-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CYayVSLiKUegnIiCkoUnMeGCQrpJ2Wq0ghm1w6NRWkfei+w/Z9apjiOGB2xw0C31 IGag2fHJcxz7x/wthG///g== 0000950144-97-003393.txt : 19970401 0000950144-97-003393.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950144-97-003393 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROADWAY & SEYMOUR INC CENTRAL INDEX KEY: 0000885533 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 411522214 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20034 FILM NUMBER: 97569036 BUSINESS ADDRESS: STREET 1: 128 S TRYON STREET CITY: CHARLOTTE STATE: NC ZIP: 28202 BUSINESS PHONE: 7043724281 MAIL ADDRESS: STREET 1: 128 SOUTH TRYON STREET CITY: CHARLOTTE STATE: NC ZIP: 28202 10-K 1 BROADWAY & SEYMOUR 10-K 12/31/96 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996) For the fiscal year ended December 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to . Commission file number 0-20034 BROADWAY & SEYMOUR, INC. (Exact name of registrant as specified in its charter) DELAWARE 41-1522214 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 128 SOUTH TRYON STREET CHARLOTTE, NORTH CAROLINA 28202 (Address of principal executive offices) (Zip code) (704) 372-4281 (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, $.01 par value (Title of class) 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 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 voting stock held by non-affiliates of the registrant as of March 19, 1997 computed by reference to the closing sale price on such date, was $104,097,793. As of the same date, 9,051,982 shares of Common Stock, $.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 1996 Annual Report (the "Annual Report"), filed as an Exhibit hereto, and the Notice of Annual Meeting of Stockholders and definitive Proxy Statement pertaining to the 1997 Annual Meeting of Stockholders (the "Proxy Statement") to be filed pursuant to Regulation 14A (no later than April 30, 1997) are incorporated herein by reference into Parts II and IV, and Part III, respectively. TOTAL PAGES 50 2 ITEM 1. DESCRIPTION OF BUSINESS OVERVIEW Broadway & Seymour, Inc. ("Broadway & Seymour" or the "Company") is an information technology software and services company providing integrated business solutions for the financial services industry and time and practice management solutions for the legal and professional services industries. The solutions are often customized to the specific needs of individual customers through systems integration and development services. Products mentioned in this document are for identification purposes only and may be trademarks of Broadway & Seymour, its subsidiaries or third parties. GENERAL DEVELOPMENT OF THE BUSINESS The Company was incorporated in 1985 in connection with the acquisition of Broadway & Seymour, Inc., a North Carolina corporation that had been doing business since 1981. The Company followed a strategy of growth through the acquisition of products and businesses through mid-1995. At the end of 1995, the Company changed its strategic direction to focus on achieving sustained performance of core operations and growth through business alliances and internal product development, rather than acquisitions. Operations were reorganized to integrate independent business units and certain non-core business units were disposed of during 1996: - In May 1996, the Company sold substantially all the assets, subject to certain related liabilities, of its Asset Management Services Group ("AMSG"). - In November 1996, the Company sold all of the issued and outstanding capital stock of the Company's wholly owned subsidiary, Corbel & Co. ("Corbel"). In addition, in September of 1996, the Company developed a plan to close its National Pension Alliance ("NPA") business following a transition period for NPA customers. These dispositions are more fully described under Item 7 below. BUSINESS STRATEGY While Broadway & Seymour had previously used acquisitions to grow the Company, its new strategy is to establish and maintain key customer relationships in chosen markets with a focus on developing and marketing a flexible set of core technology solutions. In the financial services market, the Company's focus is in three areas: industry-specific solutions, customer relationship management solutions and systems integration services. To meet customer needs, the Company continues to upgrade and enhance its industry specific solutions with new features and functions and by ensuring compatibility with advancing technologies. In the area of customer relationship management, the Company is committed to the ongoing development and marketing of its customer sales and service solution, TouchPoint(TM), designed to aid in the efficient gathering and sharing of customer information from various sources throughout an organization. The Company also plans to provide systems integration and custom development services to large, market leading organizations that will offer opportunities for growth through value-adding relationships. In the professional services industry, the Company's strategy is to aggressively market and continually develop a client/server Windows(TM) based billing and time management system to law firms, and to expand its presence to other professional service firms, including accounting, actuarial, public relations and consulting firms. 2 3 SERVICE AND PRODUCT SOLUTIONS SYSTEMS INTEGRATION AND CUSTOM DEVELOPMENT SERVICES A significant part of Broadway & Seymour's revenue is generated through systems integration and custom development engagements. These engagements typically involve the development of technology solutions for difficult business and technical problems and are often provided as part of a complex solution that includes proprietary software, third party hardware and software products and training and documentation services. The Company may be retained to perform all aspects of a complex project or a discrete portion of a project. The Company's systems integration and custom development engagements typically include some or all of the following: - strategic planning, including an assessment of a customer's technology-related needs and the development of an overall strategy to meet those needs; - development of functional specifications designed to ensure that the system will meet the customer's identified needs; - development of the system architecture and the technical design specifications; - building and testing the system, including the development of the software code and the testing of the code in a simulated work environment; - transition services, including data conversion, training, documentation and implementation of the system; and - product support services, including maintenance, ongoing enhancement of the software and contingency support. The Company performs systems integration and custom development work under a variety of financial arrangements, including fixed fee contracts and billings on a time and materials basis. The Company also enters into financial arrangements from time to time that provide incentives to the Company for completing a project in less than the budgeted hours. Although the Company generally seeks major projects, the Company may undertake smaller projects because it believes that such projects often have the potential to develop into major systems projects or long-term customer relationships. TOUCHPOINT(TM) The TouchPoint solution is a combination of the Company's integration and customization services, proprietary software and third party software that can be uniquely modified for each client to aid it in the enterprise-wide gathering and sharing of customer information through numerous sources, including call centers, offices, branches, the Internet, kiosks or network computers. Through the use of computer telephony integration and object-oriented programming, TouchPoint consolidates customer information on composite screens and automates customer relationship tools and processes. TouchPoint has an open, three-tier client/server architecture which gives it flexibility to be integrated with existing client data processing architectures and makes it scaleable so that it can be implemented in single departments or enterprise-wide using a phased approach. BANCSTAR(R) BANCStar is a branch automation system used to automate major banks and integrate branch networks. BANCStar supports teller, customer service, sales and loan calculation activities, as well as basic system functions such as providing branch statistics and storing and forwarding information to other computers. BANCStar Prism is an automated banking solution that supports a graphical user interface, 3 4 allowing for video and sound, dynamic data exchange and a multi-tasking environment to help streamline banking operations to the bank's other computers without interrupting workstation activity. CRISP(TM) CRISP is a decision support system that assists commercial bankers in the management of their relationships, products and employees. Fully graphical and intuitive, CRISP delivers comprehensive product and profitability analyses on a variety of bank or customer organizational levels. CRISP provides a single repository of on-line customer information from multiple other systems. VISUALIMPACT(TM) VisualImpact is an integrated image-enabled item and remittance processing software system that runs under the Windows NT(TM) operating system on both client and server workstations. The solution uses advanced hardware, networking and operating system features to distribute the workload across multiple, distributed servers. In addition, VisualImpact has a common transport interface that allows it to interface with transports from multiple hardware vendors and uses high bandwidth printer interfaces to drive printers. The distribution rights to VisualImpact have been exclusively licensed to a third party distributor. LEGAL AND PROFESSIONAL SERVICES SOLUTIONS Elite Information Systems, Inc. ("Elite"), a subsidiary of Broadway & Seymour acquired in February 1994, provides office automation, time keeping, accounting and information management software to the professional service industries. Elite's products incorporate client-server and open-systems architecture within the Windows(TM) environment. The Elite Billing System - is a comprehensive accounting and information management software package serving legal and professional service firms. The Elite Billing System responds to client and professional service billing requirements with on-line management information needed to guide such firms. The Elite Case Management System - is a prospect tracking system and conflicts/related-party database. This system also includes calendar and docket functions, a case database, a related-party tracking system, on-line viewing of case information and personal calendars and a user-defined reporting system. SUPPORT SERVICES The Company views its support activities as a significant part of its strategy to establish and maintain strong customer relationships. The Company offers system maintenance and support at fixed prices under renewable contracts. The degree of maintenance service provided to customers differs depending on the product being supported. Generally, support contracts entitle users to telephone support and regular upgraded product releases. In addition, the Company is able to offer certain training classes and multi-media based instruction to customers that aid in the implementation and effective use of the Company's solutions. RESEARCH AND DEVELOPMENT To meet the changing needs of the financial and professional services industries, the Company expends resources to continually develop and enhance systems development technologies and approaches that may have broad application in systems integration projects and solutions. The Company believes that ongoing commitment to research and development is important to the long-term success of the business. 4 5 For the years ended December 31, 1996, 1995 and 1994, the Company's total research and development expenditures were $7.4 million, $8.9 million and $7.5 million, respectively. The Company anticipates continued investment in research and development to provide growth and enhancement to its existing solution offerings, and it believes spending relative to revenue will continue at its current level. There are inherent risks in the introduction of a new product. For example, new products may have quality or other defects in the early stages of introduction that were not anticipated in the design of those products. The Company cannot determine the effects on operating results of unanticipated complications in product introductions or transitions. SALES AND MARKETING The Company's sales personnel are given sales responsibility within their targeted customer markets. Additionally, senior management within the Company is directly involved in obtaining and supporting relationships. New customer contacts are generated by a variety of methods, including customer referrals, personal sales calls, attendance at trade shows and seminars, advertising in trade publications, direct mailings to targeted customers and telemarketing. CUSTOMERS Broadway & Seymour's customers include a broad variety of institutions and companies in the financial services industry. In addition, the Company serves a client base of law firms and other professional service firms through its Elite operations. Elite has over 500 customers using its software, including some of the largest law firms in the United States and the United Kingdom. The Company's follow-on sales to existing customers, including multi-year systems integration and custom development projects, system upgrades and expansion, new products and maintenance and support services, represent a significant portion of total revenue. The Company's business strategy emphasizes sales to existing customers. COMPETITION The Company's businesses are competitive. The Company is not aware of any one competitor that offers the same combination of services and products offered by the Company, but believes that a number of firms compete with the Company in several areas. In the markets in which it competes, the Company believes there are participants that have greater financial, technical and marketing resources. However, the Company believes that no one competitor is dominant in its market. The Company competes for engagements with a variety of companies offering all or a portion of the services offered by the Company. Many large accounting and management consulting firms offer services that overlap with at least a portion of the Company's solutions and services, and computer hardware and software companies are increasingly becoming involved in similar services. The Company also competes with the internal operations of customers. The Company believes the competitive factors for these projects include reputation, capability and resources, technological expertise, knowledge of the industry, quality and reliability of service and price. The Company believes that it competes favorably on the basis of these factors. However, the Company's future operating results and financial condition may be adversely affected by the increasingly competitive environment of the software industry. 5 6 BACKLOG A majority of the Company's revenue is derived from work to be performed under long-term, cancelable contracts entered into in the ordinary course of business. These contracts often relate to ongoing projects with respect to which the continuation of work is at the option of the customer. Because the majority of the Company's agreements are cancelable on relatively short notice, generally 30 days, the Company does not believe that agreements for work outstanding at any specific time provide a meaningful indication of future revenue. EMPLOYEES AND RECRUITMENT The Company believes that its future success will depend in part on its continued ability to hire and retain qualified employees. The Company believes its relations with employees are good. Competition for personnel in the Company's industry is intense. Although it actively recruits personnel and provides professional employees with career path opportunities and believes that its turnover is no higher than the industry average, there can be no assurance that the Company will be successful in attracting and retaining sufficient numbers of qualified personnel to conduct its business in the future. The Company actively recruits at college campuses and seeks employees with expertise and experience in its chosen markets. At March 25, 1997, the Company had approximately 500 full-time employees. None of the Company's employees is represented by a labor union. COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES The Company's business includes the development of custom software in connection with specific customer engagements. Although the Company frequently assigns to its customer the copyright and other intellectual property rights in the software and documentation developed for the customer, the Company negotiates to retain the right to develop similar products for other customers. In a limited number of circumstances, the Company has agreed not to use certain specific technological know-how developed in an engagement for one customer to perform projects for other customers or to develop a system for a competitor of the customer that is similar to the system developed for the customer. However, the Company believes these restrictions will not have a material adverse effect on the Company. The Company believes that its services and products do not infringe on the intellectual property rights of its customers or other third parties. However, particularly given the rapid changes in copyright and patent law, there can be no assurance that an infringement claim will not be asserted against the Company in the future. Any such claim, if resolved against the Company, could adversely affect the Company's reputation, preclude it from offering certain products and services, and subject it to substantial liability. The Company currently markets several proprietary software products. The Company attempts to protect its rights in its proprietary software by retaining the title to and copyright in the software and documentation and attempts to protect rights in all software it markets (including third-party software) by including appropriate contractual restrictions on use and disclosure in its licenses and by requiring its employees to execute confidentiality agreements. However, the Company provides source code for some of its software products to users for their internal use in connection with the license of these products. The Company believes that, due to the rapid pace of innovation within its industry, factors such as the technological and creative skills of its personnel are more important in establishing and maintaining a leadership position within the industry than are the various legal protections of its technology. The Company believes that the nature of its customers, the importance of the Company's products to them, and their need for continuing product support reduce the risk of unauthorized reproduction. However, there 6 7 can be no assurance that any such steps taken by the Company in this regard will be adequate to deter misappropriation of its proprietary rights or independent third-party development of functionally equivalent products. ITEM 2. PROPERTIES The Company's principal offices are located at 128 South Tryon Street in Charlotte, North Carolina. The Company's lease of those premises (approximately 124,000 square feet) expires December 31, 2000, with two five-year renewal options thereafter. Elite maintains its offices (approximately 14,370 square feet) in Los Angeles, California under a lease that expires in February 1998. The Company leases additional facilities in New York City, New York; Hunt Valley, Maryland; Whistler, British Columbia -Canada and London, England. The Company believes that its facilities are adequate for its current needs. ITEM 3. LEGAL PROCEEDINGS The Company is involved in litigation from time to time that is routine in nature and incidental to the conduct of business. The Company believes that the outcome of any such litigation would not have a material effect on the financial condition or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's stockholders during the fourth quarter of the fiscal year ended December 31, 1996. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS' MATTERS MARKET FOR COMMON STOCK Since June 16, 1992, the date of the Company's initial public offering ("IPO"), its common stock, $.01 par value, (the "Common Stock") has traded on the National Association of Securities Dealers, Inc. Nasdaq National Market System ("Nasdaq") under the symbol BSIS. The following table shows the price range in the Company's Common Stock for the past two fiscal years:
Quarter ended 12/31/96 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95 --------------------------------------- -------------------------------------- High $14 $14 1/8 $17 1/8 $16 1/4 $26 1/2 $30 1/8 $20 3/4 $21 5/8 Low $ 7 3/4 $ 9 1/4 $10 $10 1/2 $15 3/4 $21 $15 1/2 $17
HOLDERS OF RECORD As of March 19, 1997, there were approximately 154 holders of record of Common Stock. 7 8 DIVIDENDS The Company has never declared or paid any cash dividends on its Common Stock. The Company currently intends to retain any earnings for use in its business and therefore does not anticipate paying any cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA (in thousands, except per share data)
Eleven months Fiscal Years ended ended Year ended December 31, Dec. 31, January 31, Operations: 1996 1995 1994 1993 1993 ---- ---- ---- ---- ---- Total revenue $ 89,351 $114,738 $132,858 $71,665 $65,610 Operating costs and expenses 99,609 $130,583 $118,983 $74,520 59,109 -------- -------- -------- ------- ------- Operating income (loss) (10,258) (15,845) 13,875 (2,855) 6,501 -------- -------- -------- ------- ------- Gain on disposition of non-strategic business units 9,652 Net interest (expense) income (187) (493) (821) (25) 137 -------- -------- -------- ------- ------- Income (loss) before income taxes and accounting change (793) (16,338) 13,054 (2,880) 6,638 Provision (benefit) for income taxes 1,455 (4,958) 5,858 1,298 3,215 -------- -------- -------- ------- ------- Income (loss) before accounting change (2,248) (11,380) 7,196 (4,178) 3,423 Effect of income tax accounting change 377 -------- -------- -------- ------- ------- Net income (loss) $ (2,248) $(11,380) $ 7,196 $(3,801) $ 3,423 ======== ======== ======== ======= ======= Per common and common equivalent share: Income (loss) before accounting change $ (0.25) $ (1.26) $ 0.85 $ (0.53) $ 0.51 Effect of accounting change 0.04 -------- -------- -------- ------- ------- Net income (loss) $ (0.25) $ (1.26) $ 0.85 $ (0.49) $ 0.51 ======== ======== ======== ======= ======= Selected balance sheet data: 12/31/96 12/31/95 12/31/94 12/31/93 1/31/93 -------- -------- -------- -------- ------- Working capital (deficit) $ 15,907 $ 490 $ (407) $ (467) $ 6,000 Total assets 66,474 83,245 75,683 50,717 39,910 Long-term debt, including current portion 611 2,373 1,765 899 Stockholders' equity 32,190 32,437 34,780 25,087 23,567
The selected financial data includes the results of acquired businesses from the date of acquisition and, in the case of Micro/Resources, Inc. (accounted for using the pooling of interests method), for all periods presented. The comparability of the results of operations for the periods presented is also impacted by dispositions of certain businesses as discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 7 through 15 of the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements: The financial statements, together with the report thereon of Price Waterhouse LLP dated February 7, 1997 appearing on pages 16 through 32 of the Annual Report are incorporated herein by reference. Financial Statement Schedule: Item 14 includes an index to the financial statement schedule. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information under the captions "Election of Directors" and "Executive Officers, Compensation and Other Information" in the Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information under the caption "Executive Officers, Compensation and Other Information" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Voting Securities, Principal Holders and Proxies" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the captions "Employment Agreements" and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement is incorporated herein by reference. 9 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements. The following financial statements, including the report thereon of Price Waterhouse LLP dated February 7, 1997, appearing on pages 16 through 32 of the Annual Report, are incorporated herein by reference: Consolidated Balance Sheet Consolidated Statement of Operations Consolidated Statement of Stockholders' Equity Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Report of Independent Accountants (a)(2) Financial Statement Schedules. The following schedules are filed as a part of this report: Page ---- Schedule II - Valuation and Qualifying Accounts and Reserves 17 Report of Independent Accountants on the Financial Statement Schedule 18 All other schedules for which provision is made in the applicable regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included elsewhere in the financial statements. 10 11 (A)(3) EXHIBITS: Exhibit No. Description ----------- ----------- 3.1 Restated Certificate of Incorporation of Broadway & Seymour, Inc., date June 16, 1992 (Incorporated by reference to Exhibit 3.1 to the Registrants Annual Report on Form 10- K for the Fiscal Year Ended January 31, 1993) 3.2 Restated By-laws of the Company (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, SEC File No. 33-46672) 4.1 Specimen share certificate (Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-1, SEC File No. 33-46672) 4.2 Articles 4 and 5 of Broadway & Seymour, Inc.'s Restated Certificate of Incorporation (Incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-1, SEC File No. 33-46672) 4.3 Article II, Section 2.2 of the Company's Restated By-laws (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1, SEC File No. 33- 46672) 10.1** Restated 1985 Incentive Stock Option Plan of Broadway & Seymour, Inc. dated June 12, 1985 (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1, SEC File No. 33-46672) 10.2** Amendment No. 1 to Restated 1985 Incentive Stock Option Plan of Broadway & Seymour, Inc. dated February 25, 1993 (Incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended January 31, 1993) 10.3** Amendment No. 2 to Restated 1985 Incentive Stock Option Plan of Broadway & Seymour, Inc. dated February 17, 1994 (Incorporated by reference to Exhibit 10.16 to the Registrant's Transition Report on Form 10-K for the Eleven Months Ended December 31, 1993) 10.4** Amendment No. 3 to Restated 1985 Incentive Stock Option Plan of Broadway & Seymour, Inc. dated May 15, 1995 (Incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1995) 10.5** Broadway & Seymour, Inc. 1996 Stock Option Plan dated September 16, 1996 (Incorporated by reference to Appendix B to the Registrant's Definitive Proxy Statement on Form DEFS14A dated August 14, 1996) 10.6 Limited Partnership Agreement of National Pension Alliance dated April 8, 1994 by and among Corbel/NPA Inc., Stuart Hack Corp. and Michael E. Callahan, Inc. (Incorporated by reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1995) 10.7 Stock Purchase Agreement dated January 10, 1994 by and among Broadway & Seymour, Inc., certain shareholders of Elite Data Processing, Inc. and Harvey Rich (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated February 1, 1994) 10.8 Stock Pledge Agreement dated as of February 1, 1994 by and among Broadway & Seymour, Inc., Alan Richeimer (a/k/a Alan Rich) and Harvey Rich and Eva Rich, as trustees of the Harvey and Eva Rich Family Trust created by that Trust Agreement dated September 19,1988 (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated February 1, 1994) 11 12 Exhibit No. Description ----------- ----------- 10.9 Asset Purchase Agreement dated as of June 9, 1995 by and among Broadway & Seymour Inc., The MiniComputer Company of Maryland, Inc., Robert W. Johnson, Michael W. Matthai and Robert A. Erich, Jr. (Incorporated by reference to Exhibit 10.18 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1995) 10.10 Asset Purchase Agreement, dated as of April 10,1996 by and between Fidelity Investments Institutional Services Company Inc. and Broadway & Seymour, Inc., BancCorp Systems, Inc., Heebink Group, Inc., and National Systems Group, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.11 Amendment No. 1 to Asset Purchase Agreement dated May 15, 1996 by and between Fidelity Investments Institutional Services Company Inc. and Broadway & Seymour, Inc., BancCorp Systems, Inc., Heebink Group, Inc., and National Systems Group, Inc. (Incorporated by reference to Exhibit 2.1a to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.12 Quantech License and Services Agreement, dated April 10, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and Corbel & Company. (Incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.13 Licenses and Services Agreement, dated April 10, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and BancCorp Systems, Inc. (Incorporated by reference to Exhibit 2.3 to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.14 Temporary Professional Services Agreement, dated May 15, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and Broadway & Seymour, Inc. (Incorporated by reference to Exhibit 2.4 to the Registrant's Current Report on Form 8-K dated May 15, 1996) 10.15 Guaranty and Indemnity Agreement, dated April 10, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and Broadway & Seymour, Inc. (Incorporated by reference to Exhibit 2.5 to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.16 Amendment No. 1 to the Guaranty and Indemnity Agreement, dated May 15, 1996 by and between Fidelity Investments Institutional Services Company, Inc. and Broadway & Seymour, Inc. (Incorporated by reference to Exhibit 2.5a to the Registrant's Current Report on Form 8-K dated May 15, 1996) 10.17 Transition Services and Support Agreement, dated May 15, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and Broadway & Seymour, Inc. (Incorporated by reference to Exhibit 2.6 to the Registrant's Current Report on Form 8-K dated May 15, 1996) 10.18 Stock Purchase Agreement, dated as of November 19, 1996, by and among Broadway & Seymour, Inc., Corbel & Co. and Sungard Investment Ventures, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated November 19, 1996). 12 13 Exhibit No. Description ----------- ----------- 10.19** Employment Agreement dated as of September 1, 1995 by and between Broadway & Seymour, Inc. and Alan C. Stanford (Incorporated by reference to Exhibit 10.28 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1995) 10.20** Employment Agreement dated as of January 19, 1995 by and between Broadway & Seymour, Inc. and David A. Finley (Incorporated by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1995) 10.21** Retirement and Post-employment agreement as of July 15, 1996 by and between Broadway & Seymour, Inc. and William W. Neal, III (Incorporated by reference to Exhibit 10.22 to the Registrant's Quarterly Report on Form 10-Q for the Period Ended September 30, 1996). 10.22** Termination Agreement dated as of March 1, 1996 by and between Broadway & Seymour, Inc. and David Durham (Incorporated by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1995) 11* Computation of earnings per share 13* Portions of the Registrant's 1996 Annual Report, consisting of: Management Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and report thereon of Price Waterhouse LLP dated February 7, 1997 and Supplementary Data. 21* Subsidiaries of the Registrant 23* Consent of Independent Accountants dated March 24, 1997 27* Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only and not filed. - -------------------- * Filed herewith. ** Management contract or compensatory plan or arrangement required to be filed as an exhibit. 13 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BROADWAY & SEYMOUR, INC. Date: March 25, 1997 By /s/David A. Finley ------------------ David A. Finley, Executive Vice President and Chief Financial Officer Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities set forth below and on the 25 day of March 1997.
Signature Title --------- ----- /s/Alan C. Stanford Chairman of the Board, President, Chief Executive - ------------------------------ Officer and Director Alan C. Stanford /s/David A. Finley Executive Vice President, Chief Financial Officer - ------------------------------ and Director David A. Finley /s/William G. Seymour Vice Chairman of the Board and Secretary - ------------------------------ William G. Seymour /s/Roger Noall Director - ------------------------------ Roger Noall /s/George L. McTavish Director - ------------------------------ George L. McTavish /s/Steven S. Elbaum Director - ------------------------------ Steven S. Elbaum /s/Robert J. Kelly Director - ------------------------------ Robert J. Kelly /s/Robert J. Levenson Director - ------------------------------ Robert J. Levenson
14 15 ITEM 14(2) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES: BROADWAY & SEYMOUR, INC. SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Additions/ Balance at (reductions) Balance at beginning charged to end of period expense Deductions Other of period --------- ------- ---------- ----- --------- (In thousands) Allowance for doubtful accounts (shown as a deduction from receivables) December 31, 1996 $941 $1,076 $1,125 $-- $892 December 31, 1995 563 632 323 69(1) 941 December 31, 1994 224 496 453 296(2) 563 Reserve against long-term assets (shown as a deduction from other assets) December 31, 1996 $250 $ -- $ 250 $-- December 31, 1995 123 127 250 December 31, 1994 175 $ 52 123
(1) Relates to balance at date of acquisition of acquired companies. (2) Includes $294,000 related to balances at dates of acquisition of acquired companies. (3) Relates to balance at date of acquisition of acquired company. 15 16 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULE To the Board of Directors and Stockholders of Broadway & Seymour, Inc. Our audits of the consolidated financial statements referred to in our report dated February 7, 1997 appearing on page 32 of the Company's Annual Report (which is incorporated by reference in this Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14 (a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth herein when read in conjunction with the related consolidated financial statements. Price Waterhouse LLP Charlotte, North Carolina February 7, 1997 16 17 INDEX TO EXHIBITS (A)(3) EXHIBITS:
Exhibit No. Description Page Number
3.1 Restated Certificate of Incorporation of Broadway & Seymour, Inc., date June 16, 1992 (Incorporated by reference to Exhibit 3.1 to the Registrants Annual Report on Form 10-K for the Fiscal Year Ended January 31, 1993) 3.2 Restated By-laws of the Company (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, SEC File No. 33-46672) 4.1 Specimen share certificate (Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-1, SEC File No. 33-46672) 4.2 Articles 4 and 5 of Broadway & Seymour, Inc.'s Restated Certificate of Incorporation (Incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-1, SEC File No. 33-46672) 4.3 Article II, Section 2.2 of the Company's Restated By-laws (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1, SEC File No. 33- 46672) 10.1** Restated 1985 Incentive Stock Option Plan of Broadway & Seymour, Inc. dated June 12, 1985 (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1, SEC File No. 33-46672) 10.2** Amendment No. 1 to Restated 1985 Incentive Stock Option Plan of Broadway & Seymour, Inc. dated February 25, 1993 (Incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended January 31, 1993) 10.3** Amendment No. 2 to Restated 1985 Incentive Stock Option Plan of Broadway & Seymour, Inc. dated February 17, 1994 (Incorporated by reference to Exhibit 10.16 to the Registrant's Transition Report on Form 10-K for the Eleven Months Ended December 31, 1993) 10.4* Amendment No. 3 to Restated 1985 Incentive Stock Option Plan of Broadway & Seymour, Inc. dated May 15, 1995 (Incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1995) 10.5** Broadway & Seymour, Inc. 1996 Stock Option Plan dated September 16, 1996 (Incorporated by reference to Appendix B to the Registrant's Definitive Proxy Statement on Form DEFS14A dated August 14, 1996) 10.6 Limited Partnership Agreement of National Pension Alliance dated April 8, 1994 by and among Corbel/NPA Inc., Stuart Hack Corp. and Michael E. Callahan, Inc. (Incorporated by reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1995) 10.7 Stock Purchase Agreement dated January 10, 1994 by and among Broadway & Seymour, Inc., certain shareholders of Elite Data Processing, Inc. and Harvey Rich (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated February 1, 1994) 17 18 10.8 Stock Pledge Agreement dated as of February 1, 1994 by and among Broadway & Seymour, Inc., Alan Richeimer (a/k/a Alan Rich) and Harvey Rich and Eva Rich, as trustees of the Harvey and Eva Rich Family Trust created by that Trust Agreement dated September 19,1988 (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated February 1, 1994) 10.9 Asset Purchase Agreement dated as of June 9, 1995 by and among Broadway & Seymour Inc., The MiniComputer Company of Maryland, Inc., Robert W. Johnson, Michael W. Matthai and Robert A. Erich, Jr. (Incorporated by reference to Exhibit 10.18 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1995) 10.10 Asset Purchase Agreement, dated as of April 10,1996 by and between Fidelity Investments Institutional Services Company Inc. and Broadway & Seymour, Inc., BancCorp Systems, Inc., Heebink Group, Inc., and National Systems Group, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.11 Amendment No. 1 to Asset Purchase Agreement dated May 15, 1996 by and between Fidelity Investments Institutional Services Company Inc. and Broadway & Seymour, Inc., BancCorp Systems, Inc., Heebink Group, Inc., and National Systems Group, Inc. (Incorporated by reference to Exhibit 2.1a to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.12 Quantech License and Services Agreement, dated April 10, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and Corbel & Company. (Incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.13 Licenses and Services Agreement, dated April 10, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and BancCorp Systems, Inc. (Incorporated by reference to Exhibit 2.3 to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.14 Temporary Professional Services Agreement, dated May 15, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and Broadway & Seymour, Inc. (Incorporated by reference to Exhibit 2.4 to the Registrant's Current Report on Form 8-K dated May 15, 1996) 10.15 Guaranty and Indemnity Agreement, dated April 10, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and Broadway & Seymour, Inc. (Incorporated by reference to Exhibit 2.5 to the Registrant's Current Report on Form 8- K dated May 15, 1996) 10.16 Amendment No. 1 to the Guaranty and Indemnity Agreement, dated May 15, 1996 by and between Fidelity Investments Institutional Services Company, Inc. and Broadway & Seymour, Inc. (Incorporated by reference to Exhibit 2.5a to the Registrant's Current Report on Form 8-K dated May 15, 1996) 10.17 Transition Services and Support Agreement, dated May 15, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and Broadway & Seymour, Inc. (Incorporated by reference to Exhibit 2.6 to the Registrant's Current Report on Form 8-K dated May 15, 1996) 18 19 10.18 Stock Purchase Agreement, dated as of November 19, 1996, by and among Broadway & Seymour, Inc., Corbel & Co. and Sungard Investment Ventures, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated November 19, 1996). 10.19** Employment Agreement dated as of September 1, 1995 by and between Broadway & Seymour, Inc. and Alan C. Stanford (Incorporated by reference to Exhibit 10.28 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1995) 10.20** Employment Agreement dated as of January 19, 1995 by and between Broadway & Seymour, Inc. and David A. Finley (Incorporated by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1995) 10.21** Retirement and Post-employment agreement as of July 15, 1996 by and between Broadway & Seymour, Inc. and William W. Neal, III (Incorporated by reference to Exhibit 10.22 to the Registrant's Quarterly Report on Form 10-Q for the Period Ended September 30, 1996). 10.22** Termination Agreement dated as of March 1, 1996 by and between Broadway & Seymour, Inc. and David Durham (Incorporated by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1995) 11* Computation of earnings per share 13* Portions of the Registrant's 1996 Annual Report, consisting of: Management Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and report thereon of Price Waterhouse LLP dated February 7, 1997 and Supplementary Data. 21* Subsidiaries of the Registrant 23* Consent of Independent Accountants dated March 24, 1997. 27* Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only and not filed. - -------------------- * Filed herewith. ** Management contract or compensatory plan or arrangement required to be filed as an exhibit. 19 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 BROADWAY & SEYMOUR, INC. COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share data) (Unaudited)
Year Ended December 31, 1996 1995 1994 ---- ---- ---- Net income (loss) ($2,248) ($11,380) $7,196 ======= ======== ====== Primary earnings per share: Weighted average common shares outstanding 8,914 8,606 8,043 Addition from assumed exercise of stock options 434 379 Addition from assumed stock bonus awards 3 40 Addition from assumed participation in employee stock purchase plan 5 ------- -------- ------ Weighted average common and common equivalent shares outstanding 8,914 9,043 8,467 ======= ======== ====== Net income (loss) per common and common equivalent share ($ 0.25) ($ 1.26) $ 0.85 ======= ======== ====== Fully diluted earnings per share: Weighted average common shares outstanding 8,914 8,606 8,043 Addition from assumed exercise of stock options 452 422 Addition from assumed stock bonus awards 3 40 Addition from assumed participation in employee stock purchase plan 50 ------- -------- ------ Weighted average common and common equivalent shares outstanding 8,914 9,061 8,555 ======= ======== ====== Net income (loss) per common and common equivalent share ($ 0.25) ($ 1.26) $ 0.84 ======= ======== ======
20 EX-13 3 PORTIONS OF THE 1996 ANNUAL REPORT 1 EXHIBIT 13 Broadway and Seymour, Inc. FINANCIAL TABLE OF CONTENTS Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 7 Consolidated Statement of Operations........................................................................ 16 Consolidated Balance Sheet.................................................................................. 17 Consolidated Statement of Changes in Stockholders' Equity................................................... 18 Consolidated Statement of Cash Flows........................................................................ 19 Notes to the Consolidated Financial Statements.............................................................. 20 Report of Independent Accountants........................................................................... 32
6 2 Broadway and Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Broadway and Seymour, Inc. (the "Company") provides integrated business solutions and systems integration services for the financial services industry and time and practice management systems for the legal and professional services industries. Beginning in mid 1995 and through 1996, the Company performed an extensive analysis of its business activities, and as a result, the Company disposed of those activities that were inconsistent with the new strategic direction of the Company. Management has presented the following discussion and analysis in a way which it believes best presents the significant events and trends affecting the Company's results of operations. Significant transactions impacting the Company's historical financial results in 1996 and 1995 have been separately highlighted and a comparative discussion and analysis of the Company's operating results has been provided. In 1996, the Company generated a consolidated operating loss of approximately $10.3 million, reflecting improvement from the 1995 operating loss of approximately $15.8 million. In addition, the 1996 fourth quarter operating results were at approximately break-even. Including the effect of gains related to the sales of Corbel & Co. ("Corbel") and the Asset Management Services Group ("AMSG") described below, the 1996 fourth quarter net income was $1.1 million or $.13 per share. SIGNIFICANT TRANSACTIONS The following is a brief summary of the significant acquisitions and dispositions that have had a material effect on the Company's historical operating results and financial condition. See the notes to the Company's Consolidated Financial Statements, included herein, for additional discussion related to such transactions. ACQUISITIONS In June 1995, the Company acquired The MiniComputer Company of Maryland, Inc. ("TMC"). TMC provides proprietary time and billing software, custom programming services and other computer related services primarily to law firms. Operationally, TMC is part of the Company's Elite Information Systems, Inc. ("Elite") subsidiary. In January 1995, the Company acquired EBG & Associates, Inc. ("EBG") and BancCorp Systems, Inc. ("BancCorp") in unrelated transactions. EBG was later sold as a part of the sale of Corbel described below and BancCorp was later sold as a part of the sale of AMSG described below. In September 1994, the Company acquired Micro/Resources, Inc. ("MRI"). MRI provides the proprietary CRISP(TM) product family, an integrated decision-support platform, and related services to commercial and private banks in the United States. MRI operations were subsequently relocated and merged with existing operations at the Company's headquarters in Charlotte, NC. In February 1994, the Company acquired Elite which provides proprietary Elite Billing System software, a comprehensive accounting and information management software package, and other software, to law firms and other professional services firms in the United States and Europe. 7 3 Broadway and Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) DISPOSITIONS In November 1996, the Company sold its wholly owned subsidiary, Corbel, which included EBG, resulting in a gain of $.9 million. Corbel contributed revenue of $17.4 million in 1996 (prior to the sale), $18.5 million in 1995 and $20 million in 1994. Operating income from Corbel was $3.4 million in 1996 (prior to the sale), $2.4 million in 1995 and $5.7 million in 1994. Revenue and operating income for 1996 include a one-time software license fee of $5.0 million from a single transaction. Excluding the $5.0 million, 1996 revenues decreased $6.1 million from the prior year and the 1996 operating loss would have been $1.6 million. This decrease in revenue and operating income are due in part to 1996 including only eleven months of operations, compared to twelve months in 1995, and also to lower pension document processing volumes in 1996. In August 1996, the Company developed a plan to close its National Pension Alliance ("NPA") business. NPA is a partnership of which Corbel/NPA, Inc., a wholly owned subsidiary of the Company, is a 75% general partner. Following a transition period for NPA customers, the operations of NPA will cease. For the years ended December 31, 1996, 1995 and 1994, NPA had revenue of $.6 million, $.8 million and $.2 million, respectively, and a loss before restructuring charges of $2.3 million, $2.2 million and $.6 million, respectively. See "Impairment of Long-Term Assets and Restructuring of Operations" below. In May 1996, the Company sold AMSG, which included BancCorp. The gain on the sale of AMSG was $8.7 million. AMSG contributed revenue of $5.8 million in 1996 (prior to the sale), $15.5 million in 1995 and $10.9 million in 1994. Operating losses from AMSG were $2.8 million in 1996 (prior to the sale), $9.3 million in 1995 and $1.2 million in 1994. In addition, subsequent to the sale of AMSG, the Company recorded an additional $4.0 million of non-recurring revenue, and approximately $3 million of related expense, for certain professional and transition services provided to the purchaser of AMSG under agreements entered into at the time of the sale. The decreases in revenue and operating losses from 1995 to 1996 are principally due to the inclusion of AMSG operations for twelve months in 1995 compared to five months in 1996. In September 1995, the Company transferred a contract for services provided to International Business Machines Corporation ("IBM") to another service provider and recorded $.9 million of revenue with substantially no associated expense. Prior to the transfer, services provided under this contract in 1995 contributed approximately $1.9 million of revenue and incurred costs of $1.6 million. In June 1995, the Company sold its wholly owned subsidiary, Liberty Software, Inc. ("Liberty"), and during 1995 the Company received approximately $9.5 million related to certain software license fees,software maintenance and transition services provided to the purchaser of Liberty, against which the Company incurred substantially no expense. The Company received a final payment of $.5 million in March 1996. In 1995, prior to the sale, Liberty revenue was $10.1 million and operating income was $.4 million. In December 1994, the Company sold rights to its Gateway imaging and document conversion operations ("Gateway"). During 1995, the purchaser paid $6.8 million to the Company under the maintenance provisions of a software license agreement. The $6.8 million in maintenance revenue recorded in 1995 had substantially no associated expense. 8 4 Broadway and Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Because of the significant impact of the transactions discussed above, a comparison of the historical results of operations for 1996 to those of 1995 may not be meaningful. Accordingly the following table has been included to facilitate discussion and analysis of the results of operations for the Company's ongoing business.
Revenue and Cost of Revenue 1996 1995 -------------------------------------------------------------------------------------------------- (In thousands, unaudited) Net revenue from ongoing business, excluding NPA $60,977 $ 50,743 Net revenue from NPA 592 817 Non-recurring net revenue from Corbel, AMSG, Liberty, Gateway maintenance and IBM services contract 27,782 63,178 -------------------------------------------------------------------------------------------------- Consolidated net revenue $89,351 $114,738 -------------------------------------------------------------------------------------------------- Cost of revenue from ongoing business, excluding NPA $47,924 $ 48,005 Cost of revenue from NPA 2,117 2,130 Non-recurring cost of revenue from Corbel, AMSG, Liberty, Gateway maintenance and IBM services contract 19,660 43,472 -------------------------------------------------------------------------------------------------- Consolidated cost of revenue $69,701 $ 93,607 ==================================================================================================
Net revenue from the Company's ongoing business, excluding NPA, increased $10.2 million from 1995 to 1996. Of this increase, $8.5 million is attributed to the Company's Customer and Financial Solutions group. This increase is principally due to TouchPoint(TM) and VisualImpact(TM), under development in prior years, and other solutions, which contributed revenue in excess of $8.1 million in 1996. In addition, the Company recognized $4.0 million of software license revenue in 1996 from a significant new contract with a single customer. The Company recorded substantially no incremental expense associated with this $4.0 million of license revenue. Other changes in the Customer and Financial Solutions group revenue were due to changes in specific year to year engagements with customers, based on contractual agreements to provide solutions and license certain intellectual properties. Revenue from Elite remained flat in 1996, when compared to 1995. Revenue from the Company's TMC subsidiary in 1996 was $1.7 million more than 1995, due to the inclusion of TMC's operations, acquired in June 1995, for twelve months in 1996 compared to six months in 1995. Cost of revenue from the Company's ongoing business, excluding NPA, remained relatively flat in 1996 compared to 1995, however, 1995 included $5.2 million related to an accrual for estimated contract losses. Excluding these contract losses, the 1995 margins on revenue from ongoing business were $7.9 million or 15.6% compared to $13.1 million or 21.4% in 1996. This improvement in margin is principally the result of the Company's late 1995 change in its focus to core operations, integration of independent business units and implementation of a new project management process, including pricing guidelines. Research and development expenses decreased to $5.8 million in 1996 from $6.7 million in 1995, principally due to the sale of Corbel. These amounts are net of capitalized development costs which were $1.6 million and $2.2 million in 1996 and 1995, respectively. Including capitalized costs, research and development costs were $7.4 million or 8.3% of 9 5 Broadway and Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) consolidated revenue in 1996, compared to $8.9 million or 7.8% of consolidated revenue in 1995. Research and development costs incurred in 1996 and 1995 relate to the Company's BANCStar(R), CRISP(TM), BANCStar Prism(TM), TouchPoint(TM), VisualImpact(TM) and Elite Billing System solutions. Sales and marketing expenses decreased $3.8 million from 1995 to 1996. Of this decrease, $3.1 million is due to the sales of Corbel and AMSG in 1996 and the sale of Liberty in 1995. In addition, in connection with its reorganization in the fourth quarter of 1995, the Company integrated independent business units and changed its focus to core operations, resulting in a realignment of the sales and marketing department personnel. General and administrative expenses decreased $1.8 million from 1995 to 1996. Of this decrease, $.4 million is due to the sales of Corbel and AMSG in 1996 and the sale of Liberty in 1995 and $.8 million is due to expense recoveries related to transition services provided to the purchaser of AMSG in 1996. In addition, in 1995 the Company incurred $.6 million of non-recurring consulting fees related to the Company's reengineering efforts and the Company's strategic planning process. Restructuring and impairment charges in 1996 include exit costs related to the Company's plan to close NPA. Restructuring and impairment charges in 1995 included provisions for asset write-downs related to a product line, costs for office space reduction and employee severance costs. For further discussion, see "Impairment of Long-Term Assets and Restructuring of Operations" below. The increase in cash and cash equivalents and the repayment of the Company's credit facility during the year caused the Company's net interest expense for 1996 to decrease to $.2 million from $.5 million in the prior year. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 As a result of the acquisitions and dispositions and related non-recurring transactions described above and more fully described in the notes to the Company's Consolidated Financial Statements, a comparison of the results of operations of 1995 to 1994 may not be meaningful. During 1995, the Company's revenue decreased 14% to $114.7 million from $132.9 million in 1994. The majority of the decrease was related to the sale of Gateway in the fourth quarter of 1994 and the sale of Liberty in the second quarter of 1995. During 1994, Gateway and Liberty contributed approximately $30 million and $21 million of revenue, respectively. During 1995, Gateway and Liberty contributed revenue of approximately $6.8 million and $19.6 million, respectively. Included in 1995 Liberty revenue are non-recurring software license, maintenance and service fees of approximately $9.5 million related to products and services sold to the purchaser of Liberty. The Company incurred no significant expenses associated with the $9.5 million and $6.8 million received in 1995 from the Gateway and Liberty transactions, respectively. Also included in 1995 revenue is the proceeds from the sale of the IBM services contract to another service provider whereby the Company recorded $.9 million of revenue with substantially no associated expense. These decreases in revenue were offset, in part, by revenue added through the acquisitions of BancCorp, EBG and TMC, which contributed an increase of 10 6 Broadway and Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) approximately $4.2 million. These decreases were further offset by approximately $4.5 million related to increased sales of Elite products and the inclusion of Elite's operations, acquired in February 1994, for twelve months in 1995 compared to eleven months in 1994. The Company's cost of revenue increased by $3.2 million in 1995 compared with 1994. A portion of this increase related to increased staffing and subcontractor costs. The Company staffed projects on an as-needed basis, by hiring the additional personnel necessary to complete executed contracts. At times, these personnel were underutilized due to the variable nature of the Company's long-term projects. In these cases, the Company continued to incur personnel costs when there was no incoming revenue. A portion of this increase was related to the accrual of estimated liabilities for contract losses of $5.2 million during the fourth quarter of 1995. Of this accrual, $3.2 million related to an imaging product contract for a customer that was originally scheduled for completion during the fourth quarter of 1995. Certain testing related to the implementation of this imaging system revealed significant problems with modules of the installed product, requiring additional work to achieve contracted performance requirements. The additional $2 million in contract loss accruals was related to several different product/service solutions and contracts, each of which, when taken individually, was not material to the increase in cost of revenue. Cost of revenue for 1995 also reflected the Company's continued funding of its investment in NPA. Expenses related to the funding of NPA's cost of revenue in 1995 increased to approximately $2.1 million. Also included in 1995 cost of revenue was a $2.6 million non-cash charge related to the accelerated amortization expense of software acquired in the BancCorp acquisition. Also adding incremental costs to 1995 were the acquisitions of TMC, BancCorp, and EBG. These increases in cost of revenue were offset, in part, by decreases related to the Gateway transaction, the sale of Liberty and the sale of the IBM service contract. During 1995, the Company's research and development expenses increased by $2.3 million or 53%. A significant portion of these expenditures was related to the development of the TouchPoint solution, the development of the graphical user interface of the CRISP solution, the development and introduction of the VisualImpact check imaging system and enhancements to existing solutions. The Company's capitalization of software development costs decreased in 1995 as the Company focused its efforts, to a greater extent, on maintenance of existing products lines. This, combined with the sale of Gateway in December 1994 and the sale of Liberty in June 1995, contributed to the decreased capitalization for 1995. Research and development expenses in 1995 were net of $2.2 million of capitalized software development costs, compared to $3.1 million in 1994. Including capitalized costs, research and development expenditures increased 19% to $8.9 million, or 7.8% of revenue. Capitalized software development costs primarily related to development of and enhancements to the Company's CRISP, BANCStar, BANCStar Prism, Quantech, Elite Billing System and NPA solutions. The Company's sales and marketing expenditures increased 3% in 1995 to $15.8 million. Expected decreases in sales and marketing expenditures due to the Liberty and Gateway transactions were offset by increased costs associated with marketing systems integration services, AMpreferred and the Elite Billing System software. In addition, the acquisition of TMC, BancCorp and EBG in 1995 contributed incremental expenses of $.6 million. 11 7 Broadway and Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) General and administrative expenses increased to $11.6 million in 1995 from $8.8 million in 1994, an increase of 31%. As a percentage of revenue, general and administrative costs increased from 7% in 1994 to 10% in 1995. The increase was due, in part, to the acquisition of BancCorp, EBG and TMC, which added $1.8 million of incremental expenses and $.8 million of increased executive costs. Also included in 1995 general and administrative expenses were approximately $.3 million of costs related to an acquisition abandoned in the fourth quarter and $.6 million of consulting costs related to the Company's reengineering efforts and strategic planning process. Operating results in 1995 included a $2.9 million restructuring and impairment charge which consisted of provisions for asset write-downs related to a product line, costs for office space reduction and employee severance costs. See "Impairment of Long-Term Assets and Restructuring of Operations" below. The Company had net interest expense of $.5 million in 1995 compared to $.8 million in 1994 due primarily to the repayment of its bank credit facility and certain notes payable with proceeds from the Gateway transaction on December 30, 1994. The decrease in interest expense associated with these repayments was offset by promissory notes issued in connection with the acquisitions of BancCorp and TMC and increased borrowings under the Company's bank credit facility to fund increased working capital requirements, capital expenditures and software development costs. IMPAIRMENT OF LONG-TERM ASSETS AND RESTRUCTURING OF OPERATIONS The Company continually monitors conditions that may affect the carrying value of its capitalized software costs and intangible assets. When conditions indicate potential impairment of such assets, the Company undertakes necessary market and technology studies and reevaluates projected future earnings associated with these assets. When projected future cash flows, not discounted for the time value of money, are less than the carrying value of the asset, the impaired asset is written down to its fair value. In August 1996, the Company developed a plan to close NPA. Following a transition period for NPA customers, the operations of NPA will cease. For the years ended December 31, 1996, 1995 and 1994, NPA had revenue of $.6 million, $.8 million and $.2 million, respectively, and a loss before restructuring charges of $2.3 million, $2.2 million and $.6 million, respectively. In 1996, the Company reserved approximately $2.5 million related to the exit costs of NPA, including $1.3 million for customer refunds, $.8 million related to asset write-offs and other exit costs and $.4 million related to employee terminations. As of December 31, 1996, $1.3 million, related principally to customer refunds and asset write-offs had been charged against the reserve, leaving an accrual of $1.2 million. The exit plan is expected to be completed in 1997. The results of operations for 1995 included a non-recurring charge of $2.9 million, which consisted of a $1.5 million restructuring charge and $1.4 million in impairment of intangible assets related to the TMC acquisition. The $1.5 million restructuring charge consisted of approximately $1.0 million for the consolidation of certain facilities and approximately $.5 million for severance costs for employees who have been terminated. During 1996, the Company reduced its estimate of the remaining costs to complete the restructuring by $.2 million. During the years ended 12 8 Broadway and Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) December 31, 1996 and 1995, the Company utilized cash of approximately $.8 million and $.1 million, respectively, to satisfy obligations related to these reserves. The reserve balance was approximately $.4 million at December 31, 1996. The $1.4 million write-down of intangible assets was related to customer list and assembled workforce intangibles acquired in connection with the acquisition of TMC. Based on revised estimates of the number and rate of conversions from TMC software to Elite software and lower than expected operating results from this acquisition, management determined that these intangible assets were impaired. Using discounted cash flows as an estimate of net realizable value, the Company adjusted the carrying value of these intangible assets to approximately $.5 million at December 31, 1995. In September 1995, the Company undertook a technology study to evaluate the viability of Trust Processor, BancCorp's DOS-based trust accounting software product. This analysis indicated that a complete re-write of the existing software was necessary to develop a Windows-based application that would be competitive in the larger financial institution market. Using the projected cash flows as an estimate of net realizable value, the Company wrote-off unamortized software costs of $2.6 million in the fourth quarter of 1995. The $2.6 million of accelerated amortization of software cost is included in 1995 cost of revenue. The Company is not aware of any other market or technology trends that would adversely affect the carrying value of its software costs and other intangible assets. However, the Company operates in markets characterized by innovation and rapid technological advances, and no assurance can be given that changes in the marketplace would not impair the carrying value of the Company's software costs and other intangible assets. INCOME TAXES The provisions for income taxes of $1.5 million (183% of the pre-tax loss) in 1996 and $5.9 million (45% of pre-tax income) in 1994, exceed the income tax expense at the statutory rates for these periods primarily due to the permanent differences of non-deductible goodwill amortization and state income taxes. The 1995 income tax benefit of $5.0 million is a direct result of the 1995 pre-tax loss. This benefit was offset, in part, by the permanent difference of non-deductible amortization of goodwill. The Company believes that the effective tax rate in 1997 will remain higher than the statutory rate due to the ongoing non-deductible goodwill amortization associated with the Company's acquisitions. The net operating loss ("NOL") generated during 1995 was carried back to decrease tax liabilities in prior years, resulting in a refund of $.5 million. In addition, the Company has NOLs for state income tax purposes of $11.4 million available for use in numerous states. Due to certain limitations, a valuation allowance has been recorded against the deferred tax assets arising from the state NOLs. QUARTERLY RESULTS OF OPERATIONS Note 14 to the Company's Consolidated Financial Statements included herein sets forth unaudited quarterly operating results for the four fiscal quarters of 1996 and 1995. The Company believes that all necessary adjustments have been included to present fairly its quarterly results when read in conjunction with the financial statements, including the notes thereto. Results of operations for any particular fiscal quarter are not necessarily indicative of results of 13 9 Broadway and Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) operations for any future period. Due to the significant impact of the transactions discussed above, a comparison of the historical results of operations of the 1996 quarters to the quarters of 1995 may not be a meaningful indicator of future performance. LIQUIDITY AND CAPITAL RESOURCES On December 31, 1996, the Company had cash and cash equivalents of $15 million and working capital of $15.9 million. The Company used a portion of the $13.5 million of proceeds from the sale of Corbel to fund working capital requirements and pay certain expenses. The Company also used a portion of the proceeds from the AMSG transaction to pay off its revolving credit facility, which expired in May 1996, and certain other debt. The Company has reviewed its liquidity and capital requirements and believes that the remaining proceeds from the Corbel and AMSG transactions, cash flow from operations and the issuance of stock pursuant to its employee stock purchase and stock option plans will be sufficient to fund its working capital and capital expenditure requirements through 1997. OTHER Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of." This statement addresses the accounting for the impairment, if any, of the Company's long-lived assets, identifiable intangibles and goodwill relating to those assets. Adoption of this standard did not have a material impact on the consolidated financial statements of the Company. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." This statement addresses the accounting for the compensatory effect of certain stock-based transactions. Upon adoption, as allowed under SFAS 123, the Company elected to only disclose the impact of stock-based compensation in its footnotes to its financial statements, measured using the fair value approach required under SFAS 123, and to exclude the impact from its recorded earnings. Adoption of this standard did not have a material impact on the consolidated financial statements of the Company. Information or statements contained in this report, other than historical information, should be considered forward-looking in nature and subject to various risks and uncertainties. For instance, the Company's strategies and expectations discussed in this report and the Company's other filings with the Securities and Exchange Commission involve risks of competition, changing market conditions, changes in laws and regulations affecting the Company's industry and numerous other factors. Accordingly, actual results may differ materially from those set forth in any such forward-looking information or statements. 14 10 SELECTED FINANCIAL DATA (In thousands, except per share data)
Eleven months Fiscal Years ended ended Year ended December 31, Dec. 31, January 31, Operations: 1996 1995 1994 1993 1993 ---- ---- ---- ---- ---- Total revenue $ 89,351 $114,738 $132,858 $71,665 $65,610 Operating costs and expenses 99,609 $130,583 $118,983 $74,520 59,109 -------- -------- -------- ------- ------- Operating income (loss) (10,258) (15,845) 13,875 (2,855) 6,501 -------- -------- -------- ------- ------- Gain on disposition of non-strategic business units 9,652 Net interest expense (187) (493) (821) (25) 137 -------- -------- -------- ------- ------- Income (loss) before income taxes and accounting change (793) (16,338) 13,054 (2,880) 6,638 Provision (benefit) for income taxes 1,455 (4,958) 5,858 1,298 3,215 -------- -------- -------- ------- ------- Income (loss) before accounting change (2,248) (11,380) 7,196 (4,178) 3,423 Effect of income tax accounting change 377 -------- -------- -------- ------- ------- Net income (loss) $ (2,248) $(11,380) $ 7,196 $(3,801) $ 3,423 ======== ======== ======== ======= ======= Per common and common equivalent share: Income (loss) before accounting change $ (0.25) $ (1.26) $ 0.85 $ (0.53) $ 0.51 Effect of accounting change 0.04 -------- -------- -------- ------- ------- Net income (loss) $ (0.25) $ (1.26) $ 0.85 $ (0.49) $ 0.51 ======== ======== ======== ======= ======= Selected balance sheet data: 12/31/96 12/31/95 12/31/94 12/31/93 1/31/93 -------- -------- -------- -------- ------- Working capital (deficit) $ 15,907 $ 490 $ (407) $ (467) $ 6,000 Total assets 66,474 83,245 75,683 50,717 39,910 Long-term debt, including current portion 611 2,373 1,765 899 Stockholders' equity 32,190 32,437 34,780 25,087 23,567
The selected financial data includes the results of acquired businesses from the date of acquisition and in the case of Micro/Resources, Inc. (accounted for using the pooling of interests method), for all periods presented. The comparability of the results of operations for the periods presented is also impacted by dispositions of certain business as discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations. MARKET FOR COMMON STOCK Since June 16, 1992, the date of the Company's initial public offering ("IPO"), its common stock, $.01 par value, (the "Common Stock") has traded on the National Association of Securities Dealers, Inc. Nasdaq National Market System ("Nasdaq") under the symbol BSIS. The following table shows the price range in the Company's Common Stock for the past two fiscal years:
Quarter ended 12/31/96 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95 --------------------------------------- -------------------------------------- High $14 $14 1/8 $17 1/8 $16 1/4 $26 1/2 $30 1/8 $20 3/4 $21 5/8 Low $ 7 3/4 $ 9 1/4 $10 $10 1/2 $15 3/4 $21 $15 1/2 $17
15 11 Broadway and Seymour, Inc. CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) NET REVENUE $ 89,351 $114,738 $132,858 - --------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Cost of revenue 69,701 93,607 90,425 Research and development 5,830 6,729 4,389 Sales and marketing 11,958 15,760 15,357 General and administrative 9,801 11,566 8,812 Restructuring and impairment charges 2,319 2,921 - --------------------------------------------------------------------------------------------------------------- Total operating expenses 99,609 130,583 118,983 - --------------------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) (10,258) (15,845) 13,875 Gain on disposition of non-strategic business units 9,652 Interest income 260 93 63 Interest expense (447) (586) (884) - --------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes (793) (16,338) 13,054 Income tax provision (benefit) 1,455 (4,958) 5,858 - --------------------------------------------------------------------------------------------------------------- Net income (loss) $ (2,248) $(11,380) $ 7,196 =============================================================================================================== Net income (loss) per common and common equivalent share $ (0.25) $ (1.26) $ 0.85 ===============================================================================================================
The accompanying notes are an integral part of these financial statements. 16 12 Broadway and Seymour, Inc. CONSOLIDATED BALANCE SHEET
As of December 31, 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- (In thousands, except share data) ASSETS CURRENT ASSETS: Cash and cash equivalents $15,010 $ 2,053 Receivables 25,706 28,233 Income tax refund receivable 2,100 Inventories 890 417 Deferred income taxes 4,417 4,934 Other current assets 1,308 1,381 ------------------------------------------------------------------------------------------------------ Total current assets 47,331 39,118 Property and equipment, net 6,291 9,299 Software costs 4,748 9,865 Intangible assets 7,346 24,578 Other assets 758 385 ------------------------------------------------------------------------------------------------------ $66,474 $83,245 ====================================================================================================== LIABILITIES AND CURRENT LIABILITIES: STOCKHOLDERS' Notes payable and current portion of long-term debt $ 473 $ 6,263 EQUITY Accounts payable-trade 5,836 6,408 Accrued compensation 2,615 2,796 Estimated liabilities for contract losses 2,922 5,246 Other accrued liabilities 4,554 5,079 Deferred revenue 12,476 12,561 Income taxes payable 2,548 275 ------------------------------------------------------------------------------------------------------ Total current liabilities 31,424 38,628 ------------------------------------------------------------------------------------------------------ Long-term debt 138 1,327 ------------------------------------------------------------------------------------------------------ Deferred income taxes 2,557 7,096 ------------------------------------------------------------------------------------------------------ Deferred revenue and other liabilities 165 3,757 ------------------------------------------------------------------------------------------------------ Commitments and contingencies Stockholders' equity: Common stock, $.01 par value; Authorized 20,000,000 shares; Issued 8,988,608 and 8,801,016 shares for 1996 and 1995, respectively 90 88 Paid-in capital 36,276 34,277 Accumulated deficit (3,684) (1,436) ------------------------------------------------------------------------------------------------------ 32,682 32,929 Treasury stock, at cost, 38,552 shares (492) (492) ------------------------------------------------------------------------------------------------------ Total stockholders' equity 32,190 32,437 ------------------------------------------------------------------------------------------------------ $66,474 $83,245 ======================================================================================================
The accompanying notes are an integral part of these financial statements. 17 13 Broadway and Seymour, Inc. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Retained earnings Common Stock Paid-in (accumulated Treasury Stock Shares Par Value capital deficit) Shares Cost Total - ------------------------------------------------------------------------------------------------------------------- (In thousands, except share data) Balance, December 31, 1993 7,739,049 $ 77 $22,262 $ 2,748 $25,087 Issuance of common shares in business acquisition 192,307 2 1,821 1,823 Purchase of treasury stock (38,552) $(492) (492) Exercise of stock options 266,900 3 1,163 1,166 Net income 7,196 7,196 - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 8,198,256 82 25,246 9,944 (38,552) (492) 34,780 Issuance of common shares in business acquisitions 172,308 2 3,473 3,475 Exercise of stock options 430,452 4 4,121 4,125 Tax benefit from exercise of stock options 1,437 1,437 Net loss (11,380) (11,380) - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 8,801,016 88 34,277 (1,436) (38,552) (492) 32,437 Issuance of common shares in business acquisitions 15,723 250 250 Exercise of stock options 171,869 2 1,666 1,668 Tax benefit from exercise of stock options 83 83 Net loss (2,248) (2,248) - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 8,988,608 $ 90 $36,276 $ (3,684) (38,552) $(492) $32,190 ===================================================================================================================
The accompanying notes are an integral part of these financial statements. 18 14 Broadway and Seymour, Inc. CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------ (In thousands) Cash flows from operating activities: Net income (loss) $(2,248) $(11,380) $ 7,196 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 8,888 12,890 10,574 Restructuring and impairment costs 2,319 2,921 Gain on sale of non-strategic business units (9,652) Deferred income taxes (1,511) (7,123) 854 Loss (gain) on disposal of property and equipment (11) 90 (83) Change in assets and liabilities excluding effects of businesses acquired and divestitures: Receivables (3,337) (2,680) (10,308) Inventories (578) Other assets (542) 252 175 Accounts payable-trade (75) (3,509) 6,797 Accrued compensation (104) (121) 912 Other liabilities (8,160) 7,403 59 Deferred revenue 4,170 4,791 2,320 Income taxes 4,456 (3,244) 2,875 - ------------------------------------------------------------------------------------------------------------------ Net cash provided (used) by operating activities (6,385) 290 21,371 - ------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchase of property and equipment (3,337) (6,660) (6,071) Investment in software costs (1,576) (2,193) (5,331) Proceeds from sale of property and equipment and other dispositions 31,219 2,088 1,868 Cash used in business acquisitions (864) (1,479) (5,260) - ------------------------------------------------------------------------------------------------------------------ Net cash provided (used) by investing activities 25,442 (8,244) (14,794) - ------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Net borrowings (payments) under credit facility (5,217) 5,217 (3,443) Proceeds from issuance of long-term debt and notes payable 251 572 15,433 Payment of notes payable and long-term debt (1,860) (1,186) (18,352) Proceeds from issuance of common stock 726 3,765 674 - ------------------------------------------------------------------------------------------------------------------ Net cash provided (used) by financing activities (6,100) 8,368 (5,688) - ------------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 12,957 414 889 Cash and cash equivalents, beginning of period 2,053 1,639 750 - ------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents, end of period $15,010 $ 2,053 $ 1,639 ==================================================================================================================
The accompanying notes are an integral part of these financial statements. 19 15 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--NATURE OF BUSINESS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND CERTAIN SIGNIFICANT ESTIMATES Broadway & Seymour, Inc. (the "Company") is an information technology software and services company providing integrated business solutions and systems integration services for the financial services industry and time and practice management solutions for the legal and professional services industries. The principal markets for the Company's solutions and services are domestic financial services institutions and call centers and domestic and European law firms. The presentation 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. The more significant estimates affecting the Company's financial statements relate to revenue recognition and loss accruals for long-term contracts, allowance for uncollectible receivables and useful lives used in depreciating property and equipment and amortizing capitalized software products and intangible assets. The significant accounting policies used in the preparation of the accompanying financial statements are as follows: PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. REVENUE RECOGNITION. Revenue from services and from the sale of software with related services is generally recognized as work is performed under the percentage of completion method. Revenue from the sale of software and hardware products having no significant ongoing obligations is generally recognized upon delivery of the product. Maintenance revenue is recognized ratably over the contract term. Losses are recognized on contracts in the period in which the liability is identified. CASH EQUIVALENTS. Cash equivalents are short-term, highly liquid investments with original maturities of three months or less. INVENTORIES. Inventories consist principally of computer equipment and purchased third party software held for resale and are stated at the lower of cost or market, with cost determined using the first-in, first-out method. PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the related assets, which range from forty-two months to ten years. Leasehold improvements are amortized using the straight-line method over the lesser of their estimated useful lives, generally ten years, or the remaining terms of the leases. 20 16 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) SOFTWARE COSTS AND INTANGIBLE ASSETS. The Company capitalizes portions of the costs of developing software to be sold. Capitalized costs were incurred after the establishment of technological feasibility and prior to the availability of the software for general release, including costs of product enhancements that improve the marketability of the original product or extend its life. Software costs are amortized using the straight-line method over the estimated economic life of the products, up to a maximum of six years. The excess of cost over fair value of assets acquired is amortized using the straight-line method over ten years. Other intangible assets are amortized using the straight-line method over the useful lives of the assets, which range from five to ten years. The Company continually monitors conditions that may affect the carrying value of its software costs and intangible assets. When conditions indicate potential impairment of such assets, the Company undertakes necessary market and technology studies and reevaluates projected future earnings associated with these assets. When projected future cash flows, not discounted for the time value of money, are less than the carrying value of the asset, the Company writes down the impaired asset to its net realizable value. The Company adopted Statement of Financial Accounting Standards No. 121, (SFAS 121), "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of," effective January 1, 1996. Adoption of this standard did not have a material impact on the consolidated financial statements of the Company. STOCK-BASED COMPENSATION. The Company adopted Statement of Financial Accounting Standards No. 123, (SFAS 123), "Accounting for Stock-Based Compensation," effective January 1, 1996. Upon adoption, the Company elected to disclose in its footnotes to its financial statements the impact of utilizing the fair value approach to measure stock-based compensation, as provided for under the provisions of SFAS 123, and to exclude such impact from its recorded earnings. The Company measures stock-based compensation based on the intrinsic value approach as provided for under the provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). ADVERTISING COSTS. The Company expenses advertising costs as incurred. Advertising expenses for 1996, 1995 and 1994 were $1,338,000, $1,512,000 and, $1,069,000, respectively. INCOME (LOSS) PER SHARE. Per share amounts are based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during each period. Common stock equivalents consist primarily of stock options. The weighted average number of shares was 8,914,000, 9,043,000 and, 8,467,000 shares for the years ended December 31, 1996, 1995 and 1994, respectively. RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform with the current year presentation. 21 17 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 2--SIGNIFICANT TRANSACTIONS DISPOSITIONS: In November 1996, the Company sold all of the issued and outstanding capital stock of the Company's wholly owned subsidiary, Corbel & Co. ("Corbel") (excluding its interest in National Pension Alliance--See Note 7), pursuant to a Stock Purchase Agreement. The consideration paid to the Company at closing was approximately $13.5 million, with an additional $.5 million to be paid to the Company twenty four months after the effective date, subject to certain holdback provisions for indemnification obligations. Also, the Company may be entitled to receive an earnout payment of up to a maximum of $3.5 million based on Corbel revenue in 1997. The gain on the transaction was approximately $.9 million. Corbel contributed revenue of $17.4 million in 1996 (prior to the sale), $18.5 million in 1995 and $20 million in 1994. Corbel contributed operating income of $3.4 million in 1996 (prior to the sale), $2.4 million in 1995 and $5.7 million in 1994. Corbel revenue and operating income for 1996 include a one-time software license fee of $5.0 million from a single transaction. In May 1996, the Company sold substantially all the assets, subject to certain related liabilities, of its AMSG business, including BancCorp, pursuant to an Asset Purchase Agreement. The Company received net cash proceeds at closing of $17.5 million for the net assets and licensing of certain software, net of certain fees and expenses. The gain on the sale of the business was $8.7 million. An additional $5.5 million was scheduled to be paid to the Company, subject to certain holdback provisions for indemnification obligations, over the twenty-four months following the closing for certain software maintenance, training, and transition services and professional services. As of December 31, 1996, all such service agreements have been terminated and $2 million remains to be received and recognized subject to certain holdback provisions for indemnification obligations. AMSG contributed revenue of $5.8 million in 1996 (prior to the sale), $15.5 million in 1995 and $10.9 million in 1994. Operating losses from AMSG were $2.8 million in 1996 (prior to the sale), $9.3 million in 1995 and $1.2 million in 1994. In addition, subsequent to the sale of AMSG, the Company recorded an additional $4.0 million of non-recurring revenue, and approximately $3 million of related expense, related to certain professional and transition services provided to the purchaser of AMSG under agreements entered into at the time of the sale. In September 1995, the Company transferred a contract for services provided to International Business Machines Corporation ("IBM") to another service provider and recorded $.9 million of revenue with substantially no associated expense. Prior to the transfer, services provided under this contract in 1995 contributed approximately $1.9 million of revenue and incurred costs of $1.6 million. In June 1995, the Company transferred certain assets, subject to related liabilities, of its community banking business, to a newly formed subsidiary, Liberty Software, Inc. ("Liberty"), and simultaneously therewith sold the common stock of Liberty pursuant to a Stock Purchase Agreement. At closing, the Company received $2 million for the stock of Liberty and recognized no gain or loss on such sale. In addition, during 1995 the Company received approximately $9.5 million related to certain software license fees, software maintenance and transition services provided to the purchaser of Liberty, against which the Company incurred substantially no expense. The Company received a final payment of $.5 million in March 1996. In 1994, the Company was engaged by Medaphis Corporation ("Medaphis") to provide systems integration and reengineering services in a multi-year, multi-million dollar contract. On December 30, 1994, Medaphis assumed 22 18 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ownership of its contract with the Company when the Company and Medaphis entered into an Asset Purchase Agreement, a Software License Agreement, and numerous supporting agreements, all of which are jointly referred to herein as the "Agreements." As a result, certain of the Company's Gateway imaging and document conversion operations were sold to Medaphis and Gateway's systems integration business was split, with the Company retaining contracts with banks and bank subsidiaries and Medaphis receiving other significant open contracts. Medaphis also obtained a perpetual, nonexclusive, royalty-free, license to copy, use, distribute, sub-license and prepare derivative works of object and source code copies of Gateway software. Since most of Gateway's employees became employees of Medaphis, transitional provisions in the Agreements included the subcontracting by Medaphis of certain work relating to contracts retained by the Company. Other transitional provisions included software maintenance services provided by the Company and mutual non-compete and non-solicitation agreements. Under the terms of the Agreements, Medaphis paid the Company $25.3 million at closing and paid an additional $6.8 million to the Company in 1995 under the maintenance provisions of the software license agreement. The $6.8 million in maintenance revenue recorded in 1995 had substantially no associated expense. ACQUISITIONS: In June 1995, the Company acquired certain assets and liabilities of The MiniComputer Company of Maryland, Inc. ("TMC") for $.7 million in cash, a $.4 million promissory note and 28,944 shares of the Company's common stock valued at $.5 million. The sellers are entitled to receive certain additional earn-out payments in the event certain financial and other targets are met. The Company allocated $1.5 million of the purchase price to software costs and $.5 million to goodwill. TMC is a marketer of proprietary time and billing software, custom programming services and other computer related services primarily to law firms. (See Note 7). TMC reports to the Company's Elite Information Systems Inc. ("Elite") subsidiary. In January 1995, the Company acquired EBG & Associates, Inc. ("EBG") for 47,954 shares of the Company's common stock (valued at $1 million) and the assumption of certain existing EBG obligations and acquired BancCorp Systems, Inc. ("BancCorp") for 95,410 shares of the Company's common stock (valued at $1.9 million), an $.8 million promissory note and the assumption of certain existing BancCorp debt and other obligations. The assets and operations of EBG and BancCorp have been subsequently sold as part of the Corbel and AMSG dispositions described above. In September 1994, the Company acquired Micro/Resources, Inc. ("MRI") in a transaction structured as a merger of MRI with a newly formed subsidiary of the Company, with MRI as the surviving corporation. The Company issued 632,302 shares of its common stock in exchange for all of the outstanding stock of MRI. MRI provides the proprietary CRISP(TM) product family, an integrated decision-support platform for commercial and private banks in the United States. MRI also provides a variety of programming, consulting and technical services related to the installation and support of CRISP. This acquisition was accounted for using the pooling of interests method. Accordingly, MRI's financial position, results of operations and cash flows have been included with those of the Company for all periods presented herein. In connection with the 1995 restructuring (see Note 7), the MRI operations were relocated and merged with existing operations at the Company's headquarters in Charlotte, NC. 23 19 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) In February 1994, the Company purchased all of the outstanding shares of capital stock of Elite for 192,307 shares of the Company's common stock valued at approximately $1.8 million, $5.8 million in cash at closing and promissory notes totaling $3.8 million which were paid in full on December 30, 1994. The Company allocated a portion of the purchase price to the following intangible assets: $4.4 million as software costs, $2.7 million as existing customer contracts, $1.8 million as assembled workforce and $4.3 million as goodwill. Elite provides the proprietary Elite Billing System and related products, a comprehensive accounting and information management software package marketed to legal and accounting firms nationwide and in Europe. Each of the acquisitions described above was accounted for using the purchase method, except for the acquisition of MRI, which was accounted for using the pooling of interests method. Accordingly, their results of operations have been included with those of the Company since their respective dates of acquisition. The following table sets forth the Company's unaudited pro forma results of operations for the periods presented assuming Elite, BancCorp, TMC and EBG had been acquired as of January 1, 1994. The unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the purchases actually been made at the beginning of the periods presented.
1995 1994 ------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Pro forma revenue $116,493 $141,676 ======================================================================================================= Pro forma net income (loss) $(10,580) $ 5,896 ======================================================================================================= Pro forma income (loss) per common and common equivalent share $ (1.17) $ 0.67 =======================================================================================================
NOTE 3--RECEIVABLES Receivables at December 31, 1996 and 1995 consisted of the following:
1996 1995 ---------------------------------------------------------------------- (In thousands) Trade $23,349 $24,752 Unbilled 2,584 3,809 Other 665 613 ---------------------------------------------------------------------- 26,598 29,174 Less--Allowance for doubtful accounts (892) (941) ---------------------------------------------------------------------- $25,706 $28,233 ======================================================================
24 20 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 4--PROPERTY AND EQUIPMENT Property and equipment at December 31, 1996 and 1995 consisted of the following:
1996 1995 ----------------------------------------------------------------------------------------- (In thousands) Equipment $13,339 $14,682 Furniture and fixtures 1,881 2,411 Leasehold improvements 1,007 1,235 ----------------------------------------------------------------------------------------- 16,227 18,328 Less--Accumulated depreciation and amortization (9,936) (9,029) ----------------------------------------------------------------------------------------- $ 6,291 $ 9,299 =========================================================================================
NOTE 5--SOFTWARE COSTS During 1996, 1995 and 1994, $1.6 million, $2.2 million and $3.1 million, respectively, of software development costs were capitalized. Software costs in the accompanying balance sheet also include the cost of purchased software. Accumulated amortization for internally developed and acquired software was $6.4 million and $7.5 million at December 31, 1996 and 1995, respectively. Amortization expense was $2.3 million, $5.9 million and $4.7 million in 1996, 1995 and 1994, respectively. Included in amortization expense for 1995 was approximately $2.6 million associated with the accelerated amortization of software costs related to a technology study evaluating the viability of the DOS-based BancCorp product which indicated that the software costs were not recoverable. Included in amortization expense for 1994 was approximately $1.7 million representing accelerated amortization of the Gateway software costs as a result of the Medaphis transaction described in Note 2. In connection with certain software developed or acquired by the Company and licensed to customers, the Company is obligated to pay royalties to third parties. The royalty agreements generally provide for payment of a specific amount for each software license granted by the Company. Royalty expense was $.7 million, $1.4 million and $2.4 million 1996, 1995 and 1994, respectively. NOTE 6--INTANGIBLE ASSETS Intangible assets at December 31, 1996 and 1995 consisted of the following:
1996 1995 ------------------------------------------------------------------------------------- (In thousands) Excess of cost over fair value of assets acquired $ 6,443 $18,334 Customer lists and maintenance contracts 2,700 10,170 Assembled workforce 1,800 4,400 Other 2 541 ------------------------------------------------------------------------------------- 10,945 33,445 Less--Accumulated amortization (3,599) (8,867) ------------------------------------------------------------------------------------- $ 7,346 $24,578 =====================================================================================
Amortization expense was $3.3 million, $3.6 million and $3.3 million for 1996, 1995 and 1994, respectively. Net intangible assets decreased by $17 million from 1995 to 1996 principally due to the sale of AMSG and Corbel. 25 21 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 7--RESTRUCTURING AND IMPAIRMENT CHARGES In August 1996, the Company developed a plan to close the National Pension Alliance ("NPA"), a partnership of which Corbel/NPA, Inc., a wholly owned subsidiary of the Company, is a 75% general partner. Following a transition period for NPA customers, the operations of NPA will cease. For the years ended December 31, 1996, 1995 and 1994, NPA had revenue of $.6 million, $.8 million and $.2 million, respectively, and a loss before restructuring charges of $2.3 million, $2.2 million and $.6 million, respectively. In 1996, the Company reserved approximately $2.5 million related to the exit costs of NPA, including $1.3 million for customer refunds, $.8 million related to asset write-offs and other exit costs and $.4 million related to employee terminations. As of December 31, 1996, $1.3 million, related principally to customer refunds and asset write-offs had been charged against the reserve, leaving an accrual of $1.2 million. The exit plan is expected to be completed in 1997. In the fourth quarter of 1995, the Company recorded a pre-tax charge of $2.9 million comprised of $1.5 million in restructuring charges related to costs for the consolidation of certain facilities of $1.0 million and employee severance costs of $.5 million and $1.4 million in asset impairments related to the TMC product line. In addition, certain software assets were written down as discussed in Note 5. During 1996, the Company reduced its estimate of the remaining costs to complete the 1995 restructuring by $.2 million. During the years ended December 31, 1996 and 1995, the Company utilized cash of approximately $.8 million and $.1 million, respectively, to satisfy obligations related to these reserves. The reserve balance was approximately $.4 million at December 31, 1996. The $1.4 million write down of intangible assets was related to customer list and assembled workforce intangibles acquired in connection with the acquisition of TMC. Based on revised estimates of the number and rate of conversions from the TMC product to the Elite product and lower than expected operating results from this acquisition, management determined that these intangible assets were impaired. Using the discounted cash flows as an estimate of net realizable value, the Company adjusted the carrying value of these intangible assets to approximately $.5 million at December 31, 1995. The Company is not aware of any other market or technology trends that would adversely affect the carrying value of its software costs and other intangible assets. However, the Company operates in markets characterized by innovation and rapid technological advances and no assurance can be given that changes in the marketplace would not impair the carrying value of the Company's software costs and other intangible assets. 26 22 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 8--NOTES PAYABLE AND LONG-TERM DEBT At December 31, 1995, the Company had $5.2 million outstanding under a bank credit facility. The credit facility expired and was repaid in 1996. Long-term debt at December 31, 1996 and 1995 consisted of the following:
1996 1995 ------------------------------------------------------------------------------------------------------------------- (In thousands) Unsecured promissory note due January 1997, with interest at 8.5% payable every three months $ 825 Unsecured, non-interest bearing promissory note due in annual installments of $667,000 through January 1996 667 Unsecured promissory note due in quarterly installments plus interest at 7.7% through May 1998 $ 200 333 Subordinated promissory note due in quarterly installments plus interest at the greater of the prime rate plus 2% (as defined in the agreement) or 10% through June 2000, secured by Corbel software and support materials 183 Unsecured promissory notes due through September 1998 and obligations under capital leases 411 365 ------------------------------------------------------------------------------------------------------------------- 611 2,373 Less--Portion due within one year (473) (1,046) ------------------------------------------------------------------------------------------------------------------- $ 138 $1,327 ===================================================================================================================
Cash paid for interest was approximately $.3 million, $.4 million and $.7 million for 1996, 1995 and 1994, respectively. NOTE 9--EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) retirement plan to which qualified employees may contribute from 1% to 15% of eligible annual compensation. The Company matches 50% of these contributions, up to a maximum of 6% of each participant's compensation for the plan year. Company contributions totaled $.9 million, $.7 million and $.6 million for 1996, 1995 and 1994, respectively. Effective January 1, 1995 the Company adopted the Broadway & Seymour, Inc. 1995 Employee Stock Purchase Plan covering a five-year period commencing January 1, 1995, under which substantially all employees may purchase up to an aggregate of 1,000,000 shares of the Company's common stock. The purchase price of the shares under the plan is 85% of the lesser of the fair value of the Company's common stock at the beginning of the plan year or at the end of the plan year. Employees may designate up to 10% of their compensation to be withheld towards the purchase of stock under the plan, up to a maximum value of $25,000 based on the fair market value as of the beginning of each plan year. The Company may provide shares under the plan from shares authorized and unissued or from shares acquired and held in treasury. 27 23 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 10--INCOME TAXES The components of the provision for income taxes for 1996, 1995 and 1994 consist of the following:
1996 1995 1994 ----------------------------------------------------------------------- (In thousands) Current provision: Federal $ 2,740 $ 1,952 $ 4,037 State 226 213 967 ----------------------------------------------------------------------- 2,966 2,165 5,004 ----------------------------------------------------------------------- Deferred provision (benefit): Federal (1,096) (6,606) 686 State (415) (517) 168 ----------------------------------------------------------------------- (1,511) (7,123) 854 ----------------------------------------------------------------------- $ 1,455 $(4,958) $ 5,858 =======================================================================
A reconciliation of income taxes computed at the statutory federal income tax rate to the recorded provision for income taxes is as follows:
1996 1995 1994 -------------------------------------------------------------------------------------------------------------------- (In thousands) Provision (benefit) for income taxes computed at the statutory federal rate $ (270) $(5,555) $4,438 Non-deductible amortization and impairment of intangible assets 1,374 631 503 State income taxes, net of federal income tax benefit 127 (313) 749 Other 224 279 168 -------------------------------------------------------------------------------------------------------------------- $1,455 $(4,958) $5,858 ====================================================================================================================
Deferred tax assets (liabilities) recognized in the Company's balance sheet at December 31, 1996 and 1995 were as follows:
1996 1995 ---------------------------------------------------------------------------------- (In thousands) Deferred tax assets: Asset allowances $ 329 $ 456 Loss accruals on contracts 1,324 1,815 Deferred revenue 1,677 593 Net operating losses and other carryforwards 819 1,204 Other accruals 1,075 1,693 Other deductions 12 56 ---------------------------------------------------------------------------------- Gross deferred tax assets 5,236 5,817 ---------------------------------------------------------------------------------- Less: valuation allowance (819) (883) ---------------------------------------------------------------------------------- Deferred tax assets 4,417 4,934 ---------------------------------------------------------------------------------- Deferred tax liabilities: Property and equipment (215) (425) Software costs and intangible assets (1,899) (6,553) Other liabilities (443) (118) ---------------------------------------------------------------------------------- (2,557) (7,096) ---------------------------------------------------------------------------------- $ 1,860 $(2,162) ==================================================================================
28 24 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Cash paid for income taxes was approximately $1 million, $5.5 million and $1.9 million for 1996, 1995 and 1994, respectively. At December 31, 1996, the Company had $11.4 million in state net operating loss ("NOL") carryforwards. The state NOLs begin to expire in the year 2009. A full valuation allowance has been recorded against the state NOL based on current separate company income limitations. The Company utilized Federal NOLs in the amount of $.7 million in 1996, none in 1995 and $1.2 million in 1994. The Company utilized $1 million, $.4 million and $.5 million of its state NOLs during 1996, 1995 and 1994, respectively. NOTE 11--STOCKHOLDERS' EQUITY The Company's authorized capital stock consists of 20,000,000 shares of $.01 par value common stock and 2,000,000 shares of $.01 par value preferred stock. The preferred stock is issuable in one or more series with such rights, preferences and privileges as the Company's Board of Directors shall determine. Under the Company's 1985 Incentive Stock Option Plan (the "1985 Plan") options for up to 2,275,000 shares of common stock could be granted to key employees. Options for 482,505 shares of common stock were outstanding under the 1985 Plan at December 31, 1996. The 1985 Plan was administered by the Compensation Committee of the Company's Board of Directors. Options were granted under the 1985 Plan at a price not less than 100% of the fair market value of the shares subject to options (or 110% of fair market value in the case of an optionee who owned, directly or indirectly, more than 10% of the total combined voting power of all classes of shares of the Company immediately before such option was granted). Options became exercisable in six equal annual installments beginning on the date of grant and expired ten years from the date of grant. The 1985 Plan was terminated in June 1995. Under the Company's 1989 Employee Stock Option Plan (the "1989 Plan") options for up to 100,000 shares of the Company's common stock could be granted to key employees. No options were outstanding at December 31, 1996 related to the 1989 Plan. The 1989 Plan was administered by the Compensation Committee of the Company's Board of Directors which determined the price, exercise date and term of each option, with no option exercisable earlier than three years or later than five years from the date of grant. All unexercised options granted under the 1989 Plan expired on January 31, 1994. During 1996, the Company adopted the 1996 Stock Option Plan (the "1996 Plan") under which options for up to 875,000 shares of the Company's common stock may be granted to key employees and directors. Options for 785,000 shares of common stock were outstanding under the 1996 Plan at December 31, 1996. The 1996 Plan is administered by the Compensation Committee of the Company's Board of Directors which determines the price, exercise date and term of each option granted to employees, which term shall not exceed 10 years. Options may be granted under the 1996 Plan at a price not less than 100% of the fair market value of the shares subject to options. In addition, the 1996 Plan provides for the formula grant of options to members of the Company's Board of Directors. The Company recognized $165,000 of stock based compensation related to options granted under this plan in its 1996 statement of operations. The remaining compensation of $1.3 million from the options granted under this plan will be recognized over the 29 25 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) vesting periods of such options, ranging from 3 to 4 years. The following table sets forth the changes in the number of shares subject to option during 1996, 1995 and 1994:
Option Weighted Number Price per Average of shares share ($) Option price ($) ----------------------------------------------------------------------------------------------------- Outstanding at December 31, 1993 877,925 3.14- 9.00 6.44 Granted 526,000 11.25-15.50 12.01 Exercised (265,874) 3.14-11.25 4.47 Canceled or expired (142,162) 3.14-11.25 7.34 --------- Outstanding at December 31, 1994 995,889 3.14-15.50 9.77 Granted 850,500 18.00-28.38 25.05 Exercised (329,184) 3.14-25.50 9.80 Canceled or expired (57,116) 3.14-18.00 12.05 --------- Outstanding at December 31, 1995 1,460,089 3.14-28.38 18.58 Granted 793,500 9.50-11.19 10.99 Exercised (103,618) 3.14-15.50 6.99 Cancelled or expired (825,800) 6.80-28.38 23.12 --------- Outstanding at December 31, 1996 1,324,171 6.80-25.50 12.10 ========= Exercisable at December 31, 1996 216,245 6.80-25.50 12.62 ========= Available for grant at December 31, 1996 90,000 =========
Paid-in-capital for the years ended December 31, 1996 and 1995 included $.1 million and $1.4 million, respectively, related to a reduction in the corporate tax liability as a result of the exercise of certain employee stock options. Pursuant to the requirements of SFAS No. 123, the following disclosures are presented to reflect the Company's pro forma net loss and net loss per common and common equivalent share, as if the Company had elected to use the fair value method of accounting prescribed by SFAS No. 123, rather than continuing to apply the provisions of APB 25. In preparing these disclosures, the Company has determined the value of all options granted during 1996 and 1995 using the average value method, as discussed in SFAS No. 123, and based on an assumed dividend yield rate of 0%, weighted average risk free rates of 6.7% for 1996 and 6.8% for 1995 and weighted average expected lives of approximately 9 years. Had compensation expense been determined consistent with SFAS No. 123, utilizing these assumptions and the straight-line amortization method over the vesting period, the Company's net loss and net loss per common and common equivalent share would have been as follows:
1996 1995 ------------------------------------------------------------------------------------------- (In thousands) Net loss as reported $(2,248) $(11,380) Pro forma adjustment for stock compensation expense (1,470) (403) ------------------------------------------------------------------------------------------- Pro forma net loss $(3,718) $(11,783) =========================================================================================== Net loss per common and common equivalent share as reported $ (0.25) $ (1.26) Pro forma adjustment for stock compensation expense (0.17) (0.04) =========================================================================================== Pro forma net loss per common and common equivalent share $ (0.42) $ (1.30) ===========================================================================================
30 26 Broadway and Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 12--COMMITMENTS The Company leases equipment and facilities under operating leases. Rental expense on operating leases was $5.2 million, $6.1 million and $4.3 million for 1996, 1995 and 1994, respectively. Future minimum lease payments under operating leases having an initial or remaining non-cancelable term in excess of one year are as follows:
Years ending December 31: (In thousands) 1997 $ 3,669 1998 2,764 1999 2,454 2000 2,299 2001 & thereafter -- ----------------------------------------------------------------- $11,186 =================================================================
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's financial instruments such as cash and short-term investments, trade receivables, trade payables and notes payable approximates the carrying value of such instruments at December 31, 1996. All of the Company's financial instruments are held for purposes other than trading. NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1996 and 1995 is as follows:
Quarter ended 12/31/96 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95 - -------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Revenue $21,515 $19,479 $23,624 $24,733 $ 16,384 $33,151 $35,675 $29,528 Cost of revenue 15,095 17,641 18,904 18,061 29,635 20,022 22,893 21,057 Operating expenses 6,416 8,591 7,249 7,652 12,769 8,329 8,680 7,198 Gain (loss) on disposition of non-strategic business units 1,809 (430) 8,273 -- Net interest income (expense) 31 35 (78) (175) (174) (89) (151) (79) - -------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 1,844 (7,148) 5,666 (1,155) (26,194) 4,711 3,951 1,194 Income tax benefit (provision) income taxes (694) 2,343 (3,424) 320 9,493 (2,205) (1,804) (526) - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 1,150 $(4,805) $ 2,242 $ (835) $(16,701) $ 2,506 $ 2,147 $ 668 ================================================================================================================================ Net income (loss) per common and common equivalent share $ 0.13 $ (0.54) $ 0.25 $ (0.09) $ (1.84) $ 0.27 $ 0.24 $ 0.08 ================================================================================================================================
In the fourth quarter of 1995, the Company revised certain estimates on contracts in progress resulting in additional charges of approximately $6.0 million. As discussed in Notes 5 and 7, the Company also recorded restructuring and impairment charges totaling $2.9 million and accelerated the amortization of certain software costs by approximately $2.6 million in the fourth quarter of 1995. 31 27 Broadway and Seymour, Inc. REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BROADWAY & SEYMOUR, INC. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of Broadway & Seymour, Inc. and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Charlotte, North Carolina February 7, 1997 32 EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 BROADWAY & SEYMOUR, INC. SUBSIDIARIES OF THE REGISTRANT
State of Percentage Name of subsidiary incorporation ownership ------------------ ------------- --------- BSI North Carolina, Inc., North Carolina 100% dba Gateway Conversion Technologies Relational Team Concepts International, Inc. Delaware 100% National Systems Group, Inc., North Carolina 100% dba Trust Systems, Inc. The Heebink Group, Incorporated Ohio 100% National Financial Computer Systems, Inc. Georgia 100% Corbel/NPA, Inc. Florida 100% National Pension Alliance, Ltd. Partners Florida 75% Elite Information Systems, Inc. California 100% Micro/Resources, Inc. California 100% BancCorp Systems, Inc. North Carolina 100% The MiniComputer Company of Maryland, Inc. North Carolina 100% Elite Information Systems International, Inc. California 100% Pragmatix Telephony Solutions, Inc. North Carolina 100%
21 EX-23 5 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 of the Broadway & Seymour, Inc. 1995 Employee Stock Purchase Plan (33-85924) and the Broadway & Seymour, Inc. Restated 1985 Incentive Stock Option Plan (33-81130) of our report dated February 7, 1997, appearing on page 32 of the Company's Annual Report (which is incorporated by reference in this Form 10-K). Price Waterhouse LLP Charlotte, North Carolina March 24, 1997 22 EX-27 6 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 15,010,000 0 26,599,000 (892,000) 890,000 47,331,000 16,227,000 (9,936,000) 66,474,000 31,4224,000 0 0 0 90,000 32,592,000 66,474,000 89,351,000 89,351,000 69,701,000 69,701,000 32,284,000 1,076,000 447,000 (793,000) (1,455,000) (2,248,000) 0 0 0 (2,248,000) (.25) 0
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