FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-14350
MONEYGRAM PAYMENT SYSTEMS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 84-1327808
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7401 West Mansfield Avenue, Lakewood, Colorado 80235
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 303-716-6800
NOT APPLICABLE
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(Former Name, Former Address and Former Fiscal Year, if Changed since
Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Number of Shares Outstanding
Title of each class As of August 1, 1997
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Common Stock, $.01 par value 16,625,000
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet at June 30, 1997
and December 31, 1996................................................3
Statement of Operations for the three months ended
June 30, 1997 and 1996...............................................4
Statement of Operations for the six months ended
June 30, 1997 and 1996...............................................5
Statement of Cash Flows for the
six months ended June 30, 1997 and 1996..............................6
Notes to Financial Statements........................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................11
Item 6. Exhibits and Reports on Form 8-K.....................................12
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MONEYGRAM PAYMENT SYSTEMS, INC.
BALANCE SHEET
(in thousands, except per share amounts)
June December
30, 1997 31, 1996
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 22,931 $ 17,996
Assets restricted to money transfer settlements ..... 24,700 11,287
Fee revenue receivable .............................. 3,845 587
Receivable from IPS ................................. 5,527 3,659
Prepaid and other current assets .................... 760 648
-------- --------
Total current assets ................................ 57,763 34,177
Fixed assets at cost, net of depreciation;
1997- $7,440; 1996 - $7,911 ......................... 10,330 9,127
Deferred tax asset ....................................... 50,006 52,250
Agent contract acquisition costs, net of amortization:
1997 - $7,213; 1996 - $4,903; ....................... 17,852 18,175
Other assets ............................................. 607 --
-------- --------
Total Assets ............................................. $136,558 $113,729
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Liabilities relating to outstanding money
transfers ........................................... 24,700 11,287
Accounts payable and accrued liabilities ............ 9,333 5,726
Commissions payable ................................. 7,605 7,286
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Total current liabilities ........................... 41,638 24,299
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Stockholders' Equity:
Common stock, $.01 par value, authorized
100,000,000 shares; issued and outstanding
16,625,000 shares ................................ 166 166
Capital surplus .................................... 85,089 85,089
Retained earnings .................................. 9,665 4,175
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Total stockholders' equity ........................ 94,920 89,430
-------- --------
Total Liabilities and Stockholders' Equity ............... $136,558 $113,729
======== ========
3
See accompanying notes.
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
June 30,
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1997 1996
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Revenue:
Fee and other revenue net of refunds .............. $29,503 $29,686
Foreign exchange .................................. 8,125 7,731
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Total revenues .......................... 37,6283 7,417
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Expenses:
Agent commissions and amortization of
agent contract acquisition costs ........ 12,354 11,690
Processing ........................................ 6,440 5,873
Advertising and promotion ......................... 7,783 7,949
Selling and service ............................... 2,723 2,555
General and administrative ........................ 2,789 1,258
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Total expenses .......................... 32,089 29,325
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Income before income taxes ............................. 5,539 8,092
Income tax expense ..................................... 2,209 3,094
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Net income ............................................. $ 3,330 $ 4,998
======= =======
Net income per common share ............................ $ .20 $ .30
Weighted average shares and
equivalents outstanding ................................ 16,625 16,625
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See accompanying notes.
4
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Six Months Ended
June 30,
------------
1997 1996
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Revenue:
Fee and other revenue net of refunds .............. $55,828 $57,253
Foreign exchange .................................. 14,193 15,775
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Total revenues .......................... 70,021 73,028
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Expenses:
Agent commissions and amortization of
agent contract acquisition costs ........ 23,361 22,615
Processing ........................................ 12,465 12,284
Advertising and promotion ......................... 13,777 16,763
Selling and service ............................... 5,782 4,776
General and administrative ........................ 5,557 3,060
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Total expenses .......................... 60,942 59,498
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Income before income taxes ............................. 9,079 13,530
Income tax expense ..................................... 3,589 5,182
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Net income ............................................. $ 5,490 $ 8,348
======= =======
Net income per common share ............................ $ .33 $ .50
Weighted average shares and
equivalents outstanding ................................ 16,625 16,625
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See accompanying notes.
5
MONEYGRAM PAYMENT SYSTEMS, INC.
STATEMENT OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
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1997 1996
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Cash flows from operating activities:
Net income ............................................ $ 5,490 $ 8,348
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense ............... 4,109 2,448
Changes in operating assets and liabilities:
Assets restricted to money transfer
settlements .................................... (13,413) 3,477
Accounts receivable ............................. (3,258) (165)
Receivable from IPS ............................. (1,868) --
Prepaid and other assets ........................ (145) (24)
Utilization of deferred tax asset ............... 2,244 --
Liabilities relating to outstanding money
transfers .............................. 13,413 (3,477)
Accounts payable and other liabilities .......... 3,926 (1,941)
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Net cash provided by operating activities ............. 10,498 8,666
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Cash flows from investing activities:
Purchase of equipment and signage ..................... (3,568) (1,781)
Agent contract acquisition costs ...................... (1,995) (8,003)
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Net cash used for investing activities ................ (5,563) (9,784)
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Cash flows from financing activities:
Net transfer from IPS ................................. -- 1,118
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Net cash provided by financing activities ............. -- 1,118
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Change in cash and cash equivalents ................... $ 4,935 $ --
Cash and cash equivalents at beginning of year ........ 17,996 --
-------- -------
Cash and cash equivalents at end of period ............ $ 22,931 --
======== =======
See accompanying notes.
6
MoneyGram Payment Systems, Inc.
Notes to the Financial Statements
1. MoneyGram Payment Systems, Inc. (the "Company") was, until December 11,
1996, a wholly owned subsidiary of Integrated Payment Systems, Inc.
("IPS"). The 1996 financial statements have been prepared as if the
Company were a separate company as of January 1, 1996. The 1996 financial
statements present the financial position, results of operations and cash
flows attributable to the Company, which was separated as a product line
of IPS. Certain prior year amounts have been reclassified to conform to
the current year's presentation.
The financial information should be read in conjunction with the Company's
financial statements and notes included on its Annual Report on Form 10-K
for the year ended December 31, 1996. These unaudited financial statements
reflect all material and normal recurring adjustments that are, in the
opinion of management, necessary for a fair presentation of the results of
the interim period. The results of the interim period are not necessary
indicative of results to be expected for the full year.
2. In February 1997, the Company and Thomas Cook Group, Ltd. ("Thomas Cook")
announced the formation of a joint venture that is 51% owned by the
Company. This venture began operation in February and its results are
included in the accompanying financial statements.
3. Net income per common share amounts are computed using the
weighted-average number of common shares. Due to the average share price
during 1997, common share equivalents were not a factor.
4. On August 4, 1997, the Company announced it had reached a definitive
agreement with Mid America Bancorp, to acquire all of the capital stock of
Mid-America Money Order Company, for approximately $15 million cash. It is
expected that the transaction, which is subject to regulatory approvals,
will close in the fourth quarter of this year.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30,
1996
Revenues The Company's revenues were $37.6 million in the second quarter
of 1997 as compared with $37.4 million in 1996. This was the result of a
1% decline in fee revenue offset by a 5% increase in foreign exchange
revenue.
Fee and other revenue declined to $29.5 million from $29.7 million in the
second quarter of 1996, with foreign exchange revenue improving to $8.1
million from $7.7 million in 1996. Interest income on investable funds,
which is included in Fee and other revenue, increased $.3 million, to $.4
million in 1997, as a result of the Company's independent status.
Fee revenue declined as a result of promotional pricing in the Mexican and
Latin American markets. Overall transactional volumes improved 6% to 1.57
million from 1.48 million, with the growth coming from the US-to-Mexico,
Latin America, Caribbean and other international traffic corridors. This
increased traffic generated a 5% improvement in foreign exchange.
Expenses The Company's total operating expenses increased to $32.1 million
from $29.3 million in the second quarter of 1996 mainly as a result of the
increase in transactions and costs associated with the Company becoming a
separate entity.
Agent commissions increased 6% to $12.4 million in 1997 from $11.7 million
in 1996. This increase was due mainly to higher amortization expense
associated with agent signing bonuses and higher guaranteed commissions.
Processing costs increased 10% to $6.4 million in 1997 from $5.9 million
in 1996, mainly due to the higher level of transactions.
Advertising and promotion expense decreased 2% to $7.8 million in 1997
from $7.9 million in 1996.
Selling and services expense increased by 7% to $2.7 million in 1997 from
$2.5 million in 1996. This was due to an increase in the number of
marketing, sales and services employees hired to expand and support the
Company as a separate entity.
General and administrative expenses increased to $2.8 million in 1997 from
$1.3 million in 1996. This was due to costs associated with being a
separate entity and higher depreciation expense.
8
Six Months Ended June 30, 1997 Compared with Six Months Ended June 30,
1996
Revenues The Revenues for the six months ended June 30, 1997 were $70.0
million as compared with $73.0 million in 1996. This was the result of a
2% decline in fee revenue and a 10% decline in foreign exchange revenue.
Fee and other revenue declined to $55.8 million from $57.2 million in the
six months ended June 30, 1996. Interest income on investable funds
increased $.6 million, to $.7 million in 1997, offset by a decline in
consumer fees mainly as a result of a 4% decrease in transactions. Overall
transactions declined .1 million as a result of lower demand in the first
quarter of 1997. The foreign exchange revenue declined to $14.2 million
from $15.8 million in 1996 as a result of the lower level of first quarter
transactions.
Expenses The total operating expenses increased 2% to $60.9 million in
1997 from $59.5 million in 1996, driven primarily by higher amortization
expense of agent signing bonuses and higher guaranteed commissions.
Agent Commissions increased 3% to $23.3 in 1997 from $22.6 million in
1996. The increase was due to higher amortization expense associated with
agent signing bonuses and higher guaranteed commissions. These increases
were partially offset by lower commissions due to the decline in fee
revenue.
Processing costs increased 1% to $12.5 million in 1997 from $12.3 million
in 1996. Lower costs associated with reduced transaction volumes were more
than offset by increased operating costs associated with rent and software
licenses.
Advertising and promotion expense were three million dollars lower, $13.8
million in 1997 versus $16.8 million in 1996, as a result of lower
expenditures in the first quarter of 1997.
Selling and service expense increased one million dollars, to $5.8 million
in 1997 from $4.8 million in 1996, as a result of the development of a
separate sales and marketing force.
General administrative costs increased $2.5 million, to $5.5 million in
1997 from $3.0 million in 1996. This was due to costs associated with the
separate company status and higher depreciation expense.
9
Liquidity and Capital Resources
Total Cash and cash equivalents, which are comprised mainly of short term
investments, increased $4.9 million in the first half of 1997. In 1996 all
positive cash balances were transferred to IPS and all cash requirements
were provided in a transfer from IPS, thus all changes in cash and cash
equilivants were equal to zero.
The 1997 cash requirements include $2.3 million for the payment of taxes;
in 1996 all taxes were paid to IPS.
Cash flow from operations was $10.5 million in the first half of 1997 as
compared with $8.7 million in 1996. The 1997 results reflect reduced net
income, offset by increased depreciation and amortization, utilization of
the deferred tax asset and the culmination of the joint venture with
Thomas Cook.
Cash used for investing activities was $5.6 million in 1997 as compared
with $9.8 million in 1996 as a result of unusually high payments in 1996
to agents for assigning their contracts to the Company and extending the
terms of those contracts.
10
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders of the Company held on May 13, 1997,
Messrs. John M. Fowler and William D. Guth were elected to serve as directors
for terms ending in 2000. In addition to the foregoing, Messrs. James F.
Calvano, Robbin L. Ayers, Brian J. Fitzpatrick and Sanford Miller will continue
as directors of the Company.
The votes cast for Messrs. Fowler and Guth were as follows: For Withheld
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Mr. Fowler 13,745,478 256,025
Mr. Guth 13,745,878 255,625
In addition, the Board proposal to approve the appointment of Ernst & Young, LLP
as the Company's independent auditors for the 1997 fiscal year was ratified as
follows:
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
13,996,288 5,175 100 0
11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Executive Retention Plan, dated May 13, 1997, as amended to date.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MoneyGram Payment Systems, Inc.
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(Registrant)
Dated: August 13, 1997 BY: /s/ James F. Calvano
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James F. Calvano
Chairman of the Board and
Chief Executive Officer
Dated: August 13, 1997 BY: /s/ John M. Fowler
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John M. Fowler
Executive Vice President and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
13