<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended August 31, 2000
---------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-12392
---------
NATIONAL DATA CORPORATION
-------------------------
(Exact name of registrant as specified in charter)
DELAWARE 58-0977458
------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
National Data Plaza, Atlanta, Georgia 30329-2010
------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 404-728-2000
------------
NONE
-----------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last year)
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 [_].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, Par Value $.125 - 32,864,017 shares
-----------------------------------------------------
Outstanding as of October 6, 2000
-------------------------------------
<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
NATIONAL DATA CORPORATION
<TABLE>
<CAPTION>
(In thousands, except per share data)
----------------------------------------------------------------------------------------------------------
Three Months Ended August 31,
--------------------------------------------
2000 1999
-------------------- --------------------
<S> <C> <C>
Revenues $173,065 $175,548
----------------------------------------------------------------------------------------------------------
Operating expenses:
Cost of service 84,485 83,719
Sales, general and administrative 57,811 55,467
--------------------------------------------
142,296 139,186
--------------------------------------------
Operating income 30,769 36,362
----------------------------------------------------------------------------------------------------------
Other income (expense):
Interest and other income 717 1,669
Interest and other expense (3,750) (3,081)
Minority interest in earnings (1,427) (1,071)
--------------------------------------------
(4,460) (2,483)
--------------------------------------------
Income before income taxes and discontinued operations 26,309 33,879
Provision for income taxes 10,129 13,042
----------------------------------------------------------------------------------------------------------
Income before discontinued operations 16,180 20,837
Discontinued operations including cumulative change in
accounting principle of $(13,760) in 1999, net of income
taxes - (15,900)
----------------------------------------------------------------------------------------------------------
Net income $ 16,180 $ 4,937
--------------------------------------------
Basic earnings (loss) per share:
Income before discontinued operations $ 0.49 $ 0.62
--------------------------------------------
Discontinued operations $ - $ (0.47)
--------------------------------------------
Basic earnings per share $ 0.49 $ 0.15
--------------------------------------------
Diluted earnings (loss) per
share:
Income before discontinued operations $ 0.48 $ 0.58
--------------------------------------------
Discontinued operations $ - $ (0.47)
--------------------------------------------
Diluted earnings per share $ 0.48 $ 0.14
--------------------------------------------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
2
<PAGE>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NATIONAL DATA CORPORATION
(In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended August 31,
------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,180 $ 4,937
Adjustments to reconcile net income to cash provided by
operating activities before changes in assets and liabilities:
Loss on discontinued operations - 15,900
Depreciation and amortization 6,937 7,488
Amortization of acquired intangibles and goodwill 6,271 5,779
Minority interest in earnings 1,427 1,071
Provision for bad debts 622 1,231
Gain on sale of marketable securities - (1,537)
Other, net 1,192 (1,988)
------------------------------
Subtotal 32,629 32,881
------------------------------
Changes in assets and liabilities which provided (used) cash,
net of the effects of acquisitions:
Accounts receivable, net (1,084) (18,226)
Merchant processing working capital 4,768 (7,205)
Inventory (1,022) (726)
Prepaid expenses and other assets (2,359) (2,925)
Accounts payable and accrued liabilities (6,503) 424
Deferred income 6,025 5,559
Income taxes 8,679 6,972
------------------------------
Net cash provided by operating activities 41,133 16,754
------------------------------
Cash flows from investing activities:
Capital expenditures (9,047) (6,895)
Business acquisitions, net of acquired cash (10,227) -
Business divestiture and sale of marketable securities 20,000 2,912
Purchase of investment (11,756) (10,045)
------------------------------
Net cash used in investing activities (11,030) (14,028)
------------------------------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit (9,500) 1,000
Net principal payments under capital lease arrangements
and other long-term debt (2,136) (8,714)
Net stock activities (1,065) 1,141
Distributions to minority interests (1,148) (1,194)
Dividends paid (2,459) (2,543)
------------------------------
Net cash used in financing activities (16,308) (10,310)
------------------------------
Net cash provided by (used in) discontinued operations (6,930) 6,341
------------------------------
Increase (decrease) in cash and cash equivalents 6,865 (1,243)
Cash and cash equivalents, beginning of period 4,555 3,414
------------------------------
Cash and cash equivalents, end of period $ 11,420 $ 2,171
==============================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
NATIONAL DATA CORPORATION AND SUBSIDIARIES
(In thousands, except share and per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,420 $ 4,555
Billed accounts receivable 93,959 103,590
Unbilled accounts receivable 2,745 4,611
Allowance for doubtful accounts (7,978) (8,547)
---------- ----------
Accounts receivable, net 88,726 99,654
---------- ----------
Income tax receivable - 2,942
Inventory 8,746 8,558
Net merchant processing receivable 15,718 20,486
Deferred income taxes 19,665 19,630
Prepaid expenses and other current assets 18,829 15,524
---------- ----------
Total current assets 163,104 171,349
---------- ----------
Property and equipment, net 96,633 97,930
Intangible assets, net 382,160 388,526
Deferred income taxes 26,844 26,844
Investment 37,612 10,948
Other 7,312 4,676
Net assets of discontinued operations - 3,303
---------- ----------
Total Assets $ 713,665 $ 703,576
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 59,000 $ 68,500
Current portion of long-term debt 161 159
Obligations under capital leases 8,779 8,703
Accounts payable and accrued liabilities 78,210 80,220
Income tax payable 5,741 -
Deferred income 25,608 23,430
---------- ----------
Total current liabilities 177,499 181,012
---------- ----------
Long-term debt 152,470 152,495
Obligations under capital leases 6,025 6,125
Other long-term liabilities 15,841 15,336
---------- ----------
Total liabilities 351,835 354,968
---------- ----------
Commitments and contingencies
Minority interest in equity of subsidiaries 18,751 18,472
Shareholders' equity:
Preferred stock, par value $1.00 per share; 1,000,000 shares authorized, none issued - -
Common stock, par value $.125 per share; 200,000,000 shares authorized; 33,953,008
shares issued. 4,244 4,244
Capital in excess of par value 346,857 349,387
Treasury stock, at cost, 1,103,373 and 1,211,880 shares, respectively (29,099) (31,960)
Retained earnings 34,484 20,763
Deferred compensation (7,832) (7,332)
Unrealized holding loss (2,371) (1,727)
Cumulative translation adjustment (3,204) (3,239)
---------- ----------
Total shareholders' equity 343,079 330,136
---------- ----------
Total Liabilities and Shareholders' Equity $ 713,665 $ 703,576
========== ==========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
4
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED
-------------------------------
FINANCIAL STATEMENTS
--------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company has announced its intent to spin-off its eCommerce business segment,
encompassed in the newly formed Global Payments Inc. subsidiary, into a separate
publicly traded company with its own management and Board of Directors to permit
it to increase focus on its core businesses. The financial statements included
herein are based on the Company's current structure, not the post spin-off
structure. This spin-off is planned to be completed during the second quarter of
fiscal year 2001. Additionally, in the third quarter of fiscal 2000 the Company
decided to pursue the divestiture of its Physician and Hospital Support Services
("PHSS") business and, subsequently, to place this business into a discontinued
operations category in accordance with Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations". As a result, all prior periods have
been restated to reflect the discontinued operations accounting treatment.
During the first quarter of fiscal 2001, the Company completed the sale of these
and other related management services businesses. During the first quarter of
fiscal 2001, the Company also merged its pharmacy systems business activity with
another company so as to leverage the combined product development and
distribution of its systems to the pharmacy market.
The financial statements included herein have been prepared by National Data
Corporation (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 2000
consolidated financial statements to conform to the fiscal 2001 presentation. It
is suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest annual
report on Form 10-K for the fiscal year ended May 31, 2000.
In the opinion of management, the information furnished reflects all adjustments
necessary to present fairly the financial position, results of operations, and
cash flows for such interim periods.
5
<PAGE>
NOTE 2 - EARNINGS PER SHARE:
Basic earnings per share is computed by dividing reported earnings available to
common shareholders by weighted average shares outstanding during the period.
Diluted earnings per share is computed by dividing reported earnings available
to common shareholders by weighted average shares outstanding during the period
and the impact of securities that, if exercised, and convertible debt, if
converted, 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
generally are assumed to have a dilutive effect on earnings per share.
The following table sets forth the computation of basic and diluted earnings (In
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended (Before Discontinued Operations)
-------------------------------------------------------------------------------
August 31, 2000 August 31, 1999
-------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income before discontinued
operations $16,180 32,886 $ 0.49 $20,837 33,876 $ 0.62
========= ==========
Effect of Dilutive Securities:
Stock Options --- 659 --- 1,389
------------------------ --------------------
16,180 33,545 20,837 35,265
Convertible debt 1,195 2,752 1,195 2,752
------------------------ --------------------
Diluted EPS:
Income available to
common stockholders plus
assumed conversions $17,375 36,297 $ 0.48 $22,032 38,017 $ 0.58
===============================================================================
<CAPTION>
Three Months Ended (After Discontinued Operations)
-------------------------------------------------------------------------------
August 31, 2000 August 31, 1999
-------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income $16,180 32,886 $ 0.49 $ 4,937 33,876 $ 0.15
========= ==========
Effect of Dilutive Securities:
Stock Options --- 659 --- 1,389
------------------------ --------------------
16,180 33,545 4,937 35,265
Convertible debt 1,195 2,752 --- ---
------------------------ --------------------
Diluted EPS:
Net Income available to
common stockholders plus
assumed conversions $17,375 36,297 $ 0.48 $ 4,937 35,265 $ 0.14
===============================================================================
</TABLE>
For the three months ended August 31, 1999, convertible debt had an antidilutive
effect on diluted earnings per share after discontinued operations; accordingly,
diluted earnings per share was not adjusted for convertible debt.
6
<PAGE>
NOTE 3 - SEGMENT INFORMATION:
The segment information for the three-month periods ended August 31, 2000 and
August 31, 1999 is presented below. The Company classifies its businesses into
two fundamental segments: NDC Health and Global Payments (formerly known as
NDC's eCommerce segment). Additionally, the All Other and Corporate category is
comprised mostly of unallocated direct corporate operations. There has been no
change in the composition of the reportable segments from the presentation of
fiscal year 2000 segment information included in the Company's most recent
Report on Form 10-K.
The Company's earnings before interest, taxes, depreciation and amortization
(EBITDA) is defined as operating income plus depreciation and amortization and
restructuring and impairment charges. This statistic and its results as a
percentage of revenue may not be comparable to similarly titled measures
reported by other companies. However, management believes this statistic is a
relevant measurement and provides a comparable cash earnings measure, excluding
the impact of the amortization of acquired intangibles, potential timing
differences associated with capital expenditures and the related depreciation
charges, non-recurring, restructuring and impairment charges.
<TABLE>
<CAPTION>
All Other
Quarter Ended August 31, 2000 and
(In thousands) NDC Health Global Payments Corporate Totals
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 85,874 $ 87,191 $ - $173,065
Depreciation and Amortization 7,624 4,914 670 13,208
EBITDA 26,174 24,006 (6,203) 43,977
Income before income taxes and
discontinued operations 18,285 17,567 (9,543) 26,309
Segment assets 371,366 269,670 72,629 713,665
Quarter Ended August 31, 1999
(In thousands)
-------------------------------------------------------------------------------------------------------
Revenues $ 85,719 $ 89,829 $ - $175,548
Depreciation and Amortization 7,323 5,346 598 13,267
EBITDA 24,616 27,007 (1,993) 49,630
Income before income taxes and
discontinued operations 16,948 20,330 (3,399) 33,879
Segment assets 427,360 271,641 55,469 754,470
</TABLE>
7
<PAGE>
NOTE 4 - RESTRUCTURING AND IMPAIRMENT CHARGES AND OTHER UNUSUAL EXPENSES:
During the second quarter of fiscal year 2000, the Company updated its NDC
Health strategy. This included management's evaluation of the Company's current
product and service offerings in light of changing market and technological
environments. The decision was made to focus management attention on the core
point of service systems, value added network, and information management and
related Internet initiatives. Accordingly, actions were initiated on non-core
products and services which included acceleration of clearing house integration,
consolidation of locations, associated staff and expense reductions, and
elimination of obsolete and redundant product and service offerings.
Total charges related to the restructuring and asset impairment were $34.4
million. Of this total, approximately $10.5 million were cash items that were
accrued at the time the charges were incurred. In addition, the Company expects
additional charges will be incurred during the next three to six months as
additional actions are finalized and implemented. As of August 31, 2000, $4.0
million of the cash portion of the restructuring charges remains accrued as a
current liability and $1.8 million is accrued as a long-term liability in the
respective liabilities sections of the balance sheet as follows:
(in thousands)
Original Payments Long-
Total To Date Current Term
-------------------------------------------------------------------------------
Closed or planned closings of
facilities $ 6,100 $ 2,197 $ 2,078 $ 1,820
Estimated costs for settlements on
contracts 2,236 498 1,738 -
Severance and related costs 2,177 2,037 145 -
-----------------------------------------
Total $10,513 $ 4,732 $ 3,961 $ 1,820
=========================================
8
<PAGE>
NOTE 5 - DISCONTINUED OPERATIONS
In the third quarter of fiscal 2000, the Company took action on a formal plan to
divest non-core units that were acquired through the PHSS acquisition in
December 1997. Thus, the decision was made to move to divest the line of
business and account for it as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30, " Reporting the Results of
Operations". Accordingly, results of these operations have been classified as
discontinued and prior periods have been restated. The Company successfully
completed the sale of these and other related management services businesses for
total cash consideration of $20 million in the first quarter of fiscal 2001.
The operating results of the discontinued operations for the three months ended
August 31, 2000 and August 31, 1999 are summarized as follows:
(In thousands, except per share data): 2000 1999
-------------------------------------------------------------------------------
Revenue $ 21,905 $ 28,179
Operating income (loss) 168 (3,375)
Loss from operations, net of tax - (2,140)
-----------------------
Loss on discontinued operations before cumulative - (2,140)
effect of change in accounting principle
Cumulative effect of change in accounting principle,
net of tax - (13,760)
-----------------------
Net loss on discontinued operations $ - $(15,900)
=======================
Loss per share:
From operations $ - $ (0.06)
Cumulative effect of change in accounting principle - (0.41)
-----------------------
Total $ - $ (0.47)
=======================
9
<PAGE>
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash flow disclosures, including non-cash investing and financing
activities, for the three months ended August 31, 2000 and August 31, 1999 are
as follows:
<TABLE>
(in thousands) 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income taxes paid (refunded) $ 1,104 $(3,843)
Interest paid 1,229 1,573
Capital leases entered into in exchange
for property and equipment - 1,115
Non-cash investment in MedicaLogic/Medscape, Inc. - 7,000
Non-cash investment in TechRx Incorporated 15,306 -
</TABLE>
NOTE 7 - COMPREHENSIVE INCOME (LOSS):
The components of comprehensive income for the three months ended August 31,
2000 and August 31, 1999 are as follows:
<TABLE>
(in thousands) 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
Net income $16,180 $4,937
Foreign exchange effect 35 (116)
Unrealized holding gain (loss),
net of tax (644) -
------------------ ----------------
Total comprehensive income $15,571 $4,821
================== ================
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced the
Company's results, the following discussion should be read in conjunction with
the consolidated financial statements of the Company and related notes appearing
elsewhere in this report.
The Company classifies its businesses into two fundamental segments: NDC
Health and Global Payments (formerly known as NDC's eCommerce segment).
Additionally, the All Other and Corporate category is primarily comprised
of unallocated direct corporate operations.
Results of Operations
In the third quarter of fiscal 2000, the Company took action on a formal
plan to divest non-core units that were acquired through the PHSS acquisition in
December 1997. Thus, the decision was made to move to divest the line of
business and account for it as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations". Accordingly, results of these operations have been classified as
discontinued and prior periods have been restated. The Company successfully
completed the sale of these and other related management services businesses in
the first quarter of fiscal 2001. The remainder of the results of operations
excludes these discontinued operations.
During the first quarter of fiscal 2001 the Company merged its Pharmacy
Systems business activity with TechRx Incorporated so as to leverage the
combined product development and distribution of its systems to the pharmacy
market. Additionally, certain management services businesses were divested
during the first quarter as part of the sale of the units that were acquired
through the PHSS acquisition discussed above. In order to provide more
meaningful comparisons, revenue from these divested businesses is detailed in
the chart below.
<TABLE>
<CAPTION>
First Quarter ended August 31,
----------------------------------------------------- ------------
(In millions) 2000 1999 Change
----------------------- ------------------------ ----------
<S> <C> <C> <C>
Revenue:
NDC Health - Continuing Businesses $ 80.6 47% $ 71.6 41% 13%
NDC Health - Divested Businesses 5.3 3% 14.1 8% (62%)
----------------------------------------------------------------
NDC Health - Total $ 85.9 50% $ 85.7 49% 0%
Global Payments 87.2 50% 89.8 51% (3%)
----------------------------------------------------------------
Total Revenue $173.1 100% $175.5 100% (1%)
================================================================
Depreciation and Amortization:
NDC Health $ 7.6 58% $ 7.3 55% 4%
Global Payments 4.9 37% 5.3 40% (8%)
All Other and Corporate 0.7 5% 0.6 5% 17%
----------------------------------------------------------------
Total $ 13.2 100% $ 13.2 100% 0%
================================================================
</TABLE>
11
<PAGE>
The Company's earnings before interest, taxes, depreciation and
amortization (EBITDA) is defined as operating income plus depreciation and
amortization and restructuring and impairment charges. This statistic and its
results as a percentage of revenue may not be comparable to similarly titled
measures reported by other companies. However, management believes this
statistic is a relevant measurement and provides a comparable cash earnings
measure, excluding the impact of the amortization of acquired intangibles,
potential timing differences associated with capital expenditures and the
related depreciation charges, non-recurring, restructuring and impairment
charges.
<TABLE>
<CAPTION>
First Quarter ended August 31,
------------------------------------------------- ------------
(In millions) 2000 1999 Change
----------------------- ----------------------- ------------
<S> <C> <C> <C>
EBITDA:
NDC Health $26.2 59% $24.6 50% 7%
Global Payments 24.0 55% 27.0 54% (11%)
All Other and Corporate (6.2) (14%) (2.0) (4%) (210%)
----------------------------------------------------------------
Total EBITDA $44.0 100% $49.6 100% (11%)
================================================================
Income before Income Taxes and
discontinued operations (IBIT):
NDC Health $18.3 70% $17.0 50% 8%
Global Payments 17.6 67% 20.3 60% (13%)
All Other and Corporate (9.6) (37%) (3.4) (10%) (182%)
----------------------------------------------------------------
Total IBIT $26.3 100% $33.9 100% (22%)
================================================================
</TABLE>
Consolidated
Revenue net of divested healthcare operations increased to $167.8 million
in the first quarter of fiscal 2001 from $161.4 million in the prior year's
first quarter. This increase was the result of new revenue from recently
acquired businesses in addition to growth in customer base, transaction volumes
and new services to customers in its continuing areas of business. Total revenue
for the first quarter of fiscal 2001 was $173.1 million, a decrease of $2.4
million, or 1%, from the first quarter of fiscal 2000. This decrease was the
result of realizing only partial quarter revenues for the divested healthcare
operations in the current year compared to full quarter revenues in the prior
year. Revenue net of divested healthcare operations increased by 5% to $167.8
million in the first quarter of fiscal 2001 from $159.8 million in the prior
year's fourth quarter due to the same factors.
Cost of service, as a percentage of revenue, increased to 49% in the first
quarter of fiscal 2001 from 48% in the first quarter of fiscal 2000 due to mix
of product sales and reduced revenue during the quarter while maintaining the
infrastructure necessary for continued growth in the continuing areas of
business. Total cost of service increased $0.8 million (1%) in the first quarter
of fiscal 2001 from the first quarter of fiscal 2000. Cost of service as a
percentage of revenue was 49% in both the first quarter of fiscal 2001 and the
fourth quarter of fiscal 2000 with total spending declining $0.8 million from
the prior quarter.
Sales, general and administrative expenses ("SG&A") increased $2.3 million
(4%) from the same period last year. This was due primarily to expenses related
to increased staffing and other expenses in preparation for the planned spin-off
of Global Payments and investments in sales staffing and programs. As a
percentage of revenue, these SG&A expenses increased to 33% for the first
quarter of fiscal 2001 from 31% for the first quarter of fiscal 2000 due to the
factors described above. SG&A expenses decreased to $57.8 million for the first
quarter of fiscal 2001 from $59.4 million for the fourth quarter of fiscal 2000.
As a percentage of revenue, SG&A expenses decreased to 33% for the first
12
<PAGE>
quarter of fiscal 2001 from 34% for the prior quarter.
Operating income decreased 15% to $30.8 million for the first quarter of
fiscal 2001 from $36.4 million for the first quarter of fiscal 2000. As a
percentage of revenue, the Company's operating income margin decreased to 18% in
the first quarter of fiscal 2001 from 21% in the first quarter of fiscal 2000.
This decline is due primarily to the increased operating expense margins
described above. Operating income increased 8% to $30.8 million for the first
quarter of fiscal 2001 from $28.5 million for the fourth quarter of fiscal 2000.
As a percentage of revenue, the Company's operating income margin improved to
18% in the first quarter of fiscal 2001 from 16% in the fourth quarter of fiscal
2000. This margin improvement is due to the reduced operating expenses margins
described above.
EBITDA for the first quarter of fiscal 2001 decreased by $5.6 million, or
11%, to $44.0 million due to the factors described above. The EBITDA margin
percentage was 25% in the first quarter of fiscal 2001, compared to 28% in the
first quarter of fiscal 2000. EBITDA for the first quarter of fiscal 2001
increased by $1.7 million from the fourth quarter of fiscal 2000. The EBITDA
margin percentage was 25% in the first quarter of fiscal 2001, compared to 24%
in the prior quarter.
Total other expense increased $2.0 million for the first quarter of fiscal
2001 compared to the first quarter of fiscal 2000. This increase was primarily
the result of net gains received on the sale of marketable securities in the
first quarter of fiscal 2000 and increased interest expense due to increased
average borrowings in the first quarter of fiscal 2001.
IBIT for the first quarter of fiscal 2001 was $26.3 million compared to
$33.9 million for the first quarter of fiscal 2000. Diluted earnings per share,
excluding discontinued operations, for the first quarter of fiscal 2001 was
$0.48 versus a comparable $0.58 for the first quarter of fiscal 2000. The
results in the current quarter compare to proforma diluted earnings per share of
$0.46 in the fourth quarter of fiscal 2000. Proforma earnings for the prior
quarter exclude a $9.7 million non-cash charge to mark to market the Company's
position in MedicaLogic/Medscape.
NDC Health
NDC Health revenue net of the divested operations and including
acquisitions made since the first quarter of fiscal 2000 increased to $80.6
million in the first quarter of fiscal 2001 from $71.6 million in the first
quarter of fiscal 2000. This 13% increase was due to new revenue from the
recently acquired businesses as well as increased demand for its primary
products and services including point of service systems, value added network
and information management. Total revenue increased $0.2 million in the first
quarter of fiscal 2001 from the first quarter of fiscal 2000. Revenue net of the
divested operations and including acquisitions increased by 7% to $80.6 million
in the first quarter of fiscal 2001 from $75.6 million in the fourth quarter of
fiscal 2000.
EBITDA for the first quarter of fiscal 2001 was $26.2 million compared to
$24.6 million in the first quarter of fiscal 2000. This 7% increase in EBITDA
was due mainly to the elimination of operating losses realized in the divested
operations in the prior year. The EBITDA margin percentage was 31% in the first
quarter of fiscal 2001 compared to 29% in the first quarter of fiscal 2000.
Margins as a percentage of revenue improved primarily due to the factors
described above. IBIT in the first quarter of fiscal 2001 increased by 8% to
$18.3 million from $17.0 million in the first quarter of fiscal 2000. EBITDA
for the first quarter of fiscal 2001 was $26.2 million compared to $24.5 million
in the fourth quarter of fiscal 2000.
13
<PAGE>
Global Payments
Global Payments revenue was $87.2 million in the first quarter of fiscal
2001 compared to $89.8 million in the first quarter of fiscal 2000. Quarterly
revenue for the first quarter of fiscal 2001 was the second highest in history,
second only to the results in last year's first quarter. Although direct
merchant acquiring card processing services experienced strong volume growth,
revenue decreased due to the mix of product sales and declines in electronic
funds transfer and other business areas compared to the prior year. Subsequent
to the end of the first quarter of fiscal 2001, Global Payments divested its
card issuing services business for cash consideration approximately equal to the
net book value. Revenue in the first quarter of fiscal 2001 was $87.2 million
compared to $84.2 million in the fourth quarter of fiscal 2000, a 4% increase
from the prior quarter.
EBITDA for the first quarter of fiscal 2001 was $24.0 million compared to
$27.0 million in the first quarter of fiscal 2000. This 11% decline in EBITDA
was due to the 3% decrease in revenue combined with a reduction in the EBITDA
margin percentage from 30% in the first quarter of fiscal 2000 to 28% in the
first quarter of fiscal 2001. This margin decline includes increased investments
in sales and infrastructure necessary for future growth of the primary service
offerings. IBIT was $17.6 million in the first quarter of fiscal 2001 compared
to $20.3 million in the first quarter of fiscal 2000. EBITDA for the first
quarter of fiscal 2001 was $24.0 million compared to $20.4 million in the fourth
quarter of fiscal 2000.
All Other and Corporate
All Other and Corporate is primarily comprised of unallocated direct
corporate operations. This expense was $9.6 million in the first quarter of
fiscal 2001 compared to $3.4 million in the first quarter of fiscal 2000. This
increase was primarily due to expenses related to the planned spin-off of Global
Payments, the absence in the current year of net gains received on the sale of
marketable securities in the first quarter of fiscal 2000, and increased
interest expense due to increased average borrowings in the first quarter of
fiscal 2001 compared to the prior year. All Other and Corporate expense
percentage increased to 6% of total revenue in the first quarter of fiscal 2001
from 2% of total revenue in the first quarter of fiscal 2000.
14
<PAGE>
Liquidity and Capital Resources
Cash flow generated from operations provides the Company with a significant
source of liquidity to meet its needs. At August 31, 2000, the Company and its
subsidiaries had cash and cash equivalents totaling $11.4 million. Cash provided
by operations before changes in assets and liabilities was $32.6 million for the
first three months of fiscal 2001 compared to $32.9 million in the first three
months of fiscal 2000. Cash provided from net changes in assets and liabilities
was $8.5 million in the first three months of fiscal 2001 compared to cash
required to fund net changes in assets and liabilities of $16.1 million in the
first three months of fiscal 2000. This decline in the cash required to fund net
changes in assets and liabilities resulted primarily from reductions in accounts
receivable, changes in net merchant processing funds, and changes in income
taxes partially offset by a decrease in accounts payable and accrued
liabilities. The reductions in accounts receivables resulted from improved
collections and business dispositions. The changes in net merchant processing
funds reflect fluctuations in the timing of credit card settlement and funding
of merchants and may vary from month to month. In addition to timing and
cutoff, the balance is also influenced by volume growth and interchange rates.
The change in income taxes is due to an increase in taxes payable. The decrease
in accounts payable and accrued liabilities primarily relates to timing of
payments. Net cash provided by operating activities increased to $41.1 million
for the first three months of fiscal 2001 from $16.8 million for the first three
months of fiscal 2000.
Net cash used in investing activities was $11.0 million for the first three
months of fiscal 2001 compared to $14.0 million for the first three months of
fiscal 2000. This decrease is due to $20.0 million in proceeds received from the
divestiture of PHSS and other related businesses and expenditures of $10.2
million for acquisitions. During the first quarter of fiscal 2001, an agreement
was reached to merge NDC's pharmacy systems business activity with TechRx
Incorporated. As part of this agreement, the Company exchanged existing assets,
liabilities and cash for its investment interest in TechRx. Additionally, the
Company continues to invest in capital expenditures related to growth in the
business and acceleration of certain strategic initiatives. The Company will
periodically include sales of assets and investments in the future.
Net cash used in financing activities increased to $16.3 million for the
first three months of fiscal 2001 from $10.3 million in the first three months
of fiscal 2000. The net effect of the payments and borrowings against the lines
of credit is $9.5 million in payments for the first three months of fiscal 2001
compared to $1.0 million in borrowings for the first three months of fiscal
2000. Principal payments under capital lease arrangements and other long term
debt decreased $6.6 million for the first three months of fiscal 2001 from the
first three months of fiscal 2000 due primarily to the payoff of the $6.0
million Electronic Data Systems Corporation note payable related to prior
acquisitions in the first quarter of fiscal 2000. Dividends of $2.5 million
were paid during the first three months of both fiscal 2001 and fiscal 2000.
The Company has a $125.0 million revolving line of credit that expires in
December 2002. This includes a committed, unsecured $110.0 million revolving
line of credit and a $15.0 million line of credit to fund working capital
requirements. At August 31, 2000, there was $59.0 million outstanding under the
committed, unsecured line of credit. Management believes that its current level
of cash and borrowing capacity, along with future cash flows from operations,
are sufficient to meet the needs of its existing operations and its planned
requirements for the foreseeable future. The Company regularly evaluates cash
requirements for current operations, commitments, development activities and
strategic acquisitions. The Company may elect to raise additional funds for
these purposes, either through the issuance of additional debt or equity or
otherwise, as appropriate.
15
<PAGE>
Net cash used in discontinued operations was $6.9 million in the first
three months of fiscal 2001 compared to $6.3 million provided by discontinued
operations in the first three months of fiscal 2000.
Forward-Looking Information
While past performance does not guarantee future results, the Company is
committed to continuing to sustain quality earnings growth. The Company's
strategy to attain growth is to position the Company for continued future
success through ongoing investment in new market opportunities as well as
through strategic alliances and acquisitions. The Company also intends to
continue expansion into additional areas related to its two primary market
segments. The Company will continue to make investments in new technology
infrastructure and productivity tools to ensure long-term competitiveness and
maximize operating capacity and efficiency.
When used in this Quarterly Report on Form 10-Q, in documents incorporated
herein and elsewhere by management of National Data Corporation ("NDC" or the
"Company"), from time to time, the words "believes," "anticipates," "expects,"
"intends," "plans" and similar expressions are intended to identify forward-
looking statements concerning the Company's business operations, economic
performance and financial condition, including in particular, the Company's
business strategy and means to implement the strategy, the Company's objectives,
the amount of future capital expenditures, the likelihood of the Company's
success in developing and introducing new products and expanding its business,
and the timing of the introduction of new and modified products or services. For
those statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. These statements are based on a number of assumptions and
estimates that are inherently subject to significant risks and uncertainties,
many of which are beyond the control of the Company, cannot be foreseen, and
reflect future business decisions that are subject to change. Actual revenues,
revenue growth and margins will be dependent upon all such factors and their
results subject to risks related to the implementation of changes by the
Company, the failure to implement changes, customer acceptance of such changes
or lack of change. As a result of a variety of factors, actual results could
differ materially from those anticipated in the Company's forward-looking
statements, including the following factors: (a) those set forth in Exhibit 99.1
to the Registrant's Annual Report on Form 10-K for the period ended May 31, 2000
which are incorporated herein by this reference, and those set forth elsewhere
herein; (b) those set forth from time to time in the Company's press releases
and reports and other filings made with the Securities and Exchange Commission;
and (c) those set forth from time to time in the Company's analyst calls and
discussions. During the first quarter of fiscal 2001, the Company announced the
sale of its Health Information Services businesses that were acquired through
the acquisition of PHSS in December 1997 and other related businesses.
Additionally, during the first quarter of fiscal 2001, the Company announced
that it merged its Pharmacy Systems business activity with another company.
There can be no assurance that this divestiture, merger and other plans to
curtail non-core products and services in the business will have the effects
anticipated by the Company. The Company has announced its intent to spin-off the
NDC eCommerce business segment into a separate publicly traded company with its
own management and Board of Directors. Although it is planned to be completed in
the second quarter of fiscal 2001, this spin-off has not yet been completed and
there can be no assurance that it will be completed. The Company cautions that
such factors are not exclusive. Consequently, all of the forward-looking
statements made herein are qualified by these cautionary statements and readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revisions of such forward-looking statements
that may be made to reflect events or circumstances after the date hereof, or
thereof, as the case may be, or to reflect the occurrence of unanticipated
events.
16
<PAGE>
Part II
ITEM 1 - PENDING LEGAL PROCEEDINGS
----------------------------------
The Company is party to a number of claims and lawsuits incidental to its
business. In the opinion of management, the ultimate outcome of such matters,
in the aggregate, will not have a material adverse impact on the Company's
financial position, liquidity or results of operations.
ITEM 2 - CHANGES IN SECURITITES
-------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None
ITEM 5 - OTHER INFORMATION
--------------------------
None
ITEM 6 - EXHIBITS AND REPORTS FILED ON FORM 8-K
-----------------------------------------------
(a) Exhibits:
(27) Financial Data Schedule (for SEC use only)
17
<PAGE>
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 12, 2000 By: /s/ David H. Shenk
---------------- ------------------------
David H. Shenk
Interim Chief Financial Officer
(Principal Financial Officer and Chief
Accounting Officer)
18
