UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-4128
BOSTON COMMUNICATIONS GROUP, INC.
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(Exact Name of Registrant as Specified in its Charter)
MASSACHUSETTS 04-3026859
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
100 Sylvan Road, Suite 100, Woburn, Massachusetts 01801
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (781) 904-5000
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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Indicate by check mark whether 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
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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 approximate aggregate value of the voting stock held by
non-affiliates of the registrant, computed by reference to the closing sales
price of such stock quoted on the Nasdaq National Market on March 9, 2001 was
$144,909,870. The number of shares outstanding of the Registrant's common stock,
$.01 par value per share, as of March 9, 2001 was 17,048,220.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in the following part of
this Form 10-K: information required by Part III (Items 10, 11, 12 and 13) of
this Annual Report on Form 10-K is incorporated from the Proxy Statement
relating to the 2001 Annual Meeting of Stockholders of the Company.
-37-
This Annual Report contains forward-looking statements that involve risks and
uncertainties, including without limitation, statements regarding the continued
decline in Prepaid Wireless per minute rates as carriers grow their subscriber
bases, minutes of usage and utilize volume discounts, seasonal trends in Prepaid
Wireless revenues and churn, that the loss of subscribers due to Rogers AT&T's
departure from the BCGI platform in the first quarter of 2001 will be offset by
increased net subscriber adds among BCGI's existing and new carrier customers,
that with the loss of Rogers AT&T the Company expects gross margin levels to
decrease in at least the first few quarters of 2001, reduction of unregistered
roaming revenues resulting from the trend of consolidation in the wireless
industry and national carriers offering one-rate registered roaming plans,
decreases in roaming margins as revenues continue to decline, increases in
engineering, research and development expenditures to support future development
and enhancements of its prepaid and other wireless services and systems and
reductions in sales and marketing and general and administrative expenses as the
Company continues to leverage and effectively manage its expenses. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements.
Any statements contained herein that are not statements of historical fact may
be deemed to be forward looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "intends," and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these words.
There are a number of important factors that could cause actual events or the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth under the captions "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Certain Factors That May Affect Future
Results", "Quantitative and Qualitative Disclosures About Market Risk" and those
set forth in Items 1 and 3 of Part I of this Annual Report on Form 10-K. The
factors discussed herein do not reflect the potential future impact of any
mergers, acquisitions or dispositions. The Company does not assume any
obligation to update any forward-looking statements made herein.
Item 1. Business
Background
General
Boston Communications Group, Inc. ("BCGI" or the "Company") provides flexible,
real-time transaction processing, billing and payment services and other
enhanced voice and data services to wireless carriers. Through its Intelligent
Voice Services Network ("IVSN"), one of the largest and most advanced automated
voice resource networks in North America, and its proprietary, highly scalable
transaction processing platform, BCGI provides one or more of its services to
approximately 70 wireless carriers and resellers, including the five largest
carriers in the United States--Verizon Wireless, Cingular Wireless, AT&T
Wireless, Sprint PCS and ALLTEL.
As of December 31, 2000, BCGI operated 46 IVSN Points of Presence ("PoPs") in
North America, providing coverage of over 160 Metropolitan Service Areas
("MSAs"), and encompassing over 95% of the U.S. population and all major markets
in Canada. As of that date, wireless carriers utilized over 42,700 voice ports,
or approximately 50% of the deployed network capacity of the IVSN, handling over
125 million minutes of voice traffic per month. The IVSN is integrated with
BCGI's proprietary transaction processing platform, which enables the delivery
of sub-second response times for approximately 70 million transactions per
month.
The Company's strategy is enhanced by its deployed network infrastructure, and
the synergies afforded by its complimentary lines of business, namely Prepaid
Wireless Services, Roaming Services and Systems, each of which is summarized
below. In addition, the Company believes that it is well positioned to deliver
end-to-end m-commerce solutions for wireless carriers, telecommunications
providers and other enterprises by leveraging its key assets, including its
deployed infrastructure, which currently enables low cost transaction
processing.
The Company's launched its beta trial for its first m-commerce service offering,
BCGI Wireless Wallet(TM), in January 2001 and it is now commercially available.
The Wireless Wallet service is designed to provide carriers with an end-to-end,
outsourced, cost-effective payment platform solution for the monetization of the
mobile Internet, as well as an opportunity to retain the carrier's position as a
key link in the value chain for m-commerce services.
Prepaid Wireless Services. BCGI's nationwide, real-time service bureau prepaid
solution has gained wide acceptance among wireless carriers, and is the leader
in the U.S. prepaid wireless market by number of subscribers, as estimated by
the Yankee Group. Prepaid Wireless Services generates revenue by charging
carriers based on the number of minutes of use ("MOUs") processed by the IVSN.
This network enables carrier's subscribers to use their wireless phone as if
they were a traditional post-pay subscriber, thereby expanding carriers' service
offerings to new and existing subscribers without the added billing costs and
collection risk. After achieving early success in Europe, prepaid wireless has
recently emerged as the fastest-growing segment of the U.S. wireless market, as
several domestic carriers began to launch prepaid programs in late 1999 and
2000. The Yankee Group estimates that prepaid calling plans will represent
approximately 50% of net subscriber additions in the U.S. over the next five
years, and projects the number of prepaid subscribers to grow from approximately
4.9 million at the end of 1999 to approximately 33.7 million by 2003,
representing a compound annual growth rate of over 60%.
As a result of its established position in the prepaid wireless market, with
prepaid customers including the three largest U.S. wireless carriers, BCGI has
increasingly begun to realize the benefits of the carriers' increased focus on
prepaid programs. As of December 31, 2000, the Company's Prepaid Wireless
Services provided outsourced, real-time voice and transaction processing for
approximately 3.0 million prepaid wireless subscribers, an increase of nearly
60% from December 31, 1999. In the fourth quarter of 2000, BCGI's IVSN was
handling over 1.5 billion minutes of prepaid wireless phone use on an annualized
basis.
Roaming Services. The Company pioneered the concept of unregistered roaming
services, allowing carriers to generate incremental revenue by serving visiting
subscribers who are not recognized automatically by their wireless networks.
These subscribers, who were previously denied service, are automatically
forwarded to the Company's proprietary network, through which BCGI bills and
collects from the subscriber. This proprietary network is integrated with the
IVSN to enable nationwide roaming for prepaid subscribers. Since 1991, the
Company has maintained a leadership position in the delivery of this service,
and is responsible for generating approximately $80 million in profits for its
carrier customers.
Systems. The Company's Systems operation develops, assembles and markets turnkey
solutions for prepaid wireless and other enhanced services, targeting
international and smaller domestic wireless carriers. The Systems operation also
develops and assembles the voice service nodes, or V-nodes, that comprise the
technology backbone of the IVSN.
The Company was organized as a Massachusetts corporation in 1988. The Company
launched its initial prepaid wireless marketing trials in mid-1994, and in 1995
initiated the build-out of the IVSN. In 1996, the Company acquired Voice Systems
Technology, Inc. (VST), which is now its Systems operation. The Company's
principal office is located at 100 Sylvan Road, Suite 100, Woburn, Massachusetts
01801 and its telephone number is (781) 904-5000.
Description of Business
Prepaid Wireless Services
The Company introduced its prepaid wireless service offering in mid-1994 and as
of December 31, 2000 was offering the service in over 160 U.S. Metropolitan
Service Areas (MSA's) that cover more than 95% of the U.S. population and all
major markets in Canada. The Company has become the leading prepaid wireless
service provider for wireless carriers in the United States and Canada and has
grown its subscriber base nearly 60%, from 1.9 million at December 31, 1999 to
approximately 3.0 million at December 31, 2000. The Company added approximately
1.1 million new net subscribers to its platform during that time.
BCGI's prepaid wireless service offering provides economies of scale by
combining many carrier subscribers onto one comprehensive network and
transaction processing platform. The Company's extensive experience in prepaid
has also allowed the Company to offer rich and robust features and functionality
as well as knowledgeable guidance to carriers to facilitate profitable prepaid
programs. In addition, several distinguishing features of BCGI's offering make
its prepaid product more competitive in the marketplace, especially as wireless
carriers continue to consolidate. BCGI's platform provides nationwide prepaid
roaming because of the Company's coverage of more than 95% of the US population,
a feature that most carriers and competitors cannot offer, nor provide as
economically as BCGI. BCGI's prepaid wireless service offering is also
"technology neutral", which means it can easily integrate with virtually all
switch types, wireless system types (GSM, TDMA, CDMA, etc.) and billing systems.
This feature has been a key factor in helping the Company increase its customer
base. BCGI's high reliability and telecommunications quality uptime performance
for call processing is another key competitive advantage, which is supported by
many redundant features and facilities in the network and transaction processing
platform and by the use of "best-in-class" vendor technologies, including Sun,
EMC and Cisco. As an example, BCGI's investment in its redundant processing site
in Waltham, Massachusetts provides load balancing for its primary transaction
processing platform site in Woburn, Massachusetts, further enhancing the
Company's platform reliability. Currently this redundant site supports primary
transaction processing for the Prepaid Connection service and is expected to
support additional services later in 2001.
In a wireless carrier's prepaid service offering, a subscriber establishes an
account with the carrier by prepaying a specific dollar amount that is credited
toward future service. Subsequently, each call that is initiated or received by
the subscriber is routed by the wireless carrier to the IVSN, which is linked to
the transaction processing platform, where information regarding the status of
that subscriber's prepaid account is maintained. The call is completed and the
subscriber's account is debited on a real-time basis, without requiring the
subscriber to enter a debit or credit card number or other information. When the
minute balance in the subscriber's account becomes low, the subscriber
periodically receives notifications indicating service minutes will soon expire,
and the call is immediately terminated once the balance in the account is
depleted. This feature is referred to as real-time rating and differentiates
BCGI's service from most other prepaid platforms and billing systems, which
typically do not rate the call until it is completed, thus allowing potential
call overruns. Therefore, BCGI's solution eliminates the carrier's bad debt
expense resulting from their prepaid customers' call overruns. Each call is
rated in real-time based on the telephone number called, carrier usage charges,
taxes and applicable surcharges.
The IVSN's broad geographic coverage, combined with the Company's extensive list
of carrier relationships in its roaming business, enables carriers to
cost-effectively offer prepaid customers the ability to roam outside of their
service territory. The Company also provides international dialing capabilities
to permit prepaid subscribers to make calls from within the U.S. and Canada to
countries around the world.
Prepaid subscribers receive service similar to subscribers using traditional
post-pay billing arrangements, including the ability to make outgoing and
receive incoming calls, as well as roam in other markets. Subscribers are able
to replenish their accounts by purchasing additional prepaid service from the
carrier by credit card through BCGI's automated replenishment feature or by
purchasing additional prepaid service at any of the carrier's affiliated retail
outlets. The Company has also established relationships with several
distribution technology partners to help expand the reach of the prepaid
replenishment options. Using the Company's technology, the partners, through
carrier relationships brokered through BCGI, are able to offer prepaid
replenishment on the BCGI platform in a seamless and automated way. The Company
also made a 13% investment in one of these partners, Datascape, Inc., whose
Merchant Manager product is a web-based, point-of-sale solution that helps to
streamline the prepaid replenishment process.
Carriers compensate BCGI for usage by contracting at per minute rates for
prepaid subscriber usage based on the connection time between the carrier's
Mobile Switching Centers (MSCs) and the IVSN's V-nodes for all completed calls.
As MOUs increase and carriers achieve higher volume tiers, per minute rates paid
by the carriers decrease, yielding lower average rates per MOU. The increasing
volume of traffic over the IVSN and transaction processing platform has allowed
the Company to successfully leverage its cost base, enabling it to reduce the
MOU pricing for its carrier customers, while still expanding its margins. The
Company's existing contracts to provide prepaid wireless services generally have
terms of one to three years.
In 1999, BCGI introduced Prepaid Connection, a product that uses a prepaid
architecture that economically delivers full-featured prepaid services to small
and medium-sized U.S. wireless carriers. These carriers represent a large
potential market opportunity, with approximately 21 million subscribers between
them, according to Yankee Group estimates. Prepaid Connection carriers can offer
subscribers full prepaid functionality, including automatic inbound and outbound
roaming virtually anywhere in North America at competitive prices on a per-MOU
basis. Thus, BCGI's larger carrier subscribers can roam into these markets and,
more importantly, the smaller carriers are able to offer prepaid roaming at
lower rates to their subscribers who roam into the larger carrier's markets.
BCGI manages the call rating, customer account information, Web-based customer
care server and provides the connection to the national roaming server complex.
The Company has successfully launched eight carriers on Prepaid Connection to
date.
BCGI continues to expand the features of its prepaid wireless services to offer
additional functionality to its carrier customers and their prepaid subscribers,
and has averaged two major software upgrades per year. Such expanded features
have included short messaging service, international dialing, web-based care,
automated on-line reporting for the carriers, automated account replenishment
options, reward programs and credit card address verification, which were added
to enhance features already offered to the subscribers, as well as the Converged
Prepaid feature, which allows subscribers to make prepaid calls from a wireless
or landline phone. The Company works closely with the carriers on an ongoing
basis to develop additional features and functionality to expand the
capabilities and value of prepaid wireless services.
In addition to providing the technology and payment infrastructure enabling
prepaid wireless services, the Company offers a full suite of customer care
solutions to its carrier customers. These solutions include the ability for the
carriers to outsource customer care to BCGI's preferred provider, TeleTech
Holdings, Inc., or insource the care themselves. BCGI enables carriers to access
their subscriber data for license fees by utilizing BCGI's proprietary software
systems, Customer Care Service Terminal ("CCST") or Remote Transaction Server
("RTS"). BCGI also offers web-based care to its Prepaid Wireless Services
carrier customers.
The Company currently provides prepaid wireless services to several U.S.
carriers, including Verizon Wireless, Cingular Wireless, AT&T Wireless (AWS),
Bay Area Cellular, Cincinnati Bell Wireless and Dobson Cellular Systems, Inc.,
and more than 20 wireless carriers and resellers.
Roaming Services
BCGI's ROAMERplus roaming service enables wireless carriers to cost-effectively
generate revenues from subscribers roaming in a carrier's service area who are
not covered under traditional roaming agreements. These unregistered roamers
attempting to place calls in the serving carrier's territory are automatically
switched to BCGI's proprietary network, through which BCGI arranges payment for
the calls, completes the calls and pays the serving carrier based on the length
of the call. When an unregistered roamer places a call in the carrier's service
area, the carrier's mobile switching center forwards the call, at the Company's
expense, to the Company's proprietary digital call processing system. The roamer
may complete the call by charging the call to a telephone calling card, a
commercial credit card, a prepaid account or as a collect call. All incoming
traffic is initially handled by an automated call processing system, which
prompts the caller for billing and calling information. The Company's specially
trained service representatives handle all calls that require additional
operator assistance. The Company's roaming service is currently being used by
over 50 wireless carriers in the United States and Canada. BCGI services 7 of
the 10 largest wireless carriers, by number of subscribers, in the United
States.
In order to implement the Company's ROAMERplus service, a carrier need only make
a minor software change in its switches. BCGI pays for transport of the calls to
its facilities and for completion of the calls. Under its agreements with
carriers, BCGI pays the serving carrier for the airtime that the roamer uses and
charges the roamer for the call. The charge for the call appears directly on a
telephone or credit card bill, with BCGI (typically, under the trade name
"Wireless Roaming") as the vendor. ROAMERplus eliminates collection and fraud
risk for the carrier because BCGI takes responsibility for collection from the
customer. The Company manages this collection and fraud risk by utilizing its
own proprietary and external fraud control systems as well as validating the
caller's credit before completing the call.
Although roaming service revenues have been declining, it is currently a
profitable segment and enhances the Company's prepaid offering by expanding the
geographic prepaid roaming footprint. The revenue decline is primarily
attributable to fewer suspensions of inter-carrier automatic roaming agreements,
increased carrier consolidation and some reduction of unregistered roaming use
because of the growth of prepaid wireless services. In addition, consumers may
be less willing to use the Company's premium priced roaming service due to the
increase in lower-priced, one-rate registered roaming plans offered by some
national carriers. The Company anticipates that these trends will continue and,
therefore, roaming services revenues will continue to decrease over time.
Since the Company expects the unregistered roaming business segment to continue
to decline, the Company is focusing its efforts on cost management and finding
new sources of revenue for this platform. In order to maintain margins and
realize contributing profits from ROAMERplus, the Company has improved its call
routing and streamlined operations to reduce telecommunications rates, bad debt
and labor costs.
Systems
The Company's Systems business delivers prepaid wireless solutions, which enable
prepaid wireless calling on a turnkey basis primarily to international
customers. The Systems business also markets and sells systems for voice
messaging, toll limitation and other enhanced service applications to Original
Equipment Manufacturers (OEM's) and wireless and wireline carriers throughout
North America. In addition, the Systems business also develops and assembles the
V-nodes that comprise the technology backbone of the IVSN.
The Company continues to sell prepaid systems to several customers whose efforts
are focused on international prepaid wireless services, including ADC
Telecommunications (formerly Centigram Communications), Cable & Wireless, Bell
South Wireless International and Nortel Networks. The relationship with ADC was
solidified in 1999 when the Company entered into an agreement pursuant to which
BCGI's prepaid system solution is offered through ADC's worldwide distribution
channels. The Systems' business customers have operations throughout the world
and have enabled the Company to make prepaid system sales in El Salvador,
Nigeria, Guam, Gibraltar, Venezuela, Ecuador, Guatemala and several other
countries in Central America and the Caribbean.
M-Commerce/BCGI Wireless Wallet Offering
Thousands of subscribers in Europe, Asia and the U.S. already utilize basic
mobile commerce ("m-commerce") services, including stock trading, online banking
and delivery of purchased content. Wireless access devices, such as mobile
phones, pagers and PDAs, are being transformed into electronic "wallets,"
providing easy-to-use solutions for personal portable information sharing and
transaction enabling. Though the U.S. has only a few thousand m-commerce
subscribers today, International Data Corporation ("IDC") projects this base to
grow to approximately 29 million subscribers in four years. IDC also estimates
that m-commerce in the U.S. will generate over $20 billion in transactions in
2004.
Micropayment transactions are expected to play a significant role in the
delivery of m-commerce applications, such as content purchases, music downloads,
vending machines, public transportation and tolls. These micropayment
transactions require an efficient, low-cost transaction processing vehicle,
since existing payment mechanisms, such as credit cards, carry substantial
processing fees (typically a minimum of $0.25 per transaction) and are prone to
delays associated with the authorization process. The Company believes that it
is uniquely positioned to deliver end-to-end m-commerce solutions for wireless
carriers, telecommunications providers and other enterprises by leveraging its
key assets, including its deployed infrastructure. In addition, the BCGI
Wireless Wallet differentiates itself from competitive offerings since it does
not need to be credit card based. A consumer may establish an account using
cash, making it an ideal solution for the youth market, which is ineligible for
credit, and for individuals wary of sending their credit card information over
the Internet.
In March 2001, the Company announced the availability of the BCGI Wireless
Wallet, following a successful beta trial program with Cincinnati Bell Wireless'
i-Wireless prepaid offering. This product is a foundation on which wireless
carriers can build new m-commerce services. Enabled by the Company's current
transaction-processing capabilities, BCGI Wireless Wallet provides carriers with
an end-to-end, secure, cost-effective m-commerce payment solution that links
stored value accounts to a network of e-commerce and m-commerce merchants. By
leveraging the Company for their m-commerce billing needs, wireless carriers can
focus on developing value-added services for their subscribers. Since wireless
carriers have established brands and have earned the end-user's trust, they are
well positioned to play a vital role as preferred suppliers to enable mobile
payment solutions for their subscribers. Specifically, the carriers can use BCGI
to host the carrier's privately labeled Wireless Wallet and provide transaction
processing on behalf of m-commerce merchants, content providers and service
providers. This presents the carriers with an opportunity to effectively retain
customer access control, acquire an additional brand loyalty tool and tap into
additional revenue streams. Carriers who successfully develop this position can
act as an important catalyst to the significant growth opportunities in the
emerging m-commerce market.
A natural extension of the technology behind BCGI's Prepaid Wireless service,
BCGI Wireless Wallet allows wireless carriers' subscribers to activate a
Wireless Wallet account using traditional Internet access via personal computer
or personal digital assistant and, subsequently, adding money to their account
at a wireless carrier's retail distribution points. Using wireless, voice or
PC-based Internet connectivity, the user can purchase goods and services from
certain web-enabled merchants. Users can also access account history, real-time
balance information, link credit/debit card to their account for funding and
transfer money to BCGI Wireless Wallet accounts. The user's account can be
replenished at over 75,000 potential points of distribution available to BCGI's
wireless carrier customers. BCGI Wireless Wallet provides carriers' subscribers
with a safe and easy payment solution for m-commerce.
Engineering, Research and Development
BCGI believes that one of its key competitive advantages is its proprietary
software and that its future success will depend in large part on its ability to
enhance existing services and develop new services in response to changing
market, customer and technological requirements of the wireless telephone
industry. An important factor in the future success of the Company's prepaid
wireless service will be the Company's ability to provide, at competitive
prices, more functionality and features than those typically available in other
competitive offerings.
The Company has developed proprietary software to enable its call processing
platform to handle custom signaling interfaces to various types of wireless
switches, specialized call rating requirements of prepaid wireless services, and
interfaces to wireless administration and information technology systems. The
Company is developing a number of enhanced services that it intends to make
available to prepaid and traditional subscribers through the IVSN and the
Company's transaction processing platform. In addition, BCGI believes that its
IN-based solution (Intelligent Networking), which is expected to be deployed in
the next several months, will improve call processing efficiency and enable BCGI
to provide additional benefits to its carrier clients, including improved
reliability and reduced telecommunications costs.
BCGI's engineering, research and development staff consists of 96 professionals,
including 40 in software development. The Company spent $7.1 million, $7.9
million and $9.9 million on engineering, research and development (including
capitalized software costs) in 1998, 1999 and 2000, respectively. The Company
expects to continue to devote significant resources to its engineering, research
and development activities in future years.
Sales, Marketing and Distribution
The Company's sales strategy is to establish and maintain long-term
relationships with its customers. The Company utilizes a consultative sales
process to understand and define customer needs and to determine how those needs
can be addressed by the Company's services. BCGI seeks to build upon its
existing customer relationships by integrating and cross-selling its different
service offerings. The Company's sales cycle varies for different services and
can be up to 12 months for the Company's Prepaid Wireless Services and Systems
businesses.
The Company's sales force consists of 10 business development professionals with
an average of over 12 years of experience in the telecommunications industry,
either as former employees of wireless carriers or in selling products and
services to wireless carriers. The Company typically assigns each sales
professional to a single group of wireless carriers in order to support the
development and maintenance of long-term strategic customer relationships. These
professionals are supported by product-specific account and service managers who
also typically have experience in the wireless industry and manage the accounts
on a daily basis after the completion of the initial sale. Most business
development professionals are strategically located in the carriers' major
geographic regions. However, the Company's marketing, account management and
product management activities are supported from its Woburn, Massachusetts and
Tulsa, Oklahoma locations.
The Company's direct sales strategy is complemented by a marketing program that
includes participation in industry trade shows, conferences and speaking
engagements and public relations. Because the Company's target customers are
wireless carriers and resellers, the Company seeks to gain broad industry
recognition through carefully selected events and activities specific to the
wireless industry.
The Company's has established product and account management groups for the
Prepaid Wireless Services and Systems segments. Each group focuses on supporting
carriers' operational issues, understanding the prepaid market and providing
carriers with valuable information regarding prepaid marketing and subscriber
trends, distribution techniques and marketing success factors. The Company works
closely with the carriers and the industry to disseminate and integrate this
information into their prepaid programs to help generate and retain prepaid
subscribers. In addition, the product and account management groups focus on
identification of new features and functionality that have the potential to
drive incremental prepaid business by working closely with all BCGI customers.
Distribution of prepaid wireless is an integral piece of the service because it
provides consumers with numerous channels to purchase or replenish prepaid
service. The Company continues to expand distribution options for prepaid cards
on behalf of wireless carriers through its Technology and Partners Program,
under which the Company seeks arrangements with national distributors,
retailers, resellers and alternative channels to increase market penetration and
exposure. Currently, Western Union, Radio Shack, Datascape, UPP and PreNet are
all part of BCGI's Technology and Partners Program, providing over 75,000
potential points of distribution to BCGI customers. BCGI has also recently
signed a memorandum of understanding with iATMglobal, a provider of ATM
interface technology. The Company is aggressively pursuing additional partners
and arrangements for distribution, including online activation and replenishment
opportunities. The Company has recently focused much effort on its marketing
program to expand awareness of its prepaid product offering, specifically to
provide more assistance to its carrier customers in strategically marketing and
promoting prepaid services through their sales and distribution channels.
Customers
The Company provides its services to wireless carriers and resellers of varying
size, expertise and capabilities. The Company currently provides one or more of
its services to over 70 wireless carriers and resellers in the United States and
Canada, including the five largest wireless carriers and 7 of the 10 largest
wireless carriers in the United States. Historically, a significant portion of
the Company's total revenues in any particular period has been attributed to a
limited number of customers. Net revenues attributable to the Company's ten
largest customers accounted for approximately 82%, 86% and 93% of the Company's
total revenues in 1998, 1999, and 2000, respectively. Verizon Wireless, Cingular
Wireless and AT&T Wireless, accounted for approximately 30%, 25% and 13%,
respectively, of total revenues in 1999 and for 28%, 30% and 13%, respectively,
of total revenues in 2000.
Competition
The market for providing services to wireless carriers is highly competitive
and subject to rapid change. A number of companies currently offer one or more
of the services provided by the Company. In addition, many wireless carriers
are providing, or can provide in-house, the services that the Company offers.
Trends in the wireless industry, including greater consolidation and
technological or other developments that make it simpler or more cost-effective
for wireless carriers to provide certain services themselves, could affect
demand for the Company's services and could make it more difficult for
the Company to offer a cost-effective alternative to a wireless carrier's
in-house capabilities. In addition, the Company anticipates the entrance of new
competitors in the wireless carrier services market in the future. BCGI's
principal competitor in the unregistered roaming market is National
Telemanagement Corporation (NTC, a subsidiary of Illuminet Holdings, Inc.)
and in the Prepaid Wireless Services market are Intervoice Brite, Inc., NTC,
Convergys Corp., TSI (a subsidiary of Verizon Wireless, Inc.), Lucent
Technologies, Inc., Compaq Computer Corp., Tracfone Wireless, Inc. and
Ericcson Telecommunications. The Systems Division's principal competitors
in the turnkey prepaid and voice processing systems markets are Lightbridge,
Inc. (formerly Corsair Communications Inc.), Comverse Technology, Inc.
and Intervoice Brite, Inc.
The Company believes that the principal competitive factors in the wireless
carrier services industry include the ability to easily integrate with all
switch types, wireless system types (GSM, TDMA, CDMA, etc.) and billing systems
(especially as United States wireless carriers continue to consolidate), the
ability to identify and respond to customer needs, the quality and breadth of
features and functionality, the size and scale of its prepaid wireless platform,
the availability of nationwide roaming, competitive pricing and technical
expertise. The Company's ability to compete also depends in part on a number of
competitive factors outside its control, including the ability to hire and
retain employees, the development by others of products and services that are
competitive with the Company's products and services, the price at which others
offer comparable products and services and the extent of its competitors'
responsiveness to customer needs. As a result of these and other factors, there
can be no assurance that the Company will be able to continue to compete
successfully with its existing competitors or with new competitors.
Government Regulation
The Federal Communications Commission ("FCC"), under the terms of the
Communications Act of 1934, as amended, including the Telecommunications Act of
1996, regulates interstate communications and the use of radio spectrum,
including entry, exit, rates and terms of operation. Presently, BCGI neither
operates any facilities utilizing radio spectrum nor has any facilities-based
services involving interstate communications. Consequently, it is not required
to and does not hold any licenses or other authorizations issued by the FCC for
interstate operations. Two subsidiaries of the Company, Cellular Express, Inc.
and BCGI Communications Corp., have been granted licenses by the FCC to provide
international telecommunications services. BCGI Communications Corp. has been
certified to provide intrastate telecommunication services in 45 states, and has
applications on file to provide intrastate telecommunication services in the
remaining 5 states and is, therefore, subject to state regulatory requirements.
The wireless carriers that constitute the Company's customers are regulated at
both the federal and state levels. Proposals to intensify or reduce government
regulations continue to be discussed at both the federal and state levels. Such
changes may decrease the growth of the wireless telephone industry, result in
new competitors or industry consolidation, limit the number of potential
customers for the Company's services or impede the Company's ability to offer
competitive services to the wireless market or otherwise have a material adverse
effect on the Company's business and results of operations.
Employees
As of December 31, 2000, the Company had a total of 366 full-time and part-time
employees. Of these employees, 73 serve in its Roaming Services call center and
related functions, 198 serve in technical operations and software development,
36 serve in sales, marketing, product and account management and 59 serve in
administration and management. None of the Company's employees are represented
by a labor union. The Company believes that its employee relations are good.
Backlog
As of December 31, 2000, there was $788,000 in backlog of firm orders of the
Systems business. The Company includes in backlog only those orders for which it
has received completed purchase orders and for which delivery has been specified
within 12 months. Most orders are subject to cancellation by the customer.
Because of the possibility of customer changes in delivery schedules,
cancellation of orders and potential delays in product shipments, the Company's
backlog as of any particular date may not be representative of actual sales for
any succeeding period.
Item 2. properties
The Company leases space at its principal location in Woburn, Massachusetts and
owns the facility at its Tulsa, Oklahoma location. In addition, the Company
leases a facility in Waltham, Massachusetts, which serves as a redundant site
for its transaction processing platform. The Woburn location serves as the
operations center for Roaming Services and has separate facilities that house
the Company's network operations center as well as the Company's executive
headquarters, training facility, engineering, sales, human resources and finance
personnel. The Tulsa facility is used for the assembly of systems and houses
other support functions for the Systems business such as software development,
product management, sales support and finance. The Company has 33 other leased
facilities throughout the United States that are used to house the Company's
voice nodes and certain equipment for the IVSN.
The following is a listing of the Company's significant leased facilities:
Location Square Footage Expiration Date
- --------- -------------- ---------------
Woburn, MA 62,205 March 2001-February 2006
Item 3. LEGAL PROCEEDINGS
In December 1999, the Company was named as a defendant in a suit filed in United
States District Court for the Northern District of Iowa by a former supplier
(the "Supplier") of materials to a subsidiary of the Company. A purchase
contract for an unspecified number of components was signed in 1997 and the
Supplier became the sole supplier for a certain system component in 1997 and
early 1998. The Company subsequently changed suppliers. The suit alleges that
the Company breached the confidentiality clause of the contract and interfered
with actual and prospective contracts with other customers. The Supplier
initially claimed misappropriation of trade secrets and sought an injunction,
but it has since dropped these claims. The Supplier seeks damages for lost
profits and damage to the supplier's reputation in excess of $1 million. The
Company believes that the claim is without merit.
In March, 2000, a suit was filed by Freedom Wireless, Inc. in the United States
District Court for the Northern District of California against the Company and a
number of wireless carriers, including customers and former customers of the
Company. The suit alleges that the defendants infringe a patent held by Freedom
Wireless, Inc. and seeks injunctive relief and damages in an unspecified amount.
Upon motion by the Company, the suit was transferred to the United States
District Court in Massachusetts in October, 2000 and is pending in that court.
The Company does not believe that it infringes this patent and believes that it
has meritorious defenses to the action.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company, through
solicitation of proxies or otherwise, during the last quarter of the year ended
December 31, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages and positions are as
follows:
- ----------------------------- ------------------ --------------
Name Age Position
- ----------------------------- ------------------ --------------
Paul J. Tobin 57 Chairman
- ----------------------------- ------------------ --------------
Brian E. Boyle 53 Vice Chairman
- ----------------------------- ------------------ --------------
E.Y. Snowden 46 President and Chief Executive
Chief Executive Officer,
Director
- ------------------------------ ------------------ ---------------
Karen A. Walker 36 Treasurer, Vice President,
Financial Administration and
Chief Financial Officer
- ----------------------------- ------------------ ---------------
William D. Wessman 51 Executive Vice President and
Chief Technology Officer
- ----------------------------- ------------------ ---------------
Frederick E. Von Mering 48 Vice President, Corporate
Development, Director
- ----------------------------- ------------------ ---------------
Robert J. Sullivan 56 Vice President and General
Manager, Roaming Services
- ----------------------------- ------------------ ----------------
Mr. Tobin has over 16 years experience in the telecommunications and wireless
industry. Mr. Tobin is one of the founders of the Company and has served as
BCGI's Chairman since 1988. Mr. Tobin also held the position of President from
February 1990 until February 1996, and from April 1997 to February 1998. Prior
to his tenure with BCGI, Mr. Tobin was President of Cellular One
Boston/Worcester and Portsmouth, NH, and Regional Marketing Manager for
Satellite Business Systems (a joint venture of IBM, Comsat and Aetna). Mr. Tobin
began his career as a Securities Analyst at Chase Manhattan Bank after receiving
his undergraduate degree in Economics from Stonehill College and his M.B.A. in
Marketing/Finance from Northeastern University.
Mr. Boyle has over 25 years of experience in the wireless and computer
industries. Mr. Boyle has held his position as the Company's Vice Chairman since
1994. Mr. Boyle has founded and operated several highly successful ventures
servicing the wireless industry, including Appex Corporation (now EDS Personal
Communications), Lightbridge, Inc. and Microfinancial Corp. Mr. Boyle earned a
B.A. degree in Mathematics and Economics from Amherst College and a Ph.D. degree
in Operations Research from M.I.T. For the past three years, he has been focused
on investing in early stage technology companies, including GoldK, Inc., as well
as serving as a director of several public companies, including Saville Systems
and MicroFinancial, Inc.
Mr. Snowden joined BCGI as President and Chief Executive Officer in February
1998.Prior to BCGI, he was President and Chief Operating Officer of American
Personal Communications, L.P. d/b/a Sprint Spectrum, where he was responsible
for the successful launch of the nation's first Personal Communications Services
("PCS") network. Before joining APC/Sprint Spectrum in 1994, Mr. Snowden was an
Area Vice President at Pacific Telesis Group, where he was integral in Pacific
Bell's entry into the PCS market through the development of the business plan
for Pacific Bell Mobile Services. Previously, he was Chief Executive Officer of
Universal Optical Company, a manufacturer and marketer of designer eyewear. Mr.
Snowden began his career as a Corporate Strategy Consultant and Manager with the
Boston Consulting Group. Mr. Snowden holds a B.S. degree in Mathematical
Sciences from Stanford University and an M.B.A. from the Harvard Business
School.
Ms. Walker joined BCGI in 1993 as Corporate Controller. In August 1998, Ms.
Walker became BCGI's Vice President of Finance and Administration, and in April
1999 she was promoted to the position of Chief Financial Officer. As CFO, Ms.
Walker is responsible for overseeing all finance, accounting and human resource
aspects of the Company. She also played an integral part in guiding the Company
through its IPO and follow-on offering. Prior to joining BCGI, Ms. Walker spent
six years at Ernst & Young LLP, where she earned her C.P.A. and was a Manager in
E&Y's Entrepreneurial Services Group. Ms. Walker holds a B.S. degree in
Accounting from Boston College.
Mr. Wessman has over 30 years of experience in the communications industry.
Prior to joining BCGI in April 1995, Mr. Wessman spent 24 years with NYNEX
Corporation, where he managed the development of billing systems and became
Director of Quality Assurance, responsible for managing system testing, quality
assurance and customer billing support. Mr. Wessman holds undergraduate and
M.B.A. degrees from Northeastern University.
Mr. Von Mering has been involved with the telecommunications and wireless
industries for 15 years. Mr. Von Mering held the position of the Company's Chief
Financial Officer from June 1990, when he joined the Company, until April 1999.
Prior to joining BCGI, he was Regional Vice President and General Manager for
Metromedia's paging division, and held various positions at Coopers & Lybrand,
where he earned his C.P.A. Mr. Von Mering has an undergraduate degree in
Accounting from Boston College and an M.B.A. from Babson College.
Mr. Sullivan has over 25 years of wireless and communications experience. Mr.
Sullivan has been a Vice President at BCGI since June 1990, and in 1997 he
assumed his current position of Vice President and General Manager of BCGI's
Roaming Services. From 1984 to 1989, Mr. Sullivan worked for Cellular One, where
he was responsible for building the cellular systems in Boston, Worcester, and
Portsmouth, NH. Prior to Cellular One, Mr. Sullivan spent 10 years as an
Engineering Manager for Zip-Call, where he built New England's largest paging
network. Mr. Sullivan holds a graduate degree in Electrical Engineering from
Northeastern University.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information for Common Stock
Boston Communications Group, Inc.'s Common Stock is traded on the Nasdaq
National Market, under the symbol BCGI. The following table reflects the range
of high and low selling prices of the Company's common stock for the periods
indicated.
1999 2000
---- ----
High Low High Low
First Quarter $ 13 1/4 $8 1/16 $ 12 13/16 $ 5 5/16
Second Quarter 14 11/16 7 3/8 15 3/8 5 5/8
Third Quarter 17 1/4 4 9/16 20 3/4 11 7/8
Fourth Quarter 7 7/16 3 1/2 29 7/8 16
Holders
At February 28, 2001, there were approximately 5,000 holders of record of Common
Stock.
Dividends
The Company has never paid a cash dividend on its Common Stock. The Company
currently intends to retain all of its earnings to finance future growth and,
accordingly, does not anticipate paying any cash dividends in the foreseeable
future.
Item 6. SELECTED FINANCIAL DATA
The following tables should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this report.
Year ended December 31,
---------------------- -----------------------
1996 (1) 1997 1998 1999 2000
--------- --------- --------- -------- --------
Consolidated Statements of Operations Data: (in thousands, except per share data)
Total revenues $37,238 $51,090 $60,481 $64,181 $75,570
Operating income (loss) (2) 3,644 (3,830) (4,753) (2,681) 3,506
Income (loss) from continuing operations (2) 3,633 (2,557) (2,791) (1,595) 3,710
Income (loss) from discontinued operations (3,034) 1,441 991 809 6,506
Net income (loss) (2) 599 (1,116) (1,800) (786) 10,216
Basic net income (loss) from continuing operations per
common share 0.33 (0.18) (0.17) (0.10) 0.22
Diluted net income (loss) from continuing operations per
common share 0.33 (0.18) (0.17) (0.10) 0.21
Basic net income (loss) from discontinued operations per
common share (0.28) 0.10 0.06 0.05 0.39
Diluted net income (loss) from discontinued operations per
common share (0.28) 0.10 0.06 0.05 0.37
Basic net income (loss) per common share 0.05 (0.08) (0.11) (0.05) 0.61
Diluted net income (loss) per common share 0.05 (0.08) (0.11) (0.05) 0.58
Consolidated Balance Sheet Data:
Cash and short-term investments 21,421 33,704 25,609 30,236 54,610
Working capital 26,433 43,132 41,835 38,632 47,261
Property and equipment, net 12,906 33,165 33,617 39,365 45,037
Total assets 51,959 93,385 91,760 99,331 118,644
Capital lease obligations, net of current maturities -- 1,598 546 1,828 740
Shareholders' equity $42,893 $80,104 $78,658 $79,369 $94,697
(1) In February 1996, the Company acquired VST for Common Stock and cash for an
aggregate purchase price of approximately $2.5 million.
(2) Results for the year ended December 31, 1997 and 1998 include one-time
charges of $569,000 and $698,000, respectively, for impairment of long
lived assets no longer being used in the Company's business. Results for
the year ended December 31, 1999 include a one-time cost of systems
revenues charge of $1.8 million for reorganization of the Systems business.
The charge principally related to expenses associated with inventory
write-downs to bring the level of inventory in line with the future sales
strategy, as well as severance costs. Results for the year ended December
31, 2000 include an impairment of long-lived assets charge of $1.1 million
for a write-down of assets no longer being used to support the Company's
business, a one-time charge to cost of services revenues of $2.6 million to
accrue for estimated legal expenses and additional depreciation of $1.7
million resulting from write-offs of certain equipment.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Consolidated Results of Operations
The Company's total revenues increased 18% from $64.2 million in 1999 to $75.6
million in 2000. The growth was attributable to a 44% increase in revenues from
the Company's Prepaid Wireless Services business, and partially offset by a 20%
decline in Roaming Services revenues and a 6% decline in Systems revenues. In
1999, total revenues increased 6% compared to 1998 primarily due to a 98%
increase in Prepaid Wireless Services revenues, partially offset by a 21%
decline in Roaming Service revenues and a 63% decline in Systems revenues.
The Company increased its operating income from continuing operations from
operating losses of $4.8 million and $2.7 million for the years ended December
31, 1998 and 1999, respectively, to operating income from continuing operations
of $3.5 million for the year ended December 31, 2000. The significant increase
in Prepaid Wireless Services revenues principally contributed to the improvement
in operating income from continuing operations in 1999 and 2000. Excluding the
effects of the loss on impairment of long-lived assets and one-time charges in
the three years ended December 31, 1998, 1999 and 2000, the operating losses
from continuing operations for the years ended December 31, 1998 and 1999 were
$4.1 million and $857,000, respectively, and operating income from continuing
operations for the year ended December 31, 2000 was $7.2 million. The specifics
of each segment's revenues and gross margin are discussed in greater detail
below.
The Company's reportable operating segments consist of Prepaid Wireless
Services, Roaming Services and Systems businesses. The accounting policies of
the operating segments are the same as those described in the summary of
significant accounting policies in Note 2 of the Company's Consolidated
Financial Statements, except that the financial results for the Company's
operating segments have been prepared using a management approach. This approach
is consistent with the basis and manner in which the Company's management
internally analyzes financial information for the purposes of assisting in
making internal operating decisions. The Company evaluates performance based on
the gross margin of each stand-alone business. In 2000, for segment reporting
purposes, the Company began reporting inter-segment sales from the Systems
business to the Prepaid Services business for voice nodes, known as V-nodes, and
related equipment shipped during the year. Prior year amounts have been
reclassified to permit comparison. Segment disclosure information is included in
Note 7 of the Company's Consolidated Financial Statements.
The Company's chief operating decision-maker is its President and Chief
Executive Officer. The Company's operating segments are managed separately
because each represents a strategic business unit that offers different products
and serves unique markets within the wireless industry. However, the businesses
complement each other providing the Company with a strong suite of products and
services to meet the needs of wireless carriers. The Company's customers include
seven of the ten largest domestic wireless carriers by subscribers served.
Segment Data (in thousands except for percentages)
Prepaid
Wireless Roaming
Services Services Systems Eliminations Total
--------------------------- ----------- ----------- ---------- --------------- ---------
2000
Revenues $53,221 $17,650 $18,449 ($13,750) $75,570
======= ======= ======= ========= =======
Gross margin (1) 36,561 3,257 7,856 (5,347) 42,327
====== ===== ===== ======= ======
Gross margin percentage 69% 19% 43% (39%) 56%
=== === === ===== ===
(1)
1999
Revenues $36,920 $22,249 $10,327 ($5,315) $64,181
======= ======= ======= ======== =======
Gross margin (2) 24,638 4,017 1,821 (2,067) 28,409
====== ===== ===== ======= ======
Gross margin percentage 67% 18% 18% (39%) 44%
=== === === ===== ===
(2)
1998
Revenues $18,624 $28,235 $17,038 ($3,416) $60,481
======= ======= ======= ======== =======
Gross margin 9,787 6,364 6,502 (1,328) 21,325
===== ===== ===== ======= ======
Gross margin percentage 53% 23% 38% (39%) 35%
=== === === ===== ===
(1) The gross margin for Prepaid Wireless Services includes a one-time charge
for a $2.6 million accrual of legal expenses in December 31, 2000.
(2) The gross margin for the Systems business includes a one-time cost of
systems revenues charge of $1.8 million in December 31, 1999 for the
reorganization of the Systems business, which principally related to
expenses associated with inventory write-downs to bring the level of
inventory in line with the future sales strategy, as well as severance
costs.
Prepaid Wireless Services
Prepaid Wireless Services revenues increased from $18.6 million in 1998 to $36.9
million in 1999 and increased 44% to $53.2 million in 2000. At the end of 2000,
there were approximately 3.0 million paid subscribers on the Company's IVSN
compared to 1.9 million subscribers at the end of 1999, an increase of
approximately 60%. The subscribers increased over 113% in 1999 from 890,000 at
the end of 1998. The increases in revenues were primarily due to increased
numbers of subscribers and greater minutes of use, partially offset by a
decrease in the average price per minute as carriers availed themselves of the
Company's volume discounts. The Company expects the average price per minute to
continue to decline as carriers grow their subscriber bases and continue to
utilize the Company's volume discounts.
Gross margins for the Prepaid Wireless Services improved from 53% of prepaid
wireless service revenues in 1998 to 67% of revenues in 1999 and to 69% of
revenues in 2000. The Company's gross margin increased during each quarter of
2000 (excluding the one-time charge), even with the carrier's additional volume
discounts. With the loss of Rogers AT&T in the first quarter of 2001, the
Company expects gross margin levels to decrease in at least the first few
quarters of 2001. The gross margin for 2000 includes a one-time charge for a
$2.6 million accrual for legal expenses. The charge for legal expenses
represents the fees the Company may incur in the defense of a patent
infringement suit brought by Freedom Wireless. The Company believes that the
claims made by Freedom Wireless are without merit and will vigorously defend the
action. The improvement in both years resulted from the significant increase in
prepaid wireless services revenues in 1999 and 2000 that leveraged the
predominantly fixed cost infrastructure. This increase in gross margins was
partially offset by increased personnel and related costs incurred to support
the growth of the IVSN and transaction processing platform.
The Company previously announced that Rogers AT&T will not renew its prepaid
contract and that it would bring its prepaid program in-house. In the first
quarter of 2001, the Company expects approximately 800,000 subscribers to
migrate off of the BCGI platform. While management believes that the loss of
subscribers due to Rogers AT&T's departure from the BCGI platform will be offset
by increased net subscriber additions, among BCGI's existing carrier customers
later in 2001 and the addition of new carriers to its platform, management
revised its financial projections downward for first quarter and full-year
fiscal 2001.
Roaming Services
Roaming services revenues decreased 21% from $28.2 million in 1998 to $22.2
million in 1999 and decreased 20% to $17.7 million in 2000. The decrease in
roaming services revenues was primarily attributable to consolidation in the
industry and an increase in one-rate registered roaming plans offered by some
national carriers. The Company anticipates that these trends will continue and,
therefore, roaming services revenues are expected to continue to decrease at
similar rates compared to prior periods.
Gross margins for Roaming Services decreased from 23% of roaming services
revenues in 1998 to 18% in 1999 and increased to 19% in 2000. The gross margin
increased slightly in 2000 due to negotiation of reduced rates for vendor
telecommunications costs. The decrease in 1999 resulted primarily from lower
revenues and therefore lower absorption of fixed costs, higher revenue sharing
rates paid to the Company's carrier customers and higher vendor
telecommunications costs. The Company anticipates that margins will decrease as
revenues continue to decline.
Systems
In 2000, the Company began reporting inter-segment revenues (which are
eliminated in consolidation) from Systems to Prepaid Services for V-nodes and
related equipment deployed during the year. Prior year amounts have been
reclassified to permit comparison. Systems revenues decreased 39% from $17.0
million in 1998 to $10.3 million in 1999 and increased 77% to $18.4 million in
2000. Excluding inter-segment revenues, Systems revenues declined from $13.6
million in 1998 to $5.0 million in 1999 and $4.7 million in 2000. The increase
in gross Systems revenues in 2000 reflects increased shipments of inter-segment
prepaid V-nodes while external revenues remained fairly consistent. The decrease
in 1999 was due to a significant decline in orders for international prepaid
systems.
Gross margins for Systems decreased from 38% of systems revenues in 1998 to 35%
in 1999 (excluding the effects of the one-time charge discussed below) and
increased to 43% of systems revenues in 2000. The increase in 2000 was a result
of increased revenues for inter-segment sales of voice nodes in addition to
increased recurring service revenues that yield a higher margin. The decrease in
1999 was primarily due to the reduced sales levels for 1999 that absorbed fewer
fixed costs. In addition, the gross margin was further reduced in 1999 as
compared to 1998 by the one-time charge of $1.8 million recorded in the third
quarter of 1999 for the reorganization of the Systems business. The charge
principally related to expenses associated with inventory write-downs to bring
the level of inventory in line with the future sales strategy, as well as
severance costs.
The Company currently prices and sells all of its systems to international
customers in U.S. dollars. All payments are received in U.S. dollars, which
helps to protect the Company from the need to hedge against foreign currency
risk.
Operating Data
($ in thousands)
2000 1999 1998
% of % of % of
Total Revenue Total Revenue Total Revenue
- --------------------------------------------- --------- ------------- --------- ----------- -------- -------------
Total revenues $75,570 100% $64,181 100% $60,481 100%
Engineering, research and development 8,018 11% 5,986 9% 5,439 9%
Sales and marketing expense 5,162 7% 6,075 10% 5,182 9%
General and administrative expense 6,752 9% 6,244 10% 5,518 9%
Depreciation and amortization expense 17,795 24% 12,785 20% 9,241 15%
Impairment of long-lived assets 1,094 1% 0 0% 698 1%
Engineering, research and development expenses
Engineering, research and development expenses primarily include the salaries
and benefits for software development and engineering personnel associated with
the development, implementation and maintenance of existing and new services.
Engineering, research and development expenses increased from 9% to 11% of total
revenues for the years ended December 31, 1999 and 2000, respectively. This
increase primarily resulted from additional resources devoted to expanding and
enhancing the features and functionality of the Company's IVSN and transaction
processing platform, in addition to resources devoted to the Company's
m-commerce initiatives.
Engineering, research and development expenses remained consistent at 9% of
total revenues for the years ended December 31, 1998 and 1999. The Company
intends to continue to increase its engineering, research and development
expenditures to support ongoing and future development and enhancements of its
prepaid and other wireless services and systems. In addition, the Company
intends to invest additional resources to expand the capabilities of its current
network to be positioned to take advantage of new wireless opportunities.
Sales and marketing expenses
Sales and marketing expenses include direct sales and product management
salaries, commissions, travel and entertainment expenses, in addition to the
cost of trade shows, advertising and other promotional expenses. Sales and
marketing expenses decreased from 10% to 7% of total revenues for the years
ended December 31, 1999 and 2000 due to the reorganization of the Company's
sales organization into one group to centralize efforts and leverage resources.
As a percentage of total revenues, sales and marketing increased from 9% to 10%
for the years ended December 31, 1998 and 1999, respectively. The increase
resulted from new marketing and business development efforts for the Company.
Sales and marketing expenses are expected to continue to decrease in absolute
dollars and as a percentage of total revenues in 2001, as the Company continues
to focus on leveraging and managing expenses.
General and administrative expenses
General and administrative expenses include salaries and benefits of employees
and other expenses that provide administrative support to the Company. Total
general and administrative expenses decreased as a percentage of total revenues
from 10% in 1999 to 9% in 2000, respectively. The decrease resulted from the
ability of the Company to leverage its existing workforce and cost
infrastructure to support increased revenues.
General and administrative expenses increased as a percentage of total revenues
from 9% in 1998 to 10% in 1999. The increase resulted principally from increased
personnel and other related costs to support the company's growth. General and
administrative expenses are expected to continue to decrease in absolute dollars
and as a percentage of total revenues in 2001, as the Company continues to focus
on leveraging and managing expenses.
Depreciation and amortization expense
Depreciation and amortization expense includes depreciation of
telecommunications systems, furniture and equipment and leasehold improvements.
The Company provides for depreciation using the straight-line method over the
estimated useful lives of the assets, which range from three to twenty years.
Goodwill related to acquisitions is amortized over eight years. Depreciation and
amortization expense increased from 15% to 20% to 24% of total revenues for the
years ended December 31, 1998, 1999 and 2000, respectively. The increases in
both years were due primarily to the depreciation of additional technical
equipment and software to support the rapid expansion and enhancement of the
Company's IVSN and transaction processing platform. In addition, the increase
for 2000 included $1.7 million of additional depreciation recorded to write-off
certain equipment no longer being used to support the Company's operations.
Impairment of long-lived assets
The Company recognized a pre-tax charge of $1.1 million and $698,000 for the
years ended December 31, 2000 and 1998, respectively, to write-down equipment no
longer being used to support the Company's Prepaid Wireless Services operation,
as these assets were not expected to generate any additional cash flows.
Interest income, net
Interest income decreased from $1.3 million in the year ended December 31, 1998
to $941,000 in 1999, and increased to $2.0 million in 2000. Interest income was
earned primarily from investments from the increased cash generated from
operations and the proceeds from the Company's public offerings.
Provision (benefit) for income taxes
The effective income tax rate for the year ended December 31, 2000 was 33%
principally due to the reversal of valuation allowance as the Company utilized
net operating losses in the current year.
The income tax benefit was $145,000, or 8% of the loss for the year ended
December 31, 1999 and $613,000 or 18% of the loss for the year ended December
31, 1998. The income tax benefits were less than 40% as the Company did not
provide any additional benefit for the net operating losses generated along with
the non-deductibility of goodwill.
Income from discontinued operations
The Company's Teleservices business was a customer service call center operation
that was sold to Teletech Holdings, Inc. on November 7, 2000 for $15 million
including the assumption of certain liabilities and has been recorded as a
discontinued operation for all periods presented. Income from discontinued
operations increased from $809,000 in 1999 to $1.5 million in 2000. Despite
lower revenues in 2000, the increase in income was primarily due to streamlined
operations and improved cost management, and the fact that 1999 included costs
associated with closing the Company's Woburn call center, including severance
and asset write-offs. Income from discontinued operations decreased from
$991,000 in 1998 to $809,000 in 1999 principally due to the costs associated
with closing the Woburn call center.
The gain on disposal of the Teleservices business was $5.0 million, net of
income taxes of $2.5 million.
Selected Quarterly Operating Results
The following table sets forth certain unaudited quarterly results of operations
of the Company for the eight quarters in the two-year period ended December 31,
2000, including such amounts expressed as a percentage of total revenues. This
quarterly information is unaudited, has been prepared on the same basis as the
audited Consolidated Financial Statements and, in the opinion of the Company's
management, reflects all necessary adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the periods presented. The quarterly operating results are not necessarily
indicative of future results of operations and should be read in conjunction
with the audited Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-K.
Three months ended
-----------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
(In thousands 1999 1999 1999 1999 2000 2000 2000 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues:
Prepaid wireless services $7,872 $9,731 $9,115 $10,202 $12,344 $12,716 $13,940 $14,221
Roaming services 5,435 5,733 5,956 5,125 4,807 4,589 4,556 3,698
Systems 1,014 1,250 955 1,793 391 1,563 1,353 1,392
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 14,321 16,714 16,026 17,120 17,542 18,868 19,849 19,311
Expenses:
Cost of service revenues 7,312 7,987 8,292 6,923 7,124 7,268 7,470 6,591
Cost of service revenues - one time
charge (2) -- -- -- -- -- -- -- 2,600
Cost of system revenues 735 863 728 1,108 434 687 449 620
Cost of system revenues -
one-time charge (1) -- -- 1,824 -- -- -- -- --
Engineering, research and development 1,248 1,536 1,619 1,583 1,807 1,860 2,155 2,196
Sales and marketing 1,501 1,553 1,387 1,634 1,462 1,352 1,101 1,247
General and administration 1,407 1,544 1,716 1,577 1,712 1,722 1,658 1,660
Depreciation and amortization (3) 2,836 2,992 3,370 3,587 3,786 3,928 4,197 5,884
Impairment of long-lived assets (2) -- -- -- -- --- -- -- 1,094
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 15,039 16,475 18,936 16,412 16,325 16,817 17,030 21,892
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (718) 239 (2,910) 708 1,217 2,051 2,819 (2,581)
Interest income, net 274 247 227 193 357 456 499 737
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (444) 486 (2,683) 901 1,574 2,507 3,318 (1,844)
Provision (benefit) for income taxes (157) 243 (598) 367 679 1,078 1,194 (1,106)
Income (loss) from continuing operations (287) 243 (2,085) 534 895 1,429 2,124 (738)
Income (loss) from discontinued operations 477 419 (129) 42 177 414 586 5,329
Net income (loss) 190 662 (2,214) 576 1,072 1,843 2,710 4,591
Basic earnings (loss) per share from
continuing operations $(0.02) $0.01 $(0.13) $0.03 $0.05 $0.09 $0.13 $(0.04)
Basic earnings (loss) per share from
discontinued operations $0.03 $0.03 $(0.01) $0.00 $0.01 $0.02 $0.03 $0.31
Basic earnings (loss) per share $0.01 $0.04 $(0.13) $0.03 $0.06 $0.11 $0.16 $0.27
Diluted earnings (loss) per share from
continuing operations $(0.02) $0.01 $(0.13) $0.03 $0.05 $0.08 $0.12 $(0.04)
Diluted earnings (loss) per share from
discontinued operations $0.03 $0.02 $(0.01) $0.00 $0.01 $0.02 $0.03 $0.29
Diluted earnings (loss) per share $0.01 $0.04 $(0.13) $0.03 $0.06 $0.11 $0.15 $0.25
(1) Results for the three months ended September 30, 1999 include a one-time
$1.8 million charge for reorganization of the Systems business. The charge
principally relates to expenses associated with inventory write-downs to
bring the level of inventory in line with the future sales strategy, as
well as severance costs.
(2) Results for the three months ended December 31, 2000 include impairment of
long-lived assets, a charge of $1.1 million for a write-down of assets no
longer being used to support the Company's business and a one-time charge
to cost of services revenues of $2.6 million for estimated legal expenses
expected to be incurred in connection with the defense ofFreedom Wireless
patent infringement suit.
(3) Depreciation and amortization for the three months ended December 31, 2000
includes additional depreciation of $1.7 million resulting from write-offs
of certain equipment.
As a Percentage of Total Revenues
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31
1999 1999 1999 1999 2000 2000 2000 2000
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Revenues:
Prepaid wireless services 55% 58% 57% 60% 70% 68% 70% 74%
Roaming services 38 34 37 30 28 24 23 19
System 7 8 6 10 2 8 7 7
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Total revenues 100 100 100 100 100 100 100 100
Expenses:
Cost of service revenues 51 48 52 41 41 38 38 34
Cost of service revenues - one time charge -- -- -- -- -- -- -- 13
Cost of system revenues 5 5 4 6 2 4 2 3
Cost of system revenues-one-time charge -- -- 11 -- -- -- -- --
Engineering, research and development 9 9 10 9 10 10 11 11
Sales and marketing 10 9 9 10 8 7 6 7
General and administration 10 9 11 9 10 9 8 9
Depreciation and amortization 20 18 21 21 22 21 21 30
Impairment of long-lived assets -- -- -- -- -- -- -- 6
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Total expenses 105 98 118 96 93 89 86 113
Operating income (loss) (5) 2 (18) 4 7 11 14 (13)
Interest income, net 2 1 1 1 2 2 3 3
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Income (loss) before income taxes (3) 3 (17) 5 9 13 17 (10)
Provision (benefit) for income taxes (1) 1 (4) 2 4 5 6 (6)
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Income (loss) from continuing operations (2) 2 (13) 3 5 8 11 (4)
Income (loss) from discontinued operations 3 2 (1) -- 1 2 3 28
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Net income (loss) 1 4 (14) 3 6 10 14 24
The Company has experienced fluctuations in its quarterly operating results and
such fluctuations may continue and could intensify. The Company's quarterly
operating results may vary significantly depending on a number of factors,
including the timing of the introduction or acceptance of new services offered
by the Company or its competitors, seasonality, changes in the mix of services
provided by the Company, changes in regulations affecting the wireless industry,
changes in the Company's operating expenses, personnel changes, and general
economic conditions. In particular, Prepaid Wireless Services revenues are
affected by seasonal trends as the fourth quarter typically generates the
highest number of net additions as compared to the other three quarters. During
the fourth quarter of 2000, most of the Company's carrier customers experienced
the same seasonal trends, however, total Company results were offset by lower
than expected net additions from its largest customer, Verizon Wireless. The
timing of carrier contract renewals and the related minute of usage pricing can
also impact Prepaid Wireless Service revenues. The Company's Roaming Services
revenues are affected by the frequency and volume of use of the Company's
service, which may also be influenced by seasonal trends. The timing of orders
and the number of large prepaid systems shipped during a particular quarter may
fluctuate based upon the needs of the Systems business customers and can have a
significant impact on the level of revenues for the Systems business.
Because a significant portion of the Company's operating expenses are committed
in advance, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, unexpected revenue
shortfalls could cause significant variations in operating results from quarter
to quarter and could have a material adverse effect on the Company's results of
operations. As a result, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as an indication of likely future performance.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments increased from $30.2 million
in 1999 to $54.6 million in 2000. The increase was due to the Company's improved
cash flow from operations and $11.8 million in net proceeds from the sale of the
Teleservices business. Net cash provided by operations of $35.6 million in 2000
resulted from $3.7 million in net income from continuing operations along with
adjustments for depreciation and amortization of $17.8 million, income tax
benefit from exercise of options of $1.8 million, deferred income taxes of $1.2
million, impairment charges of $1.1 million and $2.6 million in legal costs
accrued. In addition, $4.8 million of cash was generated from improved
collections of accounts receivable, inventory levels were reduced by $1.1
million due to improved inventory management and the Company's accounts payable
and accrued expenses increased $2.0 million due to the timing of payments.
The Company's investing activities utilized $7.2 million of net cash in 2000.
The Company purchased capital equipment and software of $24.0 million in 2000,
including $22.5 million for telecommunications systems equipment and software
for expansion of the Company's IVSN and transaction processing platform. The
Company also received $11.8 million in net cash proceeds from the sale of the
Teleservices business and $5.0 million in proceeds on sales of short-term
investments, net of purchases. The Company anticipates that over the next 12
months it will continue to make significant capital investments for additional
equipment and enhanced feature capabilities to strengthen its Prepaid Wireless
Services and other enhanced services. The Company's financing activities
provided cash of $1.0 million in 2000, including proceeds of $2.2 million from
the exercise of options, net of $1.6 million in capital lease repayments.
The Company believes that its short-term investments and the funds anticipated
to be generated from operations will be sufficient to finance the Company's
operations for at least the next 12 months.
Certain Factors That May Affect Future Results
Historically, a significant portion of the Company's revenues in any particular
period have been attributable to a limited number of customers. This
concentration of customers can cause the Company's revenues and earnings to
fluctuate from quarter to quarter, based on the volume of minutes of usage
generated from these customers. A significant decrease in business from any of
the Company's major customers, including a decrease in business due to factors
outside the Company control, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Certain Prepaid Wireless services contracts have been extended beyond their
expiration dates or will expire in 2001 and beyond. There can be no assurances
that the Company will be successful in renewing any of these contracts. If any
of these contracts are not renewed the Company's business, financial condition
and results of operations could be materially adversely affected. Also, when and
if each of the contracts is renewed, some contractual rates per minute will
likely be lower than in previous years. If subscriber levels and minutes of
usage begin to drop off, revenue and gross margins could be adversely affected
due to these lower rates. These contracts do not prevent the Company's customers
from offering wireless services like those offered by the Company in-house or by
the Company's competitors. One of the Company's former customers, Rogers AT&T,
did not renew its prepaid contract and brought its prepaid program in-house. In
the first quarter of 2001, the Company expects approximately 800,000 subscribers
to migrate off of the BCGI platform. As a result, there can be no assurances
that the Prepaid Wireless Services gross margins will return to those levels
attained in 2000, excluding one-time charges. There can be no assurances that
other customers will not follow suit and elect not to use the Company's services
to offer prepaid wireless services or that the Company will be able to replace
these subscribers with new subscribers.
There can be no assurance that the Company will successfully support and enhance
the IVSN and transaction processing platform effectively to avoid system outages
and any associated loss in revenue. Nor can there be any assurances that the
market for the Company's prepaid service will continue to develop, or that the
Company's IVSN and transaction processing platform will successfully support
current and future growth. Furthermore, the Company has expended significant
amounts of capital to support the agreements it has secured with its carrier
customers. Because prepaid revenues are principally generated by prepaid
subscriber minutes of use, the Company's revenues can be impacted by the
carrier's ability to successfully market and sell prepaid services. Revenues
from the Company's Prepaid Wireless Service business are dependent on the
Company's ability to retain subscribers on the network and there can be no
assurance that the Company's churn rate (percentage of total subscribers that
terminate service on the network) will not increase. Any increase in the
Company's churn rate could result in reductions in related revenues. There can
be no assurance that the Company will be able to replace these subscribers with
new subscribers or that the Company's other customers will not offer in-house
solutions that reduce the number of subscribers on the Company's network.
The Company is currently devoting significant resources toward the support and
enhancement of its prepaid wireless services and systems to maintain system
reliability and expand the IVSN and transaction processing platform. The Company
has experienced network outages that have resulted in reductions in revenue due
to penalty clauses contained in certain of the Company's carrier customer
contracts. If the Company's future efforts to avoid outages are unsuccessful,
such outages could result in additional lost revenue for the Company and damage
the Company's reputation. The occurrence of one or more outages could have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company announced in 2000 that it had sold the assets of its Teleservices
business to Teletech Holdings, Inc. for $15 million including the assumption of
certain liabilities, with potential additional cash payments to the Company of
up to $20 million through 2005, based upon achievement of predetermined revenue
targets. There can be no assurances that the Company will be successful in
meeting the predetermined revenue targets or earning any of the potential cash
payments available.
The Company continues to invest in additional technologies including BCGI
Wireless Wallet, Datascape, Inc., Conference Calling, an Intelligent Networking
(IN) prepaid wireless solution and other new applications to expand its Prepaid
Wireless Services business. There can be no assurances that there will be a
market for these technologies, that the Company will be successful in marketing
and selling these technologies in the marketplace or that the Company will be
able to leverage its existing infrastructure to provide these services in a cost
effective manner. In addition, the failure of any of these technologies may
result in asset impairment charges or other write-offs could materially and
adversely affect the Company's overall business, operating results and financial
condition.
The Company has experienced fluctuations in its quarterly operating results and
such fluctuations may continue and could intensify. The Company's quarterly
operating results may vary significantly depending on a number of factors
including, variations in subscriber additions and minutes of use, the timing of
the introduction or acceptance of new services offered by the Company or its
competitors, changes in the mix of services provided by the Company, the loss of
customers, seasonal trends, variations in the level of system sales, changes in
the Company's operating expenses, the ability to identify, hire and retain
qualified personnel and general economic conditions. Due to all of the foregoing
factors, it is possible that in some future quarter the Company's results of
operations will be below prior results or the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially and adversely affected.
In September 1999, a reorganization plan was implemented in an effort to realign
the Systems business and reduce operating expenses. The Company has reduced
operating expenses and stabilized the division, however, there can be no
assurances that the Systems business' operating losses (excluding inter-segment
revenues) will not increase or that it may incur asset impairment charges or
other write-offs that could materially and adversely affect the Company's
overall business, operating results and financial condition.
The Company historically has provided its services almost exclusively to
wireless carriers. Although the wireless telecommunications market has
experienced significant growth in recent years, there can be no assurance that
such growth will continue at similar rates, or at all, or that wireless carriers
will continue to use the Company's services. The Company expects that demand for
its roaming services will continue to decline as consolidation in the wireless
industry reduces the number of unregistered roamers and carriers offer more
national one-rate roaming plans. In addition, prepaid wireless services are
relatively new services in new markets. If the growth in prepaid services does
not materialize as expected or if the carriers in these markets do not use the
Company's services, the Company's business, financial condition and results of
operations would be materially and adversely affected.
The Company's future success depends, in large part, on the continued use of its
existing services and systems, the acceptance of new services in the wireless
industry and the Company's ability to develop new services and systems or adapt
existing services or systems to keep pace with changes in the wireless industry.
Furthermore, a rapid shift away from the use of wireless in favor of other
services could affect demand for the Company's service offerings and could
require the Company to develop modified or alternative service offerings to
address the particular needs of the providers of such new services. There can be
no assurance that the Company will be successful in developing or marketing its
existing or future service offerings or systems in a timely manner, or at all.
The Company has expanded its operations rapidly, creating significant demands on
the Company's management, administrative, operational, development and financial
personnel and other resources. Additional expansion by the Company may further
strain the Company's management, financial and other resources. There can be no
assurance that the Company's systems, procedures, controls and existing space
will be adequate to support expansion of the Company's operations. If the
Company's management is unable to manage growth effectively, the quality of the
Company's services, its ability to retain key personnel and its business,
financial condition and results of operations could be materially and adversely
affected.
The Company's operations are supported by many hardware components and software
applications from third party vendors, sometimes licensed from single vendors,
which are sometimes small corporations. There can be no assurances that these
hardware components and software applications will function in accordance with
specifications agreed upon by the Company and its vendors, that these suppliers
will continue to license this software to the Company or, if any supplier
terminates its agreement with the Company, that the Company will be able to
develop or otherwise procure software from another supplier on a timely basis
and at commercially acceptable prices. If the hardware and software do not
function as specified or if the Company can no longer license software from
certain vendors or otherwise obtain the software, the Company's business,
financial condition and results of operations could be materially and adversely
affected.
The Company currently prices and sells all of its systems to international
customers in U.S. dollars. In addition, many Systems customers are multinational
corporations that are publicly traded in the U.S. All payments are received in
U.S. dollars that help to protect the Company from the need to hedge against
foreign currency risk. While these provisions serve to protect the Company from
accounts receivable losses, there can be no assurances that systems sales to
foreign countries will not result in losses due to devaluation of foreign
currencies or other international business conditions outside of the Company's
control.
The market for services to wireless carriers is highly competitive and subject
to rapid change. A number of companies currently offer one or more of the
services offered by the Company. In addition, many wireless carriers are
providing, or can provide in-house, the services that the Company offers. In
addition, the Company anticipates continued growth and competition in the
wireless carrier services industry and, consequently, the entrance of new
competitors in the future. An important factor in the future success of the
Company's prepaid wireless service will be the Company's ability to provide, at
competitive prices, more functionality and features than those typically
available in other competitive offerings. An increase in competition or the
inability of the Company to provide, at competitive prices, more functionality
and features could result in price reductions and loss of market share and could
have a material adverse effect on the Company's business, financial condition or
results of operations.
The Company's success and ability to compete is dependent in part upon its
proprietary technology and its ability to protect such technology. The Company
continues to defend its proprietary technology against patent infringement
litigation, including the Freedom Wireless lawsuit. If patent infringement
judgments are entered against the Company or unauthorized copying or misuse of
the Company's technology were to occur to any substantial degree, the Company's
business, financial condition and results of operations could be materially
adversely affected.
The Company's operations are dependent on its ability to maintain its computer,
switching and other telecommunications equipment and systems in effective
working order and to protect its systems against damage from fire, natural
disaster, power loss, telecommunications failure or similar events. Any damage,
failure or delay that causes interruptions in the Company's operations could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Proposals to intensify or reduce government regulations continue to be discussed
at both the federal and state levels. Such changes may decrease the growth of
the wireless telephone industry, result in new competitors or industry
consolidation, limit the number of potential customers for the Company's
services or impede the Company's ability to offer competitive services to the
wireless market or otherwise have a material adverse effect on the Company's
business and results of operations.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company maintains an investment portfolio in accordance with its Investment
Policy. The primary objectives of its Investment Policy are to preserve
principal, maintain proper liquidity to meet operating needs and maximize
yields. Although our investments are subject to credit risk, the Company's
Investment Policy specifies credit quality standards for our investments and
limits the amount of credit exposure from any single issue, issuer or type of
investment. While the Company's investments are also subject to interest rate
risk and will decrease in value if market interest rates increase, the Company
typically holds all of its investments until maturity. However, since the
investments are typically held to maturity and are generally conservative in
nature and of relatively short duration, interest rate risk is mitigated. The
Company does not own derivative financial instruments in its investment
portfolio. The interest rates on the Company's capital lease obligations
are fixed and therefore not subject to interest rate risk.
The Company currently prices and sells all of its systems to international
customers in U.S. dollars. In addition, many of the Systems business' customers
are multinational corporations, which are publicly traded in the U.S. All
payments are received in U.S. dollars, which helps to protect the Company from
the need to hedge against foreign currency risk. While these provisions serve to
protect the Company from accounts receivable losses, there can be no assurances
that systems sales to foreign countries will not result in losses due to
devaluation of foreign currencies or other international business conditions
outside of the Company's control.
Accordingly, we do not believe that there is any material market risk exposure
with respect to derivative or other financial instruments which would require
disclosure under this item.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and supplementary data are
included as part of this Annual Report on Form 10-K:
Consolidated Balance Sheets at December 31, 2000 and 1999.....................21
Consolidated Statements of Operations for the
years ended December 31, 2000, 1999 and 1998...............................22
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998..................................23
Consolidated Statements of Cash Flows for the
years ended December 31, 2000, 1999 and 1998............................24
Notes to Consolidated Financial Statements....................................25
Report of Ernst & Young LLP, Independent Auditors.. .........................34
Boston Communications Group, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31,
2000 1999
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $50,499 $21,145
Short-term investments 4,111 9,091
Accounts receivable, net of allowance for billing adjustments and
doubtful accounts of $2,032 in 2000 and $2,025 in 1999 13,761 18,546
Inventory 895 2,007
Deferred income taxes -- 1,169
Prepaid expenses and other assets 1,163 820
Assets held for sale -- 3,988
- ------------------------------------------------------------------------------- ------------------ -------------------
Total current assets 70,429 56,766
Property and equipment:
Telecommunications systems & software 61,082 55,147
Furniture and fixtures 754 2,135
Leasehold improvements 1,664 2,571
Systems in development 9,294 5,560
- ------------------------------------------------------------------------------- ------------------ -------------------
72,794 65,413
Less allowance for depreciation and amortization 27,757 26,048
- ------------------------------------------------------------------------------- ------------------ -------------------
45,037 39,365
Goodwill, net 2,247 2,854
Other assets 931 346
- ------------------------------------------------------------------------------- ------------------ -------------------
Total assets $118,644 $99,331
- ------------------------------------------------------------------------------- ------------------ -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,481 $ 941
Accrued expenses 16,166 13,378
Deferred revenue 2,851 1,634
Income taxes payable 1,484 505
Current maturities of capital lease obligations 1,186 1,676
- ------------------------------------------------------------------------------- ------------------ -------------------
Total current liabilities 23,168 18,134
Commitments and contingencies
Deferred income taxes 39 --
Capital lease obligations, net of current maturities 740 1,828
Shareholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized,
none issued and outstanding -- --
Common Stock, voting, par value $.01 per share, 35,000,000 shares
authorized; 17,078,988 shares in 2000 and 16,699,874 shares
in 1999 issued 171 167
Additional paid-in capital 98,285 93,177
Treasury Stock (101,420 shares), at cost (673) (673)
Accumulated deficit (3,086) (13,302)
- ------------------------------------------------------------------------------- ------------------ -------------------
Total shareholders' equity 94,697 79,369
- ------------------------------------------------------------------------------- ------------------ -------------------
Total liabilities and shareholders' equity $118,644 $99,331
- ------------------------------------------------------------------------------- ------------------ -------------------
See accompanying notes.
Boston Communications Group, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
Year Ended December 31,
--------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------- ------------------- ----------------- ------------------
REVENUES:
Prepaid wireless services $53,221 $36,920 $18,624
Roaming services 17,650 22,249 28,235
System sales 4,699 5,012 13,622
- ------------------------------------------------------------- ------------------- ----------------- ------------------
75,570 64,181 60,481
EXPENSES:
Cost of services revenues 28,453 30,514 30,708
Cost of services revenues - one-time charge 2,600 -- --
Cost of system revenues 2,190 3,434 8,448
Cost of system revenues - one-time charge -- 1,824 --
Engineering, research and development 8,018 5,986 5,439
Sales and marketing 5,162 6,075 5,182
General and administrative 6,752 6,244 5,518
Depreciation and amortization 17,795 12,785 9,241
Impairment of long-lived assets 1,094 -- 698
- ------------------------------------------------------------- ------------------- ----------------- ------------------
72,064 66,862 65,234
- ------------------------------------------------------------- ------------------- ----------------- ------------------
Operating income (loss) 3,506 (2,681) (4,753)
Interest income, net 2,049 941 1,349
- ------------------------------------------------------------- ------------------- ----------------- ------------------
Income (loss) before income taxes 5,555 (1,740) (3,404)
Provision (benefit) for income taxes 1,845 (145) (613)
- ------------------------------------------------------------- ------------------- -------- --------- ------------------
Income (loss) from continuing operations 3,710 (1,595) (2,791)
Discontinued operations:
Income from operations (net of income taxes of $735,
$540 and $613, respectively) 1,491 809 991
Gain on disposal (net of income taxes of $2,452 in 2000) 5,015 - -
- ------------------------------------------------------------- ------------------- ----------------- ------------------
Income from discontinued operations 6,506 809 991
- ------------------------------------------------------------- ------------------- ----------------- ------------------
Net income (loss) $10,216 $(786) $(1,800)
- ------------------------------------------------------------- ------------------- ----------------- ------------------
Basic net income (loss) per common share:
Continuing operations $0.22 $(0.10) $(0.17)
Net income (loss) $0.61 $(0.05) $(0.11)
Weighted average common shares outstanding 16,769 16,529 16,274
Diluted net income (loss) per share:
Continuing operations $0.21 $(0.10) $(0.17)
Net income (loss) $0.58 $(0.05) $(0.11)
Weighted average common shares outstanding 17,575 16,529 16,274
- ------------------------------------------------------------- ------------------- ----------------- ------------------
See accompanying notes.
Boston Communications Group, Inc.
Consolidated Statements of Shareholders' Equity
(In thousands, except share amounts)
Treasury Stock Common Stock Additional Total
Paid In Accumulated Shareholders'
Capital Deficit Equity
Shares Dollars Shares Dollars
- ------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 46,420 $(372) 16,273,947 $163 $91,029 $(10,716) $80,104
Exercise of stock options -- -- 143,488 1 572 -- 573
Issuance of common stock
undere employee stock purchase plan -- -- 18,593 -- 82 -- 82
Treasury stock purchase 55,000 (301) -- -- -- -- (301)
Net loss -- -- -- -- -- (1,800) (1,800)
- ---------------------------------------- ----------- ---------- ------------- -------- ---------- ------------ ---------------
Balance at
December 31,1998 101,420 (673) 16,436,028 164 91,683 (12,516) 78,658
Exercise of stock options -- -- 208,980 2 1,209 -- 1,211
Issuance of common stock -- -- 54,866 1 285 -- 286
under employee stock purchase plan
Net loss -- -- -- -- -- (786) (786)
- ---------------------------------------- ----------- ---------- ------------- -------- ---------- ------------ ---------------
Balance at
December 31,1999 101,420 (673) 16,699,874 167 93,177 (13,302) 79,369
Compensation expense related
to acceleration of vesting of stock
options in connection with sale of
Teleservices business -- -- -- -- 800 -- 800
Exercise of stock options -- -- 336,983 3 3,978 -- 3,981
and related income tax
benefit
Issuance of common stock -- -- 42,131 1 330 -- 331
under employee stock
purchase plan
Net income -- -- -- -- -- 10,216 10,216
- ---------------------------------------- ----------- ---------- ------------- -------- ---------- ------------ ---------------
Balance at 101,420 $(673) 17,078,988 $171 $98,285 $(3,086) $94,697
December 31, 2000
- ---------------------------------------- ----------- ---------- ------------- -------- ---------- ------------ ---------------
See accompanying notes
Boston Communications Group, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
-----------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) from continuing $3,710 $(1,595) $(2,791)
operations
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 17,795 12,785 9,241
Deferred income taxes 1,208 395 --
Income tax benefit from exercise of stock 1,745 -- --
options
Impairment of long-lived assets 1,094 -- 698
One-time special charges 2,600 1,824 --
Changes in operating assets and liabilities,
excluding effects of business dispositions:
Accounts receivable 4,785 114 (5,987)
Inventory 1,112 41 (1,975)
Prepaid expenses and other assets (928) (118) (14)
Accounts payable and accrued expenses 1,945 4,598 918
Income taxes payable 979 9 30
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities of
continuing operations 36,045 18,053 120
- ----------------------------------------------------------------------------------------------------------------------
Income from discontinued operations 6,506 809 991
Net change in operating assets and liabilities of
discontinued operations (6,998) 293 382
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities
from discontinued operations (492) 1,102 1,373
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 35,553 19,155 1,493
INVESTING ACTIVITIES
Purchase of short-term investments (8,859) (18,777) (14,095)
Sale of short-term investments 13,839 16,772 17,112
Purchase of property and equipment (23,954) (14,290) (8,815)
Net proceeds from sale of line of business 11,786 -- --
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,188) (16,295) (5,798)
FINANCING
ACTIVITIES
Proceeds from exercise of stock options 2,236 1,211 573
Proceeds from issuance of common stock 331 286 82
Purchase of treasury stock -- -- (301)
Repayment of capital lease obligations (1,578) (1,735) (1,127)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 989 (238) (773)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 29,354 2,622 (5,078)
Cash and cash equivalents at beginning of year 21,145 18,523 23,601
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $50,499 $21,145 $ 18,523
- ----------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of non-cash transactions:
- ----------------------------------------------------------------------------------------------------------------------
Capital lease obligations -- $3,641 --
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes.
Boston Communications Group, Inc.
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The Company
Boston Communications Group, Inc. (the "Company") provides universal, real-time
transaction processing, billing and payment services and other enhanced voice
and data services to wireless carriers through its Intelligent Voice Services
Network (IVSN), one of the largest and most advanced automated voice resource
networks in North America, and its proprietary, highly scalable transaction
processing platform. The Company also provides roaming services to wireless
carriers and assembles and sells prepaid and voice systems equipment.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company earns prepaid wireless services revenues by processing prepaid
wireless minutes and earns roaming services revenues by processing wireless
calls for unregistered wireless subscribers who have roamed outside of their
service area. These revenues are recognized when the service is provided and is
recorded net of estimated billing adjustments. The Company recognizes revenue
from the sale of systems at the time the systems are shipped. Installation
revenue is deferred until the entire installation is complete.
In the fourth quarter of 2000, the Company adopted the Securities and Exchange
Commission's (SEC) Staff Accounting Bulletin (SAB) 101, Revenue Recognition in
Financial Statements and its adoption did not have a significant impact on the
Company's financial statements.
Principles of Consolidation
The financial statements include 100% of the accounts and operations of the
Company and all of its majority-owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
Short-Term Investments
The Company accounts for its marketable securities under the Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Instruments in
Debt and Equity Securities." The Company has classified all of its securities as
available-for-sale, and are thus reported at fair market value.
Investments that mature between three and twelve months are considered
short-term investments. The Company's short-term investments are invested in
corporate notes maturing in less than twelve months.
Estimates
The preparation 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, the 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.
Legal Costs
The Company accrues costs of settlements, damages and, under certain conditions,
costs of defense when such costs are probable and estimable: otherwise, such
costs are expensed as incurred.
Concentrations of Credit Risk
The Company's prepaid wireless services allows wireless carriers throughout the
United States to access the Company's ISVN and transaction processing platform,
enabling such carriers to offer prepaid wireless calling to their subscribers.
Accounts are not activated until payment is received by the carrier. The
Company's roaming customers are individuals who place wireless calls from
service areas, which are not covered by traditional roaming agreements. These
calls are forwarded by wireless carriers to the Company for processing. Each
transaction is small in size and the Company minimizes credit risk by validating
appropriate billing information. The Company sells its voice and prepaid systems
in North and South America. The Company generally does not require collateral
from its customers.
The Company has roaming and prepaid wireless service agreements with, and sells
its systems to numerous carriers. The Company's accounts receivable as of
December 31, 2000 includes three customers whose balances are 26%, 13% and 6% of
total accounts receivable. During the years ended December 31, 2000, 1999, and
1998, the Company's top 10 customers accounted for 93%, 86% and 82% of the
Company's total revenues, respectively. The following table summarizes sales in
excess of 10% of total revenues only, as a percentage of total revenues, to
major customers:
December 31,
2000 1999 1998
- --------------------------------------------------------------------------------
Cingular Wireless (P,R,S) 30% 25% 30%
Verizon Wireless (P,R) 28 30 27
AT&T (P,R) 13 13 9
- ------------------------------------------------- --------- ---------- ---------
Revenue from these customers was generated from the following businesses:
P - Prepaid wireless services
R - Roaming services
S - Systems
Inventory
Inventory, which consists of computer hardware and electronic components, is
recorded at the lower of cost (first-in, first-out method) or market. Inventory
is categorized as follows (in thousands):
December 31,
--------------------------
2000 1999
----------------------------------------------------------------
Raw materials $490 $1,356
Work in process 405 651
------------------------------------- ------------ -------------
$895 $2,007
------------------------------------- ------------ -------------
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets, which range
from 3 to 20 years. Systems in development represent the cost of purchased
hardware and software to be used in switching equipment not yet placed into
service and will be depreciated between 3 and 5 years.
Impairment of Long Lived Assets
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that the carrying amount of
an asset cannot be fully recovered, an impairment loss is recognized.
Goodwill
Goodwill represents the excess of cost of acquired businesses over the fair
market value of all net assets acquired. Goodwill is being amortized on a
straight-line basis over an eight-year period. Accumulated amortization totaled
approximately $2.6 million and $2.0 million as of December 31, 2000 and 1999,
respectively.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) in accounting for its
stock-based compensation plans, rather than the alternative fair value
accounting method provided for under Financial Accounting Standards Board
Statement (SFAS) No. 123, "Accounting for Stock-Based Compensation," as the
latter alternative requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, since the
exercise price of options granted under these plans equals the market price of
the underlying stock on the date of grant, no compensation expense is required.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation (the Interpretation). This
Interpretation clarifies how companies should apply the Accounting Principles
Board's Opinion No. 25, Accounting for Stock Issued to Employees. The
Interpretation is applied prospectively to new awards, modifications to
outstanding awards, and changes in employee status on or after July 1, 2000,
except as follows: the definition of an employee applies to awards granted after
December 15, 1998; the Interpretation applies to modifications that reduce the
exercise price of an award after December 15, 1998; and the Interpretation
applies to modifications that add a reload feature to an award made after
January 12, 2000. There wee no awards granted by the Company which resulted in
an adjustment as a result of this Interpretation in 2000.
Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established standards for the recognition, measurement, and reporting of
derivatives and hedging activities. The Company anticipates that the adoption of
this accounting standard in 2001 will not have a material impact on the
Company's consolidated financial statements.
Basic and Diluted Net Income (Loss) Per Share
Basic and diluted net income (loss) per share represents net income (loss)
divided by weighted average shares outstanding.
Reclassifications
Certain amounts in the accompanying 1999 and 1998 consolidated financial
statements have been reclassified to permit comparison with the current year.
3. SPECIAL CHARGES
In the fourth quarter of 2000, the Company recorded an impairment loss of $1.1
million for the write-down of equipment that could no longer be used in its
Prepaid Wireless Services business to its fair market value, as these assets
were not expected to generate any additional cash flows. In addition, in the
fourth quarter of 2000, the Company recorded a one-time charge of $2.6 million
to accrue for legal expenses estimated by the Company's outside counsel to be
incurred in the defense of a patent infringement suit brought by Freedom
Wireless. The Company believes that the claims made by Freedom Wireless are
without merit and will vigorously defend the action. As of December 31, 2000,
there was $2.5 million remaining in the accrual.
In September 1999, the Company recorded a one-time charge of $1.8 million as a
result of the reorganization of the Systems business. The charge principally
related to expenses associated with inventory write-downs to bring the level of
inventory in line with the future sales strategy, as well as severance costs. In
1998, the Company recorded an impairment loss of $698,000 for the write-down of
equipment that could no longer be used in its Prepaid Wireless Services business
to its fair market value, as these assets were not expected to generate any
additional cash flows.
4. DISCONTINUED OPERATIONS
On November 7, 2000, the Company sold the net assets of its Teleservices
business for approximately $15 million including the assumption of certain
liabilities, with potential additional cash payments to the Company of up to $20
million through 2005, based upon the achievement of predetermined revenue
targets. There can be no assurances that the Company will be successful in
meeting the predetermined revenue targets or earning any of the potential cash
payments available. Pursuant to APB 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business," the Consolidated
Financial Statements have been reclassified to reflect the sale of the
Teleservices business. Accordingly, the operating results of the Teleservices
business have been segregated as discontinued operations in the Consolidated
Statement of Operations, Consolidated Balance Sheets and Consolidated Statements
of Cash Flows. Operating results from discontinued operations are as follows:
For the years ended December 31,
- ---------------------------------------------------------------------- --------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------- ------------- ------------ -----------
Net revenues $24,432 $40,870 $26,001
- ---------------------------------------------------------------------- ------------- ------------ -----------
Operating income (net of income tax of $735, $540 and
$613, respectively) $1,491 $809 $991
Gain on disposal (net of income tax of $2,452 in 2000) 5,015 - -
Income from discontinued operations $ 6,506 $809 $991
- ---------------------------------------------------------------------- ------------- ------------ -----------
Basic net income (loss) from discontinued operations per common share 0.06 0.05 0.39
- -------------------------------------------------------------------------------------------------------------
Diluted net income (loss) from discontinued operations per common share 0.06 0.05 0.37
- -------------------------------------------------------------------------------------------------------------
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share amounts) for the years
ended December 31:
2000 1999 1998
---- ---- ----
- ------------------------------------------------------------------------ ------------ ------------ ------------
Numerator for basic and diluted earnings per share:
Income (loss) from continuing operations $3,710 $(1,595) $(2,791)
- ------------------------------------------------------------------------ ------------ ------------ ------------
Income from discontinued operations 6,506 809 991
- ------------------------------------------------------------------------ ------------ ------------ ------------
Net income (loss) $10,216 $(786) $(1,800)
- ------------------------------------------------------------------------ ------------ ------------ ------------
Denominator:
Denominator for basic earnings per share 16,769 16,529 16,274
Effect of dilutive employee stock options 806 - -
- ------------------------------------------------------------------------ ------------ ------------ ------------
Denominator for diluted earnings per share 17,575 16,529 16,274
- ------------------------------------------------------------------------ ------------ ------------ ------------
Basic net income (loss) per common share:
Income (loss) from continuing operations $0.22 $(0.10) $(0.17)
Income from discontinued operations $0.39 $0.05 $0.06
- ------------------------------------------------------------------------ ------------ ------------ ------------
Net income (loss) $0.61 $(0.05) $(0.11)
- ------------------------------------------------------------------------ ------------ ------------ ------------
Diluted net income (loss) per common share:
Income (loss) from continuing operations $0.21 $(0.10) $(0.17)
Income from discontinued operations $0.37 $0.05 $0.06
- ------------------------------------------------------------------------ ------------ ------------ ------------
Net income (loss) $0.58 $(0.05) $(0.11)
- ------------------------------------------------------------------------ ------------ ------------ ------------
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
-------------------------
(In thousands)
2000 1999
- ------------------------------------------------------------------
Billing adjustments $1,112 $1,171
Cellular airtime 1,752 1,898
Payroll 2,892 2,333
Telecommunication Costs 1,104 1,122
Call center management fees -- 1,830
Equipment costs 2,201 136
Legal fees 2,486 20
Other 4,619 4,868
- ---------------------------------------- ------------ ------------
$16,166 $13,378
- ---------------------------------------- ------------ ------------
7. SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" established standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision-maker is the President and Chief Executive Officer. The
operating segments are managed separately because each operating segment
represents a strategic business unit that offers different products and serves
different niches in the wireless industry.
The Company's reportable operating segments consist of Prepaid Wireless
Services, Roaming Services and Systems. The Company's Prepaid Wireless Services
offerings allow wireless carriers to access the Company's ISVN and transaction
processing platform, enabling such carriers to offer prepaid wireless calling to
their subscribers. The Roaming Services segment provides wireless carriers the
ability to generate revenues from subscribers who are not covered under
traditional roaming agreements by arranging payment for roaming calls. The
Systems segment assembles and markets voice processing platforms to wireless and
wireline carriers throughout North and South America with enhanced features
including prepaid wireless, voice messaging and toll limitation services. The
Systems segment also sells prepaid systems to international carriers and
assembles the voice nodes used to support the Company's ISVN. The other segment
assets include cash equivalents and short-term investments and other assets not
allocated to the reportable operating segments.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies, except that the
financial results for the Company's operating segments have been prepared using
a management approach. This is consistent with the basis and manner in which the
Company's management internally analyzes financial information for the purposes
of assisting in making internal operating decisions. The Company evaluates
performance based on stand-alone operating segment gross margin. Revenues are
generated from external customers, except for inter-segment revenues generated
from V-nodes assembled for Prepaid Wireless Services by the Systems business,
which are eliminated in consolidation. Revenues are attributed to geographic
areas based on the location of the customers to whom the services were provided
or the location where the systems were shipped. Capital expenditures include
equipment purchased directly from vendors or acquired through a capital lease.
The summary of operating segment information is as follows at December 31 (in
thousands):
Prepaid
Wireless Roaming Elimination
Services Services Systems Other Total
- -------------------------------- ---------- ---------- ---------- --------- ------------- ----------
2000
Revenues $53,221 $17,650 $18,449 $ -- $(13,750) $75,570
Depreciation and amortization 14,934 597 2,264 -- 17,795
Gross margin 36,561 3,257 7,856 -- (5,347) 42,327
Assets 42,259 2,858 5,980 67,547 118,644
Capital expenditures 22,573 51 996 334 23,954
- -------------------------------- ---------- ---------- ---------- --------- ------------- ----------
1999
- -------------------------------- ---------- ---------- ---------- --------- ------------- ----------
Revenues $36,920 $22,249 $10,327 $ -- $(5,315) $64,181
Depreciation and amortization 10,247 945 1,593 -- 12,785
Gross margin 24,638 4,017 1,821 -- (2,067) 28,409
Assets 37,620 4,083 8,566 49,062 99,331
Capital expenditures 14,231 233 1,624 1,843 17,931
- -------------------------------- ---------- ---------- ---------- --------- ------------- ----------
1998
- -------------------------------- ---------- ---------- ---------- --------- ------------- ----------
Revenues $18,624 $28,235 $17,038 $ -- $(3,416) $60,481
Depreciation and amortization 6,782 808 1,182 469 9,241
Gross margin 9,787 6,364 6,502 -- (1,328) 21,325
Assets 31,501 5,518 12,855 41,886 91,760
Capital expenditures 6,603 199 1,184 829 8,815
- -------------------------------- ---------- ---------- ---------- --------- ------------- ----------
Information concerning principal geographic areas is as follows (in thousands):
Year ended December 31,
2000 1999 1998
- --------------------------- ------------- ------------- -------------
Net revenues:
United States $67,681 $56,405 $53,535
Other 7,889 7,776 6,946
- --------------------------- ------------- ------------- -------------
Total $75,570 $64,181 $60,481
- --------------------------- ------------- ------------- -------------
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
December 31,
-----------------------
(In thousands) 2000 1999
- --------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $418 $3,503
Allowance for doubtful accounts and billing
adjustments 1,038 719
Inventory valuation adjustments 331 815
Minimum tax credit carryforwards 444 101
Research tax credits 421 --
Accrued expenses and other 1,435 692
- --------------------------------------------------------------------------------
4,087 5,830
Valuation allowance -- (1,063)
- --------------------------------------------------------------------------------
Total deferred tax assets 4,087 4,767
Deferred tax liabilitities:
Tax over book depreciation and amortization (4,126) (3,598)
expense
- -------------------------------------------------------- ---------- ------------
Total deferred tax liabilities (4,126) (3,598)
- -------------------------------------------------------- ---------- ------------
Net deferred tax assets (liabilities) $ (39) $1,169
- -------------------------------------------------------- ---------- ------------
The provision (benefit) for income taxes from continuing operations consists of
the following (in thousands):
Year Ended December 31,
-------------------------------
(In thousands)
2000 1999 1998
- ------------------------------------------------------------------------------
Current:
Federal $ 541 $(459) $(521)
State 96 (81) (92)
- ------------------------------------------------------------------------------
637 (540) (613)
Deferred:
Federal 1,027 336 --
State 181 59 --
- ------------------------------------------------------------------------------
1,208 395 --
- ------------------------------------------------------------------------------
Income tax provision (benefit) $1,845 $ (145) $(613)
- ------------------------------------------------------------------------------
At December 31, 2000, the Company had approximately $5.2 million of net
operating loss carryforwards for state income tax return purposes available for
use in future years, which expire beginning in 2003, and federal minimum tax
credits of $444,000, which may be carried forward indefinitely. In 2000, the
Company reversed the $1.1 million valuation allowance ($547,000 in continuing
operations and $516,000 included in discontinued operations) due to utilization
of the net operating losses in the current year.
A reconciliation of the income tax provision (benefit) at the statutory rate to
the income tax provision from continuing operations as reported is as follows:
Year Ended December 31,
--------------------------------
2000 1999 1998
- -------------------------------------------------- ---------- ---------- ----------
Federal provision (benefit) at statutory rate $1,889 $(592) $(1,157)
State income provision (benefit) net of federal taxes 233 (71) (139)
Permanent differences 335 334 288
Research tax credits (114) -- --
Other 49 (26) --
Change in valuation allowance (547) 210 395
- -------------------------------------------------- ---------- ---------- ----------
$1,845 $(145) $(613)
- -------------------------------------------------- ---------- ---------- ----------
Income taxes paid were $384,000 in 2000, $41,000 in 1999 and $61,000 in 1998.
9. CAPITAL STOCK
Preferred Stock
The Board of Directors are authorized, subject to certain limitations prescribed
by law, without further shareholder approval, to issue from time to time up to
an aggregate of 2,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change of control of the Company.
Currently, there are no shares of Preferred Stock issued and outstanding. The
Company has no present plans to issue any shares of Preferred Stock.
Stock Option Plans
The Company's 1996, 1998 and 2000 Stock Option Plans (the "Plans") were adopted
by the Board of Directors and approved by the stockholders of the Company in
1996, 1998 and 2000, respectively. The Plans provide for the grant of stock
options to employees, officers, directors and consultants and advisors to the
Company and its subsidiaries. Under the Plans, the Company may grant options
that are intended to qualify as incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("Incentive Stock Options"), or options not intended to qualify as incentive
stock options ("Non-Statutory Options"). Incentive stock options may only be
granted to employees of the Company. A total of 1,264,792, 600,000 and 500,000
shares of Common Stock may be issued upon the exercise of options granted under
the 1996, 1998 and 2000 Stock Option Plans, respectively. The maximum number of
shares with respect to which options may be granted to any employee under the
1996, 1998 and 2000 Stock Option Plans shall not exceed 200,000, 60,000 and
100,000 shares of Common Stock, respectively, during any calendar year. All
options granted have 10-year terms and generally vest and become exercisable
over one to five years.
In 1998, the Company granted 400,000 Non-Statutory Options to purchase shares of
common stock at an exercise price of $7.06. In 1999, the Company granted 25,000,
and 10,000 Non-Statutory Options to purchase shares of common stock at $13.13
and $8.44 respectively. In 2000, the Company granted 150,000, 2,450 and 15,625,
Non-Statutory Options to purchase shares of common stock at $7.31, $6.00 and
$6.88, respectively. The exercise prices of all options were equal to the fair
market value as determined by the closing price of the stock as reported on the
date of grant.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
options under the fair value method of that statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for 2000, 1999 and 1998:
risk-free interest rates of 6.3%, 5.5%, and 5.4%, respectively, no dividend
yield, the volatility factor of the expected market price of the Company's
common stock of 0.9, 0.5 and 0.5 and a weighted-average expected life of the
option of 3 to 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including expected stock price volatility. Because the
Company's options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except for per share information):
December 31,
-------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------
Pro forma net income (loss) $6,740 $(2,569) $ (4,034)
Pro forma basic net income (loss) per share $0.40 $(0.16) $(0.25)
Pro forma diluted net income (loss) per share $0.38 $ (0.16) $ (0.25)
- ------------------------------------------------------------------------------------------
Stock option information is as follows:
2000 1999 1998
- --------------------------------- ----------- ----------- ------------- ----------- ------------ -----------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- --------------------------------- ----------- ----------- ------------- ----------- ------------ -----------
Outstanding - beginning of year 2,104,546 $7.27 1,935,976 $ 6.90 1,417,654 $ 6.74
Granted 900,275 9.86 684,000 7.98 966,500 7.33
Exercised (336,983) 6.69 (208,580) 5.80 (143,888) 4.00
Canceled (226,275) 7.18 (306,850) 7.48 (304,290) 9.00
- --------------------------------- ----------- ----------- ------------- ----------- ------------ -----------
Outstanding - end of year 2,441,563 $8.31 2,104,546 $7.27 1,935,976 $ 6.90
- --------------------------------- ----------- ----------- ------------- ----------- ------------ -----------
The following table summarizes the options outstanding and exercisable as of
December 31, 2000:
Options Options Exercise
Exercisable Outstanding Price
- ---------------- --------------- -----------------
189,660 371,432 $3.69 - 4.88
416,374 856,674 5.00 - 7.06
82,335 577,815 7.31 - 8.63
24,825 72,225 8.66 - 9.81
175,817 543,367 12.75 - 17.50
11,200 20,050 20.38 - 27.13
- ---------------- --------------- -----------------
900,211 2,441,563 $8.31
- ---------------- --------------- -----------------
There were 148,599 options available for grant at December 31, 2000. There were
779,812 and 628,437 options exercisable at weighted-average exercise prices of
$7.27 and $6.91 at December 31, 1999 and 1998, respectively. The
weighted-average fair value of options granted during 2000 and 1999 was $6.55
and $3.98, respectively. The weighted-average contractual life of options
outstanding at December 31, 2000 and 1999 was 7.8 and 8.0 years, respectively.
Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the shareholders of the
Company in April 1996. The Purchase Plan authorizes the issuance of up to a
total of 225,000 shares of Common Stock to participating employees. As of
December 31, 2000, there were 99,842 shares available for grant under the
Purchase Plan. In May 1999, the Purchase Plan was amended by the Board of
Directors to shorten the initial eligibility period and increase the discount to
the employees.
All full-time employees of the Company who have been employed by the Company for
a minimum of three months, including directors of the Company who are employees,
are eligible to participate in the Purchase Plan. On the first day of a
designated payroll deduction period (the "Offering Period"), the Company will
grant to each eligible employee who has elected to participate in the Purchase
Plan an option to purchase shares of Common Stock as follows: the employee may
authorize an amount (up to a maximum of 10% of such employee's regular pay) to
be deducted by the Company from such pay during the Offering Period. On the last
day of the Offering Period, the employee is deemed to have exercised the option,
at the option exercise price, to the extent of accumulated payroll deductions.
Under the terms of the Purchase Plan, the option price is an amount equal to 85%
of the fair market value per share of the Common Stock on either the first day
or the last day of the Offering Period, whichever is lower. In no event may an
employee purchase in any one Offering Period a number of shares which has an
aggregate market value (determined on the last day of the Offering Period) in
excess of $25,000. The Compensation Committee may, in its discretion, choose an
Offering Period of 12 months or less for each of the Offerings and choose a
different Offering Period for each Offering.
10. LEASES
The Company entered into capital leases totaling $3.6 million in 1999. The
accumulated amortization of the assets under capital leases was $3.4 million and
$2.2 million at December 31, 2000 and 1999, respectively. The Company also has
non-cancelable operating lease commitments for office space and equipment, many
of which are renewable at the Company's option. Rent and equipment expense
approximated $1.6 million in 2000, $1.7 million in 1999 and $2.2 million in
1998. Future minimum payments under non-cancelable capital leases and operating
leases are as follows (in thousands):
Capital Operating
Year ending December 31, Leases Leases
- ---------------------------------------------- ------------- -------------
2001 $1,304 $2,322
2002 761 2,350
2003 -- 1,180
2004 -- 949
2005 -- 827
- -----------------------------------------------------------
2006 and beyond -- 136
- -------------------------------------------------------------------------
Total minimum lease payments $2,065 $7,764
--------------
Amounts representing interest 139
- -----------------------------------------------------------
Present value of net minimum payments 1,926
Less: current portion 1,186
----------------------------------------------------------
$740
- ---------------------------------------------- -------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Boston Communications Group, Inc.
We have audited the accompanying consolidated balance sheets of Boston
Communications Group, Inc. and its subsidiaries as of December 31, 2000 and 1999
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2000.
Our audits also included the financial statements schedule listed in the Index
at Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Boston
Communications Group, Inc. and subsidiaries at December 31, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 2, 2001
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The sections entitled "Election of Directors" and "Reports Under Section
16(a) of the Exchange Act" appearing in the Company's proxy statement for the
annual meeting of stockholders to be held on June 13, 2001 set forth certain
information with respect to the directors of the Company and reports filed by
certain persons under Section 16(a) of the Exchange Act and are incorporated
herein by reference. Certain information with respect to persons who are, or may
be deemed to be, executive officers of the Company is set forth under the
caption "Executive Officers of the Company" in Part I of this report.
Item 11. EXECUTIVE COMPENSATION
The sections entitled "Executive Compensation", "Employment Agreements with
Named Executive Officers" and "Report of the Compensation Committee" appearing
in the Company's proxy statement for the annual meeting of stockholders to be
held on June 13, 2001 set forth certain information with respect to the
compensation of management of the Company and are incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" appearing in the Company's proxy statement for the annual meeting of
stockholders to be held on June 13, 2001 sets forth certain information with
respect to the ownership of the Company's Common Stock and is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections entitled "Executive Compensation," "Employment Agreements with
Named Executive Officers" and "Certain Transactions" appearing in the Company's
proxy statement for the annual meeting of stockholders to be held on June 13,
2001 set forth certain information with respect to certain business
relationships and transactions between the Company and its directors and
officers and are incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of
Boston Communications Group, Inc. are included as Item 8:
Consolidated Balance Sheets at December 31, 2000 and 1999....................21
Consolidated Statements of Operations -
Years ended December 31, 2000, 1999 and 1998................................22
Consolidated Statements of Shareholders' Equity -
Years ended December 31, 2000, 1999 and 1998................................23
Consolidated Statements of Cash Flows -
Years ended December 31, 2000, 1999 and 1998...............................24
Notes to Consolidated Financial Statements...................................25
(2) Financial Statement Schedules
Index to Consolidated Financial Statement Schedules
For the years ended December 31, 2000, 1999 and 1998:
Schedule II - Valuation and Qualifying Accounts
All other Schedules have been omitted because the required information is shown
in the consolidated financial statements or notes thereto or they are not
applicable.
(3) The Exhibits listed in the Exhibit Index immediately preceding the
Exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
On November 21, 2000, a form 8-K was filed for the closing of the sale of
the Teleservices business to TeleTech Customer Care Management, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 30th day of
March 2001.
BOSTON COMMUNICATIONS GROUP, INC.
-
By: _/s/ E.Y. Snowden
------------------------------------
E. Y. Snowden
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ E.Y. Snowden President, Chief March 30, 2001
- ----------------- Executive Officer
E.Y. Snowden and Director
/s/ Karen A. Walker Vice President, March 30, 2001
- -----------------------------------------------------
Karen A. Walker Finance and
Administration,
Director (Principal
Financial and
Accounting Officer)
/s/ Paul J. Tobin Chairman of the March 30, 2001
- ------------------ Board of Directors
Paul J. Tobin
/s/ Brian E. Boyle Vice Chairman of the March 30, 2001
- ------------------- Board of Directors
Brian E. Boyle
Signature Title Date
/s/ Frederick E. von Mering Director March 30, 2001
- ----------------------------
Frederick E. von Mering
/s/ Jerrold D. Adams Director March 30, 2001
- ---------------------
Jerrold D. Adams
/s/ Paul R. Gudonis Director March 30, 2001
- --------------------
Paul R. Gudonis
/s/ Gerald Segel Director March 30, 2001
- -----------------
Gerald Segel
/s/ Rajendra Singh Director March 30, 2001
- -------------------
Rajendra Singh
EXHIBIT INDEX
Exhibit
No. Description
3.1 Restated Articles of Organization of the Company, as amended. 1
3.3 Amended and Restated By-Laws of the Company. 1
10.1 +1996 Stock Option Plan. 1
10.2 +1996 Employee Stock Purchase Plan. 1
10.3 +Amendment Number 1, dated August 30, 1996, to 1996
Employee Stock Purchase Plan 2
10.4 Commercial Lease dated January 24, 1996 between the Company and
Cummings Properties Management, Inc. 1
10.5 Commercial Lease dated February 26, 1996 between the Company and
Cummings Property Management, Inc. (Amendment No. 1). 2
10.6 Amendment No. 2, dated August 8, 1996, to the commercial lease
between the Company and Cummings Property Management, Inc. 2
10.7 Amendment No. 3, dated February 5, 1997, to the commercial lease
between the Company and Cummings Property Management, Inc. 2
10.8 Software License and Services Agreement dated October 30, 1996
between the Company and Oracle Corporation. 2
10.9 Software License and Services Agreement dated September 24, 1996
between the Company and Oracle Corporation. 2
10.10 Commercial Lease dated April 1, 1997 between the Company and
Cummings Properties Management, Inc 3
10.11 Employment Letter Agreement dated February 10, 1998 between the
Company and E.Y. Snowden. 4
10.12 +1998 Stock Incentive Plan
10.13^ Agreement between the Company and AG Communication Systems
dated Nov. 16, 1998 5
10.14 Amendment No. 4, dated December 4, 1998, to the commercial lease
between the Company and Cummings Property Management, Inc. 5
10.15 Master Equipment Lease between Boston Communications Group and
leet Capital Corp. dated May 17, 1999. 6
10.16^ Letter of Agreement between Centigram Communications Corporation
and Boston Communications Group dated August 12, 1999. 7
10.17^ Amendment #1 to the Agreement between A.G. Communications Systems
Corporation and Boston Communications Group dated August 26,1999.7
10.18 Lease between Cummings Properties and Boston Communications Group
dated June 3, 1999. 7
10.19 Amendment No. 3 to the Boston Communications Group, Inc. 1996
Employee Stock Purchase Plan dated August 12, 1999.
10.20^ Distribution agreement between Centigram Communications
Corporation and Boston Communications Group, Inc. dated
January 17, 2000. 8
10.21 Boston Communications Group, Inc. 2000 Stock Option Plan
10.22 Cummings Lease Amendment dated July 20, 2000.9
10.23 Master Services Agreement with Exodus Communications Inc.
dated December 4, 2000.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
1 Incorporated by reference to the Company's Registration Statement on Form S-1
filed June 17, 1996 (File No. 333-4128)
2 Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1996.
3 Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 1997.
4 Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1998.
5 Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.
6 Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 1999.
7 Incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1999.
8 Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 2000.
9 Incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 2000.
+ Management contract or compensatory plan or arrangement filed as an exhibit
pursuant to Item 14(c) of this Report.
^ Confidential treatment granted as to certain positions, which positions have
been deleted and filed separately with the Securities and Exchange Commission
SCHEDULE II
BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------ ------------ ----------------------------- ----------- -------------
ADDITIONS
-----------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS DEDUCTIONS BALANCE AT
DESCRIPTION PERIOD EXPENSES DESCRIBE (1) DESCRIBE (2) END OF PERIOD
----------- -------------- ------------- ----------- --------------
Year ended December 31, 2000:
Reserves and allowances deducted
from asset accounts:
Allowance for billing adjustments
and uncollectible accounts $2,025 $ -- $1,994 $1,987 $2,032
Year ended December 31, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for billing adjustments
and uncollectible accounts $1,508 $ -- $1,688 $1,171 $2,025
Year ended December 31, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for billing adjustments
and uncollectible accounts $1,304 $ -- $1,557 $1,353 $1,508
(1) Billing adjustments recorded as a reduction of revenue.
(2) Settlement of billing adjustments.