-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Av7u3um1P4OD+Cio91NwuI8PrrBUfLxim5mNff7Z5n/MOULmcdTojd1B0EchzoMb nfyc5lzPTf9Xh+BLZDdVuQ== 0000931763-02-000059.txt : 20020413 0000931763-02-000059.hdr.sgml : 20020413 ACCESSION NUMBER: 0000931763-02-000059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011130 FILED AS OF DATE: 20020111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NDCHEALTH CORP CENTRAL INDEX KEY: 0000070033 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 580977458 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12392 FILM NUMBER: 2507753 BUSINESS ADDRESS: STREET 1: NDCHEALTH CORPORATION STREET 2: NDC PLAZA CITY: ATLANTA STATE: GA ZIP: 30329 BUSINESS PHONE: 4047282000 MAIL ADDRESS: STREET 1: NDC PLAZA CITY: ATLANTA STATE: GA ZIP: 30329-2010 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL DATA CORP DATE OF NAME CHANGE: 19920703 10-Q 1 d10q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended November 30, 2001 ----------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File No. 001-12392 --------- NDCHealth Corporation --------------------- (Exact name of registrant as specified in charter) DELAWARE 58-0977458 -------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) NDC Plaza, Atlanta, Georgia 30329-2010 - ---------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 404-728-2000 ------------ National Data Corporation ------------------------------------------------ (Former name, former address and former fiscal year, if changed since last year) 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 [_]. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common Stock, Par Value $.125 - 34,138,128 shares --------------------------------------------------- Outstanding as of January 9, 2002 ----------------------------------- UNAUDITED CONSOLIDATED STATEMENTS OF INCOME NDCHealth Corporation and Subsidiaries
(In thousands, except per share data) - -------------------------------------------------------------------------------------------------------------------------------- Three Months Ended November 30, --------------------------------------------- 2001 2000 --------------------- --------------------- Revenues: Information management $ 37,394 $ 33,917 Network services and systems 54,668 49,516 Divested businesses - 233 --------------------------------------------- 92,062 83,666 --------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Cost of service 45,057 41,662 Sales, general and administrative 21,166 18,385 Depreciation and amortization 5,897 8,683 Non-recurring charges - 2,156 --------------------------------------------- 72,120 70,886 --------------------------------------------- Operating income 19,942 12,780 - -------------------------------------------------------------------------------------------------------------------------------- Other income (expense): Interest and other income 344 13 Interest and other expense (2,325) (1,677) Minority interest in loss (earnings) 747 (117) --------------------------------------------- (1,234) (1,781) --------------------------------------------- Income before income taxes and discontinued operations 18,708 10,999 Provision for income taxes 6,735 4,310 - -------------------------------------------------------------------------------------------------------------------------------- Income before discontinued operations 11,973 6,689 Discontinued operations, net of income taxes - (326) - -------------------------------------------------------------------------------------------------------------------------------- Net income $ 11,973 $ 6,363 --------------------------------------------- Basic earnings per share: Income before discontinued operations $ 0.35 $ 0.20 --------------------------------------------- Discontinued operations $ - $ (0.01) --------------------------------------------- Basic earnings per share $ 0.35 $ 0.19 --------------------------------------------- Diluted earnings per share: Income before discontinued operations $ 0.33 $ 0.20 --------------------------------------------- Discontinued operations $ - $ (0.01) --------------------------------------------- Diluted earnings per share $ 0.33 $ 0.19 ---------------------------------------------
See Notes to Unaudited Consolidated Financial Statements. 2 UNAUDITED CONSOLIDATED STATEMENTS OF INCOME NDCHealth Corporation and Subsidiaries
(In thousands, except per share data) - -------------------------------------------------------------------------------------------------------------------------------- Six Months Ended November 30, --------------------------------------------- 2001 2000 --------------------- --------------------- Revenues: Information management $ 71,907 $ 65,215 Network services and systems 108,511 98,463 Divested businesses - 5,862 --------------------------------------------- 180,418 169,540 --------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Cost of service 86,892 85,002 Sales, general and administrative 42,152 38,519 Depreciation and amortization 12,478 16,896 Restructuring and impairment charges - 2,156 --------------------------------------------- 141,522 142,573 --------------------------------------------- Operating income 38,896 26,967 - -------------------------------------------------------------------------------------------------------------------------------- Other income (expense): Interest and other income 695 30 Interest and other expense (4,645) (3,636) Minority interest in loss (earnings) 1,073 (117) --------------------------------------------- (2,877) (3,723) --------------------------------------------- Income before income taxes and discontinued operations 36,019 23,244 Provision for income taxes 12,967 9,024 - -------------------------------------------------------------------------------------------------------------------------------- Income before discontinued operations 23,052 14,220 Discontinued operations, net of income taxes - 8,323 - -------------------------------------------------------------------------------------------------------------------------------- Net income $ 23,052 $ 22,543 --------------------------------------------- Basic earnings per share: Income before discontinued operations $ 0.68 $ 0.43 --------------------------------------------- Discontinued operations $ - $ 0.25 --------------------------------------------- Basic earnings per share $ 0.68 $ 0.69 --------------------------------------------- Diluted earnings per share: Income before discontinued operations $ 0.64 $ 0.42 --------------------------------------------- Discontinued operations $ - $ 0.25 --------------------------------------------- Diluted earnings per share $ 0.64 $ 0.67 ---------------------------------------------
See Notes to Unaudited Consolidated Financial Statements. 3 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS NDCHealth Corporation and Subsidiaries
(In thousands) - --------------------------------------------------------------------------------------------------------------------------------- Six Months Ended November 30, -------------------------------------- 2001 2000 ---- ---- Cash flows from operating activities: Net income $ 23,052 $ 22,543 Adjustments to reconcile net income to cash provided by operating activities: Non-cash restructuring and impairment charges - 930 Income from discontinued operations - (8,323) Depreciation and amortization 12,478 16,896 Deferred income taxes 879 36,481 Provision for bad debts 984 366 Other, net 362 1,355 Changes in assets and liabilities which provided (used) cash, net of the effects of acquisitions: Accounts receivable, net 4,429 (2,344) Prepaid expenses and other assets (3,473) (6,329) Accounts payable and accrued liabilities (5,921) (5,683) Deferred income 2,313 4,912 Income taxes 614 (23,203) -------------------------------------- Net cash provided by operating activities 35,717 37,601 -------------------------------------- Cash flows from investing activities: Capital expenditures (14,570) (20,472) Business acquisitions, net of acquired cash - (23,224) Business divestiture and sale of marketable securities - 20,000 Investments and other non-current assets (10,131) (13,506) -------------------------------------- Net cash used in investing activities (24,701) (37,202) -------------------------------------- Cash flows from financing activities: Net repayments under lines of credit - (11,500) Net principal payments under capital lease arrangements and other long-term debt (1,922) (2,779) Net issuances related to stock activities 4,814 2,513 Dividends paid (2,723) (4,931) -------------------------------------- Net cash provided by (used in) financing activities 169 (16,697) -------------------------------------- Net cash provided by discontinued operations 6,646 21,795 -------------------------------------- Increase in cash and cash equivalents 17,831 5,497 Cash and cash equivalents, beginning of period 12,420 1,789 -------------------------------------- Cash and cash equivalents, end of period $ 30,251 $ 7,286 ======================================
See Notes to Unaudited Consolidated Financial Statements. 4 CONSOLIDATED BALANCE SHEETS NDCHealth Corporation and Subsidiaries
(In thousands, except share data) - ------------------------------------------------------------------------------------------------------------------------------------ November 30, May 31, 2001 2001 ------------------ ------------------ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 30,251 $ 12,420 Accounts receivable 61,419 70,648 Allowance for doubtful accounts (5,155) (6,628) ------------------ ------------------ Accounts receivable, net 56,264 64,020 ------------------ ------------------ Income tax receivable 1,655 2,265 Deferred income taxes 21,328 29,539 Prepaid expenses and other current assets 21,113 18,788 ------------------ ------------------ Total current assets 130,611 127,032 ------------------ ------------------ Property and equipment, net 83,353 82,956 Intangible assets, net 193,786 221,757 Deferred income taxes 12,231 9,886 Investments 79,330 35,591 Other 15,992 10,990 ------------------ ------------------ Total Assets $ 515,303 $ 488,212 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 175 $ 170 Obligations under capital leases 1,427 2,586 Accounts payable and accrued liabilities 55,858 53,228 Deferred income 15,867 13,624 ------------------ ------------------ Total current liabilities 73,327 69,608 ------------------ ------------------ Long-term debt 151,479 151,567 Obligations under capital leases 2,658 1,108 Other long-term liabilities 20,321 23,044 ------------------ ------------------ Total liabilities 247,785 245,327 ------------------ ------------------ Commitments and contingencies Minority interest in equity of subsidiaries 11,465 12,418 Shareholders' equity: Preferred stock, par value $1.00 per share; 1,000,000 shares authorized, none issued - - Common stock, par value $.125 per share; 200,000,000 shares authorized; 34,097,652 and 33,875,235 shares issued, respectively. 4,262 4,234 Capital in excess of par value 193,290 188,636 Retained earnings 68,721 48,392 Deferred compensation and other (6,661) (7,212) Cumulative translation adjustment (3,559) (3,583) ------------------ ------------------ Total shareholders' equity 256,053 230,467 ------------------ ------------------ Total Liabilities and Shareholders' Equity $ 515,303 $ 488,212 ================== ==================
See Notes to Unaudited Consolidated Financial Statements. 5 NOTES TO UNAUDITED CONSOLIDATED ------------------------------- FINANCIAL STATEMENTS -------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: At the 2001 Annual Meeting of Stockholders held on October 25, 2001, stockholders adopted a proposal to amend the Certificate of Incorporation of National Data Corporation to change its name to NDCHealth Corporation, which is referred to in this Report as the "Company" or "NDCHealth." On January 31, 2001, the Company completed the spin-off of its eCommerce business segment, Global Payments Inc. ("Global Payments"). Additionally, in the third quarter of fiscal 2000, the Company decided to pursue the divestiture of its management services business and account for the business as "discontinued operations". As a result of the spin-off and divestiture, the Company's financial statements have been prepared with Global Payments' and the management services business' net assets, results of operations, and cash flows displayed separately as "discontinued operations" with all historical financial statements restated to conform to this presentation, in accordance with Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations". The Company provides network based information processing services and systems and information management products and services to the healthcare market. The principal markets for the Company's products and services are healthcare providers, payers, managed care organizations, pharmaceutical manufacturers, and distributors. NDCHealth classifies its business into two reportable segments: Network Services and Systems and Information Management. The consolidated financial statements include the accounts of the Company and majority-owned and controlled subsidiaries. In July 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 deals with, among other things, amortization of goodwill. The Company adopted this new standard in the first quarter of fiscal 2002. Because the adoption of SFAS 142 removed certain differences between book and tax expense, the Company's estimated fiscal 2002 effective tax rate has been reduced to 36.0%. More information regarding the Company's adoption of SFAS 142 can be found below under the heading "Intangible assets." Additionally, in the first quarter of fiscal 2002, the Company adopted a revised fiscal calendar. Previously, each fiscal year began June 1 and ended May 31 with interim quarters ending the last calendar day of every third month. Under the new fiscal calendar, the fiscal year will begin on the Saturday closest to June 1, except for the current year which began Friday, June 1, and end on the Friday closest to May 31. Interim quarters will typically consist of thirteen weeks ending the Friday closest to the last calendar day of August, November, and February. Because the revised fiscal calendar differs only slightly from the previous calendar, the change created no significant differences between current period and prior period operating results or financial position. The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. In addition, certain reclassifications have been made to the fiscal 2001 consolidated financial statements to conform to the fiscal 2002 presentation. 6 It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended May 31, 2001. In the opinion of management, the information furnished reflects all adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented. In accordance with recent Securities and Exchange Commission guidance, those material accounting policies that management believes are the most critical and require complex management judgment have been expanded and are discussed below. Information regarding the Company's other accounting policies is included in the Company's Annual Report on Form 10-K for the year ended May 31, 2001. Investments - In a rapidly changing technology industry, the Company considers - ----------- and selectively enters into a variety of alliances, joint ventures and investments. The Company maintains investments in both publicly traded and privately held entities. The investments in publicly traded entities are classified as available-for-sale securities and are reported at fair value. Unrealized gains and losses are reported, net of taxes, as a component of shareholders' equity. Unrealized losses are charged against income when a decline in fair value is determined to be other than temporary. The specific identification method is used to determine the cost of securities sold. Realized gains and losses on investments are included in other income/expense when realized. Investments in privately held entities are accounted for under either the cost or equity method, whichever is appropriate for the particular investment. The appropriate method is determined by the Company's ability to exercise significant influence over the investee, through either quantity of voting stock or other means. These investments are regularly reviewed for impairment issues and propriety of current accounting treatment. In accordance with the provisions of Accounting Principles Board Opinion No. 18 ("APB 18"), conversion from the cost to equity method, due to changes in the Company's ability to influence the investee or the level of investment, would require retroactive restatement of previously issued financial statements as if the Company had always accounted for the investment under the equity method. Further discussion of the Company's investments can be found under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 16 of this report. Revenue - Revenue within each reportable segment is recognized as appropriate - ------- for each of the differing products and services. Within the Network Services and Systems segment, the primary source of revenue is per transaction fees charged for network services. This revenue is recognized at the time services are rendered. Additionally, the Company receives revenue from software licenses and related maintenance and support agreements. Revenue related to software utilized by the customer to process transactions through the Company's network is recognized ratably over the estimated life of the network services relationship beginning on the date of customer acceptance of the software. Revenue related to software with stand alone functionality is recognized when obligations to the customer are fulfilled, which is typically upon delivery or installation. Revenue related to software maintenance contracts and customer support is recognized ratably over the terms of the contracts. 7 Within the Information Management segment, the Company has two primary sources of revenue: database information reporting and consulting services. Database information reporting typically involves the delivery of data providing pharmaceutical information. Revenue for products and services with multiple deliverables is recognized ratably over the terms of the contracts as appropriate for the unique nature of the individual deliverables using either a straight-line or units-of-delivery model. Revenue for single deliverable products and services is recognized when obligations to the customer have been fulfilled, which is typically upon delivery. Consulting services are typically structured as fixed price service contracts. Revenue for these services is recognized ratably over the contract term based on the percentage-of-completion model. Typically, these contracts are short term in nature and average 6 to 12 months. Intangible assets - Intangible assets primarily represent goodwill and customer - ----------------- relationships associated with the Company's acquisitions. Customer relationships acquired are amortized using the straight-line method over their estimated useful lives ranging from 5 to 15 years. Goodwill represents the excess of the cost of acquired businesses over the fair market value of their identifiable net assets. In July 2001, the Financial Accounting Standards Board issued SFAS 142 which deals with, among other things, amortization of goodwill. The Company adopted this new standard in the first quarter of fiscal 2002. SFAS 142 requires that goodwill no longer be amortized but be reviewed for impairment on a regular basis. As part of its adoption of SFAS 142, the Company completed its initial impairment tests during the second quarter of fiscal 2002 and these tests resulted in no impairment. The adoption of SFAS 142 removed certain differences between book and tax expense; therefore the Company's estimated fiscal 2002 effective tax rate has been reduced to 36.0%. If amortization expense related to goodwill that is no longer being amortized had been excluded from fiscal 2001 Operating expenses, and the effective tax rate had been 36.0%, diluted earnings per share for the three and six months ended November 30, 2000 would be increased by $0.05 and $0.10, respectively. The Company regularly evaluates whether events and circumstances have occurred that indicate the carrying amount of intangibles, other than goodwill, may warrant revision or may not be recoverable. When factors indicate that intangibles, other than goodwill, should be evaluated for possible impairment, the Company uses an estimate of the future undiscounted net cash flows associated with the asset over the remaining life of the asset in measuring whether the asset is recoverable. If such evaluation indicates a potential impairment, the Company uses discounted cash flows to measure fair value in determining the amount of these assets that should be written off. In management's opinion, the identifiable intangible assets are appropriately valued at November 30, 2001. 8 NOTE 2 - EARNINGS PER SHARE: Basic earnings per share is computed by dividing reported net earnings available to common shareholders by weighted average shares outstanding during the period. Diluted earnings per share is computed by dividing reported net earnings available to common shareholders by weighted average shares outstanding during the period and the impact of securities that, if exercised, and convertible debt that, if converted, 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 have a dilutive effect on earnings per share. The following table sets forth the computation of basic and diluted earnings (in thousands, except per share data):
Three Months Ended (Before Discontinued Operations) -------------------------------------------------------------------------------------- November 30, 2001 November 30, 2000 -------------------------------------------------------------------------------------- Income Shares Per Share Income Shares Per Share ------ ------ --------- ------ ------ --------- Basic EPS: Income $ 11,973 34,066 $ 0.35 $ 6,689 32,889 $ 0.20 ============== ============= Effect of Dilutive Securities: Stock Options --- 1,616 --- 1,168 -------------- ------------- ------------- -------------- 11,973 35,682 6,689 34,057 Convertible debt 1,243 4,140 --- --- -------------- ------------- ------------- -------------- Diluted EPS: Income plus assumed conversions $ 13,216 39,822 $ 0.33 $ 6,689 34,057 $ 0.20 ============== ============= ============== ============= ============== ============= Three Months Ended (After Discontinued Operations) -------------------------------------------------------------------------------------- November 30, 2001 November 30, 2000 ------------------------------------------- ------------------------------------------ Income Shares Per Share Income Shares Per Share ------ ------ --------- ------ ------ --------- Basic EPS: Net income $ 11,973 34,066 $ 0.35 $ 6,363 32,889 $ 0.19 ============== ============= Effect of Dilutive Securities: Stock Options --- 1,616 --- 1,168 ------------- -------------- ------------- -------------- 11,973 35,682 6,363 34,057 Convertible debt 1,243 4,140 --- --- ------------- -------------- ------------- -------------- Diluted EPS: Net Income plus assumed conversions $ 13,216 39,822 $ 0.33 $ 6,363 34,057 $ 0.19 ============= ============== ============== ============= ============== =============
For the three months ended November 30, 2000, convertible debt had an antidilutive effect on diluted earnings per share before and after discontinued operations; accordingly, diluted earnings per share was not adjusted for convertible debt. 9
Six Months Ended (Before Discontinued Operations) -------------------------------------------------------------------------------------- November 30, 2001 November 30, 2000 ------------------------------------------- ------------------------------------------ Income Shares Per Share Income Shares Per Share ------ ------ --------- ------ ------ --------- Basic EPS: Income $ 23,052 33,946 $ 0.68 $ 14,220 32,825 $ 0.43 ============== ============= Effect of Dilutive Securities: Stock Options --- 1,605 --- 916 -------------- ------------- ------------- -------------- 23,052 35,551 14,220 33,741 Convertible debt 2,486 4,140 --- --- -------------- ------------- ------------- -------------- Diluted EPS: Income plus assumed conversions $ 25,538 39,691 $ 0.64 $ 14,220 33,741 $ 0.42 ============== ============= ============== ============= ============== ============= Six Months Ended (After Discontinued Operations) -------------------------------------------------------------------------------------- November 30, 2001 November 30, 2000 ------------------------------------------- ------------------------------------------ Income Shares Per Share Income Shares Per Share ------ ------ --------- ------ ------ --------- Basic EPS: Net income $ 23,052 33,946 $ 0.68 $ 22,543 32,825 $ 0.69 ============== ============= Effect of Dilutive Securities: Stock Options --- 1,605 --- 916 ------------- -------------- ------------- -------------- 23,052 35,551 22,543 33,741 Convertible debt 2,486 4,140 --- --- ------------- -------------- ------------- -------------- Diluted EPS: Net Income plus assumed conversions $ 25,538 39,691 $ 0.64 $ 22,543 33,741 $ 0.67 ============= ============== ============== ============= ============== =============
For the six months ended November 30, 2000, convertible debt had an antidilutive effect on diluted earnings per share before and after discontinued operations; accordingly, diluted earnings per share was not adjusted for convertible debt. 10 NOTE 3 - SEGMENT INFORMATION: Segment information for the three month and six month periods ended November 30, 2001 and November 30, 2000 is presented below. NDCHealth operates its business as two reportable segments: Network Services and Systems and Information Management. Network Services and Systems provides electronic connectivity to our intelligent network and system solutions throughout the healthcare industry. Information Management provides management information, research, and consulting services to pharmaceutical manufacturers, pharmacy chains and hospitals. For the three months and six months ended November 30, 2000, Other includes results from divested businesses other than those treated as discontinued operations; and restructuring and impairment charges. There has been no significant change in the composition of the reportable segments from the presentation of fiscal 2001 segment information included in the Company's Annual Report on Form 10-K for the year ended May 31, 2001.
Quarter Ended November 30, 2001 Information Network Services (In thousands) Management and Systems Other Totals - -------------------------------------------------------------------------------------------------------------------- Revenues $ 37,394 $ 54,668 $ - $ 92,062 Income before income taxes and discontinued operations 5,814 12,894 - 18,708 Depreciation and amortization 2,808 3,089 - 5,897 Segment assets 142,900 372,403 - 515,303 Network Quarter Ended November 30, 2000 Information Services and (In thousands) Management Systems Other Totals - -------------------------------------------------------------------------------------------------------------------- Revenues $ 33,917 $ 49,516 $ 233 $ 83,666 Income before income taxes and discontinued operations 4,646 8,544 (2,191) 10,999 Depreciation and amortization 4,048 4,590 45 8,683 Segment assets 116,536 350,426 - 466,962
The following presents information about the Company's revenues from different geographic regions for the three months ended November 30, 2001 and November 30, 2000: (In thousands) 2001 2000 - -------------------------------------------------------------------------------- Revenues: United States $87,699 $80,107 All other 4,363 3,559 --------------------- -------------------- Total revenues $92,062 $83,666 ===================== ==================== 11
Six Months Ended November 30, 2001 Network Information Services and (In thousands) Management Systems Other Totals - -------------------------------------------------------------------------------------------------------------------- Revenues $ 71,907 $108,511 $ - $180,418 Income before income taxes and discontinued operations 9,932 26,087 - 36,019 Depreciation and amortization 5,861 6,617 - 12,478 Segment assets 142,900 372,403 - 515,303 Network Six Months Ended November 30, 2000 Information Services and (In thousands) Management Systems Other Totals - -------------------------------------------------------------------------------------------------------------------- Revenues $ 65,215 $ 98,463 $ 5,862 $169,540 Income before income taxes and discontinued operations 8,102 17,014 (1,872) 23,244 Depreciation and amortization 7,990 8,637 269 16,896 Segment assets 116,536 350,426 - 466,962
The following presents information about the Company's revenues from different geographic regions for the six months ended November 30, 2001 and November 30, 2000: (In thousands) 2001 2000 - -------------------------------------------------------------------------------- Revenues: United States $ 171,758 $162,611 All other 8,660 6,929 ------------------------------------------ Total revenues $ 180,418 $169,540 ========================================== 12 NOTE 4 - RESTRUCTURING AND IMPAIRMENT CHARGES: The past two fiscal years represented a major transition period for the Company. The decision was made to focus management attention on the core information management and network services and systems as well as related Internet initiatives. Accordingly, actions were initiated to eliminate non-core as well as obsolete and redundant product and service offerings. In addition, the Company accelerated clearinghouse integration, consolidation of locations, and associated staff and expense reductions. Total restructuring and asset impairment charges during the second quarter of fiscal 2000 were $34.4 million. Of this total, approximately $10.5 million were cash items that were accrued at the time the charges were incurred. As these actions were finalized and implemented, an additional $2.2 million of restructuring and impairment charges were incurred during the second quarter of fiscal 2001. Of this total, approximately $1.2 million were cash items that were accrued at the time the charges were incurred. As of November 30, 2001, $0.1 million of the cash portion of the restructuring charges remains accrued as a current liability on the balance sheet as follows: (in thousands)
Original Current Total FY01 Additions Payments Balance - --------------------------------------------------------------------------------------------------------------- Closed or planned closings of facilities $ 6,100 $ 160 $ 6,182 $ 78 Estimated costs for settlements on contracts 2,236 - 2,236 - Severance and related costs 2,177 1,066 3,190 53 ------------------------------------------------------------- Total $10,513 $ 1,226 $11,608 $ 131 =============================================================
13 NOTE 5 - DISCONTINUED OPERATIONS: On January 31, 2001, the Company completed the spin-off of its eCommerce business segment, Global Payments. Additionally, in the third quarter of fiscal 2000, the Company made the decision to divest its management services business and account for this business area as discontinued operations. As a result of the spin-off and divestiture, the Company's November 30, 2000 financial statements have been prepared with Global Payments' and the management services business' net assets, results of operations, and cash flows displayed separately as "discontinued operations". The operating results of the discontinued operations for the three months and six months ended November 30, 2000 are summarized as follows:
Three months ended November 30, 2000 ------------------------------------------------------ (In thousands, except per share data): Global Payments Management Total Inc. Services - ----------------------------------------------------------------------------------------------------------------------------- Revenue $ 82,631 $ - $ 82,631 Operating income 15,972 - 15,972 Income from operations, net of tax 8,407 - 8,407 Spin-off special charge, net of tax (8,733) - (8,733) ------------------------------------------------------ Net loss from discontinued operations $ (326) $ - $ (326) ====================================================== Diluted earnings (loss) per share: From operations $ 0.25 $ - $ 0.25 ------------------------------------------------------ Spin-off special charge $ (0.27) $ - $ (0.27) ------------------------------------------------------ Total $ (0.01) $ - $ (0.01) ------------------------------------------------------ Six months ended November 30, 2000 ------------------------------------------------------ (In thousands, except per share data): Global Payments Management Total Inc. Services - ----------------------------------------------------------------------------------------------------------------------------- Revenue $169,822 $ 21,905 $ 191,727 Operating income 32,554 168 32,722 Income from operations, net of tax 17,056 - 17,056 Spin-off special charge, net of tax (8,733) - (8,733) ------------------------------------------------------ Net income from discontinued operations $ 8,323 - $ 8,323 ====================================================== Diluted earnings (loss) per share: From operations $ 0.51 $ - $ 0.51 ------------------------------------------------------ Spin-off special charge $ (0.27) $ - $ (0.27) ------------------------------------------------------ Total $ 0.25 $ - $ 0.25 ------------------------------------------------------
14 NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION: Supplemental cash flow disclosures are as follows:
Six months ended November 30, ------------------------------------------ (in thousands) 2001 2000 - -------------------------------------------------------------------------------------------------- Net income taxes paid $ 188 $ 737 Interest paid 4,071 3,448 Capital leases entered into in exchange for property and equipment 2,151 - Non-cash investment in MedUnite, Inc. 37,458 - Non-cash investment in TechRx Incorporated - 15,306
NOTE 7 - COMPREHENSIVE INCOME: The components of comprehensive income are as follows:
Three months ended November 30, --------------------------------------------- (in thousands) 2001 2000 - --------------------------------------------------------------------------------------------------- Net income $ 11,973 $ 6,363 Foreign currency translation adjustment (1,602) 23 Unrealized holding gain (loss), net of tax - (1,893) ------------------- ---------------- Total comprehensive income $ 10,371 $ 4,493 =================== ================
Six months ended November 30, --------------------------------------------- (in thousands) 2001 2000 - --------------------------------------------------------------------------------------------------- Net income $ 23,052 $ 22,543 Foreign currency translation adjustment 24 58 Unrealized holding gain (loss), net of tax - (2,537) ------------------- ---------------- Total comprehensive income $ 23,076 $20,064 =================== ================
NOTE 8 - OTHER EVENTS: On December 10, 2001, the Company announced an agreement to create Infopharm Limited, a joint venture with Cegedim, S.A., to be headquartered in the United Kingdom. Under this agreement, NDCHealth combined its United Kingdom informatics business with that of Cegedim, S.A. to broaden its product offerings to pharmaceutical manufacturers in the United Kingdom. This transaction closed during the Company's third quarter. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For an understanding of the significant factors that influenced our results, the following discussion should be read in conjunction with the consolidated financial statements of NDCHealth and related notes appearing elsewhere in this report. NDCHealth classifies its business into two reportable segments: Network Services and Systems and Information Management. Network Services and Systems provides point of service systems, high volume, network based information solutions and information management services to the healthcare industry. Our products and services are provided to pharmacies, physicians, hospitals, integrated delivery systems, managed care organizations, payers, government healthcare agencies, distributors, clinics, Internet portals, and other healthcare providers and related businesses and include electronic claims processing, eligibility verification, claims adjudication and payment systems, provision of administrative and clinical services, and physician practice management systems. NDCHealth serves a diverse customer base including more than 100,000 physicians. More than ninety percent of the pharmacies in North America and twenty-five percent of the pharmacies in the United Kingdom are linked to our value added services; approximately forty percent of the nation's large (400+ beds) hospitals are NDCHealth customers; and NDCHealth has value-added electronic connections to more than 1,000 commercial and governmental healthcare payers. Information Management products and services provided to pharmaceutical manufacturers include database information reporting on prescription drug sales and consulting services. Our customer base is comprised of over 100 pharmaceutical manufacturers. Additionally, we are in the early phases of entering the German and U.K. information markets. We believe that our presence in the pharmacy, managed care organization, physician, hospital, pharmaceutical manufacturer, and healthcare payer markets is broader than any other similar healthcare information company and provides us with a strong competitive advantage. In accordance with recent Securities and Exchange Commission guidance, those material accounting policies that we believe are the most critical to an investor's understanding of our financial results and condition and require complex management judgment have been expanded and are discussed below. Information regarding our other accounting policies is included in our Annual Report on Form 10-K for the year ended May 31, 2001. Our consolidated financial statements include the accounts of both NDCHealth and majority-owned and controlled subsidiaries. Investments - Operating in a rapidly changing technology industry, we consider and selectively enter into a variety of alliances, joint ventures and investments. We maintain investments in both publicly traded and privately held entities. Our investments in publicly traded entities are classified as available-for-sale securities and are reported at fair value. Unrealized gains and losses are reported, net of taxes, as a component of shareholders' equity. Unrealized losses are charged against income when a decline in fair value is determined to be other than temporary. The specific identification method is used to determine the cost of securities sold. Realized gains and losses on investments are included in other income/expense when realized. 16 Investments in privately held entities are accounted for under either the cost or equity method, whichever is appropriate for each particular investment. The appropriate method is determined by our ability to exercise significant influence over the investee, through either quantity of voting stock or other means. These investments are regularly reviewed for impairment issues and propriety of current accounting treatment. In accordance with the provisions of APB 18, conversion from the cost to equity method, due to changes in our ability to influence the investee or the level of investment, would require retroactive restatement of previously issued financial statements as if we had always accounted for the investment under the equity method. We currently maintain investments in two privately held entities, both of which are accounted for under the cost method. Our investment in TechRx Incorporated was made during the first quarter of fiscal 2001 when the assets of our pharmacy systems business were exchanged for common stock, comprising 8.4% of the voting interest in TechRx Incorporated. Additionally, we received non-voting convertible preferred stock and warrants which are convertible into additional shares of non-voting convertible preferred stock. The exercise of the warrants and the conversion of the preferred stock is dependent upon the occurrence of certain future events outside of our control. Exercise of these warrants in full would require an additional investment of approximately $18.5 million. This net investment was valued at approximately $35.3 million at November 30, 2001. Our investment in MedUnite, Inc. was made during the first quarter of fiscal 2002 when the assets of our physician network services business were exchanged for a 17.9% equity position in MedUnite, Inc. This net investment was valued at approximately $43.7 million at November 30, 2001. TechRx Incorporated and MedUnite, Inc. are each in the start up phase of operations and have incurred net losses prior to and since we have held ownership interests. A change from the cost method to the equity method could be required by an increase in our equity position or in the degree of influence we have on these companies. As these companies have been incurring net losses since the date of our initial investments, any restatement of historical financial statements as a result of a change to the equity method would result in a decrease in our previously reported income. Revenue - Revenue within each reportable segment is recognized as appropriate for each of the differing products and services. Within our Network Services and Systems segment, our primary source of revenue is per transaction fees charged for network services. We recognize this revenue at the time services are rendered. Additionally, we receive revenue from software licenses and related maintenance and support agreements. Revenue related to software utilized by our customers to process transactions through our network is recognized ratably over the estimated life of the network services relationship beginning on the date of customer acceptance of the software. Revenue related to software with stand alone functionality is recognized when our obligations to the customer are fulfilled, which is typically upon delivery or installation. Revenue related to software maintenance contracts and customer support is recognized ratably over the terms of the contracts. Within our Information Management segment, we have two primary sources of revenue: database information reporting and consulting services. Database information reporting typically involves the delivery of data providing pharmaceutical information. Revenue for products and services with multiple deliverables is recognized ratably over the terms of the contracts as appropriate for the unique nature of the individual deliverables using either a straight-line or units-of-delivery model. Revenue for single deliverable products and services is recognized when our obligations to the customer have been fulfilled, which is typically upon delivery. Consulting services are typically 17 structured as fixed price service contracts. Revenue for these services is recognized ratably over the contract term based on the percentage-of-completion model. Typically, these contracts are short term in nature and average 6 to 12 months. Intangible assets - Intangible assets primarily represent goodwill and customer relationships associated with our acquisitions. Customer relationships acquired are amortized using the straight-line method over their estimated useful lives ranging from 5 to 15 years. Goodwill represents the excess of the cost of acquired businesses over the fair market value of their identifiable net assets. In July 2001, the Financial Accounting Standards Board issued SFAS 142 which deals with, among other things, amortization of goodwill. We adopted this new standard in the first quarter of fiscal 2002. SFAS 142 requires that we no longer amortize goodwill but review for impairment on a regular basis. As part of our adoption of SFAS 142, we completed the initial impairment tests during the second quarter of fiscal 2002 and these tests resulted in no impairment. The adoption of SFAS 142 removed certain differences between book and tax expense; therefore our estimated fiscal 2002 effective tax rate has been reduced to 36.0%. If amortization expense related to goodwill that is no longer being amortized had been excluded from our fiscal 2001 Operating expenses, and our effective tax rate had been 36.0%, diluted earnings per share for the three and six months ended November 30, 2000 would be increased by $0.05 and $0.10, respectively. We regularly evaluate whether events and circumstances have occurred that indicate the carrying amount of intangibles, other than goodwill, may warrant revision or may not be recoverable. When factors indicate that intangibles, other than goodwill, should be evaluated for possible impairment, we use an estimate of the future undiscounted net cash flows associated with the asset over the remaining life of the asset in measuring whether the asset is recoverable. If this evaluation indicates a potential impairment, we use discounted cash flows to measure fair value in determining the amount of these assets that should be written off. In our opinion, the identifiable intangible assets are appropriately valued at November 30, 2001. Data costs - We purchase data from a variety of sources primarily for use in our Information Management products and services. These costs are typically held in inventory at the time of purchase and expensed the following month as products utilizing the data are delivered to customers. Although the cost of this data is expensed in the month of its initial use, the data remains useful for products and services sold in subsequent periods. Results of Operations On January 31, 2001, we completed the spin-off of our eCommerce business segment, Global Payments. Additionally, in the third quarter of fiscal 2000, we decided to pursue the divestiture of our management services business and account for that business as "discontinued operations". As a result of the spin-off and divestiture, our financial statements have been prepared with Global Payments' and the management services business' net assets, results of operations, and cash flows displayed separately as "discontinued operations." The remainder of the discussion of the results of operations excludes these discontinued operations. During the first quarter of fiscal 2002, we sold our physician network services business to MedUnite, Inc. As a result of this alliance, NDCHealth became a founding investor in MedUnite, along with leading national payers. Although this transaction will result in the short term loss of less than $10 million in transaction revenue in the current year, the alliance should allow us to receive a 18 growing revenue stream from our physician system customers for network services provided by MedUnite. In order to provide a comparison to the continuing business results of NDCHealth, the fiscal 2001 financial information presented below has been "normalized" by excluding revenues and operating expenses related to divested businesses of $0.2 million and $0.2 million, respectively, for the three months ended November 30, 2000 and $5.9 million and $5.5 million, respectively, for the six months ended November 30, 2000; in addition to restructuring and impairment charges of $2.2 million and discontinued operations. More information regarding our historical "normalized" results of operations can be found under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended May 31, 2001.
Three Months Ended November 30, ---------------------------------------------- ----------- (In millions) 2001 2000 Change ---------------------- ---------------------- ----------- Revenue: Information Management $ 37.4 41% $ 33.9 41% 10% Network Services and Systems 54.7 59% 49.5 59% 11% ------------------------------------------------------------ Total Revenue $ 92.1 100% $ 83.4 100% 10% ============================================================ Operating Income: Information Management $ 5.8 29% $ 5.3 35% 9% Network Services and Systems 14.1 71% 9.7 65% 45% ------------------------------------------------------------ Total Operating Income $ 19.9 100% $ 15.0 100% 33% ============================================================ Six Months Ended November 30, ---------------------------------------------- ----------- (In millions) 2001 2000 Change ---------------------- ---------------------- ----------- Revenue: Information Management $ 71.9 40% $ 65.2 40% 10% Network Services and Systems 108.5 60% 98.5 60% 10% ------------------------------------------------------------ Total Revenue $180.4 100% $163.7 100% 10% ============================================================ Operating Income: Information Management $ 10.3 26% $ 9.5 33% 8% Network Services and Systems 28.6 74% 19.3 67% 48% ------------------------------------------------------------ Total Operating Income $ 38.9 100% $ 28.8 100% 35% ============================================================
Consolidated Total revenue for the second quarter of fiscal 2002 was $92.1 million, an increase of $8.7 million, or 10%, from the prior year's second quarter. This increase was the result of growth in transaction volumes in the pharmacy and hospital markets, growth in our customer base, and new revenues from our expansion in Europe. Total revenue increased $3.7 million, or 4%, from the prior quarter, also reflecting increasing volumes and customer base. Total revenue for the second quarter was not significantly impacted by the events of September 11. Our major operations centers, located in Atlanta, Phoenix, and Tulsa, were not impacted by the attacks, our networks were never down, and our customer service was uninterrupted. A small number of customers required their network traffic to be 19 rerouted, a routine procedure for us. While we observed a decrease in network traffic on September 11, traffic patterns returned to normal levels the following day. As noted below under "Information Management," we also experienced some delays in contract signings in late September and October. Total revenue for the first half of fiscal 2002 increased to $180.4 million from $163.7 million in the prior year's first half. This increase of $16.7 million, or 10%, was the result of increased transaction volumes and growth in customer base in the pharmacy and hospital markets and increased demand for our information management products driven by our expansion in Europe and growth in domestic customer base. Cost of service ("COS") expense, as a percentage of revenue, decreased to 49% in the second quarter of fiscal 2002 from 50% in the second quarter of fiscal 2001 due to increased leverage of our infrastructure. COS expense increased $3.5 million from the prior year's second quarter. This 9% increase, less than the 10% increase in revenue, demonstrates our ability to leverage the fixed costs inherent in our business model while continuing to invest for our future growth. COS expense for the first half of fiscal 2002, as a percentage of revenue, decreased to 48% from 49% in the prior year's first half, again due to the increased leverage of our infrastructure. COS expense increased $6.9 million from the prior year's first half. This increase of 9% was lower than our 10% increase in revenue because of our ability to leverage our fixed costs. Sales, general and administrative ("SG&A") expense, as a percentage of revenue, increased to 23% in this year's second quarter from 22% in the prior year's second quarter due to increased investment in sales and marketing programs, primarily in our physician business. The increased leverage of our infrastructure discussed above should allow us to selectively invest in other areas, such as marketing, while continuing to improve total company operating margin. SG&A expense increased $2.9 million, or 16%, in the second quarter of fiscal 2002 from the same quarter last year, primarily due to the increased marketing expense discussed above. SG&A expense, as a percentage of revenue, was 23% in the first half of both fiscal 2002 and fiscal 2001. This margin remained constant as spending in preparation of the spin-off of Global Payments in the prior year was replaced with the increased investments in sales and marketing programs discussed above in the current year. SG&A expense increased $3.9 million, or 10%, in the first half of fiscal 2002 from the prior year's first half. This increase is reflective of the increased spending discussed above in the current year and is consistent with the increase in revenue. Depreciation and amortization ("D&A") expense, as a percentage of revenue, decreased to 6% in the second quarter of fiscal 2002 from 10% in the prior year's second quarter. This decrease was attributable to our adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 deals with, among other things, amortization of goodwill. D&A expense, as a percentage of revenue, would have remained at 10% in the current year's first quarter had SFAS 142 not been adopted. D&A expense decreased $2.7 million from the prior year's second quarter. D&A expense, as a percentage of revenue, decreased to 7% in the first half of fiscal 2002 from 10% in the prior year's first half. This decrease was attributable to SFAS 142 discussed above. D&A expense decreased $4.1 million in the first half of fiscal 2002 from the prior year's first half. Operating income increased 33% to $19.9 million in the second quarter of fiscal 2002 from $15.0 million in the second quarter of fiscal 2001. As a percentage of revenue, the operating income 20 margin increased to 22% in the current year's second quarter from 18% in the prior year's second quarter due to the decreased COS and D&A expense margins discussed above. Operating income increased $1.0 million, or 5%, from this year's first quarter. This 5% increase was greater than the 4% increase in revenue, demonstrating our ability to leverage the fixed costs inherent in our business model. Operating income for the first half of fiscal 2002 increased 35% to $38.9 million from $28.8 million in the prior year's first half. As a percentage of revenue, the operating income margin increased to 22% in the first half of fiscal 2002 from 18% the prior year's first half. This increase is the result of the decreased COS and D&A expense margins discussed above. Total other expense decreased to $1.2 million in the second quarter of fiscal 2002 from $1.8 million in the prior year's second quarter. This $0.6 million decrease was the net result of multiple factors, including an increase in convertible debt interest expense that was previously shared with Global Payments; the minority interest credit of $0.7 million in the current year which represents the minority's share of losses attributable to subsidiaries consolidated in our financial statements but not 100% owned by us; and $0.3 million in interest income earned on our cash reserves in the current year. Total other expense for the first half of fiscal 2002 decreased to $2.9 million from $3.7 million in the prior year's first half. This decrease was the result of the same factors discussed above. Income before income taxes ("IBIT") increased 42% to $18.7 million in the second quarter of fiscal 2002 from $13.2 million in the second quarter of fiscal 2001 due to the increase in operating income and decrease in other expense discussed above. IBIT increased $1.4 million from the current year's first quarter, reflecting the increased operating income discussed above. IBIT for the first half of fiscal 2002 increased 43% to $36.0 million from $25.1 million in the prior year's first half. This increase is reflective of the increase in operating income and decrease in other expense discussed above. Diluted earnings per share for the second quarter of fiscal 2002 increased 38% to $0.33 as compared to $0.24 for the prior year's second quarter. Of the increase in diluted earnings per share, approximately $0.05 was attributable to the adoption of SFAS 142. Additionally, losses in our start-up operations in Europe reduced diluted earnings per share in the second quarter of fiscal 2002 by approximately $0.01. Diluted earnings per share increased $0.02 from the current year's first quarter, reflecting the increased IBIT discussed above. Diluted earnings per share for the first half of fiscal 2002 increased 39% to $0.64 from $0.46 in the prior year's first half. Approximately $0.10 of this increase is attributable to the adoption of SFAS 142. Information Management Information Management revenue grew by 10% to $37.4 million in the second quarter of fiscal 2002 from $33.9 million in the second quarter of fiscal 2001 due to start-up operations in Western Europe and new products and services being offered to both new and existing customers. Information Management experienced some delays in contract signing in late September and October following the events of September 11, however, volume returned to normal levels in November. Because the majority of Information Management revenue is recurring, these delays did not significantly impact 21 second quarter revenue. Revenue increased 8%, or $2.9 million, from the current year's first quarter. This increase was reflective of the seasonal pattern seen in the first quarter when revenue was depressed as a result of the slow summer selling season and continued growth in the second quarter from both new and existing customers. Information Management revenue for the first half of fiscal 2002 increased to $71.9 million from $65.2 million in the prior year's first half. This increase of $6.7 million, or 10%, was the result of new revenues from start-up operations in Western Europe and new products and services being offered to both new and existing customers. Operating income for the second quarter of fiscal 2002 was $5.8 million compared to $5.3 million in the second quarter of fiscal 2001. This 9% increase in operating income was lower than the 10% increase in revenue because of operating losses in our European operations, partially offset by the reduced amortization expense resulting from our adoption of SFAS 142. Operating income increased $1.3 million from the first quarter of fiscal 2002 reflecting the increase in revenue from the seasonally low first quarter discussed above. Operating income for the first half of fiscal 2002 increased to $10.3 million from $9.5 million in the prior year's first half. This increase of $0.8 million, or 8%, was reflective of the increase in revenue, reduced amortization expense and losses in our European operations discussed above. Network Services and Systems Network Services and Systems revenue increased 11% to $54.7 million in the second quarter of fiscal 2002 from $49.5 million in the prior year's second quarter primarily due to increased demand for our services in the pharmacy and hospital markets as well as growth in our physicians systems business. This 11% increase over the prior year's second quarter would have been 19% without the loss in revenue related to MedUnite in the current year. Revenue increased slightly, $0.8 million, from the current year's first quarter. Sequential growth was hindered due to the reduction in revenue from the physician network services business sold to MedUnite in the prior quarter. We believe this reduction in revenue to be temporary as the opportunity exists to increase revenue within our existing customer base from new products developed by MedUnite. Network Services and Systems revenue for the first half of fiscal 2002 increased to $108.5 million from $98.5 million in the prior year's first half. This increase of $10.0 million, or 10%, was the result of growth in transaction volumes in the pharmacy and hospital markets as well as growth in our physicians systems business. Operating income for the second quarter of fiscal 2002 was $14.1 million compared to $9.7 million in the second quarter of fiscal 2001. This 45% increase in operating income was reflective of the 11% increase in revenue, reduced amortization expense resulting from our adoption of SFAS 142, and increased leverage of our infrastructure. Operating income decreased $0.3 million from the current year's first quarter, due to the transaction with MedUnite discussed above. Operating income for the first half of fiscal 2002 increased to $28.6 million from $19.3 million in the prior year's first half. This increase of $9.3 million, or 48%, was reflective of the increase in revenue, reduced amortization expense and increased leverage of our infrastructure discussed above. 22 Liquidity and Capital Resources Cash flow generated from operations provides us with a significant source of liquidity to meet our needs. At November 30, 2001, we had cash and cash equivalents totaling $30.3 million. Net cash provided by operating activities decreased $1.9 million to $35.7 million for the first six months of fiscal 2002 compared to $37.6 million for the first six months of fiscal 2001. This difference is driven primarily by the source of deferred tax assets used to reduce current tax payments. Deferred tax assets used in the prior year were related to Restructuring and impairment charges and as such the cash provided by the use of the assets is displayed in Cash flows from operating activities. The deferred tax assets used in the current year are related to discontinued operations, therefore the cash provided by the use of these assets is displayed in Net cash provided by discontinued operations. Net cash used in investing activities was $24.7 million for the first six months of fiscal 2002 compared to $37.2 million for the first six months of fiscal 2001. This change is primarily due to business acquisitions of $23.2 million, partially offset by $20.0 million in proceeds received from the divestiture of the management services business, and higher capital expenditures in the prior year. Capital expenditures were $5.9 million less in the first six months of the current year than in the same period of the prior year. This reduction is due mainly to timing of expenditures as we continue to invest in capital expenditures related to growth in our business and acceleration of certain strategic initiatives. We expect capital spending to accelerate for the remainder of the fiscal year. Net cash provided by financing activities was $0.2 million for the six months of fiscal 2002 compared to the use of $16.7 million in the prior year's first six months. This change is due primarily to net payments of $11.5 million against the lines of credit in the prior year. Cash provided by stock activities increased to $4.8 million in the first six months of fiscal 2002 from $2.5 million in the first six months of fiscal 2001. These stock activities are primarily related to the exercises of employee stock options and issues under the employee stock purchase plan. Additionally, because the amount of our quarterly dividend was reduced in the third quarter of fiscal 2001 following the spin-off of Global Payments, cash used for payment of dividends decreased to $2.7 million in the first six months of fiscal 2002 from $4.9 million in the prior year's first six months. Net cash provided by discontinued operations was $6.6 million for the first six months of fiscal 2002 compared to $21.8 million for the first six months of fiscal 2001. Net cash provided in the current year consists of payments made in the settling of liabilities of our discontinued operations offset by the use of deferred tax assets attributed to our discontinued operations discussed above. Net cash provided in fiscal 2001 consisted primarily of the net income from discontinued operations. We have a credit facility providing a $50 million unsecured revolving line of credit which is available for working capital and general corporate purposes. The facility has a one-year term, with the option for us to convert any outstanding borrowings at the maturity date to a term loan repayable at the first anniversary of the initial maturity date, or January 27, 2003. At November 30, 2001, there were no amounts outstanding under the facility. However, it is our intention, as of the date of this Report, to exercise our option of converting the facility to a term loan before the initial maturity date of January 29, 2002. This option requires us to borrow the full amount available to us under the facility before the initial maturity date. This amount will then be converted to a term loan payable in full on or before January 27, 2003. We believe that our current level of cash on hand, future cash flows from operations, and the anticipated term loan to be obtained in January 2002 are sufficient to meet our operating and corporate 23 development needs in calendar year 2002. We expect to arrange new financing before the maturity date of the term loan in January 2003 and are evaluating various options for raising additional funds. This may be through the issuance of additional debt or equity and could replace all or a portion of the debt outstanding at the time of issuance. Quantitative and Qualitative Disclosure About Market Risk There have been no significant changes in NDCHealth's market risk from that disclosed in our Annual Report on Form 10-K for the year ended May 31, 2001. Forward Looking Results of Operations The impact of the implementation of SFAS 142 in both the first and second quarters was an addition of approximately $0.05 to diluted earnings per share in each quarter. We estimate that the annual impact of SFAS 142 will be an addition of approximately $0.20 to diluted earnings per share in fiscal 2002. Additionally, we reduced the fiscal 2002 effective tax rate to 36.0% due to our application of this new standard. We believe that NDCHealth is well positioned to provide processing and information products and services to the healthcare industry in the future. Based on observed market conditions and our results for the six months ended November 30, 2001, our expectation remains that revenue for fiscal year 2002 will be in the $375-385 million range resulting in diluted earnings per share in the range of $1.30 to $1.34, including the impact of approximately $0.20 for the SFAS 142 accounting change. While past performance does not guarantee future results, the Company is committed to continuing to sustain quality earnings growth. The Company's strategy to attain growth is to position the Company for continued future success through ongoing investment in new market opportunities as well as through strategic alliances and acquisitions. The Company also intends to continue expansion into additional market segments related to its two primary segments. The Company intends to continue to make investments in new technology infrastructure and productivity tools to ensure long-term competitiveness and maximize operating capacity and efficiency. Forward-Looking Information When used in this Quarterly Report on Form 10-Q, in documents incorporated herein and elsewhere by management of NDCHealth Corporation, formerly National Data Corporation, ("NDCHealth" or the "Company"), from time to time, the words "believes," "anticipates," "expects," "intends," "plans" and similar expressions and statements that are necessarily dependent on future events are intended to identify forward-looking statements concerning the Company's business 24 operations, economic performance and financial condition, including in particular the Company's business strategy and means to implement the strategy, the Company's objectives, the amount of future capital expenditures, the effective tax rate, the likelihood of the Company's success in developing and introducing new products and expanding its business, and the timing of the introduction of new and modified products or services. For such statements, the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 is applicable and invoked. Such statements are based on a number of assumptions, estimates, projections or plans that are inherently subject to significant risks, uncertainties and contingencies that are subject to change. Actual revenues, revenue growth and margins will be dependent upon all such factors and subject to risks related to the implementation of changes by the Company, the failure to implement changes, and customer acceptance of such changes or lack of change. There can be no assurance of the expected benefits and prospects for alliances that may be entered into from time to time. These alliances involve risks and uncertainties, including market and customer acceptance of the relationship, the effect of economic conditions, competition, pricing, and development difficulties. Actual results of events could differ materially from those anticipated in the Company's forward-looking statements as a result of a variety of factors, including: (a) those set forth under the caption "Additional Factors that May Affect Future Performance" in the Company's Annual Report on Form 10-K for the period ended May 31, 2001 which are incorporated herein by this reference; (b) those set forth elsewhere herein; (c) those set forth from time to time in the Company's press releases and reports and other filings made with the Securities and Exchange Commission; and (d) those set forth from time to time in the Company's analyst calls and discussions. In addition, the Company is currently unable to assess the impact, if any, on its financial performance that may result from the economic effects of the recent or any future terrorist attacks on the United States. The Company cautions that such factors are not exclusive. Consequently, all of the forward-looking statements made herein are qualified by these cautionary statements and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, or thereof. The Company undertakes no obligation to update forward-looking or other statements or to publicly release the results of any revisions of such forward-looking statements that may be made to reflect events or circumstances after the date hereof, or thereof, as the case may be, or to reflect the occurrence of unanticipated events. 25 Part II ITEM 1 - PENDING LEGAL PROCEEDINGS - ---------------------------------- We are involved in litigation related to our divested Physician and Hospital Support Services and Hospital Management Services (PHSS) units. We have obtained a ruling from the European Commission ordering IMS Health to license its structure for organizing pharmaceutical sales data to us. We are unable to predict whether IMS Health may be successful in overturning the EU ruling. Additionally, we are party to a number of other claims and lawsuits incidental to our business. We believe that the ultimate outcome of such matters, in the aggregate, will not have a material adverse impact on our financial position or liquidity. ITEM 2 - CHANGES IN SECURITIES - ------------------------------ None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - ---------------------------------------- None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ The 2001 Annual Meeting of Stockholders of NDCHealth Corporation, formerly National Data Corporation, was held at the Company's offices in Atlanta, Georgia on October 25, 2001. At the annual meeting, the stockholders of the Company approved the following items: 1. Election of three directors in Class III to serve until the annual meeting of stockholders in 2004, or until a successor is duly elected and qualified. Votes cast were as follows: J. Veronica Biggins, For 29,311,091, Withheld 689,474; Terri A. Dial, For 29,522,254, Withheld 478,311; and Kurt M. Landgraf, For 29,521,934, Withheld 478,631; and 2. Adoption of a proposal to amend the Certificate of Incorporation of the Company to change the name of the Company to "NDCHealth Corporation." Votes cast were as follows: For 29,961,200, Against 22,850, Abstain from voting 16,515. ITEM 5 - OTHER INFORMATION - -------------------------- None 26 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) Exhibits: 3(i) Restated Certificate of Incorporation of the Registrant. 10(i) 2002 Non-Employee Directors Compensation Plan. (b) Reports Filed on Form 8-K: NDCHealth Corporation's, formerly National Data Corporation, Current Report on Form 8-K dated September 19, 2001, was filed on September 19, 2001, reporting as an exhibit under Item 7 the Company's press release dated September 19, 2001 and under Item 9 the Company's release of financial information including revenue and earnings expectations for the remainder of the fiscal year. 27 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NDCHealth Corporation --------------------- (Registrant) By: /s/ David H. Shenk ---------------------- David H. Shenk Vice President & Corporate Controller (Chief Accounting Officer) Date: January 11, 2002 28 EX-3.I 3 dex3i.txt RESTATED CERTIFICATE OF INCORPORATION Exhibit 3(i) RESTATED -------- CERTIFICATE OF INCORPORATION ---------------------------- OF -- NDCHEALTH CORPORATION --------------------- NDCHealth Corporation (the "Corporation"), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the Corporation is NDCHealth Corporation. The Corporation was originally incorporated under the name National Data Corporation and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on July 20, 1967. 2. This Restated Certificate of Incorporation of the Corporation restates and integrates, and does not further amend, the Certificate of Incorporation of the Corporation as heretofore amended. This Restated Certificate of Incorporation has been adopted and approved in accordance with Section 245 of the General Corporation Law of the State of Delaware. Stockholder approval of this Restated Certificate of Incorporation was not required. 3. The text of the Certificate of Incorporation of the Corporation, as heretofore amended, is hereby restated to read in its entirety as follows: FIRST ----- The name of the corporation is NDCHealth Corporation. SECOND ------ The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in Wilmington, County of New Castle. The name of the registered agent at such address is The Corporation Trust Company. THIRD ----- The nature of the business or purposes to be conducted or promoted is: 1. To plan, develop, operate, and lease data processing systems on a nationwide basis; to send and receive data by any means of communication; to provide data collection, control, and processing services to customers for the purposes of distribution and inventory control, sales recording, personnel, equipment, and shipments movements and control, cost control, market sampling, dictation services, general management statistical information, and other purposes without limitation; to record, -1- format, program, and retain data of any type; and to utilize computers, computer programming, formatting, and communications devices for the purposes of systematic data collection and disbursement. 2. To manufacture, lease, purchase or otherwise acquire, invest in, own, mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description. 3. To enter into, make and perform contracts of every kind (including, without limitation, contracts of guaranty and suretyship) for any lawful purpose with any person, firm, association or corporation, municipality, body politic, country, territory, state, government or dependency thereof. 4. To acquire, and pay for in cash, stock or bonds of this Corporation or otherwise, the goodwill, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation. 5. To acquire, hold, use, sell, assign, lease, grant licenses or franchises in respect of, mortgage or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trademarks and trade names, relating to or useful in connection with any business of this Corporation. 6. To acquire by purchase, subscription or otherwise, and to receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise dispose of or deal in and with any of the shares of the capital stock, or any voting trusts certificates in respect of the shares of capital stock, scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other securities, obligations, choses in action and evidences of indebtedness or interest issued or created by any corporation, joint stock companies, syndicates, associations, firms, trusts or persons, public or private, or by the Government of the United States of America, or by any foreign government, or by any state, territory, province, municipality or other political subdivision or by any governmental agency, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, including the right to execute consents and vote thereon, and to do any and all acts and things necessary or advisable for the preservation, protection, improvement and enhancement in value thereof. 7. To borrow or raise monies for any of the purposes of the Corporation and, from time to time without limit as to amount, to draw, to make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the property of the Corporation, whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds or other obligations of the Corporation for its corporate purposes. -2- 8. To purchase, receive, take by grant, give, devise, bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ, use and otherwise deal in and with real or personal property, or any interest therein, wherever situated, and to sell, convey, lease, exchange, transfer or otherwise dispose of, or mortgage or pledge, all or any of the Corporation's property and assets, or interests therein, wherever situated. 9. In general, to possess and exercise all the powers and privileges granted by the General Corporation Law of Delaware or by any other law of Delaware or by this Certificate of Incorporation together with any powers incidental thereto, all to the same extent as natural persons might or could do in any part of the world, as principals, agents, contractors, trustees, or otherwise, and either alone or in company with others; provided such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the Corporation. 10. The businesses and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in no manner limited or restricted by reference to, or inference from, the terms of any other clause in this Certificate of Incorporation, but the business and purposes specified in each of the foregoing clauses of this article shall be regarded as independent businesses and purposes. FOURTH ------ 1. The Corporation shall have the authority to be exercised by its Board of Directors to issue 200,000,000 shares of Common Stock of the par value of $.125 per share (the "Common Stock") and 1,000,000 shares of Preferred Stock of the par value of $1.00 per share (the "Preferred Stock"). 2. Each holder of Common Stock shall at every meeting of the holders of Common Stock be entitled to one vote in person or by proxy for each share of Common Stock held by such holder. 3. Authority is hereby expressly granted to and vested in the Board of Directors to issue the Preferred Stock from time to time in one or more series with such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series or in a resolution or resolutions thereafter from time to time adopted as permitted by law. In fixing and determining the relative rights and preferences of the shares of any series of the Preferred Stock, the Board of Directors, within the limits from time to time of the authorized but unissued shares of Common Stock, may provide that shares of any such series of the Preferred Stock may be convertible into the same or a different number of shares of Common Stock. In the event the Board of Directors specifies that the Preferred Stock (or any series thereof) shall be entitled to voting rights, the voting rights shall be limited to one vote for each issued and outstanding share of Preferred Stock, and the Common -3- Stock and the Preferred Stock, unless otherwise required by law, shall vote together as one class; provided, however, that the Board of Directors may provide that the holders of the Preferred Stock (or any series thereof) shall have greater or alternative voting rights in the event of a default by the Corporation in the observance by the Corporation of the terms and conditions relating to the Preferred Stock (or any series thereof). 4. Subject to the rights, if any, of the holders of the Preferred Stock, or any series thereof, the amount of authorized stock of any class may be increased or decreased by the affirmative vote of the holders of a majority of the shares of Common Stock of the Corporation entitled to vote. 5. The Corporation shall be entitled to treat the person in whose name any share, right or option is registered as the owner thereof, for all purposes, and shall not be bound to recognize any equitable or other claim to or interest in such share, right or option on the part of any other person, whether or not the Corporation shall have notice thereof, except as may be expressly provided by the laws of the State of Delaware. Pursuant to the authority conferred by this Article Fourth upon the Board of Directors of the Company, the Board of Directors created a series of shares of preferred stock designated as Series A Junior Participating Preferred Stock by filing the Amended Certificate of Designations, Preferences, Limitations and Relative Rights of Series A Junior Participating Preferred Stock with the Secretary of State of the State of Delaware on April 10, 2001. The voting powers, designations, preferences and relative rights and the qualifications, limitations and restrictions thereof of the Company's Series A Junior Participating Preferred Stock are set forth in Appendix A hereto and are incorporated by reference. FIFTH ----- INTENTIONALLY OMITTED SIXTH ----- INTENTIONALLY OMITTED SEVENTH ------- The Corporation is to have perpetual existence. EIGHTH ------ 1. The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholder in 1986, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting, -4- directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting. At each annual meeting of stockholders, the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. 2. The number of directors constituting the whole Board shall be as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be less than three and that the number shall not be reduced so as to shorten the term of any director in office. The number of directors constituting the whole Board shall hereafter be six until otherwise fixed by a majority of the whole Board in accordance with the preceding sentence. Any vacancies in the Board for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board, acting by a majority of the directors then in office, or by its sole remaining director. Any director so chosen shall hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any newly created or eliminated directorships resulting from an increase or decrease in the authorized number of directors shall be appointed by the Board among the three classes of directors so as to maintain such classes as nearly equal as possible. 3. Any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least 80% of all classes of stock of the Corporation entitled to vote in the election of directors, considered for the purposes of this Article as one class. 4. In furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized: (a) To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. (b) To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. (c) By a majority of the whole Board, to designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternative members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in a resolution or in the By-Laws of the Corporation, shall have and may exercise the powers of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, the By-Laws may provide that in -5- the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at a meeting in place of any such absent or disqualified member. NINTH ----- Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. TENTH ----- Meetings of stockholders may be held within or without the State of Delaware, in such manner as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. ELEVENTH -------- The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are subject to this reservation. -6- TWELFTH ------- 1. The provisions of this Article Twelfth shall apply to any of the following transactions (hereinafter referred to as "Business Combinations"); (a) any merger or consolidation of the Corporation or any of its affiliates (as hereinafter defined) with or into any other corporation, person, or other entity which is the beneficial owner, directly or indirectly, of 10% or more of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors; or (b) any sale, lease, exchange, or other disposition (in one transaction or in a series of related transactions) of all or substantially all of the assets of the Corporation or any of its affiliates to any other corporation, person or other entity which is the beneficial owner, directly or indirectly, of 10% or more of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors; or (c) any sale, lease, exchange, or other disposition (in one transaction or in a series of related transactions) to the Corporation or any of its affiliates of any assets, cash, or securities in exchange for shares of capital stock of the Corporation or any of its affiliates entitled to vote in the election of directors (or securities convertible into or exchangeable for such shares of capital stock, or options, warrants, or rights to purchase such shares of capital stock or securities convertible into or exchangeable for such shares of capital stock) by any corporation, person, or entity which is the beneficial owner, directly or indirectly, of 10% or more of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors; or (d) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation; or (e) any reclassification of securities (including any reverse stock split), recapitalization or other transaction which would result in a decrease in the number of holders of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors after any other corporation, person or other entity has acquired 25% or more of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors, unless the Board of Directors of the Corporation shall have authorized such Business Combination prior to the time that any such corporation, person or other entity became the beneficial owner, directly or indirectly, of 25% or more of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors. A corporation, person or other entity which is the beneficial owner, directly or indirectly, of 10% or more of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors (taken together as a single class) is herein -7- referred to as the "Acquiring Entity." For the purpose of this Article, the term "affiliate" shall have the meaning defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on July 1, 1979. 2. No Business Combination shall be effected unless it is approved at a meeting of the Corporation's stockholders called for that purpose. The affirmative vote of the holders of at least 66 2/3% of all classes of capital stock of the Corporation entitled to vote in the election of directors, considered for the purposes of this Article as one class, shall be required for approval of any such Business Combination, excluding all shares of such capital stock beneficially owned, directly or indirectly, by the Acquiring Entity from the number of shares deemed to be outstanding at the time of such vote and from such vote on the Business Combination. The affirmative vote required by this Article shall be in addition to the vote of the holders of any class or series of capital stock of the Corporation otherwise required by law, or by the Certificate of Incorporation of the Corporation, or by the resolution providing for the issuance of a class or series of stock which has been adopted by the Board of Directors, or by any agreement between the Corporation and any national securities exchange. 3. In addition to the affirmative vote required by law or under any other provision of this Certificate of Incorporation, no Business Combination shall be effected unless all of the following conditions, to the extent applicable, are fulfilled. (a) The ratio of (i) the aggregate amount of the cash and the fair market value of the other consideration to be received per share by the holders of the Common Stock of the Corporation in the Business Combination to (ii) the market price of the Common Stock of the Corporation immediately prior to the announcement of the Business Combination shall be at least as great as the ratio of (i) the highest price per share previously paid by the Acquiring Entity (whether before or after it became an Acquiring Entity) for any of the shares of Common Stock of the Corporation at any time beneficially owned, directly or indirectly, by the Acquiring Entity to (ii) the market price of the Common Stock of the Corporation on the trading date immediately prior to the earliest date on which the Acquiring Entity (whether before or after it became an Acquiring Entity) purchased any shares of Common Stock of the Corporation during the two-year period prior to the date on which the Acquiring Entity acquired the shares of Common Stock of the Corporation at any time owned by it for which it paid the highest price per share (or, if the Acquiring Entity did not purchase any shares of Common Stock of the Corporation during such two-year period, the market price of the Common Stock of the Corporation on the date two years prior to the date on which the Acquiring Entity acquired the shares of Common Stock of the Corporation at any time owned by it for which it paid the highest price per share). For purposes of this Article, the market price of the Common Stock of the Corporation shall mean the mean between the high "bid" and the low "asked" prices of the Common Stock in the over-the-counter market on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by the National -8- Association of Securities Dealers Automatic Quotation System (NASDAQ) or other national quotation service. If the Common Stock of the Corporation is not regularly traded in the over-the-counter market but is registered on a national securities exchange, the market value of the Common Stock shall mean the closing price of the Common Stock on such national securities exchange on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by National Quotation Bureau, Incorporated or other national quotation service. (b) The aggregate amount of the cash and the fair market value of the other consideration to be received per share by the holders of the Common Stock of the Corporation in the Business Combination shall be not less than the higher of (i) the highest price per share previously paid by the Acquiring Entity (whether before or after it became an Acquiring Entity) for any of the shares of Common Stock of the Corporation at any time beneficially owned, directly or indirectly, by the Acquiring Entity, or (ii) the earnings per share of the Common Stock of the Corporation for the four full consecutive fiscal quarters immediately preceding the record date for solicitation of votes on the Business Combination multiplied by the price/earnings multiple on such record date of the Common Stock of the Acquiring Entity as customarily computed and reported in the financial community. (c) The consideration to be received by the holders of the Common Stock of the Corporation in the Business Combination shall be in the same form and of the same kind as the consideration paid by the Acquiring Entity in acquiring the majority of the shares of Common Stock of the Corporation already beneficially owned, directly or indirectly, by the Acquiring Entity. (d) The Acquiring Entity shall not have acquired from the Corporation, directly or indirectly, any shares of capital stock of the Corporation entitled to vote in the election of directors except in a Business Combination to which this Article did not apply or in a Business Combination to which this Article did apply and which satisfied all of the requirements of this Article. (e) After the time when the Acquiring Entity became the beneficial owner, directly or indirectly, of 25% or more of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors, and prior to consummation of the Business Combination, the Acquiring Entity (i) shall not have received the benefit, directly or indirectly, of any loans, advances, extensions of credit, guarantees, pledges or other financial assistance or tax benefits provided, directly or indirectly, by the Corporation; (ii) shall not have acquired, directly or indirectly, any newly issued shares of stock of the Corporation (except upon conversion of convertible securities acquired by the Acquiring Entity prior to the time when it became the beneficial owner, directly or indirectly, of 25% or more of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors or except as a result of a -9- pro rata stock dividend or stock split); and (iii) shall not have acquired any additional shares of capital stock of the Corporation entitled to vote in the election of directors or securities convertible into such capital stock except as part of the transaction pursuant to which the Acquiring Entity became the beneficial owner, directly or indirectly, of 25% or more of the outstanding shares of such capital stock. (f) A proxy statement complying with the requirements of the Securities Exchange Act of 1934, or any similar or superseding federal statute, as then in effect (whether or not the provisions of such act or statute shall be applicable to the Corporation) shall be mailed to stockholders of the Corporation for the purpose of soliciting approval of the Business Combination and shall contain therein, in a prominent place, a detailed statement showing that the Business Combination, if approved by the stockholders of the Corporation, will comply with the terms and provisions of this Article. 4. For the purpose of this Article, any corporation, person or entity will be deemed to be a beneficial owner of or to beneficially own any share or shares of capital stock of the Corporation: (a) which it owns directly, whether or not of record, or (b) which it has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement or arrangement or understanding or upon exercise of conversion rights, exchange rights, warrants or options or otherwise, or which it has the right to vote pursuant to any agreement, arrangement, or understanding, or (c) which are beneficially owned, directly or indirectly (including shares deemed to be owned through application of clause (b) above), by any "affiliate" or "associate" as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on July 1, 1979, or (d) which are beneficially owned, directly or indirectly (including shares deemed to be owned through application of clause (b) above), by any other corporation, person or entity with which it or any of its "affiliates" or "associates" have any agreement or arrangement or understanding for the purpose of acquiring, holding, voting or disposing of shares of capital stock of the Corporation entitled to vote in the election of directors. For the purpose only of determining whether a corporation, person or other entity beneficially owns, directly or indirectly, any outstanding shares of capital stock of the Corporation entitled to vote in the election of directors, the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors will be deemed to include any such shares of capital stock that may be issuable pursuant to any agreement, -10- arrangement or understanding or upon exercise of conversion rights, exchange rights, warrants, options or otherwise which are deemed to be beneficially owned by such corporation, person or other entity pursuant to the foregoing provisions of this Section 4, but shall not include any other shares which may be issuable either immediately or at some future date pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, exchange rights, warrants, options, or otherwise. 5. The provisions of this Article shall not apply to a Business Combination which was approved by the Board of Directors of the Corporation prior to the time when the Acquiring Entity became the beneficial owner, directly or indirectly, of 10% or more of the outstanding shares of capital stock of the Corporation entitled to vote in the election of directors. The provisions of this Article also shall not apply to a Business Combination which (i) does not change any stockholder's percentage ownership in the shares of capital stock entitled to vote in the election of directors in any successor of the Corporation from the percentage of the shares of such capital stock beneficially owned by such stockholder in the Corporation, (ii) provides for the provisions of this Article, without any amendment, change, alteration or deletion, to apply to any successor to the Corporation, and (iii) does not transfer all or substantially all of the Corporation's assets, other than to a wholly-owned subsidiary of the Corporation; provided, however, that nothing contained in this Section 5 shall permit the Corporation to issue any of its shares of capital stock entitled to vote in the election of directors or to transfer any of its assets to a wholly-owned subsidiary of the Corporation if such issuance of stock or transfer of assets is part of the plan to transfer such stock or assets to an Acquiring Entity. 6. Nothing contained in this Article shall be construed to relieve an Acquiring Entity from any fiduciary obligation imposed by law. In addition, nothing contained in this Article shall prevent any stockholders of the Corporation from objecting to any Business Combination and from demanding any appraisal rights which may be available to such stockholder under Section 262 of the Delaware General Corporation Law, as such Section may be amended from time to time. 7. No amendment, alteration, change or repeal of any provision of this Article may be effected unless it is approved at a meeting of the Corporation's stockholders called for that purpose. Notwithstanding any other provision of the Certificate of Incorporation, the affirmative vote of the holders of at least 66 2/3% of all classes of capital stock of the Corporation entitled to vote in the election of directors, considered for purposes of this Article as one class, shall be required to amend, alter, change or repeal, directly or indirectly, any provision of this Article, excluding all shares of such capital stock beneficially owned, directly or indirectly, by the Acquiring Entity from the number of shares deemed to be outstanding at the time of such vote and from such vote on such amendment, alteration, change or repeal of any provision of this Article. -11- THIRTEENTH Notwithstanding any other provision of this Certificate of Incorporation or the By-Laws of the Corporation to the contrary, no action shall be taken by the stockholders of the Corporation except at an annual or a special meeting of the stockholders of the Corporation. FOURTEENTH 1. The Board shall have the power to alter, amend or repeal the By-Laws of the Corporation or adopt new By-Laws, but any By-Laws adopted by the Board may be altered, amended or repealed, and new By-Laws adopted, by the stockholders of the Corporation. The stockholders may prescribe that any By-Laws adopted by them shall not be altered, amended or repealed by the Board. 2. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation or the By-Laws of the Corporation to the contrary, any action taken by the Board with respect to altering, amending or repealing any provision of the By-Laws of the Corporation, or adopting new By-Laws, shall be effected only by the affirmative vote of at least two-thirds (2/3) of the total number of directors then holding office. 3. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation or the By-Laws of the Corporation to the contrary, any action taken by the stockholders of the Corporation with respect to altering, amending, or repealing any provision of the By-Laws of the Corporation, or adopting new By-Laws, or altering, amending or repealing Article Eighth, Thirteenth, or this Article Fourteenth of the Corporation's Certificate of Incorporation, shall be effected only by the affirmative vote of the holders of at least eighty percent (80%) of all classes of stock of the Corporation entitled to vote in the election of directors, considered for the purposes of this Article as one class. FIFTEENTH No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that nothing in this Article Fifteenth shall be construed so as to eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, (iv) for any transaction from which the director derived an improper personal benefit or (v) for any act or omission occurring prior to the effective date of this Article Fifteenth. No amendment to or repeal of this Article Fifteenth shall adversely affect any right, benefit or protection of a director of the Corporation existing at the time of such amendment or repeal with respect to any acts or omissions occurring prior to such amendment or repeal. -12- Appendix A AMENDED CERTIFICATE OF DESIGNATIONS, PREFERENCES, LIMITATIONS ------------------------------------------------------------- AND RELATIVE RIGHTS ------------------- OF -- SERIES A JUNIOR PARTICIPATING PREFERRED STOCK --------------------------------------------- OF -- NDCHEALTH CORPORATION --------------------- NDCHealth Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: That, the Corporation has designated 1,000,00 shares of its Preferred Stock, par value $1.00 per share (the "Preferred Stock") as Series A Junior Participating Preferred Stock of the Corporation ("Series A Shares") pursuant to a Certificate of Designations, originally filed with the Secretary of State of Delaware on January 22, 1991, and as amended pursuant to an Amended Certificate of Designations filed with the Secretary of State of Delaware on October 28, 1996 ("Certificate of Designations"); That, none of the Series A Shares have been issued and there are no securities convertible into the Series A Shares outstanding or reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation; That, pursuant to the authority conferred upon the Board of Directors of the Corporation by the Corporation's Certificate of Incorporation, as amended, the Board of Directors adopted resolutions by unanimous written consent on March 26, 2001 in accordance with the provisions of Section 228 of the Delaware General Corporation Law, decreasing the number of shares designated as Series A Shares from 1,000,000 shares to 200,000 shares and replacing the existing Certificate of Designations in its entirety with the following: 1. Series A Junior Participating Preferred Stock. There is hereby --------------------------------------------- established a series of Preferred Stock, $1.00 par value per share, of the Corporation, and the designation and certain terms, powers, preferences and other rights of the shares of such series, and certain qualifications, limitations and restrictions thereon, are hereby fixed as follows: (i) The distinctive serial designation of this series shall be "Series A Junior Participating Preferred Stock" (hereinafter called "this Series"). Each share of this Series shall be identical in all respects with the other shares of this Series except as to the dates from and after which dividends thereon shall be cumulative. (ii) The number of shares in this Series shall initially be 200,000, which number may from time to time be increased or decreased (but not below the -13- number then outstanding) by the Board of Directors. Shares of this Series purchased by the Corporation shall be canceled and shall revert to authorized but unissued shares of Preferred Stock undesignated as to series. Shares of this Series may be issued in fractional shares, which fractional shares shall entitle the holder, in proportion to such holder's fractional share, to all rights of a holder of a whole share of this Series. (iii) The holders of full or fractional shares of this Series shall be entitled to receive, when and as declared by the Board of Directors, but only out of funds legally available therefor, dividends, (A) on each date that dividends or other distributions (other than dividends or distributions payable in Common Stock of the Corporation) are payable on or in respect of Common Stock comprising part of the Reference Package (as defined below), in an amount per whole share of this Series equal to the aggregate amount of dividends or other distributions (other than dividends or distributions payable in Common Stock of the Corporation) that would be payable on such date to a holder of the Reference Package and (B) on the last day of March, June, September and December in each year, in an amount per whole share of this Series equal to the excess (if any) of $1.00 over the aggregate dividends paid per whole share of this Series during the three-month period ending on such last day. Each such dividend shall be paid to the holders of record of shares of this Series on the date, not exceeding 60 days preceding such dividend or distribution payment date, fixed for that purpose by the Board of Directors in advance of payment of each particular dividend or distribution. Dividends on each full and each fractional share of this Series shall be cumulative from the date such full or fractional share is originally issued; provided that any such full or fractional share originally issued after a dividend record date and on or prior to the dividend payment date to which such record date relates shall not be entitled to receive the dividend payable on such dividend payment date or any amount in respect of the period from such original issuance to such dividend payment date. The term "Reference Package" shall initially mean 1,000 shares of Common Stock, $.125 par value ("Common Stock"), of the Corporation. In the event the Corporation shall at any time (A) declare or pay a dividend on any Common Stock payable in Common Stock, (B) subdivide any Common Stock or (C) combine any Common Stock into a smaller number of shares, then and in each such case the Reference Package after such event shall be the Common Stock that a holder of the Reference Package immediately prior to such event would hold thereafter as a result thereof. Holders of shares of this Series shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided, on this Series. So long as any shares of this Series are outstanding, no dividend (other than a dividend in Common Stock or in any other stock ranking junior to this Series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other distribution declared or made upon the Common Stock or upon any other stock ranking junior to this Series as to dividends or upon liquidation, nor shall any Common Stock nor any other stock of the Corporation ranking junior to or on a parity with this Series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired -14- for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to this Series as to dividends and upon liquidation), unless, in each case, the full cumulative dividends (including the dividend to be due upon payment of such dividend, distribution, redemption, purchase or other acquisition) on all outstanding shares of this Series shall have been, or shall contemporaneously be, paid. (iv) In the event of any merger, consolidation, reclassification or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of this Series shall at the same time be similarly exchanged or changed in an amount per whole share equal to the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, that a holder of the Reference Package would be entitled to receive as a result of such transaction. (v) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of full and fractional shares of this Series shall be entitled, before any distribution or payment is made on any date to the holders of the Common Stock or any other stock of the Corporation ranking junior to this Series upon liquidation, to be paid in full an amount per whole share of this Series equal to the greater of (A) $1.00 or (B) the aggregate amount distributed or to be distributed prior to such date in connection with such liquidation, dissolution or winding up to a holder of the Reference Package (such greater amount being hereinafter referred to as the "Liquidation Preference"), together with accrued dividends to such distribution or payment date, whether or not earned or declared. If such payment shall have been made in full to all holders of shares of this Series, the holders of shares of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to the first paragraph of this Section (v), no such distribution shall be made on account of any shares of any other class or series of Preferred Stock ranking on a parity with the shares of this Series upon such liquidation, dissolution or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such liquidation, dissolution or winding up. Upon the liquidation, dissolution or winding up of the Corporation, the holders of shares of this Series then outstanding shall be entitled to be paid out of assets of the Corporation available for distribution to its stockholders all amounts to which such holders are entitled pursuant to the first paragraph of this Section (v) before any payment shall be made to the holders of Common Stock or any other stock of the Corporation ranking junior upon liquidation to this Series. -15- For the purposes of this Section (v), the consolidation or merger of, or binding share exchange by, the Corporation with any other corporation shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation. (vi) The shares of this Series shall not be redeemable. (vii) In addition to any other vote or consent of stockholders required by law or by the Certificate of Incorporation of the Corporation, each whole share of this Series shall, on any matter, vote as a class with any other capital stock comprising part of the Reference Package and voting on such matter and shall have the number of votes thereon that a holder of the Reference Package would have. *** Signature Page Follows*** -16- IN WITNESS WHEREOF, NDCHealth Corporation has caused this Restated Certificate of Incorporation of the Corporation to be signed and acknowledged by the undersigned this 28th day of November, 2001. /s/ Patricia A. Wilson ----------------------------------- Patricia A. Wilson General Counsel and Secretary -17- EX-10.I 4 dex10i.txt 2002 NON-EMPLOYEE DIRECTORS COMPENSATION PLAN Exhibit 10(i) NDCHEALTH CORPORATION 2002 NON-EMPLOYEE DIRECTORS COMPENSATION PLAN 1. Purpose. The purpose of the NDCHealth Corporation 2002 Non-Employee Directors Compensation Plan is to attract, retain and compensate highly-qualified individuals who are not employees of NDCHealth Corporation or any of its subsidiaries or affiliates for service as members of the Board by providing them with competitive compensation and an ownership interest in the Common Stock of the Company. The Company intends that the Plan will benefit the Company and its stockholders by allowing Non-Employee Directors to have a personal financial stake in the Company through an ownership interest in the Common Stock and will closely associate the interests of Non-Employee Directors with those of the Company's stockholders. This Plan supersedes the National Data Corporation 1995 Non-Employee Director Compensation Plan and the National Data Corporation 1984 Non-Employee Directors Stock Option Plan. 2. Defined Terms. Unless the context clearly indicates otherwise, the following terms shall have the following meanings: "Annual Retainer" means the annual retainer (excluding meeting fees and expenses) payable by the Company to a Non-Employee Director pursuant to Section 6(a) hereof for service as a director of the Company, as such amount may be changed from time to time. The Annual Retainer shall consist of the Cash Equivalent Annual Retainer plus the Stock Equivalent Annual Retainer. "Board" means the Board of Directors of the Company. "Cash Equivalent Annual Retainer" means the 50% of Annual Retainer that, unless deferred in accordance with Section 8 of the Plan, will be paid in the form of cash in accordance with Section 7 hereof. "Company" means NDCHealth Corporation, a Delaware corporation. "Common Stock" means the common stock, par value $0.125 per share, of the Company. "Deferred Stock Rights" means the right to receive shares of Common Stock on a designated future date or dates, as provided in Section 8 of the Plan. Each Deferred Stock Right represents the right to receive one share of Common Stock in the future. "Disability" means any illness or other physical or mental condition of a Non-Employee Director that renders him or her incapable of performing as a director of the Company, or any medically determinable illness or other physical or mental condition resulting from a bodily injury, disease or mental disorder which, in the judgment of the Board, is permanent and continuous in nature. The Board may require such medical or other evidence as it deems necessary to judge the nature and permanency of a Non-Employee Director's condition. "Effective Date" has the meaning set forth in Section 16 of the Plan. "Election Form" means a form approved by the Board pursuant to which a Non-Employee Director elects to defer some or all of his or her Annual Retainer, as provided in Section 8 herein. "Fair Market Value", on any date, means (i) if the Common Stock is listed on a securities exchange or is traded over the Nasdaq National Market, the closing sales price on such exchange or over such system on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Common Stock is not listed on a securities exchange or traded over the Nasdaq National Market, the mean between the bid and offered prices as quoted by Nasdaq for such date, provided that if it is determined that the fair market value is not properly reflected by such Nasdaq quotations, Fair Market Value will be determined by such other method as the Board determines in good faith to be reasonable. "Non-Employee Director" means a director of the Company who is not an employee of the Company or of any of its subsidiaries or affiliates. "Option" means an option to purchase Common Stock granted under Section 9 of the Plan. Options granted under the Plan are not incentive stock options within the meaning of Section 422 of the Internal Revenue Code. "Option Grant Date" means the date upon which an Option is granted to a Non-Employee Director pursuant to Section 9 of the Plan. "Optionee" means a Non-Employee Director of the Company to whom an Option has been granted under Section 9. "Plan" means the NDCHealth Corporation 2002 Non-Employee Directors Compensation Plan, as amended from time to time. "Plan Year" means the twelve-month period ending on May 31 of each year which, for purposes of the Plan, is the period for which Annual Retainers are earned. "Retirement" means retirement as a director of the Company in accordance with the provisions of the Company's bylaws as in effect from time to time. -2- "Stock Equivalent Annual Retainer" means the 50% of Annual Retainer that, unless deferred in accordance with Section 8 hereof, will be paid in the form of Common Stock in accordance with Section 7(a) hereof. "Stock Grant Date" has the meaning set forth in Section 7 of the Plan. 3. Administration. The Plan shall be administered by the Board. Subject to the provisions of the Plan, the Board shall be authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The Board's interpretation of the Plan, and all actions taken and determinations made by the Board pursuant to the powers vested in it hereunder, shall be conclusive and binding upon all parties concerned including the Company, its stockholders and persons granted awards under the Plan. The Board may appoint a plan administrator to carry out the ministerial functions of the Plan, but the administrator shall have no other authority or powers of the Board. 4. Shares Subject to Plan. The shares of Common Stock that may be issued pursuant to the Plan, including upon the exercise of Options or the settlement of Deferred Stock Rights, shall not exceed in the aggregate 450,000 shares of Common Stock. Such shares may be authorized and unissued shares or treasury shares. The Board's adoption of this Plan shall constitute the reservation of 450,000 shares of authorized and unissued Common Stock for issuance pursuant to this Plan. Notwithstanding the foregoing, until such time, if any, as the stockholders of the Company shall approve this Plan, all awards of Common Stock, Options and Deferred Stock Rights pursuant to this Plan shall be granted under, and to the extent not inconsistent herewith shall be governed by the terms of, the Company's 2000 Long-Term Incentive Plan or any successor plan or plans approved by the Company's stockholders and under which such awards may be granted to Non-Employee Directors. 5. Eligibility. All active Non-Employee Directors shall automatically be participants in the Plan. 6. Elements of Director Compensation. (a) Annual Retainer. Each Non-Employee Director shall be paid an Annual Retainer for service as a director during each Plan Year. The amount of the Annual Retainer shall be established from time to time by the Board. Until changed by the Board, the Annual Retainer shall be $30,000 for each Non-Employee Director other than the Chairman of the Board, and shall be $60,000 for the Chairman of the Board. A pro-rata Annual Retainer will be paid to any Non-Employee Director who joins the Board on a date other than the beginning of a Plan Year, based on the number of full months between the date such Non-Employee Director joined the Board and the following June 1. For example, a Non-Employee Director joining the Board on February 3 would -3- be entitled to three twelfths (3/12) of the normal Annual Retainer for such partial Plan Year of service. (b) Meeting Fees. Each Non-Employee Director shall be paid a meeting fee for each meeting of the Board or committee thereof he or she attends. The amount of the meeting fees shall be established from time to time by the Board, and may depend on whether the director is serving on a committee or as a chairman of a committee of the Board. Until changed by the Board, (i) the meeting fee for attending a meeting of the Board or any committee there of shall be $1,000, (ii) each member of the Audit Committee and each member of the Compensation Committee shall receive an additional $1,000 fee for attending a meeting of such committee, and (iii) the Chairman of the Audit Committee and the Chairman of the Compensation Committee shall receive an additional $500 fee for attending and chairing a meeting of such committee. (c) Travel Expense Reimbursement. All Non-Employee Directors shall be reimbursed for reasonable travel expenses (including spouse's expenses to attend events to which spouses are invited) in connection with attendance at meetings of the Board and its committees, or other Company functions at which the Chief Executive Officer requests the Non-Employee Director to participate. If the travel expense is related to the reimbursement of commercial airfare, such reimbursement will not exceed full-coach rates. If the travel expense is related to reimbursement of non-commercial air travel, such reimbursement shall not exceed the rate for comparable travel by means of commercial airlines. (d) Insurance. The Company shall maintain director's and officer's liability insurance with reputable carriers of at least $15 million. 7. Non-deferred Payment of Annual Retainer. (a) Two Components of Annual Retainer. Unless converted to Deferred Stock Rights as provided in Section 8, the Annual Retainer shall be paid fifty percent (50%) in Common Stock (the "Stock Equivalent Annual Retainer") and fifty percent (50%) in cash (the "Cash Equivalent Annual Retainer"), as provided in this Section 7. (b) Stock Equivalent Annual Retainer. Unless a Non-Employee Director has elected to defer receipt of his or her Stock Equivalent Annual Retainer as provided in Section 8 below, shares of Common Stock shall be automatically granted on June 1 of each Plan Year (each such date is hereinafter referred to as a "Stock Grant Date") to each eligible Non-Employee Director commencing with the June 1, 2002 Stock Grant Date. The total number of shares of Common Stock included in each grant under this Section 7(b) shall be determined by dividing the Stock Equivalent Annual Retainer by the Fair Market Value per share of Common Stock on the Stock Grant Date. Fractions will be rounded to the next highest share. -4- (c) Cash Equivalent Annual Retainer. Unless a Non-Employee Director has elected to defer receipt of his or her Cash Equivalent Annual Retainer as provided in Section 8 below, the Cash Equivalent Annual Retainer shall be paid to the director in cash on or about June 1 of each Plan Year commencing with June 1, 2002. 8. Deferred Payment of Annual Retainer. (a) Election to Receive Deferred Stock Rights. A Non-Employee Director may elect to defer (i) 0% or 100% of his or her Stock Equivalent Annual Retainer, and (ii) 0% or 100% of his or her Cash Equivalent Annual Retainer by conversion to Deferred Stock Rights in accordance with this Section 8. (b) Timing and Manner of Deferral Election. A Non-Employee Director who wishes to receive Annual Retainer for a Plan Year in the form of Deferred Stock Rights must irrevocably elect to do so by delivering a valid Election Form to the Board or the plan administrator prior to the beginning of such Plan Year. A Non-Employee Director's participation in Section 8 of the Plan will be effective as of the first day of the Plan Year beginning after the Board or the plan administrator receives the Non-Employee Director's Election Form. For example, in order to defer the Annual Retainer payable for the Plan Year ending May 31, 2003, the Election Form must be received on or before May 31, 2002. The deferral Election Form signed by the Non-Employee Director prior to the Plan Year will be irrevocable for the coming Plan Year. However, prior to the commencement of the following Plan Year, a Non-Employee Director may change his or her election for future Plan Years by executing and delivering a new Election Form indicating a different choice. If a Non-Employee Director fails to deliver a new Election Form prior to the commencement of the new Plan Year, his or her Election Form in effect during the previous Plan Year shall continue in effect during the new Plan Year. (c) Crediting and Settlement of Deferred Stock Rights. The number of Deferred Stock Rights into which deferred Annual Retainer shall be converted shall be determined by dividing the dollar amount of the Annual Retainer elected to be deferred by the Fair Market Value per share of the Common Stock on June 1 of the applicable Plan Year. Such Deferred Stock Rights shall be credited to a bookkeeping account maintained by the Company on behalf of the Non-Employee Director and shall be settled (paid) in shares of Common Stock on the earlier of (i) a date designated by the Non-Employee Director in his or her Election Form, which shall be at least two (2) years after the election date, or (ii) thirty (30) days after the Non-Employee Director's termination of service as a director of the Company (in any capacity). No shares of Common Stock will be issued until the settlement date, at which time the Company agrees to issue shares of Common Stock to the Non-Employee Director (at the conversion rate of one share of Common Stock for each Deferred Stock Right). The Non-Employee Director will have no rights as a stockholder with respect to the Deferred Stock Rights, and such rights will be unsecured. -5- (d) Spendthrift Clause. No right or interest in the Deferred Stock Rights shall be subject to the claims of creditors of the Non-Employee Director or to liability for the debts, contracts or engagements of the Non-Employee Director, or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that nothing in this Section 8(d) shall prevent transfers by will or by the applicable laws of descent and distribution. 9. Annual Stock Option Awards. (a) Each person who is a Non-Employee Director on the day immediately following the 2001 annual meeting of the Company's stockholders shall be granted on that date an Option to purchase that number of shares of the Company's Common Stock having a Fair Market Value on the date of grant equal to $125,000. Each person who thereafter first becomes a Non-Employee Director shall be granted on the date that he or she first becomes a Non-Employee Director an Option to purchase that number of shares of the Company's Common Stock having a Fair Market Value on the date of grant equal to $125,000, multiplied by a fraction, the numerator or which is the number of full months before the next regularly scheduled annual meeting of the Company's stockholders, and the denominator of which is 12. In addition, as of the day following the 2002 annual meeting of the Company's stockholders, and on the day following each subsequent annual meeting of the Company's stockholders, each Non-Employee Director serving as such on that date shall be granted an Option to purchase that number of shares of the Company's Common Stock having a Fair Market Value on the date of grant equal to $125,000. Each such day that Options are to be granted under the Plan is referred to hereinafter as an "Option Grant Date." If on any Option Grant Date, shares of Common Stock are not available to grant to Non-Employee Directors the full amount of a grant contemplated by the immediately preceding paragraph, then each Non-Employee Director shall receive an Option (a "Reduced Grant") to purchase shares of Common Stock in an amount equal to the number of shares of Common Stock then available, divided by the number of Non-Employee Directors as of the applicable Option Grant Date. Fractional shares shall be ignored and not granted. If a Reduced Grant has been made and, thereafter, during the term of this Plan, additional shares of Common Stock become available for grant (e.g., because of the forfeiture or lapse of an Option), then each person who was a Non-Employee Director both on the Option Grant Date on which the Reduced Grant was made and on the date additional shares of Common Stock become available (a "Continuing Non-Employee Director") shall receive an additional Option to purchase shares of Common Stock. The number of newly available shares shall be divided equally among the Options granted to the Continuing Non-Employee Directors; provided, however, that the aggregate number -6- of shares of Common Stock subject to a Continuing Non-Employee Director's additional Option plus any prior Reduced Grant to the Continuing Non-Employee Director on the applicable Option Grant Date shall not exceed that number of shares having a Fair Market Value equal to $125,000 as of the date on which the applicable Reduced Grant was made. If more than one Reduced Grant has been made, available Options shall be granted beginning with the earliest such Option Grant Date. (b) Exercise Price. The exercise price for each Option granted under --------------- the Plan shall be the Fair Market Value of the shares of Common Stock subject to the Option on the date of grant of the Option. (c) Medium and Time of Payment. The exercise price shall be payable in -------------------------- full upon the exercise of an Option in cash and/or shares of Common Stock; provided, however, that if shares of Common Stock are used to pay the exercise price of an Option, such shares must have been held by the Optionee for at least six months. In the event that all or part of the exercise price of an Option is paid by the surrender to the Company of shares of Common Stock previously held by the Optionee, such shares shall be valued at their Fair Market Value as of the date of exercise, and the Optionee shall deliver to the Company a certificate of certificates representing such shares duly endorsed to the Company or accompanied by a duly-executed separate instrument of transfer satisfactory to the Board. To the extent permitted under Regulation T of the Federal Reserve Board, and subject to applicable securities laws, Options may be exercised through a broker in a so-called "cashless exercise" whereby the broker sells the Option shares and delivers cash sales proceeds to the Company in payment of the exercise price. (d) Term. Each Option granted under the Plan shall, to the extent not ---- previously exercised, terminate and expire on the date ten (10) years after the date of grant of the Option, unless earlier terminated as provided hereinafter in Section 9(g). (e) Exercisability. Except as set forth below, each Option granted -------------- under this Plan shall vest (become exercisable) in accordance with the following schedule: Years of Service Percent of Option Shares Vested ---------------- ------------------------------- After Date of Grant ------------------- Less than 2 0% 2 20% 3 45% 4 70% 5 100% -7- Notwithstanding the foregoing, each Option granted under this Plan shall vest (become exercisable) as to all of the shares covered thereby upon the termination of the Optionee's membership on the Board by reason of death, Disability, Retirement or failure to be re-nominated or re-elected as a director. (f) Method of Exercise. All Options granted under the Plan shall be ------------------ exercised by an irrevocable written notice directed to the Secretary of the Company at the Company's principal place of business or to such other person or place as the Secretary shall direct. Such written notice shall be accompanied by payment in full of the exercise price for the shares for which such Option is being exercised. The Company shall make delivery of certificates representing the shares for which an Option has been exercised within a reasonable period of time; provided, however, that if any law, regulation or agreement requires the Company to take any action with respect to the shares for which an Option has been exercised before the issuance thereof, then the date of delivery of such shares shall be extended for the period necessary to take such action. Certificates representing shares for which Options are exercised under the Plan may bear such restrictive legends as may be necessary or desirable in order to comply with applicable federal and state securities laws. Nothing contained in the Plan shall be construed to require the Company to register any shares of Common Stock underlying Options granted under this Plan. (g) Effect of Termination of Directorship. Upon termination of an ------------------------------------- Optionee's membership on the Board for any reason (including without limitation by reason of death, Disability, Retirement or failure to be re-nominated or re-elected as a director), the Options held by the Optionee under the Plan, to the extent they were exercisable on the date of termination (including any acceleration by reason of such termination) shall remain exercisable until the earlier of (i) the original expiration date of the Option, or (ii) the fifth anniversary of the Optionee's termination as a director. In the event of the death of an Optionee, the Optionee's personal representatives, heirs or legatees may exercise the Options held by the Optionee on the date of death, upon proof satisfactory to the Company of their authority. Such exercise otherwise shall be subject to the terms and conditions of the Plan. (h) Transferability of Options. Any Option granted hereunder shall be -------------------------- assignable or transferable by the Optionee by will, by the laws of descent and distribution, or pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Internal Revenue Code of 1986, as amended, if such provision applied to an Option under the Plan. In addition, any Option granted pursuant to the Plan shall be transferable by the Optionee to any of the following permitted transferees, upon such reasonable terms and conditions as the Board may establish: (i) any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Optionee's household (other than a tenant or employee), (ii) a trust in which the foregoing persons (or the Optionee) have more than fifty percent of the beneficial interests, (iii) a -8- foundation in which these persons (or the Optionee) control the management of assets, or (iv) any other entity in which these persons (or the Optionee) own more than fifty percent of the voting interests. (i) Rights as Stockholder. Neither the Optionee nor the Optionee's --------------------- personal representatives, heirs, legatees or transferees shall have rights as a stockholder of the Company with respect to shares of Common Stock covered by the Optionee's Option until the Optionee or such other person becomes the holder of record of such shares. (j) No Options after Ten Years. No Options shall be granted except -------------------------- within a period of ten (10) years after the effective date of the Plan. (k) Option Agreements. All Options shall be evidenced by a written ----------------- Option Agreement between the Company and the Non-Employee Director, which shall include such provisions, not inconsistent with the Plan, as may be specified by the Board. 10. Adjustments. (a) In the event that the Board determines that any distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Board's sole discretion, affects the Common Stock such that an adjustment is determined by the Board to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an award or awards hereunder, then the Board shall, in such manner as it may deem equitable, adjust the number and type of shares (or other securities or property) which may be granted under the Plan (including, but not limited to, adjustments of the maximum number and kind of securities which may be issued). (b) In the event of any corporate transaction or event described in Section 10(a) which results in shares of Common Stock being exchanged for or converted into cash, securities or other property (including securities of another corporation), the Board will have the right to terminate this Plan as of the date of the transaction or event, in which case all Deferred Stock Rights shall become the right to receive such cash, securities or other property, and there shall be substituted on an equitable basis for each share of Common Stock then subject to an Option granted pursuant to Section 9 the consideration payable with respect to the outstanding shares of Common Stock in connection with such corporate transaction or event, all without any change in the aggregate purchase price for the shares of Common Stock then subject to the Option. (c) The number of shares of Common Stock finally granted under this Plan shall always be rounded to the next highest whole share. -9- (d) Any decision of the Board pursuant to the terms of this Section 10 shall be final, binding and conclusive upon the Non-Employee Directors, the Company and all other interested parties. 11. Amendment. The Board may terminate or suspend the Plan at any time, without stockholder approval. The Board may amend the Plan at any time and for any reason without stockholder approval; provided, however, that the Board may condition any amendment on the approval of stockholders of the Company if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations. Except as provided in Section 10, no termination, modification or amendment of the Plan may, without the consent of a Non-Employee Director, adversely affect a Non-Employee Director's rights under an award granted prior thereto. 12. Indemnification. Each person who is or has been a member of the Board or who otherwise participates in the administration or operation of this Plan shall be indemnified by the Company against, and held harmless from, any loss, cost, liability or expense that may be imposed upon or incurred by him or her in connection with or resulting from any claim, action, suit or proceeding in which such person may be involved by reason of any action taken or failure to act under the Plan and shall be fully reimbursed by the Company for any and all amounts paid by such person in satisfaction of judgment against him or her in any such action, suit or proceeding, provided he or she will give the Company an opportunity, by written notice to the Board, to defend the same at the Company's own expense before he or she undertakes to defend it on his or her own behalf. This right of indemnification shall not be exclusive of any other rights of indemnification. The Board may rely upon any information furnished by the Company, its public accountants and other experts. No individual will have personal liability by reason of anything done or omitted to be done by the Company or the Board in connection with the Plan. 13. Duration of the Plan. The Plan shall remain in effect until May 31, 2011, unless terminated earlier by the Board. 14. Expenses of the Plan. The expenses of administering the Plan shall be borne by the Company. 15. Status of Plan. The Plan is intended to be a nonqualified, unfunded plan of deferred compensation under the Internal Revenue Code of 1986, as amended. Plan benefits shall be paid from the general assets of the Company or as otherwise directed by the Company. To the extent that any participant acquires the right to receive payments under the Plan (from whatever source), such right shall be no greater than that of an unsecured general creditor of the Company. Participants and their beneficiaries shall not -10- have any preference or security interest in the assets of the Company other than as a general unsecured creditor. 16. Effective Date. The Plan was originally adopted by the Board on October 5, 2001, and became effective on that date (the "Effective Date"). NDCHealth Corporation By: /s/ Patricia A. Wilson ----------------------------- Patricia A. Wilson General Counsel and Secretary -11- EXHIBIT A Election to Receive Deferred Stock Rights in Lieu of Annual Retainer pursuant to the NDCHealth Corporation 2002 Non-Employee Directors Compensation Plan The following constitutes the irrevocable election of the undersigned under the NDCHealth Corporation 2002 Non-Employee Directors Compensation Plan (the "Plan") with respect to the undersigned's Stock Equivalent Annual Retainer and/or Cash Equivalent Annual Retainer as a non-employee director of NDCHealth Corporation (the "Company") to be earned by the undersigned during the Plan Year ending May 31, 2003. Capitalized terms used herein and not otherwise defined have the meanings assigned such terms in the Plan. Deferred Right to Receive Common Stock. I hereby irrevocably elect to defer: [Check only if applicable] ________ none (0%) of my Annual Retainer to be earned in the Plan Year ending May 31, 2003 [If the above is left blank, check one or both of the following, as applicable] ________ 100% of my Stock Equivalent Annual Retainer to be earned in the Plan Year ending May 31, 2003 ________ 100% of my Cash Equivalent Annual Retainer to be earned in the Plan Year ending May 31, 2003 in the form of the right to receive Common Stock at a future date, as indicated below. I elect to receive such shares on the earlier of: (i) _____________, 20__ (must be at least two years after May 31, 2002), or (ii) thirty (30) days after my termination as a director of NDCHealth Corporation (in any capacity). If no date is filled in above, I acknowledge that the shares will be delivered to me on or about thirty (30) days after my termination as a director of NDCHealth Corporation (in any capacity). Executed this _____ day of ____________, 2002. ____________________________________ (Name) -----END PRIVACY-ENHANCED MESSAGE-----