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, 1996.
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-12392
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NATIONAL DATA CORPORATION
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(Exact name of registrant as specified in charter)
DELAWARE 58-0977458
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
National Data Plaza, Atlanta, Georgia 30329-2010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 404-728-2000
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NONE
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(Former name, former address and former fiscal year, if
changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, Par Value $.125 - 26,088,122 shares
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Outstanding as of September 30, 1996
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CONSOLIDATED STATEMENTS OF INCOME
NATIONAL DATA CORPORATION
(in thousands except per share data)
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Three Months Ended August 31,
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1996 1995 *
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Revenue $ 101,164 $ 78,290
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Operating Expenses:
Cost of service 49,076 39,435
Sales, general and administrative 38,154 30,776
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87,230 70,211
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Operating income 13,934 8,079
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Other income (expense):
Interest and other income 319 1,141
Interest and other expense (935) (914)
Minority interest (498) (116)
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(1,114) 111
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Income before income taxes 12,820 8,190
Provision for income taxes 4,615 3,336
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Net income $ 8,205 $ 4,854
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Earnings per common and common equivalent shares $ 0.30 $ 0.18
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* All prior period amounts have been restated to reflect the 1996 merger with
CIS in a pooling transaction.
See Notes to Unaudited Condensed Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NATIONAL DATA CORPORATION
(in thousands)
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Three Months Ended August 31,
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1996 1995 *
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Cash flows from operating activities:
Net income $ 8,205 $ 4,854
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,450 4,760
Amortization of acquired intangibles and goodwill 2,806 2,598
Provision for bad debts 416 249
Changes in working capital which provided (used)
cash, net of the effects of acquisitions 4,389 (11,824)
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Net cash provided by operating activities 20,266 637
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Cash flows from investing activities:
Capital expenditures (3,566) (3,866)
Business acquisitions, net of cash acquired (449) (9,943)
Decrease in investments and other non-current assets - 300
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Net cash used in investing activities (4,015) (13,509)
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Cash flows from financing activities:
Borrowings (repayments) under lines of credit (15,000) 584
Payments on notes and earn-out payable (28) (1,875)
Principal payments under mortgage, capital lease
arrangements and other long-term debt (985) (1,009)
Net proceeds from sale of common stock - 63,652
Net proceeds from the issuance of stock
under employee stock plans 650 1,362
Issuance of term note - 1,250
Dividends paid - (1,697)
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Net cash provided by (used in) financing activities (15,363) 62,267
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Increase in cash and cash equivalents 888 49,395
Cash, beginning of period 9,768 41,573
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Cash, end of period $ 10,656 $ 90,968
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Supplemental schedule of noncash investing and financing activities:
Capital leases entered into in exchange for property and equipment $ 675 $ 332
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Interest paid $ 772 $ 444
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Income taxes paid $ 1,597 $ 6,288
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* All prior period amounts have been restated to reflect the 1996 merger with
CIS in a pooling transaction.
See Notes to Unaudited Condensed Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
NATIONAL DATA CORPORATION
(in thousands except share data)
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August 31, May 31,
1996 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 10,656 $ 9,768
Accounts receivable (less allowances of $2,336 and $2,433) 66,722 61,618
Deferred income taxes 1,000 1,000
Inventory 2,652 1,869
Prepaid expenses and other current assets 4,319 7,152
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Total current assets 85,349 81,407
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Property and equipment, net 49,220 49,436
Acquired intangibles and goodwill, net 220,640 223,055
Deferred income taxes 11,655 11,505
Other 2,553 2,636
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Total Assets $ 369,417 $ 368,039
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 54,149 $ 48,561
Line of credit payable 15,000 30,000
Notes and earn-out payable 1,479 1,637
Income taxes payable 4,715 1,548
Obligations under capital leases 3,229 3,011
Mortgage payable 10,892 10,936
Deferred income 5,125 5,996
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Total current liabilities 94,589 101,689
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Notes payable on acquired businesses 3,103 3,138
Obligations under capital leases 4,121 4,439
Other long-term liabilities 5,629 5,747
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Total liabilities 107,442 115,013
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Minority interest in equity of subsidiaries 19,841 19,727
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, 60,000,000 shares authorized; 26,018,582
and 25,962,939 shares issued and outstanding, respectively. 3,253 3,246
Capital in excess of par value 169,377 168,732
Retained earnings 70,421 62,216
Cumulative translation adjustment (831) (753)
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242,220 233,441
Less: Deferred compensation (86) (142)
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Total Shareholders' Equity 242,134 233,299
Total Liabilities and Shareholders' Equity $ 369,417 $ 368,039
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See Notes to Unaudited Condensed Consolidated Financial Statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
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FINANCIAL STATEMENTS
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with Generally Accepted
Accounting Principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures are adequate to make
the information presented not misleading. In addition, certain
reclassifications have been made to the fiscal 1996 consolidated financial
statements to conform to the fiscal 1997 presentation. It is suggested that
these financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's latest annual report on Form 10-K
for the fiscal year ended May 31, 1996.
In the opinion of management, the information furnished reflects all adjustments
necessary to present fairly the financial position, results of operations, and
cash flows for such interim periods.
NOTE 2 - EARNINGS PER SHARE:
Primary earnings per common share and common equivalent share are computed by
dividing net income by the weighted average number of common shares and common
equivalent shares outstanding during the period. Common equivalent shares
represent stock options that, if exercised, would have a dilutive effect on
earnings per share. All options with an exercise price less than the average
market share price for the period are assumed to have a dilutive effect on
earnings per share.
Fully diluted earnings per common and common equivalent share are computed by
the same method as described for primary earnings per share except that the
higher of (1) the ending market share price for the period or (2) the average
market share price for the period is used to compute the fully diluted earnings
per share, as compared to the average market share price for primary earnings
per share. Earnings per share calculations are presented in the accompanying
financial statements.
The primary and fully diluted number of common and common equivalent shares
outstanding is as follows (in thousands):
Quarter Ended August 31,
1996 1995
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Primary 27,723 26,959
Fully Diluted 27,800 27,044
NOTE 3 - SUBSEQUENT EVENT:
On October 1, 1996, the Company acquired all of the capital stock of Equifax
Healthcare EDI Services, Inc. ("Health EDI"). The stock was purchased from
Equifax Healthcare Information Services, Inc., a wholly-owned subsidiary of
Equifax, Inc. pursuant to a Stock Purchase Agreement dated as of September 3,
1996. The purchase price paid for the transfer of Health EDI's shares was
$46,701,422 (subject to a final purchase price adjustment pursuant to the terms
of the Stock Purchase Agreement).
The acquisition of Health EDI will be accounted for using the purchase method of
accounting. The net value of the assets acquired was approximately $2,622,000
creating an excess of cost over tangible assets of $44,079,286. It is estimated
that the goodwill and intangibles resulting from the acquisition will be
amortized over an approximate weighted average period of 25 years. The Company
is in the process of receiving an independent appraisal of the value of the
assets acquired. The Company intends to make an IRS Section 338(h)(10) election
for income tax reporting purposes.
Health EDI provides transaction processing, primarily in the health care
industry, of insurance claims, eligibility and benefit verification, remittance
advice, managed care transactions, check guarantee and credit card transactions.
The Company intends to continue the same or similar use of the net assets of
Health EDI.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the three months ended August 31, 1995
and 1996, selected amounts from the Company's consolidated statements of
income and such amounts as a percentage of total revenue:
THREE MONTHS ENDED AUGUST 31,
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1995 1996
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(DOLLARS IN MILLIONS)
Revenue:
Health Care................................. $ 35.9 46% $ 38.1 38%
Integrated Payment Systems.................. 25.7 33 31.9 32
Global Payment Systems...................... 16.7 21 31.2 30
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Total revenue............................. 78.3 100 101.2 100
Cost of Service:
Operations.................................. 29.3 37 38.4 38
Depreciation and amortization............... 6.5 8 6.5 7
Hardware sales.............................. 3.6 5 4.2 4
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Total cost of service..................... 39.4 50 49.1 49
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Gross margin.............................. 38.9 50 52.1 51
Sales, general and administrative............. 30.8 39 38.2 38
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Operating margin.......................... 8.1 10 13.9 14
Interest and other income..................... 1.1 1 0.3 --
Interest and other expense.................... (0.9) (1) (0.9) (1)
Minority interest............................. (0.1) -- (0.5) --
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Income before income taxes.................... 8.2 10 12.8 13
Provision for income taxes.................... 3.3 4 4.6 5
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Net income.................................... $ 4.9 6% $ 8.2 8%
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Earnings per share............................ $ .18 -- $ .30 --
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REVENUE
Total revenue for the first quarter of fiscal 1997 was $101.2 million, an
increase of $22.9 million (29%) from $78.3 million in the same period in
fiscal 1996. The revenue increase was the result of increased revenue in
Global Payment Systems, $14.5 million (87%); Integrated Payment Systems, $6.2
million (24%); and Health Care, $2.2 million (6%).
HEALTH CARE. Revenue for the first quarter of fiscal 1997 increased 6% as
compared to the same period in fiscal 1996 as a result of increases in
electronic claims processing, increases in revenue due to a change in product
mix of pharmacy systems, and the impact of acquisitions completed after the
first quarter of fiscal 1996. This increase was offset in part by a decline in
revenue resulting from a non-recurring revenue item recognized by CIS in the
first quarter of fiscal 1996.
INTEGRATED PAYMENT SYSTEMS. Integrated Payment Systems revenue, consisting
of the direct payment services and the check guarantee businesses, increased
24% in the first quarter of fiscal 1997 compared to the same period in fiscal
1996. This increase was due primarily to higher volume of merchant sales
processed, which resulted in part from an alliance established with a
financial institution in March 1996.
GLOBAL PAYMENT SYSTEMS. Revenue increased 87% in the first quarter of fiscal
1997 compared to the first quarter of fiscal 1996 primarily due to the
acquisition of the Merchant Automated Point-of-Sale Program business ("MAPP") on
April 1, 1996. In addition, this increase reflected growth in the Company's
existing credit card processing business. This increase was partially offset by
decreased information systems and services revenue.
COSTS AND EXPENSES
Total cost of service for the first quarter of fiscal 1997 was $49.1
million, an increase of $9.6 million (24%) from the same period in fiscal
1996. Total cost of service as a percentage of revenue decreased to 49% in the
first quarter of fiscal 1997 from 50% for the same period in fiscal 1996. Cost
of operations increased $9.1 million (31%) in the first quarter of fiscal 1997
over the same period in fiscal 1996 as a result of increased operating costs
related to the MAPP acquisition. Depreciation and amortization as a percentage
of revenue decreased to 7% in the first quarter of fiscal 1997 compared to 8%
in the first quarter of fiscal 1996. Hardware costs increased 15% in the first
quarter of fiscal 1997 over the same period in fiscal 1996 as a result of
increased sales of hardware for pharmacy practice management systems.
Gross margin increased to 51% in the first quarter of fiscal 1997 from 50%
in the first quarter of fiscal 1996 principally as a result of improved
operating efficiencies and leveraging of the Company's fixed investments.
Sales, general and administrative expense was $38.2 million in the first
quarter of fiscal 1997, an increase of $7.4 million (24%) from the same period
in fiscal 1996; however, as a percentage of revenue, these expenses decreased to
38% in the first quarter of fiscal 1997 from 39% in the first quarter of fiscal
1996. The increase was primarily due to increased product development and sales
and marketing expansion programs in existing and acquired businesses.
INTEREST AND OTHER INCOME
Interest and other income for the first quarter of fiscal 1997 was $0.3
million, a decrease of $0.8 million (72%) from the same period in fiscal 1996.
This decrease was primarily the result of lower interest earnings due to less
average funds invested in short-term investments and marketable securities.
The cash balances at the end of the first quarter of fiscal 1996 were used to
fund acquisitions later in fiscal 1996.
INTEREST AND OTHER EXPENSE
Interest and other expense for the first quarter of fiscal 1997 was
relatively constant from the same period in fiscal 1996.
MINORITY INTEREST
Minority interest was $0.5 million for the first quarter of fiscal 1997, an
increase of $0.4 million (329%) from the same period of fiscal 1996. The
increase was primarily attributable to the establishment of an alliance with a
financial institution in March 1996.
INCOME TAXES
The provision for income taxes, as a percentage of taxable income, was 36%
and 40% for the first quarter of fiscal 1997 and 1996, respectively. This
decrease was attributable to differences in the tax treatment of certain items
associated with CIS prior to the acquisition.
NET INCOME
Net income for the first quarter of fiscal 1997 was $8.2 million, an
increase of $3.4 million (69%), as compared to the same period in fiscal 1996.
Earnings per share for the first quarter of fiscal 1997 and fiscal 1996 were
$0.30 and $0.18, respectively. The fully diluted number of common and common
equivalent shares outstanding for the first quarter of fiscal 1997 was
27,800,000, an increase of 756,000 (3%) as compared to the same period in
fiscal 1996, due to options granted and shares issued under the Company's
stock purchase and stock option plans.
LIQUIDITY AND CAPITAL RESOURCES
On August 31, 1996, the Company and its subsidiaries had cash and cash
equivalents totaling $9.8 million. NDC has an unsecured $50.0 million revolving
line of credit which expires in May 1999. The Company's Global Payment Systems
subsidiary has an unsecured $60.0 million revolving line of credit which expires
in July 1999. The Global revolving line of credit automatically reduces to $50.0
million on the first anniversary of the credit agreement. As of August 31, 1996,
there were $15.0 million and no amounts outstanding under the NDC and Global
facilities, respectively.
For the first quarter of fiscal 1997, capital expenditures aggregated $3.6
million and were used primarily for software development related to product
enhancement.
Net cash provided by operating activities was $20.3 million for the first
quarter of fiscal 1997. Cash flows from operations for the same period of fiscal
1997, consisting of net income adjusted for depreciation, amortization and
provision for bad debts, totaled $15.9 million. A $4.4 million change in working
capital resulted from changes in net merchant processing funds provided and
increases in accounts payable and accrued liabilities, offset by increases in
accounts receivable. These funds, provided by changes in merchant processing
working capital, reflect normal fluctuations in the timing of credit card sales
processed. The increases in accounts payable and accounts receivable are
primarily due to acquisitions. Cash used in investing activities for the first
quarter of fiscal 1997 was $4.0 million. Net cash used in financing activities
was $15.4 million for the first quarter of fiscal 1997, reflecting repayments
totaling $15.0 million on the Company's line of credit. In the first quarter of
fiscal 1997, no significant acquisition activities were consummated; however,
Health EDI was acquired on October 1, 1996, for a purchase price of $47.0
million.
Part II
ITEM 1 - PENDING LEGAL PROCEEDINGS
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None
ITEM 2 - CHANGES IN SECURITITES
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None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
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None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
ITEM 5 - OTHER INFORMATION
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None
ITEM 6 - EXHIBITS AND REPORTS FILED ON FORM 8-K
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(a) National Data Corporation's Current Report on Form 8-K dated May 31, 1996,
filed June 15, 1996, relating to the merger of CIS Technologies, Inc.
("CIS") (CIS File No. 0-15457) into a subsidiary of the Registrant. The
following documents were incorporated by reference:
(1) CIS' Annual Report on Form 10-K for the year ended
December 31, 1995.
(2) CIS' Current Reports on Form 8-K dated April 15, 1996 and
April 26, 1996.
(3) CIS' Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1996.
Pro Forma Condensed Combined Financial Data was incorporated by reference
from pages 43 through 45 of the Proxy Statement/Prospectus filed as part of
the Registrant's Registration Statement on Form S-4 (Registration No.
333-2705).
The Agreement and Plan of Merger, dated April 15, 1996 (filed as Annex A to
the Proxy Statement/Prospectus filed as part of the Registrant's
Registration Statement on Form S-4 (Registration No. 333-2705) filed April
22, 1996, as amended on April 30, 1996 was incorporated by reference as
Exhibit 2.1.
(b) Exhibits:
Exhibit 27 - Financial Data Schedule
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
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(Registrant)
Date: October 7, 1996 By: /s/ M.P. Stevenson, Jr.
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M.P. Stevenson, Jr.
Interim Chief Financial Officer