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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended May 31, 1995 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to .
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Commission File No. 03966
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NATIONAL DATA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 58-977458
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
National Data Plaza
Atlanta, Georgia 30329-2010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 404-728-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
COMMON STOCK PAR
VALUE $.125 PER SHARE THE NEW YORK STOCK EXCHANGE, INC.
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
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 .
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Form 10-K Cover Page - Continued
Indicate by check mark if disclosure of delinquent file is pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ x ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $553,553,673 based upon the last reported sale price on The New
York Stock Exchange on August 23, 1995, using beneficial ownership of stock
rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to
exclude voting stock owned by all directors and officers of the registrant,
some of whom may not be held to be affiliates upon judicial determination.
The number of shares of the registrant's common stock, par value $.125,
outstanding as of August 23, 1995 was 22,628,318 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K
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Portions of the Company's Part III
Proxy Statement relating to the
1995 Annual Meeting of Stockholders
to be held on October 26, 1995
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NATIONAL DATA CORPORATION
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I.
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Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II
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Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Part III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PART IV
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Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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PART I
ITEM 1. BUSINESS
GENERAL
National Data Corporation (the "Company" or "NDC") is a Delaware
corporation that was incorporated in 1967. The Company is a leading provider
of high-volume transaction processing services and application systems to the
health care and payment systems markets. The Company serves a diverse customer
base comprised of more than 60,000 health care providers, 350,000 merchant
locations, 35,000 corporations and 200 banking institutions, as well as federal
and state government agencies. The Company markets its services directly to
merchants and health care providers and indirectly through business alliances
with a wide range of banks, insurance companies and distributors. The Company
is one of the largest independent providers of health care transaction
processing and integrated payment systems services in the United States, having
processed over 1.7 billion transactions during fiscal 1995.
NDC provides electronic claims processing and adjudication services,
practice management systems and clinical data base information for pharmacies,
dentists, physicians, hospitals, health maintenance organizations, clinics and
nursing homes, as well as other health care providers. Management believes that
the Company is the largest independent processor of real-time health care
transactions, and that it is well positioned to capitalize on the growing
demand for cost containment and improved patient care in the health care
industry. Approximately 34% of the Company's total revenue for fiscal year 1995
was derived from the Company's health care systems and services, which
represent the fastest growing portion of the Company's business.
The Company's payment systems business offers transaction processing
solutions to merchants, health care providers, universities and colleges and
government agencies. The Company is one of the largest providers of credit
card, debit card and check verification/guarantee processing services. NDC also
offers electronic tax filing and payment services to government and corporate
customers. The Company recently introduced a purchase card that provides
electronic payment capabilities for business-to-business purchasing
transactions. Approximately 56% of the Company's total revenue for fiscal year
1995 was derived from the Company's payment systems and services. NDC also
provides cash management, information reporting and Electronic Data Interchange
(EDI) services for government and corporate customers, which represented
approximately 8% of the Company's total revenue for fiscal 1995.
The Company's products offer greater convenience to purchasers and
providers of goods and services and reduce processing costs, settlement delays
and losses from fraudulent transactions. NDC's advanced high speed computer and
telecommunications network enables the Company to electronically process,
capture and transmit a high volume of point-of-service transactions 24 hours a
day, seven days a week. While the
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transition from paper-based to electronic transaction processing continues, the
earliest and most significant penetration has occurred in the areas of credit
card authorization and settlement and pharmacy transaction processing. NDC
believes that the rapid transition to electronic transaction processing
demonstrates the potential for automation of other markets still dominated by
paper-based processing, such as additional health care applications and the
transfer of information between businesses.
The Company's business strategy is to be a total solution provider of
value-added transaction processing systems and services in the markets it
serves. NDC believes that both the payment systems and the health care markets
present attractive opportunities for continued growth. In pursuing its
strategy, the Company seeks both to increase its penetration of existing
application systems and point-of-use transaction processing markets and to
continue to identify and create new markets for its services. The Company will
also continue to seek to enhance existing products and develop new systems and
services; for example, services relating to financial electronic data
interchange and medical claims processing.
To support its business strategy, the Company has expanded its focus
on acquisition opportunities and alliances with other companies that allow NDC
to increase its market penetration, technological capabilities, product
offerings and distribution capabilities. During fiscal year 1995, the Company
completed six acquisitions with an aggregate cash purchase price of
approximately $46 million. These acquisitions give NDC expanded capabilities
and customer bases in the physician and dental practice management, pharmacy
practice management, hospital and medical claims processing and merchant check
guarantee areas.
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INDUSTRY BACKGROUND
Advances in computer software, telecommunications and hardware
technology have aided the development of on-line, real-time information
processing systems that electronically capture and transmit high volumes of
information. These advances in technology allow information processors to
offer greater convenience to purchasers and providers of goods and services and
reduce processing costs, settlement delays and losses from fraudulent
transactions.
HEALTH CARE MARKET
The health care sector of the market for information systems is
growing rapidly due to the need of employers, health care payors and providers
to control costs and to improve quality of care. A high percentage of health
care claims are still processed using manually processed paper-based systems.
Third party payors and health care providers continue to seek methods to
automate processing in order to reduce costs and improve the delivery of health
care services. The Company believes the health care industry is one of the
largest potential markets for electronic information processing services,
including the electronic transmission and capture of data for on-line
eligibility verification and settlement of insurance claims. The application of
technology to improve the flow of information to address patient care quality
is expanding as well.
Since the late 1980s, electronic processing technology has been
applied to the transmission and capture of data for pharmacy claims and
transaction processing. This technology is being adapted to the processing of
other health care data, including insurance claims for dentists, physicians and
hospitals.
The Company believes that the ability to offer total solutions,
including practice management systems as well as information processing
services, to both payors and providers in the health care markets will be an
important competitive factor as automated claims processing and the
availability of information in this service area continues to grow. As
electronic processing of health care claims accelerates, the Company believes
it will be important for companies to be able to offer integrated, value-added
systems and services to industry participants who continue to automate.
PAYMENT SYSTEMS MARKET
Electronic transaction processing for the payment systems market
involves transaction authorization, data capture and settlement for credit and
debit cards, check verification and guarantee services and financial electronic
data interchange. Most retail credit card transactions are no longer processed
through paper-based systems and are instead electronically authorized, with an
increasing number electronically settled as well.
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The Company believes that the number of transactions will continue to grow and
that an increasing percentage of these transactions will be processed
electronically due to convenience, efficiency and a desire to reduce fraud and
other processing costs.
The Company believes that there are significant opportunities for
continued growth in the application of electronic transaction processing
services to the payment systems market. Utilization of debit cards as a general
payment mechanism for goods and services continues to increase, principally in
the supermarket, travel and leisure, and gasoline industries. There is also
significant potential for growth in the use of credit and debit cards in other
traditional cash payment markets, such as fast-food restaurants, gaming
establishments, cinemas and convenience stores. The increased use of credit
and debit cards for such transactions is primarily driven by the convenience
they provide as well as the ability to efficiently track expenses and purchase
activity. In addition, the Company believes the proliferation of affinity or
co-branded cards that provide consumers with added benefits, such as discounts
on gasoline or airline tickets, should contribute to increased use of credit
and debit cards and the growth of the payment systems market.
VISA and MasterCard, as well as other independent service providers
such as the Company, provide high volume electronic transaction processing
services directly to merchants and other customers as well as indirectly
through banking institutions. The direct electronic transaction processing
business has shown increasing growth recently as the result of a consolidation
of the industry toward independent providers and away from traditional
providers. The Company believes this shift is due in large part to more
efficient distribution channels as well as the increased technological
capabilities required for the rapid and efficient creation, processing,
handling, storage and retrieval of information. These technological
capabilities have become increasingly complex, requiring significant capital
commitments to develop, maintain and update the systems necessary to provide
these technologically advanced services at a competitive price. As a result,
several large merchant processors, including the Company, have expanded their
operations with acquisitions of new merchant accounts from banks who previously
serviced those accounts. In addition, many small information processing
organizations are consolidating with larger service providers.
In addition to services that enable merchants to accept credit and
debit cards, the payment systems market continues to expand to include
increasing levels of check verification and guarantee services. Demand for
these services has been growing in recent years as merchants seek to reduce
losses related to bad checks and use check acceptance to increase sales.
BUSINESS STRATEGY
The Company's business strategy is to be a total solution provider of
value-added information processing services and application systems in the
markets it serves. NDC believes that both the health care and the integrated
payment systems markets present attractive opportunities for continued growth.
In pursuing its business strategy, the
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Company seeks both to increase its penetration of existing information
processing and application systems markets and to continue to identify and
create new markets through the:
- development of value-added applications, enhancement of existing
products and development of new systems and services;
- acquisition of, or alliance with, companies that have desirable
products and/or distribution capabilities; and
- extension of the terms and commitments of existing customer
contracts.
PRODUCTS AND SERVICES
HEALTH CARE
The Company is a leading provider of a full range of products and
services that address health care cost containment and improved patient care
issues. The Company's products include electronic claims processing,
adjudication and payment systems, funding capabilities, practice management
systems and clinical data base information for pharmacies, dentists,
physicians, hospitals, HMO's, clinics and nursing homes. Revenue for Health
Care products and services consists of transaction processing fees and
recurring monthly maintenance and support fees, software license revenue and
proceeds from the sale of practice management systems as well as upgrade
charges for additional applications. Fees for electronic claims processing
services are based on a per transaction rate, with the rate varying depending
upon the volume and scope of services provided.
ELECTRONIC PROCESSING SERVICES
The Company's electronic processing services are offered to
pharmacies, dentists, hospitals, HMO's and preferred provider organizations.
These services include eligibility verification, patient-specific benefit
coverage, claims data capture and editing, claim adjudication and retrospective
and prospective drug utilization review. The Company supports approximately
60,000 health care provider locations. Electronic processing for health care
transactions represents the Company's fastest growing service. The Company
recently expanded its presence in the health care claims processing market with
two acquisitions, one of a company specializing in hospital claims processing
and another of a product relating to claims clearing and processing systems for
physicians' offices.
PRACTICE MANAGEMENT SYSTEMS
The Company's practice management systems are designed to provide the
health care market with applications solutions that improve the efficiency of
operations, address cost containment concerns and enhance overall quality of
patient care. In addition, NDC's practice management systems are offered with
the Company's claims processing services, credit and debit card processing
capabilities and other associated functions such as inventory reporting and
ordering.
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PHARMACY MANAGEMENT SYSTEMS. The Company's pharmacy practice
management systems, including its DataStat(R) systems, provide solutions for
independent and chain pharmacies, hospitals, HMO's, clinics and nursing homes.
These systems enable pharmacists to manage and perform patient registration,
drug record-keeping, private and third-party billing, inventory control and
ordering, price updates, management reporting and drug database updates to
detect potential clinical dispensing and prescribing problems. In addition, the
Company's systems provide value-added claims processing services. The Company's
systems are sold and maintained by the Company and can be tailored to the needs
of users utilizing micro- and mini-computer platforms. In fiscal 1995, the
Company expanded its offering of pharmacy management systems with the
acquisition of a Canadian-based company that focuses on providing systems to
pharmacy chains in the U.S. and Canada.
DENTAL MANAGEMENT SYSTEMS. The Company's dental management systems are
designed to provide dentists with patient record accounting, patient scheduling
and recall, billing and collection, insurance claims information and electronic
processing to improve the efficiency of office management. The Company expanded
its dental management product line in fiscal 1994 with the introduction of the
NDC Dental System, which incorporates advanced clinical functionality with
customary business automation functions.
PHYSICIAN MANAGEMENT SYSTEM. The Company's physician management system
is designed to provide physicians with patient scheduling, billing and
collection, patient record accounting, insurance claims information and
electronic processing designed to improve the efficiency of office management.
The Company entered the physician practice management systems market in fiscal
1995 through the acquisition of one of the leading providers of automated
systems to this market, with approximately 7,000 users of the acquired
company's products.
PAYMENT SYSTEMS
The Company's Payment Systems products provide a wide range of
transaction processing alternatives to the retail, hospitality, health care and
government markets. The Company offers merchant credit and debit card
processing, check verification and guarantee and other services directly to
merchants and, with the exception of check guarantee, indirectly through
financial institutions.
MERCHANT PROCESSING SERVICES
NDC is one of the leading merchant processing companies in the nation,
serving approximately 350,000 merchant locations. NDC's merchant processing
services include credit and debit card authorization, data capture and product
and customer support functions, primarily for VISA and MasterCard bank cards.
For merchants with a direct processing relationship, the Company also performs
the financial settlement between the merchant and the card associations,
reconciliation of the financial settlement and resolution of disputes between
the Company's merchants and cardholders. Fees for the
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Company's merchant processing services are principally based on the dollar
volume of transactions processed directly for merchants and a per transaction
rate for transactions processed for banks on behalf of merchants.
The Company provides credit and debit authorization services utilizing
point-of-sale terminals, electronic cash registers and proprietary personal
computer applications. These systems provide merchants with a comprehensive,
nationwide authorization network for credit cards, debit cards and checks. The
Company also provides electronic data capture (EDC) systems that incorporate
the capabilities of its electronic point-of-sale authorization system, combined
with enhanced software, to enable the Company to electronically capture the
entire transaction and transmit the necessary value-added information directly
to the Company's central computer system for faster clearing through the
banking system. These systems allow the merchant quicker access to its funds
and avoid the necessity and cost of physically processing paper charge slips.
Customized value-added applications for specialty retailers, restaurants,
hotels and oil companies are marketed by the Company.
CHECK VERIFICATION AND GUARANTEE SERVICES
The Company offers merchants a check verification service. In fiscal
1995, the Company expanded its payment system services to include check
guarantee services through the acquisition of two check guarantee businesses.
Check guarantee differs from check verification in that the Company not only
verifies the transaction but also guarantees payment. If a check is not paid,
the Company assumes the right to collect from the individual writing the check.
Fees for the Company's check verification services are based on a per
transaction rate, while fees for its check guarantee services are based on a
percentage, or discount, of the face value of each check guaranteed by the
Company.
OTHER PAYMENT AND RELATED SERVICES
During fiscal 1994, the Company introduced a purchase card service.
This service is aimed at high volume corporate or government purchases of low
dollar value items. The product is credit card-based and is intended to
significantly reduce the cost of making such small purchases, while at the same
time making available to corporate purchasing departments needed controls and
management information relating to purchases. The Company also offers tax
products that provide for the electronic filing and payment of corporate taxes.
The Company initiates the electronic funds transfer process for payment of the
taxes due, while delivering the information summary to the appropriate
government agency.
INFORMATION SYSTEMS AND SERVICES
NDC's Information Systems and Services include cash management,
information reporting and Electronic Data Interchange (EDI). The services
provide financial, management and operational data to corporate and government
institutions worldwide. Corporate and government organizations use these
services to collect, consolidate and report financial, administrative and
operating data from more than 230,000 locations.
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SALES AND MARKETING
The Company's electronic transaction processing services are offered
to the health care markets directly through Company personnel and through
alliances. The Company's pharmacy and dental practice management systems are
marketed primarily through the Company's personnel but also jointly through
alliances. The Company offers its physician practice management system through
value-added resellers and by direct marketing. The Company markets its Payment
Systems products and services through financial institutions, bank alliance
programs, its own sales personnel and also through independent contractors.
OPERATIONS AND SYSTEMS
The Company operates multiple data and voice center facilities. The
primary facilities are in Atlanta, Georgia, with others in Texas, California,
Toronto, Canada and the United Kingdom.
Because of the large number and variety of NDC's products and
services, the Company does not rely on a single technology to satisfy its
sophisticated computer systems needs but instead employs the best available
technology that is suitable for each particular task. Given this approach, NDC
utilizes (i) the latest Unisys mainframe class systems and the OS/2200
operating system for large scale transaction and batch data base processing;
(ii) Tandem fault-tolerant computers and the Guardian operating system for high
volume, fast response transaction processing; (iii) client-server technology
for end-user data base applications; and (iv) UNIX and Windows(TM) based
systems for focused communication applications systems. These systems are
linked via high speed, fiber optic-based networked backbones for file exchange
and inter-system communication purposes. NDC also maintains storage systems
connected to the backbones, including a robotic tape library and optical
storage for archival storage purposes. All of the Company's systems are
supported by a systems support, operations and production control staff with an
advanced network control center.
The Company's communications network is made up of several discrete
networks, each designed for a different purpose. NDC maintains three primary
networks: a high speed, short transaction network called FASTNET; a private
line nationwide high bandwidth backbone network; and a dial-up voice/data
network for interactive and voice traffic. The Company also maintains a number
of support services offering satellite, wireless, INTERNET and ISDN/DOV
connectivity.
COMPETITION
The markets for the application systems and services offered by the
Company are highly competitive. The Company has a number of actual and
potential competitors as to all of the systems and services that it offers.
Many of the Company's services compete directly with computer manufacturers
that encourage businesses to purchase or lease the
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manufacturers' computers and establish in-house systems. In addition to this
competition, the Company believes that there are several companies that have
the capability to offer some of the Company's services in competition with the
Company, certain of which are substantially larger than the Company. The
Company believes that its ability to offer integrated solutions to its
customers, including hardware, software, processing and network facilities, is
a positive factor pertaining to the competitive position of the Company. The
Company recognizes, however, that its industry segment is increasingly
competitive. The key competitive factors for the Company are functionality of
products, quality of service and price.
RESEARCH AND DEVELOPMENT
The Company has a research and development staff of approximately 265
persons. During fiscal 1993, 1994, and 1995, the Company spent approximately
$3.8 million, $4.7 million, and $7.7 million, respectively, on activities
relating to the development and improvement of new and existing products,
services and techniques.
EMPLOYEES
As of May 31, 1995 the Company and its subsidiaries had approximately 1,900
employees.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENT
AND CLASSES OF SERVICES
The Company operates in one reportable industry segment, Data
Processing Services. See Management's Discussion and Analysis of Financial
Condition and Results of Operations for a further discussion.
The following table sets forth the approximate contribution to
consolidated revenues of each class of service in the Data Processing Services
segment during the Company's last three fiscal years.
Year ended May 31,
1995 1994 1993
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(in thousands)
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Payment Systems $134,723 $115,244 $115,475
Health Care 82,713 63,005 56,268
Information Systems and Services 19,081 19,875 21,549
Other 5,514 8,009 12,946
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Total $242,031 $206,133 $206,238
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NOTE: Certain reclassifications have been made to the fiscal 1994 and fiscal
1993 results to conform to the fiscal 1995 presentation (See Note 1 to Notes to
Consolidated Financial Statements).
ITEM 2. PROPERTIES
The following table indicates the location, use, size, basic annual
rental, and termination date for the Company's principal leases of real
property.
No. of
Sq. Ft. Net Termination
Location Use Leased Annual Rent Date
- --------- ---- ------ ----------- ----
Atlanta, Housing of central computers 81,236 $593,023 2003
Georgia and customer support systems
Atlanta, Housing of computers and 40,000 $308,076 1996
Georgia operations for merchant
processing
Rockville, Housing of computers 14,220 $237,047 1997
Maryland and operations information
services center
London, Sales Center and software 2,400 $ 54,905 1995
England development
Tucker, Warehouse and maintenance 20,922 $115,687 2000
Georgia operations
El Monte, Housing of computers and 7,633 $109,587 1997
California operations for data
processing
Toronto, Regional Center 10,535 $ 84,280 1999
Canada
Dallas, Regional Center 22,209 $212,096 1997
Texas
Hanover, Merchant Processing Center 19,240 $283,790 1996
Maryland
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In addition to the leases referred to above, the Company leases 23
sales offices, two warehouse facilities, and various other facilities for an
aggregate annual rental of approximately $5,657,000. The Company also
continues to pay rent on closed facilities with a total annual rental of
approximately $856,000, which obligations will expire September, 1995.
In January 1987, the Company took occupancy of a newly constructed
six-story, 120,000 square foot corporate headquarters building adjacent to the
One National Data Plaza building in Atlanta, Georgia. Permanent financing for
the building of $12,000,000 is at a fixed rate of 9.375% per year for a
10-year term and 30-year amortization. See Note 9 to the Company's
Consolidated Financial Statements.
The Company owns or leases a variety of computers and other computer
equipment for its operational needs. In recent years the Company has
significantly upgraded and expanded its computers and related equipment in
order to increase efficiency, enhance reliability, and provide the necessary
base for business expansion.
The Company believes that its facilities and equipment are suitable and
adequate for the business of the Company as presently conducted.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The names, titles, ages, and business experience of all present
executive officers of the Company are listed below. All officers hold office
at the pleasure of the Board of Directors, unless they earlier retire or
resign.
Name Business Experience Age
---- ------------------- ---
Robert A. Yellowlees Chairman of the Board of the Company since June 1992; 56
President, Chief Executive Officer and Chief Operating
Officer of the Company since May 1992; Chairman of the Board
of Spectrum Research Group, consultants on management of
technology; director of John H. Harland Co. Mr. Yellowlees
has been a director of the Company since April 1985.
Jerry W. Braxton Chief Financial Officer of the Company since January 1992; 48
Vice President -- Treasurer and Vice President -- Controller
of Contel Corporation from 1983 through 1991.
Richard S. Cohan General Manager, Health Care Information Network, of the 42
Company since April 1995; Senior Vice President, Health Care
Business Development from December 1993 through March 1995;
Senior Vice President of the Health Care Application Systems
and Services unit of the Company from September 1992 to
November 1993; Group Vice President and General Manager of
the Health Care Institutional Services unit of the Company
from December 1987 through August 1992.
Donald B. Graham Senior Vice President, Operations, of the Company since 54
January 1994; President and Chief Executive Officer of
Information Systems of America from February 1988 until July
1993.
James R. Henderson General Manager, Pharmacy and Dental Application Systems, of 50
the Company since April 1995; Executive Vice President,
Health Care Application Systems and Services from December
1993 through March 1995; Executive Vice President, Product
Line Management from September 1992 through November 1993;
Executive Vice President of Worldwide Sales, Marketing and
Operations for Quality Micro Systems, Inc. from 1988 until
1991.
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Donald L. Howard Vice President -- Human Resources of the Company since 56
February 1980.
E. Michael Ingram General Counsel and Secretary of the Company since January 43
1985.
J. David Lyons General Manager, Payment Services, of the Company since April 56
1995; Executive Vice President, Marketing & Sales of the
Company from July 1993 through March 1995; Senior Vice
President of Sales and Marketing of Syncordia from September
1990 to March 1993; Vice President and General Manager of
International Sales and Service and other positions for Data
General Corporation from 1981 to 1990.
Kevin C. Shea General Manager, Integrated Payment Systems, of the Company 44
since April 1995; Executive Vice President, Integrated
Payment Systems from September 1992 through March 1995;
Executive Vice President, National Data Payment Systems,
Inc. ("NDPS") from December 1990 through August 1992; Group
Vice President, NDPS from June 1988 through November 1990.
M.P. Stevenson, Jr. Vice President and Controller of the Company since September 40
1992; Division Controller, NDPS from March 1992 to August
1992; Director, Internal Audit from March 1986 to February
1992.
15
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Price and Dividend Information appears on Page A-2 of this report.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data appear on Page A-1 of this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on pages A-3 to A-9 of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary information appear on pages A-10 to A-35
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
16
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company hereby incorporates by reference the information contained
under the heading "Election of Directors - Certain Information Concerning
Nominees and Directors" from its definitive Proxy Statement to be delivered to
the stockholders of the Company in connection with the 1995 Annual Meeting of
Stockholders to be held on October 26, 1995. Certain information relating to
executive officers of the Company appears at pages 14 to 15 of this Annual
Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the information contained
under the heading "Election of Directors - Compensation and Other Benefits"
from its definitive proxy statement to be delivered to the stockholders of the
Company in connection with the 1995 Annual Meeting of Stockholders to be held
on October 26, 1995. In no event shall the information contained in the proxy
statement under the sections entitled "Stockholder Return Analysis,"
"Comparison of Cumulative Total Returns," and "Report of the Compensation and
Stock Option Committees" be included in this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Company hereby incorporates by reference the information contained
under the headings "Election of Directors - Common Stock Ownership of
Management" and " - Common Stock Ownership by Certain Other Persons" from its
definitive Proxy Statement to be delivered to the stockholders of the Company
in connection with the 1995 Annual Meeting of Stockholders to be held on
October 26, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
17
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a)(1) The following consolidated financial statements for the Registrant and
its subsidiaries appear in Appendix A to this report and are filed as a part
hereof:
Consolidated Statements of Income for the three fiscal years ended May 31, 1995.
Consolidated Balance Sheets at May 31, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity for the three fiscal
years ended May 31, 1995.
Consolidated Statement of Cash Flows for the three fiscal years ended May 31,
1995.
Notes to Consolidated Financial Statements.
Report of Independent Public Accountants
(a)(2) Other than as described below, Financial Statement Schedules are not
filed with this Report because the Schedules are either inapplicable or the
required information is presented in the Financial Statements or Notes thereto.
The following Schedule is filed in Appendix A as a part hereof:
Consolidated Schedule V - Valuation and Qualifying Accounts.
Report of Independent Public Accountants as to Schedule
(a)(3) Exhibits
(3)(i) Certificate of Incorporation of the Registrant, as amended (filed as
Exhibit 3(i) to the Registrant's Annual Report on Form 10-K for the year ended
May 31, 1991, File No. 03966, and incorporated herein by reference).
(ii) Bylaws of the Registrant, as amended (filed as Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for the year ended May 31, 1991, File
No. 03966, and incorporated herin by reference).
(iii) Amendment to Bylaws of the Registrant, as previously amended.
18
21
(4) Shareholder Rights Agreement adopted by the Registrant on January 18,
1991 (filed as Exhibit 4(1) to the Registrant's Current Report on Form 8-K
dated January 18, 1991, File No. 03966, and incorporated herein by reference.)
(10)(i) Purchase Agreement dated as of July 6, 1988 between Registrant and
Chemical Bank, as amended by the Amendment dated as of August 1, 1988 (filed as
Exhibit 1 to the Registrant's Current Report on Form 8-K dated August 15, 1988,
File No. 03966, and incorporated herein by reference.)
(ii) Acquisition Credit Agreement dated as of July 29, 1994 between the
Registrant and Wachovia Bank of Georgia, N.A. ("Wachovia"), as Agent (filed as
Exhibit 3(v) to the Registrant's Annual Report on Form 10-K for the year ended
May 31, 1994, File No. 03966, and incorporated herein by reference).
(iii) Working Capital Credit Agreement dated as of July 29, 1994 between the
Registrant and Wachovia Bank of Georgia, N.A. ("Wachovia"), as Agent (filed as
Exhibit 3(vi) to the Registrant's Annual Report on Form 10-K for the year ended
May 31, 1994, File No. 03966, and incorporated herein by reference).
(iv) Amendment to Working Capital Credit Agreement dated July 20, 1995
between the Registrant and Wachovia Bank of Georgia, N.A. ("Wachovia"), as
Agent.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
(vii) Form of Executive Severance Compensation Agreement with certain
executive officers (filed as Exhibit 10(ii) to the Registrant's Annual Report
on Form 10-K for the year ended May 31, 1986, File No. 03966, and incorporated
herein by reference.)
(viii) Non-Employee Directors Stock Option Plan (filed as Exhibit 10(iv) to
the Registrant's Annual Report on Form 10-K for the year ended May 31, 1987,
File No. 03966, and incorporated herein by reference.)
(ix) Renewal Employment Agreement effective as of May 18, 1995 between
Robert A. Yellowlees and the Registrant (filed as Exhibit 10(x) to the
Registrant's Annual Report on Form 10-K for the year ended May 31, 1994, File
No. 03966, and incorporated herein by reference.)
(x) Amended and Restated Retirement Plan for Non-Employee Directors,
dated as of April 20, 1994 (filed as Exhibit 10(xii) to the Registrant's Annual
Report on Form 10-K for the year ended May 31, 1994, File No. 03966, and
incorporated herein by reference.)
(xi) Amendment to Amended and Restated Retirement Plan for Non-Employee
Directors.
(21) Subsidiaries of the Registrant.
19
22
(23) Consent of Independent Public Accountants (included in Appendix A, page
A-38).
(27) Financial Data Schedule (for SEC use only)
(b) The Registrant filed a report on Form 8-K/A dated May 23, 1995,during
the last quarter of the period covered by this report, amending Form 8-K, filed
on November 17, 1995.
(c) The Exhibits to this Report are listed under Item 14(a)(3) above.
(d) The Financial Statement Schedule to this Report is listed under Item
14(a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, National Data Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL DATA CORPORATION
By: /s/ Robert A. Yellowlees
------------------------------
Robert A. Yellowlees, Chairman of the
Board, President and Chief Executive
Officer
(Principal Executive Officer)
By: /s/ Jerry W. Braxton
-------------------------
Jerry W. Braxton, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
By: /s/ Marion P. Stevenson
----------------------------
Marion P. Stevenson
Vice President and Controller
(Principal Accounting Officer)
Date: August 29, 1995
20
23
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by a majority of the Board of Directors of the
Registrant on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Robert A. Yellowlees Chairman of the Board, August 29, 1995
- ------------------------- Chief Executive Officer
Robert A. Yellowlees
/s/ Edward L. Barlow Director August 29, 1995
- -------------------------
Edward L. Barlow
/s/ James B. Edwards Director August 29, 1995
- -------------------------
James B. Edwards
/s/ Don W. Sands Director August 29, 1995
- -------------------------
Don W. Sands
/s/ Neil Williams Director August 29, 1995
- -------------------------
Neil Williams
21
24
APPENDIX A
to
ANNUAL REPORT ON FORM 10-K
NATIONAL DATA CORPORATION AND ITS SUBSIDIARIES
FINANCIAL STATEMENTS AND SCHEDULES
CONTENTS
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Market Price and Dividend Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
Consolidated Statements of Income for the three years
ended May 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
Consolidated Balance Sheets at May 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
Consolidated Statements of Changes in Stockholders' Equity for
the three years ended May 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
Consolidated Statements of Cash Flows for the three years ended
May 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
Consolidated Schedule V - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-34
Report of Independent Public Accountants As to Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
Consent of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
22
25
Selected Financial Data
(In thousands except per share data)
Year ended May 31,
------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
Revenue:
Payment Systems $134,723 $115,244 $115,475 $123,305 $134,382
Health Care 82,713 63,005 56,268 47,735 37,488
Information
Systems and Services 19,081 19,875 21,549 24,767 29,386
Other 5,514 8,009 12,946 22,210 27,299
- -----------------------------------------------------------------------------------------------
Total $242,031 $206,133 $206,238 $218,017 $228,555
Operating income (loss) 24,856 15,887 15,021 14,675 (21,059)
Net Income (loss) $ 15,389 $ 9,710 $ 8,489 $ 7,419 $(14,136)
Earnings (loss) per share $ .75 $ .50 $ .45 $ .41 $ (.80)
Dividends per share $ .30 $ .29 $ .29 $ .29 $ .29
Total assets $216,761 $184,203 $175,348 $194,882 $212,146
Long-term obligations $ 23,058 $ 21,287 $ 19,688 $ 30,081 $ 27,377
Total stockholders' equity $122,523 $109,331 $101,261 $ 96,450 $ 93,023
- -----------------------------------------------------------------------------------------------
Note: Certain reclassifications have been made to prior years' financial
statements to conform to fiscal 1995 presentation.
A-1
26
MARKET PRICE AND DIVIDEND INFORMATION
During the second quarter of fiscal year 1994, National Data Corporation was
listed on the New York Stock Exchange. Prior to that time, the Company's
common stock was traded on the over-the-counter market. National Data
Corporation's common stock is traded on the New York Stock Exchange under the
ticker symbol "NDC." The high and low sales prices and dividend paid per share
of the Company's common stock for each quarter during the last two fiscal years
were, retroactively restated for the March 1995 three-for-two stock split, as
follows:
Dividend
Per
High Low Share
- -------------------------------------------------------------------
Fiscal Year 1994:
First Quarter $13.00 $ 9.50 $.073
Second Quarter 12.83 10.00 .073
Third Quarter 14.17 9.75 .073
Fourth Quarter 15.33 11.00 .073
Fiscal Year 1995:
First Quarter 13.50 10.33 .073
Second Quarter 14.67 12.92 .073
Third Quarter 17.58 13.83 .073
Fourth Quarter 21.38 16.50 .075
The number of shareholders of record as of July 27, 1995 was 2,087.
A-2
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced the Company's
results during the past three years, the following discussion should be read in
conjunction with the consolidated financial statements of the Company and
related notes appearing elsewhere in this report.
Results of Operations
FISCAL YEAR ENDED MAY 31, 1995 COMPARED TO THE FISCAL YEAR ENDED MAY 31, 1994.
The following table reflects the relative percentage ratios and the percent
change from the prior year:
($ Millions)
FY 1995 FY 1994 Inc. (Dec.)
$ % $ % %
----------------- ----------------- -----------
Revenue:
Payment Systems 134.7 56% 115.2 56% 17%
Health Care 82.7 34% 63.0 30% 31%
Information Systems and Services 19.1 8% 19.9 10% (4%)
Other 5.5 2% 8.0 4% (31%)
---------------- ---------------- ----
Total Revenue 242.0 100% 206.1 100% 17%
---------------- ---------------- ----
Cost of Service:
Operations 101.8 42% 94.7 46% 7%
Depreciation and Amortization 17.3 7% 14.7 7% 18%
Hardware Sales 11.2 5% 9.9 5% 13%
---------------- ---------------- ----
Total Cost of Service 130.3 54% 119.3 58% 9%
---------------- ---------------- ----
Gross Margin 111.7 46% 86.8 42% 29%
---------------- ---------------- ----
Sales, General and Administrative 86.9 36% 68.5 33% 27%
Settlement of Shareholder Litigation - - 2.5 1% -
---------------- ---------------- ----
Operating Margin 24.8 10% 15.8 8% 57%
Interest and Other Income 1.7 1% 1.5 - 13%
Interest and Other Expense (2.5) (1%) (2.5) (1%) -
---------------- ---------------- ----
Income Before Income Taxes 24.0 10% 14.8 7% 62%
Provision for Income Taxes 8.6 4% 5.1 2% 69%
---------------- ---------------- ----
Net Income 15.4 6% 9.7 5% 59%
================ ================ ====
A-3
28
REVENUE
Total revenue for fiscal 1995 was $242,031,000, an increase of
$35,898,000 (17%) from fiscal 1994. The revenue increase was the result of
increased revenue in Health Care, $19,708,000 (31%) and Payment Systems,
$19,479,000 (17%), partially offset by a decrease in revenues for Information
Systems and Services, $794,000 (4%) and Other revenue of $2,495,000 (31%).
Health Care. Health Care revenue increased 31% in fiscal 1995 as
compared to fiscal 1994 as a result of (i) increases in electronic claims
processing and (ii) increases in revenue from the Company's practice management
systems for the pharmacy, dental, physician, government and institutional
sectors, including the impact of acquisitions completed during fiscal 1995.
Payment Systems. Payment Systems revenues increased 17% in fiscal
1995 compared to fiscal 1994. This increase was the result of several factors.
First, direct payment services revenue for fiscal 1995 increased over the same
period in fiscal 1994, primarily due to increased volume of merchant sales
processed and equipment sales. Second, two check guarantee businesses were
acquired during fiscal 1995. Offsetting these increases, revenue in the
Company's indirect merchant processing business (distribution through banks)
decreased for fiscal year 1995 from the same period in fiscal 1994, as a result
of price reductions. The reduced prices were associated with contract renewals
in exchange for increased volume commitments.
Information Systems and Services. Information Systems and Services
revenue decreased 4% for the fiscal year ended May 31, 1995 due to decreased
sales of software for electronic data interchange (EDI) applications as
compared to fiscal 1994.
Other. The decrease in Other revenue of 31% for fiscal 1995 as
compared to fiscal 1994 was principally related to the Company's decision to
exit the communication services market in fiscal 1991. The customer contracts
associated with this business expired in the first quarter of fiscal 1995. The
remaining revenue in the Other category reflects revenue from international
operations.
COSTS AND EXPENSES
Cost of service for the fiscal year ended May 31, 1995 was
$130,305,000, an increase of $11,041,000 (9%) fiscal 1994. While the cost of
operations increased $7,092,000 (7%) for fiscal 1995 as compared to fiscal
1994, cost of operations as a percentage of revenue decreased from 46% in
fiscal 1994 to 42% in fiscal 1995. Depreciation and amortization as a
percentage of revenue held constant at 7%. Hardware costs increased $1,274,000
(13%), primarily related to volume associated with increased equipment sales in
the Payment Systems business.
Gross margin increased to 46% from 42% for the fiscal year ended May
31, 1995 as compared to fiscal 1994.
A-4
29
Sales, general and administrative expense increased $18,388,000 (27%)
for fiscal year 1995 as compared to fiscal year 1994. As a percentage of
revenue, sales, general and administrative expenses increased from 33% in
fiscal year 1994 to 36% in fiscal year 1995. This increase was primarily due
to product development costs, sales expansion and marketing programs in the
Payment Systems and Health Care as well as increased expenses associated with
acquired businesses.
The Company reflected a charge relating to the settlement of
shareholder litigation of $2,500,000 in the first quarter of fiscal 1994,
representing the settlement costs of a lawsuit originally filed in 1990. (See
Note 10 to the Consolidated Financial Statements for further discussion).
INTEREST AND OTHER INCOME
Interest and other income for fiscal 1995 was $1,718,000, an increase
of $229,000 (15%) over the same period in fiscal 1994. The increase in interest
and other income was principally related to increased cash available for
investment during the first six months of fiscal 1995 and increased interest
rates on the investment of those cash balances.
INTEREST AND OTHER EXPENSE
The fiscal year ended May 31, 1995 showed an increase in interest and
other expense of $11,000 (less than 1%) from the same period in fiscal 1994.
INCOME TAXES
The provision for income taxes, as a percentage of taxable income, was
36% and 35% for fiscal years 1995 and 1994, respectively. The lower rate in
fiscal year 1994 was primarily due to the resolution of issues associated with
prior years.
NET INCOME
Net income for the year ended May 31, 1995 was $15,389,000, an
increase of $5,679,000 as compared to fiscal 1994. Fully diluted earnings per
share for fiscal 1995 and fiscal 1994 were $0.75 and $0.50, respectively. The
fully diluted average number of common and common equivalent shares outstanding
for fiscal 1995 was 20,611,000, an increase of 1,130,000 (6%) as compared to
the same period in fiscal 1994.
A-5
30
FISCAL YEAR ENDED MAY 31, 1994 COMPARED TO FISCAL YEAR ENDED MAY 31, 1993
The following table reflects the relative percentage ratios and the percent
change from the prior year:
($ Millions)
FY 1994 FY 1993 Inc. (Dec.)
$ % $ % %
----------------- ----------------- -----------
Revenue:
Payment Systems 115.2 56% 115.5 56% -
Health Care 63.0 30% 56.3 27% 12%
Information Systems and Services 19.9 10% 21.5 11% (7%)
Other 8.0 4% 12.9 6% (38%)
---------------- ---------------- ----
Total Revenue 206.1 100% 206.2 100% -
---------------- ---------------- ----
Cost of Service:
Operations 94.7 46% 95.5 46% (1%)
Depreciation and Amortization 14.7 7% 15.9 8% (8%)
Hardware Sales 9.9 5% 11.1 5% (11%)
---------------- ---------------- ----
Total Cost of Service 119.3 58% 122.5 59% (3%)
---------------- ---------------- ----
Gross Margin 86.8 42% 83.7 41% 4%
---------------- ---------------- ----
Sales, General and Administrative 68.5 33% 68.7 33% -
Settlement of Shareholder Litigation 2.5 1% - - -
---------------- ---------------- ----
Operating Margin 15.8 8% 15.0 7% 5%
Interest and Other Income 1.5 0% 2.5 1% (40%)
Interest and Other Expense (2.5) (1%) (2.9) (1%) (14%)
---------------- ---------------- ----
Income Before Income Taxes 14.8 7% 14.6 7% 1%
Provision for Income Taxes 5.1 2% 6.1 3% (16%)
---------------- ---------------- ----
Net Income 9.7 5% 8.5 4% 14%
================ ================ ====
A-6
31
REVENUE
Total revenue for fiscal 1994 was $206,133,000, a decrease of $105,000
(less than 1%) from revenue of $206,238,000 for fiscal 1993. The reduction was
due principally to two factors. First, the decision to exit the Communication
Services business caused a decline in revenue of $3,733,000 from the prior
fiscal year. Second, the Payment Systems business continued to be impacted by
the shift from voice to electronic authorization, as well as declining price
trends on existing and new transactions in the indirect payment services
business, resulting in a decline in revenue of $231,000. These decreases were
offset by an increase of $6,737,000 in revenue from the Health Care business
principally due to increased electronic claims transaction volume.
Health Care. Revenue for fiscal 1994 was $63,005,000, an increase of
$6,737,000 (12%) from revenue of $56,268,000 for fiscal 1993. Electronic
claims processing revenue increased in fiscal 1994 as compared to fiscal 1993.
This increase was the result of an increase in claims processed for the current
customer base and new customers added during fiscal 1994. Pharmacy/dental
practice management systems revenue decreased in fiscal 1994. This decrease was
primarily the result of decreased sales of the microcomputer-based pharmacy and
dental practice management systems (DataStat(R)), which was affected by the
Company's introduction of a new dental product. This decrease was offset by an
increase in recurring maintenance revenue associated with the growing installed
systems base. Revenue from sales to government and institutional customers
decreased, primarily as a result of decreased turnkey systems sales to
institutional customers and reductions in U.S. Department of Defense spending.
Payment Systems. Revenue for fiscal 1994 was $115,244,000, a decrease
of $231,000 (less than 1%) from revenue of $115,475,000 for fiscal 1993, with
the decline occurring principally in the indirect side of the payment services
business. The indirect business represented approximately 45% of total Payment
Systems revenues for fiscal 1994.
Direct merchant processing revenue increased in fiscal 1994 as
compared to fiscal 1993. Transaction volumes processed increased and terminal
sales and fees increased as well, primarily as a result of a sales expansion
program.
Indirect payment services (distribution through banking institutions)
revenue decreased in fiscal 1994 as compared to fiscal 1993. Voice
authorization revenue decreased, and electronic authorization and data capture
revenue decreased. The decrease in voice authorization revenue was attributable
to a continued shift of business to electronic authorization due to lower
prices to the merchant and industry mandates. The decrease in electronic
authorization and data capture revenue was primarily the result of price
reductions of approximately 7%. The number of electronic authorization and data
capture transactions processed increased modestly in fiscal 1994.
A-7
32
Information Systems and Services. Revenue for fiscal 1994 was
$19,875,000, a decrease of $1,674,000 (8%) from revenue of $21,549,000 for
fiscal 1993. Reduced demand for cash management services was caused largely by
a trend toward movement of these services to in-house, microcomputer-based
systems. The reductions were partially offset by the emerging electronic tax
filing/payment systems and applications for electronic data interchange.
Other. Other revenue for fiscal 1994 was $8,009,000, a decrease of
$4,937,000 (38%) from revenue of $12,946,000 for the prior year. This decrease
was the result of the Company's decision to exit the communication services
market in 1991.
COSTS AND EXPENSES
Total cost of service was $119,264,000 for fiscal 1994, representing a
decrease of $3,273,000 (3%) from fiscal 1993. This decrease was largely the
result of a reduction in cost of operations of $844,000 (1%), consisting
principally of payroll and telecommunications cost reductions. Hardware costs
decreased $1,164,000 (11%), directly related to volume associated with reduced
sales of health care practice management systems. Depreciation expense
decreased $1,260,000 (8%).
Gross margin increased to 42% in fiscal 1994 from 41% in fiscal 1993.
Sales, general and administrative expense was $68,482,000 for fiscal
1994, representing a decrease of $198,000 (less than 1%) from fiscal 1993.
The Company reflected a charge relating to the settlement of
shareholder litigation of $2,500,000 in fiscal 1994, representing the
settlement cost of a lawsuit originally filed in 1990. (See Note 10 to the
Consolidated Financial Statements for further discussion).
INTEREST AND OTHER INCOME
Interest and other income for fiscal 1994 was $1,489,000, a decrease
of $1,043,000 (41%) below the fiscal 1993 amount of $2,532,000. This decrease
was principally a result of a decrease in interest income as a consequence of
the Company's sale of its pharmacy and dental systems lease portfolio in fiscal
1993.
INTEREST AND OTHER EXPENSE
Interest and other expense for fiscal 1994 was $2,517,000, a decrease
of $400,000 (14%) from fiscal 1993 interest expense of $2,917,000. This
decrease was largely attributable to lower borrowings on the Company's line of
credit, a decrease in interest rates and a decrease in the imputed interest
rate associated with earn-out liabilities relating to the Company's purchase of
several merchant processing businesses.
INCOME TAXES
The provision for income taxes, as a percentage of taxable income, was
35% and 42% for fiscal years 1994 and 1993, respectively. The decreased rate in
fiscal 1994 was
A-8
33
primarily due to research and development tax credits and the resolution of
issues associated with prior years.
NET INCOME
Net income for fiscal 1994 was $9,710,000, an increase of $1,221,000
(14%), as compared to fiscal 1993 net income of $8,489,000. Fully diluted
earnings per share for fiscal 1994 were $0.50, an increase of $0.05 (11%) from
the prior year. The fully diluted average number of common and common
equivalent shares outstanding for fiscal 1994 was 19,480,500, an increase of
679,500 (4%) as compared to fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased 31% to $50,512,000 for the
fiscal year ended May 31, 1995, from $38,632,000 in fiscal 1994. This increase
was primarily related to decreased working capital requirements and increased
earnings. The significant cash flows generated from operating activities are
reinvested by the Company in existing businesses and are used to fund
acquisitions.
For fiscal year 1995, cash used in investing activities increased to
$49,112,000 compared to $10,291,000 in fiscal 1994. During fiscal 1995, the
Company completed six acquisitions for an aggregate cash purchase price of
approximately $40 million, net of cash acquired. Capital expenditures remained
at the same level for fiscal 1995 and 1994 at approximately $10,000,000 per
year.
Net cash used in financing activities increased 16% to $8,672,000 for
the fiscal year ended May 31, 1995 from $7,479,000 in the prior year period,
primarily as a result of an increase in principal payments on capital lease
agreements of $407,000 and a decrease in the net proceeds from the issuance of
stock under the Company's employee stock purchase plan of $656,000. Dividends
of $5,663,000 and $5,503,000 were paid during fiscal years 1995 and 1994,
respectively.
Subsequent to May 31, 1995, the Company completed a secondary offering
of approximately 3,200,000 shares of its Common Stock. This transaction, net
of underwriting discount and expenses associated with this offering, added
approximately $64,000,000 in cash to the Company. In addition, the Company has
a $15,000,000 working capital line of credit which expires in August 1995 and
which management expects to be extended on substantially the same terms. The
Company also has a $40,000,000 acquisition line of credit which expires in
August 1996. As of May 31, 1995, there were no amounts outstanding under either
line of credit. The Company believes the net proceeds of the offering together
with the $30,740,000 cash on hand at May 31, 1995, funds generated from
operations and borrowings available under its lines of credit will be adequate
to meet normal business operating needs, including possible acquisitions.
A-9
34
CONSOLIDATED STATEMENTS OF INCOME
NATIONAL DATA CORPORATION
====================================================================================
(in thousands except per share data) Year Ended May 31,
------------------------------
1995 1994 1993
-------- -------- --------
Revenue $242,031 $206,133 $206,238
- ------------------------------------------------------------------------------------
Operating Expenses:
Cost of service 130,305 119,264 122,537
Sales, general and administrative 86,870 68,482 68,680
Settlement of shareholder litigation (Note 10) - 2,500 -
- ------------------------------------------------------------------------------------
217,175 190,246 191,217
- ------------------------------------------------------------------------------------
Operating income 24,856 15,887 15,021
- ------------------------------------------------------------------------------------
Other income (expense):
Interest and other income 1,718 1,489 2,532
Interest and other expense (2,528) (2,517) (2,917)
- ------------------------------------------------------------------------------------
(810) (1,028) (385)
- ------------------------------------------------------------------------------------
Income before income taxes 24,046 14,859 14,636
Provision for income taxes (Note 3) 8,657 5,149 6,147
- ------------------------------------------------------------------------------------
Net income $ 15,389 $ 9,710 $ 8,489
==============================
Earnings per common and common equivalent
shares (Note 1) $ 0.76 $ 0.50 $ 0.45
==============================
Earnings per common and common equivalent
shares, assuming full dilution (Note 1)
$ 0.75 $ 0.50 $ 0.45
==============================
The accompanying notes are an integral part of these statements.
A-10
35
CONSOLIDATED BALANCE SHEETS
NATIONAL DATA CORPORATION
(in thousands except share data)
===========================================================================================
May 31, May 31,
1995 1994
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 30,740 $ 38,012
Short-term investments 25 25
Accounts receivable:
Trade (less allowances of $1,409 and $1,168) (Notes 1 and 14) 38,348 31,763
Other (less allowances of $4,869 and $968) (Notes 1 and 14) 21,082 19,701
Investment in sales-type leases, current portion
(less allowances of $296 and $575) (Note 7) 369 2,357
Deferred income taxes (Note 3) 601 877
Inventory 2,900 3,518
Prepaid expenses and other current assets 3,976 4,429
--------- ---------
Total current assets 98,041 100,682
--------- ---------
Investment in sales-type leases (less allowances
of $314 and $367) (Note 7) 462 1,500
--------- ---------
Property and equipment, at cost:
Land 402 402
Building 6,503 6,503
Equipment 79,536 71,213
Software (Note 8) 25,777 27,519
Leasehold improvements 14,052 13,949
Furniture and fixtures 10,238 8,744
Work in progress 3,633 2,736
--------- ---------
140,141 131,066
Less-Accumulated depreciation and amortization (111,307) (102,754)
--------- ---------
28,834 28,312
Property acquired under capital leases, net of
accumulated amortization (Note 6) 9,033 7,317
--------- ---------
37,867 35,629
--------- ---------
Deposits 439 2,029
--------- ---------
Other assets:
Acquired intangibles and goodwill, net of accumulated
amortization of $38,132 and $30,882 (Notes 1 and 2) 78,094 41,250
Other 1,858 3,113
--------- ---------
79,952 44,363
Total Assets $ 216,761 $ 184,203
========= =========
The accompanying notes are an integral part of these statements.
A-11
36
CONSOLIDATED BALANCE SHEETS
NATIONAL DATA CORPORATION
(in thousands except share data)
===========================================================================================
May 31, May 31,
1995 1994
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,042 $ 6,783
Notes payable on acquired business, current portion 1,958 -
Earn-out payable on acquired businesses,
current portion 1,180 2,598
Accrued compensation and benefits 6,199 4,462
Merchant processing payables 22,363 15,154
Income tax payable (Note 3) 7,989 6,358
Obligations under capital leases, current portion (Note 6) 2,785 1,985
Mortgage payable, current portion (Note 9) 164 149
Deferred income 4,766 1,032
Other accrued liabilities 11,149 11,635
--------- ---------
Total current liabilities 67,595 50,156
--------- ---------
Mortgage payable (Note 9) 10,936 11,100
--------- ---------
Notes payable on acquired business (Note 2) 2,580 -
--------- ---------
Earn-out payable on acquired businesses - 1,238
--------- ---------
Deferred income taxes (Note 3) 3,193 3,429
--------- ---------
Obligations under capital leases (Note 6) 6,140 5,193
--------- ---------
Other long-term liabilities 3,402 3,756
--------- ---------
Total liabilities 93,846 74,872
--------- ---------
Minority interest in equity of subsidiaries 392 -
Commitments and contingencies (Note 10)
Stockholders' Equity (Note 4):
Preferred stock, par value $1.00 per share,
1,000,000 shares authorized; none issued - -
Common stock, par value $.125 per share,
30,000,000 shares authorized; 19,306,733
and 12,610,262 shares issued 2,413 1,576
Capital in excess of par value 33,145 30,215
Retained earnings 87,789 78,865
Cumulative translation adjustment (Note 1) (550) (533)
--------- ---------
122,797 110,123
Less:
Deferred compensation (Note 4) (274) (792)
--------- ---------
Total Stockholders' Equity 122,523 109,331
Total Liabilities and Stockholders' Equity $ 216,761 $ 184,203
========= =========
The accompanying notes are an integral part of these statements.
A-12
37
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NATIONAL DATA CORPORATION
==============================================================================================================================
(in thousands except per share data)
Common Stock
------------------ Capital in Cumulative Deferred
Number Excess of Retained Translation Treasury Compen-
of Shares Amount Par Value Earnings Adjustment Stock sation
-------------------------------------------------------------------------------
Balance at May 31, 1992 11,960 $1,495 $23,612 $71,509 $(166) $0 $ 0
Net income - - - 8,489 - - -
Cash dividends ($.44 per share) - - - (5,340) - - -
Foreign currency translation adjustment - - - - (227) - -
Stock issued under employee
stock plans 158 19 1,479 - - - -
Stock issued under restricted
stock plans 109 14 1,158 - - - (1,172)
Amortization of deferred
compensation - - - - - - 391
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1993 12,227 1,528 26,249 74,658 (393) 0 (781)
Net income - - - 9,710 - - -
Cash dividends ($.44 per share) - - - (5,503) - - -
Foreign currency translation adjustment - - - - (140) - -
Stock issued under employee
stock plans 333 42 3,217 - - - -
Stock issued under restricted
stock plans 50 6 749 - - - (755)
Amortization of deferred
compensation - - - - - - 744
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1994 12,610 1,576 30,215 78,865 (533) 0 (792)
Net income - - - 15,389 - - -
Cash dividends ($.30 per share) - - - (5,663) - - -
Stock dividend in the form
of a stock split 6,422 802 (802) -
Purchase of treasury stock 2
Foreign currency translation adjustment - - - - (17) - -
Stock issued under employee
stock plans 237 30 2,571 - - - -
Stock issued under restricted
stock plans 38 5 359 - - - (362)
Amortization of deferred
compensation - - - - - - 880
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1995 19,307 $2,413 $33,145 $87,789 $(550) $2 $ (274)
=============================================================================================================================
The accompanying notes are an integral part of these statements.
A-13
38
CONSOLIDATED STATEMENTS OF CASH FLOWS
NATIONAL DATA CORPORATION
(in thousands)
==========================================================================================================
Fiscal Year Ended May 31,
-------------------------
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 15,389 $ 9,710 $ 8,489
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,801 12,209 13,626
Amortization of acquired intangibles and goodwill 7,240 5,981 6,210
Provisions for bad debts 953 988 1,691
Loss on disposal of fixed assets 67 59 476
Changes in assets and liabilities, net of the effects of acquisitions:
(Increase) decrease in trade accounts receivable, net (3,405) 3,416 3,130
(Increase) in other accounts receivable, net (183) (2,278) (3,005)
(Increase) decrease in investments in sales-type leases 3,082 5,767 (2,594)
(Increase) decrease in inventory 1,228 (855) (593)
Decrease in prepaid expenses and other assets 3,248 3,378 3,823
Increase in accounts payable and accrued liabilities 7,508 1,352 7,926
Increase (decrease) in income taxes payable and
deferred income taxes 1,584 (1,095) (6,228)
----------------------------
Net cash provided by operating activities 50,512 38,632 32,951
----------------------------
Cash flows from investing activities:
Capital expenditures (10,382) (10,504) (5,305)
Business acquisitions, net of cash acquired (40,669) (400) -
Proceed from the sale of equipment 6 13 1,511
Proceeds from the sale of sales-type leases - - 19,257
Decrease in investments and other non-current assets 1,933 600 -
----------------------------
Net cash used in investing activities (49,112) (10,291) 15,463
----------------------------
Cash flows from financing activities:
Net payments under lines of credit - - (4,500)
Payments on notes payable (306) - (20,000)
Principal payments under mortgage, capital lease
arrangements and other long-term debt (2,824) (2,417) (2,305)
Principal payments on earn-out payable (2,531) (2,772) (2,996)
Net proceeds from the issuance of stock
under employee stock plan 2,603 3,259 1,505
Effect of exchange rate changes on cash 49 (46) -
Dividends paid (5,663) (5,503) (5,340)
----------------------------
Net cash used in financing activities (8,672) (7,479) (33,636)
----------------------------
(Decrease) increase in cash and cash equivalents (7,272) 20,862 14,778
Cash, beginning of period 38,012 17,150 2,372
----------------------------
Cash, end of period $ 30,740 $ 38,012 $ 17,150
============================
Supplemental schedule of noncash investing and financing activities:
Promissory notes entered into in exchange for capital stock $ 3,506 - -
Capital leases entered into in exchange for property and
equipment 4,046 4,853 2,932
============================
The accompanying notes are an integral part of these statements.
A-14
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. Significant
intercompany transactions have been eliminated in consolidation.
Revenue - Revenue related to services provided, including the Company's
government cost-plus contracts, is recognized as services are performed.
Revenue related to software sales, software license agreements and hardware
sales is recognized upon shipment.
Other receivables - Other receivables consist primarily of reimbursable amounts
associated with the merchant processing and check guarantee operations.
Inventory - Inventory, which is composed primarily of microcomputer hardware
and peripheral equipment and electronic point-of-sale terminals, is stated at
the lower of cost or market. Cost is determined by using the average inventory
cost method.
Investment in sales-type leases - The Company's leasing operations consist
principally of noncancelable leases of computer equipment and software,
generally covering five years. Accordingly, the present value of all payments
due under the lease contract is recorded as revenue at the inception of the
lease and shipment of the equipment. Interest income is recorded over the lease
term (see also Note 7).
Property and equipment - Depreciation and amortization are calculated using the
straight-line method for financial reporting purposes and primarily accelerated
methods for tax purposes. Equipment is depreciated over two- to five-year
lives, and buildings are depreciated over a 40-year life. Leasehold
improvements and property acquired under capital leases are amortized over the
shorter of the useful life of the asset or the term of the lease. The costs of
purchased and internally developed software used to provide services to
customers or internal administrative services are capitalized and amortized on
a straight-line basis over their estimated useful lives, up to five years.
Acquired intangibles and goodwill - Acquired intangibles primarily represent
customer contracts and covenants-not-to-compete associated with the Company's
acquisitions. Acquired intangibles are amortized using the straight-line method
over their estimated useful lives of 4 to 20 years. Goodwill represents the
excess of the cost of acquired businesses over the fair market value of their
tangible and identifiable net assets. Goodwill is being amortized on a
straight-line basis predominantly over 20 years. Subsequent to an acquisition,
the Company regularly evaluates whether events and circumstances have occurred
that indicate the carrying amount of goodwill may warrant revision or may not
be recoverable. When factors indicate that goodwill should be evaluated for
possible
A-15
40
impairment, the Company uses an estimate of the future undiscounted net cash
flows of the related businesses over the remaining life of the goodwill in
measuring whether the goodwill is recoverable (see also Note 2).
Income taxes - Deferred income taxes are determined based on the difference
between financial statement and tax bases of assets and liabilities using
enacted tax laws and rates at which the taxes are expected to be paid. (see
also Note 3).
Earn-out payables - Earn-out payables represent the present value of estimated
future payments under the earn-out agreements related to the Company's business
acquisitions (see also Note 2).
Foreign currency translation - The assets and liabilities of foreign
subsidiaries are translated at the year-end rate of exchange, and income
statement items are translated at the average rates prevailing during the year.
The resulting translation adjustment is recorded as a component of
stockholders' equity. Exchange gains and losses on intercompany balances of a
long-term investment nature are also recorded as a component of stockholders'
equity.
Cash and cash equivalents - For purposes of reporting cash flows, cash and cash
equivalents include cash on hand and unrestricted amounts deposited with banks
and other financial institutions.
Reclassifications - Certain reclassifications have been made to the fiscal 1994
and 1993 consolidated financial statements to conform to the fiscal 1995
presentation.
Earnings per common share - Earnings per common and common equivalent share on
a primary basis are computed by dividing net income by the weighted average
number of common shares and common equivalent shares outstanding during the
period. Common equivalent shares represent stock options that, if exercised,
would have a dilutive effect on earnings per share. All options with an
exercise price less than the average market share price for the period are
assumed to have a dilutive effect on earnings per share.
Earnings per common and common equivalent share on a fully diluted basis are
computed by the same method as described for primary earnings per share except
that the higher of (1) the ending market share price or (2) the average market
share price is used to compute the fully diluted earnings per share, as
compared to the average market share price for primary earnings per share. The
effects of the stock split (discussed in Note 4) have been retroactively
applied to all periods for which financial statements are presented.
A-16
41
The primary and fully diluted weighted average number of common and common
equivalent shares outstanding as presented after the effects of the stock split
is as follows (in thousands):
Year Ended May 31,
------------------
1995 1994 1993
--------------------------------------
Weighted Average 19,152 18,708 18,213
Primary 20,230 19,481 18,803
Fully Diluted 20,611 19,481 18,803
NOTE 2 - BUSINESS ACQUISITIONS
The Company closed six acquisition transactions during the fiscal year ended
May 31, 1995. These acquisitions have been accounted for as purchases, and
their results have been included in the consolidated statements of income from
the date of acquisition. Each is described below.
Effective June 1, 1994, the Company acquired an 80% majority interest in
certain assets and liabilities of Yes Check Services, Inc. These assets and
liabilities were purchased directly from Yes Check. The assets and liabilities
are used in a Chicago-based check guarantee business.
Effective July 15, 1994, the Company acquired substantially all of the assets
and liabilities of Lytec Systems, Inc., a Salt Lake City, Utah-based physician
and dental practice management software development company.
Effective September 2, 1994, the Company acquired a Chicago-based check
guarantee business through the purchase of all of the capital stock of
Mercantile Systems, Inc.
Effective October 26, 1994, the Company acquired all of the capital stock of
Zadall Systems Group, Inc., a Vancouver, British Columbia-based pharmacy and
dental practice management systems company.
Effective January 12, 1995, the Company acquired all of the capital stock of
Learned-Mahn, Inc., a Boise, Idaho-based healthcare and financial services
systems company.
A-17
42
Effective May 2, 1995, the Company acquired certain assets and certain
liabilities of Physician's Practice Management, Inc., an Indianapolis-based
healthcare company. The net assets purchased are related to only one of the
Company's product lines, ClaimNet, physician-based claims processing software
and services.
The aggregate price paid for these acquisitions was $46,127,000 plus future
earn-out payments required for both the Yes Check and Lytec transactions. These
subsequent payments are not estimable at this time. Cash from internally
generated funds was used to finance $42,621,000 of the purchase price and
non-negotiable installment notes in the face amount of $3,506,000, payable over
periods from 1 to 3 years, were issued to finance the remainder. The net value
of the tangible assets acquired was $1,885,000. The excess of cost over
tangible assets acquired of $44,218,000 was allocated to goodwill and
identifiable intangible assets. Goodwill and identifiable intangible assets
will be amortized over their estimated useful life, which in the aggregate
approximates 20 years.
The following unaudited pro forma information for the six acquisitions
discussed above has been prepared as if these acquisitions had occurred on June
1, 1993. The information is based on historical results of the separate
companies and may not necessarily be indicative of the results that could have
been achieved or of results which may occur in the future. The pro forma
information includes the expense for amortization of goodwill and other
intangible assets resulting from these transactions and interest expense
related to financing costs but does not reflect any synergies or operating cost
reductions that may be achieved from the combined operations.
Fiscal Year Ended Fiscal Year Ended
(In thousands, May 31, 1995 May 31, 1994
except per share data)
- -----------------------------------------------------------------------------------
Revenue $252,675 $240,617
Net Income 15,636 11,483
Earnings Per Share,
fully diluted .77 .59
A-18
43
NOTE 3 - INCOME TAXES
The provision for income taxes includes:
Year Ended May 31, 1995 1994 1993
(in thousands) ------------------------------
Current tax expense:
Federal $7,912 $3,904 $3,527
State 705 457 755
------ ------ ------
8,617 4,361 4,282
Deferred tax expense:
Federal 26 661 1,772
State 14 127 93
------ ------ ------
40 788 1,865
Total $8,657 $5,149 $6,147
====== ====== ======
The Company's effective tax rates differ from federal statutory rates as
follows:
Year Ended May 31, 1995 1994 1993
(in thousands) ----------------------------------
Federal statutory rate 35.0% 35.0% 34.0%
State income taxes, net of
federal income tax benefit 1.9% 2.5% 3.8%
Non-taxable interest income (.6%) (1.6%) --
Non-deductible amortization of
intangible assets .6% 1.0% 2.2%
Tax credits (1.4%) -- --
Other .5% (1.9%) 2.0%
---- ---- ----
Total 36.0% 35.0% 42.0%
==== ==== ====
A-19
44
Deferred income taxes as of May 31, 1995 and 1994 reflect the impact of
"temporary differences" between the amounts of assets and liabilities for
financial accounting and income tax purposes. Net deferred tax liabilities at
May 31, 1995 consist of net current deferred tax assets of $601,000 and net
non-current deferred tax liabilities of $3,193,000. Net deferred tax
liabilities at May 31, 1994 consist of net current deferred tax assets of
$877,000 and net non-current deferred tax liabilities of $3,429,000. As of May
31, 1995 and 1994, principal components of deferred tax items, as aggregated
under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," are as follows (in thousands):
Deferred tax liabilities: 1995 1994
---- ----
Property and equipment $ 5,029 $ 5,184
Deferred tax assets:
Accrued expenses $ 314 $ 573
Net operating loss and
credit carryforwards 4,651 3,283
Acquired intangibles 1,412 1,333
Employee benefit plans 511 511
Other 200 215
Valuation allowance (4,651) (3,283)
-------- --------
$ 2,437 $ 2,632
Net deferred tax liability $ 2,592 $ 2,552
======== ========
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Realization of
the operating loss and credit carryforwards are considered by management to be
uncertain. The Company has established valuation allowances for these tax
assets.
NOTE 4 - STOCKHOLDERS' EQUITY
On January 24, 1995, the Company's Board of Directors approved a three-for-two
split, effected in the form of a dividend, of the Company's $.125 par value
Common Stock and the rights to purchase one one-hundredth of a share of the
$1.00 par value Series A Junior Participating Preferred Stock. Shareholders of
record on February 20, 1995 were entitled to the stock distribution resulting
from the three-for-two split. The stock split was effective March 20, 1995. As
a result of the stock split the Company issued an additional 6,422,544 shares
of Common Stock and rights to purchase one one-hundredth of a share
A-20
45
of the $1.00 par value Series A Junior Participating Preferred Stock. All per
share and weighted average share amounts have been restated to reflect this
stock split.
Stock Option Plans - The Company had one employee option plan at May 31, 1995,
the 1987 Stock Option Plan (1987 Plan). The Plan provides for granting options,
to certain officers and key employees, to purchase the Company's common stock
at prices not less than fair market value at the time of grant. Options granted
become exercisable in various annual increments and terminate over a period not
to exceed ten years.
Transactions in stock options under these plans are summarized as follows:
(Information presented reflects the effects of the stock split).
Shares Under Option Price
Option Per Share
- ----------------------------------------------------------------------
Outstanding at May 31, 1992 2,177,601 $ 6.17 - $22.50
Granted 1,183,739 5.33 - 11.17
Exercised (211,305) 6.50 - 9.17
Expired or terminated (1,072,452) 6.50 - 22.50
- ----------------------------------------------------------------------
Outstanding at May 31, 1993 2,077,583 $ 5.33 - $22.50
Granted 778,500 9.67 - 13.92
Exercised (359,315) 5.33 - 9.17
Expired or terminated (273,880) 6.50 - 22.50
- ----------------------------------------------------------------------
Outstanding at May 31, 1994 2,222,888 $ 5.33 - $22.50
Granted 835,575 11.17 - 20.13
Exercised (304,144) 5.33 - 11.17
Expired or terminated (212,728) 5.33 - 18.17
- ----------------------------------------------------------------------
Outstanding at May 31, 1995 2,541,591 $5.33 - $22.50
There were 693,164 shares exercisable at May 31, 1995, and there were 352,503
shares available for future grants under the 1987 Plan.
Other Stock Plans - The Company has an Employee Stock Purchase Plan under which
the sale of 1,350,000 shares of its common stock has been authorized. Employees
may designate up to the lesser of $25,000 or 20% of their annual compensation
for the purchase of stock. The price for shares purchased under the plan is the
lower of 85% of market value on the first day or the last day of the purchase
period. At May 31, 1995, 897,210 shares have been issued under this plan with
452,790 shares reserved for future issuance.
A-21
46
The Company also has a Non-employee Directors Stock Option Plan which provides
for grants of options, consisting of 7,500 shares of the Company's common stock
for each completed year of service, to directors who are not employees of the
Company. A maximum of five options may be granted to each such director, and
the maximum number of shares for which options may be granted is 345,000. The
options are exercisable immediately at the current market value on the date of
grant. During fiscal years 1995, 1994 and 1993, options for 7,500, 37,500 and
37,500 shares, respectively, were issued under the Plan, and during fiscal year
1995, 9000 were exercised. As of May 31, 1995, 45,000 shares were available for
future grants.
The Company's 1983 Restricted Stock Plan (Restricted Plan) authorizes 487,500
shares of the Company's common stock to be awarded to key employees. Shares
awarded under the Restricted Plan are held in escrow and released to the
grantee upon the grantee's satisfaction of conditions of the grantee's
restricted stock agreement. Awards are recorded as deferred compensation, a
reduction of stockholders' equity based on the quoted fair market value of the
Company's common stock at the award date. Compensation expense is recognized
ratably during the escrow period of the award.
During fiscal years 1995, 1994 and 1993, 38,250, 74,250 and 163,500 shares,
respectively, of the Company's common stock were awarded under the Restricted
Plan with restriction periods of one to four years. As of May 31, 1995, 123,501
shares remain in escrow. There were 51,000 shares reserved for future issuance
under this plan. The Company expensed $880,000, $744,000 and $391,000 for the
years ended May 31, 1995, 1994 and 1993, respectively, in connection with the
Restricted Plan.
The Company's 1984 Employee Stock Ownership Plan was dissolved in fiscal year
1993, and all shares escrowed were distributed to eligible employees. At May
31, 1995, no shares remain in escrow to be distributed to employees.
NOTE 5 - PENSION PLAN
The Company has a noncontributory defined benefit pension plan covering
substantially all of its United States employees who have met the eligibility
provisions of the plan. Benefits are based on years of service and the
employee's compensation during the highest five consecutive years of earnings
of the last ten years of service. Plan provisions and funding meet the
requirements of the Employee Retirement Income Security Act of 1974, as
amended.
A-22
47
The following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated financial statements at May 31, 1995 and 1994 (in
thousands):
May 31,
1995 1994
----------------------
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$13,692 and $11,535, respectively $ 14,454 $ 12,242
Projected compensation increases 4,341 4,068
-------- --------
Projected benefit obligation for
services rendered to date 18,795 16,310
Plan assets at fair market value,
primarily common stocks and bonds 15,995 15,037
-------- --------
Projected benefit obligation
in excess of plan assets (2,800) (1,273)
Unrecognized net loss from past
experience different from that
assumed and effect of changes
in assumptions 3,169 2,533
Unrecognized prior service cost 645 817
Unrecognized net asset at June 1,
1985, being amortized over 17 years (1,620) (1,857)
-------- --------
Prepaid Pension Cost (Liability) $ (606) $ 220
======== ========
A-23
48
Net pension expense included the following components (in thousands):
1995 1994 1993
-----------------------------------
Service cost-benefits earned
during the period $ 1,000 $ 1,052 $ 915
Interest cost on projected
benefit obligation 1,397 1,283 1,093
Actual return on plan assets (1,521) (852) (1,449)
Net amortization and deferral (84) (638) 75
Curtailment loss 35 66 89
-----------------------------------
Net Pension Expense $ 827 $ 911 $ 723
===================================
Significant assumptions used in determining net pension expense and related
obligations were as follows:
May 31,
1995 1994
----------------------
Discount rate 8.25% 7.75%
Rate of increase in compensation
levels 4.33% 4.33%
Expected long-term rate of
return on assets 10.00% 10.00%
The Company terminated 204 and 339 employees in fiscal 1995 and 1994,
respectively. These terminations were accounted for in accordance with
Statement of Financial Accounting Standards No. 88, "Employer's Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and the resulting curtailment loss of $35,000 and
$66,000 in the years ended May 31, 1995 and 1994, respectively, is included in
the net pension expense.
On December 18, 1991, the Company adopted a retirement plan for non-employee
directors of the Company with five or more years of service (The Directors'
Plan). The Directors' Plan benefits are based on 50% of the annual Director
retainer amount in effect on the date of a director's retirement plus 10% for
each year of service up to 100% of the base amount for ten years' service. The
benefits are payable upon retirement, at or after age 70, for a period equal to
the number of years of service as a Director but not more than 15 years for
participants with 15 or more years of Board Service as of the effective
A-24
49
date of the Directors' Plan and not more than 10 years for all other
participants. The expense related to the Directors' Plan was immaterial in both
fiscal 1995 and 1994.
Effective March 23, 1995,the Board of Directors amended the Directors' Plan to
provide for early retirement benefits so that a combination of age and service
(minimum 10 years service) totaling 60 will qualify the retiring participant
for benefits under the Directors' Plan. The Directors' Plan was also amended to
limit eligibility under the plan to members of the Board of Directors of the
Company elected prior to January 1, 1995.
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employer's Accounting for Postemployment Benefits," effective June 1, 1994
This statement requires the accrual of the expected cost of postemployment
benefits during the employees' years of service. Adoption of this statement did
not have a material effect on the Company's results of operations or financial
position.
NOTE 6 - LEASE OBLIGATIONS
The Company conducts a major part of its operations using leased facilities and
equipment. Many of these leases have renewal and purchase options and provide
that the Company pay the cost of property taxes, insurance and maintenance.
Rent expense on all operating leases for fiscal years 1995, 1994 and 1993 was
$4,807,000, $4,392,000 and $5,128,000, respectively.
Asset balances for property acquired under capital leases consist of the
following (in thousands):
1995 1994
-----------------------------
Equipment 14,206 10,026
Less: accumulated depreciation (5,173) (2,709)
-----------------------------
$ 9,033 $ 7,317
=============================
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Future minimum lease payments for all noncancelable leases at May 31, 1995 were
as follows (in thousands):
Capital Operating
Leases Leases
----------------------
1996 $ 3,303 $ 3,620
1997 2,787 2,480
1998 2,198 1,545
1999 1,408 1,050
2000 393 988
Thereafter -- 6,475
---------------------
Total future minimum lease payments 10,089 16,158
Less: amount representing interest 1,164
-------
Present value of net
minimum lease payments 8,925
Less: current portion 2,785
-------
Long-term obligations under
capital leases at May 31, 1995 $ 6,140
=======
NOTE 7 - SALES-TYPE LEASES
The Company has entered into sales-type leases with customers for certain of
its computer equipment and software products. The components of the Company's
investment in such leases at May 31, 1995 and 1994 were as follows (in
thousands):
1995 1994
----------------------
Total future minimum lease
payments to be received 1,634 5,746
Less: unearned income (193) (947)
----------------------
Gross investment in sales-type leases 1,441 4,799
Less: allowance for doubtful accounts (610) (942)
----------------------
Net investment in sales-type leases 831 3,857
Less: current portion (369) (2,357)
----------------------
Net investment in sales-type leases,
noncurrent portion $ 462 $ 1,500
======================
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In fiscal 1995 and 1994, the Company sold approximately $1,902,000 and
$11,459,000, respectively, of its sales-type leases to a third party. These
sales have been reflected as reductions in the above investment balances. The
related gains, which were not material, have been recorded as other income in
the accompanying consolidated statements of income. Under the terms of certain
of the sales, the purchaser has recourse to the Company should certain amounts
of the leases prove to be uncollectible. For the majority of the leases, this
recourse is limited to 20% of the outstanding balance of leases sold; however,
certain leases were sold with full recourse. The anticipated loss on the
maximum recourse amount of $3,991,000 and $5,413,000 at May 31, 1995 and 1994,
respectively, is not material and is included in other current liabilities in
the accompanying consolidated balance sheets.
At May 31, 1995, the future minimum lease payments scheduled to be received in
each of the five succeeding years and thereafter were as follows (in
thousands):
Year Ending May 31, Amount
- --------------------------------
1996 681
1997 483
1998 304
1999 153
2000 13
Thereafter --
------
$1,634
NOTE 8 - SOFTWARE COSTS
The following table sets forth information regarding the Company's software
costs for the years ended May 31, 1995, 1994 and 1993 (in thousands):
1995 1994 1993
----------------------------------
Unamortized software costs $6,931 $7,641 $6,596
Capitalization of internally
developed software 2,055 1,450 1,651
Research and development
primarily associated with
software development 7,665 4,708 3,825
Software amortization expense 2,976 2,209 2,310
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The Company capitalizes costs related to the development of certain software
products. In accordance with Statement of Financial Accounting Standards No.
86; capitalization of costs begins when technological feasibility has been
established and ends when the product is available for general release to
customers. Amortization is computed on an individual product basis and has been
recognized for those products available for market based on the products'
estimated economic lives, not to exceed 5 years.
NOTE 9 - MORTGAGE PAYABLE
The Company has permanent financing on its headquarters building consisting of
a $12,000,000 mortgage at a 9.375% fixed rate due in 1997. Principal payments
due on the mortgage are as follows (in thousands):
Year Ending May 31, Amount
- --------------------------------------------------------
1996 $ 164
1997 10,936
-------
$11,100
=======
The carrying amount approximates its fair value because the interest rate on
the mortgage approximates the current market rates.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company and certain of its previous officers were party to three lawsuits,
which were consolidated as "National Data Corporation Shareholder Litigation."
The plaintiffs, purporting to act on behalf of a class, alleged violations of
rule 10(b)(5) under the Securities Exchange Act of 1934 under a "fraud on the
market" theory for alleged misrepresentations and omissions relating to
expected earnings which resulted in, the plaintiffs contend, the Company's
common stock being overvalued in the market. The Company and the plaintiffs
signed an agreement on September 27, 1993 to settle this matter for $6,950,000.
The Company's insurer bore two-thirds of the settlement and related future
costs. The cost to the Company, net of insurance proceeds, was approximately
$2,500,000. Both the Company and its insurer paid their full share of the
settlement amount on December 1, 1993, and the settlement received final
approval from the court on December 16, 1993.
The Company is party to a number of other claims and lawsuits incidental to its
business. In the opinion of management, the ultimate outcome of such matters,
in the aggregate, will not have a material adverse impact upon the Company's
financial position or results of operations.
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In fiscal year 1995, the Company entered into a $15,000,000 committed line of
credit with two banks to fund the Company's working capital requirements. In
addition, the Company obtained a two-year $40,000,000 line of credit for
acquisitions. Borrowings under these agreements bear interest at the prime rate
less 1% and the prime rate, respectively. The lines of credit are not secured.
The agreements require the Company to maintain certain financial ratios and
contain other restrictive covenants. As of May 31, 1995, the Company was in
compliance with all such covenants. The working capital line of credit expires
in August 1995, and the acquisition line of credit expires in August 1996.
As of May 31, 1995, the Company processed credit card transactions for
approximately 80,000 direct merchant locations. The annual volumes processed
for each customer range from approximately $2,000 to $250 million. The
Company's merchant customers have liability for charges disputed by
cardholders. However, in the case of merchant fraud, or insolvency or
bankruptcy of the merchant, the Company may be liable for any of such charges
disputed by cardholders. The Company requires cash deposits and other types of
collateral by certain merchants to minimize any such contingent liability. In
addition, the Company believes that the diversification of its merchant
portfolio among industries and geographic regions minimizes its risk of loss.
Based on its historical loss experience, the Company has established reserves
for estimated losses on transactions processed through May 31, 1995 (See also
Note 15). In the opinion of management, such reserves for losses are adequate.
In connection with the Company's acquisition of merchant credit card operations
of banks, the Company has also entered into depository and processing
agreements ("the Agreements") with certain of the banks. These Agreements allow
the Company to use the banks' "Bank Identification Number" to clear credit card
transactions through VISA and MasterCard. Certain of the Agreements contain
financial covenants, and the Company was in compliance with all such covenants
as of May 31, 1995.
NOTE 11 - INFORMATION ON MAJOR CUSTOMERS AND FOREIGN OPERATIONS
The Company operates principally in data processing services and provides
specialized data processing applications designed to meet the business needs of
its customers. The applications include a variety of Healthcare Systems and
Services, Payment Systems and Information Systems and Services.
The Company markets its products internationally and has sales offices in
Canada, Europe and Japan. Revenue from non-U.S. operations was $7,707,000,
$4,873,000 and $6,077,000 for the years ended May 31, 1995, 1994 and 1993,
respectively. Operating losses from foreign operations were $307,000, $449,000,
and $2,102,000 in 1995, 1994 and 1993, respectively. Assets related to foreign
operations are not significant.
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Approximately 4%, 4% and 5% of the Company's total revenue for the years ended
May 31, 1995, 1994 and 1993, respectively, was derived from contracts with, or
as a subcontractor of contractors with, the United States government. All such
contracts and subcontracts are generally subject to termination at the
convenience of the United States government, whenever it believes that such
termination would be in its best interests. If such contracts and subcontracts
were terminated for the convenience of the United States government, the
Company is generally entitled to receive payment for work completed and
allowable termination costs.
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures, including noncash investing and financing
activities, for the years ended May 31, 1995, 1994 and 1993 are as follows (in
thousands):
1995 1994 1993
--------------------------------
Income taxes paid, net of $7,770 $3,543 $4,260
refunds received
Interest paid 1,878 1,745 2,510
Property and equipment
acquired under capital
leases 4,046 4,853 2,932
In fiscal 1995, 1994 and 1993, the Company acquired various businesses that
were accounted for as purchases (Note 2). In conjunction with these
transactions, liabilities were assumed as follows (in thousands):
1995 1994 1993
---------------------------
Fair value of assets acquired $54,714 $400 $ --
Cash paid for acquisitions 42,621 400 --
Notes and deferred payments 3,506 -- --
-----------------------------
Liabilities assumed $ 8,587 $ -- $ --
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NOTE 13 - QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(In thousands except per share data)
Quarter Ended
Aug. 31 Nov. 30 Feb. 28 May 31
----------------------------------------------
Fiscal Year 1995
Revenue $55,969 $59,812 $62,155 $64,095
Operating Income 4,940 5,855 6,261 7,800
Net Income 3,077 3,517 3,855 4,940
Earnings per share (b) .15 .17 .19 .24
Fiscal Year 1994
Revenue $50,717 $50,854 $51,014 $53,548
Operating Income 1,447 (a) 4,514 4,280 5,646
Net Income 658 (a) 2,578 2,641 3,833
Earnings per share (b) .03 (a) .13 .13 .20
(a) Reflects $2,500,000 (S1,450,000 net of income taxes) or $.07 per share
reduction due to settlement of shareholder litigation.
(b) Earnings per share are computed after the effects of the three-for-two
stock split.
NOTE 14 - PROVISION FOR BAD DEBT, SALES ALLOWANCES AND OPERATIONAL LOSSES
The Company establishes reserves for bad debts based upon analyses of its trade
accounts receivable aging and any identified collection issues.
Reserves are established for sales returns and allowances based principally on
historical and projected experiences and any identified return issues.
The Company processes VISA and MasterCard charges for its direct merchant
customers. The Company's customers have liability for the charges disputed by
the cardholders, based on VISA and MasterCard rules and regulations. However,
in the case of merchant fraud, insolvency or bankruptcy by the merchant, the
Company may be liable for any such charges disputed by the cardholder. The
Company recognizes revenue based on a percentage of the gross amount charged
and has a potential liability for the full amount of the charge. The Company
establishes reserves for operational losses based on historical and projected
experiences concerning such charges. (See Note 10 for further description of
contingencies).
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The following table details the amounts charged to expense for the above
activities (in thousands):
Fiscal Year Ended May 31,
1995 1994 1993
--------------------------------
Bad Debt $ 953 $ 988 $1,691
Sales Returns and
Allowances 3,312 2,775 2,348
Operation Losses 774 787 1,438
--------------------------------
$5,039 $4,550 $5,477
The Company made two acquisitions of check guarantee businesses in the first
part of fiscal year 1995. Similar to the credit card business, the Company
charges its merchants a percentage of the gross amount of the check and
guarantees payment of the check to the merchant in the event the check is not
honored by the checkwriter's bank. As a result of these acquisitions, the
Company also incurs operational charges in this line of business. The Company
has the right to collect the full amount of the check from the checkwriter but
has not historically recovered 100% of the guaranteed checks. The Company
establishes reserves for this activity based upon historical and projected loss
experiences. Expenses of $4,648,000 were recorded for the current fiscal year
for this activity.
NOTE 15 - SUBSEQUENT EVENTS
In June 1995, the Company completed a secondary offering of approximately
3,200,000 shares of its Common Stock. This transaction, net of underwriting
discount and expenses associated with this offering, added approximately
$64,000,000 in cash to the Company.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
National Data Corporation:
We have audited the accompanying consolidated balance sheets of
National Data Corporation (a Delaware corporation) and subsidiaries as of May
31, 1995 and 1994, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended May 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
National Data Corporation and subsidiaries as of May 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
July 19, 1995
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NATIONAL DATA CORPORATION
CONSOLIDATED SCHEDULE V
VALUATION & QUALIFYING ACCOUNTS
==================================================================================================
(In Thousands)
Column A Column B Column C Column D Column E
1 2
Balance at Charged to Uncollectible Balance at
Beginning Cost and Acquired Accounts End
Description of Period Expenses Balances Write-off of Period
Trade Receivable Allowances:
May 31, 1993 $1,891 $2,352 - $3,199 $1,044
May 31, 1994 1,044 3,150 - 3,026 1,168
May 31, 1995 1,168 4,425 182 4,366 1,409
Other Receivable Allowances:
May 31, 1993 $1,043 $2,064 - $2,426 $ 681
May 31, 1994 681 1,983 - 1,696 968
May 31, 1995 968 5,422 5,721 7,242 4,869
Sales-Type Lease Allowances:
May 31, 1993 $2,066 $ 727 - $1,315 $1,478
May 31, 1994 1,478 (208) - 328 942
May 31, 1995 942 (161) - 171 610
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE
We have audited in accordance with generally accepted auditing standards, the
financial statements included in National Data Corporation's annual report to
shareholders in this Form 10-K, and have issued our report thereon dated July
19, 1995. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the index on page 18 is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Atlanta, Georgia
July 19, 1995
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NATIONAL DATA CORPORATION
FORM 10-K
INDEX TO EXHIBITS
Exhibit Sequentially
Numbers Description Numbered Pages
3(iii) Amedment to Bylaws
10(iv) Amendment to Working Capital Credit Agreement
10(xi) Amendment to Amended and Restated Retirement Plan for
Non-Employee Directors.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule (for SEC use only)
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