FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 1-14350
MONEYGRAM PAYMENT SYSTEMS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 84-1327808
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7401 West Mansfield Avenue, Lakewood, Colorado 80235
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 303-716-6800
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NOT APPLICABLE
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(Former Name, Former Address and Former Fiscal Year, if Changed
since Last Report.)
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 registrant's
classes of common stock, as of the latest practicable date.
Number of Shares Outstanding
Title of each class As of November 1, 1997
- ---------------------------- ----------------------------
Common Stock, $.01 par value 16,625,000
<PAGE>
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet at September 30, 1997
and December 31, 1996.................................... 3
Statement of Operations for the three months ended
September 30, 1997 and 1996.............................. 4
Statement of Operations for the nine months ended
September 30, 1997 and 1996.............................. 5
Statement of Cash Flows for the
Nine months ended September 30, 1997 and 1996............ 6
Notes to Financial Statements............................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ....................................... 11
Item 6. Exhibits and Reports on Form 8-K......................... 11
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MONEYGRAM PAYMENT SYSTEMS, INC.
BALANCE SHEET
(in thousands)
September December
30, 1997 31, 1996
-------- --------
ASSETS
- ------
Current Assets:
Cash and cash equivalents ............................. $ 26,993 $ 17,996
Assets restricted to money transfer settlements ....... 20,690 11,287
Fee revenue receivable ................................ 4,189 587
Receivable from IPS ................................... 5,191 3,659
Prepaid and other current assets ...................... 1,070 648
-------- --------
Total current assets .................................. 58,133 34,177
Fixed assets at cost, net of depreciation;
1997- $8,221; 1996 - $7,911 ........................... 10,201 9,127
Deferred tax asset ......................................... 49,006 52,250
Agent contract acquisition costs, net of amortization:
1997 - $8,435; 1996 - $4,903; ......................... 16,911 18,175
Other assets ............................................... 1,142 --
-------- --------
Total Assets ............................................... 135,393 $113,729
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Liabilities relating to outstanding money
transfers ............................................. 20,690 11,287
Accounts payable and accrued liabilities .............. 8,912 5,726
Commissions payable ................................... 7,069 7,286
-------- --------
Total current liabilities ............................. 36,671 24,299
-------- --------
Stockholders' Equity:
Common stock, $.01 par value, authorized
100,000,000 shares; issued and outstanding
16,625,000 shares .................................. 166 166
Capital surplus ...................................... 85,089 85,089
Retained earnings .................................... 13,467 4,175
-------- --------
Total stockholders' equity .......................... 98,722 89,430
-------- --------
Total Liabilities and Stockholders' Equity ................. $135,393 $113,729
======== ========
See accompanying notes.
3
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
September 30,
-------------
1997 1996
------- -------
Revenue:
Fee and other revenue net of refunds ............ $29,775 $26,901
Foreign exchange ................................ 7,392 7,046
------- -------
Total revenues ........................... 37,167 33,947
------- -------
Expenses:
Agent commissions and amortization of
agent contract acquisition costs ......... 12,356 11,250
Processing ...................................... 6,289 5,576
Advertising and promotion ....................... 6,862 5,584
Selling and service ............................. 2,792 2,869
General and administrative ...................... 2,583 1,625
------- -------
Total expenses ........................... 30,882 26,904
------- -------
Income before income taxes ........................... 6,285 7,043
------- -------
Income tax expense ................................... 2,483 2,676
------- -------
Net income ........................................... $ 3,802 $ 4,367
======= =======
Net income per common share .......................... $ .23 $ .26
Weighted average shares and
equivalents outstanding .............................. 16,832 16,625
------- -------
See accompanying notes.
4
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Nine Months Ended
September 30,
-------------
1997 1996
-------- --------
Revenue:
Fee and other revenue net of refunds ............ $ 85,603 $ 84,154
Foreign exchange ................................ 21,585 22,821
-------- --------
Total revenues ........................... 107,188 106,975
-------- --------
Expenses:
Agent commissions and amortization of
agent contract acquisition costs ......... 35,717 33,865
Processing ...................................... 18,754 17,860
Advertising and promotion ....................... 20,639 22,347
Selling and service ............................. 8,574 7,645
General and administrative ...................... 8,140 4,685
-------- --------
Total expenses ........................... 91,824 86,402
-------- --------
Income before income taxes ........................... 15,364 20,573
Income tax expense ................................... 6,072 7,858
-------- --------
Net income ........................................... $ 9,292 $ 12,715
-------- --------
Net income per common share .......................... $ .56 $ .76
Weighted average shares and
equivalents outstanding .............................. 16,717 16,625
-------- --------
See accompanying notes.
5
<PAGE>
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
-------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income ........................................... $ 9,292 $ 12,715
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense .............. 6,146 4,537
Changes in operating assets and liabilities:
Assets restricted to money transfer
settlements ................................... (9,403) (49)
Accounts receivable ............................ (3,602) 385
Receivable from IPS ............................ (1,532) --
Prepaid and other assets ....................... (750) (558)
Utilization of deferred tax asset .............. 3,244 --
Liabilities relating to outstanding money
transfers ................................ 9,403 49
Accounts payable and other liabilities ......... 2,969 881
-------- --------
Net cash provided by operating activities ............ 15,767 17,960
-------- --------
Cash flows from investing activities:
Purchase of equipment and signage .................... (4,502) (3,103)
Agent contract acquisition costs ..................... (2,268) (9,077)
-------- --------
Net cash used for investing activities ............... (6,770) (12,180)
-------- --------
Cash flows from financing activities:
Net transfer to IPS .................................. -- (5,780)
-------- --------
Net cash provided by financing activities ............ -- (5,780)
-------- --------
Change in cash and cash equivalents .................. $ 8,997 $--
Cash and cash equivalents at beginning of year ....... 17,996 --
-------- --------
Cash and cash equivalents at end of period ........... $ 26,993 --
======== ========
See accompanying notes.
6
<PAGE>
MoneyGram Payment Systems, Inc.
Notes to the Financial Statements
1. MoneyGram Payment Systems, Inc. (the "Company") was, until December 11,
1996, a wholly owned subsidiary of Integrated Payment Systems, Inc.
("IPS"). The 1996 financial statements have been prepared as if the
Company were a separate company as of January 1, 1996. The 1996 financial
statements present the financial position, results of operations and cash
flows attributable to the Company, which was separated as a product line
of IPS. Certain prior year amounts have been reclassified to conform to
the current year's presentation.
The financial information should be read in conjunction with the Company's
financial statements and notes included in its Annual Report on Form 10-K
for the year ended December 31, 1996. These unaudited financial statements
reflect all material and normal recurring adjustments that are, in the
opinion of management, necessary for a fair presentation of the results of
the interim period. The results of the interim period are not necessarily
indicative of results to be expected for the full year.
2. In February 1997, the Company and Thomas Cook Group, Ltd. ("Thomas Cook")
formed a joint venture that is 51% owned by the Company. This venture
began operating in February and its results are included in the
accompanying financial statements.
3. Net income per common share amounts are computed using the
weighted-average number of common shares and common share equivalents
outstanding during each period. Common share equivalents represent the
effect of outstanding stock options.
4. On August 4, 1997, the Company announced it had reached a definitive
agreement with Mid-America Bancorp to acquire all of the capital stock of
Mid-America Money Order Company for approximately $15 million cash. It is
expected that the transaction, which is subject to regulatory approvals,
will close in the fourth quarter of this year.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Three Months Ended September 30, 1997 Compared with Three Months Ended
September 30, 1996
Revenues: The Company's revenues were $37.2 million in the third quarter
of 1997 as compared with $33.9 million in 1996. This was the result of an
11% increase in fee revenue and a 5% increase in foreign exchange revenue.
Fee and other revenue increased to $29.8 million from $26.9 million in the
third quarter of 1996, with foreign exchange revenue improving to $7.4
million from $7.0 million in 1996. Interest income on investable funds,
which is included in Fee and other revenue, increased $.4 million, to $.5
million in 1997, as a result of the Company's independent status.
Fee revenue increased as a result of an 11% increase in transactional
volumes which grew to 1.55 million from 1.40 million. The growth came from
the US-to-Mexico, Latin America, Caribbean and other international traffic
corridors. Due to promotional activity in the Mexican and Latin American
markets, the average principal transferred was lower which resulted in a
slower growth in foreign exchange revenue.
Expenses: The Company's total operating expenses increased to $30.9
million from $26.9 million in the third quarter of 1996 mainly as a result
of the increase in transactions and costs associated with the Company
becoming a separate entity.
Agent commissions increased 10% to $12.4 million in 1997 from $11.2
million in 1996. This increase was due mainly to higher fee revenue and
increased amortization expense associated with agent signing bonuses.
Processing costs increased 13% to $6.3 million in 1997 from $5.6 million
in 1996, mainly due to the higher level of transactions.
Advertising and promotion expense increased 23% to $6.9 million in 1997
from $5.6 million in 1996. The 1996 expenditures were unusually low due to
a reduction in domestic advertising.
Selling and services expense declined to $2.8 million in 1997 from $2.9
million in 1996.
General and administrative expenses increased to $2.6 million in 1997 from
$1.6 million in 1996. This was due to costs associated with being a
separate entity and higher depreciation expense.
8
<PAGE>
Nine Months Ended September 30, 1997 Compared with Nine Months Ended
September 30, 1996
Revenues: Revenues for the nine months ended September 30, 1997 were
$107.2 million as compared with $107.0 million in 1996. This was the net
result of a 2% increase in fee revenue and a 5% decline in foreign
exchange revenue.
Fee and other revenue improved to $85.6 million from $84.2 million in the
nine months ended September 30, 1996. Interest income on investable funds
increased $1.0 million, to $1.2 million in 1997. Overall transactions were
at the same level as in 1996 as a result of lower demand in the first
quarter of 1997. The foreign exchange revenue declined to $21.6 million
from $22.8 million in 1996 as a result of the lower level of first quarter
transactions.
Expenses: Total operating expenses increased 6% to $91.8 million in 1997
from $86.4 million in 1996.
Agent commissions increased 5% to $35.7 million in 1997 from $33.9 million
in 1996. The increase was due to higher amortization expense associated
with agent signing bonuses and higher commissions associated with the
increase in fee revenue.
Processing costs increased 5% to $18.8 million in 1997 from $17.9 million
in 1996 mainly due to increased operating costs associated with rent and
software licenses.
Advertising and promotion expense was $1.7 million lower, $20.6 million in
1997 versus $22.3 million in 1996, as a result of lower expenditures in
the first quarter of 1997.
Selling and service expense increased 12%, to $8.6 million in 1997 from
$7.6 million in 1996, as a result of the development of a separate sales
and marketing force during the second half of 1996.
General and administrative costs increased $3.4 million, to $8.1 million
in 1997 from $4.7 million in 1996. This was due to costs associated with
the separate company status and higher depreciation expense.
9
<PAGE>
Liquidity and Capital Resources
Total cash and cash equivalents, which are comprised mainly of short-term
investments, increased $9.0 million in the first nine months of 1997. In
1996 all positive cash balances were transferred to IPS and all cash
requirements were provided in a transfer from IPS, thus all changes in
cash and cash equivalents were equal to zero.
The 1997 cash requirements include $3.6 million for the payment of taxes;
in 1996 all taxes were paid to IPS.
Cash flow from operations was $15.8 million in the first nine months of
1997 as compared with $18.0 million in 1996. The 1997 results reflect
reduced net income, offset by increased depreciation and amortization,
utilization of the deferred tax asset and the culmination of the joint
venture with Thomas Cook.
Cash used for investing activities was $6.8 million in 1997 as compared
with $12.2 million in 1996 as a result of unusually high payments in 1996
to agents for assigning their contracts to the Company and extending the
terms of those contracts.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in a proposed class action commenced in the
United States District Court for the Central District of California on November
3, 1997 by Lidya Bueno and others. The action includes allegations that the
Company breached its contracts with the plaintiffs and has engaged in unfair and
fraudulent business practices, false advertising and discrimination, and seeks
money damages and injunctive relief. The Company believes that it has
meritorious defenses and intends to defend this action vigorously.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated October 22, 1997
under Item 5 in connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MoneyGram Payment Systems, Inc.
-------------------------------
(Registrant)
Dated: November 13, 1997 BY: /s/ James F. Calvano
-----------------------------------
James F. Calvano
Chairman of the Board and
Chief Executive Officer
Dated: November 13, 1997 BY: /s/ John M. Fowler
-----------------------------------
John M. Fowler
Executive Vice President and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from MoneyGram
Payment Systems, Inc.'s Form 10-Q for the period September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 26,993
<SECURITIES> 0
<RECEIVABLES> 9,380
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,133
<PP&E> 10,201
<DEPRECIATION> 8,221
<TOTAL-ASSETS> 135,393
<CURRENT-LIABILITIES> 36,671
<BONDS> 0
0
0
<COMMON> 166
<OTHER-SE> 98,556
<TOTAL-LIABILITY-AND-EQUITY> 135,393
<SALES> 0
<TOTAL-REVENUES> 107,188
<CGS> 0
<TOTAL-COSTS> 91,824
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,364
<INCOME-TAX> 6,072
<INCOME-CONTINUING> 0
<DISCONTINUED> 9,292
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,292
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
