U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-28268
USCS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 94-1727009
- ------------------------------- ----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification)
2969 PROSPECT PARK DRIVE, RANCHO CORDOVA
CALIFORNIA 95670-6148
- ---------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 636-4500
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
----------------------------- ---------------------------------
Common Stock, $.05 par value 23,054,156 shares
1
USCS INTERNATIONAL, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
PAGE NO.
--------
Part I. Financial Information
Item 1. Financial Statements 3
Consolidated Condensed Balance Sheets
September 30, 1996 (Unaudited) and December 31, 1995 4
Consolidated Condensed Statements of Operations (Unaudited)
Three months and nine months ended September 30, 1996 and 1995 5
Consolidated Condensed Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1996 and 1995 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition, Results of Operations, and Certain
Factors That May Affect Future Results. 8-12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
2
USCS INTERNATIONAL, INC.
PART I- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The following consolidated condensed financial statements, except for the
balance sheet as of December 31, 1995, have been prepared by the Company
without audit by independent public accountants, but in accordance with the
rules and regulations of the Securities and Exchange Commission (SEC), and in
the opinion of the Company, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of results for
each period shown. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such SEC rules and regulations. The Company believes that the disclosures
made are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Registration Statement
on Form S-1 (Registration No. 333-3842) declared effective by the SEC on June
20, 1996. The results of operations for the three months and nine months
ended September 30, 1996 are not necessarily indicative of the results to be
expected for the entire year ending December 31, 1996.
3
USCS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share and per share amounts)
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash $ 3,758 $ 6,627
Accounts receivable 72,095 59,907
Current portion of net investment in leases 5,521 6,868
Paper products and other inventory 5,780 5,608
Other 7,560 4,904
------------ ------------
Total current assets 94,714 83,914
Property and equipment, net 90,225 85,385
Net investment in leases, net of current portion 6,573 7,320
Other 4,829 3,831
------------- ------------
Total assets $196,341 $180,450
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 47,197 $ 44,974
Current portion of long-term debt 3,694 11,679
Deferred revenue 7,657 3,821
------------- ------------
Total current liabilities 58,548 60,474
Long-term debt, net of current portion 6,303 51,155
Customer deposits 12,723 13,497
Other liabilities 8,177 8,734
------------- ------------
Total liabilities 85,751 133,860
------------- ------------
------------- ------------
Stockholders' Equity:
Preferred Stock, $.05 par value, 10,000,000 shares
authorized; no shares issued and outstanding -- --
Common Stock, $.05 par value
Authorized 40,000,000 shares; Issued and outstanding:
23,054,156 shares at September 30, 1996
(unaudited) and 19,042,015 shares at
December 31, 1995 1,116 952
Additional paid-in capital 54,092 --
Retained earnings 55,693 45,966
Foreign currency translation adjustment (311) (328)
------------- ------------
Total stockholders' equity 110,590 46,590
------------- ------------
Total liabilities and stockholders' equity $196,341 $180,450
------------- ------------
------------- ------------
4
USCS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenue:
Software and services $63,140 $50,218 $176,350 $142,831
Equipment sales and services 6,217 6,459 16,834 23,009
------- ------- -------- --------
Total revenue 69,357 56,677 193,184 165,840
------- ------- -------- --------
Cost of revenue:
Software and services 37,895 32,509 109,481 93,424
Equipment sales and services 3,749 4,124 10,095 13,821
------- ------- -------- --------
Total cost of revenue 41,644 36,633 119,576 107,245
------- ------- -------- --------
Gross profit 27,713 20,044 73,608 58,595
------- ------- -------- --------
Operating expenses:
Research and development 6,768 4,295 18,301 12,716
Selling, general and administrative 13,033 9,784 36,111 29,961
------- ------- -------- --------
Total operating expenses 19,801 14,079 54,412 42,677
------- ------- -------- --------
Operating income 7,912 5,965 19,196 15,918
Interest expense 757 1,346 3,106 3,750
------- ------- -------- --------
Income before income taxes 7,155 4,619 16,090 12,168
Income tax provision 2,827 1,825 6,356 4,806
------- ------- -------- --------
Net income $ 4,328 $ 2,794 $ 9,734 $ 7,362
------- ------- -------- --------
------- ------- -------- --------
Earnings per share $ 0.18 $ 0.13 $ 0.44 $ 0.35
------- ------- -------- --------
------- ------- -------- --------
Weighted average common
shares and equivalents 24,154 21,078 22,039 21,253
------- ------- -------- --------
------- ------- -------- --------
5
USCS INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine months ended
September 30,
-----------------
1996 1995
---- ----
Cash flows from operating activities:
Net cash provided by operating activities $ 15,762 $ 17,752
-------- --------
Cash flows from investing activities:
Capital expenditures, net (19,439) (23,717)
Other (603) (927)
-------- --------
Net cash used in investing activities (20,042) (24,644)
-------- --------
Cash flows from financing activities:
Net (paydown) borrowing of revolving credit agreement (28,500) 22,000
Payments on long-term debt (24,337) (10,793)
Proceeds from issuance of common stock less expenses 54,286 812
Repurchase of common stock (38) (2,082)
-------- --------
Net cash provided by financing activities 1,411 9,937
-------- --------
Net (decrease) increase in cash (2,869) 3,045
Cash at January 1 6,627 1,966
-------- --------
Cash at September 30 $ 3,758 $ 5,011
-------- --------
-------- --------
6
USCS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Stockholders' Equity
The Company completed an initial public offering (IPO) of its common
stock in June 1996. The Company sold 2,766,375 shares at an initial
public offering price of $17 per share, resulting in proceeds to the
Company of approximately $41.2 million, after deducting underwriting
discounts and offering expenses.
Prior to the IPO, the Company's common stock consisted of Common
Voting Stock and Common Non-Voting Stock. Upon the closing of the IPO,
Common Voting Stock was split on a 2.1-to-1 basis and Common Non-
Voting Stock was split on a 2-to-1 basis. The effect of those
transactions have been retroactively reflected in the financial
statements resulting in outstanding Common voting and Common
Non-Voting Stock at December 31, 1995 of 12,813,313 and 6,228,702
shares, respectively. Also upon the closing date of the IPO, Common
Non-Voting Stock converted to Common Voting Stock on a one-for-one
basis, and the Common Non-Voting Class was eliminated.
On July 9, 1996, the Company received approximately $11.4 million,
after deducting underwriting discounts and offering expenses, upon the
exercise of the Underwriters' overallotment option to purchase
720,000 shares of common stock in connection with the IPO.
2. Long-term Debt
On September 30, 1996 the Company renegotiated its existing revolving
credit agreements into a new five year unsecured revolving credit line
with two banks in the amount of $50 million. Borrowings under the
agreement bear interest at the Company's choice of LIBOR (plus a
margin ranging from .55% to 1.25%), the bank's base rate or a quoted
rate. Under the borrowing agreement, the Company is required to
maintain certain financial ratios and meet a net worth test.
3. Income Tax
Income tax provisions for interim periods are based on estimated
effective annual income tax rates. The Company recognizes deferred
tax assets and liabilities for the expected future tax consequences of
temporary differences between tax bases and financial reporting bases
of assets and liabilities.
4. Earnings per Share
Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents during the respective
periods, including the assumed net shares issuable upon exercise of
stock options when dilutive, after giving effect to the splits
described in Note 1 above. Common and common equivalent shares
issued during the twelve month period prior to the IPO are included in
the calculations as if they were outstanding for all periods presented.
7
Item 2. Management's Discussion and Analysis of Financial Condition, Results
of Operations, and Certain Factors that May Affect Future Results
Founded in 1969, USCS is a leading provider of customer management software
and services to the global communications industry. Revenue is derived
primarily from providing software and bill presentment services to cable
television and multi-service providers in the U.S. and 15 other countries and
bill presentment services to telecommunication companies in the U.S.
Software and bill presentment services to cable television and multi-service
providers are generally provided under bundled service arrangements. Most of
the Company's revenue is derived, under long-term contracts with terms
ranging from three to seven years, based on the number of subscribers or
end-users of the Company's clients, the number of billing statements mailed
and/or the number of images, generally one page side, produced.
The Company provides software and services to North American cable
television, telecommunication and multi-service providers primarily through a
direct sales force. Outside of North America, the Company markets its
software services primarily through strategic partners, such as system
integrators and computer hardware manufacturers, which provide local sales
and support. Building and maintaining relationships with its clients is an
important part of the Company's strategy because selling cycles can extend a
year or longer. The Company has committed increased resources to the
international, multi-service and telecommunications markets because it
believes these represent opportunities to grow at rates greater than in the
U.S. cable television marketplace alone. In addition, the Company sells
computer hardware and provides associated maintenance. Leasing is provided as
an alternative to equipment purchase for clients.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
consolidated condensed statements of operations and the percentage of revenue
represented by each line item:
Three months ended Nine months ended
September 30, September 30,
--------------------------------------- -----------------------------------------
1996 1995 1996 1995
----------------- ----------------- ------------------ ------------------
(Dollars in
thousands)
Revenue:
Software and services $63,140 91.0% $50,218 88.6% $176,350 91.3% $142,831 86.1%
Equipment sales and services 6,217 9.0 6,459 11.4 16,834 8.7 23,009 13.9
------- ------ ------- ------ -------- ------ -------- ------
Total revenue 69,357 100.0 56,677 100.0 193,184 100.0 165,840 100.0
------- ------ ------- ------ -------- ------ -------- ------
Cost of revenue:
Software and services 37,895 54.6 32,509 57.3 109,481 56.7 93,424 56.4
Equipment sales and services 3,749 5.4 4,124 7.3 10,095 5.2 13,821 8.3
------- ------ ------- ------ -------- ------ -------- ------
Total cost of revenue 41,644 60.0 36,633 64.6 119,576 61.9 107,245 64.7
------- ------ ------- ------ -------- ------ -------- ------
Gross profit 27,713 40.0 20,044 35.4 73,608 38.1 58,595 35.3
------- ------ ------- ------ -------- ------ -------- ------
Operating expenses:
Research and development 6,768 9.8 4,295 7.6 18,301 9.5 12,716 7.7
Selling, general and
administrative 13,033 18.8 9,784 17.3 36,111 18.7 29,961 18.0
------- ------ ------- ------ -------- ------ -------- ------
Total operating expenses 19,801 28.6 14,079 24.9 54,412 28.2 42,677 25.7
------- ------ ------- ------ -------- ------ -------- ------
Operating income 7,912 11.4 5,965 10.5 19,196 9.9 15,918 9.6
Interest expense 757 1.1 1,346 2.4 3,106 1.6 3,750 2.3
------- ------ ------- ------ -------- ------ -------- ------
Income before income taxes 7,155 10.3 4,619 8.1 16,090 8.3 12,168 7.3
Income tax provision 2,827 4.1 1,825 3.2 6,356 3.3 4,806 2.9
------- ------ ------- ------ -------- ------ -------- ------
Net income $ 4,328 6.2% $ 2,794 4.9% $ 9,734 5.0% $ 7,362 4.4%
------- ------ ------- ------ -------- ------ -------- ------
------- ------ ------- ------ -------- ------ -------- ------
8
Revenue. Total revenue increased by 22% to $69.4 million in the third quarter
of 1996 from $56.7 million in the comparable quarter in 1995. Software and
services, which was 91% of total revenue in the third quarter of 1996 versus
89% in the third quarter in 1995, increased in the third quarter of 1996 by
26% over the prior year quarter. Customer management software and services
revenue increased by 27% to $37.1 million in the third quarter of 1996 from
$29.3 million in the 1995 third quarter. Bill presentment revenue provided
primarily to telecommunications companies as a standalone service increased
by 24% to $26.1 million in the third quarter of 1996 from $21.0 million in
the comparable quarter of the prior year. Equipment sales and services
declined in the third quarter of 1996 by $.2 million or 4% from the
comparable quarter in 1995 and decreased to 9% of total revenue from over 11%
in the 1995 quarter.
Total revenue increased by 16% to $193.2 million for the nine months ended
September 30, 1996 from $165.8 million for the nine months ended September
30, 1995. Software and services was 91% of total revenue in the nine months
ended September 30, 1996 versus 86% in the comparable 1995 nine month period.
Customer management software and services revenue increased by 20% to $103.4
million in the nine months ended September 30, 1996 from $86.2 million in the
comparable prior year nine month period. Bill presentment revenue increased
by 29% to $73.0 million in the nine months ended September 30, 1996 from
$56.6 million in the comparable period of the prior year. Equipment sales
and related revenue declined in the nine month period of 1996 by $6.2
million or 27% from the comparable period in 1995 and decreased to
approximately 9% of total revenue from 14% in the comparable 1995 period.
Although quarter fluctuations will occur, the Company expects the declining
trend in equipment related revenue to continue.
Growth in revenues for the third quarter and the first nine months of 1996
came primarily from higher prices allowed by existing contracts, migration by
clients to higher priced services, sales of additional services and increases
in the number of subscribers in existing and new clients in the U.S. and
international markets.
Cost of Revenue and Gross Profit. The Company's gross profit margin
increased to 40% in the third quarter of 1996 from 35% in the comparable
quarter in 1995. The Company's gross profit margin increased to 38% in the
nine months ended September 30, 1996 from 35% in the comparable period in
1995. Customer management software and services gross profit margin
increased to 50% in the third quarter of 1996 from 44% in the comparable
quarter in 1995. Customer management software and services gross profit
margin increased to 46% in the nine months ended September 30, 1996 from 43%
in the comparable period in 1995. Bill presentment services gross profit
margin increased to 26% in the third quarter of 1996 from 24% in the
comparable 1995 quarter and to 26% in the nine months ended September 30,
1996 from 21% in the comparable 1995 period. Gross profit margins were
increased because of economies of scale associated with higher volume,
increased revenues from selling additional services, price increases and
cost control. The gross profit margin on equipment related revenue increased
to 40% in the third quarter of 1996 from 36% in the comparable quarter in
1995.
Research and Development. Research and development spending in the third
quarter, exclusive of amounts reimbursable by development partners, increased
by $2.5 million over the comparable quarter in the prior year. Research and
development was 10% of total revenue for the quarter ended September 30, 1996
and 8% for the comparable quarter in 1995 and 10% of total revenue, or $18.3
million, for the nine months ended September 30,
9
1996 versus 8%, or $12.7 million, in the comparable 1995 nine month period.
The added spending was aimed at expanding features and functionality in both
customer management software and bill presentment services.
Selling, General and Administrative. Selling, general and administrative
expenses represented 19% of total revenue for both the three months and the
nine months ended September 30, 1996 versus 17% for the comparable three
months and 18% for the comparable nine months ended September 30, 1995.
Selling, general and administrative expenses in the third quarter of 1996
increased by approximately 33% over the comparable quarter in the prior year.
Sales and marketing increased 30% in the third quarter 1996 compared to the
third quarter 1995 and 31% for the nine month period ended September 30, 1996
compared to the same period in 1995. This increase is attributable to
increased sales and marketing efforts in the domestic and international
markets. General and administrative expenses increased 35% in the third
quarter of 1996 compared to the third quarter of 1995 and 14% for the nine
months ended September 30, 1996 compared to the same period in 1995. This
increase is attributed to increased support for a higher level of sales and,
in the third quarter, support for being a public company.
Net Income. Net income in the third quarter of 1996 increased by 55% to $4.3
million from $2.8 million in the comparable 1995 quarter, and increased by
32% in the nine month period of 1996 to $9.7 million from $7.4 million in the
comparable period of 1995. These increases are primarily because of the
factors cited above and a net reduction of interest expense of approximately
$.6 million in the quarter and nine month period of 1996 in comparison to the
prior year periods primarily because of the retirement of debt. Net income
per share increased 38% in the third quarter and 26% for the first nine
months of 1996 versus the comparable periods in 1995. The increases in net
income per share resulted from the Company's higher earnings partially
offset by an increase in the number of shares used in the calculation of
earnings per share of 15% in the quarter and 4% in the nine month period.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of financing the Company's growth has been cash provided
by operations, borrowing from banks and financial institutions and the IPO
proceeds. In June 1996, the Company utilized the net proceeds from the IPO of
$41.2 million to reduce debt under certain revolving credit agreements. In
July 1996, the Company received net proceeds of approximately $11.4 million
upon the exercise of the Underwriters' overallottment option to purchase
720,000 shares of common stock. The proceeds combined with positive cash
flow were used to prepay $13.5 million of insurance company loans resulting
in an immaterial prepayment penalty.
The Company collects from its clients and remits to the U.S. Postal Service a
substantial amount of postage. All contracts allow the Company to pre-bill
and/or require deposits from its clients to mitigate the effect on cash flow.
As of September 30, 1996, 29% of the Company's accounts receivable
represented amounts due from clients for postage. Postage collections and
remittances are not included in the Company's statements of operations.
At September 30, 1996, the Company had $3.8 million of cash, $72.1 million of
accounts receivable (including postage receivable of $ 20.9 million), $5.5
million of current net investment in leases, and $36.2 million of working
capital. At the end of the third quarter of 1996, the Company had borrowings
of $1.5 million under unsecured bank credit arrangements with a total
borrowing availability of $50 million. Of the $10.0 million of total debt
outstanding at September 30, 1996, $3.7 million is due over the following
12-month period.
The Company continues to make significant investments in capital equipment
and research and development. The Company believes that the net cash from
operations and the borrowing availability will be sufficient to support
operations through the next twelve months.
The above statements that are not historical facts or statements of current
status are forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995 and as such are subject to risks and
uncertainties including, but not limited to, the risks and uncertainties set
forth under the caption "Certain Factors That May Affect Future Results."
Actual results may differ materially.
10
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. A number of
uncertainties exist that could affect the Company's future operating results,
including, without limitation, changes in the cable television market, the
Company's ability to retain existing customers and attract new customers, the
Company's continuing ability to develop products that are responsive to the
evolving needs of its customers, increased competition, changes in operating
expenses, changes in government regulation of the Company's clients and
general economic factors.
The Company is highly dependent on the cable television market. The number of
providers of cable television service in the U.S. is declining, primarily
because larger providers have been purchasing smaller providers, resulting in
a reduction of the number of potential cable television clients in the U.S.
As the number of companies serving the available subscriber base decreases,
the loss of a single client could have a greater adverse impact on the
Company than in the past. Furthermore, a decrease in the number of cable
subscribers or any adverse development in the cable television market could
have a material adverse effect on the financial condition and results of
operations of the Company.
The communications market is characterized by rapid technological
developments, changes in client requirements, evolving industry standards and
frequent new product introductions. The Company's future success will depend,
in part, upon its ability to enhance its existing applications, develop and
introduce new products that take advantage of technological advances and
respond promptly to new client requirements and evolving industry standards.
The Company has expended considerable funds to develop products to serve the
changing communications market. If the communications market fails to
converge or grows more slowly than anticipated or the Company's products and
services fail to achieve market acceptance, there could be a material adverse
effect on the financial condition and results of operations of the Company.
Further, the Company's development projects are subject to all of the risks
associated with the development of new software and other products based on
innovative technologies. The failure of such development projects could have
a material adverse effect on the financial condition and results of
operations of the Company.
The Company's quarterly operating results may fluctuate from quarter to
quarter depending on various factors, including the impact of significant
start-up costs associated with initiating the delivery of contracted services
to new clients, the hiring of additional staff, new product development and
other expenses, introduction of new products by competitors, pricing
pressures, the evolving and unpredictable nature of the markets in which the
Company's products and services are sold and general economic conditions.
The market for the Company's products and services is highly competitive, and
competition is increasing as additional market opportunities arise. The
Company believes its most significant competitors for customer management
software and services are independent providers of such software and services
and in-house systems. TCI, the largest provider in the United States, which
has been a purchaser of other service providers and which represented
approximately 19% of the Company's revenue for the nine months ended
September 30, 1996 and 19% and 21% of the Company's revenue for the years
1995 and 1994, as restated to include cable systems acquired in 1996,
respectively, has announced that it is developing and testing an in-house
system and
11
that such in-house system will replace the Company's system. Another client,
which accounted for approximately 4% of total revenue for the nine months
ended September 30, 1996 and for the year 1995, and recently extended its
contract with the Company to early 1997, has orally advised the Company that
it may select an alternative solution for its customer management software
requirements. In addition, competitive factors could influence or alter the
Company's overall revenue mix between customer management software, services,
including bill presentment services, and equipment sales and leasing. Any of
these events could have a material adverse effect on the financial conditions
and results of operations, including gross profit margins, of the Company.
Aggregate revenue from the Company's ten largest clients accounted for
approximately 64% of total revenue for the nine months ended September 30,
1996 and 65% and 65% for the years 1995 and 1994, respectively. Loss of all
or a significant part of the business of any of these clients or a decrease
in their respective customer bases would have a material adverse effect on
the financial condition and results of operations of the Company.
Management of the Company's growth may place a considerable strain on the
Company's management, operations and systems. The Company's ability to
execute its business strategy will depend in part upon its ability to manage
the demands of a growing business. Any failure of the Company's management
team to effectively manage growth could have a material adverse effect on the
Company's business, financial condition or results of operations.
Substantially all of the Company's revenue is derived from the sale of
services or products under long-term contracts with its clients. The Company
typically does not have the unilateral option to extend the terms of such
contracts upon their expiration. In addition, certain of the Company's
contracts do not require clients to make any minimum purchase. Others require
minimum purchases that are substantially below the current level of business
under such contracts and all such contracts are cancelable by clients under
certain conditions. The failure of clients to renew contracts, a reduction in
usage by clients under any contracts or the cancellation of contracts, could
have a material adverse effect on the Company's financial condition and
results of operations.
The Company markets its products in a variety of international markets. To
date, the Company's customer management software has been installed in the
U.S. and 15 countries. While about 5% of the Company's customer management
software and services revenue came from international sources, the Company is
expanding its international presence, primarily through third party marketing
and distribution alliances. The Company's current and proposed international
business activities are subject to certain inherent risks. There can be no
assurance that such risks will not have a material adverse effect on the
Company's future international sales and, consequently, the Company's
business, operating results and financial condition.
The Company's existing and potential clients are subject to extensive
regulation, and certain of the Company's revenue opportunities may depend on
continued deregulation in the worldwide communications industry. In addition,
the Company's clients are subject to certain regulations governing the
privacy and use of the customer information that is collected and managed by
the Company's products and services. Regulatory changes that adversely affect
the Company's existing and potential clients could have a material adverse
effect on the financial condition and results of operations of the Company.
Reference is made to the more detailed discussion of the risks associated
with the Company's business contained under the heading "Risk Factors" in the
Company's Registration Statement on Form S-1 (Registration No. 333-3842)
declared effective by the SEC on June 20, 1996.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Certain administrative and clarification changes to the Company's
Employee Stock Purchase Plan were approved in writing on
September 13, 1996 by holders of a majority of the issued and
outstanding shares.
Item 5. Other information
On September 30, 1996 the Company renegotiated its existing revolving
credit agreement and entered into a new five year $50 million
revolving credit agreement with two banks. See exhibit 10.01
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Certificate of Incorporation
By-laws
Exhibit 10.01 Amended, Consolidated and Restated Credit Agreement
Dated as of September 30, 1996
Among USCS International, Inc. As Borrower
And NationsBank, N.A. and Mellon Bank, N.A. as Lender
Exhibit 11.01 Computation of Per Share Earnings
Exhibit 27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
USCS INTERNATIONAL, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
USCS INTERNATIONAL, INC.
(Registrant)
Dated: November 14, 1996 By: /s/ DOUGLAS L. SHURTLEFF
------------------------------
Douglas L. Shurtleff
Senior Vice President, Finance
(Chief Financial Officer)
13