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: April 30, 1994
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
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(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
share,outstanding on May 31, 1994, was 14,970,208.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months
Ended April 30,
-----------------
1994 1993
---- ----
(In thousands, except
per share amounts)
<S> <C> <C>
REVENUES
Net sales $52,969 $50,641
Maintenance and support 15,781 17,873
------- -------
Total revenues 68,750 68,514
COST OF REVENUES
Cost of sales 30,122 28,178
Cost of maintenance and support 11,547 13,547
------- -------
Gross margin 27,081 26,789
OPERATING EXPENSES
Sales and marketing 11,380 11,528
Research and development 2,922 2,412
General and administrative 8,988 9,698
------- -------
INCOME FROM OPERATIONS 3,791 3,151
Interest expense 729 554
Other (income), net (128) (197)
------- -------
INCOME BEFORE INCOME TAXES 3,190 2,794
Income tax provision 1,240 1,062
------- -------
NET INCOME $ 1,950 $ 1,732
======= =======
NET INCOME PER SHARE $ .13 $ .11
AVERAGE SHARES OUTSTANDING 15,062 15,954
</TABLE>
See Notes to Consolidated Financial Statements.
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NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
April 30, January 31,
1994 1994
--------- -----------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 603 $ 1,724
Receivables:
Trade 63,495 70,100
Other 1,975 5,328
-------- --------
Total receivables 65,470 75,428
Inventories:
Finished products 6,061 6,348
Scoring services and work in process 9,142 6,117
Raw materials and purchased parts 4,566 4,905
-------- --------
Total inventories 19,769 17,370
Prepaid expenses and other 8,494 9,198
-------- --------
TOTAL CURRENT ASSETS 94,336 103,720
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements 38,811 37,254
Machinery and equipment 90,770 88,950
Rotable service parts 10,901 11,085
Equipment held for lease 8,014 8,205
Accumulated depreciation (77,946) (75,988)
-------- --------
Net property, plant and equipment 70,550 69,506
OTHER ASSETS
Acquired and internally developed
software products 20,674 20,092
Non-current receivables, investments
and other assets 21,885 21,896
Goodwill 4,699 4,959
-------- --------
Total other assets 47,258 46,947
-------- --------
TOTAL ASSETS $212,144 $220,173
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</TABLE>
See Notes to Consolidated Financial Statements.
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NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
April 30, January 31,
1994 1994
--------- -----------
(In thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,172 $ 2,677
Accounts payable 14,076 18,777
Accrued expenses 23,931 27,093
Deferred income 18,388 18,956
Income taxes 551 -
-------- --------
TOTAL CURRENT LIABILITIES 59,118 67,503
DEFERRED INCOME TAXES 7,849 7,849
LONG-TERM DEBT -- less current maturities 44,354 44,674
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock--issued and outstanding -
14,969 and 14,983 shares,
respectively 449 449
Paid-in capital 79 -
Retained earnings 107,321 106,771
Deferred compensation (7,026) (7,073)
-------- --------
Total stockholders' equity 100,823 100,147
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $212,144 $220,173
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
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NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
------------------
1994 1993
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(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,950 $ 1,732
Depreciation, amortization and other
noncash expenses 5,698 6,428
Changes in operating assets and liabilities:
Decrease in accounts receivable 10,144 2,543
Increase in inventory and other
current assets (1,695) (1,352)
Decrease in accounts payable and
accrued expenses (7,312) (7,628)
Decrease in deferred income (568) (3,507)
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Net cash provided (used) by
operating activities 8,217 (1,784)
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INVESTING ACTIVITIES
Purchases of property, plant and equipment (4,865) (4,067)
Capitalized software products (1,548) (1,920)
Other - net (828) 96
------- -------
Net cash used in investing activities (7,241) (5,891)
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FINANCING ACTIVITIES
Net increase (decrease) in revolving
credit borrowing (1,000) 2,400
Net proceeds of other borrowings 175 152
Issuance (repurchase) of common stock, net 79 (3,273)
Dividends paid (1,351) (1,431)
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Net cash used in financing activities (2,097) (2,152)
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Decrease in cash and cash equivalents (1,121) (9,827)
CASH AND CASH EQUIVALENTS - beginning of period 1,724 10,767
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CASH AND CASH EQUIVALENTS - end of period $ 603 $ 940
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</TABLE>
See Notes to Consolidated Financial Statements.
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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
April 30, 1994, are not necessarily indicative of the operating
results that may be expected for the entire fiscal year ending
January 31, 1995.
Note B - Earnings per share for the respective operating periods
are computed based on average shares outstanding and 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.
Common stock purchases during the quarter ended October 31, 1993,
reduced the paid-in capital balance to zero.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
National Computer Systems, Inc. is an information services
company serving the business, education, assessment and financial
markets. The Company's 1993 Annual Report contains a description
of its activities in each of its four primary business units:
Technology, Education, Assessments, and Financial.
Recap of 1994 First Quarter Results
The first fiscal quarter is traditionally the Company's
seasonally lowest quarter in both revenues and net income. Total
revenues increased modestly over first quarter of fiscal 1993.
However, an improved overall gross margin percentage and lower
operating expenses resulted in an increase in income from
operations of $.6 million or 20%. This first quarter operating
income improvement is a net result of four significant factors:
(1) the discontinuation of Ultrust contributed to a significant
improvement in the first quarter results of NCS Financial, (2)
significantly improved performance at the Company's Iowa City
service center within NCS Education, offset by (3) lower
operating income from international business within NCS
Technology, due to a significant one-time international scanning
systems order in the first quarter of the prior year, and (4)
increased research and development expenses for scanning hardware
and related software.
With interest expense slightly higher in the first quarter of
1994 than in the same period of 1993, the Company's first quarter
net income was $2.0 million ($.13 per share) in 1994, a 13%
increase over the prior year. A more detailed discussion of the
various income statement items follows.
Revenues by Primary Business
Total revenues for the quarter ended April 30, 1994, were up
slightly to $68.8 million from $68.5 million in the prior year.
Total first-quarter revenues in the Company's four major business
units compared to the prior year's first quarter were as follows:
Technology - 13%
Education + 15%
Assessments - 11%
Financial + 4%
Total revenues for Technology were down principally due to lower
sales of scanning systems internationally. In addition,
Technology revenues were negatively impacted by lower third-party
maintenance revenues. Total revenues for Education were up
primarily due to significantly higher volumes of student
financial aid processing at the Company's Iowa City service
center. Assessments revenue declined by 11% as a result of a
lower volume of clinical assessment revenues. Software licensing
revenues increased in the Financial business resulting in a 4%
increase in revenues over the prior year. These revenue changes
for the period ended April 30, 1994, are not necessarily
indicative of the revenue changes expected for the entire fiscal
year ended January 31, 1995.
Cost of Revenues and Gross Margins
For the quarter ended April 30, 1994, the Company's overall gross
margin was up slightly to 39.4% from 39.1% for the same period in
the prior year. The gross margin on net sales revenue, declined
by 1.2 percentage points from the same period in fiscal 1993.
Higher processing margins in Education's Iowa City service center
were offset by lower margins in Technology, primarily due to
lower levels of international hardware sales. Gross margins on
maintenance and support revenues improved by 2.6 percentage
points in the first quarter as compared to the prior year first
quarter principally due to improved hardware maintenance margins
in Technology.
Operating Expenses
Sales and marketing expenses declined modestly in the quarter
ended April 30, 1994, from the comparable prior year quarter. In
fiscal 1994, these expenses should continue to be below prior
year levels, as efforts continue to control them to fully
productive levels.
Research and development costs increased by $.5 million in the
quarter ended April 30, 1994, over the year earlier quarter. The
increase came principally in Technology and was related to
enhancement of scanning hardware and related software. These
expenses are likely to continue at levels higher than the
previous year.
General and administrative expenses decreased by $.7 million or
7.3% in the first quarter from the prior year first quarter,
resulting from lower expense levels in all the primary
businesses. This favorable comparison to the prior year should
continue throughout fiscal 1994.
Non-operating Expenses
Interest expense for the quarter ended April 30, 1994, was up $.2
million as a result of higher aggregate day-to-day borrowing
levels as compared to the same period in the prior year. Other
income, net, was essentially flat year to year.
Provision for Income Taxes
The effective income tax rate of 38.9% for the quarter ended
April 30, 1994, was greater than the 38.0% effective rate for the
first quarter of the prior year. This quarter-to-quarter
increase in the effective income tax rate is due to a number of
factors, including the result of new Federal tax legislation
enacted in the third quarter of 1993.
Liquidity and Capital Resources
For the three-month period ended April 30, 1994, the Company
generated $8.2 million of cash from operating activities. This
compares favorably to the corresponding prior-year period,
principally due to the improved collection of trade receivables
in the first quarter of fiscal 1994. Cash from operations and
cash on hand was principally used to fund $6.4 million of
investment in property, plant and equipment and product software.
In addition, the funds were used to reduce the Company's
revolving credit borrowings by $1.0 million and pay cash
dividends of $1.4 million. It is anticipated that the Company's
revolving credit borrowings will increase over the remainder of
fiscal 1994 to fund seasonal operating needs and increased
investments in property, plant, and equipment over the prior
year. Funds to be generated from operations and funds available
from the Company's existing revolving credit facility are
expected to be adequate to meet current cash requirements.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The registrant held its Annual Meeting of Stockholders
on May 26, 1994.
(c) Briefly described below are the only matters voted on at
the Annual Meeting and the number of votes with respect
to each matter.
(i) Election of Board of Directors.
<TABLE>
<CAPTION>
Withheld
Nominee For Authority
------------------- ---------- ---------
<S> <C> <C>
Charles W. Oswald 13,121,621 256,395
David P. Campbell 13,288,046 89,970
David C. Cox 13,299,470 78,546
Jean B. Keffeler 13,311,246 66,770
Stephen G. Shank 13,308,567 69,449
John E. Steuri 13,310,633 67,383
Jeffrey E. Stiefler 13,312,584 65,432
John W. Vessey 13,302,901 75,115
</TABLE>
(ii) Approval of the appointment of Ernst & Young as
auditors for the year ending January 31, 1995.
FOR - 13,289,068
AGAINST - 60,556
ABSTAIN - 28,392
BROKER NON-VOTE - 0
Item 6. Exhibits and Reports on Form 8K
(b) There were no reports on Form 8-K filed for the three
months ended April 30, 1994.
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: June 9, 1994
