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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-27872
MAY & SPEH, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2992650
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1501 Opus Place, Downers Grove, Illinois 60515
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (630) 964-1501
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
Preferred Stock Purchase Rights
(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 for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $174,519,593 as of December 20, 1996, based upon
the last sale price of such stock as reported by The Nasdaq Stock Market on that
day. In making this calculation, the Registrant has assumed, without admitting
for any purpose, that the Registrant's Employee Stock Ownership Plan and all
executive officers and directors of the Registrant, and no other persons, are
affiliates.
The number of shares of Common Stock of the Registrant outstanding as of
December 20, 1996 was 25,002,154.
Documents Incorporated by Reference: Portions of the Registrant's Proxy
Statement relating to the 1997 Annual Meeting of Stockholders (to be filed
pursuant to Regulation 14A) have been incorporated by reference into Part III of
this report.
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PART I
In addition to historical information, this report contains forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those anticipated. Certain of these risks and
uncertainties are described in reports and other documents filed by May & Speh,
Inc. (which, along with its subsidiary, is referred to in this report as "May &
Speh" or the "Company") with the Securities and Exchange Commission from time to
time, including the Prospectus dated March 26, 1996 included in the Company's
Registration Statement on Form S-1 (File No. 33-98302).
ITEM 1. BUSINESS.
May & Speh provides computer-based information management services
primarily for clients with significant direct marketing requirements. The
Company provides direct marketing services including database creation, data
warehousing, predictive behavioral modeling, list processing and data
enhancement. The Company also provides data processing outsourcing services. The
Company's direct marketing and data processing outsourcing services are
complementary and allow the Company to leverage its investment in its state-of-
the-art data processing center as well as its core competencies in customized
software systems development, large database management, high speed data
processing and data center management. May & Speh's open architecture, multiple
platform data center, with processing capacity of 1,329 MIPS, provides its
clients with superior processing flexibility and speed.
MARKET OVERVIEW
DIRECT MARKETING SERVICES
Successful direct marketing requires the identification and analysis of
relationships between customers and their purchasing patterns. Historically,
direct marketing has been associated with the direct mail industry. However,
within the last several years, database capabilities have expanded the
definition of direct marketing to include many forms of interactive customer
communications through a variety of mediums. Direct marketing allows marketers
to segment and identify their customers and prospects based on well-defined
attributes or common characteristics. Direct marketing enables both the delivery
of a customized message to a defined audience and the measurement of the
response to that message. The marketing program can then be evaluated, refined
and continually improved. The ability to measure the response to a specific
marketing program allows the financial return on marketing expenditures to be
analyzed.
Demographic shifts and lifestyle changes, combined with a proliferation of
new products and services and the evolution of new marketing mediums (including
cable, telemarketing, direct mail, direct response, on-line services and the
Internet) have made marketing campaigns increasingly complex. At the same time,
marketing costs have been subjected to growing scrutiny of companies'
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marketing managers. Many marketers have responded to these pressures by
reallocating their expenditures from traditional mass marketing to more cost
efficient direct marketing.
Historically, valuable sales and customer data within large corporations
was often unusable as it resided in various incompatible systems. Advances in
computer technology have reduced the cost and increased the performance
capabilities of data collection and manipulation. Through software technology,
it is now possible to compile vast data banks using disparate customer record
files combined with data collected from mailing lists owned by third parties.
With the development of relational and multidimensional databases, marketers can
add new categories of data without having to redesign or rebuild their
databases, making it possible to manipulate data in order to develop customer
profiles based on a number of different attributes. Finally, the development of
decision support software has allowed for the utilization of database marketing
at the decision maker level in a client/server environment.
Direct marketing service providers require the technical resources to
manage exceptionally large relational and multidimensional databases and the
software capabilities to convert vast amounts of data into usable information.
These functions must be performed within tight time constraints where processing
speed is critical. Many companies choose not to invest in the technological
resources necessary to build these capabilities and as a result, choose to
outsource database management and list processing services to a proven vendor as
a more cost efficient means of accessing the latest technological resources and
expertise.
DATA PROCESSING OUTSOURCING
Data processing or data center outsourcing includes the provision and
management of all or a portion of a client's data processing and information
systems functions. In essence, the data processing outsourcing services vendor
assumes the client's data center functions and clients continue to retain direct
access to their information, although the hardware and software are no longer
located on the client's premises. Increasingly, companies are outsourcing their
information processing activities as part of an overall effort to focus internal
resources on their core competencies while improving operating efficiencies and
reducing costs.
Many companies' data processing departments are burdened with increasing
demands for instant access and communication of large amounts of data to
multiple locations in real time, requiring high speed processing and
telecommunications capabilities. In addition, because computing technology is
evolving rapidly, companies are increasingly faced with the decision to either
continually invest a significant amount of capital in new technology or to
outsource. The increasing demands on data processing departments coupled with
the significant ongoing investments required to remain technologically current
are key factors in the growing trend towards outsourcing. The advantages to
organizations of outsourcing their data processing activities include cost
control, improved flexibility, reduced capital investment, higher performance
and service levels, improved speed of delivery and capacity on demand.
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The Company believes that the market in which it competes is best defined
by the scale of its clients' data processing requirements, not by such clients'
revenues. Typically, the scale of these requirements is large but not of a size
typically sought by the larger outsourcing service providers such as
International Business Machine Corporation's ISSC division, Electronic Data
Systems Corporation, Computer Sciences Corporation, Perot Systems, Inc. and SHL
Systemhouse, Inc., a subsidiary of MCI Communications Corporation. The Company
believes that its data center processing capabilities, while not of a similar
scale, are similar to or better than the capabilities of its large competitors
in terms of throughput, turnaround capabilities and state-of-the-art equipment
utilized.
MAY & SPEH SERVICES AND PRODUCTS
DIRECT MARKETING SERVICES
May & Speh provides comprehensive direct marketing information processing
services, including database creation, data warehousing, predictive behavioral
modeling, list processing and data enhancement. Rather than selling standard
products and services to its clients, the Company's approach to this market has
been to design and implement creative database solutions around the specific
needs of its clients. The principal advantages of customized services include
(i) the ability of the database to expand and adapt to the client's changing
business needs, (ii) the ability to have these services developed on a platform
of the client's choosing, and (iii) the integration of database services with
the list processing services necessary to keep the database current.
Database Management Services. May & Speh's broad range of database
management services begins with the Company's proven approach to database
development which includes several planning stages and analytical processes to
determine the client's needs. Typically, direct marketing databases originate
with the client's own files, both current and historical, which generally
include name, address and gender, as well as frequency and value of products
purchased.
May & Speh analyzes all of the client's disparate operational files and
determines what data will add value and can be made actionable. Utilizing both
proprietary and commercial software, the Company consolidates all of the
disparate information and relationships across multiple files and converts the
client's raw information into a clean, consolidated format so that relationships
can be understood at both the customer and household levels.
Once the client's customer data is consolidated and the database created,
May & Speh enhances the data by utilizing a wide selection of demographic,
geographic, census (age, approximate income level, education level and household
composition) and lifestyle information for over 100 million individuals and
households. May & Speh licenses this information from leading data compilers.
The combination of each client's proprietary customer information with these
external data files provides a complete profile of a client's customers,
enabling the client, through the use of May & Speh's behavior modeling and
analysis services, to act on the data. Through the development of a scoring
model, the client can segment its database and determine its best customers
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and prospects in each marketplace. The entire process results in a marketing
program that can be targeted to distinct audiences with a high propensity to buy
the client's products. These databases typically reside at May & Speh's data
center. Because of the dynamic nature and complexity of these databases, May &
Speh is routinely asked by its clients as part of their ongoing direct marketing
efforts to update the databases with the results of recent marketing programs
and to periodically perform the list processing service described below.
List Processing Services. List processing includes the preparation and
generation of comprehensive name and address lists which are used in direct
marketing promotions. May & Speh's state-of-the-art data center and large volume
processing capabilities allow the Company to meet the direct marketing needs of
its clients, processing over seven billion records through its advanced list
processing software services in fiscal 1996. May & Speh customizes a list
processing solution by utilizing a variety of commercial and proprietary
software products, such as Address Conversion and Reformat, Address
Standardization and Enhanced Merge/Purge, as well as products which are licensed
through the United States Postal Service such as National Change of Address,
Delivery Sequence File and Locatable Address Conversion System. Other licensed
products are databases used for suppressions such as the Direct Marketing
Association's Mail Preference File, the American Correctional Association Prison
Suppress File and other files.
May & Speh's list processing services seek to reduce its clients' mailing
costs. For instance, because approximately 15% to 20% of the population moves
each year, mailings may be misaddressed or not delivered at all. Through the
utilization of May & Speh's Merge/Purge, Address Standardization software,
National Change of Address database, Delivery Sequence File and Locatable
Address Conversion Database, the Company can eliminate most duplicate names as
well as reduce the amount of undeliverable items by an average of six percent.
Project Quiddity. In fiscal year 1996, development activities progressed
for Quiddity, an on-line relational and open database management product
designed specifically for marketing professionals. The product's user-friendly
format allows non-technical users to easily access and directly work with
marketing databases to create more targeted and profitable one-to-one marketing
programs. The Quiddity System integrates custom-developed and commercial
software that complement the Company's suite of direct marketing services. Key
features include open architecture, scalable platforms and an object-oriented
application that is work-flow-oriented and intuitive. The official launch of
Quiddity is scheduled for fiscal 1997.
DATA PROCESSING OUTSOURCING
May & Speh's primary data processing outsourcing service is to manage all
or a portion of a client's information processing needs on a cost-effective
basis from the Company's data center. After migrating their workload to the
Company's data center, clients continue to retain direct access to their
information from their remote sites. The Company also provides, to a much lesser
extent, applications outsourcing services which include the replacement of a
client's in-house technical development staff.
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The primary outsourcing services provided include migration (takeover and
turnover) support, on-line and batch processing capacity, technical support,
help desk access and support, back-up and recovery, disaster recovery services,
operations support, account management, media (tapes, documents, high speed
Direct Access Storage Devices subsystems ("DASD"), etc.) management and
handling, production control, telecommunications and network management support.
These service and support functions are available 24 hours a day, seven days a
week.
Historically, the Company's success in outsourcing has resulted in part
from its ability to provide its services with minimal disruption to the client.
The Company has established rigorous formal processes to ensure a successful
ongoing processing of a client's workload at the Company's data center.
In July 1996, the Company acquired GIS Information Systems, Inc., a
provider of data processing outsourcing services based in Oak Brook, Illinois
("GIS"). The Company acquired GIS from Faneuil Systems, Inc. ("Faneuil"). The
acquisition complemented the Company's existing outsourcing services business by
expanding the Company's customer base and increasing economies of scale through
the addition of 240 MIPS of processing capability.
MARKETING AND SALES
The Company markets its direct marketing and data processing outsourcing
services through separate sales forces. Maintaining a separate sales force for
each business allows the Company's sales representatives to concentrate on
particular services, technology and customer demands, thereby staying abreast of
developments in these areas. Sales representatives are encouraged to identify
cross-selling opportunities. In fiscal 1995 the Company restructured its sales
force compensation system in order to provide incentives to salespeople to focus
on both attracting larger clients and selling the Company's most profitable
services.
Pricing for direct marketing services is dependent upon the complexity of
service required. In general, May & Speh establishes a price list for clients
detailing the prices for a broad range of service options. These prices are
based on the volume of records to be processed and the level of customization
required. Additionally, if the level of up-front customization is high, the
Company charges a one-time development fee.
Pricing for data processing outsourcing services is dependent upon the
anticipated range of resource consumption. Typically, clients are charged a flat
or stepped rate for data processing outsourcing services provided under multi-
year contracts. If the processing time, data storage, retrieval requirements and
output volume exceed the budgeted amounts, the customer is charged additional
amounts. Minimum charges and early termination charges are typically included in
contracts.
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CLIENTS
The Company has approximately 180 direct marketing clients, including
Fortune 500 companies and other large and medium-sized companies that have
significant direct marketing requirements. These clients are primarily in the
financial services, consumer products, insurance, and retail industries. The 10
largest direct marketing customers represented approximately 63% of the
Company's direct marketing net revenues in fiscal 1996.
The Company, including GIS, has approximately 145 data processing
outsourcing clients. These clients are located primarily in the Midwestern U.S.
The 10 largest outsourcing clients represented approximately 50% of the
Company's data processing outsourcing services net revenues in fiscal 1996.
The Company seeks to maintain long-term relationships with its clients and
30 clients have been with the Company for more than five years including Sears,
the Company's first client in 1947. In fiscal 1996, Sears accounted for
approximately 17.6% of the Company's net revenues. Data processing outsourcing
clients typically operate under contracts, usually three years in length. Direct
marketing clients typically do not operate under formal contracts, but have
traditionally maintained multi-year relationships with May & Speh.
TECHNOLOGICAL RESOURCES AND FACILITIES
The Company maintains a state-of-the-art data center with 1,329 MIPS of
mainframe and UNIX processing power at its Downers Grove, Illinois headquarters
and Oak Brook location. The Company's main processor is a Hitachi GX/8624 series
mainframe computer capable of executing 408 MIPS. Sharing the same technological
engine allows both of the Company's service lines to take advantage of cost
sharing and realize economies of scale. The Company utilizes other state-of-the-
art data center components, such as robotic tape subsystems, DASD and high-speed
laser, LED and impact printers. The Company supports multiple platforms
including UNIX and mid-range computer systems.
The Company maintains a disaster recovery plan with a commercial disaster
recovery service to provide alternative data processing sites in the event the
Company experiences a natural disaster or other interruption at its data center.
The Company conducts recovery exercises several times per year and encourages
its clients to join in this process.
The Company's headquarters building was custom-designed to be a secure data
center environment. Building characteristics include 24-hour security
protection, television surveillance, fire and motion alarms and a fire
protection system backed up by a sprinkler system.
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COMPETITION
The markets in which the Company operates are highly competitive and
fragmented, with no single dominant competitor. Although numerous smaller
companies compete in the direct marketing and outsourcing markets, the Company
regularly competes with companies that have more extensive financial, marketing
and other resources than the Company. Many of the Company's competitors have
substantially greater assets and thus, may have a greater ability to obtain
customer contracts where sizable asset purchases or investments are required.
In the direct marketing services market, competition is based on the
quality and reliability of products and services, technological expertise,
historical experience, ability to develop customized solutions for customers,
processing capabilities and price. Management believes that the Company competes
favorably in this market based upon these competitive factors. The Company's
principal competitors include Acxiom Corporation, Database America Companies,
Donnelley Marketing Corp., Harte-Hanks Communications, Inc., Metromail and
NeoData Services.
In the data processing outsourcing market, competition is based on the
quality and reliability of services, technical expertise, processing
capabilities, processing environment and price. Management believes that the
Company competes favorably in this market based upon these competitive factors.
Although there are many competitors within the data processing outsourcing
services marketplace, the Company's principal competitors are Affiliated
Computer Services, Inc., Genix Group, Inc., a wholly-owned subsidiary of
Affiliated Computer Services, Inc., Lockheed Martin Corporation, PKS Information
Services, Inc., Power Computing Company (a division of Philips, N.V.), Western
Atlas and other regional outsourcers. In addition, but on a less frequent basis,
the Company competes with International Business Machine Corporation's ISSC
division, Electronic Data Systems Corporation, Computer Sciences Corporation,
Perot Systems, Inc. and SHL Systemhouse, Inc., a subsidiary of MCI
Communications Corporation.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon its trade secret protection program and non-
disclosure safeguards to protect its proprietary technologies. The Company
enters into license or other agreements with its clients in the ordinary course
of business which contain terms and conditions prohibiting unauthorized
reproduction of the Company's products. In addition, the Company generally
enters into confidentiality agreements with its employees, clients, potential
clients and suppliers with access to sensitive information and limits access to
and distribution of its software documentation and other proprietary
information. While there can be no assurance that the steps taken by the Company
will be adequate to deter misappropriation of its proprietary rights, the
Company believes that due to the rapid pace of technological change in the
Company's business, legal protections afforded through patent protection for its
products are less significant than the knowledge, ability and experience of its
employees, the frequency of product enhancements and the timeliness and quality
of support.
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EMPLOYEES
As of September 30, 1996, the Company employed 434 persons. None of the
Company's employees are represented by a labor union, and the Company believes
that its relations with employees are good.
ITEM 2. PROPERTIES.
The Company's executive offices and principal operations are located at
1501 Opus Place, Downers Grove, Illinois, in a 105,352 square foot building
owned by the Company. The facility is comprised of 67,352 square feet of office
space, 25,000 square feet of raised floor facilities which house the Company's
data center and 13,000 square feet of tape library. The Company currently leases
an additional 127,448 square feet of warehouse and office space in three
separate locations in the metropolitan Chicago area with lease terms expiring on
various dates through August 2002.
In 1995, the Company acquired a 10.4 acre land parcel adjacent to the
existing headquarters facility and is currently evaluating proposals to expand
its facilities onto such parcel. The estimated cost of such expansion as
currently proposed is approximately $27 million. The Company is currently
anticipating the sale of the completed facility to a third party and entering
into a twenty year lease at terms considered favorable to the Company. It is
anticipated that the facility will be completed in 1998.
The Company believes that its existing owned and leased facilities are
adequate for its present needs and that the additional facilities proposed for
construction will be sufficient to sustain the growth of the Company for the
foreseeable future. Notwithstanding, the Company believes that additional space
will be available for lease on commercially reasonable terms on an as needed
basis.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ----- --- --------
<S> <C> <C>
Albert J. Speh, Jr. 77 Chairman of the Board
Lawrence J. Speh 47 President and Chief Executive Officer
Terrance C. Cieslak 50 Executive Vice President and Chief Technology Officer
Robert C. Early 43 Executive Vice President, Chief Financial Officer and
Treasurer (Executive Vice President, Corporate
Development, effective January 15, 1997)
Michael J. Loeffler 39 Executive Vice President, Direct Marketing Services
Claudia J. Colalillo 47 Senior Vice President, Organization Development
George E. Bardenheier, Jr. 38 Senior Vice President, Sales - Direct Marketing
Services
Willard E. Engel, Jr. 49 Vice President and Chief Accounting Officer
(Treasurer/Chief Accounting Officer, effective
January 15, 1997)
Edward N. Fares 48 Vice President, Information Technology Group
Joseph C. Grossestreuer 46 Vice President, Sales - Outsourcing Services
Eric M. Loughmiller 37 Chief Financial Officer (effective January 15, 1997)
</TABLE>
Albert J. Speh, Jr. is Chairman of the Board of Directors of May &
Speh. He and Roland May founded the Company in 1947 as a tabulating company
for one major customer. Prior to founding the Company, Mr. Speh served in
the Armed Forces during World War II. He was later employed by Sears,
General Finance, Inc. and Encyclopedia Britannica in the field of data
processing. Mr. Speh currently serves on the boards of Fenwick High School
and Loyola University (Chicago).
Lawrence J. Speh has served as a director of the Company since July
1992 and as President and Chief Executive Officer since January 1993. From
1977 until June 1988, Mr. Speh held various senior management positions
with the Company including President of Direct Marketing Services,
Marketing Director and Treasurer. From June 1988 until July 1992, Mr. Speh
owned and operated Gallery Lainzberg, a direct marketing company. Mr. Speh
is the son of Albert J. Speh, Jr., the Chairman of the Company.
Terrance C. Cieslak serves as Executive Vice President and Chief
Technology Officer and is responsible for systems management and
integration for the Company. Since joining the Company in 1987, Mr. Cieslak
has served in a variety of senior management positions including Technical
Support Manager, Data Center Manager and Vice President of Services and
Solutions.
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Prior to joining the Company, Mr. Cieslak worked with Electronic Data Systems
Corporation and Official Airline Guide.
Robert C. Early was appointed Executive Vice President, Chief Financial
Officer and Treasurer of May & Speh in October 1995. He served as Director of
Corporate Growth for the Company from 1993 through October 1995 and has been a
director of the Company since November 1994. Prior to joining the Company, Mr.
Early worked as an independent contractor with business advisory firms,
including Ridge Capital Corp. and Ridge Advisors, Inc., which provide mergers
and acquisitions, capital financing and strategic planning advisory services.
From 1990 through 1992 Mr. Early was also Vice Chairman of Consolidated
Convenience Systems, Inc., a holding company. Prior to 1990, Mr. Early spent
approximately 12 years at Grant Thornton LLP, and was the partner responsible
for the Chicago office Capital Markets Group from 1985 through 1990. Mr. Early
is a CPA. Effective January 15, 1997 Mr. Early will become Executive Vice
President, Corporate Development.
Michael J. Loeffler serves as Executive Vice President, Direct Marketing
Services and is responsible for the direct marketing services group of the
Company. Mr. Loeffler joined May & Speh in 1988 as an Account Executive and has
also served as Vice President of Sales and Sales Manager. Prior to joining May &
Speh, Mr. Loeffler had seven years of experience in the direct marketing
industry with UARCO, Inc. and Colorforms Division of Wallace Press.
Claudia J. Colalillo serves as Senior Vice President, Organization
Development and has been responsible for the human resources function of the
Company since 1992. Prior to joining May & Speh in 1990, Mr. Colalillo gained
over 20 years of experience in the field of Human Resources including positions
with Mutual Trust Life Insurance Company and Credit Bureau Services Company. She
serves as the Illinois State Director for the Society of Human Resource
Management.
George E. Bardenheier, Jr. has served as Senior Vice President, Sales -
Direct Marketing Services since December 1996, and served as Vice President,
Sales - Direct Marketing Services from February 1996 until December 1996. From
1985 to February 1996, Mr. Bardenheier was employed by Metromail Corporation, a
consumer information provider, where he served as Vice President, Strategic
Planning from January 1995 to February 1996, and as Vice President - National
Sales Manager from January 1992 to December 1995.
Willard J. Engel, Jr. has served May & Speh as Vice President and Chief
Accounting Officer since 1986 and in other financial and accounting capacities
since 1972. Effective January 15, 1997, Mr. Engel will become Treasurer/Chief
Accounting Officer.
Edward N. Fares has served as Vice President, Information Technology Group
since June 1995. He is responsible for data center operations. Prior to joining
May & Speh, he was the Chief Operating Officer at the United States headquarters
of Rolfe & Nolan USA Incorporated, a global software vendor, and Chief
Information Officer of First Options of Chicago, a futures trading firm.
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Joseph C. Grossestreuer has served as Vice President, Sales-Outsourcing
Services since March 1995 and in that capacity is responsible for the sale and
marketing of the Company's data processing outsourcing group. Prior to joining
May & Speh, Mr. Grossestreuer was a Senior Vice President at SHL Systemhouse,
Inc., an outsourcing organization, from 1992 to March 1995, and an Associate
Partner - Deal Services with Andersen Consulting from 1974 to 1992.
Eric M. Loughmiller will serve as Chief Financial Officer effective January
15, 1997. Prior to joining May & Speh, Mr. Loughmiller was an audit partner at
Price Waterhouse LLP where he had spent over 15 years in that firm's Accounting
and Business Advisory Services practice.
Officers are chosen and serve at the discretion of the Board of Directors.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "SPEH" since March 26, 1996, the date of the Company's initial
public offering. The table below sets forth for the calendar period indicated
the range of high and low sales prices for the Common Stock as reported by The
Nasdaq Stock Market.
<TABLE>
<CAPTION>
Period of 1996 High Low
-------------- ----- -----
<S> <C> <C>
March 26 to March 31 12 10 15/16
April 1 to June 30 16 1/2 10 7/8
July 1 to September 30 21 1/2 13 3/4
</TABLE>
As of December 20, 1996, there were 128 holders of record of the Company's
Common Stock.
DIVIDEND POLICY
The Company currently intends to retain its earnings for future growth
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future. The Company's credit agreements prohibit the Company from paying
dividends and making other distributions on its Common Stock without the consent
of its lenders. Any future payment of dividends will depend upon the Company's
results of operations, financial condition, cash requirements and other factors
deemed relevant by the Board of Directors.
On September 28, 1995, the Company paid a cash dividend to all
stockholders of the Company, including the Company-sponsored ESOP. The
aggregate dividend payment was $2.5 million of which $1.2 million was paid to
the ESOP and is deductible by the Company for federal income tax purposes. The
principal purpose of such dividend was to permit the ESOP to prepay without
penalty a portion of its outstanding loan balance.
RECENT SALES OF UNREGISTERED SECURITIES
In connection with the acquisition of GIS, the Company delivered to Faneuil
a warrant to purchase 180,000 shares of the Company's Common Stock at an
exercise price of $16.51 per share. The warrant may be exercised at any time on
or prior to July 18, 2001. The warrant was issued in reliance on the private
offering exemption set forth in Section 4(2) of the Securities Act of 1933 and
on analogous provisions contained in state securities laws on the basis that it
was issued under circumstances not involving a public offering.
On March 25, 1996, the Company issued 216,497 shares of Common Stock in
connection with the exercise of stock options by certain officers of the
Company. The aggregate exercise price for such options was approximately
$451,070. The shares were issued in reliance on the exemption set forth in Rule
701 under the Securities Act of 1933.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data of the Company for
the five fiscal years ended September 30, 1996. The selected financial data have
been derived from the Company's audited financial statements. This financial
data should be read in conjunction with "Management's Discussions and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1992 1993 1994 1995/1/ 1996
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues........................... $32,231 $41,792 $51,667 $61,641 $77,223
Operating expenses:
Wages and benefits................... 11,620 14,709 18,624 20,984 23,950
Services and supplies................ 2,168 3,240 3,650 4,160 6,839
Rents, leases and maintenance........ 8,333 9,848 11,156 13,878 18,064
Depreciation and amortization........ 791 740 912 1,230 2,156
Other operating expenses............. 2,832 3,667 4,034 5,106 6,813
ESOP principal payments/2/........... 1,962 2,109 2,267 2,411 2,376
------- ------- ------- ------- -------
Total operating expenses........... 27,706 34,313 40,643 47,769 60,198
------- ------- ------- ------- -------
Operating income....................... 4,525 7,479 11,024 13,872 17,025
ESOP interest.......................... 1,407 1,208 1,022 864 611
Other (income) expense, net............ 502 662 474 482 (84)
------- ------- ------- ------- -------
Income before income taxes............. 2,616 5,609 9,528 12,526 16,498
Income taxes........................... 964 2,203 3,690 4,665 6,274
------- ------- ------- ------- -------
Net income............................. $ 1,652 $ 3,406 $ 5,838 $ 7,861 $10,224
======= ======= ======= ======= =======
Net income per share................... $ 0.07 $ 0.15 $ 0.26 $ 0.39 $ 0.42
Weighted average shares and common
equivalent shares outstanding........ 23,417 23,406 22,375 20,415 24,429
OPERATING AND OTHER DATA:
Operating margin/3/.................... 14.0% 17.9% 21.3% 22.5% 22.0%
Number of employees
at end of period..................... 218 272 306 331 434
Processing capacity (MIPS)
at end of period..................... 88 168 198 500 1,329
</TABLE>
- -------------------
/1/ In fiscal 1995, the Company paid a special dividend of $2.5 million. See
"Market for Registrant's Common Equity and Related Stockholder Matters --
Dividend Policy."
/2/ Represents annual tax deductible contributions to the Company's ESOP
which are used to service principal payments on the related ESOP loan.
/3/ Operating margin represents operating income expressed as a percentage
of net revenues.
13
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------
1992 1993 1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities......... $ 5,243 $ 4,881 $ 4,459 $ 8,602 $ 30,732
Working capital........................ 7,831 10,840 12,091 16,519 46,149
Total assets........................... 25,256 29,971 33,978 46,804 115,218
Current maturities of long-term debt... 2,559 2,724 3,035 3,359 5,330
Long-term debt......................... 20,043 17,697 15,051 16,860 22,251
Total stockholders' equity (deficit)... (1,492) 3,989 8,701 17,644 75,731
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
May & Speh was co-founded in 1947 to provide data processing outsourcing
services. In the early 1980's, the Company began to provide direct marketing
services. In 1992, recognizing the rapidly growing direct marketing industry,
the Company implemented a strategic plan to increase its focus on clients with
direct marketing requirements. Other key elements of the plan were to strengthen
management, expand significantly the marketing and sales infrastructure,
decentralize decision making and increase the Company's focus on high volume
clients in selected industries.
Since implementing the strategic plan, May & Speh has experienced strong
growth in revenues and earnings per share and expansion of its operating
margins. For the five fiscal years ended September 30, 1996, the Company's net
revenues grew from $32.2 million to $77.2 million and earnings per share
increased from $0.07 to $0.42. During this period, operating margins increased
from 14.0% to 22.0%, reflecting achievement of certain economies of scale. The
Company has invested in human resources, facilities and technology at rates
consistent with growth in revenues over this period. The number of employees has
increased from 218 at September 30, 1992 to 434 at September 30, 1996,
reflecting the addition of new sales and marketing, technical and administrative
personnel to support the Company's emphasis on direct marketing services and
overall growth. In addition, the Company's ESOP principal payments, which have
remained relatively constant in dollar terms, have declined as a percentage of
net revenues to 3.1% for fiscal 1996 from 6.1% in fiscal 1992.
Direct marketing services provided by May & Speh include database creation,
data warehousing, predictive behavioral modeling, list processing and data
enhancement. Revenues from the Company's existing direct marketing clients are
typically recurring in nature, though such services are not provided under long-
term contracts. Data processing outsourcing services are typically performed
under multi-year contracts.
In fiscal 1996, approximately 73.0% of the Company's net revenues were from
direct marketing services and 27.0% were from data processing outsourcing
services. May & Speh's direct marketing and data processing outsourcing services
are complementary and leverage the Company's investment in its state-of-the-art
data facility. Investments required to provide services for new clients are
typically spread across multiple contracts. This approach reduces the Company's
investment risk and allows for economies of scale.
The Company regularly evaluates whether to lease or buy its computer
equipment. An environment of rapidly changing technology and cost efficient
financing arrangements has resulted in the Company leasing substantially all of
its computer equipment under three to ten year leases. Generally, the Company's
leases with terms in excess of five years are classified as capital leases.
15
<PAGE>
As of September 30, 1996, the Company had approximately 325 clients. The
Company's 20 largest clients accounted for approximately 63.6% of the Company's
net revenues in fiscal 1996. Sears represented 17.6% of fiscal 1996 net
revenues. The Company's net revenues for fiscal 1996 were concentrated in the
following industries:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Direct Marketing:
Financial and banking 27%
Retail 19
Consumer goods 9
Insurance 6
Agency 5
Telecommunications 3
High technology 3
Other 1
Outsourcing (not industry specific) 27
</TABLE>
In October 1988, the Company established an employee stock ownership plan
to facilitate employee ownership of the Company. At that time, the ESOP acquired
43.1% of the Company's Common Stock from certain shareholders and incurred a
loan obligation of $22.5 million. As a result of the Company's initial public
offering, as of September 30, 1996 the ESOP owned 33.6% of the Company's
outstanding Common Stock. The loan obligation is being repaid by the Company
through annual tax deductible contributions and as of September 30, 1996, the
loan obligation was $5.3 million. ESOP contributions are reflected in the
Company's consolidated statements of operations as "ESOP principal payments" as
an operating expense and as interest expense.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the period indicated, certain items
derived from the Company's statement of operations as a percentage of revenues:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------
1994 1995 1996
<S> <C> <C> <C>
Net revenues:
Direct marketing services............. 76.3% 78.6% 73.0%
Data processing outsourcing services.. 23.7 21.4 27.0
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Operating expenses:
Wages and benefits.................... 36.0 34.1 31.0
Services and supplies................. 7.1 6.7 8.9
Rents, leases and maintenance......... 21.6 22.5 23.4
Depreciation and amortization......... 1.8 2.0 2.8
Other operating expenses.............. 7.8 8.3 8.8
ESOP principal payments............... 4.4 3.9 3.1
----- ----- ----
Total operating expenses.................... 78.7 77.5 78.0
----- ----- ----
Operating income............................ 21.3 22.5 22.0
Interest and other expenses................. (2.9) (2.2) (0.7)
----- ----- ----
Income before income taxes.................. 18.4 20.3 21.3
Income taxes................................ (7.1) (7.6) (8.1)
----- ----- ----
Net income.................................. 11.3% 12.7% 13.2%
===== ===== ====
</TABLE>
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1995
In fiscal year 1996, net revenues increased to $77.2 million from $61.6
million in fiscal year 1995, an increase of $15.6 million or 25%. Of the
increase, $12.6 million was attributable to services provided to new clients and
the remainder was attributable to increased demand for services by existing
clients. The Company's direct marketing services revenues increased to $56.4 for
fiscal year 1996 versus $48.4 million for fiscal year 1995, an increase of 16%.
Of this increase, $1.7 million is attributable to the establishment of the
Company's CSM Division. The Company's data processing outsourcing services
revenues increased to $20.8 million for fiscal year 1996 versus $13.2 million
for fiscal year 1995, an increase of 58%. Of this increase, $3.4 million is
attributable to revenues from GIS. GIS was acquired effective July 1, 1996, and
sales reflect the period from July 1, 1996 through September 30, 1996.
17
<PAGE>
Wages and benefits increased to $24.0 million for fiscal year ended 1996
from $21.0 million for fiscal year ended 1995, an increase of 14%. The increased
expenses reflect the net addition of 103 employees as a result of the Company's
continued expansion of business volume and strengthening of its infrastructure.
It also reflects the addition of GIS' staff of 48 employees during the fiscal
fourth quarter.
Services and supplies expenses increased to $6.8 million for fiscal year
1996 from $4.2 million for the fiscal year 1995, an increase of 64%. Services
and supplies generally consist of outsourced data entry services, general
supplies, contract labor and costs related to the use of outside consultants.
This increase resulted principally from outsourcing of technical support and
data entry services and the use of outside consultants to improve productivity
and to re-engineer certain work flow processes.
Rent, leases and maintenance increased to $18.1 million for fiscal year
1996 from $13.9 million for fiscal year 1995, an increase of 30%. The increase
was primarily due to leasing computers, computer peripheral hardware, additional
software, and additional facility rent to house the Company's print operation
and new employees. A portion of this increase was due to the acquisition of GIS
and its existing computer, computer peripheral hardware, software and facility
leases.
Depreciation and amortization expenses increased to $2.2 million for fiscal
year 1996 from $1.2 million for fiscal year 1995, an increase of 75%. The
increase was primarily attributable to continued investment in technology
including the upgrade of the Company's mainframe computer and the conversion of
the lease for the mainframe from an operational lease to a capital lease.
Management expects amortization expense to increase in fiscal 1997 over fiscal
1996 as a result of the acquisition of GIS, which resulted in approximately $17
million of goodwill being recorded by the Company. See "Liquidity and Capital
Resources."
Other operating expenses increased to $6.8 million for fiscal year 1996
from $5.1 million for fiscal year 1995, an increase of 33%. The increase was
primarily attributable to variable costs relating to several customer contracts.
Research and development costs representing primarily wages and benefits
for information technology staff increased to $2.5 million for the fiscal year
1996 from $1.9 million for the fiscal year 1995, an increase of 34%. The
Company's research and development expenses relate primarily to new product
development activities.
Income taxes increased to $6.3 million for the fiscal year 1996 from $4.7
million for the fiscal year 1995. The Company's effective tax rate was 38% for
fiscal year 1996 and 37% for fiscal year 1995.
18
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1994
Net revenues increased to $61.6 million for fiscal 1995 from $51.7 million
for fiscal 1994, an increase of $9.9 million or 19.1%. Of the increase, $6.2
million was attributable to services provided to new clients and the remainder
was attributable to increased demand for services by existing clients. The
Company's direct marketing services revenues increased to $48.4 million for
fiscal 1995 from $39.4 million for fiscal 1994, an increase of 22.8%. The
Company's data processing outsourcing services revenues increased to $13.2
million for fiscal 1995 from $12.3 million for fiscal 1994, an increase of 7.3%.
Wages and benefits expenses increased to $21.0 million for fiscal 1995 from
$18.6 million for fiscal 1994, an increase of 12.9%. The increased expenses
reflects the net addition of 25 employees primarily in direct marketing services
as a result of the Company's continued expansion of business volume and
strengthening of its infrastructure.
Services and supplies expenses increased to $4.2 million for fiscal 1995
from $3.7 million for fiscal 1994, an increase of 13.5%. The increase was
attributable to costs for outside consultants to supplement staffing, which
increased to $0.5 million for fiscal 1995 from $0.3 million for fiscal 1994, and
for re-engineering and productivity improvement studies performed by outside
consultants in fiscal 1995, which resulted in an increase of approximately $0.5
million. These increases were offset by a reduction in subcontracted labor and
other costs to $1.2 million for fiscal 1995 from $1.4 million for fiscal 1994.
Rents, leases and maintenance expenses increased to $13.9 million for
fiscal 1995 from $11.2 million for fiscal 1994, an increase of 24.1%. The
increase was primarily due to leasing of computers and computer peripheral
hardware to meet with increased demand for the Company's services and the
resulting overall growth of the Company's infrastructure.
Depreciation and amortization expenses increased to $1.2 million for fiscal
1995 from $0.9 million for fiscal 1994, an increase of 33.3%. The increase was
primarily attributable to continued investment in personal computers to improve
productivity.
Other operating expenses increased to $5.1 million for fiscal 1995 from
$4.0 million for fiscal 1994, an increase of 27.5%, primarily due to increased
telecommunication expenses.
Research and development costs representing primarily wages and benefits
for information technology staff remained relatively constant at $1.9 million
for fiscal 1995 and fiscal 1994. The Company's research and development
activities relate primarily to new product development activities prior to
establishing technological feasibility.
Income taxes increased to $4.7 million for fiscal 1995 from $3.7 million
for fiscal 1994, an increase of 27.0%. The Company's effective income tax rate
was approximately 37% for fiscal 1995 and approximately 39% for fiscal 1994.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $46.1 million as of September
30, 1996 from $16.5 million as of September 30, 1995. This increase resulted
principally from the Company's initial public offering in March 1996 (including
the exercise of an underwriter's over-allotment option in April 1996), resulting
in net proceeds of approximately $43.0 million to the Company. The Company's
investment policy is to invest in marketable, investment-grade debt instruments
of the U.S. Government or tax-free municipal bonds. The Company 's investments
typically have maturities of three years or less. The Company historically
limits its concentration of investments in individual municipalities to $500,000
or less. These tax-free municipal bonds are backed by U.S. Treasuries or insured
by a major municipal insurer (principal and interest). As of September 30, 1996,
the Company's net accounts receivable were $21.0 million, an increase of 36%
over the previous fiscal year end. This increase reflects new GIS accounts
receivable pursuant to the acquisition effective July 1, 1996, plus additional
business completed and billed during August and September 1996.
The Company has available a $2.0 million revolving credit facility. There
are no outstanding borrowings under this credit facility. Borrowings under a
$12.0 million real estate loan are being repaid over a ten year period with
interest at 8.5%. Maximum borrowings during the 12 months ended September 30,
1996 under these credit facilities were $11.2 million. The Company entered into
a loan at the time of the formation of the Company's Employee Stock Ownership
Plan, which currently has an outstanding balance of $5.3 million. Borrowings
under this ESOP loan are being repaid through December 31, 1998 with interest at
9.3% on the fixed rate portion of the loan ($4.3 million at September 30, 1996)
and at 80% of the lender's prime rate for the floating rate portion of the loan
($1.0 million at September 30, 1996) currently 6.6%.
Effective June 16, 1996, the Company entered into a capital lease
arrangement in connection with its upgrade of certain mainframe computer
equipment utilized in its data center facility. An initial down payment of $1.3
million was paid on June 16, 1996. The remaining balance of approximately $10
million will be paid in 63 monthly installments starting July 1996 through
September 2001.
Effective July 1, 1996, the Company purchased all of the outstanding
capital stock of GIS for $16,148,000 in cash, guaranteed deferred payments
totaling $1,000,000, common stock warrants to purchase 180,000 shares of the
Company's Common Stock at $16.51 per share and certain contingent payments. The
Company has recorded $16,969,841 of goodwill that will be amortized over a 40
year period using the straight-line method for financial reporting purposes.
20
<PAGE>
Item 8. Financial Statements and Supplementary Data.
MAY & SPEH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1995 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,713,581 $ 10,397,858
Marketable securities 1,888,670 20,334,278
Accounts receivable, net 15,393,701 21,003,095
Income taxes refundable 1,220,616 3,550,617
Prepaid software royalties and other current assets 2,326,476 3,918,192
Deferred income taxes 359,000 726,000
----------- ------------
Total current assets 27,902,044 59,930,040
Property, plant and equipment, net 16,975,813 32,289,746
Goodwill - 16,863,811
Other assets 1,926,199 6,134,473
----------- ------------
Total assets $46,804,056 $115,218,070
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,359,295 $ 5,329,670
Accounts payable 3,735,579 3,713,421
Accrued wages and benefits 2,687,268 3,006,991
Other accrued expenses 1,601,339 1,730,938
----------- ------------
Total current liabilities 11,383,481 13,781,020
Long-term debt 16,860,312 22,250,802
Deferred income taxes 916,000 3,455,000
----------- ------------
Total liabilities 29,159,793 39,486,822
----------- ------------
Commitments and contingencies (Note 7)
----------- ------------
Stockholders' equity (Note 8):
Preferred stock, no par value, 500,000 shares authorized; no shares issued - -
Common stock, $.01 par value, 30,000,000 shares authorized;
20,362,657 shares and 24,934,154 shares issued and
outstanding at September 30, 1995 and 1996 203,627 249,342
Additional paid-in capital 1,525,927 46,967,691
Retained earnings 23,636,456 33,860,039
----------- ------------
25,366,010 81,077,072
Unearned ESOP compensation (7,721,747) (5,345,824)
----------- ------------
Total stockholders' equity 17,644,263 75,731,248
----------- ------------
$46,804,056 $115,218,070
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------
1994 1995 1996
<S> <C> <C> <C>
Net revenues $51,667,448 $61,641,273 $77,222,960
----------- ----------- -----------
Operating expenses:
Wages and benefits 18,623,710 20,983,636 23,950,392
Services and supplies 3,649,802 4,160,441 6,839,200
Rents, leases and maintenance 11,156,475 13,878,290 18,064,271
Depreciation and amortization 911,990 1,230,066 2,155,481
Other operating expenses 4,033,724 5,106,579 6,812,536
ESOP principal payments 2,267,488 2,410,539 2,375,923
----------- ----------- -----------
40,643,189 47,769,551 60,197,803
----------- ----------- -----------
Operating income 11,024,259 13,871,722 17,025,157
----------- ----------- -----------
Interest and other expense (income):
ESOP interest expense 1,022,485 863,809 611,552
Other interest expense 670,665 678,843 1,231,263
Interest income (213,507) (206,594) (1,147,345)
Other, net 17,000 10,118 (167,896)
----------- ----------- -----------
1,496,643 1,346,176 527,574
----------- ----------- -----------
Income before income taxes 9,527,616 12,525,546 16,497,583
Income taxes 3,690,000 4,665,000 6,274,000
----------- ----------- -----------
Net income $ 5,837,616 $ 7,860,546 $10,223,583
=========== =========== ===========
Earnings per common share and common
equivalent shares outstanding $0.26 $0.39 $0.42
Weighted average shares and common
equivalent shares outstanding 22,374,754 20,414,947 24,428,746
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL COMMON
---------------------- PAID-IN STOCK RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE--OCTOBER 1, 1993 22,915,573 $229,156 $ 1,525,927 $(13,630,365) $15,864,222 $ 3,988,940
Net income for the year ended
September 30, 1994 5,837,616 5,837,616
ESOP compensation earned during the
year ended September 30, 1994 2,267,488 2,267,488
Repurchases and retirements of
common stock (2,449,836) (24,498) (3,368,256) (3,392,754)
---------- -------- --------- --------- ----------- -----------
BALANCE--SEPTEMBER 30, 1994 20,465,737 204,658 1,525,927 (11,362,877) 18,333,582 8,701,290
Net income for the year ended
September 30, 1995 7,860,546 7,860,546
ESOP compensation earned during the
year ended September 30, 1995 2,410,539 2,410,539
Dividends declared and paid 1,230,591 (2,545,332) (1,314,741)
Tax benefit of dividends paid on
unallocated shares held by the ESOP 247,000 247,000
Repurchases and retirement of common
stock (103,080) (1,031) (259,340) (260,371)
---------- -------- ----------- ------------ ----------- -----------
BALANCE--SEPTEMBER 30, 1995 20,362,657 203,627 1,525,927 (7,721,747) 23,636,456 17,644,263
Net income for the year ended
September 30, 1996 10,223,583 10,223,583
ESOP compensation earned during the
year ended September 30, 1996 2,375,923 2,375,923
Issuance of common stock warrants 1,300,000 1,300,000
Issuance of common stock 4,355,000 43,550 43,005,144 43,048,694
Exercise of stock options 216,497 2,165 1,136,620 1,138,785
---------- ------- ----------- ------------ ----------- -----------
BALANCE--SEPTEMBER 30, 1996 24,934,154 $249,342 $46,967,691 $ (5,345,824) $33,860,039 $75,731,248
========== ======== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,837,616 $ 7,860,546 $ 10,223,583
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 911,990 1,230,066 2,155,481
Deferred income taxes 115,000 492,000 2,172,000
ESOP principal payments 2,267,488 2,410,539 2,375,923
Changes in assets and liabilities,
net of effect from purchase of GIS
Information Systems, Inc.:
Accounts receivable, net (2,544,856) (879,246) (3,130,272)
Prepaid expenses and other current
assets (728,679) (196,743) (1,312,277)
Income taxes payable/refundable (321,876) (599,526) (2,330,001)
Accounts payable and accrued
expenses 508,088 2,558,198 (1,672,404)
Other 309,941 553,996 (125,673)
----------- ------------ ------------
Net cash provided by operating 6,354,712 13,429,830 8,356,360
activities ----------- ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (1,528,391) (6,918,157) (5,189,216)
Purchases of marketable securities (2,185,551) (647,530) (31,365,521)
Sales of marketable securities 2,857,266 1,575,166 12,919,913
Software development costs capitalized - (1,227,969) (3,990,359)
Payment for covenant not to compete (800,000) - -
Acquisition of GIS Information - - (16,148,513)
Systems, Inc.
Other 339,357 (106,114) (74,000)
----------- ------------ ------------
Net cash used in investing
activities (1,317,319) (7,324,604) (43,847,696)
----------- ------------ ------------
Cash flows from financing activities:
Capital lease principal payments - - (1,851,062)
Proceeds from (repayment of) line of 1,250,000 (1,250,000) -
credit
Proceeds of long-term obligations - 12,000,000 -
Repayments of long-term obligations (2,953,484) (10,266,987) (3,161,105)
Dividends paid, net of related ESOP
remittance - (1,314,741) -
Issuance of common stock - - 43,048,995
Exercise of stock options - - 1,138,785
Repurchases of common stock (2,997,072) (202,478) -
----------- ------------ ------------
Net cash provided by (used in)
financing activities (4,700,556) (1,034,206) 39,175,613
----------- ------------ ------------
Net increase in cash and cash
equivalents 336,837 5,071,020 3,684,277
Cash and cash equivalents:
Beginning of period 1,305,724 1,642,561 6,713,581
----------- ------------ ------------
End of period $ 1,642,561 $ 6,713,581 $ 10,397,858
=========== ============ ============
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 1,844,000 $ 1,665,000 $ 1,843,000
=========== ============ ============
Income taxes $ 3,897,000 $ 5,155,000 $ 5,770,773
=========== ============ ============
Non-cash financing/investing
activities:
Acquisition of equipment under
capital leases $ - $ 342,000 $ 11,373,000
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND
SIGNIFICANT ACCOUNTING POLICIES
May & Speh, Inc. ("May & Speh" or the "Company") is a provider of computer-
based information management services primarily for clients in the United States
with significant direct marketing requirements. The Company provides direct
marketing services including database creation, data warehousing, predictive
behavioral modeling, list processing and data enhancement. The Company also
provides data processing outsourcing services to customers in the United States.
The percentage of the Company's revenues from direct marketing services ranges
from 70% to 80% and are derived primarily from the financial services, retail
and consumer goods industries.
In December 1995, the Company effected a 12-for-one stock split. The
accompanying financial statements and related notes thereto have been restated
to reflect the 12-for-one stock split for all periods presented.
Principles of consolidation
The consolidated financial statements include the accounts and transactions of
GIS Information Systems, Inc. for the period July 1, 1996 through September 30,
1996. All material intercompany transactions and balances have been eliminated
in consolidation.
Cash and cash equivalents
The Company considers highly liquid investments with an original maturity of 90
days or less as cash equivalents.
Revenue recognition
Revenue is recognized as services are performed. Direct marketing services
revenues are generally determined based upon the number of records processed and
are recognized as such processes are completed. Data processing outsourcing
services revenues are recognized based upon the amount of computer time used.
Unbilled accounts receivable consist primarily of services performed which are
billable upon project completion or upon occurrence of other specified events.
Unbilled accounts receivable are generally billed within 90 days of income
recognition. Accounts receivable are unsecured.
Marketable securities
Investments are stated at cost, which approximates fair market value; gains and
losses are recognized in the period realized. The Company has classified its
marketable securities as available for sale.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Betterments are capitalized;
repairs and maintenance are expensed as incurred. Depreciation is computed using
straight-line and accelerated methods over the estimated economic lives of the
related assets as follows:
<TABLE>
<S> <C>
Computers and related equipment 5 to 10 years
Building and improvements 10 to 31.5 years
Office furniture and equipment 12 years
Automobiles 5 years
</TABLE>
Capitalized software costs
Development costs for software to be sold or leased to third parties is expensed
as incurred until such time as technological feasibility is established. Upon
establishment of technological feasibility, future costs are capitalized until
the product is available for general release to customers. Amortization of
capitalized software costs is the amount computed using (a) the ratio that
current gross revenues for a product bears to the total current and future gross
revenues for that product or (b) the straight-line method over the remaining
estimated economic life of the product of five to seven years. It is reasonably
possible that those estimates of anticipated future gross revenues or the
remaining estimated economic life of the product could be reduced in the future.
In addition, software costs are generally subject to technological obsolescence
in the future.
Research and development costs
The Company expenses research and development costs incurred until technological
feasibility is established. For the years ended September 30, 1994, 1995 and
1996, the Company expensed $1,907,093, $1,860,055 and $2,486,247, respectively,
as research and development costs. Research and development costs are primarily
wages and benefits for staff and are reflected as such in the accompanying
financial statements.
Income taxes
The Company uses the asset and liability approach under which deferred income
taxes are recognized for temporary differences between the financial reporting
and income tax bases of assets and liabilities based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income.
Employee stock ownership plan
Effective October 1, 1988, the Company established the May & Speh, Inc. Employee
Stock Ownership Plan (the ESOP) for the benefit of substantially all of the
Company's employees. The Company borrowed $22,500,000 from a bank (the ESOP
Loan) and loaned the proceeds to the ESOP for the purpose of providing the ESOP
sufficient funds to purchase 9,887,340 shares (43.11%) of the Company's common
stock at $2.28 per share.
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The ESOP's obligation to the Company, which is evidenced by a note (the ESOP
Note), was initially recorded as unearned compensation (a direct reduction to
shareholders' equity) and is expensed ratably as the ESOP Note is repaid. The
ESOP Note, which contains provisions substantially similar to the Company's
obligation to the bank, is secured by the unallocated ESOP shares which are
released from suspense and allocated to participants as principal is repaid. The
terms of the ESOP agreement require the Company to make minimum contributions
sufficient to meet the ESOP's debt service obligations.
Goodwill
Effective July 1, 1996, the Company acquired all of the outstanding capital
stock of GIS Information Systems, Inc. ("GIS") for $16,148,000 in cash,
guaranteed deferred payments totaling $1,000,000, common stock warrants to
purchase 180,000 shares of the Company's common stock at $16.51 per share and
certain contingent payments. GIS is a provider of data processing outsourcing
services based in Oak Brook, Illinois. In connection with the acquistion, the
Company recorded goodwill totalling $16,969,841. Accumulated amortization at
September 30, 1996 totalled $106,030. Goodwill is amortized using the straight
line method over a 40-year period for financial reporting purposes.
The Company reviews the carrying value of goodwill and other long-lived assets
for impairment when events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. This review is performed by
comparing estimated undiscounted future cash flows from use of the asset to the
recorded value of the asset.
Other assets
Other assets includes cash surrender value of life insurance policies and
capitalized software costs. Capitalized software costs are $1,228,000 and
$5,218,000 as of September 30, 1995 and 1996, repectively. No amortization
expense was recognized during the year ended September 30, 1995 and 1996.
Amortization of such costs will commence when the product is available for
general release to customers.
Significant customers
Sears, Roebuck and Co. accounted for 13.3%, 17.1% and 17.6% of the Company's
revenues in fiscal 1994, 1995 and 1996, respectively. Capital One Bank accounted
for 10.6% of the Company's revenues in fiscal 1995.
Per share information
Earnings per share are based on the weighted average number of shares of common
stock and common stock equivalents outstanding during periods, computed using
the treasury stock method for stock options in accordance with Staff Accounting
Bulletin No. 83 of the Securities and Exchange Commission.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair value of financial instruments
The carrying amount reported in the consolidated balance sheets for cash,
marketable securities, accounts receivable, prepaid expenses and other current
assets, accounts payable, and accrued expenses approximates fair value because
of the immediate or short-term maturity of these financial instruments. The
recorded value of long-term debt is estimated to approximate fair value due to
the interest rates incurred by the Company on such debt.
New accounting pronouncements
The FASB issued FAS No. 123, "Accounting for Stock-Based Compensation," which
establishes an alternative to current accounting for compensation associated
with stock issued to employees. Management does not intend to adopt the methods
for measuring compensation related to stock options allowed by FAS No. 123.
Accordingly, this accounting pronouncement will not impact the Company's
financial statements.
NOTE 2--MARKETABLE SECURITIES
The Company's marketable securities as of September 30, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Class of Cost Basis Fair Value Unrealized
Gain
-------- ----------- ----------- ----------
<S> <C> <C> <C>
Municipal bonds $18,740,278 $18,873,348 $133,070
Equities and mutual funds 1,594,000 1,594,000 -
----------- ----------- --------
$20,334,278 $20,467,348 $133,070
=========== =========== ========
</TABLE>
The Company determines the cost basis of its marketable securities using the
specific identification method. The net unrealized gain relating to marketable
securities is not significant and has not been reflected in the accompanying
financial statements. The Company's investments in municipal bonds generally
mature in 1 to 3 years.
NOTE 3--ACCOUNTS RECEIVABLE
Accounts receivable at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Trade accounts receivable:
Billed $14,171,008 $19,289,683
Unbilled 1,572,693 2,066,412
----------- -----------
15,743,701 21,356,095
Less--Allowance for doubtful accounts (350,000) (353,000)
----------- -----------
$15,393,701 $21,003,095
=========== ===========
</TABLE>
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Building and improvements $ 9,333,244 $11,297,039
Computers and related equipment 5,956,194 20,584,392
Office furniture and equipment 2,674,662 3,361,864
Automobiles 185,529 190,452
----------- -----------
18,149,629 35,433,747
Less--Accumulated depreciation (7,196,816) (9,347,242)
----------- -----------
10,952,813 26,086,505
Land 6,023,000 6,203,241
----------- -----------
$16,975,813 $32,289,746
=========== ===========
</TABLE>
Assets under capital lease are included in computers and related equipment.
These assets have a cost basis of $343,000 and $11,716,000 and accumulated
amortization of $29,000 and $362,000 at September 30, 1995 and 1996,
respectively. The amortization of these capitalized assets is included in
depreciation expense for the years ended September 30, 1995 and 1996.
NOTE 5--INCOME TAXES
The Company's provision for income taxes for the years ended September 30
is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $2,895,000 $3,359,000 $3,125,000
State 680,000 814,000 762,000
---------- ---------- ----------
3,575,000 4,173,000 3,887,000
---------- ---------- ----------
Deferred:
Federal 93,000 399,000 2,081,000
State 22,000 93,000 306,000
---------- ---------- ----------
115,000 492,000 2,387,000
---------- ---------- ----------
$3,690,000 $4,665,000 $6,274,000
========== ========== ==========
</TABLE>
The Company's deferred income tax asset (liability) balances at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
ESOP expenses $ 161,000 $ 144,000
Allowance for doubtful accounts 137,000 138,000
Accrued expenses 172,000 433,000
Deferred charges 50,000 155,000
Non-compete agreement 236,000 263,000
Other 33,000 -
----------- -----------
Total deferred tax assets 789,000 1,133,000
----------- -----------
Deferred Tax Liabilities:
Depreciation (867,000) (1,104,000)
Software development costs capitalized (479,000) (2,035,000)
Capital lease payment - (545,000)
Other - (178,000)
----------- -----------
Total deferred tax liabilities (1,346,000) (3,862,000)
----------- -----------
Net deferred tax liability $ (557,000) $(2,729,000)
=========== ===========
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate for the years ended September 30 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income taxes at federal
statutory rate 34% 34% 34%
State taxes, net of federal
benefit 5 5 5
Dividends paid on allocated
shares held by ESOP - (2) -
Municipal bond interest income - - (1)
-- -- --
39% 37% 38%
== == ==
</TABLE>
NOTE 6--LINE OF CREDIT AND LONG-TERM DEBT
Effective May 16, 1994, the Company entered into a line of credit agreement with
a bank, under which the Company may borrow up to $2,000,000 with interest
payable at the bank's prime rate (8.75% and 8.5% at September 30, 1995 and 1996,
respectively). This loan is payable on demand and is secured by substantially
all of the assets of the Company. No amounts were outstanding under this
agreement as of September 30, 1995 and 1996.
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6-LINE OF CREDIT AND LONG-TERM DEBT
(continued)
Long-term debt at September 30 is summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
ESOP loan $ 7,721,747 $ 5,345,823
Mortgage note 12,000,000 11,200,000
Capital lease debt 448,681 9,975,431
Deferred acquisition payments - 1,000,000
Other 49,179 59,218
----------- -----------
20,219,607 27,580,472
Less--Current maturities (3,359,295) (5,529,670)
----------- -----------
$16,860,312 $22,050,802
=========== ===========
</TABLE>
ESOP Loan
Effective November 10, 1988, the Company entered into a $22,500,000 term loan
agreement with a bank (the ESOP Loan). Under the terms of the agreement, the
Company must make quarterly payments of principal (in varying amounts as
summarized below) plus interest at 80% of the bank's prime rate (8.75% and 8.25%
at September 30, 1995 and 1996, respectively). This interest rate is subject to
adjustments based upon changes in federal and state tax rates or changes in the
proportion of the bank's income from this loan which is included in gross income
for federal income tax purposes.
In connection with the ESOP Loan, the Company entered into an interest rate swap
agreement whereby the Company exchanged a variable rate of 80% of prime for a
fixed rate of 9.3% for originally 70% of the outstanding principal balance of
the ESOP Loan. The life of the swap agreement and related notional amount
correspond to the original maturity schedule for the ESOP Loan and contain
penalty provisions related to the prepayment of the corresponding debt.
The Company anticipates the counterparty to the swap agreement (a large
financial institution) will fully perform on its obligations. The Company
accounts for the cost of the swap agreement and any resulting gains or losses
over the term of the swap agreement, and does not anticipate any circumstances,
such as the prepayment of the fixed rate portion of the underlying debt
obligation, which would cause a change in the accounting method used.
Amounts outstanding under the ESOP Loan are collateralized by the ESOP Note, an
assignment of the pledge agreement between the Company and the ESOP (whereby the
ESOP pledged the unallocated ESOP Shares as collateral for the ESOP Note) and a
security interest in all assets of the Company.
The ESOP Loan contains certain restrictive covenants that, among other things,
limit capital expenditures, additional indebtedness, certain investments, the
repurchase of common stock and the payment of dividends and require the Company
to maintain certain working capital and other financial measures. The Company
was in violation of certain of these restrictive covenants as of September 30,
1995 and 1996 and waivers of such violations were received from the bank.
On September 28, 1995, the Company's Board of Directors declared and paid a
$0.125 per share dividend. The portion of this dividend which was paid on shares
held by the ESOP (unallocated and allocated) was used to prepay $1,231,000 of
the ESOP Note and, accordingly, the Company prepaid, without penalty, $1,231,000
of the variable rate portion of the ESOP Loan.
Mortgage note
During fiscal 1995, the Company entered into a $12,000,000 credit facility to
finance the expansion of the Company's facilities. The credit facility requires
quarterly principal payments of $200,000 plus interest at 8.5% (fixed rate) with
the balance to be paid in 2005 and is secured by land, building and related
improvements having an approximate net book value of $12,657,000 and securities
having a cost of $400,000. This credit facility contains certain restrictive
covenants that limit capital expenditures, limit additional indebtedness,
restrict certain investments, restrict the repurchase of common stock and limit
the payment of dividends. This debt agreement was amended during fiscal 1996 to
allow the acquisition of GIS Information Systems, Inc. (see Note 10). The
Company is also required to maintain working capital and other financial
measures. As of September 30, 1996, the Company was in violation of restrictive
covenants requiring a minimum ratio of net income to fixed charges at September
30, 1996. Waivers of such violations were received from the bank.
Summary of maturities
A summary of principal maturities relating to long-term obligations is as
follows:
<TABLE>
<CAPTION>
Mortgage Capital
ESOP Loan Note Other Lease Totals
<S> <C> <C> <C> <C> <C>
1997 $2,375,922 $ 800,000 $ 512,346 $1,641,402 $ 5,329,670
1998 2,375,922 800,000 512,346 1,809,618 5,497,886
1999 593,980 800,000 12,346 1,942,594 3,348,920
2000 -- 800,000 12,346 2,169,912 2,982,258
2001 -- 800,000 9,833 2,367,734 3,177,567
Thereafter -- 7,200,000 -- 44,171 7,244,171
---------- ----------- ---------- ---------- -----------
$5,345,824 $11,200,000 $1,059,217 $9,975,431 $27,580,472
========== =========== ========== ========== ===========
</TABLE>
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7--COMMITMENTS AND CONTINGENCIES
The Company currently leases warehouse and office space in the metropolitan
Chicago area under the terms of operating leases expiring on various dates
through August 2002.
The aggregate future minimum lease commitments under these operating leases for
the years ended September 30 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $10,136,000
1998 6,924,000
1999 4,393,000
2000 3,038,000
2001 and thereafter 2,708,000
</TABLE>
Total rental expense for the years ended September 30, 1994, 1995 and 1996 under
the operating leases approximated $6,339,000, $8,644,000 and $11,711,000,
respectively.
NOTE 8--STOCKHOLDERS' EQUITY
On March 29, 1996, the Company completed an initial public offering of 3,350,000
shares of its common stock, par value $0.01 per share. Certain stockholders of
the Company sold an additional 3,350,000 shares of common stock in the offering.
In addition, on April 24, 1996, the Company completed the offering of an
additional 1,005,000 shares of common stock that were subject to an over-
allotment option granted to the underwriters of the initial public offering. The
total net procceds to the Company were approximately $43,500,000 after deducting
underwriting discounts and offering expenses.
A summary of share transactions within the ESOP for the years ended September
30 is as follows:
<TABLE>
<CAPTION>
Shares
------
Distributed
Beginning to Released and Sold in End of
of year participants allocated Offering year
--------- ------------ ------------ -------- ------
<S> <C> <C> <C> <C> <C>
1994
- ----
Unallocated 6,127,152 - (1,056,252) 5,070,900
Allocated 3,740,652 - 1,056,252 4,796,904
1995
- ----
Unallocated 5,070,900 - (1,625,112) 3,445,788
Allocated 4,796,904 (23,075) 1,625,112 6,398,941
1996
- ----
Unallocated 3,445,788 - (1,042,071) 2,403,717
Allocated 6,398,941 (1,188) 1,042,071 (1,476,709) 5,963,115
NOTE 9--STOCK OPTION PLANS
</TABLE>
NOTE 9--STOCK OPTION PLANS
Effective September 30, 1994, the Company established the 1994 Executive Stock
Option Plan ("the 1994 plan"). The Company established the 1995 Key Employee
Stock Option Plan ("the 1995 plan"), which was as amended and restated effective
as of February 1, 1996. Under the terms of the 1994 plan, the Compensation
Committee (the Committee) of the Company's Board of Directors may grant options
for the purchase of up to 3,600,000 shares of the Company's common stock with
exercise prices and vesting requirements at the sole discretion of the
Committee. The Committee may grant options for the purchase of up to 2,000,000
shares of common stock under the terms of the 1995 plan.
During fiscal 1995 and 1996, the Company granted options to purchase 2,202,000
and 1,130,200, respectively, shares of common stock at the estimated fair market
value at the date of grant to certain employees. The exercise price of these
options ranged from $2.08 to $ 19.88 per share. Options to purchase 600,000
shares were canceled by the Company in fiscal 1995. There were no options which
expired or were exercised during fiscal 1995. In fiscal 1996, 216,497 options
were exercised (214,697 options at $2.08 and 1,800 options at $2.50).
As of September 30, 1996, options to purchase the Company's common stock were
outstanding as follows:
<TABLE>
<CAPTION>
Weighted
Average Per
Shares Share Option
Fiscal Year of Underlying Exercise Shares
of Grant Options Price Vested
- -------------- ---------- ----------- ------
<S> <C> <C> <C>
1995 1,985,000 $2.14 782,800
1996 1,130,200 $10.41 -
--------- -------
Total 3,115,200 782,800
========= =======
</TABLE>
Generally, these options vest and become exercisable in five equal annual
increments beginning one year after the issue date and expire 10 years after the
issue date.
29
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 10--ACQUISITION
Effective July 1, 1996, the Company acquired all of the outstanding capital
stock of GIS Information Systems, Inc. ("GIS") for $16,148,000 in cash,
guaranteed deferred payments totaling $1,000,000, common stock warrants to
purchase 180,000 shares of the Company's common stock at $16.51 per share and
certain contingent payments. In connection with the acquisition, liabilities
were assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $20,606,581
Issuance of common stock warrants 1,300,000
Cash paid for capital stock 16,148,513
-----------
Liabilities assumed $ 3,158,068
===========
</TABLE>
GIS is a provider of data processing outsourcing services based in Oak Brook,
Illinois.
The fair value of the common stock warrants to purchase 180,000 shares (which
are fully vested and expire on July 18, 2001) of the Company's common stock
approximated $1,300,000 and is included in additional paid in capital as of
September 30, 1996. The contingent payments are based on profitabililty measures
for the periods July 1, 1996 through June 30, 1997 and July 1, 1997 through June
30, 1998. If earned, these payments will increase the amount of the purchase
price allocated to goodwill.
The acquisition has been accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to the identifiable assets
acquired and liabilities assumed based on their estimated fair values. The
excess of the purchase price over the net assets acquired was allocated to
goodwill.
The following unaudited pro forma financial information for the years ended
September 30 presents the results of operations of the Company and the acquired
business as if the acquisition had occurred at the beginning of each fiscal
year. The pro forma information is based on historical results of operations and
does not necessarily reflect the actual results that would have occurred, nor is
it necessarily indicative of future results of operations of the combined
enterprises:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net revenues $73,454,000 $86,696,000
Net income 9,096,000 11,217,000
Earnings per common share and common
share equivalent $ 0.45 $ 0.46
</TABLE>
NOTE 11--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly data for the years ended September 30, 1995 and
1996 are as follows:
<TABLE>
<CAPTION>
1995 1/st/ quarter 2/nd/ quarter 3/rd/ quarter 4/th/ quarter
---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $14,370,029 $15,210,053 $16,138,531 $15,922,660
Operating income 3,457,375 3,426,944 3,861,937 3,125,471
Net income 1,918,758 1,917,003 2,191,837 1,832,953
Earnings per common share
and common equivalent share 0.09 0.09 0.10 0.09
1996
----
Net revenues $16,043,616 $19,132,514 $19,997,045 $22,049,785
Operating income 3,070,007 4,153,782 4,854,828 4,946,541
Net income 1,661,403 2,368,722 3,067,002 3,126,456
Earnings per common share
and common equivalent share 0.08 0.11 0.12 0.12
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of May & Speh, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of May & Speh,
Inc. and its subsidiary at September 30, 1995 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Chicago, Illinois
November 1, 1996
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Please refer to the information set forth under the headings "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive Proxy Statement to be issued in connection with the 1997
Annual Meeting of Stockholders and the information set forth under Item 4A of
this report, all of which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Please refer to the information set forth under the heading "Executive
Compensation" in the Company's definitive Proxy Statement to be issued in
connection with the 1997 Annual Meeting of Stockholders, which is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Please refer to the information set forth under the heading "Ownership of
Securities" in the Company's definitive Proxy Statement to be issued in
connection with the 1997 Annual Meeting of Stockholders, which is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Please refer to the information set forth under the heading "Certain
Relationships and Related Transactions" in the Company's definitive Proxy
Statement to be issued in connection with the 1997 Annual Meeting of
Stockholders, which is incorporated herein by reference.
31
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report
1. Financial Statements (included under Item 8 of this report):
Report of Independent Accountants
Consolidated Balance Sheets as of September 30, 1996 and 1995
Consolidated Statements of Operations for the years ended
September 30, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1996, 1995 and 1994
Statements of Cash Flows for the years ended September 30, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Financial statement schedules are omitted because they are not
applicable, not required or because the required information is
included in the Company's Consolidated Financial Statements and
Notes thereto.
3. Exhibits Required to be filed by Item 601 of Regulation S-K:
3.1 Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (File No.
33-98302) (the "Form S-1")
3.2 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Form S-1)
3.3 Designation of Preferences for Series A Preferred Stock
(incorporated by reference to Exhibit 3.3 to the Form S-1)
4.1 Specimen Certificate for Common Stock (incorporated by
reference to Exhibit 4.1 to the Form S-1)
10.1* May & Speh, Inc. 1994 Executive Stock Option Plan
(incorporated by reference to Exhibit 10.1 to the Form S-1)
10.2* Form of Stock Option Agreement under the May & Speh, Inc.
1994 Executive Stock Option Plan (incorporated by reference
to Exhibit 10.2 to the Form S-1)
10.3* May & Speh, Inc. 1995 Key Employee Stock Option Plan, as
amended (incorporated by reference to Exhibit 4.6 to the
32
<PAGE>
Registrant's Registration Statement on Form S-8 (File
No. 333-13711) (the "Form S-8"))
10.4* Form of Stock Option Agreement under the May & Speh, Inc.
1995 Key Employee Stock Option Plan (incorporated by
reference to Exhibit 4.7 to the Form S-8)
10.5* Employment Agreement with Albert J. Speh, Jr. (incorporated
by reference to Exhibit 10.4 to the Form S-1)
10.6* Employment Agreement with Lawrence J. Speh (incorporated by
reference to Exhibit 10.5 to the Form S-1)
10.7* Employment Agreement with Michael J. Loeffler (incorporated
by reference to Exhibit 10.6 to the Form S-1)
10.8 May & Speh, Inc. Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.8 to the Form S-1)
10.9 Amendment No. 1 to the May & Speh, Inc. Employee Stock
Ownership Plan (incorporated by reference to Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 (the "Form 10-Q")
10.10 Amendment No. 2 to the May & Speh, Inc. Employee Stock
Ownership Plan
10.11 May & Speh, Inc. Employee Stock Ownership Trust
(incorporated by reference to Exhibit 10.3 to the Form
10-Q)
10.12 Term Loan Agreement by and between The Northern Trust
company and the Registrant dated November 10, 1988, as
amended (incorporated by reference to Exhibit 10.9 to the
Form S-1)
10.13 Amended and Restated Security Agreement dated May 16, 1994
by and between the Registrant and The Northern Trust
Company (incorporated by reference to Exhibit 10.10 to the
Form S-1)
10.14 Term Loan Agreement by and between the Registrant and
Harris Trust and Savings Bank dated as of March 30, 1995,
as amended (incorporated by reference to Exhibit 10.11 to
the Form S-1)
10.15 Third Amendment to the Term Loan Agreement by and between
the Registrant and Harris Trust and Savings Bank, dated
July 17, 1996 (incorporated by reference to Exhibit 3 to
the Registrant's Current Report on Form 8-K dated July 18,
1996 (the "Form 8-K")
10.16 Mortgage and Security Agreement with Assignment of Rents
dated as of March 30, 1995 from the Registrant to Harris
Trust and Savings Bank, as amended (incorporated by
reference to Exhibit 10.12 to the Form S-1)
10.17 Stock Purchase Agreement dated July 1, 1996 by and between
the Registrant, Faneuil, Inc. and Faneuil ISG, Inc.,
including the following Exhibits: 2.5(a)(iii) Form of
Opinions of Bingham, Dana & Gould and Thompson Dorfman
Sweatman; 2.5(a)(iv)
33
<PAGE>
Form of Disaffiliation Tax Sharing Agreement; 2.5(b)(ii)
Form of Warrant; 2.5(b)(iv) Form of Opinion of Freeborn &
Peters; 2.5(b)(v) Form of Services Agreement; 2.5(c) Form
of Employment Agreement; 2.5(d) Form of Stock Option
Agreement; 10.8 Form of Set-Off Escrow Agreement
(incorporated by reference to Exhibit 1 to the Form 8-K)
21 Subsidiaries of Registrant
23 Consent of Price Waterhouse LLP
24 Power of Attorney (contained on signature pages hereto)
27 Financial Data Schedule
____________________
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
On July 24, 1996, the Company filed a Current Report on Form 8-K, dated
July 18, 1996, reporting, under Item 2 of the form, the Company's
acquisition of GIS. On October 2, 1996, the Company filed an amendment
to this Form 8-K to include, under Item 7 of the form, certain pro
forma financial information reflecting the acquisition, and the
following audited financial statements of GIS:
Balance Sheets as of June 30, 1996 and December 31, 1995
Statements of Operations and Changes in Divisional Equity for the
Six Months Ended June 30, 1996, for the Year Ended December 31,
1995, for the Period August 25, 1994 through December 31, 1994,
for the Period May 1, 1994 through August 24, 1994, and for the
Year Ended April 30, 1994
Statements of Cash Flows for the Six Months Ended June 30, 1996,
for the Year Ended December 31, 1995, for the Period August 25,
1994 through December 31, 1994, for the Period May 1, 1994
through August 24, 1994, and for the Year Ended April 30, 1994
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MAY & SPEH, INC.
/s/ Lawrence J. Speh
---------------------------------------------
By: Lawrence J. Speh
Title: President and Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Robert C. Early and Willard E. Engel, Jr., and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 23, 1996.
Name Title
---- -----
/s/ Albert J. Speh, Jr. Chairman of the Board
- --------------------------------
Albert J. Speh, Jr.
/s/ Lawrence J. Speh President, Chief Executive Officer and
- -------------------------------- Director (Principal Executive Officer)
Lawrence J. Speh
35
<PAGE>
/s/ Robert C. Early Executive Vice President, Chief Financial
- -------------------------------- Officer, Treasurer and Director (Principal
Robert C. Early Financial Officer)
/s/ Willard E. Engel, Jr. Vice President and Chief Accounting Officer
- -------------------------------- (Principal Accounting Officer)
Willard E. Engel, Jr.
/s/ Deborah A. Bricker Director
- --------------------------------
Deborah A. Bricker
/s/ Peter I. Mason Director
- --------------------------------
Peter I. Mason
36
<PAGE>
Exhibit 10.10
AMENDMENT NO. 2 TO THE
MAY & SPEH EMPLOYEE STOCK OWNERSHIP PLAN
The May & Speh Employee Stock Ownership Plan (the "Plan"), as established
and originally effective as of October 1, 1988, is hereby amended as follows:
I.
Section 1.10 of the Plan is amended in its entirety to read as follows,
effective as of October 1, 1996:
1.10 "Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other
payments of compensation by the Employer (in the course of the
Employer's trade or business) for a Plan Year for which the Employer
is required to furnish the Participant a written statement under Code
Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined
without regard to any rules under Code Section 3401(a) that limit the
remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for
agricultural labor in Code Section 3401(a)(2)).
For purposes of this Section, the determination of compensation
shall be made by:
(a) excluding overtime;
(b) excluding commissions;
(c) excluding bonuses.
For a Participant's initial year of participation, Compensation
shall be recognized for the entire Plan Year during which such
Participant began his participation in the Plan.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the
contrary, the annual Compensation of each Employee taken into account
under the Plan shall not exceed $150,000, as adjusted by the
Commissioner for increases in the cost of living in accordance with
Code Section 401(a)(17)(B). The cost of living adjustment in effect
for a calendar year applies to any period, not exceeding twelve
months, over which Compensation is determined (determination period)
beginning in such calendar year. If a
<PAGE>
determination period consists of fewer than twelve months, the annual
Compensation limit of this paragraph will be multiplied by a fraction,
the numerator of which is the number of months in the determination
period, and the denominator of which is 12.
Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the Compensation limitation of $150,000, as
adjusted if necessary, set forth in this Section 1.10.
In applying the Compensation limitation, the family group of a
Highly Compensated Participant who is subject to the Family Member
aggregation rules of Code Section 414(q)(96) because such Participant
is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation"
during the year, shall be treated as a single Participant, except that
for this purpose Family Members shall include only the affected
Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year. If, as result of the
above rules, the maximum "annual addition" limit of Section 4.4(a)
would be exceeded for one or more of the affected Family Members, the
prorated Compensation of all affected Family Members shall be adjusted
to avoid or reduce any excess. The prorated Compensation of any
affected Family Member whose allocation would exceed the limit shall
be adjusted downward to the level needed to provide an allocation
equal to such limit. The prorated Compensation of affected Family
Members not affected by such limit shall then be adjusted upward on a
pro rata basis not to exceed each such affected Family Member's
Compensation as determined prior to application of the Family Member
rule. The resulting allocation shall not exceed such individual's
maximum "annual addition" limit. If, after these adjustments, an
"excess amount" still results, such "excess amount" shall be disposed
of in the manner described in Section 4.5(a) pro rata among all Family
Members.
If, in connection with the adoption of this amendment, the
definition of Compensation has been modified, then, for Plan Years
prior to the Plan Year beginning on October 1, 1996, Compensation
means compensation determined pursuant to the Plan then in effect.
<PAGE>
II.
Section 1.35 of the Plan is amended in its entirety to read as follows,
effective as of October 1, 1995:
1.35 "Normal Retirement Age" means a Participant's attainment
of the earlier of (a) age sixty-five (65) and (b) age sixty-two
(62) and ten (10) Years of Service. A Participant shall become
fully Vested in his Participant's Account upon attainment of his
Normal Retirement Age.
III.
Section 4.3(b) of the Plan is amended in its entirety to read as follows,
effective as of October 1, 1996:
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper
allocation of the Employer's contributions for each Plan Year.
Within a reasonable period of time after the date of receipt
by the Administrator of such information, the Administrator
shall allocate such contribution to each Participant's
Account in the same proportion that each such Participant's
Compensation for the Plan Year bears to the total Compensation
of all Participants for such Plan Year. Notwithstanding anything
contained herein to the contrary, for any Plan Year with respect
to which forfeited Employer securities described in Code Section
415(c)(6)(A) or Employer contributions described in Code Section
415(c)(6)(B) (determined without regard to the one-third
allocation condition contained in Code Section 415(c)(6)) are being
allocated to Participants' Accounts, no more than one-third of the
Employer contributions made with respect to such Plan Year shall be
allocated to Highly Compensated Participants.
Only Participants who have completed a Year of Service during the
Plan Year shall be eligible to share in the discretionary
contribution for such Plan Year. Except as provided in Section
4.3(h) and Section 4.3(i), Participants who are not actively
employed on the last day of the Plan Year shall not share in
the allocation of contributions and Forfeitures for that Plan Year.
3
<PAGE>
IV.
Section 4.3(i) is amended in its entirety to read as follows, effective as of
October 1, 1996:
(i) Notwithstanding the foregoing, Participants who are not actively
employed on the last day of the Plan Year due to Total and Permanent
Disability or death shall share in the allocation of contributions and
Forfeitures for that Plan Year.
V.
Section 4.3 of the Plan is further amended, as follows, by the addition of a new
Section 4.3(q), effective as of October 1, 1995:
(q) Notwithstanding anything contained herein to the contrary, each
Participant whose Social Security Number is listed on Exhibit A attached
hereto and incorporated herein by reference shall receive a special
allocation of shares of Company Stock, as shown on Exhibit A (the "special
allocation"), for the Plan Year beginning on October 1, 1995, to the extent
permitted under the Code. For purposes of this special allocation in such
Plan Year, Company Stock released from the Unallocated Company Stock
Suspense Account and any other contributions or forfeitures available for
allocation to Participants' Accounts shall be allocated in the following
order: first, to replace cash dividends used to repay an Exempt Loan as
provided in Section 4.3(c); second, to the extent of any remainder, to the
Participants listed on Exhibit A; and third, to the extent of any
remainder, to all Participants eligible for an allocation pursuant to any
other provisions of this Section 4.3. In the event that the total value of
a Participant's special allocation exceeds the maximum amount allocable to
him under Code Section 415 for the Plan Year beginning on October 1, 1995,
would cause the Employer to exceed the maximum amount deductible under Code
Section 404 for such Plan Year, or would cause any other Code provision to
be violated, such excess shall be allocated to him in the Plan Year
beginning on October 1, 1996, and in subsequent Plan Years, if necessary.
4
<PAGE>
Section 4.4 (e) of the Plan is amended in its entirety to read as follows,
effective as of September 30, 1996.
(e) For purposes of applying the limitations of Code Section 415, the
"limitation year" shall be the Plan Year. However, the limitations of Code
Section 415 shall be separately applied to the period beginning on January 1,
1996 and ending on September 30, 1996 (the "short limitation year"). The dollar
limitation with regard to such short limitation year shall be reduced as
provided in Section 4.4(a).
VII.
Section 7.3 of the Plan is amended in its entirety to read as follows, effective
as of October 1, 1995:
7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to his
Retirement Date or other termination of his employment, all amounts credited to
such Participant's Account under the Plan shall become 100% Vested as of the
Anniversary Date coinciding with, or next following, the event of Total and
Permanent Disability. In accordance with the provisions of Sections 7.5 and 7.6,
the Trustee shall distribute to such Participant all amounts credited to such
Participant's Account as though he had retired.
VII.
The first paragraph of Section 7.4(a) is amended in its entirety to read as
follows, effective as of October 1, 1996:
(a) The Vested portion of the Participant's Account of a Terminated
Participant shall remain in a separate account for the Terminated Participant
and shall share in earnings or losses pursuant to Section 4.3(d) until such time
as a distribution is made to the Terminated Participant.
5
<PAGE>
IX.
The third sentence of the third paragraph of Section 7.4(a) is amended to read
as follows, effective as of October 1, 1995:
A distribution to a Terminated Participant shall not include any Company
Stock acquired with the proceeds of an Exempt Loan until the close of the
Plan Year in which such loan is repaid in full.
X.
The first sentence of Section 7.6(a) of the Plan is amended to read as follows,
effective as of October 1, 1995:
Distribution of a Participant's benefit will be made (1) in whole shares of
Company Stock to the extent the Participant's Account is invested in Common
Stock on the distribution date and (2) in cash with respect to the
remainder of the Participant's Account; provided, however, that if a
Participant or Beneficiary so demands, such benefit shall be distributed
solely in Company Stock.
XI.
Section 7.6(c) of the Plan is amended in its entirety to read as follows,
effective as of October 1, 1995:
(c) The Trustee will make distributions from the Trust only on instructions
from the Administrator. A Participant's Account shall be valued for
distribution as of the Anniversary Date in the Plan Year in which the
Participant requests a distribution or in which the Administrator
determines that a distribution may be made without the Participant's
consent. Notwithstanding anything contained herein to the contrary, all
distributions pertaining to a Plan Year will be made as soon as
administratively practicable after the Anniversary Date of such Plan Year.
XII.
Except as provided herein, the Plan shall remain in full force and effect.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned duly authorized officer of May & Speh, Inc.
has caused the foregoing Amendment No. 2 to the May & Speh Employee Stock
Ownership Plan to be executed this 30th day of September, 1996.
May & Speh, Inc.
By: /s/ Willard E. Engel, Jr.
-------------------------------------
Willard E. Engel, Jr.
Vice-President
7
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
GIS Information Systems, Inc., an Illinois corporation (also d/b/a Faneuil
Systems)
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated November
1, 1996 included in the Annual Report of May & Speh, Inc. on Form 10-K in the
Registration Statement on Form S-8 (No. 333-13711) of May & Speh, Inc.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Chicago, Illinois
December 23, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 10,397,858
<SECURITIES> 20,334,278
<RECEIVABLES> 21,356,095
<ALLOWANCES> 353,000
<INVENTORY> 0
<CURRENT-ASSETS> 59,930,040
<PP&E> 41,636,988
<DEPRECIATION> 9,347,242
<TOTAL-ASSETS> 115,218,070
<CURRENT-LIABILITIES> 13,781,020
<BONDS> 22,250,802
<COMMON> 249,342
0
0
<OTHER-SE> 75,481,906
<TOTAL-LIABILITY-AND-EQUITY> 115,218,070
<SALES> 0
<TOTAL-REVENUES> 77,222,960
<CGS> 0
<TOTAL-COSTS> 60,197,803
<OTHER-EXPENSES> (1,315,241)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,842,815
<INCOME-PRETAX> 16,497,583
<INCOME-TAX> 6,274,000
<INCOME-CONTINUING> 10,223,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,223,583
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
