- -------------------------------------------------------------------------------
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, 1999
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)
California 95-4134955
------------------------ ----------------------
(State of Incorporation) (IRS Employer
Identification number)
24007 Ventura Boulevard, Suite 200, 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, no par value, outstanding as of June 2,
1999 was 8,321,046.
Exhibit Index on Page 15
1
<PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
April 30, 1999 (unaudited) and January 31, 1999 3
Unaudited Condensed Consolidated Statements of Income
For the Three Months Ended April 30, 1999 and 1998 4
Unaudited Condensed Consolidated Statements of Cash Flows
For the Three Months Ended April 30, 1999 and 1998 5
Notes to the Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION & SIGNATURE
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
April 30, January 31,
1999 1999
(unaudited)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 2,157,000 $ 2,599,000
Accounts receivable, less allowance for doubtful
accounts of $916,000 at April 30, 1999 and
$904,000 at January 31, 1999 19,824,000 20,120,000
Income taxes receivable 56,000 56,000
Inventories 2,240,000 1,640,000
Deferred tax assets 915,000 919,000
Prepaid expenses 1,795,000 1,099,000
------------ ------------
Total current assets 26,987,000 26,433,000
Property, plant and equipment, at cost 55,264,000 54,223,000
Less: accumulated depreciation 34,145,000 33,402,000
------------ ------------
Net property, plant and equipment 21,119,000 20,821,000
Property held for sale 544,000 544,000
Intangible assets, net 887,000 544,000
Other assets 1,531,000 1,489,000
------------ ------------
TOTAL ASSETS $ 51,068,000 $ 49,831,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,740,000 $ 3,493,000
Accrued expenses 5,693,000 3,785,000
Income taxes payable 536,000 113,000
Current installments of long-term debt 2,134,000 2,091,000
------------ ------------
Total current liabilities 11,103,000 9,482,000
Long-term debt, excluding current installments 12,210,000 13,076,000
Deferred income taxes, net 2,580,000 2,565,000
Deferred compensation 570,000 555,000
Minority interest 55,000 51,000
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, no par value. Authorized, 20,000,000;
issued and outstanding 8,321,000 as of April 30,
1999 and 8,319,000 as of January 31, 1999 11,477,000 11,472,000
Retained earnings 13,063,000 12,631,000
Accumulated other comprehensive income 10,000 (1,000)
------------ ------------
Total shareholders' equity 24,550,000 24,102,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 51,068,000 $ 49,831,000
============ ============
See accompanying notes.
3
<PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
for the Three Months Ended April 30, 1999 and 1998
1999 1998
------------ ------------
Revenues $ 21,819,000 $ 21,669,000
Cost of sales 15,251,000 15,313,000
------------ ------------
Gross profit 6,568,000 6,356,000
Selling, general and administrative expense 4,982,000 4,488,000
------------ ------------
Operating income 1,586,000 1,868,000
Other expense:
Interest expense, net (326,000) (288,000)
Other (6,000) (2,000)
------------ ------------
Total other expense (332,000) (290,000)
------------ ------------
Income before income taxes and minority interest 1,254,000 1,578,000
Income taxes 502,000 524,000
------------ ------------
Income before minority interest 752,000 1,054,000
Minority interest (4,000) (7,000)
------------ ------------
Net income $ 748,000 $ 1,047,000
============ ============
Basic earnings per common share: $ 0.09 $ 0.13
============ ============
Diluted earnings per common share: $ 0.09 $ 0.12
============ ============
Weighted average common shares outstanding 8,321,000 8,168,000
Dilutive effect of stock options 261,000 447,000
------------ ------------
Weighted average common shares outstanding,
assuming dilution 8,582,000 8,615,000
============ ============
See accompanying notes.
4
<PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended April 30, 1999 and 1998
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 748,000 $ 1,047,000
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 775,000 701,000
Provision for losses on receivables (recoveries) 12,000 (98,000)
Loss on retirement of assets -- 17,000
Earnings from merged entity not included in net
income -- 181,000
Undistributed earnings of affiliate 4,000 7,000
Deferred income taxes -- 18,000
Changes in assets and liabilities:
Accounts receivable 284,000 109,000
Inventories (600,000) (294,000)
Prepaid expenses (696,000) (469,000)
Other assets and Intangibles (42,000) (199,000)
Accounts payable (753,000) (696,000)
Accrued expenses 1,908,000 1,707,000
Unearned revenue -- (73,000)
Deferred compensation 15,000 (20,000)
Income taxes 423,000 465,000
----------- -----------
Net cash provided by operating activities 2,078,000 2,403,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,041,000) (779,000)
Investment in new business (375,000) --
----------- -----------
Net cash used for investing activities (1,416,000) (779,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from current and long-term debt 112,000 595,000
Repayments of current and long-term debt (935,000) (2,081,000)
Cash dividends paid (166,000) --
Distributions paid (120,000) (201,000)
Proceeds from stock options exercised 5,000 2,000
----------- -----------
Net cash used for financing activities (1,104,000) (1,685,000)
----------- -----------
Net increase in cash (442,000) (61,000)
Beginning cash balance 2,599,000 2,510,000
----------- -----------
ENDING CASH BALANCE $ 2,157,000 $ 2,449,000
=========== ===========
See accompanying notes
5
<PAGE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
In accordance with instructions to Form 10-Q the accompanying consolidated
financial statements and footnotes of National Technical Systems, Inc.
(NTS or the Company) have been condensed and, therefore, do not contain
all disclosures required by generally accepted accounting principles.
These statements should not be construed as representing pro rata results
of the Company's fiscal year and should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
for the year ended January 31, 1999.
On October 30, 1998, NTS completed its merger with XXCAL, Inc. and
acquisition of XXCAL Limited (together, "XXCAL"). All prior year financial
statements have been restated to reflect the pooling of interests method
of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board (APB 16).
The statements presented as of and for the three months ended April 30,
1999 and 1998 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.
The consolidated financial statements include the accounts of the Company
and its wholly owned and financially controlled subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to
conform with the current year presentation.
2. Income Taxes
Income taxes for the interim periods are computed using the effective tax
rates estimated to be applicable for the full fiscal year based on the
provision accrued for the Company's year ended January 31, 1999. However,
the combined tax provision is less than the expected statutory rate for
the quarter ended April 30, 1998 as XXCAL had elected to be taxed as an S
Corporation for the period preceding the merger.
3. Comprehensive Income
As of February 1, 1998, the Company adopted Statement No.130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No.130 establishes new rules
for the reporting and display of comprehensive income and its components.
Accumulated other comprehensive income on the Company's Condensed
Consolidated Balance Sheets consists of cumulative equity adjustments from
foreign currency translation. During the three months ended April 30, 1999
and 1998 total comprehensive income was $759,000 and $1,047,000,
respectively. The reported amount for total comprehensive income differs
from net income for the three months ended April 30, 1999 due to foreign
currency translation adjustments. The tax effect related to foreign
currency translation adjustments is immaterial and has not been recognized
as part of comprehensive income or in accumulated other comprehensive
income.
6
<PAGE>
4. Segment Information
In fiscal 1999, the Company adopted Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No.131). SFAS
No.131 supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise" replacing the
industry segment approach with the management approach. The management
approach designates the internal organization that is used by management
for making operating decisions and assessing performance as the source of
the Company's reportable segments. SFAS No.131 also requires disclosures
about products and services, geographic areas and major customers. The
adoption of SFAS No.131 did not affect results of operations or the
financial position of the Company.
5. Inventories
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.
6. Interest and Taxes
Cash paid for interest and taxes for the three months ended April 30, 1999
was $332,000 and $76,000 respectively. Cash paid for interest and taxes
for the three months April 30, 1998 was $301,000 and $51,000 respectively.
7. Minority Interest
Minority interest in the Company's NQA-USA, Inc. subsidiary is a result of
50% of the stock of NQA-USA, Inc. being issued to National Quality
Assurance, Ltd. Profits and losses are allocated 62% to NTS, Inc. and 38%
to National Quality Assurance, Ltd for the fiscal year ending January 31,
2000.
8. Dividends
On January 26, 1999, the Company's Board of Directors adopted a regular
annual dividend policy and declared an initial annual dividend of $0.04
per share, payable semi-annually. The initial semi-annual dividend of
$0.02 per share was paid on March 2, 1999 to shareholders of record at the
close of business on February 15, 1999.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
addressed in this Item 2 contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements can be
identified by the use of forward-looking words such as "may", "will",
"expect", "anticipate", "intend", "estimate", "continue", "behave" and similar
words. Financial information contained herein, to the extent it is predictive of
financial condition and results of operations that would have occurred on the
basis of certain stated assumptions, may also be characterized as
forward-looking statements. Although forward-looking statements are based on
assumptions made, and information believed by management to be reasonable, no
assurance can be given that such statements will prove to be correct. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated.
GENERAL
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
three months ended April 30. All prior year financial statements have been
restated to reflect the pooling of interests method of accounting. They include
the combined financial statements of NTS and XXCAL.
RESULTS OF OPERATIONS
REVENUES
Three months ended April 30, 1999 % Change 1998
(Dollars in thousands)
-----------------------------------
IT Solutions $11,599 9.8% $10,560
Engineering & Evaluation 10,220 (8.0)% 11,109
----------- ------------
Total net revenues $21,819 0.7% $21,669
=========== ============
For the three months ended April 30, 1999, consolidated revenues increased by
$150,000 or 0.7% when compared to the same period in 1998.
IT Solutions:
- -------------
Revenues in the IT Solutions segment increased by $1,039,000 or 9.8% due to
increases in fee placements in the IT portion of its business, the continuing
success of its strategic alliances with Fortune 500 companies and other major
technical staffing companies and an aggressive expansion into new markets in the
IT business.
Engineering & Evaluation:
- -------------------------
In 1999, the Engineering & Evaluation segment revenues decreased by $889,000
primarily due to a slowdown in the production activities of some of the
facilities as some programs are reaching maturity and as some of the newer
research and development programs being conducted by the Company's clients are
experiencing difficulties producing new products due to technological problems
thus delaying production of hardware for evaluation and testing.
8
<PAGE>
GROSS PROFIT
Three months ended April 30, 1999 % Change 1998
(Dollars in thousands)
------------------------------
IT Solutions $3,542 10.8% $3,198
% to segment revenue 30.5% 30.3%
Engineering & Evaluation 3,026 -4.2% 3,158
% to segment revenue 29.6% 28.4%
--------- ---------
Total $6,568 3.3% $6,356
========= =========
% to total net revenue 30.1% 29.3%
Total gross profit for the three months ended April 30, 1999 increased by
$212,000 or 3.3% when compared to 1998, primarily as a result of increased
revenues in the IT Solutions Group.
IT Solutions:
- -------------
Gross profit as a percentage of net revenues in 1999 increased by $344,000 or
10.8% in the IT Solutions Group when compared to the same period in 1998, due to
the continued growth in this segment of the business and the success in
obtaining more permanent placement contracts.
Engineering & Evaluation:
- -------------------------
Gross profit for the Engineering & Evaluation Group slightly decreased as a
result of the slowdown in revenues and competitive pressures which had an
adverse effect on margins. The slowdown in revenues was partially due to the
delays in the production of hardware for evaluation and testing discussed above,
while some of the labor costs remained constant and thus had an adverse effect
on margins. In addition, government laboratories are becoming more aggressive in
competing with private industry for programs, thus increasing the pressure on
profits.
SELLING, GENERAL & ADMINISTRATIVE
Three months ended April 30, 1999 % Change 1998
(Dollars in thousands)
--------------------------------
IT Solutions $3,223 12.3% $2,869
% to segment revenue 27.8% 27.2%
Engineering & Evaluation 1,759 8.6% 1,619
% to segment revenue 17.2% 14.6%
--------- ---------
Total S G & A $4,982 11.0% $4,488
========= =========
% to total net revenue 22.8% 20.7%
Total selling, general and administrative expenses increased $494,000 or 11.0%
for the three months ended April 30, 1999 when compared to the same period in
1998.
IT Solutions:
- -------------
The increase in the IT Solutions segment was due primarily to costs related to
the planned expansion of the sales and marketing capabilities through new
marketing programs and expansion efforts in new markets.
9
<PAGE>
Engineering & Evaluation:
- -------------------------
The increase in the Engineering & Evaluation segment was due to efforts to
expand the base of business into new technology areas by engaging specialists
in these new areas to offset the relatively flat growth in the basic testing
business. The Company is redirecting some of its sales efforts to procure larger
evaluation programs which require a greater depth of technical knowledge. Thus
the Company has hired a number of such specialists which has caused selling
expenses to increase in advance of achieving results from their work.
The Company continues to look for new ways to reduce costs yet remain effective
in all segments of its business.
OPERATING INCOME
Three months ended April 30, 1999 % Change 1998
(Dollars in thousands)
--------------------------------
IT Solutions $319 -3.0% $329
% to segment revenue 2.8% 3.1%
Engineering & Evaluation 1,267 -17.7% 1,539
% to segment revenue 12.4% 13.9%
--------- ---------
Total S G & A $1,586 -15.1% $1,868
========= =========
% to total net revenue 7.3% 8.6%
Operating Income for the three months ended April 30, 1999 decreased by $282,000
or 15.1% when compared to 1998, primarily as a result of increased revenues in
the IT Solutions Group.
Operating Income for the three months ended April 30, 1999 decreased by $10,000
or 3.0% in the IT Solutions Group when compared to the same period in 1998, as a
result of the increases in selling and general and administrative expenses
discussed above.
Operating Income for the three months ended April 30, 1999 for the Engineering &
Evaluation Group decreased by $272,000 or 17.7% when compared to the same
period in 1998, as a result of the slowdown in revenues and increases in selling
and general and administrative expenses.
INTEREST EXPENSE
Net interest expense increased $38,000 in the three months ended April 30, 1999
when compared to the same period in 1998. This increase was principally due to
slightly higher average debt balances for the three months ended April 30, 1999,
when compared to the same period last year.
INCOME TAXES
The income tax provisional rate of 40.0% for the three months ended April 30,
1999 reflects a rate in excess of the U.S. federal statutory rate primarily due
to the inclusion of state income taxes. This rate is based on the estimated
provision accrual for fiscal year ending January 31, 2000. The income tax rate
of 33.2% for the three months ended April 30, 1998 is lower due to XXCAL's
election to be taxed as an S Corporation for the period preceding the merger.
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 Company's intention to evaluate the realizability of the
deferred tax asset quarterly by assessing the need for a valuation account based
upon future net income of the Company.
10
<PAGE>
NET INCOME
The decrease in net income for the three months ended April 30, 1999, compared
to the same period in 1998, was primarily due to lower gross margins in the
Engineering & Evaluation segment due to decreasing revenues and higher
selling, general and administrative expenses in both segments of the business.
ASSETS
TOTAL ASSETS As of % As of
(Dollars in thousands) April 30, 1999 Change January 31, 1999
------------------------------------------
IT Solutions $13,222 7.1% $12,344
Engineering & Evaluation 30,987 (1.9)% 31,579
Corporate 6,859 16.1% 5,908
--------------- ----------------
Total Assets $51,068 2.5% $49,831
=============== ================
YEAR 2000
The Year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the Year 1900 rather than the Year 2000.
The Company has assessed and identified to the best of its knowledge all
requirements needed to fix potential problems related to the Year 2000 issue.
This includes: (1) the Company's business software and hardware at all of its
locations, (2) the Company's test equipment used in all the laboratories and (3)
communications with third party vendors to ensure they will meet their Year 2000
requirements.
Much of the hardware used by the Company has already been upgraded to be
Year 2000 compliant. Certain test equipment at the laboratories has been
identified to be date sensitive and vendors are supplying new Year 2000
compliant software. In situations where the software is not available, the
Company is replacing the equipment. To complete the necessary remediation of its
business systems software, the Company has identified new Year 2000 compliant
software that will replace certain crucial software applications it currently
uses. All other identified existing systems will be fixed internally. The
Company expects to complete its software remediation by June 30, 1999.
The estimated total cost for the Year 2000 project is approximately
$400,000 for new hardware, software and in-house programming. The Company has
incurred $322,000 through January 31, 1999. The Company does not expect these
costs to have a material impact on its financial position, results of operations
or cash flows. The Company has funded and will continue to fund these costs from
its operating and financing cash flows.
The Company has also contacted its major third-party vendors and is in the
process of obtaining assurances that their systems are Year 2000 compliant.
Although the Company does not anticipate any material problems resulting from
the Year 2000 issues, it is taking steps to establish a contingency plan prior
to September 1999 in the event of system failures beyond the Company's control
or in the event of failure by other companies or governmental entities to
remediate their own systems.
11
<PAGE>
BUSINESS ENVIRONMENT
IT Solutions:
- -------------
The Company has aggressively pursued additional business in the growing IT
market. The Company supplies IT professionals in support of customers who need
help-desk analysts and managers; relational database administrators and
developers; application and systems programmers; configuration and project
managers; and multiple levels of system operations personnel. The Company
believes the growth in this sector will be accompanied by higher margins that
will contribute favorably to the overall product mix. Also, the Company
continues to pursue ISO registration business as demand for these services
continues to increase as more companies must compete for business in the global
market place.
Engineering & Evaluation:
- -------------------------
The business climate which has in the past shown signs of uncertainty and
which had appeared to stabilize last year, has again become uncertain in the
aerospace and defense industries in contrast with IT industries such as
telecommunications, electronics and medical, which have been growing rapidly.
This has occurred due to program delays in new research and development projects
caused by technical difficulties being experienced by the Company's aerospace
and defense clients. In addition, the trend to outsourcing, which started when
many aerospace contractors began downsizing, has begun to reverse. Some of the
Company's aerospace customers are now retaining programs in-house. Also,
government laboratories are becoming more aggressive in competing with private
industry for programs. All these factors have rendered the market more
competitive with an attendant pressure on profits.
Notwithstanding the foregoing, and because of factors affecting the Company's
operating results, past financial performance should not be considered to be a
reliable indicator of future performance.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended April 30, 1999, cash provided by operations decreased
by $325,000 when compared to the same period in 1998. This decrease was
primarily due to the decrease in net income and the effect of changes in prepaid
expenses, accounts payable and inventories partially offset by the effect of
changes in accounts receivable, other assets, accrued expenses and depreciation
and amortization.
Net cash used in investing activities in the three-month period ended April 30,
1999 increased $637,000 over the same period in 1998 due to capital purchases of
telecommunications testing equipment, the upgrading of the computer systems and
the acquisition of two quality-registration and certification services
companies. The actual level of capital spending will be dependent on a variety
of factors, including general economic conditions, bank covenants and the
Company's operating requirements.
In the three-month period ended April 30, 1999 net cash used for financing
activities consisted of debt reduction on lines of credit and short term and
long term debt of $935,000 and cash dividends paid of $166,000 and distributions
to S corporation stockholders of $120,000 offset by increases in lines of credit
and term loans of $112,000 and proceeds from issuance of common stock of $5,000.
12
<PAGE>
In September 1997, the Company negotiated with Sanwa Bank California as agent
and Mellon Bank for a new credit agreement which includes a $6,000,000 revolving
line of credit at an interest rate equal to the Bank's reference rate plus 0.25%
which expires in September 1999. Also included in the new agreements is a
$6,500,000 term loan at an interest rate of 8.31% which expires in January 2003.
On October 30, 1998, the credit agreement was amended: 1) to extend the term of
the revolving line to September 8, 2000, 2) to increase the revolving line
amount from $6,000,000 to $8,000,000 at an interest rate equal to the Bank's
reference rate and 3) to add a new term loan for $2,000,000 at an interest rate
equal to the Bank's reference rate plus 0.25% and a maturity date of November 1,
2003.
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. In addition, the Company has made no material commitments for
capital expenditures. The Company's future working capital will be provided from
operations and the current bank revolving line of credit which had $4,300,000
available at April 30, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On or about April 30, 1999, TECSTAR, Inc., a manufacturer of flight hardware for
use in satellites filed a complaint against the Company in the Superior Court of
the State of California for Los Angeles County, Case No. BC 209645. The
complaint alleges that TECSTAR contracted with the Company to test hardware in
accordance with certain agreed upon test specifications. TECSTAR alleges that
during a test cycle the temperature of the hardware exceeded the specifications
and that as a result the hardware was rejected by TECSTAR's customer as
allegedly being unsuitable for flight. As a consequence TECSTAR asserts that it
scrapped the hardware.
The complaint alleges breach of contract, breach of implied warranty, breach of
bailment agreement, negligence, negligent bailment and professional negligence.
The complaint seeks monetary damages of $2,488,700 plus costs of suit and
interest, including prejudgment interest, as provided by law. The Company
believes that the damages claimed by TECSTAR greatly exceed the cost of
replacing the hardware.
The Company believes that it has meritorious defenses to the complaint and
intends to vigorously defend against TECSTAR's claims. The Company has also
submitted the TECSTAR claims to its property loss insurance carrier for coverage
determination.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Form 8-K
During the quarter ended April 30, 1999 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, 1999 By: /s/ Lloyd Blonder
----------------------------
Lloyd Blonder
Senior Vice President
Chief Financial Officer
(Signing on behalf of the
registrant and as principal
financial officer)
14
<PAGE>
Exhibit Index
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
27 Financial Data Schedule 16
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> APR-30-1999
<CASH> 2,157
<SECURITIES> 0
<RECEIVABLES> 20,740
<ALLOWANCES> 916
<INVENTORY> 2,240
<CURRENT-ASSETS> 26,987
<PP&E> 55,264
<DEPRECIATION> 34,145
<TOTAL-ASSETS> 51,068
<CURRENT-LIABILITIES> 11,103
<BONDS> 0
11,477
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 51,068
<SALES> 21,819
<TOTAL-REVENUES> 21,819
<CGS> 15,251
<TOTAL-COSTS> 15,251
<OTHER-EXPENSES> 4,982
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326
<INCOME-PRETAX> 1,254
<INCOME-TAX> 502
<INCOME-CONTINUING> 748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 748
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
