0000069999-95-000011.txt : 19950915 0000069999-95-000011.hdr.sgml : 19950915 ACCESSION NUMBER: 0000069999-95-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19950913 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL COMPUTER SYSTEMS INC CENTRAL INDEX KEY: 0000069999 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [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: 95573526 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 31,1995 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, 1995, was 15,569,650. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended July 31, ---------------- 1995 1994 ---- ---- (In thousands, except per share amounts) REVENUES Net sales $72,454 $63,699 Maintenance and support 15,988 16,432 ------- ------- Total revenues 88,442 80,131 COST OF REVENUES Cost of sales 44,268 37,850 Cost of maintenance and support 10,217 11,116 ------- ------- Gross margin 33,957 31,165 OPERATING EXPENSES Sales and marketing 10,931 10,438 Research and development 3,421 2,620 General and administrative 9,884 9,505 ------- ------- INCOME FROM OPERATIONS 9,721 8,602 Interest expense 918 821 Other (income) expense, net (476) 31 ------- ------- INCOME BEFORE INCOME TAXES 9,279 7,750 Income tax provision 3,635 3,035 ------- ------- NET INCOME $ 5,644 $ 4,715 ======= ======= NET INCOME PER SHARE $ .36 $ .31 AVERAGE SHARES OUTSTANDING 15,728 15,074
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Six Months Ended July 31, ---------------- 1995 1994 ---- ---- (In thousands, except per share amounts) REVENUES Net sales $131,012 $116,668 Maintenance and support 31,727 32,213 ------- ------- Total revenues 162,739 148,881 COST OF REVENUES Cost of sales 79,069 67,972 Cost of maintenance and support 20,599 22,663 ------- ------- Gross margin 63,071 58,246 OPERATING EXPENSES Sales and marketing 21,867 21,818 Research and development 7,138 5,542 General and administrative 18,985 18,493 ------- ------- INCOME FROM OPERATIONS 15,081 12,393 Interest expense 1,972 1,550 Other (income) expense, net (50) (97) ------- ------- INCOME BEFORE INCOME TAXES 13,159 10,940 Income tax provision 5,150 4,275 ------- ------- NET INCOME $ 8,009 $ 6,665 ======= ======= NET INCOME PER SHARE $ .51 $ .44 AVERAGE SHARES OUTSTANDING 15,618 15,068
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
July 31, January 31, 1995 1995 -------- ----------- (In thousands) ASSETS CURRENT ASSETS Cash $ 1,776 $ 1,195 Receivables: Trade 60,372 77,209 Other 988 1,940 -------- -------- Total receivables 61,360 79,149 Inventories: Finished products 7,370 6,408 Scoring services and work in process 11,516 8,974 Raw materials and purchased parts 4,565 5,073 -------- -------- Total inventories 23,451 20,455 Prepaid expenses and other 8,520 9,925 -------- -------- TOTAL CURRENT ASSETS 95,107 110,724 PROPERTY, PLANT AND EQUIPMENT Land, buildings and improvements 49,371 48,202 Machinery and equipment 104,235 101,336 Rotable service parts 8,985 9,256 Equipment held for lease 7,704 7,583 Accumulated depreciation (87,250) (83,648) -------- -------- Net property, plant and equipment 83,045 82,729 OTHER ASSETS Acquired and internally developed software products 25,380 27,234 Non-current receivables, investments and other assets 16,866 17,027 Goodwill 2,731 3,043 -------- -------- Total other assets 44,977 47,304 -------- -------- TOTAL ASSETS $223,129 $240,757 ======== ========
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
July 31, January 31, 1995 1995 ----------- ----------- (In thousands) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities $ 6,283 $ 5,212 Accounts payable 12,753 20,655 Accrued expenses 24,616 29,495 Deferred income 19,344 18,645 Income taxes 2,838 1,103 -------- -------- TOTAL CURRENT LIABILITIES 65,834 75,110 DEFERRED INCOME TAXES 7,114 7,211 LONG-TERM DEBT -- less current maturities 29,783 45,313 COMMITMENTS - - STOCKHOLDERS' EQUITY Preferred stock - - Common stock--issued and outstanding - 15,551 and 15,310 shares, respectively 467 459 Paid-in capital 7,192 3,795 Retained earnings 118,866 114,546 Deferred compensation (6,127) (5,677) -------- -------- Total stockholders' equity 120,398 113,123 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $223,129 $240,757 ======== ========
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended July 31, ----------------- 1995 1994 ------- ------- (In thousands) OPERATING ACTIVITIES Net income $ 8,009 $ 6,665 Depreciation, amortization and other noncash expenses 15,095 11,761 Provision for deferred income taxes (97) - Changes in operating assets and liabilities: Decrease in accounts receivable 18,035 2,937 Increase in inventory and other current assets (2,687) (1,110) Decrease in accounts payable and accrued expenses (10,872) (8,609) Increase in deferred income 699 1,531 ------- ------- Net cash provided by operating activities 28,182 13,175 ------- ------- INVESTING ACTIVITIES Purchases of property, plant and equipment (8,585) (12,385) Capitalized software products (2,221) (3,209) Other - net (2,320) (1,454) ------- ------- Net cash used in investing activities (13,126) (17,048) ------- ------- FINANCING ACTIVITIES Net increase (decrease) in revolving credit borrowing (14,600) 4,700 Net proceeds of other borrowings 1,141 1,161 Issuance of common stock, net 1,755 230 Dividends paid (2,771) (2,699) ------- ------- Net cash provided (used) by financing activities (14,475) 3,392 ------- ------- Increase (decrease) in cash 581 (481) CASH - beginning of period 1,195 1,724 ------- ------- CASH - end of period $ 1,776 $ 1,243 ======= =======
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, 1995, are not necessarily indicative of the operating results that may be expected for the entire fiscal year ending January 31, 1996. 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 - The Company has received a claim from a customer for expenses, alleged loan defaults, and other damages related to performance under a loan processing and servicing contract. The Company has tendered the defense of this claim to its insurer and the insurer has accepted that defense subject to a reservation of rights. The Company and its insurer intend to vigorously contest this claim. While the claim has not yet been fully articulated, the Company believes that any such claim would be substantially covered by insurance and would not have a material effect on the Company's financial position. 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 education, business, government, health care and banking and financial markets. The Company's 1994 Annual Report contains descriptions of its activities in each of these markets. Recap of 1995 Results For the quarter ended July 31, 1995, total revenues were up by $8.3 million or 10.4% from the quarter ended July 31, 1994. Net income was up 19.7% to $5.6 million, or $.36 per share. Sales to Business and Government customers increased significantly as the Company's focus on certain key application areas such as quality measurement and human resources produced positive results. The Company's Education business also had improved results in the quarter, with growth in the test processing and administrative software businesses. The Financial Systems business also reported improved profitability over the 1994 period. Total revenues for the six months ended July 31, 1995, increased by $13.9 million or 9.3% over the same period of the prior year. Net income rose 20.2% to $8.0 million or $.51 per share. The year-to-date increases are the result of the same business factors noted above. A more detailed discussion of the various income statement items follows. Revenues Total revenues for the quarter ended July 31, 1995 were up 10.4% to $88.4 million from $80.1 million in the comparable 1994 quarter. On a year-to-date basis, revenues were up 9.3% to $162.7 million from $148.9 million in the prior year. Total second quarter and year-to-date revenues as compared to the prior year, by the Company's major business areas, were as follows: Second Quarter Year-to-Date Education + 18% + 16% Business, Government Health Care and Other + 5% + 6% Banking and Financial - 1% -- Total revenues for Education were up for both the quarter and year-to-date periods as a result of favorable timing and higher volumes of student financial aid and educational assessment processing at the Company's Iowa City service center. In addition, Education revenues were positively impacted by higher software licensing revenues from administrative software. Total revenues for Business and Government were also up for both periods as higher forms and proprietary hardware sales were partially offset by lower third-party maintenance revenues. Total revenues in the Banking and Financial market were essentially flat for the three and six-month periods ended July 31, 1995, as compared to the same prior year periods. Higher software licensing and support revenues generated from a fiscal 1994 third quarter acquisition of an international private banking software business were negated by lower domestic software and hardware revenues. The revenue increases for the three and six-month periods ended July 31, 1995, are not necessarily indicative of the revenue increases expected for the entire fiscal year ended January 31, 1996. Cost of Revenues and Gross Margins For the quarter ended July 31, 1995, the Company's overall gross margin declined slightly to 38.4% from 38.9% for the same period in the prior year. The gross margin on net sales revenue declined by 1.7 percentage points from the same period in fiscal 1994. The quarter-to-quarter decline was principally the result of lower processing margins in Education's Iowa City service center and the greater complement of this processing business in the Company's total revenues. Gross margins on maintenance and support revenues improved by 3.7 percentage points in the second quarter as compared to the prior year quarter as a result of improved hardware maintenance margins in Business and Government and improved software support margins across the Company. For the six months ended July 31, 1995, the Company's overall gross margin declined slightly from a year ago. This decline is principally related to the factors cited above. Operating Expenses Sales and marketing expenses increased $.5 million or 4.7% in the quarter ended July 31, 1995, over the quarter ended July 31, 1994. For the six months ended July 31, 1995, sales and marketing expenses were essentially flat year-to-year. As a percentage of revenue, however, sales and marketing expenses have declined by .7 percentage points and 1.2 percentage points, respectively, for the three and six-month periods ended July 31, 1995, as compared to the same prior year periods. For the remainder of fiscal 1995, the Company expects sales and marketing expenses to be slightly higher than fiscal 1994. Research and development costs increased by $.8 million for the quarter ended July 31, 1995, over the year earlier quarter. For the six months ended July 31, 1995, research and development expenses were up $1.6 million over the same period of 1994. These increases related principally to Banking and Financial software and enhancements to the Company's scanning and imaging technology. These expenses are likely to continue at higher levels than the previous year as the Company expects a higher portion of software product development costs to be non-capital in nature in fiscal 1995. General and administrative expenses increased by $.4 million and $.5 million, respectively, in the three and six-month periods ended July 31, 1995, from the comparable prior year periods. For fiscal 1995, these expenses are expected to be comparable or slightly higher than the previous year. Non-operating Expenses Interest expense increased modestly for the quarter ended July 31, 1995, as compared to the prior year quarter, as a result of higher interest rates. For the six months ended July 31, 1995, interest expense increased by $.4 million, from the comparable prior year period. This increase is almost equally the result of higher aggregate borrowing levels and higher interest rates. Other income and expense, net, for the quarter ended July 31, 1995, compares favorably to the respective prior year period primarily due to foreign currency gains in the current quarter. Other income and expense, net, was negligible for both the six- month periods ended July 31, 1995, and July 31, 1994. Provision for Income Taxes The effective income tax rate of 39.1% for the six months ended July 31, 1995, was equal to the effective rate applied for the same period in the prior year. Liquidity and Capital Resources For the six-month period ended July 31, 1995, the Company generated $28.2 million of cash flow from operating activities. This compares favorably to the corresponding prior year period primarily as a result of improved collections of trade receivables. Cash provided from operations and cash on hand were used to fund investments in property, plant and equipment and product software, as well as reduce the Company's revolving credit borrowings. It is anticipated that the Company's revolving credit borrowings and other borrowings will, overall, be relatively constant or decline slightly for the remainder of fiscal 1995. 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. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 27. Financial Data Schedule. (b) There were no reports on Form 8-K filed for the three months ended July 31, 1995. 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 13, 1995 FORM 10-Q NATIONAL COMPUTER SYSTEMS, INC. For the quarterly period ended July 31, 1995 --------------- EXHIBIT INDEX --------------- Exhibit 27. Financial Data Schedule. EX-27 2
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, 1995, and is qualified in its entirety by reference to such financial statements. 1000 6-MOS JAN-31-1996 JUL-31-1995 1,776 0 60,372 0 23,451 95,107 170,295 (87,250) 223,129 65,834 29,783 467 0 0 119,931 223,129 72,454 88,442 44,268 54,485 24,236 0 918 9,279 3,635 5,644 0 0 0 5,644 0.36 0.36