UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended August 31, 1997.
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-12392
---------
NATIONAL DATA CORPORATION
-------------------------
(Exact name of registrant as specified in charter)
DELAWARE 58-0977458
------------ --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
National Data Plaza, Atlanta, Georgia 30329-2010
- - ------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 404-728-2000
NONE
--------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last year)
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 [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock, Par Value $.125 - 26,651,244 shares
-------------------------------------------------
Outstanding as of September 30, 1997
------------------------------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NATIONAL DATA CORPORATION
(In thousands except per share data)
- - --------------------------------------------------------------------------
Three Months Ended
August 31,
--------------------
1997 1996
--------- ---------
Revenue $ 120,102 $ 101,164
Operating Expenses:
Cost of service 58,970 49,076
Sales, general and administrative 41,499 38,154
--------- ---------
100,469 87,230
--------- ---------
Operating income 19,633 13,934
Other income (expense):
Interest and other income 485 319
Interest and other expense (2,314) (935)
Minority interest (701) (498)
--------- ---------
(2,530) (1,114)
--------- ---------
Income before income taxes 17,103 12,820
Provision for income taxees 6,499 4,615
--------- ---------
Net income $ 10,604 $ 8,205
========= =========
Earnings per common and
common equivalent shares $ 0.38 $ 0.30
========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NATIONAL DATA CORPORATION
(In thousands)
- - -------------------------------------------------------------------------
Three Months Ended August 31,
1997 1996
--------- --------
Cash flows from operating activities:
Net income $ 10,604 $ 8,205
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 5,449 4,450
Amortization of acquired intangibles
and goodwill 4,679 2,806
Minority interest in earnings 701 498
Provision for bad debts 167 416
Other, net 263 -
Changes in current assets and liabilities
which provided (used) cash, net of the
effects of acquisitions:
Accounts receivable, net (2,514) (5,517)
Merchant processing working capital (2,843) 5,738
Inventory 144 (784)
Prepaid expenses and other assets (280) 1,075
Accounts payable and accrued liabilities (3,288) 751
Income taxes payable 2,624 3,018
-------- --------
Net cash provided by operating activities 15,706 20,656
-------- --------
Cash flows from investing activities:
Capital expenditures (4,132) (3,566)
Business acquisitions, net of cash acquired (8,632) (449)
-------- --------
Net cash used in investing activities (12,764) (4,015)
-------- --------
Cash flows from financing activities:
Net repayments under lines of credit - (15,000)
Payments on notes and earn-out payable (1,092) (28)
Net principal payments under capital lease
arrangements and other long-term debt (706) (985)
Net proceeds from the issuance of stock plans 1,126 650
Distributions to minority interests (1,299) (390)
Dividends paid (1,987) -
Net cash used in financing activities (3,958) (15,753)
-------- --------
Increase (decrease) in cash and cash equivalents (1,016) 888
Cash and cash equivalents, beginning of period 19,240 9,768
-------- --------
Cash and cash equivalents, end of period $ 18,224 $ 10,656
======== ========
See Notes to Unaudited Condensed Financial Statements.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
NATIONAL DATA CORPORATION
(In thousands, except share data)
- - ----------------------------------------------------------------------
August 31, May 31,
1997 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 18,224 $ 19,240
Accounts receivable (less allowances
of $2,348 and $2,868) 81,484 78,269
Deferred income taxes 2,584 2,584
Inventory 2,346 2,260
Prepaid expenses and other current assets 7,437 6,271
--------- ---------
Total current assets 112,075 108,624
Property and equipment, net 50,829 49,907
Intangible assets, net 352,102 348,476
Deferred income taxes 9,037 9,037
Other 5,360 5,639
--------- ---------
Total Assets $ 529,403 $ 521,683
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities$ 49,768 $ 51,789
Notes and earn-out payable 298 1,372
Income taxes payable 6,904 4,282
Obligations under capital leases 2,484 2,513
Deferred income 6,090 7,389
--------- ---------
Total current liabilities 65,544 67,345
Long-term debt 150,048 149,750
Obligations under capital leases 2,890 2,287
Other long-term liabilities 3,469 3,653
--------- ---------
Total liabilities 221,951 223,035
Minority interest in equity of subsidiaries 20,540 21,178
Commitments and contingencies
Shareholders' Equity:
Preferred stock, par value $1.00 per share,
1,000,000 shares authorized; none issued - -
Common stock, par value $.125 per share,
100,000,000 shares authorized; 26,630,420
and 26,564,668 shares issued and
outstanding, respectively. 3,329 3,321
Capital in excess of par value 183,813 182,695
Retained earnings 101,759 93,099
Cumulative translation adjustment (1,001) (727)
--------- ---------
287,900 278,388
Less: Deferred compensation (988) (918)
--------- ---------
Total Shareholders' Equity 286,912 277,470
Total Liabilities and
Shareholders' Equity $ 529,403 $ 521,683
========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes the disclosures are adequate to make the
information presented not misleading. In addition, certain
reclassifications have been made to the fiscal 1997 consolidated
financial statements to conform to the fiscal 1998 presentation. It
is suggested that these financial statements be read in conjunction
with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-K for the fiscal year ended
May 31, 1997.
In the opinion of management, the information furnished reflects all
adjustments necessary to present fairly the financial position,
results of operations, and cash flows for such interim periods.
NOTE 2 - EARNINGS PER SHARE:
Primary earnings per common share and common equivalent share 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.
Fully diluted earnings per common and common equivalent share are
computed by the same method as described for primary earnings per
share except that the higher of (1) the ending market share price for
the period or (2) the average market share price for the period is
used to compute the fully diluted earnings per share, as compared to
the average market share price for primary earnings per share. The
convertible notes issued in fiscal 1997 have an antidilutive effect
on fully diluted earnings per share; accordingly, the notes are
excluded from earnings per share calculations. Earnings per share
calculations are presented in the accompanying financial statements.
The primary and fully diluted number of common and common equivalent
shares outstanding are as follows (In thousands):
Quarter Ended August 31,
1997 1996
------ ------
Primary 28,201 27,723
Fully Diluted 28,201 27,800
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings per Share". SFAS No. 128 requires primary earnings per
share to be replaced with "basic earnings per share". Basic earnings
per share is computed by dividing reported earnings available to
common stockholders by weighted average shares outstanding. No
dilution for any potentially dilutive securities is included. Fully
diluted earnings per share will be called "diluted earnings per
share". The standard is intended to simplify existing computational
guidelines, revise the disclosure requirements, and increase
comparability of earnings per share on an international basis. The
pronouncement is effective for financial statements issued after
December 15, 1997 and is not expected to have a material impact on
the Company's reported earnings per share.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash flow disclosures, including non-cash investing and
financing activities, for the three months ended August 31, 1997 and
1996 are as follows (In thousands):
1997 1996
------ ------
Income taxes paid $ 3,877 $ 1,597
Interest paid 368 772
Capital leases entered in exchange
for property and equipment -- 675
NOTE 4 - PENDING ACQUISTIONS:
On August 20, 1997, the Company entered into agreements to acquire
two related health care database information management businesses
based in Phoenix, Arizona. Under the first agreement, the Company
will acquire the stock of Source Informatics Inc., a privately held
company, in exchange for 1,555,556 shares of the Company's Common
Stock and $31.9 million in cash. The second agreement provides for
the acquisition of the stock of a subsidiary of Pharmaceutical
Marketing Services Inc. ("PMSI"), which holds its Over-The-Counter
Physician Survey business unit as well as PMSI's interest in a joint
venture it formed with Source Informatics, Inc. PMSI will receive
1,059,829 shares of the Company's Common Stock and $6.5 million in
cash for this subsidiary. The Company filed two separate SEC Forms S-
4 regarding each of these proposed transactions on September 19,
1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenue
(In millions)
First Quarter Ending August 31,
1997 1996 Increase
----------- ------------ --------
Revenue:
Health Care $ 47.5 40% $ 38.1 38% 25%
Integrated Payment Systems 38.8 32% 31.9 31% 22%
Global Payment Systems 40.4 34% 36.5 36% 11%
Intercompany Revenue (6.6) (6%) (5.3) (5%) 25%
------ ---- ------ ---- ----
Total Revenue $120.1 100% $101.2 100% 19%
====== ==== ====== ==== ====
Total revenue for the first quarter of fiscal 1998 was $120.1
million, an increase of $18.9 million (19%) from the same period in
fiscal 1997. The increase was the result of increased revenue in
Health Care, $9.4 million (25%); Integrated Payment Systems, $6.9
million (22%); and Global Payment Systems, $3.9 million (11%).
Health Care. Health Care revenue growth (25%) during the first
quarter of fiscal 1998 was a result of increases from existing
products and services and the impact of acquisition activity. The
acquisitions of Equifax Healthcare EDI Services, Inc. and Health
Communication Services, Inc. were completed after the first quarter
in fiscal 1997.
During the quarter, the company took action to enter the health
care data base management business (see Note 4 to the Unaudited
Condensed Consolidated Financial Statements), established a base to
pursue health care opportunities in Europe through the acquisition of
two United Kingdom-based pharmacy systems companies, and announced a
number of new health care network information service alliances. As
a result of these actions, the company expects annualized health care
revenue to exceed 50 percent of total revenues.
Integrated Payment Systems. The Integrated Payment Systems
revenue increase of $6.9 million (22%) during the first quarter was
primarily due to higher volumes of merchant sales processed, which
resulted from new vertical industry offerings and distribution
relationships.
Global Payment Systems. Global Payment Systems ("Global")
revenue included the impact of the purchase of a portion of
Electronic Data Systems Corporation's ("EDS") card processing
business and launched a joint marketing and service alliance with EDS
in the third quarter fiscal 1997.
Intercompany. A portion of Global's revenue was derived from
intercompany sales of services to primarily the Integrated Payment
Systems business unit.
Costs and Expenses
The following table represents the primary components of cost of
service as a percentage of total revenue for the first quarter ending
August 31, 1997 and 1996:
1997 1996
------ ------
Cost of Service:
Operations 39% 38%
Depreciation and Amortization 7% 7%
Hardware Sales 3% 4%
---- ----
49% 49%
==== ====
Total cost of service as a percentage of revenue remained
constant at 49% for the first quarter of fiscal 1998 and 1997. Cost
of operations increased $9.0 million (23%) in the first quarter of
fiscal 1998 when compared to the same period last year, primarily as
a result of increased operating costs associated with revenue growth
and acquisitions. As a percentage of revenue, cost of operations was
39% for the first quarter of fiscal 1998, compared to 38% for the
same period last year. The increase is attributable to the gross
margins realized from the acquisitions completed after January 1,
1997.
Depreciation and amortization expense increased $2.2 million
(34%) as a result of the six acquisitions accounted for as purchase
transactions completed during fiscal 1997. However, as a percentage
of revenue, depreciation and amortization costs remained constant at
7% in both first quarter periods.
Hardware sales costs decreased $1.4 million (33%) as a result of
the decreased sales of hardware for pharmacy and physician practice
management systems during first quarter of fiscal 1998. As a
percentage of revenue, hardware costs decreased from 4% in the first
quarter of fiscal 1997 to 3% for the same period of the current
fiscal year. This decrease reflects a shift away from one-time sales
activity to increasing the recurring revenue base.
Sales, general and administrative ("SG&A") expense increased
$3.3 million (9%) as compared to the first quarter of fiscal 1997.
This increase was primarily due to expenses associated with
investments made in product development and distribution channel
expansion for future revenue growth. In addition, SG&A expenses grew
as a result of higher expense ratios in acquired businesses. As a
percentage of revenue, these expenses decreased to 35% for the first
quarter of fiscal 1998 from 38% for the same period in fiscal 1997.
Operating Income
Operating income increased 41%, from $13.9 million to $19.6
million, in the first quarter of fiscal 1998. As a percentage of
revenue, operating income increased to 16.3% in the first quarter of
fiscal 1998 from 13.8% in the same quarter of fiscal 1997. Earnings
before interest, taxes, depreciation and amortization ("EBITDA") were
$29.8 million for the first quarter of fiscal 1998 and $21.2 million
for the same quarter of fiscal 1997, a 41% gain. As a percentage of
revenue, EBITDA was 25% in the first quarter of fiscal 1998 versus
21% for the same period in fiscal 1997.
Liquidity and Capital Resources
Cash flow from operations provides the Company with a
significant source of liquidity to meet its needs. At August 31,
1997, the Company and its subsidiaries had cash and cash equivalents
totaling $18.2 million. Net cash provided by operating activities
decreased 24% to $15.7 million for the first quarter of fiscal 1998,
from $20.7 million in the same period in fiscal 1997. However, cash
provided by operations before changes in working capital was $21.9
million for the first quarter of fiscal 1998, an increase of $5.5
million (34%) compared to the same quarter in the prior year. This
difference is primarily driven by the increase in depreciation and
amortization resulting from the fiscal 1997 acquisition activities
and higher net income in the first quarter.
Cash was required in the first quarter of fiscal 1998 to fund
net changes in working capital of $6.2 million, compared to cash
provided by net changes in working capital of $4.3 million for the
first quarter of fiscal 1997. The change in working capital resulted
primarily from changes in net merchant processing funds. The changes
in net merchant processing working capital reflect normal
fluctuations in the timing of credit card sales processed.
For the first quarter of fiscal 1998, cash used in investing
activities increased to $12.8 million, compared to $4.0 million in
the same period of fiscal 1997. Capital expenditures increased 16%
during the first quarter of fiscal 1998, as the Company continues to
invest in capital programs related to growth in the business and
acceleration of certain strategic initiatives. Also during the first
quarter of fiscal 1998, the Company completed the acquisition of two
United Kingdom-based pharmacy systems companies. The Company has
financed its acquisition program through cash flows from operations,
equity and debt offerings.
Net cash used in financing activities decreased to $4.0 million
for the quarter ending August 31, 1997 from $15.8 in the same period
of the prior year. During the first quarter of the prior fiscal
year, the Company repaid $15.0 million on its line of credit, with
the balance paid-in-full during the second quarter of that fiscal
year. Also, debt repayments and distributions to minority interests
increased $0.8 million and $0.9 million, respectively, during the
first quarter of fiscal 1998.
The Company has an unsecured $50.0 million revolving line of
credit which expires in May 1999. Additionally, the Company's Global
Payment Systems subsidiary has an unsecured $50.0 million revolving
line of credit which expires in July 1999. As of August 31, 1997,
there were no amounts outstanding under either facility. Management
believes that its current level of cash and borrowing capability,
along with future cash flows from operations, are sufficient to meet
the needs of its existing operations and its planned operations for
the foreseeable future. The Company regularly evaluates cash
requirements for current operations, commitments, development
activities and strategic acquisitions. The Company may elect to
raise additional funds for these purposes, either through the
issuance of additional debt, equity or otherwise, as appropriate.
Forward-Looking Information
When used in this report, press releases and elsewhere by
management or the Company from time to time, the words "believes,"
"anticipates," "expects" and similar expressions are intended to
identify forward-looking statements concerning the Company's
operations, economic performance and financial condition, including
in particular, the likelihood of the Company's success in developing
and expanding its business. These statements are based on a number
of assumptions and estimates which are inherently subject to
significant uncertainties and contingencies, many of which are beyond
the control of the Company, and reflect future business decisions
which are subject to change. A variety of factors could cause actual
results to differ materially from those anticipated in the Company's
forward-looking statements, some of which include competition in the
market for the Company's services, continued expansion of the
Company's processing and payment systems markets, successfully
completing and integrating acquisitions in existing and new markets
and other risk factors that are discussed from time to time in the
Company's Securities and Exchange Commission ("SEC") reports and
other filings. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligations to publicly release
the results of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof,
or thereof, as the case may be, or to reflect the occurrence of
unanticipated events.
Part II
ITEM 1 - PENDING LEGAL PROCEEDINGS
The Company is party to a number of 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 on the Company's financial position,
liquidity or results of operations.
ITEM 2 - CHANGES IN SECURITITES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS FILED ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports Filed on Form 8-K:
None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
National Data Corporation
(Registrant)
Date: October 15, 1997 By: /s/ M.P. Stevenson, Jr.
_______________ ________________________
M.P. Stevenson, Jr.
Interim Chief Financial Officer