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, 1998.
Commission file number 0-20311
-------
DATA BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3668779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7050 Union Park Center, Suite 600, Midvale, Utah 84047
(Address of principal administrative offices)
Registrant's telephone number, including area code: (801) 562-2252
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 by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- ----
The number of shares of common stock, par value $.01 per share, of the
registrant outstanding as of May 8, 1998 was 32,784,929.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
-------------------
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------- -----------------
1998 1997 1998 1997
------ ------ ------ ------
REVENUES $22,245 $23,579 $68,289 $69,188
COSTS AND EXPENSES
Cost of services 8,599 8,403 26,460 24,132
Selling, general
and administrative 8,307 9,432 24,196 26,449
Depreciation and
amortization 4,146 3,624 11,742 10,472
-------- -------- -------- --------
Total costs and expenses 21,052 21,459 62,398 61,053
-------- -------- -------- --------
INCOME FROM OPERATIONS 1,193 2,120 5,891 8,135
Adjustment of gains on
sales of assets - - - 952
Other income, net 58 45 271 (752)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,251 2,165 6,162 8,335
Provision for income taxes 563 826 2,773 3,471
-------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS 688 1,339 3,389 4,864
DISCONTINUED OPERATIONS
Loss from discontinued
operations, net of tax - (768) (1,647) (1,104)
Loss on disposal of
discontinued operations,
net of tax - (21,264) (6,109) (21,264)
-------- -------- -------- --------
Total discontinued
operations - (22,032) (7,756) (22,368)
-------- -------- -------- --------
NET INCOME (LOSS) $688 ($20,693) ($4,367) ($17,504)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE
Basic:
Income from continuing
operations $0.02 $0.04 $0.10 $0.15
Loss from discontinued
operations - (0.67) (0.23) (0.69)
-------- -------- -------- --------
Net income (loss) $0.02 ($0.63) ($0.13) ($0.54)
======== ======== ======== ========
Diluted:
Income from continuing
operations $0.02 $0.04 $0.10 $0.14
Loss from discontinued
operations - (0.65) (0.23) (0.66)
-------- -------- -------- --------
Net income (loss) $0.02 ($0.61) ($0.13) ($0.52)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic 32,856 32,946 32,787 32,513
Diluted 33,233 33,958 33,342 33,769
See accompanying notes to consolidated financial statements.
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31, June 30,
1998 1997
-------- -------
ASSETS
Current Assets:
Cash and cash equivalents $15,655 $ 10,524
Accounts receivable, net 11,345 9,366
Net assets of discontinued operations 16,988 27,360
Prepaid expenses and other current assets 1,503 1,016
------- -------
Total Current Assets 45,491 48,266
Property and equipment, less accumulated
depreciation of $35,692 and $29,599 15,747 18,337
Software development costs, net of accumulated
amortization of $5,571 and $4,467 4,775 4,918
Goodwill, net of accumulated amortization
of $11,010 and $8,229 47,327 48,279
Deferred tax assets, net 9,869 10,944
Other non-current assets 4,734 3,439
------- -------
TOTAL ASSETS $127,943 $134,183
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $4,692 $4,963
Accrued liabilities 5,914 6,340
Deferred tax liabilities 2,106 5,705
Current maturities of long-term debt 1,000 1,000
Other current liabilities 779 869
------- -------
14,491 18,877
Deferred revenue 8,442 6,759
------- -------
Total Current Liabilities 22,933 25,636
Long-term debt 750 1,500
Other non-current liabilities 980 1,194
------- -------
TOTAL LIABILITIES 24,663 28,330
Commitments and contingencies
Stockholders' Equity:
Common stock: shares outstanding -
32,999,175 and 32,709,162 345 341
Additional paid-in capital 101,600 99,325
Retained earnings 10,445 14,812
Treasury stock (9,110) (8,625)
------- -------
TOTAL STOCKHOLDERS' EQUITY 103,280 105,853
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $127,943 $134,183
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
March 31,
------------------
1998 1997
-------- --------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss ($4,367) ($17,504)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 15,293 14,626
Write-down of net assets of discontinued
operations, including taxes 6,109 21,264
Deferred income taxes 1,075 2,547
Other non-cash items, net 1,766 2,500
Changes in operating assets and liabilities, net (4,409) (9,043)
------ -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,467 14,390
------ -------
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
Purchase of property and equipment (6,333) (8,321)
Investment in joint ventures (1,625) (1,568)
Capitalized software development costs (1,565) (1,585)
Cash paid for acquisitions (4) (3,448)
Other, net 98 22
------ -------
NET CASH USED IN INVESTING ACTIVITIES (9,429) (14,900)
------ -------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Payments of long-term debt (800) (834)
Purchase of treasury stock (719) (5,434)
Exercise of common stock options and warrants 612 2,608
Other, net - (26)
------ -------
NET CASH USED IN FINANCING ACTIVITIES (907) (3,686)
------ -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,131 (4,196)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,524 19,667
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,655 $15,471
====== =======
See accompanying notes to consolidated financial statements.
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------
The accompanying unaudited consolidated financial statements have been
prepared by Data Broadcasting Corporation and Subsidiaries (the "Company" or
"DBC") in accordance with generally accepted accounting principles for interim
financial reporting and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared under generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. In the opinion of management, all adjustments considered
necessary for a fair presentation of the Company's financial position, results
of operations and cash flows have been included. All such adjustments are of
a normal recurring nature. This report on Form 10-Q for the three and nine
months ended March 31, 1998 should be read in conjunction with the Company's
annual report on Form 10-K for its fiscal year ended June 30, 1997.
2. EARNINGS PER SHARE
------------------
In the second quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share". Earnings per
share presented for prior periods have been restated to conform to the new
presentation. Below is a reconciliation of shares outstanding (in
thousands) between the basic and diluted calculations for each period.
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
Basic shares 32,856 32,946 32,787 32,513
Stock options and warrants 377 1,012 555 1,256
------ ------ ------ ------
Diluted shares 33,233 33,958 33,342 33,769
====== ====== ====== ======
3. JOINT VENTURE
-------------
On October 29, 1997, the Company formed Marketwatch.Com LLC ("Marketwatch"), a
50-50 joint venture with CBS, Inc. The new venture was created to expand the
Company's Internet business information site for individual investors,
business professionals and the general public. The Company will contribute $2
million in cash over two years, of which $1 million was provided in the third
quarter of fiscal 1998, and certain of its Internet-related assets to the
joint venture. CBS will contribute national television and other advertising
with a rate card value of at least $50 million over a five-year period. DBC
is accounting for the venture under the equity method. The Company's
investment in the joint venture is included in Other non-current assets.
There are several other agreements between the Company, Marketwatch and CBS,
Inc., including an agreement for CBS, Inc. to license its name and logo to
Marketwatch.
<PAGE>
4. DISCONTINUED OPERATIONS
-----------------------
On February 14, 1998, the Company signed a definitive agreement to sell
substantially all of the assets of CheckRite International, Inc. ("CRI") to a
subsidiary of National Data Corporation for $15,500,000 in cash. The
transaction was consummated on May 1, 1998.
Although the Company is in discussion with several potential buyers of Instore
Satellite Network ("ISN"), there is no assurance that a transaction will be
completed. Accordingly, in the second quarter of fiscal 1998 the Company
recorded an additional loss on disposal of $5,202,000, including a net tax
benefit of $3,006,000. This additional loss is primarily a non-cash writedown
of goodwill to adjust the carrying value of ISN to the net present value of
the expected cash flow from its current customer contracts, net of related
service costs.
In February 1998, the Company adopted a plan to curtail the Lawyers
Communications Network due to the disappointing pace of subscriber additions
to date. Accordingly, this business has been accounted for as discontinued
operations in the accompanying financial statements. The estimated loss on
disposal, including remaining contractual obligations and other exit costs, is
$907,000, net of a tax benefit of $593,000.
Total revenues for the discontinued operations were $8,007,000 and
$24,509,000, respectively, for the three and nine months ended March 31, 1998.
Net assets of the discontinued operations consisted of the following as of
March 31, 1998 (in thousands):
Goodwill $15,409
Property and equipment 4,395
Accounts receivable 2,287
Accrued liabilities (6,366)
Other net assets 1,263
-------
$16,988
=======
5. ACQUISITIONS
------------
In March 1998, the Company made a contingent earnout payment of $1,504,000,
related to the October 1996 acquisition of Federal News Service Group, Inc.
("FNS"), comprising $133,000 in cash and 280,291 shares of DBC common stock,
valued at $1,371,000.
In conjunction with this acquisition, the Company agreed to loan up to
$1,845,000 to an executive of FNS ("Executive"). The loan initially bore
interest at nine percent and was collateralized by certain of Executive's
stock holdings, which included no less than 300,000 shares of DBC common
stock. The loan was to be payable from the contingent earnout payment
described above.
In February 1998, the loan agreement was amended to reflect total borrowings,
including accrued interest, of approximately $2,489,000, a reduction in the
prospective annual interest rate to six percent, a monthly repayment of
$50,000 for 57 months and an increase in the number of shares of DBC common
stock held as collateral to approximately 534,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The Company's continuing operations include DBC West, Market Information
Corporation (operating under the trade name "BMI") and Capital Management
Sciences ("CMS"), which provide real-time stock market quotes, fixed income
prices, agribusiness information, equity and fixed income analytics, financial
market information and news, access to historical databases, and other
information to individual investors, traders and portfolio managers on a
subscription basis. They also provide sports data and information to sports
enthusiasts, and international news and government information to media,
government agencies, and corporations. The Company distributes its services
via communication devices that rely on the Internet, FM subcarriers, satellite
transmission, cable television systems, telephone lines and other means of
transmission.
Discontinued operations include Instore Satellite Network ("ISN") which
delivers point to multipoint communication services, primarily to retail
merchants and business associations, and CheckRite International, Inc. ("CRI")
which provides check recovery and check verification data and services to
retail merchants. Also discontinued is the Lawyers Communications Network
("LCN"), a limited liability company with the American Bar Association which
provides continuing legal education and other information via satellite to
legal professionals.
RESULTS OF CONTINUING OPERATIONS
--------------------------------
SELECTED FINANCIAL DATA ($ Thousands)
For the Periods Ended March 31,
Three Months Nine Months
1998 1997 1998 1997
---- ---- ---- ----
Revenues
DBC West/BMI $16,526 $18,543 $51,702 $54,538
CMS 5,028 4,796 14,840 13,979
Other* 691 240 1,747 671
------ ------ ------ ------
Total 22,245 23,579 68,289 69,188
Cost of services and sales 8,599 8,403 26,460 24,132
Selling, general and
administrative
Sales and marketing 4,485 5,187 13,545 14,666
G&A 3,822 4,245 10,651 11,783
Depreciation and amortization
Equipment and leasehold
improvements 2,607 2,141 7,202 6,307
Goodwill 931 943 2,781 2,653
Software development
and other 608 540 1,759 1,512
------ ------ ------ ------
Income from operations $ 1,193 $ 2,120 $ 5,891 $ 8,135
====== ====== ====== ======
Income (loss) from operations
by unit
DBC West/BMI $2,263 $ 4,115 $ 9,416 $12,129
CMS 1,670 1,299 4,388 4,104
Other initiatives* (1,809) (2,401) (5,054) (5,566)
Corporate and unallocated (931) (893 ) (2,859) (2,532)
------ ------ ------ ------
$ 1,193 $ 2,120 $ 5,891 $ 8,135
====== ====== ====== ======
*New product and infrastructure development initiatives, including AgCast
and INSITE.
<PAGE>
Three Months
Revenues from continuing operations decreased by $1.3 million (six percent)
overall. The decrease in revenue reflects declines in net subscribers of FM
and cable-delivered services and the impact of transitioning the Company's
core business to predominantly Internet-delivered products.
Operating income decreased by $0.9 million over last year's third quarter, due
in part to the revenue decline, coupled with increases in compensation costs
for technical personnel, occupancy costs, additional Internet communications
lines and depreciation of equipment for Internet delivery and redundancy.
Operating losses for new initiatives in the current quarter were slightly
lower, at $1.8 million versus $2.4 million in last year's comparative quarter,
largely due to revenue increases for the new services.
The effective tax rate for the three months ended March 31, 1998 was 45
percent, compared with 37 percent in the third quarter of fiscal 1997. The
increase is mainly due to the impact of non-deductible goodwill amortization
and on lower levels of income.
Income from continuing operations for the third quarter of fiscal 1998 totaled
$0.7 million, equal to $0.02 per basic and diluted share. Last year's third
quarter income from continuing operations was $1.3 million or $0.04 per basic
and diluted share. Last year's net income included $22.0 million in losses
from the discontinued operations, or $0.67 and $0.65 per basic and diluted
share, respectively.
Nine Months
Revenues from continuing operations decreased by $0.9 million (one percent) in
the comparative nine-month period. CMS revenues increased from $14.0 million
to $14.8 million and revenue from new initiatives increased from $0.7 million
to $1.7 million. These increases were offset by the decrease in DBC West/BMI
revenues as described above.
Operating income for the nine-month period ended March 31, 1998 was $5.9
million, compared with $8.1 million for the same period in 1997. The decrease
in operating income was due to the factors described above. Loss from
discontinued operations in the current nine-month period of $7.8 million
includes charges of $5.2 million for ISN and $2.6 million for LCN.
The effective tax rate for the nine months ended March 31, 1998 was 45
percent, compared with 42 percent in fiscal 1997.
Income from continuing operations for the nine months ending March 31, 1998
was $3.4 million, equal to $0.10 per basic and diluted share. Income from
continuing operations for the same period in the prior year was $4.9 million,
or $0.15 per basic share and $0.14 per diluted share. Net loss for the
current period included losses from discontinued operations of $0.23 per basic
and diluted share. Net loss for the prior year period included losses from
discontinued operations of $0.69 per basic share and $0.66 per diluted share.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities was $15.5 million and $14.4 million for
the nine months ended March 31, 1998 and 1997, respectively. This increase
was principally due to lower operating earnings, adjusted for higher
depreciation and amortization and an increase in deferred revenue caused by
higher customer prepayments for longer-term contracts. The Company paid $3.4
million for acquisitions during the first nine months of fiscal 1997,
including the cash payment for the acquisition of Instant Odds Network, and
contingent earnout payments for the CMS acquisition. The Company invested
$7.9 million of cash in the first three quarters of fiscal 1998 in property
and equipment and capitalized software development compared to $9.9 million in
the comparable fiscal 1997 period. This decrease is attributable in part to
the shift toward more Internet-based subscribers for which there are less
equipment requirements.
In the third quarter of fiscal 1998, DBC made a $1 million capital
contribution to its joint venture with CBS News, further described below. A
second contribution of $1 million is expected to be made in the second quarter
of fiscal 1999.
In the nine months ended March 31, 1997, the Company experienced significant
levels of treasury share purchases and stock option exercises. During the
current nine-month period, the level of these activities has dropped
considerably.
Subsequent to the end of the quarter, the Company received $15.5 million in
cash for the sale of CRI.
Management believes that the cash generated by operating activities, together
with its existing cash and financing facilities, are sufficient to meet the
short- and long-term needs of the current operations and the anticipated
capital expenditures of the Company.
DBC's debt agreement with Key Bank National Association requires the Company
to maintain certain financial ratios with respect to operations and financial
position. This agreement also restricts the payment of dividends to DBC's
stockholders and limits the purchase of treasury stock. At March 31, 1998 the
Company was in compliance with these covenants.
BUSINESS DEVELOPMENT AND OUTLOOK
- --------------------------------
In October 1997, the Company formed a 50-50 joint venture with CBS News,
Marketwatch.Com, LLC, to expand the Company's Internet business information
site for individual investors, business professionals and the general public.
In March 1998, DBC formed an alliance with AT&T Wireless Services which allows
DBC to deliver wireless real-time financial data to StockEdge Online and
Signal Online customers via their laptops.
The Company has released INSITE 2.0, a comprehensive Internet-based
financial information service targeted to institutional investors who
traditionally have been precluded from accessing high-quality information due
to a lack of affordably-priced services.
In April 1998, the Company released an enhanced version of Signal Online,
including Nasdaq Level II market maker information.
<PAGE>
DBC has also announced several alliances with online broker-dealers to enhance
the subscriber's ability to take advantage of the actionable data they receive
from the Company's services.
Demand for financial market information is largely dependent upon activity
levels in the securities markets. In the event that the U.S. financial
markets were to experience a prolonged period of investor inactivity in
trading securities, the Company's business could be adversely affected. The
degree of such consequences is uncertain.
FORWARD-LOOKING STATEMENTS
- --------------------------
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following:
* The presence of competitors with greater financial resources
and their strategic response to the Company's new services.
* The acceptance of the Internet as a valid real-time
distribution system by institutional customers.
* The potential obsolescence of the Company's services due to the
introduction of new technologies.
* The response of customers to the Company's new products and
services.
* Activity levels in the securities markets.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is a party to various legal proceedings incidental to its business
operation, none of which is expected to have a material effect on the
financial condition or results of operations of the Company.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. The following exhibits are filed as part of this report:
Exhibit
Number Description of Exhibit
------ ----------------------
27 Financial Data Schedule
b. Reports on Form 8-K
During the quarter ended March 31, 1998, the Registrant did not file a
Current Report on Form 8-K.
<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.
DATA BROADCASTING CORPORATION
(Registrant)
Dated: May 15, 1998 By: /s/ Allan R. Tessler
------------------- ---------------------------
Allan R. Tessler
Co-Chief Executive Officer
Dated: May 15, 1998 By: /s/ Alan J. Hirschfield
------------------- ---------------------------
Alan J. Hirschfield
Co-Chief Executive Officer
Dated: May 15, 1998 By: /s/ Mark F. Imperiale
------------------- ---------------------------
Mark F. Imperiale
President, Chief Operating
Officer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of income and balance sheets and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 15,655
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<RECEIVABLES> 11,345
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,491
<PP&E> 51,439
<DEPRECIATION> 35,692
<TOTAL-ASSETS> 127,943
<CURRENT-LIABILITIES> 22,933
<BONDS> 750
0
0
<COMMON> 345
<OTHER-SE> 102,935
<TOTAL-LIABILITY-AND-EQUITY> 127,943
<SALES> 0
<TOTAL-REVENUES> 68,289
<CGS> 0
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<EPS-PRIMARY> (.13)
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</TABLE>
