SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 May 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _____________
To _____________
_____________________
Nichols Research Corporation
Commission File Number 0-15295
(Exact name of registrant as specified in its charter)
_____________________
DELAWARE 63-0713665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
4040 Memorial Parkway, South
Huntsville, Alabama 35802-1326
(205) 883-1140
(Address, including zip code, of principal offices)
_____________________
NO CHANGE
(Former name, address and fiscal year if changed since last report)
_____________________
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 __
Indicate the number of shares outstanding of each of the issuerOs classes of
common stock, as of the latest practical date.
COMMON STOCK, $.01 PAR VALUE
6,203,746 SHARES OUTSTANDING ON May 31, 1995
_____________________
FORM 10-Q
NICHOLS RESEARCH CORPORATION
QUARTERLY REPORT FOR THE PERIOD ENDED MAY 31, 1995
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the
Three Months and Nine Months Ended May 31,
1994 and May 31, 1995 1
Consolidated Balance Sheets as of August 31,
1994, May 31, 1994 and May 31, 1995 2-3
Consolidated Statements of Changes in
Stockholders' Equity for the Nine Months
Ended May 31, 1994 and May 31, 1995 4
Consolidated Statements of Cash Flows for the
Year Ended August 31, 1994 and for the Nine
Months Ended May 31, 1994 and May 31, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-9
Part II OTHER INFORMATION
Item 6.(b)Reports on Form 8-K
The Company has not filed any reports on Form
8-K for the three months ended May 31, 1995.
Signatures 10
NICHOLS RESEARCH CORPORATION
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended For the Nine Months Ended
May 31, May 31, May 31, May 31,
1994 1995 1994 1995
_______________________________________________________
(amounts in thousands except per share data)
Revenues from
contracts $35,561 $44,444 $102,428 $116,848
Costs and expenses:
Direct and allocable
contract costs 30,943 38,183 88,495 101,165
General and
administrative 2,299 3,848 6,801 8,713
-----------------------------------------------------
Total costs and
expenses 33,242 42,031 95,296 109,878
-----------------------------------------------------
Operating profit 2,319 2,413 7,132 6,970
Other income 211 516 653 1,188
-----------------------------------------------------
Income before income
taxes 2,530 2,929 7,785 8,158
Income taxes 930 1,100 2,860 3,025
-----------------------------------------------------
Net income $1,600 $1,829 $4,925 $5,133
=====================================================
Net income per common
share $.26 $.29 $.79 $.83
=====================================================
Weighted average number
of common and common
equivalent shares 6,189,536 6,299,391 6,272,238 6,211,111
=====================================================
NOTE: The Company has not declared or paid dividends in any of the periods
presented.
CONSOLIDATED BALANCE SHEETS
August 31, May 31, May 31,
1994 1994 1995
___________________________________________
ASSETS
(amounts in thousands)
Current assets:
Cash and temporary cash
investments $19,355 $ 16,609 $ 25,345
Contract receivables 39,620 35,806 43,872
Deferred income taxes 1,283 1,459 1,283
Other 2,010 1,572 1,310
____________________________________________
Total current assets 62,268 55,446 71,810
Long-term investments 7,894 9,362 4,542
Furniture, fixtures and equipment,
at cost:
Furniture and equipment 12,472 12,257 14,350
Vehicles 29 29 29
Leasehold improvements 1,160 1,135 1,607
Equipment - contracts 5,771 5,771 5,771
___________________________________________
19,432 19,192 21,757
Less accumulated depreciation 8,924 8,342 11,424
___________________________________________
Net furniture, fixtures
and equipment 10,508 10,850 10,333
Other assets 91 135 5,383
___________________________________________
Total assets $ 80,761 $75,793 $ 92,068
===========================================
NICHOLS RESEARCH CORPORATION
BALANCE SHEETS
August 31, May 31, May 31,
1994 1994 1995
LIABILITIES AND STOCKHOLDERSO EQUITY
Current liabilities:
Trade accounts payable $12,483 $8,703 $10,556
Accrued employee leave 2,852 2,911 3,412
Accrued salaries 1,494 1,275 1,965
Income taxes payable - - 833
Accrued profit sharing
contribution 385 1,310 1,842
Current maturities of
long-term debt 962 962 1,206
Other - - 399
-----------------------------------------
Total current liabilities 18,176 15,161 20,213
Deferred income taxes 949 478 949
Long-term debt:
Industrial development bonds - - 2,000
Long-term notes 4,328 4,569 3,607
------------------------------------------
Total long-term debt 4,328 4,569 5,607
Stockholders' equity:
Common stock, par value $.01 per share
Authorized - 10,000,000 shares
Issued - 6,262,137, 6,246,889,
and 6,388,123 shares, respectively 63 62 64
Additional paid-in capital 22,528 22,387 23,778
Retained earnings 38,467 36,886 43,600
Less cost of treasury stock 322,500,
322,500 and 184,377 shares,
respectively (3,750) (3,750) (2,143)
------------------------------------------
Total stockholder'equity 57,308 55,585 65,299
------------------------------------------
Total liabilities and stockholders'
equity $80,761 $75,793 $92,068
==========================================
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Stock Total
(amounts in thousands except per share data)
For the Nine Months Ended May 31, 1994
Balance, August 31, 1993 6,030,997 $60 $20,679 $31,961 $ - $52,700
Sale of common stock 215,982 2 1,708 - - 1,710
Net income for the period - - - 4,925 - 4,925
Purchase of 15,000 shares
of treasury stock - - - - (3,750) (3,750)
---------------------------------------------------------
Balance, May 31, 1994 6,388,123 $62 $22,387 $35,886 $(3,750) $55,585
=========================================================
For the Nine Months Ended May 31, 1995
Balance, May 31, 1994 6,262,137 $63 $22,528 $38,467 $(3,750) $57,308
Sale of common stock 125,896 1 1,037 - - 1,038
Net income for the period - - - 5,133 - 5,133
Reissue 138,123 shares
of treasury stock - - 213 - 1,607 1,820
---------------------------------------------------------
Balance, May 31, 1995 6,388,123 $64 $23,778 $43,600 $(2,143) $65,299
=========================================================
STATEMENTS OF CASH FLOWS
Year Ended For the Nine Months Ended
August 31, May 31, May 31,
(amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period $6,056 $4,925 $ 5,133
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 1,858 1,276 2,017
Gain on sale of furniture,
fixtures and equipment (14) (14) -
Loss on sale of investments - - 34
Deferred income taxes 647 - -
Changes in assets and liabilities
net of effects of acquisitions:
Contract receivables 1,165 4,979 (2,535)
Other assets (1,053) (660) 823
Trade accounts payable (107) (3,887) (2,373)
Accrued employee leave (181) (121) 468
Accrued salaries (202) (421) 419
Income taxes payable (240) (240) 703
Accrued profit sharing contribution (865) 60 1,413
Other current liabilities (4) (4) 241
----------------------------------------
Total adjustments 1,004 968 1,210
----------------------------------------
Net cash provided by operating
activities 7,510 5,893 6,343
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for furniture, fixtures and
equipment (7,301) (7,057) (1,328)
Purchase of long-term investments (7,894) (8,362) -
Payment for non-compete agreements - - (900)
Payment for the purchase of CSSi,
net of cash acquired - - (905)
Payment for the purchase of CCG,
net of cash acquired - - (1,964)
Payment for investment in TXEN, Inc. - - (1,535)
Proceeds from maturity of long-term
investments 1,000 - 3,284
Proceeds from the sale of furniture,
fixtures and equipment 32 28 -
----------------------------------------
Net cash used by investing
activities (14,163) (15,391) (3,348)
STATEMENTS OF CASH FLOWS
Year Ended For the Six MonthsEnded
August 31, February 28, February 28,
(amounts in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 1,851 1,710 1,039
Proceeds from sale of treasury stock - - 734
Proceeds from long-term notes 5,771 5,771 -
Proceeds for industrial development
bonds - - 2,225
Purchase of treasury stock (3,750) (3,750) -
Payment of long-term debt (481) (240) (1,003)
------------------------------------------
Net cash provided by financing
activities 3,392 3,491 2,995
------------------------------------------
Net increase (decrease) in cash (3,261) (6,007) 5,990
Cash and temporary cash
investments at beginning
of period 22,616 22,616 19,355
Cash and temporary cash
investments at end of period $ 19,355 $ 16,609 $25,345
============================================
Non-cash transactions:
Deferred compensation resulting
from the exercise on non-
statutory stock options $ - $ - $ 81
Issuanceof treasury stock as
consideration in purchase of CCG $ - $ - $ 1,005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The financial statements (and all other information in this report) have
not been examined by independent auditors, but in the opinion of the
Company, all adjustments, consisting of the normal recurring accruals
necessary for a fair presentation of the results for the period, have been
made.
Note 2 - Acquisitions and New Operations
On September 1, 1994 the Company acquired 100% interest in Communications &
Systems Specialists, Inc., (CSSi), an information systems development
company. Aggregate consideration of approximately $1,800,000 was paid.
The financial statements as of and for the three months and nine months
ended May 31, 1995 include the results of the acquired company.
On April 3, 1995 NRC Technical Services Corporation (NRCTSC), a wholly
owned subsidiary, began operations. The financial statements as of and for
the three months and nine months ended May 31,1995 include the results of
the new company.
On May 16, 1995 the Company acquired 100% interest in Conway Computer Group
(CCG), a group of three information services companies. Aggregate
consideration of $3,000,000 was paid at closing with an additional $900,000
of consideration payable, contingent upon achieving specified operating
results as defined in the agreement. The financial statements as of and
for the three months and nine months ending May 31, 1995 include the
results of the acquired companies from the date of acquisitions.
Note 3 - Investment
In December 1994 the Company purchased a 19% interest in TXEN, Inc., an
information systems development company in the healthcare industry. The
Company paid approximately $1,500,000 and holds an option to purchase
additional shares in the future.
Note 4 - Non-statutory Stock Options
On September 1, 1994 the president of the Company was granted and exercised
options to purchase 70,000 shares of common stock of the Company. The
shares are subject to mandatory repurchase by the Company for a period of
two years at the exercise price in accordance with the terms of the
employment agreement.
Note 5 - Long-term Debt
On January 1, 1995 the Company received $2,225,000 in bond proceeds from
the Alabama State Industrial Development Authority. The proceeds are
restricted for use in acquiring certain capital assets and are included on
the balance sheet as cash and temporary cash investments. The bond is
payable in equal annual principal installments of $222,500 through January
2005. The bond bears a variable rate of interest computed monthly but
contains an option for a fixed rate for a specified length of time. The
bond is secured by a letter of credit.
Note 6 - Subsequent Event
On June 30, 1995 the Company acquired 100% interest in Computer Services
Corporation (CSC), a healthcare information system company. Aggregate
consideration of $7,550,000 was paid.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
For the nine months ended May 31, 1995, operating activities provided
$6,343,000 in cash as compared to $5,893,000 during the nine months ended
May 31, 1994. Proceeds from the sale of the Company's common stock during
the nine months ended May 31, 1995 were $1,039,000 as compared to
$1,710,000 during the nine months ended May 31, 1994. The Company reissued
treasury stock, generating $734,000 in cash for the nine months ended May
31, 1995.
The Company's working capital was $51,597,000 at May 31, 1995 as compared
to $40,285,000 at May 31, 1994. The Company's working capital ratios were
3.55:1 at May 31, 1995 as compared to 3.66:1 at May 31, 1994. The Company
also has $4,542,000 invested primarily in fixed income instruments at May
31, 1995, as compared to $9,362,000 at May 31, 1994.
The Company increased its bank line of credit to $26,000,000 from
$22,000,000 in January 1995. The line of credit consists of $15,000,000
unsecured and $11,000,000 secured by contract receivables. During the six
months ended May 31, 1995, the Company had no outstanding borrowings under
the provisions of this line of credit.
The Company received $2,225,000 in January 1995 of industrial development
bond proceeds from the State of Alabama. The funds are restricted for use
in acquiring certain capital assets as approved by the State Industrial
Development Authority. The bond is secured by a letter of credit.
The Company used approximately $3,800,000 and reissued 68,123 shares of
treasury stock, valued at approximately $1,000,000, for the acquisition of
various companies during the nine months ended May 31, 1995. The Company
also invested approximately $1,500,000 in another company with an option to
acquire the company at a future date.
The Company purchased $1,328,000 of capital assets during the nine months
ended May 31, 1995, as compared to $7,057,000 during the nine months ended
May 31, 1994. In fiscal year 1994 the capital asset purchases included
$5,771,000 of computer hardware for lease to a customer under a computer
system integration contract. The Company is actively seeking new contracts
for information systems development and computer systems integration which
could require the Company to acquire substantial amounts of computer
hardware for resale or lease to customers. Significant new awards for
computer systems integration programs could require the Company to obtain
additional financing from banks or other sources.
During the nine months ended May 31, 1995, the Company won new contract
awards totaling approximately $135,153,000 as compared to approximately
$107,400,000 for the nine months ended May 31, 1994. The trend in contract
awards is for increased amounts to be awarded in options.
The Company's backlog at May 31, 1995 and May 31, 1994, was as follows:
1994 1995
Base period contracts and
exercised options, net
of services provided $271,500,000 $289,560,000
Options 205,600,000 230,441,000
Total $477,100,000 $520,001,000
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months Ended
May 31, May 31, Amount of Percent
1994 1995 Change Change
---------------------------------------------
<S> <C> <C> <C> <C>
(amounts in thousands)
Revenues from contracts $ 35,561 $44,444 $8,883 25%
Cost and expenses:
Direct and allocable contract
costs 30,943 38,183 7,240 23
General and administrative 2,299 3,849 1,550 67
-------------------------------------------
Total cost and expenses 33,242 42,031 8,789 26
-------------------------------------------
Operating profit 2,319 2,413 94 4
Other income 211 516 305 144
-------------------------------------------
Income before income taxes 2,530 2,929 399 16
Income taxes 930 1,100 170 18
-------------------------------------------
Net income $ 1,600 $ 1,829 $ 229 14%
===========================================
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
May 31, May 31, Amount of Percent
1994 1995 Change Change
<S> <C> <C> <C> <C>
(amounts in thousands)
Revenues from contracts $102,427 $116,849 $14,422 14%
Cost and expenses:
Direct and allocable contract
costs 88,496 101,165 12,669 14
General and administrative 6,800 8,714 1,914 28
-------------------------------------------
Total cost and expenses 95,296 109,878 14,582 15
-------------------------------------------
Operating profit 7,131 6,971 (160) (2)
Other income 654 1,187 533 82
-------------------------------------------
Income before income taxes 7,785 8,158 373 5
Income taxes 2,860 3,025 165 6
-------------------------------------------
Net income $ 4,925 $ 5,133 $ 208 4%
===========================================
</TABLE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the NineMonths Ended
February 28, February 28,
1994 1995 1994 1995
<S> <C> <C> <C> <C>
Revenues from contracts 100 % 100 % 100 % 100 %
Cost and expenses:
Direct and allocable contract
costs 87 86 86 87
General and administrative 7 9 7 7
---------------------------------------------
Total cost and expenses 94 95 93 94
---------------------------------------------
Operating profit 6 5 7 6
Other income 1 1 1 1
---------------------------------------------
Income before income taxes 7 6 8 7
Income taxes 2 2 3 3
---------------------------------------------
Net income 5 % 4 % 5 % 4 %
===================================================
</TABLE>
Revenues from contracts increased 25 percent for the three months ended May
31, 1995 and 14 percent for the nine months ended May 31, 1995, as compared
to the three months and nine months ended May 31, 1994. Revenues from
contracts are dependent upon the Company's ability to obtain new contracts
and the continued funding of awarded contracts. The Company has not
experienced significant funding reductions with respect to existing
contracts, although such reductions could occur in the future.
Costs and expenses as a percentage of revenues from contracts were 86
percent for the three months and 87 percent for the nine months ended May
31, 1995, as compared to 87 percent for the three months and 86 percent for
the nine months ended May 31, 1994. Operating profit as a percentage of
revenues from contracts was 5 percent for the three months and 6 percent
for the nine months ended May 31, 1995, as compared to 6 percent for the
three months and 7 percent for the nine months ended May 31, 1994. The
decrease in operating profit is a result of planned increases in business
development efforts and an increase in subcontractor and direct material
costs on time and material contracts, which are passed through to customers
with no fee. Increased competition may result in reduced fees on new
contract awards. Significant changes in the level of subcontractor and
direct material costs could impact profit margins.
Other income increased to $516,000 for the three months and $1,187,000 for
the nine months ended May 31, 1995 from $211,000 for the three months and
$654,000 for the nine months ended May 31, 1994. Other income consists
primarily of interest income. Substantially all available cash is invested
in interest bearing accounts and fixed income instruments.
Net income was $1,829,000 for the three months and $5,133,000 for the nine
months ended May 31, 1995, as compared to $1,600,000 for the three months
and $4,925,000 for the nine months ended May 31, 1994, for an increase of
14 percent and 4 percent, respectively. Net income as a percentage of
revenues from contracts decreased from 5 percent for the three months and
nine months ended May 31, 1994 to 4 percent for the three months and nine
months ended May 31, 1995.
SIGNATURES
MANAGEMENT REPRESENTATION
The Balance Sheets at May 31, 1995, and May 31, 1994 as well as the
Statements of Income, Statements of Changes in Stockholders' Equity and
Statements of Cash Flows for the three months and nine months ended May 31,
1995, and May 31, 1994, are unaudited by independent public accountants;
however, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
results of operations for the periods presented and financial position for
the dates presented have been made.
Date: July 14, 1995 Allen E. Dillard
----------------------------
Allen E. Dillard
Chief Financial Officer
(Principal Finance and Accounting Officer)
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.
Date: July 14, 1995 Allen E. Dillard
----------------------------
Allen E. Dillard
Chief Financial Officer
(Principal Finance and Accounting Officer)
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<NAME> ALLEN DILLARD
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<PERIOD-END> MAY-31-1995
<CASH> 25,345
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<ALLOWANCES> 0
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<TOTAL-LIABILITY-AND-EQUITY> 92,068
<SALES> 116,848
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<CGS> 101,165
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