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, 1995
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 share,outstanding
on May 31, 1995, was 15,444,600.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
<CAPTION>
Three Months
Ended April 30,
------------------
1995 1994
---- ----
(In thousands, except
per share amounts)
<S> <C> <C>
REVENUES
Net sales $58,558 $52,969
Maintenance and support 15,739 15,781
------- -------
Total revenues 74,297 68,750
COST OF REVENUES
Cost of sales 34,801 30,122
Cost of maintenance and support 10,382 11,547
------- -------
Gross margin 29,114 27,081
OPERATING EXPENSES
Sales and marketing 10,936 11,380
Research and development 3,717 2,922
General and administrative 9,101 8,988
------- -------
INCOME FROM OPERATIONS 5,360 3,791
Interest expense 1,054 729
Other (income) expense, net 426 (128)
------- -------
INCOME BEFORE INCOME TAXES 3,880 3,190
Income tax provision 1,515 1,240
------- -------
NET INCOME $ 2,365 $ 1,950
======= =======
NET INCOME PER SHARE $ .15 $ .13
AVERAGE SHARES OUTSTANDING 15,497 15,062
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
<CAPTION>
April 30, January 31,
1995 1995
----------- -----------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 614 $ 1,195
Receivables:
Trade 74,801 77,209
Other 1,791 1,940
-------- --------
Total receivables 76,592 79,149
Inventories:
Finished products 6,522 6,408
Scoring services and work in process 12,526 8,974
Raw materials and purchased parts 4,596 5,073
-------- --------
Total inventories 23,644 20,455
Prepaid expenses and other 8,753 9,925
-------- --------
TOTAL CURRENT ASSETS 109,603 110,724
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements 49,377 48,202
Machinery and equipment 102,959 101,336
Rotable service parts 9,044 9,256
Equipment held for lease 7,697 7,583
Accumulated depreciation (85,731) (83,648)
-------- --------
Net property, plant and equipment 83,346 82,729
OTHER ASSETS
Acquired and internally developed
software products 26,596 27,234
Non-current receivables, investments
and other assets 17,212 17,027
Goodwill 2,882 3,043
-------- --------
Total other assets 46,690 47,304
-------- --------
TOTAL ASSETS $239,639 $240,757
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
<CAPTION>
April 30, January 31,
1995 1995
----------- -----------
(In thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities $ 5,383 $ 5,212
Accounts payable 16,545 20,655
Accrued expenses 27,142 29,495
Deferred income 15,450 18,645
Income taxes 1,909 1,103
-------- --------
TOTAL CURRENT LIABILITIES 66,429 75,110
DEFERRED INCOME TAXES 7,162 7,211
LONG-TERM DEBT -- less current maturities 51,851 45,313
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock--issued and outstanding -
15,370 and 15,310 shares,
respectively 461 459
Paid-in capital 4,254 3,795
Retained earnings 115,046 114,546
Deferred compensation (5,564) (5,677)
-------- --------
Total stockholders' equity 114,197 113,123
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $239,639 $240,757
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<CAPTION>
Three Months Ended
April 30,
------------------
1995 1994
-------- -------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,365 $ 1,950
Depreciation, amortization and other
noncash expenses 6,731 5,698
Provision for deferred income taxes (49) -
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,357 10,144
Increase in inventory and other
current assets (3,017) (1,695)
Decrease in accounts payable and
accrued expenses (5,657) (7,312)
Decrease in deferred income (3,195) (568)
------- -------
Net cash provided (used) by
operating activities (465) 8,217
------- -------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,734) (4,865)
Capitalized software products (1,051) (1,548)
Other - net (1,133) (828)
------- -------
Net cash used in investing activities (5,918) (7,241)
------- -------
FINANCING ACTIVITIES
Net increase (decrease) in revolving
credit borrowing 6,400 (1,000)
Net proceeds of other borrowings 309 175
Issuance of common stock, net 473 79
Dividends paid (1,380) (1,351)
------- -------
Net cash provided (used)
by financing activities 5,802 (2,097)
------- -------
Decrease in cash (581) (1,121)
CASH - beginning of period 1,195 1,724
------- -------
CASH - end of period $ 614 $ 603
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
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, 1995, are not necessarily indicative of the
operating results that may be expected for the entire fiscal year ending January
31, 1996.
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.
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.
<PAGE>
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
education, business, government, health care and banking and financial markets.
The Company's 1994 Annual Report contains descriptions of its activities in each
of these markets.
Recap of 1995 First Quarter Results
The first fiscal quarter is traditionally the Company's seasonally weakest
quarter in both revenues and net income. Total revenues for the quarter ended
April 30, 1995, were up by $5.5 million or 8.1% from the quarter ended April 30,
1994. Though overall gross margin as a percent of revenue decreased slightly
from the prior year, and overall operating expenses increased modestly, the
higher revenues generated a quarter-to-quarter increase in income from
operations of $1.6 million or 41.4%.
Interest expense increased by $.3 million for the quarter ended April 30, 1995,
as compared to the same period in the prior year, and other non-operating
expenses also increased year-to-year. The Company's 1995 first quarter net
income increased 21.3% to $2.4 million, or $.15 per share, from $2.0 million, or
$.13 per share in the prior year first quarter. A more detailed discussion of
the various income statement items follows.
Revenues
Total revenues for the quarter ended April 30, 1995 were up 8.1% to $74.3
million from $68.8 million in the prior year. Total first quarter revenues as
compared to the prior year's first quarter, by the Company's major business
areas, were as follows:
Education + 13%
Business, Government
Health Care and Other + 6%
Banking and Financial --
Total revenues were up for Education as a result of higher volumes of student
financial aid and educational assessment processing at the Company's Iowa City
service center. In addition, Education revenues were positively impacted by
higher software licensing revenues from administrative software. Total revenues
for Business and Government were up slightly as higher forms sales were offset
by lower third-party maintenance revenues. Quarter-to-quarter revenues were flat
in the Banking and Financial market as software licensing and support revenues
generated from a fiscal 1994 third quarter acquisition of an international
private banking software business were offset by lower domestic software
revenues. The revenue increases for the period ended April 30, 1995, are not
necessarily indicative of the revenue increases expected for the entire fiscal
year ended January 31, 1996.
Cost of Revenues and Gross Margins
For the quarter ended April 30, 1995, the Company's overall gross margin
declined slightly to 39.2% from 39.4% for the same period in the prior year. The
gross margin on net sales revenue declined by 2.5 percentage points from the
same period in fiscal 1994. The quarter-to-quarter decline was principally the
result of lower processing margins in Education's Iowa City service center.
Gross margins on maintenance and support revenues improved by 7.2 percentage
points in the first quarter as compared to the prior year quarter as a result of
improved hardware maintenance margins in Business and Government and improved
software support margins across the Company.
Operating Expenses
Sales and marketing expenses decreased $.4 million or 3.9% in the quarter ended
April 30, 1995, over the year earlier quarter. This represents a decrease of 1.8
percentage points as a percentage of total revenues. For the remainder of fiscal
1995, the Company expects sales and marketing expenses to be slightly higher
than fiscal 1994, however, as a percentage of revenue, they will be stable or
decline as continuing efforts are made to manage these expenses.
Research and development costs increased by $.8 million for the quarter ended
April 30, 1995, over the year earlier quarter. This increase came principally in
the Banking and Financial business and is related to development of software
products. These expenses are likely to continue at higher levels than the
previous year as the Company expects a higher portion of software product
development costs to be non-capital in nature in fiscal 1995.
General and administrative expenses increased slightly in the quarter ended
April 30, 1995, from the comparable prior year quarter. For fiscal 1995, these
expenses are expected to be comparable or slightly higher than the previous
year.
Non-operating Expenses
Interest expense increased by $.3 million in the quarter ended April 30, 1995,
from the comparable prior year period. This increase is almost equally the
result of higher aggregate borrowing levels and higher interest rates.
Other income and expense, net, for the quarter ended April 30, 1995, compares
unfavorably to the respective prior year period primarily due to a one-time gain
on an asset sale in the prior year, foreign currency exchange losses in the
current period, and other non-operating items.
Provision for Income Taxes
The effective income tax rate of 39.0% for the quarter ended April 30, 1995, was
essentially equal to the 38.9% effective rate for the first quarter of the prior
year.
Liquidity and Capital Resources
For the three-month period ended April 30, 1995, the Company used $.5 million to
fund operating activities as contrasted with funds provided by operations of
$8.2 million in the same period of the prior year. Traditionally, first quarter
collections are higher, following heavy fourth quarter revenues. Accounts
receivable were reduced during the first quarter, however, collections did not
match the collection levels of the first quarter of fiscal 1994. Borrowings
increased $6.7 million to fund operating needs and investment in property, plant
and equipment and product software. It is anticipated that the Company's
revolving credit borrowings and other borrowings will decrease over the
remainder of fiscal 1995, as funds from operations will be used to reduce the
current debt levels. 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.
<PAGE>
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 25, 1995.
(C) Briefly described below are the only matters vote on at the
Annual meeting and the number of votes with respect to each
matter.
(i) Election of Board of Directors
Withhold
Name For Authority
-------- --- ---------
Russell A. Gullotti 14,645,386 187,005
Charles W. Oswald 14,295,627 536,764
David P. Campbell 14,274,925 557,466
David C. Cox 14,643,904 188,487
Jean B. Keffeler 14,645,989 186,402
Stephen G. Shank 14,331,014 501,377
John E. Steuri 14,660,859 171,532
Jeffrey E. Stiefler 14,649,636 182,755
John W. Vessey 14,631,893 200,498
(ii) Approval of the 1995 Employee Stock Option Plan
For 13,883,890
Against 505,823
Abstain 443,430
Broker Non-Vote 0
(iii) Approval of the Oswald Stock Option Plan
For 12,096,595
Against 2,253,048
Abstain 483,500
Broker Non-Vote 0
(iv) Approval of the appointment of Ernst & Young LLP as
auditors for the year ending January 31, 1996
For 14,754,464
Against 35,191
Abstain 43,388
Broker Non-Vote 0
<PAGE>
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
April 30, 1995.
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 8, 1995
<PAGE>
FORM 10-Q
NATIONAL COMPUTER SYSTEMS, INC.
For the quarterly period ended April 30, 1995
---------------
EXHIBIT INDEX
---------------
Exhibit 27. Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for National Computer Systems, Inc. and Subsidiaries, for
the quarterly period ended April 30, 1995, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> APR-30-1995
<CASH> 614
<SECURITIES> 0
<RECEIVABLES> 74801
<ALLOWANCES> 0
<INVENTORY> 23644
<CURRENT-ASSETS> 109603
<PP&E> 169077
<DEPRECIATION> (85731)
<TOTAL-ASSETS> 239639
<CURRENT-LIABILITIES> 66429
<BONDS> 51851
<COMMON> 461
0
0
<OTHER-SE> 113736
<TOTAL-LIABILITY-AND-EQUITY> 239639
<SALES> 58558
<TOTAL-REVENUES> 74297
<CGS> 34801
<TOTAL-COSTS> 45183
<OTHER-EXPENSES> 23754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1054
<INCOME-PRETAX> 3880
<INCOME-TAX> 1515
<INCOME-CONTINUING> 2365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2365
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
