-----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, CDCBNEhhvO8E0GVJiV9H2aCS14aGYlfX8YiDyGUjeTuguEAP8nGLrov2eTf/4xTG wgSEQwD+ckNQyQysL4X2GQ== /in/edgar/work/20000612/0000069999-00-000010/0000069999-00-000010.txt : 20000919 0000069999-00-000010.hdr.sgml : 20000919 ACCESSION NUMBER: 0000069999-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000429 FILED AS OF DATE: 20000612 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL COMPUTER SYSTEMS INC CENTRAL INDEX KEY: 0000069999 STANDARD INDUSTRIAL CLASSIFICATION: [7374 ] IRS NUMBER: 410850527 STATE OF INCORPORATION: MN FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-03713 FILM NUMBER: 653120 BUSINESS ADDRESS: STREET 1: 11000 PRAIRIE LAKES DR CITY: MINNEAPOLIS STATE: MN ZIP: 55344 BUSINESS PHONE: 6128293000 MAIL ADDRESS: STREET 1: P O BOX 9365 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 10-Q 1 0001.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: April 29, 2000 Commission File Number: 0-3713 NATIONAL COMPUTER SYSTEMS, INC. - ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) Minnesota 41-0850527 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 11000 Prairie Lakes Drive Eden Prairie, Minnesota 55344 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (952)829-3000 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 and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date: The number of shares of common stock, par value $.03 per share, outstanding on May 31, 2000, was 32,632,000. PART I. FINANCIAL INFORMATION Item 1. Financial Statements NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) For the quarter ended April 29, 2000 and May 1, 1999 2000 1999 -------- -------- (In thousands, except per share amounts) REVENUES Services $133,159 $ 85,665 Product sales 41,206 40,152 -------- -------- Total revenues 174,365 125,817 COST OF REVENUES Cost of services 94,729 62,038 Cost of product sales 17,617 15,648 -------- -------- Gross profit 62,019 48,131 OPERATING EXPENSES Sales and marketing 17,271 16,572 Research and development 6,108 3,673 General and administrative 23,654 16,255 -------- -------- INCOME FROM OPERATIONS 14,986 11,631 Interest expense 118 162 Other expense, net 399 366 -------- -------- INCOME BEFORE INCOME TAXES 14,469 11,103 Income taxes 5,700 4,450 -------- -------- NET INCOME $ 8,769 $ 6,653 ======== ======== EARNINGS PER SHARE Basic $0.27 $0.21 Diluted 0.26 0.20 See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) April 29, January 29, 2000 2000 -------- ----------- (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,527 $ 26,592 Marketable securities 18,251 - Receivables 141,308 151,870 Inventories: Finished products 6,169 5,880 Scoring services and work in process 38,665 23,158 Raw materials and purchased parts 3,823 4,581 -------- -------- Total inventories 48,657 33,619 Prepaid expenses and other 9,907 9,932 -------- -------- TOTAL CURRENT ASSETS 221,650 222,013 PROPERTY, PLANT AND EQUIPMENT Land, buildings and improvements 68,544 67,928 Machinery and equipment 206,068 189,835 Accumulated depreciation (129,655) (125,654) -------- -------- Net property, plant and equipment 144,957 132,109 INTELLECTUAL PROPERTIES, NET Acquired and internally developed software products 8,951 9,371 Educational content and assessment instruments 22,707 23,306 -------- -------- Net intellectual properties 31,658 32,677 OTHER ASSETS, NET Goodwill 52,414 50,263 Other assets 14,011 12,818 -------- -------- Net other assets 66,425 63,081 -------- -------- TOTAL ASSETS $464,690 $449,880 ======== ======== See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) April 29, January 29, 2000 2000 --------- ----------- (In thousands) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 15,101 $ 1,270 Accounts payable 31,732 38,546 Accrued expenses 68,304 73,163 Deferred income 37,974 51,785 Income taxes 16,005 6,570 -------- -------- TOTAL CURRENT LIABILITIES 169,116 171,334 LONG-TERM DEBT -- less current maturities 516 516 DEFERRED INCOME TAXES 1,375 1,642 COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY Preferred stock - - Common stock--issued and outstanding - 32,603 and 32,348 shares, respectively 978 970 Paid-in capital 21,880 22,596 Retained earnings 264,336 257,195 Accumulated other comprehensive income - Unrealized gain on marketable securities 11,266 - Foreign currency translation adjustment (3,536) (2,969) Deferred compensation (1,241) (1,404) -------- -------- TOTAL STOCKHOLDERS' EQUITY 293,683 276,388 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $464,690 $449,880 ======== ======== See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the quarter ended April 29, 2000 and May 1, 1999 2000 1999 -------- -------- (In thousands) OPERATING ACTIVITIES Net income $ 8,769 $ 6,653 Depreciation and amortization 10,295 8,665 Deferred income taxes and other (228) (11) Changes in operating assets and liabilities: Accounts receivable 10,562 20,422 Inventory and other current assets (15,013) (14,792) Accounts payable and accrued expenses (7,467) (3,928) Deferred income (13,811) (3,106) ------- ------- Net cash (used) provided by operating activities (6,893) 13,903 ------- ------- INVESTING ACTIVITIES Purchases of property, plant and equipment (17,308) (10,211) Purchases of business systems (2,252) (2,582) Acquisitions, net (4,719) - Other, net (3,367) (120) ------- ------- Net cash used in investing activities (27,646) (12,913) ------- ------- FINANCING ACTIVITIES Net increase in revolving credit borrowings 14,500 - Net repayment of other borrowings (269) (103) Issuance (repurchase) of common stock, net (1,135) 765 Dividends paid (1,622) (1,577) ------- ------- Net cash provided (used) by financing activities 11,474 (915) ------- ------- Increase (decrease) in cash and cash equivalents (23,065) 75 CASH AND CASH EQUIVALENTS - beginning of period 26,592 16,310 ------- ------- CASH AND CASH EQUIVALENTS - end of period $ 3,527 $16,385 ======= ======= See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Note A - The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows for all periods presented have been made. The consolidated results of operations for the period ended April 29, 2000 are not necessarily indicative of the operating results that may be expected for the entire fiscal year ending February 3, 2001. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in National Computer Systems, Inc. and Subsidiaries' Annual Report on Form 10-K for the year ended January 29, 2000. Note B - Earnings per share are calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." The following table is a reconciliation of the earnings numerator and the weighted-average shares denominator used in the calculations of basic and diluted earnings per share: Quarter Ended April 29, May 1, 2000 1999 ------- --------- Earnings: Net income for basic earnings per share $ 8,769 $ 6,653 Adjustments for dilutive securities: Interest expense on convertible debentures, net of tax 5 41 ------- ------- Adjusted net income for diluted earnings per share $ 8,774 $ 6,694 ======= ======= Weighted Average Share: Basic average shares 32,356 31,480 Adjustments for dilutive securities: Employee stock options, net of tax proceeds 991 945 Contingent stock awards, net of tax proceeds 29 33 Convertible debentures 11 391 ------- ------- Diluted average shares 33,387 32,849 ======= ======= Basic earnings per share $ 0.27 $ 0.21 ======= ======= Diluted earnings per share $ 0.26 $ 0.20 ======= ======= Note C - Marketable Securities: On January 29, 2000 the Company held a minority investment in a privately held company and carried the investment at cost of $350. During the first quarter, the investee's shares began trading on The Nasdaq Stock Market(R), and therefore, NCS has begun accounting for this marketable security under Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. In accordance with this Statement, the Company accounts for this investment as available for sale, and has recorded the asset at the current market value of $18,251, with the unrealized gain, net of tax, as a separate component of Stockholders' Equity. Under the terms of the initial public offering, the Company will not be able to sell the securities until September 1, 2000. Future fluctuations in value will be recorded in Stockholders' Equity until the time of sale. Note D - The Company has 10,000,000 shares of $.01 par value Preferred Stock authorized of which none is outstanding. 100,000,000 shares of $.03 par value Common Stock are authorized. Note E - The components of comprehensive income for the quarter ended April 29, 2000 and May 1, 1999 are as follows (in thousands): 2000 1999 ------ ------ Net income $8,769 $6,653 Increase in market value of marketable securities, net of tax 11,266 - Foreign currency translation adjustments (570) 1,003 ------- ------ Comprehensive income $19,465 $7,656 ======= ====== Note F - In March 2000 the Company purchased the minority interest in its Australian joint venture for $4.7 million. The purchase price has been allocated principally to goodwill. Note G - On May 16, 2000 the Company announced that it has agreed upon the preliminary terms for the formation of a joint venture with the University of Cambridge Local Examinations Syndicate (UCLES), in the United Kingdom. Under the anticipated terms of the joint venture, the entity will be majority-owned by NCS and have an anticipated annual revenue stream in excess of $80 million. The completion of the transaction is subject to the negotiation and execution of a definitive agreement. The creation of this joint venture would combine the core business of UCLES' subsidiary, Oxford, Cambridge and RSA Examinations, with NCS' U.K. assessments business. The proposed joint venture would provide content, scoring and related education services, including electronic testing, Internet-based curriculum delivery and school-based information technology centers. Note H - The Company has five reportable business segments; the table below presents information by segment.
Assessments Education Data & Testing Software & NCS Collection Services Services Services Systems International Totals ----------- ----------- ---------- ---------- -------------- --------- Quarter Ended 4/29/00 Revenues $ 50,890 $32,307 $56,240 $20,289 $14,637 $174,363 Income from operations 8,601 (885) 11,280 4,990 1,068 25,054 Quarter Ended 5/1/99 Revenues $ 31,927 $28,326 $33,797 $20,830 $10,937 $125,817 Income from operations 3,734 1,131 5,486 5,246 1,028 16,625
The difference between segment totals and the Company's consolidated totals for income from operations is central general and administrative expenses and non-operating expenses, which are not allocated to the segments. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition National Computer Systems, Inc. (NCS or the Company)is a global information services company providing software, services, systems and Internet-based technologies for the collection, management and interpretation of data. The Company serves segments of the education, testing, assessment and complex data management markets. Recap of 2000 First Quarter Results For the quarter ended April 29, 2000, total revenues increased by $48.5 million or 38.6% from the quarter ended May 1, 1999. Gross profit increased $13.9 million, or 28.9%, but decreased as a percent of revenue from 38.3% to 35.6%. Income from operations for the quarter increased $3.4 million or 28.8% over the prior year first quarter. Net income increased 31.8% over the quarter ended May 1, 1999, and diluted earnings per share increased 30.0% to $.26 per share from $.20 in the prior year first quarter. Revenues Total revenues for the quarter ended April 29, 2000 were up 38.6% from the prior year. By revenue category, Services revenue increased 55.4% and Product sales 2.6%. By reportable segment, 2000 first quarter revenues compared to first quarter 1999 as follows: Assessments and Testing Services +59.4% Educational Software and Services +14.1 NCS Services +66.4 Data Collection Systems - 2.6 International +33.8 Increases in Assessments and Testing Services were the result of increased state educational tests and electronic testing. Educational Software and Services had increases in service revenue from software support and software product sales, offset by lower revenue in network services. NCS Services revenues were higher due greatly to $19 million of revenue related to the U.S. Census project. Data Collection Systems revenues were relatively flat, year-on-year, in both documents and data collection hardware. International revenues increased as a result of the Argentine telecommunications project and increases in Australian educational testing. Cost of Revenues and Gross Margins For the quarter ended April 29, 2000, the Company's overall gross margin was 35.6%, compared to 38.3% in the earlier period. The decrease reflects the continued general change in revenue mix towards services, which has a lower gross margin percent. On a quarter-to-quarter basis, the gross margin in service revenue improved slightly as a percentage of revenue, with improvements in education software support and electronic testing offsetting slight percentage declines in state assessments and government services. Product sales gross profit decreased slightly in several areas, including education software, where subscription based revenues are becoming a greater portion of the total product revenues. Operating Expenses Sales and marketing expenses increased $0.7 million or 4.2% in the quarter ended April 29, 2000 over the prior year first quarter. As a percentage of revenues, first quarter sales and marketing expenses declined by 3.3 percentage points, due primarily to the relatively lower selling costs associated with services revenues. Research and development costs increased $2.4 million, or 66.3%, in the quarter ended April 29, 2000 as compared to the prior year. This increased spending was a result of higher investments in Internet-delivered products and services, primarily for the K-12 Education Software segment, as well as other product and service offerings. General and administrative expenses increased by $7.4 million, or 45.5%, for the quarter ended April 29, 2000 from the prior year quarter. As a percentage of revenue, first quarter general and administrative expense increased from 12.9% to 13.6%. These expenses increased due to variable compensation accrued because of the Company's stock price appreciation, as well as increased information technology costs. Non-operating Expenses Interest expense and other expense, net, were insignificant for the quarters ending April 29, 2000 and May 1, 1999. Provision for Income Taxes The effective income tax rate was 39.4% for the quarter ended April 29, 2000, compared to 40.1% for the earlier quarter. The higher rate in 1999 reflected non-deductible losses of a foreign operation which was sold in the fourth quarter of 1999. Liquidity and Capital Resources For the quarter ended April 29, 2000, the Company used $6.9 million of cash flow from operating activities as compared to generating $13.9 million in the same period of the prior year. This reflects the increased build-up of work-in-process inventory in the test processing business and less progress billing of these same services. Cash was used principally to fund investments in property, plant and equipment of $17.3 million, which included the build-out of the Austin, Texas facility and nine professional scoring centers, as well as $2.3 million for business systems. The net uses of cash were funded with cash on hand and short-term debt from the Company's revolving credit facility. The Company expects for the remainder of fiscal 2000 that its positive cash flows from operations will be adequate to fund its normal financing and investing activities. In addition, the Company generally anticipates funding internal growth and acquisitions with its cash and cash equivalents on hand, future excess cash flows from operations, and an existing revolving credit facility. The statements which are not historical or current facts or are "goals" or "expectations" contained in this report constitute "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially. The Cautionary Statements filed by the Company as Exhibit 99 to the Annual Report on Form 10-K for the year ended January 29, 2000, are incorporated herein by reference, and stockholders and prospective investors are specifically referred to such Cautionary Statements for a discussion of factors which could affect the Company's operations and forward-looking statements contained herein. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The registrant held its Annual Meeting of Stockholders on May 25, 2000. (c) Briefly described below are the only matters voted on at the Annual meeting and the number of votes with respect to each matter. (i) Election of Board of Directors Withhold Name For Authority ---- --- --------- William J. Cadogan 28,046,510 52,316 David C. Cox 28,044,781 54,045 Delores M. Etter 28,066,541 32,285 Russell A. Gullotti 28,056,107 42,719 Jean B. Keffeler 28,049,888 48,938 John J. Rando 28,074,194 24,632 Stephen G. Shank 28,060,001 38,825 John E. Steuri 28,066,120 32,706 (ii) Approval of the appointment of Ernst & Young LLP as auditors for the year ending February 3, 2001 For 28,028,846 Against 31,477 Abstain 38,503 Broker Non-Vote 0 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 27. Financial Data Schedule (b) No reports on Form 8-K were filed for the three months ended April 29, 2000. 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. NATIONAL COMPUTER SYSTEMS, INC. /s/ Jeffrey W. Taylor --------------------------- Jeffrey W. Taylor Vice President and Chief Financial Officer Dated: June 12, 2000 FORM 10-Q NATIONAL COMPUTER SYSTEMS, INC. FOR THE QUARTERLY PERIOD ENDED APRIL 29, 2000 EXHIBIT INDEX EXHIBIT 27 Financial Data Schedule. EX-27 2 0002.txt FDS --
5 This schedule contains summary information extracted from the financial statements for National Computer Systems, Inc. and Subsidiaries, for the fiscal year ending February 3, 2001, and is qualified in its entirety by reference to such financial statements. 1,000 U.S. Dollars 3-MOS FEB-03-2001 JAN-30-2000 APR-29-2000 1 3,527 18,251 141,308 0 48,657 9,907 274,612 (129,655) 464,690 169,116 0 0 0 978 292,705 464,960 41,206 174,365 17,617 112,346 47,033 0 118 14,469 5,700 8,769 0 0 0 8,769 0.27 0.26
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