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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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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 4, 1997, the registrant had outstanding 1,173 shares of its
common stock, $.01 par value per share.
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<PAGE>
Neodata Services, Inc.
Form 10-Q
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets.......................... 3
Consolidated Statements of Operations................ 4
Consolidated Statements of Cash Flows................ 5
Notes to Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.. 9
Item 6. Exhibits and Reports on Form 8-K..................... 9
SIGNATURE............................................................. 10
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
NEODATA SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
as of September 30, 1997 and June 30, 1997
(In thousands, except share information)
(Unaudited)
September 30, June 30,
Assets 1997 1997
---- ----
<S> <C> <C>
Current assets:
Cash............................................. $ 2,040 $ 1,786
Accounts receivable, net......................... 85,694 67,800
Prepaid expense and other........................ 12,859 10,859
-------- --------
Total current assets........................... 100,593 80,445
Property, plant and equipment, net of depreciation.. 48,331 47,593
Computer software, net of amortization.............. 18,573 18,362
Excess of cost over acquired net assets, net of
amortization..................................... 9,243 9,517
Debt issue costs and other assets................... 5,992 7,278
-------- --------
Total assets................................... $182,732 $163,195
======== ========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable................................. $ 28,109 $ 34,329
Accrued liabilities.............................. 36,340 27,387
Current maturities of long-term debt and
capital lease obligations.................... 4,878 1,804
-------- --------
Total current liabilities...................... 69,327 63,520
Long-term debt and capital lease obligations, net of
current maturities........................... 209,731 192,153
Customer deposits................................... 12,834 12,521
Other liabilities................................... 2,989 3,598
-------- --------
Total liabilities.............................. 294,881 271,792
-------- --------
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.............................. 54,946 54,946
Accumulated deficit.............................. (195,391) (192,019)
Cumulative translation adjustment................ 267 447
-------- --------
Total stockholders' deficit.................... (112,149) (108,597)
-------- --------
Total liabilities and stockholders' deficit.... $182,732 $163,195
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended September 30, 1997 and 1996
(In thousands)
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Revenue............................................ $ 73,146 $ 57,383
-------- --------
Expenses:
Operating and production, excluding depreciation
and amortization shown below.................... 52,780 40,169
Selling, general and administrative............... 11,618 9,667
Depreciation and amortization..................... 4,852 3,784
-------- --------
Income before interest expense...................... 3,896 3,763
Interest expense.................................... 6,195 6,146
-------- --------
Net loss before extraordinary loss.................. (2,299) (2,383)
Extraordinary loss - early extinguishment of debt... 1,073 --
-------- --------
Net loss............................................ $ (3,372) $ (2,383)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended September 30, 1997 and 1996
(In thousands)
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities. $ (2,643) $ 4,578
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment....... (2,763) (552)
Payments for acquisitions, net of cash acquired.. -- (3,218)
Purchases and development of computer software... (2,808) (1,692)
-------- --------
Net cash used in investing activities.......... (5,571) (5,462)
-------- --------
Cash flows from financing activities:
Change in book overdrafts........................ (12,004) 543
Borrowings under long-term lines of credit....... 36,113 13,370
Payments on long-term lines of credit............ (14,122) (13,370)
Payments on long-term debt and capital leases.... (1,414) (199)
Other, net....................................... 75 (410)
-------- --------
Net cash provided by (used in) financing
activities................................... 8,648 (66)
-------- --------
Change resulting from cumulative translation
adjustment................................... (180) (45)
-------- --------
Net change in cash.................................. 254 (995)
Cash at beginning of period......................... 1,786 1,304
-------- --------
Cash at end of period............................... $ 2,040 $ 309
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
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"). The Company is a wholly owned
subsidiary of Neodata Corporation ("Holding"). 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 notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Report on Form
10-K for the period ended June 30, 1997, as filed with the SEC.
2. Change in Control
On August 29, 1997, Electronic Data Systems Corporation ("EDS")
acquired all of the outstanding capital stock of Holding (the "EDS
Acquisition"). All shares of Holding common and preferred stock and all Holding
options and warrants outstanding immediately prior to the EDS Acquisition were
retired, and Holding became a wholly-owned subsidiary of EDS.
3. Lines of Credit and Extraordinary Loss
Concurrent with the EDS Acquisition, all amounts outstanding under the
Company's revolving line of credit facility (the "Senior Credit Facility") and
the Company's acquisition credit facility (the "Acquisition Credit Facility")
were repaid by EDS, and the related credit agreements were terminated. The
Senior Credit Facility and the Acquisition Credit Facility were replaced with
two promissory notes dated August 29, 1997 (the "Promissory Notes"). The Senior
Credit Facility was replaced with a Promissory Note between the Company and EDS,
which provides for intercompany borrowings of up to $40,000,000 with no
interest. The Acquisition Credit Facility was replaced with a Promissory Note
between Neodata Creative Services, Inc. and EDS, which provides for intercompany
borrowings of up to $4,372,000 with no interest. At the option of EDS,
additional principal may be advanced or repaid at any time under the terms of
the Promissory Notes. All amounts outstanding under the $40,000,000 Promissory
Note are due and payable on the earlier of 1) January 31, 2002 or 2) on demand
at any time following the repayment in full of the Company's Senior Deferred
Coupon Notes (the "Notes"). All amounts due under the $4,372,000 Promissory Note
are due and payable on demand. Total borrowings from EDS under the Promissory
Notes amounted to $31,362,000 at September 30, 1997. At June 30, 1997,
$5,000,000 and $4,300,000 was outstanding under the Senior Credit Facility and
the Acquisition Credit Facility, respectively.
Unamortized debt issue costs of $1,073,000 related to the Senior Credit
Facility and the Acquisition Credit Facility were charged as an extraordinary
loss.
6
<PAGE>
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, 1997,
as filed with the SEC.
Results of Operations
Three Months Ended September 30, 1997, Compared to Three Months Ended September
30, 1996
Revenue. Revenue for the three months ended September 30, 1997 was
$73.1 million, an increase of $15.7 million, or 27.5%, from $57.4 million for
the comparable period in 1996. Approximately $6.0 million of the increase was
due to revenue from new clients, and $4.4 million of the increase was due to the
acquisition of The Lacek Group. The remainder of the increase was due to a net
increase in revenue from existing clients.
Operating and Production Expenses. Operating and production expenses
for the three months ended September 30, 1997 were $52.8 million, an increase of
$12.6 million, or 31.4%, from $40.2 million for the comparable period in 1996.
The increase in operating and production expenses was primarily due to the
increase in revenues and to increased labor costs. As a percentage of revenue,
operating and production expenses increased from 70.0% in 1996 to 72.2% in 1997,
due to the increased labor costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1997 were $11.6
million, an increase of $1.9 million, or 20.2%, from $9.7 million for the
comparable period in 1996. The increase in selling, general, and administrative
expenses was primarily due to increased marketing efforts, the acquisition of
The Lacek Group, and increased general corporate expenses.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for the three months ended September 30, 1997 were $4.9 million, an
increase of $1.1 million, or 28.2%, from $3.8 million during the comparable
period in 1996. The increase is primarily due to a $1.0 million increase in
amortization of computer software, in addition to amortization of the excess of
cost over acquired net assets.
Interest Expense. Interest expense for the three months ended September
30, 1997 was $6.2 million, which was comparable to $6.1 million during the
same period in 1996.
Extraordinary Loss. Concurrent with the EDS Acquisition, the Senior
Credit Facility and the Acquisition Credit Facility were repaid in full and the
related agreements were terminated. Unamortized debt issue costs of $1,073,000
related to the Senior Credit Facility and the Acquisition Credit Facility were
charged as an extraordinary loss.
7
<PAGE>
Liquidity and Capital Resources
Working Capital and Cash from Operations. Cash used in operations
during the three months ended September 30, 1997 was $2.6 million, a decrease of
$7.2 million from cash provided by operations of $4.6 million during the
comparable period in 1996. The decrease in cash provided by operations was due
primarily to an increase in accounts receivable, offset by increased accounts
payable and accrued liabilities. Working capital at September 30, 1997 was $31.2
million, as compared to $16.9 million at June 30, 1996, due primarily to
increased accounts receivable.
Cash Used in Investing. Cash used in investing activities during the
three months ended September 30, 1997 totaled $5.6 million, as compared to $5.5
million for comparable period in 1996. The increase was due to a $3.3 million
increase in expenditures for property, plant, and equipment and computer
software, offset by a $3.2 decrease in payments for acquisitions.
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 expenditures. Management believes that cash flow from
operations will be sufficient to fund anticipated capital expenditures for the
remainder of the fiscal year ending June 30, 1998.
Long-term debt. As of September 30, 1997, the Company had $31.3 million
outstanding under the Promissory Notes due to EDS, with remaining availability
of $13.1 million. The Company anticipates that, due to seasonality and interest
payments on the Notes, utilization of the Promissory Notes will be necessary at
times for the remainder of the fiscal year ending June 30, 1998.
The Company was in compliance with all financial and technical requirements of
the Notes as of September 30, 1997.
8
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Effective as of August 29, 1997, in connection with the EDS Acquisition,
pursuant to an action by written consent of Holding as the sole stockholder of
the Company, Gary J. Fernandes, G. Stuart Reeves, and Robert McCashin were
appointed as the directors of the Company.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
- --------
10.1 Promissory Note, dated as of August 29, 1997, between the Company and
EDS
10.2 Promissory Note, dated as of August 29, 1997, between Neodata Creative
Services, Inc. and EDS
27 Financial Data Schedule
Reports on Form 8-K
- -------------------
During the three months ended September 30, 1997, the Company filed a Current
Report on Form 8-K dated August 29, 1997, reporting the acquisition of Holding
by EDS under Item 1 - Changes in Control of Registrant.
9
<PAGE>
SIGNATURE
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 4, 1997 /s/ Nicholas J. Cuccaro
---------------------------------------
Nicholas J. Cuccaro
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer of the Company)
10
Exhibit 10.1
PROMISSORY NOTE
$40,000,000 August 29, 1997
FOR VALUE RECEIVED, Neodata Services, Inc. (the "Maker") hereby promises to
pay on the Maturity Date (as hereinafter defined) to the order of Electronic
Data Systems Corporation (the "Payee") the principal sum of Forty Million and
no/100 Dollars ($40,000,000.00), or, if less, the unpaid principal amount of all
loans made by Payee (which amount as of the date of this Note equals
$23,690,638.87) to the Maker. This Note is meant to evidence existing and future
indebtedness of Maker to Payee, it being understood that principal amounts may
be repaid and readvanced from time to time at the option of Payee.
1. Maturity. Subject to acceleration in the event of default under Section
4 hereof, this Note shall mature, and all unpaid principal and all accrued and
unpaid interest thereon shall become due and payable, on the earlier of (i)
January 31, 2002 and (ii) the demand of the holder of this Note at any time
following the repayment in full of the Company's 12% Senior Deferred Coupon
Notes due 2003 (the "Senior Notes") (the "Maturity Date").
2. Repayment of Principal. All outstanding principal shall be due and
payable on the Maturity Date.
3. Optional Prepayments. The Maker may at any time and from time to time
prepay all or any portion of the principal amount of this Note, without penalty
or premium.
4. Events of Default. If any of the following events ("Events of Default")
shall have occurred and be continuing:
(a) the Maker shall fail in the payment of any portion of the
principal amount of this Note when the same becomes due and payable;
(b) the Maker shall (i) fail generally to pay Maker's debts as they
become due, (ii) file, or consent to the filing of, a petition seeking
liquidation, reorganization or other relief with respect to Maker's debts
under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (iii) consent to the appointment of a trustee, receiver,
liquidator, custodian or other similar official for any substantial part of
Maker's properties, or iv) make a general assignment for the benefit of
Maker's creditors;
(c) an order shall be entered by a court or other governmental
authority of competent jurisdiction (i) granting any relief with respect
to the Maker or Maker's debts in any case or proceeding for liquidation,
reorganization or otherwise under any bankruptcy, insolvency or other similar
law now or hereafter in effect, (ii) appointing, without the consent of the
Maker, a trustee, receiver, liquidator, custodian or other similar official
for any substantial part of Maker's properties, or (iii) pursuant to the
terms of which the Maker is
<PAGE>
adjudicated to be insolvent; provided, however, that any such order specified in
clause (i), (ii) or (iii) above shall not have been dismissed within 30 days;
(d) the Maker shall be dissolved, liquidated or terminated for any
reason; then, and in any such event, the Payee may, by notice to the Maker,
declare this Note (together with all interest accrued hereon) to be, and this
Note shall thereupon become, immediately due and payable without presentment,
demand, protest, notice of intent to accelerate, notice of acceleration or
other notice of any kind, all of which are hereby waived by the Maker; provided,
however, that in the case of any of the Events of Default specified in clause
(b), (c) or (d) above, without any notice to Maker or any other act by the
Payee, this Note (together with the accrued interest thereon) shall
automatically become due and payable without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or notice of any
other kind, all of which are hereby waived by the Maker.
5. Amendment; Waiver. The terms and provisions of this Note may be modified
or amended, and the observance of any term or provision hereof may be waived,
only by a written instrument executed by the Maker and the Payee or any other
holder hereof. No failure to exercise any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
6. Parties in Interest; Assignment. This Note shall be binding upon and
inure to the benefit of the Maker and the Payee and their respective successors
and assigns. The Payee may at any time assign this Note or Payee's rights and
interests herein to any person. If the Payee makes such an assignment, Payee
shall provide notice thereof to the Maker within ten Business Days of such
assignment.
7. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCEPT THAT NO EFFECT SHALL BE
GIVEN TO ANY CONFLICTS OF LAW PRINCIPLES WHICH WOULD REQUIRE THE APPLICATION OF
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS).
IN WITNESS WHEREOF, the undersigned has executed this Note as of the 29th
day of August, 1997.
NEODATA SERVICES, INC.
By: /s/ Jeffrey D. Cushman
---------------------------------
Name: Jeffrey D. Cushman
Title: Assistant Treasurer
2
Exhibit 10.2
PROMISSORY NOTE
$4,371,541.67 August 29, 1997
FOR VALUE RECEIVED, the undersigned, Neodata Creative Services, Inc.
("Maker"), promises to pay to the order of Electronic Data Systems Corporation
("Payee"), at the offices of Payee at 5400 Legacy Drive, Plano, Texas 75024, the
sum of Four Million, Three Hundred Seventy-One Thousand, Five Hundred Forty-One
and 67/100 Dollars ($4,371,541.67), or so much thereof as has been advanced and
not previously repaid.
All outstanding principal shall be due and payable on demand.
This Note is meant to evidence existing and future indebtedness of
Maker to Payee, it being understood that principal amounts may be repaid and
readvanced from time to time at the option of Payee.
If this Note is placed in the hands of an attorney for collection, or
in the event this Note is collected in whole or in part through legal
proceedings of any nature, then and in any such case Maker promises to pay all
costs of collection, including, but not limited to, reasonable attorneys' fees
incurred by the holder hereof on account of such collection, whether or not suit
is filed.
THIS NOTE IS BEING EXECUTED AND DELIVERED IN THE STATE OF TEXAS, AND
THE LAWS (EXCLUDING THE CONFLICTS OF LAWS RULES) OF SUCH STATE SHALL GOVERN THE
CONSTRUCTION, VALIDITY, ENFORCEMENT, AND INTERPRETATION HEREOF, EXCEPT TO THE
EXTENT FEDERAL LAWS OTHERWISE GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT,
AND INTERPRETATION HEREOF.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
29th day of August, 1997.
NEODATA CREATIVE SERVICES, INC.
By: /s/ Jeffrey D. Cushman
---------------------------------
Name: Jeffrey D. Cushman
Title: Assistant Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,040
<SECURITIES> 0
<RECEIVABLES> 87,075
<ALLOWANCES> 1,381
<INVENTORY> 0
<CURRENT-ASSETS> 100,593
<PP&E> 95,474
<DEPRECIATION> 47,143
<TOTAL-ASSETS> 182,732
<CURRENT-LIABILITIES> 69,327
<BONDS> 209,731
0
0
<COMMON> 0
<OTHER-SE> (112,149)
<TOTAL-LIABILITY-AND-EQUITY> 182,732
<SALES> 0
<TOTAL-REVENUES> 73,146
<CGS> 0
<TOTAL-COSTS> 52,780
<OTHER-EXPENSES> 16,320
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 6,195
<INCOME-PRETAX> (2,299)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,299)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,073)
<CHANGES> 0
<NET-INCOME> (3,372)
<EPS-PRIMARY> 0
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</TABLE>
