<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
UNITED STATES
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended February 28, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-11770
FDP CORP.
(Exact name of registrant as specified in its charter)
Florida 59-2138243
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2140 South Dixie Highway, Miami, Florida 33133
(Address of principal executive offices) (Zip Code)
(305) 858-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value per share,
6,326,862 shares outstanding as of March 31, 1999.
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FDP CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
February 28, 1999 and November 30, 1998 3
Consolidated Condensed Statements of Earnings
Three Months Ended February 28, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows
Three Months Ended February 28, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II. OTHER INFORMATION
Item 1. Legal 13
Item 4. Submission of Matter to Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FDP CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) February 28, November 30,
1999 1998
(Unaudited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,214 $ 7,432
Marketable securities 5,304 5,336
Accounts receivable, less allowance for uncollectible
accounts of $1,104 in 1999 and $1,034 in 1998 9,423 9,892
Notes receivable - current 258 262
Prepaid expenses 571 455
Deferred income taxes 745 745
Costs and earnings in excess of billings on uncompleted contracts 1,414 787
Other 341 52
-------- --------
Total current assets 26,270 24,961
Property and equipment at cost, less accumulated depreciation
of $5,216 in 1999 and $4,854 in 1998 5,818 5,755
Other assets:
Marketable securities 8,073 8,051
Notes receivable - non-current 93 93
Goodwill, net 670 401
Deferred merger costs 672 0
Other 406 406
-------- --------
Total assets $ 42,002 $ 39,667
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,095 $ 4,303
Income taxes payable 221 827
Billings in excess of costs and earnings on uncompleted contracts 267 371
-------- --------
Total current liabilities 4,583 5,501
Deferred income taxes 1,280 1,280
-------- --------
Total liabilities 5,863 6,781
-------- --------
Stockholders' Equity:
Preferred stock; $.01 par value. Authorized 10,000 shares; none issued
Common stock; $.01 par value. Authorized 30,000 shares; shares
Issued and outstanding 6,187 in 1999 and 5,987 in 1998 62 60
Paid-in capital 14,779 12,405
Retained earnings 21,364 20,456
Accumulated other comprehensive income -
foreign currency translation adjustment (66) (35)
-------- --------
Total stockholders' equity 36,139 32,886
======== ========
Total liabilities and stockholders' equity $ 42,002 $ 39,667
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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FDP CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended
February 28,
------------------------
1999 1998
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<S> <C> <C>
Revenues:
Software $ 11,047 $ 8,704
Information services 511 486
-------- --------
Total Revenue 11,558 9,190
-------- --------
Cost of sales and services:
Product development, maintenance and enhancements:
Software 8,502 6,739
Information services 223 243
Selling, general and administrative expenses 1,617 1,298
Telecommunications 68 73
-------- --------
Total cost of sales and services 10,410 8,353
-------- --------
Operating profit 1,148 837
Interest income 302 291
Foreign currency loss and other (1) (7)
-------- --------
Earnings before income taxes 1,449 1,121
Provision for income taxes 464 392
-------- --------
Net earnings $ 985 $ 729
======== ========
BASIC EARNINGS PER SHARE COMPUTATION
Numerator 985 729
Denominator:
Weighted average shares 6,085 5,839
Basic earnings per share $ .16 $ .12
======== ========
DILUTED EARNINGS PER SHARE COMPUTATION
Numerator 985 729
Denominator:
Weighted average shares 6,085 5,839
Incremental shares from assumed
Conversions of stock options 265 297
-------- --------
6,350 6,136
Diluted earnings per share $ .16 $ .12
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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FDP CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
February 28,
----------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 985 $ 729
------- -------
Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization of property,
equipment and intangibles 595 316
Decrease (Increase) in accounts receivable, net 469 (1,354)
Increase in prepaid expenses (116) (198)
Increase in costs and earnings in excess
of billings on uncompleted contracts (627) (347)
Increase in other current assets (289) (356)
(Decrease) increase in accounts payable
and accrued expenses (211) 611
Decrease in billings in excess of costs
and earnings on uncompleted contracts (104) (98)
Increase in income taxes payable 51 328
Increase in deferred income taxes 0 45
Increase in other assets and deferred merger costs (672) 0
------- -------
Net adjustments (904) (1,053)
------- -------
Net cash used in operating activities 81 (324)
------- -------
Cash flows from investing activities:
Proceeds from the maturity of marketable investment securities 10 0
Proceeds from note receivable 129 303
Acquisition of note receivable (124) (315)
Equipment acquired (427) (1,519)
------- -------
Net cash used in investing activities (412) (1,531)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 1,219 468
Cumulative transfer adjustment (31) 6
Dividend payment (75) (72)
------- -------
Net cash provided by financing activities 1,113 402
------- -------
Net increase (decrease) in cash and cash equivalents 782 (1,453)
Cash and cash equivalents at beginning of year 7,432 4,109
------- -------
Cash and cash equivalents at end of period $ 8,214 $ 2,656
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements
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FDP CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
February 28, 1999
(Unaudited)
NOTE A
In the opinion of management of FDP Corp. (the "Company"), the accompanying
unaudited consolidated condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q and therefore contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position, the results of operations and the
statement of cash flows in conformity with generally accepted accounting
principles.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these consolidated
condensed financial statements be read in conjunction with the consolidated
financial statements and the notes included in the Company's latest annual
report on Form 10K.
The results of operations for the three months ended February 28, 1999, are not
necessarily indicative of the results for the full year.
NOTE B
The Board of Directors approved a quarterly cash dividend of $0.0125 per share,
payable March 15, 1999, to shareholders of record on March 1, 1999.
NOTE C
On January 15, 1999, the Company announced that it has entered into a definitive
merger agreement under which it will be acquired by SunGard Data Systems (NYSE:
SDS) in a stock-for-stock transaction. Under the terms of the merger, FDP
shareholders will receive shares of SunGard common stock in exchange for their
shares of FDP common stock. The exchange ratio will depend on the average
trading price per share of the SunGard common stock during the twenty day period
ending and including the trading days two days before the closing of the merger.
The exchange ratio is designed to give FDP shareholders $14.40 of SunGard common
stock if the average trading price is between $30 and $35. If the average
trading price is $30 or less, the exchange ratio will be fixed at .48 and if the
average trading price is $35 or more, the exchange ratio will be fixed at .4114.
The completion of the merger is subject to approval by a majority of the
Company's shareholders, customary regulatory approvals and the satisfaction of
certain other conditions set forth in the merger agreement. Directors and
shareholders holding approximately 49% of the outstanding shares of FDP have
agreed to vote their shares in favor of the merger. The merger, if approved is
intended to be accounted for as a pooling-of-interests.
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Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS
Revenues reflect the Company's ability to develop new computer software
products, or enhance existing ones, then successfully market its software and
related services. Several factors influence the Company's results of operations
including advances in computer technology and changes in governmental
regulations. The Company's business is not seasonal even though quarterly
revenues and net earnings may vary. The variation is primarily due to uncertain
timing of customers' decisions, over which the Company has little control,
regarding the purchase of software systems and computer hardware.
FINANCIAL RESULTS
For the quarter ended February 28, 1999, revenues increased 26% to $11,558,000
as compared to $9,190,000 for the same period last year. Operating profit for
the first quarter was up 37% to $1,148,000 as compared to $837,000 for the prior
year. Net earnings for the first quarter increased 35% to $985,000 or $.16 per
diluted share ($.16 per share basic) versus $729,000 or $.12 per diluted share
($.12 per basic share) a year ago.
The Company reports its revenues by two categories, Software and Information
Services.
<TABLE>
<CAPTION>
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SOFTWARE (Amounts in Thousands) Three Months Ended
February 28, February 28,
1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
PENSION PARTNER $ 1,222 $ 1,362
- ---------------------------------------------------------------------------------------------------------
AGENCY PARTNER 2,783 1,729
- ---------------------------------------------------------------------------------------------------------
SYSTEM INNOVATIONS 1,368 777
- ---------------------------------------------------------------------------------------------------------
HOME OFFICE SYSTEMS 5,674 4,836
- ---------------------------------------------------------------------------------------------------------
TOTAL SOFTWARE 11,047 8,704
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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SOFTWARE REVENUE:
Total software related revenue which includes software licenses, maintenance,
service revenue (time and materials) and other for the quarter ended February
28, 1999 increased by 27% as compared to the prior year. The increase in
revenues for the quarter was principally driven by higher revenues in the HOME
OFFICE SYSTEMS and AGENCY PARTNER divisions.
Revenues for HOME OFFICE SYSTEMS, which includes FDP/COMPASS and FDP/CLAS, for
the quarter ended February 28, 1999 were up 17% as compared to the prior year.
Driving the increase were revenues related to FDP/COMPASS, the Company's group
pension administration system. Revenues for FDP/COMPASS for the quarter rose
31%. The increase in revenues was primarily due to ongoing implementations of
the system worldwide and two new contracts executed for the product in the first
quarter. Revenues for FDP/CLAS, the Company's life insurance administration
system, decreased 8% for the first quarter as compared to the prior year.
Revenues in AGENCY PARTNER, which includes the products Contact PartnerTM,
FDP/XL and FINPACK, for the quarter were up 61% as compared to the prior year.
The increase in revenues for the quarter was the result of a multi-million
dollar licensing agreement with a major South African insurance Company for new
client/server versions of the products utilizing Microsoft's SQL Server 7.0
database.
PENSION PARTNER revenues for quarter decreased 10% as compared to the prior
year.
SYSTEM INNOVATIONS revenues for the quarter were up 76% as a result of higher
service revenue.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
INFORMATION SERVICES (amounts in thousands) February 28, February 28,
1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
PENSION PARTNER $ 82 $ 103
- ---------------------------------------------------------------------------------------------------------
AGENCY PARTNER 4 29
- ---------------------------------------------------------------------------------------------------------
FDP/CLAS 425 354
- ---------------------------------------------------------------------------------------------------------
TOTAL INFORMATION SERVICES
$ 511 $ 486
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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INFORMATION SERVICES REVENUE:
Total information services revenue for the quarter ended February 28, 1999
increased 5% as compared to the same period last year. Information service
revenue in the Pension Partner and Agency Partner divisions has been on a
downward trend as customers that access the various software programs on a
time-sharing basis are purchasing the products for use on personal computers.
Information service revenue for FDP/CLAS for the quarter was up 20% as compared
to the prior year. Information service revenue as a percentage of total revenues
continues to decline as software revenues have increased.
COSTS AND EXPENSES:
The Company's total cost of sales and services for the quarter ending February
28, 1999 increased 25% to $10,410,000 as compared to $8,353,000 for the same
period last year. The increase for the period was in correlation with the
revenue increase and primarily related to higher personnel related costs.
For the quarter ended February 28, 1999, costs related to product development,
maintenance and enhancements for software have increased whereas costs for
information services have decreased. This change reflects the continuing trend
of the shifting of the Company resources away from information services, a
decreasing revenue base, to software product development, a growing revenue
base.
Selling, general and administrative expenses for the quarter ended February 28,
1999 increased 25% to $1,617,000 as compared to $1,298,000 for the prior year.
The increase for the quarter was mainly related to an increase in allowance for
doubtful accounts.
INTEREST INCOME:
Interest income earned primarily on the Company's portfolio of U.S. Treasury
Bills and Notes for the quarter ended February 28, 1999 was $302,000 as compared
to $291,000 for the same period last year. The average interest-earning rate for
the first quarter of 1999 was 5.50% as compared to 5.87% for the same period
last year. (See Financial Condition).
PROVISION FOR INCOME TAXES:
The Company's effective income tax rate was 32% for the quarter ended February
28, 1999 as compared to 35% for the same period last year. The Company's
effective tax rate has benefited from the use of foreign sale corporations
credits (FSC).
FINANCIAL CONDITION
The Company continues to maintain a highly liquid and virtually debt free
balance sheet. As of February 28, 1999 and November 30, 1998 cash and marketable
securities were $21,591,000 and $20,819,000, representing 51% and 52% of total
assets for the respective periods. Cash flow from operating activities for the
quarter ended February 28, 1999 was mainly affected by an increase in costs and
earnings in excess of billings on uncompleted contracts, a decrease in accounts
payable and an increase in deferred merger costs. The decrease in cash flows
from investing activities for the first quarter related to equipment acquired.
Cash flows from financing activities increased as a result of stock options that
were exercised.
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Other than planned purchases of equipment, no other significant capital
expenditures are anticipated for the remainder of fiscal 1999. Management of the
Company continues to believe that existing working capital and funds generated
by operations will be sufficient to meet the Company's anticipated capital needs
in connection with its present and proposed activities.
STATEMENT OF POSITION (SOP) 97-2
On December 1, 1998 the Company adopted Statement of Position (SOP) 97-2,
Software Revenue Recognition, which supersedes SOP 91-1. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements
(i.e., software products, upgrades/enhancements, post contract customer support,
installation, training, etc.) to be allocated to each element based on the
relative fair values of the elements. The revenue allocated to software products
(including specified upgrades/enhancements) generally is recognized upon
delivery of the products. The revenue allocated to post contract customer
support generally is recognized ratably over the term of the support and revenue
allocated to service elements (such as training and installation) generally is
recognized as the services are performed. If a vendor does not have evidence of
fair value for all elements in a multiple-element arrangement, all revenue from
the arrangement is deferred until such evidence exists or until all elements are
delivered. The Company's adoption of (SOP) 97-2 did not have a material impact
on its financial reporting.
YEAR 2000 COMPLIANT ISSUE
Many companies that use and/or develop computer software are addressing the
potential problem that may exist if their software is not "year 2000 compliant."
The potential problem that exists with some computer software is that it will
not process transactions properly for dates commencing in the year 2000. This is
due to the fact that many software programs were designed to make date
calculations based on the last two digits of the year. As a result, dates in the
year 2000 may be identified as dates in the year 1900, which may cause incorrect
calculations, cause the transaction to not be processed or, in some cases, cause
an entire computer system to malfunction.
The Company has been aware of this problem and has been addressing it, both for
its software that is being developed for sale to users and for applications
affecting internal operations that potentially may not be year 2000 compliant.
On software developed for sale to users, the Company believes that its complete
suite of current Windows-based products is already year 2000 compliant, and
modifications to its older DOS-based products and legacy systems are currently
in progress to make them year 2000 compliant. These modifications are currently
being tested by the Company's quality assurance staff and by the Company's
clients. This process is expected to be completed by the second quarter of
fiscal 1999.
The Company is currently nearing completion in assessing all of its internal
technical applications to ascertain whether they are year 2000 compliant. The
Company has conducted an internal assessment of its internal information and
telecommunication systems and believes based upon findings that these systems
are already, or in the process of being altered to become, year 2000 compliant.
Components of those systems which are in the process of becoming year 2000
compliant are expected to be completed and tested for compliance by the end of
the second quarter of 1999. The assessment and estimation of completion dates
for having those systems year 2000 compliant were conducted by the Company's
information technology and telecommunication staff based on their expertise in
those areas and discussions with representatives of vendors who support those
systems. The Company is also nearing completion in assessing its non-technical
applications to identify areas that are not year 2000
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compliant. Although the Company cannot determine at this time the extent of the
problem that may exist in these non-technical areas for not being year 2000
compliant, the Company does not expect this area to pose any significant
problems. The Company believes that the cost of bringing its non-technical
applications into year 2000 compliance will be immaterial.
Additionally, the Company is in the final stages of assessing its relationship
with major third parties whose inability to be year 2000 compliant in a timely
manner could have an adverse effect on the Company's operations. These third
parties are primarily vendors (banks, telephone companies, freight companies and
other suppliers for the Company's software products) whose inability to be year
2000 compliant could delay or cancel customer orders for the Company's products
and services, delay receipt of payments by customers for products shipped and
services rendered, and disrupt other aspects of the Company's operations. Any
one of these potential events could adversely affect the Company's financial
condition and results of operations.
The Company anticipates making formal inquiries with these major third parties
with respect to their year 2000 compliance programs and, more importantly, those
specific parts of their program that directly affect the Company's operations.
The Company plans to identify and categorize its third parties so that those
parties who are identified as being critical to the Company's operations receive
higher priority and more attention than those third parties who are deemed to be
not as critical to the Company's operations. The Company expects to solicit
information for these third parties and monitor the progress of their year 2000
compliant programs.
The Company is developing a contingency plan in the event the Company or any of
these third parties fail to become year 2000 compliant in a timely manner. Such
a plan will be completed after the Company has finished its assessment of its
third party vendors' and service providers' year 2000 programs and the testing
of its own year 2000 program. The Company believes that a reasonable worst-case
scenario for not being year 2000 compliant would be that the Company's software
products sold to users do not address all aspects or conditions related to the
year 2000 compliance issue and that the Company's vendors are not able to supply
components related to its software products. If such a scenario occurs, the
Company will have to redirect some of its product development staff to work on
the software to make it year 2000 compliant for events it did not originally
consider in the development of the software. The Company's users may also seek
to hold the Company liable for damages if the software does not function
properly.
Additionally, there could be delays in delivering software to customers as the
Company finds new suppliers or methods of delivery.
The Company does not separately track the internal costs incurred relating to
the year 2000 issue. Such costs that have been incurred relate principally to
payroll related expenses for the product development groups. Based on the
assessment the Company has made to date on the year 2000 compliance issue, the
Company does not believe that it will have an adverse effect on the Company's
financial condition and results of operations. The Company will continue to
update its assessment of its year 2000 readiness as it receives updated
information from its year 2000 program.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates. To manage the interest rate exposure, the Company invests its
cash in money market funds and U.S. Treasury securities. The U.S. Treasury
securities have maturity dates less than three years from the date of purchase
and the Company holds these securities to maturity. In addition, at November 30,
1998, the Company had
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a debt-free balance sheet. To control the risk relating to foreign exchange, the
Company attempts to execute its international contracts in U.S. dollars.
Currently, the Company only has two contracts that are denoted in foreign
currency that the Company has decided not to hedge its exposure. The Company
continually monitors its economic exposure to changes in foreign exchange rates
and in the future may enter into foreign exchange forward or option contracts if
conditions were to change.
FORWARD LOOKING STATEMENTS
This quarterly report contains certain "forward-looking statements" which
represent the Company's expectations and beliefs concerning future events,
including, but not limited to, statements regarding growth in sales of the
Company's products, profit margins and the sufficiency of the Company's cash
flow for the Company's future liquidity and capital resource needs. The Company
cautions that these statements are further qualified by important factors that
could cause actual results to differ materially from those forward looking
statements, including, without limitation, the decline in demand for the
Company's software products, the effect of general economic conditions and
factors affecting the life insurance, employee benefits and financial services
industries. These statements by their nature involve substantial risks and
uncertainties and actual events or results may differ as a result of these and
other factors.
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PART II. OTHER INFORMATION
Item 1. Legal
The Company is from time to time involved in routine litigation arising in the
ordinary course of business. No litigation in which the Company is presently
involved is material to its financial position or results of operations.
Item 4. Submission of Matter to Vote of Security Holders
The registrant will hold a Special Meeting of Stockholders on April 28, 1999.
The purpose of this meeting is: (1). To consider and vote upon a proposal to (i)
approve the agreement and plan of reorganization, dated as of January 15, 199,
among FDP, and SunGard Data Systems Inc., a Delaware Corporation, and
Development Corp., a Florida corporation and wholly owned subsidiary of SunGard,
and (ii) approve the merger of Development Corp. with and into FDP pursuant to
which FDP will become a wholly owned subsidiary of SunGard. 2. To transact such
other business as may properly be brought before the FDP special meeting, or any
adjournments or postponements to the FDP special meeting.
Item 6. Exhibits and Reports on Form 8-K
Form 8-K filed on January 15, 1999 relating to the acquisition of the Company by
SunGard Data Systems Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: 4/14/99 FDP CORP.
By: /s/ Michael C. Goldberg
--------------------------------------
Michael C. Goldberg
Chairman of Board of Directors
Chief Executive Officer and President
(principal executive and financial
officer)
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