UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-24205
FACTUAL DATA CORP.
-----------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1449911
- -------------------------------------------------------------- ----------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5200 HAHNS PEAK DRIVE, LOVELAND COLORADO 80538
- -------------------------------------------------------------- ----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(970) 663-5700
----------------------------------------------------
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (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. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 15, 2001.
CLASS NUMBER OF SHARES
---------------------------------------------------------------------
Common Stock 5,388,769
Transitional Small Business Disclosure Format: [ ] Yes [X] No
-1-
FACTUAL DATA CORP.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 2001 (Unaudited) and
December 31, 2000 3
Unaudited Consolidated Statements of Income -- For the Three Months
Ended March 31, 2001 and March 31, 2000 4
Unaudited Consolidated Statements of Cash Flows -- For the Three Months
Ended March 31, 2001 and March 31, 2000 5-6
Notes to Unaudited Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
-2-
FACTUAL DATA CORP.
CONSOLIDATED BALANCE SHEETS
March 31,
2001 December 31,
Assets (Unaudited) 2000
-------------- ---------------
Current assets
Cash and cash equivalents $ 914,869 $ 347,926
Prepaid expenses and other 163,596 207,036
Accounts receivable, net of
allowance of $169,691 and $103,531 7,236,641 4,149,820
Deferred income taxes 473,765 473,765
Income tax refund receivable 987,558 987,558
-------------- --------------
Total current assets 9,776,429 6,166,105
-------------- --------------
Property and equipment, net of
accumulated depreciation of
$4,891,558 and $4,448,472 5,362,860 5,245,949
Intangibles, net of accumulated amortization
of $16,206,184 and $15,734,720 29,689,296 27,173,678
Deferred income taxes 4,010,032 4,010,032
Other assets 217,622 204,333
-------------- --------------
Total other assets 39,279,810 31,388,043
-------------- --------------
$ 49,056,239 $ 42,800,097
============== ==============
Liabilities and Shareholders' Equity
Current liabilities
Line-of-credit $ 5,306,395 $ 3,406,395
Current portion of long-term debt 3,577,312 3,224,419
Accounts payable 5,297,590 4,166,744
Accrued branch efficiency costs 1,143,818 1,504,697
Accrued payroll and expenses 1,634,649 440,703
Deferred revenue 56,100 37,850
-------------- --------------
Total current liabilities 17,015,864 12,780,808
-------------- --------------
Long-term debt 15,629,113 14,763,989
Deferred income taxes 4,238 -
Shareholders' equity
Preferred stock, 1,000,000 shares
authorized; none issued and outstanding - -
Common stock, 10,000,000 shares authorized;
5,388,769 at March 31, 2001; 5,387,371 at
December 31, 2000 issued and outstanding 22,542,507 22,532,809
Accumulated deficit (6,135,483) (7,277,509)
-------------- --------------
Total shareholders' equity 16,407,024 15,255,300
-------------- --------------
$ 49,056,239 $ 42,800,097
============== ==============
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated statements.
-3-
FACTUAL DATA CORP.
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended
March 31,
---------------------------------------
2001 2000
---------------- ---------------
(Unaudited)
Revenue
Information services $ 12,349,790 $ 6,979,067
Ancillary revenues 385,539 496,453
System affiliates 329,078 313,310
Training, license, and other 0 500
---------------- ---------------
Total revenue 13,064,407 7,789,330
---------------- ---------------
Operating expenses
Costs of services provided 7,531,284 4,367,766
Selling, general, and administrative 2,293,740 1,793,080
Consolidation costs 36,773 289,500
Depreciation and amortization 861,695 911,306
---------------- ---------------
Total operating expenses 10,723,492 7,361,652
---------------- ---------------
Income from operations 2,340,915 427,678
Other income (expense)
Other income 94,257 71,531
Interest expense (601,072) (211,922)
---------------- ---------------
Total other income (expense) (506,816) (140,391)
---------------- ---------------
Income before income taxes 1,834,099 287,287
Income tax expense 692,073 117,382
---------------- ---------------
Net income and comprehensive income $ 1,142,026 $ 169,905
---------------- ---------------
Basic earnings per share $ .21 $ .03
================ ===============
Weighted average shares outstanding 5,387,387 5,380,103
================ ===============
Diluted earnings per share $ .21 $ .03
================ ===============
Weighted average shares outstanding 5,391,248 5,480,585
================ ===============
SUPPLEMENTAL INFORMATION
EBITDA (a) $ 3,296,866 $ 1,410,515
EBITDA per share (a) $ .61 $ .26
(a) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative to cash
flow (as a measure of liquidity or ability to service debt obligations) and is
not in accordance with, nor superior to, generally accepted accounting
principles, but provides additional information for evaluating Factual Data
Corp. Additionally, the Company's definition of EBITDA may be different from
that used by others.
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated statements.
-4-
FACTUAL DATA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
-------------------------------------
2001 2000
-------------- --------------
(Unaudited)
Cash flows from operating activities
Net income $ 1,142,026 $ 169,905
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 861,695 911,306
Accrued branch efficiency costs (360,878) -
Deferred revenue 18,250 -
Deferred income taxes 4,238 28,083
Changes in operating assets and liabilities
Accounts receivable (3,086,821) (1,412,279)
Prepaid expenses 43,441 (72,340)
Other assets (12,139) 140,124
Accounts payable 1,130,846 718,992
Accrued payroll, payroll taxes and expenses 1,193,944 (113,302)
--------------- --------------
(207,424) 200,584
--------------- --------------
Net cash provided by operating activities 934,602 370,489
--------------- --------------
Cash flow from investing activities
Purchase of property and equipment (85,467) (423,639)
Acquisition costs (1,064,872) (215,738)
Capitalized software costs (174,530) (206,028)
--------------- --------------
Net cash used in investing activities (1,324,869) (845,405)
--------------- --------------
Cash flows from financial activities
Principal payments of long-term debt (952,489) (1,041,875)
Borrowings on line-of-credit 1,900,000 900,000
Net proceeds from employee stock option plan 9,699 11,970
--------------- --------------
Net cash provided (used) in financing activities 957,210 (129,905)
--------------- --------------
Net increase (decrease) in cash and cash equivalents 566,943 (604,821)
Cash and cash equivalents, at beginning of period 347,926 1,023,945
--------------- --------------
Cash and cash equivalents, at end of period $ 914,869 $ 419,124
--------------- --------------
--------------- --------------
(Continued)
-5-
Supplemental disclosure of cash flow information:
Interest paid on borrowings for the three months ended March 31, 2001 and
2000 was $601,072 and, $211,922, respectively.
Supplemental disclosure of non-cash investing and financing activities:
During the three months ended March 31, 2000, the Company financed fixed
asset purchases totaling $37,939 with notes payable and capital leases.
During the three months ended March 31, 2001, the Company acquired a
license agreement with a long-term obligation of $570,505 (see Note 5).
During the three months ended March 31, 2001, the Company acquired one
company for $1.0 million cash and notes payable of $1.6 million.
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated statements.
-6-
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission March 31, 2001, which includes
audited financial statements for the years ended December 31, 2000 and 1999. The
results of operations for the three months ended March 31, 2001, may not be
indicative of the results of operations for the year ended December 31, 2001.
The Company applies Statement of Financial Accounting Standards
("SFAS") No. 128, "EARNINGS PER SHARE." SFAS No. 128 provides for the
calculation of "Basic" and "Diluted" earnings per share ("EPS"). Basic EPS
includes no dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution of securities that could
share in the earnings of an entity. Stock options and warrants convertible or
exercisable into approximately 1,937,685 shares of common stock were outstanding
at March 31, 2001 and stock options and warrants convertible or exercisable into
approximately 1,786,929 shares of common stock were outstanding as of March 31,
2000. Of these securities, 1,928,122 and 1,686,448, respectively, were not
included in the computation of diluted EPS because they were anti-dilutive but
could potentially dilute EPS in future periods.
NOTE 2: BUSINESS ACQUISITIONS
The Company consummated one acquisition in the first three months of
2001. The acquisition has been accounted for using the purchase method and the
results of operations are reflected in the consolidated financial statements
from the date of the acquisition. The purchase price allocation and
consideration paid were as follows:
Consolidation Purchase Price Allocation
- ---------------------------------------------------------------- ----------------------------------------------------
Notes Payable $ 1,600,000 Property and equipment $ 260,000
------------ Other Assets 1,150
Subtotal non-cash portion 1,600,000 Intangibles 2,338,850
--------------
Cash payments 1,000,000 $ 2,600,000
------------ ==============
Total consideration $ 2,600,000
===========
The amortization periods for the intangibles are as follows: customer lists - 15
years; contract rights - 15 years; and non-compete agreements - three years.
NOTE 3: LINE-OF-CREDIT
The line-of-credit consists of the following:
March 31, 2001 December 31, 2000
-------------- -----------------
$6,000,000 line-of-credit, interest payable at 9.5625% principal and unpaid
interest due April 30, 2001. The line-of-credit requires the Company to meet
certain financial restrictive covenants. The line is collateralized by
substantially all the assets of the Company. The Company amended its credit
facility agreement on March 27, 2001, which among other things amended
certain financial covenants. $5,306,395 $3,406,395
========== ==========
-7-
NOTE 4: SHAREHOLDERS' EQUITY
The Company sold 1,398 shares of stock to employees for $9,699 in
connection with the Company's Employee Stock Purchase Plan during the first
quarter of 2001.
NOTE 5: LONG-TERM DEBT AND OBLIGATIONS
On May 1, 2000, the Company refinanced seller notes from acquisitions
and a portion of the previous line-of-credit with a $4 million term loan through
Wells Fargo bank. The term loan is a 5-year amortization with interest at prime
plus 25 basis points, or LIBOR plus 275 basis points. A fixed swap agreement was
negotiated in which the all-in-one interest rate is now locked at 10.10%.
(See Note 6).
On January 31, 2001 the Company entered into a 10-year license
agreement, which requires monthly payments over a 5-year period, as the Experian
representative for the state of Wyoming. The agreement has been recorded as a
capital lease obligation on the balance sheet. The Company may only terminate
this agreement without penalty or future obligation under limited circumstances.
As of March 31, 2001, the future maturities of this long-term
obligation are as follows:
Year Ending December 31,
2001............................... $ 44,697
2002............................... 58,762
2003............................... 96,234
2004............................... 154,576
2005............................... 183,669
2006............................... 32,567
-----------
$ 570,505
===========
NOTE 6: ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES", as
amended by SFAS No. 137, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB NO. 133", and SFAS No. 138,
"ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES"
is effective for the Company as of January 1, 2001. SFAS No. 133 requires that
an entity recognize all derivatives as either assets or liabilities measured at
fair value. The accounting for changes in the fair value of a derivative depends
on the use of the derivative. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until change in fair value will be immediately recognized in earnings.
The Company uses interest rate swaps to manage interest rate risk with regard to
notes payable. Interest rate swaps are accounted for using the hedge method of
accounting. To qualify as a hedge, these swap contracts must be designated as a
hedge and changes in their fair value must correlate with changes in the price
of anticipated future interest rates such that the Company's exposure to the
effects of interest rate changes is reduced. If the contract is not a hedge,
changes in the fair value are recorded currently.
As of March 31, 2001, the Company had one interest rate swap agreement for a
principal amount of $4,000,000 expiring May 31, 2002. At March 31, 2001, the
gains or losses associated with this agreement were not material.
The Company is exposed to credit risk in the event of non-performance by the
counter-party in the interest rate swap contract; however, the Company does not
anticipate non-performance by the counter-party.
-8-
NOTE 7: BUSINESS SEGMENTS
Operating results and other financial data are presented for the principal
business segments of the Company for the quarters ended March 31, 2001, and
March 31, 2000. Total revenue in one business segment includes mortgage
services that represent revenue for mortgage related services. Another
segment, consumer services, represents all revenue tied to consumer services,
and the third segment consists of ancillary and other services.
Identifiable assets by business segment are those assets used in the Company's
operation of each segment.
MORTGAGE CONSUMER ANCILLARY TOTAL
SERVICES SERVICES SERVICES
----------- ----------- ----------- -----------
MARCH 31, 2001
Net sales $10,077,970 $ 1,562,351 $ 1,424,086 $13,064,407
Cost of services 6,159,543 982,061 389,680 7,531,284
Gross profit 3,918,427 580,290 1,034,406 5,533,123
Total assets 36,406,000 11,726,475 923,764 49,056,239
Depreciation and amortization 811,372 30,008 20,314 861,695
Capital expenditures 80,585 4,882 - 85,467
----------- ----------- ------------ -----------
MARCH 31, 2000
Net sales $ 5,860,085 - $ 1,929,246 $ 7,789,330
Cost of services 4,041,202 - 326,564 4,367,766
Gross profit 1,818,883 - 1,602,682 3,421,565
Total assets 39,692,193 - 700,253 40,392,446
Depreciation and amortization 897,055 - 14,251 911,306
Capital expenditures 423,639 - - 423,639
----------- ----------- ------------ -----------
-9-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND WE INTEND THAT
SUCH FORWARD-LOOKING STATEMENTS BE SUBJECT TO THE SAFE HARBORS CREATED THEREBY.
THESE FORWARD-LOOKING STATEMENTS INCLUDE OUR PLANS AND OBJECTIVES FOR FUTURE
OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO SERVICES OFFERED BY OUR
FUTURE ECONOMIC PERFORMANCE AND US.
THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN ARE BASED ON CURRENT
EXPECTATIONS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES THAT MIGHT
ADVERSELY AFFECT OUR OPERATING RESULTS IN THE FUTURE IN A MATERIAL WAY. SUCH
RISKS AND UNCERTAINTIES INCLUDE BUT ARE NOT LIMITED TO: CHANGES IN INTEREST
RATES, THE EFFECTIVENESS OF OUR MARKETING CAMPAIGN, THE RESPONSE OF THE MORTGAGE
INDUSTRY, CONTINUED MARKET DEMAND FOR OUR SERVICES, THE EFFECTS OF SEASONALITY
IN THE HOUSING MARKET, COMPETITION, THE SUCCESS OF OUR CONSOLIDATION PLAN, OUR
ABILITY TO RECOVER INTANGIBLE AND OTHER COSTS, OUR ABILITY TO MANAGE GROWTH, OUR
ABILITY TO SUCCESSFULLY DEVELOP AND MARKET NEW REPORT SERVICES AND LEGAL CLAIMS.
OVERVIEW
Factual Data Corp. is a Colorado-based e-business provider of
information services to the mortgage and consumer lending industries, employers,
landlords and other business customers located throughout the United States. We
are leaders in Web-based ordering and delivery of customized information
services, including consumer and mortgage credit reports, employment and
resident background screening, fraud detection, portfolio scoring and much more.
All of our services are available through our website at www.factualdata.com. We
market our services through our website and through offices located in most
major metropolitan areas.
Founded in 1985, we have been publicly held since 1998. Our common
stock trades on Nasdaq under the symbol "FDCC" and our warrants trade under the
symbol "FDCCW." For more information visit www.factualdata.com. The website
shall not be deemed to be part of this report.
First quarter 2001 is indicative of our strategic plan to take
advantage of our superior technological capabilities, progressive Internet
initiatives and revenue diversification. Enhancements to our tech center this
quarter improved our speed and reliability. All of our services are now
available on the Internet and we have forged new Web partnerships to provide
automated property evaluations, flood certifications and mortgage services for
seamless, cost-effective transactions.
We continue to diversify our profit centers with non-mortgage emerging
services and have added to our employment and resident divisions a new division
of consumer credit reporting with our affiliation with Experian. This quarter we
completed the acquisition of our Ohio/Florida franchisee and gained territory in
two states. The culmination of all of these factors and a rebound in the
mortgage market resulted in increased market share and increased revenue. Having
converted 33 acquisitions, we are beginning to see a consolidation in our
expenses and we continue to improve our EBITDA numbers.
-10-
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, as a percentage of
total revenue, those items included in the Company's Unaudited Consolidated
Statements of Income:
For the Three Months Ended
March 31,
------------------------------
2001 2000
------ ------
Revenue
Information services 94.5% 89.6%
Ancillary revenues 3.0 6.4
System affiliates 2.5 4.0
Training, license, and other 0.0 0.0
------ ------
Total revenue 100.0% 100.0%
------ ------
Operating expenses
Costs of services provided 57.6 56.1
Selling, general, and administrative 17.6 23.0
Consolidation costs 0.3 3.7
Depreciation and amortization 6.6 11.7
------ ------
Total operating expenses 82.1% 94.5%
------ ------
Income from operations 17.9 5.5
Other income (expense)
Other income 0.7 0.9
Interest expense -4.6 -2.7
------ ------
Total other income (expense) -3.9 -1.8
------ ------
Income before income taxes 14.0 3.7
Income tax expense 5.3 1.5
------ ------
Net income and comprehensive income 8.7% 2.2%
------ ------
SUPPLEMENTAL INFORMATION
EBITDA (a) 25.2% 18.1%
(a) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative to cash
flow (as a measure of liquidity or ability to service debt obligations) and is
not in accordance with, nor superior to, generally accepted accounting
principles, but provides additional information for evaluating Factual Data
Corp.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
Information services revenue increased $5.3 million, or 76%, from $7.0
million in the first quarter 2000 to $12.3 million in the first quarter 2001.
This increase consisted of a $3.8 million, or 65%, increase in mortgage revenue
and a $1.5 million, or 118%, increase in non-mortgage emerging services. The
mortgage revenue increase resulted from a calculated effort to increase market
share in a rebounding mortgage market via a skilled sales force. We also
benefited from five acquisitions made since September 2000, the revenue of which
was not realized fully until first quarter 2001. Several non-mortgage emerging
services affiliations in Colorado, South Texas and Wyoming accounted for the
increase in non-mortgage emerging services.
-11-
Ancillary income represents fees paid by system affiliates for various
additional products and services provided to them. Ancillary income decreased by
$110,000, or 22%, from $496,000 in the first quarter 2000 to $386,000 in the
first quarter 2001. Acquisition of three system affiliates since September 2000
accounts for the decrease. This reduction is expected to continue as we acquire
additional system affiliates and phase out our franchising and licensing
programs.
System affiliates revenue increased $16,000, or 5%, from $313,000 in
the first quarter 2000 to $329,000 in the first quarter 2001. System affiliates
are charged a percentage of their revenue for monthly user fees. Despite
acquiring three system affiliates since September 2000, revenue from remaining
system affiliates in a rebounding mortgage market outweighed the loss of revenue
from these acquisitions.
Costs of services increased $3.1 million, or 70%, from $4.4 million in
the first quarter 2000 to $7.5 million in the first quarter 2001. As revenue
continues to grow, these costs may increase on an absolute cash basis but tend
to level out as a percentage of revenue. As a percentage of revenue, costs of
services increased 1.5% from 56.1% in 2000 to 57.6% in 2001. The increases in
direct operational costs are related to our affiliations in non-mortgage
emerging services. The decrease in operating margin is directly related to
credit repository costs for non-mortgage revenue.
Selling, general and administrative expenses increased $500,000, or
28%, from $1.8 million in the first quarter 2000 to $2.3 million in the first
quarter 2001. As a percentage of revenue these costs decreased from 23% to
17.6%, a 5.4% savings. As we continue to experience revenue growth, selling,
general and administrative expenses may increase on an absolute cash basis but
tend to decrease as a percentage of revenue. With the conversion of 33
acquisitions and our dedication to enhancing our technology and corporate
infrastructure, selling, general and administrative expenses should continue to
represent a smaller percentage of revenue.
Acquisition consolidation costs for the first quarter 2001 were $37,000
as compared to $290,000 for the first quarter 2000. These costs include one-time
consolidation charges for items such as recruiting fees, salaries and travel
costs for the consolidation and relocation of our regional processing centers.
Depreciation and amortization for the first quarter 2001 was $862,000
compared to $911,000 for the first quarter 2000. This decrease of $49,000, or
5%, reflects the related decrease of intangible assets on our balance sheet due
to the one-time adjustment of intangible assets in the year 2000. Despite this
decrease, depreciation and amortization costs from our 33 acquisitions since
August 1998 will continue to impact us negatively.
Interest expense increased $389,000 from $212,000 in the first
quarter 2000 to $601,000 in the first quarter 2001. As a percentage of
revenue, interest expense increased 1.9% from 2.7% in 2000 to 4.6% in 2001.
This increase is due to additional notes payable issued in connection with
our acquisitions. In 2000, 25 acquisitions contributed to notes payable and
33 acquisitions did so in 2001. The strategy to use the Wells Fargo credit
facility to pay down notes payable also contributed to increased interest
expense. This interest expense should begin to decrease as some of the seller
notes and operating line-of-credit are paid down.
Income taxes were an expense of $692,000 in the first quarter 2001
compared to an expense of $117,000 in the first quarter 2000. Our effective tax
rate was 37% for the first quarter 2001 and 41% for the first quarter of 2000.
As a result of the foregoing factors, net income for the first quarter
2001 was $1.1 million, or $0.21 per diluted share, compared to net income of
$170,000, or $0.03 per diluted share, for the first quarter 2000, a 572%
increase over 2000.
Our first quarter 2001 EBITDA (earnings before interest, taxes,
depreciation and amortization) was $3.3 million, or $0.61 per diluted share, as
compared to $1.4 million, or $0.26 per diluted share, in the first quarter 2000,
a 134% increase over 2000.
-12-
LIQUIDITY AND CAPITAL RESOURCES
We had cash balances of $915,000, an income tax refund receivable of
$1.0 million and deferred income taxes of $470,000 at March 31, 2001. We were
able to manage the net impact of accounts receivable, accounts payable and
accrued expenses on cash flows from operations, which, with depreciation and
amortization of $862,000, resulted in cash flow provided from operations of
$935,000.
At March 31, 2001 we had a working capital deficit of $7.2 million. Of
this deficit, $5.3 million was the line-of-credit with Wells Fargo & Company
that matured on April 30, 2001. We extended the maturity date for one year to
April 30, 2002. Also contributing to our working capital deficit was $3.6
million of current long-term debt and $1.1 million in accrued branch efficiency
costs. The three current liabilities above contributed $10.0 million to the
working capital deficit. These items reflect 12 months of payments that are
considered current maturities.
We used cash of $85,000 to purchase additional equipment and furniture
for our corporate and regional centers in 2001. We also used cash to fund
$952,000 of principal payments on long-term debt.
In May 2000, we were granted a $10.0 million credit facility with Wells
Fargo & Company. Of the $10.0 million, $4.0 million was used to restructure
seller promissory notes from prior acquisitions. This $4.0 million is a
five-year term note that matures May 2005 with monthly principal and interest
payments totaling $97,396. Interest is at a rate of 9.75%, with the March 31,
2001 balance at $3.3 million.
The remaining $6.0 million Wells Fargo credit facility was an operating
line-of-credit with interest payable at 9.5625%. Principal and unpaid interest
is due in April 2002. Out of this operating line-of-credit, $5.3 million was
used for additional acquisitions and operations. One acquisition was completed
in 2001 for $1.0 million in cash and $1.6 million in notes payable. In
connection with this acquisition, we acquired primarily fixed assets and
intangibles and acquired access to certain key operating markets.
Management believes that our anticipated cash requirements for the
immediate future will be met from internally generated funds and our operating
line-of-credit with Wells Fargo. We have been considering additional sources of
equity and debt funding to continue our consolidation plan. This funding will
not completely enable us to acquire the number and type of companies that
interest us, so we will be required to obtain additional public, private or debt
financing or a combination of the foregoing to complete the plan.
INFLATION
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material effect on our results of operations or
financial condition.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk through interest rates related to its
line-of-credit and notes payable, which have a variable interest rate. The
Company also has an interest rate swap agreement for principal amounts of
$4,000,000 expiring May 31, 2002. The Company's management believes that
fluctuations in interest rates in the near term will not materially affect
the Company's consolidated operating results, financial position or cash
flow. (See Note 6).
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II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Item 3 of the registrant's annual report on Form 10-KSB for the
year ended December 31, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - The following exhibits are filed herewith: None
b. Reports on Form 8-K:
On April 17, 2001, the Company filed a Current Report on
Form 8-K that reported a change in independent accountants.
On May 1, 2001, the Company issued a press release, which
described the decision of its Board of Directors to extend
the Expiration Date of its publicly traded warrants. The
new Expiration Date is June 30, 2001.
On May 4, 2001, the Company engaged Stifel, Nicolaus & Company,
Incorporated, a prominent investment banking firm, to
evaluate Factual Data and advise its Board of Directors as
to various strategic options that may be available to
maximize short-term and/or long-term shareholder value. Such
options may include, but are not limited to, continuing
its acquisition and consolidation plan, seeking out
sources of additional equity financing, industry joint
ventures, some form of privatization or other corporate
combination.
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SIGNATURES
In accordance with 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.
Dated: May 15, 2001
FACTUAL DATA CORP.
(Registrant)
/s/ J.H. DONNAN
--------------------------------------------
J.H. Donnan
Chief Executive Officer
(Principal Executive Officer)
/s/ TODD A. NEIBERGER
--------------------------------------------
Todd A. Neiberger
Chief Financial Officer
(Principal Financial and Accounting Officer)
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