-----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, UgRhhczBBKFyCA+nQGZNfquQbPQzLNG85czwdmhzY0TgN1MYaS2n157Uh0CClyAg +uC6YXuEyNWZ1qm4D53VvQ== 0000069999-96-000027.txt : 19961216 0000069999-96-000027.hdr.sgml : 19961216 ACCESSION NUMBER: 0000069999-96-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19961213 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: 96680415 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: October 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 November 30,1996, was 15,277,439. PART I. FINANCIAL INFORMATION Item 1. Financial Statements NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended October 31, ------------------- 1996 1995 ------ ------ (In thousands, except per share amounts) REVENUES Net sales $78,578 $69,939 Maintenance and support 10,205 9,773 ------- ------- Total revenues 88,783 79,712 COST OF REVENUES Cost of sales 53,302 45,498 Cost of maintenance and support 6,836 6,957 ------- ------- Gross margin 28,645 27,257 OPERATING EXPENSES Sales and marketing 10,331 9,620 Research and development 2,595 2,117 General and administrative 7,937 8,637 ------- ------- INCOME FROM OPERATIONS 7,782 6,883 Interest expense 232 682 Other income, net (850) (186) ------- ------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 8,400 6,387 Income taxes 3,450 2,600 ------- ------- INCOME FROM CONTINUING OPERATIONS 4,950 3,787 ------- ------- Income on discontinued operations, net of taxes of $1,500 - 2,385 Gain on disposition - - ------- ------- NET INCOME $ 4,950 $6,172 ======= ======= EARNINGS PER SHARE Continuing operations $0.32 $0.24 Discontinued operations - 0.15 Gain on disposition - - ------- ------- Net income $0.32 $0.39 ======= ======= AVERAGE SHARES OUTSTANDING 15,463 15,821 See Notes to Consolidated Financial Statements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Nine Months Ended October 31, -------------------- 1996 1995 -------- -------- (In thousands, except per share amounts) REVENUES Net sales $210,503 $190,163 Maintenance and support 29,751 30,270 -------- -------- Total revenues 240,254 220,433 COST OF REVENUES Cost of sales 133,646 117,650 Cost of maintenance and support 19,937 20,383 ------- ------- Gross margin 86,671 82,400 OPERATING EXPENSES Sales and marketing 30,440 28,858 Research and development 7,091 6,276 General and administrative 24,901 25,572 ------- ------- INCOME FROM OPERATIONS 24,239 21,694 Interest expense 1,425 2,643 Other income, net (730) (166) ------- ------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 23,544 19,217 Income taxes 9,500 7,624 ------- ------- INCOME FROM CONTINUING OPERATIONS 14,044 11,593 ------- ------- Income (loss) on discontinued operations, net of taxes of $(1,100) and $1,626, respectively (2,229) 2,588 Gain on disposition, net of taxes of $29,031 38,143 - ------- ------- NET INCOME $49,958 $14,181 ======= ======= EARNINGS PER SHARE Continuing operations $0.90 $0.74 Discontinued operations (0.14) 0.16 Gain on disposition 2.44 - ------- ------- Net income $3.20 $0.90 ======= ======= AVERAGE SHARES OUTSTANDING 15,575 15,688
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
October 31, January 31, 1996 1996 --------- ----------- (In thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 72,532 $ 5,154 Receivables 64,811 68,713 Inventories: Finished products 5,560 6,012 Scoring services and work in process 11,222 8,694 Raw materials and purchased parts 3,635 3,630 -------- -------- Total inventories 20,417 18,336 Prepaid expenses and other 8,208 8,460 Investment in discontinued operations - 17,557 -------- -------- TOTAL CURRENT ASSETS 165,968 118,220 PROPERTY, PLANT AND EQUIPMENT Land, buildings and improvements 50,554 49,350 Machinery and equipment 111,044 104,551 Accumulated depreciation (86,501) (79,072) -------- -------- Net property, plant and equipment 75,097 74,829 OTHER ASSETS Acquired and internally developed software products 8,260 11,865 Non-current receivables, investments and other assets 11,454 12,384 Goodwill 3,903 2,426 -------- -------- Total other assets 23,617 26,675 -------- -------- TOTAL ASSETS $264,682 $219,724 ======== ========
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
October 31, January 31, 1996 1996 ---------- ----------- (In thousands) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities $ 3,203 $ 2,473 Accounts payable 18,999 16,416 Accrued expenses 26,098 23,137 Deferred income 21,881 16,148 Income taxes 10,469 4,458 -------- -------- TOTAL CURRENT LIABILITIES 80,650 62,632 DEFERRED INCOME TAXES 3,356 4,359 LONG-TERM DEBT -- less current maturities 8,098 24,535 COMMITMENTS - - STOCKHOLDERS' EQUITY Preferred stock - - Common stock--issued and outstanding - 15,263 and 15,365 shares, respectively 458 461 Paid-in capital - 3,427 Retained earnings 176,129 130,007 Deferred compensation (4,009) (5,697) -------- -------- Total stockholders' equity 172,578 128,198 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $264,682 $219,724 ======== ========
See Notes to Consolidated Financial Statements. NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended October 31, ------------------ 1996 1995 ------- ------- (In thousands) OPERATING ACTIVITIES Net income $ 49,958 $14,181 Less - gain on disposition (38,143) - Depreciation, amortization and other noncash expenses 20,344 22,038 Change in deferred income taxes (1,003) 1,118 Changes in operating assets and liabilities: Decrease in accounts receivable 6,659 15,290 Increase in inventory and other current assets (1,272) (5,468) Decrease in accounts payable and accrued expenses (438) (5,030) Increase (decrease)in deferred income 5,617 (1,027) ------- ------- Net cash provided by operating activities 41,722 41,102 ------- ------- INVESTING ACTIVITIES Purchases of property, plant and equipment (9,661) (10,623) Capitalized software products (1,553) (3,785) Net proceeds from disposition 64,071 - Other, net (3,834) 113 ------- ------- Net cash provided by (used in) investing activities 49,023 (14,295) ------- ------- FINANCING ACTIVITIES Net decrease in revolving credit borrowing - (19,600) Repayment of secured notes (15,000) - Net repayments of other borrowings (466) (1,618) Issuance (repurchase) of common stock, net (3,752) 1,700 Dividends paid (4,149) (4,172) ------- ------- Net cash used in financing activities (23,367) (23,690) ------- ------- Increase in cash and cash equivalents 67,378 3,117 CASH AND CASH EQUIVALENTS - beginning of period 5,154 1,195 ------- ------- CASH AND CASH EQUIVALENTS - end of period $72,532 $ 4,312 ======= =======
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 October 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 year-to-date period presented represent those operations only through July 10, 1996. Third quarter revenues of this business were $17.6 million for the period ending October 31 1995. Year-to-date revenues for the periods ended July 10, 1996 and October 31, 1995, were $17.1 million and $39.6 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. Note F - On November 1, 1996 the Company announced that it had signed a letter of intent to acquire Macro Educational Systems, Inc. ("Macro"), a developer of administrative software systems for the K-12 education market. Under the agreement, the Company will pay $7 million in cash at closing and issue $7 million of convertible debentures. The debentures will be convertible into NCS stock ratably over a five-year term with the conversion price fixed at $24.00 per share. Additional payments may be earned contingent on financial performance of Macro. At closing, the Company anticipates that it will take an undetermined one-time charge for acquired in-process research and development and other acquisition related costs to be incurred. Preliminary estimates of the one-time charge for in-process research and development approximate one-third of the $14 million purchase price referred to above. Such estimates are subject to change based upon final appraised values. The transaction is expected to be completed before January 31, 1997. Completion of the transaction is subject to the negotiation and execution of a definitive acquisition agreement and receiving certain regulatory approvals. 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 Third Quarter Results For the quarter ended October 31, 1996, total revenues were up by $9.1 million or 11.4% from the quarter ended October 31, 1995. Gross margins, though down as a percentage of revenue, increased 5.1% in dollars. Operating expenses were held to a 2.4% increase, resulting in a 13.1% increase in operating income. Non-operating items, primarily related to interest income and expense, compare favorably to the prior year, and pre-tax income was 31.5% higher than the quarter ended October 31, 1995. Earnings per share were up 33.3%. Year-to-date results reflect a 9.0% increase in total revenues for the nine months ended October 31, 1996 over the same period of the prior year. Gross margins, though down as a percentage of revenue, increased 5.2% in dollars, which combined with a 2.8% increase in operating expenses resulted in a 11.7% increase in operating income. Non-operating items, as noted above, were favorable to the prior year, and pre-tax income was 22.5% higher than the nine months ended October 31, 1995. Earnings per share were up 21.6%. A more detailed discussion of the various income statement items follows. Revenues Total revenues for the quarter ended October 31, 1996 were up 11.4% to $88.8 million from $79.7 million in the prior year period. Domestic revenue increases were primarily in educational state assessment services and education administrative software. International revenue increased 47% as a result of two small mid-year acquisitions and a new long-term service contract in Mexico awarded in the current quarter. For the nine months ended October 31, 1996, revenues increased 9.0% to $240.3 million from $220.4 million. In addition to the third quarter revenue increases noted above, federal student aid services contributed to the year-to-year increase. Cost of Revenues and Gross Margins For the quarter ended October 31, 1996, the Company's overall gross margin dollars increased 5.1%, with the largest dollar increases being in educational state assessments, international services and education software. As a percent of revenue, overall gross margins declined to 32.3% from 34.2% for the same period in the prior year, reflecting the revenue growth in the company's lower margin services business. Gross margins on maintenance and support revenues improved by 4.2 percentage points primarily as a result of higher margins on education software support and maintenance. For the nine months ended October 31, 1996, the Company's overall gross margin increased 5.2%, while as a percent of revenue, it declined by 1.3 percentage points. These results reflect the same factors noted above. Operating Expenses Sales and marketing expenses increased $.7 million or 7.4% in the quarter ended October 31, 1996, compared to the prior year quarter. For the nine-month period, these expenses increased 5.5%. As a percentage of revenues, sales and marketing expenses decreased 0.4% as a percent of revenues for both reporting periods. Increases in spending were primarily in the Data Collection Systems business, and reflect increased efforts in selling and marketing activities. Research and development costs increased 22.6% in the quarter ended October 31, 1996 as compared to the prior year quarter. Year-to-date expenditures were up 13.0%. Spending on image technology was the primary reason for the higher spending levels, along with increases in spending on software products and test development. General and administrative expenses decreased $.7 million for the three and nine-month periods ended October 31, 1996 as compared to the prior year periods. As a percent of revenues, these expenses declined by 1.9 and 1.2 percentage points, respectively. These variations are due to overall efforts to control these expenses and no one specific factor. Non-operating Income and Expenses Year-to-year changes in non-operating income and expense primarily reflects the impact of proceeds of the sale of the Financial Systems business. Interest expense decreased by $.5 million and $1.2 million for the three and nine-month periods ended October 31, 1996, respectively, from the comparable prior year periods. Other income and expense, net, for the quarter and year-to-date periods ended October 31, 1996 includes interest income of $1.2 million and $1.5 million, respectively, principally from investment of the sale proceeds. Provision for Income Taxes The effective income tax rate of 40.4% for the nine months ended October 31, 1996 was 0.7 percentage points 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 (less federal and state tax payments) and cash generated from on-going operations, the Company ended the quarter with $72.5 million of cash and cash equivalents. For the nine-month period ended October 31, 1996, the Company generated $41.7 million of cash flow from operating activities. Cash provided from operations and sale proceeds was used primarily for short-term investments, to fund investments in property, plant and equipment of $9.7 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. In addition, the Company anticipates funding internal growth and acquisitions with its cash and cash equivalents on hand, excess cash flows from operations, and 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 (a) Exhibits. 27. Financial Data Schedule (b) There were no reports on Form 8-K filed for the three months ended October 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: December 13, 1996 EX-27 2
5 1000 9-MOS JAN-31-1997 OCT-31-1996 72,532 0 64,811 0 20,417 165,968 161,598 (86,501) 264,682 80,650 8,098 0 0 458 172,120 264,682 78,578 88,783 53,302 60,138 20,863 0 232 8,400 3,450 4,950 0 0 0 4,950 0.32 0.32
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