1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
UNITED STATES
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended August 31, 1997.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-11770
FDP CORP.
(Exact name of registrant as specified in its charter)
Florida 59-2138243
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2140 South Dixie Highway, Miami, Florida 33133
(Address of principal executive offices) (Zip Code)
(305) 858-8200
(Registrant's telephone number, including area code)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value per share,
5,743,087 shares outstanding as of September 30, 1997.
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FDP CORP.
TABLE OF CONTENTS
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
August 31, 1997 and November 30, 1996 3
Consolidated Condensed Statements of Earnings
Three and Nine Months Ended August 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended August 31, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
PART II. OTHER INFORMATION
Item 1. Legal 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FDP CORP.
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS) August 31, November 30,
1997 1996
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,287 $ 6,300
Marketable securities 4,996 5,365
Accounts receivable, less allowance for uncollectible
accounts of $437 in 1997 and $444 in 1996 6,590 5,649
Notes receivable - current 353 403
Prepaid expenses 193 91
Deferred income taxes 337 327
Costs and earnings in excess of billings on uncompleted contracts 369 562
Other 346 79
------- -------
Total current assets 17,471 18,776
Property and equipment at cost, less accumulated depreciation
of $4,078 in 1997 and $3,629 in 1996 3,080 2,719
Other assets:
Marketable securities 10,647 7,114
Notes receivable - non-current 139 185
Goodwill, net 183 241
Other 253 77
------- -------
Total assets $31,773 $29,112
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,220 $ 2,900
Income taxes payable 335 239
Billings in excess of costs and earnings on uncompleted contracts 354 1,914
------- -------
Total current liabilities 4,909 5,053
Deferred income taxes 532 497
------- -------
Total liabilities 5,441 5,550
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Stockholder's Equity:
Preferred stock; $.01 par value. Authorized 10,000 shares none issued
Common stock; $.01 par value. Authorized 30,000 shares; shares
issued and outstanding 5,734 in 1997 and 5,518 in 1996 57 55
Paid-in capital 10,238 9,282
Retained earnings 16,037 14,225
------- -------
Total stockholders' equity 26,332 23,562
------- -------
Total liabilities and stockholders' equity $31,773 $29,112
======= =======
See accompanying notes to consolidated condensed financial statements.
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FDP CORP
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(AMOUNTS IN THOUSANDS) Three Months Ended Nine Months Ended
August 31, August 31,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
Software $ 7,776 $ 5,883 $ 21,749 $ 16,572
Information services 510 811 1,691 2,400
-------- -------- -------- --------
Total Revenue 8,286 6,694 23,440 18,972
-------- -------- -------- --------
Cost of sales and services:
Product development, maintenance and enhancements:
Software 5,779 4,646 16,562 13,094
Information services 258 304 852 946
Telecommunications 96 123 325 350
Selling, general and administrative expenses 1,262 1,048 3,542 3,049
-------- -------- -------- --------
Total cost of sales and services 7,395 6,121 21,281 17,439
-------- -------- -------- --------
Operating profit 891 573 2,159 1,533
Interest income 319 276 930 787
Foreign exchange (loss) gain and other 2 2 22 (4)
-------- -------- -------- --------
Net other income 321 278 952 783
-------- -------- -------- --------
Earnings before income taxes 1,212 851 3,111 2,316
Provision for income taxes 424 270 1,089 735
-------- -------- -------- --------
Net earnings $ 788 $ 581 $ 2,022 $ 1,581
======== ======== ======== ========
Net earnings per share $ .13 $ .10 $ .34 $ .28
======== ======== ======== ========
Weighted average number of shares
used in per share calculations 5,954 5,809 5,888 5,713
======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements.
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FDP CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
August 31,
---------------------
1997 1996
------- -------
Cash flows from operating activities:
Net earnings $ 2,022 $ 1,581
------- -------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization of property,
equipment and intangibles 722 620
Changes in assets and liabilities, net of affects
from acquisition of business:
Increase in accounts receivable, net (941) (1,142)
Increase in prepaid expenses (102) (62)
Decrease (Increase) in costs and earnings in excess
of billings on uncompleted contracts 193 (275)
Increase in other current assets (267) (193)
Increase (Decrease) in accounts payable
and accrued liabilities 1,320 (353)
(Decrease) Increase in billings in excess of costs
and earnings on uncompleted contracts (1,560) 684
Increase in income taxes payable 96 39
Increase (Decrease) in deferred income taxes 25 (203)
(Increase) Decrease in other assets (176) 30
------- -------
Net adjustments (690) (855)
------- -------
Net cash provided by operating activities 1,332 726
Cash flows from investing activities:
Proceeds from sale of marketable securities 2,876 2,469
Purchase of marketable securities (6,040) (4,629)
Proceeds from sale of equipment 2 --
Acquisition of business, net of cash acquired -- 185
Proceeds from note receivable 585 612
Acquisition of note receivable (489) (282)
Equipment acquired (1,027) (952)
------- -------
Net cash used in investing activities (4,093) (2,597)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 589 437
Stock option income tax benefit 370 273
Dividend payment (211) (216)
------- -------
Net cash provided by financing activities 748 494
------- -------
Net decrease in cash and cash equivalents (2,013) (1,377)
Cash and cash equivalents at beginning of year 6,300 3,301
------- -------
Cash and cash equivalents at end of period $ 4,287 $ 1,924
======= =======
See accompanying notes to consolidated condensed financial statements
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FDP CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August 31, 1997
(Unaudited)
NOTE A
In the opinion of management of FDP Corp. (the "Company"), the accompanying
unaudited consolidated condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q and therefore contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position, the results of operations and the
statement of cash flows in conformity with generally accepted accounting
principles.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these consolidated
condensed financial statements be read in conjunction with the consolidated
financial statements and the notes included in the Company's latest annual
report on Form 10K.
The results of operations for the nine months ended August 31, 1997, are not
necessarily indicative of the results for the full year.
NOTE B
The Board of Directors approved a quarterly cash dividend of $.0125 per share,
payable March 13, 1997, June 13, 1997 and September 12, 1997 to shareholders of
record on February 26, 1997, May 26, 1997, and August 26, 1997, respectively.
NOTE C
On November 11, 1996 the Board of Directors approved a three-for-two common
stock split distributable on December 10, 1996 to shareholders of record at the
close of business on November 26, 1996. All share and per share amounts have
been restated to retroactively reflect the stock split.
NOTE D
Net primary earnings per common share for the periods presented has been
computed using the weighted average number of common and common equivalent
shares (stock options) outstanding except in the periods where the effect is
anti-dilutive. Fully-dilutive earnings per share is not materially different
from primary earnings per share in the periods presented.
NOTE E
On December 28, 1995 the Company acquired Existential Systems Inc. (d/b/a System
Innovations). The purchase price consisted of 50,000 shares of FDP Corp. common
stock valued at $7.875 per share and an
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additional 50,000 shares will be issuable in the event that System Innovations
achieves certain earnings levels. The transaction was accounted for as a
purchase, and the results of operations for System Innovations are included in
the statement of earnings from the acquisition date. Goodwill of $313,000 was
recorded as a result of the transaction. System Innovations, a privately held
company based in Littleton, Colorado, has been in business since 1984 and
develops software applications for the life insurance industry.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date, or other measurement date, over
the amount an employee must pay to acquire the stock. Management has elected to
continue to measure compensation cost using the APB Opinion No. 25 prescribed
method and therefore believes that SFAS No. 123 will not have a material effect
on the Company's consolidated financial statements.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Adoption of this
Statement will not have a material impact on the Company's financial position,
results of operations, or liquidity.
In June 1997 the Financial Accounting Standards Board ("FASB") Issued SFAS No.
130, "Reporting Comprehensive Income" ("SFAS No. 130") SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997 and establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. SFAS No. 130 requires all items to be
reported in a separate financial statement. The Company does not believe that
adoption of SFAS No. 130 will have a significant impact on its financial
reporting.
In June 1997, FSAB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No 131). SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. SFAS 131
establishes standards for the way the public business enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. The Company does not believe that adoption of SFAS No.
131 will have a significant impact on its financial reporting.
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In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" (SFAS No.
128"). SFAS No. 128 specifies new standards designed to improve the earning per
share ("EPS") information provided in statements by simplifying the existing
computational guidelines, revising the disclosure requirements and increasing
the comparability of EPS data on an international basis. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The Company does not believe that adoption of
SFAS No. 128 will have a significant impact on its financial reporting.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS
Revenues reflect the Company's ability to develop new computer software
products, or enhance existing ones, then successfully market its software and
related services. Several factors influence the Company's results of operations
including advances in computer technology and changes in governmental
regulations. The Company's business is not seasonal even though quarterly
revenues and net earnings may vary. The variation is primarily due to uncertain
timing of customers' decisions, over which the Company has little control,
regarding the purchase of software systems and computer hardware.
On December 28, 1995 the Company acquired Existential Systems Inc. (d/b/a System
Innovations). The purchase price consisted of 50,000 shares of FDP Corp. common
stock and an additional 50,000 shares issuable in the event that Systems
Innovations achieves certain earnings levels over the next few years. System
Innovations, a privately held company based in Littleton, Colorado, has been in
business since 1984 and develops software applications for the life insurance
industry. System Innovations currently employs 35 people and is expected to
generate approximately $3.5 million in revenue for fiscal 1997 and is currently
finishing development of an advanced technology life insurance proposal system
in partnership with six major insurance companies. The Company believes that the
acquisition will provide the ability to leverage its technical and insurance
industry expertise and the joint partnership with the six insurance companies
provides opportunities for the cross-selling of the Company's products. Included
in the financial statements is the activity related to the acquisition
subsequent to December 28, 1995.
FINANCIAL RESULTS
For the quarter ended August 31, 1997, revenues increased 24% to $8,286,000 as
compared to $6,694,000 for the same period last year. Operating profit for the
third quarter was up 55% to $891,000 as compared to $573,000 for the prior year.
Net earnings for the third quarter increased 36% to $788,000 or $.13 per share
versus $581,000 or $.10 per share a year ago.
For the nine month period ending August 31, 1997, revenues increased 24% to
$23,440,000 as compared to $18,972,000 for the same period last year. Operating
profit for the nine month period increased 41% to $2,159,000 as compared to
$1,533,000 for the same period last year. Net earnings for the nine month period
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increased by 28% to $2,022,000 or $.34 per share, up from $1,581,000 or $.28 per
share for the prior year.
The Company reports its revenues by two categories, Software and Information
Services.
- --------------------------------------------------------------------------------
SOFTWARE Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
(000) (000) (000) (000)
- --------------------------------------------------------------------------------
PENSION PARTNER $ 958 $ 937 $ 3,008 $ 2,857
- --------------------------------------------------------------------------------
AGENCY PARTNER 1,503 1,830 5,018 5,274
- --------------------------------------------------------------------------------
SYSTEM INNOVATIONS 896 805 2,549 2,164
- --------------------------------------------------------------------------------
HOME OFFICE SYSTEMS 4,419 2,311 11,174 6,277
- --------------------------------------------------------------------------------
TOTAL SOFTWARE 7,776 5,883 21,749 16,572
- --------------------------------------------------------------------------------
SOFTWARE REVENUE:
Total software related revenue which includes software licenses, maintenance,
service revenue (time and materials) and other for the three months ended August
31, 1997 increased by 32%. For the nine month period software revenues were up
31% as compared to last year. The increase in software revenues for the quarter
and nine month periods was principally driven by higher revenues in Home Office
Systems.
Revenues for HOME OFFICE SYSTEMS, which includes FDP/COMPASS and FDP/CLAS, for
the quarter and nine month periods ended August 31, 1997 were up 91% and 78%,
respectively. Driving the overall increase were revenues related to FDP/COMPASS,
the Company's software for group pension/annuity administration. Revenues for
FDP/COMPASS for the quarter and the nine month periods rose 108% and 133%,
respectively. The increase in revenues is primarily due to the six international
contracts executed for the product covering South Africa, the United Kingdom and
Australia.
Revenues for FDP/CLAS, the Company's software for life insurance administration,
for the quarter and nine month periods rose 69% and 27%, respectively. The
recent emergence of FDP/CLAS in the Russian life insurance market led to the
third quarter increase.
Revenues in AGENCY PARTNER for the quarter and nine month periods were down 18%
and 5%, respectively. Higher revenues relating to FDP/XL, the Company's sales
illustration system under Windows(TM),
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were offset by lower revenues relating to Contact Partner, the Company's contact
management program for the financial services professional. Revenues for FDP/XL
for the quarter increased 25% to $1.0 million as compared to $.8 million for the
prior year. For the nine month period revenues for the product were up 39% to
$3.2 million as compared to $2.3 million for the prior year. Revenues relating
to Contact Partner for the quarter and nine months ended August 31, 1997
decreased by 46% and 36%, respectively, as compared to the prior year. The
Company has recently increased its sales and marketing efforts by hiring a
National Sales Manager to build a sales force to sell the Agency Partner product
line.
PENSION PARTNER revenues were basically unchanged for the quarter but up 5% for
the nine month period ending August 31, 1997. Sales relating to the
administration component of FDP/PEN for Windows(TM) system have been deferred
pending the expected fourth quarter release of the product.
Revenues for System Innovations for the quarter and nine month periods were up
11% and 18%, respectively. Revenues for the nine month period were higher as
nine full months of revenue were reported for the period ended August 31, 1997
as compared to only eight months of revenue in 1996 for the same period.
- --------------------------------------------------------------------------------
INFORMATION SERVICES Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
1997 1996 1997 1996
(000) (000) (000) (000)
- --------------------------------------------------------------------------------
PENSION PARTNER $ 102 $ 183 $ 393 $ 573
- --------------------------------------------------------------------------------
AGENCY PARTNER 34 51 104 203
- --------------------------------------------------------------------------------
FDP/CLAS 374 577 1,194 1,624
- --------------------------------------------------------------------------------
TOTAL INFORMATION SERVICES $ 510 $ 811 $1,691 $2,400
- --------------------------------------------------------------------------------
INFORMATION SERVICES REVENUE:
Total information services revenue for the quarter and nine month periods ended
August 31, 1997, as compared to last year, decreased by 37% and 30%,
respectively. Information service revenue for Pension Partner and Agency Partner
has been on a downward trend as customers that access the various software
programs on a time-sharing basis are purchasing the products for use on personal
computers. Information service revenue for FDP/CLAS, which had increased in
fiscal 1996, reported a decrease in revenues for the quarter and nine months
ended August 31, 1997. This decrease specifically relates to a major customer
who purchased a license to take the system in-house during the last quarter of
fiscal 1996.
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COSTS AND EXPENSES:
The Company's total cost of sales and services for the quarter and nine month
periods ending August 31, 1997 were $7,395,000 and $21,281,000 as compared to
$6,121,000 and $17,439,000 for the same periods last year, representing
increases of 21% and 22%, respectively. Most of the increase for both periods
was related to higher personnel related costs for the Company mainly
concentrated in the FDP/COMPASS division.
For the quarter and nine months ended August 31, 1997, costs related to product
development, maintenance and enhancements for software have increased whereas
costs for information services have decreased. This change reflects the
continuing trend of the shifting of the Company resources away from information
services, a decreasing revenue base, to software product development, a growing
revenue base.
Selling, general and administrative expenses for the quarter and nine month
periods ended August 31, 1997 were $1,262,000 and $3,542,000 as compared to
$1,048,000 and $3,049,000, respectively, representing increases of 20% and 16%.
Most of the increase is due to higher selling related expenses.
INTEREST INCOME:
Interest earned primarily on the Company's portfolio of U.S. Treasury Bills and
Notes for the quarter ended August 31, 1997 was $319,000 as compared to $276,000
for the same period last year representing an increase of 16%. The average
interest earning rate for the third quarter of 1997 was 6.23% as compared to
5.97% for the same period last year. The increase in interest income in 1997 is
due to a higher portfolio value. (See Financial Condition)
PROVISION FOR INCOME TAXES:
The Company's effective income tax rate was 35% and 32% for the quarters ended
August 31, 1997 and 1996, respectively. The tax rate in 1997 increased due to a
reduction in benefits provided by research and development credits.
FINANCIAL CONDITION
The Company continues to maintain a highly liquid and virtually debt free
balance sheet. As of August 31, 1997 and November 30, 1996 cash and marketable
securities were $19,930,000 and $18,779,000, representing 63% and 65% of total
assets for the respective periods.
Other than planned purchases of equipment, no other significant capital
expenditures are anticipated for the remainder of fiscal 1997. Management of the
Company continues to believe that existing working capital and funds generated
by operations will be sufficient to meet the Company's anticipated capital needs
in connection with its present and proposed activities.
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PART II. OTHER INFORMATION
Item 1. Legal
The Company is from time to time involved in routine litigation arising in the
ordinary course of business. No litigation in which the Company is presently
involved is material to its financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - None
b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended August 31, 1997.
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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.
DATE: OCTOBER 13, 1997 FDP CORP.
By: /s/ MICHAEL C. GOLDBERG
-------------------------------------
Michael C. Goldberg
Chairman of Board of Directors
Chief Executive Officer and President
(principal executive and financial
officer)
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