PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
Selected Financial Data
(In thousands except per share data)
Year ended May 31,
1994 1993 1992 1991 1990
Revenue from operations:
Integrated Payment
Systems $112,427 $113,793 $121,774 $132,918 $128,044
Health Care Application
Systems and Services 63,005 56,268 47,735 37,488 36,767
Government, Corporate
System and Services 20,565 21,549 24,767 29,386 26,645
Other 8,009 12,946 22,210 27,299 82,313
- ------------------------------------------------------------------------
Total $204,006 $204,556 $216,486 $227,091 $273,769
Operating income(loss) 15,887 15,021 14,675 (21,059) 11,453
Net Income:
Income (loss) from:
Continuing operations $ 9,710 $8,489 $7,419 $(14,136) $1,963
Discontinued operations - - - - 1,119
-------- ------- -------- -------- -------
Net income $ 9,710 $8,489 $7,419 $(14,136) $3,082
Earnings (loss) per share:
Continuing operations $ .75 $ .68 $ .62 $ (1.20) $ .17
Discontinued operations - - - - .09
------- ----- ----- -------- -----
Earnings per share $ .75 $ .68 $ .62 $ (1.20) $ .26
Dividends per share $ .44 $ .44 $ .44 $ .44 $ .44
Total assets $183,326 $175,348 $194,882 $212,146 $277,200
Long-term obligations $23,063 $26,329 $30,081 $27,377 $32,950
Total stockholders'equity $109,331 $101,261 $96,450 $93,023 $110,891
________________________________________________________________________
Note: Certain reclassifications have been made to prior years' financial
statements to conform to fiscal 1994 presentation.
MARKET PRICE AND DIVIDEND INFORMATION
_____________________________________________________________
During the second quarter of fiscal year 1994, National Data
Corporation was listed on the New York Stock Exchange.
Prior to that time, the Company's common stock was traded on
the over-the-counter market. National Data Corporation's
common stock is traded on the New York Stock Exchange under
the ticker symbol "NDC." The high and low prices and
dividend paid per share of the Company's common stock for
each quarter during the last two fiscal years were as
follows:
Dividend
Per
High/Ask Low/Bid Share
Fiscal Year 1993
First Quarter 11 9 1/4 .11
Second Quarter 12 1/2 8 .11
Third Quarter 17 1/2 12 .11
Fourth Quarter 18 14 1/4 .11
Fiscal Year 1994
First Quarter 19 1/2 14 1/4 .11
Second Quarter 19 1/4 15 .11
Third Quarter 21 1/4 14 5/8 .11
Fourth Quarter 23 16 1/2 .11
The number of shareholders of record as of August 10, 1994 was 2,189.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
For an understanding of the significant factors that influenced the Company's
results during the past three fiscal years, the following discussion should be
read in conjunction with the Consolidated Financial Statements appearing
elsewhere in this annual report. Certain reclassifications have been made to
the fiscal 1993 and 1992 results to conform to the fiscal 1994 presentation.
Fiscal year ended May 31, 1994 compared to fiscal year ended May 31, 1993
________________________________________________________________________
The following table reflects the relative percentage ratios and the percent
change from the prior year:
Percent
Fiscal year ended May 31, Increase
1994 1993 (Decrease)
(Dollars in Millions) $ % $ % of Dollars
________________________________________________________________________
Revenue:
Integrated Payment $112.4 55% $113.8 56% (1%)
Health Care 63.0 31% 56.3 28% 12%
Government/Corporate 20.6 10% 21.5 10% (5%)
Other 8.0 4% 12.9 6% (38%)
________________________________________________________________________
Total Revenue 204.0 100% 204.5 100% 0%
Cost of Service:
Operations 92.8 45% 95.5 47% (3%)
Depreciation/Amortization 14.5 7% 15.9 8% (9%)
Hardware Sales 9.9 5% 11.1 5% (11%)
________________________________________________________________________
Total Cost of Service 117.2 57% 122.5 60% (4%)
________________________________________________________________________
Gross Margin 86.8 43% 82.0 40% 6%
Sales, General and
Administrative Expense 68.4 34% 67.0 33% 2%
Settlement of Shareholder
Litigation 2.5 1% - - -
Operating Margin 15.9 8% 15.0 7% 6%
Interest and Other Income 1.5 0% 2.5 1% (40%)
Interest and Other Expense (2.5) (1%) (2.9) (1%) (14%)
_______________________________________________________________________
Income Before Income Taxes 14.9 7% 14.6 7% 2%
Provision for Income Taxes 5.2 2% 6.1 3% 1%
________________________________________________________________________
Net Income 9.7 5% 8.5 4% 14%
========================================================================
Overview
________________________________________________________________________
Revenue
Total revenue for fiscal 1994 was $204,006,000, a decrease of $550,000 (less
than 1%) from revenue of $204,556,000 for the previous year. The reduction was
due principally to two factors. The decision to exit the Communication Services
business caused a decline in revenue of $3,733,000 from the prior fiscal year.
Also, the Integrated Payment Systems business continues to be impacted by the
shift from voice to electronic authorization, as well as declining price trends
on new transactions in the indirect business, resulting in a decline in revenue
of $1,366,000. These decreases were offset by an increase of $6,737,000 in the
Health Care Application Systems and Services business principally due to
increased electronic claims transaction volume. A more detailed discussion of
the business unit results follows.
Integrated Payment Systems (IPS) revenue for fiscal 1994 was $112,427,000, a
decrease of $1,366,000 (1%) from revenue of $113,793,000 for the prior year,
with the decline occurring principally in the indirect (distribution through
banks) side of the business. The indirect business represents approximately 45%
of total IPS revenues.
Direct revenue increased $2,387,000 (4%). Transaction volumes processed
increased by 4% and terminal sales and fees increased as well, primarily as a
result of a sales expansion program.
Indirect revenue decreased $3,753,000 (7%). Voice authorization revenue
decreased $561,000 (6%) and electronic authorization and data capture revenue
decreased $3,192,000 (7%). The decrease in voice authorization revenue is
attributable to a continued shift of business to electronic authorizations due
to lower prices to the merchants and a higher quality of service. Voice
authorization processing volume declined approximately 10% in the period and now
represents 8% of total IPS revenue. The decrease in electronic authorization
and data capture revenue was primarily the result of price reductions of
approximately 7%. The number of electronic authorization and data capture
transactions processed increased modestly in the current year.
Health Care Application Systems and Services (HCASS) revenue for fiscal 1994 was
$63,005,000, an increase of $6,737,000 (12%) from revenue of $56,268,000 for the
prior year.
Electronic Claims Processing revenue increased $9,663,000 (50%). This increase
was the result of a 51% increase in claims processed for the current customer
base and new customers added this year. The Company expects the growth trends in
electronic claims processing to continue. Pharmacy/Dental Practice Management
Systems revenue decreased $1,970,000 (7%) in fiscal 1994. This was primarily
the result of decreased sales of the microcomputer-based pharmacy and dental
practice management systems (DataStat) which was affected by the introduction of
a new Dental prodect. This was offset by an increase in recurring maintenance
revenue associated with the growing installed systems base. Revenue from sales
to government and institutional customers decreased $956,000 (10%), primarily as
a result of decreased turnkey systems sales to institutional customers and
overall reductions in defense department spending.
Government and Corporate Information Systems and Services revenue
for fiscal 1994 was $20,565,000, a decrease of $984,000 (5%) from revenue of
$21,549,000 for the prior year. Reduced demand for cash management services is
caused largely by a trend toward movement of these services to in-house,
microcomputer-based systems. The reductions were partially offset by the
emerging electronic tax filing/payment systems and applications for electronic
data interchange (EDI).
Other revenue for fiscal 1994 was $8,009,000, a decrease of $4,937,000 (38%)
from revenue of $12,946,000 for the prior year. This decrease was primarily the
result of the Company's decision to exit the communication services market in
1991. The Company anticipates that this revenue will cease in the first quarter
of fiscal 1995 as contracts with various customers expire. Weak economies in
Europe and Japan and the same cash management demand trends noted previously are
the primary causes of the revenue decline in the International business.
Costs and Expenses
________________________________________________________________________
Total cost of service was $117,208,000 for fiscal 1994. This was a decrease of
$5,329,000 (4%) from last year. This decrease was largely the result of a
reduction in cost of operations of $2,662,000 (3%), consisting principally of
payroll and telecommunications cost reductions. Hardware costs decreased
$1,251,000 (11%), directly related to volume associated with reduced sales of
healthcare practice management systems. Depreciation and amortization expense
decreased $1,411,000 (9%) from last year.
Gross Margin increased to 43% from 40% in the prior year.
Sales, general and administrative expense was $68,411,000 for fiscal 1994.
This is an increase of $1,413,000 (2%) from the prior year. This increase
was primarily due to sales expansion programs in the Integrated
Payment Systems and the Healthcare Application Systems and Services areas.
The Company reflected a charge of $2,500,000 in the first quarter of fiscal
year 1994, representing the settlement costs of a lawsuit brought against
the Company. (See Note 10 of the Consolidated Financial Statements for
further discussion of this item).
Interest and Other Income
________________________________________________________________________
Interest and other income for fiscal 1994 was $1,489,000, a decrease of
$1,043,000 (41%) below the prior year of $2,532,000. This decrease was
principally a result of a decrease in interest income. The lower interest
income resulted from the Company's sale of its pharmacy and dental systems lease
portfolio in fiscal 1993 (see note 7 to the Consolidated Financial Statements).
Interest and Other Expense
________________________________________________________________________
Interest and other expense for fiscal year 1994 was $2,517,000, a decrease of
$400,000 (14%) from the prior year's interest of $2,917,000. This decrease was
largely attributable to lower borrowings on the Company's line of credit, a
decrease in interest rates and a decrease in the imputed interest rate
associated with earn-out liabilities relating to the Company's purchase of
several merchant processing businesses.
Income Taxes
________________________________________________________________________
The provision for income taxes, as a percentage of taxable income, was 35% and
42% for the years ended May 31, 1994 and 1993, respectively. The decreased rate
in the current year is primarily due to research and development tax credits.
The Company expects this reduced rate to continue.
Net Income
________________________________________________________________________
Net income for fiscal 1994 was $9,710,000, an increase of $1,221,000 (14%), as
compared to fiscal 1993 net income of $8,489,000. Earnings per share for fiscal
1994 were $0.75, an increase of $0.07 (10%) from last year. The weighted
average number of common and common equivalent shares outstanding for fiscal
1994 was 12,987,000, an increase of 453,000 (4%) as compared to fiscal 1993.
Fiscal year ended May 31, 1993 compared to fiscal year ended May 31, 1992
___________________________________________________________________________
The following table reflects the relative percentage ratios and the percent
change from the prior year:
Percent
Fiscal year ended May 31, Increase
1993 1992 (Decrease)
(Dollars in Millions) $ % $ % of Dollars
________________________________________________________________________
Revenue:
Integrated Payment $113.8 56% $121.8 56% (7%)
Health Care 56.3 28% 47.7 22% 18%
Government/Corporate 21.5 10% 24.8 11% (13%)
Other 12.9 6% 22.2 11% (42%)
________________________________________________________________________
Total Revenue 204.5 100% 216.5 100% (6%)
Cost of Service:
Operations 95.5 47% 106.6 49% (10%)
Depreciation/Amortization 15.9 8% 15.6 7% 2%
Hardware Sales 11.1 5% 8.4 4% 32%
________________________________________________________________________
Total Cost of Service 122.5 60% 130.6 60% (6%)
________________________________________________________________________
Gross Margin 82.0 40% 85.9 40% (5%)
Sales, General and
Administrative Expense 67.0 33% 71.2 33% (6%)
Operating Margin 15.0 7% 14.7 7% 2%
Interest and Other Income 2.5 1% 2.5 1% -
Interest and Other Expense (2.9) (1%) (4.4) (2%) (34%)
_______________________________________________________________________
Income Before Income Taxes 14.6 7% 12.8 6% 14%
Provision for Income Taxes 6.1 3% 5.4 3% 13%
________________________________________________________________________
Net Income $ 8.5 4% $ 7.4 3% 14%
========================================================================
Overview
________________________________________________________________________
Revenue
Total revenue for fiscal 1993 was $204,556,000, a decrease of $11,930,000 (6%)
from revenue of $216,486,000 for the previous year. The reduction was due
principally to two factors. The decision to exit the Communication Services
business caused a decline in revenue of $7,593,000 from the prior fiscal year.
Also, the Integrated Payment Systems business was impacted by the shift from
voice to electronic authorization, as well as price trends on new transactions
in the indirect business, resulting in a decline in revenue of $7,981,000.
These decreases were offset by an increase of $8,533,000 in the
Health Care Application Systems and Services business principally due to
increased electronic claims transaction volume. A more detailed discussion of
the business unit results follows.
Integrated Payment Systems (IPS) revenue for fiscal 1993 was $113,793,000, a
decrease of $7,981,000 (7%) from revenue of $121,774,000 for the prior year,
with the decline occurring principally in the indirect (distribution through
banks) side of the business. The indirect business represented approximately
50% of total IPS revenues.
Direct revenue decreased $2,007,000 (3%); however, transaction volumes processed
increased by 12% and terminal sales and fees increased as well. Increased
transaction volume had a favorable revenue impact of $5,104,000, primarily as a
result of improved sales productivity. Terminal sales and other fees increased
$440,000. These increases were offset by a reduction in the prices charged to
merchants of $7,550,000, or approximately 15%, along with a shift from paper
to electronic-based processing.
Indirect revenue decreased $5,974,000 (10%). Voice authorization revenue
decreased $2,608,000 (21%) and electronic authorization and data capture revenue
decreased $3,367,000 (7%). The decrease in voice authorization revenue is
attributable to a continued shift of business to electronic authorizations due
to lower prices to the merchants and a higher quality of service. Voice
authorization processing volume declined approximately 20% in the period and
represents 9% of the total IPS revenue. The decrease in electronic
authorization and data capture revenue was primarily the result of price
reductions of 10%. The number of electronic authorization and data capture
transactions processed were essentially the same in both periods.
Health Care Application Systems and Services (HCASS) revenue for fiscal 1993 was
$56,268,000, an increase of $8,533,000 (18%) from revenue of $47,735,000 for the
prior year.
Electronic Claims Processing revenue increased $5,173,000 (36%). This increase
was the result of a 48% increase in claims processed for the current customer
base and new customers. Pharmacy/Dental Practice Management Systems revenue
increased $3,442,000 (14%) in fiscal 1993. This was primarily the result of
increased sales of the microcomputer-based pharmacy and dental practice
management systems (DataStat) and an increase in recurring maintenance revenue
associated with the growing installed customer base. Revenue from sales to
government and institutional customers decreased $82,000 (1%), primarily as a
result of decreased turnkey systems sales to institutional customers and overall
reductions in defense department spending.
Government and Corporate Information Systems and Services revenue
for fiscal 1993 was $21,549,000, a decrease of $3,218,000 (13%) from revenue of
$24,767,000 for the prior year. Reduced demand for cash management services in
a period of low interest rates and a trend toward movement of these services to
in-house, microcomputer-based systems are largely responsible for these
reductions.
Other revenue for fiscal 1993 was $12,946,000, a decrease of $9,264,000 (42%)
from revenue of $22,210,000 for the prior year. This decrease was primarily the
result of the Company's decision to exit the communication services market in
1991. Weak economies in Europe and Japan and the same cash management demand
trends noted previously are the primary causes of the revenue decline in the
International business.
Cost and Expenses
________________________________________________________________________
Total cost of service was $122,537,000 for fiscal 1993. This was a decrease of
$8,032,000 (6%) from last year. This decrease was largely the result of a
reduction in cost of operations of $11,100,000 (10%), consisting principally of
payroll and telecommunications cost reductions. Hardware costs increased
$2,700,000 (32%), directly related to volume associated with sales of healthcare
practice management systems and point-of-sale terminal devices in the retail
market. Depreciation and amortization expense was essentially flat at
approximately $16,000,000 in both periods.
Gross Margin realized for each year was 40%.
Sales, general and administrative expense was $66,998,000 for fiscal 1993. This
is a decrease of $4,244,000 (6%) from the prior year. The decrease was the
result of cost containment programs focused on elimination of redundancy and
non-essential activities. The programs were initiated in the second quarter of
fiscal 1993. As a percentage of revenue, sales, general and administrative
expenses for fiscal 1993 and 1992 were 33% in both periods.
Interest and Other Income
________________________________________________________________________
Interest and other income for fiscal 1993 was relatively unchanged at
$2,532,000, compared to the prior year of $2,512,000.
Interest and Other Expense
________________________________________________________________________
Interest and other expense for fiscal year 1993 was $2,917,000, a decrease
of $1,479,000 (34%) from the prior year's interest expense of $4,396,000.
This decrease was largely attributable to lower borrowings on the Company's
line of credit, a decrease in interest rates and a decrease in the imputed
interest rate associated with earn-out liabilities relating to the Company's
purchase of several merchant processing businesses.
Income Taxes
________________________________________________________________________
The provision for income taxes, as a percentage of taxable income, was 42% for
both periods.
Net Income
________________________________________________________________________
Net income for fiscal 1993 was $8,489,000, an increase of $1,070,000 (14%),
as compared to fiscal 1992 net income of $7,419,000. Earnings per share for
fiscal 1993 were $0.68, an increase of $0.06 (10%) from last year. The
weighted average number of common and common equivalent shares outstanding
for fiscal 1993 was 12,534,000, an increase of 505,000 (4%) as compared to
fiscal 1992.
Analysis of Financial Position
_______________________________________________________________________
Liquidity and Capital Resources
Net cash provided by operating activities was $38,632,000 in fiscal 1994, an
increase of $5,681,000 (17%), compared to the prior year of $32,951,000. The
improvement is principally related to a reduction in accounts
receivable balances as a result of increased emphasis placed on asset
management.
Cash used in investing activities was $10,291,000 compared to cash provided by
investing activities of $15,463,000 in the prior year. In fiscal 1994, the
Company made investments in capital assets of approximately $15,357,000 as
compared to $8,237,000 in fiscal 1993. Last year the Company generated
approximately $19,257,000 in cash by selling a majority of its' lease portfolio.
Net cash used in financing activities was $7,433,000, a decrease of $26,203,000
from the prior year. Proceeds from the sale of common stock to employees
increased $1,754,000 in the current year. In addition, payments of $24,500,000
were made by the Company to pay-off its line of credit and note payable in
fiscal 1993. No borrowings were made against the line of credit in fiscal 1994.
Dividends of approximately $5,500,000 and $5,300,000 were paid in fiscal 1994
and 1993, respectively.
Subsequent to year-end, the Company entered into a $15,000,000 committed,
working capital line of credit with two banks expiring in August 1995. The
Company believes funds generated from operations along with its committed line
of credit and the $38,012,000 cash on hand will be adequate to meet normal
business operating needs. In addition to the working capital line of credit,
the Company obtained a committed $40,000,000 acquisition line of credit which
expires in August of 1996.
Stockholders' Equity
Stockholders' equity increased $8,070,000 (8%), from May 31, 1993 to
$109,331,000 at May 31, 1994.
CONSOLIDATED STATEMENTS OF INCOME
NATIONAL DATA CORPORATION
(in thousands except per share data) Year Ended May 31,
1994 1993 1992
Revenue $204,006 $204,556 $216,486
Operating Expenses:
Cost of service 117,208 122,537 130,569
Sales, general and administrative 68,411 66,998 71,242
Settlement of shareholder litigation 2,500 - -
-------- -------- -------
188,119 189,535 201,811
Operating income 15,887 15,021 14,675
Other income (expense):
Interest and other income 1,489 2,532 2,512
Interest and other expense (2,517) (2,917) (4,396)
-------- -------- ------
(1,028) (385) (1,884)
Income before income taxes 14,859 14,636 12,791
Provision for income taxes (Note 3) 5,149 6,147 5,372
-------- -------- ------
Net income $9,710 $8,489 $7,419
======== ======== ========
Earnings per common and common equivalent
shares, primary and fully diluted (Note 1) $0.75 $0.68 $0.62
======== ======== ========
See Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
NATIONAL DATA CORPORATION
(in thousands except share data)
May 31, May 31,
1994 1993
ASSETS ---- ----
Current assets:
Cash and cash equivalents $38,012 $17,150
Short-term investments 25 625
Accounts receivable:
Trade (less allowances of $1,168 and $1,044) 31,763 36,168
Other (less allowances of $968 and $681)(Note 1) 19,701 17,418
Investment in sales-type leases, current portion
(less allowances of $575 and $968) (Note 7) 2,357 6,292
Inventory 3,518 2,663
Prepaid expenses and other current assets 4,429 5,184
-------- --------
Total current assets 99,805 85,500
Investment in sales-type leases (less allowances
of $367 and $510) (Note 7) 1,500 3,377
Property and equipment, at cost:
Land 402 402
Building 6,503 6,503
Equipment 71,213 76,067
Software (Note 8) 27,519 23,849
Leasehold improvements 13,949 13,867
Furniture and fixtures 8,744 8,856
Work in progress 2,736 924
-------- --------
131,066 130,468
Less-Accumulated depreciation and amortization (102,754) (100,994)
-------- --------
28,312 29,474
Property acquired under capital leases, net of
accumulated amortization (Note 6) 7,317 3,918
-------- --------
35,629 33,392
Deposits 2,029 2,019
Other assets:
Acquired intangibles and goodwill, net of accumulated
amortization of $30,438 and $24,901 (Note 1 and 2) 41,250 46,299
Other 3,113 4,761
-------- --------
44,363 51,060
Total Assets $183,326 $175,348
======== ========
See Notes to Consolidated Financial Statements
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,783 $8,466
Earn-out payable on acquired businesses,
current portion (Note 2) 2,598 3,032
Accrued compensation and benefits 4,462 4,792
Merchant processing payables 15,154 11,176
Income taxes payable (Note 3) 6,358 2,660
Deferred income taxes, current portion 776 703
Obligations under capital leases,
current portion (Note 6) 1,985 1,033
Mortgage payable, current portion (Note 9) 149 135
Other accrued liabilities 12,667 15,761
-------- --------
Total current liabilities 50,932 47,758
Mortgage payable (Note 9) 11,100 11,261
Earn-out payable on acquired businesses (Note 2) 1,238 3,011
Deferred income taxes (Note 3) 1,685 6,641
Obligations under capital leases (Note 6) 5,193 2,860
Other long-term liabilities 3,847 2,556
-------- --------
Total liabilities 73,995 74,087
Commitments and contingencies (Note 10)
Stockholders' Equity (Note 4):
Preferred stock, par value $1.00 per share,
1,000,000 shares authorized; none issued - -
Common stock, par value $.125 per share,
30,000,000 shares authorized; 12,610,262
and 12,226,732 shares issued 1,576 1,528
Capital in excess of par value 30,215 26,249
Retained earnings 78,865 74,658
Cumulative translation adjustment (Note 1) (533) (393)
-------- --------
110,123 102,042
Less:
Deferred compensation (Note 4) (792) (781)
-------- --------
Total stockholders' equity 109,331 101,261
Total Liabilities and Stockholders' Equity $183,326 $175,348
========= =========
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
NATIONAL DATA CORPORATION
(in thousands)
Year Ended May 31,
1994 1993 1992
---- ---- ----
Net income $9,710 $8,489 $7,419
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,209 13,626 14,921
Amortization of acquired intangibles
and goodwill 5,981 6,210 6,189
Provisions for bad debts/sales allowances/
operations losses 4,550 5,477 5,953
Loss on disposal of fixed assets 59 476 299
Changes in assets and liabilities,
net of the effects of acquisitions:
Decrease in trade accounts receivable 1,208 1,772 710
(Increase) decrease in other
accounts receivable (3,885) (5,069) 195
Decrease in income tax receivable - - 2,852
(Increase) decrease in investment
in sales-type leases 6,020 (2,958) (2,702)
Increase in inventory (855) (593) (648)
Decrease in prepaid expenses
and other assets 3,378 3,823 240
Increase (decrease) in accounts
payable and accrued liabilities 1,443 7,926 (8,958)
Increase (decrease) in income tax payable
and deferred income taxes (1,186) (6,228) 5,117
------- -------- -------
Net cash provided by operating activities 38,632 32,951 31,587
Cash flows from investing activities:
Capital expenditures (10,504) (5,305) (6,887)
Proceeds from sale of equipment 13 1,511 261
Proceeds from sale of sales-type
leases inventory - 19,257 -
Business acquisitions (400) - (9,395)
Decrease in investments and
other noncurrent assets 600 - 1,600
-------- -------- --------
Net cash provided by (used in)
investing activities (10,291) 15,463 (14,421)
Cash flows from financing activities:
Net payments under lines of credit - (4,500) (30,780)
Borrowing (payment) on note payable - (20,000) 20,000
Principal payments under mortgage,
capital lease arrangements and
other long-term debt (2,417) (2,305) (1,107)
Principal payments on earn-out payable (2,772) (2,996) (3,552)
Net proceeds from the issuance of stock
Under employee stock plan 3,259 1,505 1,085
Dividends paid (5,503) (5,340) (5,238)
-------- -------- --------
Net cash used in financing activities (7,433) (33,636) (19,592)
Effect of exchange rate changes on cash (46) - -
-------- -------- --------
Increase (decrease) in cash
and cash equivalents 20,862 14,778 (2,426)
Cash, beginning of period 17,150 2,372 4,798
-------- -------- --------
Cash, end of period $38,012 $17,150 $2,372
======== ======== ========
Supplemental schedule of noncash investing
and financing activities:
Capital leases entered into in
exchange for property and equipment $4,853 $2,932 $257
======== ======== ========
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NATIONAL DATA CORPORATION
(in thousands except per share data)
Common Stock Capital in Cumulative Deferred
Number Excess of Retained Translation Treasury Compen-
of Shares Amount Par Value Earnings Adjustment Stock sation
Balance at May 31, 1991 11,796 $1,475 $22,409 $69,328 $0 $0 ($189)
Net income - - - 7,419 - - -
Cash dividends ($.44 per share) - - - (5,238) - - -
Foreign currency translation adjustment - - - - (166) - -
Stock issued under employee
stock plans 164 20 1,203 - - - (138)
Amortization of deferred
compensation - - - - - - 327
- --------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1992 11,960 1,495 23,612 71,509 (166) 0 0
Net income - - - 8,489 - - -
Cash dividends ($.44 per share) - - - (5,340) - - -
Foreign currency translation adjustment - - - - (227) - -
Stock issued under employee
stock plans 158 19 1,479 - - - -
Stock issued under restricted
stock plans 109 14 1,158 - - - (1,172)
Amortization of deferred
compensation - - - - - - 391
- --------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1993 12,227 1,528 26,249 74,658 (393) 0 (781)
Net income - - - 9,710 - - -
Cash dividends ($.44 per share) - - - (5,503) - - -
Foreign currency translation adjustment - - - - (140) - -
Stock issued under employee
stock plans 333 42 3,217 - - - -
Stock issued under restricted
stock plans 50 6 749 - - - (755)
Amortization of deferred
compensation - - - - - - 744
- --------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1994 12,610 $1,576 $30,215 $78,865 ($533) $0 ($792)
==========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies:
_____________________________________________________________
Principles of consolidation - The consolidated financial
statements include the accounts of the Company and its wholly
owned subsidiaries. Significant intercompany transactions
have been eliminated in consolidation.
Revenue - Revenue from major software license agreements is
recognized upon installation. Revenue associated with the
Company's government cost-plus contracts and all other
revenue is recognized as work is completed or services are
performed.
Other receivables - Other receivables consist primarily of
reimbursable amounts associated with the merchant processing
operation.
Inventory - Inventory, which is composed primarily of
microcomputer hardware and peripheral equipment and
electronic point-of-sale terminals, is stated at lower of
cost or market. Cost is determined by using the first-in,
first-out method.
Investment in sales-type leases - The Company's leasing
operations consist principally of noncancelable leases of
computer equipment and software, generally covering five
years. Accordingly, the present value of all payments due
under the lease contract is recorded as revenue at the
inception of the lease and shipment of the equipment.
Interest income is recorded over the lease term (see also
Note 7).
Property and equipment - Property and equipment is stated at
cost less accumulated depreciation and amortization.
Depreciation and amortization are calculated using the
straight-line method for financial reporting purposes and
primarily accelerated methods for tax purposes. Equipment is
depreciated over two-to five-year lives, and the building is
depreciated over a 40-year life. Leasehold improvements and
property acquired under capital leases are amortized over the
shorter of the useful life of the asset or the term of the
lease. The costs of purchased and internally developed
software used to provide services to customers or internal
administrative services are capitalized and amortized on a
straight-line basis over their estimated useful lives, up to
five years. Work in Progress consists of capital projects
currently under development (see also Note 8).
Acquired intangibles and goodwill - Acquired intangibles
primarily represent customer contracts and covenants-not-to-
compete associated with the Company's acquisitions. Acquired
intangibles are amortized using the straight-line method over
their estimated useful lives of 4 to 20 years. Goodwill
represents the excess of the cost of acquired businesses over
the fair market value of their tangible and identifiable net
assets. Goodwill is being amortized on a straight-line basis
predominantly over 20 years. Subsequent to an acquisition,
the Company regularly evaluates whether events and
circumstances have occurred that indicate the carrying amount
of goodwill may warrant revision or may not be recoverable.
When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the
future undiscounted net cash flows of the related businesses
over the remaining life of the goodwill in measuring whether
the goodwill is recoverable (see also Note 2).
Income taxes - The Company files income tax returns on the
accrual basis. Deferred income taxes are provided for all
timing differences in reporting transactions for financial
reporting and income tax purposes (see also Note 3).
Earn-out payables - Earn-out payables represent the present
value of estimated future payments under the earn-out
agreements related to the Company's business acquisitions
(see also Note 2).
Foreign currency translation - The financial statements of
foreign subsidiaries have been remeasured from their
functional currency into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52.
Cash and cash equivalents - For purposes of reporting cash
flows, cash and cash equivalents include cash on hand and
unrestricted amounts deposited with banks.
Reclassifications - Certain reclassifications have been made
to the fiscal 1993 and 1992 consolidated financial statements
to conform to the fiscal 1994 presentation.
Earnings per common share - Earnings per common and common
equivalent share on a primary basis are computed by dividing
net income by the weighted average number of common shares
and common equivalent shares outstanding during the period.
Common equivalent shares represent stock options that, if
exercised, would have a dilutive effect on earnings per
share. All options with an exercise price less than the
average market share price for the period are assumed to have
a dilutive effect on earnings per share.
Earnings per common and common equivalent share on a fully
diluted basis are computed by the same method as described
for primary earnings per share except that the higher of
(1) the ending market share price or (2) the average market
share price is used to compute the fully diluted earnings per
share, as compared to the average market share price for
primary earnings per share.
The primary and fully diluted weighted average number of
common and common equivalent shares outstanding is as follows
(in thousands):
Year Ended May 31,
1994 1993 1992
Primary 12,987 12,534 12,029
Fully Diluted 12,987 12,535 12,029
Note 2 - Business Acquisitions
_____________________________________________________________
During fiscal year 1992, the Company acquired the merchant
credit card processing contracts of Signet Bank for
$9,395,000.
The acquisition has been accounted for as a purchase;
accordingly, the results of operations of the acquired
business from the date of acquisition, which were not
material, have been included in the accompanying consolidated
statements of income. The purchase consisted of a single cash
payment.
For all portfolios acquired, the acquired assets and
liabilities, including the acquired intangibles and
liabilities for earn-out payments (if any), were originally
recorded in the Company's consolidated financial statements
based on preliminary estimates of their fair market values at
the date of acquisition. These estimates are revised as
necessary upon final appraisal of the acquired assets,
primarily acquired intangibles, and determination of actual
earn-out payments, if any. During fiscal 1994 and fiscal
1993, the purchase price and earn-out liabilities related to
prior fiscal year acquisitions were increased by $564,000 and
reduced by $770,000, respectively, to reflect actual earn-out
payments and current estimates of future earn-out payments.
In addition, the Company increased interest expense by
$230,000 and reduced interest expense by $278,000 in fiscal
1994 and 1993, respectively, to adjust accrued interest on
earn-out liabilities based on revised estimates.
The changes in acquired intangibles and goodwill for fiscal
years 1994 and 1993 are summarized below (in thousands):
Balance at May 31, 1992 $53,264
Purchase price adjustments (755)
Amortization (6,210)
- -------------------------------------------------------------
Balance at May 31, 1993 $46,299
Additions from acquisitions 400
Purchase price adjustments 532
Amortization (5,981)
- -------------------------------------------------------------
Balance at May 31, 1994 $41,250
==========
Note 3 - Income Taxes
_____________________________________________________________
The provision for income taxes includes:
Year Ended May 31, 1994 1993 1992
(in thousands)
Current tax expense:
Federal $ 3,904 $ 3,527 $ 2,292
State 457 755 324
------- ------- ------
4,361 4,282 2,616
Deferred tax expense:
Federal 661 1,772 2,618
State 127 93 138
------- ------- ------
788 1,865 2,756
Total $ 5,149 $ 6,147 $ 5,372
======= ======= ======
The Company's effective tax rates differ from Federal
statutory rates as follows:
Year Ended May 31, 1994 1993 1992
(in thousands)
Federal statutory rate 35.0% 34.0% 34.0%
State net income taxes, net of
federal income tax benefit 2.5% 3.8% 2.4%
Non-taxable interest income (1.6%) - -
Non-deductible amortization of
intangible assets 1.0% 2.2% 4.2%
Other (1.9%) 2.0% 1.4%
------- ------ ------
35.0% 42.0% 42.0%
======= ====== ======
Deferred tax liabilities at May 31, 1994 consist of net
noncurrent deferred tax liabilities of $1,685,000 and net
current deferred tax liabilities of $776,000. As of May 31,
1994, principal components of deferred tax items, as
aggregated under Statement of Financial Accounting Standards
#109, "Accounting for Income Taxes," are as follows (in
thousands):
Deferred tax liabilities:
Differences between book and tax bases of:
Property and equipment $ 2,138
Employee benefit plans 236
Prepaid expenses 149
Excess of cost over fair value of
assets acquired 2,609
Other 361
-------
$ 5,493
Deferred tax assets:
Differences between book and tax bases of:
Accrued expenses $ 1,229
Customer contracts 1,803
-------
$ 3,032
Net deferred tax liability $ 2,461
=======
Note 4 - Stockholder's Equity
_____________________________________________________________
Stock Option Plans - The Company had two employee option
plans at May 31, 1994, the 1982 Incentive Stock Option Plan
(1982 Plan) and the 1987 Stock Option Plan (1987 Plan). All
stock option plans in existence in prior years were
terminated upon adoption of the 1987 Plan. The 1982 and 1987
Plans provide for granting options, to certain officers and
key employees, to purchase the Company's common stock at
prices not less than fair market value at the time of grant.
Options granted become exercisable in various annual
increments and terminate over a period not to exceed six
years for the 1982 Plan and ten years for the 1987 Plan.
Transactions in stock options under these plans are
summarized as follows:
Option Price
Shares Under Per Share
Option at Date of Grant
_____________________________________________________________
Outstanding at May 31, 1991 1,025,323 $9.75 - $33.75
Granted 657,825
Exercised (47,833)
Expired or terminated (183,581)
- -------------------------------------------------------------
Outstanding at May 31, 1992 1,451,734 $9.25 - $33.75
Granted 789,159
Exercised (140,870)
Expired or terminated (714,968)
- -------------------------------------------------------------
Outstanding at May 31, 1993 1,385,055 $8.00 - $33.75
Granted 519,000
Exercised (239,543)
Expired or terminated (182,587)
- -------------------------------------------------------------
Outstanding at May 31, 1994 1,481,925 $8.00 - $33.75
At May 31, 1994, there were 643,783 shares available for
future grants under the 1987 Plan and no shares available for
grant under the 1982 Plan.
Other Stock Plans - The Company has an Employee Stock
Purchase Plan under which the sale of 600,000 shares of its
common stock has been authorized. Employees may designate up
to the lesser of $25,000 or 20% of their annual compensation
for the purchase of stock. The price for shares purchased
under the plan is the lower of 85% of market value on the
first day or the last day of the purchase period. At May 31,
1994, 564,106 shares have been issued under this plan with
35,894 shares reserved for future issuance.
The Company also has a Non-employee Directors Stock Option
Plan which provides for grants of options, consisting of
5,000 shares of the Company's common stock for each completed
year of service, to directors who are not employees of the
Company. A maximum of five options may be granted to each
such director, and the maximum number of shares for which
options may be granted is 230,000. The options are
exercisable immediately at the current market value on the
date of grant. During fiscal years 1994, 1993 and 1992,
options for 25,000, 25,000 and 30,000 shares, respectively,
were issued under the Plan and none were exercised. As of
May 31, 1994, 35,000 shares were available for future grants.
The Company's 1983 Restricted Stock Plan (Restricted Plan)
authorizes 325,000 shares of the Company's common stock to be
awarded to key employees. Shares awarded under the
Restricted Plan are held in escrow and released to the
grantee upon the grantee's satisfaction of conditions of
the grantee's restricted stock agreement. Awards are
recorded as deferred compensation, a reduction of
stockholder's equity based on the quoted fair market value of
the Company's common stock at the award date. Compensation
expense is recognized ratably during the escrow period of the
award.
During fiscal years 1994, 1993 and 1992, 49,500, 109,000 and
10,000 shares, respectively, of the Company's common stock
were awarded under the Restricted Plan with restriction
periods of one to four years. As of May 31, 1994, 122,167
shares remain in escrow. There were 56,500 shares reserved
for future issuance under this plan. The Company expensed
$744,000, $391,000 and $327,000 for the years ended May 31,
1994, 1993 and 1992, respectively, in connection with the
Restricted Plan.
The Company's 1984 Employee Stock Ownership Plan was
dissolved in fiscal year 1993, and all shares escrowed were
distributed to eligible employees. At May 31, 1994, no
shares remain in escrow to be distributed to employees.
Note 5 - Pension Plan:
_____________________________________________________________
The Company has a noncontributory defined benefit pension
plan covering substantially all of its United States
employees who have met the eligibility provisions of the
plan. Benefits are based on years of service and the
employee's compensation during the highest five consecutive
years of earnings of the last ten years of service. Plan
provisions and funding meet the requirements of the Employee
Retirement Income Security Act of 1974, as amended.
The following table sets forth the plan's funded status and
amounts recognized in the Company's consolidated financial
statements at May 31, 1994 and 1993 (in thousands):
May 31,
1994 1993
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$11,535 as of May 31, 1994
and $10,960 as of May 31, 1993 $12,242 $11,794
Effect of salary progression 4,068 3,634
--------- --------
Projected benefit obligation for
services rendered to date 16,310 15,428
Plan assets at fair market value,
primarily common stocks and bonds 15,037 14,445
--------- --------
Plan assets less than projected
benefit obligation (1,273) (983)
Unrecognized net loss from past
experience different from that
assumed and effect of changes
in assumptions 2,533 3,034
Unrecognized prior service cost 817 983
Unrecognized net asset at June 1,
1985, being amortized over 17 years (1,857) (2,092)
-------- -------
Prepaid Pension Cost $220 $ 942
======== =======
Net pension expense (benefit) included the following
components (in thousands):
1994 1993 1992
Service cost-benefits earned
during the period $ 1,052 $ 915 $ 714
Interest cost on projected
benefit obligation 1,283 1,093 826
Actual return on plan assets (852) (1,449) (910)
Net amortization and deferral (638) 75 (406)
Curtailment (gain) loss 66 89 (266)
----------------------------
Net Pension Expense (Benefit) $ 911 $ 723 $ (42)
============================
Significant assumptions used in determining net pension
expense (benefit) and related obligations were as follows:
May 31,
1994 1993
Discount rate 7.75% 8.25%
Rate of increase in compensation
levels 4.33% 4.00%
Expected long-term rate of
return on assets 10.00% 10.00%
The Company terminated 339 and 158 employees in fiscal 1994
and 1993, respectively. These terminations were accounted
for in accordance with Statement of Financial Accounting
Standards No. 88, "Employer's Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and the resulting curtailment loss of
$66,000 and $89,000 in the years ended May 31, 1994 and 1993,
respectively, is included in the net pension expense.
On December 18, 1991, the Company adopted a retirement plan
for non-employee directors of the Company with five or more
years of service (The Directors' Plan). The Directors' Plan
benefits are based on 50% of the annual Director retainer
amount in effect on the date of a director's retirement
plus 10% for each year of service up to 100% of the base
amount for ten years' service. The benefits are payable upon
retirement, at or after age 70, for a period equal to the
number of years of service as a Director but not more than 15
years for participants with 15 or more years of Board Service
as of the effective date of the Directors' Plan and not more
than 10 years for all other participants. The expense
related to the Directors' Plan was immaterial in both fiscal
1994 and 1993.
In November 1992, the Financial Accounting Standards Board
issued Statement No. 112, "Employer's Accounting for
Postemployment Benefits." This statement requires the
accrual of the expected cost of such benefits during the
employees' years of service. Adoption of this statement is
required for fiscal years beginning after December 15, 1993.
The new standard will not have a material effect on the
Company's results of operations or financial position.
Note 6 - Lease Obligations
- -------------------------------------------------------------
The Company conducts a major part of its operations using
leased facilities and equipment. Many of these leases have
renewal and purchase options and provide that the Company pay
the cost of property taxes, insurance and maintenance.
Rent expense on all operating leases for fiscal years 1994,
1993 and 1992 was $4,392,000, $5,128,000 and $5,488,000,
respectively.
Asset balances for property acquired under capital leases
consist of the following (in thousands):
1994 1993
Buildings $ - $ 2,300
Equipment 10,026 5,218
-------------------
10,026 7,518
Less: accumulated depreciation (2,709) (3,600)
-------------------
$ 7,317 $ 3,918
===================
Future minimum lease payments for all noncancelable leases at
May 31, 1994 were as follows (in thousands):
Capital Operating
Leases Leases
-----------------------
1995 $ 2,230 $ 3,855
1996 2,214 2,427
1997 1,756 1,580
1998 1,207 723
1999 494 593
Thereafter - 2,323
-----------------------
Total future minimum lease $ 7,901 $11,501
payments
Less: amount representing
interest (723)
-----------
Present value of net minimum 7,178
lease payments
Less: current portion (1,985)
-----------
Long-term obligations under
capital leases at May 31, 1994 $ 5,193
===========
Note 7 - Sales-type Leases:
_____________________________________________________________
The Company has entered into sales-type leases with customers
for certain of its computer equipment and software products.
The components of the Company's investment in such leases at
May 31, 1994 and 1993 were as follows (in thousands):
1994 1993
Total future minimum lease
payments to be received 5,746 $13,662
Less: unearned income (947) (2,515)
---------------------
Gross investment in sales-
type leases 4,799 11,147
Less: allowance for
doubtful accounts (942) (1,478)
---------------------
Net investment in sales- 3,857 9,669
type leases
Less: current portion (2,357) (6,292)
---------------------
Net investment in sales-
type leases, noncurrent
portion $ 1,500 $ 3,377
=====================
In fiscal 1994 and 1993, the Company sold approximately
$11,903,000 and $21,831,000, respectively, of its sales-type
leases to a third party. These sales have been reflected as
reductions in the above investment balances. The related
gains, which were not material, have been recorded as other
income in the accompanying consolidated statements of income.
Under the terms of the sales, the purchaser has recourse to
the Company should certain amounts of the leases prove to be
uncollectible. For the majority of the leases, this recourse
is limited to 20% of the outstanding balance of leases sold;
however, certain leases were sold with full recourse. The
anticipated loss on the maximum recourse amount of $5,413,000
and $ 5,183,000 at May 31, 1994 and 1993, respectively, is
not material and is included in other current liabilities in
the accompanying consolidated balance sheets.
At May 31, 1994, the future minimum lease payments scheduled
to be received in each of the five succeeding years and
thereafter were as follows (in thousands):
Year Ending May 31, Amount
____________________________________________________________
1995 $ 3,060
1996 932
1997 751
1998 569
1999 387
Thereafter 47
------------
$ 5,746
============
Note 8 - Software Costs:
_____________________________________________________________
The following table sets forth information regarding the
Company's software costs for the years ended May 31, 1994,
1993 and 1992 (in thousands):
1994 1993 1992
Unamortized software costs $7,641 $6,596 $6,892
Capitalization of internally
developed software 1,450 1,651 883
Research and development
primarily associated with
software development 4,708 3,825 2,420
Software amortization expense 2,209 2,310 2,976
The Company capitalizes costs related to the development of certain
software products. In accordance with Statement of Financial Accounting
Standards No. 86, capitalization of costs begins when technological
feasibility has been established and ends when the product is available
for general release to customers. Amortization is computed on an
individual product basis and has been recognized for those products
available for market based on the products' estimated economic lives,
not to exceed 5 years.
Note 9 - Mortgage Payable:
_____________________________________________________________
The Company has permanent financing on its headquarters
building consisting of a $12,000,000 mortgage at a 9.375%
fixed rate due in 1997. Principal payments due on the
mortgage are as follows (in thousands):
Year Ending May 31, Amount
- -------------------------------------------------------------
1995 $ 149
1996 164
1997 10,936
-----------
$ 11,249
===========
The carrying amount approximates its fair value because the
interest rate on the mortgage approximates the current market
rates.
Note 10 - Commitments and Contingencies
____________________________________________________________
The Company and certain of its previous officers were party
to three lawsuits, which were consolidated as "National Data
Corporation Shareholder Litigation." The plaintiffs,
purporting to act on behalf of a class, alleged violations
of rule 10(b)(5) under the Securities Exchange Act of 1934
under a "fraud on the market" theory for alleged
misrepresentations and omissions relating to expected
earnings which resulted in, the plaintiffs contend, the
Company's common stock being overvalued in the market. The
Company and the plaintiffs signed an agreement on September
27, 1993 to settle this matter for $6,950,000. The Company's
insurer bore two-thirds of the settlement and related future
costs. The cost to the Company, net of insurance proceeds,
was approximately $2,500,000. Both the Company and its insurer
paid their full share of the settlement amount on December 1,
1993, and the settlement received final approval from the court
on December 16, 1993.
The Company is party to a number of other claims and lawsuits
incidental to its business. In the opinion of management,
the ultimate outcome of such matters, in the aggregate, will
not have a material adverse impact upon the Company's
financial position or results of operations.
Subsequent to year-end, the Company entered into a
$15,000,000 committed line of credit with two banks to fund
the Company's working capital requirements. In addition, the
Company obtained a two-year $40,000,000 line of credit for
acquisitions. Borrowings under these agreements bear
interest at the prime rate less 1% and the prime rate,
respectively. The lines of credit are not secured. The
agreements require the Company to maintain certain financial
ratios and contain other restrictive covenants. The working
capital line of credit expires in August 1995, and the
acquisition line of credit expires in August 1996.
As of May 31, 1994, the Company processed credit card
transactions for approximately 80,000 direct merchant locations.
The annual volumes processed for each customer range from
approximately $2,000 to $1 billion. The Company's merchant
customers have liability for charges disputed by cardholders.
However, in the case of merchant fraud, or insolvency or
bankruptcy of the merchant, the Company may be liable for any
of such charges disputed by cardholders. The Company
requires cash deposits and other types of collateral by
certain merchants to minimize any such contingent liability.
In addition, the Company believes that the diversification
of its merchant portfolio among industries and geographic
regions minimizes its risk of loss. Based on its historical
loss experience, the Company has established reserves for
estimated losses on transactions processed through May 31,
1994. In the opinion of management, such reserves for losses
are adequate.
In connection with the Company's acquisition of merchant
credit card operations of banks, the Company has also entered
into depository and processing agreements ("the Agreements")
with certain of the banks. These Agreements allow the
Company to use the banks' "Bank Identification Number"
to clear credit card transactions through VISA and
MasterCard. Certain of the Agreements contain financial
covenants, and the Company was in compliance with all such
covenants as of May 31, 1994.
Note 11 - Information on Major Customers and Foreign
Operations:
_____________________________________________________________
The Company operates principally in data processing services
and provides specialized data processing applications
designed to meet the business needs of its customers. The
applications include a variety of Healthcare Application
Systems and Services, Integrated Payment Systems and
Government and Corporate Information Systems and Services.
The Company markets its products internationally and has
sales offices in Canada, Europe and Japan. Revenue from non-
U.S. operations was $4,873,000, $6,077,000 and $7,748,000 for
the years ended May 31, 1994, 1993 and 1992, respectively.
Operating losses from foreign operations were $449,000,
$2,102,000, and $1,061,000 in 1994, 1993 and 1992,
respectively. Assets related to foreign operations are not
significant.
Approximately 4%, 5% and 5% of the Company's total revenue
for the years ended May 31, 1994, 1993 and 1992,
respectively, was derived from contracts with, or as a
subcontractor of contractors with, the United States
government. All such contracts and subcontracts are
generally subject to termination at the convenience of the
United States government, whenever it believes that such
termination would be in its best interests. If such
contracts and subcontracts were terminated for the
convenience of the United States government, the Company is
generally entitled to receive payment for work completed and
allowable termination costs.
Note 12 - Subsequent Events
____________________________________________________________
In June 1994, the assets and certain liabilities of Yes
Check, Inc., were acquired. Yes Check, Inc. is a Chicago-
based check guarantee company with 49 employees. On July 15,
1994, the Company acquired the assets and certain liabilities
of Lytec Systems, Inc., a Salt Lake City company that
develops and markets medical practice management software
with 10 employees. The combined estimated annual revenues for
these acquired companies is $8,000,000.
Both acquisitions require earn-out payments at future dates
that are not estimable at this time. The aggregate price
paid for these acquisitions was $9,150,000.
Note 13 - Supplemental Cash Flow Information:
____________________________________________________________
Supplemental cash flow disclosures, including noncash
investing and financing activities, for the years ended May
31, 1994, 1993 and 1992 are as follows (in thousands):
1994 1993 1992
Income taxes paid, net of $3,543 $4,260 $1,391
refunds received
Interest paid 1,745 2,510 3,745
Property and equipment
acquired under capital
leases 4,853 2,932 257
Note 14 - Quarterly Consolidated Financial Information
(Unaudited)
____________________________________________________________
(In thousands except per share data)
Quarter Ended
Aug.31 Nov.30 Feb.28 May 31
Fiscal Year 1994
Revenue $50,213 $50,321 $50,444 $53,028
Operating Income 1,447 4,514 4,280 5,646
Net Income 658 2,578 2,641 3,833
Earnings per share .05 .20 .20 .29
Fiscal Year 1993
Revenue $51,592 $49,966 $49,519 $53,479
Operating Income 2,256 2,939 4,200 5,626
Net Income 1,143 1,732 2,423 3,191
Earnings per share .10 .14 .20 .26
Note 15 - Provision for Bad Debt, Sales Allowances and
Operational Losses
- --------------------------------------------------------
The Company establishes reserves for bad debts based upon
analyses of the trade accounts receivable aging and any
identified collection issues.
Reserves are established for sales returns and allowances
based principally on historical and projected experiences
and any identified return issues.
The Company processes VISA and MasterCard charges for its
direct merchant customers. The Company's customers have
liability for the charges disputed by the cardholders,
based on VISA and MasterCard rules and regulations. However,
in the case of merchant fraud, insolvency or bankruptcy by
the merchant, the Company may be liable for any such charges
disputed by the cardholder. The Company establishes reserves
for operational charges based upon historical and projected
experiences concerning such charges. See Note 10 for a further
description of contingencies associated with the merchant
processing business.
The following table details the reserves established for the
above activities (in thousands):
Fiscal Year ended May 31,
1994 1993 1992
------ ----- -----
Bad Debt $ 988 $1,691 $1,086
Sales Returns & Allowances 2,775 2,348 2,926
Operation Losses 787 1,438 1,941
------ ------ ------
$4,550 $5,477 $5,953
====== ====== ======
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
National Data Corporation
We have audited the accompanying consolidated balance sheets of National
Data Corporation (a Delaware corporation) and subsidiaries as of May 31,
1994, and 1993, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended May 31, 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 the 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of National Data Corporation and subsidiaries as of May 31, 1994 and
1993, and the results of their operations and their cash flows for
each of the three years in the period ended May 31, 1994 in conformity
with generally accepted accounting principles.
As explained in Note 3 to the financial statements, effective June 1,
1993, the Company changed its method of accounting for income taxes.
/s/ Arthur Andersen LLP
____________________
Atlanta, Georgia
May 23, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES
We have audited in accordance with generally accepted auditing
standards, the financial statements included in National Data
Corporation's annual report to shareholders incorporated by reference in
this Form 10-K/A, and have issued our report thereon dated May 23, 1995.
Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedules listed in the index above
are the responsibility of the company's management and are presented for
purposes of complying with the Securities and Exchange Commission's
rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 23, 1995
APPENDIX A
to
ANNUAL REPORT ON FORM 10-K
NATIONAL DATA CORPORATION AND ITS SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULES
CONTENTS
Report of Independent Public Accountants as to Schedules
Consolidated Schedule I - Marketable Securities
Consolidated Schedule II - Accounts Receivable From Related Parties and
Underwriters, Promoters and Employees Other Than Related Parties
Consolidated Schedule V - Property, Plant and Equipment
Consolidated Schedule VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment
Consolidated Schedule VIII - Valuation and Qualifying Accounts
Consolidated Schedule IX - Short-term Borrowings
Consolidated Schedule X - Supplementary Income Statement Information
Consent of Independent Public Accountants
NATIONAL DATA CORPORATION
CONSOLIDATED SCHEDULE I
MARKETABLE SECURITIES
(In thousands)
Column A Column B Column C Column D Column E
Market Value Amount at
of Each Issue Which
Name of Issuer Cost of at Balance Carried in the
and Title of Each Issue Amount Each Issue Sheet Date Balance Sheet
Certificates of Deposit $25 $25 $25 $25
======== ======= ======== ========
NATIONAL DATA CORPORATION
CONSOLIDATED SCHEDULE II
ACCOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
(in thousands)
Column A Column B Column C Column D - Deductions Column E
- --------------- ---------------------- ----------- ---------------------------------- ----------------------
Balance at Beginning Additions Balance at End
of Period Foreign Foreign of Period
Currency Amounts Amounts Currency
Name of Debtors Current Non-Current Translation collected written-off Translation Current Non-Current
May 31, 1992
Rob Harris 170 - 12 - - - 182 -
Gale Turner 20 80 6 7 - - 20 80
--------------------------------------------------------------------------------------------------
$190 $80 $18 $7 - - $202 $80
May 31, 1993
Rob Harris 182 - - 33 - (26) 123 -
Gale Turner 20 80 14 24 - - 25 65
--------------------------------------------------------------------------------------------------
$202 $80 $14 $57 - ($26) $148 $65
May 31, 1994
Rob Harris 123 - - 100 20 (3) - -
Gale Turner 25 65 5 26 - - 26 43
--------------------------------------------------------------------------------------------------
$148 $65 $5 $126 $20 ($3) $ 26 $43
NATIONAL DATA CORPORATION
CONSOLIDATED SCHEDULE V
PROPERTY, PLANT & EQUIPMENT
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
OTHER
BALANCE CHANGES BALANCE
AT -ADD AT
BEGINNING ADDITIONS RETIRE- (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST MENTS -DESCRIBE PERIOD
YEAR ENDED MAY 31, 1992
OWNED PROPERTY:
LAND $402 $0 $0 $0 $402
EQUIPMENT 87,846 4,310 9,458 98 a 82,796
SOFTWARE 42,313 1,768 1,082 1,021 a,c 44,020
FURNITURE AND FIXTURES 9,731 252 298 30 a 9,715
BUILDING STRUCTURE 6,504 0 0 0 6,504
LEASEHOLD IMPROVEMENTS 15,618 718 1,201 (63) 15,072
SUB-TOTAL 162,414 8,059 12,039 1,086 158,509
LEASED PROPERTY:
BUILDINGS 2,879 0 177 (33) a 2,669
EQUIPMENT 2,230 257 0 0 2,487
SUB-TOTAL 5,109 257 177 (33) 5,156
TOTAL PROPERTY $167,523 $8,316 $12,216 $42 $163,665
YEAR ENDED MAY 31, 1993
OWNED PROPERTY:
LAND $402 $0 $0 $0 $402
EQUIPMENT 82,796 2,355 8,849 (235)a,b 76,067
SOFTWARE 44,020 2,660 22,332 425 a,b,c 24,773
FURNITURE AND FIXTURES 9,715 28 842 (51)a,b 8,856
BUILDING STRUCTURE 6,504 0 0 0 6,504
LEASEHOLD IMPROVEMENTS 15,072 109 1,202 (107)a,b 13,872
SUB-TOTAL 158,509 5,152 33,225 32 130,468
LEASED PROPERTY:
BUILDINGS 2,669 0 369 0 2,300
EQUIPMENT 2,487 2,932 201 0 5,218
SUB-TOTAL 5,156 2,932 570 0 7,518
TOTAL PROPERTY $163,665 $8,084 $33,795 $32 $137,986
YEAR ENDED MAY 31, 1994
OWNED PROPERTY:
LAND $402 $0 $0 $0 $402
EQUIPMENT 76,067 4,013 8,702 (165)a,b 71,213
SOFTWARE 24,773 6,340 48 (810)a,b 30,255
FURNITURE AND FIXTURES 8,850 35 199 58 a,b 8,744
BUILDING STRUCTURE 6,504 - - (1)a 6,503
LEASEHOLD IMPROVEMENTS 13,872 116 - (39)a,b 13,949
SUB-TOTAL 130,468 10,504 8,949 (957) 131,066
LEASED PROPERTY:
BUILDINGS 2,300 0 2,300 0 0
EQUIPMENT 5,218 4,853 55 10 10,026
SUB-TOTAL 7,518 4,853 2,355 10 10,026
TOTAL PROPERTY $137,986 $14,357 $11,304 ($947) $141,092
<FN>
(a) adjustment of prior years' items
(b) foreign currency translation
(c) revised lease terms
NATIONAL DATA CORPORATION
CONSOLIDATED SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT & EQUIPMEN
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
OTHER
BALANCE CHANGES BALANCE
AT DEPRECIATION/ -ADD AT
BEGINNING AMORTIZATION RETIRE- (DEDUCT) END OF
CLASSIFICATION OF PERIOD EXPENSE MENTS -DESCRIBE PERIOD
YEAR ENDED MAY 31, 1992
OWNED PROPERTY:
EQUIPMENT $64,368 $9,841 $9,210 ($96)a $64,903
SOFTWARE 36,392 2,434 800 7 a 38,033
FURNITURE AND FIXTURE 5,488 953 296 - 6,145
BUILDING STRUCTURE 731 169 - - 900
LEASEHOLD IMPROVEMENT 9,982 1,363 1,171 - 10,174
SUB-TOTAL 116,961 14,760 11,477 (89) 120,155
LEASED PROPERTY:
BUILDINGS 2,599 462 177 - 2,884
EQUIPMENT 195 148 - - 343
SUB-TOTAL 2,794 610 177 - 3,227
TOTAL PROPERTY $119,755 $15,370 $11,654 ($89) $123,382
YEAR ENDED MAY 31, 1993
OWNED PROPERTY:
EQUIPMENT $64,903 $9,031 $8,094 ($74)a,b $65,766
SOFTWARE 38,033 1,714 22,281 53 a,b 17,519
FURNITURE AND FIXTURE 6,145 864 798 (11)a,b 6,200
BUILDING STRUCTURE 900 169 - - 1,069
LEASEHOLD IMPROVEMENT 10,174 1,341 1,025 (50)c 10,440
SUB-TOTAL 120,155 13,119 32,198 (82) 100,994
LEASED PROPERTY:
BUILDINGS 2,884 115 403 - 2,596
EQUIPMENT 343 789 129 - 1,003
SUB-TOTAL 3,227 904 532 - 3,599
TOTAL PROPERTY $123,382 $14,023 $32,730 ($82) $104,593
YEAR ENDED MAY 31, 1994
OWNED PROPERTY:
EQUIPMENT $65,766 $6,358 $8,635 ($157)a,c $63,332
SOFTWARE 17,519 2,208 48 (3)a,c 19,676
FURNITURE AND FIXTURE 6,200 847 194 78 a,c 6,931
BUILDING STRUCTURE 1,069 168 - (1)a,c 1,236
LEASEHOLD IMPROVEMENT 10,440 1,148 - (9)a,c 11,579
SUB-TOTAL 100,994 10,729 8,877 (92) 102,754
LEASED PROPERTY:
BUILDINGS 2,596 - 2,281 (315)a -
EQUIPMENT 1,003 1,480 74 300 a 2,709
SUB-TOTAL 3,599 1,480 2,355 (15) 2,709
TOTAL PROPERTY $104,593 $12,209 $11,232 ($107) $105,463
<FN>
(a) adjustment of prior year's items
(b) foreign currency translation
NATIONAL DATA CORPORATION
CONSOLIDATED SCHEDULE VIII
VALUATION & QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D Column E
Balance at Charged to Uncollectible Balance at
Beginning Cost and Accounts End
Description of Period Expenses Write-off of Period
Trade Receivable Allowances:
May 31, 1992 $4,206 $2,604 $4,919 $1,891
May 31, 1993 1,891 2,352 3,199 1,044
May 31, 1994 1,044 3,150 3,026 1,168
Other Receivable Allowances:
May 31, 1992 $1,431 $1,941 $2,329 $1,043
May 31, 1993 1,043 2,064 2,426 681
May 31, 1994 681 1,983 1,696 968
Sales-Type Lease Allowances:
May 31, 1992 $2,745 $1,407 $2,086 $2,066
May 31, 1993 2,066 727 1,315 1,478
May 31, 1994 1,478 (208) 328 942
NATIONAL DATA CORPORATION
CONSOLIDATED SCHEDULE IX
SHORT-TERM BORROWINGS
(In thousands)
Column A Column B Column C Column D Column E Column F
Max Amount Avg Amount Weighted
Balance Weighted Outstanding Outstanding Avg Int
Category of aggregate @ end of Average During the During the Rate During
short-term borrowings Period Interest Rate Period Period the Period
1992:
Bank Lines of Credit $4,500 7.00% $34,350 $24,708 a 7.30% b
1993:
Bank Lines of Credit $ 0 6.50% $6,500 $1,767 a 6.50% b
1994:
Bank Lines of Credit $ 0 5.64% $0 $0 5.00% b
<FN>
See note 10 to the Consolidated Financial Statements for general terms
of the above short-term borrowings.
a. Average amounts outstanding at the end of each month for the years ended 5/31/92 and 5/31/93
b. Weighted average calculated using month-end balances and month-end interest rates.
NATIONAL DATA CORPORATION
CONSOLIDATED SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
( in thousands )
COLUMN A COLUMN B
Charged to
Item Operating Expenses
May 31, 1992
Maintenance and repairs $4,382
Amortization of acquired intangibles and goodwill 6,189
Taxes, other than payroll and income 1,298
May 31, 1993
Maintenance and repairs $4,410
Amortization of acquired intangibles and goodwill 5,685
Taxes, other than payroll and income 1,551
May 31, 1994
Maintenance and repairs $5,986
Amortization of acquired intangibles and goodwill 5,981
Taxes, other than payroll and income 1,463
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, National Data Corporation has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NATIONAL DATA CORPORATION
By: /s/ Jerry W. Braxton
-------------------------------
Jerry W. Braxton, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
Date: May 23, 1995
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>2
<DESCRIPTION>CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<TEXT>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included (or incorporated by reference) in
this Form 10-K/A, into the Registrant's previously filed Registration
Statements, File Numbers 2-81717, 2-86961, 2-92193, 33-25635, 33-43005,
33-44858, 33-58622 and 33-58624.
Arthur Andersen LLP
Atlanta, Georgia
May 23, 1995
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>3
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<ARTICLE> 5
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-END> MAY-31-1994
<CASH> 38,012
<SECURITIES> 0
<RECEIVABLES> 31,763
<ALLOWANCES> 1,168
<INVENTORY> 3,518
<CURRENT-ASSETS> 99,805
<PP&E> 131,066
<DEPRECIATION> 102,754
<TOTAL-ASSETS> 183,326
<CURRENT-LIABILITIES> 50,932
<BONDS> 0
<COMMON> 1,576
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<OTHER-SE> 108,547
<TOTAL-LIABILITY-AND-EQUITY> 183,326
<SALES> 204,006
<TOTAL-REVENUES> 204,006
<CGS> 117,208
<TOTAL-COSTS> 188,119
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,517
<INCOME-PRETAX> 14,859
<INCOME-TAX> 5,149
<INCOME-CONTINUING> 9,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,710
<EPS-PRIMARY> .75
<EPS-DILUTED> .75