<PAGE>
U.S. 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 quarterly period ended March 31, 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: 0-28268
USCS INTERNATIONAL, INC.
--------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-1727009
------------------------------- ---------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification)
2969 PROSPECT PARK DRIVE,
RANCHO CORDOVA, CALIFORNIA 95670-6148
- ---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 636-4500
- -----------------------------------------------------------------
(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 issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1997
----------------------------- -----------------------------
Common Stock, $.05 par value 23,137,012 shares
<PAGE>
USCS INTERNATIONAL, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements 3
Consolidated Condensed Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996 4
Consolidated Condensed Statements of Operations (Unaudited)
Three months ended March 31, 1997 and 1996 5
Consolidated Condensed Statements of Cash Flows (Unaudited)
Three months ended March 31, 1997 and 1996 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition, Results of Operations, and Certain Factors
That May Affect Future Results. 8-14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
2
<PAGE>
USCS INTERNATIONAL, INC.
PART I- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The following consolidated condensed financial statements, except for the
balance sheet as of December 31, 1996, have been prepared by USCS
International, Inc. (the Company) without audit by independent public
accountants, but in accordance with the rules and regulations of the
Securities and Exchange Commission (SEC) and, in the opinion of the Company,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of results for each period shown. 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 such SEC rules and
regulations. The Company believes that the disclosures made are adequate to
make the information presented not misleading. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Registration Statement on Form S-1 (Registration
No. 333-3842) declared effective by the SEC on June 20, 1996 and the
Company's Annual Report to Stockholders and the Company's Annual Report on
Form 10-K for the year ended December 31, 1996. The results of operations for
the three months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the entire year ending December 31, 1997.
3
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 11,026 $ 8,452
Accounts receivable 68,340 73,458
Current portion of net investment in leases 4,457 4,922
Paper products and other inventory 3,985 4,418
Other 9,688 8,972
--------- --------
Total current assets 97,496 100,222
Property and equipment, net 92,644 94,350
Net investment in leases, net of current portion 5,695 6,252
Other 4,991 4,735
--------- --------
Total assets $ 200,826 $ 205,559
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 44,648 $ 48,975
Current portion of long-term debt 4,790 4,772
Deferred revenue 4,247 9,434
--------- --------
Total current liabilities 53,685 63,181
Long-term debt, net of current portion 4,175 5,647
Customer deposits 13,377 12,752
Other liabilities 9,035 8,646
--------- --------
Total liabilities 80,272 90,226
--------- --------
Stockholders' Equity:
Preferred Stock, $.05 par value, 10,000,000 shares
authorized; no shares issued and outstanding - -
Common Stock, $.05 par value,
Authorized 40,000,000 shares; Issued and outstanding:
23,123,053 shares at March 31, 1997 (unaudited) and
23,068,826 shares at December 31, 1996 1,156 1,153
Additional paid-in capital 54,134 53,902
Retained earnings 65,490 60,437
Foreign currency translation adjustment (226) (159)
--------- --------
Total stockholders' equity 120,554 115,333
--------- --------
Total liabilities and stockholders' equity $ 200,826 $ 205,559
--------- --------
--------- --------
</TABLE>
4
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenue:
Software and services:
Customer management $ 37,779 $ 32,477
Bill processing 28,398 22,944
-------- --------
Total 66,177 55,421
Equipment sales and services 4,793 4,834
-------- --------
Total revenue 70,970 60,255
-------- --------
Cost of revenue:
Software and services:
Customer management 18,528 18,230
Bill processing 20,860 16,998
-------- --------
Total 39,388 35,228
Equipment sales and services 2,798 2,933
-------- --------
Total cost of revenue 42,186 38,161
-------- --------
Gross profit 28,784 22,094
-------- --------
Operating expenses:
Research and development 6,871 5,642
Selling, general and administrative 13,265 11,009
-------- --------
Total operating expenses 20,136 16,651
-------- --------
Operating income 8,648 5,443
Interest expense 169 1,206
-------- --------
Income before income taxes 8,479 4,237
Income tax provision 3,426 1,674
-------- --------
Net income $ 5,053 $ 2,563
-------- --------
-------- --------
Earnings per share $ 0.21 $ 0.12
-------- --------
-------- --------
Weighted average common
shares and equivalents 24,224 20,659
-------- --------
-------- --------
</TABLE>
5
<PAGE>
USCS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three months ended
March 31,
-----------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net cash provided by operating activities $ 7,527 $ 4,804
-------- --------
Cash flows from investing activities:
Capital expenditures, net (3,734) (5,608)
Other - (250)
-------- --------
Net cash used in investing activities (3,734) (5,858)
-------- --------
Cash flows from financing activities:
Net borrowing under revolving credit agreement - 8,000
Payments on long-term debt (1,454) (7,601)
Proceeds from issuance of common stock 235 -
Repurchase of common stock - (42)
-------- --------
Net cash (used) provided by financing activities (1,219) 357
-------- --------
Net increase (decrease) in cash 2,574 (697)
Cash at January 1 8,452 6,627
-------- --------
Cash at March 31 $ 11,026 $ 5,930
-------- --------
-------- --------
6
<PAGE>
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Stockholders' Equity
In June 1996, the Company completed an initial public offering
(IPO) of its common stock. Upon the close of the IPO, the Company
effected certain stock splits and conversions of its Voting and
Non-Voting Common Stock. All share and per share data have been
restated to reflect the effect of the stock splits.
2. Long-term Debt
The Company has a five year unsecured revolving credit line with
two banks in the amount of $50 million. Borrowings under the
agreement bear interest at the Company's choice of LIBOR (plus a
margin ranging from .55% to 1.25%), the bank's base rate or a
quoted rate. Under the borrowing agreement, the Company is required
to maintain certain financial ratios and meet a net worth test.
The revolving credit line expires September, 2001.
3. Income Tax
Income tax provisions for interim periods are based on estimated
effective annual income tax rates. The Company recognizes deferred
tax assets and liabilities for the expected future tax consequences
of temporary differences between tax bases and financial reporting
bases of assets and liabilities.
4. Earnings per Share
Earnings per share are based on the weighted average number of
shares outstanding and common stock equivalents during the
respective periods, including the assumed net shares issuable upon
exercise of stock options when dilutive. Common and common
equivalent shares issued during the twelve month period prior to
the IPO are included in the calculations as if they were
outstanding for all periods presented.
Under the recently issued FAS 128, the pro forma basic earnings per
share, as defined by the statement, would be $0.22 and $0.14 for
the quarters ended March 31, 1997 and 1996, based on weighted
average shares outstanding of 23,096,000 and 18,329,000,
respectively. The pro forma diluted earnings per share, as defined
by the statement, do not materially differ from amounts presented.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition, and
Results of Operations, and Certain Factors that May Affect Future
Results
This Quarterly Report contains forward-looking statements that involve risks
and uncertainties. The statements that are not historical facts or
statements of current status are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995 and as such are subject to
risks and uncertainties including, but not limited to, the risks and
uncertainties set forth under the caption " CERTAIN FACTORS THAT MAY AFFECT
FUTURE RESULTS." The Company's future results may differ significantly from
the results and forward-looking statements discussed in this Report.
Founded in 1969, USCS is a leading global provider of customer care and
billing solutions to the communications industry and other service
industries. USCS operates in one segment with revenue derived primarily from
providing software and bill processing services to cable television and
multi-service providers and bill processing services to telecommunications
companies. Software and bill processing services for cable television and
multi-service providers are generally provided under bundled service
arrangements. Most of the Company's revenue is derived based on the number
of subscribers or end-users of the Company's clients, the number of billing
statements mailed and/or the number of images, generally one-page-side,
produced. Most of the Company's revenue is derived under long-term contracts
with terms ranging from three to seven years. Clients are billed monthly,
generally based on the number of end-users they serve. As a result, a
significant portion of the Company's revenue is recurring and increases as
the service provider's customer base grows. In addition, the Company sells
computer hardware and provides associated maintenance. Leasing is provided as
an alternative to equipment purchases for clients.
The Company provides software and services to North American and U.K. cable
television and multi-service providers primarily through a direct sales
force. Outside of North America and the U.K., the Company markets its
software services primarily through strategic alliances with companies
specializing in system integration or computer hardware manufacturing that
are capable of providing local sales and support. Building and maintaining
relationships with its clients is an important part of the Company's strategy
because selling cycles can extend a year or longer. The Company has committed
increased resources to the international, multi-service and
telecommunications markets because it believes these represent opportunities
to grow at rates greater than in the U.S. cable television marketplace alone.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
consolidated condensed statements of operations and the percentage of revenue
represented by each line item:
<TABLE>
Three months ended
March 31,
----------------------------------------
1997 1996
------------------ ------------------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Software and services:
Customer management $ 37,779 53.2% $ 32,477 53.9%
Bill processing 28,398 40.0 22,944 38.1
-------- ----- -------- -----
Total 66,177 93.2 55,421 92.0
Equipment sales and services 4,793 6.8 4,834 8.0
-------- ----- -------- -----
Total revenue 70,970 100.0 60,255 100.0
-------- ----- -------- -----
Cost of revenue:
Software and services:
Customer management 18,528 26.1 18,230 30.3
Bill processing 20,860 29.4 16,998 28.1
-------- ----- -------- -----
Total 39,388 55.5 35,228 58.4
Equipment sales and services 2,798 3.9 2,933 4.9
-------- ----- -------- -----
Total cost of revenue 42,186 59.4 38,161 63.3
-------- ----- -------- -----
Gross profit 28,784 40.6 22,094 36.7
-------- ----- -------- -----
Operating expenses:
Research and development 6,871 9.7 5,642 9.4
Selling, general and administrative 13,265 18.7 11,009 18.3
-------- ----- -------- -----
Total operating expenses 20,136 28.4 16,651 27.7
-------- ----- -------- -----
Operating income 8,648 12.2 5,443 9.0
Interest expense 169 .3 1,206 1.9
-------- ----- -------- -----
Income before income taxes 8,479 11.9 4,237 7.1
Income tax provision 3,426 4.8 1,674 2.8
-------- ----- -------- -----
Net income $ 5,053 7.1% $ 2,563 4.3%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
9
<PAGE>
Revenue. Total revenue increased by 18%, to $71.0 million in the first
quarter of 1997 from $60.3 million in the comparable quarter in 1996.
Software and services, which was 93% of total revenue in the first quarter
of 1997 versus 92% in the first quarter in 1996, increased in the first
quarter of 1997 by 19% over the prior year quarter. Customer management
software and services revenue, of which a significant majority comes from
bundling software with bill processing services, increased by 16% to $37.8
million in the first quarter of 1997 from $32.5 million in the 1996 first
quarter. Bill processing services revenue provided primarily to
telecommunications companies as a stand alone service increased by 24%, to
$28.4 million in the first quarter of 1997 from $22.9 million in the
comparable quarter of the prior year. Equipment sales and services, as
expected, remained flat in the first quarter of 1997 compared to the same
quarter in 1996, at $4.8 million, and decreased from 8% of revenue in the
first quarter of 1996 to 7% in the first quarter of 1997.
Growth in revenue in customer management software and services, for the first
quarter 1997 compared to the first quarter of 1996, came primarily from sales
of additional services and increases in the number of subscribers of existing
and new clients in the U.S. and international markets. The bill processing
services revenue increase for the first quarter of 1997 compared to the first
quarter of 1996 was attributable to increased statement production from the
addition of new customers as well as internal growth of existing customers
and the sale of additional services.
Cost of Revenue and Gross Profit. The Company's gross profit margin increased
to approximately 41% in the first quarter of 1997 from approximately 37% in
the comparable quarter in 1996. Customer management software and services
gross profit margin increased to 51% in the first quarter of 1997 from 44% in
the comparable quarter in 1996. Bill processing services gross profit margin
exceeded 26% in the first quarter of 1997, an increase of nearly 1% over the
comparable 1996 quarter. Gross profit margins increased because of economies
of scale associated with higher subscriber counts and statement processing
volume, operational efficiencies and increased revenues from selling
additional services. The gross profit margin on equipment-related revenue
increased to approximately 42% in the first quarter of 1997 from 39% in the
comparable quarter in 1996. This is primarily attributed to renewals of
existing lease contracts.
Research and Development. Research and development spending in the first
quarter, exclusive of amounts reimbursable by development partners, was $6.9
million, an increase of $1.2 million, or approximately 22% over the
comparable quarter in the prior year. Research and development represented
about 10% of total revenue in the first quarter of 1997. The added spending
was aimed at expanding features and functionality primarily in customer
management software and services.
Selling, General and Administrative. Selling, general and administrative
expenses represented 19% of total revenue for the three months ended March
31, 1997 versus 18% for the comparable three months of the prior year.
Selling, general and administrative expenses in the first quarter of 1997
increased by approximately 20% over the comparable quarter in the prior year.
Sales and marketing increased 23% in the first quarter of 1997 compared to
the first quarter of 1996. This increase is attributable to increased sales
and marketing efforts in the domestic and international markets. General and
administrative expenses increased 18% in the first quarter of 1997 compared
to the first quarter of 1996 but remained constant as a percentage of
revenue. This increase is attributed to greater support for a higher level of
sales, as well as customer and investor relations activity and support
required for company growth.
Net Income. Net income in the first quarter of 1997 increased by 97%, to $5.1
million from $2.6 million in the comparable 1996 quarter. This increase is
primarily because of the factors cited above and a net reduction of interest
expense of approximately $1 million in the quarter due to the retirement of
debt primarily through IPO proceeds. Net income per share increased 75% in
the first quarter of 1997 versus the comparable period in 1996. The increase
in net income per share in the first quarter of 1997 resulted from the
Company's higher earnings, partially offset by an increase of 17% in the
number of shares used in the calculation of earnings per share.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of financing the Company's growth have been cash
provided by operations, borrowing from banks and financial institutions and
the IPO proceeds. The Company utilized the net proceeds from the IPO to
reduce debt under certain revolving credit agreements and, in combination
with positive cash flow from operations, to prepay insurance company loans.
The retirement of a majority of the Company's debt allowed the redirection of
cash used for debt service to operations and growth.
The Company collects from its clients and remits to the U.S. Postal Service a
substantial amount of postage. The majority of contracts allow the Company
to pre-bill and/or require deposits from its clients to mitigate the effect
on cash flow. As of March 31, 1997, 32% of the Company's accounts receivable
represented amounts due from clients for postage. Postage collections and
remittances are not included in the Company's statements of operations.
At March 31, 1997 the Company had $11 million of cash, $68.3 million of
accounts receivable (including postage receivable of $ 21.7 million), $4.5
million of current net investment in leases, and $43.8 million of working
capital. At March 31, 1997 the Company had no borrowings under unsecured
bank credit arrangements with a total borrowing availability of $50 million.
Of the $9 million of total debt outstanding at March 31, 1997, $4.8 million
is due over the following 12-month period. $6.9 million of the total debt
outstanding pertains to the Company's leasing subsidiary and is
collateralized, without recourse, by rents receivable, with the remaining
$2.1 million pertaining to bonds collateralized by real estate.
The Company continues to make significant investments in capital equipment,
research and development as well as to expand into new domestic and
international markets. The Company believes that net cash from operations and
the Company's borrowing availability will be sufficient to support operations
through the next twelve months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, changes in the cable
television market, the Company's ability to retain existing customers and
attract new customers, the Company's continuing ability to develop products
that are responsive to the evolving needs of its customers, increased
competition, changes in operating expenses, changes in government regulation
of the Company's clients and general economic factors.
Dependence on the Cable Television Market
The Company is highly dependent on the cable television market. Approximately
two-thirds of the Company's revenue was derived from sales to U.S. and
international cable television service providers in the first quarter of 1997
and 1996. The number of providers of cable television service in the U.S.
has been declining, resulting in a reduction of the number of potential cable
television clients in the U.S. As the number of companies serving the
available subscriber base decreases, the loss of a single client could have a
greater adverse impact on the Company than in the past. Even if the number
of clients remains the same, a decrease in the number of subscribers served
by the Company's cable television clients would result in lower revenue for
the Company. Furthermore, a decrease in the number of cable subscribers or
any adverse development in the cable television market could have a material
adverse effect on the financial condition and results of operations of the
Company. Also see "International Business Activities."
11
<PAGE>
Changing Communications Market
The communications market is characterized by rapid technological
developments, changes in client requirements, evolving industry standards and
frequent new product introductions. The Company's future success will depend,
in part, upon its ability to enhance its existing applications, develop and
introduce new products that take advantage of technological advances and
respond promptly to new client requirements and evolving industry standards.
The Company has expended considerable funds to develop products to serve the
changing communications market. If the communications market grows or
converges more slowly than anticipated or the Company's products and services
fail to achieve market acceptance, there could be a material adverse effect
on the financial condition and results of operations of the Company. Further,
the Company's development projects are subject to all of the risks associated
with the development of new software and other products based on innovative
technologies. The failure of such development projects could have a material
adverse effect on the financial condition and results of operations of the
Company.
Variability of Quarterly Operating Results
The Company's quarterly operating results may fluctuate from quarter to
quarter depending on various factors, including the impact of significant
start-up costs associated with initiating the delivery of contracted services
to new clients, the hiring of additional staff, new product development and
other expenses, introduction of new products by competitors, pricing
pressures, the evolving and unpredictable nature of the markets in which the
Company's products and services are sold and general economic conditions.
New Products, Rapid Technological Changes and Competition
The market for the Company's products and services is highly competitive, and
competition is increasing as additional market opportunities arise. The
Company believes its most significant competitors for customer management
software and services are independent providers of such software and services
and in-house systems. Tele-Communications, Inc. ("TCI"), after giving effect
to the purchase of the cable operations of Viacom in 1996, which was a client
of the Company, represented approximately 19% and 20% of the Company's
revenue in the first quarter of 1997 and 1996, respectively. In June 1996,
the Company entered into a new three-and-one-half year contract to continue
to provide customer management software and bill processing services to TCI.
Under the contract, TCI may remove subscribers from the agreement during its
term, subject to price increases based on the number of subscribers remaining
under contract. TCI has announced that it is developing and testing an
in-house system and that such in-house system will replace the Company's
customer management software system. The Company cannot estimate when, or
if, TCI would be successful in converting its subscriber base to the TCI
system. Another client, which accounted for approximately 4% of total
revenue in the first quarter of 1997 and 1996, has orally advised the Company
that it may move to an alternative solution for its customer management
software requirements.
In addition, competitive factors could influence or alter the Company's
overall revenue mix between customer management software, services, including
bill processing services, and equipment sales and leasing. Any of these
events could have a material adverse effect on the financial condition and
results of operations, including gross profit margins, of the Company.
Concentration of Client Base
Aggregate revenue from the Company's ten largest clients accounted for
approximately two-thirds of total revenue in the first quarter of 1997 and
1996. Loss of all or a significant part of the business of any of these
clients or a decrease in their respective customer bases would have a
material adverse effect on the financial condition and results of operations
of the Company. Three of the Company's clients represented approximately 42%
and 46% of total revenue in the first quarter of 1997 and 1996, respectively.
12
<PAGE>
Management of Growth
Management of the Company's growth may place a considerable strain on the
Company's management, operations and systems. The Company's ability to
execute its business strategy will depend in part upon its ability to manage
the demands of a growing business. Any failure of the Company's management
team to effectively manage growth could have a material adverse effect on the
Company's business, financial condition or results of operations.
Client Failure to Renew or Utilize Contracts
Substantially all of the Company's revenue is derived from the sale of
services or products under long-term contracts with its clients. The Company
typically does not have the unilateral option to extend the terms of such
contracts upon their expiration. In addition, certain of the Company's
contracts do not require clients to make any minimum purchase. Others require
minimum purchases that are substantially below the current level of business
under such contracts and all such contracts are cancelable by clients under
certain conditions. The failure of clients to renew contracts, a reduction in
usage by clients under any contracts or the cancellation of contracts could
have a material adverse effect on the Company's financial condition and
results of operations.
International Business Activities
The Company markets its products in a variety of international markets. To
date, the Company's customer management software has been installed
in 20 countries. More than 5% of the Company's customer management software
and services revenue came from international sources in the first quarter of
1997 compared to less than 5% for the same period in the prior year. The
Company is expanding its international presence, primarily through third
party marketing and distribution alliances. The Company's current and
proposed international business activities are subject to certain inherent
risks. There can be no assurance that such risks will not have a material
adverse effect on the Company's future international sales and, consequently,
the Company's business, operating results and financial condition.
Attraction and Retention of Key Personnel
The Company's future success depends in large part on the continued service
of its key management, sales, product development and operational personnel.
The Company believes that its future success also depends on its ability to
attract and retain skilled technical, managerial and marketing personnel,
including, in particular, additional personnel in the areas of research and
development and technical support. Competition for qualified personnel is
intense. The Company has from time to time experienced difficulties in
recruiting qualified skilled technical personnel. Failure by the Company to
attract and retain the personnel it requires could have a material adverse
effect on the financial condition and results of operations of the Company.
Dependence on Proprietary Technology
The Company relies on a combination of patent, trade secret and copyright
laws, nondisclosure agreements, and other contractual and technical measures
to protect its proprietary technology. There can be no assurance that these
provisions will be adequate to protect its proprietary rights. Although the
Company believes that its products and services do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company or the
Company's clients.
13
<PAGE>
Government Regulation
The Company's existing and potential clients are subject to extensive
regulation, and certain of the Company's revenue opportunities may depend on
continued deregulation in the worldwide communications industry. In addition,
the Company's clients are subject to certain regulations governing the
privacy and use of the customer information that is collected and managed by
the Company's products and services. Regulatory changes that adversely affect
the Company's existing and potential clients could have a material adverse
effect on the financial condition and results of operations of the Company.
Possible Volatility of Stock Price
Although the Company believes that it has the product offerings and resources
needed for continuing success, future revenue and margin trends cannot be
reliably predicted and may cause the Company to adjust its operations. The
Company's stock price, like that of other technology companies, is subject to
significant volatility. The announcement of new products, services or
technologies by the Company or its competitors, quarterly variations in the
Company's results of operations, changes in revenue or earnings estimates by
the investment community and speculation in the press or investment community
are among the factors affecting the Company's stock price. In addition, the
stock price may be affected by general market conditions and domestic and
international macroeconomic factors unrelated to the Company's performance.
Because of the foregoing reasons, recent trends should not be considered
reliable indicators of future stock prices or financial results.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The election of directors and ratification of independent accountants
have been submitted to a vote of security holders and are
incorporated herein by reference to the Registrant's Definitive Proxy
Statement and Notice of Annual Meeting of Stockholders dated
April 17, 1997, for the annual meeting of stockholders to be held
May 21, 1997.
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed the following report on Form 8K during the
quarter ended March 31, 1997:
Registrant's Press Release, dated as of March 6, 1997, announcing
statement processing contract with CBIS, as exhibit 99.1 to Form 8K,
and contract (redacted) filed as exhibit 10.31 to the Registrant's
December 31, 1996 Form 10K.
15
<PAGE>
USCS INTERNATIONAL, INC.
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.
USCS INTERNATIONAL, INC.
(Registrant)
Dated: May 12, 1997 By: /s/ DOUGLAS L. SHURTLEFF
------------------------------
Douglas L. Shurtleff
Senior Vice President, Finance
(Chief Financial Officer)
16
<PAGE>
Exhibit 11
USCS INTERNATIONAL, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands except per share data)
(Unaudited)
Three months ended
March 31,
---------------------
1997 1996
------ ------
Weighted average number of
common shares outstanding
during the period 23,096 18,329
Common stock equivalents
considered to be outstanding
for the periods presented 1,128 2,330
------ ------
24,224 20,659
Net income $5,053 $2,563
Earnings per share $0.21 $0.12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF USCS INTERNATIONAL, INC. AS
OF MARCH 31, 1997 FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 11026
<SECURITIES> 0
<RECEIVABLES> 68340
<ALLOWANCES> 0
<INVENTORY> 3985
<CURRENT-ASSETS> 97496
<PP&E> 183273
<DEPRECIATION> 90629
<TOTAL-ASSETS> 200826
<CURRENT-LIABILITIES> 53685
<BONDS> 4175<F1>
0
0
<COMMON> 1156
<OTHER-SE> 119398<F2>
<TOTAL-LIABILITY-AND-EQUITY> 200826
<SALES> 0
<TOTAL-REVENUES> 70970
<CGS> 0
<TOTAL-COSTS> 42186
<OTHER-EXPENSES> 20136<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169
<INCOME-PRETAX> 8479
<INCOME-TAX> 3426
<INCOME-CONTINUING> 5053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5053
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<FN>
<F1>Consists of Notes Payable and Bonds Payable
<F2>Consists of Additional Paid-in Capital, Retained Earnings and Foreign Currency
Tanslation Adjustments
<F3>Consists of Research and Development and Selling, General and Administrative
Expenses
</FN>
</TABLE>
