1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
UNITED STATES
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended August 31, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-11770
FDP CORP.
(Exact name of registrant as specified in its charter)
Florida 59-2138243
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2140 South Dixie Highway, Miami, Florida 33133
(Address of principal executive offices) (Zip Code)
(305) 858-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value per share,
5,986,462 shares outstanding as of September 30, 1998.
2
FDP CORP.
TABLE OF CONTENTS
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
August 31, 1998 and November 30, 1997 3
Consolidated Statements of Earnings
Three and Nine Months Ended August 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
Nine Months Ended August 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II. OTHER INFORMATION
Item 1. Legal 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FDP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS) August 31, November 30,
1998 1997
(Unaudited)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,620 $ 4,109
Marketable securities 4,605 4,825
Accounts receivable, less allowance for uncollectible
accounts of $484 in 1998 and $384 in 1997 8,225 6,967
Notes receivable - current 670 671
Prepaid expenses 293 145
Deferred income taxes 226 246
Costs and earnings in excess of billings on uncompleted contracts 1,450 774
Other 362 69
------- -------
Total current assets 20,451 17,806
Property and equipment at cost, less accumulated depreciation
of $4,545 in 1998 and $4,306 in 1997 5,509 3,848
Other assets:
Marketable securities 11,093 10,897
Notes receivable - non-current 91 109
Goodwill, net 35 137
Other 418 291
------- -------
Total assets $37,597 $33,088
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,070 $ 4,095
Income taxes payable 1,037 399
Billings in excess of costs and earnings on uncompleted contracts 397 513
------- -------
Total current liabilities 5,504 5,007
Deferred income taxes 635 610
------- -------
Total liabilities 6,139 5,617
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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 5,986 in 1998 and 5,777 in 1997 60 58
Paid-in capital 11,994 10,500
Retained earnings 19,404 16,913
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Total stockholders' equity 31,458 27,471
======= =======
Total liabilities and stockholders' equity $37,597 $33,088
======= =======
See accompanying notes to consolidated financial statements.
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FDP CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(AMOUNTS IN THOUSANDS) Three Months Ended Nine Months Ended
August 31, August 31,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
Revenues:
Software $ 9,756 $ 7,776 $ 27,629 $ 21,749
Information services 511 510 1,502 1,691
-------- -------- -------- --------
Total Revenue 10,267 8,286 29,131 23,440
-------- -------- -------- --------
Cost of sales and services:
Product development, maintenance
and enhancements:
Software 7,071 5,779 20,756 16,562
Information services 245 258 747 852
Telecommunications 69 96 209 325
Selling, general and administrative expenses 1,542 1,262 4,106 3,542
-------- -------- -------- --------
Total cost of sales and services 8,927 7,395 25,818 21,281
-------- -------- -------- --------
Operating profit 1,340 891 3,313 2,159
Interest income 307 319 890 930
Foreign currency (loss) gain and other (4) 2 (22) 22
-------- -------- -------- --------
Earnings before income taxes 1,643 1,212 4,181 3,111
Provision for income taxes 575 424 1,465 1,089
-------- -------- -------- --------
Net earnings $ 1,068 $ 788 $ 2,716 $ 2,022
======== ======== ======== ========
BASIC EPS COMPUTATION
Numerator 1,068 788 2,716 2,022
Denominator:
Weighted average shares 5,978 5,558 5,920 5,588
Basic EPS $ .18 $ .14 $ .46 $ .36
======== ======== ======== ========
DILUTED EPS COMPUTATION
Numerator 1,068 788 2,716 2,022
Denominator:
Weighted average shares 5,978 5,558 5,920 5,588
Incremental shares from assumed
Conversions of stock options 296 419 302 331
-------- -------- -------- --------
6,274 5,977 6,222 5,919
Diluted EPS $ .17 $ .13 $ .44 $ .34
======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements.
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FDP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
August 31,
---------------------
1998 1997
------- -------
Cash flows from operating activities:
Net earnings $ 2,716 $ 2,022
------- -------
Adjustments to reconcile net earnings to net
cash (used in) provided by operating activities:
Depreciation and amortization of property,
equipment and intangibles 1,070 722
Increase in deferred income taxes 45 25
Changes in assets and liabilities:
Increase in accounts receivable, net (1,258) (941)
Increase in prepaid expenses (148) (102)
(Increase) decrease in costs and earnings in excess
of billings on uncompleted contracts (676) 193
Increase in other current assets (293) (267)
(Decrease) increase in accounts payable
and accrued expenses (25) 1,320
Decrease in billings in excess of costs
and earnings on uncompleted contracts (116) (1,560)
Increase in income taxes payable 638 96
Increase in other assets (127) (176)
------- -------
Net adjustments (890) (690)
------- -------
Net cash provided by operating activities 1,826 1,332
------- -------
Cash flows from investing activities:
Proceeds from sale of marketable investment securities 2,524 2,876
Purchase of marketable securities (2,500) (6,040)
Proceeds from sale of equipment 22 2
Proceeds from note receivable 578 585
Acquisition of note receivable (559) (489)
Equipment acquired and leasehold improvements (2,655) (1,027)
------- -------
Net cash used in investing activities (2,590) (4,093)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 989 589
Stock option income tax benefit 506 370
Dividend payment (220) (211)
------- -------
Net cash provided by financing activities 1,275 748
------- -------
Net decrease in cash and cash equivalents 511 (2,013)
Cash and cash equivalents at beginning of year 4,109 6,300
------- -------
Cash and cash equivalents at end of period $ 4,620 $ 4,287
======= =======
See accompanying notes to consolidated financial statements
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FDP CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August 31, 1998
(Unaudited)
Note A
- ------
In the opinion of management of FDP Corp. (the "Company"), the accompanying
unaudited consolidated condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q and therefore contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position, the results of operations and the
statement of cash flows in conformity with generally accepted accounting
principles.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these consolidated
condensed financial statements be read in conjunction with the consolidated
financial statements and the notes included in the Company's latest annual
report on Form 10K.
The results of operations for the nine months ended August 31, 1998, are not
necessarily indicative of the results for the full year.
Note B
- ------
The Board of Directors approved a quarterly cash dividend of $0.125 per share,
payable September 14, 1998, to shareholders of record August 28, 1998.
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Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results Of Operations
---------------------
Revenues reflect the Company's ability to develop new computer software
products, or enhance existing ones, then successfully market its software and
related services. Several factors influence the Company's results of operations
including advances in computer technology and changes in governmental
regulations. The Company's business is not seasonal even though quarterly
revenues and net earnings may vary. The variation is primarily due to uncertain
timing of customers' decisions, over which the Company has little control,
regarding the purchase of software systems and computer hardware.
FINANCIAL RESULTS
For the quarter ended August 31, 1998, revenues increased 24% to $10,267,000 as
compared to $8,286,000 for the same period last year. Operating profit for the
third quarter was up 50% to $1,340,000 as compared to $891,000 for the prior
year. Net earnings for the third quarter increased 36% to $1,068,000 or $.17 per
diluted share ($.18 per share basic) versus $788,000 or $.13 per diluted share
($.14 per basic share) a year ago.
For the nine month period ending August 31, 1998, revenues increased 24% to
$29,131,000 as compared to $23,440,000 for the same period last year. Operating
profit for the nine month period was up 53% to $3,313,000 as compared to
$2,159,000 for the same period last year. Net earnings for the nine month period
increased by 34% to $2,716,000 or $.44 per diluted share ($.46 per share basic)
versus $2,022,000 or $.34 per diluted share ($.36 per basic share) for the same
period last year.
The Company reports its revenues by two categories, Software and Information
Services.
- ---------------------------------------------------------------------------------------------------------------------------
SOFTWARE Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
1998 1997 1998 1997
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
PENSION PARTNER $ 1,105 $ 958 $ 3,553 $ 3,008
- ---------------------------------------------------------------------------------------------------------------------------
AGENCY PARTNER 2,108 1,503 5,810 5,018
- ---------------------------------------------------------------------------------------------------------------------------
SYSTEM INNOVATIONS 1,111 896 2,926 2,549
- ---------------------------------------------------------------------------------------------------------------------------
HOME OFFICE SYSTEMS 5,432 4,419 15,340 11,174
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SOFTWARE 9,756 7,776 27,629 21,749
- ---------------------------------------------------------------------------------------------------------------------------
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SOFTWARE REVENUE:
Total software related revenue which includes software licenses, maintenance,
service revenue (time and materials) and other for the quarter and nine months
ended August 31, 1998 increased by 25% and 27%, respectively, as compared to
last year. The increase in revenues for the quarter and nine month periods were
principally driven by higher revenues in Home Office Systems.
Revenues for HOME OFFICE SYSTEMS, which includes FDP/COMPASS and FDP/CLAS, for
the quarter and nine months ended August 31, 1998 were up 23% and 37%,
respectively. Driving the overall increase were revenues related to FDP/COMPASS,
the Company's group pension administration system. Revenues for FDP/COMPASS for
the quarter and the nine month periods rose 39% and 47%, respectively. The
increase in revenues was primarily due to ongoing implementations of the system
worldwide. Revenues for FDP/CLAS, the Company's life insurance administration
system, decreased 4% for the quarter while rising 20% for the nine month period.
Revenues in AGENCY PARTNER, which includes the products Contact Partner(TM),
FDP/XL and FINPACK, for the quarter and nine month periods ended August 31,
1998, were up 40% and 16%, respectively. The increase in revenues for the
quarter was the result of new contracts executed for FDP/XL and Contact Partner.
PENSION PARTNER revenues for quarter and nine month period were up 15% and 18%,
respectively. The revenue increase for both periods was due to sales of the
FDP/PEN for WindowsTM system, the Company's qualified plan proposal and
administration software.
Revenues for System Innovations, the Company's wholly owned subsidiary, for the
quarter and nine months ended August 31, 1998 were up 24% and 15%, respectively.
- ---------------------------------------------------------------------------------------------------------------------------------
INFORMATION SERVICES Three Months Ended Nine Months Ended
August 31, August 31, August 31, August 31,
1998 1997 1998 1997
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
PENSION PARTNER $ 99 $ 102 $ 321 $ 393
- ---------------------------------------------------------------------------------------------------------------------------------
AGENCY PARTNER 25 34 84 104
- ---------------------------------------------------------------------------------------------------------------------------------
FDP/CLAS 387 374 1,097 1,194
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INFORMATION SERVICES
$ 511 $ 510 $ 1,502 $ 1,691
- ---------------------------------------------------------------------------------------------------------------------------------
INFORMATION SERVICES REVENUE:
Total information services revenue for the quarter ended August 31, 1998 as
compared to last year was basically unchanged. For the nine months ended August
31, 1998, revenues decreased by 11% as compared
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to the prior year. Information service revenue in the Pension Partner and Agency
Partner divisions has been on a downward trend as customers that access the
various software programs on a time-sharing basis are purchasing the products
for use on personal computers. Information service revenue for FDP/CLAS for the
quarter was up slightly but down 9% for the nine month period ending August 31,
1998. Information service revenue as a percentage of total revenues continues to
decline as software revenues have increased.
COSTS AND EXPENSES:
The Company's total cost of sales and services for the quarter and nine months
ending August 31, 1998 were $8,927,000 and $25,818,000 as compared to $7,395,000
and $21,281,000 for the same periods last year, representing increases of 21%
for both periods. The increase for both periods was primarily related to higher
personnel related costs for the Company mainly concentrated in the FDP/COMPASS
division.
For the quarter and nine months ended August 31, 1998, costs related to product
development, maintenance and enhancements for software have increased whereas
costs for information services have decreased. This change reflects the
continuing trend of the shifting of the Company resources away from information
services, a decreasing revenue base, to software product development, a growing
revenue base.
Selling, general and administrative expenses for the quarter and nine month
periods ended August 31, 1998 were $1,542,000 and $4,106,000 as compared to
$1,262,000 and $3,542,000 for the same periods last year, respectively,
representing increases of 22% and 16%. The increase for the quarter ended August
31, 1998 related to an increase in the allowance for uncollectible accounts and
higher selling related expenses.
INTEREST INCOME:
Interest earned primarily on the Company's portfolio of U.S. Treasury Bills and
Notes for the quarter ended August 31, 1998 was $307,000 as compared to $319,000
for the same period last year The average interest earning rate for the third
quarter of 1998 was 6.00% as compared to 6.23% for the same period last year.
(See Financial Condition).
PROVISION FOR INCOME TAXES:
The Company's effective income tax rate was 35% for the quarters ended August
31, 1998 and 1997. The Company's effective tax rate has benefited from the use
of foreign sale corporations credits (FSC).
FINANCIAL CONDITION
The Company continues to maintain a highly liquid and virtually debt free
balance sheet. As of August 31, 1998 and November 30, 1997 cash and marketable
securities were $20,318,000 and $19,831,000, representing 54% and 60% of total
assets for the respective periods. The increase in cash flow from operating
activities for August 31, 1998 as compared to the same period last year was
mainly the result of higher net earnings and depreciation offset by an increase
in accounts receivable. The decrease in cash flows from investing activities for
the nine months ended August 31, 1998 was related to leasehold improvements and
furniture purchases on additional office space. Cash flows from financing
activities increased as a result of stock options that were exercised.
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Other than planned purchases of equipment, no other significant capital
expenditures are anticipated for the remainder of fiscal 1998. Management of the
Company continues to believe that existing working capital and funds generated
by operations will be sufficient to meet the Company's anticipated capital needs
in connection with its present and proposed activities.
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, post contract
customer support, installation, training, etc.) to be allocated to each element
based on the relative fair values of the elements. The revenue allocated to
software products (including specified upgrades/enhancements) generally is
recognized upon delivery of the products. The revenue allocated to post contract
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 does not believe that adoption of (SOP) 97-2
will have a significant impact on its financial reporting.
YEAR 2000 COMPLIANT ISSUE
Many companies that use and/or develop computer software are addressing the
potential problem that may exist if their software is not "year 2000 compliant."
The potential problem that exists with some computer software is that it will
not process transactions properly for dates commencing in the year 2000. This is
due to the fact that many software programs were designed to make date
calculations based on the last two digits of the year. As a result, dates in the
year 2000 may be identified as dates in the year 1900, which may cause incorrect
calculations, cause the transaction to not be processed or, in some cases, cause
an entire computer system to malfunction.
The Company has been aware of this problem and has been addressing it, both for
its software that is being developed for sale to users and for applications
affecting internal operations that potentially may not be year 2000 compliant.
On software developed for sale to users, the Company believes that its complete
suite of current Windows-based products is already year 2000 compliant, and
modifications to its older DOS-based products and legacy systems are currently
in progress to make them year 2000 compliant. These modifications are currently
being tested by the Company's quality assurance staff and by the Company's
clients. Because the Company has been aware of the year 2000 issue for a number
of years, it has been developing and testing software with year 2000 compliance
in mind and has not budgeted separately to address it.
The Company is currently in various stages of assessing all of its internal
technical applications to ascertain whether they are year 2000 compliant. The
Company is conducting an internal assessment of its internal information and
telecommunication systems and believes that based upon preliminary findings
believes that these systems are already, or in the process of being altered to
become, year 2000 compliant. Components of those systems which are in the
process of becoming year 2000 compliant are expected to be completed and tested
for compliance by the end of the second quarter of 1999.The assessment and
estimation of completion dates for having those systems year 2000 compliant were
conducted by the Company's information technology and telecommunication staff
based on their expertise in those areas and discussions with representatives of
vendors who support those systems. The Company is also in the initial stages of
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assessing its non-technical applications to identify areas that are not year
2000 compliant. This assessment is expected to be completed by the end of 1998.
Although the Company cannot determine at this time the extent of the problem
that may exist in these non-technical areas for not being year 2000 compliant,
the Company does not expect this area to pose any significant problems. The
Company believes that the cost of bringing its non-technical applications into
year 2000 compliance will be immaterial.
Additionally, the Company is in the initial stages of assessing its relationship
with major third parties whose inability to be year 2000 compliant in a timely
manner could have an adverse effect on the Company's operations. These third
parties are primarily vendors (banks, telephone companies, freight companies and
other suppliers for the Company's software products) whose inability to be year
2000 compliant could delay or cancel customer orders for the Company's products
and services, delay receipt of payments by customers for products shipped and
services rendered, and disrupt other aspects of the Company's operations. Any
one of these potential events could adversely affect the Company's financial
condition and results of operations.
The Company anticipates making formal inquiries with these major third parties
with respect to their year 2000 compliance programs and, more importantly, those
specific parts of their program that directly affect the Company's operations.
The Company plans to identify and categorize its third parties so that those
parties who are identified as being critical to the Company's operations receive
higher priority and more attention than those third parties who are deemed to be
not as critical to the Company's operations. The Company expects to solicit
information for these third parties and monitor the progress of their year
2000compliant programs.
The Company has not developed a contingency plan in the event the Company or any
of its third parties fail to become year 2000 compliant in a timely manner and
does not have any timetable to develop such a plan. Such a plan may be developed
after the Company has completed its assessment of its third party vendors' and
service providers' year 2000 programs and the testing of its own year
2000program. The Company believes that a reasonable worst-case scenario for not
being year 2000 compliant would be that the Company's software products sold to
users does not address all aspects or conditions related to the year 2000
compliant issue and that the Company's vendors are not able to supply components
related to its software products. If such a scenario occurs, the Company will
have to redirect some of its product development staff to work on the software
to make it year 2000 compliant for events it did not originally consider in the
development of the software. The Company's users may also seek to hold the
Company liable for damages if the software does not function properly.
Additionally, there could be delays in delivering software to customers as the
Company finds new suppliers or methods of delivery.
Based on the assessment the Company has made to date on the year 2000compliant
issue, the Company does not believe that it will have an adverse effect on the
Company's financial condition and results of operations. The Company will
continue to update its assessment of its year 2000 readiness as it receives
updated information from its year 2000 program.
FORWARD LOOKING STATEMENTS
This quarterly report contains certain "forward-looking statements" 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 the 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 forward looking
statements, including, without limitation, the decline in demand for the
Company's
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software products, the effect of general economic conditions and factors
affecting the life insurance, employee benefits and financial services
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.
PART II. OTHER INFORMATION
Item 1. Legal
The Company is from time to time involved in routine litigation arising in the
ordinary course of business. No litigation in which the Company is presently
involved is material to its financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits -
Exhibit 27 Financial Data Schedule (for SEC use only.)
b) Reports on Form 8-K - There were no reports on Form 8-K
filed for the three months ended August 31, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 10/14/98 FDP CORP.
- --------------- ---------
By: /s/ Michael C. Goldberg
-------------------------------------
Michael C. Goldberg
Chairman of Board of Directors
Chief Executive Officer and President
(principal executive and financial
officer)
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