<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended December 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
incorporation or organization) Identification No.)
1501 Opus Place, Downers Grove, Illinois 60515
(Address of principal executive offices) (Zip Code)
(630) 964-1501
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of February 11, 1997
Common Stock, par value $0.01 per share 25,024,354
<PAGE>
MAY & SPEH, INC.
INDEX
Part I--Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets--December 31, 1996 1
and September 30, 1996
Consolidated Statements of Operations--Three months 2
ended December 31, 1996 and December 31, 1995
Consolidated Statements of Stockholders' Equity--Three months 3
ended December 31, 1996
Consolidated Statements of Cash Flows--Three months ended
December 31, 1996 and December 31, 1995 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations
Part II--Other Information
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements
May & Speh, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996
ASSETS (unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,850,602 $ 10,397,858
Marketable securities 24,963,036 20,334,278
Accounts receivable, net 17,757,404 21,003,095
Prepaid software royalties and other current assets 6,758,573 7,468,809
Deferred income taxes 726,000 726,000
------------ ------------
Total current assets 59,055,615 59,930,040
Property, plant and equipment, net 32,773,311 32,289,746
Intangible assets 18,112,824 16,863,811
Other assets 7,960,124 6,134,473
------------ ------------
Total assets $117,901,874 $115,218,070
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 5,446,269 $ 5,329,670
Accounts payable 1,479,494 3,713,421
Accrued payroll and other expenses 7,094,328 4,737,929
------------ ------------
Total current liabilities 14,020,091 13,781,020
Long-term debt 21,593,185 22,250,802
Deferred income taxes 3,455,000 3,455,000
------------ ------------
Total liabilities 39,068,276 39,486,822
------------ ------------
Stockholders' equity:
Common stock 250,022 249,342
Additional paid-in capital 47,108,678 46,967,691
Retained earnings 36,226,742 33,860,039
------------ ------------
83,585,442 81,077,072
Unearned ESOP compensation (4,751,844) (5,345,824)
------------ ------------
Total stockholders' equity 78,833,598 75,731,248
------------ ------------
Total liabilities and stockholders' equity $117,901,874 $115,218,070
============ ============
</TABLE>
See Accompanying Notes
<PAGE>
May & Speh, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
----------- -----------
<S> <C> <C>
Net revenues $21,228,730 $16,043,616
----------- -----------
Operating expenses:
Wages and benefits 7,143,274 5,550,690
Services and supplies 2,039,016 1,307,868
Rents, leases and maintenance 4,637,094 3,609,907
Depreciation and amortization 901,396 350,449
Other operating expenses 1,823,590 1,560,713
ESOP principal payments 593,980 593,982
----------- -----------
Total operating expenses 17,138,350 12,973,609
----------- -----------
Operating income 4,090,380 3,070,007
Interest and other expense (income):
ESOP interest expense 120,033 172,558
Other interest expense 456,810 269,656
Interest other and investment income, net (308,391) (93,010)
Other (income) expense, net 4,325 0
----------- -----------
Income before income taxes 3,817,603 2,720,803
Income taxes 1,450,900 1,059,400
----------- -----------
Net income $ 2,366,703 $ 1,661,403
=========== ===========
Earnings per common share and common $0.09 $0.08
equivalent shares outstanding
Weighted average shares and common 26,953,049 20,363,000
equivalent shares outstanding
</TABLE>
See Accompanying Notes
<PAGE>
May & Speh, Inc.
Consolidated Statements of Stockholders' Equity
For Three Months Ended December 31, 1996
<TABLE>
<CAPTION>
Common Stock Additional Unearned Retained
Shares Amount paid-in-capital compensation earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance - September 30, 1996 24,934,154 $249,342 $46,967,691 ($5,345,824) $33,860,039 $75,731,248
Net income for the three months
ended December 31, 1996 (unaudited) 2,366,703 2,366,703
ESOP compensation earned
during the three months ended
December 31, 1996 (unaudited) 593,980 593,980
Exercise of stock options
(unaudited) 68,000 680 140,987 141,667
---------- -------- ----------- ----------- ----------- -----------
Balance - December 31, 1996
(unaudited) 25,002,154 $250,022 $47,108,678 ($4,751,844) $36,226,742 $78,833,598
========== ======== =========== =========== =========== ===========
</TABLE>
See Accompanying Notes
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,366,703 $ 1,661,403
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 901,396 350,449
ESOP principal payments 593,980 593,982
Changes in assets and liabilities:
Accounts receivable, net 3,245,691 636,496
Prepaid expenses and other current assets (548,905) (145,898)
Income taxes payable/refundable 1,205,029 938,161
Accounts payable and accrued expenses (1,113,982) (691,755)
Other (148,372) 143,103
----------- -----------
Net cash provided by operating activities 6,501,540 3,485,941
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (948,384) (778,775)
Purchases of marketable securities (6,861,098) (875,289)
Sales of marketable securities 2,232,339 701,494
Software development costs capitalized (1,658,479) (544,595)
Increase in cash surrender value of insurance (18,500) (18,500)
Other (12,862) (799,451)
----------- -----------
Net cash used in investing activities (7,266,984) (2,315,116)
----------- -----------
Cash flows from financing activities:
Stock option exercises 141,667
Capital lease principal payments (288,211)
Repayments of long-term obligations (635,268) (884,264)
----------- -----------
Net cash provided by (used in) financing activities (781,812) (884,264)
----------- -----------
Net change in cash and cash equivalents (1,547,256) 286,561
Cash and cash equivalents:
Beginning of period 10,397,858 6,713,581
----------- -----------
End of period $ 8,850,602 $ 7,000,142
=========== ===========
Non-cash financing/investing activities:
Acquisition of equipment under capital leases $ 382,460
Additional goodwill relating to GIS acquisition $ 1,355,269
</TABLE>
See Accompanying Notes
<PAGE>
May & Speh, Inc.
Notes to Financial Statements
(1) Basis of Presentation.
The financial statements as of December 31, 1996 and for the three months
then ended are unaudited and reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management,
necessary for the fair presentation of the financial position and operating
results for the interim periods. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Therefore, the financial statements
should be read in conjunction with the Financial Statements and Notes
thereto contained in the Company's Annual Report filed on Form 10-K for the
fiscal year ended September 30, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In addition to historical information, the following discussion contains forward
looking statements that are subject to risks and uncertainties that could cause
actual results to differ materially from those anticipated, including, but not
limited to, renewal of customer and supplier contracts as they expire on terms
and conditions favorable to the Company, integration of operations of the
Company and GIS Information Systems, Inc. ("GIS"), changes in technology, and
the risks and uncertainties described in reports and other documents filed by
the Company with the Securities and Exchange Commission, including the
Prospectus dated March 26, 1996 included in the Company's Registration Statement
on Form S-1 (File No. 33-98302).
Results of Operations
Three Months Ended December 31, 1996 Compared to the Three Months Ended
December 31, 1995
Net revenues increased to $21.2 million for the three months ended December 31,
1996 from $16.0 million for the three months ended December 31, 1995, and
increase of $5.2 million or 32%. The Company's direct marketing services
revenues increased to $13.3 million for the three months ended December 31, 1996
versus $12.3 million for the three months ended December 31, 1995, an increase
of 8%. The Company's data processing outsourcing services revenues increased to
$7.9 million for the three months ended December 31, 1996, versus $3.7 million
for the three months ended December 31, 1995, an increase of $4.2 million or
110%. Of this increase, $3.2 million is attributable to revenues from GIS,
which was acquired in July, 1996.
Wages and benefits expenses increased to $7.1 million for the three months ended
December 31, 1996 from $5.6 million for the three months ended December 31,
1995, an increase of 29%. 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.
Services and supplies expenses increased to $2.0 million for the three months
ended December 31, 1996 from $1.3 million for the three months ended December
31, 1995, an increase of 56%. 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 primarily
from outsourcing of technical support and the use of outside consultants to
improve productivity and efficiency of workflow.
Rents, leases and maintenance expenses increased to $4.6 million for the three
months ended December 31, 1996 from $3.6 million for the three months ended
December 31, 1995, an increase of 28%. The increase was primarily attributable
to leasing computers, computer peripheral hardware, additional software, and
facility rent to house our print operation. A portion of this increase was due
to the acquisition of GIS and its existing computer, computer peripheral
hardware, software and facility rent.
Depreciation and amortization expenses increased to $0.9 million for the three
months ended December 31, 1996 from $0.4 million for the three months ended
December 31, 1995, an increase of 157%. The increase was primarily attributable
to (i) continued investment in technology, including the upgrade of the
Company's mainframe computer, (ii) the conversion of the lease for the
8
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mainframe from an operating lease to a capital lease, and (iii) amortization of
goodwill arising from the GIS acquisition.
Other operating expenses increased to $1.8 million for the three months ended
December 31, 1996 from $1.6 million for the three months ended December 31,
1995, an increase of 17%. The increase was primarily attributable to operating
costs directly related to several customer contracts.
Research and development costs, representing primarily wages and benefits for
information technology staff, increased to $0.8 million for the three months
ended December 31, 1996 from $0.6 million for the three months ended December
31, 1995, an increase of 33%. The increase in research and development costs
relates primarily to wages and related benefits for additional development
staff.
Income taxes increased to $1.5 million for the three months ended December 31,
1996 from $1.1 million for the three months ended December 31, 1995. The
Company's effective tax rate was 38.0% for the three months ended December 31,
1996 and 38.9% for the three months ended December 31, 1995.
Liquidity and Capital Resources
The Company's working capital decreased to $45.0 million as of December 31, 1996
from $46.1 million as of September 30, 1996. The decrease was primarily due to
capital expenditures including capitalized software costs. 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 major municipal insurer (principal and interest). As of December 31,
1996, the Company's net accounts receivable were $17.8 million, a decrease of
15% over the previous fiscal year end. The decrease reflects improved
collections of accounts receivable resulting in days sales outstanding of 66
days for the three months ended December 31, 1996 versus 76 days for fiscal year
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% per annum. Maximum borrowings during the three months ended December
31, 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 $4.8 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 ($3.9 million at December
31, 1996) and at 80% of the lender's prime rate for the floating rate portion of
the loan ($0.9 million at December 31, 1996), currently 6.6%.
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 $18,324,810 of goodwill that will be amortized over a 40 year
period using the straight-line method for financial reporting purposes.
9
<PAGE>
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Amendment No. 3 to the May & Speh, Inc. Employee Stock
Ownership Plan
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the period
covered by this report.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May & Speh, Inc.
Date: February 13, 1997 By: /S/ Eric M. Loughmiller
Eric M. Loughmiller
Chief Financial Officer
11
<PAGE>
EXHIBIT INDEX
Exhibit Number Exhibit
10 Amendment No. 3 to the May & Speh, Inc. Employee Stock
Ownership Plan
27 Financial Data Schedule
<PAGE>
EXHIBIT 10
AMENDMENT NO. 3 TO THE
MAY & SPEH, INC. EMPLOYEE STOCK OWNERSHIP PLAN
The May & Speh, Inc. Employee Stock Ownership Plan (the "Plan"), as established
and originally effective as of October 1, 1988, is hereby amended as follows:
I.
Section 4.3(b) of the Plan is hereby amended by the addition of the
following at the end thereof, effective upon the adoption of this Amendment
No. 3:
Notwithstanding any provision in the Plan to the contrary, any
contributions to the Plan made after the adoption of Amendment No. 3
to the Plan which the Employer elects to treat, in accordance with
Plan Section 4.2, as contributions for the Plan Year ending on
September 30, 1996 shall be allocated solely to the Participant's
Accounts of the Non-Highly Compensated Participants (who are otherwise
eligible to share in Employer contributions for such Plan Year) in the
same proportion that each such Non-Highly Compensated Participant's
Compensation for the Plan Year ending on September 30, 1996 bears to
the total Compensation of all Non-Highly Compensated Participants for
such Plan Year.
II.
The amendment to Section 4.4(e) of the Plan adopted on September 30, 1996
is hereby rescinded and held to be of no force or effect. Section 4.4(e) as
it existed prior to such amendment is hereby restored to the Plan and is
effective as if such amendment had not been adopted.
III.
Except as provided herein, the Plan shall remain in full force and
effect.
IN WITNESS WHEREOF, the undersigned duly authorized officer of May & Speh, Inc.
has caused the foregoing Amendment No. 3 to the May & Speh, Inc. Employee Stock
Ownership Plan to be executed this 12/th/ day of December, 1996.
May & Speh, Inc.
By: /S/Willard E. Engel, Jr.
Willard E. Engel, Jr.
Treasurer/Chief Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
financial statements included in the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,850,602
<SECURITIES> 24,963,036
<RECEIVABLES> 17,757,404
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 59,055,615
<PP&E> 42,967,836
<DEPRECIATION> 10,194,525
<TOTAL-ASSETS> 117,901,874
<CURRENT-LIABILITIES> 14,020,091
<BONDS> 21,593,185
<COMMON> 250,022
0
0
<OTHER-SE> 83,335,420
<TOTAL-LIABILITY-AND-EQUITY> 117,901,874
<SALES> 0
<TOTAL-REVENUES> 21,228,730
<CGS> 0
<TOTAL-COSTS> 17,138,350
<OTHER-EXPENSES> 272,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,817,603
<INCOME-TAX> 1,450,900
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,366,703
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
