UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) |
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For the fiscal year ended September 30, 2004 |
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Or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
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Commission file number 000-23195
TIER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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California |
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94-3145844 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
10780 Parkridge Blvd., 4th Floor
Reston, Virginia 20191
(571) 382-1090
(Address of principal executive offices and registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class B common stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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. o
Indicate by check mark whether the
Registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Yes
x No
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The aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $191,632,000 on March 31, 2004 based on the last reported sale price of the registrant’s Class B common stock on the NASDAQ National Market on such date.
As of December 6, 2004, the number of shares outstanding of the registrant’s Class B common stock was 19,440,204.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended September 30, 2004. Portions of such proxy statement are incorporated by reference into Part III of this report.
TIER TECHNOLOGIES, INC.
FORM 10-K
TABLE OF CONTENTS
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Item 1. |
3 |
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Item 2. |
11 |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
41 |
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Item 8. |
41 |
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Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
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Item 9A. |
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Item 9B. |
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Item 10. |
43 |
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Item 11. |
43 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management |
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Item 13. |
43 |
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Item 14. |
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Item 15. |
43 |
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Private Securities Litigation Reform Act Safe Harbor Statement |
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Certain statements contained in this report, including statements regarding the development of and demand for our services and our markets, anticipated trends in various expenses, expected costs of legal proceedings and other statements that are not historical facts, are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements relate to future events or our future financial and/or operating performance and can generally be identified as such because the context of the statement will include words such as “may”, “will”, “intends”, “plans”, “believes”, “anticipates”, “expects”, “estimates”, “shows”, “predicts”, “potential”, “continue”, or “opportunity”, the negative of these words or words of similar import. These forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described and referred to under “Factors That May Affect Future Results” beginning on page 30, that could cause actual results to differ materially from those anticipated as of the date of this report. We undertake no obligation to publicly updated or revise any forward-looking statements, whether as a result of new information, future events or otherwise. |
2
GENERAL
We provide transaction processing services and software and systems integration services primarily to federal, state and local government and other public sector clients. Our clients outsource portions of their business processes to us, and rely on us for our industry-specific information technology expertise and solutions. We reported approximately $127.9 million in revenues for fiscal year 2004. We were incorporated in California in 1991, and are based in Reston, Virginia.
Our core services are providing secure, efficient and reliable transaction processing options and industry-specific software and systems integration services to our clients. Our transaction processing services primarily consist of child support payment processing and related services for state government clients, and electronic payment processing services for federal, state, and local government clients, which allow those clients to offer their constituents the option of paying governmental obligations, such as taxes and other fees, using credit or debit cards or electronic checks. Our software and systems integration services primarily involve integrating our proprietary software products and licensed third-party software products into our clients’ business operations. In fiscal year 2004, approximately two thirds of our revenues were derived from transaction processing based operations, and approximately one third of our revenues were derived from software and systems integration operations. For most of our services, we generate revenue from fees received directly from our client, but in the case of our electronic payment processing services, most of our revenues are derived from convenience fees paid by the individual taxpayer or other end user of our service.
We provide our services through the following three business units:
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Government Business Process Outsourcing, which focuses on child support payment processing, child support financial institution data match services, health and human services consulting, and other related system integration services. |
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Packaged Software and Systems Integration, which provides software and systems implementation services through practice areas in financial management systems, public pension administration systems, unemployment insurance administration systems, electronic government services, systems integration services for the State of Missouri, and interactive voice response systems. |
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Electronic Payment Processing, which provides electronic payment processing options including payment of taxes, fees and other obligations owed to government entities, educational institutions and other public sector clients. |
We target industry sectors that we believe are driven by forces that make demand for our services less discretionary and are likely to provide us with recurring revenue streams through long-term contracts. The forces driving the need for our services tend to involve federal or state mandated services, such as child support payment collection and disbursement, and involve fundamental shifts in consumer transaction preferences, such as the increased usage of electronic payment methods relative to cash or paper checks among U.S. consumers. Our clients generally outsource portions of their business processes to us in order to rapidly provide their customers with technologically advanced services, and achieve cost efficiencies.
INDUSTRY OVERVIEW
Today’s government and public sector entities are facing an increasingly competitive and complex operating environment. Demographic shifts, continuous regulatory changes, the need for real-time information, the expansion of the Internet as an informational as well as transactional channel, the development of complex technologies, and advanced operational systems are all dramatically impacting the way these entities conduct business.
3
The state child support payment industry has been revolutionized by regulatory initiatives, including the U.S. Personal Responsibility and Work Opportunity Reconciliation Act of 1996. This act required every state, as a condition of receiving federal funds, to develop an automated and centralized process for collecting and disbursing child support payments. This act also created the Financial Institution Data Match program, which required states to match delinquent obligations against records held by every financial institution doing business within that state. Once a match is identified, the state child support enforcement agencies can issue liens or levies on respective financial accounts to expedite the collection of past due child support obligations. Child support payments in the United States for the federal 2003 fiscal year rose to a record high of $21.2 billion. State and local government entities are increasing child support services due to the growth in caseloads and their desire to improve enforcement systems.
The expansion of the Internet has facilitated a profound change in the way governments interact with their constituents. A paperless environment not only increases the speed of interaction and accessibility to information, but also dramatically reduces cost while increasing user convenience and efficiency. In 1998, the Internal Revenue Service Restructuring and Reform Act established the goal that by the year 2007, at least 80% of all federal tax and information returns would be filed electronically. According to the Internal Revenue Service 2004 Filing Season Statistics weekly report, 61.0 million individual federal returns for the 2003 tax year were electronically filed as of August 27, 2004, amounting to approximately 48% of total returns filed.
The drive towards electronic filing has also increased the need for electronic payment options, including the ability to make tax and other payments with a credit or debit card or electronic check. According to the U.S. Payment Card Information Network, approximately 83% of U.S. households have at least one credit card. According to the Bureau of Economic Analysis, federal, state and local taxes and fees from individuals and businesses totaled $3.0 trillion in 2003. Many government entities lack the technical expertise and personnel required to efficiently develop, implement and maintain a process to accept electronic payments from consumers using the Internet or over the telephone. These government entities increasingly rely on external service providers to outsource this function.
Advances in telephone call center technologies, combined with the need for governments and other public sector entities to reduce operating costs while improving service delivery to their constituents, have resulted in these entities considering new ways to accomplish their missions. Recent advances in technologies such as natural language speech recognition have enabled the delivery of a wide variety of services through automated telephone-based interactive voice response systems that formerly required a live telephone attendant. Automated call centers can now provide interactive services twenty-four hours a day, seven days a week, ranging from basic information delivery, to more complex transaction and payment processing services. These automated services can generally be provided at a savings relative to the cost of a live telephone attendant.
The changing regulatory needs of government, coupled with the increasing reliance on Internet-based communication, are prompting state and local governmental entities to evaluate, upgrade and modify their financial management applications. The potential market for the development, delivery and operation of financial management applications for governmental entities is large. According to the 2002 U.S. Census of Governments, in addition to the federal and 50 state governmental entities, there were 87,849 units of local governments. Of these, 38,971 are general-purpose local entities – 3,034 county governments, 19,431 municipal and 16,506 town or township governments. The remainder, which comprise over one-half of the total, are special purpose local governments, including 13,522 school districts and 35,356 special district governments.
Demographic and regulatory forces have also driven significant change within the public retirement systems industry. Increased life expectancy, an aging population, new investment vehicles, outdated legacy systems, increased focus on retirement security and a dynamic regulatory environment have resulted in a significant increase in the complexity and administration of state and local government public pension organizations. These organizations provide a myriad of services and benefits to their membership, including pension benefits and disability benefits, retirement planning and education, death benefits and retiree healthcare. To address these issues, public pension organizations have increasingly been required to provide additional services, such as on-line access to benefits, to meet the growing needs of their membership. Additionally, the Economic Growth and Tax Relief Reconciliation Act of 2001 called for extensive changes to the rules relating to individual retirement arrangements and qualified pension plans, increasing contribution limits and catch-up contributions to IRAs while adding new provisions for government employee pension plans. According to the U.S. Census Bureau 2002 Census of Governments, there were 2,670 state and local government retirement systems, with a membership of 17.2 million persons who could be eligible for regular benefit payments in the future. Cash and security investment holdings of these organizations totaled $2.2 trillion.
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The Job Creation and Worker Assistance Act, signed into law in March 2002, was designed to stimulate the economy and included, among other provisions, a special distribution, commonly called the Reed Act Distribution, of $8 billion to state unemployment insurance trust funds. While much of this money is being used to support the solvency of the funds, additional unemployment benefits, and lower unemployment insurance taxes, the U.S. Department of Labor recommended that states consider setting aside a portion of the distribution for unemployment insurance automation costs to assure that states have sufficient funds to invest in large computer installations and upgrades. According to the U.S. Department of Labor, Employment and Training Administration, $41.3 billion in unemployment insurance benefits were paid through the 50 state unemployment insurance agencies in calendar year 2003.
Challenging economic conditions as well as rapid changes in technology and dynamic market forces are affecting the way government and public sector entities do business today. These entities are increasingly employing external service providers such as Tier to efficiently outsource strategic business operations, and develop and implement broad information technology strategies that leverage existing strengths and provide a solid foundation for future success.
BUSINESS STRATEGY
We believe that we are able to add significant value to our clients as a result of our comprehensive service offerings and industry-specific knowledge in the sectors in which we operate. In fiscal 2004, we focused on transaction processing and packaged software and systems implementations for government and other public sector clients, and have eliminated all business units and segments not core to these two focal areas. We intend to focus on the following growth strategies.
Penetrate and expand our presence in non-discretionary markets
We intend to continue to focus on markets that are driven either by state or federal mandates that require immediate operating changes or by intense competitive pressures that drive significant business process changes. We believe that the demand by our clients for services to implement these changes is in large part non-discretionary.
Build recurring revenue streams
We intend to build recurring revenue streams by offering differentiated services under multi-year arrangements to clients that are outsourcing significant components of their ongoing operations, systems maintenance and systems development activity. These arrangements provide continuity of services to our clients and minimize disruption to our clients’ operations. We believe that our industry expertise, our proprietary applications and the portability of our prior project experience motivate our clients to enter into these arrangements and to select us for follow-on and extended projects.
Leverage proprietary applications
We intend to leverage our proprietary software applications and acquire or invest in additional proprietary applications that allow us to gain market share quickly in the industry sectors in which we operate. We currently have proprietary software applications that target the health and human services and financial management segments of the state and local government market, as well as government back-office administration and electronic payment channels.
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Leverage expertise in the industry sectors in which we operate
We intend to attract new clients and provide additional services to existing clients by leveraging our expertise in the industry sectors in which we operate. We have developed expertise in areas such as child support payment processing and related services, electronic payment processing of tax and other government payments, public pension systems, unemployment insurance systems, government accounting, financial management and procurement systems, and interactive voice response systems.
Provide end-to-end solutions
We differentiate ourselves by being able to provide our clients with end-to-end solutions for their projects, including implementation and operation. We can rapidly deploy a team of senior experts with proven industry expertise and extensive technology capabilities.
Attract and retain high-value employees
We strive to attract and retain highly skilled professionals in order to deliver high quality services to clients. Our goal is to offer competitive compensation packages, technical training programs and attractive career advancement opportunities. Our sales force is supplemented by industry experts who have the ability to translate industry-specific challenges into business development opportunities.
Develop partnership relationships and complete strategic acquisitions
We intend to develop partnership relationships with service and technology providers in the pursuit of new business development opportunities. In addition to broadening our client base, we believe these relationships enable us to maintain our technological leadership through the deployment of leading edge applications. We also evaluate potential acquisitions that may expand our presence in key marketplaces, provide us the advantage of owning or influencing the intellectual property that we offer to our clients, supplement our industry expertise, or provide us with additional human resources or client relationships. Since October 2001, we have completed four such acquisitions.
SERVICES
We categorize our service offerings as transaction and payment processing, systems design and integration, and maintenance and support services. We provide suites of services under each of these offerings. Several of our engagements involve providing a combination of services from different offerings as part of the overall project. Net revenue contributed by offering is as follows:
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Year ended September 30, |
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2004 |
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2003 |
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2002 |
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($ in thousands) |
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Transaction and payment processing |
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$ |
82,820 |
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64.7 |
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80,555 |
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69.5 |
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37,262 |
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44.0 |
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Systems design and integration |
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19,349 |
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15.1 |
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16,397 |
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14.1 |
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29,951 |
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35.4 |
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Maintenance and support services |
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20,338 |
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15.9 |
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17,032 |
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14.7 |
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15,145 |
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17.9 |
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Products sales and other services |
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5,430 |
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4.3 |
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1,933 |
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1.7 |
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2,298 |
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2.7 |
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Total |
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127,937 |
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100.0 |
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115,917 |
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100.0 |
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84,656 |
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100.0 |
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Transaction and payment processing
We use our proprietary software applications, Kids1st®, VIPRS®and FundFinder®, to process business transactions related to payment of child support obligations and enforcement. We believe our ability to customize our core proprietary software applications reduces the costs and risks inherent in software implementation and makes our solution a scalable and flexible option for our clients. Our expertise in child support payment processing, regulatory and banking issues and our proprietary financial institution data match software application, FundFinder, have enabled us to be a leader in the implementation of financial institution data match programs. As of September 30, 2004, we were providing financial institution data match services utilizing FundFinder to 16 states. As of September 30, 2004, we had child support payment processing operations in nine states where we were processing approximately $3.8 billion of child support payments on an annualized basis.
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Our payment processing operations, through the use of Kids1st and VIPRS, provide many services on behalf of our clients, including the handling of payment collections, the electronic imaging of checks and other supporting documentation, the application of payments to the appropriate child support court orders, the entry of new court orders into the payment system, the creation and maintenance of payment histories, the creation and mailing of child support disbursements, and the creation and maintenance of direct deposits of child support payments. Our clients can choose from an array of service offerings including full customer service/call center operations, a government-to-consumer web application, interface between the state’s financial institutions and its child support enforcement division to assist in the location and seizure of delinquent child support and full processing of child support payments.
We provide electronic transaction and payment processing services through our wholly owned subsidiaries Official Payments Corp. and EPOS Corporation. We acquired Official Payments Corp. in July 2002, and EPOS in June 2004. Official Payments Corp. provides proprietary telephone and Internet systems for electronic payment options to the IRS, 24 states, the District of Columbia, and over 1,500 local and municipal governments. EPOS is a provider of interactive communications and transaction processing technologies. In fiscal year 2004, we processed over 2.6 million transactions, collecting more than $1.6 billion in government taxes and fees, including federal and state personal income taxes, state business taxes, and local taxes and fees such as property taxes, utilities, parking citations, traffic violations and local licenses. By utilizing our electronic payment processing services, governments and other public sector clients reduce remittance-processing costs, increase speed of pay and provide added convenience to their constituents.
Our transaction processing revenue is typically paid by our government and public sector clients and is largely based on a per-transaction fee applied to the number of transactions processed for our child support payment processing operations. Our electronic payment processing revenue is generally derived from transaction convenience fees, based on a percentage of the payment amount or a flat fee, paid by individual taxpayers and other end users of these services.
Systems design and integration
We implement software applications that enhance our clients’ operating functionality. Our proven ability to integrate enterprise-wide applications in government and other public sector markets has strengthened our expertise and credentials. We offer these services through the following practice areas:
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Financial Management Systems – Develops, implements and supports financial management and purchasing systems for state and local governments using our ONLINE FAMISTM, and Performance SeriesTM suites of proprietary products. |
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Public Pension Administration Systems – Provides a full range of services to support the design, development and implementation of pension applications in the state, county and city market place. |
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Unemployment Insurance Systems – Provides software application integration services to state governments reforming unemployment insurance systems. |
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Electronic Government Systems – Systems integration and strategy services for the creation of government Web portals. |
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State Systems Integration – Provides information technology development, integration and maintenance support projects for the State of Missouri. |
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EPOS Systems Integration – Provides services to support the customization, installation and maintenance of our EPOS transaction processing and interactive voice response FirstLine EncoreTM system. |
Our systems design and integration revenue is generally derived on a time and materials or fixed price contract basis for software systems design and integration projects.
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Maintenance and support services
We provide product maintenance and support services of our proprietary software systems to clients in the public sector. We have a support team based in Reston, Virginia to answer questions and resolve software discrepancies that may arise in the normal operation of the software. A toll-free, staff-supported voice hotline is available from 7:30 a.m. to 8:30 p.m. EST, Monday through Friday, except holidays.
EPOS provides product maintenance and support services of our proprietary software and third party hardware and software included in our solutions. EPOS maintains a staff-supported call center available by phone or email from 8:00 a.m. to 5:00 p.m. CST, Monday through Friday, except holidays, for primary support of our maintenance customers. In addition, 24/7 and onsite options are available for emergency support.
Clients are eligible to receive new releases of the baseline licensed software and corresponding supporting documentation. All released software patches are available on our self-service web site. Clients can also review the on-line knowledge base and potentially resolve a problem prior to submitting an issue to our support team. In addition, questions can be submitted by email. Some clients also take advantage of enhanced support services on a time and materials basis, typically performed on-site.
Products sales and other services
We provide automated telephony, license and call center hardware systems and services for re-designing web portals for state and local government clients.
CLIENTS
Our clients consist primarily of federal, state and local government and other public sector entities. We provided our services to clients in 49 states during the fiscal year ended September 30, 2004. For the fiscal year ended September 30, 2004, our net revenues were derived from sales to government agencies, public sector entities, and from convenience fees paid by their constituents. We believe that most of our total future net revenues will continue to be attributable to sales to government agencies and other public sector entities such as educational institutions and public utilities.
We derive a significant portion of our net revenues from a limited number of large clients. For the fiscal year ended September 30, 2004, the revenues from IRS taxpayers accounted for 12.2% of our net revenues. Most of our contracts are terminable by the client following limited notice and without significant penalty to the client, and the completion, cancellation or significant reduction in the scope of a large project could have a material adverse effect on our business, financial condition and results of operations. In addition, we performed child support payment processing services for three different state governments as a subcontractor to ACS State and Local Solutions, Inc., a division of Affiliated Computer Services, Inc., or ACS. For the fiscal year ended September 30, 2004, work performed under these three subcontracts accounted for 11.1% of our net revenues. In June 2004, we were notified by ACS of its decision not to renew one of our subcontracts effective June 30, 2004.
In December 2001, we entered into a contract with the California Public Employees Retirement System, or CalPERS, to integrate the contributions reporting function of a third party software product into CalPERS’ legacy environment. In the fourth quarter of fiscal 2003, our contract with CalPERS was terminated. As a result, we recorded an adjustment to revenue of approximately $12.8 million in that quarter to write down the total value of our unbilled receivable from CalPERS. For fiscal year 2002, net revenues from CalPERS represented approximately 12.9% of our total net revenues.
SALES AND MARKETING
Our sales and marketing objective is to develop relationships with clients that result in both repeat and long-term engagements. Rather than using only a commissioned sales force, we also utilize the thought leadership of our consultants within the markets as a key sales and delivery resource. Members of our management team have a wide range of industry contacts and established reputations in the applicable industries and play a key role in developing, selling and managing major engagements. As a result of our market focused sales approach, we believe that we are able to penetrate markets quickly and with lower client acquisition costs.
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Through our marketing efforts we seek to increase brand awareness, raise awareness of our electronic payment options, and generate new business. We have worked with our government clients to publicize our services through advertisements in payment invoices, publications and web sites, which typically occurs without charge to us. We entered into cooperative advertising and marketing arrangements with our credit and debit card partners and major card-issuing banks, which included advertising campaigns and promotion of our services via print and online. We utilized newspaper, television, radio and public relations campaigns to supplement these efforts in 2004.
EMPLOYEES
As of September 30, 2004, we had a workforce of 860, which included 808 employees and 52 independent contractors.
We believe that there is significant competition for seasoned professionals and that our future success is highly dependent upon our ability to attract, train, motivate, mentor and retain skilled consultants with the advanced technical skills necessary to perform the services we offer.
COMPETITION
The transaction processing and software and systems integration markets are highly competitive and are served by numerous international, national and local firms. Representative market participants in transaction processing markets include Affiliated Computer Systems, Inc., Bank of America Corp., Systems and Methods, Inc., and Link2Gov. Competition in the software and systems integration market includes U.S. and international consulting and integration firms, the internal information systems groups of our prospective clients, professional services companies, hardware and application software vendors, and divisions of large integrated technology companies and outsourcing companies. Representative market participants include Accenture, CGI-AMS, BearingPoint, Covansys, Deloitte, IBM, Tata (TCS America), Ciber, NIC Inc., Lawson, and Tyler Technologies.
We believe that the principal competitive factors in our markets include reputation, project management expertise, industry expertise, speed of development and implementation, technical expertise, competitive pricing and the ability to deliver results on a fixed price or transaction basis as well as a time and materials basis. We believe that our ability to compete also depends in part on a number of competitive factors outside our control, including the ability of our clients or competitors to hire, retain and motivate project managers and other senior technical staff, the ownership by competitors of software used by potential clients, the price at which others offer comparable services, greater financial resources of our competitors, the ability of our clients to perform the services themselves, and the extent of our competitors’ responsiveness to client needs.
INTELLECTUAL PROPERTY RIGHTS
Our success depends, in part, on our methodologies, solutions and protection of intellectual property rights. We rely upon a combination of nondisclosure, licensing agreements and other contractual arrangements, as well as trade secret, copyright and trademark laws to protect our proprietary rights and the proprietary rights of third parties from whom we license intellectual property. We enter into non-disclosure agreements with all our employees, subcontractors and the parties we team with for contracts and with many of our clients. We also control and limit distribution of proprietary information. We cannot assure that the steps we take in this regard will be adequate to deter the misappropriation of proprietary information or that we will be able to detect unauthorized use of this information and take appropriate steps to enforce our intellectual property rights.
9
We have developed and acquired proprietary software that is licensed to clients pursuant to license agreements and other contractual arrangements. We utilize intellectual property laws, including copyright and trademark laws, to protect our proprietary rights. A portion of our business also involves the development of software applications for specific client engagements and the customization of existing software products for specific clients. Ownership of the developed software and the customizations to the existing software is the subject of negotiation with each particular client and is typically assigned to the client. In some situations, we may retain ownership, or obtain a license from our client, which permits us or a third party to use and market the developed software or the customizations for the joint benefit of the client and us or for our sole benefit.
AVAILABLE INFORMATION
We make copies of our filings with the Securities and Exchange Commission, or the SEC, available to investors on our website without charge as soon as reasonably practicable after we file them with the SEC. Our SEC filings can be found on the Investors page of our website at www.tier.com.
EXECUTIVE OFFICERS
The following persons were our executive officers as of the date of the filing:
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Name |
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Age |
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Position |
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James R. Weaver |
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47 |
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President, Chief Executive Officer and Director |
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Jeffrey A. McCandless |
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46 |
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Senior Vice President, Chief Financial Officer and Treasurer |
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Donald R. Fairbairn |
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48 |
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Senior Vice President, Human Resources |
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Michael A. Lawler |
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41 |
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Senior Vice President, Electronic Payment Processing |
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Todd F. Vucovich |
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40 |
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Senior Vice President, Packaged Software and Systems Integration |
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Stephen V. Wade |
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43 |
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Senior Vice President, Business Development |
Mr. Weaver was elected Chairman of the Board in January 2004, elected to the Board of Directors in October 2003, was appointed Chief Executive Officer in August 2003, and was appointed President in January 2002. He was Chief Operating Officer from November 2002 through August 2003. Mr. Weaver joined us as President, Government Services Division in May 1998 and became President, U.S. Operations in August 2000. From June 1997 until May 1998, Mr. Weaver served as Vice President, Government Solutions of BDM International, Inc., an information technology company. From March 1995 until June 1997, he served as National Program Director, Public Sector for Unisys Corporation, an information technology company. Prior to that time, he served as Director, Public Sector Services with Lockheed Martin Information Management Services and District Manager with the Commonwealth of Virginia, Division of Child Support Enforcement. Mr. Weaver received a Bachelors of Arts Degree in Psychology from California University of Pennsylvania.
Mr. McCandless joined us as Senior Vice President, Chief Financial Officer and Treasurer in July 2003. From April 2000 to July 2003, Mr. McCandless served as Senior Vice President and Chief Financial Officer of Interelate, an application services provider firm. From 1997 to April 2000, Mr. McCandless was Chief Financial Officer at Mastech Corp., now iGATE Corp., a global information technology company. Mr. McCandless received a Bachelor of Arts Degree in Business Administration from Westminster College.
Mr. Fairbairn joined us as Senior Vice President, Human Resources in September 2003. From April 2002 to June 2003, he served as Senior Vice President, Human Resources for HCL Technologies America, a global IT services and product engineering company. Mr. Fairbairn was Vice President of Human Resources for Getronics, now part of BAE Systems, a computer services company, from August 1997 to March 2002. Mr. Fairbairn has earned certifications as a Senior Professional in Human Resources, a Certified Compensation Professional, and a Certified Benefits Professional. He received a Bachelor of Arts Degree in Human Resources from Michigan State University and completed the Strategic Human Resource Management Program at Harvard Business School.
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Mr. Lawler joined us as Senior Vice President, Electronic Payment Processing in June 2004, with the acquisition of EPOS. Mr. Lawler was President of EPOS beginning November 1989 and Chairman of EPOS beginning in September 1991. He received a Bachelor of Computer Engineering and Master of Science degrees from Auburn University.
Mr. Vucovich is Senior Vice President, Packaged Software and Systems Integration and has served in this capacity since November 2004. He has 18 years of experience in the development and implementation of information systems, including seven years in a business development role and eight years in a managerial capacity. Mr. Vucovich has been with us since December 1995. From September 2000 until November 2004, Mr. Vucovich served as Vice President, Quality Assurance and Resource Management. From October 1997 to September 2000, he was Business Development Manager, Government Services Division. Mr. Vucovich received a Bachelor of Science Degree in Computer Science from the University of Southern Mississippi.
Mr. Wade was appointed Sr. Vice President, Strategy and Business Development in October 2003. Prior to this appointment, Mr. Wade was Vice President, Business Development and Sales from June 1999 through September 2003. Prior to his joining Tier, Mr. Wade was Director, Business Development at TRW, System and Information Technology Group from 1997-1999 and Director, Business Development at BDM, International from 1990-1996.
Our headquarters and principal administrative functions are located in approximately 41,000 square feet of leased space in Reston, Virginia. The lease for this space expires in 2010. We also operate through leased facilities in seventeen additional states, which are used by all of our business units. The leases for these facilities expire in 2005 through 2008. As a result of our corporate restructuring in 2003, we closed four offices in fiscal 2004.
In June 2003, we announced that we had received a subpoena from a grand jury in the Southern District of New York to produce certain documents pursuant to an investigation involving the child support payment processing industry by the United States Department of Justice, or DOJ, Antitrust Division. We have fully cooperated, and intend to continue to cooperate fully, with the subpoena and with the DOJ’s investigation. On November 20, 2003, the DOJ granted conditional amnesty to us pursuant to the Antitrust Division’s Corporate Leniency Policy. Consequently, the DOJ will not bring any criminal charges against us, our officers, directors and employees, as long as we continue to comply with the Corporate Leniency Policy, which requires, among other things, our full cooperation in the investigation and restitution payments if it is determined that parties were injured as a result of impermissible anti-competitive conduct. During the fiscal year 2003, we incurred approximately $1.3 million of legal costs to comply with the investigation, which includes approximately $305,000 paid under officers and directors indemnification agreements. During the fiscal year 2004, we incurred approximately $770,000 of legal costs to comply with the subpoena which included costs of approximately $211,000 incurred under indemnification agreements partially offset by a claim payment received from our insurance carrier for approximately $227,000.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our shareholders during the fourth quarter of the fiscal year ended September 30, 2004.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Class B common stock is quoted on the NASDAQ National Market under the symbol “TIER.” The table below sets forth the high and low sales price for our Class B common stock as reported by the NASDAQ National Market for the periods indicated:
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High |
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Low |
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Fiscal Year Ended September 30, 2003: |
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|
|
|
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First Quarter |
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$ |
20.46 |
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$ |
13.98 |
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Second Quarter |
|
|
17.60 |
|
|
9.39 |
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Third Quarter |
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|
10.34 |
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|
6.10 |
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Fourth Quarter |
|
|
11.86 |
|
|
7.05 |
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|
|
|
|
|
|
|
|
|
|
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High |
|
Low |
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|
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||
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Fiscal Year Ended September 30, 2004: |
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|
|
|
|
|
|
First Quarter |
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$ |
10.75 |
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$ |
6.83 |
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Second Quarter |
|
|
11.69 |
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|
7.70 |
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Third Quarter |
|
|
12.05 |
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|
8.55 |
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Fourth Quarter |
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|
10.10 |
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|
7.36 |
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We have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings to fund the development and growth of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors; however, under our current credit facility, we are prohibited from declaring dividends.
As of December 6, 2004, there were 275 holders of record of our Class B common stock.
Securities
The following table sets forth information about our equity compensation plans as of September 30, 2004 (in thousands, except exercise price):
Equity Compensation Plan Information
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Plan category |
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Number of securities to be issued |
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Weighted-average exercise |
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Number of securities |
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|
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|||
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Equity compensation plans approved by security holders |
|
|
2,456 |
|
|
$ 11.00 |
|
|
1,117 |
|
|
Equity compensation plans not approved by security holders |
|
|
-0- |
|
|
-0- |
|
|
-0- |
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|
|
|
|
|
|
(1) |
Includes 78,000 shares remaining available for issuance as of September 30, 2004 under the Employee Stock Purchase Plan. |
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Item 6. Selected Financial Data
The following table summarizes our selected consolidated financial data. The historical results are not necessarily indicative of results to be expected for any future period.
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Year ended September 30, |
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Consolidated statement of operations data: |
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2004 |
|
2003 |
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2002 |
|
2001 |
|
2000 |
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|
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(in thousands, except per share amounts) |
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Net revenues |
|
$ |
127,937 |
|
$ |
115,917 |
|
$ |
84,656 |
|
$ |
54,600 |
|
$ |
50,298 |
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|
Costs and expenses: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Direct costs |
|
|
83,637 |
|
|
89,657 |
|
|
52,847 |
|
|
32,150 |
|
|
30,019 |
|
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Selling and marketing |
|
|
7,161 |
|
|
5,893 |
|
|
3,853 |
|
|
2,889 |
|
|
2,067 |
|
|
General and administrative |
|
|
27,959 |
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