NATIONAL DATA CORPORATION
Condensed Consolidated Statements of Income
(In Thousands Except Per Share Data)
Quarter Ended August 31,
1994 1993
---- ----
Revenue $55,969 $50,717
Operating Expenses:
Cost of service 30,658 29,937
Sales, general and administration 20,371 16,833
------- -------
51,029 46,770
Operating income 4,940 3,947
Other income (expense):
Investment and other income 72 153
Interest expense, net (204) (465)
------- -------
(132) (312)
Income before income taxes and
extraordinary item 4,808 3,635
Provision for income taxes 1,731 1,527
------- -------
Net income before extraordinary item 3,077 2,108
Extraordinary item:
Settlement of shareholder lawsuit
(net of income tax of $1,050) (Note 2) - (1,450)
------- -------
Net income $3,077 $658
------- -------
Earnings per common and common equivalent share
Income before extraordinary item 0.23 0.17
Extraordinary item - (0.12)
------- -------
Net Income $0.23 $0.05
------- -------
Earnings per common and common equivalent share,
assuming full dilution:
Income before extraordinary item 0.23 0.16
Extraordinary item - (0.11)
------- -------
Net Income $0.23 $0.05
------- -------
See Notes to Unaudited Condensed Consolidated Financial Statements
==============================================================================
NATIONAL DATA CORPORATION P. 1 of 2
Condensed Consolidated Balance Sheets
(In Thousands)
AUGUST 31, MAY 31,
1994 1994
ASSETS ------------ -----------
Current assets:
Cash and cash equivalents $30,686 $38,012
Short-term investments 25 25
Accounts receivable:
Trade receivables (less allowances of
$1,702, and $1,168) 36,917 31,763
Other (less allowances of
$4,643, and $968) 17,151 19,701
Investment in sales-type leases,
current portion, (less allowances
of $522 and $575) 1,252 2,357
Inventory 4,003 3,518
Prepaid expenses and other current assets 4,567 4,429
------- -------
Total current assets 94,601 99,805
Investment in sales-type leases (less
allowances of $435 and $367) 1,115 1,500
Property and equipment, at cost:
Land 402 402
Building 6,503 6,503
Equipment 73,728 71,213
Software 29,106 27,519
Leasehold improvements 13,993 13,949
Furniture and fixtures 9,044 8,744
Work in progress 471 2,736
------- -------
133,247 131,066
Less-Accumulated depreciation
and amortization (105,593) (102,754)
------- -------
27,654 28,312
Property acquired under capital leases,
net of accumulated amortization 6,914 7,317
------- -------
34,568 35,629
Deposits 2,033 2,029
Other assets:
Acquired intangibles and goodwill,
net of accumulated amortization
of $32,537 and $30,882 47,966 41,250
Other 2,556 3,113
------- -------
50,522 44,363
Total Assets $182,839 $183,326
========== ==========
See Notes to Unaudited Condensed Consolidated Financial Statements
NATIONAL DATA CORPORATION P. 2 of 2
Condensed Consolidated Balance Sheets
(In Thousands)
AUGUST 31, MAY 31,
1994 1994
LIABILITIES AND STOCKHOLDERS' EQUITY ------------ -----------
Current liabilities:
Accounts payable $6,744 $6,783
Earn-out payable on acquired
businesses, current portion 1,682 2,598
Accrued compensation and benefits 3,564 4,462
Merchant processing payables 17,733 15,154
Income tax payable 4,843 6,358
Deferred income taxes, current portion 776 776
Obligations under capital leases,
current portion 2,115 1,985
Mortgage payable, current portion 153 149
Other accrued liabilities 13,235 12,667
------- -------
Total current liabilities 50,845 50,932
Mortgage payable 11,060 11,100
Earn-out payable on acquired businesses 860 1,238
Deferred income taxes 1,685 1,685
Obligations under capital leases 4,692 5,193
Other long-term liabilities 1,839 3,847
------- -------
Total Liabilities 70,981 73,995
Stockholders' Equity:
Preferred stock, par value $1.00 per share,
1,000,000 shares authorized; none issued - -
Common stock, par value $.125 per share,
30,000,000 shares authorized; 12,687,403
and 12,610,262 shares issued 1,586 1,576
Capital in excess of par value 31,162 30,215
Retained earnings 80,550 78,865
Minority interest in equity of subsidiaries 53 -
Cumulative translation adjustment (502) (533)
------- -------
112,849 110,123
Less:
Deferred compensation (991) (792)
------- -------
Total Stockholders' Equity 111,858 109,331
Total Liabilities and Stockholders' Equity $182,839 $183,326
========== ==========
See Notes to Unaudited Condensed Consolidated Financial Statements
==============================================================================
NATIONAL DATA CORPORATION
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Three Months
Ended August 31,
1994 1993
Cash flows from operating activities: ----- -----
Net income $3,077 $ 658
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,335 2,860
Amortization of acquired intangibles and goodwill 1,655 1,515
Provision for bad debt, sales allowances
and operational losses 1,877 1,610
Loss on disposal of fixed assets - 19
Changes in assets and liabilities, net
of the effects of acquisitions:
(Increase) decrease in trade accounts receivable (5,568) 2,847
Decrease (increase) in other accounts receivable 1,754 (4,947)
Decrease in investment in sales-type leases 1,489 1,312
Increase in inventory (460) (119)
Decrease in prepaid expenses and other assets 645 399
(Decrease)increase in accounts payable
and accrued liabilities (206) 5,387
Decrease in income taxes payable and
deferred income taxes payable (1,515) (2,016)
--------- --------
Net cash provided by operating activities 6,083 9,525
Cash flows from investing activities:
Proceeds from the sale of equipment - 7
Capital expenditures (1,757) (1,572)
Business acquisitions, net of cash acquired (8,985) -
Increase in investments & other
non-current assets - 5
-------- --------
Net cash used in investing activities (10,742) (1,560)
Cash flows from financing activities:
Principal payments under mortgage, capital lease
arrangements and other long-term debt (536) (424)
Principal payments on earn-out payable (1,294) (944)
Net proceeds from the issuance of stock
under employee stock plan 549 597
Dividends paid (1,390) (1,356)
-------- --------
Net cash used in financing activities (2,671) (2,127)
Effect of exchange rate changes on cash 4 (20)
(Decrease) Increase in cash & cash equivalents (7,326) 5,818
Cash, beginning of period 38,012 17,150
-------- --------
Cash, end of period $30,686 $22,968
======== ========
Supplemental schedule of noncash investing
and financing activities:
Capital leases entered into in exchange
for property and equipment $ 6 $ 562
======== ========
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 1994 consolidated
financial statements to conform to the fiscal 1995 presentation.
It is suggested that these financial statements be read in conjunction
with 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, 1994.
In the opinion of management, the information furnished reflects all
adjustments necessary to present fairly the results for such interim
periods.
NOTE 2 - 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 plaintiffs, purporting to act on behalf of a
class, alleged violations of rule 10(b)(5) under the Securities and Exchange
Act of 1934 under a "fraud on the market" theory for alleged
misrepresentations and omissions relating to expected earnings which resulted
in, the plaintiffs contend, the Company's common stock being overvalued in the
market. The Company and the plaintiffs 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, was approximately $1,450,000. Both the
Company and its insurer paid their full share of the settlement amount and the
settlement received final approval from the court on December 16, 1993.
NOTE 3 - EARNINGS PER SHARE:
Earnings per common share and common equivalent share on a primary
basis are computed by dividing net income by the weighted average
number of common shares and common equivalent shares outstanding
during the period. Common equivalent shares represent stock options
that, if exercised, would have a dilutive effect on earnings per
share. All options with an exercise price less than the average
market share price for the period are assumed to have a dilutive
effect on earnings per share.
Earnings per common and common equivalent share on a fully diluted
basis are computed by the same method as described for primary
earnings per share 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 earnings per share, as compared to the
average market share price for primary earnings per share.
The primary and fully diluted weighted average number of common and
common equivalent shares outstanding is as follows (in thousands):
Quarter Ending August 31,
1994 1993
------ ------
Primary 13,168 12,775
Fully Diluted 13,311 12,877
NOTE 4 - BUSINESS ACQUISITIONS
In June 1994, certain assets and liabilities of Yes Check,Inc.
were acquired by the Company. Yes Check,Inc. is a Chicago-
based check guarantee company. In July 1994, the Company acquired
the assets and certain liabilities of Lytec Systems, Inc., a
Salt Lake City company that develops and markets medical and
dental practice management software. Both acquired businesses were
accounted for under the purchase method and, accordingly, the operating
results of each have been included in the consolidated operating
results since the dates of acquisition. Earn-out payments required
for both acquisitions are not estimable at this time.
Subsequent to the end of the first quarter, the Company also acquired
all of the capital stock of Mercantile Systems, Inc. This is a
Chicago-based check guarantee company. This acquisition has not been
reflected in the financial statements presented for the period ending
August 31, 1994.
The aggregate price paid for these three acquisitions was $21,177,000.
Goodwill and intangibles resulting from these three acquisitions will
be amortized over periods not exceeding 20 years.
The following pro forma information for the three acquisitions
discussed above is presented for information purposes only and is not
necessarily indicative of the operating results that would have
occurred had the acquisitions taken place on June 1, 1993, nor are they
necessarily indicative of future operations.
Fiscal Year Quarter Ended
Ended May 31, August 31,
(In thousands, except per share data) 1994 1993
__________________________________________________________________
Revenue $225,051 $58,662
Net Income Before Extraordinary Item 11,965 3,132
Net Income 10,515 3,132
Earnings Per Share, fully diluted .81 .24
The pro forma results listed above are unaudited and reflect purchase
price accounting adjustments assuming the acquisitions occurred at the
beginning of the fiscal year and include estimates for differences in
year-end.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The first quarter of fiscal year 1995 ended August 31, 1994 compared
to the same quarter last year is reflected as follows ($ Millions):
%
FY1995 FY 1994 Inc.(Dec.)
$ % $ % of Dollars
--- --- --- --- -----------
Revenue:
Integrated Payments 32.3 58% 29.1 57% 11%
Health Care 16.8 30% 14.1 28% 19%
Government & Corporate 5.3 9% 5.0 10% 6%
Other 1.6 3% 2.5 5% (36%)
------ ----- ------ ----- -------
Total Revenue 56.0 100% 50.7 100% 10%
Cost of Service:
Operations 24.4 44% 24.0 47% 2%
Deprec. & Amort. 3.9 7% 3.5 7% 11%
Hardware Sales 2.3 4% 2.5 5% (8%)
------ ----- ------ ----- -------
Total Cost of Service 30.6 55% 30.0 59% 2%
Gross Margin 25.4 45% 20.7 41% 23%
Sales, General &
Administration 20.4 36% 16.8 33% 21%
------ ----- ------ ----- -------
Operating Margin 5.0 9% 3.9 8% 28%
Investment & Other
Income 0.0 0% 0.2 0% (100%)
Interest Expense,(net) (0.2) (0%) (0.5) (1%) (60%)
------ ----- ------ ----- -------
Income Before Taxes and
Extraordinary Item 4.8 9% 3.6 7% 33%
Provision for Income
Taxes 1.7 3% 1.5 3% 13%
------ ----- ------ ----- -------
Net Income Before
Extraordinary Item 3.1 6% 2.1 4% 48%
Extraordinary Item,
(net of taxes) - 0% (1.4) (3%) n/a
------ ----- ------ ----- -------
Net Income 3.1 6% .7 1% 343%
------ ----- ------ ----- -------
Revenue
Total revenue for the first quarter was $55,969,000, an increase of
$5,252,000 (10%) from revenue of $50,717,000 for the same period of
the prior year. The revenue increase in the period was the result of
increased revenue in Health Care Application Systems and Services,
$2,664,000 (19%), Integrated Payment Systems, $3,172,000 (11%) and
Government and Corporate Information Systems and Services, $323,000
(6%), partially offset by a decrease in Other revenue of $907,000
(36%).
Health Care revenue growth was principally related to increases in
electronic claims processing which increased $2,871,000 (48%) in the
period compared to the prior year. Transaction volume increased
40 million (50%) from prior year's volume. Overall revenue from the
Company's practice management systems for the pharmacy, dental,
government and institutional sectors decreased 3%, while revenue from
recurring maintenance fees increased 17%. The overall reduction in revenue
reflects the Company's transition in the products' life cycles.
Integrated Payments Systems (IPS) revenues increased 11% over the same
period last year. The increase is a result of several factors. The
direct (merchant processing) business increased $4,147,000 (27%) and
now accounts for 61% of total IPS revenue. This increase was
primarily due to increased volume (9%) and increased equipment sales
(32%). In addition, a check guarantee business was acquired during
the first quarter of fiscal year 1995. Revenue in the Company's
indirect (distribution through banks) business decreased 8% as a
result of lower revenue per electronic transaction. This decrease was
primarily a result of obtaining longer term commitments in exchange for
price concessions.
Government and Corporate Information Systems and Services (GCISS)
revenue increased 6% over the same period last year primarily due to
increased sales of applications for electronic data interchange (EDI).
This reverses the declining revenue trend experienced over the past
few quarters.
The decrease in other revenue of 36% is principally related to the
Company's decision to exit the communication services market in 1991.
The customer contracts associated with this business expired in the
first quarter of fiscal year 1995.
Costs and Expenses
Total cost of service for the first quarter was $30,658,000, an
increase of $721,000 (2%) from the same period last year. While the
cost of operations increased $463,000 (2%) from the same period
last year, cost of operations as a percentage of revenue decreased
from 47% last year to 44% this year. Depreciation and amortization as
a percentage of revenue was essentially flat. Hardware costs
decreased $204,000 (8%), directly related to volume associated with
reduced sales of Health Care practice management systems.
Gross margin increased to 45% from 41% in the same period last year.
Sales, general and administrative expense was $20,371,000 in the
quarter ended August 31, 1994. This is an increase of $3,538,000
(21%) from prior year. The increase is primarily due to sales
expansion programs in the Integrated Payment Systems and Health Care
Applications Systems and Services areas as well as increased sales,
general, and administrative expenses related to acquired businesses.
Investment and Other Income
Investment and other income for the first quarter of fiscal year 1995
was $72,000, a decrease of $81,000 (53%) from last year. This
decreased interest income is related to the continued decrease in
the Company's pharmacy and dental systems lease portfolio. The
Company no longer offers leases directly to its customers.
Interest Expense, Net
Interest expense for the first quarter decreased $261,000 (56%) from
the same period last year. This decrease is primarily attributable to
an adjustment of imputed interest expense on acquired merchant
portfolios made in the first quarter of fiscal year 1994.
Income Taxes
The provision for income taxes, as a percentage of taxable income, was
36% and 42% for the quarters ended August 31, 1994 and 1993,
respectively. The decreased rate in the current year is
primarily due to research and development tax credits. The
Company expects this lower rate to continue.
Net Income Before Extraordinary Item
The Company's net income before extraordinary item for the first
quarter of fiscal year 1995 was $3,077,000, an increase of $969,000
(46%) from first quarter 1994 net income before extraordinary
item of $2,108,000.
Extraordinary Item
The Company reported an extraordinary charge of $1,450,000 (net of
income taxes) in the first quarter of fiscal 1994, representing the
settlement costs of a lawsuit brought against the Company.
(See Note 2 of the unaudited condensed consolidated financial
statements for further discussion of the extraordinary item).
Net Income
Net income for the first quarter of fiscal year 1995 was $3,077,000,
an increase of $2,419,000, as compared to the prior year net income
for the quarter of $658,000. Earnings per share for the period
ended August 31, 1994 and 1993 were $0.23 and $0.05, respectively.
The weighted average number of common and common equivalent shares
outstanding for the first quarter of fiscal 1995 was 13,311,000, an
increase of 434,000 (3%) as compared to the same period last year.
Liquidity and Capital Resources
Net cash provided by operating activities was $6,083,000 in the first
quarter of fiscal 1995, a decrease of $3,442,000 (36%) from the
prior year amount of $9,525,000. The decrease is primarily
related to increased trade receivable balances due to increased first
quarter sales over the same period last year.
Cash used in investing activities was $10,742,000 compared to the
prior year of $1,560,000. In the first quarter of fiscal 1995, two
business acquisitions were made totaling $8,985,000.
Net cash used in financing activities was $2,671,000, an increase of
$544,000 (26%) over the prior year. Principal payments on earn-out
agreements increased $350,000 in the current period. Dividends of
approximately $1,390,000 and $1,356,000 were paid in the three month
period ending August 31, 1994 and 1993, respectively.
The Company has entered into a $15,000,000, working capital line of
credit with two banks expiring in August 1995. The Company believes
funds generated from operations along with its committed
line of credit and the $30,686,000 cash on hand will be adequate to
meet normal business operating need. In addition to the working
capital line of credit, the Company obtained a committed $40,000,000
acquisition line of credit which expires in August of 1996.
Stockholder's Equity
Stockholders' equity increased $2,527,000 (2%), from May 31, 1994
to $111,858,000 at August 31, 1994.
Part II
ITEM 1 - PENDING LEGAL PROCEEDINGS
_____________________________________
None
ITEM 2 - OTHER INFORMATION
_____________________________
None
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: October 14, 1994 By: /s/ Jerry W. Braxton
______________________
Jerry W. Braxton
Chief Financial Officer
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<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> AUG-31-1994
<CASH> 30,686
<SECURITIES> 0
<RECEIVABLES> 36,917
<ALLOWANCES> 1,702
<INVENTORY> 4,003
<CURRENT-ASSETS> 94,601
<PP&E> 133,247
<DEPRECIATION> 105,593
<TOTAL-ASSETS> 182,839
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<COMMON> 1,586
0
0
<OTHER-SE> 110,272
<TOTAL-LIABILITY-AND-EQUITY> 182,839
<SALES> 55,969
<TOTAL-REVENUES> 55,969
<CGS> 30,658
<TOTAL-COSTS> 51,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> 4,808
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<EPS-PRIMARY> .23
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