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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission file number 0-20034
BROADWAY & SEYMOUR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1522214
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
128 SOUTH TRYON STREET
CHARLOTTE, NORTH CAROLINA 28202
(Address of principal executive offices) (Zip code)
(704) 372-4281
(Registrant's telephone number, including area code)
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
(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 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 .
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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. [ ].
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 19, 1997 computed by reference to the closing sale
price on such date, was $104,097,793. As of the same date, 9,051,982 shares of
Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1996 Annual Report (the "Annual Report"), filed as
an Exhibit hereto, and the Notice of Annual Meeting of Stockholders and
definitive Proxy Statement pertaining to the 1997 Annual Meeting of Stockholders
(the "Proxy Statement") to be filed pursuant to Regulation 14A (no later than
April 30, 1997) are incorporated herein by reference into Parts II and IV, and
Part III, respectively.
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ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Broadway & Seymour, Inc. ("Broadway & Seymour" or the "Company") is an
information technology software and services company providing integrated
business solutions for the financial services industry and time and practice
management solutions for the legal and professional services industries. The
solutions are often customized to the specific needs of individual customers
through systems integration and development services. Products mentioned in
this document are for identification purposes only and may be trademarks of
Broadway & Seymour, its subsidiaries or third parties.
GENERAL DEVELOPMENT OF THE BUSINESS
The Company was incorporated in 1985 in connection with the acquisition
of Broadway & Seymour, Inc., a North Carolina corporation that had been doing
business since 1981. The Company followed a strategy of growth through the
acquisition of products and businesses through mid-1995. At the end of 1995, the
Company changed its strategic direction to focus on achieving sustained
performance of core operations and growth through business alliances and
internal product development, rather than acquisitions. Operations were
reorganized to integrate independent business units and certain non-core
business units were disposed of during 1996:
- In May 1996, the Company sold substantially all the assets,
subject to certain related liabilities, of its Asset
Management Services Group ("AMSG").
- In November 1996, the Company sold all of the issued and
outstanding capital stock of the Company's wholly owned
subsidiary, Corbel & Co. ("Corbel").
In addition, in September of 1996, the Company developed a plan to close its
National Pension Alliance ("NPA") business following a transition period for NPA
customers. These dispositions are more fully described under Item 7 below.
BUSINESS STRATEGY
While Broadway & Seymour had previously used acquisitions to grow the
Company, its new strategy is to establish and maintain key customer
relationships in chosen markets with a focus on developing and marketing a
flexible set of core technology solutions.
In the financial services market, the Company's focus is in three
areas: industry-specific solutions, customer relationship management solutions
and systems integration services. To meet customer needs, the Company continues
to upgrade and enhance its industry specific solutions with new features and
functions and by ensuring compatibility with advancing technologies. In the area
of customer relationship management, the Company is committed to the ongoing
development and marketing of its customer sales and service solution,
TouchPoint(TM), designed to aid in the efficient gathering and sharing of
customer information from various sources throughout an organization. The
Company also plans to provide systems integration and custom development
services to large, market leading organizations that will offer opportunities
for growth through value-adding relationships.
In the professional services industry, the Company's strategy is to
aggressively market and continually develop a client/server Windows(TM) based
billing and time management system to law firms, and to expand its presence to
other professional service firms, including accounting, actuarial, public
relations and consulting firms.
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SERVICE AND PRODUCT SOLUTIONS
SYSTEMS INTEGRATION AND CUSTOM DEVELOPMENT SERVICES
A significant part of Broadway & Seymour's revenue is generated through
systems integration and custom development engagements. These engagements
typically involve the development of technology solutions for difficult
business and technical problems and are often provided as part of a complex
solution that includes proprietary software, third party hardware and software
products and training and documentation services. The Company may be retained
to perform all aspects of a complex project or a discrete portion of a project.
The Company's systems integration and custom development engagements typically
include some or all of the following:
- strategic planning, including an assessment of a customer's
technology-related needs and the development of an overall
strategy to meet those needs;
- development of functional specifications designed to ensure
that the system will meet the customer's identified needs;
- development of the system architecture and the technical
design specifications;
- building and testing the system, including the development of
the software code and the testing of the code in a simulated
work environment;
- transition services, including data conversion, training,
documentation and implementation of the system; and
- product support services, including maintenance, ongoing
enhancement of the software and contingency support.
The Company performs systems integration and custom development work
under a variety of financial arrangements, including fixed fee contracts and
billings on a time and materials basis. The Company also enters into financial
arrangements from time to time that provide incentives to the Company for
completing a project in less than the budgeted hours. Although the Company
generally seeks major projects, the Company may undertake smaller projects
because it believes that such projects often have the potential to develop into
major systems projects or long-term customer relationships.
TOUCHPOINT(TM)
The TouchPoint solution is a combination of the Company's integration
and customization services, proprietary software and third party software that
can be uniquely modified for each client to aid it in the enterprise-wide
gathering and sharing of customer information through numerous sources,
including call centers, offices, branches, the Internet, kiosks or network
computers. Through the use of computer telephony integration and
object-oriented programming, TouchPoint consolidates customer information on
composite screens and automates customer relationship tools and processes.
TouchPoint has an open, three-tier client/server architecture which gives it
flexibility to be integrated with existing client data processing architectures
and makes it scaleable so that it can be implemented in single departments or
enterprise-wide using a phased approach.
BANCSTAR(R)
BANCStar is a branch automation system used to automate major banks and
integrate branch networks. BANCStar supports teller, customer service, sales and
loan calculation activities, as well as basic system functions such as providing
branch statistics and storing and forwarding information to other computers.
BANCStar Prism is an automated banking solution that supports a graphical user
interface,
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allowing for video and sound, dynamic data exchange and a multi-tasking
environment to help streamline banking operations to the bank's other computers
without interrupting workstation activity.
CRISP(TM)
CRISP is a decision support system that assists commercial bankers in
the management of their relationships, products and employees. Fully graphical
and intuitive, CRISP delivers comprehensive product and profitability analyses
on a variety of bank or customer organizational levels. CRISP provides a single
repository of on-line customer information from multiple other systems.
VISUALIMPACT(TM)
VisualImpact is an integrated image-enabled item and remittance
processing software system that runs under the Windows NT(TM) operating system
on both client and server workstations. The solution uses advanced hardware,
networking and operating system features to distribute the workload across
multiple, distributed servers. In addition, VisualImpact has a common transport
interface that allows it to interface with transports from multiple hardware
vendors and uses high bandwidth printer interfaces to drive printers. The
distribution rights to VisualImpact have been exclusively licensed to a third
party distributor.
LEGAL AND PROFESSIONAL SERVICES SOLUTIONS
Elite Information Systems, Inc. ("Elite"), a subsidiary of Broadway &
Seymour acquired in February 1994, provides office automation, time keeping,
accounting and information management software to the professional service
industries. Elite's products incorporate client-server and open-systems
architecture within the Windows(TM) environment.
The Elite Billing System - is a comprehensive accounting and
information management software package serving legal and professional service
firms. The Elite Billing System responds to client and professional service
billing requirements with on-line management information needed to guide such
firms.
The Elite Case Management System - is a prospect tracking
system and conflicts/related-party database. This system also includes calendar
and docket functions, a case database, a related-party tracking system, on-line
viewing of case information and personal calendars and a user-defined reporting
system.
SUPPORT SERVICES
The Company views its support activities as a significant part of its
strategy to establish and maintain strong customer relationships. The Company
offers system maintenance and support at fixed prices under renewable contracts.
The degree of maintenance service provided to customers differs depending on the
product being supported. Generally, support contracts entitle users to telephone
support and regular upgraded product releases. In addition, the Company is able
to offer certain training classes and multi-media based instruction to customers
that aid in the implementation and effective use of the Company's solutions.
RESEARCH AND DEVELOPMENT
To meet the changing needs of the financial and professional services
industries, the Company expends resources to continually develop and enhance
systems development technologies and approaches that may have broad application
in systems integration projects and solutions. The Company believes that ongoing
commitment to research and development is important to the long-term success of
the business.
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For the years ended December 31, 1996, 1995 and 1994, the Company's
total research and development expenditures were $7.4 million, $8.9 million and
$7.5 million, respectively. The Company anticipates continued investment in
research and development to provide growth and enhancement to its existing
solution offerings, and it believes spending relative to revenue will continue
at its current level.
There are inherent risks in the introduction of a new product. For
example, new products may have quality or other defects in the early stages of
introduction that were not anticipated in the design of those products. The
Company cannot determine the effects on operating results of unanticipated
complications in product introductions or transitions.
SALES AND MARKETING
The Company's sales personnel are given sales responsibility within
their targeted customer markets. Additionally, senior management within the
Company is directly involved in obtaining and supporting relationships.
New customer contacts are generated by a variety of methods, including
customer referrals, personal sales calls, attendance at trade shows and
seminars, advertising in trade publications, direct mailings to targeted
customers and telemarketing.
CUSTOMERS
Broadway & Seymour's customers include a broad variety of institutions
and companies in the financial services industry. In addition, the Company
serves a client base of law firms and other professional service firms through
its Elite operations. Elite has over 500 customers using its software, including
some of the largest law firms in the United States and the United Kingdom.
The Company's follow-on sales to existing customers, including
multi-year systems integration and custom development projects, system
upgrades and expansion, new products and maintenance and support services,
represent a significant portion of total revenue. The Company's business
strategy emphasizes sales to existing customers.
COMPETITION
The Company's businesses are competitive. The Company is not aware of
any one competitor that offers the same combination of services and products
offered by the Company, but believes that a number of firms compete with the
Company in several areas. In the markets in which it competes, the Company
believes there are participants that have greater financial, technical and
marketing resources. However, the Company believes that no one competitor is
dominant in its market.
The Company competes for engagements with a variety of companies
offering all or a portion of the services offered by the Company. Many large
accounting and management consulting firms offer services that overlap with at
least a portion of the Company's solutions and services, and computer hardware
and software companies are increasingly becoming involved in similar services.
The Company also competes with the internal operations of customers. The Company
believes the competitive factors for these projects include reputation,
capability and resources, technological expertise, knowledge of the industry,
quality and reliability of service and price. The Company believes that it
competes favorably on the basis of these factors. However, the Company's future
operating results and financial condition may be adversely affected by the
increasingly competitive environment of the software industry.
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BACKLOG
A majority of the Company's revenue is derived from work to be
performed under long-term, cancelable contracts entered into in the ordinary
course of business. These contracts often relate to ongoing projects with
respect to which the continuation of work is at the option of the customer.
Because the majority of the Company's agreements are cancelable on relatively
short notice, generally 30 days, the Company does not believe that agreements
for work outstanding at any specific time provide a meaningful indication of
future revenue.
EMPLOYEES AND RECRUITMENT
The Company believes that its future success will depend in part on its
continued ability to hire and retain qualified employees. The Company believes
its relations with employees are good. Competition for personnel in the
Company's industry is intense. Although it actively recruits personnel and
provides professional employees with career path opportunities and believes that
its turnover is no higher than the industry average, there can be no assurance
that the Company will be successful in attracting and retaining sufficient
numbers of qualified personnel to conduct its business in the future. The
Company actively recruits at college campuses and seeks employees with expertise
and experience in its chosen markets.
At March 25, 1997, the Company had approximately 500 full-time
employees. None of the Company's employees is represented by a labor union.
COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES
The Company's business includes the development of custom software in
connection with specific customer engagements. Although the Company frequently
assigns to its customer the copyright and other intellectual property rights in
the software and documentation developed for the customer, the Company
negotiates to retain the right to develop similar products for other customers.
In a limited number of circumstances, the Company has agreed not to use certain
specific technological know-how developed in an engagement for one customer to
perform projects for other customers or to develop a system for a competitor of
the customer that is similar to the system developed for the customer. However,
the Company believes these restrictions will not have a material adverse effect
on the Company.
The Company believes that its services and products do not infringe on
the intellectual property rights of its customers or other third parties.
However, particularly given the rapid changes in copyright and patent law, there
can be no assurance that an infringement claim will not be asserted against the
Company in the future. Any such claim, if resolved against the Company, could
adversely affect the Company's reputation, preclude it from offering certain
products and services, and subject it to substantial liability.
The Company currently markets several proprietary software products.
The Company attempts to protect its rights in its proprietary software by
retaining the title to and copyright in the software and documentation and
attempts to protect rights in all software it markets (including third-party
software) by including appropriate contractual restrictions on use and
disclosure in its licenses and by requiring its employees to execute
confidentiality agreements. However, the Company provides source code for some
of its software products to users for their internal use in connection with the
license of these products. The Company believes that, due to the rapid pace of
innovation within its industry, factors such as the technological and creative
skills of its personnel are more important in establishing and maintaining a
leadership position within the industry than are the various legal protections
of its technology. The Company believes that the nature of its customers, the
importance of the Company's products to them, and their need for continuing
product support reduce the risk of unauthorized reproduction. However, there
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can be no assurance that any such steps taken by the Company in this regard will
be adequate to deter misappropriation of its proprietary rights or independent
third-party development of functionally equivalent products.
ITEM 2. PROPERTIES
The Company's principal offices are located at 128 South Tryon Street
in Charlotte, North Carolina. The Company's lease of those premises
(approximately 124,000 square feet) expires December 31, 2000, with two
five-year renewal options thereafter. Elite maintains its offices (approximately
14,370 square feet) in Los Angeles, California under a lease that expires in
February 1998. The Company leases additional facilities in New York City, New
York; Hunt Valley, Maryland; Whistler, British Columbia -Canada and London,
England. The Company believes that its facilities are adequate for its current
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation from time to time that is
routine in nature and incidental to the conduct of business. The Company
believes that the outcome of any such litigation would not have a material
effect on the financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS' MATTERS
MARKET FOR COMMON STOCK
Since June 16, 1992, the date of the Company's initial public offering
("IPO"), its common stock, $.01 par value, (the "Common Stock") has traded on
the National Association of Securities Dealers, Inc. Nasdaq National Market
System ("Nasdaq") under the symbol BSIS. The following table shows the price
range in the Company's Common Stock for the past two fiscal years:
<TABLE>
<CAPTION>
Quarter ended 12/31/96 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $14 $14 1/8 $17 1/8 $16 1/4 $26 1/2 $30 1/8 $20 3/4 $21 5/8
Low $ 7 3/4 $ 9 1/4 $10 $10 1/2 $15 3/4 $21 $15 1/2 $17
</TABLE>
HOLDERS OF RECORD
As of March 19, 1997, there were approximately 154 holders of record of
Common Stock.
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DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain any earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Eleven months Fiscal
Years ended ended Year ended
December 31, Dec. 31, January 31,
Operations: 1996 1995 1994 1993 1993
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<S> <C> <C> <C> <C> <C>
Total revenue $ 89,351 $114,738 $132,858 $71,665 $65,610
Operating costs and expenses 99,609 $130,583 $118,983 $74,520 59,109
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Operating income (loss) (10,258) (15,845) 13,875 (2,855) 6,501
-------- -------- -------- ------- -------
Gain on disposition of non-strategic
business units 9,652
Net interest (expense) income (187) (493) (821) (25) 137
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Income (loss) before income taxes and
accounting change (793) (16,338) 13,054 (2,880) 6,638
Provision (benefit) for income taxes 1,455 (4,958) 5,858 1,298 3,215
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Income (loss) before accounting change (2,248) (11,380) 7,196 (4,178) 3,423
Effect of income tax accounting change 377
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Net income (loss) $ (2,248) $(11,380) $ 7,196 $(3,801) $ 3,423
======== ======== ======== ======= =======
Per common and common equivalent share:
Income (loss) before accounting change $ (0.25) $ (1.26) $ 0.85 $ (0.53) $ 0.51
Effect of accounting change 0.04
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Net income (loss) $ (0.25) $ (1.26) $ 0.85 $ (0.49) $ 0.51
======== ======== ======== ======= =======
Selected balance sheet data: 12/31/96 12/31/95 12/31/94 12/31/93 1/31/93
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Working capital (deficit) $ 15,907 $ 490 $ (407) $ (467) $ 6,000
Total assets 66,474 83,245 75,683 50,717 39,910
Long-term debt, including current portion 611 2,373 1,765 899
Stockholders' equity 32,190 32,437 34,780 25,087 23,567
</TABLE>
The selected financial data includes the results of acquired businesses from the
date of acquisition and, in the case of Micro/Resources, Inc. (accounted for
using the pooling of interests method), for all periods presented. The
comparability of the results of operations for the periods presented is also
impacted by dispositions of certain businesses as discussed in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 7 through 15 of the
Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
The financial statements, together with the report thereon of Price
Waterhouse LLP dated February 7, 1997 appearing on pages 16 through 32 of the
Annual Report are incorporated herein by reference.
Financial Statement Schedule:
Item 14 includes an index to the financial statement schedule.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Election of Directors" and
"Executive Officers, Compensation and Other Information" in the Proxy Statement
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Officers, Compensation and
Other Information" in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Voting Securities, Principal Holders
and Proxies" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the captions "Employment Agreements" and
"Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements, including the report thereon of
Price Waterhouse LLP dated February 7, 1997, appearing on pages 16 through 32
of the Annual Report, are incorporated herein by reference:
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2) Financial Statement Schedules.
The following schedules are filed as a part of this report:
Page
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Schedule II - Valuation and Qualifying Accounts and Reserves 17
Report of Independent Accountants on the
Financial Statement Schedule 18
All other schedules for which provision is made in the applicable
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable, or the required information is included
elsewhere in the financial statements.
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(A)(3) EXHIBITS:
Exhibit No. Description
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3.1 Restated Certificate of Incorporation of Broadway & Seymour,
Inc., date June 16, 1992 (Incorporated by reference to Exhibit
3.1 to the Registrants Annual Report on Form 10- K for the
Fiscal Year Ended January 31, 1993)
3.2 Restated By-laws of the Company (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-1, SEC File No. 33-46672)
4.1 Specimen share certificate (Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form
S-1, SEC File No. 33-46672)
4.2 Articles 4 and 5 of Broadway & Seymour, Inc.'s Restated
Certificate of Incorporation (Incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form
S-1, SEC File No. 33-46672)
4.3 Article II, Section 2.2 of the Company's Restated By-laws
(Incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-1, SEC File No. 33- 46672)
10.1** Restated 1985 Incentive Stock Option Plan of Broadway &
Seymour, Inc. dated June 12, 1985 (Incorporated by reference
to Exhibit 10.1 to the Registrant's Registration Statement on
Form S-1, SEC File No. 33-46672)
10.2** Amendment No. 1 to Restated 1985 Incentive Stock Option Plan
of Broadway & Seymour, Inc. dated February 25, 1993
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Annual Report on Form 10-K for the Fiscal Year Ended January
31, 1993)
10.3** Amendment No. 2 to Restated 1985 Incentive Stock Option Plan
of Broadway & Seymour, Inc. dated February 17, 1994
(Incorporated by reference to Exhibit 10.16 to the
Registrant's Transition Report on Form 10-K for the Eleven
Months Ended December 31, 1993)
10.4** Amendment No. 3 to Restated 1985 Incentive Stock Option Plan
of Broadway & Seymour, Inc. dated May 15, 1995 (Incorporated
by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 1995)
10.5** Broadway & Seymour, Inc. 1996 Stock Option Plan dated
September 16, 1996 (Incorporated by reference to Appendix B to
the Registrant's Definitive Proxy Statement on Form DEFS14A
dated August 14, 1996)
10.6 Limited Partnership Agreement of National Pension Alliance
dated April 8, 1994 by and among Corbel/NPA Inc., Stuart Hack
Corp. and Michael E. Callahan, Inc. (Incorporated by reference
to Exhibit 10.7 to the Registrant's Quarterly Report on Form
10-Q for the Quarter Ended September 30, 1995)
10.7 Stock Purchase Agreement dated January 10, 1994 by and among
Broadway & Seymour, Inc., certain shareholders of Elite Data
Processing, Inc. and Harvey Rich (Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated February 1, 1994)
10.8 Stock Pledge Agreement dated as of February 1, 1994 by and
among Broadway & Seymour, Inc., Alan Richeimer (a/k/a Alan
Rich) and Harvey Rich and Eva Rich, as trustees of the Harvey
and Eva Rich Family Trust created by that Trust Agreement
dated September 19,1988 (Incorporated by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K dated
February 1, 1994)
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Exhibit No. Description
----------- -----------
10.9 Asset Purchase Agreement dated as of June 9, 1995 by and among
Broadway & Seymour Inc., The MiniComputer Company of Maryland,
Inc., Robert W. Johnson, Michael W. Matthai and Robert A.
Erich, Jr. (Incorporated by reference to Exhibit 10.18 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1995)
10.10 Asset Purchase Agreement, dated as of April 10,1996 by and
between Fidelity Investments Institutional Services Company
Inc. and Broadway & Seymour, Inc., BancCorp Systems, Inc.,
Heebink Group, Inc., and National Systems Group, Inc.
(Incorporated by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8- K dated May 15, 1996)
10.11 Amendment No. 1 to Asset Purchase Agreement dated May 15, 1996
by and between Fidelity Investments Institutional Services
Company Inc. and Broadway & Seymour, Inc., BancCorp Systems,
Inc., Heebink Group, Inc., and National Systems Group, Inc.
(Incorporated by reference to Exhibit 2.1a to the Registrant's
Current Report on Form 8- K dated May 15, 1996)
10.12 Quantech License and Services Agreement, dated April 10, 1996,
by and between Fidelity Investments Institutional Services
Company, Inc. and Corbel & Company. (Incorporated by reference
to Exhibit 2.2 to the Registrant's Current Report on Form 8- K
dated May 15, 1996)
10.13 Licenses and Services Agreement, dated April 10, 1996, by and
between Fidelity Investments Institutional Services Company,
Inc. and BancCorp Systems, Inc. (Incorporated by reference to
Exhibit 2.3 to the Registrant's Current Report on Form 8- K
dated May 15, 1996)
10.14 Temporary Professional Services Agreement, dated May 15, 1996,
by and between Fidelity Investments Institutional Services
Company, Inc. and Broadway & Seymour, Inc. (Incorporated by
reference to Exhibit 2.4 to the Registrant's Current Report on
Form 8-K dated May 15, 1996)
10.15 Guaranty and Indemnity Agreement, dated April 10, 1996, by and
between Fidelity Investments Institutional Services Company,
Inc. and Broadway & Seymour, Inc. (Incorporated by reference
to Exhibit 2.5 to the Registrant's Current Report on Form 8- K
dated May 15, 1996)
10.16 Amendment No. 1 to the Guaranty and Indemnity Agreement, dated
May 15, 1996 by and between Fidelity Investments Institutional
Services Company, Inc. and Broadway & Seymour, Inc.
(Incorporated by reference to Exhibit 2.5a to the Registrant's
Current Report on Form 8-K dated May 15, 1996)
10.17 Transition Services and Support Agreement, dated May 15, 1996,
by and between Fidelity Investments Institutional Services
Company, Inc. and Broadway & Seymour, Inc. (Incorporated by
reference to Exhibit 2.6 to the Registrant's Current Report on
Form 8-K dated May 15, 1996)
10.18 Stock Purchase Agreement, dated as of November 19, 1996, by
and among Broadway & Seymour, Inc., Corbel & Co. and Sungard
Investment Ventures, Inc. (Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated November 19, 1996).
12
<PAGE> 13
Exhibit No. Description
----------- -----------
10.19** Employment Agreement dated as of September 1, 1995 by and
between Broadway & Seymour, Inc. and Alan C. Stanford
(Incorporated by reference to Exhibit 10.28 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1995)
10.20** Employment Agreement dated as of January 19, 1995 by and
between Broadway & Seymour, Inc. and David A. Finley
(Incorporated by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1995)
10.21** Retirement and Post-employment agreement as of July 15, 1996
by and between Broadway & Seymour, Inc. and William W. Neal,
III (Incorporated by reference to Exhibit 10.22 to the
Registrant's Quarterly Report on Form 10-Q for the Period
Ended September 30, 1996).
10.22** Termination Agreement dated as of March 1, 1996 by and between
Broadway & Seymour, Inc. and David Durham (Incorporated by
reference to Exhibit 10.26 to the Registrant's Annual Report
on Form 10-K for the Year Ended December 31, 1995)
11* Computation of earnings per share
13* Portions of the Registrant's 1996 Annual Report, consisting
of: Management Discussion and Analysis of Financial
Condition and Results of Operations, Financial Statements and
report thereon of Price Waterhouse LLP dated February 7, 1997
and Supplementary Data.
21* Subsidiaries of the Registrant
23* Consent of Independent Accountants dated March 24, 1997
27* Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
- --------------------
* Filed herewith.
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BROADWAY & SEYMOUR, INC.
Date: March 25, 1997 By /s/David A. Finley
------------------
David A. Finley, Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities set forth below and on the 25 day
of March 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/Alan C. Stanford Chairman of the Board, President, Chief Executive
- ------------------------------ Officer and Director
Alan C. Stanford
/s/David A. Finley Executive Vice President, Chief Financial Officer
- ------------------------------ and Director
David A. Finley
/s/William G. Seymour Vice Chairman of the Board and Secretary
- ------------------------------
William G. Seymour
/s/Roger Noall Director
- ------------------------------
Roger Noall
/s/George L. McTavish Director
- ------------------------------
George L. McTavish
/s/Steven S. Elbaum Director
- ------------------------------
Steven S. Elbaum
/s/Robert J. Kelly Director
- ------------------------------
Robert J. Kelly
/s/Robert J. Levenson Director
- ------------------------------
Robert J. Levenson
</TABLE>
14
<PAGE> 15
ITEM 14(2) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES:
BROADWAY & SEYMOUR, INC.
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additions/
Balance at (reductions) Balance at
beginning charged to end
of period expense Deductions Other of period
--------- ------- ---------- ----- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts (shown
as a deduction from receivables)
December 31, 1996 $941 $1,076 $1,125 $-- $892
December 31, 1995 563 632 323 69(1) 941
December 31, 1994 224 496 453 296(2) 563
Reserve against long-term assets (shown
as a deduction from other assets)
December 31, 1996 $250 $ -- $ 250 $--
December 31, 1995 123 127 250
December 31, 1994 175 $ 52 123
</TABLE>
(1) Relates to balance at date of acquisition of acquired companies.
(2) Includes $294,000 related to balances at dates of acquisition of
acquired companies.
(3) Relates to balance at date of acquisition of acquired company.
15
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENTS SCHEDULE
To the Board of Directors and Stockholders
of Broadway & Seymour, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 7, 1997 appearing on page 32 of the Company's Annual Report
(which is incorporated by reference in this Form 10-K) also included an audit of
the Financial Statement Schedule listed in Item 14 (a)(2) of this Form 10-K. In
our opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth herein when read in conjunction with the
related consolidated financial statements.
Price Waterhouse LLP
Charlotte, North Carolina
February 7, 1997
16
<PAGE> 17
INDEX TO EXHIBITS
(A)(3) EXHIBITS:
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit No. Description Page Number
</TABLE>
3.1 Restated Certificate of Incorporation of Broadway & Seymour,
Inc., date June 16, 1992 (Incorporated by reference to Exhibit
3.1 to the Registrants Annual Report on Form 10-K for the
Fiscal Year Ended January 31, 1993)
3.2 Restated By-laws of the Company (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-1, SEC File No. 33-46672)
4.1 Specimen share certificate (Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form
S-1, SEC File No. 33-46672)
4.2 Articles 4 and 5 of Broadway & Seymour, Inc.'s Restated
Certificate of Incorporation (Incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form
S-1, SEC File No. 33-46672)
4.3 Article II, Section 2.2 of the Company's Restated By-laws
(Incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-1, SEC File No. 33- 46672)
10.1** Restated 1985 Incentive Stock Option Plan of Broadway &
Seymour, Inc. dated June 12, 1985 (Incorporated by reference
to Exhibit 10.1 to the Registrant's Registration Statement on
Form S-1, SEC File No. 33-46672)
10.2** Amendment No. 1 to Restated 1985 Incentive Stock Option Plan
of Broadway & Seymour, Inc. dated February 25, 1993
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Annual Report on Form 10-K for the Fiscal Year Ended January
31, 1993)
10.3** Amendment No. 2 to Restated 1985 Incentive Stock Option Plan
of Broadway & Seymour, Inc. dated February 17, 1994
(Incorporated by reference to Exhibit 10.16 to the
Registrant's Transition Report on Form 10-K for the Eleven
Months Ended December 31, 1993)
10.4* Amendment No. 3 to Restated 1985 Incentive Stock Option Plan
of Broadway & Seymour, Inc. dated May 15, 1995 (Incorporated
by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 1995)
10.5** Broadway & Seymour, Inc. 1996 Stock Option Plan dated
September 16, 1996 (Incorporated by reference to Appendix B to
the Registrant's Definitive Proxy Statement on Form DEFS14A
dated August 14, 1996)
10.6 Limited Partnership Agreement of National Pension Alliance
dated April 8, 1994 by and among Corbel/NPA Inc., Stuart Hack
Corp. and Michael E. Callahan, Inc. (Incorporated by reference
to Exhibit 10.7 to the Registrant's Quarterly Report on Form
10-Q for the Quarter Ended September 30, 1995)
10.7 Stock Purchase Agreement dated January 10, 1994 by and among
Broadway & Seymour, Inc., certain shareholders of Elite Data
Processing, Inc. and Harvey Rich (Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated February 1, 1994)
17
<PAGE> 18
10.8 Stock Pledge Agreement dated as of February 1, 1994 by and
among Broadway & Seymour, Inc., Alan Richeimer (a/k/a Alan
Rich) and Harvey Rich and Eva Rich, as trustees of the Harvey
and Eva Rich Family Trust created by that Trust Agreement
dated September 19,1988 (Incorporated by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K dated
February 1, 1994)
10.9 Asset Purchase Agreement dated as of June 9, 1995 by and among
Broadway & Seymour Inc., The MiniComputer Company of Maryland,
Inc., Robert W. Johnson, Michael W. Matthai and Robert A.
Erich, Jr. (Incorporated by reference to Exhibit 10.18 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1995)
10.10 Asset Purchase Agreement, dated as of April 10,1996 by and
between Fidelity Investments Institutional Services Company
Inc. and Broadway & Seymour, Inc., BancCorp Systems, Inc.,
Heebink Group, Inc., and National Systems Group, Inc.
(Incorporated by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8- K dated May 15, 1996)
10.11 Amendment No. 1 to Asset Purchase Agreement dated May 15, 1996
by and between Fidelity Investments Institutional Services
Company Inc. and Broadway & Seymour, Inc., BancCorp Systems,
Inc., Heebink Group, Inc., and National Systems Group, Inc.
(Incorporated by reference to Exhibit 2.1a to the Registrant's
Current Report on Form 8- K dated May 15, 1996)
10.12 Quantech License and Services Agreement, dated April 10, 1996,
by and between Fidelity Investments Institutional Services
Company, Inc. and Corbel & Company. (Incorporated by reference
to Exhibit 2.2 to the Registrant's Current Report on Form 8- K
dated May 15, 1996)
10.13 Licenses and Services Agreement, dated April 10, 1996, by and
between Fidelity Investments Institutional Services Company,
Inc. and BancCorp Systems, Inc. (Incorporated by reference to
Exhibit 2.3 to the Registrant's Current Report on Form 8- K
dated May 15, 1996)
10.14 Temporary Professional Services Agreement, dated May 15, 1996,
by and between Fidelity Investments Institutional Services
Company, Inc. and Broadway & Seymour, Inc. (Incorporated by
reference to Exhibit 2.4 to the Registrant's Current Report on
Form 8-K dated May 15, 1996)
10.15 Guaranty and Indemnity Agreement, dated April 10, 1996, by and
between Fidelity Investments Institutional Services Company,
Inc. and Broadway & Seymour, Inc. (Incorporated by reference
to Exhibit 2.5 to the Registrant's Current Report on Form 8- K
dated May 15, 1996)
10.16 Amendment No. 1 to the Guaranty and Indemnity Agreement, dated
May 15, 1996 by and between Fidelity Investments Institutional
Services Company, Inc. and Broadway & Seymour, Inc.
(Incorporated by reference to Exhibit 2.5a to the Registrant's
Current Report on Form 8-K dated May 15, 1996)
10.17 Transition Services and Support Agreement, dated May 15, 1996,
by and between Fidelity Investments Institutional Services
Company, Inc. and Broadway & Seymour, Inc. (Incorporated by
reference to Exhibit 2.6 to the Registrant's Current Report on
Form 8-K dated May 15, 1996)
18
<PAGE> 19
10.18 Stock Purchase Agreement, dated as of November 19, 1996, by
and among Broadway & Seymour, Inc., Corbel & Co. and Sungard
Investment Ventures, Inc. (Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated November 19, 1996).
10.19** Employment Agreement dated as of September 1, 1995 by and
between Broadway & Seymour, Inc. and Alan C. Stanford
(Incorporated by reference to Exhibit 10.28 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1995)
10.20** Employment Agreement dated as of January 19, 1995 by and
between Broadway & Seymour, Inc. and David A. Finley
(Incorporated by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the Year Ended
December 31, 1995)
10.21** Retirement and Post-employment agreement as of July 15, 1996
by and between Broadway & Seymour, Inc. and William W. Neal,
III (Incorporated by reference to Exhibit 10.22 to the
Registrant's Quarterly Report on Form 10-Q for the Period
Ended September 30, 1996).
10.22** Termination Agreement dated as of March 1, 1996 by and between
Broadway & Seymour, Inc. and David Durham (Incorporated by
reference to Exhibit 10.26 to the Registrant's Annual Report
on Form 10-K for the Year Ended December 31, 1995)
11* Computation of earnings per share
13* Portions of the Registrant's 1996 Annual Report, consisting
of: Management Discussion and Analysis of Financial
Condition and Results of Operations, Financial Statements and
report thereon of Price Waterhouse LLP dated February 7, 1997
and Supplementary Data.
21* Subsidiaries of the Registrant
23* Consent of Independent Accountants dated March 24, 1997.
27* Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
- --------------------
* Filed herewith.
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit.
19
<PAGE> 1
EXHIBIT 11
BROADWAY & SEYMOUR, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) ($2,248) ($11,380) $7,196
======= ======== ======
Primary earnings per share:
Weighted average common shares outstanding 8,914 8,606 8,043
Addition from assumed exercise of stock options 434 379
Addition from assumed stock bonus awards 3 40
Addition from assumed participation in employee
stock purchase plan 5
------- -------- ------
Weighted average common and common equivalent
shares outstanding 8,914 9,043 8,467
======= ======== ======
Net income (loss) per common and common equivalent share ($ 0.25) ($ 1.26) $ 0.85
======= ======== ======
Fully diluted earnings per share:
Weighted average common shares outstanding 8,914 8,606 8,043
Addition from assumed exercise of stock options 452 422
Addition from assumed stock bonus awards 3 40
Addition from assumed participation in employee
stock purchase plan 50
------- -------- ------
Weighted average common and common equivalent
shares outstanding 8,914 9,061 8,555
======= ======== ======
Net income (loss) per common and common equivalent share ($ 0.25) ($ 1.26) $ 0.84
======= ======== ======
</TABLE>
20
<PAGE> 1
EXHIBIT 13
Broadway and Seymour, Inc.
FINANCIAL TABLE OF CONTENTS
<TABLE>
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 7
Consolidated Statement of Operations........................................................................ 16
Consolidated Balance Sheet.................................................................................. 17
Consolidated Statement of Changes in Stockholders' Equity................................................... 18
Consolidated Statement of Cash Flows........................................................................ 19
Notes to the Consolidated Financial Statements.............................................................. 20
Report of Independent Accountants........................................................................... 32
</TABLE>
6
<PAGE> 2
Broadway and Seymour, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Broadway and Seymour, Inc. (the "Company") provides integrated
business solutions and systems integration services for the financial
services industry and time and practice management systems for the
legal and professional services industries. Beginning in mid 1995 and
through 1996, the Company performed an extensive analysis of its
business activities, and as a result, the Company disposed of those
activities that were inconsistent with the new strategic direction of
the Company.
Management has presented the following discussion and analysis
in a way which it believes best presents the significant events and
trends affecting the Company's results of operations. Significant
transactions impacting the Company's historical financial results in
1996 and 1995 have been separately highlighted and a comparative
discussion and analysis of the Company's operating results has been
provided.
In 1996, the Company generated a consolidated operating loss
of approximately $10.3 million, reflecting improvement from the 1995
operating loss of approximately $15.8 million. In addition, the 1996
fourth quarter operating results were at approximately break-even.
Including the effect of gains related to the sales of Corbel & Co.
("Corbel") and the Asset Management Services Group ("AMSG") described
below, the 1996 fourth quarter net income was $1.1 million or $.13 per
share.
SIGNIFICANT TRANSACTIONS
The following is a brief summary of the significant
acquisitions and dispositions that have had a material effect on the
Company's historical operating results and financial condition. See the
notes to the Company's Consolidated Financial Statements, included
herein, for additional discussion related to such transactions.
ACQUISITIONS
In June 1995, the Company acquired The MiniComputer Company of
Maryland, Inc. ("TMC"). TMC provides proprietary time and billing
software, custom programming services and other computer related
services primarily to law firms. Operationally, TMC is part of the
Company's Elite Information Systems, Inc. ("Elite") subsidiary.
In January 1995, the Company acquired EBG & Associates, Inc.
("EBG") and BancCorp Systems, Inc. ("BancCorp") in unrelated
transactions. EBG was later sold as a part of the sale of Corbel
described below and BancCorp was later sold as a part of the sale of
AMSG described below.
In September 1994, the Company acquired Micro/Resources, Inc.
("MRI"). MRI provides the proprietary CRISP(TM) product family, an
integrated decision-support platform, and related services to
commercial and private banks in the United States. MRI operations were
subsequently relocated and merged with existing operations at the
Company's headquarters in Charlotte, NC.
In February 1994, the Company acquired Elite which provides
proprietary Elite Billing System software, a comprehensive accounting
and information management software package, and other software, to law
firms and other professional services firms in the United States and
Europe.
7
<PAGE> 3
Broadway and Seymour, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
DISPOSITIONS
In November 1996, the Company sold its wholly owned
subsidiary, Corbel, which included EBG, resulting in a gain of $.9
million. Corbel contributed revenue of $17.4 million in 1996 (prior to
the sale), $18.5 million in 1995 and $20 million in 1994. Operating
income from Corbel was $3.4 million in 1996 (prior to the sale), $2.4
million in 1995 and $5.7 million in 1994. Revenue and operating income
for 1996 include a one-time software license fee of $5.0 million from a
single transaction. Excluding the $5.0 million, 1996 revenues decreased
$6.1 million from the prior year and the 1996 operating loss would have
been $1.6 million. This decrease in revenue and operating income are
due in part to 1996 including only eleven months of operations,
compared to twelve months in 1995, and also to lower pension document
processing volumes in 1996.
In August 1996, the Company developed a plan to close its
National Pension Alliance ("NPA") business. NPA is a partnership of
which Corbel/NPA, Inc., a wholly owned subsidiary of the Company, is a
75% general partner. Following a transition period for NPA customers,
the operations of NPA will cease. For the years ended December 31,
1996, 1995 and 1994, NPA had revenue of $.6 million, $.8 million and
$.2 million, respectively, and a loss before restructuring charges of
$2.3 million, $2.2 million and $.6 million, respectively. See
"Impairment of Long-Term Assets and Restructuring of Operations" below.
In May 1996, the Company sold AMSG, which included BancCorp.
The gain on the sale of AMSG was $8.7 million. AMSG contributed revenue
of $5.8 million in 1996 (prior to the sale), $15.5 million in 1995 and
$10.9 million in 1994. Operating losses from AMSG were $2.8 million in
1996 (prior to the sale), $9.3 million in 1995 and $1.2 million in
1994. In addition, subsequent to the sale of AMSG, the Company recorded
an additional $4.0 million of non-recurring revenue, and approximately
$3 million of related expense, for certain professional and transition
services provided to the purchaser of AMSG under agreements entered
into at the time of the sale. The decreases in revenue and operating
losses from 1995 to 1996 are principally due to the inclusion of AMSG
operations for twelve months in 1995 compared to five months in 1996.
In September 1995, the Company transferred a contract for
services provided to International Business Machines Corporation
("IBM") to another service provider and recorded $.9 million of revenue
with substantially no associated expense. Prior to the transfer,
services provided under this contract in 1995 contributed approximately
$1.9 million of revenue and incurred costs of $1.6 million.
In June 1995, the Company sold its wholly owned subsidiary,
Liberty Software, Inc. ("Liberty"), and during 1995 the Company
received approximately $9.5 million related to certain software
license fees,software maintenance and transition services provided to
the purchaser of Liberty, against which the Company incurred
substantially no expense. The Company received a final payment of
$.5 million in March 1996. In 1995, prior to the sale, Liberty
revenue was $10.1 million and operating income was $.4 million.
In December 1994, the Company sold rights to its Gateway
imaging and document conversion operations ("Gateway"). During 1995,
the purchaser paid $6.8 million to the Company under the maintenance
provisions of a software license agreement. The $6.8 million in
maintenance revenue recorded in 1995 had substantially no associated
expense.
8
<PAGE> 4
Broadway and Seymour, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Because of the significant impact of the transactions
discussed above, a comparison of the historical results of operations
for 1996 to those of 1995 may not be meaningful. Accordingly the
following table has been included to facilitate discussion and
analysis of the results of operations for the Company's ongoing
business.
<TABLE>
<CAPTION>
Revenue and Cost of Revenue 1996 1995
--------------------------------------------------------------------------------------------------
(In thousands, unaudited)
<S> <C> <C>
Net revenue from ongoing business, excluding NPA $60,977 $ 50,743
Net revenue from NPA 592 817
Non-recurring net revenue from Corbel, AMSG, Liberty, Gateway
maintenance and IBM services contract 27,782 63,178
--------------------------------------------------------------------------------------------------
Consolidated net revenue $89,351 $114,738
--------------------------------------------------------------------------------------------------
Cost of revenue from ongoing business, excluding NPA $47,924 $ 48,005
Cost of revenue from NPA 2,117 2,130
Non-recurring cost of revenue from Corbel, AMSG, Liberty,
Gateway maintenance and IBM services contract 19,660 43,472
--------------------------------------------------------------------------------------------------
Consolidated cost of revenue $69,701 $ 93,607
==================================================================================================
</TABLE>
Net revenue from the Company's ongoing business, excluding
NPA, increased $10.2 million from 1995 to 1996. Of this increase, $8.5
million is attributed to the Company's Customer and Financial Solutions
group. This increase is principally due to TouchPoint(TM) and
VisualImpact(TM), under development in prior years, and other
solutions, which contributed revenue in excess of $8.1 million in 1996.
In addition, the Company recognized $4.0 million of software license
revenue in 1996 from a significant new contract with a single customer.
The Company recorded substantially no incremental expense associated
with this $4.0 million of license revenue. Other changes in the
Customer and Financial Solutions group revenue were due to changes in
specific year to year engagements with customers, based on contractual
agreements to provide solutions and license certain intellectual
properties. Revenue from Elite remained flat in 1996, when compared to
1995. Revenue from the Company's TMC subsidiary in 1996 was $1.7
million more than 1995, due to the inclusion of TMC's operations,
acquired in June 1995, for twelve months in 1996 compared to six months
in 1995.
Cost of revenue from the Company's ongoing business, excluding
NPA, remained relatively flat in 1996 compared to 1995, however, 1995
included $5.2 million related to an accrual for estimated contract
losses. Excluding these contract losses, the 1995 margins on revenue
from ongoing business were $7.9 million or 15.6% compared to $13.1
million or 21.4% in 1996. This improvement in margin is principally the
result of the Company's late 1995 change in its focus to core
operations, integration of independent business units and
implementation of a new project management process, including pricing
guidelines.
Research and development expenses decreased to $5.8 million in
1996 from $6.7 million in 1995, principally due to the sale of Corbel.
These amounts are net of capitalized development costs which were $1.6
million and $2.2 million in 1996 and 1995, respectively. Including
capitalized costs, research and development costs were $7.4 million or
8.3% of
9
<PAGE> 5
Broadway and Seymour, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
consolidated revenue in 1996, compared to $8.9 million or 7.8% of
consolidated revenue in 1995. Research and development costs
incurred in 1996 and 1995 relate to the Company's BANCStar(R),
CRISP(TM), BANCStar Prism(TM), TouchPoint(TM), VisualImpact(TM) and
Elite Billing System solutions.
Sales and marketing expenses decreased $3.8 million from 1995
to 1996. Of this decrease, $3.1 million is due to the sales of Corbel
and AMSG in 1996 and the sale of Liberty in 1995. In addition, in
connection with its reorganization in the fourth quarter of 1995, the
Company integrated independent business units and changed its focus to
core operations, resulting in a realignment of the sales and marketing
department personnel.
General and administrative expenses decreased $1.8 million
from 1995 to 1996. Of this decrease, $.4 million is due to the sales of
Corbel and AMSG in 1996 and the sale of Liberty in 1995 and $.8 million
is due to expense recoveries related to transition services provided to
the purchaser of AMSG in 1996. In addition, in 1995 the Company
incurred $.6 million of non-recurring consulting fees related to the
Company's reengineering efforts and the Company's strategic planning
process.
Restructuring and impairment charges in 1996 include exit
costs related to the Company's plan to close NPA. Restructuring and
impairment charges in 1995 included provisions for asset write-downs
related to a product line, costs for office space reduction and
employee severance costs. For further discussion, see "Impairment of
Long-Term Assets and Restructuring of Operations" below.
The increase in cash and cash equivalents and the repayment of
the Company's credit facility during the year caused the Company's net
interest expense for 1996 to decrease to $.2 million from $.5 million
in the prior year.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
As a result of the acquisitions and dispositions and related
non-recurring transactions described above and more fully described in
the notes to the Company's Consolidated Financial Statements, a
comparison of the results of operations of 1995 to 1994 may not be
meaningful.
During 1995, the Company's revenue decreased 14% to $114.7
million from $132.9 million in 1994. The majority of the decrease was
related to the sale of Gateway in the fourth quarter of 1994 and the
sale of Liberty in the second quarter of 1995.
During 1994, Gateway and Liberty contributed approximately $30
million and $21 million of revenue, respectively. During 1995, Gateway
and Liberty contributed revenue of approximately $6.8 million and $19.6
million, respectively. Included in 1995 Liberty revenue are
non-recurring software license, maintenance and service fees of
approximately $9.5 million related to products and services sold to the
purchaser of Liberty. The Company incurred no significant expenses
associated with the $9.5 million and $6.8 million received in 1995 from
the Gateway and Liberty transactions, respectively. Also included in
1995 revenue is the proceeds from the sale of the IBM services contract
to another service provider whereby the Company recorded $.9 million of
revenue with substantially no associated expense. These decreases in
revenue were offset, in part, by revenue added through the acquisitions
of BancCorp, EBG and TMC, which contributed an increase of
10
<PAGE> 6
Broadway and Seymour, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
approximately $4.2 million. These decreases were further offset by
approximately $4.5 million related to increased sales of Elite products
and the inclusion of Elite's operations, acquired in February 1994, for
twelve months in 1995 compared to eleven months in 1994.
The Company's cost of revenue increased by $3.2 million in
1995 compared with 1994. A portion of this increase related to
increased staffing and subcontractor costs. The Company staffed
projects on an as-needed basis, by hiring the additional personnel
necessary to complete executed contracts. At times, these personnel
were underutilized due to the variable nature of the Company's
long-term projects. In these cases, the Company continued to incur
personnel costs when there was no incoming revenue. A portion of this
increase was related to the accrual of estimated liabilities for
contract losses of $5.2 million during the fourth quarter of 1995. Of
this accrual, $3.2 million related to an imaging product contract for a
customer that was originally scheduled for completion during the fourth
quarter of 1995. Certain testing related to the implementation of this
imaging system revealed significant problems with modules of the
installed product, requiring additional work to achieve contracted
performance requirements. The additional $2 million in contract loss
accruals was related to several different product/service solutions and
contracts, each of which, when taken individually, was not material to
the increase in cost of revenue.
Cost of revenue for 1995 also reflected the Company's
continued funding of its investment in NPA. Expenses related to the
funding of NPA's cost of revenue in 1995 increased to approximately
$2.1 million. Also included in 1995 cost of revenue was a $2.6 million
non-cash charge related to the accelerated amortization expense of
software acquired in the BancCorp acquisition. Also adding incremental
costs to 1995 were the acquisitions of TMC, BancCorp, and EBG.
These increases in cost of revenue were offset, in part, by
decreases related to the Gateway transaction, the sale of Liberty and
the sale of the IBM service contract.
During 1995, the Company's research and development expenses
increased by $2.3 million or 53%. A significant portion of these
expenditures was related to the development of the TouchPoint solution,
the development of the graphical user interface of the CRISP solution,
the development and introduction of the VisualImpact check imaging
system and enhancements to existing solutions. The Company's
capitalization of software development costs decreased in 1995 as the
Company focused its efforts, to a greater extent, on maintenance of
existing products lines. This, combined with the sale of Gateway in
December 1994 and the sale of Liberty in June 1995, contributed to the
decreased capitalization for 1995. Research and development expenses in
1995 were net of $2.2 million of capitalized software development
costs, compared to $3.1 million in 1994. Including capitalized costs,
research and development expenditures increased 19% to $8.9 million, or
7.8% of revenue. Capitalized software development costs primarily
related to development of and enhancements to the Company's CRISP,
BANCStar, BANCStar Prism, Quantech, Elite Billing System and NPA
solutions.
The Company's sales and marketing expenditures increased 3% in
1995 to $15.8 million. Expected decreases in sales and marketing
expenditures due to the Liberty and Gateway transactions were offset by
increased costs associated with marketing systems integration services,
AMpreferred and the Elite Billing System software. In addition,
the acquisition of TMC, BancCorp and EBG in 1995 contributed
incremental expenses of $.6 million.
11
<PAGE> 7
Broadway and Seymour, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
General and administrative expenses increased to $11.6 million
in 1995 from $8.8 million in 1994, an increase of 31%. As a percentage
of revenue, general and administrative costs increased from 7% in 1994
to 10% in 1995. The increase was due, in part, to the acquisition of
BancCorp, EBG and TMC, which added $1.8 million of incremental expenses
and $.8 million of increased executive costs. Also included in 1995
general and administrative expenses were approximately $.3 million of
costs related to an acquisition abandoned in the fourth quarter and $.6
million of consulting costs related to the Company's reengineering
efforts and strategic planning process.
Operating results in 1995 included a $2.9 million
restructuring and impairment charge which consisted of provisions for
asset write-downs related to a product line, costs for office space
reduction and employee severance costs. See "Impairment of Long-Term
Assets and Restructuring of Operations" below.
The Company had net interest expense of $.5 million in 1995
compared to $.8 million in 1994 due primarily to the repayment of its
bank credit facility and certain notes payable with proceeds from the
Gateway transaction on December 30, 1994. The decrease in interest
expense associated with these repayments was offset by promissory notes
issued in connection with the acquisitions of BancCorp and TMC and
increased borrowings under the Company's bank credit facility to fund
increased working capital requirements, capital expenditures and
software development costs.
IMPAIRMENT OF LONG-TERM ASSETS AND RESTRUCTURING OF OPERATIONS
The Company continually monitors conditions that may affect
the carrying value of its capitalized software costs and intangible
assets. When conditions indicate potential impairment of such assets,
the Company undertakes necessary market and technology studies and
reevaluates projected future earnings associated with these assets.
When projected future cash flows, not discounted for the time value of
money, are less than the carrying value of the asset, the impaired
asset is written down to its fair value.
In August 1996, the Company developed a plan to close NPA.
Following a transition period for NPA customers, the operations of NPA
will cease. For the years ended December 31, 1996, 1995 and 1994, NPA
had revenue of $.6 million, $.8 million and $.2 million, respectively,
and a loss before restructuring charges of $2.3 million, $2.2 million
and $.6 million, respectively. In 1996, the Company reserved
approximately $2.5 million related to the exit costs of NPA, including
$1.3 million for customer refunds, $.8 million related to asset
write-offs and other exit costs and $.4 million related to employee
terminations. As of December 31, 1996, $1.3 million, related
principally to customer refunds and asset write-offs had been charged
against the reserve, leaving an accrual of $1.2 million. The exit plan
is expected to be completed in 1997.
The results of operations for 1995 included a non-recurring
charge of $2.9 million, which consisted of a $1.5 million restructuring
charge and $1.4 million in impairment of intangible assets related to
the TMC acquisition.
The $1.5 million restructuring charge consisted of
approximately $1.0 million for the consolidation of certain facilities
and approximately $.5 million for severance costs for employees who
have been terminated. During 1996, the Company reduced its estimate of
the remaining costs to complete the restructuring by $.2 million.
During the years ended
12
<PAGE> 8
Broadway and Seymour, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
December 31, 1996 and 1995, the Company utilized cash of approximately
$.8 million and $.1 million, respectively, to satisfy obligations
related to these reserves. The reserve balance was approximately
$.4 million at December 31, 1996.
The $1.4 million write-down of intangible assets was related
to customer list and assembled workforce intangibles acquired in
connection with the acquisition of TMC. Based on revised estimates of
the number and rate of conversions from TMC software to Elite software
and lower than expected operating results from this acquisition,
management determined that these intangible assets were impaired. Using
discounted cash flows as an estimate of net realizable value, the
Company adjusted the carrying value of these intangible assets to
approximately $.5 million at December 31, 1995.
In September 1995, the Company undertook a technology study to
evaluate the viability of Trust Processor, BancCorp's DOS-based trust
accounting software product. This analysis indicated that a complete
re-write of the existing software was necessary to develop a
Windows-based application that would be competitive in the larger
financial institution market. Using the projected cash flows as an
estimate of net realizable value, the Company wrote-off unamortized
software costs of $2.6 million in the fourth quarter of 1995. The $2.6
million of accelerated amortization of software cost is included in
1995 cost of revenue.
The Company is not aware of any other market or technology
trends that would adversely affect the carrying value of its software
costs and other intangible assets. However, the Company operates in
markets characterized by innovation and rapid technological advances,
and no assurance can be given that changes in the marketplace would not
impair the carrying value of the Company's software costs and other
intangible assets.
INCOME TAXES
The provisions for income taxes of $1.5 million (183% of the
pre-tax loss) in 1996 and $5.9 million (45% of pre-tax income) in
1994, exceed the income tax expense at the statutory rates for these
periods primarily due to the permanent differences of non-deductible
goodwill amortization and state income taxes. The 1995 income tax
benefit of $5.0 million is a direct result of the 1995 pre-tax loss.
This benefit was offset, in part, by the permanent difference of
non-deductible amortization of goodwill. The Company believes that the
effective tax rate in 1997 will remain higher than the statutory rate
due to the ongoing non-deductible goodwill amortization associated with
the Company's acquisitions.
The net operating loss ("NOL") generated during 1995 was
carried back to decrease tax liabilities in prior years, resulting in a
refund of $.5 million. In addition, the Company has NOLs for state
income tax purposes of $11.4 million available for use in numerous
states. Due to certain limitations, a valuation allowance has been
recorded against the deferred tax assets arising from the state NOLs.
QUARTERLY RESULTS OF OPERATIONS
Note 14 to the Company's Consolidated Financial Statements
included herein sets forth unaudited quarterly operating results for
the four fiscal quarters of 1996 and 1995. The Company believes that
all necessary adjustments have been included to present fairly its
quarterly results when read in conjunction with the financial
statements, including the notes thereto. Results of operations for any
particular fiscal quarter are not necessarily indicative of results of
13
<PAGE> 9
Broadway and Seymour, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
operations for any future period. Due to the significant impact of the
transactions discussed above, a comparison of the historical results of
operations of the 1996 quarters to the quarters of 1995 may not be a
meaningful indicator of future performance.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 1996, the Company had cash and cash
equivalents of $15 million and working capital of $15.9 million. The
Company used a portion of the $13.5 million of proceeds from the sale
of Corbel to fund working capital requirements and pay certain
expenses. The Company also used a portion of the proceeds from the AMSG
transaction to pay off its revolving credit facility, which expired in
May 1996, and certain other debt. The Company has reviewed its
liquidity and capital requirements and believes that the remaining
proceeds from the Corbel and AMSG transactions, cash flow from
operations and the issuance of stock pursuant to its employee stock
purchase and stock option plans will be sufficient to fund its working
capital and capital expenditure requirements through 1997.
OTHER
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of." This statement addresses the accounting for the
impairment, if any, of the Company's long-lived assets, identifiable
intangibles and goodwill relating to those assets. Adoption of this
standard did not have a material impact on the consolidated financial
statements of the Company.
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." This statement addresses the accounting for
the compensatory effect of certain stock-based transactions. Upon
adoption, as allowed under SFAS 123, the Company elected to only
disclose the impact of stock-based compensation in its footnotes to its
financial statements, measured using the fair value approach required
under SFAS 123, and to exclude the impact from its recorded earnings.
Adoption of this standard did not have a material impact on the
consolidated financial statements of the Company.
Information or statements contained in this report, other than
historical information, should be considered forward-looking in nature
and subject to various risks and uncertainties. For instance, the
Company's strategies and expectations discussed in this report and the
Company's other filings with the Securities and Exchange Commission
involve risks of competition, changing market conditions, changes in
laws and regulations affecting the Company's industry and numerous
other factors. Accordingly, actual results may differ materially from
those set forth in any such forward-looking information or statements.
14
<PAGE> 10
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Eleven months Fiscal
Years ended ended Year ended
December 31, Dec. 31, January 31,
Operations: 1996 1995 1994 1993 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 89,351 $114,738 $132,858 $71,665 $65,610
Operating costs and expenses 99,609 $130,583 $118,983 $74,520 59,109
-------- -------- -------- ------- -------
Operating income (loss) (10,258) (15,845) 13,875 (2,855) 6,501
-------- -------- -------- ------- -------
Gain on disposition of non-strategic
business units 9,652
Net interest expense (187) (493) (821) (25) 137
-------- -------- -------- ------- -------
Income (loss) before income taxes and
accounting change (793) (16,338) 13,054 (2,880) 6,638
Provision (benefit) for income taxes 1,455 (4,958) 5,858 1,298 3,215
-------- -------- -------- ------- -------
Income (loss) before accounting change (2,248) (11,380) 7,196 (4,178) 3,423
Effect of income tax accounting change 377
-------- -------- -------- ------- -------
Net income (loss) $ (2,248) $(11,380) $ 7,196 $(3,801) $ 3,423
======== ======== ======== ======= =======
Per common and common equivalent share:
Income (loss) before accounting change $ (0.25) $ (1.26) $ 0.85 $ (0.53) $ 0.51
Effect of accounting change 0.04
-------- -------- -------- ------- -------
Net income (loss) $ (0.25) $ (1.26) $ 0.85 $ (0.49) $ 0.51
======== ======== ======== ======= =======
Selected balance sheet data: 12/31/96 12/31/95 12/31/94 12/31/93 1/31/93
-------- -------- -------- -------- -------
Working capital (deficit) $ 15,907 $ 490 $ (407) $ (467) $ 6,000
Total assets 66,474 83,245 75,683 50,717 39,910
Long-term debt, including current portion 611 2,373 1,765 899
Stockholders' equity 32,190 32,437 34,780 25,087 23,567
</TABLE>
The selected financial data includes the results of acquired businesses from
the date of acquisition and in the case of Micro/Resources, Inc. (accounted for
using the pooling of interests method), for all periods presented. The
comparability of the results of operations for the periods presented is also
impacted by dispositions of certain business as discussed in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
MARKET FOR COMMON STOCK
Since June 16, 1992, the date of the Company's initial public offering
("IPO"), its common stock, $.01 par value, (the "Common Stock") has traded on
the National Association of Securities Dealers, Inc. Nasdaq National Market
System ("Nasdaq") under the symbol BSIS. The following table shows the price
range in the Company's Common Stock for the past two fiscal years:
<TABLE>
<CAPTION>
Quarter ended 12/31/96 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $14 $14 1/8 $17 1/8 $16 1/4 $26 1/2 $30 1/8 $20 3/4 $21 5/8
Low $ 7 3/4 $ 9 1/4 $10 $10 1/2 $15 3/4 $21 $15 1/2 $17
</TABLE>
15
<PAGE> 11
Broadway and Seymour, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
NET REVENUE $ 89,351 $114,738 $132,858
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Cost of revenue 69,701 93,607 90,425
Research and development 5,830 6,729 4,389
Sales and marketing 11,958 15,760 15,357
General and administrative 9,801 11,566 8,812
Restructuring and impairment charges 2,319 2,921
- ---------------------------------------------------------------------------------------------------------------
Total operating expenses 99,609 130,583 118,983
- ---------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (10,258) (15,845) 13,875
Gain on disposition of non-strategic business units 9,652
Interest income 260 93 63
Interest expense (447) (586) (884)
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (793) (16,338) 13,054
Income tax provision (benefit) 1,455 (4,958) 5,858
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,248) $(11,380) $ 7,196
===============================================================================================================
Net income (loss) per common and common equivalent share $ (0.25) $ (1.26) $ 0.85
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 12
Broadway and Seymour, Inc.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As of December 31,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C>
ASSETS CURRENT ASSETS:
Cash and cash equivalents $15,010 $ 2,053
Receivables 25,706 28,233
Income tax refund receivable 2,100
Inventories 890 417
Deferred income taxes 4,417 4,934
Other current assets 1,308 1,381
------------------------------------------------------------------------------------------------------
Total current assets 47,331 39,118
Property and equipment, net 6,291 9,299
Software costs 4,748 9,865
Intangible assets 7,346 24,578
Other assets 758 385
------------------------------------------------------------------------------------------------------
$66,474 $83,245
======================================================================================================
LIABILITIES AND CURRENT LIABILITIES:
STOCKHOLDERS' Notes payable and current portion of long-term debt $ 473 $ 6,263
EQUITY Accounts payable-trade 5,836 6,408
Accrued compensation 2,615 2,796
Estimated liabilities for contract losses 2,922 5,246
Other accrued liabilities 4,554 5,079
Deferred revenue 12,476 12,561
Income taxes payable 2,548 275
------------------------------------------------------------------------------------------------------
Total current liabilities 31,424 38,628
------------------------------------------------------------------------------------------------------
Long-term debt 138 1,327
------------------------------------------------------------------------------------------------------
Deferred income taxes 2,557 7,096
------------------------------------------------------------------------------------------------------
Deferred revenue and other liabilities 165 3,757
------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; Authorized 20,000,000 shares;
Issued 8,988,608 and 8,801,016 shares for 1996 and 1995, respectively 90 88
Paid-in capital 36,276 34,277
Accumulated deficit (3,684) (1,436)
------------------------------------------------------------------------------------------------------
32,682 32,929
Treasury stock, at cost, 38,552 shares (492) (492)
------------------------------------------------------------------------------------------------------
Total stockholders' equity 32,190 32,437
------------------------------------------------------------------------------------------------------
$66,474 $83,245
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 13
Broadway and Seymour, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
earnings
Common Stock Paid-in (accumulated Treasury Stock
Shares Par Value capital deficit) Shares Cost Total
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 7,739,049 $ 77 $22,262 $ 2,748 $25,087
Issuance of common shares
in business acquisition 192,307 2 1,821 1,823
Purchase of treasury stock (38,552) $(492) (492)
Exercise of stock options 266,900 3 1,163 1,166
Net income 7,196 7,196
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 8,198,256 82 25,246 9,944 (38,552) (492) 34,780
Issuance of common shares
in business acquisitions 172,308 2 3,473 3,475
Exercise of stock options 430,452 4 4,121 4,125
Tax benefit from exercise of
stock options 1,437 1,437
Net loss (11,380) (11,380)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 8,801,016 88 34,277 (1,436) (38,552) (492) 32,437
Issuance of common shares
in business acquisitions 15,723 250 250
Exercise of stock options 171,869 2 1,666 1,668
Tax benefit from exercise of
stock options 83 83
Net loss (2,248) (2,248)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 8,988,608 $ 90 $36,276 $ (3,684) (38,552) $(492) $32,190
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 14
Broadway and Seymour, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,248) $(11,380) $ 7,196
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 8,888 12,890 10,574
Restructuring and impairment costs 2,319 2,921
Gain on sale of non-strategic business units (9,652)
Deferred income taxes (1,511) (7,123) 854
Loss (gain) on disposal of property and equipment (11) 90 (83)
Change in assets and liabilities excluding effects of
businesses acquired and divestitures:
Receivables (3,337) (2,680) (10,308)
Inventories (578)
Other assets (542) 252 175
Accounts payable-trade (75) (3,509) 6,797
Accrued compensation (104) (121) 912
Other liabilities (8,160) 7,403 59
Deferred revenue 4,170 4,791 2,320
Income taxes 4,456 (3,244) 2,875
- ------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (6,385) 290 21,371
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (3,337) (6,660) (6,071)
Investment in software costs (1,576) (2,193) (5,331)
Proceeds from sale of property and
equipment and other dispositions 31,219 2,088 1,868
Cash used in business acquisitions (864) (1,479) (5,260)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 25,442 (8,244) (14,794)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (payments) under credit facility (5,217) 5,217 (3,443)
Proceeds from issuance of long-term debt and notes payable 251 572 15,433
Payment of notes payable and long-term debt (1,860) (1,186) (18,352)
Proceeds from issuance of common stock 726 3,765 674
- ------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (6,100) 8,368 (5,688)
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 12,957 414 889
Cash and cash equivalents, beginning of period 2,053 1,639 750
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $15,010 $ 2,053 $ 1,639
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 15
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--NATURE OF BUSINESS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
CERTAIN SIGNIFICANT ESTIMATES
Broadway & Seymour, Inc. (the "Company") is an information
technology software and services company providing integrated business
solutions and systems integration services for the financial services
industry and time and practice management solutions for the legal and
professional services industries. The principal markets for the
Company's solutions and services are domestic financial services
institutions and call centers and domestic and European law firms.
The presentation 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 the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. The more significant estimates affecting
the Company's financial statements relate to revenue recognition and
loss accruals for long-term contracts, allowance for uncollectible
receivables and useful lives used in depreciating property and
equipment and amortizing capitalized software products and intangible
assets.
The significant accounting policies used in the preparation of
the accompanying financial statements are as follows:
PRINCIPLES OF CONSOLIDATION.
The consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION.
Revenue from services and from the sale of software with
related services is generally recognized as work is performed under the
percentage of completion method. Revenue from the sale of software and
hardware products having no significant ongoing obligations is
generally recognized upon delivery of the product. Maintenance revenue
is recognized ratably over the contract term. Losses are recognized on
contracts in the period in which the liability is identified.
CASH EQUIVALENTS.
Cash equivalents are short-term, highly liquid investments
with original maturities of three months or less.
INVENTORIES.
Inventories consist principally of computer equipment and
purchased third party software held for resale and are stated at the
lower of cost or market, with cost determined using the first-in,
first-out method.
PROPERTY AND EQUIPMENT.
Property and equipment are recorded at cost. Depreciation of
property and equipment is computed using the straight-line method over
the estimated useful lives of the related assets, which range from
forty-two months to ten years. Leasehold improvements are amortized
using the straight-line method over the lesser of their estimated
useful lives, generally ten years, or the remaining terms of the
leases.
20
<PAGE> 16
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SOFTWARE COSTS AND INTANGIBLE ASSETS.
The Company capitalizes portions of the costs of developing
software to be sold. Capitalized costs were incurred after the
establishment of technological feasibility and prior to the
availability of the software for general release, including costs of
product enhancements that improve the marketability of the original
product or extend its life. Software costs are amortized using the
straight-line method over the estimated economic life of the products,
up to a maximum of six years.
The excess of cost over fair value of assets acquired is
amortized using the straight-line method over ten years. Other
intangible assets are amortized using the straight-line method over the
useful lives of the assets, which range from five to ten years.
The Company continually monitors conditions that may affect
the carrying value of its software costs and intangible assets. When
conditions indicate potential impairment of such assets, the Company
undertakes necessary market and technology studies and reevaluates
projected future earnings associated with these assets. When projected
future cash flows, not discounted for the time value of money, are less
than the carrying value of the asset, the Company writes down the
impaired asset to its net realizable value.
The Company adopted Statement of Financial Accounting
Standards No. 121, (SFAS 121), "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of,"
effective January 1, 1996. Adoption of this standard did not have a
material impact on the consolidated financial statements of the
Company.
STOCK-BASED COMPENSATION.
The Company adopted Statement of Financial Accounting
Standards No. 123, (SFAS 123), "Accounting for Stock-Based
Compensation," effective January 1, 1996. Upon adoption, the Company
elected to disclose in its footnotes to its financial statements the
impact of utilizing the fair value approach to measure stock-based
compensation, as provided for under the provisions of SFAS 123, and to
exclude such impact from its recorded earnings. The Company measures
stock-based compensation based on the intrinsic value approach as
provided for under the provisions of Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25").
ADVERTISING COSTS.
The Company expenses advertising costs as incurred.
Advertising expenses for 1996, 1995 and 1994 were $1,338,000,
$1,512,000 and, $1,069,000, respectively.
INCOME (LOSS) PER SHARE.
Per share amounts are based on the weighted average number of
shares of common stock and dilutive common stock equivalents
outstanding during each period. Common stock equivalents consist
primarily of stock options. The weighted average number of shares was
8,914,000, 9,043,000 and, 8,467,000 shares for the years ended December
31, 1996, 1995 and 1994, respectively.
RECLASSIFICATIONS.
Certain prior year amounts have been reclassified to conform
with the current year presentation.
21
<PAGE> 17
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2--SIGNIFICANT TRANSACTIONS
DISPOSITIONS:
In November 1996, the Company sold all of the issued and
outstanding capital stock of the Company's wholly owned subsidiary,
Corbel & Co. ("Corbel") (excluding its interest in National Pension
Alliance--See Note 7), pursuant to a Stock Purchase Agreement. The
consideration paid to the Company at closing was approximately $13.5
million, with an additional $.5 million to be paid to the Company
twenty four months after the effective date, subject to certain
holdback provisions for indemnification obligations. Also, the Company
may be entitled to receive an earnout payment of up to a maximum of
$3.5 million based on Corbel revenue in 1997. The gain on the
transaction was approximately $.9 million. Corbel contributed revenue
of $17.4 million in 1996 (prior to the sale), $18.5 million in 1995 and
$20 million in 1994. Corbel contributed operating income of $3.4
million in 1996 (prior to the sale), $2.4 million in 1995 and $5.7
million in 1994. Corbel revenue and operating income for 1996 include a
one-time software license fee of $5.0 million from a single
transaction.
In May 1996, the Company sold substantially all the assets,
subject to certain related liabilities, of its AMSG business, including
BancCorp, pursuant to an Asset Purchase Agreement. The Company received
net cash proceeds at closing of $17.5 million for the net assets and
licensing of certain software, net of certain fees and expenses. The
gain on the sale of the business was $8.7 million. An additional $5.5
million was scheduled to be paid to the Company, subject to certain
holdback provisions for indemnification obligations, over the
twenty-four months following the closing for certain software
maintenance, training, and transition services and professional
services. As of December 31, 1996, all such service agreements have
been terminated and $2 million remains to be received and recognized
subject to certain holdback provisions for indemnification obligations.
AMSG contributed revenue of $5.8 million in 1996 (prior to the sale),
$15.5 million in 1995 and $10.9 million in 1994. Operating losses from
AMSG were $2.8 million in 1996 (prior to the sale), $9.3 million in
1995 and $1.2 million in 1994. In addition, subsequent to the sale of
AMSG, the Company recorded an additional $4.0 million of non-recurring
revenue, and approximately $3 million of related expense, related to
certain professional and transition services provided to the purchaser
of AMSG under agreements entered into at the time of the sale.
In September 1995, the Company transferred a contract for
services provided to International Business Machines Corporation
("IBM") to another service provider and recorded $.9 million of revenue
with substantially no associated expense. Prior to the transfer,
services provided under this contract in 1995 contributed approximately
$1.9 million of revenue and incurred costs of $1.6 million.
In June 1995, the Company transferred certain assets, subject
to related liabilities, of its community banking business, to a newly
formed subsidiary, Liberty Software, Inc. ("Liberty"), and
simultaneously therewith sold the common stock of Liberty pursuant to a
Stock Purchase Agreement. At closing, the Company received $2 million
for the stock of Liberty and recognized no gain or loss on such sale.
In addition, during 1995 the Company received approximately $9.5
million related to certain software license fees, software maintenance
and transition services provided to the purchaser of Liberty, against
which the Company incurred substantially no expense. The Company
received a final payment of $.5 million in March 1996.
In 1994, the Company was engaged by Medaphis Corporation
("Medaphis") to provide systems integration and reengineering services
in a multi-year, multi-million dollar contract. On December 30, 1994,
Medaphis assumed
22
<PAGE> 18
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ownership of its contract with the Company when the Company and
Medaphis entered into an Asset Purchase Agreement, a Software License
Agreement, and numerous supporting agreements, all of which are jointly
referred to herein as the "Agreements." As a result, certain of the
Company's Gateway imaging and document conversion operations were sold
to Medaphis and Gateway's systems integration business was split, with
the Company retaining contracts with banks and bank subsidiaries and
Medaphis receiving other significant open contracts. Medaphis also
obtained a perpetual, nonexclusive, royalty-free, license to copy, use,
distribute, sub-license and prepare derivative works of object and
source code copies of Gateway software. Since most of Gateway's
employees became employees of Medaphis, transitional provisions in the
Agreements included the subcontracting by Medaphis of certain work
relating to contracts retained by the Company. Other transitional
provisions included software maintenance services provided by the
Company and mutual non-compete and non-solicitation agreements. Under
the terms of the Agreements, Medaphis paid the Company $25.3 million at
closing and paid an additional $6.8 million to the Company in 1995
under the maintenance provisions of the software license agreement. The
$6.8 million in maintenance revenue recorded in 1995 had substantially
no associated expense.
ACQUISITIONS:
In June 1995, the Company acquired certain assets and
liabilities of The MiniComputer Company of Maryland, Inc. ("TMC") for
$.7 million in cash, a $.4 million promissory note and 28,944 shares of
the Company's common stock valued at $.5 million. The sellers are
entitled to receive certain additional earn-out payments in the event
certain financial and other targets are met. The Company allocated $1.5
million of the purchase price to software costs and $.5 million to
goodwill. TMC is a marketer of proprietary time and billing software,
custom programming services and other computer related services
primarily to law firms. (See Note 7). TMC reports to the Company's
Elite Information Systems Inc. ("Elite") subsidiary.
In January 1995, the Company acquired EBG & Associates, Inc.
("EBG") for 47,954 shares of the Company's common stock (valued at $1
million) and the assumption of certain existing EBG obligations and
acquired BancCorp Systems, Inc. ("BancCorp") for 95,410 shares of the
Company's common stock (valued at $1.9 million), an $.8 million
promissory note and the assumption of certain existing BancCorp debt
and other obligations. The assets and operations of EBG and BancCorp
have been subsequently sold as part of the Corbel and AMSG dispositions
described above.
In September 1994, the Company acquired Micro/Resources, Inc.
("MRI") in a transaction structured as a merger of MRI with a newly
formed subsidiary of the Company, with MRI as the surviving
corporation. The Company issued 632,302 shares of its common stock in
exchange for all of the outstanding stock of MRI. MRI provides the
proprietary CRISP(TM) product family, an integrated decision-support
platform for commercial and private banks in the United States. MRI
also provides a variety of programming, consulting and technical
services related to the installation and support of CRISP. This
acquisition was accounted for using the pooling of interests method.
Accordingly, MRI's financial position, results of operations and cash
flows have been included with those of the Company for all periods
presented herein. In connection with the 1995 restructuring (see Note
7), the MRI operations were relocated and merged with existing
operations at the Company's headquarters in Charlotte, NC.
23
<PAGE> 19
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In February 1994, the Company purchased all of the outstanding
shares of capital stock of Elite for 192,307 shares of the Company's
common stock valued at approximately $1.8 million, $5.8 million in cash
at closing and promissory notes totaling $3.8 million which were paid
in full on December 30, 1994. The Company allocated a portion of the
purchase price to the following intangible assets: $4.4 million as
software costs, $2.7 million as existing customer contracts, $1.8
million as assembled workforce and $4.3 million as goodwill. Elite
provides the proprietary Elite Billing System and related products, a
comprehensive accounting and information management software package
marketed to legal and accounting firms nationwide and in Europe.
Each of the acquisitions described above was accounted for
using the purchase method, except for the acquisition of MRI, which was
accounted for using the pooling of interests method. Accordingly, their
results of operations have been included with those of the Company
since their respective dates of acquisition.
The following table sets forth the Company's unaudited pro
forma results of operations for the periods presented assuming Elite,
BancCorp, TMC and EBG had been acquired as of January 1, 1994. The
unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the purchases
actually been made at the beginning of the periods presented.
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Pro forma revenue $116,493 $141,676
=======================================================================================================
Pro forma net income (loss) $(10,580) $ 5,896
=======================================================================================================
Pro forma income (loss) per common and common equivalent share $ (1.17) $ 0.67
=======================================================================================================
</TABLE>
NOTE 3--RECEIVABLES
Receivables at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Trade $23,349 $24,752
Unbilled 2,584 3,809
Other 665 613
----------------------------------------------------------------------
26,598 29,174
Less--Allowance for doubtful accounts (892) (941)
----------------------------------------------------------------------
$25,706 $28,233
======================================================================
</TABLE>
24
<PAGE> 20
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Equipment $13,339 $14,682
Furniture and fixtures 1,881 2,411
Leasehold improvements 1,007 1,235
-----------------------------------------------------------------------------------------
16,227 18,328
Less--Accumulated depreciation and amortization (9,936) (9,029)
-----------------------------------------------------------------------------------------
$ 6,291 $ 9,299
=========================================================================================
</TABLE>
NOTE 5--SOFTWARE COSTS
During 1996, 1995 and 1994, $1.6 million, $2.2 million and
$3.1 million, respectively, of software development costs were
capitalized. Software costs in the accompanying balance sheet also
include the cost of purchased software.
Accumulated amortization for internally developed and acquired
software was $6.4 million and $7.5 million at December 31, 1996 and
1995, respectively. Amortization expense was $2.3 million, $5.9 million
and $4.7 million in 1996, 1995 and 1994, respectively. Included in
amortization expense for 1995 was approximately $2.6 million associated
with the accelerated amortization of software costs related to a
technology study evaluating the viability of the DOS-based BancCorp
product which indicated that the software costs were not recoverable.
Included in amortization expense for 1994 was approximately $1.7
million representing accelerated amortization of the Gateway software
costs as a result of the Medaphis transaction described in Note 2.
In connection with certain software developed or acquired by
the Company and licensed to customers, the Company is obligated to pay
royalties to third parties. The royalty agreements generally provide
for payment of a specific amount for each software license granted by
the Company. Royalty expense was $.7 million, $1.4 million and $2.4
million 1996, 1995 and 1994, respectively.
NOTE 6--INTANGIBLE ASSETS
Intangible assets at December 31, 1996 and 1995 consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Excess of cost over fair value of assets acquired $ 6,443 $18,334
Customer lists and maintenance contracts 2,700 10,170
Assembled workforce 1,800 4,400
Other 2 541
-------------------------------------------------------------------------------------
10,945 33,445
Less--Accumulated amortization (3,599) (8,867)
-------------------------------------------------------------------------------------
$ 7,346 $24,578
=====================================================================================
</TABLE>
Amortization expense was $3.3 million, $3.6 million and $3.3
million for 1996, 1995 and 1994, respectively. Net intangible assets
decreased by $17 million from 1995 to 1996 principally due to the sale
of AMSG and Corbel.
25
<PAGE> 21
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7--RESTRUCTURING AND IMPAIRMENT CHARGES
In August 1996, the Company developed a plan to close the
National Pension Alliance ("NPA"), a partnership of which Corbel/NPA,
Inc., a wholly owned subsidiary of the Company, is a 75% general
partner. Following a transition period for NPA customers, the
operations of NPA will cease. For the years ended December 31, 1996,
1995 and 1994, NPA had revenue of $.6 million, $.8 million and $.2
million, respectively, and a loss before restructuring charges of $2.3
million, $2.2 million and $.6 million, respectively. In 1996, the
Company reserved approximately $2.5 million related to the exit costs
of NPA, including $1.3 million for customer refunds, $.8 million
related to asset write-offs and other exit costs and $.4 million
related to employee terminations. As of December 31, 1996, $1.3
million, related principally to customer refunds and asset write-offs
had been charged against the reserve, leaving an accrual of $1.2
million. The exit plan is expected to be completed in 1997.
In the fourth quarter of 1995, the Company recorded a pre-tax
charge of $2.9 million comprised of $1.5 million in restructuring
charges related to costs for the consolidation of certain facilities of
$1.0 million and employee severance costs of $.5 million and $1.4
million in asset impairments related to the TMC product line. In
addition, certain software assets were written down as discussed in
Note 5. During 1996, the Company reduced its estimate of the remaining
costs to complete the 1995 restructuring by $.2 million. During the
years ended December 31, 1996 and 1995, the Company utilized cash of
approximately $.8 million and $.1 million, respectively, to satisfy
obligations related to these reserves. The reserve balance was
approximately $.4 million at December 31, 1996.
The $1.4 million write down of intangible assets was related
to customer list and assembled workforce intangibles acquired in
connection with the acquisition of TMC. Based on revised estimates of
the number and rate of conversions from the TMC product to the Elite
product and lower than expected operating results from this
acquisition, management determined that these intangible assets were
impaired. Using the discounted cash flows as an estimate of net
realizable value, the Company adjusted the carrying value of these
intangible assets to approximately $.5 million at December 31, 1995.
The Company is not aware of any other market or technology
trends that would adversely affect the carrying value of its software
costs and other intangible assets. However, the Company operates in
markets characterized by innovation and rapid technological advances
and no assurance can be given that changes in the marketplace would not
impair the carrying value of the Company's software costs and other
intangible assets.
26
<PAGE> 22
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8--NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1995, the Company had $5.2 million outstanding
under a bank credit facility. The credit facility expired and was
repaid in 1996.
Long-term debt at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Unsecured promissory note due January 1997, with interest at
8.5% payable every three months $ 825
Unsecured, non-interest bearing promissory note due in annual installments
of $667,000 through January 1996 667
Unsecured promissory note due in quarterly installments plus interest at
7.7% through May 1998 $ 200 333
Subordinated promissory note due in quarterly installments plus interest at the
greater of the prime rate plus 2% (as defined in the agreement) or 10%
through June 2000, secured by Corbel software and support materials 183
Unsecured promissory notes due through September 1998 and obligations under capital leases 411 365
-------------------------------------------------------------------------------------------------------------------
611 2,373
Less--Portion due within one year (473) (1,046)
-------------------------------------------------------------------------------------------------------------------
$ 138 $1,327
===================================================================================================================
</TABLE>
Cash paid for interest was approximately $.3 million, $.4
million and $.7 million for 1996, 1995 and 1994, respectively.
NOTE 9--EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) retirement plan to which
qualified employees may contribute from 1% to 15% of eligible annual
compensation. The Company matches 50% of these contributions, up to a
maximum of 6% of each participant's compensation for the plan year.
Company contributions totaled $.9 million, $.7 million and $.6 million
for 1996, 1995 and 1994, respectively.
Effective January 1, 1995 the Company adopted the Broadway &
Seymour, Inc. 1995 Employee Stock Purchase Plan covering a five-year
period commencing January 1, 1995, under which substantially all
employees may purchase up to an aggregate of 1,000,000 shares of the
Company's common stock. The purchase price of the shares under the plan
is 85% of the lesser of the fair value of the Company's common stock at
the beginning of the plan year or at the end of the plan year.
Employees may designate up to 10% of their compensation to be withheld
towards the purchase of stock under the plan, up to a maximum value of
$25,000 based on the fair market value as of the beginning of each plan
year. The Company may provide shares under the plan from shares
authorized and unissued or from shares acquired and held in treasury.
27
<PAGE> 23
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10--INCOME TAXES
The components of the provision for income taxes for 1996,
1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current provision:
Federal $ 2,740 $ 1,952 $ 4,037
State 226 213 967
-----------------------------------------------------------------------
2,966 2,165 5,004
-----------------------------------------------------------------------
Deferred provision (benefit):
Federal (1,096) (6,606) 686
State (415) (517) 168
-----------------------------------------------------------------------
(1,511) (7,123) 854
-----------------------------------------------------------------------
$ 1,455 $(4,958) $ 5,858
=======================================================================
</TABLE>
A reconciliation of income taxes computed at the statutory
federal income tax rate to the recorded provision for income taxes is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Provision (benefit) for income taxes computed at the statutory federal rate $ (270) $(5,555) $4,438
Non-deductible amortization and impairment of intangible assets 1,374 631 503
State income taxes, net of federal income tax benefit 127 (313) 749
Other 224 279 168
--------------------------------------------------------------------------------------------------------------------
$1,455 $(4,958) $5,858
====================================================================================================================
</TABLE>
Deferred tax assets (liabilities) recognized in the Company's
balance sheet at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Asset allowances $ 329 $ 456
Loss accruals on contracts 1,324 1,815
Deferred revenue 1,677 593
Net operating losses and other carryforwards 819 1,204
Other accruals 1,075 1,693
Other deductions 12 56
----------------------------------------------------------------------------------
Gross deferred tax assets 5,236 5,817
----------------------------------------------------------------------------------
Less: valuation allowance (819) (883)
----------------------------------------------------------------------------------
Deferred tax assets 4,417 4,934
----------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment (215) (425)
Software costs and intangible assets (1,899) (6,553)
Other liabilities (443) (118)
----------------------------------------------------------------------------------
(2,557) (7,096)
----------------------------------------------------------------------------------
$ 1,860 $(2,162)
==================================================================================
</TABLE>
28
<PAGE> 24
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash paid for income taxes was approximately $1 million, $5.5
million and $1.9 million for 1996, 1995 and 1994, respectively.
At December 31, 1996, the Company had $11.4 million in state
net operating loss ("NOL") carryforwards. The state NOLs begin to
expire in the year 2009. A full valuation allowance has been recorded
against the state NOL based on current separate company income
limitations. The Company utilized Federal NOLs in the amount of $.7
million in 1996, none in 1995 and $1.2 million in 1994. The Company
utilized $1 million, $.4 million and $.5 million of its state NOLs
during 1996, 1995 and 1994, respectively.
NOTE 11--STOCKHOLDERS' EQUITY
The Company's authorized capital stock consists of 20,000,000
shares of $.01 par value common stock and 2,000,000 shares of $.01 par
value preferred stock. The preferred stock is issuable in one or more
series with such rights, preferences and privileges as the Company's
Board of Directors shall determine.
Under the Company's 1985 Incentive Stock Option Plan (the
"1985 Plan") options for up to 2,275,000 shares of common stock could
be granted to key employees. Options for 482,505 shares of common stock
were outstanding under the 1985 Plan at December 31, 1996. The 1985
Plan was administered by the Compensation Committee of the Company's
Board of Directors. Options were granted under the 1985 Plan at a price
not less than 100% of the fair market value of the shares subject to
options (or 110% of fair market value in the case of an optionee who
owned, directly or indirectly, more than 10% of the total combined
voting power of all classes of shares of the Company immediately before
such option was granted). Options became exercisable in six equal
annual installments beginning on the date of grant and expired ten
years from the date of grant. The 1985 Plan was terminated in June
1995.
Under the Company's 1989 Employee Stock Option Plan (the "1989
Plan") options for up to 100,000 shares of the Company's common stock
could be granted to key employees. No options were outstanding at
December 31, 1996 related to the 1989 Plan. The 1989 Plan was
administered by the Compensation Committee of the Company's Board of
Directors which determined the price, exercise date and term of each
option, with no option exercisable earlier than three years or later
than five years from the date of grant. All unexercised options granted
under the 1989 Plan expired on January 31, 1994.
During 1996, the Company adopted the 1996 Stock Option Plan
(the "1996 Plan") under which options for up to 875,000 shares of the
Company's common stock may be granted to key employees and directors.
Options for 785,000 shares of common stock were outstanding under the
1996 Plan at December 31, 1996. The 1996 Plan is administered by the
Compensation Committee of the Company's Board of Directors which
determines the price, exercise date and term of each option granted to
employees, which term shall not exceed 10 years. Options may be granted
under the 1996 Plan at a price not less than 100% of the fair market
value of the shares subject to options. In addition, the 1996 Plan
provides for the formula grant of options to members of the Company's
Board of Directors. The Company recognized $165,000 of stock based
compensation related to options granted under this plan in its 1996
statement of operations. The remaining compensation of $1.3 million
from the options granted under this plan will be recognized over the
29
<PAGE> 25
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
vesting periods of such options, ranging from 3 to 4 years. The
following table sets forth the changes in the number of shares subject
to option during 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Option Weighted
Number Price per Average
of shares share ($) Option price ($)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 877,925 3.14- 9.00 6.44
Granted 526,000 11.25-15.50 12.01
Exercised (265,874) 3.14-11.25 4.47
Canceled or expired (142,162) 3.14-11.25 7.34
---------
Outstanding at December 31, 1994 995,889 3.14-15.50 9.77
Granted 850,500 18.00-28.38 25.05
Exercised (329,184) 3.14-25.50 9.80
Canceled or expired (57,116) 3.14-18.00 12.05
---------
Outstanding at December 31, 1995 1,460,089 3.14-28.38 18.58
Granted 793,500 9.50-11.19 10.99
Exercised (103,618) 3.14-15.50 6.99
Cancelled or expired (825,800) 6.80-28.38 23.12
---------
Outstanding at December 31, 1996 1,324,171 6.80-25.50 12.10
=========
Exercisable at December 31, 1996 216,245 6.80-25.50 12.62
=========
Available for grant at December 31, 1996 90,000
=========
</TABLE>
Paid-in-capital for the years ended December 31, 1996 and 1995
included $.1 million and $1.4 million, respectively, related to a
reduction in the corporate tax liability as a result of the exercise of
certain employee stock options.
Pursuant to the requirements of SFAS No. 123, the following
disclosures are presented to reflect the Company's pro forma net loss
and net loss per common and common equivalent share, as if the Company
had elected to use the fair value method of accounting prescribed by
SFAS No. 123, rather than continuing to apply the provisions of APB 25.
In preparing these disclosures, the Company has determined the value of
all options granted during 1996 and 1995 using the average value
method, as discussed in SFAS No. 123, and based on an assumed dividend
yield rate of 0%, weighted average risk free rates of 6.7% for 1996 and
6.8% for 1995 and weighted average expected lives of approximately 9
years. Had compensation expense been determined consistent with SFAS
No. 123, utilizing these assumptions and the straight-line amortization
method over the vesting period, the Company's net loss and net loss per
common and common equivalent share would have been as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Net loss as reported $(2,248) $(11,380)
Pro forma adjustment for stock compensation expense (1,470) (403)
-------------------------------------------------------------------------------------------
Pro forma net loss $(3,718) $(11,783)
===========================================================================================
Net loss per common and common equivalent share as reported $ (0.25) $ (1.26)
Pro forma adjustment for stock compensation expense (0.17) (0.04)
===========================================================================================
Pro forma net loss per common and common equivalent share $ (0.42) $ (1.30)
===========================================================================================
</TABLE>
30
<PAGE> 26
Broadway and Seymour, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12--COMMITMENTS
The Company leases equipment and facilities under operating
leases. Rental expense on operating leases was $5.2 million, $6.1
million and $4.3 million for 1996, 1995 and 1994, respectively.
Future minimum lease payments under operating leases having an
initial or remaining non-cancelable term in excess of one year are as
follows:
<TABLE>
<CAPTION>
Years ending December 31: (In thousands)
<S> <C>
1997 $ 3,669
1998 2,764
1999 2,454
2000 2,299
2001 & thereafter --
-----------------------------------------------------------------
$11,186
=================================================================
</TABLE>
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments such as
cash and short-term investments, trade receivables, trade payables and
notes payable approximates the carrying value of such instruments at
December 31, 1996. All of the Company's financial instruments are held
for purposes other than trading.
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
Quarter ended 12/31/96 9/30/96 6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $21,515 $19,479 $23,624 $24,733 $ 16,384 $33,151 $35,675 $29,528
Cost of revenue 15,095 17,641 18,904 18,061 29,635 20,022 22,893 21,057
Operating expenses 6,416 8,591 7,249 7,652 12,769 8,329 8,680 7,198
Gain (loss) on disposition
of non-strategic business units 1,809 (430) 8,273 --
Net interest income (expense) 31 35 (78) (175) (174) (89) (151) (79)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,844 (7,148) 5,666 (1,155) (26,194) 4,711 3,951 1,194
Income tax benefit (provision)
income taxes (694) 2,343 (3,424) 320 9,493 (2,205) (1,804) (526)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,150 $(4,805) $ 2,242 $ (835) $(16,701) $ 2,506 $ 2,147 $ 668
================================================================================================================================
Net income (loss) per common
and common equivalent share $ 0.13 $ (0.54) $ 0.25 $ (0.09) $ (1.84) $ 0.27 $ 0.24 $ 0.08
================================================================================================================================
</TABLE>
In the fourth quarter of 1995, the Company revised certain
estimates on contracts in progress resulting in additional charges of
approximately $6.0 million. As discussed in Notes 5 and 7, the Company
also recorded restructuring and impairment charges totaling $2.9
million and accelerated the amortization of certain software costs by
approximately $2.6 million in the fourth quarter of 1995.
31
<PAGE> 27
Broadway and Seymour, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BROADWAY & SEYMOUR, INC.
In our opinion, the accompanying consolidated balance sheet
and the related consolidated statements of operations, changes in
stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Broadway & Seymour, Inc. and its
subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 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.
/s/ Price Waterhouse LLP
Charlotte, North Carolina
February 7, 1997
32
<PAGE> 1
EXHIBIT 21
BROADWAY & SEYMOUR, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of Percentage
Name of subsidiary incorporation ownership
------------------ ------------- ---------
<S> <C> <C>
BSI North Carolina, Inc., North Carolina 100%
dba Gateway Conversion Technologies
Relational Team Concepts International, Inc. Delaware 100%
National Systems Group, Inc., North Carolina 100%
dba Trust Systems, Inc.
The Heebink Group, Incorporated Ohio 100%
National Financial Computer Systems, Inc. Georgia 100%
Corbel/NPA, Inc. Florida 100%
National Pension Alliance, Ltd. Partners Florida 75%
Elite Information Systems, Inc. California 100%
Micro/Resources, Inc. California 100%
BancCorp Systems, Inc. North Carolina 100%
The MiniComputer Company of Maryland, Inc. North Carolina 100%
Elite Information Systems International, Inc. California 100%
Pragmatix Telephony Solutions, Inc. North Carolina 100%
</TABLE>
21
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of the Broadway & Seymour, Inc. 1995 Employee Stock
Purchase Plan (33-85924) and the Broadway & Seymour, Inc. Restated 1985
Incentive Stock Option Plan (33-81130) of our report dated February 7, 1997,
appearing on page 32 of the Company's Annual Report (which is incorporated by
reference in this Form 10-K).
Price Waterhouse LLP
Charlotte, North Carolina
March 24, 1997
22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,010,000
<SECURITIES> 0
<RECEIVABLES> 26,599,000
<ALLOWANCES> (892,000)
<INVENTORY> 890,000
<CURRENT-ASSETS> 47,331,000
<PP&E> 16,227,000
<DEPRECIATION> (9,936,000)
<TOTAL-ASSETS> 66,474,000
<CURRENT-LIABILITIES> 31,4224,000
<BONDS> 0
0
0
<COMMON> 90,000
<OTHER-SE> 32,592,000
<TOTAL-LIABILITY-AND-EQUITY> 66,474,000
<SALES> 89,351,000
<TOTAL-REVENUES> 89,351,000
<CGS> 69,701,000
<TOTAL-COSTS> 69,701,000
<OTHER-EXPENSES> 32,284,000
<LOSS-PROVISION> 1,076,000
<INTEREST-EXPENSE> 447,000
<INCOME-PRETAX> (793,000)
<INCOME-TAX> (1,455,000)
<INCOME-CONTINUING> (2,248,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,248,000)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> 0
</TABLE>
