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, 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
----- -----
The number of shares of common stock, par value $.01 per share, of the
registrant outstanding as of February 9, 1999 was 34,841,963.
<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,
------------------ ----------------
1998 1997 1998 1997
------ ------ ------ ------
REVENUES $24,175 $22,901 $46,666 $46,044
COSTS AND EXPENSES
Cost of services and sales 10,358 8,887 19,709 17,861
Selling, general and
administrative 9,099 8,263 17,435 15,889
Depreciation and amortization 4,057 3,873 8,098 7,596
------- ------- ------- -------
Total costs and expenses 23,514 21,023 45,242 41,346
------- ------- ------- -------
INCOME FROM OPERATIONS 661 1,878 1,424 4,698
Income (loss) from joint
ventures (1,166) 5 (2,089) 5
Other income, net 277 86 620 208
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (228) 1,969 (45) 4,911
Benefit (provision) for
income taxes 140 (960) 28 (2,210)
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (88) 1,009 (17) 2,701
Loss from discontinued
operations, including taxes - (6,989) - (7,756)
------- ------- ------- -------
NET INCOME (LOSS) $ (88) $(5,980) $ (17) $(5,055)
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE
Basic and Diluted:
Income from continuing
operations $0.00 $0.03 $0.00 $0.08
Loss from discontinued
operations - (0.21) - (0.23)
------- ------- ------- -------
Net income (loss) $0.00 $(0.18) $0.00 $(0.15)
======= ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 32,755 32,804 32,861 32,752
Diluted 33,657 33,522 33,621 33,396
See accompanying notes to consolidated financial statements.
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
December 31, June 30,
1998 1998
-------- ---------
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 26,209 $ 26,256
Accounts receivable, net 9,581 7,478
Income taxes receivable 753 1,161
Net assets of discontinued operations 1,365 1,180
Prepaid expenses and other current assets 1,017 885
-------- --------
Total Current Assets 38,925 36,960
Property and equipment, net 15,490 17,369
Software development costs, net of accumulated
amortization of $7,311 and $6,037 4,225 4,794
Goodwill, net of accumulated amortization
of $13,921 and $11,957 48,422 46,093
Deferred tax assets, net 15,663 13,658
Other non-current assets 8,871 7,590
-------- --------
TOTAL ASSETS $131,596 $126,464
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $6,860 $6,798
Accrued liabilities 7,235 5,462
Deferred tax liabilities 538 538
Current maturities of long-term debt 1,000 1,000
Other current liabilities 690 733
------- --------
16,323 14,531
Deferred revenue 7,334 7,545
------- --------
Total Current Liabilities 23,657 22,076
Long-term debt - 500
Other non-current liabilities 994 1,363
------- --------
TOTAL LIABILITIES 24,651 23,939
Commitments and contingencies
Stockholders' Equity:
Common stock: Shares outstanding -33,374,835
and 32,815,884 357 345
Additional paid-in capital 109,591 101,241
Retained earnings 10,032 10,049
Treasury stock (13,035) (9,110)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 106,945 102,525
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $131,596 $126,464
======== ========
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,
----------------------
1998 1997
-------- --------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $(17) $(5,055)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 9,538 10,050
Write-down of net assets of discontinued
operations, including taxes - 6,358
Equity in loss (income) of joint venture 2,089 (5)
Other non-cash items, net 914 2,046
Changes in operating assets and liabilities, net (2,317) (4,022)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,207 9,372
------- -------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of property and equipment (4,564) (4,173)
Cash paid for acquisitions (3,923) (1)
Investment in and advances to joint ventures (3,403) (553)
Capitalized software development costs (706) (1,009)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (12,596) (5,736)
------- -------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Exercise of common stock options and warrants 7,085 612
Purchase of treasury stock (4,238) (233)
Payments of long-term debt (505) (544)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,342 (165)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (47) 3,471
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,256 10,524
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $26,209 $13,995
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
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 six
months ended December 31, 1998 should be read in conjunction with the
Company's annual report on Form 10-K for its fiscal year ended June 30, 1998.
Certain prior year amounts have been reclassified to conform with current
year's presentation.
2. EARNINGS PER SHARE
------------------
In each period, the difference between basic and diluted shares is the
dilutive effect of stock options and warrants.
3. JOINT VENTURE
-------------
In October 1998, MarketWatch.com, Inc. ("MarketWatch"), the Company's 50-50
joint venture with CBS Broadcasting, Inc., filed a registration statement with
the Securities and Exchange Commission ("SEC") for an initial public offering
of common stock. In January 1999 the registration statement was declared
effective by the SEC. As a result of this transaction, DBC's interest was
diluted from 50 percent to approximately 37 percent. DBC will continue to
account for its investment under the equity method. In January 1999,
MarketWatch used a portion of the approximately $50,000,000 in proceeds of its
public offering to repay advances made by DBC, which amounted to $3,946,000
at December 31, 1998.
4. ACQUISITIONS
------------
On August 31, 1998, the Company completed its acquisition of substantially all
of the assets of the Global Treasury Information Services ("GTIS") division of
Automatic Data Processing, Inc. for $3,923,000 in cash, including $135,000 in
transaction expenses. GTIS provides real-time domestic and international
fixed income, foreign exchange, money market and precious metal information to
institutional, corporate and consumer clients worldwide. The transaction has
been accounted for as a purchase and goodwill is being amortized over 15
years.
5. STOCKHOLDERS' EQUITY
--------------------
During the quarter ended December 31, 1998 the Company repurchased 714,000
shares of common stock for $3,041,000. The total repurchase activity for the
six months ended December 31, 1998 was 958,000 shares for $4,238,000.
There were 1,255,000 stock options and warrants exercised during the quarter
ended December 31, 1998 for $7,006,000. For the six months ended December
31, 1998 the total number of stock options and warrants exercised was
1,277,000 for $7,085,000.
<PAGE>
6. SUBSEQUENT EVENTS
-----------------
In January 1999, payment in full was received on the Company's loan to an
executive of Federal News Service ("FNS") which was established in conjunction
with the Company's acquisition of FNS. As of December 31, 1998, the loan
balance was $2,152,000, including accrued interest.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The Company delivers a wide range of information and analytical tools used
primarily by investors to make investment decisions. The Company will
primarily deliver these services over the Internet as a result of its decision
to transition away from the Company's historical broadcast platforms. These
services include the following:
- Real-time financial market prices - equities, mutual funds, options, bonds,
indices, futures, commodities and foreign exchange rates.
- News - proprietary business articles, news headlines, press releases, wire
services, agribusiness information and transcripts from U.S. and Russian
government activities.
- Access to historical financial databases - stock prices, technical charts,
research reports and SEC filings.
- Analytical tools - Technical stock charting and detailed fixed income
portfolio analysis.
These services are delivered on a subscription basis via the Internet or
communication devices that rely on FM subcarriers, satellite, cable television
or telephone lines. While the majority of customers receive services via a
broadcast technology, most of the Company's new customers are choosing
Internet-delivered services. The Company expects the trend toward Internet
services to continue to grow and the number of broadcast customers to decline.
The Company also plans to use broadband, multi-cast technology to deliver its
information and services in a multimedia format.
With the exception of certain fixed income services, which are targeted toward
fixed income portfolio managers, most of the Company's customers have
historically been individual investors. However, the Company has recently
launched InSite, which is a high-level data service for institutional
investors. The Company expects the number of its institutional customers will
increase as a result of InSite.
MarketWatch.Com, Inc. ("MarketWatch") is a joint venture formed in October
1997 with CBS Broadcasting, Inc. It is an Internet web site that delivers a
broad range of financial market information. The Company believes that most
of the visitors to this site are individual investors. Although much of the
information on MarketWatch is free to visitors, it does offer paid
subscriptions to certain of its data. MarketWatch currently derives the bulk
of its revenue from advertising and transaction fees.
DBC purchased substantially all of the assets of GTIS on August 31, 1998.
GTIS provides real-time domestic and international fixed income, foreign
exchange, money market and precious metal information to institutional,
corporate and consumer clients worldwide. The purchase resulted in goodwill
which is being amortized over 15 years. This acquisition expands the
Company's reach to institutional customers.
DBC owns two businesses which have been classified as discontinued operations
for accounting purposes. Instore Satellite Network ("ISN") installs and
operates point to multipoint satellite services for retail merchants. Lawyers
Communications Network ("LCN") is a limited liability company formed with the
<PAGE>
American Bar Association which provides continuing legal education and news
via the Internet or satellite to legal professionals. The Company is
currently engaged in negotiations to sell ISN and is engaged in other
negotiation respecting the LCN.
RESULTS OF CONTINUING OPERATIONS
--------------------------------
SELECTED FINANCIAL DATA ($ Thousands)
For the Periods Ended December 31,
Three Months Six Months
1998 1997 1998 1997
---- ---- ---- ----
Revenues
DBC - market data and news $18,280 $17,989 $35,249 $36,232
CMS - fixed income data and
analytics 5,895 4,912 11,417 9,812
------- ------- ------- -------
Total 24,175 22,901 46,666 46,044
Cost of services and sales 10,358 8,887 19,709 17,861
Selling, general and
administrative
Sales and marketing 5,276 4,682 10,137 9,060
G&A 3,823 3,581 7,298 6,829
Depreciation and amortization
Equipment and leasehold
improvements 2,385 2,370 4,809 4,595
Goodwill 1,026 926 1,997 1,850
Software development
and other 646 577 1,292 1,151
------- ------- ------- -------
Income from operations $ 661 $ 1,878 $ 1,424 $ 4,698
======= ======= ======= =======
Income (loss) from operations
DBC - market data and news $ (484) $ 1,512 $ (856) $ 3,908
CMS - fixed income data and
analytics 2,197 1,425 4,252 2,718
Corporate and unallocated (1,052) (1,059) (1,972) (1,928)
------- ------- ------- -------
$ 661 $ 1,878 $ 1,424 $ 4,698
======= ======= ======= =======
Three Months
Overall, revenues from continuing operations increased by six percent. For
market data and news, revenues increased $291,000 (two percent). This
increase was largely due to the acquisition of GTIS, offset by declines in net
subscribers for broadcast services. Although these subscriber declines were
more than offset by subscriber increases for Internet-delivered services,
revenues per Internet subscriber are generally lower than revenues per
broadcast subscriber. The revenue increase of 20 percent for fixed income
data and analytics is primarily due to price increases with slight growth in
the subscriber base.
Operating income decreased by $1,217,000 as the revenue increase was more than
offset by an increase in operating expenses of $2,491,000. Of this increase,
the majority is attributable to the operating expenses of GTIS. The remaining
increase is primarily due to marketing and product development efforts for the
InSite and AgCast services.
<PAGE>
As indicated in the table above, increases in depreciation and amortization
were spread across fixed assets, goodwill and software development. The
increase in goodwill amortization is related to GTIS. However, fixed asset
depreciation should begin to level off as capital expenditures have declined
over the last three years. Software amortization should decrease by the end
of the fiscal year due to reduced levels of capitalization.
The Company's share of MarketWatch's losses was $1,166,000 ($0.02 per share)
in the current quarter. The joint venture was formed during the second
quarter of the prior year but had little impact on earnings during that
quarter.
Other income (expense), net, increased by $191,000. This increase was mainly
caused by higher interest income of $108,000 which resulted from higher cash
balances during the period. Interest expense decreased by $30,000 due to
lower levels of debt. Last year's quarter also included a $52,000 loss on the
disposal of equipment.
During the second quarter of the prior year, the Company incurred losses from
discontinued operations of $6,989,000. Of this amount, $880,000 related to
the net losses of LCN. The remainder was due to additional writedowns of the
net assets of LCN, ISN and CheckRite International, Inc. ("CRI").
The Company's effective tax rate was 61 percent for the quarter ended December
31, 1998, compared with 49 percent for the quarter ended December 31, 1997.
This high rate is attributable to non-deductible goodwill amortization. The
amount of amortization which is non-deductible will increase only if DBC
acquires another company through the issuance of stock. However, the
non-deductible goodwill amortization has a more significant impact on the tax
rate as earnings decline. If the Company's pre-tax earnings increase, the
effective tax rate will decrease, all other things being equal.
Six Months
Overall, revenues from continuing operations showed a slight increase. For
market data and news, revenues decreased $983,000 (three percent). The
increase from the acquisition of GTIS was more than offset by declines in net
subscribers for broadcast services. The revenue increase of 16 percent for
fixed income data and analytics is primarily due to price increases with
slight growth in the subscriber base.
Operating income decreased by $3,274,000 as the revenue increase was more than
offset by an increase in operating expenses of $3,896,000. Of this increase,
the majority was attributable to the operating expenses of GTIS. The
remaining increase was due to marketing and product development efforts for
the InSite and AgCast services.
The Company's share of MarketWatch's losses was $2,089,000 ($0.04 per share)
in the current period.
Other income (expense), net, increased by $412,000. This increase was mainly
caused by higher interest income of $304,000 which resulted from higher cash
balances during the period. Interest expense decreased by $56,000 due to
lower levels of debt. Last year's period also included a $52,000 loss on the
disposal of equipment.
During the first six months of the prior year, the Company incurred losses
from discontinued operations of $7,756,000. Of this amount, $1,647,000
related to the net losses of LCN. The remainder was due to additional
writedowns of the net assets of LCN, ISN and CRI.
<PAGE>
The Company's effective tax rate was 62 percent for the period ended December
31, 1998, compared with 45 percent for the period ended December 31, 1997.
This high rate is attributable to non-deductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities increased from the comparative six-month
period. Although income from continuing operations was lower in the current
period, most of the decrease was due to the losses of MarketWatch, which are
not treated as an operating cash outflow.
During the six months ended December 31, 1998, the Company used $12,596,000 of
cash for investing activities. This included the following:
- $4,564,000 for purchases of property and equipment, including $1,807,000 in
leasehold improvements and furnishings for new office space. Adjusting for
these items, capital expenditures decreased 34 percent as compared with the
prior period.
- $3,923,000 for the GTIS acquisition.
- $3,403,000 in investments and cash advances to Marketwatch.
- $706,000 for capitalized software development.
In the near term, DBC expects its capital expenditures to decrease as its
business shifts to Internet-delivered services which require less
Company-owned equipment. Compared with the prior period, capitalized software
development costs decreased by approximately $303,000. This is another trend
that DBC expects will continue throughout fiscal 1999.
DBC used $4,238,000 of cash to repurchase its own common stock during the
current period compared with $233,000 for the comparable prior period. DBC
received $7,085,000 in cash from the exercise of stock options and warrants
compared with $612,000 in the prior period. This source of cash has continued
during January 1999, during which the Company received an additional
$8,272,000.
In January 1999, the Company received full payment of $2,159,000 on a note
receivable from an executive of Federal News Service, including interest
accrued in January of $7,000. This note had not been scheduled to be repaid
in full until December 2002, with monthly payments until that time.
Management believes that the cash generated by operating activities and its
existing cash are sufficient to meet the short- and long-term working capital
needs of the Company. DBC does not expect to draw on its unused credit lines
unless it requires additional cash to complete an acquisition.
DBC's debt agreement with Key Corporate Capital, Inc. requires the Company to
maintain certain financial ratios with respect to operations and financial
position. The agreement also restricts the payment of dividends to DBC's
stockholders and limits the purchase of treasury stock. At December 31, 1998,
the Company was in compliance with these covenants and expects to be able to
maintain compliance throughout the term of the agreement.
BUSINESS DEVELOPMENT AND OUTLOOK
- --------------------------------
In October 1998, MarketWatch filed a registration statement with the
Securities and Exchange Commission for an initial public offering of common
stock, which was declared effective in January 1999. Subsequent to the
offering, DBC owns approximately 37 percent of MarketWatch. In January 1999,
MarketWatch repaid DBC all amounts owed through that date.
<PAGE>
As mentioned earlier, the Company expects its Internet subscriber base to
continue to grow. While Internet services generally generate less revenue per
subscriber than their broadcast counterparts, DBC expects that it will be able
to deliver Internet services to a market that is significantly larger than its
traditional market. Consequently, it expects that revenues from its market
data business will increase.
In fiscal 1997 and 1998, the Company built the necessary infrastructure to
operate its Internet business. Now that the infrastructure is in place, DBC
believes that the incremental costs associated with an additional subscriber
are not material. Consequently, it expects margins in its Internet business
to improve as subscribers increase.
YEAR 2000
- ---------
The Company's current year 2000 status is substantially the same as disclosed
in its Form 10-K for the year ended June 30, 1998. The Company still expects
the total cost to approximate $2.5 million.
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 Internet services.
- The acceptance of the Internet as a reliable real-time distribution
platform by institutional customers.
- The ability of the Company to broaden its subscriber base by adding more
individual investors outside of the Company's traditional "day-trading"
market.
- The Company's failure, or the failure of material third parties, to
complete their year 2000 compliance plan on a timely basis.
- The potential obsolescence of the Company's services due to the
introduction of new technologies.
- 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 December 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: February 15, 1999 By: /s/ Allan R. Tessler
--------------------- ---------------------------
Allan R. Tessler
Co-Chief Executive Officer
Dated: February 15, 1999 By: /s/ Alan J. Hirschfield
--------------------- ---------------------------
Alan J. Hirschfield
Co-Chief Executive Officer
Dated: February 15, 1999 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-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 26,209
<SECURITIES> 0
<RECEIVABLES> 9,581
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,925
<PP&E> 57,035
<DEPRECIATION> 41,545
<TOTAL-ASSETS> 131,596
<CURRENT-LIABILITIES> 23,657
<BONDS> 0
0
0
<COMMON> 357
<OTHER-SE> 106,588
<TOTAL-LIABILITY-AND-EQUITY> 106,945
<SALES> 0
<TOTAL-REVENUES> 46,666
<CGS> 0
<TOTAL-COSTS> 19,709
<OTHER-EXPENSES> 8,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (45)
<INCOME-TAX> (28)
<INCOME-CONTINUING> (17)
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<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
