believes that there is substantial demand by its customers and
potential customers for direct billing products and services that allow them to
bill end users directly for services provided. Aptis plans to focus its
marketing efforts on licensing its state-of-the-art direct billing software to
such customers. The Company has targeted as likely candidates for such direct
billing products and services the following types of customers: network and
enhanced data service providers, Internet service providers, long distance
providers serving commercial accounts, cellular services providers, competitive
local access providers and cable television companies.
COMPETITION
The market for telecommunications billing systems and services is highly
competitive, and Aptis anticipates that this competition will increase. Aptis
competes with both independent providers of billing systems and services and
with the internal billing departments of telecommunications service providers.
Aptis expects that the continued growth and merging of the enhanced data,
Internet and communications industry and the deregulation of other industries
will encourage new competitors to enter the billing market in the future. The
growth in total expenditures on customer care and billing solutions is expected
to increase at significant rates over the next few years. Companies that offer
broad solutions capability have the opportunity to gain significant market share
and establish long-term relationships with industry players. Aptis believes that
the principal competitive factors in its market include responsiveness to client
needs, timeliness of implementation, quality of service, price, project
management capability and technical expertise. Aptis also feels that its ability
to compete depends on a number of competitive factors outside its control. Some
of these factors include the development of software that is competitive with
the Company's services and products, the price at which competitors offer
comparable services and products, the extent of competitors' responsiveness to
customer needs and the ability of the Company's competitors to hire, retain and
motivate key personnel.
Aptis also competes with a number of companies that have substantially
greater financial, technical, sales and marketing resources, as well as greater
name recognition. As a result, the Company's competitors may be able to adapt
more quickly to emerging technologies, changes in customer requirements or to
devote greater resources to the promotion and sale of their products. The
Company does not currently hold any patents and relies upon a combination of
contractual
12
non-disclosure obligations as well as statutory and common law copyright,
trademark and trade secret laws to establish and maintain its proprietary rights
to its products. Aptis believes that because of the rapid pace of technological
change in the enhanced data, Internet, communications and software industries,
the legal protections for its products are less significant factors in the
Company's success than the knowledge, ability and experience of the Company's
employees, the frequency of product enhancements and the timeliness and quality
of support services provided by the Company. The Company generally enters into
confidentiality agreements with its employees, consultants, clients and
potential clients and limits access to, and distribution of, its proprietary
information. Use of the Company's software products is generally restricted to
specified locations and is subject to terms and conditions prohibiting
unauthorized reproduction or transfer of the software products.
RESEARCH AND DEVELOPMENT
Research and development expenses were $4.5 million, $2.1 million and $1.1
million in 1999, 1998 and 1997, respectively. Aptis is actively involved in
ongoing research and development efforts associated with creating new billing
modules and enhanced products related to its convergent billing software
platform for both telecommunications and Internet service providers. Aptis will
continue to significantly increase its investment in research and development
efforts and expects that research and development expenses will be approximately
$9 to $10 million in 2000.
INTERNET
Over the last five years, the Internet and the Worldwide Web have grown at
an explosive rate. The growth of the Internet is a global phenomenon that is
fundamentally changing the way business is conducted. The increase in the number
of Internet users, coupled with the proliferation of new types of on-line and
electronic commerce, or e-commerce, has fueled the emergence of new service
providers such as ISPs and Internet telephony providers. In addition,
traditional telecommunications carriers have entered the Internet market,
providing on-line and e-commerce services to both businesses and consumers. One
of the consequences of the widespread growth and acceptance of Web use is that
consumers are rapidly embracing the ability to pay their bills and conduct other
personal business over the Internet. This trend has generated a growing interest
by large national and regional bill senders to publish their bills
electronically. The Company has embraced the Internet phenomenon and addressed
it in its core LEC billing and Aptis businesses. Additionally, the Company has
invested in acquisition opportunities directly related to the Internet, as
discussed below.
In September 1998, BCC acquired 22% of the capital stock of Princeton eCom
Corporation ("PTC"), formerly known as Princeton Telecom Corporation. PTC,
founded in 1983 by a group of Princeton University professors, is a privately
held company headquartered in Princeton, New Jersey specializing in
comprehensive electronic bill presentment and payment services via the Internet
to financial institutions and large businesses. PTC's services eliminate the
need for companies to generate and mail paper bills as well as the need for
consumers to write and mail paper checks. PTC also provides electronic lockbox
(ELS) and credit card balance transfer services. Through September 30, 1999, the
Company acquired additional shares of PTC common stock, increasing the Company's
ownership to approximately 24% at September 30, 1999. In November 1999, the
Company announced that it recently signed an agreement to increase its ownership
interest in PTC to 27% with an additional equity investment of $2.6 million. The
Company also anticipates additional equity investments in PTC as PTC positions
itself for further growth.
In November 1999, the Company completed the acquisition of FIData, Inc., a
company located in San Antonio, Texas that provides Internet-based automated
loan approval products to the financial services industries. FIData was formed
in 1987 to provide the credit union industry with self-service technology. The
proprietary products of FIData facilitate Internet-based automated approval of
consumer loans. The FIData state-of-the-art technology is easily installed and
may rapidly change a lender's website into an interactive revenue and
self-service center. In addition to credit unions, the FIData products have
application in the banking, insurance, mortgage and retail markets. In
conjunction with the FIData transaction, the Company also completed the
acquisition of a company located in Austin, Texas that is developing an
Internet-based financial services website focused on the credit union industry
and its members.
As of the date of this report, the Company has invested $21.7 million, and
committed an additional $2.6 million of capital resources in the Internet arena
and plans to make further significant investments of capital in Internet-related
operations over the foreseeable future. The Company will continue to review
additional strategic Internet acquisition opportunities that will complement or
enhance its existing operations.
13
EMPLOYEES
At September 30, 1999, the Company had 806 full-time employees and 22
part-time employees, as follows: LEC billing - 395 full-time and 18 part-time;
Aptis - 323 full-time and 4 part-time; Internet - 10 full-time; and corporate
office - 78 full-time employees. None of the Company's employees are represented
by a union. The company believes that its employee relations are good.
ITEM 2. PROPERTIES
At September 30, 1999, the Company occupied approximately 130,000 square
feet of space at 7411 John Smith Drive, San Antonio, Texas, which serves as a
customer service facility for LEC Billing and the corporate and operational
headquarters for the Company's LEC billing and Software divisions. The lease
expires in October 2006 and has certain expansion options, renewal options and
rights of first refusal. At September 30, 1999, the company's LEC billing
operations occupied an additional 26,000 square feet for a customer service
facility located at 10500 Highway 281, San Antonio, Texas, under a lease that
expires in September 2002. The Company has a third LEC billing customer service
facility at 802 N. Carancahua, Corpus Christi, Texas, where it occupied
approximately 29,000 square feet at September 30, 1999, under a lease that
expires in September 2005. The Company's Software operations occupy
approximately 29,000 square feet in Austin, Texas, approximately 54,000 square
feet in Albany, New York and approximately 7,500 square feet in Glendale,
California under leases that expire at varying dates through 2008. The Company's
Internet operations are also headquartered at the leased premises in Austin. In
November 1999, the Company signed an agreement to lease approximately 75,000
square feet of office space in Austin, Texas that will eventually serve as the
headquarters for the Company's Software operations. This lease expires in 2010
and has certain renewal options. The Company believes that its current
facilities are, and its future facilities will be, adequate to meet its current
and future needs.
ITEM 3. LEGAL PROCEEDINGS
A lawsuit was filed on December 31, 1998, in the United States District
Court in San Antonio, Texas by an alleged stockholder of the Company against the
Company and various of its officers and directors, alleging unspecified damages
as a result of alleged false statements in various press releases prior to
November 19, 1998. In September 1999, the U.S. District Court for the Western
District of Texas entered an order and judgment dismissing the plaintiff's
lawsuit. The plaintiff noticed an appeal of that decision on September 29, 1999.
Although no assurances can be given, the Company believes it has meritorious
defenses to this action and intends to defend itself vigorously.
The Company had a $1.0 million default judgment entered against it in
September 1999 as a result of a garnishment action in Wisconsin state court. The
Company was not alleged to have done anything wrong, and its liability is based
solely on a failure by former in-house counsel to timely answer the garnishment
lawsuit. The underlying judgment was against a former customer of the Company.
The class plaintiff's attempt to collect that judgment through moneys held by
the Company on behalf of its former customer gave rise to the garnishment action
against the Company. The Company entered into a Stipulation of Settlement in
this matter which will require a minimum final settlement amount of $0.8
million. During 1999, the Company recorded a charge that it believes is adequate
for the final settlement.
The Company is cooperating with the Federal Trade Commission's ("FTC")
Bureau of Consumer Protection ("BCP") regarding BCP staff requests for industry
and customer specific information from the Company relating primarily to the
alleged cramming of charges for non-regulated telecommunication services by
certain of its customers. Cramming is the addition of charges to a telephone
bill for programs, products or services the consumer did not knowingly
authorize. In connection with the Company's responses to the ongoing
informational requests, the BCP staff has proposed a complaint against the
Company. The BCP staff alleges that it can impose a variety of civil remedies on
the Company, including consumer redress or other equitable relief as well as
restrictions on the way the Company processes charges for enhanced services. The
Company disputes the BCP staff's alleged basis for liability and is reviewing
the BCP staff's allegations to ensure that corrective action has already been
taken. Billing Concepts has and will continue to cooperate and engage the BCP
staff in good faith negotiations. The Company is unable to predict what action,
if any, the FTC will take regarding the BCP staff's proposed complaint or what,
if any, financial impact would result.
14
The Company is involved in various other 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, litigation
or proceedings to which the Company is a party, including those described above,
will 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 occurs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year, no matter was submitted by
the Company to a vote of its stockholders through the solicitation of proxies or
otherwise.
15
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock, par value $0.01 per share (the "Common
Stock"), is quoted on the Nasdaq National Market under the symbol "BILL." The
table below sets forth the high and low bid prices for the Common Stock from
October 1, 1997, through December 10, 1999, as reported by the Nasdaq National
Market. These price quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
HIGH LOW
---- ---
Fiscal Year Ended September 30, 1998:
1st quarter $24 11/16 $17 7/8
2nd quarter $30 $22
3rd quarter $29 5/8 $13 1/2
4th quarter $15 3/4 $8 5/16
Fiscal Year Ending September 30, 1999:
1st quarter $17 $10
2nd quarter $11 7/8 $7 15/16
3rd quarter $14 $9 7/8
4th quarter $11 3/16 $4 1/2
Fiscal Year Ending September 30, 2000:
1st quarter (through December 10, 1999) $7 1/8 $4 7/32
STOCKHOLDERS
At December 10, 1999, there were 38,538,371 shares of Common Stock
outstanding, held by 503 holders of record. The last reported sales price of the
Common Stock on December 10, 1999, was $7 1/8 per share.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company presently intends to retain all earnings for the operation
and development of its business and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. Furthermore, certain
covenants in various credit agreements of the Company prohibit the payment of
dividends on the Common Stock.
16
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial and other data and pro
forma per share data for the Company. The income statement data for the years
ended September 30, 1999, 1998, 1997, 1996 and 1995, and the balance sheet data
at September 30, 1999, 1998, 1997, 1996 and 1995, presented below are derived
from the audited Consolidated Financial Statements of the Company. The data
presented below for the fiscal years ended September 30, 1999, 1998 and 1997,
should be read in conjunction with the Consolidated Financial Statements and the
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included in this
report.
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED INCOME STATEMENT DATA:
Operating revenues ......................................................... $181,324 $176,023 $132,237 $109,421 $ 84,104
Gross profit ............................................................... 71,805 67,845 49,802 39,046 30,578
Advance funding program income ............................................. 3,798 7,919 7,255 6,564 4,582
Advance funding program expense ............................................ 125 126 688 1,367 1,351
Special charges ............................................................ 1,529 2,000 21,252 0 0
Income from operations ..................................................... 23,521 40,266 14,285 29,041 22,486
Net income (5) ............................................................. 15,822 26,703 4,238 18,096 14,253
Basic net income per common share (5) ...................................... $ 0.43 $ 0.74 $ 0.13 -- --
Pro forma basic net income per common share (1) ............................ -- -- -- $ 0.57 $ 0.49
Weighted average common shares outstanding ................................. 37,116 35,844 33,525 -- --
Pro forma weighted average common shares outstanding (1) ................... -- -- -- 31,703 29,137
Diluted net income per common share (5) .................................... $ 0.42 $ 0.71 $ 0.12 -- --
Pro forma diluted net income per common share (1) .......................... -- -- -- $ 0.54 $ 0.45
Weighted average common shares and common share equivalents outstanding .... 37,685 37,488 35,092 -- --
Pro forma weighted average common shares and common share
equivalents outstanding (1) .............................................. -- -- -- 33,275 31,667
SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital ............................................................ $ 73,553 $ 60,247 $ 28,015 $ 13,604 $ 17,361
Total assets ............................................................... 255,079 266,613 171,288 139,286 107,688
Long-term debt and capital leases, less current portion .................... 0 2,468 2,805 5,185 2,365
USLD's investment in and advances to BCC ................................... 0 0 0 0 21,387
Additional paid-in capital (2) ............................................. 63,771 60,028 42,905 19,628 0
Retained earnings (3) ...................................................... 48,213 34,141 7,438 3,200 0
SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
OPERATING DATA:
EBITDA (4) ................................................................. $ 32,850 $ 47,364 $ 18,352 $ 31,309 $ 23,805
17
(1)The per share and weighted average common shares and common share
equivalents outstanding data for the years ended September 30, 1996 and 1995
is unaudited and presented on a pro forma basis as BCC had no publicly held
common shares outstanding prior to its spin-off from USLD on August 2, 1996.
The number of weighted average common shares outstanding used in the
calculation of the pro forma earnings per share gives effect to the shares
assumed to be issued had the spin-off occurred at the beginning of each
period presented.
(2)Additional paid-in capital for the years ended September 30, 1997 and 1996
was restated to give effect to the one-for-one common stock dividend that was
distributed on January 30, 1998 to stockholders of record on January 20,
1998. No additional proceeds were received on the dividend date and all costs
associated with the share dividend were capitalized as a reduction of
additional paid-in capital.
(3)The Company has never declared cash dividends on its Common Stock, nor does
it anticipate doing so in the foreseeable future.
(4)Earnings before interest, taxes, depreciation and amortization ("EBITDA") is
a profitability/cash flow measurement that is commonly used in the
telecommunications industry. EBITDA is not a financial measure pursuant to
Generally Accepted Accounting Principles ("GAAP"), nor is it acceptable or
considered an alternative measure of cash flows from operations under GAAP or
funds available for dividends, reinvestments or other discretionary uses. For
a presentation of cash flows, including cash flows related to operating
activities, investing activities and financing activities, see the Statements
of Cash Flows included in the Company's Consolidated Financial Statements.
(5)Without the effect of special and certain other charges and excluding its
Internet operations, the Company recorded net income of $21.3 million, $27.9
million and $21.9 million and diluted net income per common share of $0.57,
$0.80 and $0.66 for the years ended September 30, 1999, 1998 and 1997,
respectively.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company, the Notes thereto and the
other financial information included elsewhere in this Report. For purposes of
the following discussion, references to yearly periods refer to the Company's
fiscal years ended September 30.
RESULTS OF OPERATIONS - CONSOLIDATED
The following table presents certain items in the Company's Consolidated
Statements of Income as a percentage of total revenues:
YEAR ENDED SEPTEMBER 30,
1999 1998 1997
---- ---- ----
Operating revenues............................... 100.0% 100.0% 100.0%
Cost of revenues................................. 60.4 61.5 62.3
----- ----- -----
Gross profit..................................... 39.6 38.5 37.7
Selling, general and administrative expenses..... 19.5 13.1 11.4
Research and development......................... 3.2 1.9 1.3
Advance funding program income, net.............. (2.0) (4.4) (5.0)
Depreciation and amortization expense............ 5.1 4.0 3.1
Special charges.................................. 0.8 1.1 16.1
----- ----- -----
Income from operations........................... 13.0 22.8 10.8
Other income, net................................ 2.1 2.5 0.4
----- ----- -----
Income before provision for income taxes......... 15.1 25.3 11.3
Provision for income taxes....................... (6.4) (10.2) (8.0)
----- ----- -----
Net income....................................... 8.7% 15.1% 3.2%
===== ===== =====
The Company's revenues are derived primarily from the provision of billing
clearinghouse and information management services to telecommunications services
providers ("Local Exchange Carrier billing" or "LEC billing") by its LEC billing
division ("Billing"). Through its subsidiary, Aptis, Inc. ("Aptis"), the Company
also operates a software division ("Software") that develops, markets and
supports convergent billing and customer care software applications for
telecommunications and Internet service providers and provides direct billing
outsourcing services. In addition, the Company has Internet operations
("Internet") that include equity interests in Princeton eCom Corporation
("PTC"), formerly known as Princeton Telecom Corporation, and an
Internet-related company located in Austin, Texas. Total revenues for 1999 were
$181.3 million compared to $176.0 million in 1998 and $132.2 million in 1997,
representing increases of 3.0% and 33.1%, respectively. The increase in total
revenues from 1998 was primarily due to the increase in Aptis revenues while the
increase from 1997 was primarily attributable to the increase in LEC billing
revenues. Gross profit margin of 39.6% reported for 1999 compares to 38.5%
achieved in 1998 and 37.7% achieved in 1997. The improvement from year to year
is attributable to the growth of Aptis revenues as a percentage of total
revenues due to the higher margins associated with Aptis sales. The Company's
consolidated gross profit margin could increase in subsequent periods as a
result of an increased contribution of higher gross margin Aptis revenues.
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. SG&A expenses for 1999 were $35.3 million,
or 19.5% of revenues, compared to $23.0 million, or 13.1% of revenues, in 1998,
and $15.1 million in 1997, representing 11.4% of revenues. SG&A expenses as a
percentage of revenues increased from year to year primarily due to the Aptis
operations incurring a higher level of SG&A expenses as a percentage of revenue
than the Company as a whole. This increased level of SG&A for Aptis is necessary
as Aptis builds an infrastructure consistent with expected growth. As the
revenues generated by Aptis operations have increased as a percentage of total
revenue, the overall SG&A percentage has increased accordingly.
Depreciation and amortization expenses are incurred with respect to
certain assets, including computer hardware, software, office equipment,
furniture, leasehold improvements, costs incurred in securing contracts with
local telephone companies, goodwill and other intangibles. Depreciation and
amortization expense as a percentage of revenues was 5.1%,
19
4.0% and 3.1% in 1999, 1998 and 1997, respectively. The increase in the
percentage from year to year is attributable to increased capital expenditures
made in order to provide the infrastructure needed to support the growth of the
Company. These expenditures included the purchase of office furniture, computer
equipment and software and leasehold improvements. Investments in leasehold
improvements increased in connection with the Company's new facility in 1997
that serves as both a customer service center and the corporate and operational
headquarters of the Company and leasing an additional customer service center in
1998. During 1999, 1998 and 1997, the Company recognized $626,000, $625,000 and
$205,000 of amortization expense, respectively, related to goodwill and other
intangibles acquired in connection with the acquisition of CRM in June 1997.
Income from operations was $23.5 million, $40.3 million and $14.3 million
in 1999, 1998 and 1997, respectively. Income from operations for 1999 includes
special charges of $1.5 million of expenses incurred in contemplation of a
proposed separation of the Company's LEC billing and software businesses into
two separate public companies. The proposed separation was terminated in the
fourth quarter of fiscal 1999. Income from operations for 1998 reflects special
charges of $2.0 million during the fourth quarter of 1998 representing
in-process research and development costs acquired in connection with the
acquisition of 22% of the capital stock of PTC. Income from operations for 1997
reflects special charges of $21.3 million incurred in the third quarter of 1997.
The $21.3 million charge includes in-process research and development costs of
$13.0 million acquired in connection with the acquisition of CRM. The remaining
$8.3 million represents accumulated costs associated with the development of a
direct billing system for a service bureau operation. The Company abandoned this
development during the third quarter of 1997. Income from operations, exclusive
of special charges, represented 13.8%, 23.9% and 26.9% of revenues in 1999, 1998
and 1997, respectively. The decrease in income from operations, exclusive of
special charges, as a percentage of revenues from year to year is attributable
to higher SG&A, research and development and depreciation expenses and lower net
advance funding income as a percentage of revenues, offset partly by a higher
gross profit margin.
Net other income of $3.9 million in 1999 compares to net other income of
$4.4 million in 1998 and $0.6 million in 1997. The increase in net other income
for both 1999 and 1998 from 1997 was primarily due to increased interest income
from short-term investments due to higher cash balances. The increase in
interest income for 1999 was offset by the Company's $1.8 million equity in the
loss of its investee, PTC, since the Company's initial investment in September
1998. Interest expense was also lower in 1999 and 1998 due to the paydown of
long-term debt.
The Company's effective tax rate was 42.3% in 1999, 40.3% in 1998 and
71.5% in 1997. The Company's effective tax rate is higher than the federal
statutory rate due to the inclusion of state income taxes (in addition to
federal income taxes) and certain deductions taken for financial reporting
purposes that are not deductible for federal income tax purposes. Exclusive of
nondeductible in-process research and development costs related to the
acquisition of CRM and PTC and nondeductible losses from its Internet
investments, the Company's effective tax rate would have been 39.3%, 38.7% and
41.0% in 1999, 1998 and 1997, respectively.
RESULTS OF OPERATIONS - LEC BILLING
The following table presents the operating results of the Company's LEC
billing division and as a percentage of related revenues for each year:
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1999 1998 1997
--------- --------- --------- --------- --------- ---------
Operating revenues ......................... $ 138,646 100.0% $ 147,542 100.0% $ 120,451 100.0%
Cost of revenues ........................... 87,763 63.3 92,761 62.9 75,472 62.7
--------- --------- --------- --------- --------- ---------
Gross profit ............................... 50,883 36.7 54,781 37.1 44,979 37.3
Selling, general and administrative expenses 9,873 7.1 7,540 5.1 6,299 5.2
Research and development ................... 1,246 0.9 1,168 0.8 594 0.5
Advance funding program income, net ........ (3,673) (2.6) (7,793) (5.3) (6,567) (5.5)
Depreciation and amortization expense ...... 5,170 3.7 3,999 2.7 2,292 1.9
Special and other charges .................. 4,443 3.3 -- -- --
--------- --------- --------- --------- --------- ---------
Income from operations ................... $ 33,824 24.3% $ 49,867 33.8% $ 42,361 35.2%
========= ========= ========= ========= ========= =========
20
OPERATING REVENUES
LEC billing fees charged by Billing include processing and customer
service inquiry 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 Billing to local
telephone companies for billing and collection. Processing fees also include any
charges assessed to Billing 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 Billing or as a fee charged for each billing inquiry made by end
users.
Including a bad debt write-off of $3.2 million in 1999, LEC billing
services revenues decreased $12.1 million, or 8.2%, in 1999 from 1998, and
increased $27.1 million, or 22.5%, in 1998 from 1997. The decrease in revenue
from 1998 was attributable to an overall decrease in the number of call records
processed, as well as the $3.2 million charge. The revenue increase from 1997
was primarily attributable to an increase in the number of telephone call
records processed and billed on behalf of direct dial long distance customers.
Despite the overall increase in revenue from 1997, the number of call records
processed for billing during 1998 and 1999 was negatively impacted by "slamming"
and "cramming" issues that have occurred in the long distance industry. Slamming
is defined as the unauthorized and illegal switching of a customer's telephone
service from one carrier to another carrier, while cramming is the practice of a
company billing customers for products and services that the consumer did not
knowingly authorize. These "slamming and cramming" issues have caused some of
the larger Local Exchange Carriers ("LECs") to affect the ability of certain of
Billing's customers to market certain services. Also, as a proactive measure,
Billing has taken action against certain customers that includes, but is not
limited to, the cessation of billing for certain new or existing products.
Management continues to take actions in order to mitigate the effects of
"slamming and cramming" issues on the call record volumes of its current
customer base. These actions have resulted in lower revenues for 1999 and 1998.
Telephone call record volumes were as follows:
YEAR ENDED
SEPTEMBER 30,
------------------
1999 1998 1997
----- ----- -----
(IN MILLIONS)
Direct dial long distance services .............. 599.0 612.6 510.3
Operator services ............................... 97.2 134.6 133.4
Enhanced billing services........................ 4.7 11.4 9.6
Billing management services...................... 230.4 329.1 342.1
Although billing management records decreased significantly from 1997 to
1999, the impact on revenues was minimal because 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
Billing's other customers.
COST OF REVENUES
Cost of revenues includes billing and collection fees charged to Billing
by local telephone companies and related transmission costs, as well as all
costs associated with the customer service organization, including staffing
expenses and costs associated with telecommunications 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. Billing achieves discounted billing costs due to its aggregated
volumes and can pass these discounted costs on to its customers.
Including the $3.2 million charge to revenue discussed above, the gross
profit margin for 1999 was 35.2% compared to 37.1% achieved in 1998 and 37.3%
achieved in 1997. The decrease in margin in 1999 from 1998 is primarily
attributable to the $3.2 million charge in 1999. Excluding this charge, gross
profit margin was 36.7% for 1999. The decrease in margin from 1998 was also
attributable to the loss of certain higher margin enhanced billing services
revenues. The decrease in these revenues is the result of actions to reduce the
incidence of slamming and cramming.
21
SELLING, GENERAL AND ADMINISTRATIVE
Including the $3.2 million charge to revenue discussed above and a charge
of $1.2 million to SG&A in 1999 for a legal judgment, SG&A expenses for 1999
were $11.1 million or 8.2% of revenues, compared to $7.5 million, or 5.1% of
revenues in 1998, and $6.3 million in 1997, representing 5.2% of revenues. The
increase in SG&A as a percentage of revenue in 1999 was primarily due to the
overall decrease in revenue as well as the $1.2 million charge. Excluding this
charge and the $3.2 million charge to revenue discussed above, SG&A as a
percentage of revenue in 1999 was 7.1%.
Expenses related to certain corporate functions, such as treasury,
financial reporting, investor relations, legal, payroll, human resources and
management information systems, have not been fully charged to Billing, but are
included in the consolidated results of operations as general corporate
expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses are comprised of the salaries and
benefits of the employees involved in software development and related expenses.
Billing internally funds research and development activities with respect to
efforts associated with creating new and enhanced billing services products.
Research and development expenses in both 1999 and 1998 were $1.2 million
compared to $0.6 million in 1997. Billing intends to continue its research and
development efforts in the future and anticipates spending approximately $1.0
million during 2000 for such expenses.
ADVANCE FUNDING PROGRAM INCOME AND EXPENSE
Advance funding program income was $3.8 million in 1999 compared with $7.9
million in 1998 and $7.3 million in 1997. The year-to-year fluctuations were
primarily the result of the level of customer receivables financed under the
Company's advance funding program (see "Advance Funding Program and Receivable
Financing Facility" below). The quarterly average balance of purchased
receivables was $48.2 million, $83.0 million and $73.6 million in 1999, 1998 and
1997, respectively.
The decrease in advance funding program expense to $0.1 million in both
1999 and 1998 from $0.7 million in 1997 was attributable to the Company
financing all customer receivables during 1999 and 1998 with internally
generated funds rather than with funds borrowed through the Company's revolving
credit facility. The expense recognized during 1999 and 1998 represents unused
credit facility fees and is the minimum expense that the Company could have
incurred during these years.
INCOME FROM OPERATIONS
Including special and other charges, income from operations in 1999 was
$33.8 million, or 25.0% of revenues, compared to income from operations of $49.9
million, or 33.8% of revenues, in 1998 and $42.4 million, or 35.2% of revenues,
in 1997. The decrease in income from operations as a percentage of revenues from
year to year is attributable to lower net advance funding income and higher
operating expenses as a percentage of revenues, as well as a lower gross profit
margin. Excluding the $1.2 million charge to SG&A and the $3.2 million charge to
revenue discussed above, income from operations in 1999 was $38.3 million, or
27.6% of revenues.
22
RESULTS OF OPERATIONS - SOFTWARE
The following table presents the operating results of the Company's
software division and as a percentage of related revenues for each year:
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
1999 1998 1997
-------- -------- -------- -------- -------- --------
Software revenues .......................... $ 19,712 42.9% $ 10,067 35.3% $ 3,327 28.2%
Services revenues .......................... 19,011 41.4 9,589 33.7 4,661 39.6
Hardware revenues .......................... 7,198 15.7 8,825 31.0 3,798 32.2
-------- -------- -------- -------- -------- --------
Total operating revenues ................. 45,921 100.0 28,481 100.0 11,786 100.0
Cost of revenues ........................... 21,756 47.4 15,417 54.1 6,963 59.1
-------- -------- -------- -------- -------- --------
Gross profit ............................... 24,165 52.6 13,064 45.9 4,823 40.9
Selling, general and administrative expenses 10,932 23.8 5,495 19.3 2,015 17.1
Research and development ................... 4,479 9.8 2,109 7.4 1,067 9.1
Depreciation and amortization expense ...... 2,168 4.7 1,380 4.8 494 4.2
Special and other charges .................. 780 1.7 -- -- 21,252 180.3
-------- -------- -------- -------- -------- --------
Income (loss) from operations ............ $ 5,806 12.6% $ 4,080 14.3% $(20,005) (169.7)%
======== ======== ======== ======== ======== ========
In addition to license and maintenance fees charged by Aptis for the use
of its billing software applications, fees are charged on a time and materials
basis for software customization and professional services. Processing fees for
direct billing services provided through Aptis' service bureau are assessed to
customers based on volume. Aptis' revenues also include retail sales of
third-party computer hardware and software.
Aptis revenues increased $17.4 million, or 61.2%, in 1999 from 1998, and
increased $16.7 million, or 141.7%, in 1998 from 1997. The increase in revenues
from the prior years was primarily attributable to the increase in license and
maintenance fees.
COST OF REVENUES
Cost of revenues includes the cost of third-party computer hardware and
software sold, and the salaries and benefits of software development, technical,
service bureau and professional service personnel who generate revenue from
contracted services.
Gross profit margin of 52.6% reported for 1999 compares to 45.9% achieved
in 1998 and 40.9% achieved in 1997. The improvement from year to year is
attributable to the growth of Aptis software license and maintenance fees as a
percentage of total revenues in 1999 and 1998. This growth served to improve
gross margin due to the higher margins associated with such revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Including a bad debt write-off of $0.8 million in 1999, SG&A expenses for
1999 were $11.7 million, or 25.5% of revenues, compared to $5.5 million, or
19.3% of revenues, in 1998, and $2.0 million in 1997, representing 17.1% of
revenues. SG&A expenses as a percentage of revenues increased from the prior
years primarily due to increased expenditures to provide the infrastructure
necessary to support the projected growth of the software business and increased
marketing expenses. The Company expects that marketing expenditures will
continue to significantly increase in light of Aptis' aggressive marketing
campaign.
Expenses related to certain corporate functions, such as treasury,
financial reporting, investor relations, legal, payroll, human resources and
management information systems, have not been fully charged to the Aptis
division, but are included in the consolidated results of operations as general
corporate expenses.
23
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expenses are comprised of the salaries
and benefits of the employees involved in software development and related
expenses. Aptis is actively involved in ongoing research and development efforts
associated with creating new and enhanced products related to its convergent
billing software platform for both telecommunication and Internet service
providers. Research and development expenses in 1999 were $4.5 million compared
to $2.1 million in 1998 and $1.1 million in 1997. The Company intends to
significantly increase its research and development efforts in the future and
anticipates spending approximately $9 to $10 million during 2000 for such
expenses.
INCOME FROM OPERATIONS
Exclusive of special and other charges, income from operations in 1999 was
$6.6 million, or 14.3% of revenues, compared to income of $4.1 million, or 14.3%
of revenues, in 1998 and income of $1.2 million, or 10.6% of revenues, in 1997.
Income from operations as a percentage of revenues in 1999 reflected higher SG&A
and research and development expenses as a percentage of revenues, which were
offset by a higher gross profit margin. The increase in income from operations
as a percentage of revenues in 1998 from 1997 is attributable to a higher gross
profit margin, offset partly by higher operating expenses as a percentage of
revenues.
RESULTS OF OPERATIONS - INTERNET
The Company began its Internet operations with its initial investment in
PTC in September 1998. During 1999, in addition to recording its equity in the
net loss of PTC of $1.8 million, which is included in "Other Income," the
Company recorded $0.5 million of SG&A and R&D expenses related to its initial
investment in an Internet company located in Austin, Texas.
YEAR 2000 CONTINGENCY
The operation of the Company's business is highly dependent on its
computer software programs and operating systems (collectively, "Programs and
Systems"). These Programs and Systems are used in several key areas of the
Company's business, including information management services, third-party
billing clearinghouse services (including the advance funding program), direct
billing services and financial reporting, as well as in various administrative
functions. In providing information management, third-party billing
clearinghouse and direct billing services, the Company processes telephone call
records which are date sensitive. The Company also develops, sells and supports
sophisticated billing systems and software (the "Billing Systems") which must be
able to process date-dependent data correctly. Certain of the Billing Systems
sold by the Company have been warranted to process information related to or
including dates that are prior to, on or after January 1, 2000.
The Company has been evaluating its Programs and Systems to identify
potential Year 2000 readiness problems, as well as manual processes, external
interfaces with customers and services supplied by vendors to coordinate Year
2000 compliance and conversion. The Year 2000 problem refers to the limitations
of the programming code in certain existing software programs to recognize
date-sensitive information for the Year 2000 and beyond. Unless modified prior
to December 31, 1999, such systems may not properly recognize such information
and could generate erroneous data or cause a system to fail to operate properly.
The Company filed a Year 2000 Certification Request with ITAA (Information
Technology Association of America) in January 1999. The Company has installed
its Year 2000 compliant Billing Systems in its Service Bureau operation and made
a general release of such Billing Systems available in the second fiscal quarter
of 1999. The Company believes that all significant modifications and
replacements required to make its systems that perform LEC billing Year 2000
compliant were completed during April 1999.
The Company believes that, with modifications to existing software and
conversions to new software, the Year 2000 problem will not pose a significant
operational problem for the Company. However, because the Company's business
relies on processing date-sensitive telephone call records supplied by third
parties, it is possible that non-compliant third-party computer systems may not
be able to provide accurate data for processing through the Company's computer
systems. The Company's business, financial condition and results of operations
could be materially adversely affected by the Year 2000 problem if it or
unrelated parties fail to successfully address this issue.
24
Management of the Company currently anticipates that the total expenses
and capital expenditures associated with its Year 2000 readiness project,
including costs associated with modifying the Programs and Systems and the cost
of purchasing or leasing certain hardware and software, will be approximately $3
million. As of September 30, 1999, the Company has spent approximately $1.5
million on capital expenditures for related hardware and software and incurred
and expensed approximately $1.0 million in personnel and other costs related to
the Year 2000 readiness process. Any additional personnel or other costs related
to this process will be expensed as incurred. The cost of Year 2000 readiness is
the best estimate of Company management and is believed to be reasonably
accurate.
In the event the Company's plan to address the Year 2000 problem was not
successfully implemented, the Company may need to devote more resources to the
process and additional costs may be incurred, which could have a material
adverse effect on the Company's financial condition and results of operations.
Problems encountered by the Company's vendors, customers and other third parties
also may have a material adverse effect on the Company's financial condition and
results of operations.
In the event the Company determines, following the Year 2000 date change,
that its Programs and Systems are not Year 2000 ready, the Company will be
unable to process date-sensitive telephone call records and thus be unable to
provide most of its revenue-producing services, which will have a material
adverse effect on the Company's financial condition and results of operations.
The Company also will likely experience considerable delays in compiling
information required for financial reporting and performing various
administrative functions. In addition, in the event the Company's Billing
Systems are not Year 2000 ready, the Company will be required to devote more
monetary and other resources to achieving such readiness, which could have a
material adverse effect on the Company's financial condition and results of
operations.
The Company has developed a contingency plan for implementation in the
event its Programs and Systems are not Year 2000 ready prior to December 31,
1999. Such contingency plans are modeled upon the Company's Disaster Recovery
Plan. The Disaster Recovery Plan outlines a strategy for reduced continued
operations following a natural disaster that damages the Company's operations
center in San Antonio, Texas.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness
Disclosure" as defined in The Year 2000 Information and Readiness Disclosure Act
(the "Act"), which was signed into law on October 19, 1998. The Act provides
added protection from liability for certain public and private statements
concerning a company's Year 2000 readiness.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $134.0 million at September 30,
1999, from $121.0 million at September 30, 1998. Large fluctuations in daily
cash balances are normal due to the large amount of customer receivables that
the Company collects on behalf of its LEC billing customers. The Company's
working capital position increased to $73.6 million at September 30, 1999, from
$60.2 million at September 30, 1998, and its current ratio was 1.5:1 and 1.4:1
at September 30, 1999 and 1998, respectively. Net cash provided by operating
activities was $22.1 million, $40.6 million and $30.7 million in 1999, 1998 and
1997, respectively, and primarily reflected net income from 1997 to 1999,
exclusive of special charges.
In December 1996, the Company obtained a $50.0 million revolving line of
credit facility with certain lenders primarily to draw upon to advance funds to
its billing customers prior to collection of the funds from the local telephone
companies. This credit facility terminates on March 20, 2000. Borrowings under
the credit facility are limited to a portion of the Company's eligible
receivables. Management is currently in negotiations with its lenders to renew
the line of credit and expects that the credit facility will be further renewed
with similar or more favorable terms. No amounts were borrowed by the Company
under its credit facility at either September 30, 1999 or 1998. At September 30,
1999, the amount available under the Company's credit facility was $42.0
million.
Under certain of its 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. The Company was in compliance with all required
covenants at September 30, 1999 and 1998.
25
Capital expenditures amounted to approximately $9.5 million in 1999 and
related primarily to the purchase of computer equipment and software. The
Company anticipates capital expenditures before acquisitions, if any, of
approximately $8 million in fiscal 2000 largely related to expenditures for
furniture, fixtures, leasehold improvements, computer software and hardware
upgrades. The Company believes that it will be able to fund expenditures with
internally generated funds and borrowings, but there can be no assurance that
such funds will be available or expended.
Effective June 1, 1997, the Company acquired Computer Resources
Management, Inc. ("CRM"), a company that develops software systems for the
direct billing of telecommunications services. An aggregate of $8.5 million cash
and 650,000 shares of the Company's common stock were issued in connection with
this purchase transaction. All of the shares related to the acquisition have
been included in the weighted average shares outstanding for purposes of the
earnings per share calculations. During the third quarter of 1997, the Company
expensed $13.0 million of in-process research and development costs acquired
from the acquisition. The Company granted certain registration rights to and
entered into an employment agreement with the principal of CRM.
In September 1998, the Company acquired a 22% ownership position in PTC,
which is a privately held company headquartered in Princeton, New Jersey
specializing in comprehensive electronic bill presentment and payment services
via the Internet to financial institutions and large businesses. Through
September 30, 1999, the Company acquired additional shares of PTC common stock,
increasing the Company's ownership position to approximately 24% at September
30, 1999. The Company accounts for its investment in PTC under the equity
method. In November 1999, the Company announced that it recently signed an
agreement to increase its ownership interest in PTC to 27% with an additional
equity investment of $2.6 million. The Company also anticipates additional
equity investments in PTC as PTC positions itself for further growth.
Effective October 1, 1998, the Company acquired Expansion Systems
Corporation ("ESC"), a privately held company headquartered in Glendale,
California that develops and markets billing and registration systems to
Internet Service Providers ("ISPs") under its flagship products TOTALBILL and
INSTANTREG. An aggregate of 170,000 shares of the Company's Common Stock was
issued in connection with this transaction.
In December 1998, the Company completed the merger of Communications
Software Consultants, Inc. ("CommSoft") in consideration of 2,492,759 shares of
the Company's common stock. CommSoft was a privately held, international
software development and consulting firm specializing in the telecommunications
industry. The business combination has been accounted for as a pooling of
interests. The consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of operations
of CommSoft.
In July 1999, the Company acquired a 60% equity interest in an Internet
company located in Austin, Texas that is developing an Internet-based financial
services website focused on the credit union industry and its members. In
November 1999, the Company acquired the remaining 40% of this company through
the related acquisition of FIData, Inc., a company located in San Antonio, Texas
that provides Internet-based automated loan approval products to the financial
services industries. The total consideration for these acquisitions is
approximately $4.0 million in cash, 1,100,000 shares of the Company's common
stock and debt assumption of $0.9 million.
As of the date of this report, the Company has invested $21.7 million, and
committed an additional $2.6 million of capital resources in the Internet arena
and plans to make further significant investments of capital in Internet-related
operations over the foreseeable future. The Company will continue to review
additional strategic Internet acquisition opportunities that will complement or
enhance its existing operations.
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,
will be sufficient to fund capital expenditures, advance funding requirements,
working capital needs and debt repayment requirements for the foreseeable
future.
26
ADVANCE FUNDING PROGRAM AND RECEIVABLE FINANCING FACILITY
Since it generally takes 40 to 90 days to collect receivables from the
local telephone companies, customers can significantly accelerate cash receipts
by utilizing the Company's advance funding program. The Company offers
participation in this program to qualifying customers through its Advance
Payment Agreement. Under the terms of this agreement, the Company purchases the
customer's accounts receivable for an amount equal to the face amount of the
billing records submitted to the local telephone companies by the Company for
billing and collection, less certain deductions. The purchase price is remitted
by the Company to its customers in two payments.
Within five days from receiving a customer's records, an initial payment
is made to the customer based on a percentage of the value of the customer's
call records submitted to the local telephone companies. This percentage is
established by the Advance Payment Agreement and generally ranges between 50%
and 80%. The Company pays the remaining balance of the purchase price upon
collection of funds from the local telephone companies. A portion of the funds
used to make the advance payments may be borrowed under the Company's revolving
line of credit facility. The amount borrowed by the Company under this credit
facility to finance the advance funding program was $0 at September 30, 1999 and
1998.
Service fees charged to customers by the Company are recorded as Advance
Funding Program Income and are computed at a rate above the prime rate on the
amount of advances (initial payments) outstanding to a customer during the
period commencing from the date the initial payment is made until the Company
recoups the full amount of the initial payment from local telephone companies.
The rate charged to the customer by the Company is higher than the interest rate
charged to the Company, in part to cover the administrative expenses incurred in
providing this service. Borrowing costs are computed at a rate below the prime
interest rate and are based on the amount of borrowings outstanding during the
period commencing from the date the funds are borrowed until the loan is repaid
by the Company. Borrowing costs are recorded as Advance Funding Program Expense.
The result of these financing activities is the generation of a net amount of
Advance Funding Program Income that contributes to the net income of the
Company.
As part of the Advance Payment Agreement, the Company contractually
purchases the customer accounts receivable upon which funds are advanced.
Further, the customer may grant a first lien security interest in other customer
accounts and assets and will take other action as may be required to perfect the
Company's first lien security interest in such assets. Under the terms of the
credit facility agreement, the Company is obligated to repay amounts borrowed
whether or not the purchased accounts receivable are actually collected.
SEASONALITY
To some extent, the revenues and call record volumes of most customers
using the LEC billing services of the Company are affected by seasonality. For
example, the Company's direct dial long distance customers use the Company's
services primarily to bill residential accounts, which typically generate a
higher traffic volume around holidays, particularly Thanksgiving, Christmas and
New Year's Day. As a result, direct dial long distance billing revenues for the
Company's first and second fiscal quarters ending December 31 and March 31,
respectively, historically have been higher than other quarters after adjusting
for new business. The seasonal effect caused by the Company's direct dial long
distance customers has been mitigated to some extent, however, as a result of
the Company's business from operator services customers. Typically, the
Company's operator services customers experience decreased call record volumes
in the fall and winter months as pay telephone usage declines due to inclement
weather. Consequently, the Company has historically reported lower operator
services billing revenues in the first and second fiscal quarters. The Company's
software and Internet operations are not significantly affected by seasonality.
EFFECT OF INFLATION
Inflation historically has not been a material factor affecting the
Company's business. Prices charged to the Company by local telephone companies
and third-party vendors for billing, collection and transmission services have
not increased significantly during the past year. General operating expenses
such as salaries, employee benefits and occupancy costs are, however, subject to
normal inflationary pressures.
27
NEW ACCOUNTING STANDARDS
Management of the Company does not anticipate the adoption of any new
accounting standards recently issued by the authoritative bodies will have a
material impact on the Company's financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short-term marketable securities. The Company
does not believe that it has significant exposure to market risks associated
with changing interest rates as of September 30, 1999 because the Company's
intention is to maintain a liquid portfolio to take advantage of investment
opportunities. The Company does not use derivative financial instruments in its
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and the related
report of the Company's independent public accountants thereon are included in
this report at the page indicated.
PAGE
----
Report of Independent Public Accountants................................. 29
Consolidated Balance Sheets at September 30, 1999 and 1998............... 30
Consolidated Statements of Income for the Years Ended September 30,
1999, 1998 and 1997.................................................... 31
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1999, 1998 and 1997...................................... 32
Consolidated Statements of Cash Flows for the Years Ended September 30,
1999, 1998 and 1997.................................................... 33
Notes to Consolidated Financial Statements............................... 34
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Billing Concepts Corp.:
We have audited the accompanying consolidated balance sheets of Billing
Concepts Corp. (a Delaware corporation) and subsidiaries as of September 30,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about 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.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Billing Concepts Corp. and
subsidiaries as of September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
November 17, 1999
29
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
SEPTEMBER 30,
----------------------
1999 1998
--------- ---------
Current assets:
Cash and cash equivalents ....................................................................... $ 134,007 $ 120,972
Accounts receivable, net of allowance for doubtful accounts of $1,662
(1999) and $374 (1998) ........................................................................ 44,053 36,163
Purchased receivables ........................................................................... 31,375 64,477
Prepaids and other .............................................................................. 3,776 4,055
--------- ---------
Total current assets ..................................................................... 213,211 225,667
Property and equipment ............................................................................ 45,969 34,681
Less accumulated depreciation and amortization .................................................. (20,101) (11,235)
--------- ---------
Net property and equipment ............................................................... 25,868 23,446
Equipment held under capital leases, net of accumulated amortization of $963 (1998) ............... 0 441
Other assets, net of accumulated amortization of $4,013 (1999) and $2,796 (1998) .................. 8,470 9,059
Investment in equity affiliate .................................................................... 7,530 8,000
--------- ---------
Total assets ............................................................................. $ 255,079 $ 266,613
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ........................................................................... $ 21,397 $ 19,053
Accounts payable - billing customers ............................................................. 90,089 118,599
Accrued liabilities ............................................................................. 28,172 26,757
Current portion of long-term debt and obligations under capital leases .......................... 0 1,011
--------- ---------
Total current liabilities ................................................................ 139,658 165,420
Long-term debt and obligations under capital leases, less current portion ......................... 0 2,468
Deferred income taxes ............................................................................. 1,971 2,949
Other liabilities ................................................................................. 1,315 1,635
--------- ---------
Total liabilities ........................................................................ 142,944 172,472
Commitments and contingencies (see Notes 4 and 11)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares
issued or outstanding at September 30, 1999 or 1998 ......................................... 0 0
Common stock, $0.01 par value, 75,000,000 shares authorized, 37,378,216 shares
issued and outstanding at September 30, 1999; 36,642,890 shares issued and
outstanding at September 30, 1998 ........................................................... 374 366
Additional paid-in capital ........................................................................ 63,771 60,028
Retained earnings ................................................................................. 48,213 34,141
Deferred compensation ............................................................................. (223) (394)
--------- ---------
Total stockholders' equity ............................................................... 112,135 94,141
--------- ---------
Total liabilities and stockholders' equity ............................................... $ 255,079 $ 266,613
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
30
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Operating revenues .................................................... $ 181,324 $ 176,023 $ 132,237
Cost of revenues ...................................................... 109,519 108,178 82,435
--------- --------- ---------
Gross profit .......................................................... 71,805 67,845 49,802
Selling, general and administrative expenses .......................... 35,311 22,997 15,104
Research and development .............................................. 5,788 3,277 1,661
Advance funding program income ........................................ (3,798) (7,919) (7,255)
Advance funding program expense ....................................... 125 126 688
Depreciation and amortization expense ................................. 9,329 7,098 4,067
Special charges (see Note 6) .......................................... 1,529 2,000 21,252
--------- --------- ---------
Income from operations ................................................ 23,521 40,266 14,285
Other income (expense):
Interest income ..................................................... 5,805 4,460 998
Interest expense .................................................... (16) (269) (537)
Equity in net loss of investee ...................................... (1,809) 0 0
Other, net .......................................................... (100) 241 132
--------- --------- ---------
Total other income, net .......................................... 3,880 4,432 593
--------- --------- ---------
Income before provision for income taxes .............................. 27,401 44,698 14,878
Provision for income taxes ............................................ (11,579) (17,995) (10,640)
--------- --------- ---------
Net income ............................................................ $ 15,822 $ 26,703 $ 4,238
========= ========= =========
Basic:
Net income per common share ........................................... $ 0.43 $ 0.74 $ 0.13
========= ========= =========
Weighted average common shares outstanding ............................ 37,116 35,844 33,525
========= ========= =========
Diluted:
Net income per common share and common share equivalents .............. $ 0.42 $ 0.71 $ 0.12
========= ========= =========
Weighted average common shares and common share equivalents outstanding 37,685 37,488 35,092
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
31
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED DEFERRED
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TOTAL
--------- --------- --------- --------- --------- ---------
Balances at September 30, 1996 ......... 32,585 $ 326 $ 19,628 $ 3,200 $ 0 $ 23,154
Issuance of common stock ............. 686 6 9,831 0 0 9,837
Exercise of stock options and warrants 1,618 16 11,956 0 0 11,972
Issuance of stock options ............ 0 0 1,490 0 (1,490) 0
Compensation expense ................. 0 0 0 0 540 540
Net income ........................... 0 0 0 4,238 0 4,238
--------- --------- --------- --------- --------- ---------
Balances at September 30, 1997 ......... 34,889 348 42,905 7,438 (950) 49,741
Issuance of common stock ............. 47 1 716 0 (170) 547
Exercise of stock options and warrants 1,707 17 16,407 0 0 16,424
Compensation expense ................. 0 0 0 0 726 726
Net income ........................... 0 0 0 26,703 0 26,703
--------- --------- --------- --------- --------- ---------
Balances at September 30, 1998 ......... 36,643 366 60,028 34,141 (394) 94,141
Issuance of common stock ............. 268 3 694 (1,750) 0 (1,053)
Issuance of stock options ........... 0 0 84 0 (84) 0
Exercise of stock options and warrants 467 5 2,965 0 0 2,970
Compensation expense ................. 0 0 0 0 255 255
Net income ........................... 0 0 0 15,822 0 15,822
--------- --------- --------- --------- --------- ---------
Balances at September 30, 1999 ......... 37,378 $ 374 $ 63,771 $ 48,213 $ (223) $ 112,135
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
32
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities:
Net income ....................................................................... $ 15,822 $ 26,703 $ 4,238
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 9,329 7,098 4,067
Deferred compensation ......................................................... 255 726 540
(Gain) loss on disposition of equipment ....................................... 6 (114) 141
Equity in net loss of investee ................................................ 1,809 0 0
Noncash special charges ....................................................... 0 2,000 21,252
Changes in operating assets and liabilities:
Increase in accounts receivable ........................................... (7,810) (8,567) (8,232)
(Increase) decrease in prepaids and other ................................. 284 (532) (1,811)
Increase (decrease) in trade accounts payable ............................. 1,994 (903) 6,923
Increase in accrued liabilities ........................................... 1,355 11,890 3,002
Increase (decrease) in deferred income taxes .............................. (650) 1,140 88
Increase (decrease) in other liabilities .................................. (320) 1,136 499
--------- --------- ---------
Net cash provided by operating activities .......................................... 22,074 40,577 30,707
Cash flows from investing activities:
Purchases of property and equipment .............................................. (9,548) (12,472) (18,073)
Purchase of software development company, net of cash acquired ................... 0 0 (8,403)
Investments in net assets of equity affiliate .................................... (1,339) (10,000) 0
Collections of purchased receivables, net ........................................ 33,102 5,698 745
Collections of proceeds due (payments made) to billing customers, net ............ (28,510) 43,433 15,541
Collections of (payments for) sales taxes due on behalf of billing customers, net (914) 3,692 4,249
Proceeds from sale of equipment .................................................. 0 538 127
Other investing activities ....................................................... (1,005) (1,159) (1,065)
--------- --------- ---------
Net cash provided by (used in) investing activities ................................ (8,214) 29,730 (6,879)
Cash flows from financing activities:
Payments on revolving line of credit for purchased receivables, net .............. 0 0 (19,010)
Proceeds from issuance of long-term debt ......................................... 0 600 4,404
Payments on long-term debt ....................................................... (3,199) (795) (4,278)
Payments on capital leases ....................................................... (280) (451) (2,831)
Proceeds from issuance of common stock ........................................... 2,654 8,485 6,578
--------- --------- ---------
Net cash provided by (used in) financing activities ................................ (825) 7,839 (15,137)
Net increase in cash and cash equivalents .......................................... 13,035 78,146 8,691
Cash and cash equivalents, beginning of year ....................................... 120,972 42,826 34,135
--------- --------- ---------
Cash and cash equivalents, end of year ............................................. $ 134,007 $ 120,972 $ 42,826
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
33
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE 1. BUSINESS ACTIVITY
Billing Concepts Corp. ("BCC"), formerly known as Billing Information
Concepts Corp., was incorporated in the State of Delaware in 1996. BCC was
previously a wholly owned subsidiary of U.S. Long Distance Corp. ("USLD") that,
upon its spin-off from USLD, became an independent, publicly held company. BCC
and its subsidiaries (collectively, the "Company") provide billing clearinghouse
and information management services (Local Exchange Carrier "LEC" billing
services) in the United States to the telecommunications industry. Through its
subsidiary, Aptis, Inc. ("Aptis"), the Company develops, licenses and supports
convergent billing systems for telecommunications and Internet service providers
and provides direct billing outsourcing services. The Company also provides
Internet-based automated loan approval products to the financial services
industries and is developing an Internet-based financial services website
focused on the credit union industry and its members.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
BCC and its wholly and majority owned subsidiaries. The Company's 24% investment
in the capital stock of Princeton eCom Corporation ("PTC") (see Note 5) is
accounted for using the equity method of accounting. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior period amounts have been reclassified for comparative purposes.
ESTIMATES IN THE FINANCIAL STATEMENTS
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.
REVENUE RECOGNITION POLICIES
The Company recognizes revenue from its LEC billing services when records
that are to be billed and collected by the Company are processed. Revenue from
the sale of convergent billing systems, including the licensing of software
rights, is recognized at the time the product is delivered to the customer,
provided that the Company has no significant related obligations or collection
uncertainties remaining. If there are significant obligations related to the
installation or development of the system delivered, revenue is recognized in
the period that the Company fulfills its obligations. Services revenue related
to the Company's software operations is recognized in the period that the
services are provided. The Company recorded bad debt expense of $1,774,000,
$292,000, and $166,000 and recorded bad debt write-offs of $486,000, $56,000,
and $28,000 to its allowance for doubtful accounts for 1999, 1998 and 1997,
respectively.
LEC BILLING SERVICES
The Company provides LEC billing services to telecommunications services
providers through billing agreements with the local telephone carriers, which
maintain the critical database of end-user names and addresses of the billed
parties. Bills are generated by the local telephone carriers and the collected
funds are remitted to the Company, which in turn remits these funds, net of
fees, to its billing customers. The Company records a trade accounts receivable
and operating revenue for fees charged for its billing services. When the
customer's receivables are collected by the Company from the local telephone
carriers, the Company's trade receivables are reduced by the amount
corresponding to the Company's processing fees and the remaining funds are
recorded as an accounts payable to billing customers.
34
SOFTWARE SERVICES
Through its subsidiary, Aptis, the Company develops, licenses and supports
convergent billing systems for telecommunications and Internet service providers
and provides direct billing outsourcing services. In addition to license and
maintenance fees charged by the Company for the use of its billing software
applications, fees are also charged on a time and materials basis for software
customization and professional services. Processing fees for direct billing
services provided through the Company's service bureau are assessed to customers
based on volume. Aptis revenues also include retail sales of computer hardware
and third-party software.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
related assets, which range from three to ten years. Upon disposition, the cost
and related accumulated depreciation and amortization are removed from the
accounts and the resulting gain or loss is reflected in other income (expense)
for that period. Expenditures for maintenance and repairs are charged to expense
as incurred, and major improvements are capitalized.
OTHER ASSETS
Other assets include costs incurred to acquire billing agreements with
local telephone companies for billing and collection services and other
agreements. These costs are being amortized over five to seven years. Other
assets also include financing costs related to the issuance of debt, which have
been deferred and are amortized over the life of the respective financing
agreement, and goodwill and other intangibles related to the acquisition of a
software development company (see Note 5). In addition, long-term deposits have
been included in other assets.
ACCRUED LIABILITIES
Accrued liabilities include sales taxes payable on behalf of billing
customers of $17,952,000 and $18,866,000 at September 30, 1999 and 1998,
respectively.
The Company self-insures its medical coverage for employees and dependents
up to $40,000 per covered individual and an aggregate annual maximum of $1.0
million. The Company accrues for known claims and an estimate of claims incurred
but not reported up to the maximum anticipated cost to the Company. During 1999
and 1998, the Company recognized approximately $1.0 million and $420,000,
respectively, in self-insurance expense. The Company's insurer will pay
cumulative claims above the attachment limit up to $960,000 lifetime per covered
individual. The Company does not believe that claims reported and claims
incurred but not reported will exceed the amounts to be covered by the insurer.
COMMON STOCK DIVIDEND
On January 9, 1998, the Company announced that its Board of Directors
declared a one-for-one common stock dividend. The dividend was distributed on
January 30, 1998 to stockholders of record on January 20, 1998. No additional
proceeds were received on the dividend date and all costs associated with the
share dividend were capitalized as a reduction of additional paid-in capital.
All share and per share information in the accompanying consolidated financial
statements has been adjusted to give retroactive effect to the stock dividend.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's cash and cash equivalents and
all other financial instruments have been determined using appropriate valuation
methodologies and approximate their related carrying values.
35
INCOME TAXES
Deferred tax assets and liabilities are recorded based on enacted income
tax rates that are expected to be in effect in the period in which the deferred
tax asset or liability is expected to be settled or realized. A change in the
tax laws or rates results in adjustments to the deferred tax assets or
liabilities. The effects of such adjustments are required to be included in
income in the period in which the tax laws or rates are changed.
NET INCOME PER COMMON SHARE
Earnings per share for all periods have been restated to reflect the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," which established standards for computing and presenting
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. SFAS No. 128 requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. Basic EPS were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS differs from basic EPS due to the assumed conversions of potentially
dilutive options and warrants that were outstanding during the period. The
effects of potentially dilutive securities are excluded in periods in which a
loss is reported because their inclusion would be antidilutive. The following is
a reconciliation of the numerators and the denominators of the basic and diluted
per share computations for net income:
FOR THE YEAR ENDED SEPTEMBER 30, 1999
------------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------- ---------------- --------
BASIC EPS
Net income available to common stockholders $ 15,822,000 37,116,000 $ 0.43
========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Stock options 569,000
----------------
DILUTED EPS
Net income available to common stockholders
including assumed conversions $ 15,822,000 37,685,000 $ 0.42
================ ================ ========
FOR THE YEAR ENDED SEPTEMBER 30, 1998
------------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------- ---------------- --------
BASIC EPS
Net income available to common stockholders $ 26,703,000 35,844,000 $ 0.74
========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 65,000
Stock options 1,579,000
----------------
DILUTED EPS
Net income available to common stockholders
including assumed conversions $ 26,703,000 37,488,000 $ 0.71
================ ================ ========
36
FOR THE YEAR ENDED SEPTEMBER 30, 1997
------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ---------------- --------
BASIC EPS
Net income available to common stockholders $4,238,000 33,525,000 $ 0.13
========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 190,000
Stock options 1,377,000
-----------------
DILUTED EPS
Net income available to common stockholders
including assumed conversions $4,238,000 35,092,000 $ 0.12
========== ================ ========
Certain options to purchase 5,534,834 shares of common stock at prices
ranging from $5.71 to $29.00 per share were outstanding for a portion of 1999.
Certain options to purchase 2,591,500 shares of common stock at prices ranging
from $13.00 to $29.00 per share were outstanding for a portion of 1998. These
options were not included in the computation of the diluted EPS for 1999 and
1998, respectively, because the options' exercise price was greater than the
average market price of the common shares.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for reporting information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes SFAS No. 14,"
Financial Reporting for Segments of a Business Enterprise." Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. SFAS No. 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application (see Note 14 for related disclosures).
STATEMENTS OF CASH FLOWS
Cash payments and non-cash activities during the periods indicated were as
follows:
YEAR ENDED SEPTEMBER 30,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
Cash payments for interest ....................................... $ 306 $ 370 $ 1,405
Cash payments for income taxes ................................... 11,694 9,587 9,128
Noncash investing and financing activities:
Tax benefit recognized in connection with stock option exercises 1,089 8,484 5,765
Assets acquired in connection with acquisition ................. 0 0 20,512
Liabilities assumed in connection with acquisition ............. 0 0 2,596
Common stock issued in connection with acquisition ............. 0 0 9,466
For purposes of determining cash flows, the Company considers all
temporary cash investments purchased with an original maturity of three months
or less to be cash equivalents.
37
NOTE 3. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations is comprised of the
following:
SEPTEMBER 30,
-------------
1999 1998
----- ------
(IN THOUSANDS)
Fixed interest rate term notes...................... $ 0 $3,479
Less - Current portion.............................. 0 (1,011)
----- ------
Long-term debt, less current portion $ 0 $2,468
===== ======
The Company had various fixed rate term notes with rates ranging from 5.5%
to 8.0% due in varying amounts through August 2003. The loans were repaid in
full during the year ended September 30, 1999.
In December 1996, the Company obtained a $50.0 million revolving line of
credit facility with certain lenders primarily to draw upon to advance funds to
its billing customers prior to collection of the funds from the local telephone
companies. This credit facility was originally scheduled to terminate on
December 20, 1999, but has been extended until March 20, 2000 (see Note 15).
Borrowings under the credit facility are limited to a portion of the Company's
eligible receivables. No amounts were borrowed by the Company under its credit
facility at either September 30, 1999 or 1998. At September 30, 1999, the amount
available under the Company's credit facility was $42.0 million.
Under the most restrictive terms of the Company's 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. The Company was in compliance with all
such covenants at September 30, 1999.
NOTE 4. LEASES AND CHARTERS
The Company leases certain equipment and office space under operating
leases and leases a jet airplane under a charter agreement with a company
associated with an officer/director of the Company (see Note 12). Rental expense
for the years ended September 30, 1999, 1998 and 1997, was $3,918,000,
$2,948,000 and $1,880,000, respectively. Future minimum lease payments under
non-cancelable operating leases and this charter as of September 30, 1999 are as
follows:
(IN THOUSANDS)
--------------
Year Ending September 30,
2000......................................................... $ 4,505
2001......................................................... 4,183
2002......................................................... 4,037
2003......................................................... 3,415
2004......................................................... 3,178
Thereafter................................................... 9,127
-------
Total minimum lease payments............................... $28,445
=======
38
NOTE 5. ACQUISITIONS
Effective June 1, 1997, the Company acquired Computer Resources
Management, Inc. ("CRM"), a company that develops software systems for the
direct billing of telecommunications services. This acquisition has been
accounted for as a purchase. Accordingly, the results of operations for CRM have
been included in the Company's consolidated financial statements, and the shares
related to the acquisition have been included in the weighted average shares
outstanding for purposes of calculating net income per common share since the
date of acquisition. The following unaudited pro forma information gives effect
to the acquisition of CRM as if it had occurred at the beginning of the period
presented. The unaudited pro forma information is based on the historical
information for the period presented and includes adjustments to reflect the
special charge resulting from expensing acquired in-process research and
development costs (see Note 6) and the effect on depreciation and amortization
expense of recording the fair value of assets acquired. The number of weighted
average shares outstanding used in the calculation of the pro forma per share
data gives effect to the shares assumed to be issued had the acquisition
occurred at the beginning of the period presented.
YEAR ENDED SEPTEMBER 30, 1997
-----------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Operating revenues........................ $136,980
Net income................................ $4,734
Net income per common share - basic....... $0.14
Net income per common share - diluted..... $0.13
The pro forma financial information should not be considered indicative of
the operating results that would have occurred had the acquisition actually
taken place at the beginning of the period specified or that the Company will
achieve in the future because, among other things, this information is based on
historical rather than prospective information and includes certain assumptions
which are subject to change. The unaudited pro forma financial information
reflects, in management's opinion, all adjustments necessary to fairly state the
pro forma operating results for the period presented to make the unaudited pro
forma financial information not misleading.
An aggregate of $8.5 million cash and 650,000 shares of the Company's
common stock were issued in connection with this purchase transaction. The
excess of the purchase price over the fair value of net tangible assets acquired
was determined through an independent appraisal and amounted to approximately
$17.5 million, of which approximately $1.2 million was recorded as goodwill and
is being amortized on a straight-line basis over fifteen years. In addition,
$13.0 million was recorded as in-process research and development expenses (see
Note 6). The remaining balance was recorded as the purchase price for a customer
list and other intangibles, which are being amortized on a straight-line basis
over periods ranging from six to twelve years.
In connection with the acquisition of CRM, the Company acquired certain
intangible assets including developed technology, customer relationships and
goodwill. In connection with this allocation, $13.0 million was expensed as a
charge for the purchase of in-process research and development. In performing
this allocation, the Company considered, among other factors, CRM's technology
research and development projects in-process at the date of acquisition. With
regard to the in-process research and development projects, the Company
considered factors such as the stage of development of the technology at the
time of acquisition, the importance of each project to the overall development
plan, alternative future use of the technology and the projected incremental
cash flows from the projects when completed and any associated risks.
39
The purchased in-process research and development focused on next
generation products. The fair value assigned to these projects was $13.0
million. The research and development projects included: (i) java and internet
technologies, (ii) advanced provisioning systems; and (iii) local & convergent
billing systems. Due to its specialized nature, the in-process research and
development projects had no alternative future use, either for re-deployment
elsewhere in the business or in liquidation, in the event the project failed.
The Income Approach was the primary technique utilized in valuing the
purchased research and development. The valuation technique employed in the
appraisal was designed to properly reflect all intellectual property rights in
the intangible assets, including core technology. The value of the developed
technology was derived from direct sales of existing products, including their
contribution to in-process research and development. In this way, value was
properly attributed to the engineering know-how embedded in the existing product
that will be used in developmental products. The appraisal also considered the
fact that the existing know-how diminishes in value over time as new
technologies are developed and changes in market conditions render current
products and methodologies obsolete. The assumptions underlying the cash flow
projections used were derived primarily from investment banking reports,
historical results, company records and discussions with management.
Revenue estimates for each in-process project were developed by management
and based on an assessment of the industry. Cost of goods sold for each project
are expected to be in line with historical results. The Capital Asset Pricing
Model was used to determine the cost of capital (discount rate) for CRM's
in-process projects. Due to the technological and economic risks associated with
the developmental projects, discount rates of 20% to 27.5% were used to discount
cash flows from the in-process products. The Company believes that the foregoing
assumptions used in the forecasts were reasonable at the time of the
acquisition. No assurance can be given, however, that the underlying assumptions
used to estimate sales, development costs or profitability, or the events
associated with such projects, will transpire as estimated. For these reasons,
actual results may vary from projected results. The most significant and
uncertain assumptions relating to the in-process projects relate to the
projected timing of completion and revenues attributable to each project.
In September 1998, the Company acquired 22% of the capital stock of PTC
for $10 million. PTC is a privately held company located in Princeton, New
Jersey specializing in electronic bill publishing over the Internet and advanced
payment solutions. Through September 1999, the Company has acquired additional
shares of PTC stock, increasing the Company's ownership position to
approximately 24% at September 30, 1999. The Company accounts for this
investment under the equity method of accounting.
In connection with the acquisition of the 22% ownership position in PTC,
the Company acquired certain intangible assets, including developed technology,
customer relationships and goodwill. In connection with this allocation, $2.0
million was expensed as a charge for the purchase of in-process research and
development. In performing this allocation, the Company considered, among other
factors, PTC's research and development projects in-process at the date of
acquisition. With regard to the in-process research and development projects,
the Company considered factors such as the stage of development of the
technology at the time of acquisition, the importance of each project to the
overall development plan, alternative future use of the technology and the
projected incremental cash flows from the projects when completed and any
associated risks.
The purchased in-process research and development focused on next
generation Internet-based bill publishing and payment systems and solutions. The
fair value assigned to these projects was approximately $2.0 million. Due to its
specialized nature, the in-process research and development projects had no
alternative future use, either for re-deployment elsewhere in the business or in
liquidation, in the event the project failed.
40
The Income Approach was the primary technique utilized in valuing the
purchased research and development. The valuation technique employed in the
appraisal was designed to properly reflect all intellectual property rights in
the intangible assets, including core technology. The value of the developed
technology was derived from direct sales of existing products, including their
contribution to in-process research and development. In this way, value was
properly attributed to the engineering know-how embedded in the existing product
that will be used in developmental products. The appraisal also considered the
fact that the existing know-how diminishes in value over time as new
technologies are developed and changes in market conditions render current
products and methodologies obsolete. The assumptions underlying the cash flow
projections used were derived primarily from investment banking reports,
historical results, company records and discussions with management.
Revenue estimates for each in-process project were developed by management
and based on an assessment of the industry. Cost of goods sold for each project
are expected to be in line with historical results. The Capital Asset Pricing
Model was used to determine the cost of capital (discount rate) for PTC's
in-process projects. Due to the technological and economic risks associated with
the developmental projects, a discount rate of 20% was used to discount cash
flows from the in-process projects. The Company believes that the foregoing
assumptions used in the forecasts were reasonable at the time of the
acquisition. No assurance can be given, however, that the underlying assumptions
used to estimate sales, development costs or profitability, or the events
associated with such projects, will transpire as estimated. For these reasons,
actual results may vary from projected results. The most significant and
uncertain assumptions relating to the in-process projects relate to the
projected timing of completion and revenues attributable to each project.
In October 1998, the Company acquired Expansion Systems Corporation
("ESC"), a privately held company headquartered in Glendale, California that
develops and markets billing and registration systems to Internet Service
Providers ("ISPs") under its flagship products TOTALBILL and INSTANTREG. An
aggregate of 170,000 shares of the Company's common stock was issued in
connection with this transaction, which has been accounted for as a pooling of
interests combination. The consolidated financial statements for periods prior
to the combination have not been restated to include the accounts and results of
operations of ESC due to the transaction not having a significant impact on the
Company's prior period financial position or results of operations as none of
ESC's assets, liabilities, revenues, expenses or income (loss) exceeded 2% of
the Company's consolidated respective amounts as of or for any of the three
years in the period ended September 30, 1998.
In December 1998, the Company completed the merger of Communications
Software Consultants, Inc. ("CommSoft") in consideration of 2,492,759 shares of
the Company's common stock. CommSoft was a privately held, international
software development and consulting firm specializing in the telecommunications
industry. The business combination has been accounted for as a pooling of
interests. The consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of operations
of CommSoft. The revenues and net income from CommSoft from October 1, 1998 to
the date of the merger were approximately $3.8 million and $0.4 million,
respectively.
In July 1999, the Company acquired a 60% equity interest in an Internet
company located in Austin, Texas that is developing an Internet-based financial
services website focused on the credit union industry and its members. The
accounts of this company have been included in the Company's consolidated
financial statements since the date of acquisition. Subsequent to September 30,
1999, the Company acquired the remaining 40% of this company through a related
acquisition (see Note 15).
NOTE 6. SPECIAL CHARGES
During the third and fourth quarter of fiscal 1999, the Company recognized
special charges in the amount of $1.5 million. These charges relate to
professional services expenses incurred in contemplation of a proposed
separation of the Company's LEC Billing and Software businesses into two
separate public companies. The proposed separation was discontinued in the
fourth quarter of fiscal 1999.
During the fourth quarter of fiscal 1998, the Company recognized special
charges in the amount of $2.0 million. The $2.0 million charge represented the
in-process research and development costs acquired in connection with the
acquisition of 22% of the capital stock of PTC (see Note 5). At the date of
acquisition, the technological feasibility of the acquired technology had not
yet been established, and the technology had no future alternative uses.
41
During the third quarter of fiscal 1997, the Company recognized special
charges in the amount of $21.3 million. The $21.3 million charge included
in-process research and development costs of $13.0 million acquired in
connection with the acquisition of CRM (see Note 5). At the date of acquisition,
the technological feasibility of the acquired technology had not yet been
established, and the technology had no future alternative uses. The remaining
$8.3 million charge represented accumulated costs associated with the
development of a direct billing system for a service bureau operation.
This development was abandoned by the Company.
NOTE 7. SHARE CAPITAL
On July 10, 1996, the Company, upon authorization by its Board of
Directors, adopted a Shareholder Rights Plan ("Rights Plan") and declared a
dividend of one preferred share purchase right on each share of its outstanding
common stock. The rights will become exercisable if a person or group acquires
15% or more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15% or
more of the Company's common stock. These rights, which expire on July 10, 2006,
entitle stockholders to buy one ten-thousandth of a share of a new series of
participating preferred shares at a purchase price of $130 per one
ten-thousandth of a preferred share. The Rights Plan was designed to ensure that
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company.
No cash dividends were paid on the Company's common stock during fiscal
1999, 1998 or 1997.
NOTE 8. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
The Company has adopted the BCC 1996 Employee Comprehensive Stock Plan
("Comprehensive Plan") and the BCC 1996 Non-Employee Director Plan ("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. Employees of the Company also are eligible to receive restricted
stock grants under the Comprehensive Plan. The Company has reserved 14,500,000
and 1,300,000 shares of its common stock for issuance pursuant to the
Comprehensive Plan and Director Plan, respectively. Under each plan, options
vest and expire pursuant to individual award agreements; however, the expiration
date of unexercised options may not exceed ten years from the date of grant
under the Comprehensive Plan and five and seven years for automatic and
discretionary grants, respectively, under the Director Plan.
Option activity for the years ended September 30, 1999, 1998 and 1997 is
summarized as follows:
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------
Outstanding, September 30, 1996 .............. 4,715,759 $ 5.19
Granted .................................... 2,597,934 $ 15.72
Canceled ................................... (180,314) $ 6.99
Exercised .................................. (1,443,192) $ 3.98
----------
Outstanding, September 30, 1997 .............. 5,690,187 $ 10.27
Granted .................................... 2,049,821 $ 10.65
Canceled ................................... (234,051) $ 17.01
Exercised .................................. (1,506,283) $ 4.96
----------
Outstanding, September 30, 1998 .............. 5,999,674 $ 11.46
Granted ................................... 3,069,139 $ 6.18
Canceled .................................. (620,001) $ 15.72
Exercised ................................. (467,643) $ 10.33
----------
Outstanding, September 30, 1999 .............. 7,981,169 $ 9.53
==========
At September 30, 1999, 1998 and 1997, stock options to purchase an
aggregate of 3,273,766, 2,068,374 and 2,050,366 shares were exercisable and had
weighted average exercise prices of $10.89, $10.29 and $5.99 per share,
respectively.
42
Stock options outstanding and exercisable at September 30, 1999, were as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------------ -----------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------------- ----------- ------------ -------------- ----------- --------------
$1.98 - $6.95 2,466,374 6.5 $ 4.44 409,624 $ 4.10
$8.06 - $9.97 2,875,629 4.5 $ 8.40 1,616,638 $ 8.16
$10.19 - $16.84 2,599,166 4.2 $ 15.35 1,215,836 $ 16.53
$17.44 - $29.00 40,000 4.3 $ 26.11 31,668 $ 21.56
------------- -------------
7,981,169 5.0 $ 9.53 3,273,766 $ 10.89
============= =============
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," but has elected to apply Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock option plans as allowed under SFAS
No. 123. Accordingly, the Company has not recognized compensation expense for
stock options granted where the exercise price is equal to the market price of
the underlying stock at the date of the grant. During fiscal 1999, 1998 and
1997, the Company recognized $255,000, $726,000 and $540,000, respectively, of
compensation expense for options granted below the market price of the
underlying stock on such measurement date. In addition, in accordance with the
provisions of APB Opinion No. 25, the Company has not recognized compensation
expense for employee stock purchases under the Billing Concepts Corp. Employee
Stock Purchase Plan ("ESPP").
Had compensation expense for the Company's stock options granted and ESPP
purchases in 1999, 1998 and 1997 been determined based on the fair value at the
grant dates consistent with the methodology of SFAS No. 123, pro forma net
income and net income per common share would have been as follows (in thousands,
except per share amounts):
YEAR ENDED SEPTEMBER 30,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Pro forma net income ................... $ 12,146 $ 23,533 $ 2,699
Pro forma net income per common share:
Basic .......................... $ 0.33 $ 0.66 $ 0.08
Diluted ........................ $ 0.32 $ 0.63 $ 0.08
The fair value for these options was estimated at the respective grant
dates using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1999 1998 1997
----------- ----------- ----------
Expected volatility ............... 66% 25% 24%
Expected dividend yield ........... 0% 0% 0%
Expected life ..................... 2.5 years 2.5 years 2.4 years
Risk-free interest rate ........... 5.35% 5.21% 6.05%
The weighted average fair value and weighted average exercise price,
respectively, of options granted where the exercise price was equal to the
market price of the underlying stock at the grant date were $3.56 and $6.18 for
the year ended September 30, 1999, $2.29 and $10.65 for the year ended September
30, 1998, and $3.55 and $16.21 for the year ended September 30, 1997. The
weighted average fair value and weighted average exercise price of options
granted during the year ended September 30, 1997 where the exercise price was
below the market price of the underlying stock at the grant date were $4.48 and
$13.00, respectively. For purposes of the pro forma disclosures, the estimated
fair value of options is amortized to pro forma compensation expense over the
options' vesting periods.
43
Warrants to purchase 201,252 and 175,354 shares of common stock were
exercised in fiscal 1998 and 1997, respectively. There were no warrants
exercised in fiscal 1999 and no warrants outstanding at September 30, 1999.
NOTE 9. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1999 1998 1997
------------ ----------- ----------
(IN THOUSANDS)
Federal:
Current.................... $ 12,346 $ 15,625 $ 9,696
Deferred................... (1,777) 907 (146)
------------ ----------- ----------
$ 10,569 $ 16,532 $ 9,550
=========== =========== ==========
State:
Current.................... $ 1,010 $ 1,463 $ 1,090
=========== =========== ==========
Total:
Current.................... $ 13,356 $ 17,088 $ 10,786
Deferred................... (1,777) 907 (146)
------------ ----------- ----------
$ 11,579 $ 17,995 $ 10,640
=========== =========== ==========
The provision for income taxes for fiscal 1999, 1998 and 1997 differs from
the amount computed by applying the statutory federal income tax rate of 35% to
income before provision for income taxes. The reasons for these differences were
as follows:
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1999 1998 1997
----------- ---------- ----------
(IN THOUSANDS)
Computed income tax provision at statutory rate....... $ 9,590 $ 15,644 $ 5,207
Increases in taxes resulting from:
Nondeductible research and development expenses..... 0 700 4,536
Nondeductible losses in equity investees............ 819 0 0
State income taxes, net of federal benefit.......... 657 951 709
Other, net.......................................... 513 700 188
----------- ---------- ----------
Provision for income taxes............................ $ 11,579 $ 17,995 $ 10,640
=========== ========== ==========
44
The tax effect of significant temporary differences, which comprise the
deferred tax assets and liabilities, are as follows:
SEPTEMBER 30,
------------------------------
1999 1998
------------ ----------
(IN THOUSANDS)
Deferred tax assets:
Expense provisions......................................... $ 267 $ 123
Deferred tax liabilities:
Acquisition of nondeductible intangibles.................... (1,351) (1,680)
Revenue recognition differences............................. (460) (374)
Bad debt tax write-off provisions........................... 0 (1,018)
Tax depreciation and amortization in excess of book........ (427) 0
------------ ----------
Total deferred tax liabilities................................ (2,238) (3,072)
------------ ----------
Net deferred tax liability....................................$ (1,971) $ (2,949)
============ ==========
NOTE 10. BENEFIT PLANS
Participation in the Billing Concepts Corp. 401(k) Retirement Plan
("Retirement Plan") is offered to eligible employees of the Company. Generally,
all employees of the Company who are 21 years of age or older and who have
completed six months of service during which they worked at least 500 hours were
eligible for participation in the Retirement Plan. The Retirement Plan is a
defined contribution plan which provides that participants generally may make
voluntary salary deferral contributions, on a pretax basis, of between 1% and
15% of their compensation in the form of voluntary payroll deductions up to a
maximum amount as indexed for cost-of-living adjustments. The Company makes
matching contributions as a percentage determined annually of the first 6% of a
participant's compensation contributed as salary deferral. The Company may make
additional discretionary contributions. No discretionary contributions were made
in fiscal 1999, 1998 or 1997. During fiscal 1999, 1998 and 1997, the Company's
matching contributions totaled approximately $635,000, $392,000 and $186,000,
respectively.
The Billing Concepts Corp. Employee Stock Purchase Plan ("ESPP"), which
was established under the requirements of Section 423 of the Internal Revenue
Code of 1986, as amended, is offered to eligible employees of the Company. The
Company has reserved 2,000,000 shares of its common stock for issuance pursuant
to the ESPP. The ESPP enables employees who have completed at least six months
of continuous service with the Company to purchase shares of BCC's common stock
at a 15% discount through voluntary payroll deductions. The purchase price is
the lesser of 85% of the closing price of the common stock on the opening date
of each participation period or 85% of the closing price of the common stock on
the ending date of each participation period. The Company issued 41,326 and
56,360 shares of its common stock in January and July 1999 pursuant to the ESPP
at purchase prices of $8.55 and $6.06, respectively. The Company issued 14,659
and 27,561 shares of its common stock in January and July 1998 pursuant to the
ESPP at purchase prices of $15.99 and $11.32, respectively. The Company issued
19,504 and 15,704 shares of its common stock in February and August 1997
pursuant to the ESPP at purchase prices of $9.03 and $12.43, respectively.
NOTE 11. COMMITMENTS AND CONTINGENCIES
A lawsuit was filed on December 31, 1998, in the United States District
Court in San Antonio, Texas by an alleged stockholder of the Company against the
Company and various of its officers and directors, alleging unspecified damages
as a result of alleged false statements in various press releases prior to
November 19, 1998. In September 1999, the U.S. District Court for the Western
District of Texas entered an order and judgment dismissing the plaintiff's
lawsuit. The plaintiff noticed an appeal of that decision on September 29, 1999.
Although no assurances can be given, the Company believes it has meritorious
defenses to this action and intends to defend itself vigorously.
45
The Company had a $1.0 million default judgment entered against it in
September 1999 as a result of a garnishment action in Wisconsin state court. The
Company was not alleged to have done anything wrong, and its liability is based
solely on a failure by former in-house counsel to timely answer the garnishment
lawsuit. The underlying judgment was against a former customer of the Company.
The class plaintiff's attempt to collect that judgment through moneys held by
the Company on behalf of its former customer gave rise to the garnishment action
against the Company. The Company entered into a Stipulation of Settlement in
this matter which will require a minimum final settlement amount of $0.8
million. During 1999, the Company recorded a charge that it believes is adequate
for the final settlement.
The Company is cooperating with the Federal Trade Commission's ("FTC")
Bureau of Consumer Protection ("BCP") regarding BCP staff requests for industry
and customer specific information from the Company relating primarily to the
alleged cramming of charges for non-regulated telecommunication services by
certain of its customers. Cramming is the addition of charges to a telephone
bill for programs, products or services the consumer did not knowingly
authorize. In connection with the Company's responses to the ongoing
informational requests, the BCP staff has proposed a complaint against the
Company. The BCP staff alleges that it can impose a variety of civil remedies on
the Company, including consumer redress or other equitable relief as well as
restrictions on the way the Company processes charges for enhanced services. The
Company disputes the BCP staff's alleged basis for liability and is reviewing
the BCP staff's allegations to ensure that corrective action has already been
taken. Billing Concepts has and will continue to cooperate and engage the BCP
staff in good faith negotiations. The Company is unable to predict what action,
if any, the FTC will take regarding the BCP staff's proposed complaint or what,
if any, financial impact would result.
The Company is involved in various other 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, litigation
or proceedings to which the Company is a party, including those described above,
will 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 occurs.
The Company is obligated to pay certain local telephone companies a total
of approximately $5.2 million, $3.4 million and $0.9 million during fiscal 2000,
2001 and 2002, respectively, for future minimum usage charges under billing and
collection agreements that, unless automatically renewed, expire at varying
dates through the end of fiscal 2002. The billing and collection agreements do
not provide for any penalties other than payment of the obligation should the
usage levels not be met. The Company has met all such volume commitments in the
past and anticipates exceeding the future minimum usage volumes with all of
these vendors.
NOTE 12. RELATED PARTIES
The Company and USLD shared a common individual on their respective boards
of directors through June 2, 1997. Therefore, USLD was considered a related
party for purposes of financial disclosure through this date. The Company
provided billing and information management services for USLD and purchased
telecommunications services from USLD. Transactions under the agreements for
these services have been reflected in the accompanying consolidated financial
statements at market prices. Related party transactions between the Company and
USLD are summarized as follows:
YEAR ENDED
SEPTEMBER 30,
-------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Sales to USLD ................................... $0 $0 $3,166
Purchases from USLD.............................. 0 0 1,705
From time to time, the Company has made advances to or was owed amounts
from certain officers of the Company. The highest aggregate amount outstanding
of advances to officers during the years ended September 30, 1999 and 1998 was
$250,000. The Company had a $69,000 note receivable bearing interest at 7.0%
from an officer of the Company at September 30, 1999. The Company had a $250,000
note receivable bearing interest at 7.50% from an officer of the Company at
September 30, 1998.
46
The Company charters a jet airplane from a company associated with an
officer/director of the Company. Under the terms of the charter agreement, the
Company is obligated to pay annual minimum fees of $500,000 over the five years
ending March 31, 2003 for such charter services. Such amounts have been included
in the future minimum operating lease and charter payments in Note 4. During the
years ended September 30, 1999 and 1998, the Company paid approximately $727,000
and $278,000, respectively, in fees related to this agreement.
During 1999, the Company entered into an agreement to guarantee the terms
of a lease of PTC (see Note 5) for office space in Princeton, New Jersey. The
terms of the lease require aggregate payments of approximately $11.8 million
through December 2009. The Company does not believe it is probable that the
lease guarantee will be exercised.
NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands, except per share amounts
QUARTER ENDED
-----------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 JUNE 30, 1999 MARCH 31, 1999 DECEMBER 31, 1998
-------------------- -------------------- -------------------- --------------------
Operating revenues ..................... $ 44,185 $ 43,392 $ 45,818 $ 47,929
Income from operations ................. 2,214 2,851 8,577 9,877
Net income ............................. 680 2,287 5,851 7,004
Net income per common share - basic .... $ 0.02 $ 0.06 $ 0.16 $ 0.19
Net income per common share - diluted .. $ 0.02 $ 0.06 $ 0.16 $ 0.19
QUARTER ENDED
-----------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 JUNE 30, 1998 MARCH 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- -------------------- --------------------
Operating revenues ..................... $ 47,457 $ 43,538 $ 44,167 $ 40,861
Income from operations ................. 8,704 9,468 11,369 10,725
Net income ............................. 5,567 6,700 7,431 7,005
Net income per common share - basic .... $ 0.15 $ 0.19 $ 0.21 $ 0.20
Net income per common share - diluted .. $ 0.15 $ 0.18 $ 0.20 $ 0.19
Share data has been restated to give effect to the one-for-one common
stock dividend that was distributed on January 30, 1998 to stockholders of
record on January 20, 1998 (see Note 2).
NOTE 14. BUSINESS SEGMENTS
The Company conducts operations in three principal segments - LEC Billing
("Billing"), Software and Internet.
The Company's LEC Billing segment provides billing clearinghouse and
information management in the United States to the telecommunications industry.
In general, Billing offers four types of LEC billing services under different
billing and collection agreements with the local telephone companies. First, the
Company performs the billing of "1+" long distance telephone calls to individual
residential customers and small commercial accounts. Second, the Company offers
LEC billing services to customers providing operator services largely to the
hospitality, penal and private pay telephone industries. Third, the Company
performs enhanced LEC billing services whereby it bills nonregulated
telecommunications products and services. Finally, in addition to its
full-service LEC billing product, Billing also offers billing management
services to customers who have their own billing and collection agreements with
the local telephone companies.
Through its Aptis Software segment, the Company develops, licenses and
supports convergent billing and customer care systems for telecommunications and
Internet service providers and provides direct billing outsourcing services.
Aptis' convergent billing platform has the capability to produce a single
convergent bill whereby multiple services and products can be billed directly to
the end user under one, unified billing statement. In addition to its software
products, a full range of professional services are also available through the
Company. The services that are offered include consulting,
47
development and systems operations services centered on the Internet and
communications industry and its software products. Aptis also provides ongoing
support, maintenance and training related to customers' billing and customer
care systems. Aptis is also a reseller of IBM AS/400 hardware that is used as
the hardware platform to host certain Aptis software applications.
The Company's Internet segment provides Internet-based automated loan
approval products to the financial services industries. The Company's Internet
operations are also currently developing an Internet-based financial services
website focused on the credit union industry and its members. The Company also
has an approximately 24% equity interest in PTC, a privately held company
specializing in comprehensive electronic bill presentment and payment services
via the Internet to financial institutions and large businesses.
Included in Corporate Overhead are general corporate expenses that have
not been charged to the operating segments as well as unallocated fixed assets.
Information as to the operations of the Company in different business
segments is set forth below based on the nature of the products and services
offered. The Company evaluates performance based on several factors, of which
the primary financial measures are segment revenues and operating income. The
accounting policies of the business segments are the same as those described in
the summary of significant accounting policies (see note 2).
FOR THE YEAR ENDED
SEPTEMBER 30,
-----------------------------
1999 1998 1997
-------- -------- --------
Operating revenues
LEC Billing.............................................. $135,403 $147,542 $120,451
Software................................................. 45,921 28,481 11,786
-------- -------- --------
Total operating revenues.............................. $181,324 $176,023 $132,237
Income (loss) from operations
LEC Billing.............................................. $ 33,824 $ 49,867 $ 42,361
Software................................................. 5,806 4,080 (20,005)
Internet................................................. (532) (2,000) 0
Corporate Overhead....................................... (15,577) (11,681) (8,071)
-------- -------- --------
Total income from operations.......................... $ 23,521 $ 40,266 $ 14,285
Income before provision for income taxes
Income from operations................................... $ 23,521 $ 40,266 $ 14,285
Interest income (expense), net........................... 5,789 4,191 461
Equity in net loss of investee........................... (1,809) 0 0
Other.................................................... (100) 241 132
-------- -------- --------
Income before provision for income taxes.............. $ 27,401 $ 44,698 $ 14,878
Interest income (expense), net
LEC Billing.............................................. $ 5,779 $ 4,361 $ 554
Software................................................. 26 (66) 40
Corporate Overhead....................................... (16) (104) (133)
-------- -------- --------
Total interest income (expense), net.................. $ 5,789 $ 4,191 $ 461
Depreciation and amortization
LEC Billing.............................................. $ 5,170 $ 3,999 $ 2,292
Software................................................. 2,168 1,380 494
Corporate Overhead....................................... 1,991 1,719 1,281
-------- -------- --------
Total depreciation and amortization................... $ 9,329 $ 7,098 $ 4,067
Total assets
LEC Billing.............................................. $204,462 $226,941 $146,896
Software................................................. 30,511 18,228 12,657
Internet................................................. 7,791 8,000 0
Corporate Overhead ...................................... 12,315 13,444 11,734
-------- -------- --------
Total assets.............................................. $255,079 $266,613 $171,287
48
NOTE 15. SUBSEQUENT EVENTS (UNAUDITED)
In November 1999, the Company completed the acquisition of FIData, Inc., a
company located in San Antonio, Texas that provides Internet-based automated
loan approval products to the financial services industries. In conjunction with
the FIData transaction, the Company also completed the acquisition of the
remaining 40% of an Internet company located in Austin, Texas that is developing
an Internet-based financial services website focused on the credit union
industry and its members (see Note 5). The total consideration for these
acquisitions is approximately $4.0 million in cash, 1,100,000 shares of the
Company's common stock and debt assumption of $0.9 million.
During the first quarter of fiscal 2000, the Company signed an agreement
to increase its ownership in PTC to 27% with an additional $2.6 million equity
investment (see Note 5).
In November 1999, the Company signed an agreement to lease approximately
75,000 square feet of office space in Austin, Texas that will eventually serve
as the headquarters for the Company's Software operations. This lease expires in
2010 and has certain renewal options. Under the terms of the lease agreement,
the Company is obligated to pay an aggregate minimum rent of $13.5 million over
the original term of the lease.
In December 1999, the Company's current credit facility that was
originally scheduled to terminate on December 20, 1999 was extended until March
20, 2000 (see Note 3). Management is currently in negotiations with its lenders
to renew the line of credit and expects that the credit facility will be further
renewed with similar or more favorable terms.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The information required by this item is not applicable.
49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is incorporated herein by reference
from the information under the captions "Election of Directors" (Item 1 on
proxy), "Board of Directors and Executive Officers," and "Section 16(a)
Beneficial Ownership Reporting Compliance" of the Company's definitive proxy
statement to be filed pursuant to Regulation 14A with the Securities and
Exchange Commission relating to its Annual Meeting of Stockholders to be held on
March 22, 2000 (the "Definitive Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
from the information under the caption "Compensation of Directors" and from the
information under the caption "Executive Compensation" of the Company's
Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
from the information under the caption "Ownership of Common Stock" of the
Company's Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
from the information under the caption "Related Transactions" of the Company's
Definitive Proxy Statement.
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF REPORT
1. Financial Statements:
The Consolidated Financial Statements of the Company and the related
report of the Company's independent public accountants thereon have been
filed under Item 8 hereof.
2. Financial Statement Schedules:
The information required by this item is not applicable.
3. Exhibits:
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation by
reference to a previously filed document, such document is identified in
parentheses. See the Index of Exhibits included with the exhibits filed as a
part of this report.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
2.1 - Plan of Merger and Acquisition Agreement among the Company, CRM
Acquisition Corp., Computer Resources Management, Inc., and Michael
A. Harrelson dated effective June 1, 1997 (incorporated by reference
from Exhibit 2.1 to June 30, 1997, Form 10-Q)
2.2 - Stock Purchase Agreement between Princeton TeleCom Corporation and
Billing Concepts Corp. dated September 4, 1998 (incorporated by
reference from Exhibit 2.2 to September 30, 1998, Form 10-K)
3.1 - Amended and Restated Certificate of Incorporation of BCC
(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), as amended by Certificate of Amendment to Certificate of
Incorporation, amending Article I to change the name of the Company
to Billing Concepts Corp. and amending Article IV to increase the
number of authorized shares of common stock from 60,000,000 to
75,000,000, filed with the Delaware Secretary of State on February
27, 1998 (incorporated by reference from Exhibit 3.4 to March 31,
1998, Form 10-Q)
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 - Amended and Restated Bylaws of BCC (incorporated by reference from
Exhibit 3.3 to September 30, 1998, Form 10-K)
4.1 - Form of Stock Certificate of Common Stock (incorporated by reference
from Exhibit 4.1 to March 31, 1998, Form 10-Q)
8.1 - Tax Opinion of Arter & Hadden (incorporated by reference from
Exhibit 8.1 to the Post Effective Amendment No. 2 to the Company's
Registration Statement on Form 10/A dated August 1, 1996)
10.1 - Distribution Agreement between USLD and BCC (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 between USLD and BCC (incorporated by
reference from Exhibit 10.2 to the Amendment No. 1 to the Company's
Registration Statement on Form 10/A dated July 11, 1996)
51
10.3 - Benefit Plans and Employment Matters Allocation Agreement between
USLD and BCC (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 between USLD and BCC
(incorporated by reference from Exhibit 10.4 to the Amendment No. 1
to the Company's Registration Statement on Form 10/A dated July 11,
1996)
10.5 - Zero Plus - Zero Minus Billing and Information Management Services
Agreement between USLD and BCC (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 22, 1996)
10.6 - Expense Sharing Agreement between USLD and BCC (incorporated by
reference from Exhibit 10.6 to the Amendment No. 1 to the Company's
Registration Statement on Form 10/A dated July 11, 1996)
10.7 - Telecommunications Agreement between USLD and BCC (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 22,
1996)
10.8 - BCC's 1996 Employee Comprehensive Stock Plan, amended as of August
31, 1999 (filed herewith)
10.9 - Form of Option Agreement between Billing Concepts Corp. and its
employees under the 1996 Employee Comprehensive Stock Plan
(incorporated by reference from Exhibit 10.9 to September 30, 1998,
Form 10-K)
10.10 - Amended and Restated 1996 Non-Employee Director Plan of BCC, amended
as of August 31, 1999 (filed herewith)
10.11 - Form of Option Agreement between Billing Concepts Corp. and
non-employee directors (incorporated by reference from Exhibit 10.11
to September 30, 1998, Form 10-K)
10.12 - BCC's 1996 Employee Stock Purchase Plan, amended as of January 30,
1998 (incorporated by reference from Exhibit 10.12 to September 30,
1998, Form 10-K)
10.13 - BCC's 401(k) Retirement Plan (incorporated by reference from Exhibit
4.5 to BCC's Registration Statement on Form S-8, File No. 333-08303,
filed on July 17, 1996)
10.14 - BCC's Executive Compensation Deferral Plan (incorporated by
reference from Exhibit 10.12 to the Post Effective Amendment No. 2
to the Company's Registration Statement on Form 10/A dated August 1,
1996)
10.15 - BCC's Director Compensation Deferral Plan (incorporated by reference
from Exhibit 10.13 to the Post Effective Amendment No. 2 to the
Company's Registration Statement on Form 10/A dated August 1, 1996)
10.16 - BCC's Executive Qualified Disability Plan (incorporated by reference
from Exhibit 10.14 to the Amendment No. 1 to the Company's
Registration Statement on Form 10/A dated July 11, 1996)
10.17 - Amended and Restated Employment Agreement dated October 1, 1997
between Billing Concepts Corp. and Parris H. Holmes, Jr.
(incorporated by reference from Exhibit 10.17 to September 30, 1998,
Form 10-K)
10.19 - Employment Agreement dated January 15, 1998 between Billing Concepts
Corp. and Kelly E. Simmons (incorporated by reference from Exhibit
10.19 to September 30, 1998, Form 10-K)
10.20 - Employment Agreement effective January 15, 1998, between the Company
and Audie Long (incorporated by reference from March 31, 1998, Form
10-Q)
10.21 - Employment Agreement dated January 1, 1998, between the Company and
Paul L. Gehri (incorporated by reference from March 31, 1998, Form
10-Q)
10.23 - Employment Agreement dated October 1, 1997, between the Company and
Michael Hancock (incorporated by reference from Exhibit 10.34 to
March 31, 1998, Form 10-Q)
10.24 - Office Building Lease Agreement dated July 12, 1996 between Medical
Plaza Partners, Ltd. and Billing Concepts, Inc. (incorporated by
reference from Exhibit 10.21 to the Post Effective Amendment No. 1
to the Company's Registration Statement on Form 10/A dated July 22,
1996), as amended by First Amendment to Lease Agreement dated
September 30, 1996 (incorporated by reference from Exhibit 10.31 to
March 31, 1998, Form 10-Q),
52
Second Amendment to Lease Agreement dated November 8, 1996
(incorporated by reference from Exhibit 10.32 to March 31, 1998,
Form 10-Q), and Third Amendment to Lease Agreement dated January 24,
1997 (incorporated by reference from Exhibit 10.33 to March 31,
1998, Form 10-Q)
10.25 - Credit Agreement dated December 20, 1996, among Billing Concepts,
Inc., The Frost National Bank and The Boatmen's National Bank of St.
Louis (incorporated by reference from Exhibit 10.1 to December 31,
1996, Form 10-Q), as amended by First Amendment to Credit Agreement
dated March 1, 1997 (incorporated by reference from Exhibit 10.25 to
September 30, 1998, Form 10-K), and Second Amendment to Credit
Agreement dated September 29, 1998 (incorporated by reference from
Exhibit 10.25 to September 30, 1998, Form 10-K), and Third Amendment
to Credit Agreement dated April 30, 1999 (filed herewith)
10.26 - Parent Guaranty dated December 20, 1996, between Billing Concepts
Corp. and The Frost National Bank (incorporated by reference from
Exhibit 10.3 to December 31, 1996, Form 10-Q)
10.27 - Affiliate Guaranty dated December 20, 1996, between Enhanced
Services Billing, Inc. and The Frost National Bank (incorporated by
reference from Exhibit 10.4 to December 31, 1996, Form 10-Q)
10.28 - Promissory Note dated December 20, 1996, between Billing Concepts,
Inc. and The Boatmen's National Bank of St. Louis (incorporated by
reference from Exhibit 10.5 to December 31, 1996, Form 10-Q)
10.29 - Promissory Note dated December 20, 1996, between Billing Concepts,
Inc. and The Frost National Bank (incorporated by reference from
Exhibit 10.6 to December 31, 1996, Form 10-Q)
10.30 - Stock Pledge Agreement dated December 20, 1996, between Billing
Concepts Corp. and The Frost National Bank (incorporated by
reference from Exhibit 10.7 to December 31, 1996, Form 10-Q), as
amended by First Amendment to Stock Pledge Agreement dated June 1,
1997 (filed herewith) and Second Amendment to Stock Pledge Agreement
dated December 1, 1998 (filed herewith)
10.31 - Security Agreement dated December 20, 1996, between Billing
Concepts, Inc. and The Frost National Bank (incorporated by
reference from Exhibit 10.8 to December 31, 1996, Form 10-Q)
10.32 - Put Option Agreement between the Company and Michael A. Harrelson
dated effective June 1, 1997 (incorporated by reference from Exhibit
10.1 to June 30, 1997, Form 10-Q)
10.33 - Office Building Lease Agreement dated November 11, 1999 between
Prentiss Properties Acquisition Partners, L.P. and Aptis, Inc.
(filed herewith)
21.1 - Amended List of Subsidiaries (filed herewith)
23.1 - Consent of Arthur Andersen LLP (filed herewith)
27.1 - Financial Data Schedule (filed herewith)
(b) REPORTS ON FORM 8-K
None.
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 CONCEPTS CORP.
By: /s/ PARRIS H. HOLMES, JR.
Parris H. Holmes, Jr.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Date: December 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on the 15th day of December,
1999.
SIGNATURE TITLE
/S/ PARRIS H. HOLMES, JR. Chairman of the Board and Chief Executive
Parris H. Holmes, Jr. Officer (Principal Executive Officer)
/S/ DAVID P. TUSA Senior Vice President and Chief Financial Officer
David P. Tusa (Principal Financial Officer)
/S/ LEE COOKE
Lee Cooke Director
/S/ JAMES E. SOWELL
James E. Sowell Director
/S/ THOMAS G. LOEFFLER
Thomas G. Loeffler Director
/S/ LARRY A.DAVIS
Larry A. Davis Director
54