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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, 2001
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)
404-728-2000
(Registrant's telephone number, including area code)
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--34,065,012 shares
----------------
Outstanding as of October 3, 2001
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UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
NATIONAL DATA CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended
August 31,
--------------------
2001 2000
--------- ---------
Revenues:
Information management.................................. $ 34,513 $ 31,298
Network services and systems............................ 53,843 48,947
Divested businesses..................................... -- 5,629
--------- ---------
88,356 85,874
--------- ---------
Operating expenses:
Cost of service......................................... 41,835 43,340
Sales, general and administrative....................... 20,986 20,134
Depreciation and amortization........................... 6,581 8,213
--------- ---------
69,402 71,687
--------- ---------
Operating income......................................... 18,954 14,187
--------- ---------
Other income (expense):
Interest and other income............................... 351 17
Interest and other expense.............................. (2,320) (1,959)
Minority interest in loss............................... 326 --
--------- ---------
(1,643) (1,942)
--------- ---------
Income before income taxes and discontinued operations... 17,311 12,245
Provision for income taxes............................... 6,232 4,714
--------- ---------
Income before discontinued operations.................... 11,079 7,531
Discontinued operations, net of income taxes............. -- 8,649
--------- ---------
Net income.............................................. $ 11,079 $ 16,180
========= =========
Basic earnings per share:
Income before discontinued operations................... $ 0.33 $ 0.23
--------- ---------
Discontinued operations................................. $ -- $ 0.26
--------- ---------
Basic earnings per share................................ $ 0.33 $ 0.49
--------- ---------
Diluted earnings per share:
Income before discontinued operations................... $ 0.31 $ 0.23
--------- ---------
Discontinued operations................................. $ -- $ 0.26
--------- ---------
Diluted earnings per share.............................. $ 0.31 $ 0.48
--------- ---------
See Notes to Unaudited Consolidated Financial Statements.
1
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NATIONAL DATA CORPORATION AND SUBSIDIARIES
(In thousands)
Three Months
Ended August 31,
------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income................................................ $ 11,079 $ 16,180
Adjustments to reconcile net income to cash provided by
operating activities:
Income from discontinued operations...................... -- (8,649)
Depreciation and amortization............................ 6,581 8,213
Deferred income taxes.................................... 434 --
Provision for bad debts.................................. 609 490
Other, net............................................... 108 797
Changes in assets and liabilities which (used) provided
cash, net of the effects of acquisitions:
Accounts receivable, net................................. (281) 1,951
Prepaid expenses and other assets........................ (135) (492)
Accounts payable and accrued liabilities................. (12,693) (4,017)
Deferred income.......................................... 5,039 5,513
Income taxes............................................. 1,786 3,876
-------- --------
Net cash provided by operating activities................. 12,527 23,862
-------- --------
Cash flows from investing activities:
Capital expenditures...................................... (5,795) (7,031)
Business acquisitions, net of acquired cash............... -- (10,227)
Business divestiture and sale of marketable securities.... -- 20,000
Purchase of investment.................................... -- (11,756)
-------- --------
Net cash used in investing activities..................... (5,795) (9,014)
-------- --------
Cash flows from financing activities:
Net repayments under lines of credit...................... -- (9,500)
Net principal payments under capital lease arrangements
and other long-term debt................................. (1,443) (1,410)
Net issuances (purchases) related to stock activities..... 1,675 (1,065)
Dividends paid............................................ (1,359) (2,459)
-------- --------
Net cash used in financing activities..................... (1,127) (14,434)
-------- --------
Net cash provided by discontinued operations............... 1,207 8,018
-------- --------
Increase in cash and cash equivalents...................... 6,812 8,432
Cash and cash equivalents, beginning of period............. 12,420 1,789
-------- --------
Cash and cash equivalents, end of period................... $ 19,232 $ 10,221
======== ========
See Notes to Unaudited Consolidated Financial Statements.
2
CONSOLIDATED BALANCE SHEETS
NATIONAL DATA CORPORATION AND SUBSIDIARIES
(In thousands, except share data)
August 31, May 31,
2001 2001
---------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................... $ 19,232 $ 12,420
Accounts receivable..................................... 67,019 70,648
Allowance for doubtful accounts......................... (5,567) (6,628)
-------- --------
Accounts receivable, net............................... 61,452 64,020
-------- --------
Income tax receivable................................... 434 2,265
Deferred income taxes................................... 24,557 29,539
Prepaid expenses and other current assets............... 19,496 18,788
-------- --------
Total current assets................................... 125,171 127,032
-------- --------
Property and equipment, net.............................. 77,316 82,956
Intangible assets, net................................... 189,932 221,757
Deferred income taxes.................................... 13,093 9,886
Investments.............................................. 74,866 35,591
Other.................................................... 9,098 10,990
-------- --------
Total Assets........................................... $489,476 $488,212
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....................... $ 172 $ 170
Obligations under capital leases........................ 1,261 2,586
Accounts payable and accrued liabilities................ 39,931 53,228
Deferred income......................................... 18,613 13,624
-------- --------
Total current liabilities.............................. 59,977 69,608
-------- --------
Long-term debt........................................... 151,525 151,567
Obligations under capital leases......................... 1,032 1,108
Other long-term liabilities.............................. 20,873 23,044
-------- --------
Total liabilities...................................... 233,407 245,327
-------- --------
Commitments and contingencies
Minority interest in equity of subsidiaries.............. 12,092 12,418
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; 33,989,369 and 33,875,235 shares
issued, respectively................................... 4,249 4,234
Capital in excess of par value.......................... 190,566 188,636
Retained earnings....................................... 58,112 48,392
Deferred compensation and other......................... (6,962) (7,101)
Unrealized holding loss................................. (31) (111)
Cumulative translation adjustment....................... (1,957) (3,583)
-------- --------
Total shareholders' equity............................. 243,977 230,467
-------- --------
Total Liabilities and Shareholders' Equity.............. $489,476 $488,212
======== ========
See Notes to Unaudited Consolidated Financial Statements.
3
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies:
On January 31, 2001, National Data Corporation (the "Company" or
"NDCHealth") completed the spin-off of its eCommerce business segment, Global
Payments Inc. ("Global Payments"). Additionally, in the third quarter of fiscal
2000, the Company decided to pursue the divestiture of its management services
business and account for the business as "discontinued operations". As a result
of the spin-off and divestiture, the Company's financial statements have been
prepared with Global Payments' and the management services business' net
assets, results of operations, and cash flows displayed separately as
"discontinued operations" with all historical financial statements restated to
conform to this presentation, in accordance with Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations".
In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 deals with, among
other things, amortization of goodwill. The Company adopted this new standard
in the first quarter of fiscal 2002. Because the adoption of SFAS 142 removed
certain differences between book and tax expense, the estimated fiscal 2002
effective tax rate has been reduced to 36.0%.
Additionally, in the first quarter of fiscal 2002, the Company adopted a
revised fiscal calendar. Previously, each fiscal year began June 1 and ended
May 31 with interim quarters ending the last calendar day of every third month.
Under the new fiscal calendar, the fiscal year will begin on the Saturday
closest to June 1, except for the current year which began Friday, June 1, and
end on the Friday closest to May 31. Interim quarters will typically consist of
thirteen weeks ending the Friday closest to the last calendar day of August,
November, and February. Because the revised fiscal calendar differs only
slightly from the previous calendar, the change created no significant
differences between current period and prior period operating results or
financial position.
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 2001 consolidated financial
statements to conform to the fiscal 2002 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, 2001.
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.
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 that, 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.
4
The following table sets forth the computation of basic and diluted earnings
(in thousands, except per share data):
Three Months Ended (Before Discontinued
Operations)
------------------------------------------------
August 31, 2001 August 31, 2000
------------------------ -----------------------
Income Shares Per Share Income Shares Per Share
------- ------ --------- ------ ------ ---------
Basic EPS:
Income....................... $11,079 33,937 $0.33 $7,531 32,778 $0.23
===== =====
Effect of Dilutive
Securities:
Stock Options............... -- 1,593 -- 663
------- ------ ------ ------
11,079 35,530 7,531 33,441
Convertible debt............ 1,243 4,140 -- --
------- ------ ------ ------
Diluted EPS:
Income plus assumed
conversions................. $12,322 39,670 $0.31 $7,531 33,441 $0.23
======= ====== ===== ====== ====== =====
For the three months ended August 31, 2000, convertible debt had an
antidilutive effect on diluted earnings per share before discontinued
operations; accordingly, diluted earnings per share was not adjusted for
convertible debt.
Three Months Ended (After Discontinued
Operations)
-------------------------------------------------
August 31, 2001 August 31, 2000
------------------------ ------------------------
Income Shares Per Share Income Shares Per Share
------- ------ --------- ------- ------ ---------
Basic EPS:
Net income.................. $11,079 33,937 $0.33 $16,180 32,778 $0.49
===== =====
Effect of Dilutive
Securities:
Stock Options.............. -- 1,593 -- 663
------- ------ ------- ------
11,079 35,530 16,180 33,441
Convertible debt........... 1,243 4,140 1,195 2,752
------- ------ ------- ------
Diluted EPS:
Net Income plus assumed
conversions................. $12,322 39,670 $0.31 $17,375 36,193 $0.48
======= ====== ===== ======= ====== =====
5
Note 3--Segment Information:
Segment information for the three month periods ended August 31, 2001 and
August 31, 2000 is presented below. NDCHealth operates its business as two
reportable segments: Network Services and Systems and Information Management.
Network Services and Systems provides electronic connectivity to our
intelligent network and system solutions throughout the healthcare industry.
Information Management provides management information, research, and
consulting services to pharmaceutical manufacturers, pharmacy chains and
hospitals. For the quarter ended August 31, 2000, Other includes results from
divested businesses other than those treated as discontinued operations. There
has been no significant change in the composition of the reportable segments
from the presentation of fiscal 2001 segment information included in the
Company's most recent Annual Report on Form 10-K for the year ended May 31,
2001.
Network
Quarter Ended August 31, 2001 Information Services and
(In thousands) Management Systems Other Totals
----------------------------- ----------- ------------ ------ -------
Revenues.............................. $34,513 $53,843 $ -- $88,356
Income before income taxes and
discontinued operations.............. 4,118 13,193 -- 17,311
Depreciation and amortization......... 3,053 3,528 -- 6,581
Segment assets........................ 144,492 344,984 -- 489,476
Network
Quarter Ended August 31, 2000 Information Services and
(In thousands) Management Systems Other Totals
----------------------------- ----------- ------------ ------ -------
Revenues.............................. $31,298 $48,947 $5,629 $85,874
Income before income taxes and
discontinued operations.............. 3,456 8,470 319 12,245
Depreciation and Amortization......... 3,942 4,047 224 8,213
Segment assets........................ 102,139 349,710 -- 451,849
The following presents information about the Company's revenues from
different geographic regions for the three months ended August 31, 2001 and
August 31, 2000:
(In thousands) 2001 2000
-------------- ------- -------
Revenues:
United States.................................................. $84,059 $82,504
All other...................................................... 4,297 3,370
------- -------
Total revenues.................................................. $88,356 $85,874
======= =======
Note 4--Restructuring and Impairment Charges:
The past two fiscal years represented a major transition period for the
Company. The decision was made to focus management attention on the core
information management and network services and systems as well as 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 clearinghouse integration, consolidation of locations,
and associated staff and expense reductions. Total restructuring and asset
impairment charges during the second quarter of fiscal 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. As these actions were finalized and
implemented, an additional $2.2 million of restructuring and impairment charges
were incurred during the second quarter of fiscal 2001. Of this total,
approximately $1.2 million were cash items that were accrued at the time the
charges were incurred.
6
As of August 31, 2001, $0.2 million of the cash portion of the restructuring
charges remains accrued as a current liability on the balance sheet as follows:
Original FY01 Current
Total Additions Payments Balance
-------- --------- -------- -------
(in thousands)
Closed or planned closings of facilities.. $ 6,100 $ 160 $ 6,157 $103
Estimated costs for settlements on
contracts................................ 2,236 -- 2,236 --
Severance and related costs............... 2,177 1,066 3,150 93
------- ------ ------- ----
Total.................................... $10,513 $1,226 $11,543 $196
======= ====== ======= ====
Note 5--Discontinued Operations:
On January 31, 2001, the Company completed the spin-off of its eCommerce
business segment, Global Payments. Additionally, in the third quarter of fiscal
2000, the Company made the decision to divest its management services business
and account for this business area as discontinued operations. As a result of
the spin-off and divestiture, the Company's August 31, 2000 financial
statements have been prepared with Global Payments' and the management services
business' net assets, results of operations, and cash flows displayed
separately as "discontinued operations".
The operating results of the discontinued operations for the three months
ended August 31, 2000 are summarized as follows:
Three months ended August 31,
2000
---------------------------------
Global Management
Payments Inc. Services Total
------------- ---------- --------
(In thousands, except per share
data):
Revenue...................................... $87,191 $21,905 $109,096
Operating income............................. 16,582 168 16,750
------- ------- --------
Net income from discontinued operations...... $ 8,649 $ -- $ 8,649
======= ======= ========
Diluted earnings per share:
Total....................................... $ 0.26 $ -- $ 0.26
------- ------- --------
Note 6--Supplemental Cash Flow Information:
Supplemental cash flow disclosures are as follows:
Three months
ended
August 31,
--------------
2001 2000
------ ------
(in
thousands)
Net income taxes (refunded) paid................................ $ (469) $ 247
Interest paid................................................... 504 969
Non-cash investment in MedUnite, Inc............................ 37,458 --
Non-cash investment in TechRx Incorporated...................... -- 15,306
7
Note 7--Comprehensive Income:
The components of comprehensive income are as follows:
Three months
ended
August 31,
---------------
2001 2000
------- -------
(in thousands)
Net income..................................................... $11,079 $16,180
Foreign currency translation adjustment........................ 1,626 35
Unrealized holding gain (loss), net of tax..................... 80 (644)
------- -------
Total comprehensive income.................................... $12,785 $15,571
======= =======
Note 8--Other Events:
During the first quarter of fiscal 2002, the Company sold its physician
network services business to MedUnite, Inc. In exchange for the assets of its
physician network services business, the Company received an equity position in
MedUnite, the value of which is included in Investments on the August 31, 2001
balance sheet.
8
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 classifies its business into two reportable segments: Network
Services and Systems and Information Management.
Network Services and Systems provides point of service systems, high volume,
network based information solutions and information management services to the
healthcare industry. Our products and services are provided to pharmacies,
physicians, hospitals, integrated delivery systems, managed care organizations,
payers, government healthcare agencies, distributors, clinics, Internet
portals, and other healthcare providers and related businesses and include
electronic claims processing, eligibility verification, claims adjudication and
payment systems, provision of administrative and clinical services, and
physician practice management systems. NDCHealth serves a diverse customer base
including more than 100,000 physicians. More than ninety percent of the
pharmacies in North America and twenty-five percent of the pharmacies in the
United Kingdom are linked to our value added services; approximately forty
percent of the nation's large (400+ beds) hospitals are NDCHealth customers;
and NDCHealth has value-added electronic connections to more than 1,000
commercial and governmental healthcare payers.
Information Management products and services provided to pharmaceutical
manufacturers, pharmacy chains and hospitals include database information
reporting on prescription drug sales and pharmacy operations and consulting
services. Our customer base is comprised of over 100 pharmaceutical
manufacturers and 45 pharmacy chains. Additionally, we are in the early phases
of entering the German and U.K. information markets.
We believe that our presence in the 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.
Results of Operations
On January 31, 2001, NDC completed the spin-off of its eCommerce business
segment, Global Payments. Additionally, in the third quarter of fiscal 2000,
the Company decided to pursue the divestiture of its management services
business and account for that business as "discontinued operations". As a
result of the spin-off and divestiture, the Company's financial statements have
been prepared with Global Payments' and the management services business' net
assets, results of operations, and cash flows displayed separately as
"discontinued operations."
The remainder of the discussion of the results of operations excludes these
discontinued operations.
During the first quarter of fiscal 2002, we sold our physician network
services business to MedUnite, Inc. As a result of this alliance, NDCHealth
became a founding investor in MedUnite, along with leading national payers.
Although this transaction will result in the short term loss of less than $10
million in transaction revenue in the current year, the alliance should allow
us to receive a growing revenue stream from our physician system customers for
network services provided by MedUnite.
As we believe it provides a better comparison and indication of the
historical performance of NDCHealth, the financial information for the prior
year's first quarter ended August 31, 2000 presented below has been
"normalized" by excluding revenues and operating expenses related to divested
businesses of $5.6 million and $5.3 million, respectively, in addition to
discontinued operations.
9
More information regarding our historical "normalized" results of operations
can be found under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-
K for the year ended May 31, 2001 and in Exhibit 99.1 to this report.
First Quarter ended
August 31,
--------------------
2001 2000 Change
--------- --------- ------
(In millions)
Revenue:
Information Management............................ $34.5 39% $31.3 39% 10%
Network Services and Systems...................... 53.9 61% 48.9 61% 10%
----- --- ----- --- ---
Total Revenue.................................... $88.4 100% $80.2 100% 10%
===== === ===== === ===
Operating Income:
Information Management............................ $ 4.5 24% $ 4.2 30% 7%
Network Services and Systems...................... 14.5 76% 9.7 70% 49%
----- --- ----- --- ---
Total Operating Income........................... $19.0 100% $13.9 100% 37%
===== === ===== === ===
Consolidated
Total revenue for the first quarter of fiscal 2002 was $88.4 million, an
increase of $8.2 million, or 10%, from the prior year's first quarter. This
increase was the result of growth in transaction volumes in the pharmacy and
hospital markets, new revenues from our expansion in Europe, and growth in our
customer base. Total revenue decreased $3.6 million from the prior year's
fourth quarter reflecting expected seasonal patterns as seen in prior years.
Cost of service ("COS"), as a percentage of revenue, decreased to 47% in the
first quarter of fiscal 2002 from 48% in the first quarter of fiscal 2001 due
to increased leverage of our infrastructure. Absolute COS expense increased
$3.4 million from the prior year. This 9% increase, less than the 10% increase
in revenue, demonstrates our ability to leverage the fixed costs inherent in
our business model while continuing to invest for our future growth.
Sales, general and administrative expenses ("SG&A"), as a percentage of
revenue, decreased to 24% in this year's first quarter from 25% in the prior
year due to improved productivity in the current year and increased spending in
preparation of the spin-off of Global Payments in the prior year. Absolute SG&A
expense increased $1.1 million, or 5%, in the first quarter of fiscal 2002 from
the same quarter last year, again demonstrating our ability to leverage fixed
costs by increasing revenue at a faster rate than expenses.
Depreciation and amortization expense ("D&A"), as a percentage of revenue,
decreased to 7% in the first quarter of fiscal 2002 from 10% in the prior
year's first quarter. This decrease was attributable to our adoption of SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 deals
with, among other things, amortization of goodwill. D&A expense, as a
percentage of revenue, would have remained at 10% in the current year's first
quarter had SFAS 142 not been adopted. Absolute D&A expense decreased $1.4
million from the prior year's first quarter.
Operating income increased 37% to $19.0 million in the first quarter of
fiscal 2002 from $13.9 million in the first quarter of fiscal 2001. As a
percentage of revenue, the operating income margin increased to 21% in the
current year's first quarter from 17% in the prior year due to the decreased
operating expenses discussed above. Operating income increased $2.2 million
from the prior year's fourth quarter, with the decrease in revenue being
mitigated by the decrease in D&A expense resulting from the adoption of SFAS
142 in the first quarter.
Total other expense decreased to $1.6 million in the first quarter of fiscal
2002 from $1.9 million in the prior year's first quarter. This $0.3 million
decrease was the result of multiple factors: an increase in
10
convertible debt interest expense that was previously shared with Global
Payments; the minority interest credit of $0.3 million which represents the
minority's share of losses attributable to subsidiaries consolidated in our
financial statements but not 100% owned by us; and $0.3 million in interest
income earned on our cash reserves in the current year.
Income before income taxes ("IBIT") increased 45% to $17.3 million in the
first quarter of fiscal 2002 from $11.9 million in the first quarter of fiscal
2001 due to the increase in operating income and decrease in other expense
discussed above. IBIT increased $1.9 million from the prior year's fourth
quarter, reflecting the increased operating income discussed above.
Diluted earnings per share for the first quarter of fiscal 2002 increased
41% to $0.31 as compared to $0.22 for the prior year's first quarter. Of the
increase in diluted earnings per share, $0.05 was attributable to the adoption
of SFAS 142. Diluted earnings per share increased $0.04 from the prior year's
fourth quarter, reflecting the increased IBIT discussed above.
Information Management
Information Management revenue grew by 10% to $34.5 million in the first
quarter of fiscal 2002 from $31.3 million in the first quarter of fiscal 2001
due to start-up operations in Western Europe and new products and services
being offered to new and existing customers. Revenue declined 8%, or $3.0
million, from the prior year's fourth quarter reflecting expected seasonal
patterns as seen in prior years.
Operating income for the first quarter of fiscal 2002 was $4.5 million
compared to $4.2 million in fiscal 2001. This 7% increase in operating income
was lower than the 10% increase in revenue because of operating losses in our
European operations, partially offset by the reduced amortization expense
resulting from our adoption of SFAS 142. Operating income decreased $0.7
million from the fourth quarter of fiscal 2001 reflecting the seasonal decline
in revenue discussed above.
Network Services and Systems
Network Services and Systems revenue increased 10% to $53.9 million in the
first quarter of fiscal 2002 from $48.9 million in the prior year's first
quarter primarily due to increased demand for our services in the pharmacy and
hospital markets, which resulted in more than 20% growth in network transaction
volume, as well as growth in our physicians systems business. Revenue decreased
slightly, $0.7 million, from the fourth quarter of fiscal 2001 as a result of
the transaction with MedUnite.
Operating income for the first quarter of fiscal 2002 was $14.5 million
compared to $9.7 million in the first quarter of fiscal 2001. This 49% increase
in operating income was reflective of the 10% increase in revenue, reduced
amortization expense resulting from our adoption of SFAS 142, and increased
leverage of our infrastructure. Operating income increased $3.0 million from
the prior year's fourth quarter, again due to reduced amortization expense and
increased leverage of our infrastructure.
Liquidity and Capital Resources
Cash flow generated from operations provides us with a significant source of
liquidity to meet our needs. At August 31, 2001, we had cash and cash
equivalents totaling $19.2 million. Net cash provided by operating activities
decreased $11.4 million to $12.5 million for the first three months of fiscal
2002 compared to $23.9 million for the first three months of fiscal 2001. This
difference is driven primarily by the increase in earnings offset by decreases
in accounts payable and accrued liabilities. The decrease in accounts payable
and accrued liabilities primarily relates to the timing of vendor payments and
is expected to be a one-time event.
Net cash used in investing activities was $5.8 million for the first three
months of fiscal 2002 compared to $9.0 million for the first three months of
fiscal 2001. This change is primarily due to business acquisitions of
11
$10.2 million and investments of $11.8 million, partially offset by $20.0
million in proceeds received from the divestiture of the management services
business, in the prior year. Capital expenditures were $1.2 million less in the
first three months of the current year than in the same period of the prior
year. We continue to invest in capital expenditures related to growth in our
business and acceleration of certain strategic initiatives and expect capital
spending to accelerate for the remainder of the fiscal year.
Net cash used in financing activities decreased to $1.1 million for the
first three months of fiscal 2002 from $14.4 million in the prior year's first
three months due primarily to net payments of $9.5 million against the lines of
credit in the prior year. Additionally, because the amount of our quarterly
dividend was reduced in the third quarter of fiscal 2001 due to the spin-off of
Global Payments, cash used for payment of dividends decreased to $1.4 million
in the first three months of fiscal 2002 from $2.5 million in the prior year's
first three months.
Net cash provided by discontinued operations was $1.2 million for the first
three months of fiscal 2002 compared to $8.0 million for the first three months
of fiscal 2001. Net cash provided in the current year consists of payments made
in the settling of liabilities of our discontinued operations offset by the use
of deferred tax assets attributed to our discontinued operations. Net cash
provided in fiscal 2001 consisted primarily of the net income from discontinued
operations.
We have a credit facility providing a $50 million unsecured revolving line
of credit which is available for working capital and general corporate
purposes. The facility has a one-year term, with the option for us to convert
any outstanding borrowings at the maturity date to a term loan repayable at the
first anniversary of the initial maturity date, or January 31, 2003. At August
31, 2001, there were no amounts outstanding under the facility. 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.
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, 2001.
Forward Looking Results of Operations
We believe that NDCHealth is well positioned to provide processing and
information products and services to the healthcare industry in the future. For
fiscal year 2002, our expectation remains that revenue for the full year will
be in the $375-385 million range resulting in diluted earnings per share in the
range of $1.30 to $1.34, including the impact of the accounting change
described below.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 deals with, among
other things, amortization of goodwill. We adopted this new standard in the
first quarter of fiscal 2002. The impact of the implementation of SFAS 142 in
the first quarter was an addition of $0.05 to diluted earnings per share. We
estimate that the annual impact of SFAS 142 will be an addition of
approximately $0.20 to diluted earnings per share in fiscal 2002. Excluding the
impact of SFAS 142, we would expect diluted earnings per share in range of
$1.10 to $1.14 for fiscal 2002. Additionally, we reduced the fiscal 2002
effective tax rate to 36.0% due to our application of this new standard.
Based on observed market conditions and our results for the first quarter
ended August 31, 2001, we expect revenue for the second quarter ending November
30, 2001 to be in the range of $90-93 million, resulting in diluted earnings
per share of $0.32-0.33 after the impact of SFAS 142.
12
While past performance does not guarantee future results, the Company is
committed to continuing to sustain quality earnings growth. The Company's
strategy to attain growth is to position the Company for continued future
success through ongoing investment in new market opportunities as well as
through strategic alliances and acquisitions. The Company also intends to
continue expansion into additional market segments related to its two primary
segments. The Company will continue to make investments in new technology
infrastructure and productivity tools to ensure long-term competitiveness and
maximize operating capacity and efficiency.
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. There can be no assurance of the expected benefits
and prospects for alliances that may be entered into from time to time. These
alliances involve risks and uncertainties, including market and customer
acceptance of the relationship, the effect of economic conditions, competition,
pricing, and development difficulties. 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 under the
caption "Additional Factors that May Affect Future Performance" in the
Company's Annual Report on Form 10-K for the period ended May 31, 2001 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. In addition, the Company is currently unable to assess the impact,
if any, on its financial performance that may result from the economic effects
of the recent terrorist attack on the United States. 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, or thereof. 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.
13
Part II
Item 1. Pending Legal Proceedings
We are involved in litigation related to our divested Physician and Hospital
Support Services and Hospital Management Services (PHSS) units. We have
obtained a ruling from the European Commission ordering IMS Health to license
its structure for organizing pharmaceutical sales data to us. We are unable to
predict whether IMS Health may be successful in overturning the EU ruling.
Additionally, we are party to a number of other claims and lawsuits incidental
to our business.
We believe that the ultimate outcome of such matters, in the aggregate, will
not have a material adverse impact on our financial position or liquidity.
Item 2. Changes in Securities
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 on Form 8-K
(a) Exhibits:
99.1 National Data Corporation (unaudited) Consolidated Statements of
Income for fiscal 2000 (normalized*), fiscal 2001 (by
quarter)(normalized*) and the quarter ended August 31, 2001 (GAAP).
(*Normalized for certain items discussed under the heading
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year
ended May 31, 2001)
99.2 National Data Corporation (unaudited) Consolidated Statements of
Income or (Loss) (GAAP) for fiscal 2000, fiscal 2001 (by quarter) and
the quarter ended August 31, 2001.
(b) Reports Filed on Form 8-K:
National Data Corporation's Current Report on Form 8-K dated June 4, 2001,
was filed on June 4, 2001, reporting under Item 9 the Company's intention to
sell its physician network services business to MedUnite, Inc.
National Data Corporation's Current Report on Form 8-K dated July 19, 2001,
was filed on July 19, 2001, reporting as an exhibit under Item 7 the Company's
press release dated July 19, 2000 and under Item 9 the Company's release of
business and financial information giving effect to the spin-off of the Global
Payments Inc. subsidiary.
14
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)
By: /s/ David H. Shenk
----------------------------------
David H. Shenk
Vice President & Corporate
Controller
(Chief Accounting Officer)
Date: October 4, 2001
15