-----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, Lyaqokj2FM8PAXrKFx04MvNXCaACntny+fntPSamG0ZxqN7bEJ2ab4zFXWSMJDsP /nXYTpdGRr5TChZ5uLNV+g== 0000931763-02-000767.txt : 20020415 0000931763-02-000767.hdr.sgml : 20020415 ACCESSION NUMBER: 0000931763-02-000767 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020301 FILED AS OF DATE: 20020322 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: 02582728 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 FORM 10-Q 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 March 1, 2002 -------------- 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 ------------ None ------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) 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 - 34,178,665 shares outstanding as of March 18, 2002 ---------------------------------- UNAUDITED CONSOLIDATED STATEMENTS OF INCOME NDCHealth Corporation and Subsidiaries (In thousands, except per share data) - --------------------------------------------------------------------------------
Three Months Ended --------------------------------- March 1, February 28, 2002 2001 --------------- -------------- Revenues: Information management $ 39,050 $ 35,342 Network services and systems 58,057 52,890 --------------------------------- 97,107 88,232 --------------------------------- - ---------------------------------------------------------------------------------------------------------------- Operating expenses: Cost of service 47,119 45,718 Sales, general and administrative 22,974 18,653 Depreciation and amortization 5,948 8,686 --------------------------------- 76,041 73,057 --------------------------------- Operating income 21,066 15,175 - ---------------------------------------------------------------------------------------------------------------- Other income (expense): Interest and other income 445 101 Interest and other expense (2,511) (2,054) Minority interest in losses 607 841 --------------------------------- (1,459) (1,112) --------------------------------- Income before income taxes and equity in losses of affiliated companies 19,607 14,063 Provision for income taxes 7,058 5,414 - ---------------------------------------------------------------------------------------------------------------- Income before equity in losses of affiliated companies 12,549 8,649 Equity in losses of affiliated companies (340) - - ---------------------------------------------------------------------------------------------------------------- Net income $ 12,209 $ 8,649 ================================= Basic earnings per share: $ 0.36 $ 0.26 --------------------------------- Diluted earnings per share: $ 0.34 $ 0.25 ---------------------------------
See Notes to Unaudited Consolidated Financial Statements. 2 UNAUDITED CONSOLIDATED STATEMENTS OF INCOME NDCHealth Corporation and Subsidiaries (In thousands, except per share data) - --------------------------------------------------------------------------------
Nine Months Ended --------------------------------- March 1, February 28, 2002 2001 --------------- -------------- Revenues: Information management $ 110,957 $ 100,557 Network services and systems 166,568 151,353 Divested businesses - 5,862 --------------------------------- 277,525 257,772 --------------------------------- - ---------------------------------------------------------------------------------------------------------------- Operating expenses: Cost of service 134,011 130,720 Sales, general and administrative 65,126 57,172 Depreciation and amortization 18,426 25,582 Restructuring and impairment charges - 2,156 --------------------------------- 217,563 215,630 --------------------------------- Operating income 59,962 42,142 - ---------------------------------------------------------------------------------------------------------------- Other income (expense): Interest and other income 1,140 131 Interest and other expense (7,156) (5,690) Minority interest in losses 1,680 724 --------------------------------- (4,336) (4,835) --------------------------------- Income before income taxes, equity in losses of affiliated companies, and discontinued operations 55,626 37,307 Provision for income taxes 20,025 14,438 - ---------------------------------------------------------------------------------------------------------------- Income before equity in losses of affiliated companies and discontinued operations 35,601 22,869 Equity in losses of affiliated companies (340) - - ---------------------------------------------------------------------------------------------------------------- Income before discontinued operations 35,261 22,869 Discontinued operations, net of income taxes - 8,323 - ---------------------------------------------------------------------------------------------------------------- Net income $ 35,261 $ 31,192 ================================= Basic earnings per share: Income before discontinued operations $ 1.04 $ 0.70 --------------------------------- Discontinued operations $ - $ 0.25 --------------------------------- Basic earnings per share $ 1.04 $ 0.95 --------------------------------- Diluted earnings per share: Income before discontinued operations $ 0.98 $ 0.67 --------------------------------- Discontinued operations $ - $ 0.25 --------------------------------- Diluted earnings per share $ 0.98 $ 0.92 ---------------------------------
See Notes to Unaudited Consolidated Financial Statements. 3 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS NDCHealth Corporation and Subsidiaries
(In thousands) - ----------------------------------------------------------------------------------------------------------------------------- Nine Months Ended --------------------------------------------- March 1, February 28, 2002 2001 -------------------- ---------------------- Cash flows from operating activities: Net income $ 35,261 $ 31,192 Adjustments to reconcile net income to cash provided by operating activities: Equity in losses of affiliated companies 340 - Non-cash restructuring and impairment charges - 930 Income from discontinued operations - (8,323) Depreciation and amortization 18,426 25,582 Deferred income taxes 3,908 36,017 Provision for bad debts 1,552 490 Other, net (364) 718 Changes in assets and liabilities which provided (used) cash, net of the effects of acquisitions: Accounts receivable, net (2,018) (481) Prepaid expenses and other assets (4,482) (8,929) Accounts payable and accrued liabilities (4,459) (6,643) Deferred income 4,695 760 Income taxes 667 (15,720) --------------------------------------------- Net cash provided by operating activities 53,526 55,593 --------------------------------------------- Cash flows from investing activities: Capital expenditures (23,398) (25,177) Business acquisitions, net of acquired cash (2,800) (23,224) Business divestiture - 20,000 Investments and other non-current assets (17,556) (18,092) --------------------------------------------- Net cash used in investing activities (43,754) (46,493) --------------------------------------------- Cash flows from financing activities: Net short-term borrowings (repayments) 50,000 (68,500) Net principal payments under capital lease arrangements and other long-term debt (2,135) (2,126) Net issuances related to stock activities 6,192 5,292 Dividends paid (4,089) (7,409) --------------------------------------------- Net cash provided by (used in) financing activities 49,968 (72,743) --------------------------------------------- Cash flows from discontinued operations: Cash provided by tax benefits of discontinued operations 15,596 - Cash (used in) provided by discontinued operations (6,649) 10,305 Cash dividend from Global Payments Inc. - 77,600 --------------------------------------------- Net cash provided by discontinued operations 8,947 87,905 --------------------------------------------- Increase in cash and cash equivalents 68,687 24,262 Cash and cash equivalents, beginning of period 12,420 1,789 --------------------------------------------- Cash and cash equivalents, end of period $ 81,107 $ 26,051 =============================================
See Notes to Unaudited Consolidated Financial Statements. 4 CONSOLIDATED BALANCE SHEETS NDCHealth Corporation and Subsidiaries
(In thousands, except share data) - ----------------------------------------------------------------------------------------------------------------------------------- March 1, May 31, 2002 2001 ------------------ ------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 81,107 $ 12,420 Accounts receivable 67,168 70,648 Allowance for doubtful accounts (5,233) (6,628) -------------------------------------- Accounts receivable, net 61,935 64,020 -------------------------------------- Income tax receivable 1,605 2,265 Deferred income taxes 16,736 29,539 Prepaid expenses and other current assets 21,534 18,788 -------------------------------------- Total current assets 182,917 127,032 -------------------------------------- Property and equipment, net 86,231 82,956 Intangible assets, net 190,828 221,757 Deferred income taxes 10,523 9,886 Investments 89,403 35,591 Other 16,626 10,990 -------------------------------------- Total Assets $ 576,528 $ 488,212 ====================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 50,000 $ - Current portion of long-term debt 178 170 Obligations under capital leases 1,189 2,586 Accounts payable and accrued liabilities 55,009 53,228 Deferred income 18,520 13,624 -------------------------------------- Total current liabilities 124,896 69,608 -------------------------------------- Long-term debt 151,433 151,567 Obligations under capital leases 2,647 1,108 Other long-term liabilities 18,995 23,044 ------------------ ------------------- Total liabilities 297,971 245,327 -------------------------------------- Commitments and contingencies Minority interest in equity of subsidiaries 10,858 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; 34,155,388 and 33,875,235 shares issued, respectively. 4,269 4,234 Capital in excess of par value 194,638 188,636 Retained earnings 79,564 48,392 Deferred compensation and other (6,076) (7,212) Cumulative translation adjustment (4,696) (3,583) -------------------------------------- Total shareholders' equity 267,699 230,467 -------------------------------------- Total Liabilities and Shareholders' Equity $ 576,528 $ 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 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 15 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 nine months ended February 28, 2001 would be increased by $0.05 and $0.15, 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 March 1, 2002. 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 -------------------------------------------------------------------------------------- March 1, 2002 February 28, 2001 -------------------------------------------------------------------------------------- Income Shares Per Share Income Shares Per Share ------ ------ --------- ------ ------ --------- Basic EPS: Income $ 12,209 34,135 $ 0.36 $ 8,649 32,992 $ 0.26 ======== ======== Effect of Dilutive Securities: Stock Options --- 1,446 --- 1,356 --------------------- ---------------------- 12,209 35,581 8,649 34,348 Convertible debt 1,243 4,140 --- --- --------------------- ---------------------- Diluted EPS: Income plus assumed conversions $ 13,452 39,721 $ 0.34 $ 8,649 34,348 $ 0.25 ===============================================================================
For the three months ended February 28, 2001, convertible debt had an antidilutive effect on diluted earnings per share; accordingly, diluted earnings per share was not adjusted for convertible debt. 9
Nine Months Ended (Before Discontinued Operations) ---------------------------------------------------------------------------------- March 1, 2002 February 28, 2001 ---------------------------------------------------------------------------------- Income Shares Per Share Income Shares Per Share ------ ------ --------- ------ ------ --------- Basic EPS: Income $ 35,261 34,045 $ 1.04 $ 22,869 32,879 $ 0.70 ========= ========= Effect of Dilutive Securities: Stock Options --- 1,550 --- 1,057 --------------------------- ---------------------------- 35,261 35,595 22,869 33,936 Convertible debt 3,729 4,140 --- --- --------------------------- ---------------------------- Diluted EPS: Income plus assumed conversions $ 38,990 39,735 $ 0.98 $ 22,869 33,936 $ 0.67 ================================================================================== Nine Months Ended (After Discontinued Operations) ---------------------------------------------------------------------------------- March 1, 2002 February 28, 2001 ---------------------------------------------------------------------------------- Income Shares Per Share Income Shares Per Share ------ ------ --------- ------ ------ --------- Basic EPS: Net income $ 35,261 34,045 $ 1.04 $ 31,192 32,879 $ 0.95 ========= ========= Effect of Dilutive Securities: Stock Options --- 1,550 --- 1,057 --------------------------- ---------------------------- 35,261 35,595 31,192 33,936 Convertible debt 3,729 4,140 --- --- --------------------------- ---------------------------- Diluted EPS: Net Income plus assumed conversions $ 38,990 39,735 $ 0.98 $ 31,192 33,936 $ 0.92 ==================================================================================
For the nine months ended February 28, 2001, 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 nine month periods ended March 1, 2002 and February 28, 2001 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 nine months ended February 28, 2001, 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.
Network Quarter Ended March 1, 2002 Information Services and (In thousands) Management Systems Other Totals - ----------------------------------------------------------------------------------------------------------- Revenues $ 39,050 $ 58,057 $ - $ 97,107 Income before income taxes and equity in losses of affiliated companies 6,830 12,777 - 19,607 Depreciation and amortization 2,619 3,329 - 5,948 Segment assets 142,483 434,045 - 576,528 Network Quarter Ended March 1, 2002 Information Services and (In thousands) Management Systems Other Totals - ----------------------------------------------------------------------------------------------------------- Revenues $ 35,342 $ 52,890 $ - $ 88,232 Income before income taxes and equity in losses of affiliated companies 5,072 8,991 - 14,063 Depreciation and amortization 3,983 4,703 - 8,686 Segment assets 128,334 364,895 - 493,229
The following presents information about the Company's revenues from different geographic regions for the three months ended March 1, 2002 and February 28, 2001: (In thousands) 2002 2001 - --------------------------------------------------------------------------- Revenues: United States $92,886 $85,713 All other 4,221 2,519 ----------------------- Total revenues $97,107 $88,232 ======================= 11
Network Nine Months Ended March 1, 2002 Information Services and (In thousands) Management Systems Other Totals - ----------------------------------------------------------------------------------------------------------------------- Revenues $ 110,957 $ 166,568 $ - $277,525 Income before income taxes, equity in losses of affiliated companies, and discontinued operations 16,762 38,864 - 55,626 Depreciation and amortization 8,480 9,946 - 18,426 Segment assets 142,483 434,045 - 576,528 Network Nine Months Ended February 28, 2001 Information Services and (In thousands) Management Systems Other Totals - ----------------------------------------------------------------------------------------------------------------------- Revenues $ 100,557 $ 151,353 $ 5,862 $257,772 Income before income taxes, equity in losses of affiliated companies, and discontinued operations 13,174 26,005 (1,872) 37,307 Depreciation and amortization 11,973 13,340 269 25,582 Segment assets 128,334 364,895 - 493,229
The following presents information about the Company's revenues from different geographic regions for the nine months ended March 1, 2002 and February 28, 2001: (In thousands) 2002 2001 - --------------------------------------------------------------- Revenues: United States $264,644 $248,324 All other 12,881 9,448 --------------------------- Total revenues $277,525 $257,772 =========================== 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 March 1, 2002, all payments relating to the cash portion of the restructuring charges were complete. 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 financial statements for the nine months ended February 28, 2001 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 and nine months ended February 28, 2001 are summarized as follows:
Three months ended February 28, 2001 --------------------------------------------------- Global Management (In thousands, except per share data): Payments Inc. Services Total - ------------------------------------------------------------------------------------------------------- Revenue $ 53,770 $ - $ 53,770 Operating income 8,247 - 8,247 --------------------------------------------------- Net income from discontinued operations $ - $ - $ - =================================================== Diluted earnings (loss) per share: Total $ - $ - $ - ---------------------------------------------------- Nine months ended February 28, 2001 ---------------------------------------------------- Global Management (In thousands, except per share data): Payments Inc. Services Total - ------------------------------------------------------------------------------------------------------- Revenue $223,592 $ 21,905 $ 245,497 Operating income 40,801 168 40,969 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 $ 0.50 $ - $ 0.50 ---------------------------------------------------- Spin-off special charge $ (0.26) $ - $ (0.26) ---------------------------------------------------- Total $ 0.25 $ - $ 0.25 ----------------------------------------------------
13 NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION: Supplemental cash flow disclosures are as follows:
Nine months ended --------------------------------- March 1, February 28, (in thousands) 2002 2001 - --------------------------------------------------------------------------------------- Net income taxes paid $ 696 $ 905 Interest paid 7,180 3,932 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 ------------------------------------- March 1, February 28, (in thousands) 2002 2001 - --------------------------------------------------------------------------------------------- Net income $ 12,209 $ 8,649 Foreign currency translation adjustment (1,137) 875 Unrealized holding gain, net of tax - 164 ----------- ------------- Total comprehensive income $ 11,072 $ 9,688 =========== =============
Nine months ended ------------------------------------- March 1, February 28, (in thousands) 2002 2001 - --------------------------------------------------------------------------------------------- Net income $ 35,261 $ 31,192 Foreign currency translation adjustment (1,113) 565 Unrealized holding gain (loss), net of tax - (2,410) ----------- ------------- Total comprehensive income $ 34,148 $ 29,347 =========== =============
14 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 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. 15 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 significant investments in two privately held entities, each 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. This net investment was valued at approximately $35.3 million at March 1, 2002. Our ability to exercise the warrants and convert 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. 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. During the third quarter, we made an additional investment on a pro-rata basis along with other founding members of MedUnite. This net investment was valued at approximately $50.8 million at March 1, 2002. 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. Additionally, we currently maintain an equity method investment in Infopharm Limited, a joint venture with Cegedim, S.A. This investment was made during the third quarter of fiscal 2002 when we contributed our United Kingdom informatics business in exchange for a 50% ownership interest in Infopharm Limited. 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. 16 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 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. Revenue for network services, maintenance and support fees, and database information reporting are generally recurring in nature and represent approximately 75% of our total revenue. Revenue for software licenses and consulting services tend to be non-recurring and represent approximately 25% of our total revenue. 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 nine months ended February 28, 2001 would be increased by $0.05 and $0.15, 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 March 1, 2002. 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. 17 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, we became a founding investor in MedUnite, along with leading national payers. Although this transaction will result in the short term loss of approximately $10 million in transaction revenue in the current year, the alliance should allow us to receive a growing revenue stream from our physician system customers for network services provided by MedUnite. In order to provide a comparison to our continuing business results, the fiscal 2001 financial information for the nine months ended February 28, 2001 presented below has been "normalized" by excluding revenues and operating expenses related to divested businesses of $5.9 million and $5.5 million, respectively; 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. 18
Three Months Ended ---------------------------------------------- ----------- (In millions) March 1, 2002 February 28, 2001 Change ---------------------- ------------------ ----------- Revenue: Information Management $ 39.0 40.2% $ 35.3 40.0% 10.5% Network Services and Systems 58.1 59.8% 52.9 60.0% 9.8% ------------------------------------------------------------ Total Revenue $ 97.1 100.0% $ 88.2 100.0% 10.1% ============================================================ Operating Income: Information Management $ 7.1 33.6% $ 5.0 32.9% 42.0% Network Services and Systems 14.0 66.4% 10.2 67.1% 37.3% ------------------------------------------------------------ Total Operating Income $ 21.1 100.0% $ 15.2 100.0% 38.8% ============================================================ Nine Months Ended ---------------------------------------------- ----------- (In millions) March 1, 2002 February 28, 2001 Change ---------------------- ---------------------- ----------- Revenue: Information Management $ 110.9 40.0% $ 100.6 39.9% 10.2% Network Services and Systems 166.6 60.0% 151.3 60.1% 10.1% ------------------------------------------------------------ Total Revenue $ 277.5 100.0% $ 251.9 100.0% 10.2% ============================================================ Operating Income: Information Management $ 17.4 29.0% $ 14.5 33.0% 20.0% Network Services and Systems 42.6 71.0% 29.5 67.0% 44.4% ------------------------------------------------------------ Total Operating Income $ 60.0 100.0% $ 44.0 100.0% 36.4% ============================================================
Consolidated Total revenue for the third quarter of fiscal 2002 was $97.1 million, an increase of $8.9 million, or 10%, from the prior year's third quarter. This increase was the result of growth in transaction volumes in the pharmacy and hospital markets, growth in our customer base, increased sales of our physician systems, and new revenues from our expansion in Europe. This 10% increase over the prior year's third quarter would have been 14% without the loss in revenue related to MedUnite in the current year. Total revenue increased $5.0 million, or 5%, from the prior quarter, also reflecting increasing volumes and customer base. Total revenue for the first nine months of fiscal 2002 increased to $277.5 million from $251.9 million in the prior year's first nine months. This increase of $25.6 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 third quarter of fiscal 2002 from 52% in the third quarter of fiscal 2001 due to increased leverage of data costs and our infrastructure. COS expense increased $1.4 million from the prior year's third quarter. This 3% 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. 19 COS expense for the first nine months of fiscal 2002, as a percentage of revenue, decreased to 48% from 50% in the prior year's first nine months, again due to the increased leverage of our infrastructure. COS expense increased $8.3 million from the prior year's first nine months. This increase of 7% 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 24% in the third quarter of fiscal 2002 from 21% in the third quarter of fiscal 2001 due to increased investment in sales and marketing programs, primarily in our physician business. SG&A expense increased $4.3 million, or 23%, in the third quarter of fiscal 2002 from the same quarter last year reflecting this increased investment. 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, as a percentage of revenue, was 23% in the first nine months 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 $8.2 million, or 14%, in the first nine months of fiscal 2002 from the prior year's first nine months. This increase is reflective of the increased spending discussed above in the current year and exceeds the increase in revenue as we invest in sales and marketing to strengthen our growth. Depreciation and amortization ("D&A") expense, as a percentage of revenue, decreased to 6% in the third quarter of fiscal 2002 from 10% in the prior year's third 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 been 9% in the current year's third quarter had SFAS 142 not been adopted. D&A expense decreased $2.7 million from the prior year's third quarter. D&A expense, as a percentage of revenue, decreased to 7% in the first nine months of fiscal 2002 from 10% in the prior year's first nine months. This decrease was attributable to SFAS 142 discussed above. D&A expense decreased $6.9 million in the first nine months of fiscal 2002 from the prior year's first nine months. Operating income increased 39% to $21.1 million in the third quarter of fiscal 2002 from $15.2 million in the third quarter of fiscal 2001. As a percentage of revenue, the operating income margin increased to 22% in the current year's third quarter from 17% in the prior year's third quarter due to the decreased COS and D&A expense margins discussed above. Operating income increased $1.2 million, or 6%, from this year's second quarter. This 6% increase was greater than the 5% sequential increase in revenue, demonstrating our ability to leverage the fixed costs inherent in our business model. Operating income for the first nine months of fiscal 2002 increased 36% to $60.0 million from $44.0 million in the prior year's first nine months. As a percentage of revenue, the operating income margin increased to 22% in the first nine months of fiscal 2002 from 17% the prior year's first nine months. This increase is the result of the decreased COS and D&A expense margins discussed above. Total other expense increased to $1.5 million in the third quarter of fiscal 2002 from $1.1 million in the prior year's third quarter. This $0.4 million increase was the net result of multiple factors including an increase of $0.6 million in convertible debt interest expense that was previously 20 shared with Global Payments in the prior year, a decrease of $0.2 million in minority interest credit, and an increase of $0.1 million in interest expense resulting from our short term borrowings. The minority interest credit represents the minority's share of losses attributable to subsidiaries consolidated in our financial statements but not 100% owned by us. Total other expense for the first nine months of fiscal 2002 decreased to $4.3 million from $4.8 million in the prior year's first nine months. This decrease was the net result of an increase in convertible debt interest expense that was previously shared with Global Payments in the prior year, an increase in minority interest credit, and interest income earned on our cash reserves in the current year. Income before income taxes ("IBIT") increased 39% to $19.6 million in the third quarter of fiscal 2002 from $14.1 million in the third quarter of fiscal 2001 due to the increase in operating income discussed above. IBIT increased $0.9 million from the current year's second quarter, reflecting the increased operating income discussed above. IBIT for the first nine months of fiscal 2002 increased 42% to $55.6 million from $39.2 million in the prior year's first nine months. This increase is reflective of the increase in operating income and decrease in other expense discussed above. Equity in losses of affiliated companies represents our share of losses incurred by Infopharm Limited, in which we have an equity investment. The loss of $0.3 million in the third quarter of fiscal 2002 was expected as Infopharm is in its start-up phase and is incurring operating losses. Diluted earnings per share for the third quarter of fiscal 2002 increased 36% to $0.34 as compared to $0.25 for the prior year's third 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 international operations reduced diluted earnings per share in the third quarter of fiscal 2002 by approximately $0.01. Diluted earnings per share increased $0.01 from the current year's second quarter, reflecting the increased IBIT discussed above. Diluted earnings per share for the first nine months of fiscal 2002 increased 38% to $0.98 from $0.71 in the prior year's first nine months. Approximately $0.15 of this increase is attributable to the adoption of SFAS 142. Information Management Information Management revenue grew by 10% to $39.0 million in the third quarter of fiscal 2002 from $35.3 million in the third quarter of fiscal 2001, the result of our start-up operations in Western Europe, sales of additional products to existing customers, market acceptance of new products, and growth in new customers. Revenue increased $1.7 million, or 4%, from the current year's second quarter. This increase was the result of the same factors discussed above. Information Management revenue for the first nine months of fiscal 2002 increased to $110.9 million from $100.6 million in the prior year's first nine months. This increase of $10.3 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 third quarter of fiscal 2002 was $7.1 million compared to $5.0 million in the third quarter of fiscal 2001. This 42% increase in operating income was the result of increased 21 leverage of our data costs as revenue increased and the reduced amortization expense resulting from our adoption of SFAS 142, partially offset by operating losses in our European operations. Operating income increased $1.3 million from the second quarter of fiscal 2002 reflecting the increase in revenue and the leveraging of our data costs. Operating income for the first nine months of fiscal 2002 increased to $17.4 million from $14.5 million in the prior year's first nine months. This increase of $2.9 million, or 20%, 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 10% to $58.1 million in the third quarter of fiscal 2002 from $52.9 million in the prior year's third quarter primarily due to increased demand for our value added services in the pharmacy and hospital markets as well as growth in our physicians systems business. This 10% increase over the prior year's third quarter would have been 16% without the loss in revenue related to MedUnite in the current year. Revenue increased $3.4 million, or 6%, from the current year's second quarter. Network Services and Systems revenue for the first nine months of fiscal 2002 increased to $166.6 million from $151.3 million in the prior year's first nine months. This increase of $15.3 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 third quarter of fiscal 2002 was $14.0 million compared to $10.2 million in the third quarter of fiscal 2001. This 37% increase in operating income was reflective of the 10% increase in revenue, reduced amortization expense resulting from our adoption of SFAS 142, and increased leverage of our infrastructure. Operating income decreased $0.1 million from the current year's second quarter, due to increased investment in sales and marketing programs in our physician systems business. Operating income for the first nine months of fiscal 2002 increased to $42.6 million from $29.5 million in the prior year's first nine months. This increase of $13.1 million, or 44%, was reflective of the increase in revenue, reduced amortization expense and increased leverage of our infrastructure discussed above. Liquidity and Capital Resources Cash flow generated from operations provides us with a significant source of liquidity to meet our needs. At March 1, 2002, we had cash and cash equivalents totaling $81.1 million. Net cash provided by operating activities decreased $2.1 million to $53.5 million for the first nine months of fiscal 2002 compared to $55.6 million for the first nine 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 "Cash flows from discontinued operations." Additionally, changes in assets and liabilities, other than Income taxes, used $6.3 million in the first nine months of fiscal 2002 compared to $15.2 million in the first nine months of fiscal 2001. 22 Net cash used in investing activities was $43.8 million for the first nine months of fiscal 2002 compared to $46.5 million for the first nine months of fiscal 2001. Capital expenditures were $1.8 million less in the first nine 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 for the full fiscal year to be similar to the prior fiscal year. Net cash used in investing activities increased $7.4 million, to $17.6 million, from the first six months of the current fiscal year primarily due to an additional investment in MedUnite. This additional investment was made on a pro-rata basis along with the other founding members of MedUnite. Net cash provided by financing activities was $50.0 million for the first nine months of fiscal 2002 compared to the use of $72.7 million in the prior year's first nine months. This change is due primarily to Net short-term borrowings of $50.0 million in the current year versus payments of $68.5 million in the prior year. During the third quarter of fiscal 2002, we exercised our option to convert $50.0 million outstanding under our unsecured line of credit to a term loan repayable in January 2003. During the third quarter of fiscal 2001, all of the borrowings outstanding under our previous unsecured line of credit were repaid in full at the time of the spinoff of Global Payments. Cash provided by stock activities increased to $6.2 million in the first nine months of fiscal 2002 from $5.3 million in the first nine 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 $4.1 million in the first nine months of fiscal 2002 from $7.4 million in the prior year's first nine months. Net cash provided by discontinued operations was $8.9 million for the first nine months of fiscal 2002 compared to $87.9 million for the first nine months of fiscal 2001. This change is due primarily to the Cash dividend from Global Payments Inc. of $77.6 million in the prior year. Deferred tax assets attributed to our discontinued operations discussed above provided $15.6 million in the first nine months of fiscal 2002. Net cash used in discontinued operations of $6.6 million in the first nine months of fiscal 2002 consists of payments made in the settling of liabilities of our discontinued operations. Cash provided by discontinued operations of $10.3 million in the first nine months of fiscal 2001 consisted primarily of the net income from discontinued operations. We previously had a credit facility with a one-year term providing a $50 million unsecured revolving line of credit and an 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. As discussed above, we exercised this option during the third quarter and converted $50 million outstanding under the unsecured line of credit to a term loan. We believe that our current level of cash on hand, future cash flows from operations, and the current term loan are sufficient to meet our operating 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 providing additional liquidity. This may be through the issuance of additional debt or equity resulting in the replacement of all or a portion of the debt outstanding, including the convertible debt, at the time of issuance. 23 Quantitative and Qualitative Disclosure About Market Risk There have been no significant changes in our 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 the first, second, and third 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 we are 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 nine months ended March 1, 2002, 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, we are committed to continuing to sustain quality earnings growth. Our strategy to attain growth is to position our company for continued future success through ongoing investment in new market opportunities as well as through strategic alliances and acquisitions. We also intend to continue expansion into additional market segments related to our two primary segments. We intend 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 operations, economic performance, financial condition, and sources of future financing. These include, but are not limited to, statements regarding the Company's business strategy and means to implement the strategy, the Company's objectives, 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 24 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 September 11, 2001 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. Subsequent to this ruling, IMS Health obtained an injunction from the Frankfurt Regional Court to prevent us from distributing data in this format. A hearing to review this injunction is scheduled for May 2002 in the Frankfurt Court of Appeals. We are unable to predict whether IMS Health may be successful in overturning the EC 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 - ------------------------------------------------------------ None ITEM 5 - OTHER INFORMATION - -------------------------- None ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) Exhibits: None (b) Reports Filed on Form 8-K: NDCHealth Corporation's Current Report on Form 8-K dated December 19, 2001, was filed on December 19, 2001, reporting as an exhibit under Item 7 the Company's press release dated December 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. 26 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: March 22, 2002 27 -----END PRIVACY-ENHANCED MESSAGE-----