NATIONAL DATA CORPORATION
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Data)
Quarter ended Six Months Ended
November 30, November 30,
1993 1992 1993 1992
---- ---- ---- ----
Revenue $50,321 $49,966 $100,534 $101,558
Operating Expenses:
Cost of service 29,215 30,373 58,675 61,479
Sales, general and administration 16,592 16,654 33,398 34,884
------- ------- ------- -------
45,807 47,027 92,073 96,363
Operating Income 4,514 2,939 8,461 5,195
Other Income (Expense):
Investment and other income 142 822 295 1,363
Interest expense (397) (774) (862) (1,600)
------- ------- ------- -------
(255) 48 (567) (237)
Income Before Income
Taxes & Extraordinary Item 4,259 2,987 7,894 4,958
Provision for Income Taxes 1,681 1,255 3,208 2,083
------- ------- ------- -------
Income before extraordinary item $2,578 $1,732 $4,686 $2,875
Extraordinary Item
Settlement of shareholder's suit (net of
tax effect of $1,050) See Note 3 - - (1,450) -
------- ------- ------- -------
Net Income $2,578 $1,732 $3,236 $2,875
======= ======= ======= =======
Earnings per common share and
common equivalent share (note 5) :
Income before extraordinary item $0.20 $0.14 $0.37 $0.24
Extraordinary item - - 0.12 -
------- ------- ------- -------
Net Income $0.20 $0.14 $0.25 $0.24
======= ======= ======= =======
Earnings per common share
assuming full dilution (note 5) :
Income before extraordinary item $0.20 $0.14 $0.37 $0.24
Extraordinary item - - 0.12 -
------- ------- ------- -------
Net Income $0.20 $0.14 $0.25 $0.24
======= ======= ======= =======
See Notes to Unaudited Condensed Consolidated Financial Statements
==============================================================================
NATIONAL DATA CORPORATION P. 1 of 2
Condensed Consolidated Balance Sheets
(In Thousands)
NOVEMBER 30, MAY 31,
1993 1993
ASSETS ------------ -----------
Current assets:
Cash and cash equivalents $27,724 $17,150
Short-term investments 625 625
Accounts receivable:
Trade receivables (less allowances of
$1,133, and $1,044) 34,286 36,168
Other receivables (less allowances of
$919, and $681) 18,329 17,418
Investment in sales-type leases,
current portion, (less allowances
of $601 and $968) 5,360 6,292
Inventory 3,760 2,663
Deferred income taxes 792 -
Prepaid expenses and other current assets 4,792 5,824
------- -------
Total current assets 95,668 86,140
Investment in sales-type leases (less
allowances of $252 and $510) 2,377 3,377
Property and equipment, at cost:
Land 402 402
Building 6,503 6,503
Equipment 72,307 76,067
Software 22,942 22,338
Leasehold Improvements 13,885 13,867
Furniture and fixtures 8,962 8,856
Work in progress 2,416 924
------- -------
127,417 128,957
Less-Accumulated depreciation
and amortization (100,666) (100,930)
------- -------
26,751 28,027
Property acquired under capital leases,
net of accumulated amortization 4,803 3,918
------- -------
31,554 31,945
Deposits 2,029 2,019
Other assets:
Acquired intangibles and goodwill,
net of accumulated amortization
of $27,937 and $24,901 44,203 46,299
Other 5,156 5,568
------- -------
49,359 51,867
Total Assets $180,987 $175,348
========== ==========
See Notes to Unaudited Condensed Consolidated Financial Statements
NATIONAL DATA CORPORATION P. 2 of 2
Condensed Consolidated Balance Sheets
(In Thousands)
NOVEMBER 30, MAY 31,
1993 1993
LIABILITIES AND STOCKHOLDERS' EQUITY ------------ -----------
Current liabilities:
Accounts payable $5,879 $8,466
Earnout payable on acquired
businesses, current portion 2,921 3,032
Accrued compensation and benefits 3,456 4,792
Merchant processing payables 17,198 11,176
Other accrued liabilities 16,478 15,761
Income tax payable 2,331 3,363
Obligation under capital leases,
current portion 1,253 1,033
Mortgage payable, current portion 142 135
------- -------
Total current liabilities 49,658 47,758
Mortgage payable 11,189 11,261
Earnout payable on acquired businesses 2,195 3,011
Other long-term liabilities 2,243 2,556
Obligation under capital leases 3,567 2,860
Deferred income taxes 7,890 6,641
------- -------
Total Liabilities 76,742 74,087
Stockholders' Equity:
Preferred stock, par value $1.00 per share,
1,000,000 shares authorized; none issue - -
Common stock, par value $.125 per share,
30,000,000 shares authorized; 12,517,001
and 12,226,732 shares issued 1,565 1,528
Capital in excess of par value 29,212 26,249
Retained earnings 75,160 74,658
Cumulative translation adjustment (500) (393)
------- -------
105,437 102,042
Less:
Deferred compensation (1,192) (781)
------- -------
Total Stockholders' Equity 104,245 101,261
Total Liabilities and Stockholders' Equity $180,987 $175,348
========== ==========
See Notes to Unaudited Condensed Consolidated Financial Statements
==============================================================================
NATIONAL DATA CORPORATION
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Six Months
Ended November 30,
1993 1992
Cash flows from operating activities: ----- -----
Net income $3,236 $2,875
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,694 7,314
Amortization of acquired intangibles and goodwill 3,036 3,171
Provision for bad debt, sales allowances
and operational losses 2,086 2,342
Changes in assets and liabilities, net
of the effects of acquisitions:
Decrease in trade accounts receivable 605 3,574
Increase in other accounts receivable (1,795) (357)
Increase in investment in sales-type
leases (3,499) (1,239)
(Increase) decrease in inventory (1,097) 252
Decrease in prepaid expenses and other
assets 423 1,228
Increase (decrease) in accounts payable
and accrued liabilities 4,935 (4,561)
Increase (decrease) in income taxes payable 193 (83)
-------- --------
Net cash provided by operating activities 13,817 14,516
Cash flows from investing activities:
Capital expenditures (5,379) (1,808)
Sale of sales-type leases 5,481 16,648
Business acquisitions (400) -
-------- --------
Net cash provided by (used in) investing activities (298) 14,840
Cash flows from financing activities:
Payments under lines of credit - (4,500)
Payment on note payable - (20,000)
Principal payments under mortgage, capital lease
arrangements and other long-term debt (918) (1,285)
Principal payments on earnout payable (1,499) (1,596)
Dividends paid (2,733) (2,652)
Net proceeds from the issuance of stock
under employee stock plan 2,230 518
-------- --------
Net cash used in financing activities (2,920) (29,515)
Effect of exchange rate changes on cash (25) -
Increase (decrease) in cash & cash equivalents 10,574 (159)
Cash, beginning of period 17,150 2,243
-------- --------
Cash, end of period $27,724 $2,084
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements
==============================================================================
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The financial statements included herein have been
prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with Generally Accepted Accounting Principles
have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures
are adequate to make the information presented not
misleading. In addition, certain reclassifications have
been made to the fiscal 1993 consolidated financial
statements to conform to the fiscal 1994 presentation.
It is suggested that these financial statements be read in
conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on
Form 10-K for the fiscal year ended May 31, 1993.
In the opinion of management, the information furnished
reflects all adjustments necessary to present fairly the
results for such interim periods.
NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash flow disclosures for the six months
ended November 30, 1993 and 1992 are as follows (in
thousands):
Six Months
Ended November 30,
1993 1992
Income taxes paid $ 2,720 $ 4,202
Interest paid $ 1,064 $ 1,882
NOTE 3 - SHAREHOLDER SUIT:
The Company and certain of its previous officers were party to
three lawsuits, which were consolidated as National Data
Corporation Shareholder Litigation. The Plantiffs, purporting to
act on behalf of a class, alleged violations of Rule 10(b)(5) under
the Securities Exchange Act of 1934 under a "fraud on the market"
theory for alleged misrepresentations and omissions relating to
expected earnings which resulted in, the plantiffs contend, the
Company's common stock being overvalued in the market. The Company
and the plantiffs signed an agreement on September 27, 1993 to
settle this matter for $6,950,000. The Company's insurer bore two-
thirds of the settlement and related future costs. The cost to the
Company, net of income taxes and insurance proceeds is
approximately $1,450,000. Both the Company and its insurer paid
their full share of the settlement amount on December 1, 1993, and
the settlement received final approval from the court on December
16, 1993.
NOTE 4 - INCOME TAXES:
Effective June 1, 1993, the Company adopted the provisions of
Financial Accounting Standard Number 109, "Accounting for Income
Taxes" (FAS 109). FAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of
certain 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 differences between the
financial and tax bases using enacted tax rates in effect for the
year in which the differences are expected to reverse. There was
no effect on the Company's net income related to the adoption of
FAS 109 in the six month period ended November 30, 1993. Prior
years' financial statements have not been restated to reflect the
provisions of FAS 109.
The components of the net deferred tax liability as of June 1, 1993
were as follows (in thousands):
Deferred tax assets:
Accrued liabilities $ 919
Restructuring costs 635
--------
$ 1,554
--------
Valuation allowance -
--------
$ 1,554
Deferred tax liabilities:
Property and equipment $ 6,033
Acquired intangibles 2,492
Other 127
--------
$ 8,652
--------
Deferred tax liability, net $ 7,098
========
NOTE 5 - EARNINGS PER SHARE:
Earnings per common share and common equivalent share (Primary
EPS) are computed by dividing net income by the weighted average
number of common shares and common stock equivalent shares
outstanding during the period. Common stock equivalent shares
represent stock options that if exercised would have a dilutive
effect on earnings per share. All options with an exercise price
less than the average market share price for the period are assumed
to have a dilutive effect on earnings per share.
Earnings per share assuming full dilution (Fully Diluted EPS) are
computed by the same method as described for Primary EPS except
that the higher of, 1) the ending market share price or 2) the
average market share price, is used to compute the fully diluted
EPS as compared to the average market share price for Primary EPS.
The weighted average number of common shares, as adjusted for
Primary EPS and Fully Diluted EPS, is as follows:
Quarter Ended Six Months Ended
November 30, November 30,
------------------- ------------------
1993 1992 1993 1992
---- ---- ---- ----
In Thousands In Thousands
Primary EPS 12,963 12,187 12,924 12,165
Fully Diluted EPS 12,963 12,225 12,924 12,203
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The second quarter of fiscal year 1994 ended November 30,
1993 compared to the same quarter last year is reflected as
follows ($Millions):
%
FY 1994 FY 1993 Inc. (Dec.)
$ % $ % of Dollars
Revenue: ------ --- ------ --- --------
Healthcare 15.5 31 13.2 26 17
Retail 27.7 55 27.6 55 -
Other 7.1 14 9.2 19 (23)
------ --- ------ --- --------
Total Revenue 50.3 100 50.0 100 1
------ --- ------ --- --------
Cost of Service:
Operations 23.1 46 24.1 48 ( 4)
Deprec/Amort 3.5 7 4.1 8 (15)
Hardware Sales 2.6 5 2.2 5 18
------ --- ------ --- --------
Total Cost of Service 29.2 58 30.4 61 ( 4)
------ --- ------ --- --------
Gross Margin 21.1 42 19.6 39 8
------ --- ------ --- --------
Sales,General & Admin 16.6 33 16.7 33 ( 1)
Operating Margin 4.5 9 2.9 6 55
====== === ====== === ========
Revenue
Total revenue for the second quarter was $50,321,000, an
increase of $355,000 (1%) from revenue of $49,966,000 for the
same period of the prior year. The trends, as detailed in
the Company's Form 10-K for the fiscal year ended May 31,
1993, continued in the three-month period ending November 30,
1993. The revenue increase in the period was principally the
result of two offsetting factors. Revenue for the Healthcare
business increased $2,301,000 (17%) to $15,484,000. The
increase in Healthcare revenue was offset by a decrease in
"Other" revenue of $2,083,000.
Healthcare revenue growth was principally related to
increases in Electronic Claims Processing. Electronic Claims
revenue increased $2,527,000 (60%) in the period compared to
the prior year. Revenue with the Company's governmental and
institutional customers decreased 15%. The Company's
Pharmacy/Dental practice management systems showed a revenue
increase of 3%.
Retail revenue for the quarter showed modest growth over the
prior year. Direct (merchant processing) revenue increased
5% in the current period compared to the same period last
year. This increase is principally related to an increase in
processed sales volume. Revenue in the Company's Indirect
(distribution through banks) side of the business decreased
5% primarily related to a decrease in the revenue per
transaction.
The decrease in "Other" revenue is principally related to the
Company's decision to exit certain segments of the
Communication Services business in 1991. The Company expects
this negative trend to continue through the balance of 1994
as the residual contracts with this customer base expire.
Cost of Service
Total Cost of Service for the second quarter was $29,215,000,
a decrease of $1,158,000 (4%) from the same period of the
prior year. This decrease was primarily the result of a
reduction in cost of operations of $986,000 (4%) and
a decrease in depreciation expense of $777,000 (18%). The
depreciation decrease is principally a result of computer
systems becoming fully depreciated in the fourth quarter of
last fiscal year. The Company is in the process of replacing
certain of its computer systems and adding enhanced
peripheral equipment. In addition to significant processing
performance enhancements to absorb anticipated growth in
transaction volumes, the new systems carry lower maintenance
costs and power consumption demands.
Gross margin increased to 42% in the second quarter, up from
39% in the same period of the prior year.
Sales, General and Administration
Sales, General and Administration expense was $16,592,000 for
the second quarter, essentially flat compared with the prior
year. This reflects expansion in the size and scope of the
Company's sales distribution capability. The increase in the
sales force was offset by the effect of productivity
improvement programs initiated in the second quarter of last
year. These programs concentrated on elimination of
redundant and non-essential activities. After netting these
two factors Sales, General and Administration expense, as a
percentage of revenue, was 33% for both three-month periods
ending November 30, 1993 and 1992.
Investment and Other Income
Investment and Other Income for the second quarter was
$142,000, a decrease of $680,000 (83%) from the same period
of the prior year. This decrease was the result of a
decrease in interest income. The lower interest income was
the result of the Company selling a substantial portion of
its lease portfolio in the second half of the last fiscal
year.
Interest Expense
Interest Expense for the second quarter was $397,000, a
decrease of $377,000 (49%) from the same period of the prior
year. This decrease was primarily attributable to an absence
of borrowings on the Company's lines of credit and a decrease
in imputed interest expense associated with merchant bank
portfolios acquired in prior years where certain payments
were contingent on future revenues.
Income Taxes
The provision for income taxes, as a percentage of taxable
income, was 39% and 42% for the three months ending November
30, 1993 and 1992 respectively.
Net Income
Net income was $2,578,000, an increase of $846,000 (49%) from
the same period last year. Earnings per share, both primary
and fully diluted, for the second quarter was $0.20, an
increase of $0.06 (43%) over the same period last year. See
Note 5 to the Unaudited Condensed Consolidated Financial
Statements for further discussion of outstanding shares.
==============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The first six months of fiscal year 1994 ended November 30,
1993 compared to the same period last year is reflected as
follows ($Millions):
%
FY 1994 FY 1993 Inc. (Dec.)
$ % $ % of Dollars
Revenue: ------ --- ------ --- --------
Healthcare 29.6 29 26.2 26 13
Retail 56.2 56 56.8 56 ( 1)
Other 14.7 15 18.5 18 (21)
------ --- ------ --- --------
Total Revenue 100.5 100 101.6 100 ( 1)
------ --- ------ --- --------
Cost of Service:
Operations 46.6 46 48.7 48 ( 4)
Deprec/Amort 7.0 7 8.3 8 (15)
Hardware Sales 5.0 5 4.5 5 16
------ --- ------ --- --------
Total Cost of Service 58.6 58 61.5 61 ( 5)
Gross Margin ------ --- ------ --- --------
41.9 42 40.1 39 4
Sales General & Admin 33.4 33 34.9 34 ( 4)
------ --- ------ --- --------
Operating Margin 8.5 9 5.2 5 63
====== === ====== === ========
Revenue
Total revenue for the first six months was $100,534,000, a
decrease of $1,024,000 (1%) from revenue of $101,558,000 for
the same period of the prior year. The trends, as detailed
in the Company's Form 10-K for the fiscal year ended May 31,
1993, continued in the six-month period ending November 30,
1993. The reduction in revenue was the result of offsetting
factors. Revenue for the Company's Healthcare business
increased $3,415,000 (13%) to $29,601,000. The increased
revenue in Healthcare was offset by a decrease in "Other"
revenue of $3,792,000 and a decrease of $647,000 in the
Retail business.
Healthcare revenue growth was principally related to
increases in Electronic Claims Processing. Electronic Claims
revenue increased $4,510,000 (55%) in the period compared to
the prior year. Revenue with the Company's governmental and
institutional customers decreased 16%. The Company's
Pharmacy/Dental practice management systems revenue decreased 2%.
Retail revenue for the six-month period showed a slight
decrease from the prior year. Direct (merchant processing)
revenue increased 3% in the current period compared to the
same period last year. This increase is principally related
to an increase in processed sales volume. Revenue in the
Company's Indirect (distribution through banks) side of the
business decreased 6%. The voice authorization revenue with
Indirect customers decreased 7%. The decrease in voice is
attributable to the continued shift from voice to electronic
authorization processing. Indirect electronic authorization
revenue decreased 6%. The number of electronic authorization
transactions grew 2%. The increase in volume was offset by a
decrease in the revenue per transaction.
The decrease in "Other" revenue is principally related to the
Company's decision to exit certain segments of the
Communication Services business in 1991. The Company expects
this negative trend to continue through the balance of 1994
as the residual contracts with this cutomer base expire.
Cost Of Service
Total Cost of Service for the first six months was
$58,675,000, a decrease of $2,804,000 (5%) from the same
period of the prior year. This decrease was primarily the
result of a reduction in cost of operations of $2,115,000
(4%) and a decrease in depreciation expense of $1,227,000
(15%). The depreciation expense reduction is principally the
result of computer systems becoming fully depreciated in the
fourth quarter of last fiscal year. The Company is in the
process of replacing certain of its computer systems and
adding enhanced peripheral equipment. In addition to
significant processing performance enhancements to absorb
anticipated growth in transaction volumes, the new systems
carry lower maintenance costs and power consumption demands.
Hardware cost of sales increased $102,000 (2%) as a result of
an increase in the number of healthcare practice management
systems and point-of-sale terminals sold.
Gross margin increased to 42% in the first six months, up
from 39% in the same period of the prior year.
Sales, General and Administration
Sales, General and Administration expense was $33,398,000 for
the first six months. This is a decrease of $1,486,000 (4%)
from the same period of the prior year. This reflects
expansion in the size and scope of the Company's sales
distribution capability. The increase in the sales force was
offset by the effect of productivity improvement programs
initiated in the second quarter of last year. These programs
concentrated on elimination of redundant and non-essential
activities. After netting these two factors Sales, General
and Administration expense, as a percentage of revenue, was
33% and 34% for the six months ending November 30, 1993 and
1992, respectively.
Investment and Other Income
Investment and Other Income for the first six months was
$295,000, a decrease of $1,068,000 (78%) from the same period
of the prior year. This decrease was the result of a
decrease in interest income. The lower interest income was
the result of the Company selling a substantial portion of
its lease portfolio in the second half of the last fiscal
year.
Interest Expense
Interest Expense for the first six months decreased $738,000
(46%) from the same period of the prior year. This decrease
was primarily attributable to an absence of borrowings on the
Company's lines of credit and a decrease in imputed interest
expense associated with merchant bank portfolios acquired in
prior years where certain payments were contingent on future
revenues.
Income Taxes
The provision for income taxes, as a percentage of taxable
income, was 41% and 42% for the six-month periods ending
November 30, 1993 and 1992 respectively.
Extraordinary Item
The Company took an extraordinary charge of $1,450,000 (net
of income taxes) in the first quarter of the current year,
representing the estimated settlement cost of a lawsuit
brought against the Company. See Note 3 to the Unaudited
Condensed Consolidated Financial Statements for further
discussion.
Net Income
Net income, prior to the extraordinary charge, was
$4,686,000, an increase of $1,811,000 (63%). Earnings per
common share, both primary and fully diluted, for the first
six months, before the extraordinary item, was $0.37, an
increase of $0.13 (54%) over the same period last year.
Net income for the first six months, after the extraordinary
charge of $1,450,000 for resolution of the shareholder
litigation, was $3,236,000, an increase of $361,000 (13%) as
compared to net income of $2,875,000 for the same period of
the prior year. See Note 3 to the Unaudited Condensed
Consolidated Financial Statements for further discussion of
the shareholder litigation. Earnings per common share, both
primary and fully diluted, for the first six months, after
the extraordinary charge, was $0.25, an increase of $0.01
(4%) over the same period last year. See Note 5 to the
Unaudited Condensed Consolidated Financial Statements for
further discussion of earnings per share and common
equivalent share.
Liquidity and Capital Resources
Net cash provided by operating activities was $13,817,000 for
the six months ended November 30, 1993, a decrease of
$699,000 (5%) compared to $14,516,000 for the same period of
the prior year. This decrease is principally related to the
timing of working capital requirements associated with the
funding of the Company's merchant processing activities.
Cash used in investing activities in the first six months of
1994 was $298,000 compared to cash provided by investing
activities of $14,840,000 for the same period of the prior
year. Last year the Company sold approximately $16,648,000
of its lease portfolio versus $5,481,000 in the current year,
a decrease of $11,167,000. The $16,648,000 of leases sold
last year represented the initial sale of sales-type leases.
In addition, capital expenditures of $5,385,000 were made in
the current period versus $1,808,000 in the same period last
year, an increase of $3,577,000.
Net cash used in financing activities for the first six
months was $2,920,000, a decrease of $26,595,000 compared to
$29,515,000 for the same period of the prior year. This
decrease was principally the result of payments of
$24,500,000 made by the Company against its line of credit
and note payable last year. During the first six months of
the current year the bank lines of credit were not utilized.
Dividends of approximately $2,600,000 were paid in the six-
month period in both years.
The Company has entered into a $15,000,000 committed working
capital line-of-credit with two banks expiring April 14,
1994. The Company believes funds generated from operations
along with its committed working capital line of credit and
the $27,700,000 cash on hand at November 30, 1993 will be
adequate to meet normal business operating needs. In
addition to the working capital line of credit the Company
has available a $15,000,000 committed acquisition line of
credit expiring June 30, 1994.
Stockholders' Equity
Stockholders' equity increased $2,984,000 from $101,261,000
at May 31, 1993 to $104,245,000 at November 30, 1993.
==============================================================================
Part II
OTHER INFORMATION
ITEM 1 - PENDING LEGAL PROCEEDINGS
__________________________________
See Note 3 to the Unaudited Condensed Consolidated Financial
Statements.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
____________________________________________________________
The Company's annual meeting of stockholders was held on
November 18, 1993. At the annual meeting, the stockholders
of the Company elected two Class I directors, Robert A.
Yellowlees and James B. Edwards, for three-year terms and
thereafter until their successors are duly elected and
qualified.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
NATIONAL DATA CORPORATION
(Registrant)
DATE: January 14, 1994 BY: /s/ J.W. Braxton
Jerry W. Braxton
Chief Financial Officer
