-----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, WX9UsWOFuMzOVl7NcRtwMV7/7sCcCX9R15T2brLrLumvVw+keL36oL9Qa9kJWBrV fSANuNt7u/bMNHIUoviTuw== 0000950144-98-003634.txt : 19980331 0000950144-98-003634.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950144-98-003634 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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: SEC FILE NUMBER: 000-20034 FILM NUMBER: 98578877 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 12-31-1997 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) For the fiscal year ended December 31, 1997 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 February 28, 1998 computed by reference to the closing sale price on such date, was $71,521,828. As of the same date, 9,228,623 shares of Common Stock, $.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 1997 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 1998 Annual Meeting of Stockholders (the "Proxy Statement") to be filed pursuant to Regulation 14A (no later than April 30, 1998) are incorporated herein by reference into Parts II and IV, and Part III, respectively. - -------------------------------------------------------------------------------- TOTAL PAGES - 18 2 ITEM 1. DESCRIPTION OF BUSINESS OVERVIEW Broadway & Seymour, Inc. (the "Company") is a software product and services company, providing integrated solutions to the financial services and legal and professional services markets. Broadway & Seymour, the Company's customer relationship management business, is based in Charlotte, North Carolina and provides product-based and services-based solutions that address the customer relationship management needs of the financial services industry and related markets. Broadway & Seymour's solutions for customer relationship management include the proprietary software products TouchPoint(TM), CRISP(TM) and BANCStar(R), which are often integrated and customized to provide a tailored business solution to banks and other financial institutions. Through its services-based solutions Broadway & Seymour provides consulting and custom systems integration and development services focused on customer relationship management. Elite Information Systems, Inc. ("Elite"), the Company's legal and professional services business, is based in Los Angeles, California and provides integrated time tracking, invoicing, general ledger and office automation software solutions and consulting services to the legal and professional services markets. 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 internally developed product based solutions and selected services, rather than acquisitions. Operations were reorganized to integrate independent business units, and certain non-core business units were disposed of in 1995, 1996 and 1997 (see Management's Discussion and Analysis - Significant Transactions). BUSINESS STRATEGY The Company's strategy is to develop and provide business solutions that address the customer relationship management and practice management needs of its targeted markets with a focus on the top financial institutions and legal and professional service firms. In the financial services industry, the Company is committed to the ongoing development and delivery of its customer relationship management software products: TouchPoint(TM), BANCStar(R) and CRISP(TM) (see "Software and Service Based Solutions" below). In addition, the Company intends to leverage its knowledge, software and services into other markets. The Company also plans to continue to provide consulting and systems integration and custom development services to large, market leading organizations that will offer opportunities for growth through value added relationships. In the legal and professional services industries, the Company will continue to develop and market its client/server Windows(TM) and Windows NT(TM) based accounting and information management products (see "Software and Service Based Solutions" below) to law firms in North America, Europe and the Pacific Rim. In addition, the Company will focus on expanding its presence in other segments of the professional services industry, including accounting, actuarial, public relations and consulting firms. 2 3 PRODUCT AND SERVICES BASED SOLUTIONS Software products mentioned in this document are for identification purposes only and may be trademarks of Broadway & Seymour, its subsidiaries or third parties. SOLUTIONS FOR THE FINANCIAL SERVICES MARKET TouchPoint(TM) is a proprietary software solution that is integrated with an institution's host hardware and software systems to retrieve customer data and present it through a variety of delivery channels, including call centers, offices and branches. TouchPoint can be modified to address an institution's specific requirements and the solution may involve integrated third party hardware and software developed and provided by other vendors. TouchPoint allows an institution to improve customer service by consolidating customer and account information from existing legacy systems and presenting it on a universal workstation to a customer service representative. The open client/server architecture also makes TouchPoint scaleable so that it can be implemented in single departments of the institution or enterprise-wide using a phased installation approach. BANCStar(R) is a proprietary branch automation software product 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(TM) is an automated banking system that supports a graphical user interface, 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. Custom systems integration and development services, as well as third party hardware and software, may be provided as part of the BANCStar solution. CRISP(TM) is a proprietary decision support software product 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. Custom systems integration and development services, as well as third party hardware and software, may be provided as part of the CRISP solution. Systems Integration, Consulting and Custom Development Services are provided as services-based solutions. These engagements typically involve the development of technology solutions for difficult business and technical problems and are often provided as part of a complex system that may include 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. SOLUTIONS FOR THE LEGAL AND PROFESSIONAL SERVICES MARKETS Elite Billing System is a comprehensive accounting and information management software product serving legal and professional service firms. The Elite Billing System responds to clients' billing requirements with on-line management information and processes. Elite Financial Management System is a general ledger and accounts payable software product that supports multi-currency and simultaneous cash and accrual-based accounting as well as budgeting features. 3 4 Elite Case Management System is a case tracking software 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. Elite Practice Development System is a comprehensive marketing and practice development tool that tracks relationships, manages mailings and monitors the effectiveness of client development efforts. Elite Conflict of Interest Module is an integrated software tool for checking conflicts of interest, based on a full-text search engine. Elite Records Management Module is a software tool for managing both internal and external records, with bar code support and integration with the Elite Conflict of Interest System. Elite Professional's Desktop is a software tool that summarizes key information from all Elite applications in a simple and concise manner within a web-browser. By using built in HTML hyperlinks, a user can quickly move from application to application. Elite's solutions incorporate client server and open systems architecture within the Windows(TM) environment. SUPPORT SERVICES The Company views its customer support services 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 as well as conversion and installation services as needed by its customers. The degree of maintenance service provided to customers differs depending on the system being supported. Generally, support contracts entitle users to telephone support and regular upgraded product releases. In addition, the Company offers certain training classes and multi-media based instruction to customers that aid in the implementation and effective use of the Company's solutions. YEAR 2000 ISSUES From the early days of the software industry, many software applications have been designed to store only the last two digits of the four-digit year date, for example, "98" rather than "1998". These applications, and other applications which retrieve or process such data, then "assume" the first two digits of the year date to be "19". Applications designed in this manner may not be able to process dates with years following 1999; for example, "00" may be treated as 1900 rather than the year 2000. Results of this failure to process the date correctly could include miscalculations and system breakdowns. The Company has recognized this potential problem and has reviewed, and when necessary modified, its current software products so that they can process data relating to dates subsequent to December 31, 1999 ("Year 2000 compliance"). Although the Company believes that its current versions of proprietary software products are Year 2000 compliant, no assurance can be given that additional modifications for Year 2000 compliance will not be necessary. The Company's software systems as installed are integrated with its customers' software and hardware systems and other vendors' software and hardware systems and have, in many cases, been uniquely customized to the customers' specifications. The customers' systems and other vendors' systems with which the Company's systems interoperate may not be Year 2000 compliant. Generally, the operation of the Company's software in these environments or the failure of these systems to be compliant could 4 5 impact the Year 2000 compliance of the Company's systems and the Company may incur costs in ascertaining the cause of the failure and modifying its software. In addition to its proprietary software products, the Company offers related software products developed and provided by other software vendors. The Company is seeking assurances from these vendors that such products are compliant. However, the risks of interoperability with other software products exist for these products as well. While in some cases the Company has Year 2000 compliance obligations to its customers for such third party products, the Company believes that the vendors of such products bear primary responsibility for such obligations. Many of the Company's customers presently use earlier versions of the Company's software products that are not Year 2000 compliant. These customers will need to upgrade to a Year 2000 compliant version of the Company's software or implement other alternatives to meet their business needs. The Company's customers may be entitled to receive such software upgrades as part of their regular maintenance contracts or may purchase such upgrades. However, customers may need to upgrade add-on third party products and their host software and hardware systems that share data with the Company's products in order to utilize the Company's software upgrades. Many clients, as part of their upgrade effort, may also need to modify previous customizations to the Company's software and third party software provided by the Company or others. The Company does not believe that it would have any contractual responsibility for upgrades of third party products, host system upgrades or modifications of custom software. The Company believes that Year 2000 compliance issues may affect the purchasing patterns of its customers and potential customers in a variety of ways. Many companies are expending significant amounts and rededicating personnel to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase software products such as those offered by the Company. It is possible that certain of the Company's customers are purchasing support contracts with the intent of discontinuing such support after January 1, 2000 when they have satisfied themselves that the supported product is Year 2000 compliant. Many potential customers may also choose to defer purchasing Year 2000 compliant products until they believe it is absolutely necessary, thus resulting in potentially stalled market sales within the industry. Conversely, Year 2000 compliance issues may cause other companies to accelerate purchases, thereby causing an increase in short-term demand and a consequent decrease in long-term demand for software products. Additionally, Year 2000 compliance issues could cause a significant number of companies, including current Company customers, to reevaluate their current system needs and as a result to consider switching to other systems or suppliers. While management believes it is successfully addressing the Year 2000 compliance issue in its proprietary software products, upon which its results of operations are significantly dependent, any of the foregoing could result in a material adverse effect on the Company's business, operating results and financial condition. In addition, third party software and computer technology used internally, if not Year 2000 compliant, may materially impact the Company. The Company is reviewing what actions will be required to make all software systems used internally Year 2000 compliant as well as to mitigate its vulnerability to Year 2000 compliance problems that its service suppliers may have. The Company will continue to test current and new versions of its proprietary software, work with the vendors of third party software that it resells, update its inventory of potentially affected internal systems and communicate with vendors and customers regarding the Year 2000 compliance issue. The total cost and time associated with the impact of Year 2000 compliance cannot presently be determined. Any costs of addressing Year 2000 compliance are being expensed as incurred. 5 6 EURO CURRENCY Beginning in January 1999, a new currency called the ECU or the "euro" is scheduled to be introduced in certain Economic and Monetary Union (the "EMU") countries. During 2002, all EMU countries are expected to be operating with the euro as their single currency. As a result, in less than one year, computer software used by many organizations headquartered or maintaining a subsidiary in an EMU country will need to be euro currency enabled, and in less than three years all organizations headquartered or maintaining a subsidiary in an EMU country are expected to need to be euro currency enabled. The transition to the euro currency will involve the handling of parallel currencies and conversion of legacy data. Uncertainty exists as to the effects the euro currency will have on the marketplace. Additionally, all of the final rules and regulations have not yet been defined and finalized by the European Commission with regard to the euro currency. The Company is monitoring the rules and regulations as they become known in order to make any changes to the software that the Company deems necessary to comply with such rules and regulations. Although the Company currently offers certain software products that are designed to be multi-currency enabled and the Company believes that it will be able to accommodate any required euro currency changes in its software products, there can be no assurance that once the final rules and regulations are completed that the Company's software will contain all of the necessary changes or meet all of the euro currency requirements. RESEARCH AND DEVELOPMENT To meet the changing needs of the financial and professional services industries, the Company expends resources to continually develop and enhance its proprietary software products. The Company believes that ongoing commitment to research and development is important to the long-term success of the business. For the years ended December 31, 1997, 1996 and 1995, the Company's total research and development expenditures were $6.0 million, $7.4 million and $8.9 million, respectively. There are inherent risks in the development and 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 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 and direct mailings to targeted customers and telemarketing. The Company's sales personnel are given sales responsibility within their targeted customer markets. Additionally, senior management and technical subject matter experts within the Company are directly involved in obtaining and supporting relationships. The Company's business strategy also emphasizes sales to existing customers. Follow-on sales to existing customers include system upgrades, expansion of license rights, migration to new products and maintenance and support services. 6 7 CUSTOMERS Broadway & Seymour's customers include a broad variety of institutions and companies in the financial services industry, including some of the largest banks in the United States. In addition, the Company serves a client base of law firms and other professional service firms through its Elite operations. Elite's customers include over half of the 100 largest law firms in the United States and several large firms in the United Kingdom. The Company provides software solutions under a variety of financial arrangements, including fixed fee contracts and billings on a time and materials basis. For 1997 and 1996, the Company had two customers that exceeded certain disclosure requirement thresholds and are therefore classified as significant customers. In 1997, Chase Manhattan Bank ("Chase") accounted for $10.3 million, or 13% of the Company's consolidated revenue. Also, in 1997 and 1996, First Data Corp. ("FDC") accounted for $8.0 million, or 10.1%, of consolidated revenue and $9.6 million, or 10.6%, of consolidated revenue, respectively. In September 1997, the Company amended its contract with FDC, substantially reducing the scope of work and the amount of future revenue and eliminating certain exclusivity restrictions on the Company. While the Company may provide some ongoing services to FDC, the remaining personnel previously assigned to work with this client have been reassigned to other projects. GEOGRAPHIC INFORMATION The Company's revenue is principally generated in North America; however, for the years ending December 31, 1997, 1996, and 1995, revenue generated in Europe represented 9.4%, 5.0%, and 2.2% of consolidated revenue, respectively. The Company's assets are principally located in North America. 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 all 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 markets. 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 its customers. The Company believes that 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 increasingly competitive environment of the software industry may adversely affect the Company's future operating results and financial condition. BACKLOG A significant portion 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 a significant portion of the Company's agreements are cancelable, the Company does not believe that agreements for work outstanding at any specific time provide a meaningful indication of future revenue. 7 8 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, 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 also seeks employees with expertise and experience in its chosen markets. At February 28, 1998, the Company had approximately 450 full-time employees. None of the Company's employees is represented by a labor union. COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES 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 non-disclosure 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 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. 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. 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 129,000 square feet) expires December 31, 2000, with two five-year renewal options thereafter. Elite maintains its offices (approximately 25,000 8 9 square feet) in Los Angeles, California under a lease that expires July 2008. The Company also leases additional facilities, as needed, principally as sales offices in other cities in North America and the United Kingdom. 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, 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS' MATTERS MARKET FOR COMMON STOCK The information under the caption "Market for Common Stock" on page 11 of the Annual Report is incorporated herein by reference. HOLDERS OF RECORD As of February 28, 1998, there were 136 holders of record of Common Stock. 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 The information under the caption "Selected Financial Data" on page 11 of the Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 10 The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 12 through 17 of the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements: The consolidated financial statements and related notes, together with the report thereon of Price Waterhouse LLP dated February 6, 1998 appearing on pages 18 through 31 of the Annual Report are incorporated herein by reference. Financial Statement Schedules: Item 14 includes an index to the financial statement schedules. 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 captions "Principal Stockholders" and "Election of Directors" 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. 10 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements. The following consolidated financial statements and related notes, including the report thereon of Price Waterhouse LLP dated February 6, 1998, appearing on pages 18 through 31 of the Annual Report, are incorporated herein by reference: Consolidated Statement of Operations Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Stockholders' Equity 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. 11 12 (a)(3) EXHIBITS: Exhibit No. Description ----------- ----------- 3.1 Restated Certificate of Incorporation of Broadway & Seymour, Inc., dated 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) 10.01** 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) 10.02** 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) 10.03** 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) 10.04** 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) 10.05** 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) 10.06 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) 10.07 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) 10.08 Quantech License and Services Agreement, dated April 10, 1996, by and between Fidelity Investments Institutional Services Company, Inc. and Corbel & Co. (Incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated May 15, 1996) 12 13 Exhibit No. Description ----------- ----------- 10.09 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) 10.10 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) 10.11 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) 10.12 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) 10.13 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) 10.14 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) 10.15 Asset Purchase Agreement between Unisys Corporation and Broadway & Seymour, Inc. dated as of July 24, 1997. (Incorporated by reference to Exhibit 10.35 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1997) 10.16 Amendment to Asset Purchase Agreement between Unisys Corporation and Broadway & Seymour, Inc. dated September 17, 1997. (Incorporated by reference to Exhibit 10.36 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1997) 10.17 Loan Agreement by and among Broadway & Seymour, Inc., Elite Information Systems, Inc., The Minicomputer Company of Maryland, Inc., Elite Information Systems International, Inc., Pragmatix Telephony Solutions, Inc., and Fleet National Bank (as agent and lender) for $15,000,000 secured revolving credit loan dated as of July 23, 1997. (Incorporated by reference to Exhibit 10.21 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.18 Security Agreement by and between Broadway & Seymour, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.22 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.19 Security Agreement by and between Elite Information Systems, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.23 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 13 14 Exhibit No. Description ----------- ----------- 10.20 Security Agreement by and between Elite Information Systems International, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.24 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.21 Security Agreement by and between The Minicomputer of Maryland, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.26 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.22 Security Agreement by and between Pragmatix Telephony Solutions, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.26 to the Registrant's Quarterly Report of Form 10-Q for the Quarter Ended June 30, 1997) 10.23 Conditional Trademark Assignment by and between Broadway & Seymour, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.27 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.24 Conditional Trademark Assignment by and between Elite Information Systems, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.28 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.25 Conditional Trademark Assignment by and between Elite Information Systems International, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.29 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.26 Conditional Trademark Assignment by and between The Minicomputer of Maryland, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.30 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.27 Conditional Trademark Assignment by and between Pragmatix Telephony Solutions, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.31 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.28 Stock Pledge Agreement by and between Broadway & Seymour, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.32 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.29 Stock Pledge Agreement by and between Elite Information Systems, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.33 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 10.30 Letter dated June 30, 1997 regarding the disposition of the holdback and termination of the indemnification provisions contained in the Asset Purchase Agreement between Broadway & Seymour, Inc. and Fidelity Investments Institutional Services Company, Inc. (Incorporated by reference to Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997) 14 15 Exhibit No. Description ----------- ----------- 10.31* First Amendment to Loan Agreement by and among Broadway & Seymour, Inc., Elite Information Systems, Inc., The Minicomputer Company of Maryland, Inc., Elite Information Systems International, Inc., and Fleet National Bank (as agent and lender) dated September 30, 1997. 10.32* Second Amendment to Loan Agreement by and among Broadway & Seymour, Inc., Elite Information Systems, Inc., The Minicomputer Company of Maryland, Inc., Elite Information Systems International, Inc., and Fleet National Bank (as agent and lender) dated February 6, 1998. 10.33** Employment Agreement, dated as of May 29, 1997 (executed June 1, 1997), by and between Broadway & Seymour, Inc. and Keith B. Hall (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997) 10.34** 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) 11* Computation of earnings per share 21* Subsidiaries of the Registrant 23* Consent of Independent Accountants dated March 25, 1998 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. 15 16 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, 1998 By: /s/ Keith B. Hall ----------------- Keith B. Hall, 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 1998. Signature Title --------- ----- /s/ Alan C. Stanford - ----------------------------- Alan C. Stanford Chairman, President, Chief Executive Officer and Director /s/ William G. Seymour - ----------------------------- William G. Seymour Vice Chairman and Director /s/ David A. Finley - ----------------------------- David A. Finley Director /s/ Roger Noall - ----------------------------- Roger Noall Director /s/ George L. McTavish - ----------------------------- George L. McTavish Director /s/ Steven S. Elbaum - ----------------------------- Steven S. Elbaum Director /s/ Robert J. Kelly - ----------------------------- Robert J. Kelly Director 16 17 ITEM 14a(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, 1997, 1996, and 1995
Additions/ Balance at (reductions) Balance at beginning charged to end of period expense Deductions Other of period ---------- ------------ ---------- ----- ---------- Allowance for doubtful accounts (shown as a deduction from receivables) December 31, 1997 $ 892 $ 1,046 $ 1,016 $ - $ 922 December 31, 1996 941 1,076 1,125 - 892 December 31, 1995 563 632 323 69 (1) 941 Reserve against long-term assets (shown as a deduction from other assets) December 31, 1997 $ - $ - $ - $ - $ - December 31, 1996 250 - 250 - - December 31, 1995 123 127 - - 250
(1) Relates to balance at date of acquisition of acquired companies 17 18 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 6, 1998 appearing on page 31 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 6, 1998 18 EX-10.31 2 FIRST AMENDMENT TO LOAN AGREEMENT DATED 9-30-97 1 EXHIBIT 10.31 FIRST AMENDMENT TO LOAN AGREEMENT This First Amendment to Loan Agreement is made by and among BROADWAY & SEYMOUR, INC., a Delaware corporation ("Broadway") with a principal place of business at 128 South Tryon Street, Charlotte, North Carolina 28202-5050, ELITE INFORMATION SYSTEMS, INC., a California corporation ("Elite") with a principal place of business at 3415 South Sepulveda Boulevard, Suite 500, Los Angeles, California 90034, THE MINICOMPUTER COMPANY, OF MARYLAND, INC., a Maryland corporation ("TMC") with a principal place of business at Executive Plaza I, 11350 McCormick Road, Suite 600, Hunt Valley, MD 21031-1012, ELITE INFORMATION SYSTEMS INTERNATIONAL, INC., a California corporation ("Elite International") with a principal place of business at 3415 South Sepulveda Boulevard, Suite 500, Los Angeles, California 90034 (Broadway, Elite, TMC and Elite International are hereinafter jointly and severally referred to as, the "Borrower"), FLEET NATIONAL BANK, a national banking association organized under the laws of the United States and having an office at 75 State Street, Boston, Massachusetts 02109 as Agent for itself and each of the other Lenders who now and/or hereafter become parties to the hereinafter defined Loan Agreement pursuant to the terms of Section 9.11 thereof (sometimes the "Agent" and sometimes "Fleet" and in its capacity as a Lender, sometimes "Fleet" and sometimes a "Lender"). Capitalized terms used herein and not expressly defined herein shall have the respective meanings ascribed to such terms in the hereinafter defined Loan Agreement. WITNESSETH THAT: WHEREAS, the Borrower and the Agent are parties to that certain Loan Agreement dated as of July 23, 1997 pursuant to which the Lenders extended a $15,000,000 revolving credit facility (as amended from time to time, the "Loan Agreement"); and WHEREAS, the Borrower and the Agent desire to amend certain provisions of the Loan Agreement as hereinafter set forth. NOW, THEREFORE, the Borrower and the Agent hereby agree as follows: 1. All references in the Loan Agreement to the Financing Documents shall be deemed to refer to such documents and in addition shall also refer to this First Amendment to Loan Agreement. 2. Effective as of the date hereof, the first paragraph only of Section 5.1.13 of the Loan Agreement is hereby amended to read in its entirety: Section 5.1.13. Minimum Adjusted Net Income. Maintain a Minimum Adjusted Net Income at each Borrower fiscal quarter end for the immediately preceding Borrower fiscal quarter, in an amount not less than (i) $125,000 for the Borrower fiscal quarter ending June 30, 1997, (ii) $700,000 for the Borrower 2 fiscal quarter ending September 30, 1997 and (iii) $1,000,000 thereafter. Maintain a Minimum Adjusted Net Income at each Borrower fiscal year end for the immediately preceding Borrower fiscal year in an amount not less than (i) $2,500,000 for the Borrower fiscal year ending December 31, 1997 and (ii) $4,000,000 thereafter. 3. The Borrower hereby restates all of the representations, warranties and covenants of the Borrower set forth in the Loan Agreement to the same extent as if fully set forth herein and the Borrower hereby certifies that all such representations and warranties are true and accurate as of the date hereof. 4. The Borrower and the Agent hereby ratify, confirm and approve the Loan Agreement, amended as set forth herein, as a binding obligation, enforceable in accordance with its terms. The Borrower further acknowledges and agrees that Agent has not waived any of its rights under the Loan Agreement, amended as set forth herein, or any Event(s) of Default that may hereafter exist thereunder and that there does not exist (i) any offset or defense against payment or performance of any of the Indebtedness and Obligations of the Borrower evidenced thereby, or (ii) any claim or cause of action by Borrower against Agent with respect to the transactions described therein. 5. The Borrower represents and warrants to the Agent that no Default or Event of Default exists under the Loan Agreement, amended as set forth herein, any of the Financing Documents or any document or agreement executed in connection therewith or herewith. 6. This First Amendment to Loan Agreement shall be effective as of September 30, 1997. 3 IN WITNESS WHEREOF, the Borrower and the Agent have caused this First Amendment to Loan Agreement to be executed as a sealed instrument by their proper representatives hereunto duly authorized as of the 30th day of September, 1997. Attest: Broadway & Seymour, Inc. /s/ Steven O. Todd By: /s/ Bryan P. Causey - --------------------- ------------------------- Asst. Secretary Bryan Causey, Treasurer Attest: Elite Information Systems, Inc. /s/ Steven O. Todd By: /s/ Bryan P. Causey - --------------------- ------------------------- Asst. Secretary Bryan Causey, Treasurer Attest: The Minicomputer Company of Maryland, Inc. /s/ Steven O. Todd By: /s/ Bryan P. Causey - --------------------- ------------------------- Asst. Secretary Bryan Causey, Treasurer Attest: Elite Information Systems International, Inc. /s/ Steven O. Todd By: /s/ Bryan P. Causey - --------------------- ------------------------- Asst. Secretary Bryan Causey, Treasurer Attest: Fleet National Bank, as Agent for the Lenders and as a Lender /s/ Dina M. Bosco By: /s/ Michael S. Barclay - --------------------- ------------------------- Name: Michael S. Barclay Title: Assistant Vice President EX-10.32 3 2ND AMENDMENT TO LOAN AGREEMENT DATED 2-6-98 1 EXHIBIT 10.32 SECOND AMENDMENT TO LOAN AGREEMENT This Second Amendment to Loan Agreement is made by and among BROADWAY & SEYMOUR, INC., a Delaware corporation ("Broadway") with a principal place of business at 128 South Tryon Street, Charlotte, North Carolina 28202-5050, ELITE INFORMATION SYSTEMS, INC., a California corporation ("Elite") with a principal place of business at 3415 South Sepulveda Boulevard, Suite 500, Los Angeles, California 90034, THE MINICOMPUTER COMPANY, OF MARYLAND, INC., a Maryland corporation ("TMC") with a principal place of business at Executive Plaza I, 11350 McCormick Road, Suite 600, Hunt Valley, MD 21031-1012, ELITE INFORMATION SYSTEMS INTERNATIONAL, INC., a California corporation ("Elite International") with a principal place of business at 3415 South Sepulveda Boulevard, Suite 500, Los Angeles, California 90034 (Broadway, Elite, TMC and Elite International are hereinafter jointly and severally referred to as, the "Borrower"), FLEET NATIONAL BANK, a national banking association organized under the laws of the United States and having an office at 75 State Street, Boston, Massachusetts 02109 as Agent for itself and each of the other Lenders who now and/or hereafter become parties to the hereinafter defined Loan Agreement pursuant to the terms of Section 9.11 thereof (sometimes the "Agent" and sometimes "Fleet" and in its capacity as a Lender, sometimes "Fleet" and sometimes a "Lender"). Capitalized terms used herein and not expressly defined herein shall have the respective meanings ascribed to such terms in the hereinafter defined Loan Agreement. WITNESSETH THAT: WHEREAS, the Borrower and the Agent are parties to that certain Loan Agreement dated as of July 23, 1997 pursuant to which the Lenders extended a $15,000,000 revolving credit facility, as amended by that certain First Amendment to Loan Agreement dated September __, 1997 (as amended from time to time, the "Loan Agreement"); and WHEREAS, the Borrower and the Agent desire to amend certain provisions of the Loan Agreement as hereinafter set forth. NOW, THEREFORE, the Borrower and the Agent hereby agree as follows: 1. All references in the Loan Agreement to the Financing Documents shall be deemed to refer to such documents and in addition shall also refer to this Second Amendment to Loan Agreement. 2. Effective as of the date hereof, the first paragraph only of Section 5.1.13 of the Loan Agreement is hereby amended to read in its entirety: Section 5.1.13. Minimum Adjusted Net Income. Maintain a Minimum Adjusted Net Income at each Borrower fiscal quarter end for the immediately preceding Borrower fiscal quarter, in an amount not less than (i) $125,000 for the 2 Borrower fiscal quarter ending June 30, 1997, (ii) $700,000 for the Borrower fiscal quarter ending September 30, 1997, (iii) $700,000 for the Borrower fiscal quarter ending December 31, 1997 and (iv) $1,000,000 thereafter. Maintain a Minimum Adjusted Net Income at each Borrower fiscal year end for the immediately preceding Borrower fiscal year in an amount not less than (i) $2,500,000 for the Borrower fiscal year ending December 31, 1997 and (ii) $4,000,000 thereafter. 3. The Borrower hereby restates all of the representations, warranties and covenants of the Borrower set forth in the Loan Agreement to the same extent as if fully set forth herein and the Borrower hereby certifies that all such representations and warranties are true and accurate as of the date hereof. 4. The Borrower and the Agent hereby ratify, confirm and approve the Loan Agreement, amended as set forth herein, as a binding obligation, enforceable in accordance with its terms. The Borrower further acknowledges and agrees that Agent has not waived any of its rights under the Loan Agreement, amended as set forth herein, or any Event(s) of Default that may hereafter exist thereunder and that there does not exist (i) any offset or defense against payment or performance of any of the Indebtedness and Obligations of the Borrower evidenced thereby, or (ii) any claim or cause of action by Borrower against Agent with respect to the transactions described therein. 5. The Borrower represents and warrants to the Agent that no Default or Event of Default exists under the Loan Agreement, amended as set forth herein, any of the Financing Documents or any document or agreement executed in connection therewith or herewith. 6. This Second Amendment to Loan Agreement shall be effective as of December 31, 1997. 3 IN WITNESS WHEREOF, the Borrower and the Agent have caused this Second Amendment to Loan Agreement to be executed as a sealed instrument by their proper representatives hereunto duly authorized as of the 6th day of February, 1998. Witness: Broadway & Seymour, Inc. /s/ Steven O. Todd By: /s/ Bryan P. Causey - --------------------- ------------------------- Asst. Secretary Bryan Causey, Treasurer Witness: Elite Information Systems, Inc. /s/ Steven O. Todd By: /s/ Bryan P. Causey - --------------------- ------------------------- Asst. Secretary Bryan Causey, Treasurer Witness: The Minicomputer Company of Maryland, Inc. /s/ Steven O. Todd By: /s/ Bryan P. Causey - --------------------- ------------------------- Asst. Secretary Bryan Causey, Treasurer Witness: Elite Information Systems International, Inc. /s/ Steven O. Todd By: /s/ Bryan P. Causey - --------------------- ------------------------- Asst. Secretary Bryan Causey, Treasurer Witness: Fleet National Bank, as Agent for the Lenders and as a Lender /s/ Matthew M. Glauninger By: /s/ Michael S. Barclay - -------------------------- ------------------------- VP Name: Michael S. Barclay Title: Assistant Vice President EX-11 4 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, 1997 1996 1995 ------- ------- -------- Net income (loss) $ 2,939 ($2,248) ($11,380) ======= ======= ======== BASIC EARNINGS PER SHARE: Weighted average common shares outstanding 9,085 8,914 8,606 ======= ======= ======== Net income (loss) per common share $ 0.32 ($ 0.25) ($ 1.32) ======= ======= ======== DILUTED EARNINGS PER SHARE: Weighted average common shares outstanding 9,085 8,914 8,606 Addition from assumed exercise of stock options 52 ------- ------- -------- Weighted average common and common equivalent shares outstanding 9,137 8,914 8,606 ======= ======= ======== Net income (loss) per common and common equivalent share $ 0.32 ($ 0.25) ($ 1.32) ======= ======= ========
EX-13 5 ANNUAL REPORT 1 Broadway & Seymour, Inc. SELECTED FINANCIAL DATA
Eleven months ended Dec. 31, OPERATIONS: 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Net revenue $79,559 $ 89,351 $ 114,738 $ 132,858 $ 71,665 Operating costs and expenses 76,208 99,609 130,583 118,983 74,520 - ------------------------------------------------------------------------------------------------------------ Operating income (loss) 3,351 (10,258) (15,845) 13,875 (2,855) Gain on disposition of non-strategic business units 1,155 9,652 -- -- -- Net interest income (expense) 832 (187) (493) (821) (25) - ------------------------------------------------------------------------------------------------------------ Income (loss) before income taxes 5,338 (793) (16,338) 13,054 (2,880) Provision (benefit) for income taxes and income tax accounting change (1993) 2,399 1,455 (4,958) 5,858 921 - ------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 2,939 $ (2,248) $ (11,380) $ 7,196 $ (3,801) ============================================================================================================ Net income (loss) per share: Basic $ 0.32 $ (0.25) $ (1.32) $ 0.85 $ (0.49) Diluted $ 0.32 $ (0.25) $ (1.32) $ 0.85 $ (0.49) SELECTED BALANCE SHEET DATA 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 - ------------------------------------------------------------------------------------------------------------ Working capital (deficit) $24,572 $ 15,907 $ 490 $ (407) $ (467) Total assets 67,343 66,474 83,245 75,683 50,717 Long-term debt, including current portion 138 611 2,373 1,765 899 Stockholders' equity 37,373 32,190 32,437 34,780 25,087
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 are also impacted by dispositions of certain businesses as discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and by the acquisition of certain businesses in 1995, 1994 and 1993. MARKET FOR COMMON STOCK The Company's common stock, $.01 par value, trades 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: 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 9/30/96 6/30/96 3/31/96 - ------------------------------------------------------------------------------------------------------ High $11 3/4 14 3/8 13 1/8 13 1/4 $14 14 1/8 17 1/8 16 1/4 Low $7 3/8 9 1/2 10 2/3 10 3/8 $ 7 3/4 9 1/4 10 10 1/2
11 2 Broadway & Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Broadway & Seymour, Inc. (the "Company") is a software product and services company, providing integrated solutions to the financial and legal and professional services markets. Broadway & Seymour, the Company's customer relationship management business, is based in Charlotte, North Carolina and provides product-based and services-based solutions that address the customer relationship management needs of the financial services industry and related markets. Broadway & Seymour's solutions for customer relationship management include the proprietary software products TouchPoint(TM), CRISP(TM) and BANCStar(R), which are often integrated and customized to provide a tailored business solution to banks and other financial institutions. Through its service-based solutions, Broadway & Seymour provides consulting and custom systems integration and development services focused on customer relationchip management. Elite Information Systems, Inc. ("Elite"), the Company's legal and professional services business, is based in Los Angeles, California and provides integrated time tracking, invoicing, general ledger and office automation software solutions and consulting services to the legal and professional services markets. Management has presented the following discussion and analysis in a way that it believes best presents the significant events and trends affecting the Company's results of operations. A comparative discussion and analysis of the Company's ongoing operating results has been provided and significant transactions impacting the Company's historical financial results in 1997, 1996 and 1995 have been separately highlighted (see "Significant Transactions" below). This Annual Report may contain certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, that represent the Company's expectations or beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties. Factors that could influence the matters discussed in certain forward-looking statements include the timing and amount of revenue that may be recognized by the Company, continuation of current expense trends, absence of unforeseen changes in the Company's markets, continued acceptance of the Company's services and products and general changes in the economy, as well as matters discussed in "Risks and Uncertainties" below. There can be no assurances that future results will be achieved and actual results could differ materially. 1997 COMPARED TO 1996 The Company's consolidated results reflect revenue of $79.6 million and operating income of $3.4 million for 1997 compared with revenue of $89.4 million and an operating loss of $10.3 million for 1996. Because of the significant impact of the transactions discussed below (see "Significant Transactions"), a comparison of the consolidated historical results of operations for 1997 to 1996 may not be meaningful. The following table has been included to facilitate discussion and analysis of the results of operations of the Company's ongoing business.
(In thousands, unaudited) 1997 1996 - ----------------------------------------------------------------------- Net revenue from ongoing business $76,203 $57,992 Net revenue from disposed business units 3,356 31,359 - ----------------------------------------------------------------------- Consolidated net revenue $79,559 $89,351 ======================================================================= Cost of revenue from ongoing business $49,113 $45,662 Cost of revenue from disposed business units 1,923 24,039 - ----------------------------------------------------------------------- Consolidated cost of revenue $51,036 $69,701 =======================================================================
Net revenue from the Company's ongoing business increased $18.2 million, or 31.4%, to $76.2 million in 1997 from $58.0 million in 1996. Revenue from the Broadway & Seymour customer relationship management business increased $10.4 million in 1997 compared to 1996. This increase is principally the result of continued revenue growth in its TouchPoint solution, which increased $18.6 million over the prior year, reflecting several new engagements with leading financial institutions. Revenue from its BANCStar and CRISP products grew at a much lower rate, reflecting the relative maturity of these products in the marketplace. Decreases of revenue in other areas (systems integration, custom development, training and other services) of $9 million reflects the Company's strategy to focus more on the customer relationship management needs of the financial services industry. Revenue from the Elite legal and professional services business increased $7.8 million in 1997. This increase is principally due to work performed under new contracts to provide professional service firms with the Elite suite of products. These products were upgraded in 1996 and 1997 to allow them to work with new database platforms while providing a Microsoft WindowsTM user interface for the workstation. In addition, Elite has increased its sales of add-on modules and custom services to existing customers as well as increased customer support revenue, reflecting an expanding customer base. 12 3 Broadway & Seymour, Inc. For the periods presented, the Company has two customers that exceeded certain disclosure requirement thresholds and are therefore classified as significant customers. In 1997, Chase Manhattan Bank ("Chase") accounted for $10.3 million, or 13%, of the Company's consolidated revenue. Also, in 1997 and 1996, First Data Corp. ("FDC") accounted for $8.0 million, or 10.1%, of consolidated revenue and $9.6 million, or 10.6%, of consolidated revenue, respectively. In September 1997, the Company amended its contract with FDC, substantially reducing the scope of work and the amount of future revenue and eliminating certain exclusivity restrictions on the Company. While the Company may provide some ongoing services to FDC, the remaining personnel previously assigned to work with this client have been reassigned to other projects. Gross margins from the ongoing business increased to 35.5% of related revenue (or $27.1 million) from 21.3% of related revenue (or $12.3 million) for 1997 and 1996, respectively. The majority of costs of revenue are direct project expenses such as personnel costs, contract labor and the costs of purchasing third party products for resale to customers. The improvement in gross margin in 1997 reflects improved utilization of project resources, improved pricing, as well as an increase in the number of higher margin time and materials engagements. Consolidated research and development expenses for 1997 remained relatively flat at $5.9 million when compared to 1996. However, excluding expenses related to non-strategic business units sold or closed, research and development expenses in 1997 increased $2.1 million over the prior year. This increase is due to expenditures related principally to the ongoing development of Company's TouchPoint and Elite software products. The Company is committed to maintaining its research and development efforts to enhance and support its existing and future software products. Consolidated expenses for sales and marketing activities decreased $.2 million to $11.8 million in 1997 from $12 million in 1996. However, excluding expenses related to non-strategic business units sold or closed, sales and marketing expenses in 1997 increased of $3.1 million over the prior year. This increase in sales and marketing expense related to business development efforts, increased marketing and higher commissions and incentive awards for new business growth achieved in the period. The Company views its sales and marketing as an integral part of its business growth strategy and anticipates increases in the level of expenditures due to planned additions to the sales staff and additional marketing programs. Consolidated general and administrative expenses decreased to $8.2 million, or 10.3% of revenue, in 1997 from $9.8 million, or 11% of revenue, in 1996. This decrease is principally due to the disposition of non-strategic business units and expense control efforts for the ongoing business. 1996 COMPARED TO 1995 Because of the significant impact of the transactions discussed below (see "Significant Transactions"), a comparison of the historical results of operations for 1996 to those of 1995 may not be meaningful. The following table has been included to facilitate discussion and analysis of the results of operations for the Company's ongoing business.
(In thousands, unaudited) 1996 1995 - ------------------------------------------------------------------------ Net revenue from ongoing business $57,992 $ 48,593 Net revenue from disposed business units 31,359 66,145 - ------------------------------------------------------------------------ Consolidated net revenue $89,351 $114,738 ======================================================================== Cost of revenue from ongoing business $45,662 $ 46,737 Cost of revenue from disposed business units 24,039 46,870 - ------------------------------------------------------------------------ Consolidated cost of revenue $69,701 $93,607 ========================================================================
Net revenue from the Company's ongoing business increased $9.4 million from 1995 to 1996. Of this increase, $7.7 million is attributed to its Broadway & Seymour customer relationship management business. This increase is principally due to the Company's new customer relationship management product, TouchPoint, which was under development in 1995. TouchPoint contributed revenue of $5.1 million in 1996. In addition, the Company recognized $4.0 million of software license revenue in 1996 from a significant contract with a single customer. The Company recorded substantially no expense associated with such revenue. Other changes in the customer relationship management business revenue were due to individually immaterial changes in specific year-to-year engagements with customers. The Elite legal and professional services business contributed $1.7 million more revenue in 1996 than 1995 principally due to an acquisition that was owned for only six months in 1995. Cost of revenue from the Company's ongoing business decreased $1.1 million in 1996 compared to 1995. The gross margins on revenue from ongoing business were $12.3 million or 21.3% in 1996 compared to $1.9 million or 3.8% in 1995. However, 1995 included $5.2 million of expense related to an accrual for estimated contract losses and $2.6 million related to accelerated amortization expense for software acquired in an acquisition. Additional improvements in the 1996 gross margin amounts and as a percent of revenue were principally the result of the Company's change to focus on core operations, the integration of independent business units and implementation of a new project management process, including pricing guidelines. 13 4 Broadway & Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Consolidated research and development expenses decreased to $5.8 million in 1996 from $6.7 million in 1995, principally due to the disposition of certain business units. These amounts are net of capitalized development costs of $1.6 million and $2.2 million in 1996 and 1995, respectively. Including capitalized costs, research and development expenditures were 8.3% and 7.8% of consolidated revenue in 1996 and 1995, respectively. Consolidated sales and marketing expenses decreased $3.8 million from 1995 to 1996. Of this decrease, $3.1 million is due to the disposition of certain business units in 1996 and in the second half of 1995. In addition, in the fourth quarter of 1995, the Company integrated independent business units and changed its focus to core operations, resulting in a realignment of sales and marketing personnel. Consolidated general and administrative expenses decreased $1.8 million from 1995 to 1996. Of this decrease, $.4 million is due to the disposition of certain units and $.8 million is due to expense recoveries related to transition services provided to the purchaser of one of the businesses in 1996. In addition, in 1995 the Company incurred $.6 million of non-recurring consulting fees. RISKS AND UNCERTAINTIES FLUCTUATIONS IN OPERATING RESULTS: The business and organizational characteristics of the Company's customer base may vary significantly from period to period and may cause fluctuations in the size and timing of revenue. The Company's personnel and other operating expenses are based in part on its expectations for future revenue and are relatively fixed in the short-term. If the Company is unable to continue to generate significant new engagements, or if there is any delay or cancellation of such engagements in a particular period, there will be a material adverse affect on the Company's financial condition and results of operations. Management believes that the Company will continue to experience significant fluctuations in future quarterly operating results as a result of several factors, including the size and timing of customer engagements; market acceptance of its software systems and services; technological changes in computer systems and environments; changes in the Company's or its competitors' pricing policies; the length of the sales cycle; the Company's success in expanding to new markets; the mix of software systems and services; loss of key personnel; and changes in general economic conditions. As a result of all of these factors, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. In addition, the Company's stock price may be subject to the volatility generally associated with software and technology stocks and may also be affected by market trends unrelated to the Company's performance. Volatility of the Company's Market: The Company derives a significant portion of its revenue from commercial bank customers and other segments of the financial services industry. As a result of economic and regulatory factors, commercial banking and other segments of the financial services industry are consolidating, and over the last few years a number of the company's clients and prospects have been acquired. The Company anticipates that this trend toward consolidation may continue. No assurance can be given that such consolidation will not have a material adverse effect on the Company's financial condition and results of operations. Year 2000 Issues: From the early days of the software industry, many software applications have been designed to store only the last two digits of the four-digit year date, for example, "98" rather than "1998". These applications, and other applications which retrieve or process such data, then "assume" the first two digits of the year date to be "19". Applications designed in this manner may not be able to process dates with years following 1999; for example, "00" may be treated as 1900 rather than the year 2000. Results of this failure to process the date correctly could include miscalculations and system breakdowns. The Company has recognized this potential problem and has reviewed, and when necessary modified, its current software products so that they can process data relating to dates subsequent to December 31, 1999 ("Year 2000 compliance"). Although the Company believes that its current versions of proprietary software products are Year 2000 compliant, no assurance can be given that additional modifications for Year 2000 compliance will not be necessary. The Company's software systems as installed are integrated with its customers' software and hardware systems and other vendors' software and hardware systems and have, in many cases, been uniquely customized to the customers' specifications. The customers' systems and other vendors' systems with which the Company's systems interoperate may not be Year 2000 compliant. Generally, the operation of the Company's software in these environments or the failure of these systems to be compliant could impact the Year 2000 compliance of the Company's systems and the Company may incur costs in ascertaining the cause of the failure and modifying its software. In addition to its proprietary software products, the Company offers related software products developed and provided by other software vendors. The Company is seeking assurances from these vendors that such products are compliant. However, the risks of interoperability with other software products exist for these products as well. While in some cases the Company has Year 2000 compliance obligations to its customers for such third party products, the Company believes that the vendors of such products bear primary responsibility for such obligations. 14 5 Broadway & Seymour, Inc. Many of the Company's customers presently use earlier versions of the Company's software products that are not Year 2000 compliant. These customers will need to upgrade to a Year 2000 compliant version of the Company's software or implement other alternatives to meet their business needs. The Company's customers may be entitled to receive such software upgrades as part of their regular maintenance contracts or may purchase such upgrades. However, customers may need to upgrade add-on third party products and their host software and hardware systems that share data with the Company's products in order to utilize the Company's software upgrades. Many clients, as part of their upgrade effort, may also need to modify previous customizations to the Company's software and third party software provided by the Company or others. The Company does not believe that it would have any contractual responsibility for upgrades of third party products, host system upgrades or modifications of custom software. The Company believes that Year 2000 compliance issues may affect the purchasing patterns of its customers and potential customers in a variety of ways. Many companies are expending significant amounts and rededicating personnel to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase software products such as those offered by the Company. It is possible that certain of the Company's customers are purchasing support contracts with the intent of discontinuing such support after January 1, 2000 when they have satisfied themselves that the supported product is Year 2000 compliant. Many potential customers may also choose to defer purchasing Year 2000 compliant products until they believe it is absolutely necessary, thus resulting in potentially stalled market sales within the industry. Conversely, Year 2000 compliance issues may cause other companies to accelerate purchases, thereby causing an increase in short-term demand and a consequent decrease in long-term demand for software products. Additionally, Year 2000 compliance issues could cause a significant number of companies, including current Company customers, to reevaluate their current system needs and as a result to consider switching to other systems or suppliers. While management believes it is successfully addressing the Year 2000 compliance issue in its proprietary software products, upon which its results of operations are significantly dependent, any of the foregoing could result in a material adverse effect on the Company's business, operating results and financial condition. In addition, third party software and computer technology used internally, if not Year 2000 compliant, may materially impact the Company. The Company is reviewing what actions will be required to make all software systems used internally Year 2000 compliant as well as to mitigate its vulnerability to Year 2000 compliance problems that its service suppliers may have. The Company will continue to test current and new versions of its proprietary software, work with the vendors of third party software that it resells, update its inventory of potentially affected internal systems and communicate with vendors and customers regarding the Year 2000 compliance issue. The total cost and time associated with the impact of Year 2000 compliance cannot presently be determined. Any costs of addressing Year 2000 compliance are being expensed as incurred. EXCHANGE RATE FLUCTUATIONS: The Company's revenue is principally generated in North America, however for the years ending December 31, 1997, 1996, and 1995 revenues generated in Europe represented 9.4%, 5.0%, and 2.2% of consolidated revenue, respectively. Since the Company's contracts with non-U.S. customers generally denominate the amount of payments to be received by the Company in local currencies, exchange rate fluctuations between such local currencies and the U.S. dollar will subject the Company to currency translation risks. Also, the Company may be subject to currency transaction risks when the Company's contracts are denominated in a currency other than the currency in which the Company incurs expenses related to such contracts. EURO CURRENCY: Beginning in January 1999, a new currency called the ECU or the "euro" is scheduled to be introduced in certain Economic and Monetary Union (the "EMU") countries. During 2002, all EMU countries are expected to be operating with the euro as their single currency. As a result, in less than one year, computer software used by many organizations headquartered or maintaining a subsidiary in an EMU country will need to be euro currency enabled, and in less than three years all organizations headquartered or maintaining a subsidiary in an EMU country are expected to need to be euro currency enabled. The transition to the euro currency will involve the handling of parallel currencies and conversion of legacy data. Uncertainty exists as to the effects the euro currency will have on the marketplace. Additionally, all of the final rules and regulations have not yet been defined and finalized by the European Commission with regard to the euro currency. The Company is monitoring the rules and regulations as they become known in order to make any changes to the software that the Company deems necessary to comply with such rules and regulations. Although the Company currently offers certain software products that are designed to be multi-currency enabled and the Company believes that it will be able to accommodate any required euro currency changes in its software products, there can be no assurance that once the final rules and regulations are completed that the Company's software will contain all of the necessary changes or meet all of the euro currency requirements. 15 6 Broadway & Seymour, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) SIGNIFICANT TRANSACTIONS The following is a brief summary of the significant transactions 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. DISPOSITIONS: In September 1997, the Company sold substantially all of the assets, including proprietary rights, object code and source code, related to its VisualImpactTM software product line, resulting in a $.2 million gain. In addition, the Company is entitled to receive royalties based primarily on the business' end user revenue, determined quarterly through the fourth quarter of the year 2000. For the years ended December 31, 1997, 1996 and 1995, the VisualImpact product line contributed revenue of $3.0 million, $3.0 million and $2.2 million, respectively. The VisualImpact product line had operating income of $.4 million in 1997 and operating losses of $.6 million in 1996 and $.8 million in 1995. In November 1996, the Company sold all of the issued and outstanding common stock of its wholly owned subsidiary, Corbel & Co. ("Corbel"), which included the assets of EBG & Associates, Inc. (acquired in January 1995), resulting in a gain of $.9 million. The Company may be entitled to receive an earnout payment of up to a maximum of $3.5 million in 1998 based on Corbel's revenue in 1997. This amount had not been determined as of February 28, 1998. Corbel contributed revenue of $17.4 million in 1996 (prior to the sale) and $18.5 million in 1995. Operating income from Corbel was $3.4 million in 1996 (prior to the sale) and $2.4 million in 1995. However, revenue and operating income for 1996 include a one-time software license fee of $5.0 million from a single transaction. Excluding this $5.0 million, 1996 revenue 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 was due in part to including only eleven months of operations in 1996, compared to twelve months in 1995, and also due to lower pension document processing volumes in 1996. In May 1996, the Company sold substantially all of the assets of its Asset Management Services group ("AMSG"), which included BancCorp Systems Inc. (acquired in January 1995). The gain on the sale of AMSG was $8.7 million. AMSG contributed revenue of $5.8 million in 1996 (prior to the sale) and $15.5 million in 1995. Operating losses from AMSG were $2.8 million in 1996 (prior to the sale) and $9.3 million in 1995. In addition, in 1996, 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. 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 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 transferred all of the assets and liabilities of its community banking business to its wholly owned subsidiary, Liberty Software, Inc. ("Liberty"), and simultaneously therewith sold all of the issued and outstanding capital stock of Liberty. 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 certain of 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. IMPAIRMENT OF LONG-TERM ASSETS AND RESTRUCTURING OF OPERATIONS: 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, was a 75% general partner. For the years ended December 31, 1996 and 1995, NPA had revenue of $.6 million and $.8 million, respectively, and a loss before restructuring charges of $2.3 million and $2.2 million, respectively. 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 $.4 million related to employee severance costs. During the year ended 1996, $1.3 million, related principally to customer refunds and asset write-offs was charged against the reserve, using $1.0 million of cash. In 1997, the Company charged approximately $.7 million against the accrual, using cash of $.4 million, relating principally to employee severance costs, asset write-offs and customer refunds and reduced its estimate of the remaining cost to complete the exit plan by $.5 million. As of December 31, 1997 the restructuring was completed. 16 7 Broadway & Seymour, Inc. 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 June 1995 acquisition of TMC. 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 were terminated. For the years ended December 31, 1997, 1996 and 1995, the Company utilized cash of approximately $.2 million, $.8 million and $.1 million, respectively, to satisfy obligations related to these reserves. Also, in 1997 and 1996, the Company reduced its estimate of the remaining costs to complete this restructuring by $.2 million and $.2 million, respectively. As of December 31, 1997, the restructuring was completed. In addition, in the fourth quarter of 1995, the Company wrote-off unamortized software costs of $2.6 million. The $2.6 million of accelerated amortization of software cost is included in 1995 cost of revenue. INCOME TAXES The provisions for income taxes of $2.4 million (45% of pre-tax income) in 1997 and $1.5 million (183% of the pre-tax loss) in 1996 exceed the income tax expense at the statutory rates for these periods primarily due to the permanent difference of non-deductible goodwill amortization, stock compensation expense, 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 1998 will remain higher than the statutory rate due to the ongoing non-deductible goodwill amortization and stock compensation expense associated with the Company's acquisitions. The Company has net operating losses ("NOLs") for state income tax purposes of $7.3 million. A valuation allowance has been recorded against the deferred tax assets arising from the state NOLs based on uncertainty of realization under current separate company income limitations. 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 1997 and 1996. 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 operations for any future period. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, the Company had cash and cash equivalents of approximately $18.0 million and working capital of approximately $24.6 million. The Company had positive cash flows of approximately $3 million, $13 million and $.4 million for 1997, 1996, and 1995, respectively. The Company utilized portions of the proceeds from the sales of non-strategic business units to fund working capital requirements, pay off certain debt and to pay certain expenses. The reduction in debt and investment of cash proceeds from the sales of non-strategic business units resulted in lower interest expense and higher interest income for 1997 as compared to 1996. The remainder of the proceeds from these sales was invested in short-term discount notes. The Company has a two-year, $15 million revolving credit facility, against which it has made no borrowings. Based on current operating expectations, the Company does not anticipate drawing on the facility in the near term. The Company may borrow up to a maximum of 80% of eligible accounts receivable. As of February 28, 1998, the Company had $11.2 million available for borrowing under this agreement. The credit facility is secured by substantially all of the Company's tangible and intangible assets. Additionally, the loan agreement contains customary covenants that require compliance with certain financial ratios and targets and restricts the incurrence of additional indebtedness, payment of dividends and acquisitions or dispositions of assets, among other things. As of February 28, 1998, the Company was in compliance with such covenants, as amended. Management believes that cash and cash equivalents, the issuance of stock pursuant to its employee stock purchase and stock option plans, projected cash from operations, and availability under the credit facility will be sufficient to meet currently anticipated operating needs through the end of 1998. Management currently has no specific plans with respect to acquisitions or investments in other businesses and is not actively seeking to acquire or invest in any business; however, the Company might consider prospects if they are complementary to its existing business. There can be no assurance, however, that the Company will successfully identify or complete any investment or acquisition. 17 8 Broadway & Seymour, Inc. CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, (In thousands, except per share data) 1997 1996 1995 - --------------------------------------------------------------------------------------- Net revenue $ 79,559 $ 89,351 $ 114,738 -------- -------- --------- Operating expenses: Cost of revenue 51,036 69,701 93,607 Research and development 5,868 5,830 6,729 Sales and marketing 11,809 11,958 15,760 General and administrative 8,201 9,801 11,566 Restructuring and impairment (706) 2,319 2,921 -------- -------- --------- Total operating expenses 76,208 99,609 130,583 -------- -------- --------- Operating income (loss) 3,351 (10,258) (15,845) Gain on disposition of non-strategic business units 1,155 9,652 -- Interest income 890 260 93 Interest expense (58) (447) (586) -------- -------- --------- Income (loss) before income taxes 5,338 (793) (16,338) Income tax (provision) benefit (2,399) (1,455) 4,958 -------- -------- --------- Net income (loss) $ 2,939 $ (2,248) $ (11,380) ======================================================================================= Net income (loss) per share: - - Basic $ 0.32 $ (0.25) $ (1.32) - - Diluted $ 0.32 $ (0.25) $ (1.32)
The accompanying notes are an integral part of these consolidated financial statements. 18 9 Broadway & Seymour, Inc. CONSOLIDATED BALANCE SHEET
(In thousands, except share data) As of December 31, 1997 1996 - --------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 17,965 $ 15,010 Receivables 29,372 25,706 Inventories 828 890 Deferred income taxes 2,945 4,417 Other current assets 1,300 1,308 - --------------------------------------------------------------------------------- Total current assets 52,410 47,331 Property and equipment, net 5,154 6,291 Software costs, net 3,630 4,748 Intangible assets, net 6,064 7,346 Other assets 885 758 - --------------------------------------------------------------------------------- $ 67,343 $ 66,474 ================================================================================= Liabilities and Stockholders' Equity Current liabilities: Notes payable and current portion of long-term debt $ 138 $ 473 Accounts payable-trade 6,325 5,836 Accrued compensation 2,295 2,615 Estimated liabilities for contract losses 1,162 2,922 Other current liabilities 3,807 4,554 Deferred revenue and customer deposits 11,732 12,476 Income taxes payable 2,379 2,548 - --------------------------------------------------------------------------------- Total current liabilities 27,838 31,424 Long-term debt 138 - --------------------------------------------------------------------------------- Deferred income taxes 1,435 2,557 - --------------------------------------------------------------------------------- Other liabilities 697 165 - --------------------------------------------------------------------------------- Stockholders' equity: Common stock, $.01 par value; Authorized 20,000,000 shares; Issued 9,228,623 and 8,988,608 shares, respectively 92 90 Paid-in capital 38,518 36,276 Treasury stock, at cost, 38,552 shares (492) (492) Accumulated deficit (745) (3,684) - --------------------------------------------------------------------------------- Total stockholders' equity 37,373 32,190 - --------------------------------------------------------------------------------- $ 67,343 $ 66,474 =================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 19 10 Broadway & Seymour, Inc. CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, (In thousands, except per share data) 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ 2,939 $ (2,248) $(11,380) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 5,687 8,888 12,890 Restructuring and impairment costs (706) 2,319 2,921 Gain on sale of non-strategic business units (1,155) (9,652) -- Deferred income taxes 350 (1,511) (7,123) Loss (gain) on disposal of property and equipment 447 (11) 90 Changes in assets and liabilities excluding effects of businesses divested: Receivables (4,166) (3,337) (2,680) Inventories 62 (578) -- Other assets 590 (542) 252 Accounts payable-trade 489 (75) (3,509) Accrued compensation 457 (104) (121) Other liabilities (2,475) (9,102) 7,403 Deferred revenue and customer deposits 464 4,170 4,791 Income taxes (102) 4,456 (3,244) - ----------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 2,481 (7,327) 290 - ----------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property and equipment (2,492) (3,337) (6,660) Investment in software costs (239) (1,576) (2,193) Proceeds from sale of businesses 1,736 31,219 2,088 Cash used in business acquisitions -- (864) (1,479) - ----------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities (995) 25,442 (8,244) - ----------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings (payments) under credit facility -- (5,217) 5,217 Proceeds from issuance of long-term debt and notes payable -- 251 572 Payment of notes payable and long-term debt (473) (1,860) (1,186) Proceeds from issuance of common stock 1,942 1,668 3,765 - ----------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 1,469 (5,158) 8,368 - ----------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 2,955 12,957 414 Cash and cash equivalents, beginning of period 15,010 2,053 1,639 - ----------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 17,965 $ 15,010 $ 2,053 ===============================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 20 11 Broadway & Seymour, Inc. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Retained Common Stock Paid-in Earnings Treasury Stock (In thousands, except share data) Shares Par value capital (deficit) Shares Cost Total - ---------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 8,198,256 $82 $25,246 $ 9,944 (38,552) $(492) $ 34,780 Issuance of common shares in business acquisitions (Note 12) 172,308 2 3,473 3,475 Issuance of common shares pursuant to option and employee purchase plans 430,452 4 4,121 4,125 Tax benefit from exercise of certain 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 (Note 12) 15,723 250 250 Issuance of common shares pursuant to option and employee purchase plans 171,869 2 1,666 1,668 Tax benefit from exercise of certain 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 Issuance of common shares in business acquisitions (Note 12) 18,800 235 235 Issuance of common shares pursuant to option and employee purchase plans 221,215 2 1,940 1,942 Tax benefit from exercise of certain stock options 67 67 Net income 2,939 2,939 - ---------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 9,228,623 $92 $38,518 $ (745) (38,552) $(492) $ 37,373 ======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 21 12 Broadway & Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - NATURE OF BUSINESS, CERTAIN SIGNIFICANT ESTIMATES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Broadway & Seymour, Inc. (the "Company") is a software product and services company, providing integrated solutions to the financial and legal and professional services markets. Broadway & Seymour, the Company's customer relationship management business, is based in Charlotte, North Carolina and provides product-based and services-based solutions that address the customer relationship management needs of the financial services industry and related markets. Broadway & Seymour's solutions for customer relationship management include the proprietary software products TouchPoint(TM), CRISP(TM) and BANCStar(R), which are often integrated and customized to provide a tailored business solution to banks and other financial institutions. Through its service-based solutions, Broadway & Seymour provides consulting and custom systems integration and development services focused on customer relationship management. Elite Information Systems, Inc. ("Elite"), the Company's legal and professional services business, is based in Los Angeles, California and provides integrated time tracking, invoicing, general ledger and office automation software solutions and consulting services to the legal and professional services markets. 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 costs 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 licensing of software with related services is generally recognized as work is performed under the percentage of completion method with progress measured using costs incurred to date compared to total estimated costs to be incurred. Revenue from the licensing of software and the sale of 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 licensed third party software and hardware 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 three 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. SOFTWARE COSTS AND INTANGIBLE ASSETS. The Company capitalizes a portion of its costs of developing software to be licensed. These costs are 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. 22 13 Broadway & Seymour, Inc. 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 evaluates 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, an impairment loss is recognized. 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 1997, 1996 and 1995 were $1.0 million, $1.3 million and $1.5 million, respectively. SOFTWARE REVENUE RECOGNITION. During 1997, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition," ("SOP 97-2") which provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. The SOP 97-2 is effective for transactions entered into in fiscal years beginning after December 31, 1997. This SOP is not anticipated to have a material effect on the Company's revenue recognition practices, since a majority of the Company's software revenues are generated from transactions for which long-term contract accounting is applicable. Income (loss) per share. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards Number 128 "Earnings per Share" ("SFAS 128") which changed the method of calculating and reporting earnings per share. SFAS 128 is effective for financial statements with periods ending after December 15, 1997. Accordingly, the Company adopted SFAS No. 128 in its year-end 1997 consolidated financial statements and for all periods presented. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computation for December 31, 1997. For the years ended December 31, 1996 and 1995, there was no difference between the basic and diluted numerators and denominators because both years had a net loss and the effect of the assumed exercise of common stock equivalents (principally stock options) would have been anti-dilutive.
For the Year Ended Per Share December 31, 1997 Income Shares Amount - -------------------------------------------------------------------------- (In thousands) Basic EPS: $2,939 9,085 $ 0.32 Effect of Dilutive Securities: Options 52 - -------------------------------------------------------------------------- Diluted EPS: $2,939 9,137 $ 0.32 ==========================================================================
Options with an exercise price greater than the average market price of the common shares (or "antidilutive options") were not included in the computation of diluted earnings per share. At December 31, 1997, there were outstanding antidilutive options to purchase 1,008,749 shares of common stock at a weighted average price of $11.97. CAPITAL STRUCTURE. In February 1997, the FASB issued Statement of Financial Accounting Standards Number 129 "Disclosure of Information about Capital Structure" ("SFAS 129") which establishes standards for disclosing information about an entity's capital structure. SFAS 129 is effective for financial statements for periods ending after December 15, 1997. The provisions of SFAS 129 had no significant impact on the disclosures made by the Company in its consolidated financial statements. 23 14 Broadway & Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) COMPREHENSIVE INCOME. In June 1997, the FASB issued Statement of Financial Accounting Standards Number 130 "Reporting Comprehensive Income" ("SFAS 130") which changes the method of reporting and displaying comprehensive income and its components in a full set of general purpose financial statements. SFAS 130 is effective for periods beginning after December 15, 1997. The Company will adopt SFAS 130 beginning in the first quarter of 1998. SEGMENT DISCLOSURES. In June 1997, the FASB issued Statement of Financial Accounting Standards Number 131 "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131") which changes the way that public companies report information about operating segments in annual financial statements and interim financial reports. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, SFAS 131 need not be applied to interim financial statements. The Company will adopt SFAS 131 beginning in its 1998 annual financial statements. The Company has not yet completed its analysis of the impact of adopting SFAS 131. RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform with the current year presentation. NOTE 2- SIGNIFICANT TRANSACTIONS: In September 1997, the Company sold substantially all of the assets, including proprietary rights, object code and source code related to its VisualImpact software product line. The Company has received cash payments of $3.3 million for the net assets sold and payments for certain royalties and software licenses. The gain on the transaction was approximately $.2 million. In addition, the Company is entitled to receive additional royalties based primarily on the business' end user revenue, determined quarterly through the fourth quarter of the year 2000. 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 the National Pension Alliance ("NPA") - See Note 7). 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 closing 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's revenue in 1997. The gain on the transaction was approximately $.9 million. In May 1996, the Company sold substantially all of the assets of its Asset Management Services group ("AMSG"), including the Company's wholly owned subsidiary BancCorp Systems, Inc. The Company has received cash proceeds of $18.5 million, net of certain fees and expenses, for the net assets of AMSG and licensing of certain software. Certain additional proceeds were scheduled to be paid to the Company over the twenty-four months following the closing, subject to certain holdback provisions for indemnification obligations. Effective June 30, 1997, the Company and the purchaser terminated these provisions, resulting in the release of the net remaining proceeds to the Company and termination of all future indemnity claims. As a result of this settlement, the Company recognized an additional $.8 million gain on the disposition of AMSG in the quarter ended June 30, 1997. 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. In June 1995, the Company transferred certain assets and related liabilities of its community banking business to a newly formed subsidiary, Liberty Software, Inc. ("Liberty"), and simultaneously therewith sold all of the issued and outstanding capital stock of Liberty. 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. 24 15 Broadway & Seymour, Inc. NOTE 3 - RECEIVABLES At December 31, 1997 and 1996 receivables consisted of the following:
(In thousands) 1997 1996 - ----------------------------------------------------------------------- Trade $24,302 $23,349 Unbilled 4,631 2,584 Other 1,361 665 - ----------------------------------------------------------------------- 30,294 26,598 Less - Allowance for doubtful accounts (922) (892) - ----------------------------------------------------------------------- $29,372 $25,706 =======================================================================
NOTE 4 - PROPERTY AND EQUIPMENT: At December 31, 1997 and 1996 property and equipment consisted of the following:
(In thousands) 1997 1996 - ----------------------------------------------------------------------- Equipment $13,280 $13,339 Furniture and fixtures 2,270 1,881 Leasehold improvements 1,026 1,007 - ----------------------------------------------------------------------- 16,576 16,227 Less - Accumulated depreciation and amortization (11,422) (9,936) - ----------------------------------------------------------------------- $ 5,154 $ 6,291 =======================================================================
Depreciation expense related to property and equipment was $2.8 million, $3.3 million and $3.1 million for 1997, 1996 and 1995, respectively. NOTE 5 - SOFTWARE COSTS: During 1997, 1996 and 1995, the Company capitalized software development costs of $.2 million, $1.6 million and $2.2 million, respectively. Software costs in the accompanying balance sheet also include the cost of purchased software. Accumulated amortization for software costs was $7.7 million and $6.4 million at December 31, 1997 and 1996, respectively. Amortization expense was $1.4 million, $2.3 million and $5.9 million in 1997, 1996 and 1995, 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. 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 agreements generally provide for payment of a specific amount for each software license granted by the Company. Royalty expense was $.7 million, $.7 million and $1.4 million for 1997, 1996 and 1995, respectively. NOTE 6 - INTANGIBLE ASSETS: At December 31, 1997 and 1996 intangible assets consisted of the following:
(In thousands) 1997 1996 - ---------------------------------------------------------------------------- Excess of cost over fair value of assets acquired $ 6,443 $ 6,443 Customer lists and maintenance contracts 2,700 2,700 Assembled workforce 1,800 1,800 Other 2 2 - ---------------------------------------------------------------------------- 10,945 10,945 Less - Accumulated amortization (4,881) (3,599) - ---------------------------------------------------------------------------- $ 6,064 $ 7,346 ============================================================================
Amortization expense was $1.3 million, $3.3 million and $3.6 million for 1997, 1996 and 1995, respectively. NOTE 7 - RESTRUCTURING AND IMPAIRMENT CHARGES: In August 1996, the Company developed a plan to close its NPA business. 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 $.4 million related to employee severance costs. During the year ended 1996, $1.3 million, related principally to customer refunds and asset write-offs had been charged against the reserve, using $1.0 million of cash. In 1997, the Company charged approximately $.7 million against the accrual, using cash of $.4 million, relating principally to employee severance costs, asset write-offs and customer refunds and reduced its estimate of the remaining cost to complete the exit plan by $.5 million. As of December 31, 1997, the restructuring was completed. 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 the years ended December 31, 1997, 1996 and 1995, the Company utilized cash of approximately $.3 million, $.8 million and $.1 million, respectively, to satisfy obligations related to these reserves. During 1997 and 1996, the Company reduced its estimate of the remaining costs to complete the restructuring by $.1 million and $.2 million, respectively. As of December 31, 1997, the restructuring was completed. 25 16 Broadway & Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 8 - NOTES PAYABLE AND LONG-TERM DEBT: At December 31, 1997, notes payable and long-term debt consisted of an unsecured promissory note due in quarterly installments plus interest at 7.7% through May 1998 with a balance of $67,000, related to a 1995 acquisition, and an unsecured note due through September 1998 plus interest at 9.0% with a balance of $71,000. The Company has a two-year, $15 million revolving credit facility, against which it has made no borrowings. The Company may borrow up to a maximum of 80% of eligible accounts receivable. As of February 28, 1998 the Company had $11.2 million available for borrowing under this agreement. Borrowings under the credit facility will bear interest at the adjusted LIBOR or prime rate (as defined by the loan agreement). The credit facility is secured by substantially all of the Company's tangible and intangible assets. Additionally, the loan agreement contains customary covenants that require compliance with certain financial ratios and targets and restricts the incurrence of additional indebtedness, payment of dividends and acquisitions or dispositions of assets, among other things. As of December 31, 1997 the Company was in compliance with such covenants, as amended. Cash paid for interest on debt was less than $.1 million, $.3 million and $.4 million for 1997, 1996 and 1995, 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 $.7 million, $.9 million and $.7 million for 1997, 1996 and 1995, respectively. Effective January 1, 1995, the Company adopted the Broadway & Seymour, Inc. 1995 Employee Stock Purchase Plan covering a five-year period, 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. In 1995, the Company issued common stock, valued at approximately $.4 million, to former employees of Corbel related to compensation requirements of the Corbel acquisition agreements. 26 17 NOTE 10 - INCOME TAXES: The components of the provision for income taxes for 1997, 1996 and 1995 consist of the following:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------ Current provision: Federal $ 1,829 $ 2,740 $ 1,952 State 219 226 213 - ------------------------------------------------------------------ 2,048 2,966 2,165 - ------------------------------------------------------------------ Deferred provision (benefit): Federal 354 (1,096) (6,606) State (3) (415) (517) - ------------------------------------------------------------------ 351 (1,511) (7,123) - ------------------------------------------------------------------ $ 2,399 $ 1,455 $(4,958) ==================================================================
A reconciliation of income taxes computed at the statutory federal income tax rate to the recorded provision for income taxes is as follows:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------ Provision (benefit) for income taxes computed at the statutory federal rate $1,815 $ (270) $(5,555) Non-deductible amortization and impairment of intangible assets 204 1,374 631 Stock compensation 181 State income taxes, net of federal income tax benefit 143 127 (313) Other 56 224 279 - ------------------------------------------------------------------------ $2,399 $ 1,455 $(4,958) ========================================================================
Deferred tax assets (liabilities) recognized in the Company's balance sheet at December 31, 1997 and 1996 were as follows:
(In thousands) 1997 1996 - ---------------------------------------------------------------------------- Deferred tax assets: Asset allowances $ 339 $ 329 Loss accruals on contracts 288 1,324 Deferred revenue 83 1,677 Net operating losses and other carryforwards 527 819 Other accruals 1,816 1,075 Other deductions 419 12 - ---------------------------------------------------------------------------- Gross deferred tax assets 3,472 5,236 - ---------------------------------------------------------------------------- Less: valuation allowance (527) (819) - ---------------------------------------------------------------------------- 2,945 4,417 - ---------------------------------------------------------------------------- Deferred tax liabilities, net: Property and equipment 289 (215) Software costs and intangible assets (1,531) (1,899) Other liabilities (193) (443) - ---------------------------------------------------------------------------- (1,435) (2,557) - ---------------------------------------------------------------------------- $ 1,510 $ 1,860 ============================================================================
Cash paid for income taxes was approximately $3.4 million, $1 million and $5.5 million for 1997, 1996 and 1995, respectively. At December 31, 1997, the Company had $7.3 million in state net operating loss ("NOL") carryforwards. The state NOLs begin to expire in the year 1999. A full valuation allowance has been recorded against the state NOLs based on current separate company income limitations. The Company utilized $4.9 million, $1 million and $.4 million of its state NOLs during 1997, 1996 and 1995, 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. At December 31, 1997, options for 248,416 shares of common stock were outstanding under the Company's former Restated 1985 Incentive Stock Option Plan (the "1985 Plan"), which was terminated in June 1995. No additional options may be granted under this plan. 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 owns, directly or indirectly, more than 10% of the total combined voting power of all classes of shares of the Company immediately before such option is granted). Options became exercisable in six equal annual installments beginning on the date of grant and expired ten years from the date of grant. 27 18 Broadway & Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 801,667 shares of common stock were outstanding under the 1996 Plan at December 31, 1997. The 1996 Plan is administered by the Compensation Committee of the Company's Board of Directors which determines the price, exercise date and term (not to exceed 10 years) of each option granted to employees. 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 $.5 million and $.2 million of stock based compensation related to options granted under this plan in its 1997 and 1996 statement of operations, respectively. The remaining compensation of $. 8 million from the options granted under this plan will be recognized over the remaining vesting periods of such options, ranging from 2 to 3 years. The following table sets forth the changes in the number of shares subject to options during 1997, 1996 and 1995:
STOCK OPTIONS - ------------------------------------------------------------------------------ Weighted Average Number Option Price Option of shares per Share ($) Price($) - ------------------------------------------------------------------------------ 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 790,000 9.50-11.19 10.99 Exercised (103,618) 3.14-15.50 6.99 Canceled or expired (829,966) 6.80-25.50 23.12 --------- Outstanding at December 31, 1996 1,316,505 6.80-25.50 12.10 Granted 37,000 11.00-14.00 12.60 Exercised (101,668) 6.80-11.25 9.05 Canceled or expired (201,754) 7.75-25.50 15.24 --------- Outstanding at December 31, 1997 1,050,083 7.75-25.50 11.82 ========= Available for grant at December 31, 1997 73,000 =========
Pursuant to the requirements of SFAS No. 123, the following disclosures are presented to reflect the Company's pro forma net income (loss) and net income (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 1997, 1996 and 1995 using the average value method, as described in SFAS No. 123, and based on an assumed dividend yield rate of 0%, a weighted average risk free rate of 6.1% for 1997, 6.7% for 1996 and 6.8% for 1995 and weighted average expected lives of approximately 5 to 9 years, depending on the grant date. 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 income (loss) and net income (loss) per common and common equivalent share would have been as follows:
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------- Net income (loss) $ 2,939 $ (2,248) $ (11,380) Pro forma adjustment for stock compensation expense (2,460) (1,470) (403) - ----------------------------------------------------------------------------- Pro forma net income (loss) $ 479 $ (3,718) $ (11,783) ============================================================================= Net income (loss) per common and common equivalent share - Basic and Diluted $ 0.32 $ (0.25) $ (1.32) Pro forma adjustment for stock compensation expense (0.27) (0.17) (0.04) - ----------------------------------------------------------------------------- Pro forma net income (loss) per common and common equivalent share - Basic and Diluted $ 0.05 $ (0.42) $ (1.36) =============================================================================
NOTE 12 - COMMITMENTS, SIGNIFICANT RISKS AND UNCERTAINTIES: LEGAL MATTERS The Company is exposed to a number of asserted and unasserted claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. 28 19 Broadway & Seymour, Inc. LEASE COMMITMENTS The Company leases equipment and facilities under operating leases. Rental expense from operating leases was $3.7 million, $5.2 million and $6.1 million for 1997, 1996 and 1995, respectively. Future minimum lease payments under operating leases having an initial or remaining non-cancelable term in excess of one year are as follows:
Future Minimum Lease Payments - ------------------------------------------------------------------------- Years ending December 31: (In thousands) 1998 $ 2,871 1999 2,910 2000 2,797 2001 538 2002 & thereafter 3,663 ------- $12,779 =========================================================================
ACQUISITION EARNOUT In June 1995, the Company acquired certain assets and liabilities of The MiniComputer Company of Maryland, Inc. ("TMC"). In connection with this acquisition, the sellers of TMC may be entitled to receive additional shares of the Company's common stock through 1998 in the event certain annual financial and other targets are met. In connection with this earn-out provision, the Company issued stock during the years ended 1997 and 1996 valued at approximately $235,000 and $250,000, respectively, to the sellers of TMC and immediately expensed such amounts. CONCENTRATIONS OF REVENUE The business and organizational characteristics of the Company's customer base may vary significantly from period to period and may cause fluctuations in the size and timing of revenue. For the periods presented, the Company had two customers that exceeded certain disclosure requirement thresholds and are therefore classified as significant customers. In 1997, Chase Manhattan Bank ("Chase") accounted for $10.3 million, or 13%, of the Company's consolidated revenue. Also, in 1997 and 1996, First Data Corp. ("FDC") accounted for $8.0 million, or 10.1%, of consolidated revenue and $9.6 million, or 10.6%, of consolidated revenue, respectively. In September 1997, the Company amended its contract with FDC, substantially reducing the scope of work and the amount of future revenue and eliminating certain exclusivity restrictions on the Company. While the Company may provide some ongoing services to FDC, all remaining personnel previously assigned to work with this client have been reassigned to other projects. GEOGRAPHIC INFORMATION The Company's assets are principally located in North America. The Company's revenue is principally generated in North America, however for the years ending December 31, 1997, 1996, and 1995 revenue generated in Europe represented 9.4%, 5.0%, and 2.2% of consolidated revenue, respectively. Since the Company's contracts with non-U.S. customers generally denominate the amount of payments to be received by the Company in local currencies, exchange rate fluctuations between such local currencies and the U.S. dollar will subject the Company to currency translation risks. Also, the Company may be subject to currency transaction risks when the Company's contracts are denominated in a currency other than the currency in which the Company incurs expenses related to such contracts. YEAR 2000 ISSUE From the early days of the software industry, many software applications have been designed to store only the last two digits of the four-digit year date, for example, "98" rather than "1998". These applications, and other applications which retrieve or process such data, then "assume" the first two digits of the year date to be "19". Applications designed in this manner may not be able to process dates with years following 1999; for example, "00" may be treated as 1900 rather than the year 2000. Results of this failure to process the date correctly could include miscalculations and system breakdowns. The Company has recognized this potential problem and has reviewed, and when necessary modified, its current software products so that they can process data relating to dates subsequent to December 31, 1999 ("Year 2000 compliance"). 29 20 Broadway & Seymour, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Although the Company believes that its current versions of proprietary software products are Year 2000 compliant, no assurance can be given that additional modifications for Year 2000 compliance will not be necessary. The Company's software systems as installed are integrated with its customers' software and hardware systems and other vendors' software and hardware systems and have, in many cases, been uniquely customized to the customers' specifications. The customers' systems and other vendors' systems with which the Company's systems interoperate may not be Year 2000 compliant. Generally, the operation of the Company's software in these environments or the failure of these systems to be compliant could impact the Year 2000 compliance of the Company's systems and the Company may incur costs in ascertaining the cause of the failure and modifying its software. In addition to its proprietary software products, the Company offers related software products developed and provided by other software vendors. The Company is seeking assurances from these vendors that such products are compliant. However, the risks of interoperability with other software products exist for these products as well. While in some cases the Company has Year 2000 compliance obligations to its customers for such third party products, the Company believes that the vendors of such products bear primary responsibility for such obligations. Any costs of modifying software products to address Year 2000 compliance are being expensed as incurred. 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, 1997. 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 1997 and 1996 is as follows:
Quarter ended: 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96 9/30/96 6/30/96 3/31/96 - ------------------------------------------------------------------------------------------------------------------------ (In thousands, except per share data) (In thousands, except per share data) Revenue $ 21,344 $ 19,451 $ 19,103 $ 19,659 $ 21,515 $ 19,479 $ 23,624 $ 24,733 Cost of revenue 13,556 11,618 12,340 13,600 15,095 17,641 18,904 18,061 Operating expenses 6,641 6,672 6,328 5,452 6,416 8,591 7,249 7,652 Gain (loss) on disposition of non-strategic business units -- 169 896 91 1,809 (430) 8,273 -- Net interest income (expense) 251 267 130 184 31 35 (78) (175) - ------------------------------------------------------------------------------------------------------------------------ Income (loss) before income taxes 1,398 1,597 1,461 882 1,844 (7,148) 5,666 (1,155) Income tax benefit (provision) (597) (724) (676) (402) (694) 2,343 (3,424) 320 - ------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 801 $ 873 $ 785 $ 480 $ 1,150 $ (4,805) $ 2,242 $ (835) ======================================================================================================================== Net income (loss) per share: - - Basic $ 0.09 $ 0.10 $ 0.09 $ 0.05 $ 0.13 $ (0.54) $ 0.25 $ (0.09) - - Diluted $ 0.09 $ 0.09 $ 0.09 $ 0.05 $ 0.13 $ (0.54) $ 0.25 $ (0.09)
30 21 Broadway & 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, of cash flows and of changes in stockholders' equity present fairly, in all material respects, the financial position of Broadway & Seymour, Inc. and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, 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 that 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 Price Waterhouse LLP Charlotte, North Carolina February 6, 1998 31 22 Broadway & Seymour, Inc. CORPORATE INFORMATION BOARD OF DIRECTORS Steven S. Elbaum(2) Chairman and Chief Executive Officer, The Alpine Group, Inc.; President and Chief Executive Officer, Superior Telecom Inc. David A. Finley(2) Private Investor; President, Investment Management Partners, Inc.; Treasurer (retired), International Business Machines Corporation Robert J. Kelly(1) Private Investor, Co-Chairman (retired), Ernst & Young, LLP George L. McTavish(1) Chairman and Chief Executive Officer, Aurora Electronics, Inc. Roger Noall(1) Executive, KeyCorp. William G. Seymour(2) President, PriMax Properties, LLC Alan C. Stanford Chairman and Chief Executive Officer, Broadway & Seymour, Inc. (1) Member of the Compensation Committee (2) Member of the Audit Committee INDEPENDENT ACCOUNTANTS Price Waterhouse LLP NationsBank Corporate Center Charlotte, North Carolina 28202 TRANSFER AGENT Wachovia Bank of North Carolina, N.A. Post Office Box 3001 Winston-Salem, North Carolina 27102 NASDAQ Symbol: BSIS ANNUAL STOCKHOLDERS' MEETING The Annual Stockholders' Meeting of Broadway & Seymour, Inc. will be held on Friday, May 8, 1998 at 10:00 a.m. at the Hilton Hotel (formerly the Westin Hotel), 222 East Third Street, Charlotte, North Carolina 28202. A Form Proxy and Proxy Statement are being mailed to stockholders with this report. ADDITIONAL INFORMATION For additional information about Broadway & Seymour, Inc. or its subsidiaries, please contact: Keith B. Hall Vice President and Chief Financial Officer Broadway & Seymour, Inc. 128 South Tryon Street Charlotte, North Carolina 28202 (704) 372-4281 e-mail: keith.hall@bsis.com A copy of the Company's Annual Report to the Securities and Exchange Commission (Form 10-K) will be furnished, without charge, to any stockholder upon written request to the contact listed above. COMPANY FACILITIES Headquarters and Corporate Offices Broadway & Seymour, Inc. 128 South Tryon Street Charlotte, North Carolina 28202 (704) 372-4281 http://www.bsis.com OPERATING LOCATIONS CUSTOMER RELATIONSHIP MANAGEMENT Broadway & Seymour 128 South Tryon Street Charlotte, North Carolina 28202 (704) 372-4281 LEGAL AND PROFESSIONAL SERVICES Elite Information Systems 3415 South Sepulveda Boulevard Suite 500 Los Angeles, California 90034 (310) 398-4900 Products mentioned in this publication are used for identification purposes only and may be trademarks of Broadway & Seymour, Inc., it subsidiaries, or third-party holders. EX-21 6 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 BROADWAY & SEYMOUR, INC. SUBSIDIARIES OF THE REGISTRANT
State of Percentage Name of subsidiary Incorporation Ownership ------------------ ------------- ---------- Elite Information Systems, Inc. California 100% The MiniComputer Company of Maryland, Inc. North Carolina 100% Elite Information Systems International, Inc. California 100%
EX-23 7 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 6, 1998, appearing on page 31 of the Company's Annual Report (which is incorporated by reference in this form 10-K). Price Waterhouse LLP Charlotte, North Carolina March 25, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 17,965,000 0 30,294,000 (922,000) 828,000 52,410,000 16,576,000 (11,422,000) 67,343,000 27,838,000 0 0 0 92,000 37,281,000 67,343,000 79,559,000 79,559,000 51,036,000 51,036,000 25,172,000 1,046,000 (832,000) 5,338,000 (2,399,000) 2,939,000 0 0 0 2,939,000 0.32 0.32
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