-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JtDWcTbxM+l/Mt/jPOYtivFN7Kww10DRPAgO6MhepbNFKXQJjFvseABJX70y1qg5 157OIz1neBVmC1Obtzie4w== 0000069999-94-000010.txt : 19940912 0000069999-94-000010.hdr.sgml : 19940912 ACCESSION NUMBER: 0000069999-94-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940731 FILED AS OF DATE: 19940908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL COMPUTER SYSTEMS INC CENTRAL INDEX KEY: 0000069999 STANDARD INDUSTRIAL CLASSIFICATION: 3577 IRS NUMBER: 410850527 STATE OF INCORPORATION: MN FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03713 FILM NUMBER: 94548323 BUSINESS ADDRESS: STREET 1: 11000 PRAIRIE LAKES DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6128293000 MAIL ADDRESS: STREET 1: P O BOX 9365 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 10-Q 1 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: July 31, 1994 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: (612)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 August 31, 1994, was 15,284,918. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended July 31, ----------------- 1994 1993 ---- ---- (In thousands, except per share amounts) REVENUES Net sales $63,699 $58,500 Maintenance and support 16,432 17,169 ------- ------- Total revenues 80,131 75,669 COST OF REVENUES Cost of sales 37,850 31,920 Cost of maintenance and support 11,116 12,753 ------- ------- Gross margin 31,165 30,996 OPERATING EXPENSES Sales and marketing 10,438 11,848 Research and development 2,620 1,998 General and administrative 9,505 9,919 ------- ------- INCOME FROM OPERATIONS 8,602 7,231 Interest expense 821 418 Other (income) expense, net 31 (8) ------- ------- INCOME BEFORE INCOME TAXES 7,750 6,821 Income tax provision 3,035 2,588 ------- ------- NET INCOME $ 4,715 $ 4,233 ======= ======= NET INCOME PER SHARE $ .31 $ .27 AVERAGE SHARES OUTSTANDING 15,074 15,792
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Six Months Ended July 31, ----------------- 1994 1993 ---- ---- (In thousands, except per share amounts) REVENUES Net sales $116,668 $109,141 Maintenance and support 32,213 35,042 -------- -------- Total revenues 148,881 144,183 COST OF REVENUES Cost of sales 67,972 60,098 Cost of maintenance and support 22,663 26,300 -------- -------- Gross margin 58,246 57,785 OPERATING EXPENSES Sales and marketing 21,818 23,376 Research and development 5,542 4,410 General and administrative 18,493 19,617 -------- -------- INCOME FROM OPERATIONS 12,393 10,382 Interest expense 1,550 972 Other (income) expense, net (97) (205) -------- -------- INCOME BEFORE INCOME TAXES 10,940 9,615 Income tax provision 4,275 3,650 -------- -------- NET INCOME $ 6,665 $ 5,965 ======== ======== NET INCOME PER SHARE $ .44 $ .38 AVERAGE SHARES OUTSTANDING 15,068 15,867
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
July 31, January 31, 1994 1994 --------- ----------- (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,243 $ 1,724 Receivables: Trade 72,130 70,100 Other 1,347 5,328 -------- -------- Total receivables 73,477 75,428 Inventories: Finished products 5,934 6,348 Scoring services and work in process 8,568 6,117 Raw materials and purchased parts 4,323 4,905 -------- -------- Total inventories 18,825 17,370 Prepaid expenses and other 8,887 9,198 -------- -------- TOTAL CURRENT ASSETS 102,432 103,720 PROPERTY, PLANT AND EQUIPMENT Land, buildings and improvements 41,822 37,254 Machinery and equipment 93,141 88,950 Rotable service parts 10,064 11,085 Equipment held for lease 7,772 8,205 Accumulated depreciation (79,011) (75,988) -------- -------- Net property, plant and equipment 73,788 69,506 OTHER ASSETS Acquired and internally developed software products 24,780 20,092 Non-current receivables, investments and other assets 20,987 21,896 Goodwill 5,588 4,959 -------- -------- Total other assets 51,355 46,947 -------- -------- TOTAL ASSETS $227,575 $220,173 ======== ========
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
July 31, January 31, 1994 1994 --------- ----------- (In thousands) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 3,732 $ 2,677 Accounts payable 13,250 18,777 Accrued expenses 22,598 27,093 Deferred income 20,487 18,956 Income taxes 1,725 - -------- -------- TOTAL CURRENT LIABILITIES 61,792 67,503 DEFERRED INCOME TAXES 8,824 7,849 LONG-TERM DEBT -- less current maturities 48,530 44,674 COMMITMENTS - - STOCKHOLDERS' EQUITY Preferred stock - - Common stock--issued and outstanding - 15,248 and 14,983 shares, respectively 457 449 Paid-in capital 3,091 - Retained earnings 110,729 106,771 Deferred compensation (5,848) (7,073) -------- -------- Total stockholders' equity 108,429 100,147 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $227,575 $220,173 ======== ========
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended July 31, ------------------ 1994 1993 ------ ----- (In thousands) OPERATING ACTIVITIES Net income $ 6,665 $ 5,965 Depreciation, amortization and other noncash expenses 11,761 12,517 Changes in operating assets and liabilities: Decrease in accounts receivable 2,937 2,060 Increase in inventory and other current assets (1,110) (2,798) Decrease in accounts payable and accrued expenses (8,609) (7,382) Increase (decrease) in deferred income 1,531 (841) -------- ------- Net cash provided by operating activities 13,175 9,521 ------- ------- INVESTING ACTIVITIES Purchases of property, plant and equipment (12,385) (9,769) Capitalized software products (3,209) (5,223) Other - net (1,454) (376) ------- -------- Net cash used in investing activities (17,048) (15,368) ------- -------- FINANCING ACTIVITIES Net increase in revolving credit borrowing 4,700 1,700 Net proceeds of other borrowings 1,161 931 Issuance (repurchase) of common stock, net 230 (3,980) Dividends paid (2,699) (2,839) ------ ------- Net cash provided (used) in financing activities 3,392 (4,188) ------ ------- Decrease in cash and cash equivalents (481) (10,035) CASH AND CASH EQUIVALENTS - beginning of period 1,724 10,767 ------- ------- CASH AND CASH EQUIVALENTS - end of period $ 1,243 $ 732 ======= =======
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 financial position, results of operations and cash flows for all periods presented have been made. The results of operations for the period ended July 31, 1994, are not necessarily indicative of the operating results that may be expected for the entire fiscal year ending January 31, 1995. Note B - Earnings per share for the respective operating periods are computed based on average shares outstanding and common stock equivalents. Note C - The Company has 10,000,000 shares of $.01 par value Preferred Stock authorized of which none is outstanding. 50,000,000 shares of $.03 par value Common Stock are authorized. Note D - In July, 1994, the Company completed the acquisition of Abacus Data Group, a developer of Windows-based instructional management software for the education market. The purchase price was approximately $3.8 million in a combination of cash and NCS stock, plus contingent earn-out payments, and was allocated principally to software products and goodwill. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition National Computer Systems, Inc. is an information services company serving the business, education, assessment and financial markets. The Company's 1993 Annual Report contains a description of its activities in each of its four primary business units: Technology, Education, Assessments, and Financial. Recap of 1994 Results For the quarter ended July 31, 1994, total revenues were up by $4.5 million or 5.9% from the same period in 1993. However, overall gross margin as a percentage of revenue decreased 2.1 percentage points from the prior year, reducing the impact of the higher revenues. These factors, along with significantly reduced sales and marketing expenses compared to the prior year, resulted in a $1.4 million or 19% increase in operating income. For the six months ended July 31, 1994, total revenues were up $4.7 million or 3.3% from the same period in 1993. Though overall gross margin as a percentage of revenue declined by 1.0 percentage point due to the second quarter performance, the increased revenues and lower overall operating expenses resulted in an increase in income from operations of $2.0 million or 19%. The second quarter and six month operating income improvements over the prior year are the net result of four significant factors: (1) the Ultrust product discontinuation, which contributed to substantial improvement in the results of NCS Financial, (2) significantly improved performance at the Company's Iowa City service center within NCS Education, (3) reduced sales and marketing, and general and administrative expenses across the Company, offset by (4) lower operating income from international business within NCS Technology, due principally to a significant one-time international scanning systems order in the first quarter of the prior year. Interest expense increased by $.4 million and $.6 million, respectively, in the quarter and six-month periods ended July 31, 1994, as compared to the same periods of 1993. The Company's 1994 second quarter net income was $4.7 million ($.31 per share), an 11% increase over the second quarter of 1993. On a year-to- date basis, the Company's net income was $6.7 million ($.44 per share) in 1994, a 12% increase over the prior year. A more detailed discussion of the various income statement items follows. Revenues by Primary Business Total revenues for the quarter ended July 31, 1994 were up 5.9% to $80.1 million from $75.7 million in the comparable 1993 quarter. On a year-to-date basis, revenues were up 3.3% to $148.9 million from $144.2 million a year earlier. Total second quarter and year-to-date revenues in the Company's four major business units compared to the prior year were as follows: Second Quarter Year-to-Date Technology - 2% - 8% Education +14% +15% Assessments + 2% - 4% Financial + 2% + 3% Total revenues for NCS Technology were down for both the quarter and year-to-date periods principally due to lower sales of scanning systems internationally. In addition, NCS Technology revenues were impacted by lower third-party maintenance revenues. Total revenues for NCS Education were up for both the quarter and year-to-date periods primarily due to significantly higher processing volumes at the Company's Iowa City service center. While NCS Assessments revenue increased slightly for the quarter as compared to the prior year quarter, year-to-date revenue declined by 4% as a result of a lower first quarter volume of clinical assessment revenues. Total revenues for NCS Financial increased for both the three and six-month periods ended July 31, 1994, as a result of higher hardware sales and software support revenues, offset by lower software licensing revenues. These revenue changes for the quarter and six month periods ended July 31, 1994, are not necessarily indicative of the revenue changes expected for the entire fiscal year ended January 31, 1995. Cost of Revenues and Gross Margins For the quarter ended July 31, 1994, the Company's overall gross margin percentage on total revenues was 38.9%, down from 41.0% for the same period in the prior year. The quarter to quarter decline was primarily due to two factors: lower processing margins in NCS Education's Iowa City service center as a result of start up costs on new contracts, and lower margins in NCS Financial, as a result of a greater complement of hardware and a lesser complement of software in its sales mix. Offsetting these factors, gross margins on maintenance and support revenues improved by 6.7 percentage points in the second quarter as compared to the prior year second quarter principally due to improved hardware maintenance margins in NCS Technology and improved software support margins in NCS Financial due primarily to the discontinuance of Ultrust. For the six months ended July 31, 1994, the Company's overall gross margin declined by 1.0 percentage points to 39.1%. This decline is principally related to the factors cited above, plus the lack of high margin international hardware sales in NCS Technology, which was predominantly a first quarter factor. Gross margins on maintenance and support revenues improved by 4.7 percentage points for the six months ended July 31, 1994, as compared to the prior year, principally due to the same factors listed above. Operating Expenses Sales and marketing expenses decreased $1.4 million or 11.9% in the quarter ended July 31, 1994 from the prior year quarter. Similarly, sales and marketing expenses decreased $1.6 million or 6.7% for the six month period ended July 31, 1994 as compared to the same period of 1993. These decreases are the result of specific efforts to control these expenses to more productive levels in 1994. For fiscal 1994, sales and marketing expenses will continue to be below prior year levels as these efforts continue. Research and development expenses increased by $.6 million in the quarter ended July 31, 1994, over the year earlier quarter. For the six months ended July 31, 1994, research and development expenses were up $1.1 million over the same period of 1993. The increase came principally in NCS Financial and NCS Technology and is related to further enhancements of NCS Financial software products and continuing development of scanning hardware and related software. These expenses are likely to continue at levels higher than the previous year. General and administrative expenses decreased by $.4 million or 4.2% in the second quarter from the comparable prior year quarter, resulting from lower expense levels in all the primary businesses. On a year-to-date basis, general and administrative expenses were down similarly, $1.1 million, or 5.7%. This favorable comparison to the prior year should continue throughout fiscal 1994. Non-operating Expenses Interest expense increased by $.4 million and $.6 million, respectively, in the three and six-month periods ended July 31, 1994, from the comparable prior year periods. These increases are due to higher aggregate borrowing levels and higher interest rates. Provision for Income Taxes The effective income tax rate of 39.1% for the first six months of fiscal 1994, was greater than the 38.0% effective rate for the first six months of fiscal 1993. This year-to-year net increase in the effective income tax rate is due to a number of factors, including the result of new Federal tax legislation enacted in the third quarter of 1993. Liquidity and Capital Resources For the six-month period ended July 31, 1994, the Company generated $13.2 million of cash flow from operating activities. This compares favorably to the corresponding prior-year period due to increased net income and overall favorable operating asset and liability changes. Borrowings increased $4.7 million to fund, along with cash provided from operations and cash on hand, $16.1 million of investment in property, plant and equipment and software products. See also Note D of Notes to Consolidated Financial Statements. It is anticipated that the Company's revolving credit or other borrowings will increase over the remainder of fiscal 1994 to fund seasonal operating needs and increased investments in property, plant and equipment over the prior year. Funds to be generated from operations and funds available from the Company's existing revolving credit facility are expected to be adequate to meet current cash requirements. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 10. Resignation Arrangements with Norman A. Cocke III. 27. Financial Data Schedule. (b) There were no reports on Form 8-K filed for the three months ended July 31, 1994. 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: September 7, 1994 FORM 10-Q NATIONAL COMPUTER SYSTEMS, INC. For the quarterly period ended July 31, 1994 --------------- EXHIBIT INDEX --------------- Exhibit 10 - Resignation Arrangements with Norman A. Cocke III 27 - Financial Data Schedule EX-10 2 EXHIBIT 10 Resignation Arrangements with Norman A. Cocke III On May 15, 1994, Norman A. Cocke ("Cocke") resigned as Senior Vice President and Chief Financial Officer of National Computer Systems, Inc. (the "Company") and terminated employment with the Company. In connection with Cocke's resignation, the Company agreed to, (a) pay Cocke $15,000 per month for a period of 12 months from the date of resignation, (b) reimburse Cocke for costs of medical and life insurance benefits similar to coverage provided by the Company to Cocke as an employee for a period of 12 months from the date of resignation, and (c) reimburse Cocke for certain expenses, including out-placement services. In consideration for such payments and benefits, Cocke agreed not to institute any claims of any nature against the Company arising out of his employment with or separation from the Company. EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES, FOR THE QUARTERLY PERIOD ENDED JULY 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 QTR-2 JAN-31-1995 JUL-31-1994 1,243 0 72,130 0 18,825 102,432 152,799 (79,011) 227,575 61,792 48,530 457 0 0 107,972 227,575 63,699 80,131 37,850 48,966 22,563 0 821 7,750 3,035 4,715 0 0 0 4,715 0.31 0.31
-----END PRIVACY-ENHANCED MESSAGE-----