FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
(mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from _____________ to ______________
0-16438
(Commission File Number)
NATIONAL TECHNICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4134955
(State of Incorporation) (IRS Employer
Identification number)
24007 Ventura Boulevard, Calabasas, California
(Address of registrant's principal executive office)
(818) 591-0776 91302
(Registrant's telephone number) (Zip code)
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
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [x] NO [ ]
The number of shares of common stock, par value $.01 per
share, outstanding as of June 11, 1995 was 6,650,777.
Exhibit Index on Page 13
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Index
-----
Page No.
PART I. FINANCIAL INFORMATION --------
Financial Statements:
Condensed Consolidated Balance Sheets
April 30, 1995 and January 31, 1995 3
Condensed Consolidated Statements of Income
Three Months Ended April 30, 1995 and 1994 4
Condensed Consolidated Statements of
Cash Flows Three Months Ended April 30,
1995 and 1994 5
Notes to the Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION & SIGNATURE 12
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PART I -- FINANCIAL INFORMATION
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (unaudited)
April 30, January 31,
1995 1995
Assets ----------- -----------
Current assets:
Cash $ 1,124,000 $ 1,696,000
Receivables, less allowance for doubtful
accounts of $580,000 at April 30, 1995
and $577,000 at January 31, 1995 10,678,000 9,680,000
Income taxes receivable 4,000 0
Inventories 1,883,000 2,082,000
Deferred income taxes 436,000 434,000
Prepaid expenses 878,000 757,000
---------- ----------
Total current assets 15,003,000 14,649,000
Property, plant and equipment, at cost 40,874,000 40,413,000
Less: accumulated depreciation 24,000,000 23,500,000
Net property, plant and equipment 16,874,000 16,913,000
Intangible assets 468,000 529,000
Property held for sale 544,000 544,000
Other assets 417,000 433,000
---------- ----------
Total Assets $33,306,000 $33,068,000
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,570,000 $ 2,866,000
Accrued expenses 1,843,000 1,627,000
Income taxes payable 0 184,000
Current installments of long-term debt 2,002,000 2,060,000
---------- ----------
Total current liabilities 6,415,000 6,737,000
Long-term debt, excluding current
installments 10,644,000 10,045,000
Deferred income taxes 1,464,000 1,455,000
Stockholders' equity:
Common stock of $.01 par value.
Authorized, 20,000,000; issued and
outstanding 6,651,000 as of April 30,
1995 and 6,650,000 as of January 31, 1995 67,000 66,000
Additional paid-in capital 10,415,000 10,480,000
Retained earnings 4,301,000 4,285,000
---------- ----------
Total stockholders' equity 14,783,000 14,831,000
---------- ----------
Total Liabilities and Stockholders' Equity $33,306,000 $33,068,000
========== ==========
See accompanying notes to Consolidated Financial Statements.
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (unaudited)
for Three Months Ended April 30, 1995 and 1994
1995 1994
---------- ----------
Revenues $ 9,605,000 $10,132,000
Cost of sales 7,533,000 7,802,000
Gross profit 2,072,000 2,330,000
Selling, general and administrative expense 1,716,000 1,715,000
---------- ----------
Operating income 356,000 615,000
Other income (expense):
Interest expense, net (304,000) (248,000)
Other (22,000) (29,000)
---------- ----------
Total other expense (326,000) (277,000)
---------- ----------
Income before income taxes 30,000 338,000
Income taxes 14,000 152,000
---------- ----------
Net income $ 16,000 $ 186,000
========== ==========
Primary and fully diluted net income per $ 0.00 $ 0.03
common share ========== ==========
Weighted average number of common shares and
common stock equivalents outstanding 6,651,000 6,606,000
========== ==========
See accompanying notes to Consolidated Financial Statements.
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
for Three Months Ending April 30, 1995 and 1994
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,000 $ 186,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 587,000 551,000
Provision for losses on receivables 3,000 33,000
Deferred income taxes 3,000 84,000
Loss on sale of assets 0 2,000
Net changes in assets and liabilities:
Accounts receivable (1,001,000) 252,000
Inventories 199,000 182,000
Prepaid expenses (121,000) 25,000
Other assets 16,000 (14,000)
Accounts payable (296,000) (1,115,000)
Accrued expenses 216,000 (241,000)
Income taxes (184,000) 29,000
---------- ----------
Net cash used in operating activities (562,000) (26,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (487,000) (544,000)
Proceeds on sale of fixed assets 0 1,000
---------- ----------
Net cash used for investing activities (487,000) (543,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,000,000 353,000
Repayments of current and long-term debt (459,000) (372,000)
Cash dividends paid (66,000) 0
Proceeds from stock options exercised 2,000 17,000
---------- ----------
Net cash provided by (used for) financing
activities 477,000 (2,000)
---------- ----------
Net decrease in cash (572,000) (571,000)
Beginning cash balance 1,696,000 1,419,000
---------- ----------
ENDING CASH BALANCE $ 1,124,000 $ 848,000
========== ==========
See accompanying notes to Consolidated Financial Statements.
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
1. In accordance with instructions to Form 10-Q the accompanying
financial statements and footnotes have been condensed and,
therefore, do not contain all disclosures required by
generally accepted accounting principles. These statements
should be read in conjunction with the financial statements
and notes thereto included in the Registrant's Form 10-K for
the year ended January 31, 1995.
2. The statements presented as of and for the three-month period
ended April 30, 1995 and 1994 are unaudited. In Management's
opinion, all adjustments have been made to present fairly the
results of such unaudited interim periods. All such
adjustments are of a normal recurring nature.
3. While the Registrant's business is not materially seasonal,
the quarterly results of operations should not be construed as
representing pro rata results of the Registrant's fiscal year.
4. Income taxes for the interim periods are computed using the
effective tax rates estimated to be applicable for the full
fiscal year. The Registrant expects to pay state and
alternative minimum federal income taxes for the fiscal year
ended January 31, 1996.
5. Net income per share for the three-month period ended
April 30, 1995 and 1994 was computed by dividing net income by
the weighted average number of common shares outstanding
during the period. Common stock equivalents were excluded
because their effect was immaterial or antidilutive.
6. The consolidated financial statements include the accounts of
the Registrant and its wholly owned and financially controlled
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
7. Inventories consist of accumulated costs applicable to
uncompleted contracts and are stated at actual cost which is
not in excess of estimated net realizable value.
8. Cash paid for interest and taxes for the three months ended
April 30, 1995 was $271,000 and $196,000 respectively. Cash
paid for interest and taxes for the three months ended
April 30, 1994 was $246,000 and $98,000 respectively.
9. On January 17, 1995, the Board of Directors declared a cash
dividend of $.01 per share to shareholders of record on
February 10, 1995. The cash dividend, which totaled $66,000,
was paid on February 24, 1995.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction
with the consolidated quarterly financial statements and notes
thereto. All information is based upon operating results of
National Technical Systems, Inc. for the first quarter ended
April 30.
(tabular header information: Dollars in thousands)
RESULTS OF OPERATIONS
---------------------
REVENUES
Quarter ended April 30 1995 % Change 1994
-------- -------- --------
Technical services $ 7,878 (6.6%) $ 8,437
Environmental services 358 2,653.8% 13
Registration services 463 121.5% 209
Contract labor services 906 (38.5%) 1,473
------ ------
Total net revenue $ 9,605 (5.2%) $10,132
====== ======
For the three months ended April 30, 1995, consolidated
revenues decreased by $527,000 or 5.2% when compared to the
same period in 1994. In 1995, the technical services segment
revenues decreased due to the continued downsizing in the
aerospace and defense industry, cutbacks in the nuclear
industry due to deregulation and a temporary decline in
completed automotive testing contracts due to scheduling
anomalies. The Registrant's environmental services segment
revenues increased $345,000 as a result of concentrated
marketing efforts. Revenues in the registration services
segment also showed an increase as a result of continuing
marketing efforts. The contract labor services segment revenue
decreased $567,000 reflecting the continuing effects of a
declining backlog and a more competitive market for nuclear
contract labor services.
It is anticipated by the Registrant that revenues in the
technical services segment will improve slightly and remain
approximately consistent with last year's levels, while
revenues in both the environmental services segment and the
registration services segment should continue to increase at a
more moderate rate for the remainder of fiscal 1996. It is
further anticipated that revenues in the contract labor
services segment will continue at current levels through the
end of the fiscal year.
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GROSS PROFIT
Quarter ended April 30 1995 % Change 1994
-------- -------- --------
Technical services $ 1,661 (10.0%) $ 1,846
% to segment revenue 21.1% 21.9%
Environmental services 85 553.8% 13
% to segment revenue 23.7% 100.0%
Registration services 118 40.5% 84
% to segment revenue 25.5% 40.2%
Contract labor services 208 (46.3%) 387
% to segment revenue 23.0% 26.3%
Total $ 2,072 (11.1%) $ 2,330
% to total net revenue 21.6% 23.0%
Gross profit as a percentage of net revenues decreased in
the quarter ended April 30, 1995 by $258,000 when compared to
the same quarter in 1994. This decrease was due to pricing
pressures from increased competition in the technical services
and contract labor services segments. The Registrant
anticipates the competitive environment for aerospace and
defense testing and contract labor services to persist.
However, the market for automotive testing should show some
improvement. In addition, due to the decline in gross profits,
the Registrant initiated an aggressive cost reduction program
which included reductions in its workforce and consolidations
of some of its operations. Therefore, barring any unforeseen
circumstances, gross profits should increase slightly and
return to fiscal 1995 levels by the end of fiscal 1996.
SELLING, GENERAL & ADMINISTRATIVE
Quarter ended April 30 1995 % Change 1994
-------- -------- --------
Technical services $ 1,276 (4.2%) $ 1,332
% to segment revenue 16.2% 15.8%
Environmental services 50 0
% to segment revenue 14.0% 0.0%
Registration services 136 172.0% 50
% to segment revenue 29.4% 23.9%
Contract labor services 229 (25.9%) 309
% to segment revenue 25.3% 21.0%
Corporate 25 4.2% 24
Total S G & A $ 1,716 0.1% $ 1,715
% to total net revenue 17.9% 16.9%
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Selling, general and administrative expenses as a percentage
of net revenues increased in the first three months ending
April 30, 1995 compared to the same period in 1994 due to
revenues declining while overall expenses remained essentially
unchanged. Expenses in the Registrant's technical services
segment and contract labor service segment decreased as a result
of management's ongoing cost containment efforts. These
reductions were offset by increases in the environmental services
and registration services segments which are reflective of the
cost of pursuing business in these growing segments of the
Registrant. The Registrant continues to look for ways to reduce
costs but remain effective in these areas.
INTEREST EXPENSE
Net interest expense increased $56,000 in the first quarter
ending April 30, 1995 when compared to the same period in 1994.
This increase was principally due to higher interest rates on
existing loans and increases in the term loan and line of credit
balances.
INCOME TAXES
The income tax provisional rate for the first quarters of
1995 and 1994 reflects a rate in excess of the U.S. federal
statutory rate primarily due to the inclusion of state income
taxes. The Registrant's provision for the first quarter ending
April 30, 1995 was lower than the same period in 1994 due to the
decrease in income before taxes. Management has determined that
it is more likely than not that the deferred tax asset will be
realized on the basis of offsetting it against deferred tax
liabilities. It is the Registrant's intention to evaluate the
realizability of the deferred tax asset quarterly by assessing
the need for a valuation account.
NET INCOME
The decrease in net income in the first quarter ending
April 30, 1995 compared to the same period in 1994 was due to
decreased revenues, lower gross profit margins and slightly
higher interest costs.
BUSINESS ENVIRONMENT
Revenues in the Registrant's defense-related test business
continued to be very competitive due to the ongoing cutbacks and
consolidations in the aerospace and defense industry. The
Registrant has, however, maintained a significant volume of work
at lower prices than last year. After a detailed market
analysis, the Registrant has decided, as part of its aggressive
cost reduction program, to discontinue its aerospace test
operations at its Hartwood, Virginia facility. This facility
will continue to operate in support of the Registrant's Marine
Corps support contract in the Virginia area as well as providing
a base of operation for the Registrant's national sales office.
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The Registrant plans to sell some of the aerospace test assets at
this facility to others and reallocate the majority of these
assets to its other laboratories. Also, at the end of the Marine
Corps support contract, the Registrant will decide whether to
liquidate or lease out the real property. It is anticipated by
the Registrant that the discontinuance of operations at this
facility will not have a material affect on earnings nor the
Registrant's ability to service its current customer base. The
Registrant's strategy of establishing strategic alliances and
winning work from companies that have downsized or discontinued
their own testing operations has mitigated the trends in the
defense-related business to some degree. Furthermore, the
Registrant's strategy of growth through diversification has been
successful with the continued revenue growth in ISO registration
services and environmental services. Because of the foregoing,
as well as other factors affecting the Registrant's operating
results, past financial performance should not be considered to
be a reliable indicator of future performance and investors
should not use historical trends to anticipate results or trends
in future periods.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter ended April 30, 1995, cash used in
operations increased by $536,000 when compared to the same period
in 1994. Major items contributing to this increase were
significant increases in accounts receivable balances partially
offset by decreases in inventories and accrued expense balances.
Net cash used in investing activities in the three-month
period ended April 30, 1995 decreased $56,000 over the same
period in 1994. The Registrant anticipates that its capital
spending level in fiscal 1996 will be lower than fiscal 1995.
The actual level of spending will be dependent on a variety of
factors, including general economic conditions, bank covenants
and the Registrant's operating requirements.
In the three-month period ended April 30, 1995, net cash
provided by financing activities consisted of increases in the
bank term loans and lines of credit of $1,000,000, offset by debt
reduction on short term and long term debt of $459,000 and
payment of a $0.01 per share dividend. During fiscal 1995 the
Registrant's revolving lines of credit with Bank of America NT &
SA and Sanwa Bank California were extended to June 1996. The
Registrant also has a term loan agreement with Bank of America
NT & SA and Sanwa Bank California for an aggregate amount of
$5,000,000 payable in monthly installments of $83,000 through
August 31, 1998 and an additional $1,000,000 loan with Sanwa Bank
California entered into in January 1995 with payments of $16,667
through January 31, 2000.
Management is not aware of any significant demands for
capital funds that may materially affect the short or long-term
liquidity in the form of large fixed asset acquisitions, unusual
working capital commitments or contingent liabilities. The
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Registrant's future working capital will be provided from
operations, supplemented by its bank credit lines. The
Registrant's bank revolving lines of credit, which currently
aggregate $5,000,000 for short-term liquidity needs had $400,000
available at April 30, 1995.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
During the quarter ended April 30, 1995
the registrant did not file a current report
on Form 8-K
SIGNATURE
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 TECHNICAL SYSTEMS, INC.
Date: June 12, 1995 By: /s/ Lloyd Blonder
----------------- ----------------------------
Lloyd Blonder
Senior Vice President
Chief Financial Officer
(Signing on behalf of the
registrant and as principal
financial officer)
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EXHIBIT INDEX
-------------
Exhibit Page
No. Description No.
---------------------------------------------------------------------
27 Financial Data Schedule 14
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