-------------------------------------------------------
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, 1996
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 5, 1996 was 6,702,990.
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Exhibit Index on Page 12
Page 1 of 13 <PAGE>
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page No.
Financial Statements:
Condensed Consolidated Balance Sheets
April 30, 1996 and January 31, 1996 3
Condensed Consolidated Statements of Income
Three Months Ended April 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended April 30, 1996 and 1995 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 11
Page 2 of 13 <PAGE>
PART I -- FINANCIAL INFORMATION
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (unaudited)
April 30, January 31,
Assets 1996 1996
------------ ------------
Current assets:
Cash $ 1,999,000 $ 1,949,000
Receivables, less allowance for doubtful
accounts of $635,000 at April 30, 1996
and $595,000 at January 31, 1996 11,368,000 10,453,000
Income taxes receivable - 33,000
Inventories 2,538,000 2,220,000
Deferred income taxes 453,000 435,000
Prepaid expenses 638,000 687,000
------------ ------------
Total current assets 16,996,000 15,777,000
Property, plant and equipment, at cost 42,436,000 41,955,000
Less: accumulated depreciation 25,733,000 25,398,000
------------ ------------
Net property, plant and equipment 16,703,000 16,557,000
Intangible assets 226,000 286,000
Property held for sale 544,000 544,000
Other assets 328,000 339,000
------------ ------------
Total Assets $ 34,797,000 $ 33,503,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,283,000 $ 3,197,000
Accrued expenses 2,360,000 2,081,000
Current installments of long-term debt 1,759,000 1,747,000
------------ ------------
Total current liabilities 7,402,000 6,737,000
Long-term debt, excluding current installments 9,450,000 9,090,000
Deferred income taxes 1,853,000 1,662,000
Minority interest 71,000 75,000
Stockholders' equity:
Common stock of $.01 par value. Authorized,
20,000,000; issued and outstanding 6,703,000
as of April 30, 1996 and 6,674,000 as of
January 31, 1996 67,000 67,000
Additional paid-in capital 10,545,000 10,513,000
Retained earnings 5,409,000 5,071,000
------------ ------------
Total stockholders' equity 16,021,000 15,651,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 34,797,000 $ 33,503,000
============ ============
See accompanying notes to Consolidated Financial Statements.
Page 3 of 13 <PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (unaudited)
for Three Months Ended April 30, 1996 and 1995
1996 1995
----------- ------------
Revenues $ 11,639,000 $ 9,605,000
Cost of sales 8,921,000 7,533,000
----------- ------------
Gross profit 2,718,000 2,072,000
Selling, general and administrative expense 1,858,000 1,716,000
----------- ------------
Operating income 860,000 356,000
Other income (expense):
Interest expense, net (255,000) (304,000)
Other 2,000 (22,000)
----------- ------------
Total other expense (253,000) (326,000)
----------- ------------
Income before income taxes and
minority interest 607,000 30,000
Income taxes 273,000 14,000
----------- ------------
Income before minority interest 334,000 16,000
Minority interest in the (income) loss
of consolidated subsidiary 4,000 (2,000)
----------- ------------
Net income $ 338,000 $ 14,000
=========== ============
Primary and fully diluted net income per
common share $ 0.05 $ 0.00
=========== ============
Weighted average number of common shares and
common stock equivalents outstanding 6,676,000 6,651,000
=========== ============
See accompanying notes to Consolidated Financial Statements.
Page 4 of 13 <PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
for Three Months Ending April 30, 1996 and 1995
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 338,000 $ 16,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 581,000 587,000
Provision for losses on receivables 40,000 3,000
Deferred income taxes 173,000 3,000
Net changes in assets and liabilities:
Accounts receivable (955,000) (1,001,000)
Inventories (318,000) 199,000
Prepaid expenses 49,000 (121,000)
Other assets 11,000 16,000
Accounts payable 86,000 (296,000)
Accrued expenses 279,000 216,000
Undistributed earnings (loss) of affiliate (4,000) -
Income taxes 33,000 (184,000)
------------ ------------
Net cash provided by (used in) operating
activities 313,000 (562,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (667,000) (487,000)
------------ ------------
Net cash used for investing activities (667,000) (487,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 800,000 353,000
Repayments of current and long-term debt (428,000) (372,000)
Cash dividends paid - 66,000
Proceeds from stock options exercised 32,000 2,000
------------ ------------
Net cash provided by (used for) financing
activities 404,000 477,000
------------ ------------
Net increase (decrease) in cash 50,000 (572,000)
Beginning cash balance 1,949,000 1,696,000
------------ ------------
ENDING CASH BALANCE $ 1,999,000 $ 1,124,000
============ ============
See accompanying notes to Consolidated Financial Statements.
Page 5 of 13 <PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
1. In accordance with instructions to Form 10-Q the accompanying
consolidated 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, 1996.
2. The statements presented as of and for the three-month period ended
April 30, 1996 and 1995 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.
5. Net income per share for the three-month period ended April 30, 1996
and 1995 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,
1996 was $181,000 and $93,000 respectively. Cash paid for interest
and taxes for the three months ended April 30, 1995 was $271,000 and
$196,000 respectively.
Page 6 of 13 <PAGE>
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 1996 % Change 1995
========= ========== ==========
Technical services $9,012 14.4% $7,878
Environmental services 490 36.9% 358
Registration services 542 17.1% 463
Contract labor services 1,595 76.0% 906
--------- ----------
Total net revenue $11,639 21.2% $9,605
========= ==========
For the three months ended April 30, 1996, consolidated revenues increased
by $2,034,000 or 21.2% when compared to the same period in 1995. In 1996,
the technical services segment revenues increased due to increases in its
traditional aerospace and defense testing business. The Registrant's
environmental services segment revenues increased $132,000 as a result of
work on new contracts. Revenues in the registration services segment
increased as a result of continued marketing efforts. The contract labor
services segment revenue increased $689,000 reflecting the effect of its
expanding staff augmentation business and the success of its strategic
alliances.
It is anticipated by the Registrant that revenues in the technical services
segment will continues at current levels slightly above last year, while
revenues in the environmental services segment will remain flat or decrease
due to increasing competition. It is further anticipated that revenues in
the registration services segment should continue to increase at a more
moderate rate for the remainder of fiscal 1997 and revenues in the contract
labor services segment should continue at current levels through the end of
the fiscal year.
Page 7 of 13 <PAGE>
GROSS PROFIT
Quarter ended April 30 1996 % Change 1995
========= ========== =========
Technical services $2,180 31.2% $1,661
% to segment revenue 24.2% 21.1%
Environmental services (2) (102.4%) 85
% to segment revenue (0.4%) 23.7%
Registration services 187 58.5% 118
% to segment revenue 34.5% 25.5%
Contract labor services 353 69.7% 208
% to segment revenue 22.1% 23.0%
Total $2,718 31.2% $2,072
% to total net revenue 23.4% 21.6%
Gross profit as a percentage of net revenues increased in the quarter ended
April 30, 1996 by 1.8% or $646,000 when compared to the same quarter in
1995. This increase was due primarily to higher gross profit on the
traditional testing business in the Registrant's technical services
segment. The Registrant continues to pursue an aggressive cost containment
program. Therefore, barring any unforeseen circumstances, gross profits
should continues at current levels for the remainder of fiscal 1997. The
decrease in gross profit in the environmental services segment was due to
deterioration of margins due to cost overruns on fixed price contracts.
SELLING, GENERAL & ADMINISTRATIVE
Quarter ended April 30 1995 % Change 1994
========= =========== ========
Technical services $1,379 8.1% $1,276
% to segment revenue 15.3% 16.2%
Environmental services 26 (48.0%) 50
% to segment revenue 5.3% 14.0%
Registration services 158 16.2% 136
% to segment revenue 29.2% 29.4%
Contract labor services 264 15.3% 229
% to segment revenue 16.6% 25.3%
Corporate 31 24.0% 25
Total S G & A $1,858 8.3% $1,716
% to total net revenue 16.0% 17.9%
Selling, general and administrative expenses as a percentage of net
revenues decreased in the first three months ending April 30, 1996 compared
to the same period in 1995 due to significant revenue increases while
overall expenses increased only slightly. Expenses in the technical
services, registration services and contract labor services segments
increased slightly as a result of increased revenues. Expenses in the
environmental services segment decreased as a result of managements cost
containment efforts in this segment. The Registrant continues to look for
ways to reduce costs but remain effective in all these areas.
Page 8 of 13 <PAGE>
INTEREST EXPENSE
Net interest expense decreased $49,000 in the first quarter ending
April 30, 1996 when compared to the same period in 1995. This decrease was
principally due to slightly lower interest rates on existing loans and
decreases in the term loan balances.
INCOME TAXES
The income tax provisional rate for the first quarters of 1996 and 1995
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, 1996 was higher than the same period in 1995
due to the increase 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 increase in net income in the first quarter ending April 30, 1996
compared to the same period in 1995 was due to increased revenues, higher
gross profit margins and slightly lower interest costs.
BUSINESS ENVIRONMENT
During the course of the last fiscal year, the business climate in the
aerospace and defense industry, which in the past had shown signs of
uncertainty, began to stabilize. In response to this uncertainty the
Registrant developed an strategy of growth through diversification and
taking advantage of opportunities created by the aerospace and defense
industry downsizing. As a part of this strategy, the Registrant
consolidated one of its testing facilities and is now positioned to more
effectively serve its customers and enhance revenue growth in all segments
of its business. The Registrant continues to pursue ISO registration
business through its registration services segment and remediaton business
through its environmental services segment. 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, 1996, cash provided by operations
increased by $874,000 when compared to the same period in 1995. Major
items contributing to this increase were significant increases in net
income and accounts payable offset by increases in inventory and deferred
income tax balances.
Net cash used in investing activities in the three-month period ended
April 30, 1996 increased $180,000 over the same period in 1996. The
Registrant anticipates that its capital spending level in fiscal 1997 will
be about the same or slightly higher than fiscal 1996. 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.
Page 9 of 13 <PAGE>
In the three-month period ended April 30, 1996, net cash provided by
financing activities consisted of increases in the bank term loans and
lines of credit of $800,000 and proceed from the exercise of stock options
of $33,000, offset by debt reduction on short term and long term debt of
$428,000. Long term debt decreased $360,000 for the quarter due to
regularly scheduled payments on long-term debt in excess of new borrowings.
In April 1996 the Registrants revolving lines of credit were extended to
August 1997 and increased from an aggregate availability of $5,000,00 to
$6,000,000. 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 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 $6,000,000 for
short-term liquidity needs had $1,200,000 available at April 30, 1996. The
Registrant also has available up to $1,500,000 for an equipment line of
credit which expires August 1996. No amounts have been borrowed against
this line.
Page 10 of 13 <PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended April 30, 1996
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 11, 1996 By: /s/ Lloyd Blonder
---------------- ----------------------------------
Lloyd Blonder
Senior Vice President
Chief Financial Officer
(Signing on behalf of the
registrant and as principal
financial officer)
Page 11 of 13 <PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
---------------------------------------------------------------------
27 Financial Data Schedule 13
Page 12 of 13 <PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 1,999
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<RECEIVABLES> 11,368
<ALLOWANCES> 635
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0
0
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