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 November 30, 2000
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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 - 32,967,268 shares
-------------------------------------------------
Outstanding as of December 29, 2000
-----------------------------------
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
NATIONAL DATA CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)
- -------------------------------------------------------------------------------------------------------
Three Months Ended November 30,
-------------------------------
2000 1999
--------- ----------
Revenues $83,666 $ 85,027
------- --------
Operating expenses:
Cost of service 49,349 53,950
Sales, general and administrative 19,381 29,014
Restructuring and impairment charges 2,156 34,393
------- --------
70,886 117,357
------- --------
Operating income (loss) 12,780 (32,330)
------- --------
Other income (expense):
Interest and other income 13 2,361
Interest and other expense (1,794) (1,745)
------- --------
(1,781) 616
------- --------
Income (loss) before income taxes and discontinued operations 10,999 (31,714)
Provision (benefit) for income taxes 4,310 (10,546)
------- --------
Income (loss) before discontinued operations 6,689 (21,168)
Discontinued operations - net of tax (See Footnote 4) (326) 5,700
------- --------
Net income (loss) $ 6,363 $(15,468)
------- --------
Basic earnings per share:
Income (loss) before discontinued operations $ 0.20 $ (0.63)
------- --------
Discontinued operations - net of tax (See Footnote 4) $ (0.01) $ 0.17
------- --------
Basic earnings (loss) per share $ 0.19 $ (0.46)
------- --------
Diluted earnings (loss) per share:
Income (loss) before discontinued operations $ 0.20 $ (0.63)
------- --------
Discontinued operations - net of tax (See Footnote 4) $ (0.01) $ 0.17
------- --------
Diluted earnings (loss) per share $ 0.19 $ (0.46)
------- --------
See Notes to Unaudited Consolidated Financial Statements.
2
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
NATIONAL DATA CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)
- ---------------------------------------------------------------------------------------------------
Six Months Ended November 30,
-----------------------------
2000 1999
-------- --------
Revenues $169,540 $170,747
-------- --------
Operating expenses:
Cost of service 99,871 104,693
Sales, general and administrative 40,546 48,168
Restructuring and impairment charges 2,156 34,393
-------- --------
142,573 187,254
-------- --------
Operating income (loss) 26,967 (16,507)
-------- --------
Other income (expense):
Interest and other income 30 3,742
Interest and other expense (3,753) (3,299)
-------- --------
(3,723) 443
-------- --------
Income (loss) before income taxes and discontinued operations 23,244 (16,064)
Provision (benefit) for income taxes 9,024 (4,529)
-------- --------
Income (loss) before discontinued operations 14,220 (11,535)
-------- --------
Discontinued operations - net of tax (See Footnote 4) 8,323 1,004
-------- --------
Net income (loss) $ 22,543 $(10,531)
-------- --------
Basic earnings per share:
Income (loss) before discontinued operations $ 0.43 $ (0.34)
-------- --------
Discontinued operations - net of tax (See Footnote 4) $ 0.25 $ 0.03
-------- --------
Basic earnings (loss) per share $ 0.69 $ (0.31)
-------- --------
Diluted earnings (loss) per share:
Income (loss) before discontinued operations $ 0.42 $ (0.34)
-------- --------
Discontinued operations - net of tax (See Footnote 4) $ 0.25 $ 0.03
-------- --------
Basic earnings (loss) per share $ 0.67 $ (0.31)
-------- --------
See Notes to Unaudited Consolidated Financial Statements.
3
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NATIONAL DATA CORPORATION AND SUBSIDIARIES
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended November 30,
---------------------------------
2000 1999
-------- ---------
Cash flows from operating activities:
Net income (loss) $ 22,543 $(10,531)
Adjustments to reconcile net income (loss) to cash provided by
operating activities before changes in assets and liabilities:
Non-cash restructuring and impairment charges 930 23,380
Income from discontinued operations (8,323) (1,004)
Depreciation and amortization 9,329 9,927
Amortization of acquired intangibles and goodwill 7,548 6,253
Deferred income taxes 36,481 (13,554)
Provision for bad debts 366 9,463
Gain on sale of marketable securities - (1,599)
Gain on business divestiture - (2,295)
Other, net 1,374 (1,272)
Changes in assets and liabilities which provided (used) cash,
net of the effects of acquisitions:
Accounts receivable, net (2,344) 4,995
Prepaid expenses and other assets (6,329) 6,239
Accounts payable and accrued liabilities (5,683) (16,790)
Deferred income 4,912 3,453
Income taxes (23,203) (1,835)
---------------------------------
Net cash provided by operating activities 37,601 14,830
---------------------------------
Cash flows from investing activities:
Capital expenditures (20,472) (16,699)
Business acquisitions, net of acquired cash (23,224) -
Sale of marketable securities - 2,974
Business divestitures 20,000 3,500
Purchase of investment (13,506) (10,045)
---------------------------------
Net cash used in investing activities (37,202) (20,270)
---------------------------------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit (11,500) 33,000
Net principal payments under capital lease arrangements
and other long-term debt (2,779) (6,158)
Net issuances (purchases) related to stock activities 2,513 (33,118)
Dividends paid (4,931) (5,009)
---------------------------------
Net cash used in financing activities (16,697) (11,285)
---------------------------------
Net cash provided by discontinued operations 21,795 20,725
---------------------------------
Increase in cash and cash equivalents 5,497 4,000
Cash and cash equivalents, beginning of period 1,789 2,058
---------------------------------
Cash and cash equivalents, end of period $ 7,286 $ 6,058
=================================
See Notes to Unaudited Consolidated Financial Statements.
4
UNAUDITED CONSOLIDATED BALANCE SHEETS
NATIONAL DATA CORPORATION AND SUBSIDIARIES
(In thousands, except share and per share data)
- -------------------------------------------------------------------------------------------------------------------------
November 30, May 31,
2000 2000
------------ --------
ASSETS
Current assets:
Cash and cash equivalents $ 7,286 $ 1,789
Accounts receivable 61,648 73,025
Allowance for doubtful accounts (6,243) (7,316)
-------- --------
Accounts receivable, net 55,405 65,709
-------- --------
Income tax receivable 28,867 1,962
Deferred income taxes 298 20,097
Prepaid expenses and other current assets 17,275 13,857
-------- --------
Total current assets 109,131 103,414
-------- --------
Property and equipment, net 79,130 69,265
Intangible assets, net 217,275 214,800
Deferred income taxes 15,565 32,247
Investments 36,322 5,948
Other 9,539 4,346
Net assets of discontinued operations 205,702 220,312
-------- --------
Total Assets $672,664 $650,332
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 57,000 $ 68,500
Current portion of long-term debt 164 159
Obligations under capital leases 5,362 5,803
Accounts payable and accrued liabilities 57,183 55,082
Accrued spinoff related liabilities 10,819 -
Deferred income 23,899 23,319
-------- --------
Total current liabilities 154,427 152,863
-------- --------
Long-term debt 152,425 152,495
Obligations under capital leases 1,607 1,793
Other long-term liabilities 15,016 13,045
-------- --------
Total liabilities 323,475 320,196
-------- --------
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; 200,000,000 shares authorized; 33,953,008
shares issued 4,244 4,244
Capital in excess of par value 348,174 349,387
Treasury stock, at cost, 1,019,859 and 1,211,880 shares, respectively (26,897) (31,960)
Retained earnings 38,375 20,763
Deferred earnings (6,798) (7,332)
Unrealized holding loss (4,264) (1,727)
Cumulative translation adjustment (3,645) (3,239)
-------- --------
Total shareholders' equity 349,189 330,136
-------- --------
Total Liabilities and Shareholders' Equity $672,664 $650,332
======== ========
See Notes to Unaudited Consolidated Financial Statements.
5
NOTES TO UNAUDITED CONSOLIDATED
-------------------------------
FINANCIAL STATEMENTS
--------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
National Data Corporation (the "Company") has announced its plan to spin-off its
eCommerce business segment, encompassed in the newly formed Global Payments Inc.
subsidiary, into a separate publicly traded company with its own management and
Board of Directors to permit it to increase focus on its core businesses. This
spin-off is planned to be completed January 31, 2001. As a result of the pending
spin-off, the Company's financial statements have been prepared with Global
Payments' net assets, results of operations, and cash flows displayed separately
as "discontinued operations", and all historical financial statements presented
have been restated to conform to this presentation, in accordance with
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations".
National Data Corporation's healthcare information business segment will be the
remaining stand-alone business after the spin-off. Accordingly, subsequent to
the spin-off, National Data Corporation will do business as NDCHealth.
In the third quarter of fiscal 2000 the Company decided to pursue the
divestiture of its management services business and, subsequently, to place
this business into a discontinued operations category in accordance with
Accounting Principles Board Opinion No. 30. All prior periods have been restated
to reflect the discontinued operations accounting treatment. During the first
quarter of fiscal 2001, the Company completed the sale of the management
services business.
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 2000 consolidated financial
statements to conform to the fiscal 2001 presentation.
It is suggested that these financial statements be read in conjunction with the
audited financial statements and notes thereto included in the Company's latest
annual report on Form 10-K for the fiscal year ended May 31, 2000.
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 the interim periods presented.
6
NOTE 2 - EARNINGS PER SHARE:
Basic earnings per share is computed by dividing reported net earnings available
to common shareholders by weighted average shares outstanding during the period.
Diluted earnings per share is computed by dividing reported net earnings
available to common shareholders by weighted average shares outstanding during
the period and the impact of securities that, if exercised, and convertible
debt, if converted, 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 have a dilutive effect on earnings per share.
The following table sets forth the computation of basic and diluted earnings (in
thousands, except per share data):
Three Months Ended (Before Discontinued Operations)
--------------------------------------------------------------------------------
November 30, 2000 November 30, 1999
--------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
------------ ----------- ----------- ------------ ----------- ------------
Basic EPS:
Income (loss) $6,689 32,889 $0.20 $(21,168) 33,376 $(0.63)
===== =======
Effect of Dilutive
Securities:
Stock Options --- 1,168 --- ---
------------------- --------------------
6,689 34,057 (21,168) 33,376
Convertible debt --- --- --- ---
------------------- --------------------
Diluted EPS:
Net Income (loss) plus
assumed conversions $6,689 34,057 $0.20 $(21,168) 33,376 $(0.63)
==========================================================================
Three Months Ended (After Discontinued Operations)
----------------------------------------------------------------------------
November 30, 2000 November 30, 1999
------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
----------- ----------- ----------- ------------ ----------- ------------
Basic EPS:
Net income (loss) $6,363 32,889 $0.19 $(15,468) 33,376 $(0.46)
===== =======
Effect of Dilutive
Securities:
Stock Options --- 1,168 --- ---
------------------- ----------------------
6,363 34,057 (15,468) 33,376
Convertible debt --- --- --- ---
--------------------- ----------------------
Diluted EPS:
Net Income (loss) plus
assumed conversions $6,363 34,057 $0.19 $(15,468) 33,376 $(0.46)
===========================================================================
7
Six Months Ended (Before Discontinued Operations)
----------------------------------------------------------------------------
November 30, 2000 November 30, 1999
----------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
------------ ----------- ----------- ---------- ---------- ------------
Basic EPS:
Income (loss) $14,220 32,825 $0.43 ($11,535) 33,627 $(0.34)
===== =======
Effect of Dilutive
Securities:
Stock Options --- 916 --- ---
-------------------- --------------------
14,220 33,741 (11,535) 33,627
Convertible debt --- --- --- ---
-------------------- --------------------
Diluted EPS:
Income (loss) plus assumed
conversions $14,220 33,741 $0.42 $(11,535) 33,627 $(0.34)
=========================================================================
Six Months Ended (After Discontinued Operations)
------------------------------------------------------------------------
November 30, 2000 November 30, 1999
--------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
----------- ----------- ----------- ----------- --------- -----------
Basic EPS:
Net income (loss) $22,543 32,825 $0.69 $(10,531) 33,627 $(0.31)
===== =======
Effect of Dilutive
Securities:
Stock Options --- 916 --- ---
-------------------- ----------------------
22,543 33,741 (10,531) 33,627
Convertible debt --- --- --- ---
-------------------- ----------------------
Diluted EPS:
Net Income (loss) plus
assumed conversions $22,543 33,741 $0.67 $(10,531) 33,627 $(0.31)
========================================================================
For the three and six months ended November 30, 2000 and 1999, convertible debt
had an antidilutive effect on diluted earnings per share before and after
discontinued operations; accordingly, diluted earnings per share was not
adjusted for convertible debt.
8
NOTE 3 - RESTRUCTURING AND IMPAIRMENT CHARGES:
During the last 24 months, we completed a significant strategy review and
implemented a plan to focus on our core products and services. As a result, the
last two years represented a major transition period for our company. This
included management evaluating, during the second quarter of fiscal year 2000,
the Company's current product and service offerings in light of changing market
and technological environments. The decision was made to focus management
attention on the core point of service systems, intelligent network, and
information management and related Internet initiatives. Accordingly, actions
were initiated to eliminate non-core as well as obsolete and redundant product
and service offerings. In addition, the Company accelerated clearing house
integration, consolidation of locations, and associated staff and expense
reductions. Total restructuring and asset impairment charges during the second
quarter of fiscal year 2000 were $34.4 million. Of this total, approximately
$10.5 million were cash items that were accrued at the time the charges were
incurred. At the end of the second quarter of fiscal 2000, we also disclosed
that we would have additional restructuring and other unusual charges of up to
$10 million in the next twelve months.
Of this projected $10 million in additional charges, the Company incurred $2.2
million of restructuring and impairment charges during the second quarter of
fiscal 2001 as these actions were finalized and implemented. Of this total,
approximately $1.2 million were cash items that were accrued at the time the
charges were incurred. These cash items include severance and related costs of
$1.1 million and facility exit costs of $0.1 million. The severance and related
costs arise from the Company's actions to reduce personnel staffing in areas of
redundant operations and activities. These charges reflect 58 specifically
identified executives and employees who were informed of their termination
during the second quarter of fiscal 2001. The costs relating to facilities
relate to a location that was closed during the quarter. The remaining $1.0
million impairment charge was the result of the write down and divestiture of a
non-core operation.
As of November 30, 2000, $3.6 million of the cash portion of the restructuring
charges remains accrued as a current liability and $0.4 million is accrued as a
long-term liability in the respective liabilities sections of the balance sheet
as follows:
(in thousands)
Current
Original Quarter Payments Long-
Total Additions To Date Current Term
- ------------------------------------------------------------------------------------------------------------
Closed or planned closings of
facilities $ 6,100 $ 160 $5,143 $ 759 $358
Estimated costs for settlements on
contracts 2,236 - 498 1,738 -
Severance and related costs 2,177 1,066 2,175 1,068 -
----------------------------------------------------------------------
Total $10,513 $1,226 $7,816 $3,565 $358
======================================================================
9
NOTE 4 - DISCONTINUED OPERATIONS
On December 20, 1999, the Company announced its intention to spin-off its
eCommerce business segment, encompassed in the newly formed Global Payments Inc.
subsidiary. This spin-off was contingent on receiving a favorable opinion from
outside counsel regarding the tax-free status of the dividend. On November 15,
2000 the Company received a favorable opinion from counsel based on an IRS
ruling and intends to complete the spin-off on January 31, 2001. The spin-off
will be accomplished by distributing all of the shares of common stock of Global
Payments to NDC stockholders. NDC stockholders will receive 0.8 share of Global
Payments Inc. common stock for each share of NDC common stock held as of the
January 19, 2001 record date. Please see Note 7 for further details concerning
the spin-off of Global Payments Inc.
As a result of the pending spin-off, the Company's November 30, 2000 financial
statements have been prepared with Global Payments' net assets, results of
operations, and cash flows displayed separately as "discontinued operations",
and all historical financial statements presented have been restated to conform
to this presentation, in accordance with Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations". During the second quarter of fiscal
2001, the Company recorded an expense of $10.0 million to reflect the net costs
associated with effecting the spin-off ($8.7 million after tax, or $0.27 per
share). These costs include legal and investment banker fees, severance, and
duplicate software licenses, and other related costs partially offset by the
projected income for Global Payments for the period from the measurement date
through January 31, 2001.
Additionally, in the third quarter of fiscal 2000, the Company took action on a
formal plan to divest its management services business. Thus, the decision was
made to divest this business area and account for it as discontinued operations
in accordance with Accounting Principles Board Opinion No. 30. The Company
successfully completed the sale of this management services business for total
cash consideration of $20 million in the first quarter of fiscal 2001.
The operating results of the discontinued operations for the three and six
months ended November 30, 2000 and November 30, 1999 are summarized as follows:
Three months ended November 30, 2000
----------------------------------------------------
Global Payments Management
(In thousands, except per share data): Inc. Services Total
- ----------------------------------------------------------------------------------------------------------
Revenue $82,631 $ - $82,631
Operating income 15,972 - 15,972
Income from operations, net of tax 8,407 - 8,407
Spin-off special charge, net of tax (8,733) - (8,733)
----------------------------------------------------
Net loss from discontinued operations $ (326) $ - $ (326)
====================================================
Diluted earnings (loss) per share:
From operations $ 0.25 $ - $ 0.25
----------------------------------------------------
Spin-off special charge $ (0.27) - $ (0.27)
----------------------------------------------------
Total $ (0.01) $ - $ (0.01)
----------------------------------------------------
10
Three months ended November 30, 1999
---------------------------------------------------
Global Payments Management
(In thousands, except per share data): Inc. Services Total
- ---------------------------------------------------------------------------------------------------------
Revenue $84,174 $26,841 $111,015
Operating income (loss) 15,275 (3,661) 11,614
Income (loss) from operations, net of tax 8,023 (2,323) 5,700
---------------------------------------------------
Net income (loss) from discontinued operations $ 8,023 $(2,323) $ 5,700
===================================================
Diluted earnings (loss) per share:
From operations $ 0.24 $ (0.07) $ 0.17
---------------------------------------------------
Total $ 0.24 $ (0.07) $ 0.17
---------------------------------------------------
Six months ended November 30, 2000
----------------------------------------------------
Global Payments Management
(In thousands, except per share data): Inc. Services Total
- ----------------------------------------------------------------------------------------------------------
Revenue $169,822 $21,905 $191,727
Operating income 32,554 168 32,722
Income from operations, net of tax 17,056 - 17,056
Spin-off special charge, net of tax (8,733) - (8,733)
----------------------------------------------------
Net income from discontinued operations $ 8,323 $ - $ 8,323
====================================================
Diluted earnings (loss) per share:
From operations $ 0.51 $ - $ 0.51
----------------------------------------------------
Spin-off special charge $ (0.27) $ - $ (0.27)
----------------------------------------------------
Total $ 0.25 $ - $ 0.25
----------------------------------------------------
Six months ended November 30, 1999
---------------------------------------------------
Global Payments Management
(In thousands, except per share data): Inc. Services Total
- ---------------------------------------------------------------------------------------------------------
Revenue $174,002 $ 55,020 $229,022
Operating income (loss) 35,814 (7,036) 28,778
Income (loss) from operations, net of tax 19,227 (4,463) 14,764
---------------------------------------------------
Income (loss) from discontinued operations before 19,227 (4,463) 14,764
cumulative effect of change in accounting principle
Cumulative effect of change in accounting principle, - (13,760) (13,760)
net of tax
---------------------------------------------------
Net income (loss) from discontinued operations $ 19,227 $(18,223) $ 1,004
===================================================
Diluted earnings (loss) per share:
From operations $ 0.55 $ (0.13) $ 0.44
---------------------------------------------------
Cumulative effect of change in accounting principle - $ (0.41) $ (0.41)
---------------------------------------------------
Total $ 0.55 $ (0.54) $ 0.03
---------------------------------------------------
11
The net assets of discontinued operations are summarized as follows (in
thousands):
November 30,
2000 May 31, 2000
---------------- --------------------------------------------------
Management
Global Global Services Total
------ ------ ---------- -----
Current assets $ 66,137 $ 67,935 $ 27,535 $ 95,470
Property and equipment, net 24,443 28,665 5,756 34,421
Intangible assets, net 168,954 173,726 - 173,726
Other assets/(liabilities) (703) (73) 1,384 1,311
Current liabilities (26,496) (28,149) (7,788) (35,937)
Other long-term liabilities (7,653) (6,623) (2,370) (8,993)
Provision for estimated losses - - (21,214) (21,214)
Minority interest in equity of
subsidiaries (18,980) (18,472) - (18,472)
---------------- --------------------------------------------------
Net assets of discontinued operations $205,702 $217,009 $ 3,303 $220,312
================ ==================================================
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash flow disclosures, including non-cash investing and financing
activities, for the six months ended November 30, 2000 and November 30, 1999 are
as follows:
(in thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------
Net income taxes paid $ 737 $ 468
Interest paid 3,448 3,592
Capital leases entered into in exchange
for property and equipment - 776
Non-cash investment in MedicaLogic/Medscape, Inc. - 7,000
Non-cash investment in TechRx Incorporated 15,306 -
NOTE 6 - COMPREHENSIVE INCOME (LOSS):
The components of comprehensive income (loss) are as follows:
Three months ended November 30,
--------------------------------------------
(in thousands) 2000 1999
- -------------------------------------------------------------------------------------
Net income (loss) $ 6,363 $(15,468)
Foreign currency translation adjustment 23 (2)
Unrealized holding gain (loss), net of
tax (1,893) 4,756
------------------ ----------------
Total comprehensive income (loss) $ 4,493 $(10,714)
================== ================
Six months ended November 30,
--------------------------------------------
(in thousands) 2000 1999
- -------------------------------------------------------------------------------------
Net income (loss) $22,543 $(10,531)
Foreign currency translation adjustment 58 (6)
Unrealized holding gain (loss), net of
tax (2,537) 4,756
------------------ ----------------
Total comprehensive income (loss) $20,064 $ (5,781)
================== ================
12
NOTE 7 - SUBSEQUENT EVENTS:
On December 28, 2000, the NDC Board of Directors set the Record Date and
Distribution Date for the spin-off of Global Payments Inc. The Record Date will
be January 19, 2001 and the Distribution Date will be January 31, 2001. Global
Payments, Inc. has registered its common stock with the Securities and Exchange
Commission and filed its first Quarterly Report on Form 10-Q on January 3, 2001.
NDC will effect the spin-off by distributing to NDC stockholders of record
0.8 shares of common stock of Global Payments for each share of common stock of
NDC held at the close of business on January 19, 2001. The distribution will be
effective at 11:59 p.m. on January 31, 2001.
The conversion rate of NDC's 5% Convertible Subordinated Notes due November
1, 2003 is subject to adjustment due to the distribution. The adjustment will
occur as of the Record Date in the manner specified by the indenture.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced our
results, the following discussion should be read in conjunction with the
consolidated financial statements of NDCHealth and related notes appearing
elsewhere in this report.
NDCHealth provides high volume, network based information solutions and point
of service systems to the healthcare industry. Our products and services include
electronic claims processing, eligibility, claims adjudication and payment
systems, provision of administrative and clinical services, database information
reporting on prescription drug sales and pharmacy operations, consulting
services, and practice management systems. We provide products and services to
pharmacies, physicians, hospitals, integrated delivery systems, managed care
organizations, payers, government healthcare agencies, distributors, clinics,
Internet portals, pharmaceutical manufacturers, and other healthcare providers
and those who serve them and who have need for our services.
We serve a diverse customer base comprised of more than 180,000 physicians,
ninety percent of the pharmacies in North America and greater than thirty
percent of the pharmacies in the United Kingdom, more than twenty percent of the
nation's hospitals, over 100 pharmaceutical manufacturers and over 1,000 health
care payers. In addition, we are in the early phases of entering the German and
U.K. information markets. We believe that our presence in the multiple
pharmacy, managed care organization, physician, hospital, pharmaceutical
manufacturer, and healthcare payer markets is broader than any other similar
healthcare information company and provides us with a strong competitive
advantage.
14
Consolidated Results
The non-GAAP financial statement below discloses the NDC consolidated
results prior to the effect of accounting for the spin-off of Global Payments
and certain unusual items described below.
Because the effect of the spin-off of Global Payments is excluded, spin-off
expenses of $8.7 million are not included in the fiscal 2001 results below.
Additionally, the financial statement below excludes restructuring and
impairment charges ($2.2 million and $34.4 million in fiscal 2001 and 2000
respectively), unusual Operating Expenses of $11.1 million in fiscal 2000 and
the gain of $2.3 million on the divestiture of a dental systems business in
fiscal 2000.
Three Months Ended November 30,
-----------------------------------------------
(In millions, except per share data) 2000 1999 Change
-----------------------------------------------
Revenue:
Continuing Businesses $165.2 $152.9 8%
Divested Businesses 1.1 16.3 (93%)
-----------------------------------------------
Total Revenue 166.3 169.2 (2%)
Operating Expenses 135.4 140.7 (4%)
-----------------------------------------------
Operating Income 30.9 28.5 8%
EBITDA 44.5 41.6 7%
Other Expense 4.1 3.9 5%
-----------------------------------------------
Income Before Income Taxes 26.8 24.6 9%
Provision for Income Taxes 10.3 9.5 8%
-----------------------------------------------
Net Income $ 16.5 $ 15.1 9%
===============================================
Basic Earnings per Share $ 0.50 $ 0.45 11%
-----------------------------------------------
Diluted Earnings per Share $ 0.48 $ 0.44 9%
-----------------------------------------------
15
Results of Operations
On December 20, 1999, we announced our intention to split into two
independent, publicly traded companies by spinning off our Global Payments
subsidiary. We expect the spin-off to be completed on January 31, 2001. As a
result of the pending spin-off, National Data Corporation's healthcare
information business segment will be the remaining stand-alone business and will
do business as NDCHealth. In light of the pending spin-off, the NDCHealth
November 30, 2000 financial statements have been prepared with Global Payments'
net assets, results of operations, and cash flows displayed separately as
"discontinued operations", and all historical financial statements presented
have been restated to conform to this presentation in accordance with Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations".
During the last 24 months, we completed a significant strategy review and
implemented a plan to focus on our core products and services. As a result, the
last two years represented a major transition period for our company. As a part
of that plan, we determined to divest our management services business in the
third quarter of fiscal 2000. The sale of this management services business was
completed in the first quarter of fiscal 2001. This business is also accounted
for as discontinued operations in accordance with Accounting Principles Board
Opinion No. 30.
The remainder of the results of operations excludes these discontinued
operations.
During the last year, we have also eliminated non-core as well as obsolete
and redundant product and service offerings. In addition, we accelerated
clearing house integration, consolidation of locations and associated staff and
expense reductions. Total charges related to restructuring and asset impairment
were $34.4 million during the first half of fiscal 2000.
During the second quarter of fiscal 2000, management also evaluated certain
significant business risks related to recent acquisitions and those locations
that were closed as part of the strategic review, including bankrupt accounts
and customer disputes. As a result of this review, unusual expenses were
recorded in the second quarter of fiscal 2000 as follows: accounts receivable
write-off of $8.0 million; bad debt allowance increases of $2.0 million;
litigation settlement expenses of $1.3 million; and write-off of $0.8 million of
prepaid expenses and recording of $1.2 million of accrued expenses.
Approximately $2.2 million of these unusual expenses were related to the
management services operation and are reflected in the results of the
discontinued operations. Accordingly, the results of the first half of fiscal
2000 include approximately $45.5 million of charges related to restructuring and
asset impairment ($34.4 million) and other unusual expenses ($11.1 million).
These unusual expenses are included in the Sales, General and Administrative
expenses ($9.2 million) and Cost of Service ($1.9 million).
At the end of the second quarter of fiscal 2000, we disclosed that we would
have additional restructuring and other unusual charges of up to $10 million in
the next twelve months. In the second quarter of fiscal 2001, both our Salt
Lake City and Cleveland operations were closed. We also wrote down and divested
a software operation. Therefore, in the second quarter of fiscal 2001, $2.2
million of restructuring and impairment charges are reflected. These actions
essentially complete all of the programs identified in our strategic review.
Additionally, during the first quarter of fiscal 2001, we merged our
Pharmacy Systems business activity with TechRx Incorporated to leverage the
combined product development and distribution of both our systems to the
pharmacy market. In order to provide more meaningful comparisons, revenue from
these divested businesses is detailed below.
16
Three Months Ended Six Months Ended
November 30, November 30,
-----------------------------------------------------------------------------
(In millions) 2000 1999 Change 2000 1999 Change
-----------------------------------------------------------------------------
Revenue:
Continuing Businesses $83.5 $71.2 17 % $163.7 $142.3 15 %
Divested Businesses 0.2 13.8 (99)% 5.8 28.4 (80)%
-----------------------------------------------------------------------------
Total $83.7 $85.0 (2)% $169.5 $170.7 (1)%
Depreciation and Amortization: $ 8.7 $ 8.0 9 % $ 16.9 $ 16.2 4 %
NDCHealth's earnings before interest, taxes, depreciation and amortization
(EBITDA) is defined as operating income plus depreciation and amortization and
restructuring and impairment charges. This statistic and its results as a
percentage of revenue may not be comparable to similarly titled measures
reported by other companies. However, management believes this statistic is a
relevant measurement and provides a comparable cash earnings measure by
excluding the impact of the amortization of acquired intangibles, potential
timing differences associated with capital expenditures and the related
depreciation charges, restructuring and impairment charges. EBITDA is detailed
below.
Three Months Ended Six Months Ended
November 30, November 30,
--------------------------------------------------------------------------------
(In millions) 2000 1999 Change 2000 1999 Change
--------------------------------------------------------------------------------
EBITDA: $23.6 $ 10.1 134% $46.0 $ 34.0 35%
Income before Income Taxes and
Discontinued Operations
(IBIT):
NDCHealth $13.2 $ 2.7 389% $25.4 $ 18.3 39%
Restructuring and Impairment (2.2) (34.4) 94% (2.2) (34.4) 94%
--------------------------------------------------------------------------------
Total IBIT $11.0 $(31.7) 135% $23.2 $(16.1) 244%
Revenue
Revenue, net of divested operations, increased to $83.5 million in the
second quarter of fiscal 2001, a 17.3% increase from the prior year's second
quarter revenue of $71.2 million and a 4% sequential increase from revenue of
$80.2 million in the first quarter of fiscal 2001. These increases were the
result of growth in customer base and increased transaction volumes from
existing customers in our continuing areas of business in addition to new
revenue from recently acquired businesses that have been integrated with our
existing operations. Total GAAP reported revenue, including divested businesses,
for the second quarter of fiscal 2001 was $83.7 million, a decrease of $1.3
million, or 2%, from the second quarter of fiscal 2000. This decrease was the
result of realizing only partial quarter revenues for the divested operations in
the current year compared to full quarter revenues in the prior year.
Revenue, net of divested operations, increased by 15% to $163.7 million in
the first half of fiscal 2001 from $142.3 million in the prior year's first half
due to the same factors described above. Total revenue for the first half of
fiscal 2001 declined 1% to $169.5 million from $170.7 million in the
17
prior year's first half. This decrease was the result of realizing fewer months
revenues for the divested operations in the current year compared to the prior
year's first half.
Operating Expenses
Cost of service as a percentage of revenue decreased to 59% in the second
quarter of fiscal 2001 from 63% in the second quarter of fiscal 2000. This
decrease was due primarily to cost reductions realized as a result of
restructuring actions undertaken during the past year, and increased leverage of
our infrastructure from increased transaction volume and the unusual expenses
($1.9 million) in the prior year. The absolute dollars of Cost of service
decreased $4.6 million (9%) in the second quarter of fiscal 2001 as compared to
the second quarter of fiscal 2000.
Cost of service as a percentage of revenue was 59% in the first half of
fiscal 2001 compared to 61% in the first half of fiscal 2000 with absolute
dollar spending declining $4.8 million, or 5%, as compared to the prior year.
These decreases were due to the same factors described above.
Sales, general and administrative expense ("SG&A") decreased $9.6 million
(33%) in the second quarter of fiscal 2001 from the same period last year. This
was due primarily to the unusual expenses ($9.2 million) in the prior year's
second quarter described in Results of Operations above. Excluding these unusual
expenses, SG&A expense as a percentage of revenue was 23% for the second quarter
of both fiscal 2001 and fiscal 2000.
SG&A expense decreased to $40.5 million for the first half of fiscal 2001
from $48.2 million for the first half of fiscal 2000. This was due primarily to
the unusual expenses ($9.2 million) in the prior year's first half described
above and expenses in the current year in preparation for the pending spin-off
of Global Payments. As a percentage of revenue, SG&A expense was 24% for the
first half of fiscal 2001 compared to 23% for the prior year's first half
excluding the unusual expenses.
Operating Income
Operating income increased to $12.8 million for the second quarter of
fiscal 2001 from an operating loss of $32.3 million for the second quarter of
fiscal 2000. Excluding the unusual charges in fiscal 2000 and restructuring and
impairment charges in fiscal 2001 and 2000 described above, operating income
increased to $14.9 million for the second quarter of fiscal 2001 from $13.2
million for the second quarter of fiscal 2000. Excluding these charges, as a
percentage of revenue, the operating income margin increased to 17.9% in the
second quarter of fiscal 2001 from 15.5% in the second quarter of fiscal 2000.
This increase was due primarily to the decreased Cost of service margins
described above. Excluding the restructuring and impairment charges in the
current quarter, operating income increased 5% sequentially to $14.9 million for
the second quarter of fiscal 2001 from $14.2 million for the first quarter of
fiscal 2001. As a percentage of revenue, the operating income margin excluding
the restructuring and impairment charges improved to 17.9% in the second quarter
of fiscal 2001 from 16.5% in the first quarter of fiscal 2001. This margin
improvement is due to the reduced Cost of service margins described above.
Operating income increased to $27.0 million for the first half of fiscal
2001 from an operating loss of $16.5 million for the first half of fiscal 2000.
Excluding the unusual expenses in fiscal 2000 and restructuring and impairment
charges in fiscal 2001 and 2000 described above, operating income increased to
$29.1 million for the first half of fiscal 2001 from $29.0 million for the first
half of fiscal 2000. Excluding these charges, as a percentage of revenue, the
operating income margin was 17% in the first half of both fiscal 2001 and fiscal
2000.
18
EBITDA
EBITDA for the second quarter of fiscal 2001 increased by $13.5 million, or
134%, to $23.6 million from $10.1 million in the prior year due to the unusual
expenses ($11.1 million) in fiscal 2000 and operating income margin improvement
described above. The EBITDA margin percentage was 28% in the second quarter of
fiscal 2001, compared to 25% in the second quarter of fiscal 2000 excluding the
unusual charges. EBITDA for the second quarter of fiscal 2001 increased by $1.2
million sequentially from the first quarter of fiscal 2001. The EBITDA margin
percentage was 28% in the second quarter of fiscal 2001, compared to 26% in the
prior quarter.
EBITDA for the first half of fiscal 2001 increased by $12.0 million, or
35%, to $46.0 million from $34.0 million in the prior year's first half due to
the unusual expenses ($11.1 million) in fiscal 2000 described above. Excluding
the unusual charges the EBITDA margin percentage was 27% in the first half of
fiscal 2001, compared to 26% in the first half of fiscal 2000.
Other Expense
Total other expense increased $2.4 million for the second quarter of fiscal
2001 compared to the second quarter of fiscal 2000. This increase was primarily
the result of a net gain recorded on the sale of our dental systems business
offsetting expense in the second quarter of fiscal 2000.
Total other expense increased $4.2 million for the first half of fiscal
2001 compared to the first half of fiscal 2000. This increase was primarily the
result of net gains recorded on the sale of marketable securities and our dental
systems business in the first half of fiscal 2000.
19
Liquidity and Capital Resources
Cash flow generated from operations provides us with a significant source
of liquidity to meet our needs. At November 30, 2000, we had cash and cash
equivalents totaling $7.3 million. Net cash provided by operating activities
increased 154% to $37.6 million for the first six months of fiscal 2001 compared
to $14.8 million in the first six months of fiscal 2000 primarily due to
increased net income and changes in income taxes, partially offset by increases
in prepaids and other assets. The change in income taxes is due to the loss on
the disposal of the management services discontinued operations. These losses
were not deductible for tax purposes until the business was divested. During
fiscal 2001, we completed the sale of these discontinued operations; therefore,
the previously non-deductible reserves are deductible for tax purposes and will
decrease the amount of income taxes payable favorably impacting cash flow. The
increase in prepaids and other assets primarily relates to increases in non-
trade receivables related to our recent investments, alliances and divestitures.
Net cash used in investing activities was $37.2 million for the first six
months of fiscal 2001 compared to $20.3 million for the first six months of
fiscal 2000. This increase is primarily due to capital expenditures of $20.5
million, business acquisitions of $23.2 million and investments of $13.5 million
partially offset by $20.0 million in proceeds received from the divestiture of
the management services business. We continue to invest in capital expenditures
related to growth in our business and acceleration of certain strategic
initiatives. Additionally, during the first quarter of fiscal 2001, an agreement
was reached to merge our pharmacy systems business activity with TechRx
Incorporated. As part of this agreement, we exchanged existing assets,
liabilities and cash for our investment interest in TechRx.
Net cash used in financing activities increased to $16.7 million for the
first six months of fiscal 2001 from $11.3 million in the first six months of
fiscal 2000. The net effect of the payments and borrowings against the lines of
credit is $11.5 million in payments for the first six months of fiscal 2001
compared to $33.0 million in borrowings for the first six months of fiscal 2000.
Principal payments under capital lease arrangements and other long-term debt
decreased $3.4 million for the first six months of fiscal 2001 from the first
six months of fiscal 2000 due primarily to reduced capital lease activity.
Dividends of $4.9 million and $5.0 million were paid during the first six months
of fiscal 2001 and fiscal 2000, respectively.
We have a $125.0 million revolving line of credit that will terminate at
the time of the spin-off of Global Payments. This includes a committed,
unsecured $110.0 million revolving line of credit and a $15.0 million line of
credit to fund working capital requirements. At November 30, 2000, there was
$57.0 million outstanding under the committed, unsecured line of credit.
Based upon the relative financial conditions, results of operations and
prospects of NDCHealth and Global Payments, NDC determined that $96.1 million
would be an appropriate allocation to Global Payments of the existing NDC debt
at May 31, 2000. For the six months ended November 30, 2000 Global Payments made
net repayments of $35.9 million, thereby reducing this $96.1 million due to
NDCHealth to $60.2 million as of November 30, 2000. At the date of the spin-off,
Global Payments Inc. will make a net cash payment to NDCHealth equal to $60.2
million adjusted for the net cash contributions of eCommerce operations and the
spin-off costs between December 1, 2000 and the actual date of the distribution.
We will use the proceeds from this cash payment to make payments against the
outstanding balance under the current line of credit.
Additionally, we have a commitment for a new credit facility providing a
$50 million revolving line of credit. This credit facility will become effective
upon completion of the spin-off and will be available for working capital and
general corporate purposes after the spin-off. The facility will have a
20
one-year term, with the option for NDCHealth to convert any outstanding
borrowings at the maturity date to a term loan repayable at the first
anniversary of the initial maturity date. We believe that our current level of
cash and borrowing capacity, along with future cash flows from operations, are
sufficient to meet the needs of our existing operations and our planned
requirements for the foreseeable future. We regularly evaluate cash
requirements for current operations, commitments, development activities and
strategic acquisitions. We may elect to raise additional funds for these
purposes, either through the issuance of additional debt or equity or otherwise,
as appropriate.
Net cash provided by discontinued operations was $21.8 million in the first
six months of fiscal 2001 compared to $20.7 million in the first six months of
fiscal 2000.
Quantitative and Qualitative Disclosure About Market Risk.
There have been no significant changes in NDCHealth's market risk from that
disclosed in our annual report on Form 10-K for the year ended May 31, 2000.
Forward Looking Results of Operations
For the year ended May 31, 2000, NDCHealth reported revenue of $345
million. This revenue included $56 million associated with businesses divested
in the past 15 months. Excluding these revenues from the reported fiscal 2000
amounts, our revenue would have been $289 million. By implementing our revised
strategy previously discussed, and excluding these divested businesses from both
fiscal 2000 and 2001 results, we expect to generate annual revenue growth from
$289 million in fiscal 2000 to $330 - $335 million in fiscal 2001.
We expect that our basic earnings per share for the fiscal year ending May
31, 2001, excluding discontinued operations, restructuring and impairment
charges, and the results of the businesses divested in the past fifteen months,
will be in the range of $1.00, plus or minus two percent. The Global Payments
spin-off must be completed in order to compute dilution resulting from our
outstanding options and convertible debentures. Prior to that time, we are
unable to compute a range of fully diluted earnings per share.
21
Forward-Looking Information
When used in this Quarterly Report on Form 10-Q, in documents incorporated
herein and elsewhere by management of National Data Corporation ("NDCHealth" or
the "Company"), from time to time, the words "believes," "anticipates,"
"expects," "intends," "plans" and similar expressions and statements that are
necessarily dependent on future events are intended to identify forward-looking
statements concerning the Company's business operations, economic performance
and financial condition, including in particular, the Company's business
strategy and means to implement the strategy, the Company's objectives, the
amount of future capital expenditures, the likelihood of the Company's success
in developing and introducing new products and expanding its business, and the
timing of the introduction of new and modified products or services. For such
statements, the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 is applicable
and invoked. Such statements are based on a number of assumptions, estimates,
projections or plans that are inherently subject to significant risks,
uncertainties and contingencies that are subject to change. Actual revenues,
revenue growth and margins will be dependent upon all such factors and their
results subject to risks related to the implementation of changes by the
Company, the failure to implement changes, and customer acceptance of such
changes or lack of change. Actual results of events could differ materially
from those anticipated in the Company's forward-looking statements as a result
of a variety of factors, including: (a) those set forth in Exhibit 99.1 to the
Registrant's Annual Report on Form 10-K for the period ended May 31, 2000 which
are incorporated herein by this reference; (b) those set forth elsewhere herein;
(c) those set forth from time to time in the Company's press releases and
reports and other filings made with the Securities and Exchange Commission; and
(d) those set forth from time to time in the Company's analyst calls and
discussions. The Company has announced its intent to spin-off the NDC eCommerce
business segment into a separate publicly traded company (Global Payments Inc.)
with its own management and Board of Directors. Although planned to be completed
on January 31, 2001, this spin-off has not yet been completed and there can be
no assurance that it will be completed. The Company cautions that such factors
are not exclusive. Consequently, all of the forward-looking statements made
herein are qualified by these cautionary statements and 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 obligation to update
forward-looking or other statements or to publicly release the results of any
revisions of such 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.
22
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 SECURITIES
- ------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The 2000 Annual Meeting of Stockholders of National Data Corporation was held at
the Company's offices in Atlanta, Georgia on October 26, 2000. At the annual
meeting, the stockholders of the Company approved the following items:
1. Election of one director in Class II to serve until the annual meeting of
stockholders in 2003, or until his successor is duly elected and qualified.
Votes cast were as follows: For 29,631,463, Withheld 166,946; and
2. Adoption of the Company's 2000 Employee Stock Purchase Plan. Votes cast were
as follows: For 28,826,861, Against 931,692, Abstain from voting 39,856.
ITEM 5 - OTHER INFORMATION
- --------------------------
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Reports Filed on Form 8-K:
National Data Corporation's Form 8-K dated November 9, 2000, was filed on
November 9, 2000, reporting under Item 5 the Company's announcement of the
pending acquisition of Canadian Imperial Bank of Commerce's Merchant Card
Services business.
National Data Corporation's Form 8-K dated November 9, 2000, was filed on
November 9, 2000, reporting under Item 9 the Company's release of Summary
Proforma Combined Financial Data.
National Data Corporation's Form 8-K dated November 15, 2000, was filed on
November 21, 2000, reporting under Item 5 the Company's announcement of a
private letter ruling from the IRS concerning the spin-off of Global
Payments Inc.
23
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: January 3, 2001 By: /s/ David H. Shenk
--------------- ------------------
David H. Shenk
Interim Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
24