-----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, UoEjLYMfwghS9z1nLUxOLIcysZciD3EyvDdOSRn/xsG2QFIa2C2le63s/rbv/hYs ZvI/lp94OCM7DPXEbkH/Tg== 0000950144-98-007407.txt : 19980615 0000950144-98-007407.hdr.sgml : 19980615 ACCESSION NUMBER: 0000950144-98-007407 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980612 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABR INFORMATION SERVICES INC CENTRAL INDEX KEY: 0000920985 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 593228107 STATE OF INCORPORATION: FL FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24132 FILM NUMBER: 98647647 BUSINESS ADDRESS: STREET 1: 34125 US HGHWY 19 N CITY: PALM HARBOR STATE: FL ZIP: 34684 BUSINESS PHONE: 8137852819 MAIL ADDRESS: STREET 1: 34125 US HGHWY 19 N CITY: PALM HARBOR STATE: FL ZIP: 34684 10-Q 1 ABR INFORMATION SERVICES INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- ---------- Commission File Number: 0-24132 ABR INFORMATION SERVICES, INC. (Exact Name of Registrant as Specified in its Charter) Florida 59-3228107 ------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organizations) Identification No.) 34125 U.S. Highway 19 North, Palm Harbor, Florida 34684-2141 - ------------------------------------------------- ---------- (Address of Principal Executive Office) (Zip Code) Registrant's Telephone Number, including area code: 813-785-2819 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 Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Class: Voting Common Stock, $.01 Par Value Outstanding at June 10, 1998: 28,694,070 Class: Nonvoting Common Stock, $.01 Par Value Outstanding at June 10, 1998: None
1 2 ABR INFORMATION SERVICES, INC. INDEX TO FORM 10-Q
Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Income for the three and nine months ended April 30, 1997 and 1998 3 Consolidated Balance Sheets as of July 31, 1997 and April 30, 1998 4 Consolidated Statements of Cash Flows for the nine months ended April 30, 1997 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 13 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
2 3 PART I. FINANCIAL INFORMATION Item 1. ABR INFORMATION SERVICES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended April 30, April 30, --------------------------- --------------------------- 1997* 1998 1997* 1998* ------------ ----------- ----------- ----------- Revenue $15,078,827 $20,984,286 $40,954,409 $57,796,368 Operating expenses: Cost of services 8,941,815 11,633,197 24,140,658 33,138,519 Selling, general and administrative 2,904,203 4,013,870 8,340,227 11,213,397 Acquisition costs -- 440,022 -- 440,022 ----------- ----------- ----------- ----------- Operating income 3,232,809 4,897,197 8,473,524 13,004,430 ---------- ----------- ----------- ----------- Other income: Interest income 1,635,135 1,239,015 5,504,243 4,042,292 Lease revenue, net -- 864,639 -- 2,004,940 ----------- ----------- ----------- ----------- Total other income 1,635,135 2,103,654 5,504,243 6,047,232 ----------- ----------- ----------- ----------- Income before income taxes 4,867,944 7,000,851 13,977,767 19,051,662 Income taxes 1,711,309 2,427,974 5,158,254 6,614,300 ----------- ----------- ----------- ----------- Net income $ 3,156,635 $ 4,572,877 $ 8,819,513 $12,437,362 =========== =========== =========== =========== Net income per share: Basic $ .11 $ .16 $ .31 $ .43 =========== =========== =========== =========== Diluted $ .11 $ .16 $ .30 $ .43 =========== =========== =========== ===========
*Restated for the effect of the pooling of Business Computer Services, Inc. The accompanying notes are an integral part of these statements. 3 4 ABR INFORMATION SERVICES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
July 31, 1997* April 30, 1998 -------------- -------------- ASSETS CURRENT ASSETS Cash and cash equivalents, net $ 34,286,493 $ 25,937,415 Investments 110,198,759 115,753,334 Accounts receivable, net 8,283,527 12,755,393 Prepaid expenses and other 2,633,260 3,104,822 ------------ ------------ Total current assets 155,402,039 157,550,964 LONG-TERM INVESTMENTS 14,128,644 4,801,778 PROPERTY AND EQUIPMENT, net 28,290,154 45,191,151 SOFTWARE DEVELOPMENT COSTS, net 11,767,211 19,767,804 GOODWILL, INTANGIBLES AND OTHER ASSETS, net 15,617,519 26,398,587 ------------ ------------ TOTAL ASSETS $225,205,567 $253,710,284 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 760,161 $ 655,701 Accrued expenses 1,872,432 4,048,261 Customer account deposits 23,133,381 31,555,545 Unearned revenue 594,524 24,195 Income taxes payable 52,520 1,229,531 ------------ ------------ Total current liabilities 26,413,018 37,513,233 ------------ ------------ DEFERRED INCOME TAXES 3,312,969 7,307,309 ------------ ------------ SHAREHOLDERS' EQUITY Preferred Stock - authorized 2,000,000 shares of $.01 par value; no shares issued -- -- Common Stock - authorized 100,250,000 shares of $.01 par value; issued and outstanding, 28,574,364 and 28,691,792 shares, respectively 285,744 286,918 Additional paid in capital 171,359,690 172,331,316 Retained earnings 23,834,146 36,271,508 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 195,479,580 208,889,742 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $225,205,567 $253,710,284 ============ ============
* Restated for the effect of the pooling of Business Computer Services, Inc. The accompanying notes are an integral part of these statements. 4 5 ABR INFORMATION SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended April 30, ------------------------------ 1997 1998 ------------- ------------- Cash flows from operating activities: Net income $ 8,819,513 $ 12,437,362 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and other amortization 2,107,163 3,658,247 Amortization of software 417,845 1,276,182 Deferred income taxes 1,055,490 3,994,339 Provision for losses on accounts receivable 17,318 28,241 Tax benefit related to exercise of certain stock options 56,606 -- Change in operating assets and liabilities: Accounts receivable (3,600,657) (4,500,107) Prepaid expenses and other (881,774) (471,562) Other assets (24,362) (60,880) Accounts payable 1,313,408 (104,460) Accrued expenses 1,118,238 2,175,829 Unearned revenue (49,822) (570,329) Customer account deposits 2,937,142 8,422,164 Income taxes payable 62,389 1,177,011 ------------- ------------- Net cash provided by operating activities 13,348,497 27,462,037 ------------- ------------- Cash flows from investing activities: Additions to investments (317,068,724) (496,565,700) Maturity of investments 335,761,414 500,337,992 Additions to property and equipment (10,692,685) (19,768,415) Additions to software development costs (4,177,154) (9,276,775) Cash paid for acquisitions, net (860,315) (11,511,017) ------------- ------------- Net cash provided by (used in) investing activities 2,962,536 (36,783,915) ------------- ------------- Cash flows from financing activities: Exercise of common stock options 652,217 972,800 ------------- ------------- Net cash provided by financing activities 652,217 972,800 ------------- ------------- Net increase (decrease) in cash and cash equivalents 16,963,250 (8,349,078) Cash and cash equivalents at beginning of year 14,449,390 34,286,493 ------------- ------------- Cash and cash equivalents at end of period $ 31,412,640 $ 25,937,415 ============= =============
* Restated for the effect of the pooling of Business Computer Services, Inc. The accompanying notes are an integral part of these statements. 5 6 ABR INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1998 NOTE A - DESCRIPTION OF ORGANIZATION AND BUSINESS ABR Information Services, Inc. (the "Company"), through its wholly-owned subsidiaries, ABR Benefits Services, Inc., Charing Company, Inc., Matthews, Malone & Associates, Ltd. and Business Computer Services, Inc., is a leading provider of comprehensive benefits administration, payroll, and human resource services to employers seeking to outsource these functions. The Company's operating revenues currently are generated from three sources: employee health and welfare administration services, qualified plan administration services, and payroll and human resource administration services. All services are offered on either an "a la carte" or a total outsourcing basis, allowing customers to outsource certain benefits administration tasks which they find too costly or burdensome to perform in-house, or to outsource the entire benefits administration function. Additionally, the Company generates non-operating revenue from the short-term lease of its St. Petersburg, Florida operations center through its wholly-owned subsidiary, ABR Properties, Inc. The Company provides outsourced benefits administration, payroll, and human resource services to more than 30,000 employers, ranging in size from 20 to 200,000 employees, including approximately 100 of the Fortune 500 companies. ABR provides portability (COBRA and HIPAA) services through the trade name CobraServ(SM) and payroll and tax deposit services through the trade name PayAmerica(SM). The Company is headquartered in Palm Harbor, Florida, and employs approximately 1,400 people in marketing/operations centers in Florida, New Jersey, Virginia, Maryland, California, Wisconsin and Arizona. The Company's operations are in a single business segment, the information services business. NOTE B - BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnote disclosure required by generally accepted accounting principles for complete financial statements. The financial statements as of April 30, 1998 and for the three and nine months ended April 30, 1998 and April 30, 1997 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The results of operations for the three and nine months ended April 30, 1998 are not necessarily indicative of results that may be expected for the year ending July 31, 1998. These financial statements should be read in conjunction with the audited financial statements of the Company as of July 31, 1996 and 1997, and for each of the three years in the period ended July 31, 1997, included in the Company's 1997 Annual Report to Shareholders. As discussed in Note E, the Company's historical financial statements have been restated to reflect the pooling of Business Computer Services, Inc. in April 1998. The Company presents Cash and Cash Equivalents net of tax deposits held for future payment on behalf of its payroll customers. The amount of such tax deposits netted against Cash and Cash Equivalents was approximately $42.2 million and $21.3 million at April 30, 1998 and July 31, 1997, respectively. During fiscal 1998, the Company adopted Statement of Financial Accounting Standard No. 128 "Earnings Per Share" (FAS 128). This Standard became effective for financial statements issued after December 15, 1997 and eliminates primary and fully diluted income per share and replaces them with basic and diluted income per share. Accordingly, all income per share amounts for the prior periods presented have been restated to conform to the new standard (see Note C). 6 7 NOTE C - NET INCOME PER COMMON SHARE The following table reconciles the numerators and denominators of the basic and diluted income per share computations, as computed in accordance with FAS 128:
Three months ended Nine months ended April 30, April 30, --------------------------- --------------------------- 1997 1998 1997 1998 ----------- ------------ ----------- ------------ Basic Net income (numerator): Net income available to common shareholders $ 3,156,635 $ 4,572,877 $ 8,819,513 $ 12,437,362 =========== =========== =========== ============ Shares (denominator): Weighted average shares 28,571,417 28,632,398 28,499,567 28,601,372 =========== =========== =========== ============ Basic per share earnings $ .11 $ .16 $ .31 $ .43 =========== =========== =========== ============ Diluted Net income (numerator): Net income available to common shareholders $ 3,156,635 $ 4,572,877 $ 8,819,513 $ 12,437,362 =========== =========== =========== ============ Shares (denominator): Weighted average shares 28,571,417 28,632,398 28,499,567 28,601,372 Effect of dilutive stock options 435,212 473,908 600,282 485,952 ----------- ----------- ----------- ----------- Adjusted weighted average shares 29,006,629 29,106,306 29,099,849 29,087,324 =========== =========== =========== ============ Diluted per share earnings $ .11 $ .16 $ .30 $ .43 =========== =========== =========== ============ Options not included in diluted income per share because exercise price was greater than average market price: First Quarter N/A N/A 0 815,834 Second Quarter 2,000 921,418 2,000 921,418 Third Quarter 512,771 62,000 423,771 2,000 Price Range $ 22.37 to $ 27.84 to $ 26.64 to $ 34.33 $ 34.33 $ 34.33 $ 34.33 $
The options which expire on various dates through 2007 were still outstanding at April 30, 1998. NOTE D - COMMITMENTS On October 2, 1997, the Company acquired a 383,000 square foot office campus in St. Petersburg, Florida for $13.5 million. The Company expects to spend approximately $23 million to expand and renovate the facility over the next three years. The Company expects to occupy portions of this facility starting in calendar 1999. The former owner of the facility has signed a short-term agreement to lease back portions of the campus, prior to the Company occupying the entire facility in approximately 2000. The Company's lease revenue on the campus is dependent upon the amount of square footage being utilized by the former owner and is recorded net of the direct expenses of operating the facility. The Company estimates that as of April 30, 1998, approximately $14.0 million will be required in order of the company to purchase additional equipment, furniture and hardware, and to complete currently defined software projects. 7 8 NOTE E - BUSINESS ACQUISITIONS On December 15, 1995, the Company, in an acquisition accounted for as a purchase, acquired all of the outstanding capital stock of Bullock Associates, Inc. ("Bullock"), for $12.5 million, with an additional $2.0 million payable upon the attainment of certain revenue requirements during 1996 and 1997. During fiscal 1997 and 1998, $863,053 and $1,136,947, respectively, of this additional amount was paid for the attainment of these revenue requirements. Bullock, now part of ABR Benefits Services, Inc., is located in Princeton, New Jersey and provides COBRA administration, retiree insurance administration, insurance continuation billing and collection, pension benefits administration services, QDRO administration and educational benefit administration services as well as administration for other employee benefits programs such as employee discount plans, adoption programs, program rebates and emergency loans. On February 26, 1998, the Company, in an acquisition accounted for as a purchase, acquired all of the outstanding capital stock of Charing Company, Inc. ("Charing") for $7.5 million in cash and an additional amount to be paid contingent upon future earnings. Charing is located in Wisconsin and provides qualified plan administration, Section 125 administration, consulting services and comprehensive employee benefits statement reporting. The results of operations of Charing are included in the Company's results of operations as of February 1, 1998. Goodwill of approximately $7.5 million resulting from the acquisition is being amortized over a period of 25 years on a straight-line method. On February 27, 1998, the Company, in an acquisition accounted for as a purchase, acquired all of the outstanding capital stock of Matthews, Malone & Associates, Ltd. ("Matthews/Malone.") for $2.9 million in cash and an additional amount to be paid contingent upon future earnings. Matthews/Malone is located in Arizona and provides defined benefit and defined contribution plan administration services as well as Section 125 administration and non-qualified plan administration services. The results of operations of Matthews/Malone are included in the Company's results of operations as of February 1, 1998. Goodwill of approximately $2.5 million resulting from the acquisition is being amortized over a period of 25 years on a straight-line method. The Company has not provided pro froma financial information with respect to the Charing and Matthews/Malone acquisitions as they are not significant acquisitions. On April 30, 1998, the Company acquired all of the outstanding capital stock of Business Computer Services, Inc./dba PayAmerica ("PayAmerica") in exchange for 1,198,008 shares of the Company's voting common stock. In connection with this transaction, approximately $440,022 of acquisitions costs were accrued and charged to expense during the quarter ended April 30, 1998. PayAmerica is located in MacLean, Virginia and has offices in Maryland and New Jersey. PayAmerica provides payroll and tax deposit services, along with human resource administration services. The acquisition of PayAmerica was accounted for as a pooling of interests. Accordingly, the Company's accompanying historical financial statements have been restated to include the accounts and operations of PayAmerica for all periods prior to the acquisition, including restating the Company's retained earnings at July 31, 1996 to reflect the difference between the par value of the Company Stock issued and the total shareholders' equity of PayAmerica at the time. Restated results of the combined entities for previously reported periods are as follows:
Three months ended Nine months ended Six months ended April 30, 1997 April 30, 1997 January 31, 1998 ------------------------------------------------------------------------------------------- Previously Previously Previously Reported As Restated Reported As Restated Reported As Restated ------------------------------------------------------------------------------------------- Revenue $13,188,827 $15,078,827 $35,292,409 $40,954,409 $31,946,082 $36,812,082 =========== =========== =========== =========== =========== =========== Net Income $ 3,184,585 $ 3,156,635 $ 8,732,413 $ 8,819,513 $ 7,651,935 $ 7,864,485 =========== =========== =========== =========== =========== =========== Earnings per Share - Diluted $ .12 $ .11 $ .32 $ .30 $ .27 $ .27 =========== =========== =========== =========== =========== ===========
NOTE F - LITIGATION The Company is involved in various litigation arising from the ordinary course of its business. In the opinion of management, the ultimate outcome of litigation is not expected to be material to the Company's financial position, results of operations or liquidity. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in the following discussion and analysis that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1993 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve a number of risks and uncertainties and are based on information available to the Company on the date hereof. The Company assumes no obligations to update any such forward-looking statements. The following discussion and analysis should be read in conjunction with the Financial Statements and notes thereto appearing elsewhere in this Form 10-Q. OVERVIEW The Company's operating revenues currently are generated from three sources: employee health and welfare administration services, qualified plan administration services, and payroll and human resource administration services. Additionally, the Company generates non-operating revenue from the short-term lease of its St. Petersburg, Florida operations center through its wholly-owned subsidiary, ABR Properties, Inc. The first source of the Company's revenue is providing employee health and welfare administration outsourcing services. In particular, the Company provides portability (i.e., COBRA (the "Consolidated Omnibus Budget Reconciliation Act"), HIPAA (the "Health Insurance Portability and Accountability Act of 1996") or state-mandated continuation coverage, health portability law compliance services primarily through its qualifying event agreements with employers and capitation agreements with insurance companies. Through qualifying event agreements, the Company receives a fixed, per occurrence, fee from its customers for each qualifying event. A qualifying event occurs when an employee or his or her dependents experience a loss or change of coverage under a group healthcare plan. The amount of the fixed fee varies depending on the type of portability qualifying event and the method of the qualifying event notification mailing, which is selected by the customer. Through capitation agreements, insurance companies designate the Company as the administrator of compliance for their group insurance clients that are subject to health portability laws. The Company is paid a monthly fee for each employee covered by the group plan. The revenue generated under a capitation agreement is not dependent on the triggering of a qualifying event, but is determined based on the number of employees covered by the group plan at the beginning of each month. The Company also receives an administrative fee typically equal to 2% of the monthly health insurance premium that is paid by or on behalf of each COBRA continuant. In addition, the Company generates health and welfare administration services revenues by providing administration services for benefits provided to active employees, including open enrollment and eligibility, and flexible spending account administration, along with providing administration services for benefits provided to retired and inactive employees, including retiree healthcare, disability, surviving dependent, family leave and severance benefits. Most services are provided both on a one-time and continuous basis. During the first nine months of fiscal 1997 and 1998, 83.6% and 81.1%, respectively, of the Company's revenues were attributable to employee health and welfare administration services. The second source of the Company's revenue is providing employee qualified plan administration services, including 401(k) plan administration, profit sharing administration, defined benefit plan administration, ESOP administration and Qualified Domestic Relations Order ("QDRO") administration. During the first nine months of fiscal 1997 and 1998, 1.8% and 5.8%, respectively, of the Company's revenues were attributable to employee qualified retirement plans administration. The third source of the Company's revenue is providing payroll and human resource administration services, including tax deposit services and integrated human resource solutions. During the first nine months of fiscal 1997 and 1998, 14.6% and 13.1%, respectively, of the Company's revenues were attributable to payroll and human resource administration services. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) YEAR 2000 MATTERS The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. In 1996, the Company initiated the process of modifying existing software programs to become Year 2000 compliant. Management has determined that the Year 2000 issue will not pose significant operational problems for its computer systems. As a result, all costs associated with this conversion are being expensed as incurred. The Company will utilize both internal and external resources to reprogram, or replace, and test the software for Year 2000 modifications. The Company anticipates completing the Year 2000 project no later than March 1999, which is prior to any anticipated impact on its operating systems. The remaining cost of the Year 2000 project is estimated at approximately $150,000 and is being funded through operating cash flows and is not expected to have a material effect on the results of operations. The cost of the project and the date on which the Company believes it will complete the year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. The Company has initiated formal communications with all of its significant suppliers and large customers to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 Issue. There can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and would not have a material adverse effect on the Company's systems and in turn, the Company's business, financial condition and results of operations. RESULTS OF OPERATIONS The following table sets forth the percentage of revenue represented by certain items reflected in the Company's statements of income.
Three months ended Nine months ended April 30, April 30, -------------------------- -------------------------- 1997 1998 1997 1998 ------------ ----------- ------------ ----------- Revenue 100.0% 100.0% 100.0% 100.0% Cost of Services (59.3) (55.4) (58.9) (57.3) Selling, general and administrative expenses (19.3) (19.2) (20.4) (19.4) Acquisition costs -- (2.1) -- (.8) ----- ----- ----- ----- Operating income 21.4 23.3 20.7 22.5 Interest income 10.8 5.9 13.4 7.0 Lease revenue, net -- 4.1 -- 3.4 Income taxes (11.3) (11.5) (12.6) (11.4) ----- ----- ----- ----- Net income 20.9% 21.8% 21.5% 21.5% ===== ===== ===== =====
THREE MONTHS ENDED APRIL 30, 1998 COMPARED TO THREE MONTHS ENDED APRIL 30, 1997 The Company's results of operations for the three months ended April 30, 1997 were restated to reflect the acquisition of Business Computer Services, Inc. (d/b/a PayAmerica) on April 30, 1998, which was accounted for as a pooling of interests. 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) Revenues increased $5.9 million, or 39.1%, to $21.0 million during the three months ended April 30, 1998 from $15.1 million during the three months ended April 30, 1997. Of the $5.9 million increase in revenues, $3.1 million was attributable to increased employee health and welfare administration revenues, $2.3 million was attributable to increased employee qualified plan administration revenues and $.5 million was due to increased revenues from payroll and human resource administration services. For the quarter ended April 30, 1998, health and welfare administration revenue was $15.9 million, qualified plan administration revenue was $2.6 million, and payroll and human resource administration revenue was $2.5 million. The increase in employee health and welfare administration revenue was primarily attributable to the addition of new customers and new service product offerings related to the federally-mandated HIPAA law. The increase in employee qualified retirement plans administration revenue was primarily attributable to the two new subsidiaries acquired by the Company effective February 1, 1998. The increase in payroll and human resource administration revenue was primarily attributable to the addition of new customers. Cost of services increased $2.7 million, or 30.3%, to $11.6 million during the three months ended April 30, 1998 from $8.9 million during the three months ended April 30, 1997. The increase in cost of services was attributable to the addition of data processing, information systems and customer service personnel to support revenue growth, the amortization of software placed in service as completed, the transition and consolidation of certain operations duties into the Florida operations center and the addition of two subsidiaries during the quarter ended April 30, 1998. As a percentage of revenues, the 1998 cost of services decreased to 55.4% from 59.3% in the previous year. The decrease as a percent of revenues resulted primarily from allocating expenses over an increasingly larger revenue base. Selling, general and administrative expenses increased $1.1 million, or 37.9%, to $4.0 million during the three months ended April 30, 1998 from $2.9 million during the three months ended April 30, 1997. The increase in selling, general and administrative expenses was primarily attributable to the addition of marketing, management and administrative personnel and equipment necessary to support the Company's growth and the acquisition of two subsidiaries during the quarter ended April 30, 1998. As a percentage of revenues, selling, general and administrative expenses decreased to 19.2% from 19.3% in the previous year. Acquisition costs increased to $440,022 during the three months ended April 30, 1998 from $0 for the three months ended April 30, 1997. The expenses relate to acquisition costs associated with the acquisition of Business Computer Services, Inc. (d/b/a PayAmerica), on April 30, 1998, which has been accounted for as a pooling of interests. Interest income decreased $.4 million to $1.2 million during the three months ended April 30, 1998 from $1.6 million during the three months ended April 30, 1997. This decrease was the result of less cash available for investing due to capital purchases, cash payments for acquisitions of two new subsidiaries, increased utilization of tax-free investment instruments which yield a lower stated interest rate, and an overall decline in short-term interest rates. Lease revenue increased to $.9 million for the three months ended April 30, 1998 as compared to $0 for the corresponding period in 1997 due to the purchase of an office campus (with an existing tenant) in St. Petersburg, Florida. Lease revenue is presented net of direct costs associated with operating the campus. This net revenue will decrease as the Company begins to occupy the campus in phases beginning in calendar 1999 and will decrease to $0 by April 1999, at the latest. Final occupancy by the Company is expected in 2000. Income taxes increased 41.2% to $2.4 million during the three months ended April 30, 1998 from $1.7 million during the three months ended April 30, 1997. The company's effective tax rate decreased slightly to 34.7% for the three months ended April 30, 1998 from 35.2% for the corresponding period in the previous year. This decrease reflected the Company's greater utilization of tax-free investments. As a result of the foregoing, the Company's net income increased $1.4 million, or 43.8%, to $4.6 million during the three months ended April 30, 1998 from $3.2 million during the three months ended April 30, 1997. Basic and diluted net income per share was $.16 for the quarter ended April 30, 1998 as compared to $.11 (basic and diluted) for the corresponding prior year period. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) NINE MONTHS ENDED APRIL 30, 1998 COMPARED TO NINE MONTHS ENDED APRIL 30, 1997 The Company's results of operations for the nine months ended April 30, 1998 and 1997 were restated to reflect the acquisition of Business Computer Services, Inc. (d/b/a PayAmerica) on April 30, 1998, which was accounted for as a pooling of interests. Revenues increased $16.8 million, or 41.0%, to $57.8 million during the nine months ended April 30, 1998 from $41.0 million in the corresponding period of 1997. Of the $16.8 million increase in revenues, $12.7 million was attributable to increased employee health and welfare administration revenues, $2.6 million was attributable to increased employee qualified plan administration revenues and $1.5 million was due to increased revenues from payroll and human resource administration services. For the nine months ended April 30, 1998, health and welfare administration revenue was $46.9 million, qualified plan administration revenue was $3.4 million and human resource administration revenue was $7.5 million. The increase in employee health and welfare administration revenue was primarily attributable to the addition of new customers and new service product offerings related to the federally-mandated HIPAA law. The increase in employee qualified retirement plans administration revenue was primarily attributable to the addition of two new subsidiaries acquired by the Company effective revenue February 1, 1998. The increase in payroll and human resource administration revenue was primarily attributable to the addition of new customers. Cost of services increased $9.0 million, or 37.3%, to $33.1 million during the nine months ended April 30, 1998 from $24.1 million during the nine months ended April 30, 1997. The increase in cost of services was attributable to the addition of data processing, information systems and customer service personnel to support revenue growth, the amortization of software placed in service as completed, the transition and consolidation of certain operational duties into the Florida operations center and the addition of two subsidiaries during the quarter ended April 30, 1998. As a percentage of revenues, cost of services decreased to 57.3% from 58.9% for the corresponding period of 1997. Selling, general and administrative expenses increased $2.9 million, or 34.9%, to $11.2 million during the nine months ended April 30, 1998 from $8.3 million during the nine months ended April 30, 1997. As a percentage of revenues, selling, general and administrative expense decreased to 19.4% during the nine months ended April 30, 1998 from 20.4% during the nine months ended April 30, 1997. The decrease as a percent of revenues resulted primarily from allocating expenses over an increasingly larger revenue base. Acquisition costs increased to $440,022 during the nine months ended April 30, 1998 from $0 for the nine months ended April 30, 1997. The expenses relate to acquisition costs associated with the acquisition of Business Computer Services, Inc. (d/b/a PayAmerica), on April 30, 1998, which has been accounted for as a pooling of interests. Interest income decreased $1.5 million to $4.0 million during the nine months ended April 30, 1998 from $5.5 million during the nine months ended April 30, 1997. This decrease was the result of less cash available for investing due to capital purchases, cash payments for acquisitions of two new subsidiaries, increased utilization of tax-free investment instruments which yield a lower interest rate and an overall decline in short-term interest rates. Lease revenue increased to $2.0 million during the nine months ended April 30, 1998 as compared to $0 for the corresponding period in 1997 due to the purchase of an office campus (with an existing tenant) in St. Petersburg, Florida. Lease revenue is presented net of direct costs associated with operating the campus. This net revenue will decrease as the Company begins to occupy the campus in phases beginning in calendar 1999 and will decrease to $0 by April 1999, at the latest. Final occupancy by the Company is expected in 2000. Income taxes increased 26.9% to $6.6 million during the nine months ended April 30, 1998 from $5.2 million during the nine months ended April 30, 1997. The Company's effective tax rate decreased to 34.7% for the nine months ended April 30, 1998 from 36.9% for the corresponding period in the previous year primarily due to greater utilization of tax-free investments. 12 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued) As a result of the foregoing, the Company's net income increased $3.6 million, or 40.9%, to $12.4 million during the nine months ended April 30, 1998 from $8.8 million during the nine months ended April 30, 1997. Basic and diluted net income per share was $.43 for the nine months ended April 30, 1998 as compared to $.31 and $.30, basic and diluted, respectively, for the corresponding prior year period after adjustment for the Company's 2-for-1 stock split in February 1997. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended April 30, 1998, net cash provided by operating activities was $27.5 million as compared to $13.3 million for the corresponding period of fiscal 1997. As of April 30, 1998 and July 31, 1997, the Company's working capital and current ratio were $120.0 million and 4.2:1 and $129.0 million and 5.9:1, respectively. The Company invests excess cash balances in short-term investment grade securities, such as money market investments, obligations of the U.S. government and its agencies and obligations of state and local government agencies. During the nine months ended April 30, 1998, the Company's capital expenditures were $40.6 million. On October 2, 1997, the Company acquired a 383,000 square foot office campus in St. Petersburg, Florida for $13.5 million. The Company expects to spend approximately $23 million to expand and renovate the facility over the next three years. Management estimates that as of April 30, 1998, approximately $14.0 million will be required in order for the Company to purchase additional equipment, furniture and hardware, and to complete its currently defined software projects. The Company believes that its cash, investments, cash flows from operations and potential additional borrowing capacity will be adequate to meet the Company's expected capital requirements for the foreseeable future. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds On April 30, 1998, the Company acquired (the "Acquisition") all of the issued and outstanding capital stock of Business Computer Services, Inc. (d/b/a PayAmerica), a Virginia corporation ("BSCI"), in exchange for 1,198,008 shares of the Company's voting common stock, $.01 par value per share ("ABR Stock"). The Acquisition was consummated in accordance with the terms of an Agreement and Plan of reorganization, dated April 30, 1998, by and among the Company, BCSI, Joseph M. Speroni, Paul J. Speroni, Robert S. Speroni, Stephen J. Speroni, Joseph F. Speroni, David M. Speroni, Richard B. Speroni, Rex Haverty, E. Hale Waller, Nikky Losapio and Christopher Mantua, as the Shareholders of BCSI, and Samuel N. Klewans, as Shareholders' Agent. Pursuant to the terms of the Acquisition Agreement, all of the issued and outstanding shares of BCSI common stock were sold and transferred to the Company in exchange for an aggregate number of shares of ABR Stock determined by dividing $36,000,000 by the average closing price of the ABR Stock on the Nasdaq National Market for the ten trading days immediately preceding the day before the closing date. As of the closing date of the Acquisition, there were 1,580 shares of BCSI common stock outstanding. The issuance of shares of ABR Stock described above is claimed to be exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. 13 14 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.15 Stock purchase agreement dated February 26, 1998 and effective February 1, 1998, by and among ABR Information Services, Inc. and the shareholders of Charing Company, Inc.* 10.16 Stock purchase agreement dated February 27, 1998 and effective February 1, 1998, by and among ABR Information Services, Inc., Matthews, Malone & Associates, Ltd. and the shareholders of Matthews, Malone & Associates, Ltd.* 10.17 Agreement and Plan of Reorganization, dated April 30, 1998, by and among ABR Information Services, Inc., Business Computer Services, Inc. ("BCSI"), Joseph M. Speroni, Paul J. Speroni, Robert S. Speroni, Stephen J. Speroni, Joseph F. Speroni, David M. Speroni, Richard B. Speroni, Rex Haverty, E. Hale Waller, Nikky Losapio and Christopher Mantua, as the Shareholders of BCSI, and Samuel N. Klewans, as Shareholders Agent.** 27.1 Financial Data Schedule (Edgar Version Only) * Previously filed as part of the Company's Form 10-Q for the quarterly period ended January 31, 1998. **Previously filed as part of the Company's Form 8-K, dated April 30, 1998 and filed May 15, 1998. (b) Reports on Form 8-K A report on Form 8-K was filed on May 15, 1998 reporting the acquisition of Business Computer Services, Inc., (d/b/a PayAmerica) on April 30, 1998. Included with the filing was the "Agreement and Plan of Reorganization by and among ABR Information Services, Inc., a Florida Corporation, Business Computer Services, Inc., a Virginia Corporation, the Shareholders of Business Computer Services, Inc., and Samuel N. Klewans, as Shareholders' Agent". No financial statements were required to be filed with this Form 8-K. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: June 11, 1998 ABR INFORMATION SERVICES, INC. (Registrant) /s/ James P. O'Drobinak ------------------------------ James P. O'Drobinak Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 15 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ABR INFORMATION SERVICES, INC. FOR THE THIRD QUARTER ENDED APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. DOLLARS 9-MOS JUL-31-1998 AUG-01-1997 APR-30-1998 1 25,937,415 115,753,334 12,755,393 0 0 157,550,964 45,191,151 0 253,710,284 37,513,233 0 0 0 286,918 208,602,824 253,710,284 57,796,368 57,796,368 33,138,519 11,213,397 440,022 0 (4,042,292) 19,051,662 6,614,300 12,437,362 0 0 0 12,437,362 .43 .43
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