<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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Commission File No. 33-63838
NEODATA SERVICES, INC.
(a Delaware Corporation)
I.R.S. Employer Identification Number 75-2333190
833 W. South Boulder Road
Louisville, Colorado 80027
(303) 666-7000
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 requirement for the past 90 days. Yes X No
--- ---
As of November 11, 1996, the registrant had outstanding 1,173 shares of
its common stock, $.01 par value per share.
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<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements have been prepared by
Neodata Services, Inc. (the "Company"), pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). 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 SEC rules and regulations. In management's opinion,
all adjustments necessary for a fair presentation of the results of operations
for the periods presented have been made and are of a normal and recurring
nature.
These consolidated financial statements and accompanying notes should
be read in conjunction with the Company's Report on Form 10-K for the period
ended June 30, 1996, as filed with the SEC.
2
<PAGE> 3
NEODATA SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
ASSETS 1996 1996
------------- ---------
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 309 $ 1,304
Accounts receivable, net of allowance of $1,654 and $1,593 . . . . . . . . . . . 60,909 54,996
Prepaid expense and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,826 7,052
---------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,044 63,352
Property, plant and equipment, net of depreciation of $42,083 and $39,944 . . . . . 50,537 51,649
Computer software, net of amortization of $15,881 and $14,337 . . . . . . . . . . . 19,244 18,819
Debt issue costs and other assets, net . . . . . . . . . . . . . . . . . . . . . . 8,990 5,717
---------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 147,815 $ 139,537
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,192 $ 18,323
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,121 22,062
Current maturities of long-term debt and capital lease obligations . . . . . . . 603 599
---------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 51,916 40,984
Long-term debt and capital lease obligations, net of current maturities . . . . . . 184,448 184,651
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,869 10,522
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,792 5,757
---------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253,025 241,914
---------- ---------
Commitments and contingencies
Stockholders' deficit:
Common stock, par value $.01 per share, 10,000 shares
authorized, 1,173 shares issued and outstanding . . . . . . . . . . . . . . . --- ---
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,029 28,029
Contributed capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,117 56,522
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (189,401) (187,018)
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . 45 90
---------- ---------
Total stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . (105,210) (102,377)
---------- ---------
Total liabilities and stockholders' deficit . . . . . . . . . . . . . . . . . $ 147,815 $ 139,537
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,383 $ 56,848
-------- --------
Expenses:
Operating and production . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,169 42,586
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . 9,667 8,587
Depreciation of property, plant and equipment . . . . . . . . . . . . . . . . . 2,204 2,565
Amortization of computer software . . . . . . . . . . . . . . . . . . . . . . . 1,580 1,016
-------- --------
Income before interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 3,763 2,094
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,146 5,735
-------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,383) $ (3,641)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . $ 4,578 $ 5,303
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . (552) (1,382)
Acquisition of business . . . . . . . . . . . . . . . . . . . . . . . . . (3,218) --
Purchases and development of computer software . . . . . . . . . . . . . (1,692) (1,672)
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . (5,462) (3,054)
-------- --------
Cash flows from financing activities:
Change in book overdrafts . . . . . . . . . . . . . . . . . . . . . . . . 543 1,742
Borrowings under long-term line of credit . . . . . . . . . . . . . . . . 13,370 29,300
Payments on long-term line of credit . . . . . . . . . . . . . . . . . . . (13,370) (32,500)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (609) (258)
-------- --------
Net cash used in financing activities . . . . . . . . . . . . . . . . (66) (1,716)
-------- --------
Effects of exchange rate changes on cash . . . . . . . . . . . . . . . (45) 165
-------- --------
Net change in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (995) 698
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 1,304 2,716
-------- --------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 309 $ 3,414
======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Total cash interest payments were $944,000 and $955,000 for the three
months ended September 30, 1996 and 1995, respectively.
The accompanying notes are an integral part of these financial statements.
5
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NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
by Neodata Services, Inc. (the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally accompanying financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. In
management's opinion, all adjustments necessary for a fair presentation of the
results of operations for the periods presented have been made and are of a
normal and recurring nature.
These consolidated financial statements and accompanying notes should
be read in conjunction with the Company's Report on Form 10-K for the period
ended June 30, 1996, as filed with the SEC.
2. REVOLVING LINE OF CREDIT
On May 5, 1993, the Company entered into a five year senior revolving
line of credit facility (the "Senior Credit Facility"). The Senior Credit
Facility, as amended, provides a line of credit, calculated pursuant to a
borrowing base formula, of up to $30,000,000 in the event that certain
financial thresholds are met. No amounts were outstanding under the Senior
Credit Facility as of September 30, 1996 and June 30, 1996. Letters of credit
outstanding against the Senior Credit Facility were $5,075,000 and $4,886,000
as of September 30, 1996 and June 30, 1996, respectively. Total remaining
availability under the Senior Credit Facility was $24,925,000 and $25,114,000
as of September 30, 1996 and June 30, 1996, respectively.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Company's
unaudited consolidated financial statements and accompanying notes included
herein and the Company's Report on Form 10-K for the period ended June 30,
1996, as filed with the SEC.
RESULTS OF OPERATIONS
GENERAL
All references herein to "fiscal 1997" relate to the year ended
June 30, 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenue. Revenue for the three months ended September 30, 1996 was
$57.4 million, an increase of $0.6 million, or 0.9%, from $56.8 million during
the comparable period in 1995. The increase is due to increased demand from
existing clients, offset by decreased revenues from certain other clients
resulting from the Company's decision to downsize certain telephone customer
service operations.
Operating and Production Expenses. Operating and production expenses
for the three months ended September 30, 1996 decreased by $2.4 million, or
5.7%, to $40.2 million, from $42.6 million during the comparable period in
1995. As a percentage of revenue, operating and production expenses decreased
from 74.9% in 1995 to 70.0% in 1996. The decrease in operating and production
expenses is primarily due to the downsizing of certain telephone customer
service operations, and to continuing improvements in the Company's production
efficiency.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1996 increased
$1.1 million, or 12.6%, to $9.7 million, from $8.6 million during the
comparable period in 1995 and increased as a percentage of revenue from 15.1%
in 1995 to 16.8% in 1996. The increase is primarily due to increased sales and
marketing efforts and increased general corporate expenses.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for the three months ended September 30, 1996 were $3.8 million, an
increase of 5.7%, or $0.2 million, from $3.6 million during the comparable
period in 1995. The increase is the result of normal additions to property,
plant and equipment and capitalized software, offset by certain assets reaching
full depreciation or amortization.
Income before Interest Expense. Income before interest expense for the
three months ended September 30, 1996 was $3.8 million, an increase of $1.7
million, or 79.7%, from $2.1 million during the comparable period in 1995. The
increase is due to increased revenues and decreased operating and production
expenses, offset by increased selling, general, and administrative expenses and
depreciation and amortization expenses, all as discussed above.
Interest Expense. Interest expense for the three months ended
September 30, 1996 was $6.1 million, an increase of $0.4 million, or 7.2%, from
$5.7 million during the comparable period in 1995. The increase in interest
expense is primarily the result of increased interest expense under the Notes,
which reached their full accreted value during 1996.
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<PAGE> 8
Net Loss. The Company reported a net loss of $2.4 million for the
three months ended September 30, 1996, a $1.2 million decrease from $3.6
million for the comparable period in 1995. The decrease in net loss is due to
increased revenues and decreased operating and production expenses, offset by
increased selling, general, and administrative expenses, depreciation and
amortization expenses, and interest expense, all as discussed above.
LIQUIDITY & CAPITAL RESOURCES
Cash provided by operations during the three months ended September 30,
1996 was $4.6 million, a decrease of $0.7 million from operating cash flow of
$5.3 million during the comparable period in 1995. Working capital at September
30, 1996 was $17.1 million, compared to $22.4 million at June 30, 1996. The
decrease in working capital was primarily due to an increase in accrued
interest attributable to the Notes.
In accordance with the terms of the Notes, interest expense at 12% was
added to the balance of the Notes through April 1996 and accrued for payment
thereafter. Semi-annual interest payments on the Notes of $9.8 million are due
beginning November 1, 1996. Subsequent to September 30, 1996 the Company made
its first interest payment as scheduled. The Notes mature on May 1, 2003, when
the principal balance of $163.0 million becomes due and payable.
The Company has a significant investment in property, plant and
equipment and computer software utilized in providing service to its clients,
which requires annual routine capital and maintenance expenditures. Cash used
in investing activities during the three months ended September 30, 1996
totaled $5.5 million, up $2.4 million from the comparable period in 1995. The
increase from 1995 is primarily due to the acquisition in July 1996 of
International Subscription Services Limited, a United Kingdom based
subscription fulfillment subsidiary of The Economist Newspaper Limited, offset
by decreased purchases of plant, property, and equipment. Management believes
that cash flow from operations will be sufficient to fund anticipated capital
expenditures for the remainder of fiscal 1997.
As of September 30, 1996, the Company had no amounts outstanding under
the Senior Credit Facility, $5.1 million outstanding under letters of credit,
and remaining availability of $24.9 million. The Company anticipates that, due
to seasonality and interest payments on the Notes, utilization of the Senior
Credit Facility will be necessary at times for the remainder of fiscal 1997.
The company was in compliance with all financial and technical
requirements of the Senior Credit Facility and the Centennial Building Capital
Lease as of September 30, 1996.
8
<PAGE> 9
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
27 - Financial Data Schedule
REPORTS ON FORM 8-K
None.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NEODATA SERVICES, INC.
Date: November 11, 1996 /s/ Nicholas J. Cuccaro
-------------------------------------
Nicholas J. Cuccaro
Senior Vice President and Chief
Financial Officer (principal financial
and accounting officer of the Company)
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 309
<SECURITIES> 0
<RECEIVABLES> 62,563
<ALLOWANCES> 1,654
<INVENTORY> 0
<CURRENT-ASSETS> 69,044
<PP&E> 92,620
<DEPRECIATION> 42,083
<TOTAL-ASSETS> 147,815
<CURRENT-LIABILITIES> 51,916
<BONDS> 184,448
0
0
<COMMON> 0
<OTHER-SE> (105,210)
<TOTAL-LIABILITY-AND-EQUITY> 147,815
<SALES> 0
<TOTAL-REVENUES> 57,383
<CGS> 0
<TOTAL-COSTS> 40,169
<OTHER-EXPENSES> 13,331
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 6,146
<INCOME-PRETAX> (2,383)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,383)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,383)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
