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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____ .
Commission file number: 0-11770
FDP CORP.
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(Exact name of registrant as specified in its charter)
Florida 59-138243
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2140 South Dixie Highway
Miami, Florida 33133
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 858-8200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of class)
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting Common Stock held by non-affiliates (based
upon the closing price as reported by the National Association of Securities
Dealers) on January 31, 1998 was approximately $24,306,000.
As of January 31, 1998, there were 5,855,212 shares of Common Stock, par value
$.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 1998 Annual Meeting of
Shareholders, scheduled to be held on April 21,1998, are incorporated by
reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
FDP Corp., a Florida corporation ("FDP" or the "Company"), has been engaged in
the development, marketing and support of computer applications software to meet
the needs of the life insurance and employee benefit industry since 1968. The
Company is owned 51.8% as of January 31, 1998 by an individual shareholder who
has voting control. The software is available for operation on standalone
mainframe, mini- and/or microcomputers and/or may be accessed on a timeshare
basis. In the Pension Partner division, software products are developed for use
by actuaries, life insurance agents, life insurance companies, third party
administrators, employee benefit plan consultants, lawyers, bankers, accountants
and others. The products are used to promote sales of, and assist in the
administration of, defined benefit, defined contribution and cafeteria plans by
providing clients with an analysis of tax benefits and funding assumptions.
Products in the Company's Agency Partner division are used by life insurance
agents in demonstrating to their clients interest-sensitive and other life
insurance policies and to market and manage their prospects and clients. In the
Home Office Systems division, software systems are developed for use by life
insurance company home offices and other financial institutions in handling the
unique administration and processing requirements of life insurance, pension and
annuity products.
Life insurance products are based on intricate mathematical calculations and are
sensitive to a wide variety of constantly changing factors, including
fluctuations in interest rates, the availability and desirability of other
investment vehicles and changes in governmental regulations and tax laws. The
Company's software systems, which are enhanced and updated to reflect changes in
the economic and regulatory environment, facilitate the efforts by insurance
companies to keep existing products current and to develop new products in
response to these changes.
Because the design, marketing and administration of life insurance products and
pension and other employee benefit plans is complex, customer support personnel
for such software systems must possess actuarial skills, computer programming
ability and familiarity with the product. The Company has developed a customer
support organization by hiring actuaries and mathematicians and providing them
with training in computer programming, employee benefits and life insurance
products. The Company services its client base by maintaining a "hot-line" to
provide technical support and consultation.
The Company provides limited consulting services with respect to the application
of its products to technically enhance systems. In addition to generating
revenue and satisfying customer needs, these consulting services have, in the
past, contributed to decisions by the Company to enhance existing products and
develop entirely new products. The Company expects to continue its policy of
providing such consulting services.
The revenues from sales of software systems in the Home Office Systems division
are usually derived from large contracts. Due to normal delays and factors
associated with the size of these contracts, the effect of these revenues on a
fiscal quarter or fiscal year can be variable. (See Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations)
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ACQUISITION
On December 28, 1995 the Company acquired Existential Systems Inc. (d/b/a System
Innovations). The purchase price consisted of 75,000 shares of the Company's
Common Stock $.01 par value ("Common Stock") valued at $5.25 per share. The
transaction was accounted for as a purchase, and the results of operations for
System Innovations are included in the consolidated statements of earnings from
the acquisition date. Goodwill of $313,000 was recorded as a result of the
transaction. System Innovations based in Littleton, Colorado, has been in
business since 1984 and develops software applications for the life insurance
industry. An additional 75,000 shares of the Company's Common Stock will be
issuable in the event that System Innovations achieves certain earnings for
fiscal years ending November 30, 1998 and 1999. These shares would be paid in
two equal installments of 37,500 shares on the third and fourth anniversary
dates of the acquisition.
In connection with the acquisition, the Company entered into a five-year
employment agreement with Michael Bain, the sole shareholder of System
Innovations, providing for an annual base salary of $210,000.
STRATEGY
FDP/VISION represents the Company's strategy to offer a total solution for the
marketing and administration needs of the life insurance, financial institution
and employee benefits industries. The total solution will completely integrate
the respective product lines of Agency Partner and Pension Partner. It will also
incorporate the Company's Home Office Systems, providing a common interface
under a Windows(R) environment.
Over the years, insurance agents, employee benefit professionals and insurance
company home offices have been buying various application packages to support
their marketing and administration needs. Each application has its own data
storage and user interface, causing data to be entered and stored independently.
This nonintegrated environment of multiple applications and multiple databases
results in added expense through duplication of training, duplication of
resources and lost productivity.
FDP/VISION addresses these issues. At the core of FDP/VISION solution lies a
relational database which enables all systems used within FDP/VISION to access
and share the same information. The Company has created a database model that
addresses the data storage needs of life insurance agents, home offices and
employee benefit professionals. The ability to share data will eliminate
repetitive data entry, reduce the risk of error and provides easy access to
data. Another part of the FDP/VISION solution is a common user interface. FDP
not only coordinates the look and feel of all its applications but also will
utilize the standard interface elements of Microsoft Windows. The consistency
with these familiar elements will reduce the users learning curve for the
systems developed under FDP/VISION. The FDP/VISION design is also based upon
object modeling allowing the various systems to make use of reusable business
objects. These objects have been designed to comply with emerging standards such
as OLE for Life Insurance (OLifE) and Microsoft COM.
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The Company's commitment to this system design and development strategy has been
validated by the insurance industry as evidenced by the increasing sales of the
products released under FDP/VISION, multiple sales of VISION products to the
same customers and the growing list of customers interested in purchasing the
additional applications as soon as they are released. The Company continues to
dedicate resources to advancement of FDP/VISION in an effort achieve the
Company's strategy and gain market share over the competition.
PRODUCTS
The Company's software systems have been designed to permit ease of use and
adaptability to individual customer requirements. Most of the systems have a
modular structure that facilitates the application of updates and enhancements
and are based on a parameter-driven design so that key variables are not
embedded in the individual programs. Rather, these variables or parameters are
stored in central files which permit easy access without modifying the basic
program modules.
PENSION PARTNER
The Company's Pension Partner systems are designed to compute and illustrate
interactively various pension and employee benefit plans based upon assumed
financial and tax parameters governed by considerable Federal tax regulations,
economic conditions, actuarial concepts, and certain standard business factors
in the industry. These systems are used to assist self-employed individuals and
owners of small businesses to maximize the use of existing tax law to shelter
income and provide significant tax free death benefits to their survivors
through pension and employee benefit plans.
The Pension Partner systems are utilized by thousands of companies and agents
throughout the nation, as well as consultants and other users. These systems
include:
- FDP/PEN Complete proposal and administration system for
all types of qualified plans, including Defined
Benefit, Target Benefit, Money Purchase,
Profit Sharing, 401(k), ESOP and Keogh Plans.
- Easy Laser 5500 microcomputer software that automates the
for Windows completion of laser-printed IRS 5500 forms and
related schedules.
- Easy Laser 5300 microcomputer software that automates the
for Windows completion of laser-printed IRS 5300 forms and
related schedules.
- Easy Forms 1099 microcomputer software that automates the
for Windows preparation of 1099R's and related forms.
- PDQ/PRO IRS-approved automated pension document
for Windows generation systems for Master or Regional
and PDQ/VIP Prototype plans and Volume Submitter
Individualized Plans.
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- Pension Manager a product designed to control and coordinate
pension office work flow.
- FDP/PTA a pension trust accounting database and asset
reconciliation system.
- FDP/Distpack mini-, microcomputer or timeshare accessed
software that illustrates the amount of excise
taxes payable on excess distributions and
excess accumulations.
- FDP/125 enrollment and administration software for
Section 125 cafeteria plans.
- FDP/A4 nondiscrimination testing system for 401(k)
plans.
- FDP/Daily daily processing of participants records and
plan administration for 401(k) plans.
- FDP/VOICE voice response system that works in conjunction
with FDP/Daily.
AGENCY PARTNER
FDP's Agency Partner division is responsible for developing integrated software
applications to support the needs of today's life insurance companies. These
systems assist in increasing sales, enhancing marketing, servicing clients and
managing day-to-day business functions for life insurance professionals. The
products in the Agency Partner division performing these integrated operations
are Contact Partner(TM), FDP/XL and FINPACK.
Contact Partner is a complete sales, marketing and client management database
incorporated into one system. Contact Partner includes all of the functions
required for an agent to perform automatic client/prospect tracking, in-force
policy servicing, investment tracking, time management, report management,
targeted marketing, report generation and letter writing. The system also
includes an exclusive Custom Screen Generator and a data conversion feature,
making it one of the most flexible and comprehensive systems on the market. A
separate commission module allows the tracking and reconciling of commissions.
FDP/XL, a sales illustration system, provides a broad range of capabilities to
present the benefits of life insurance policies, while implementing all National
Association of Insurance Commissioner requirements. The product also illustrates
a diverse range of plan strategies including Ledgers, Executive Bonus, Group
Carve-Out, Split Dollar and Deferred Compensation. FDP/XL provides full
customization, enabling users to create columns and formats which can be saved
for use in any illustration. With open-ended architecture, FDP/XL can quickly
accommodate changes in the life insurance industry.
FINPACK, a comprehensive financial planning system, allows agents to analyze a
client's financial profile through family needs analysis, estate tax planning
and other financial tools. The system permits users to output comprehensive
reports, graphs, presentations and charts with
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superior graphics. This easy-to-use system provides additional features, such as
a Tips Wizard & On-line Help and a Conceptual Support Library, all designed to
assist the user in providing the right answers, while conveying them in a clear
and professional manner.
All of FDP's Agency Partner products are being continuously enhanced and
developed utilizing the latest technology available in the market.
HOME OFFICE
The Home Office Systems division is responsible for the development of large
systems for use by life insurance home offices and financial institutions in
handling the unique administration and processing requirements of life, pension
and annuity products.
The systems provided by the FDP Home Office division are:
FDP/CLAS, Comprehensive Life Administration System, which supports
universal life and universal variable life as well as traditional life products
in the individual, group, COLI (Corporately Owned Life Insurance) and annuity
marketplaces.
FDP/COMPASS, Comprehensive Annuity Support System, which provides for
administration of group and individual pension/annuity products (both qualified
and non-qualified), including participant record-keeping and plan administration
for corporate defined contribution arrangements such as 401(k) plans.
FDP/CLAS and FDP/COMPASS support administration requirements for various
insurance company products with a full range of automated financial functions.
These include complete accounting for all transactions and comprehensive
management information and report generation facilities. The functionality
contained within these systems allows FDP to provide the administration and
service capabilities required to operate an entire home office.
Utilizing a relational database design along with a Graphical User Interface
(GUI) front-end, FDP/CLAS and FDP/COMPASS now operate in a client/server
environment and provide a state-of-the-art technical architecture, allowing for
flexibility and ease of use. Capable of running on hardware ranging from
workstations to minicomputers with the power of a mainframe, the UNIX-based
FDP/CLAS and FDP/COMPASS systems can be quickly installed and easily maintained
on a standalone basis at the client's site. FDP/CLAS is also available for those
companies that prefer to handle their administrative needs by outsourcing.
SOFTWARE DEVELOPMENT AGREEMENT (ISP ILLUSTRATION SYSTEM)
With the acquisition of System Innovations in fiscal 1996, the Company became
party to the ISP Illustration System Software Development Agreement. This
agreement represents a joint development effort between the Company, System
Innovations and six insurance companies to develop an "advanced marketing
illustration system". Upon completion of the joint development effort, the
Company will have title to the "advanced marketing illustration system" with
full rights to reproduce, publish, sell or distribute. In exchange for these
rights, the Company has agreed to pay a royalty to the six insurance companies
on license fees earned for new sales of the advanced marketing illustration
system. The Company expects to complete development of the new system in 1998.
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COMPUTER INFORMATION SYSTEMS
The Company provides timesharing services on its in-house Hewlett-Packard 3000
computer systems. The demand for the Company's timesharing services in the
Pension Partner and Agency Partner divisions continues to decline as their
various software programs are now more frequently requested for standalone
personal computers. Timeshare access for FDP/CLAS also decreased in fiscal 1997
after increasing in fiscal 1996 and 1995. The decrease for fiscal 1997 was
related to a major customer that purchased the system to do its processing
in-house. The data processing center of the Company operates multiple computers,
approximately two-thirds of which are for in-house software development. The
Company believes its computers and communication lines are sufficient for its
processing needs.
OTHER
The Company is a Microsoft Solutions Provider Partner, Value Added Reseller for
Hewlett-Packard and Oracle and an Authorized Applications Specialist in the IBM
Business Partner Program.
CUSTOMERS
The clients of the Company include thousands of life insurance agents, numerous
insurance companies, many consulting firms specializing in pension and employee
benefits, and several nationally recognized accounting firms, law firms and
banks, domestic and international.
The Company's major customers include The Prudential, Metropolitan Life, New
York Life, John Hancock Mutual Life, Massachusetts Mutual, American
International Group, New England Mutual, Mutual Life Insurance Company of New
York (MONY), Connecticut Mutual, Continental Assurance (CNA), General American
Life, Guardian Life, National Life of Vermont, Minnesota Mutual, Home Life,
American United Life, Union Central, U.S. Life, Indianapolis Life, Great-West
Life, Safeco Life, ITT/Hartford Life, National Mutual Life Association of
Australia Ltd., VVAA, Principal Mutual Life Insurance Company, The Travelers
Insurance Company, London & Manchester Assurance Company Ltd., Liberty Life,
Alexander Forbes, Investec Management Services, Empire Life Insurance Company,
Fidelity Investments Life Insurance Company, Sanlam, Levob Veraekeringen, B.A.,
and Imperial Life.
REVENUE RECOGNITION AND RELATED MATTERS
The Company's business has not historically been of the nature that results in a
backlog of unfilled firm customer orders although some contracts may take
several years for completion. Large contracts for the sale and installation of
software are billed as phases of the contracts are substantially complete. Sales
of software licenses are billed upon shipment of the products to
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the customer. The Company bills its customers for timesharing services on a
monthly basis. Timesharing agreements continue for indefinite terms and are
terminable by the customer at any time. Equipment sales are billed upon
shipment. The backlog of software sales was insignificant at November 30, 1997.
On sales where significant enhancements are required, the Company recognizes
revenue on the percentage of completion method based upon the labor hours
incurred to date to total estimated labor hours. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Amounts
received or billed in excess of revenues recognized to date are classified as
"billings in excess of costs and earnings on uncompleted contracts", whereas,
revenues recognized in excess of amounts billed are classified as "costs and
earnings in excess of billings on uncompleted contracts". Revenue from
separately priced extended software maintenance arrangements is deferred and
recognized in income on a straight line basis over the contract period.
International revenues provided by export sales were $13,384,000 or 41%,
$6,307,000 or 24% and $3,403,000 or 18% of consolidated revenues for the years
ended November 30, 1997, 1996 and 1995, respectively, and were primarily from
customers in South Africa, the United Kingdom, Australia, the Netherlands and
Canada.
MARKETING AND CUSTOMER SUPPORT
The Company's marketing philosophy is to provide potential and existing
customers with solutions to specific needs or problems. This approach requires a
high level of customer support and assistance and is one of the most important
factors in maintaining existing clients and increasing its client base. The
Company attributes much of its present client base to referrals from existing
clients. The Company also participates at industry trade shows and is active in
industry organizations.
A joint marketing effort was initiated in 1989 between the Company and Pension
Publications of Denver (PPD), a firm specializing in the preparation of employee
benefit documents. Using PPD documents, FDP developed two automated pension
document operation systems, Plan Documents Quickly (PDQ/PRO) and Volume
Submitter Individualized Plan (PDQ/VIP). The Company and PPD have agreed to
compensate one another for sales of their respective products.
FDP's acceptance as a Microsoft Solutions Provider Partner provides the Company
with the technical knowledge and marketing support to build upon the wide
acceptance of Microsoft Windows in the life insurance and employee benefit
industries.
The Company has developed a customer support organization by hiring actuaries
and mathematicians and providing them with training in computer programming,
employee benefits and life insurance products. Most of the Company's officers
function as software consultants providing technical advice with regard to the
Company's software systems.
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Users of the software are trained by the Company's staff concerning the use of a
system and are provided with documentation including reference manuals. The
Company maintains a staff which is available over a toll-free WATS telephone
line to support its clients. In addition, the Company sponsors periodic training
sessions and seminars to update and train users on new features of a system.
WARRANTIES AND RETURNS
The Company generally does not offer express warranties and limits implied
warranties in its timesharing and software licensing agreements. The standard
agreement for licensing the Company's systems under base fee arrangements
contains provisions purporting to limit warranty liability to the correction of
any deviation of a system from its specifications. The Company has not incurred
any significant warranty expense to date. The amount of sales returns of
hardware and software has been immaterial in the fiscal years ended November 30,
1997, 1996 and 1995.
PRODUCT DEVELOPMENT AND ENHANCEMENT
The computer software industry is characterized by continual technological
change, requiring a high level of expenditures for the development and
improvement of computer software products. To date, the Company has adapted to
such changes by developing substantial functional enhancements to its products.
The Company anticipates that it will continue to provide such enhancements to
its systems. A substantial amount of the Company's cost of services is
associated with the maintenance, enhancement and development of existing and new
products, as well as customer service. Research and development expenses charged
to cost of sales and services were approximately $6.2 million, $5.8 million, and
$3.8 million during fiscal years 1997, 1996 and 1995, respectively.
In 1997, the Company's development efforts centered around the development of
the suite of products under FDP/VISION. In Pension Partner, the Company
delivered the Windows version of FDP/PEN Proposal System and FDP/PEN
Administration System. In addition, enhancements were made to existing products
to keep them current with the latest technological advancements and legislative
changes. In Agency Partner, the Company released international versions of
Contact Partner and FDP/XL. A new version of Contact Partner was released which
included a commission tracking module and additional investment features.
Finpack was enhanced with estate planning capabilities. In addition, development
was started on the 32-bit NT client server versions of these products. In the
Home Offices System division, the expansion of the international client base,
resulted in new functionality and product capabilities being added to the
systems. The Company also continued its efforts towards the integration of
FDP/CLAS and FDP/COMPASS under the FDP/VISION strategy. System Innovations
neared completion of the "advanced marketing illustration system" that is under
development in partnership with six insurance companies.
The Company believes that its future success will depend on its ability to
improve existing software products and develop or acquire additional software
products. There can be no assurance that such developments will occur or that
such acquisitions will be made.
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COMPETITION
The Company believes that its major competition is the in-house data processing
capability of life insurance companies. In addition, other independent software
producers compete in certain market segments served by the Company. The Company
believes that its products compete favorably with the competition, although it
may be at a competitive disadvantage against companies with greater financial,
technological, marketing service and support resources.
The Company believes that the most important considerations for potential
purchasers of systems software packages are product capability, customer support
and service, integration of the product line, continuity of product enhancement,
ease of installation and use, documentation and training, the experience and
financial stability of the vendor and to a lesser extent, price. By virtue of
its 29 years of experience in developing software for use by the life insurance
industry, the Company believes that it has the ability to compete successfully
with the data processing systems of life insurance companies and other
independent software producers. The Company considers that its competitive
position is in part dependent upon its ability to continue to develop software
applications in response to the changing conditions of the employee benefit,
life insurance and financial planning markets.
PRODUCT PROTECTION
The Company does not sell or transfer title to its products to customers. The
products are licensed on a "right to use" basis pursuant to license agreements.
Each license is nontransferable and restricts use of the products to the
customer's internal purposes at one or more designated computer sites.
The Company regards its software as proprietary and relies for protection upon
trade secret laws and internal nondisclosure safeguards as well as restrictions
on disclosure and transferability incorporated in its software license
agreements. Despite these restrictions, it may be possible for competitors or
users to copy aspects of the Company's products or to obtain information which
the Company regards as its trade secrets. Computer software generally cannot be
patented, and existing copyright laws afford only limited protection. The
Company believes that the rapid pace of technological change in the computer
industry makes patent or copyright protection of less significance than such
factors as the knowledge and experience of management and other personnel and
the Company's ability to develop, enhance, market and acquire new systems and
services.
EMPLOYEES
The Company seeks to employ and retain highly skilled personnel who possess
actuarial, marketing and computer programming skills. The Company employs
approximately 380 employees, most of whom are employed at the Company's home
office and none of whom are members of a union. The Company has experienced a
low turn-over rate and believes that its relations with its employees are
excellent.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of the Company's Executive
Officers, together with all positions and offices held with the Company by such
Executive Officers. Officers are appointed annually by the Board of Directors
and serve at the discretion of the Board.
NAME AGE TITLE
Michael C. Goldberg 60 Chairman of the Board, President
and Chief Executive Officer
Cindy Goldberg 50 Secretary and Treasurer
Richard B. Fleischman 46 Senior Vice President, Home Office Systems
Scott Price 39 Senior Vice President, Agency Systems
Mark Silverman 41 Senior Vice President, Chief Financial Officer
Christine Stroud 43 Vice President
Edward Pick 47 Vice President
Beverly Price 46 Vice President
Kathleen Muro 46 Vice President
Michael C. Goldberg, founder of the Company, has been the Chairman, Chief
Executive Officer and President of the Company since its formation in 1968. He
is an Associate of the Society of Actuaries and a member of the American Academy
of Actuaries.
Cindy Goldberg has been a director and the Secretary and Treasurer of the
Company since 1968 and served as its Vice President-Administration from its
formation until 1982. Cindy Goldberg is the wife of Michael C. Goldberg.
Richard B. Fleischman originally joined the Company in May 1981 as a consulting
actuary, heading the group pension area. In 1985, Mr. Fleischman became a
corporate Vice President. In November 1997 he was promoted to Senior Vice
President of Home Office Systems. He is a member of the American Academy of
Actuaries, an Enrolled Actuary, and a Fellow of the Society of Actuaries.
Scott Price joined the Company in January 1981 in charge of technical services.
He became Senior Vice President of Agency Systems in November 1997. He is
responsible for managing Agency Systems and directing the Company's research and
development efforts.
Mark Silverman joined the Company in September 1992 as Chief Financial Officer.
He became Senior Vice President of the Company in November 1997. He is a
Certified Public Accountant. Prior to joining the Company, he was the Controller
for Spectrum Concepts a software development company.
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Chris Stroud joined the Company in June 1978 as an actuarial trainee and in 1983
moved to the marketing area. Ms. Stroud became a corporate Vice President in
1990. She is a member of the American Academy of Actuaries and the American
Society of Pension Actuaries and is an Enrolled Actuary.
Edward Pick joined the Company in April 1978 as a programmer in the Pension
Partner Systems department and became a corporate Vice President in January
1992. He is responsible for the development of employee benefit related software
products for the Company.
Beverly Price joined the Company in December 1979 as a programmer in the Agency
Partner Systems department. She became head of this department in January 1986
and became a corporate Vice President in January 1992.
Kathleen Muro joined the Company in June 1981 as a programmer in the life
administration area. Ms. Muro became head of the FDP/CLAS department in 1988 and
a corporate Vice President in January 1992.
ITEM 2. PROPERTIES
The Company currently rents approximately 57,000 square feet of office space,
occupying two locations, and constituting the Company's headquarters, in Miami,
Florida, from a partnership, of which its principal shareholder is the general
partner (the "Partnership"). The space is rented pursuant to a 5-year lease
effective December 1, 1994 which provides for a base rental amount, subject to
increases based on increases in the consumer price index, plus taxes, insurance
and certain operating expenses. Currently, the annual rent relating to this
building is approximately $1,430,000 per year. The Company has the option to
renew this lease for another 5 years under the same terms and conditions.
The Company also rents office space at three other locations: 1) 18,000 square
feet of office space in Natick, Massachusetts for an annual rent of
approximately $350,000 under a lease expiring on November 30, 2002; 2) 10,500
square feet of office space in Littleton, Colorado for an annual rent of
approximately $125,000 under a lease expiring on August 31, 2002 and 3) 1,600
square feet of office space in Parktown, South Africa for an annual rent of
approximately $11,000 under a lease expiring June 30, 2000.
ITEM 3. LEGAL PROCEEDINGS
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 10, 1997, the Company filed with the Securities and Exchange
Commission an Information Statement pursuant to Section 14(c) of the Securities
Exchange Act of 1934, as amended, relating to the approval by written consent of
shareholder of an increase to 1,220,868 in the number of shares of Common Stock
reserved for issuance pursuant to the Company's 1994 Employee Stock Option Plan
(the "1994 Plan"). Mr. Michael C. Goldberg, the record and beneficial owner of
approximately 53.7% of the outstanding shares of Common Stock, voted all such
shares in favor of the increase in the number of shares of Common Stock reserved
for issuance pursuant to the 1994 Plan, which vote was sufficient to approve the
increase.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq National Market under the symbol
FDPC. The following table sets forth for the periods indicated, the high and low
sales prices of the Common Stock as reported on the Nasdaq National Market.
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FISCAL 1997: High Low
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First Quarter $10 $6 1/4
Second Quarter 7 3/4 6 1/8
Third Quarter 8 5/8 7 1/8
Fourth Quarter 11 1/4 7 3/4
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FISCAL 1996: High Low
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First Quarter $ 6 1/2 $5
Second Quarter 8 7/8 5 3/8
Third Quarter 9 1/8 7 1/2
Fourth Quarter 10 7/8 7 5/8
As of November 30, 1997 there were approximately 100 record holders of the
Common Stock excluding security position listings. The Company would have
approximately 947 record holders if security positions listings were included.
On April 24, 1996, the Company's Board of Directors approved an annual cash
dividend of $.04 per share of Common Stock, adjusted to reflect the three-for
two stock split discussed below, and paid to shareholders of record on May 10,
1996.
On November 12, 1996, the Company's Board of Directors approved a three-for-two
stock split in which each two shares of outstanding Common Stock were converted
into three shares of Common Stock by way of a 50% stock dividend. The stock
dividend was payable to shareholders of record as of the close of business on
November 26, 1996. The stock prices in the above table have been adjusted
retroactively to reflect the split.
On February 13, 1997, the Company's Board of Directors approved a quarterly cash
dividend of $.0125 per share of Common Stock, totaling $.05 per share for fiscal
1997.
On February 4, 1998, the Company's Board of Directors approved a quarterly cash
dividend of $.0125 per share of Common Stock, payable March 13, 1998 to
shareholders of record on February 26, 1998.
14
15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data set forth below has been derived from
the consolidated financial statements of the Company. The consolidated financial
statements as of November 30, 1997 and 1996 and for the three years ended
November 30, 1997 have been audited by KPMG Peat Marwick LLP, independent
auditors, and such consolidated financial statements and the report thereon are
included elsewhere herein. The consolidated financial statements as of November
30, 1995, 1994 and 1993 and for the two years ended November 30, 1994 have also
been audited by KPMG Peat Marwick LLP and are not included herein.
Historical summary 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Results of Operations
Revenues $ 32,817 $ 26,445(a) $ 19,389 $ 18,371 $ 16,977
Operating profit (loss) 3,343 2,191 1,069 427 (316)
Interest income 1,235 1,073 968 725 632
Foreign exchange gain (loss) and other 6 (3) (7) 9 (73)
Earnings before income taxes 4,584 3,261 2,030 1,161 243
Net earnings 2,980 2,225 1,468 652 151
Net earnings per share (b) .50 .39 .27 .13 .03
Weighted averages shares outstanding (b) 5,938 5,751 5,385 5,164 5,114
Financial Condition
Working capital $ 12,799 $ 13,723 $ 10,155 $ 9,694 $ 16,656
Total assets 33,088 29,112 23,660 21,520 20,298
Stockholders' equity 27,471 23,562 20,062 18,240 17,480
Quarterly results (Unaudited) First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Fiscal 1997:
Revenues $ 7,262 $ 7,892 $ 8,286 $ 9,377
Operating profit 490 778 891 1,184
Net earnings 529 705 788 958
Net Earnings per share .09 .12 .13 .16
Weighted average shares outstanding 5,840 5,850 5,954 6,079
Fiscal 1996:
Revenues $ 5,900 $ 6,378 $ 6,694 $ 7,473
Operating profit 427 534 573 657
Net earnings 462 538 581 644
Net Earnings per share (b) .08 .09 .10 .11
Weighted average shares outstanding (b) 5,524 5,731 5,809 5,850
(a) Fiscal year 1996 revenues include revenues of $3,186 related to System
Innovations, an acquisition accounted for as a purchase. See Note 1 to the
Consolidated Financial Statements.
(b) In fiscal year 1996, the Company declaraed a three-for-two stock split.
Prior year share and per share amounts have been restated to reflect the split.
15
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company develops and sells a variety of applications software systems that
facilitate the marketing and administrative functions for the life insurance and
employee benefit industries. Support services such as design, installation,
customization, maintenance, consulting and training are routinely performed.
Information services are provided to clients for calculating certain values
within life insurance policies, pension contracts and sales illustrations. The
Company is a Microsoft(R) Solutions Provider Partner, Value Added Reseller for
Hewlett-Packard and Oracle, and an Authorized Applications Specialist in the IBM
Business Partner Program.
ACQUISITION
On December 28, 1995, the Company acquired Existential Systems Inc. (d/b/a
System Innovations). The purchase price consisted of 75,000 shares of the
Company's Common Stock $.01 par value ("Common stock") valued at $5.25 per
share. The transaction was accounted for as a purchase, and the results of
operations for System Innovations are included in the consolidated statements of
earnings from the acquisition date. Goodwill of $313,000 was recorded as a
result of the transaction. System Innovations based in Littleton, Colorado, has
been in business since 1984 and develops software applications for the life
insurance industry. An additional 75,000 shares of the Company's Common Stock
will be issuable in the event that System Innovations achieves certain earnings
for fiscal years ending November 30, 1998 and 1999. These shares would be paid
in two equal installments of 37,500 shares on the third and fourth anniversary
dates of the acquisition.
The following unaudited pro forma information combines the consolidated results
of operations of the Company and System Innovations for the year ended November
30, 1995. The proforma results, which contain a proforma adjustment for goodwill
amortization, do not purport to be indicative of what would have occurred had
the acquisition been consummated as of the beginning of the respective period or
of future operations of the combined company. Proforma results for the period
ended November 30, 1996 have not been presented as the acquisition occurred near
the beginning of the period.
Year Ended
(IN THOUSANDS, EXCEPT PER SHARE DATA) November 30,
1995
- --------------------------------------------------------
Revenues $22,490
Net earnings $ 1,682
Net earnings per share $ .31
16
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
Annual 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.
The Company's total revenue, exclusive of interest earnings, was $32,817,000,
$26,445,000 and $19,389,000, for the fiscal years ended November 30, 1997, 1996
and 1995, respectively. Total revenues in 1997 and 1996 increased by 24% and
36%, respectively. The Company reports its revenues by two major types: software
and information services.
SOFTWARE REVENUES
(IN THOUSANDS) 1997 Change 1996 Change 1995
--------------- ---------------- ---------------- ---------------- ---------------
AGENCY PARTNER $7,446 8% $ 6,900 10% $ 6,245
PENSION PARTNER 4,202 9% 3,844 -1% 3,901
HOME OFFICE SYSTEMS 15,396 65% 9,357 49% 6,291
SYSTEM INNOVATIONS 3,588 13% 3,186
--------------- ---------------- ---------------- ---------------- ---------------
Total Software $30,632 32% $ 23,287 42% $ 16,437
% of total Revenue 93% 88% 85%
Total software-related revenues, which includes software sales, maintenance,
service revenue (time and materials), net equipment sales and other, for fiscal
1997 increased $7,345,000 or 32% as compared to the prior year. For fiscal 1996,
software-related revenues increased by $6,850,000 or 42% as compared to the
prior year.
The increase in software revenues for fiscal 1997 was driven by HOME OFFICE
SYSTEMS which includes FDP/COMPASS and FDP/CLAS which increased by 102% and 24%,
respectively. The increase in FDP/COMPASS was the result of license fees and
service revenue earned from the outstanding contracts for the delivery of the
product in South Africa, Australia and the United Kingdom. FDP/CLAS revenues
increased due to a new contract executed with an insurance company in the
Netherlands and the Company's first sale of the CLAS system to a Russian life
insurance company. In 1996, revenues for the Home Office Systems division
increased by 49%. The increase in revenues was mainly related to sales of the
FDP/COMPASS system. In fiscal 1996, revenues for the product more than tripled
to $4,858,000 from $1,533,000 for the prior year due to the success of the
Company's international marketing efforts.
17
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Agency Partner revenues which include the products Contact Partner(TM), FDP/XL
and FINPACK, were up $546,000 or 8% for 1997. A 20% increase in software related
revenues for FDP/XL and FINPACK were offset by lower revenues relating to
Contact Partner(TM). In 1996 revenues relating to these products were up
$655,000 or 10%.
Pension Partner revenues increased in 1997 as Windows versions of the FDP/PEN
Administration and Proposal systems were released. Software revenues for the
division were up 9% for 1997 as customers began to receive delivery of the new
systems in the fourth quarter. Pension Partner software revenues in 1996 were
basically unchanged as compared to the prior year as higher maintenance related
revenue was offset by lower software sales.
System Innovation revenues in 1997 increased 13% as compared to last year as the
advanced-technology life insurance proposal system that is in development with
six major insurance companies neared completion.
INFORMATION SERVICES REVENUE
(IN THOUSANDS) 1997 Change 1996 Change 1995
--------------- ---------------- ---------------- ---------------- ---------------
AGENCY PARTNER $135 -46% $ 249 -24% $ 328
PENSION PARTNER 493 -33% 733 -16% 868
HOME OFFICE SYSTEMS:
FDP/CLAS 1,557 -28% 2,176 24% 1,756
--------------- ---------------- ---------------- ---------------- ---------------
Total Information Services $2,185 -31% $ 3,158 7% $ 2,952
% of total Revenue 7% 12% 15%
Total information services revenue, consisting primarily of timesharing charges,
for fiscal 1997, decreased by 31%. The decrease was related to a major customer
of FDP/CLAS that purchased the system to do its processing in-house and the
continued decline of timesharing charges in Agency Partner and Pension Partner.
In 1996, information services had increased by 7% as compared to 1995. The 1996
increase was the result of a 24% increase in revenue for FDP/CLAS due to higher
usage of the system. Information services revenue as a percentage of total
revenues has declined over the last few years as software related revenues have
increased.
18
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
COSTS AND EXPENSES
(IN THOUSANDS) 1997 Change 1996 Change 1995
---------------- ---------------- --------------- ---------------- --------------
Product development, maintenance
and enhancements:
Software $23,184 27% $ 18,240 47% 12,383
Information Services 1,107 -9% 1,211 -36% 1,906
Selling, general and admin. 4,776 10% 4,329 23% 3,529
Telecommunications 407 -14% 474 -6% 502
---------------- ---------------- --------------- ---------------- --------------
Total costs & expenses $29,474 22% $ 24,254 32% $ 18,320
% of total revenue 90% 92% 94%
The Company's costs and expenses for 1997, increased by $5,220,000 or 22% after
increasing $5,934,000 or 32%, in 1996. In 1997 the increase was related to
higher personnel costs relating to FDP/COMPASS and development efforts related
to the suite of products under FDP/VISION. In 1996, approximately 50% of the
increase in costs and expenses related to the acquisition of System Innovations.
The remainder of the increase in costs and expenses for 1996 related primarily
to higher personnel related expenses for development efforts.
For 1997 and 1996, costs and expenses related to software continue to increase,
whereas the costs and expenses related to information services have decreased.
This trend reflects the shifting of Company resources away from information
services, a decreasing revenue base, to software product development, a growing
revenue base. Total selling, general and administrative expenses for 1997
increased by $447,000 or 10% after increasing $800,000 or 23% in 1996. In 1997
the increase was related to higher selling related expenses and administrative
costs. The increase in 1996 was mainly related to the acquisition of System
Innovations and higher selling related expenses.
OTHER INFORMATION
(IN THOUSANDS) 1997 Change 1996 Change 1995
---------------- ---------------- --------------- ---------------- --------------
Personnel costs $19,595 20% $ 16,273 28% $ 12,714
% of total revenue 60% 62% 66%
Research and development
expenditures $6,225 8% $ 5,778 52% $ 3,794
% of total revenue 19% 22% 20%
In 1997 and 1996 personnel costs, which include employee compensation, payroll
taxes and employee benefits, increased by $3,322,000 or 20% and $3,559,000 or
28%, respectively. Approximately, 50% of the increase in 1996 related to the
acquisition of System Innovations.
The increases in research and development ("R&D") expenditures for 1997 were
mainly related to the development and upgrade of products under FDP/VISION. In
1996, the increase was related to development and the acquisition of System
Innovations.
19
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
FDP supports a variety of research and development programs in an effort to
continuously provide leading edge products to the life insurance and pension
industries. Capitalizable software development costs relating to new products
have not been significant and have been charged to research and development
expense as incurred. Many of the Company's research and development
expenditures, especially those related to product enhancements and
modifications, are billed to the customer.
INVESTMENT INCOME
(IN THOUSANDS) 1997 Change 1996 Change 1995
----------------- -------------- --------------- -------------- --------------
Interest income $1,235 15% $ 1,073 11% $ 968
Average interest-earning rate 6.09% 5.90% 5.77%
The Company's investment income principally relates to the marketable securities
portfolio that consists of U.S. Treasury Securities. The amount of interest
income earned is primarily the result of the average interest rates on the
instruments in the securities portfolio.
INCOME TAXES
(IN THOUSANDS) 1997 Change 1996 Change 1995
----------------- -------------- --------------- -------------- --------------
Provision for income taxes $1,604 55% $ 1,036 84% $ 562
Effective income tax rate 35% 32% 28%
The Company provides for federal, foreign and state income taxes on sources of
income effectively connected with trade or business within the United States and
within each applicable state. The 1997 income tax rate increase was due to the
reduction in research and development credits and the foreign sales corporation
(FSC) benefit. In 1996, the effective income tax rate increased due to a
reduction in benefits provided by research and development credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a highly liquid and virtually debt-free
balance sheet. Expenditures for property and equipment used for software
development, information services and other operations were $2,047,000,
$1,200,000, $1,387,000 for fiscal years 1997, 1996 and 1995, respectively. The
increase in expenditures for 1997 related to leasehold improvements on new
office space for the Company.
Management believes 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. At November 30, 1997, there
were no long-term commitments for the Company's working capital other than for
leases of premises.
20
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS) 1997 Change 1996 Change 1995
----------------- -------------- --------------- -------------- --------------
Cash, cash equivalents and
Marketable securities-
End of year $19,831 6% $ 18,779 17% $ 16,111
Working capital $12,799 -7% $ 13,723 35% $ 10,155
Cash, cash equivalents and marketable securities for 1997 and 1996 grew due to
cash flow from operating activities and cash received upon the exercise of stock
options.
FOREIGN CURRENCY EXCHANGE
International sales are sometimes invoiced and paid for in foreign currencies.
Therefore, revenues from these sales will be affected by fluctuations of foreign
currencies versus the U.S. dollar. The Company attempts to minimize its foreign
currency exposure by executing its contracts in U.S. currency. The foreign
exchange gains (losses) were minimal for fiscal years ending 1997, 1996 and
1995.
EFFECTS OF INFLATION
Although the effects of inflation upon the Company's costs and expenses cannot
be precisely measured, inflation has caused increases in personnel and other
operating costs. Within the limits imposed by the respective marketplace, the
Company attempts to control its expenditures through a variety of
management-supervised policies.
SFAS NO. 130
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.
SFAS NO. 131
In June 1997, the FASB 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 No.
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.
21
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
SFAS NO. 128
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.
STATEMENT OF POSITION (SOP) 97-2
In October 1997, the AICPA issued Statement of Position (SOP) 97-2, SOFTWARE
REVENUE RECOGNITION, which supersedes SOP 91-1. The Company will be required to
adopt SOP 97-2 for software transactions entered into beginning December 1,
1998, and retroactive application to years prior to adoption is prohibited. SOP
97-2 generally requires revenue earned on software arrangements involving
multiple elements (i.e., software products, upgrades/enhancements, postcontract
customer support, installation, training, etc.) to be allocated to each element
based on the relative fair values of the elements. The fair value of an element
must be based on evidence which is specific to the vendor. The revenue allocated
to software products (including specified upgrades/enhancements) generally is
recognized upon delivery of the products. The revenue allocated to postcontract
customer support generally is recognized ratably over the term of the support
and revenue allocated to service elements (such as training and installation)
generally is recognized as the services are performed. If a vendor does not have
evidence of fair value for all elements in a multiple-element arrangement, all
revenue from the arrangement is deferred until such evidence exists or until all
elements are delivered.
YEAR 2000
The Company has developed a plan to deal with the Year 2000 problem and began
addressing these issues to ensure that all products sold are Year 2000
compliant. The plan provides for these efforts to be completed by the end of
1999. The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. The total cost
of the plan is not estimated to be significant to the Company's financial
position. The Company is expensing all costs associated with these changes as
the costs are incurred.
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23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CAUTIONARY STATEMENTS RELATING TO FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations and beliefs concerning future events, including, but not
limited to, statements regarding growth in sales of the Company's products,
profit margins and sufficiency of the Company's cash flow for the Company's
future liquidity and capital resource needs. The Company cautions that these
statements are further qualified by important factors that could cause actual
results to differ materially from those in forward-looking statements,
including, without limitation, the following: technological changes, decline in
the demand for the Company's software products; and the effect of general
economic conditions generally and factors affecting the insurance and employee
benefits industries. These statements by their nature involve substantial risks
and uncertainties and actual events or results may differ as a result of these
and other factors.
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24
ITEM 8. REPORT OF INDEPENDENT AUDITORS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors Page 25
Consolidated Balance Sheets as of November 30, 1997 and 1996 Page 26
Consolidated Statements of Earnings for the years ended Page 27
November 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended Page 28
November 30, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years Page 29
ended November 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements Page 30-41
24
25
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FDP Corp.:
We have audited the accompanying consolidated balance sheets of FDP Corp. and
subsidiaries as of November 30, 1997 and 1996, and the related consolidated
statements of earnings, cash flows and stockholders' equity for each of the
years in the three-year period ended November 30, 1997. In connection with our
audits of the consolidated financial statements, we have also audited the
financial statement schedule, Schedule II - Valuation and Qualifying Accounts.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of FDP Corp. and
subsidiaries as of November 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended November 30, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Miami, Florida
January 16, 1998
25
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FDP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
November 30,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,109 $ 6,300
Marketable securities 4,825 5,365
Accounts receivable, less allowance for uncollectible
accounts of $384 in 1997 and $444 in 1996 6,967 5,649
Notes receivable - current 671 403
Prepaid expenses 145 91
Deferred income taxes 246 327
Costs and earnings in excess of billings on uncompleted contracts 774 562
Other 69 79
------------ ------------
Total current assets 17,806 18,776
Property and equipment, net 3,848 2,719
Other assets:
Marketable securities 10,897 7,114
Notes receivable - non-current 109 185
Goodwill, net 137 241
Other 291 77
------------ ------------
Total assets $ 33,088 $ 29,112
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,095 $ 2,900
Income taxes payable 399 239
Billings in excess of costs and earnings on uncompleted contracts 513 1,914
------------ -----------
Total current liabilities 5,007 5,053
Deferred income taxes 610 497
------------ -----------
Total liabilities 5,617 5,550
Stockholders' 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 5,777 in 1997 and 5,518 in 1996 58 55
Paid-in capital 10,500 9,282
Retained earnings 16,913 14,225
------------ -----------
Total stockholders' equity 27,471 23,562
------------ -----------
Total liabilities and stockholders' equity $ 33,088 $ 29,112
============ ===========
See accompanying notes to consolidated financial statements.
26
27
FDP Corp. and Subsidiaries
Consolidated Statements of Earnings
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Year Ended November 30,
------------------------------------------------------
1997 1996 1995
------------ -------------- --------------
Revenues:
Software $ 30,632 $ 23,287 $ 16,437
Information services 2,185 3,158 2,952
------------ -------------- --------------
32,817 26,445 19,389
Cost of sales and services:
Product development, maintenance and enhancements
Software 23,184 18,240 12,383
Information services 1,107 1,211 1,906
Selling, general and administrative expenses 4,776 4,329 3,529
Telecommunications 407 474 502
------------ -------------- --------------
29,474 24,254 18,320
------------ -------------- --------------
Operating profit 3,343 2,191 1,069
Other:
Interest income 1,235 1,073 968
Foreign currency gain (loss) and other, net 6 (3) (7)
------------ -------------- --------------
Net other income 1,241 1,070 961
------------ -------------- --------------
Earnings before income taxes 4,584 3,261 2,030
Provision for income taxes 1,604 1,036 562
------------ -------------- --------------
Net earnings $ 2,980 $ 2,225 $ 1,468
============ ============== ==============
Net earnings per share $ .50 $ .39 $ .27
============ ============== ==============
Weighted average number of shares
used in per share calculations 5,938 5,751 5,385
See accompanying notes to consolidated financial statements.
27
28
FDP Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(IN THOUSANDS)
Year Ended November 30,
1997 1996 1995
----------- ----------- ----------
Cash flows from operating activities:
Net earnings $ 2,980 $ 2,225 $ 1,468
----------- ----------- ----------
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization of property,
equipment and intangibles 972 866 554
Increase (decrease) in deferred taxes 194 (163) 6
Changes in assets and liabilities; net of effects
from acquisition of business:
Increase in accounts receivable, net (1,318) (1,447) (1,105)
(Increase) decrease in prepaid expenses (54) 27 (89)
(Increase) decrease in costs and earnings in
excess of billings on uncompleted contracts (212) (438) 395
(Increase) decrease in other assets (154) (3) 110
Increase (decrease) in accounts payable
and accrued expenses 1,122 (580) 289
(Decrease) increase in billings in excess of
costs and earnings on uncompleted contracts (1,401) 1,865 (45)
Increase (decrease) in income taxes payable 160 (16) (32)
---------------------------------------------
Total adjustments (691) 111 83
---------------------------------------------
Net cash provided by operating activities 2,289 2,336 1,551
Cash flows from investing activities:
Proceeds from redemption of marketable securities 2,121 4,960 7,168
Purchase of marketable securities (5,364) (4,629) (5,762)
Proceeds from the sale of equipment -- 10 15
Proceeds from note receivable 867 882 265
Acquisition of note receivable (1,059) (426) (893)
Acquisition of business, net of cash acquired -- 185 --
Equipment acquired (2,047) (1,200) (1,387)
----------- ----------- ----------
Net cash used in investing activities (5,482) (218) (594)
Cash flows from financing activities:
Proceeds from exercise of stock options 727 629 278
Stock option income tax benefit 494 468 76
Cumulative translation adjustment (9)
Dividend payment (210) (216) --
----------- ----------- ----------
Net cash provided by financing activities 1,002 881 354
Net (Decrease) increase in cash and cash equivalents (2,191) 2,999 1,311
Cash and cash equivalents at beginning of year 6,300 3,301 1,990
----------- ----------- ----------
Cash and cash equivalents at end of year $ 4,109 $ 6,300 $ 3,301
----------- ----------- ----------
See accompanying notes to consolidated financial statements.
28
29
FDP Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(IN THOUSANDS)
Common Stock
----------------------------
Total
Paid-in Retained Stockholders'
Shares Amount Capital Earnings equity
----------- ------------ --------------- -------------- ----------------
Balance at November 30, 1994 5,092 $ 51 $ 7,441 $ 10,748 $ 18,240
Exercise of stock options 110 1 277 278
Stock option income tax benefit 76 76
Net earnings 1,468 1,468
----------- ------------ --------------- -------------- ----------------
Balance at November 30, 1995 5,202 52 7,794 12,216 20,062
Exercise of stock options 241 2 627 629
Stock option income tax benefit 468 468
Stock issued for acquisition 75 1 393 394
Dividend payment (216) (216)
Net earnings 2,225 2,225
----------- ------------ --------------- -------------- ----------------
Balance at November 30, 1996 5,518 55 9,282 14,225 23,562
Exercise of stock options 259 3 724 727
Stock option income Tax benefit 494 494
Cummulative translation adjustment (9) (9)
Dividend payment (283) (283)
Net earnings 2,980 2,980
----------- ------------ --------------- -------------- ----------------
Balance at November 30, 1997 5,777 $ 58 $ 10,500 $ 16,913 $ 27,471
----------- ------------ --------------- -------------- ----------------
See accompanying notes to consolidated financial statements.
29
30
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FDP Corp. and its subsidiaries (the "Company") develop, market and support a
wide variety of applications and software systems for mainframe, mini- and
microcomputers and for access on a timesharing basis. The systems are used by
life insurance agents, insurance company home offices, employee benefit
consultants and others to market and administer life insurance products and
employee benefit plans.
ACQUISITION
On December 28, 1995, the Company acquired Existential Systems Inc. (d/b/a
System Innovations). The purchase price consisted of 75,000 shares of FDP Corp.
Common Stock valued at $5.25 per share. 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 based in Littleton,
Colorado, has been in business since 1984 and develops software applications for
the life insurance industry. An additional 75,000 shares of the Company's Common
Stock will be issuable in the event that System Innovations achieves certain
earnings for fiscal years ending November 30, 1998 and 1999. These shares would
be paid in two equal installments of 37,500 shares on the third and fourth
anniversary dates of the acquisition.
The following unaudited pro forma information combines the consolidated results
of operations of the Company and System Innovations for the year ended November
30, 1995. The proforma results, which contain a proforma adjustment for goodwill
amortization, do not purport to be indicative of what would have occurred had
the acquisition been consummated as of the beginning of the respective period or
of future operations of the combined company. Proforma results for the period
ended November 30, 1996 have not been presented as the acquisition occurred near
the beginning of the period.
Year Ended
(IN THOUSANDS EXCEPT PER SHARE DATA) November 30,
1995
- --------------------------------------------------------------
Revenues $22,490
Net earnings $1,682
Net earnings per share $.31
The accounting and reporting policies of the Company conform to generally
accepted accounting principles. The following summarizes the more significant of
these policies:
30
31
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of FDP Corp. and its
wholly-owned subsidiaries, Financial Data Planning Corp., Actuarial Research &
Development Corp., FDP Leasing Corp., System Innovations and FDP Software South
Africa (Proprietary) Limited. All inter-company accounts and transactions have
been eliminated.
CASH EQUIVALENTS
For financial statement purposes, cash equivalents include interest bearing
accounts. The Company considers all highly liquid debt instruments with original
maturities of less than three months to be cash equivalents.
MARKETABLE SECURITIES
Marketable Securities are classified as held-to-maturity and are recorded at
amortized cost, adjusted for the amortization or accretion of premiums or
discounts. Premiums and discounts are amortized or accreted over the life of the
related held-to maturity security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned.
A decline in the market value of any held-to-maturity security below cost that
is deemed to be other than temporary results in a reduction in carrying amount
to fair value. The impairment is charged to earnings and a new cost basis for
the security is established.
Marketable securities consist of U.S. Treasury securities and the market value
of these securities at each year end approximated their amortized cost.
Maturities of marketable securities at November 30, 1997 and 1996 were as
follows (in thousands):
November 30,
Maturity 1997 1996
------------------------- ----------------------
Less than 1 year $ 4,825 $ 5,365
1 to 2 years 5,316 4,806
2 to 3 years 5,581 2,308
------------------------- ----------------------
$15,722 $ 12,479
------------------------- ----------------------
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax liabilities and assets are recognized for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using the enacted tax rates in effect for the year in
which the differences are expected to reverse.
31
32
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The amount of federal and state income taxes paid during 1997, 1996 and 1995
were $755,000, $638,000 and $492,000, respectively.
FOREIGN CURRENCY EXCHANGE
International sales are sometimes invoiced and paid for in foreign currencies.
Therefore, revenues will be affected by fluctuations of foreign currencies
versus the U.S. dollar. The resulting foreign exchange gain or loss for the
period is reflected in the Company's consolidated financial statements.
International revenues provided by export sales were $13,384,000 or 41%,
$6,307,000 or 24% and $3,403,000 or 18% of consolidated revenues for the years
ended November 30, 1997, 1996 and 1995, respectively, and were primarily from
customers in South Africa, the United Kingdom, Australia, the Netherlands and
Canada.
PER SHARE COMPUTATION
Earnings per share is based upon the weighted average number of common shares
and dilutive common equivalent shares from stock options outstanding. Common
equivalent shares from stock options outstanding during the year included in the
weighted average number of shares were 161,000, 233,000 and 183,000 for 1997,
1996 and 1995, respectively.
REVENUE RECOGNITION AND RELATED MATTERS
Revenue from contracts for the sale and installation of software where
significant enhancements are required is recognized on the percentage of
completion method based on the labor hours incurred to date to total labor
hours. Changes in job performance, job conditions, estimated profitability and
final contract settlements which may result in revisions to costs and income are
recognized in the period in which the revisions are determined. Amounts received
or billed in excess of revenues recognized to date are classified as "billings
in excess of costs and earnings on uncompleted contracts", whereas, revenues
recognized in excess of amounts billed are classified as "costs and earnings in
excess of billings on uncompleted contracts". The Company recognizes revenue for
timesharing services as incurred and bills the customers on a monthly basis.
Timesharing agreements continue for indefinite terms and are terminable by the
customer at any time. Revenue from separately priced extended software
maintenance arrangements is deferred and recognized in income on a straight line
basis over the contract period.
Concentrations of credit risk with respect to receivables are limited due to the
large number of customers and their dispersion across geographic areas. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral.
The Company provides its services primarily to the life insurance and employee
benefit industries. The Company performs ongoing credit evaluations of its major
customers and maintains reserves for potential credit losses. Historically such
losses have been immaterial.
32
33
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
No single customer accounted for 10% or more of total revenues in the years
ended 1997, 1996 and 1995.
GOODWILL
Goodwill related to the acquisition of System Innovations represents the excess
of the purchase price over fair market value of the net assets acquired and is
being amortized over the expected periods to be benefited, four years on a
straight-line basis. The amortization expense recorded in 1997 was $54,000. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
SOFTWARE DEVELOPMENT COSTS
Software development costs are to be capitalized upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs requires
considerable judgment by management with respect to certain external factors
such as anticipated future revenue, estimated economic life, and changes in
software and hardware technologies. Capitalizable software development costs
relating to new products have not been significant and have been charged to
research and development expense as incurred.
Research and development expenses charged to cost of sales and services were
$6,225,000 in 1997, $5,778,000 in 1996 and $3,794,000 in 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and would impact future results
of operations.
FINANCIAL ACCOUNTING PRONOUNCEMENTS
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.
33
34
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In June 1997, the FASB 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 No.
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.
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.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2, SOFTWARE
REVENUE RECOGNITION, which supersedes SOP 91-1. The Company will be required to
adopt SOP 97-2 for software transactions entered into beginning December 1,
1998, and retroactive application to years prior to adoption is prohibited. SOP
97-2 generally requires revenue earned on software arrangements involving
multiple elements (i.e., software products, upgrades/enhancements, postcontract
customer support, installation, training, etc.) to be allocated to each element
based on the relative fair values of the elements. The fair value of an element
must be based on evidence which is specific to the vendor. The revenue allocated
to software products (including specified upgrades/enhancements) generally is
recognized upon delivery of the products. The revenue allocated to postcontract
customer support generally is recognized ratably over the term of the support
and revenue allocated to service elements (such as training and installation)
generally is recognized as the services are performed. If a vendor does not have
evidence of fair value for all elements in a multiple-element arrangement, all
revenue from the arrangement is deferred until such evidence exists or until all
elements are delivered.
The Company has developed a plan to deal with the Year 2000 problem and began
addressing these issues to ensure that all products sold are Year 2000
compliant. The plan provides for these efforts to be completed by the end of
1999. The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. The total cost
of the plan is not estimated to be significant to the Company's financial
position. The Company is expensing all costs associated with these changes as
the costs are incurred.
34
35
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE 2
PROPERTY AND EQUIPMENT
Property and equipment which is recorded at cost and depreciated or amortized
using the straight-line method, over the estimated useful lives of the assets,
consists of the following (in thousands):
Estimated useful November 30,
Lives in years 1997 1996
--------------------------------------- ---------------------
Computer and communication
equipment 5-7 $4,902 $ 4,048
Furniture and fixtures 7 1,431 1,379
Leasehold improvements 5-10 1,805 865
Vehicles 3 16 56
-------------------------------------------------------------
8,154 6,348
Less accumulated depreciation 4,306 3,629
-------------------------------------------------------------
$3,848 $ 2,719
-------------------------------------------------------------
Maintenance expense on all owned and leased computer equipment was $216,000 in
1997, $223,000 in 1996 and $200,000 in 1995.
NOTE 3
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (in
thousands):
November 30,
1997 1996
----------------------------------------------
Accounts payable $185 $ 133
Accrued liabilities:
Salaries 1,715 1,449
Profit sharing plan 328 250
Deferred revenues 1,181 391
Other 686 677
----------------------------------------------
$4,095 $2,900
----------------------------------------------
NOTE 4
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, marketable securities,
accounts receivable, notes receivable, prepaid expenses, other assets, accounts
payable and accrued liabilities approximate fair value because of the short
maturity of these instruments.
35
36
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE 5
COMMITMENTS
The Company rents its principal office and certain other facilities for
approximately $120,000 per month from a partnership whose general partner is the
principal stockholder of the Company. Additional office space is leased from
three other parties for approximately $40,000 per month. Total rent expense was
$1,414,000 in 1997, $1,265,000 in 1996 and $1,044,000 in 1995. Minimum future
rentals on non-cancelable leases with terms greater than one year are as follows
(in thousands):
Year ending
November 30,
- --------------------------------------
1998 $1,964
1999 $1,959
2000 $541
2001 $527
2002 $495
NOTE 6
PROFIT SHARING PLAN
The Company has a qualified profit sharing plan that conforms with Section
401(k) of the Internal Revenue Code. The plan provides for the Company to match
employee elective contributions in an amount of 50% of such contributions, to a
maximum of 3% of annual employee compensation. Company contributions were
$337,000 in 1997, $325,000 in 1996 and $242,000 in 1995. Employee vesting in
Company contributions increases in increments of 20% per year starting after one
year of service with full vesting of 100% after six years.
36
37
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
NOTE 7
INCOME TAXES
The provision for income taxes is comprised of the following (in thousands):
Year ended November, 30,
1997 1996 1995
-----------------------------------------------------------
Current
U.S. Federal $1,136 $ 996 $ 495
State and Local 233 139 61
Foreign Sales Corp. (FSC) 41 44 ---
-----------------------------------------------------------
$1,410 $1,179 $ 556
-----------------------------------------------------------
Deferred:
U.S. Federal $181 $(138) $(67)
State and Local 13 (5) 73
----------------------------------------------------------
194 (143) 6
----------------------------------------------------------
$1,604 $1,036 $ 562
----------------------------------------------------------
A reconciliation of the Federal income tax statutory rate with the effective tax
rate is as follows:
Year ended November 30,
1997 1996 1995
--------------------------------------------
Federal income tax at statutory rate 34% 34% 34%
Research and development credit (2)% (4)% (10)%
State income tax, net of federal tax benefit 4% 4% 4%
Foreign Sales Corp. benefit (FSC) (1)% (2)% --
--------------------------------------------
35% 32% 28%
--------------------------------------------
The tax effects of temporary differences which give rise to significant portions
of deferred tax assets and deferred tax liabilities at November 30, 1997 and
1996 are as follows (in thousands):
37
38
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1997 1996
---------------------------------
Deferred income tax assets:
Allowance for uncollectible accounts $105 $ 169
Accrual for vacation 178 243
Other 24 65
---------------------------------
$307 $ 477
---------------------------------
Deferred income tax liabilities:
Property and equipment, principally due to
Difference in depreciation $(203) $(176)
Tax credits (465) (332)
Other (3) (139)
----------------- ----------------
$(671) $(647)
----------------- ----------------
Net deferred tax liability $(364) $(170)
----------------- ----------------
Management has determined, based on the Company's history of prior operating
earnings and its expectations for the future, that operating income of the
Company will be sufficient to fully recognize the deferred tax assets therefore
no valuation allowance is necessary.
NOTE 8
COMMON STOCK SPLIT
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. In this report, all prior year per share
amounts and numbers of shares have been restated retroactively to reflect the
stock split.
NOTE 9
STOCK OPTIONS
The 1984 Non-Qualified Stock Option Plan (the "Stock Option Plan") was
established for the benefit of key employees on November 7, 1983. Under the
provisions of the Stock Option Plan, employees have the option of paying for
exercised options with cash or Company common stock. On April 18, 1994, the
Board of Directors, adopted the 1994 Employee Stock Option Plan. The exercise
price of the options granted under the stock option plans approximated the
market price of the Company's common stock on the date of the grant.
At November 30, 1997, under the 1984 Non-Qualified Stock Option Plan, there were
options outstanding for the purchase of 88,000 shares of the Company's stock of
which all were vested and exercisable. Under the 1994 Employee Stock Option
Plan, there were options outstanding for the purchase of 747,000 shares of the
Company's stock of which 688,000 were vested and exercisable. In total, at
November 30, 1997, under the 1984 Non-Qualified Stock Option Plan and the 1994
Employee Stock Option Plan, there were options outstanding for 835,000 shares of
the Company stock of which 776,000 were vested and exercisable.
38
39
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A summary of the transactions in shares under the Stock Option Plans is as
follows (in thousands, except per share data):
1984 Non-Qualified Option Price
Stock Options Per Share
- -------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1994 568 $2.17-$3.08
- -------------------------------------------------------------------------------------------------------------------
Transactions during fiscal 1995:
Granted -- --
Exercised (110) $2.50-$2.83
Forfeited (15) $2.50
- -------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1995 443 $2.17-$3.08
- -------------------------------------------------------------------------------------------------------------------
Transactions during fiscal 1996:
Granted -- --
Exercised (179) $2.17-$2.83
Forfeited -- --
- -------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1996 264 $2.50-$3.08
- -------------------------------------------------------------------------------------------------------------------
Transactions during fiscal 1997
Granted -- --
Exercised (176) $2.50
Forfeited -- --
- -------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1997 88 $2.50-$3.08
1994 Employee Option Price
Stock Options Per Share
- -------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1994 320 $2.83
- -------------------------------------------------------------------------------------------------------------------
Transactions during fiscal 1995:
Granted 94 $3.75
Exercised -- --
Forfeited -- --
- -------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1995 414 $2.83-$3.75
- -------------------------------------------------------------------------------------------------------------------
Transactions during fiscal 1996:
Granted 67 $5.00-$5.25
Exercised (62) $2.83
Forfeited -- --
- -------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1996 419 $2.83-$5.25
- -------------------------------------------------------------------------------------------------------------------
Transactions during fiscal 1997
Granted 411 $7.25-$7.75
Exercised (83) $2.83-$5.00
Forfeited -- --
- -------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1997 747 $2.83-$7.75
39
40
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
On December 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123). As
permitted by SFAS No. 123, the Company has chosen to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for the Plans. Accordingly, no compensation cost has been
recognized for options granted under the Plans. Had compensation cost for the
Plans been determined based on the fair value at the date of grant for awards
under the Plans consistent with the method of SFAS No. 123, the Company's net
earnings and net earnings per share would have been reduced to the pro forma
amounts indicated below.
1997 1996
--------------------------- ------------------------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- ----- -------- -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net earnings $ 2,980 $2,019 $2,225 $2,118
Net earnings per share......... $.50 $.34 $.39 $.37
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes multiple option-pricing model with the following assumptions used
for grants in 1997 and 1996: approximate dividend yield of .5% based upon 10.25
closing stock value at November 30, 1997, expected volatility range of 63%-64%,
risk-free interest rate range of 5.3%-6.5% and expected life of three years.
The following table summarizes information about the Company's stock options at
November 30, 1997:
(in thousands)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ---------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED OUTSTANDING WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
NOVEMBER 30, CONTRACTUAL EXERCISE NOVEMBER 30, EXERCISE
GRANT PRICE 1997 YEARS PRICE 1997 PRICE
- ------------------ -------- ----- ----- -------- -----
$ 2.500 17 0.20-0.22 2.500 17 2.500
$ 2.833 257 1.17-1.38 2.833 257 2.833
$ 3.083 36 0.30 3.083 36 3.083
$ 3.750 54 2.50 3.750 54 3.750
$ 5.000 30 3.04 5.000 30 5.000
$ 5.250 30 3.08 5.250 30 5.250
$ 7.250 20 4.32-4.76 7.250 12 7.250
$ 7.750 391 4.10 7.750 340 7.750
---------------- ------------------
$ 2.50-7.75 835 2.84 5.47 776 5.47
40
41
FDP Corp. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
On December 12, 1996, the Company filed with the Securities and Exchange
Commission an Information Statement pursuant to Section 14(c) of the Securities
Exchange Act of 1934, as amended, relating to an increase to 920,868 in the
number of shares of Common Stock reserved for issuance pursuant to the Company's
1994 Employee Stock Option Plan. Mr. Michael C. Goldberg, the record and
beneficial owner of approximately 55.8% of the outstanding shares of Common
Stock, voted all such shares in favor of the increase in the number of shares of
Common Stock reserved for issuance pursuant to the 1994 Plan, which vote was
sufficient to approve the increase.
On October 10, 1997, the Company filed with the Securities and Exchange
Commission an Information Statement pursuant to Section 14(c) of the Securities
Exchange Act of 1934, as amended, relating to an increase to 1,220,868 in the
number of shares of Common Stock reserved for issuance pursuant to the Company's
1994 Employee Stock Option Plan. Mr. Michael C. Goldberg, the record and
beneficial owner of approximately 53.7% of the outstanding shares of Common
Stock, voted all such shares in favor of the increase in the number of shares of
Common Stock reserved for issuance pursuant to the 1994 Plan, which vote was
sufficient to approve the increase
41
42
PART II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements on any matter of accounting principles or
practice or financial statement disclosure at any time during the preceding 24
months.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item with respect to the Company's directors is
contained in the Registrant's 1998 Proxy Statement which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is contained in the Registrant's 1998 Proxy
Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is contained in the Registrant's 1998 Proxy
Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in the Registrant's 1998 Proxy
Statement, and is incorporated herein by reference.
42
43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The consolidated financial statements of FDP Corp. are included in
Item 8:
Consolidated Balance Sheets as of November 30, 1997 and 1996
Consolidated Statements of Income for the years ended November 30,
1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
November 30, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
November 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts
3. Exhibits.
Sequential
page number or
document
incorporated by
Exhibit Description reference
------- ----------- ---------
3.1 Articles of Incorporation of Exhibit 3.1 of the
the Company, as amended Registration
Statement on
Form S-1
(no. 2-84919)(the
"Registration Statement)
3.2 Bylaws of the Company Exhibit 3.2 of the
Registration
Statement
43
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
10.1 The Company's 1984 Non-Qualified Registrant's 1984
Stock Option Plan. Proxy Statement
10.2 The Company's Profit Sharing Plan Exhibit 10.3 of
the Registration
Statement
10.3 IBM Personal Computer Retail Exhibit 10.6 of
Dealer Agreement, between the the Registration
Company and IBM Statement
10.4 Computer Products Purchase Exhibit 10.8 of
Agreement, dated January 19, 1982 the Registration
between Hewlett-Packard Company Statement
and the Company
10.5 Lease agreement, dated December 1, Exhibit 10.9 of
1986 between the Company and 1987 Form 10-K
Key Investment, Ltd.
10.6 Form of Indemnification Agreement Exhibit 10.11 of
with the Company's Directors and 1989 Form 10-K
certain of its Officers
10.7 Lease agreement, dated December 1, Exhibit 10.13 of
1994 between the Company and 1994 Form 10-K
Key Investment, Ltd.
10.8 1994 Employee Stock Option Plan Exhibit 10.15 of
1995 Form 10-K
10.9 Rider to Lease agreement, dated Exhibit 10.17 of
December 1, 1994 between the 1995 Form 10-K
Company and Key Investment, Ltd.
10.10 Acquisition Agreement dated Exhibit 10.19 of
December 21, 1995 between the 1995 Form 10-K
Company, Existential Systems,
Inc. (d/b/a) as System Innovations,
SI Acquisition Corp. and Michael R. Bain.
44
45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
10.11 Employment agreement dated Exhibit 10.21 of
December 21, 1995 between the 1995 Form 10-K
Company and Existential Systems,
Inc. (D/B/A) as System Innovations
and Michael R. Bain.
10.12 The Company's Profit Sharing Plan Exhibit 10.23 of
Amendment of Existing Plan dated 1995 Form 10-K
August 31, 1995
10.13 Software Development Agreement Exhibit 10.25 of
(ISP Illustration System) dated 1995 Form 10-K
December 21, 1995
21.2 The Company's Subsidiaries (filed herewith)
23.1 Consent of KPMG Peat Marwick LLP (filed herewith)
(b) No current reports on Form 8-K were filed by the Company during the
fourth quarter of the fiscal year ended November 30, 1997.
45
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: February 26, 1998 FDP CORP.
By: /s/ Michael C. Goldberg
---------------------------
MICHAEL C. GOLDBERG
Chairman of Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
registrant and in the capacities and on the dates indicated:
February 26, 1998 /s/ Michael C. Goldberg
------------------------
MICHAEL C. GOLDBERG
Chairman of Board of Directors,
Chief Executive Officer and President
February 26, 1998 /s/ Mark S. Silverman
---------------------
MARK S. SILVERMAN
Senior Vice President, Chief Financial Officer
Principal Accounting Officer
February 26, 1998 /s/ Cesar L. Alvarez
--------------------
CESAR L. ALVAREZ
Director
February 26, 1998 /s/ Cindy L. Goldberg
---------------------
CINDY L. GOLDBERG
Director
February 26, 1998 /s/ Albert J. Schiff
--------------------
ALBERT J. SCHIFF
Director
February 26, 1998 /s/ Bruce I. Nierenberg
-----------------------
BRUCE I. NIERENBERG
Director
46
47
ITEM 14(a)2 FINANCIAL STATEMENT SCHEDULE
FDP CORP. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended November 30, 1997
A B C D E
Allowance for Balance at Charged to Balance at
Uncollectible Beginning of Costs and End of
Accounts Period Expenses Deductions Period
November 30, 1997: $444 $0 $60 $384
November 30, 1996: $317 $150 $23 $444
November 30, 1995: $284 $80 $47 $317
47