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UNITED STATES
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 June 30, 1999
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 000-22409
LHS GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2224883
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SIX CONCOURSE PARKWAY, SUITE 2700
ATLANTA, GA
30328
(Address of principal executive offices)
(Zip Code)
(770) 280-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Sections 12, 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 last practicable date.
Class Outstanding at August 9, 1999
- ----------------------------- -----------------------------
Common Stock, $0.01 Par Value 57,578,264 Shares
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LHS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
Revenues
License revenues $ 28,002 $ 18,896 $ 49,637 $ 36,235
Service revenues 38,019 25,191 75,262 47,133
------------ ------------ ------------ ------------
Total 66,021 44,087 124,899 83,368
Cost of services 23,723 17,233 45,359 33,053
------------ ------------ ------------ ------------
Gross margin 42,298 26,854 79,540 50,315
Operating expenses
Sales and marketing 7,148 4,419 14,286 8,533
Research and development 14,035 8,793 26,880 17,269
General and administrative 5,905 4,580 11,391 8,923
Cost of purchased in-process computer
software technology -- 8,200 -- 8,200
Merger charges 4,320 -- 4,320 --
------------ ------------ ------------ ------------
31,408 25,992 56,877 42,925
Earnings before interest and taxes 10,890 862 22,663 7,390
Interest income, net (1,156) (1,168) (2,269) (2,140)
------------ ------------ ------------ ------------
Earnings before income taxes 12,046 2,030 24,932 9,530
Income taxes 5,892 4,092 10,546 7,092
------------ ------------ ------------ ------------
Net earnings (loss) $ 6,154 $ (2,062) $ 14,386 $ 2,438
============ ============ ============ ============
Net earnings (loss) per share:
Basic $ 0.11 $ (0.04) $ 0.26 $ 0.04
============ ============ ============ ============
Diluted $ 0.10 $ (0.04) $ 0.24 $ 0.04
============ ============ ============ ============
Shares used in per share calculation:
Basic 55,742 54,371 55,656 55,559
============ ============ ============ ============
Diluted 59,165 56,241 59,331 58,884
============ ============ ============ ============
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LHS GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED)
----------- -----------
ASSETS
Cash and cash equivalents $ 57,433 $ 46,794
Short-term investments 56,962 62,218
Trade accounts receivable, net of allowances
of $4,227 and $3,716 90,461 68,189
Inventory 5,637 4,007
Prepaid expenses and other current assets 6,911 4,244
----------- -----------
Total current assets 217,404 185,452
Property, plant & equipment, net 19,948 19,133
Deferred taxes 914 914
Other 7,871 4,825
----------- -----------
Total Assets $ 246,137 $ 210,324
=========== ===========
LIABILITIES
Accounts and notes payable 7,809 10,253
Accrued expenses and other liabilities 32,986 20,798
Income taxes payable 19,693 8,907
Deferred income taxes 4,127 4,127
Deferred revenues 14,965 7,712
----------- -----------
Total current liabilities 79,580 51,797
Long-term obligations 1,898 2,772
----------- -----------
Total Liabilities 81,478 54,569
STOCKHOLDERS' EQUITY
Common stock ($.01 par value), 200,000 shares
authorized; 57,233 and 56,063 shares issued
and outstanding 571 567
Additional paid-in-capital 128,872 125,103
Retained earnings 44,578 30,194
Accumulated translation adjustments (9,362) (109)
----------- -----------
Total Stockholders' Equity 164,659 155,755
----------- -----------
Total Liabilities and Stockholders' Equity $ 246,137 $ 210,324
=========== ===========
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LHS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
SIX MONTHS ENDED JUNE 30,
1999 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
OPERATING ACTIVITIES
Net earnings $ 14,386 $ 2,438
Adjustments:
Depreciation and amortization 4,623 2,149
Write-off of purchased in-process computer software -- 8,200
Change in operating assets and liabilities, net of effect
of business acquisition (10,128) (4,301)
----------- -----------
Net cash provided by operating activities 8,881 8,486
INVESTING ACTIVITIES
Additions of leasehold improvements and equipment (4,336) (4,041)
Sale (purchase) of short-term investments 2,904 (5,229)
Acquisition of business, net of cash acquired -- (2,955)
Other 291 (1,048)
----------- -----------
Net cash used in investing activities (1,141) (13,273)
FINANCING ACTIVITIES
Net proceeds from issuance of capital stock 3,773 3,873
Other (874) 79
----------- -----------
Net cash provided by financing activities 2,899 3,952
----------- -----------
Increase (decrease) in cash and cash equivalents 10,639 (835)
Cash and cash equivalents at beginning of period 46,794 34,159
----------- -----------
Cash and cash equivalents at end of period $ 57,433 $ 33,324
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NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for fair presentation have been included. For
further information, refer to the consolidated financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
NOTE 2 - EARNINGS PER SHARE
Earnings per share was computed by dividing net earnings by the
weighted average number of shares of Common Stock outstanding. In 1997, the
Financial Accounting Standards Board issued Statement No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effect of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. Diluted earnings per share for the quarter ended June 30, 1999 includes
the effect of options to purchase 1,257,281 shares of common stock and 39,945
shares of restricted common stock. Diluted earnings per share for the quarter
ended June 30, 1998 excludes the effect of stock options and restricted common
stock because they are anti-dilutive. Diluted earnings per share for the six
months ended June 30, 1999 includes the effect of options to purchase 1,509,689
shares of common stock and 42,280 shares of restricted common stock. Diluted
earnings per share for the six months ended June 30, 1998 includes the effect
of options to purchase 3,323,581 shares of common stock and 61,029 shares of
restricted common stock.
NOTE 3 - COMMON STOCK
In May of 1998 the Company amended its certificate of incorporation to
increase the authorized Common Stock to 200,000,000 shares, and effected a
2-for-1 Common Stock split. All common share and per common share amounts have
been adjusted for all periods to reflect the stock split.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITIONS
On June 10, 1999, the Company completed its merger with Priority Call
Management, Inc. ("PCM"), in which PCM became a wholly owned subsidiary of LHS
Group Inc. The Company exchanged shares of Common Stock for all the outstanding
common shares of PCM. The merger was accounted for under the
pooling-of-interests method of accounting and, accordingly, the accompanying
financial statements and footnotes have been restated to include the operations
of PCM for all periods presented. The company recorded a charge of $4.3 million
in the second quarter ended June 30, 1999 related to direct costs incurred with
the merger of PCM. PCM is a leading provider of network-based solutions that
enable telecommunications providers to offer subscribers a range of enhanced
services, including prepaid calling, credit/debit card calling, enhanced
messaging and one-number "follow-me" services.
In June 1998, the Company acquired the stock of Infocellular, Inc.
("Infocellular") for $8,484,000, paid by the issuance of 117,885 shares of
Common Stock and $1,327,000 in cash. Infocellular, which operates as a wholly
owned subsidiary of LHS Group Inc., is engaged in the business of providing
point of sale and customer acquisition software and related services to
telecommunication service providers. The Company recognized a one-time charge
of $8.2 million in the second quarter ended June 30, 1998 related to the
write-off of purchased in-process computer software technology as required by
generally accepted accounting principles. No income tax benefit was recognized
on the write-off of the purchased in-process computer software technology as
the merger was structured as tax-free to the selling shareholders. The
acquisition was accounted for as a purchase and the results of Infocellular's
operations have been included in the consolidated financial statements of LHS
Group Inc. effective June 11, 1998.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the Company's
statements of income reflected as a percentage of total revenues.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
Revenues
License revenues 42.4% 42.9% 39.7% 43.5%
Service revenues 57.6% 57.1% 60.3% 56.5%
----------- ----------- ----------- -----------
Total 100.0% 100.0% 100.0% 100.0%
Cost of services 35.9% 39.1% 36.3% 39.6%
----------- ----------- ----------- -----------
Gross margin 64.1% 60.9% 63.7% 60.4%
Operating expenses
Sales and marketing 10.8% 10.0% 11.4% 10.2%
Research and development 21.3% 19.9% 21.5% 20.7%
General and administrative 8.9% 10.4% 9.1% 10.7%
Cost of purchased in-process computer
software technology -- 18.6% -- 9.8%
Merger charges 6.5% -- 3.5% --
----------- ----------- ----------- -----------
47.6% 59.0% 45.5% 51.5%
Earnings before interest and taxes 16.5% 2.0% 18.1% 8.9%
Interest income, net -1.8% -2.6% -1.8% -2.6%
----------- ----------- ----------- -----------
Earnings before income taxes 18.2% 4.6% 20.0% 11.4%
Income taxes 8.9% 9.3% 8.4% 8.5%
----------- ----------- ----------- -----------
Net earnings (loss) 9.3% -4.7% 11.5% 2.9%
=========== =========== =========== ===========
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SECOND QUARTER ENDED JUNE 30, 1999 COMPARED TO SECOND QUARTER ENDED JUNE 30,
1998
REVENUES
Total revenues increased 49.8% to $66.0 million in the second quarter
of 1999 from $44.1 million in the second quarter of 1998. License revenues
increased 48.2% to $28.0 million in 1999 from $18.9 million in 1998, while
service revenues increased 50.9% to $38.0 million from $25.2 million. Total
revenues increased due to the addition of new customers and ongoing
implementation and support revenue from existing customers. License revenues
decreased slightly as a percentage of total revenues to 42.4% in 1999 from
42.9% in 1998, while service revenues increased slightly as a percentage of
total revenues to 57.6% from 57.1%.
COST OF SERVICES
Cost of services decreased as a percentage of total revenues to 35.9%
in the second quarter of 1999 from 39.1% in the second quarter of 1998. Cost of
services increased 37.7% to $23.7 million in 1999 from $17.2 million in 1998,
primarily due to compensation expense associated with increased staffing for
new projects in Europe, the Americas and Asia. This increase was offset by
increased productivity of the implementation and services function.
SALES AND MARKETING
Sales and marketing expenses increased as a percentage of total
revenues to 10.8% in the second quarter of 1999 from 10.0% in the second
quarter of 1998. Sales and marketing expenses increased to $7.1 million in 1999
from $4.4 million in 1998 primarily due to an increase in the number of
worldwide sales personnel.
RESEARCH AND DEVELOPMENT
Research and development expenses increased as a percentage of total
revenues to 21.3% in the second quarter of 1999 from 19.9% in the second
quarter of 1998. These expenses increased 59.6% to $14.0 million in 1999 from
$8.8 million in 1998. This increase is the result of an increase in the number
of personnel associated with the development of new software releases in both
the Americas and Europe.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased to 8.9% of total
revenues in the second quarter of 1999 from 10.4% in the second quarter of
1998. These expenses increased 28.9% to $5.9 million in 1999 from $4.6 million
in 1998. This increase is principally due to increases in personnel and other
expenses incurred as a result of the general growth of the Company's business.
INCOME TAXES
The provision for income taxes was 36.0% of earnings before income
taxes and merger costs in the second quarter of 1999. The provision for income
taxes was 40% of earnings before income taxes and the cost of purchased
in-process computer software technology in the second quarter of 1998. The
decrease in the effective tax rate is due to a reduction of expected tax
payments.
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SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES
Total revenues increased 49.8% to $124.9 million in the first six
months of 1999 from $83.4 million in the first six months of 1998. License
revenues increased 37.0% to $49.6 million in 1999 from $36.3 million in 1998,
while service revenues increased 59.7% to $75.3 million from $47.1 million.
Total revenues increased due to the addition of new customers and ongoing
implementation and support revenue from existing customers. License revenues
decreased as a percentage of total revenues to 39.7% in 1999 from 43.5% in
1998, while service revenues increased as a percentage of total revenues to
60.3% from 56.5%. This change in mix of revenues is primarily due to the timing
of license tier revenue from subscriber growth, the completion of
implementation work on existing customers and the start of the implementation
work on new customers.
COST OF SERVICES
Cost of services decreased as a percentage of total revenues to 36.3%
in the first six months of 1999 from 39.6% in the first six months of 1998.
Cost of services increased 37.2% to $45.4 million in 1999 from $33.1 million in
1998, primarily due to compensation expense associated with increased staffing
for new projects in Europe, the Americas and Asia.
SALES AND MARKETING
Sales and marketing expenses increased as a percentage of total
revenues to 11.4% in the first six months of 1999 from 10.2% in the first six
months of 1998. Sales and marketing expenses increased to $14.3 million in 1999
from $8.5 million in 1998 primarily due to an increase in the number of
worldwide sales personnel.
RESEARCH AND DEVELOPMENT
Research and development expenses increased as a percentage of total
revenues to 21.5% in the first six months of 1999 from 20.7% in the first six
months of 1998. These expenses increased 55.7% to $26.9 million in 1999 from
$17.3 million in 1998. The increase is the result of an increase in the number
of personnel associated with the development of new software releases in both
the Americas and Europe.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased to 9.1% of total
revenues in the first six months of 1999 from 10.7% in the first six months of
1998. These expenses increased 27.7% to $11.4 million in 1999 from $8.9 million
in 1998. This increase is principally due to increases in personnel and other
expenses incurred as a result of the general growth of the Company's business.
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INCOME TAXES
The provision for income taxes was 36.0% of earnings before income
taxes and merger costs in the first six months of 1999. The provision for
income taxes was 40% of earnings before income taxes and the cost of purchased
in-process computer software technology in the first six months of 1998. The
decrease in the effective tax rate is due to a reduction of expected tax
payments.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $8.9 million for the
first six months of 1999 compared to $8.5 million for the same period of 1998.
Working capital requirements for the first six months of 1999 increased
compared to the first six months of 1998 due to overall business expansion.
The Company invested $4.3 million and $4.0 million in furniture,
fixtures and equipment during the first six months of 1999 and 1998,
respectively. These investments are primarily for computer equipment and
improvements to new leased office space required to accommodate the growth in
employees. The Company also sold $2.9 million in marketable securities during
the first six months of 1999 compared to an investment of $5.2 million in
marketable securities in the first six months of 1998. The Company also
invested $3.0 million in the acquisition of Infocellular, Inc. during the first
six months of 1998.
The Company received $3.8 million in proceeds from the issuance of new
shares of common stock to employees who exercised stock options during the
first six months of 1999 compared to $3.9 million received in the first six
months of 1998.
At June 30, 1999, the Company did not have any material commitments
for capital expenditures. The Company believes that the net proceeds from the
sale of the Common Stock in the initial public offering combined with existing
cash balances, available credit facilities and funds generated by operations,
will be sufficient to meet its anticipated working capital and capital
expenditure requirements for the foreseeable future.
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Year 2000 Issues
Introduction
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
is approached and reached. These problems generally arise from the fact that
most of the world's legacy computer hardware and software have historically
used only two digits to identify the year in a date, often meaning that the
computer will fail to distinguish dates in the "2000's" from dates in the
"1900's". These problems may also arise from other sources, such as the use of
special codes and conventions in software that make use of the date field. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Year 2000 issue in two ways may affect the Company: through its software
products and its operations.
Given the fact that the Company is engaged in the business of software
development and because the Company was founded in the early 1990's, after the
Year 2000 issue had begun to surface within the computer industry, the Company
believes that any Year 2000 issues that arise with its software products are
not material. However, the Company believes that the Year 2000 issue could
negatively impact the Company's operations as a result of Year 2000 disruptions
suffered by the Company's significant suppliers, domestic and international
government agencies, and other third parties.
State of Readiness
Based on its ongoing internal assessment of Year 2000 issues, the Company
believes that its internal IT systems, non-IT systems, and software currently
offered to its customers are Year 2000 compliant. Nevertheless, the Year 2000
issue could negatively affect the demand for the Company's products and the
spending habits of our customers. The Company cannot be certain that software
licensed by its customers in the past is fully Year 2000 compliant, but the
Company is not aware of any material Year 2000 problems with any software
licensed to and currently in use by its customers. The Company is addressing
such issues with existing customers on a case-by-case basis to ensure that
there are no significant Year 2000 issues with earlier versions of the
Company's software products. The Company also is upgrading its software
products so that current, Year 2000 compliant versions of embedded third party
software will be available to its customers. The Company is not aware of any
Year 2000 issues with its customers that cannot be remedied or that could have
a material adverse impact on the Company's financial condition or results, or
overall trends in results, of operations.
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Many hardware, operating system and application products developed by
third parties interact or operate with the Company's software products. In
addition, customers or others may modify the Company's software products after
they have been installed. The Company cannot assess the Year 2000 readiness of
these hardware and software products, operating systems or modified hardware
and software products and operating systems. If these products are not Year
2000 compliant, it could adversely affect the performance and functionality of
the Company's applications that work with these products. While the Company
would not be responsible for these Year 2000 problems, the Company is unable to
assess the effect they may have on the Company's business, financial condition
and results of operations.
The Company principally relies on software products to support our
internal accounting, payables and invoicing operations. While these software
products have been or are in the process of being tested for Year 2000
compliance, the Company also relies on third party systems developed by others
for many of the Company's critical internal operations. In addition, the
Company's internal operations may also be affected by Year 2000 issues
affecting third parties with whom the Company has relationships, including
vendors such as utilities, distributors, banks. A Year 2000 problem affecting
our systems or those of third parties that the Company relies upon may have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has assembled a Year 2000 taskforce consisting of
representatives from our development, information systems, facilities and
finance departments to assess the Year 2000 readiness of the Company's internal
operations and the readiness of third parties on which the Company relies. The
taskforce has identified and assessed the Year 2000 readiness of all but one of
the material information technology and non-information technology systems used
internally as part of the Company's operations. Assessment and testing of the
one system for which testing is not complete will be completed by mid-August
1999. The taskforce has not identified any material issues concerning the Year
2000 readiness of the Company's internal systems and the Company believes the
taskforce to have appropriate plans in place to achieve timely Year 2000
readiness for the Company's internal systems. However, the Company's ongoing
assessment program may in the future reveal Year 2000 issues that are not
currently identified or fully understood.
Costs
The Company has not incurred any material costs solely in connection with
remedying Year 2000 issues arising in connection with either internal systems
or its own software products and does not anticipate incurring any material
costs in connection with remedying such Year 2000 issues in the future.
Although the Company has not incurred expenses for the purpose of addressing
Year 2000 issues in connection with its own software products, the Company has,
as part of its ongoing R & D efforts, incurred immaterial costs to ensure that
its software products are Year 2000 compliant.
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Risks
Although the Company's internal systems and software products are Year
2000 compliant, the Company is vulnerable to the risk that government agencies,
significant suppliers and other third parties will not be able to remedy their
own year 2000 issues. The Company relies, both domestically and
internationally, upon government agencies, utility companies, telecommunication
service companies and other service providers outside of the Company's control.
There is no assurance that such suppliers, governmental agencies, or other
third parties will not suffer a year 2000 business disruption. Such failures
could have a material adverse affect on the Company's operations.
The Company currently believes that the most reasonably likely worst case
Year 2000 scenario would involve the temporary interruption of electric power,
telephone or other utility supplies to our offices or our support operations
facilities due to a failure of a utility supplier to be Year 2000 compliant. In
addition, despite assurances and testing, it is also possible that our internal
systems or those of our customers and suppliers may not be Year 2000 ready.
In addition, "business interruption" litigation may arise out of the Year
2000 issue. The Company is not currently aware of any possible claim against
the Company arising from instances of business interruption. The Company
currently believes that its hardware and software products are Year 2000
compliant, but cannot ensure such compliance for software products that were
designed exactly to customer specifications to interface with their other
internal systems. Consequently, the Company cannot assure that all of these
customers are aware of the Year 2000 issue or that they have adopted
appropriate corrective solutions, and will therefore not bring Year
2000-related claims against the Company which, with or without merit, could be
time consuming and expensive for the Company to defend or resolve.
Based on currently available information, management does not believe that
the Year 2000 matters discussed above relating to internal systems and software
products sold to customers will have a material adverse impact on the Company's
financial condition or overall trends in results of operations; however, it is
uncertain to what extent the Company may be affected by such matters. In
addition, there can be no assurance that the failure to ensure Year 2000
capability by a supplier, government agency or another third party would not
have a material adverse impact on the Company.
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Contingency Plans
The Company believes that it has developed adequate contingency plans to
address possible Year 2000 business disruptions. The Company's contingency
plans include the implementation of manual fallback procedures and other
measures to ensure the availability of critical systems. However, the Company
cannot establish an effective contingency plan that will allow the Company to
continue its normal business operations in the event of a Year 2000 business
disruption caused by the unavailability of necessary public infrastructure such
as utilities and other essential governmental and private services. Due to the
general uncertainty inherent in the Year 2000 problem, in the Company's case
resulting primarily from the uncertainty of the Year 2000 readiness of third
parties, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Item 3 disclosure made in the
Company's report on Form 10-K for the year ended December 31, 1998.
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PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on June 7 and 18,
1999. At the meeting, the following two proposals were voted upon by
shareholders: (1) the election of two Class II members of the Company's Board
of Directors, and (2) ratification of the Board's appointment of Ernst & Young
LLP as the Company's independent auditors for the fiscal year ending December
31, 1999.
The Board's nominees for election as Class II directors, William O. Grabe
and George F. Schmitt, were elected to serve for a three-year term that will
expire at the annual meeting of shareholders in 2002. Mr. Grabe was elected by
a vote of 18,732,547 shares in favor, with 5,158 votes abstaining from voting.
Mr. Schmitt was elected by a vote of 18,732,505 shares in favor, with 5,200
shares abstaining from voting.
The Board's appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999 was ratified by a vote of
18,735,122 shares in favor and 260 shares against, with 2,323 shares abstaining
from voting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 - Certificate of Incorporation, as amended (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-8 (File
No. 333-57269)).
3.2 - Bylaws, as amended, filed herewith.
27 - Financial Data schedule (for SEC use only).
(b) Reports on Form 8-K
During the quarterly period covered by this report, the Company filed two
Current Reports on Form 8-K. The first, filed on April 8, 1999, announced the
Board's termination of the Company's employment of Dr. Wolf J. Gaede. The
second, filed on June 21, 1999 announced the Company's June 10, 1999 merger
with Priority Call Management, Inc. ("PCM") and certain PCM and pro forma
financial information for the quarterly period ended March 31, 1999. On July 7,
1999, the June 21, 1999 filing on Form 8-K was amended to correct a
typographical error.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LHS Group Inc.
Date: August 12, 1999 By:/s/ Jerry W. Braxton
--------------------
Jerry W. Braxton
Executive Vice President,
Chief Financial
Officer, Treasurer and
Director (duly authorized and
principal financial and
accounting officer)
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EXHIBIT INDEX
Exhibit No.
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-8 (File No. 333-57269)).
3.2 Bylaws, as amended, filed herewith.
27 Financial Data Schedule (for SEC use only)
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