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 December 31, 1997.
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 February 9, 1998 was 33,979,348.
<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 Six Months Ended
December 31, December 31,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES $22,901 $23,096 $46,044 45,609
COSTS AND EXPENSES
Cost of services and sales 8,887 8,077 17,861 15,729
Selling, general and
administrative 8,263 8,464 15,889 17,017
Depreciation and
amortization 3,873 3,574 7,596 6,848
------ ------ ------ ------
Total costs and expenses 21,023 20,115 41,346 39,594
------ ------ ------ ------
INCOME FROM OPERATIONS 1,878 2,981 4,698 6,015
Adjustment of gains on
sales of assets - 952 - 952
Income (loss) from joint
ventures 5 (606) 5 (828)
Other income, net 86 33 208 31
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 1,969 3,360 4,911 6,170
Provision for income taxes (960) (1,501) (2,210) (2,645)
------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS 1,009 1,859 2,701 3,525
Loss from discontinued operations,
including taxes (6,989) (259) (7,756) (336)
------ ------ ------ -----
NET INCOME (LOSS) $(5,980) $1,600 $(5,055) $3,189
====== ===== ====== =====
NET INCOME (LOSS) PER SHARE:
Basic
Income from continuing
operations $0.03 $0.06 $0.06 $0.11
Loss from discontinued
operations (0.21) (0.01) (0.23) (0.01)
----- ---- ---- ----
Net income (loss) $(0.18) $0.05 $(0.15) $0.10
===== ==== ===== ====
Diluted
Income from continuing
operations $0.03 $0.06 $0.08 $0.10
Loss from discontinued
operations (0.21) (0.01) (0.23) (0.01)
----- ----- ----- -----
Net income (loss) $(0.18) $0.05 $(0.15) $0.09
===== ==== ===== ====
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 32,804 32,813 32,752 32,296
Diluted 33,522 34,087 33,396 33,674
See accompanying notes to consolidated financial statements.
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
December 31, June 30,
1997 1997
-------- --------
ASSETS
- ------
Current Assets:
Cash and cash equivalents $13,995 $10,524
Accounts receivable, net 11,356 9,366
Net assets of discontinued operations 21,275 28,576
Prepaid expenses and other current assets 1,865 1,016
------ ------
Total Current Assets 48,491 49,482
Property and equipment, less accumulated
depreciation of $33,224 and $29,599 16,478 18,337
Software development costs, net of accumulated
amortization of $5,588 and $4,467 4,806 4,918
Goodwill, net of accumulated amortization of
$10,079 and $8,229 46,880 48,279
Deferred tax assets, net 9,869 10,944
Other non-current assets 4,789 3,439
------- -------
TOTAL ASSETS $131,313 $135,399
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $5,513 $4,963
Accrued liabilities 9,909 7,556
Deferred tax liabilities 2,106 5,705
Current maturities of long-term debt 1,000 1,000
Other current liabilities 625 869
------ ------
19,153 20,093
Deferred revenue 8,379 6,759
------- -------
Total Current Liabilities 27,532 26,852
Long-term debt 1,000 1,500
Other non-current liabilities 1,075 1,194
------- -------
TOTAL LIABILITIES 29,607 29,546
Commitments and contingencies
Stockholders' Equity:
Common stock 343 341
Additional paid-in capital 100,231 99,325
Retained earnings 9,757 14,812
Treasury stock (8,625) (8,625)
------- -------
TOTAL STOCKHOLDERS' EQUITY 101,706 105,853
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $131,313 $135,399
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
December 31,
------------
1997 1996
------ ------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net income (loss) $(5,055) $3,189
Adjustments to reconcile net
income (loss) to net cash provided by
operating activities:
Depreciation and amortization 10,050 9,675
Write-down of net assets of
discontinued operations, including taxes 6,358 -
Other non-cash items, net 2,041 3,877
Changes in operating assets and liabilities, net (4,022) (6,811)
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,372 9,930
------ ------
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
Purchase of property and equipment (4,173) (6,155)
Capitalized software development costs (1,009) (1,136)
Investment in joint ventures (553) (1,068)
Cash paid for acquisitions (1) (3,388)
------ ------
NET CASH USED IN INVESTING ACTIVITIES (5,736) (11,747)
------ ------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Exercise of common stock options and warrants 612 1,959
Payments of long-term debt (544) (559)
Purchase of treasury stock (233) (1,697)
Other, net - (4)
------ ------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (165) (301)
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS 3,471 (2,118)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 10,524 19,667
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,995 $17,549
====== ======
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 months and
six months ended December 31, 1997 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 Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
Basic shares 32,804 32,813 32,752 32,296
Stock options and warrants 718 1,274 644 1,378
------ ------ ------ ------
Diluted shares 33,522 34,087 33,396 33,674
====== ====== ====== ======
3. JOINT VENTURE
-------------
On October 30, 1997, the Company announced the formation of Marketwatch.com,
LLC, a 50-50 joint venture with CBS, Inc. The new venture was formed 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 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 and has licensed the trade name "CBS" to the joint venture.
DBC is accounting for the venture under the equity method. Capital
contributions and other advances are included in Other non-current assets.
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, subject to
<PAGE>
expiration of the waiting period under the Hart Scott Rodino Act and other
customary closing conditions. The sale is expected to close within 30 days.
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, 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. Net loss from the discontinued
LCN operations was $880,000 and $1,647,000, respectively, for the three and
six months ended December 31, 1997.
Total revenues for the discontinued operations were $8,763,000 and
$16,502,000, respectively, for the three and six months ended December 31,
1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The Company's continuing operations include DBC West, Market Information
Corporation (operating under the trade name "BMI") and Capital Management
Sciences ("CMS"), which provide real-time stock market quotes, fixed income
prices, agribusiness information, equity and fixed income analytics, financial
market information and news, access to historical data bases, and other
information to individual investors, traders and portfolio managers on a
subscription basis. They also provide sports data and information to sports
enthusiasts, and international news and government information to media,
government agencies and corporations. The Company distributes its services
via communication devices that rely on FM subcarriers, satellite transmission,
cable television systems, telephone lines, the Internet and other means of
transmission.
Discontinued operations include Instore Satellite Network ("ISN") which
delivers point to multipoint communication services, primarily to retail
merchants and business associations, and CheckRite International, Inc. ("CRI")
which provides check recovery and check verification data and services to
retail merchants. Also discontinued is the Lawyers Communications Network
("LCN"), a limited liability company with the American Bar Association which
provides continuing legal education and other information via satellite to
legal professionals.
RESULTS OF OPERATIONS
---------------------
SELECTED FINANCIAL DATA ($ Thousands)
For the Periods Ended December 31,
Three Months Six Months
1997 1996 1997 1996
---- ---- ---- ----
Revenues
DBC West/BMI $17,329 $18,273 $35,176 $35,995
CMS 4,912 4,579 9,812 9,183
Other* 660 244 1,056 431
------ ------ ------ ------
Total 22,901 23,096 46,044 45,609
Cost of services and sales 8,887 8,077 17,861 15,729
Selling, general and administrative
Sales and marketing 4,682 4,210 9,060 9,479
G&A 3,581 4,254 6,829 7,538
Depreciation and amortization
Equipment and leasehold
improvements 2,370 2,150 4,595 4,166
Goodwill 926 927 1,850 1,710
Software development and
other 577 497 1,151 972
------ ------ ------ ------
Income from operations $ 1,878 $2,981 $4,698 $6,015
====== ====== ====== ======
Income (loss) from operations by unit
DBC West/BMI $3,306 $4,087 $7,153 $8,014
CMS 1,425 1,382 2,718 2,805
Other initiatives* (1,794) (1,641) (3,245) (3,165)
Corporate and unallocated (1,059) (847) (1,928) (1,639)
------ ------ ------ ------
$ 1,878 $2,981 $4,698 $6,015
====== ====== ====== ======
*New product and infrastructure development initiatives, including AgCast,
BondVu, DBC Online and INSITE.
<PAGE>
Three Months
Revenues from continuing operations decreased by $0.2 million (1 percent)
overall. DBC West/BMI revenue declined due to the impact of Internet-
delivered financial information on the Company's cable, satellite and FM-
delivered services, while CMS revenue growth slowed due to consolidation in
the banking, insurance and investment management industries.
Operating income decreased by $1.1 million over last year's second quarter,
due in part to the revenue decline, coupled with increases in compensation
costs for technical personnel, occupancy costs and additional communications
lines and equipment for Internet delivery and redundancy. Operating losses
for new initiatives in the current quarter were also slightly higher, at $1.8
million versus $1.6 million in last year's comparative quarter.
The Company has signed a definitive agreement to sell substantially all of the
assets of CRI to a subsidiary of National Data Corporation for $15.5 million
in cash. The Company is in discussion with several potential buyers of ISN,
but there is no assurance that a sale will be consummated. Accordingly, the
Company wrote down ISN's goodwill during the quarter. In total, the current
quarter includes charges of $7.0 million for discontinued operations,
including $1.8 million related to LCN and $5.2 million of additional charges
related to the sales of ISN and CRI.
Last year's second quarter included the following non-recurring items: (i) a
pre-tax charge of $0.6 million for the write-off of the Company's joint
venture in Hong Kong, (ii) a pre-tax benefit of $1.0 million from the fiscal
1995 sale of substantially all of the assets of Shark Information Services
Corp. ("Shark") and proceeds received in fiscal 1996 from the Consumer News
and Business Channel ("CNBC"). The Hong Kong write-off occurred as management
concluded that the operation's core product should be discontinued due to the
lack of acceptance in the market. The benefits resulted from the resolution
of certain contingencies and the revision of certain estimates associated with
the Shark and CNBC transactions.
The effective tax rate for the three months ended December 31, 1997 was 49
percent, which was the same as in the fiscal 1997 second quarter.
Income from continuing operations for the second quarter of fiscal 1998
totaled $1.0 million, equal to $0.03 per basic and diluted share. Last year's
second quarter income from continuing operations was $1.9 million or $0.06
per basic and diluted share. Net loss included losses from discontinued
operations of $0.21 and $0.01 per share for the current and prior year
quarters, respectively.
Six Months
Revenues from continuing operations increased by $0.4 million (1 percent) in
the comparative six-month period. CMS revenues increased from $9.2 million to
$9.8 million and revenue from new products increased from $0.4 million to $1.1
million, offsetting the decrease in DBC West/BMI revenues.
Operating income for the six-month period ended December 31, 1996 was $6.0
million, compared with $4.7 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 six-month period of $7.8 million
includes charges of $5.2 million for ISN and CRI and $2.6 million for LCN.
Income from continuing operations for the six months ending December 31,
1997 was $2.7 million, equal to $0.08 per basic and diluted share. Income
from continuing operations for the same period in the prior year was $6.2
million, or $0.11 per basic share and $0.10 per diluted share. Net loss
included losses from discontinued operations of $0.23 and $0.01 per share for
the current and prior year periods, respectively.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities was $9.4 million and $9.9 million for
the six months ended December 31, 1997 and 1996, respectively. This decrease
was principally due to lower operating earnings, adjusted for non-cash items
including depreciation and amortization. The Company invested $5.2 million of
cash in the first two quarters of fiscal 1998 for property and equipment and
capitalized software development compared to $7.3 million in the comparable
fiscal 1997 period. The Company paid $3.4 million for acquisitions during the
first half of fiscal 1997, including the cash payment for the acquisition of
Instant Odds Network, and contingent earnout payments for the CMS acquisition.
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. In addition, the Company expects to
receive $15.5 million in cash within the next 30 days from the sale of CRI.
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 December 31, 1997,
the Company was in compliance with these covenants.
BUSINESS DEVELOPMENT AND OUTLOOK
- --------------------------------
In October 1997, the Company announced the formation of a 50-50 joint venture
with CBS News to expand the Company's Internet business information site for
individual investors, business professionals and the general public.
The Company has released a beta version of INSITE, 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.
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 potential obsolescence of the Company's services due to
the introduction of new technologies.
- The response of customers to the Company's new marketing
strategies.
- 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 4. Submission to a Vote of Security Holders
----------------------------------------
a. The Registrant's Annual Meeting of Stockholders was held on December
9, 1997. The only business conducted was the election of directors and the
proposal to ratify the Registrant's selection of Price Waterhouse LLP as
auditors for the fiscal year ending June 30, 1998.
b. At the meeting, the following persons were elected directors of the
Registrant. Each director holds office until his successor is elected and
qualified, or until such director's earlier death, resignation or removal.
Name Number of Shares
- ---- of Common Stock
---------------
Charles M. Diker For 28,427,439
Withhold Authority 161,528
Dwight H. Egan For 28,428,833
Withhold Authority 162,922
Donald P. Greenberg For 28,428,833
Withhold Authority 161,699
Alan J. Hirschfield For 28,417,742
Withhold Authority 173,052
James A. Kaplan For 28,428,833
Withhold Authority 161,528
David R. Markin For 28,428,662
Withhold Authority 161,528
Herbert S. Schlosser For 28,428,833
Withhold Authority 161,528
Carl Spielvogel For 28,424,758
Withhold Authority 165,603
Allan R. Tessler For 28,428,148
Withhold Authority 162,213
Regarding the ratification of Price Waterhouse LLP as the Company's auditor,
there were 28,326,736 votes For, 97,609 votes Against and 166,016 shares
Abstaining.
<PAGE>
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 December 31, 1997, 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: February 17, 1998 By: /s/ Allan R. Tessler
------------------------ ---------------------------------
Allan R. Tessler
Co-Chief Executive Officer
Dated: February 17, 1998 By: /s/ Alan J. Hirschfield
------------------------ ---------------------------------
Alan J. Hirschfield
Co-Chief Executive Officer
Dated: February 17, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 13,995
<SECURITIES> 0
<RECEIVABLES> 11,356
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,491
<PP&E> 49,650
<DEPRECIATION> 33,172
<TOTAL-ASSETS> 131,313
<CURRENT-LIABILITIES> 27,532
<BONDS> 1,000
0
0
<COMMON> 343
<OTHER-SE> 101,363
<TOTAL-LIABILITY-AND-EQUITY> 131,313
<SALES> 0
<TOTAL-REVENUES> 46,044
<CGS> 0
<TOTAL-COSTS> 17,861
<OTHER-EXPENSES> 7,596
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,911
<INCOME-TAX> 2,210
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<EPS-PRIMARY> (.15)
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</TABLE>
