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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, 1996
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 INFORMATION CONCEPTS CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2781950
(State of Incorporation) (I.R.S. Employer
Identification No.)
9311 SAN PEDRO, SUITE 400, SAN ANTONIO, TEXAS 78216
(Address of Principal Executive Office) (Zip Code)
(210) 321-6900
(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 16, 1996 was
approximately $444,338,672. There were 15,111,511 shares of the Registrant's
Common Stock outstanding as of December 16, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders to be held on February 20, 1997, are incorporated by
reference in Part III hereof.
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BILLING INFORMATION CONCEPTS CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
ITEM PAGE
NUMBER NUMBER
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- Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 10
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters . . . . . . . . . 11
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 14
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 21
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . 38
PART III
10. Directors and Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . 39
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 39
13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 39
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . 40
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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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.
GENERAL
Billing Information Concepts Corp. (the "Company" or "Billing") is a
third-party billing clearinghouse and information management services provider
to the telecommunications industry. Billing's customers include direct dial
long distance telephone companies, operator services providers, information
providers, telecommunications equipment suppliers and other telecommunication
services providers. The Company maintains contractual billing arrangements with
over 1,200 local telephone companies which 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.
Billing's direct dial long distance customers use the Company as a
billing clearinghouse for processing and collecting call records generated by
their end-users. 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.
The Company processes telephone call records for customers providing
operator services largely to the hospitality, penal, and private pay telephone
industries. In addition, 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.
Billing 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 $7,886,000,
$3,800,000 and $1,365,000 during fiscal 1997, 1998 and 1999, respectively, for
minimum usage charges under billing and collection agreements, that, unless
automatically renewed, expire at varying dates through the end of fiscal 1999.
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
minimum usage volumes with all of these vendors.
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In 1994, Billing began providing enhanced billing services for
processing transactions related to providers of premium services or products
that can be billed through the local telephone companies, such as charges for
900 access pay-per-call transactions, cellular long distance services, paging
services, voice mail services, caller ID and other telecommunications equipment
charges.
In addition to its billing clearinghouse services, Billing also offers
billing management services to customers who have their own billing
arrangements with the local telephone companies. These management services may
include data processing, accounting, end-user customer service,
telecommunication tax processing and reporting.
INDUSTRY BACKGROUND
Billing clearinghouse and information management services 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, 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 ("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."
Today, Billing provides billing and information management services to
approximately 338 customers in the telecommunications industry.
The operator services industry began to develop in 1986 with the advent
of technology 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 who, 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, Billing 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
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 Regional Bell
Operating Companies, 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
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other operator services businesses who did not have any proprietary agreements
with the local telephone companies. In 1992, Billing entered into a new set of
billing and collection agreements with the local telephone companies and began
offering billing clearinghouse and information management services as a third-
party clearinghouse to direct dial long distance services providers. The
Company has billing and collection agreements covering over 1,200 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. Since the separation, the
Billing Group and the Telecommunications Group have 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 nonregulated services and products such as 900 access pay-per-call
transactions, cellular long distance services, paging services, voice mail
services, caller ID and other telecommunications equipment. The Company entered
into additional billing and collection agreements with the local telephone
companies to process these types of transactions. Management believes that
billing for such nonregulated products and services represents a significant
expansion opportunity for the Company.
BILLING CLEARINGHOUSE AND INFORMATION MANAGEMENT SERVICES
In general, the Company performs four types of billing clearinghouse and
information management 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. Second, the Company offers zero plus - zero minus billing and
information management services to 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 billing clearinghouse and information management services.
Third, the Company performs enhanced billing clearinghouse and information
management services whereby it bills a wide array of charges that can be
applied to a local telephone company telephone bill, including charges for 900
pay-per-call transactions, cellular services, paging services, voice mail
services, caller ID and other telecommunications equipment. Finally, under its
billing management function, the Company provides any of the three services
discussed above utilizing the customer's own billing and collection agreements.
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BILLING PROCESS
Local telephone company billing relates 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, sets-up an
account receivable for each batch of call records that it processes and
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. 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. Typically, 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
customer receivables but does accrue for end-user customer service refunds and
certain adjustments charged to the Company by the local telephone companies
related to certain customers who are no longer serviced by the Company. The
Company reviews the activity of its customer base to detect potential losses.
If there is uncertainty 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 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 1,600 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."
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OPERATIONS
The Company's billing clearinghouse and information management 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 billing clearinghouse and information management services is largely
administrative and the number of employees is not directly volume sensitive.
Most of the services offered by Billing are automated and electronic by nature
and require a minimal amount of human intervention. Many of Billing's customers
submit their records to the Company using electronic transmission protocols
directly into the Company's electronic bulletin board. 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 relating to billable records
and returns any unbillable records to its customers electronically through the
bulletin board.
The Company operates two independent computer systems to ensure
continual, uninterrupted processing of billing and information management
services. One system is dedicated to daily processing activities and the other
serves as both a back-up to the primary system and for storage of 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 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 billing and
information management 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 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 less than ten
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 billing and information management services 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 that 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 it 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.
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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.
Other customers include suppliers of various forms of telecommunications
equipment, pager and cellular telephone companies.
COMPETITION
The Company operates in a highly competitive segment of the
telecommunications industry. Unlike Billing, all the other third-party
clearinghouses are either privately held or are part of a larger parent
company. Management believes that Billing is the largest participant in the
third-party clearinghouse industry in the United States followed by OAN
Services, Inc., a subsidiary of Electronic Data Systems, Inc. This competitor
and its parent have greater name recognition than the Company and have, or have
access to, substantially greater financial and personnel resources than those
available to the Company. Competition among the clearinghouses is based on 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 local telephone company billing and
information management services 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. As a large third-party clearinghouse, Billing enjoys
some of the most favorable rates available in the industry and passes the
benefits of its buying power on to its customers.
Since most customers in the billing clearinghouse industry are under
contract with Billing or one of its competitors, management believes that the
existing market is already committed for up to three 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.
BUSINESS STRATEGY
As the markets for the Company's services continue to develop and its
target market continues to demand increasingly sophisticated billing
clearinghouse and information management services, the Company believes there
exist significant opportunities to continue the expansion of its business base
as new and existing customers seek to outsource these services to the Company.
The Company's business strategy contains the following key elements:
MAINTAIN LEADERSHIP POSITION. Billing believes it has developed a leadership
position in providing billing clearinghouse and information management services
to its customers. These services include managing relations with the local
telephone companies, developing automated reporting and cash management tools,
providing cost efficient customer service operations and offering cash flow
alternatives through its advanced payment program. While each of these
functions was
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developed separately over time, the combination of these service offerings has
positioned the Company as a total solution for the management of a customer's
billing and information management function. Billing's services are currently
utilized by approximately 338 customers, and management believes that Billing
will maintain and expand its leadership position.
EXPAND CUSTOMER BASE. Management believes that the Company's reputation for
high quality services will make it an important resource for providers of
services and products, such as 900 pay-per-call transactions, cellular
services, paging services, voice mail services, Internet services, personal
communication services ("PCS"), caller ID and other telecommunications
equipment. Like the Company's existing customers, these services providers are
likely candidates not only for the core services of billing clearinghouse and
information management, but also for the full package of services that includes
customer service and advanced payment for receivables. Management believes that
the high growth potential of these services providers may present significant
potential opportunities for the Company.
PROVIDE NEW AND ENHANCED SERVICES. The Company believes that certain new or
enhanced services it currently contemplates developing and offering to the
marketplace present significant opportunities. These include the following:
Enhance System to Include Invoice Ready Platform. The Company plans to
enhance its systems and billing and collection agreements with the local
telephone companies to include an "invoice ready" billing option for its
customers. An invoice ready billing platform will enable the Company to offer a
customized bill page for inclusion in the local telephone company bill. The
Company will be able to put each customer's logo, end-user customer service
number, and a brief marketing message on this bill page. Currently, companies
such as AT&T, MCI and Sprint bill in this manner through the local telephone
companies. Due to the substantial cost associated with the implementation of an
invoice ready platform, it is not economical for many of the Company's
customers to develop this capability in-house. Therefore, the Company intends
to invest in system enhancements and new billing and collection agreements that
will allow it to offer invoice ready billing to its customers.
Develop Direct Billing Capability. Management believes that there is
substantial demand by its customers and potential customers for a direct
billing product that would allow them to bill end-users directly for the
services they provide. Since these customers typically do not have or desire to
maintain the operational infrastructure or the billing platform necessary to
produce bills and send them directly to end-users, these customers typically
outsource this activity to third-party clearinghouses. The Company has targeted
as likely candidates for such a direct billing product the following types of
customers: long distance providers serving commercial accounts, cellular
services providers, PCS providers, competitive local access providers, cable
television companies and utilities. The Company's new billing platform will
have the capability to produce a "Universal Bill" whereby multiple services and
products can be billed directly to the end-user under one, unified billing
statement. The Company plans to begin marketing this service in 1997.
Pursue New Telecommunications Act Opportunities. Management believes that the
recently enacted Telecommunications Act will create new opportunities for
third-party clearinghouses. The Telecommunications Act requires that the
Regional Bell Operating Companies use separate subsidiaries to provide services
not related to their existing regulated local services. The Company is
presently negotiating with several Regional Bell Operating Companies to provide
both in-territory and out-of-territory billing for their long distance
services. The competition among the local telephone companies created by the
Telecommunications Act may encourage these companies to use a third-party
clearinghouse such as the Company. The Telecommunications Act may provide an
opportunity for the Company to compete for certain telephone call records
originated on pay telephones owned by the local telephone companies that
terminate out of their territories. Management believes the Company is the most
efficient processor of these types of telephone call records and can succeed in
penetrating this potential market as it develops.
EMPLOYEES
At September 30, 1996, Billing had 289 full-time employees, including 9
executive officers, 10 sales and marketing personnel, 37 technical and
operations personnel, 85 accounting, administrative and support personnel, and
148 customer service representatives and related support personnel. At
September 30, 1996, Billing also employed 239 part-time customer service
representatives and support personnel. None of Billing's employees are
represented by a union. Billing believes that its employee relations are good.
9
10
ITEM 2. PROPERTIES
At September 30, 1996, Billing occupied approximately 20,000 square feet
of space for its corporate offices at 9311 San Pedro, Suite 400, San Antonio,
Texas, substantially all of which is being sub-leased from USLD pursuant to a
lease agreement that expires in March 1997. At September 30, 1996, Billing also
occupied an additional 50,000 square feet for a customer service facility
located at 10500 Highway 281, San Antonio, Texas under a lease that expires in
March 1998. Billing has also entered into a lease for an aggregate of
approximately 130,000 square feet at 7411 John Smith Drive, San Antonio, Texas.
Billing is taking occupancy of this space, which will serve as both a customer
service facility and the corporate headquarters for the Company, in three
different phases through March 1998. The lease expires in November 2006 and has
certain expansion options, renewal options and rights of first refusal. Billing
believes that its current facilities are, and its future facilities will be,
adequate to meet its current and future needs.
ITEM 3. LEGAL PROCEEDINGS
On December 18, 1996, the Securities and Exchange Commission (the
"Commission") filed a civil injunctive action in the United States District
Court for the District of Columbia alleging that Mr. Holmes failed to file
timely twelve reports regarding certain 1991 and 1992 transactions in the stock
of USLD as required by Section 16(a) of the Securities Exchange Act of 1934, as
amended. Section 16(a) requires officers and directors of such companies to file
reports with the Commission regarding their personal transactions in the
securities of their company. Mr. Holmes settled this action on December 18,
1996, without admitting or denying the allegations of the complaint, by
consenting to the entry of an injunction with respect to these requirements and
paying a civil penalty of $50,000. The Commission Staff also has notified Mr.
Holmes of its decision to terminate its investigation of trading in the
securities of USLD and the securities of Value-Added Communications, Inc. (In
the Matter of Trading in the Securities of Value-Added Communications, Inc.
(HO-2765)).
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party would have a material adverse effect on the Company's
financial position or results of operations; however, due to the inherent
uncertainty of litigation, there can be no assurance that the resolution of any
particular claim or proceeding would not have a material adverse effect on the
Company's results of operations for the fiscal period in which such resolution
occurred.
ITEM 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.
10
11
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Subsequent to its spin-off from U.S. Long Distance Corp. effective
August 2, 1996, the Company began trading as an independent public company. 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 August 5,
1996, through December 16, 1996, 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, 1996:
4th quarter (beginning August 5, 1996) $22 3/4 $16
Fiscal Year Ending September 30, 1997:
1st quarter (through December 16, 1996) $32 1/8 $22 3/4
STOCKHOLDERS
At December 16, 1996, there were 15,111,511 shares of Common Stock
outstanding, held by 541 holders of record. The last reported sales price of
the Common Stock on December 16, 1996, was $29 7/8 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.
11
12
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, 1993, 1994, 1995 and 1996 and the balance sheet data at
September 30, 1994, 1995 and 1996 presented below are derived from the audited
Consolidated Financial Statements of the Company. The income statement data for
the year ended September 30, 1992, the balance sheet data at September 30, 1992
and 1993, the pro forma per share data and the operating data presented below
are unaudited. The data presented below for the fiscal years ended September 30,
1994, 1995 and 1996 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,
-------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED INCOME STATEMENT DATA:
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . $33,162 $46,451 $57,746 $80,847 $103,884
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 12,891 16,458 20,158 29,510 37,016
Advance funding program income . . . . . . . . . . . . . . . . . 2,435 3,299 3,467 4,582 6,564
Advance funding program expense . . . . . . . . . . . . . . . . . 1,794 2,581 1,858 1,351 1,367
Income from operations . . . . . . . . . . . . . . . . . . . . . 7,572 10,416 13,392 22,253 28,641
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,807 6,441 8,565 14,118 17,852
Pro forma per share data (Unaudited):(1)
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . $0.50 $0.53 $0.61 $0.97 $1.16
Weighted average common shares outstanding . . . . . . . . . . . 11,509 12,117 14,069 14,587 15,385
SEPTEMBER 30,
-------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . $2,808 $3,704 $11,132 $17,300 $13,530
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 63,604 74,660 89,710 106,895 137,782
Long-term obligations, less current portion . . . . . . . . . . . 269 434 853 2,216 5,036
U.S. Long Distance Corp.'s investment in and
advances to Billing 4,484 5,032 13,001 21,122 0
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 0 0 0 0 19,790
Retained earnings (2) . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 2,690
SEPTEMBER 30,
-------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT BILLING SERVICES CUSTOMERS)
OPERATING DATA:
EBITDA (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,169 $11,293 $14,346 $23,469 $30,768
Billing call records processed per month (4)(5) . . . . . . . . . 10,800 16,900 25,900 40,400 50,100
Billing services customers (6) . . . . . . . . . . . . . . . . . 115 143 168 272 338
12
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(1) The unaudited per share data is presented on a pro forma basis as
Billing Information Concepts Corp. had no publicly held common shares
outstanding prior to its spin-off from U.S. Long Distance Corp. 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) The Company has never declared cash dividends on its Common Stock, nor
does it anticipate doing so in the foreseeable future.
(3) 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 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.
(4) Calculated based upon a monthly average over the fiscal quarter ended on
the date indicated.
(5) Does not include call records that the Company processed for billing
management customers that have their own billing and collecting
agreements with the local telephone companies. Revenue per record for
billing management customers is significantly less than revenue per
record for Billing's other customers.
(6) At end of the period.
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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.
OVERVIEW
On July 10, 1996, USLD's Board of Directors approved the spin-off of
USLD's commercial billing clearinghouse and information management services
business ("Billing Group Business") as a separate public company (the
"Distribution"). To effect the Distribution, USLD distributed to its
stockholders on August 2, 1996 all of the outstanding shares of common stock of
the Company which, prior to the Distribution, was a wholly-owned subsidiary of
USLD. Upon the completion of the Distribution, Billing became an independent,
publicly held company that owns and operates the Billing Group Business (see
Note 2 to the Consolidated Financial Statements).
RESULTS OF OPERATIONS
The following table presents certain items in the Company's Consolidated
Statements of Income as a percentage of total revenues:
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1995 1996
---- ---- ----
Operating revenues . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of services . . . . . . . . . . . . . 65.1 63.5 64.4
----- ----- -----
Gross profit . . . . . . . . . . . . . . . 34.9 36.5 35.6
Selling, general and administrative . . . 12.9 11.5 11.0
Advance funding program income . . . . . . (6.0) (5.7) (6.3)
Advance funding program expense . . . . . 3.2 1.7 1.3
Depreciation and amortization . . . . . . 1.7 1.5 2.0
----- ----- -----
Operating income . . . . . . . . . . . . . 23.2 27.5 27.6
Other income (expense), net . . . . . . . .4 .7 .1
----- ----- -----
Income before income taxes . . . . . . . . 23.6 28.2 27.7
Income tax expense . . . . . . . . . . . . (8.7) (10.7) (10.5)
----- ----- -----
Net income . . . . . . . . . . . . . . . . 14.8% 17.5% 17.2%
===== ===== =====
Operating Revenues
The Company's revenues are derived from the provision of billing
clearinghouse and information management services to direct dial long distance
carriers and operator services providers. Beginning in 1995, revenues also have
been derived from enhanced services billing provided to companies that offer
900 services, as well as the billing for non-regulated telecommunications
equipment and services. Fees charged by the Company 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 the Company
to local telephone companies for billing and collection. Customer service
inquiry fees are assessed to customers either as a fee charged for each record
processed by the Company or as a fee charged for each billing inquiry made by
end-users. Revenues include processing and customer service fees, as well as
any charges assessed to the Company by local telephone companies for billing
and collection services which are passed through to the customer.
14
15
Billing services revenues in 1994 totaled $57.7 million compared to
$80.8 million for 1995 and $103.9 million for 1996 representing increases of
40% and 28%, respectively. During the five-year period ended September 30,
1996, the Company's revenues grew at a compounded annual rate of approximately
45%.
The revenue increases are primarily attributable to an increase in the
number of telephone call records processed and billed. Call record volume
increases in all periods were primarily the result of new business from new
direct dial long distance carriers, as well as expanded business from existing
direct dial long distance customers. The revenue increase in 1996 from the
prior year is also due to the growth of enhanced billing services revenues.
Revenues derived from operator services customers decreased from the prior year
in both 1995 and 1996. This lack of operator services revenues growth is
attributable to several factors, including an increased awareness on the part
of the consumer of the ability of the telephone user to select a carrier of
choice by dialing access codes of carriers other than the carrier contracted by
the telephone owner, resulting in a lower number of billable telephone calls
generated by the Company's customers.
Telephone call record volumes (exclusive of records processed for billing
management customers ) were as follows:
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1995 1996
---- ---- ----
(IN MILLIONS)
Direct dial long distance services . . 103.3 252.0 402.8
Operator services . . . . . . . . . . 142.9 138.0 131.8
Enhanced billing services . . . . . . 0.0 4.4 8.6
Revenue per record for billing management customers, who have their own billing
and collection agreements with the local telephone companies, is significantly
less than revenue per record for the Company's other customers, and thus, the
volume of records processed for billing management customers is not presented
in the table above.
Cost of Services
Cost of services includes billing and collection fees charged to the
Company by local telephone companies and related transmission costs, as well as
all costs associated with the 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. The Company achieves discounted billing costs due to its aggregated
volumes and can pass these discounted costs on to its customers.
Gross profit margin of 34.9% reported for 1994 compares to 36.5%
achieved in 1995 and 35.6% achieved in 1996. The improvement from 1994 to 1995
is due primarily to the significant growth of the Company's higher gross margin
business from direct dial long distance and enhanced services billing
customers. The decrease in gross profit margin from 1995 to 1996 is
attributable to higher customer service costs that were partially offset by
lower billing and collection fees as a percentage of revenues. The higher
customer service costs were due to increased 800 services usage and staffing
expenses incurred by the Company in order to support the rapid growth in the
volume of customer inquiries resulting from the significant growth in the
number of records processed. The lower billing and collection fees as a
percentage of revenues were the result of growth of the Company's higher gross
margin business.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses are comprised of
all selling, marketing and administrative costs incurred in direct support of
the business operations of the Company. Additionally, a portion of the expense
of certain USLD corporate functions, such as treasury, financial reporting,
investor relations, legal, payroll and management information systems has been
allocated to the Company and is reflected in its historical financial results.
SG&A expenses as a percentage of revenues may be higher or lower in the future
as actual costs incurred differ from costs historically allocated to the
Company.
15
16
SG&A expenses for 1994 were $7.4 million, representing 12.9% of
revenues, compared to $9.3 million in 1995, or 11.5% of revenues, and $11.4
million in 1996, or 11.0% of revenues. SG&A expenses as a percentage of
revenues for 1995 and 1996 decreased from the comparable prior year primarily
as a result of efficiencies associated with significant revenue growth, as
certain SG&A expenses, such as office administration and accounting, do not
always change proportionately with revenue.
Advance Funding Program Income and Expense
Advance funding program income was $3.5 million in 1994 compared with
$4.6 million in 1995 and $6.6 million in 1996. The year-to-year increases were
primarily the result of financing a higher level of customer receivables under
the Company's advance funding program (see "Advance Funding Program and
Receivable Financing Facility" below). The quarterly average balance of
purchased receivables was $44.2 million, $51.1 million and $60.9 million in
1994, 1995 and 1996, respectively.
Advance funding program expense was $1.9 million in 1994 compared with
$1.4 million in both 1995 and 1996. In addition to declining from 1994 to 1995,
advance funding program expense in 1995 and 1996 declined relative to advance
funding program income reported in the respective years. These decreases were
primarily attributable to the Company financing a higher level of customer
receivables with internally generated funds rather than with funds borrowed
through the Company's revolving credit facility. During the periods when the
Company operated as a subsidiary within the USLD consolidated group, the cash
management function was centralized and all the available cash among the
consolidated entities was utilized to pay down the revolving credit facility to
reduce the expense of this facility as much as possible. As a result of the
Distribution, the Company no longer has access to funds generated by USLD's
subsidiaries or to the funds that were transferred to USLD under the terms of
the Distribution. In addition, the Company anticipates making certain capital
expenditures over the next two years (see "Liquidity and Capital Resources").
Consequently, advance funding program expense may increase in subsequent
periods as a result of lower cash balances.
Depreciation and Amortization
Depreciation and amortization expenses are incurred with respect to
certain assets, including computer hardware and software, office equipment,
furniture, leasehold improvements, and costs incurred in securing contracts
with local telephone companies and agreements with financing institutions.
Asset lives range between three and ten years.
Depreciation and amortization expense was $1.0 million in 1994 compared
with $1.2 million in 1995 and $2.1 million in 1996. Depreciation and
amortization expense as a percentage of revenues was 1.7%, 1.5% and 2.0% in
1994, 1995, and 1996, respectively. The decrease in depreciation and
amortization expense as a percentage of revenues from 1994 to 1995 is primarily
attributable to efficiencies associated with the Company's revenue growth. The
increase in the percentage of revenues from 1995 to 1996 is primarily
attributable to the purchase of office furniture, computer equipment and
software to support the growth of the Company.
Income from Operations
Income from operations was $13.4 million, $22.3 million and $28.6
million in 1994, 1995 and 1996, respectively. As a percentage of revenues,
income from operations represented 23.2%, 27.5% and 27.6% in 1994, 1995, and
1996, respectively. The increase in income from operations as a percentage of
revenues from 1994 to 1995 is attributable to an improved gross profit margin,
lower SG&A expenses as a percentage of revenues and higher net advance funding
income. Income from operations as a percentage of revenues improved from 1995
to 1996 due to higher net advance funding income and lower SG&A expenses as a
percentage of revenues, but this improvement was partially offset by a lower
gross profit margin and higher depreciation expenses as a percentage of
revenues.
16
17
Other Income (Expense)
Net other income of $211,000 in 1994 compares to net other income of
$526,000 in 1995 and net other income of $152,000 in 1996. The year-to-year
improvement from 1994 to 1995 was primarily attributable to increased interest
income from short-term investments. The decrease from 1995 to 1996 was
primarily due to a loss of $376,000 recognized on the disposition of assets
that were determined to be obsolete, including certain assets that were
transferred to the Company from USLD as a result of the Distribution.
Income Taxes
The Company's effective tax rate was 37.0% in 1994 and 38.0% in both
1995 and 1996. The Company's effective tax rate is higher than the federal
statutory rate due to the addition of state income taxes and certain deductions
taken for financial reporting purposes that are not deductible for federal
income tax purposes. The increase in the effective tax rate from 1994 to 1995
is due to an increase in the federal statutory tax rate.
Net Income
The Company reported net income of $8.6 million in 1994 compared to net
income of $14.1 million in 1995 and $17.9 million in 1996. Net income in 1995
and 1996 represented increases of 65% and 26% over 1994 and 1995, respectively.
EFFECTS OF SPIN-OFF OF BILLING GROUP BUSINESS
The audited Consolidated Statements of Income included in this report
reflect the operations of the Company for the years ended September 30, 1994,
1995 and 1996. Included below is supplemental unaudited consolidated pro forma
financial information that management believes is important to provide an
understanding of the results of operations of the Company on a stand-alone
basis. Pro Forma Condensed Consolidated Statements of Income are presented
below on a quarterly and annual basis for 1996. These Pro Forma Condensed
Consolidated Statements of Income are based on the historical statements of the
periods presented adjusted to reflect the items discussed in the accompanying
notes to the pro forma financial statements. The Pro Forma Condensed
Consolidated Statements of Income give effect to the Distribution as if it had
occurred at the beginning of 1996. 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 Distribution occurred at the
beginning of each period presented.
The unaudited consolidated pro forma financial information is presented
for informational purposes only and should be read in conjunction with the
accompanying notes to the pro forma financial statements and with the Company's
historical financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" set forth herein
and in the Post Effective Amendment No. 2 to the Company's Registration
Statement on Form 10/A dated August 1, 1996. The pro forma financial statements
should not be considered indicative of the operating results which the Company
will achieve in the future because, among other things, these statements are
based on historical rather than prospective information and include certain
assumptions which are subject to change.
The unaudited Pro Forma Condensed Consolidated Statements of Income
reflect, in management's opinion, all adjustments necessary to fairly state the
pro forma results of operations for the periods presented to make the unaudited
pro forma statements not misleading.
17
18
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
------------------------------------------- YEAR ENDED
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, SEPT. 30,
1995 1996 1996 1996 1996
---- ---- ---- ---- ----
Operating revenues . . . . . . . . . . . . . . $23,354 $26,947 $25,729 $27,854 $103,884
Cost of services . . . . . . . . . . . . . . . 15,306 16,839 16,640 18,083 66,868
------- ------- ------- ------- --------
Gross profit . . . . . . . . . . . . . . . . 8,048 10,108 9,089 9,771 37,016
Selling, general and administrative . . . . . . 2,392 2,964 3,239 2,850 11,445
Advance funding program income . . . . . . . . (1,324) (1,644) (1,805) (1,791) (6,564)
Advance funding program expense (A) . . . . . . 696 738 640 686 2,760
Depreciation and amortization . . . . . . . . . 439 501 567 620 2,127
------- ------- ------- ------- --------
Income from operations . . . . . . . . . . . . 5,845 7,549 6,448 7,406 27,248
Other income (expense), net . . . . . . . . . . 104 132 96 (180) 152
------- ------- ------- ------- --------
Income before provision for income taxes . . . 5,949 7,681 6,544 7,226 27,400
Income tax expense (B) . . . . . . . . . . . . (2,260) (2,919) (2,486) (2,746) (10,411)
------- ------- ------- ------- --------
Net income . . . . . . . . . . . . . . . . . . $3,689 $4,762 $4,058 $4,480 $16,989
======= ======= ======= ======= ========
Net income per weighted average common share . $ 0.25 $ 0.31 $ 0.26 $ 0.28 $ 1.10
Weighted average common shares outstanding . . 14,853 15,189 15,715 15,783 15,385
Notes to unaudited pro forma condensed consolidated statements of income:
(A) Reflects an adjustment to increase interest expense for the assumed
borrowings for the cash transfer made to USLD of $11,713,000 in
accordance with the terms of the Distribution Agreement and cash
payments for direct costs incurred in connection with the Distribution
of approximately $9,200,000. Interest expense was calculated at a rate
of 8.0% per annum for 1996.
(B) Reflects related income tax effect of the interest expense adjustment in
note (A).
18
19
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased from $26.8 million at September 30,
1995 to $34.1 million at September 30, 1996. The Company's working capital
position decreased from $17.3 million at September 30, 1995 to $13.5 million at
September 30, 1996 and its current ratio was 1.2:1 and 1.1:1 at September 30,
1995 and 1996, respectively. These decreases were primarily attributable to the
cash transfer made to USLD by Billing in connection with the Distribution (see
"Effects of Spin-off of Billing Group Business" above). Net cash provided by
operating activities was $7.9 million, $14.3 million and $26.0 million in 1994,
1995 and 1996, respectively, and reflected the increases in net income from
1994 to 1996.
The Company has a $45 million revolving line of credit facility with a
company to draw upon to advance funds to its billing customers prior to
collection of the funds from the local telephone companies (see "Advance
Funding Program and Receivable Financing Facility" below). This credit facility
terminates on December 31, 1996. The Company is currently in discussions with
potential lenders regarding a new line of credit facility and believes that it
will be able to obtain more favorable terms than those of the existing credit
facility. Management believes that the capacity under both the existing
revolving credit facility and the new revolving credit facility expected to be
obtained will be sufficient to fund advances to its billing customers for the
foreseeable future. The amount borrowed by the Company under its credit
facility to finance the advance funding program was $23.0 million and $19.0
million at September 30, 1995 and 1996, respectively. At September 30, 1996,
the amount available under the Company's receivable financing facility was
$26.0 million.
Capital expenditures amounted to approximately $9.1 million in 1996 and
related primarily to the purchase of computer equipment and software. During
1996, the Company financed approximately $4.4 million of equipment through term
debt and capital lease agreements with two separate lenders. To facilitate and
support the growth anticipated in its business, the Company plans to invest a
total of approximately $20 million to $25 million in capital expenditures over
the next 12 to 18 months, including approximately $18 million to develop and
create information systems that will enable it to offer "direct billing" and
"invoice ready" services to its customers. These expenditures, if made, will be
focused in the areas of software development, computer hardware, and local
telephone company agreements. Recently, the Company has entered into a non-
exclusive, perpetual software license and related services agreements with
Saville Systems US, Inc. ("Saville") for the provision of certain of these
items. The Company's agreements with Saville include fees for licensing,
implementation and customization of the software, annual software maintenance
and assistance in utilizing the software products. In relation to this
development effort, the Company is currently discussing additional local
telephone company agreements with the local telephone companies for the
implementation of "invoice ready" billing services. The Company believes that
it will be able to fund expenditures for the new billing services with
internally generated funds and borrowings, but there can be no assurance that
such funds will be available or will be invested in these projects. As of
September 30, 1996, the Company had expended approximately $4.4 million in
support of these projects.
Historically, the Company has obtained financing for equipment
expenditures through term debt agreements and capital lease agreements that
were guaranteed and cross-collateralized by USLD and its other subsidiaries.
These debt agreements were negotiated based on the strength of the consolidated
financial statements, earnings and cash flow of the USLD consolidated group.
Most of these debt agreements were secured by the assets of all the
subsidiaries within the consolidated group. The Company has received from
certain lenders loan agreement amendments or separate loan agreements whereby
the subject indebtedness is secured by only the Company's or USLD's assets, as
the case may be. In other cases, the existing cross guarantees and security
arrangements between the Company and USLD will remain in place for the duration
of the facility. In this regard, USLD and the Company have agreed to pay each
other a credit support fee.
In addition to the revolving line of credit facility described above,
the Company is obligated as a guarantor of USLD's equipment financing
agreements with certain lenders. The aggregate unpaid principal amount of
indebtedness under such agreements at September 30, 1996 was approximately
$10.6 million, due in varying amounts through October 2000. The Company is also
obligated under its own equipment financing agreements. Under certain of the
credit agreements, the Company is prohibited from paying dividends on its
common stock, is required to comply with certain financial covenants and is
subject to certain limitations on the issuance of additional secured debt.
Cross-default provisions of the Company's credit facility and other equipment
loans may place the Company in default of such facility and loans in the event
that USLD defaults under the equipment finance agreements that the Company has
guaranteed. The Company was in compliance with all required covenants at
September 30, 1995 and 1996.
19
20
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 Advanced
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 Advanced 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 are 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 $23.0 million and $19.0
million at September 30, 1995 and 1996, respectively. The outstanding balance
of the line of credit represented approximately 42% and 27% of purchased
receivables at September 30, 1995 and 1996, respectively.
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
above 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 Advanced 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 telephone call record volumes of most
customers 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 of this seasonal variation, direct dial long distance
telephone call record volumes processed by the Company during the Company's
first and second fiscal quarters ending December 31 and March 31, respectively,
(which includes the Thanksgiving, Christmas and New Year's Eve holidays),
historically have been the highest level of any quarter of the year after
adjusting for new business. Consequently, revenues reported by the Company that
are derived from direct dial long distance telephone call records are similarly
affected. The seasonal effect caused by the Company's direct dial long distance
customers has been lessened, however, as a result of the Company's business
from operator services customers. Typically, the Company's operator services
customers experience decreases in operator services revenues and telephone call
record volumes in the fall and winter months as pay telephone usage declines
due to cold and inclement weather in many parts of the United States.
Conversely, due to increased traffic from pay telephones during the spring and
summer months, the Company has historically processed its highest volumes of
operator services telephone call records and reported its highest operator
services-related revenues in the third and fourth quarters of the fiscal year.
The billing revenues derived from operator services customers have mitigated
the seasonal effects of the revenues derived from the Company's direct dial
long distance customers.
20
21
EFFECT OF INFLATION
Inflation is not 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.
NEW ACCOUNTING STANDARDS
Management of the Company does not anticipate the adoption of any new
standards recently issued by the Financial Accounting Standards Board will have
a material impact on the Company's financial position or results of 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 . . . . . . . . . . . . . . . . 22
Consolidated Balance Sheets at September 30, 1995 and 1996 . . . . . . . 23
Consolidated Statements of Income for the Years Ended September 30,
1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1994, 1995 and 1996. . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows for the Years Ended September
30, 1994, 1995 and 1996. . . . . . . . . . . . . . . . . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 27
21
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Billing Information Concepts Corp.:
We have audited the accompanying consolidated balance sheets of Billing
Information Concepts Corp. (a Delaware corporation) and subsidiaries as of
September 30, 1995 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1996. 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 Information
Concepts Corp. and subsidiaries as of September 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996, in conformity with generally accepted
accounting principles.
As explained in Note 2 to the Consolidated Financial Statements,
effective October 1, 1993, the Company changed its method of accounting for
income taxes.
Arthur Andersen LLP
San Antonio, Texas
November 14, 1996
22
23
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30,
-------------
1995 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,770 $ 34,135
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,113 17,707
Purchased receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,228 70,920
Prepaids and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624 883
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,735 123,645
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,563 10,139
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . (2,334) (759)
-------- --------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,229 9,380
Equipment held under capital leases, net of accumulated amortization of $305 (1995)
and $482 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,556 3,519
Other assets, net of accumulated amortization of $2,105 (1995) and $2,454 (1996) . . . . . . . . . 1,375 1,238
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $106,895 $137,782
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,604 $ 12,743
Billing customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,756 50,974
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,362 25,889
Revolving line of credit for purchased receivables . . . . . . . . . . . . . . . . . . . . . . . . 23,030 19,010
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 603
Current portion of obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . 398 896
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,435 110,115
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,048 2,370
Obligations under capital leases, less current portion . . . . . . . . . . . . . . . . . . . . . . 1,168 2,666
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 0
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,672 115,151
Commitments and contingencies (See Note 9)
Stockholders' equity:
Preferred stock, $10.00 par value, 10,000 shares authorized, 10,000 shares issued and
outstanding in 1995; $0.01 par value, 10,000,000 shares authorized, no shares issued or
outstanding in 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 0
Common stock, no par value, 102,000 shares authorized, 102,000 shares issued and outstanding
in 1995; $0.01 par value, 60,000,000 shares authorized, 15,045,709 shares issued and
outstanding in 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 151
U.S. Long Distance Corp.'s investment in and advances to Billing (See Note 2) . . . . . . . . . . 21,122 0
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 19,790
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 2,690
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,223 22,631
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . $106,895 $137,782
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
23
24
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------
1994 1995 1996
---- ---- ----
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . $57,746 $80,847 $103,884
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . 37,588 51,337 66,868
------- ------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,158 29,510 37,016
Selling, general and administrative expenses . . . . . . . . . . . 7,421 9,272 11,445
Advance funding program income . . . . . . . . . . . . . . . . . . (3,467) (4,582) (6,564)
Advance funding program expense . . . . . . . . . . . . . . . . . . 1,858 1,351 1,367
Depreciation and amortization expense . . . . . . . . . . . . . . . 954 1,216 2,127
------- ------- --------
Income from operations . . . . . . . . . . . . . . . . . . . . . . 13,392 22,253 28,641
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . 346 883 938
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . (103) (188) (287)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32) (169) (499)
------- ------- --------
Total other income (expense) . . . . . . . . . . . . . . . 211 526 152
------- ------- --------
Income before provision for income taxes . . . . . . . . . . . . . 13,603 22,779 28,793
Provision for income taxes . . . . . . . . . . . . . . . . . . . . (5,038) (8,661) (10,941)
------- ------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,565 $14,118 $17,852
======= ======= ========
Pro forma net income per common share (Unaudited) (See Note 2) . . $ 0.61 $ 0.97 $ 1.16
The accompanying notes are an integral part of these consolidated financial
statements.
24
25
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
(IN THOUSANDS)
PREFERRED STOCK COMMON STOCK U.S. LONG DISTANCE ADDITIONAL
--------------- ------------ CORP.'S INVESTMENT IN PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT AND ADVANCES TO BILLING CAPITAL EARNINGS
------ ------ ------ ------ ----------------------- ------- --------
Balances at September 30, 1993 . . . 10 $100 102 $ 1 $ 4,931 $ 0 $ 0
Transfers to affiliates . . . . . . 0 0 0 0 (495) 0 0
Net income . . . . . . . . . . . . . 0 0 0 0 8,565 0 0
--- ---- ------ ---- -------- ------- ------
Balances at September 30, 1994 . . . 10 100 102 1 13,001 0 0
Transfers to affiliates . . . . . . 0 0 0 0 (5,997) 0 0
Net income . . . . . . . . . . . . . 0 0 0 0 14,118 0 0
--- ---- ------ ---- -------- ------- ------
Balances at September 30, 1995 . . . 10 100 102 1 21,122 0 0
Transfers (to) from affiliates . . 0 0 (102) (1) 2,850 (15,448) 0
Redemption of preferred stock . . . (10) (100) 0 0 (3,900) 0 0
Issuance of common stock in
connection with Distribution
(See Note 2) . . . . . . . . . . 0 0 15,032 151 (35,234) 35,083 0
Exercise of stock options . . . . . 0 0 14 0 0 96 0
Tax benefit from exercise of stock
options . . . . . . . . . . . . . 0 0 0 0 0 59 0
Net income . . . . . . . . . . . . . 0 0 0 0 15,162 0 2,690
--- ---- ------ ---- -------- ------- ------
Balances at September 30, 1996 . . . 0 $ 0 15,046 $151 $ 0 $19,790 $2,690
=== ====== ====== ==== ======== ======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
25
26
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,565 $14,118 $17,852
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 954 1,216 2,127
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 18 10
Loss on disposition of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 376
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . . . . . . . . . . . . . . . . . . . (4,437) (5,445) 406
(Increase) decrease in prepaids and other . . . . . . . . . . . . . . . . . . . . . 129 (550) (259)
Increase in trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 2,321 4,856 139
Increase in accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 253 81 5,403
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . 56 (35) (21)
------- ------- -------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . 7,865 14,259 26,033
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . (684) (1,922) (6,679)
Payments for purchased receivables, net . . . . . . . . . . . . . . . . . . . . . . . (6,078) (1,881) (15,692)
Collections of proceeds due (payments made) to billing customers, net . . . . . . . . 13,046 (2,239) 16,218
Collections of sales taxes due on behalf of billing customers, net . . . . . . . . . . 1,710 6,818 8,294
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (573) (792) (207)
------- ------- -------
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . 7,421 (16) 1,934
Cash flows from financing activities:
Payments on revolving line of credit for purchased receivables, net . . . . . . . . . (10,826) (2,205) (4,020)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . 365 917 1,937
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) (148) (688)
Payments on capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (227) (230) (436)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . 0 0 96
Transfers to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,007) (6,549) (17,491)
------- ------- -------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . (11,739) (8,215) (20,602)
------- ------- -------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . 3,547 6,028 7,365
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . 17,195 20,742 26,770
------- ------- -------
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . $20,742 $26,770 $34,135
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
26
27
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994, 1995 AND 1996
NOTE 1. BUSINESS ACTIVITY
Billing Information Concepts Corp. ("Billing") was incorporated in the
State of Delaware in 1996. Billing 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. Billing and its subsidiaries (collectively,
the "Company") provide billing clearinghouse and information management services
in the United States to the telecommunications industry. In addition to
processing call records, the Company provides a wide range of other services
including customer service, data processing, tax filings, accounting services
and an advance funding program.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Billing and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Basis of Presentation
On August 2, 1996, USLD distributed all of the outstanding common stock
of Billing, pro rata to the stockholders of USLD (the "Distribution") with the
result being that Billing became an independent, publicly held company that
owns and operates all of the assets of, and will be responsible for all of the
liabilities associated with, the billing clearinghouse and information
management services business previously owned by USLD. The accompanying
financial statements include the operations of Billing which, until the date of
Distribution, were combined with and reported as part of the consolidated
financial statements of USLD. The assets and liabilities of Billing are
reflected at the historical book values that were included in the USLD
consolidated financial statements until the date of Distribution. Immediately
prior to the Distribution, Billing canceled all of USLD's intercompany payable
owed to Billing. In recognition of this, the balance of the intercompany
receivable from USLD has been combined with and included in the balance sheet
caption entitled "U.S. Long Distance Corp.'s investment in and advances to
Billing." All stockholder equity account balances, except for the par value of
Billing common stock, have also been reported as "U.S. Long Distance Corp.'s
investment in and advances to Billing."
Certain assets and liabilities and selling, general and administrative
expenses of USLD were historically accounted for on a consolidated basis with
no allocation to individual subsidiaries. The historical statements of Billing
have been adjusted to include all of the assets, liabilities and expenses that
appropriately and fairly could have been allocated to Billing except for the
following items:
(a) Cash - Cash was historically managed by a centralized cash
management department for the benefit of USLD and Billing. Consequently, cash
was not allocated among USLD's subsidiaries, but was recorded on the balance
sheet of Billing. There is no reasonable means by which to allocate cash to the
historical financial statements of USLD's subsidiaries.
(b) Income taxes - USLD's federal income taxes have historically been
determined on a consolidated basis. For purposes of preparing the Billing
historical consolidated financial statements, income taxes have been determined
on a separate company basis. Deferred taxes have been recorded on Billing's
consolidated financial statements, as appropriate. Accrued income taxes payable
through the date of the Distribution are reflected in the balance sheet caption
"U.S. Long Distance Corp.'s investment in and advances to Billing" as such
amounts would have been payable to USLD. Tax liabilities are reflected in a
manner consistent with the Tax Sharing Agreement between USLD and Billing.
27
28
For purposes of preparing Billing's consolidated financial statements,
certain amounts that were previously classified as operating revenue, costs of
service, selling, general and administrative expenses, and other income
(expense) have been reclassified. Certain intercompany transactions that had
been eliminated in consolidation are properly reflected in the historical
consolidated financial statements of Billing at amounts that are believed by
management to reflect an arm's-length relationship. 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 billing services upon processing
records that are to be billed and collected by the Company.
Billing Services
The Company provides billing services to operator services providers and
direct dial long distance companies through billing agreements with the local
telephone companies, which maintain the critical database of end-user names and
addresses of the billed parties. Bills are generated by the local telephone
companies 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 companies, 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.
The Company offers participation in an advance funding program to
qualifying customers through its Advanced 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:
o all local telephone company charges, rejects, unbillables and bad
debt deductions;
o all credits and adjustments granted to end-users;
o all of the Company's processing fees and sales taxes, if
appropriate;
o all financing service charges assessed by the Company; and
o any and all losses, costs or expenses incurred by the Company in
processing or collecting the customer accounts from all
previously billed records.
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 face amount of the
customer's call records submitted by the Company to the local telephone
companies. The Company pays the remaining balance of the purchase price to the
customer upon collection of funds from the local telephone companies. The
purchase date is the date the initial payment is made. In connection with its
purchase of billing records, the Company may draw on its revolving credit
facility.
28
29
Any accounts receivable purchased by the Company are recorded as
purchased receivables in an amount equal to the face amount of the billing
records submitted to the local telephone companies by the Company for billing
and collection. Concurrently, an equal amount is recorded as accounts payable
to billing customers. The amount of the initial payment made to the customer
reduces accounts payable to billing customers. The balance, reported as
accounts payable to billing customers ($34,756,000 and $50,974,000 at September
30, 1995 and 1996, respectively), consists of:
o an amount equal to the face value of all purchased receivables,
reduced for any amounts paid as initial payments under Advanced
Payment Agreements,
o an amount equal to collections from local telephone companies
that have not yet been remitted to customers, and
o an amount reserved for the estimated liability associated with
future end-user refunds and local telephone company adjustments
related to customers who are no longer serviced by the Company.
The purchased receivables balance is relieved at the time the customer
receivables are collected from the local telephone companies. Any differences
between the amount initially recorded as a purchased receivable and the amount
ultimately collected from the local telephone companies, resulting from the
fees and deductions detailed above, are recorded as a reduction of both the
purchased receivable and accounts payable to billing customers in an equal
amount. The funds are remitted to the customer after the Company deducts
financing service charges earned under the Advanced Payment Agreement.
Financing service charges are assessed to customers and are computed at
a rate above the prime interest rate based on the amounts funded to customers.
Financing service charges are recorded as advance funding program income during
the period from the date of initial payment until the Company recoups the full
amount of the initial payment from receipts from local telephone companies. No
other revenues or income are recorded in connection with the Advanced Payment
Agreement.
The following receivables purchased and financed by the Company were
outstanding at:
SEPTEMBER 30,
-------------
1995 1996
---- ----
(IN THOUSANDS)
Purchased receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,228 $70,920
Borrowings under revolving credit facility for purchased receivables . . . . . . . . 23,030 19,010
The Company has virtually no collection risk related to its purchased
accounts receivable and thus does not record an allowance for doubtful accounts
related to such receivables. While the Company does not have the legal right of
recourse against its billing customers with respect to purchased receivables,
the Company does have the right of offset against all funds held for the
account of such customers and may hold a first lien security interest in such
billing customers' accounts, generally including those not acquired by the
Company. The Company does, however, have some risk with regard to adjustments
charged to it by the local telephone companies related to customers who are no
longer serviced by the Company to the extent that these adjustments exceed
funds withheld from such customers. Therefore, the Company has recorded an
accrual for the estimated liability associated with such charges.
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.
29
30
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 each respective financing
agreement. 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 $11,282,000 and $19,576,000 at September 30, 1995 and 1996,
respectively.
Fair Value of Financial Instruments
The fair values of the Company's cash and cash equivalents and all other
financial instruments have been determined using appropriate valuation
methodologies and approximate the related carrying values.
Income Taxes
In February 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," which the Company adopted effective October 1,
1993. Under SFAS No. 109, deferred tax liabilities and assets are recorded
based on enacted income tax rates that are expected to be in effect in the
period in which the deferred tax liability or asset is expected to be settled
or realized. A change in the tax laws or rates results in adjustments to the
deferred tax liabilities or assets. The effects of such adjustments are
required to be included in income in the period in which the tax laws or rates
are changed. The adoption of SFAS No. 109 did not have a material impact on the
Company's financial position or results of operations. Prior to October 1,
1993, the Company accounted for income taxes in accordance with the provisions
of Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes."
Billing and USLD entered into a Tax Sharing Agreement that defines the
parties' respective rights and obligations with respect to deficiencies and
refunds of federal, state and other income or franchise taxes relating to
Billing's business for tax years prior to the Distribution and with respect to
certain tax attributes of Billing after the Distribution. In general, with
respect to periods ending on or before the last day of the year in which the
Distribution occurred, USLD is responsible for (i) filing both consolidated
federal tax returns for the USLD affiliated group and combined or consolidated
state tax returns for any group that includes a member of the USLD affiliated
group, including in each case Billing and its subsidiaries for the relevant
periods of time that such companies were members of the applicable group and
(ii) paying the taxes related to such returns (including any subsequent
adjustments resulting from the redetermination of such tax liabilities by the
applicable taxing authorities). Billing will reimburse USLD for a portion of
such taxes and the cost of preparation of the associated tax returns related to
the Billing affiliated group. Billing is responsible for filing returns and
paying taxes related to the Billing affiliated group for subsequent periods.
Billing and USLD have agreed to cooperate with each other and to share
information in preparing such tax returns and in dealing with other tax
matters.
Pro Forma Net Income Per Common Share
Net income per common share is presented on a pro forma basis as Billing
had no publicly held common shares outstanding prior to the Distribution. The
unaudited pro forma net income per common share was computed by dividing net
income applicable to common stock by the pro forma weighted average number of
common shares and common share equivalents outstanding during the applicable
period. The pro forma weighted average number of shares outstanding during each
fiscal year gives effect to the number of shares assumed to be issued had the
Distribution occurred at the beginning of each period presented and differs
from the number of shares assumed to be outstanding at each year-end due to the
assumed conversions of options and warrants that were assumed to be outstanding
during the respective periods. The approximate pro forma weighted average
number of shares used in computing pro forma net income per common share for
fiscal 1994, 1995 and 1996 was 14,069,000, 14,587,000 and 15,385,000,
respectively. The unaudited pro forma per share data is presented for
30
31
informational purposes only and should not be considered indicative of the
operating results which the Company will achieve in the future because, among
other things, this data is based on historical rather than prospective
information and includes certain assumptions which are subject to change.
Actual net income per common share for the period from the date of
Distribution to September 30, 1996 was $0.17 per share. The approximate
weighted average number of shares used in computing actual net income per
common share for the period from the date of Distribution to September 30, 1996
was 15,761,000. The weighted average number of shares outstanding during the
period from the date of Distribution to September 30, 1996 differs from the
number of shares outstanding at September 30, 1996 due to the assumed
conversions of options and warrants that were outstanding during this period.
New Accounting Standards
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which provides accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, goodwill related to those assets to be held
and used and for long-lived assets and certain intangibles to be disposed of.
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
Management of the Company does not anticipate the adoption of SFAS No. 121 will
have a material impact on the Company's financial position or results of
operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation," which provides for a fair-value-based method of accounting
and reporting for stock-based compensation plans with employees and others. The
Company will continue to account for stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25 and will apply SFAS
No. 123 on a disclosure basis only. The requirements of SFAS No. 123 are
effective for fiscal years that begin after December 15, 1995. Management of
the Company does not anticipate SFAS No. 123 will have a material impact on the
Company's financial position or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
provides accounting and reporting standards for, among other things, the
transfer and servicing of financial assets, such as factoring receivables with
recourse. SFAS No. 125 is effective for transfers and servicing of financial
assets occurring after December 31, 1996 and is to be applied prospectively.
Management of the Company does not anticipate the adoption of SFAS No. 125 will
have a material impact on the Company's financial position or results of
operations.
Statements of Cash Flows
Cash payments and non-cash activities during the periods indicated were as
follows:
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
Cash payments for interest . . . . . . . . . . . . . . . . . . . . . . . . . $1,847 $1,564 $1,563
Cash payments for income taxes . . . . . . . . . . . . . . . . . . . . . . . 4,954 8,859 8,366
Noncash investing and financing activities:
Common stock issued in connection with the Distribution . . . . . . . . . . 0 0 35,234
Net assets transferred from USLD in connection with the Distribution . . . . 0 0 892
Capital lease obligations incurred . . . . . . . . . . . . . . . . . . . . . 327 1,249 2,432
Tax benefit recognized in connection with stock option exercises . . . . . . 93 94 59
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.
31
32
NOTE 3. DEBT
Long-term debt is comprised of the following:
SEPTEMBER 30,
-------------
1995 1996
---- ----
(IN THOUSANDS)
Revolving line of credit for purchased receivables, 8.75% at September 30, 1996
(prime rate (8.25%) plus .5%), due in varying amounts through December 31, 1996 . . $23,030 $19,010
Fixed interest rate term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,333 2,973
------- -------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,363 21,983
Less - Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,315) (19,613)
------- -------
$ 1,048 $ 2,370
======= =======
The Company has various fixed rate term notes with rates ranging from
6.75% to 9.5%, due in varying amounts through September 2001. The proceeds from
the issuance of these notes were used to acquire certain computer equipment and
office furniture. The loans are secured by the assets acquired with the
proceeds of such notes.
The Company has a $45 million revolving line of credit with a company to
finance the purchase of certain eligible accounts receivable. This line of
credit matures December 31, 1996. The Company is currently in discussions with
potential lenders regarding a new line of credit facility and believes that it
will be able to obtain more favorable terms than those of the existing credit
facility. Any amounts borrowed to purchase receivables under this revolving
credit facility are due upon the Company's collection of the related
receivables. At September 30, 1996, the Company had approximately $26.0 million
available for borrowing under this facility. Any borrowings under this facility
bear interest at the prime rate plus 0.5%. This facility is collateralized by
the related accounts receivable and by virtually all of the assets of the
Company not otherwise pledged as security under other debt agreements.
In addition to the equipment financing agreements and revolving line of
credit facility described above, the Company is also obligated as a guarantor
of USLD's equipment financing agreements with certain lenders. The aggregate
unpaid principal amount of indebtedness under such agreements at September 30,
1996 was approximately $10.6 million, due in varying amounts through October
2000. Under certain of the credit agreements, the Company is prohibited from
paying dividends on its common stock, is required to comply with certain
financial covenants and is subject to certain limitations on the issuance of
additional secured debt. Cross-default provisions of the Company's credit
facility and other equipment loans may place the Company in default of such
facility and loans in the event that USLD defaults under the equipment finance
agreements that the Company has guaranteed. The Company was in compliance with
all required covenants at September 30, 1995 and 1996.
Historically, the Company has obtained financing for capital
expenditures through term debt agreements and capital lease agreements that
were guaranteed and cross-collateralized by USLD and its other subsidiaries.
These debt agreements were negotiated based on the strength of the consolidated
financial statements, earnings and cash flow of the USLD consolidated group.
Most of these debt agreements were secured by the assets of all the
subsidiaries within the consolidated group. The Company has received from
certain lenders loan agreement amendments or separate loan agreements whereby
the subject indebtedness is secured by only the Company's or USLD's assets, as
the case may be. In other cases, the existing cross guarantees and security
arrangements between the Company and USLD will remain in place for the duration
of the facility. In this regard, USLD and the Company have agreed to pay each
other a credit support fee equal to 1% per annum of the average monthly balance
of indebtedness guaranteed by one on behalf of the other for as long as such
guarantees continue.
32
33
Scheduled maturities of debt as of September 30, 1996 are as follows:
(IN THOUSANDS)
--------------
Year Ending September 30,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,613
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447
-------
$21,983
=======
NOTE 4. LEASES
The Company leases equipment and office space under operating leases.
Rental expense for the years ended September 30, 1994, 1995 and 1996 was
$304,000, $555,000, and $726,000, respectively. Future minimum lease payments
under non-cancelable leases as of September 30, 1996 are as follows:
(IN THOUSANDS)
--------------
Year Ending September 30,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,251
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,680
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,797
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,797
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,797
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . 9,284
---------
Total minimum lease payments . . . . . . . . . . . . . . . . $ 17,606
=========
The Company also leases various computer equipment under capital lease
arrangements. Future minimum lease payments under these capital leases,
together with the present value of the net minimum lease payments at September
30, 1996, are as follows:
(IN THOUSANDS)
--------------
Year Ending September 30,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,076
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507
-------
Total minimum lease payments . . . . . . . . . . . . . . . . . 4,036
Less: Amount representing interest . . . . . . . . . . . . . . (474)
-------
Present value of net minimum lease payments . . . . . . . . . . $ 3,562
=======
NOTE 5. 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 $130.00 per one ten-
thousandth of a preferred share. The Rights Plan was designed to assure that
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company.
33
34
On August 2, 1996, USLD distributed 15,032,001 shares of the Company's
common stock to the existing stockholders of USLD in order to effect the spin-
off of Billing from USLD. Prior to August 2, 1996, Billing operated as a
wholly-owned subsidiary of USLD and, consequently, had no publicly owned common
shares. No dividends were paid on the Company's common stock during fiscal
1994, 1995 or 1996.
NOTE 6. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
Prior to the Distribution, the Company adopted the Billing 1996
Comprehensive Stock Plan ("Comprehensive Plan") and the Billing 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. Immediately prior to the Distribution,
the Company granted, under the Comprehensive Plan and Director Plan,
respectively, options to purchase Billing common stock to each holder of an
outstanding option to purchase shares of USLD common stock under the USLD
Employee Stock Option Plan and the USLD Non-Employee Director Plan,
respectively. The Billing options are exercisable for Billing common stock on
the basis of one share of Billing common stock for every one share of USLD
common stock subject to the outstanding USLD options. Billing options to
purchase a total of 1,566,504 shares of Billing common stock were granted in
connection with the adjustment to the USLD options. In connection with the
grant of the Billing options, the exercise price of the USLD options was
adjusted to preserve the economic value of the USLD options existing
immediately prior to the Distribution after giving effect to the grant of the
Billing options. The Billing options will have vesting schedules mirroring the
vesting schedules of the related USLD options. Each Billing option granted in
connection with the Distribution will terminate in accordance with the original
USLD option grant.
Option activity for the year ended September 30, 1996 is summarized as
follows:
PRICE RANGE OF
NUMBER SHARES
OF SHARES UNDER OPTION
--------- --------------
Outstanding, September 30, 1995 . . . . . 0
Granted . . . . . . . . . . . . . . . . . 2,339,004 $1.11 - 16.13
Canceled . . . . . . . . . . . . . . . . (14,332) $6.95 - $8.34
Exercised . . . . . . . . . . . . . . . . (13,708) $6.30 - $7.32
----------
Outstanding, September 30, 1996 . . . . . 2,310,964
=========
Exercisable, September 30, 1996 . . . . . . . 1,015,886
At September 30, 1996, stock options to purchase an aggregate of 195,000
shares granted under the provisions of the Director Plan were outstanding at
exercise prices ranging from $2.61 to $16.13 per share. The Director Plan
options, which have certain vesting requirements, expire at varying dates
through August 21, 2002. As of September 30, 1996, there were 205,000 shares
remaining to be issued under the Director Plan. At September 30, 1996, stock
options to purchase an aggregate of 2,115,964 shares granted under the
provisions of the Comprehensive Plan were outstanding at exercise prices
ranging from $1.11 to $16.13 per share. The Comprehensive Plan options, which
have certain vesting requirements, expire at varying dates through August 21,
2002. As of September 30, 1996, there were 1,370,328 shares remaining to be
issued under the Comprehensive Plan.
Warrants to purchase 225,000 shares of common stock at exercise prices
ranging from $8.93 to $10.62 per share were outstanding at September 30, 1996.
These warrants were granted immediately prior to the Distribution to each
holder of a warrant to purchase shares of USLD common stock. There were no
warrants exercised in fiscal 1994, 1995 or 1996.
34
35
NOTE 7. INCOME TAXES
The provision for income taxes is comprised of the following:
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
Current . . . . . . . . . . . . . . . . . . . . $5,034 $8,927 $11,054
Deferred . . . . . . . . . . . . . . . . . . . 4 (266) (113)
------- ------- --------
$5,038 $8,661 $10,941
====== ====== =======
The provision for income taxes for fiscal 1994, 1995 and 1996 differs
from the amount computed by applying the statutory federal income tax rate of
34% for fiscal 1994, and 35% for fiscal 1995 and 1996 to income before
provision for income taxes. The reasons for these differences were as follows:
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
Computed income tax provision at statutory rate . . . . $4,625 $7,973 $10,078
Increases (reductions) in taxes resulting from:
State income taxes. . . . . . . . . . . . . . . . . . . 558 970 1,005
Other, net. . . . . . . . . . . . . . . . . . . . . . . (145) (282) (142)
------ ------ -------
Provision for income taxes . . . . . . . . . . . . . . $5,038 $8,661 $10,941
====== ====== =======
The tax effect of significant temporary differences, which comprise the
deferred tax assets and liabilities, are as follows:
SEPTEMBER 30,
-------------
1995 1996
---- ----
(IN THOUSANDS)
Deferred tax assets:
Expense provisions . . . . . . . . . . . . . . . . . . . . . . $530 $885
Deferred tax liabilities:
Tax depreciation and amortization in excess of book . . . . . (325) (96)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . (21) 0
---- -----
Total gross deferred tax liabilities . . . . . . . . . . . . . (346) (96)
---- ----
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . $184 $789
==== ====
The Company has been notified by the Internal Revenue Service ("IRS")
that a fiscal 1992 transaction between a wholly-owned foreign subsidiary of
USLD (Mega Plus Dialing, Inc.) and the Company is proposed to be treated
differently by the IRS than originally characterized by the Company. The IRS
district office has issued a report that proposed an assessment of taxes,
interest and penalties. The Company has filed a written protest and the
assessment has been appealed to the appellate division of the IRS. The Company,
based on the recommendation of its tax counsel, believes the possibility that
the IRS will prevail in this matter to be remote, and, therefore, no accrual
for this potential liability or any associated taxes, interest or penalties has
been made. Management of the Company does not anticipate the resolution of this
matter will have a material impact on the Company's financial position or
results of operations.
35
36
NOTE 8. BENEFIT PLANS
The Company did not have any benefit plans in effect prior to its spin-
off from USLD; however, certain employees and directors of the Company were
eligible to participate in certain similar compensation and benefit plans
provided by USLD.
The Benefit Plans and Employment Matters Allocation Agreement ("Benefits
Agreement") entered into by the Company and USLD (see Note 10) provides for the
allocation of certain responsibilities with respect to employee compensation
benefit and labor matters. The allocation of responsibility and adjustments
made pursuant to the Benefits Agreement was substantially consistent with the
existing benefits provided to USLD employees under USLD's various compensation
plans. Among other things, the Benefits Agreement provides that, effective as
of the Distribution Date, the Company will or will cause one or more of its
subsidiaries to, assume or retain, as the case may be, all liabilities of USLD,
to the extent unpaid as of the Distribution Date, under employee benefit plans,
policies, arrangements, contracts and agreements, with respect to employees
who, on or after the Distribution Date, were employees of the Company or its
subsidiaries. The Benefits Agreement also provides that, effective as of the
Distribution Date, USLD will, or will cause one or more of its subsidiaries to
assume or retain, as the case may be, all liabilities of USLD, to the extent
unpaid as of the Distribution Date, under employee benefit plans, policies,
arrangements, contracts and agreements, with respect to employees who on or
after the Distribution Date were employees of USLD or its subsidiaries.
In addition, the Company has assumed, with respect to employees who, on
or after the Distribution Date, were employees of the Company or any of its
subsidiaries, all responsibility for liabilities and obligations as of the
Distribution Date for medical and dental plan coverage and for vacation and
welfare plans. USLD has assumed, with respect to the employees who, on or after
the Distribution Date, were employees of USLD or any of its subsidiaries, all
responsibilities for all liabilities and obligations as of the Distribution
Date for medical and dental plan coverage and for vacation and welfare plans.
Participation in the Billing Information 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 one year of service during which they worked at
least 1,000 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 3% of a participant's compensation contributed as salary deferral.
The Company may make additional discretionary contributions. During fiscal
1994, a discretionary contribution in the amount of $8,000 was made. No
discretionary contributions were made in fiscal 1995 or 1996. During fiscal
1994, 1995 and 1996, the Company's related contributions totaled approximately
$31,000, $27,000 and $35,000, respectively.
Participation in the Billing Information Concepts Corp. Executive
Compensation Deferral Plan ("Executive Plan") is offered to selected employees
occupying management positions as determined by Billing's board of directors
from time to time. Participation in the Billing Information Concepts Corp.
Director Compensation Deferral Plan ("Director Plan") is offered to individuals
occupying a position as an outside director. The Executive and Director Plans
are defined contribution plans which provide that participants may make
voluntary salary deferral contributions, on a pretax basis, of between 1% and
100% of their eligible compensation. Under the Executive Plan, the Company
makes matching contributions equal to the lesser of 100% of a participant's
contributions or an amount based on a formula established by the plan. Matching
contributions under the Director Plan are 33% of the participant's
contributions. The Company has the right to make matching contributions of a
different amount or no contributions under both plans. During fiscal 1994, 1995
and 1996, the Company contributed $7,000, $12,000 and $22,000, respectively, to
the Executive Plan.
Additionally, the Billing Information Concepts Corp. Executive Qualified
Disability Plan ("Disability Plan") is provided to certain employees occupying
management positions. The Disability Plan provides long-term disability
benefits through disability insurance coverage purchased by the Company and
through Company funded payments. Benefits under the Disability Plan are
provided directly by the Company based on definitions contained in the
applicable insurance policies.
36
37
The Billing Information Concepts Corp. Employee Stock Purchase Plan (the
"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 ESPP enables employees who have completed at least six months
of continuous service with the Company to purchase shares of Billing's common
stock at a 15% discount through voluntary payroll deductions.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party 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
occurred.
The Company is obligated to pay certain local telephone companies a
total of approximately $7,886,000, $3,800,000 and $1,365,000 during fiscal
1997, 1998 and 1999, respectively, for minimum usage charges under billing and
collection agreements that, unless automatically renewed, expire at varying
dates through the end of fiscal 1999. 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 minimum usage volumes with all of these
vendors.
As of September 30, 1996, the Company is obligated to pay a company
approximately $11.8 million for license and service fees under a non-exclusive,
perpetual software license and related services agreements.
The Distribution Agreement (see Note 10) provides the Company will only
assume liabilities and obligations for claims and litigation that arose from
the ordinary course of the Company's business. The Company will not assume any
liabilities arising prior to the date of Distribution that relate to the direct
dial long distance and operator service businesses of USLD.
NOTE 10. RELATED PARTIES
The Company and USLD share a common individual on their respective
boards of directors. Therefore, USLD is considered a related party for purposes
of financial disclosure. The Company provides billing and information
management services for USLD and purchases telecommunications services from
USLD. Transactions under the agreements for these services have been reflected
in the accompanying consolidated financial statements at market prices.
Transactions between the Company and USLD are summarized as follows:
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
Sales to USLD . . . . . . . . . . . $5,308 $5,322 $5,347
Purchases from USLD . . . . . . . . 916 1,729 3,332
In addition, at September 30, 1995 and 1996, the Company's accounts
receivable balance includes $1,127,000 and $998,000, respectively, and the
billing customers accounts payable balance includes $890,000 and $1,337,000,
respectively, related to billing services performed for USLD. The Company also
had $242,000 and $1,288,000 payable to USLD included in accrued liabilities at
September 30, 1995 and 1996, respectively, and $1,034,000 payable to USLD
included in long-term debt at September 30, 1996.
For purposes of governing certain ongoing relationships between the
Company and USLD after the Distribution and to provide for an orderly
transition, the Company and USLD entered into certain agreements. Such
agreements include: (i) the Distribution Agreement, providing for, among other
things, the Distribution and the division between the Company and USLD of
certain assets and liabilities and material indemnification provisions; (ii)
the Benefit Plans and Employment
37
38
Matters Allocation Agreement, providing for certain allocations of
responsibilities with respect to benefit plans, employee compensation, and
labor and employment matters; (iii) the Tax Sharing Agreement, pursuant to
which the Company and USLD agreed to allocate tax liabilities that relate to
periods prior to and after the Distribution Date; (iv) the Transitional
Services and Sublease Agreement, pursuant to which USLD will provide certain
services on a temporary basis and sublease certain office space to the Company
and the Company will provide certain services to USLD on a temporary basis; (v)
the Zero Plus - Zero Minus Billing and Information Management Services
Agreement and the One Plus Billing and Information Management Services
Agreement, pursuant to which the Company will provide billing clearinghouse and
information management services to USLD for an initial period of three years;
and (vi) the Telecommunications Agreement, pursuant to which USLD will provide
long distance telecommunications services to the Company for an initial period
of three years. It is the intention of USLD and the Company that the
Transitional Services and Sublease Agreement, the Zero Plus - Zero Minus
Billing and Information Management Services Agreement, the One Plus Billing and
Information Management Services Agreement, and the Telecommunications Agreement
reflect terms and conditions similar to those that would have been arrived at
by independent parties bargaining at arm's length; however, there can be no
assurances that such agreements are on terms at least as favorable as could
have been obtained from unaffiliated third parties.
NOTE 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands, except per share amounts
QUARTER ENDED
-------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1994 1995 1995 1995
---- ---- ---- ----
(IN THOUSANDS)
Operating revenues . . . . . . . . . . $17,010 $17,932 $21,367 $24,538
Income from operations . . . . . . . . 4,529 4,873 6,199 6,652
Net income . . . . . . . . . . . . . . 2,911 3,102 3,921 4,184
Pro forma net income per common share . $0.20 $0.21 $0.27 $0.28
QUARTER ENDED
-------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996 1996
---- ---- ---- ----
(IN THOUSANDS)
Operating revenues . . . . . . . . . . $23,354 $26,947 $25,729 $27,854
Income from operations . . . . . . . . 6,263 7,967 6,866 7,545
Net income . . . . . . . . . . . . . . 3,948 5,021 4,317 4,566
Pro forma net income per common share . $0.27 $0.33 $0.27 $0.29
Per share data is shown on a pro forma basis as Billing had no publicly held
common stock outstanding prior to August 2, 1996 (see Note 2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this item is not applicable.
38
39
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), "Management - Directors and Executive Officers," and "Section
16(a) Reporting" 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 February 20, 1997 (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 "Management - Committees,
Meetings and Compensation of the Board of Directors - Directors' Fees" 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 "Voting Securities and
Principal Stockholders" 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 "Certain Transactions" of the
Company's Definitive Proxy Statement.
39
40
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 following financial statement schedules and the report of
independent public accountants thereon are included in this report at
the page indicated. All other schedules for which provision is made in
the applicable accounting regulations of the Securities and Exchange
Commission have been omitted because such schedules are not required
under the related instructions or are inapplicable or because the
information required is included in the Consolidated Financial
Statements or the notes thereto.
ITEM PAGE
---- ----
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . 41
Schedule I - Billing Information Concepts Corp. Condensed Financial Information . . 42
40
41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
Billing Information Concepts Corp.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Billing Information
Concepts Corp. and subsidiaries and have issued our report thereon dated
November 14, 1996. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. Schedule I is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
San Antonio, Texas
November 14, 1996
41
42
SCHEDULE I
BILLING INFORMATION CONCEPTS CORP.
CONDENSED FINANCIAL INFORMATION
(NOT CONSOLIDATED)
CONDENSED BALANCE SHEET
SEPTEMBER 30,
1996
----
ASSETS
Current assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49
Prepaids and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
-------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,317
Investment in subsidiaries (equity method) . . . . . . . . . . . . . . . . . . . . . . 37,924
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
-------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,460
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 280
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,456
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,737
Due to subsidiaries, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,087
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . 5
-------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,829
Commitments and contingencies (See Note 4)
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,790
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,690
-------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 22,631
-------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . $40,460
=======
See notes to condensed financial statements.
42
43
SCHEDULE I, CONTINUED
BILLING INFORMATION CONCEPTS CORP.
CONDENSED FINANCIAL INFORMATION
(NOT CONSOLIDATED)
CONDENSED STATEMENT OF INCOME
(IN THOUSANDS)
TWO MONTHS ENDED
SEPTEMBER 30, 1996
------------------
Costs and expenses:
Operating and general expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,366
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,369)
-------
Total costs and expenses 0
Equity in earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,690
------
Net income applicable to common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,690
======
See notes to condensed financial statements.
43
44
SCHEDULE I, CONTINUED
BILLING INFORMATION CONCEPTS CORP.
CONDENSED FINANCIAL INFORMATION
(NOT CONSOLIDATED)
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
TWO MONTHS ENDED
SEPTEMBER 30, 1996
------------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,690
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,690)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Changes in operating assets and liabilities:
Increase in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49)
Increase in prepaids and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62)
Increase in trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
Increase in accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,515
-------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,834
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (203)
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (107)
-------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (310)
Cash flows from financing activities:
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Transfers to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,626)
-------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,524)
-------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
-------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0
=======
See notes to condensed financial statements.
44
45
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The condensed financial statements are presented at September 30, 1996
and for the two-month period from August 2, 1996 to September 30, 1996 as
Billing Information Concepts Corp. did not commence operations until August 2,
1996. See Note 2 to the Consolidated Financial Statements of the Company for
disclosure of the Company's spin-off from USLD.
NOTE 2. DEBT
See Note 3 to the Consolidated Financial Statements of the Company for
disclosure of long-term obligations and guarantees.
NOTE 3. DIVIDENDS FROM SUBSIDIARIES
No cash dividends were paid to Billing Information Concepts Corp. by its
subsidiaries during the year ended September 30, 1996.
NOTE 4. COMMITMENTS AND CONTINGENCIES
See Note 9 to the Consolidated Financial Statements of the Company for
disclosure of material contingencies.
NOTE 5. RELATED PARTIES
The "Transfers to affiliates" caption on the Condensed Statement of Cash
Flows includes a transfer of $15,448,000 to USLD. See Note 10 to the
Consolidated Financial Statements of the Company for disclosure of related
party transactions.
45
46
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
------ -----------------------
3.1 - Amended and Restated Certificate of Incorporation of Billing (incorporated by reference from
Exhibit 3.1 to the Amendment No. 1 to the Company's Registration Statement on Form 10/A
dated July 11, 1996)
3.2 - Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by
reference from Exhibit 3.2 to the Amendment No. 1 to the Company's Registration Statement on
Form 10/A dated July 11, 1996)
3.3 - Bylaws of Billing (incorporated by reference from Exhibit 3.3 to the Amendment No. 1 to the
Company's Registration Statement on Form 10/A dated July 11, 1996)
4.1 - Form of Stock Certificate of Common Stock (incorporated by reference from Exhibit 4.1 to the
Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11, 1996)
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 Billing (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 Billing (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)
10.3 - Benefit Plans and Employment Matters Allocation Agreement between USLD and Billing
(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 Billing (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 Billing (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 Billing (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 Billing (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 - Billing's 1996 Employee Comprehensive Stock Plan (incorporated by reference from Exhibit
10.8 to the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July
11, 1996)
10.9 - Amended and Restated 1996 Non-Employee Director Plan of Billing (filed herewith)
10.10 - Billing's 1996 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.10 to
the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11,
1996)
46
47
10.11 - Billing's 401(k) Retirement Plan (incorporated by reference from Exhibit 4.5 to Billing's
Registration Statement on Form S-8, File No. 333-08303, filed on July 17, 1996)
10.12 - Billing'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)
10.13 - Billing'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)
10.14 - Billing'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)
10.15 - Employment Agreement to be entered into between Billing and Parris H. Holmes, Jr.
(incorporated by reference from Exhibit 10.15 to the Amendment No. 1 to the Company's
Registration Statement on Form 10/A dated July 11, 1996)
10.16 - Employment Agreement to be entered into between Billing and Alan W. Saltzman (incorporated
by reference from Exhibit 10.16 to the Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated July 11, 1996)
10.17 - Employment Agreement to be entered into between Billing and Kelly E. Simmons (incorporated
by reference from Exhibit 10.17 to the Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated July 11, 1996)
10.18 - Amended and Restated Loan and Security Agreement dated May 22, 1991 between Zero Plus
Dialing Inc. ("ZPDI"), U.S. Long Distance, Inc. ("USLDI"), U.S. Long Distance Corp. ("USLD")
and Bell Atlantic Capital Corp. (f/k/a Bell Atlantic - Tricon Leasing Corporation and
currently FINOVA Capital Corporation) ("Lender"); Revolving Credit Note dated May 24, 1991
payable by ZPDI to the order of Lender; Replacement Term Note dated May 24, 1991 payable by
USLDI to the order of Lender; First Amendment and Joinder to Amended and Restated Loan and
Security Agreement dated December 28, 1992 among ZPDI, USLD, USLDI, U.S. Billing, Inc.
("USBI") and Lender; Second Amendment to Amended and Restated Loan and Security Agreement
dated April 2, 1993 among ZPDI, USLD, USLDI, USBI and Lender; Third Amendment to Amended and
Restated Loan and Security Agreement dated October 15, 1993 among ZPDI, USLD, USLDI, USBI
and Lender; Fourth Amendment and Joinder to Amended and Restated Loan and Security Agreement
dated October 1, 1993 among ZPDI, USLD, USLDI, USBI, USLD Acquisition Corp. ("USAcq") and
Lender; Fifth Amendment and Joinder to Amended and Restated Loan and Security Agreement
dated November 16, 1993 among ZPDI, USLD, USLDI, USBI, USAcq, STS Telecommunications, Inc.
("STS") and Lender; Sixth Amendment to Amended and Restated Loan and Security Agreement
dated December 7, 1993 among ZPDI, USLD, USLDI, USBI, USAcq, STS and Lender; Seventh
Amendment to Amended and Restated Loan and Security Agreement dated March 17, 1994 among
ZPDI, USLD, USLDI, USBI, USAcq, STS, Enhanced Services Billing, Inc. ("ESBI"), California
Acquisition Corp. ("CAC") and Lender; Corporate Guaranty dated May 24, 1991 executed by USLD
for the benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by USLDI for the
benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by ZPDI for the benefit of
Lender; Corporate Guaranty dated May 24, 1991 executed by USLD for the benefit of Lender;
Corporate Guaranty dated October 1993 executed by USAcq for the benefit of Lender; Corporate
Guaranty dated November 1993 executed by STS for the benefit of Lender; Corporate Guaranty
executed by Telecom Acquisition Corp. for the benefit of Lender; Corporate Guaranty executed
by ESBI for the benefit of Lender; Corporate Guaranty executed by CAC for the benefit of
Lender; Escrow and Disbursing Agreement dated May 24 1991 among ZPDI, Lender and Texas
Commerce Bank, N.A. (incorporated by reference from Exhibit 10.18 to the Company's
Registration Statement on Form 10 dated May 26, 1996)
47
48
10.19 - Master Loan and Security Agreement dated December 31, 1993 between U.S. Long Distance, Inc.
and BOT Financial Corporation, Continuing Corporate Guaranty dated December 31, 1993
executed by U.S. Long Distance Corp., Promissory Notes, dated December 31, 1993, March 31,
1994, April 28, 1994 and March 29, 1995, Supplemental Security Agreements dated December 31,
1993, April 28, 1994, March 24, 1995, Promissory Note dated June 28, 1995, Supplemental
Security Agreement dated June 28, 1995, Promissory Note dated September 29, 1995,
Supplemental Security Agreement dated September 29, 1995 and Form of Continuing Corporate
Guaranty to be executed by Billing (incorporated by reference from Exhibit 10.19 to the Post
Effective Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July
22, 1996)
10.20 - Software License Agreement dated June 28, 1996 between Saville Systems U.S., Inc. and
Billing Information Concepts, Inc. (incorporated by reference from Exhibit 10.20 to the Post
Effective Amendment No. 2 to the Company's Registration Statement on Form 10/A dated August
1, 1996; confidential treatment is being sought for portions of Exhibit 10.20)
10.21 - Office Building Lease Agreement dated July 12, 1996 between Medical Plaza Partners, Ltd. and
Billing Information 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)
11.1 - Computation of Earnings Per Share (filed herewith)
21.1 - Amended List of Subsidiaries (incorporated by reference from Exhibit 21.1 to the Amendment
No. 1 to the Company's Registration Statement on Form 10/A dated July 11, 1996)
23.2 - Consent of Arthur Andersen LLP (filed herewith)
27.1 - Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None.
48
49
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 INFORMATION CONCEPTS CORP.
By: /s/ PARRIS H. HOLMES, JR.
---------------------------------
Parris H. Holmes, Jr.
Chairman of the Board and
Chief Executive Officer
Date: December 16, 1996
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 16th day of December,
1996.
SIGNATURE TITLE
--------- -----
/s/ PARRIS H. HOLMES, JR. Chairman of the Board and Chief Executive
-------------------------- Officer (Principal Executive Officer)
Parris H. Holmes, Jr.
/s/ ALAN W. SALTZMAN President and Chief Operating Officer
--------------------------
Alan W. Saltzman
/s/ KELLY E. SIMMONS Senior Vice President and Chief Financial Officer
-------------------------- (Principal Financial and Accounting Officer)
Kelly E. Simmons
/s/ LEE COOKE Director
--------------------------
Lee Cooke
/s/ JAMES E. SOWELL Director
--------------------------
James E. Sowell
/s/ THOMAS G. LOEFFLER Director
--------------------------
Thomas G. Loeffler
49
50
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
3.1 - Amended and Restated Certificate of Incorporation of Billing (incorporated by reference from
Exhibit 3.1 to the Amendment No. 1 to the Company's Registration Statement on Form 10/A
dated July 11, 1996)
3.2 - Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by
reference from Exhibit 3.2 to the Amendment No. 1 to the Company's Registration Statement on
Form 10/A dated July 11, 1996)
3.3 - Bylaws of Billing (incorporated by reference from Exhibit 3.3 to the Amendment No. 1 to the
Company's Registration Statement on Form 10/A dated July 11, 1996)
4.1 - Form of Stock Certificate of Common Stock (incorporated by reference from Exhibit 4.1 to the
Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11, 1996)
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 Billing (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 Billing (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)
10.3 - Benefit Plans and Employment Matters Allocation Agreement between USLD and Billing
(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 Billing (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 Billing (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 Billing (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 Billing (incorporate 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 - Billing's 1996 Employee Comprehensive Stock Plan (incorporated by reference from Exhibit
10.8 to the Amendment No.1 to the Company's Registration Statement on Form 10/A dated July
11, 1996)
10.9 - Amended and Restated 1996 Non-Employee Director Plan of Billing (filed herewith)
10.10 - Billing's 1996 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.10 to
the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11,
1996)
51
10.11 - Billing's 401(k) Retirement Plan (incorporated by reference from Exhibit 4.5 to Billing's
Registration Statement on Form S-8, File No. 333-08303, filed on July 17, 1996)
10.12 - Billing'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)
10.13 - Billing'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)
10.14 - Billing'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)
10.15 - Employment Agreement to be entered into between Billing and Parris H. Holmes, Jr.
(incorporated by reference from Exhibit 10.15 to the Amendment No. 1 to the Company's
Registration Statement on Form 10/A dated July 11, 1996)
10.16 - Employment Agreement to be entered into between Billing and Alan W. Saltzman (incorporated
by reference from Exhibit 10.16 to the Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated July 11, 1996)
10.17 - Employment Agreement to be entered into between Billing and Kelly E. Simmons (incorporated
by reference from Exhibit 10.17 to the Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated July 11, 1996)
10.18 - Amended and Restated Loan and Security Agreement dated May 22, 1991 between Zero Plus
Dialing Inc. ("ZPDI"), U.S. Long Distance, Inc. ("USLDI"), U.S. Long Distance Corp. ("USLD")
and Bell Atlantic Capital Corp. (f/k/a Bell Atlantic - Tricon Leasing Corporation and
currently FINOVA Capital Corporation) ("Lender"); Revolving Credit Note dated May 24, 1991
payable by ZPDI to the order of Lender; Replacement Term Note dated May 24, 1991 payable by
USLDI to the order of Lender; First Amendment and Joinder to Amended and Restated Loan and
Security Agreement dated December 28, 1992 among ZPDI, USLD, USLDI, U.S. Billing, Inc.
("USBI") and Lender; Second Amendment to Amended and Restated Loan and Security Agreement
dated April 2, 1993 among ZPDI, USLD, USLDI, USBI and Lender; Third Amendment to Amended and
Restated Loan and Security Agreement dated October 15, 1993 among ZPDI, USLD, USLDI, USBI
and Lender; Fourth Amendment and Joinder to Amended and Restated Loan and Security Agreement
dated October 1, 1993 among ZPDI, USLD, USLDI, USBI, USLD Acquisition Corp. ("USAcq") and
Lender; Fifth Amendment and Joinder to Amended and Restated Loan and Security Agreement
dated November 16, 1993 among ZPDI, USLD, USLDI, USBI, USAcq, STS Telecommunications, Inc.
("STS") and Lender; Sixth Amendment to Amended and Restated Loan and Security Agreement
dated December 7, 1993 among ZPDI, USLD, USLDI, USBI, USAcq, STS and Lender; Seventh
Amendment to Amended and Restated Loan and Security Agreement dated March 17, 1994 among
ZPDI, USLD, USLDI, USBI, USAcq, STS, Enhanced Services Billing, Inc. ("ESBI"), California
Acquisition Corp. ("CAC") and Lender; Corporate Guaranty dated May 24, 1991 executed by USLD
for the benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by USLDI for the
benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by ZPDI for the benefit of
Lender; Corporate Guaranty dated May 24, 1991 executed by USLD for the benefit of Lender;
Corporate Guaranty dated October 1993 executed by USAcq for the benefit of Lender; Corporate
Guaranty dated November 1993 executed by STS for the benefit of Lender; Corporate Guaranty
executed by Telecom Acquisition Corp. for the benefit of Lender; Corporate Guaranty executed
by ESBI for the benefit of Lender; Corporate Guaranty executed by CAC for the benefit of
Lender; Escrow and Disbursing Agreement dated May 24 1991 among ZPDI, Lender and Texas
Commerce Bank, N.A. (incorporated by reference from Exhibit 10.18 to the Company's
Registration Statement on Form 10 dated May 26, 1996)
52
10.19 - Master Loan and Security Agreement dated December 31, 1993 between U.S. Long Distance, Inc.
and BOT Financial Corporation, Continuing Corporate Guaranty dated December 31, 1993
executed by U.S. Long Distance Corp., Promissory Notes, dated December 31, 1993, March 31,
1994, April 28, 1994 and March 29, 1995, Supplemental Security Agreements dated December 31,
1993, April 28, 1994, March 24, 1995, Promissory Note dated June 28, 1995, Supplemental
Security Agreement dated June 28, 1995, Promissory Note dated September 29, 1995,
Supplemental Security Agreement dated September 29, 1995 and Form of Continuing Corporate
Guaranty to be executed by Billing (incorporated by reference from Exhibit 10.19 to the Post
Effective Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July
22, 1996)
10.20 - Software License Agreement dated June 28, 1996 between Saville Systems U.S., Inc. and
Billing Information Concepts, Inc. (incorporated by reference from Exhibit 10.20 to the Post
Effective Amendment No. 2 to the Company's Registration Statement on Form 10/A dated August
1, 1996; confidential treatment is being sought for portions of Exhibit 10.20)
10.21 - Office Building Lease Agreement dated July 12, 1996 between Medical Plaza Partners, Ltd. and
Billing Information 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)
11.1 - Computation of Earnings Per Share (filed herewith)
21.1 - Amended List of Subsidiaries (incorporated by reference from Exhibit 21.1 to the Amendment
No. 1 to the Company's Registration Statement on Form 10/A dated July 11, 1996)
23.2 - Consent of Arthur Andersen LLP (filed herewith)
27.1 - Financial Data Schedule (filed herewith)