-----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, EKKEYBsIkUEossvaoBMqrhlpZTvrT31OG/JYS6gkee9NgfJ042et+wvwFyAZZJ1S HvAuX0+siQkuWIkpt3XRfQ== 0000069999-96-000025.txt : 19960916 0000069999-96-000025.hdr.sgml : 19960916 ACCESSION NUMBER: 0000069999-96-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960913 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: 96629929 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, 1996 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 shares, outstanding on August 31, 1996, was 15,271,421. PART I. FINANCIAL INFORMATION Item 1. Financial Statements NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended July 31, ------------------- 1996 1995 ------ ------ (In thousands, except per share amounts) REVENUES Net sales $71,113 $66,438 Maintenance and support 9,851 10,274 ------- ------- Total revenues 80,964 76,712 COST OF REVENUES Cost of sales 43,204 40,778 Cost of maintenance and support 6,472 6,744 ------- ------- Gross margin 31,288 29,190 OPERATING EXPENSES Sales and marketing 10,417 9,704 Research and development 2,332 1,869 General and administrative 8,663 8,907 ------- ------- INCOME FROM OPERATIONS 9,876 8,710 Interest expense 625 918 Other (income) expense, net (532) (351) ------- ------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 9,783 8,143 Income taxes 3,890 3,189 ------- ------- INCOME FROM CONTINUING OPERATIONS 5,893 4,954 ------- ------- Income (loss) on discontinued operations, net of taxes of $(1,000) and $446, respectively (1,859) 690 Gain on disposition, net of taxes of $29,031 38,143 - ------- ------- NET INCOME $42,177 $5,644 ======= ======= EARNINGS PER SHARE Continuing operations $0.38 $0.32 Discontinued operations (0.12) 0.04 Gain on disposition 2.44 - ------- ------- Net income $2.70 $0.36 ======= ======= AVERAGE SHARES OUTSTANDING 15,633 15,728 See Notes to Consolidated Financial Statements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Six Months Ended July 31, -------------------- 1996 1995 -------- -------- (In thousands, except per share amounts) REVENUES Net sales $131,925 $120,224 Maintenance and support 19,546 20,497 -------- -------- Total revenues 151,471 140,721 COST OF REVENUES Cost of sales 80,344 72,152 Cost of maintenance and support 13,101 13,426 ------- ------- Gross margin 58,026 55,143 OPERATING EXPENSES Sales and marketing 20,109 19,238 Research and development 4,496 4,159 General and administrative 16,964 16,935 ------- ------- INCOME FROM OPERATIONS 16,457 14,811 Interest expense 1,193 1,961 Other (income) expense, net 120 20 ------- ------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 15,144 12,830 Income taxes 6,050 5,024 ------- ------- INCOME FROM CONTINUING OPERATIONS 9,094 7,806 ------- ------- Income (loss) on discontinued operations, net of taxes of $(1,360) and $126, respectively (2,229) 203 Gain on disposition, net of taxes of $29,031 38,143 - ------- ------- NET INCOME $45,008 $8,009 ======= ======= EARNINGS PER SHARE Continuing operations $0.58 $0.50 Discontinued operations (0.14) 0.01 Gain on disposition 2.44 - ------- ------- Net income $2.88 $0.51 ======= ======= AVERAGE SHARES OUTSTANDING 15,636 15,618 See Notes to Consolidated Financial Statements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
July 31, January 31, 1996 1996 --------- ----------- (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 84,165 $ 5,154 Receivables 64,721 68,713 Inventories: Finished products 5,744 6,012 Scoring services and work in process 8,716 8,694 Raw materials and purchased parts 4,232 3,630 -------- -------- Total inventories 18,692 18,336 Prepaid expenses and other 8,114 8,460 Investment in discontinued operations - 17,557 -------- -------- TOTAL CURRENT ASSETS 175,692 118,220 PROPERTY, PLANT AND EQUIPMENT Land, buildings and improvements 49,813 49,350 Machinery and equipment 109,161 104,551 Accumulated depreciation (84,640) (79,072) -------- -------- Net property, plant and equipment 74,334 74,829 OTHER ASSETS Acquired and internally developed software products 9,411 11,865 Non-current receivables, investments and other assets 12,842 12,384 Goodwill 3,357 2,426 -------- -------- Total other assets 25,610 26,675 -------- -------- TOTAL ASSETS $275,636 $219,724 ======== ======== See Notes to Consolidated Financial Statements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
July 31, January 31, 1996 1996 ---------- ----------- (In thousands) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities $ 3,706 $ 2,473 Accounts payable 14,703 16,416 Accrued expenses 25,028 23,137 Deferred income 19,557 16,148 Income taxes 31,694 4,458 -------- -------- TOTAL CURRENT LIABILITIES 94,688 62,632 DEFERRED INCOME TAXES 3,866 4,359 LONG-TERM DEBT -- less current maturities 7,228 24,535 COMMITMENTS - - STOCKHOLDERS' EQUITY Preferred stock - - Common stock--issued and outstanding - 15,325 and 15,365 shares, respectively 460 461 Paid-in capital 1,378 3,427 Retained earnings 172,392 130,007 Deferred compensation (4,376) (5,697) -------- -------- Total stockholders' equity 169,854 128,198 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $275,636 $219,724 ======== ======== See Notes to Consolidated Financial Statements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended July 31, ------------------ 1996 1995 ------- ------- (In thousands) OPERATING ACTIVITIES Net income $ 45,008 $ 8,009 Less - gain on disposition (38,143) - Depreciation, amortization and other noncash expenses 13,496 15,095 Change in deferred income taxes (4,603) (97) Changes in operating assets and liabilities: Decrease in accounts receivable 5,492 18,035 Increase in inventory and other current assets (18) (2,687) Decrease in accounts payable and accrued expenses (7,647) (10,872) Increase in deferred income 3,691 699 ------- ------- Net cash provided by operating activities 17,276 28,182 ------- ------- INVESTING ACTIVITIES Purchases of property, plant and equipment (6,038) (8,585) Capitalized software products (1,553) (2,221) Net proceeds from disposition 92,278 - Other, net (2,681) (2,320) ------- ------- Net cash provided by (used in) investing activities 82,006 (13,126) ------- ------- FINANCING ACTIVITIES Net decrease in revolving credit borrowing - (14,600) Repayment of secured notes (15,000) - Net proceeds (repayments) of other borrowings (218) 1,141 Issuance (repurchase) of common stock, net (2,279) 1,755 Dividends paid (2,774) (2,771) ------- ------- Net cash used in financing activities (20,271) (14,475) ------- ------- Increase in cash and cash equivalents 79,011 581 CASH AND CASH EQUIVALENTS - beginning of period 5,154 1,195 ------- ------- CASH AND CASH EQUIVALENTS - end of period $84,165 $ 1,776 ======= ======= 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, 1996, are not necessarily indicative of the operating results that may be expected for the entire fiscal year ending January 31, 1997. Note B - Earnings per share for the respective operating periods are computed based on average shares outstanding and dilutive 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. Note E - On May 30, 1996, the Company entered into an agreement to sell its Financial Systems business for $95 million in cash. The sale transaction was completed as of the close of business on July 10, 1996, and the discontinued operations for the second quarter and year-to-date periods presented represent those operations only through July 10, 1996. Second quarter revenues of this business were $6.0 million and $11.7 million for the periods ending July 10, 1996 and July 31, 1995, respectively. Year-to-date revenues for the periods ended July 10, 1996 and July 31, 1995, were $17.1 million and $22.0 million, respectively. The accompanying consolidated statements have been presented to report separately the net assets and operating results of these discontinued operations. After expenses of the transaction and income taxes of $29.0 million, a gain of $38.1 million was realized on the sale. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition National Computer Systems, Inc. is an information services company providing data collection services and systems to selected segments of the education, business, government and healthcare markets. The discussion below covers only the Company's continuing operations and not the discontinued operations of its Financial Systems business that was sold in July 1996. Recap of 1996 Second Quarter Results For the quarter ended July 31, 1996, total revenues were up by $4.3 million or 5.5% from the quarter ended July 31, 1995. Overall gross margin improved 0.5 percentage point as a percent of revenue from the prior year, and overall operating expenses increased 4.6%, resulting in a quarter-to-quarter increase in income from operations of $1.2 million or 13.4%. On a year-to-date basis, revenues increased 7.6% in the six months ended July 31, 1996 over the prior year. Gross margin percent decreased 0.9 percentage points. Operating expenses increased only 3.1%, resulting in an increase in operating income of $1.6 million or 11.1%. A more detailed discussion of the various income statement items follows. Revenues Total revenues for the quarter ended July 31, 1996 were up 5.5% to $81.0 million from $76.7 million in the prior year. Increases over the prior year principally came in federal student financial aid services, education software, and education state assessment and publisher testing services. For the six months ended July 31, 1996 revenues increased 7.6% to $151.5 million from $140.7 million. In addition to the second quarter revenue increases noted above, higher sales were realized in data collection systems sales in the commercial market and higher scannable forms revenue in the education market. Cost of Revenues and Gross Margins For the quarter ended July 31, 1996, the Company's overall gross margin increased from 38.1% to 38.6% compared to the prior year. The gross margin on net sales revenue increased by 0.6 percentage point from the same period in fiscal 1995. The quarter-to-quarter increase was principally due to higher margins on education state assessment and publisher testing revenues at the Company's Iowa City service center and higher education software margins. Gross margins on maintenance and support revenues were flat as higher margins on education software support were offset by lower margins on the decreasing (as expected) base of third-party hardware maintenance. For the six months ended July 31, 1996, the Company's overall gross margin dollars increased by 5.2%, however, gross margin as a percent of revenue declined by nearly 1 percentage point. This reflects the items noted above and also lower margins on certain U.S. Department of Education student financial aid service contracts successfully rebid in late 1995. Operating Expenses Sales and marketing expenses increased $.7 million or 7.3% in the quarter ended July 31, 1996, over the prior year quarter. As a percentage of revenues, sales and marketing expenses increased quarter-to-quarter by 0.2 percentage point. For the six month periods, these expenses increased 4.5% but decreased 0.4% as a percent of revenues. Increases in spending were primarily in the Data Collection Systems business. For the remainder of fiscal 1996, the Company expects sales and marketing expenses to be slightly higher than fiscal 1995; as a percentage of revenues, these expenses are expected to remain relatively constant year-to-year. Research and development costs increased 24.8% in the quarter ended July 31, 1996 as compared to the prior year quarter. Year-to-date expenditures were up 8.1%. Timing of certain projects caused a shift of R&D spending between the first and second quarters of 1996 when compared to the same period in 1995. Spending on image technology was the primary reason for the higher spending levels. For the full year, these expenses are expected to be at or higher as a percent of sales for fiscal 1996 than fiscal 1995, as the Company intends to increase its investment in, among other things, new data collection technologies and services. General and administrative expenses decreased by $.2 million or 2.7% for the quarter ended July 31, 1996, from the prior year quarter. For the six months ended July 31, 1996, general and administrative expenses were essentially flat year-to-year, however, as a percent of revenues, these expenses declined by 0.8 percentage point. For fiscal 1996, these expenses are expected to be comparable or slightly higher than the previous year. Non-operating Income and Expenses Interest expense decreased by $.3 million and $0.8 million for the three and six-month periods ended July 31, 1996, respectively, from the comparable prior year periods. This decrease was the result of substantially lower debt levels in fiscal 1996 than fiscal 1995. Other income and expense, net, for the quarter ended July 31, 1996 compared favorably to the prior year quarter as a result of $.3 million of interest income earned on the proceeds of the sale of the Financial Systems business. Other income and expense, net, was negligible for both the six-month periods ended July 31, 1996 and 1995. Provision for Income Taxes The effective income tax rate of 39.9% for the six months ended July 31, 1996 was 0.7% percentage point higher than the effective rate applied for the same period in the prior year, primarily as a result of lower research and development credits and non-deductibility of certain foreign losses. Liquidity and Capital Resources With the proceeds from the sale of the Company's Financial Systems business, the Company ended the quarter with $84.2 million of cash and cash equivalents. For the six-month period ended July 31, 1996, the Company generated $17.3 million of cash flow from operating activities. Cash provided from operations and sale proceeds was used primarily to fund investments in property, plant and equipment of $6.0 million and for the early repayment of the Company's $15 million of 9.88% Secured Notes. The Company expects for the remainder of fiscal 1996 that its cash flows from operations will be adequate to fund its normal financing and investing activities. Approximately $30 million of the tax liability on the gain on the sale of the financial systems business remains to be paid between October 1996 and January 1997. In addition, the Company anticipates funding internal growth and acquisitions with its cash and cash equivalents on hand, excess cash flows from operations, and its existing revolving credit facility. The statements which are not historical facts or are "goals" or "expectations" contained in this Quarterly Report constitute 'forward-looking' information, as defined in the recently enacted Private Securities Litigation Reform Act of 1995. The Cautionary Statements filed by the Company as Exhibit 99 to a filing made with the SEC on Form 10-K on March 31, 1996, are incorporated herein by reference and 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 6. Exhibits and Reports on Form 8-K (b) Reports on Form 8-K filed for the three months ended July 30, 1996. Form 8-K dated July 10, 1996 Item 2. Acquisition or Disposition of Assets - Disposition of NCS Financial Systems, Inc., a wholly-owned subsidiary of the Company. Item 7. Financial Statements and Exhibits - Pro forma Statement of Income -- Year Ended January 31, 1996 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, 1996 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES, FOR THE FISCAL YEAR ENDED JANUARY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS JAN-31-1997 JUL-31-1996 84,165 0 64,721 0 18,692 175,692 158,974 (84,640) 275,636 94,688 7,228 0 0 460 169,394 275,636 71,113 80,964 43,204 49,676 21,412 0 625 9,783 3,890 5,893 (1,859) 38,143 0 42,177 2.70 2.70
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