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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 March 31, 1996
_______________
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 May 13, 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 consolidated financial statements and
accompanying notes included in the Company's Form 10-K for the year ended
December 31, 1995, as filed with the SEC.
2
<PAGE> 3
NEODATA SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,124 $ 186
Accounts receivable, net of allowance of $2,842 and $2,705 . . . . . . . . . . . 61,020 65,127
Prepaid expense and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,637 6,584
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,781 71,897
Property, plant and equipment, net of depreciation of $38,726 and $35,978 . . . . . 51,535 53,522
Computer software, net of amortization of $12,897 and $11,626 . . . . . . . . . . . 18,144 17,262
Debt issue costs and other assets, net . . . . . . . . . . . . . . . . . . . . . . 5,854 6,075
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 147,314 $ 148,756
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,321 $ 29,320
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,072 19,741
Current maturities of long-term debt and capital lease obligations . . . . . . . 640 631
--------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 46,033 49,692
Long-term debt and capital lease obligations, net of current maturities . . . . . . 183,324 178,852
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,298 10,441
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,145 5,698
--------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,800 244,683
--------- ---------
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 from Holding . . . . . . . . . . . . . . . . . . . . . . . . 57,347 57,347
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (183,175) (181,318)
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . 313 15
---------- -----------
Total stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . (97,486) (95,927)
---------- -----------
Total liabilities and stockholders' deficit . . . . . . . . . . . . . . . . . $ 147,314 $ 148,756
========== ===========
</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 MARCH 31, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,699 $ 64,567
-------- --------
Expenses:
Operating and production . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,575 47,556
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . 10,711 9,906
Depreciation of property, plant and equipment . . . . . . . . . . . . . . . . . 2,210 2,602
Amortization of computer software . . . . . . . . . . . . . . . . . . . . . . . 1,274 1,126
--------- ---------
Income before interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 3,929 3,377
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,786 5,568
-------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,857) $ (2,191)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,857) $ (2,191)
--------- ---------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 3,484 3,728
Provision for losses on accounts receivable . . . . . . . . . . . . . . . 600 748
Accretion of interest on long-term debt . . . . . . . . . . . . . . . . . 4,619 4,112
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,507 4,303
Prepaid expense and other . . . . . . . . . . . . . . . . . . . . . . . . (53) (3,867)
Debt issue costs and other assets . . . . . . . . . . . . . . . . . . . . 221 (252)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,486) (2,467)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,331 4,635
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . (143) 188
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (553) 84
-------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 12,527 11,212
-------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . 10,670 9,021
-------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . (223) (644)
Purchases of computer software and intangible assets . . . . . . . . . . (2,157) (2,104)
--------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . . (2,380) (2,748)
--------- ---------
Cash flows from financing activities:
Change in book overdrafts . . . . . . . . . . . . . . . . . . . . . . . . (4,513) ---
Borrowings under long-term line of credit . . . . . . . . . . . . . . . . 28,950 47,550
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (32) (30)
Payments on long-term line of credit . . . . . . . . . . . . . . . . . . . (28,950) (52,424)
Payments on capital leases . . . . . . . . . . . . . . . . . . . . . . . . (105) (137)
---------- ---------
Net cash used in financing activities . . . . . . . . . . . . . . . . (4,650) (5,041)
---------- ---------
Effects of exchange rate changes on cash . . . . . . . . . . . . . . . 298 27
---------- ---------
Net change in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,938 1,259
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 186 2,341
--------- ---------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,124 $ 3,600
========= =========
</TABLE>
(Continued)
5
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NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Total cash interest payments were $1,066,000 and $1,557,000 for the
three months ended March 31, 1996 and 1995, respectively.
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
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 consolidated financial statements and
accompanying notes included in the Form 10-K for the Company for the year ended
December 31, 1995, 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 March 31, 1996 and December 31, 1995, respectively.
Letters of credit outstanding against the Senior Credit Facility were
$4,228,000 and $4,055,000 as of March 31, 1996 and December 31, 1995,
respectively. Total remaining availability under the Senior Credit Facility was
$25,772,000 and $25,945,000 as of March 31, 1996 and December 31, 1995,
respectively.
3. FORWARD FOREIGN EXCHANGE CONTRACTS
The Company enters into forward foreign exchange contracts to protect
against future fluctuations in foreign currency exchange rates. At March 31,
1996, the Company had approximately $2,093,000 in contracts to buy foreign
currency in the future. The contracts, which expire through June, 1996, have
an estimated fair value of approximately $2,102,000, based on the March 31,
1996 exchange rate.
7
<PAGE> 8
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 audited consolidated financial statements and
accompanying notes included in the Company's Form 10-K for the year ended
December 31, 1995, as filed with the SEC.
GENERAL
The Company is a provider of subscription, product, database
management, and information support services to organizations using direct
marketing. These support services include magazine, book, and product
fulfillment, product warehousing and distribution, telephone customer service,
and marketing database management.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996, COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995
Revenue. Revenue for the three months ended March 31, 1996 was $59.7
million, a decrease of $4.9 million, or 7.5%, from $64.6 million during the
comparable period in 1995. Approximately $3.4 million of the decrease is
attributable to shifts in volume related to a significant client. The shifts in
volume are the result of certain programs taking place later in the year in 1996
as compared to 1995. The remainder of the revenue decrease is primarily due to
the Company's decision to downsize certain telephone customer service operations
in order to focus on more profitable market segments.
Operating and Production Expenses. Operating and production expenses
for the three months ended March 31, 1996 decreased by $6.0 million, or 12.6%,
to $41.6 million, from $47.6 million during the comparable period in 1995. As a
percentage of revenue, operating and production expenses decreased from 73.7%
in 1995 to 69.6% in 1996. The decrease in operating and production expenses is
primarily due to the decreased volumes mentioned above, as well as production
efficiencies resulting from the Company's Customer Service Centers being in
full production throughout the first quarter of 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 1996 increased $0.8
million, or 8.1%, to $10.7 million, from $9.9 million during the comparable
period in 1995 and increased as a percentage of revenue from 15.3% in 1995 to
17.9% 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 March 31, 1996 were $3.5 million, a
decrease of 6.5%, or $0.2 million, from $3.7 million during the comparable
period in 1995. The decrease is the result of certain assets reaching full
depreciation or amortization, offset by normal additions to property, plant and
equipment and capitalized software.
8
<PAGE> 9
Income from Operations before Interest Expense. Income from operations
for the three months ended March 31, 1996 was $3.9 million, an increase of $0.5
million, or 16.3%, from $3.4 million during the comparable period in 1995. The
increase is primarily due to decreased operating and production, depreciation,
and amortization expenses, as discussed above.
Interest Expense. Interest expense for the three months ended March
31, 1996 was $5.8 million, an increase of $0.1 million, or 3.9%, from $5.7
million during the comparable period in 1995. The increase in interest expense
is primarily the result of increased accretion on the Notes ($0.5 million),
offset by decreases in interest under the Senior Credit Facility ($0.2 million)
and EDS obligations ($0.1 million).
Net Loss. The Company reported a loss of $1.9 million for the three
months ended March 31, 1996, compared to $2.2 million for the comparable period
in 1995. The $0.3 million, or 15.2%, decrease in net loss is primarily due to
decreased operating and production, depreciation, and amortization expenses, as
discussed above.
LIQUIDITY & CAPITAL RESOURCES
Cash provided by operations during the three months ended March 31,
1996 was $10.7 million, an increase of $1.7 million from operating cash flow of
$9.0 million during the comparable period in 1995. Operating cash flow for the
three months ended March 31, 1996 was sufficient to fund property, plant and
equipment expenditures, which totaled $0.2 million, and sustaining software
development projects, which totaled $2.2 million. Working capital increased
$3.5 million, from $22.2 million as of December 31, 1995 to $25.7 million as of
March 31, 1996. This increase was primarily due to an increase in cash of $3.9
million, which is attributable to improved collections, allowing the Company to
minimize borrowings under the Senior Credit Facility. Under the terms of the
Notes, $4.6 million in interest was accreted during the three months ended
March 31, 1996 as an addition to the Notes rather than being paid in cash.
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
capital expenditures during the three months ended March 31, 1996 totaled $2.4
million, down $0.3 million from the comparable period in 1995. In addition, the
Company has financed the costs associated with the construction of its newest
warehouse and operating facility (the "Centennial Building") through a capital
lease agreement (the "Centennial Building Capital Lease") in two separate
phases totaling approximately $22.5 million. The Centennial Building Capital
Lease commenced in April 1994 for an initial term of 20 years with annual total
payments of approximately $2.8 million.
On May 5, 1993, the Company entered into the Senior Credit Facility,
which provides a senior revolving line of credit in the aggregate principal
amount of up to $30.0 million, as determined pursuant to a borrowing base
formula. The Company was in compliance with the financial and technical
requirements of the Senior Credit Facility as of March 31, 1996. As of March
31, 1996, the Company had no amounts outstanding under the Senior Credit
Facility, $4.2 million outstanding under letters of credit, and remaining
availability of $25.8 million. The Company anticipates that, due to
seasonality, utilization of the Senior Credit Facility will be necessary at
times for the remainder of 1996.
9
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The Company is currently accreting interest expense which, in
accordance with the terms of the Notes, will be added to the balance of the
Notes from the period of issuance to May 1, 1996. Subsequently, the interest
will be accrued for payment, with the first interest payment of $9.8 million
due on November 1, 1996. The interest, compounded semi- annually, is
calculated on the accreted value of the Notes, using an annual interest rate of
12%. The Notes mature on May 1, 2003, when the required principal balance of
$163.0 million becomes due and payable.
In connection with the Product acquisition, the Company entered into an
agreement granting service credits of $7.0 million to Meredith against future
services to be provided by the Company (the "Service Credits"), payable over 48
months beginning in July 1994. The Service Credits are payable based upon a
percentage of revenues billed to Meredith. Based on the current level of
Meredith revenues, the Company believes that the scheduled Service Credits will
be fully offset by such revenues. However, in the event that revenues are
insufficient to offset the scheduled Service Credits, the Company is obligated
to remit the amount of the Service Credits to Meredith in cash. Liabilities
related to the Service Credits totaled $3.3 million at March 31, 1996, which
equals the present value of the credits discounted at 14.5%.
Holding owes Meredith approximately $4.9 million pursuant to the
Meredith Note. Holding is a holding company with no independent operations.
The Board of Directors of the Company has the authority to declare dividends
(to the extent of legally available funds) to Holding as payments on such note.
10
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
27 - Financial Data Schedule
REPORTS ON FORM 8-K
During the quarter ended March 31, 1996, the Company filed a
report on Form 8-K dated April 9, 1996, reporting information pursuant to Item
8 with respect to the Company's change in fiscal year from a fiscal year
beginning January 1 and ending December 31 to a fiscal year beginning July 1
and ending June 30. This change will be effective July 1, 1996. The Company
will file a transition report on Form 10-K covering the transition period
ending June 30, 1996.
11
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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: May 13, 1996 /s/ Nicholas J. Cuccaro
Nicholas J. Cuccaro
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer
of the Company)
12
<PAGE> 13
EXHIBIT INDEX
Exhibit
Number Exhibit Description Page
- -------- ------------------- ----
[S] [C] [C]
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,124
<SECURITIES> 0
<RECEIVABLES> 61,020
<ALLOWANCES> 2,842
<INVENTORY> 0
<CURRENT-ASSETS> 71,781
<PP&E> 51,535
<DEPRECIATION> 38,726
<TOTAL-ASSETS> 147,314
<CURRENT-LIABILITIES> 46,033
<BONDS> 183,324
0
0
<COMMON> 0
<OTHER-SE> (97,486)
<TOTAL-LIABILITY-AND-EQUITY> 147,314
<SALES> 0
<TOTAL-REVENUES> 59,699
<CGS> 0
<TOTAL-COSTS> 41,575
<OTHER-EXPENSES> 14,195
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 5,786
<INCOME-PRETAX> (1,857)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,857)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,857)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
