<PAGE>
=========================================================================
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 February 29, 1996
-----------------
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 issuer's classes of
common stock, as of the latest practical date.
COMMON STOCK, $.01 PAR VALUE
6,401,903 SHARES OUTSTANDING ON February 29, 1996
_____________________
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
QUARTERLY REPORT FOR THE PERIOD ENDED FEBRUARY 29, 1996
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the Three Months and
Six Months Ended February 29, 1996 and
February 28, 1995 (Unaudited)
Balance Sheets as of February 29, 1996 and
August 31, 1995 (Unaudited)
Statements of Changes in Stockholders' Equity
for the Six Months Ended February 29, 1996
and February 28, 1995 (Unaudited)
Statements of Cash Flows for the Six Months
Ended February 29, 1996 and February 28, 1995
(Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
------------------------------------------------------
(amounts in thousands except share data)
Revenues............... $ 49,003 $ 36,174 $ 98,033 $ 72,404
Costs and expenses:
Direct and allocable
contract costs........ 41,351 31,344 83,022 62,982
General and
administrative
expenses.............. 4,559 2,534 8,980 4,856
----------------------------------------------------
Total costs
and expenses...... 45,910 33,878 92,002 67,838
------------------------------------------------------
Operating profit....... 3,093 2,296 6,031 4,566
Other income (expense):
Interest expense...... (88) (8) (127) (8)
Other income,
principally interest.. 215 379 487 671
------------------------------------------------------
Income before income
taxes.................. 3,220 2,667 6,391 5,229
Income taxes........... 1,169 991 2,326 1,925
------------------------------------------------------
Net income............. $ 2,051 $ 1,676 $ 4,065 $ 3,304
Earnings per share..... $ .31 $ .27 $ .61 $ .54
======================================================
Weighted average number
of common and common
equivalent shares...... 6,722,415 6,197,376 6,682,360 6,166,972
======================================================
NOTE: The Company has not declared or paid dividends in any of the
periods presented.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
February 29, August 31,
1996 1995
--------------------------------
(amounts in thousands)
ASSETS
Current assets:
Cash and temporary cash investments...... $ 18,784 $ 17,196
Accounts receivable...................... 48,460 53,103
Deferred income taxes.................... 1,351 1,351
Other.................................... 2,172 1,593
---------------------------------
Total current assets................. 70,767 73,243
Long-term investments..................... 4,507 4,530
Property and equipment:
Computers and related equipment.......... 13,197 11,973
Furniture, equipment and improvements.... 5,947 5,149
Equipment - contracts.................... 5,771 5,771
----------------------------------
24,915 22,893
Less accumulated depreciation............ 13,003 11,434
----------------------------------
Net property and equipment............ 11,912 11,459
Goodwill (net of accumulated
amortization)............................. 8,426 8,803
Other assets.............................. 3,803 2,844
----------------------------------
Total assets.............................. $ 99,415 $ 100,879
==================================
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
February 29, August 31,
1996 1995
------------------------------
(amounts in thousands except
per share data)
LIABILITIES AND STOCKHOLDERSO EQUITY
Current liabilities:
Accounts payable........................ $ 10,646 $ 16,886
Accrued compensation and benefits....... 7,203 6,897
Income taxes payable.................... - 969
Current maturities of long-term debt.... 1,193 1,187
Other................................... 1,042 531
------------------------------
Total current liabilities............ 20,084 26,470
Deferred income taxes...................... 1,195 1,195
Long-term debt:
Industrial development bonds............. 1,778 2,000
Long-term notes.......................... 2,885 3,366
------------------------------
Total long-term debt.................. 4,663 5,366
Stockholders' equity:
Common stock, par value $.01 per share
Authorized - 20,000,000 and 10,000,000
shares respectivley
Issued - 6,586,280 and 6,439,227
shares respectively.................... 66 64
Additional paid-in capital............... 25,816 24,258
Retained earnings........................ 49,734 45,669
Less cost of treasury stock - 184,377
shares................................... (2,143) (2,143)
------------------------------
Total stockholders' equity............ 73,473 67,848
------------------------------
Total liabilities and stockholders'
equity..................................... $ 99,415 $ 100,879
==============================
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
--------------------------------------------------------------------------
(amounts in thousands except share data)
For the Six Months Ended February 29, 1996
------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1995 6,439,227 $ 64 $ 24,258 $ 45,669 $ (2,143) $ 67,848
Exercise of stock options 125,301 1 1,128 - - 1,129
Employee stock purchases 21,752 1 430 - - 431
Net income - - - 4,065 - 4,065
--------------------------------------------------------------------------
Balance, February 29, 1996 6,586,280 $ 66 $ 25,816 $ 49,734 $ (2,143) $ 73,473
==========================================================================
For the Six Months Ended February 28, 1995
------------------------------------------
Balance, August 31, 1994 6,262,137 $ 63 $ 22,528 $ 38,467 $ (3,750) $ 57,308
Exercise of stock options 59,500 1 397 - - 398
Employee stock purchases 23,413 - 265 - - 265
Sales of 70,000 shares of
treasury stock - - - - 815 815
Net income - - - 3,304 - 3,304
--------------------------------------------------------------------------
Balance, February 28, 1995 6,345,050 $ 64 $ 23,190 $ 41,771 $ (2,935) $ 62,090
==========================================================================
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
February 29, February 28,
1996 1995
---------------------------
(amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 4,065 $ 3,304
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 2,059 1,303
Loss on sale of investments................. - 34
Changes in assets and liabilities net of
effects of acquisitions:
Accounts receivable......................... 4,643 118
Other assets................................ (597) 956
Accounts payable............................ (6,240) (1,792)
Accrued compensation and benefits........... 306 1,207
Income taxes payable........................ (969) 906
Other current liabilities................... 511 -
-----------------------
Total adjustments........................ (287) 2,732
-----------------------
Net cash provided by operating activities..... 3,778 6,036
Cash flows from investing activities:
Purchase of property and equipment............ (2,022) (887)
Payment for non-compete agreement............. - (900)
Payments for acquisitions, net of cash
acquired...................................... - (905)
Payments for investment in affiliates......... (1,031) (1,521)
Proceeds from sale of long-term investments... - 3,284
-----------------------
Net cash used by investing activities......... (3,053) (929)
Cash flows from financing activities:
Proceeds from issuance of common stock........ 1,560 663
Proceeds from sale of treasury stock.......... - 734
Proceeds from industrial development bonds.... - 2,225
Payments of long-term debt.................... (697) (481)
-----------------------
Net cash provided by financing activities..... 863 3,141
-----------------------
Net increase in cash.......................... 1,588 8,248
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED
(CONTINUED)
Cash and temporary cash investments at
beginning of period......................... 17,196 19,355
Cash and temporary cash investments at end
of period................................... $ 18,784 $ 27,603
Non-cash transactions:
Deferred compensation resulting from the
exercise of restricted stock options
and issuance of treasury stock.............. $ - $ 81
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
February 29, 1996
Note 1 - Basis of Presentation
- ------------------------------
The condensed consolidated 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. The
condensed consolidated financial statements include the accounts
of Nichols Research Corporation and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Note 2 - Investments and Affiliates
- -----------------------------------
In October 1995, the Company entered into an agreement to purchase
1,000 shares of Series B Preferred Stock of HealthGate Data
Corporation (HealthGate). HealthGate provides a biomedical and
health information system on the World Wide Web. The agreement
provides for four equal purchase installments of $400,000,
contingent upon HealthGate achieving certain milestones as defined
in the agreement. Two installments have been made as of February
29, 1996. The 1,000 shares of Preferred Stock are convertible to
20% of the common stock on a fully diluted basis at the date of
the agreement.
In January 1996, the Company invested approximately $200,000 in a
joint venture, HealthShare, LLC. HealthShare's mission is to
provide an integrated information system and support services that
enhance the quality and efficiency of healthcare delivery at a
reduced cost.
Note 3 - Reclassification
- -------------------------
Certain prior period amounts have been reclassified to conform
with the current period's presentation.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
The Company provides information systems and technology services
to agencies of the Department of Defense, non-defense federal
agencies, state governments and commercial entities. The major
portion of the Company's revenues results from services performed
under U.S. Government contracts, either directly or through
subcontracts.
The following tables set forth, for the periods indicated, the
amount and percentage change for certain items in the consolidated
statements of income and the percentages such items bear to
consolidated revenues.
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
February 29, 1996 compared February 29, 1996 compared
to the Three Months Ended to the Six Months Ended
February 28, 1995 February 28, 1995
Amount of Percent Amount of Percent
Change Change Change Change
----------------------------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Revenues....................... $ 12,829 35.5% $ 25,629 35.4%
Cost and expenses:
Direct and allocable contract
costs........................ 10,007 31.9 20,040 31.8
General and administrative
expenses..................... 2,025 79.9 4,124 84.9
Total cost and expenses... 12,032 35.5 24,164 35.6
Operating profit............... 797 34.7 1,465 32.1
Other income (expense)......... (244) (65.8) (303) (45.7)
Income before income taxes..... 553 20.7 1,162 22.2
Income taxes................... 178 18.0 401 20.8
Net income..................... $ 375 22.4% $ 761 23.0%
<PAGE>
For the Three Months Ended For the Six Months Ended
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
-------------------------------------------------------
Revenues....................... 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Direct and allocable contract
costs........................ 84.4 86.7 84.7 87.0
General and administrative
expenses..................... 9.3 7.0 9.2 6.7
------------------------------------------------------
Total cost and expenses... 93.7 93.7 93.9 93.7
------------------------------------------------------
Operating profit............... 6.3 6.3 6.2 6.3
Other income (expense)......... 0.3 1.0 0.4 1.0
------------------------------------------------------
Income before income taxes..... 6.6 7.3 6.6 7.3
Income taxes................... 2.4 2.7 2.4 2.7
------------------------------------------------------
Net income..................... 4.2% 4.6% 4.2% 4.6%
======================================================
Revenues for the three months ended February 29, 1996 increased
35.5 percent, or $12.8 million and for the six months ended
February 29, 1996 increased 35.4 percent, or $25.6 million, as
compared to the three months and six months ended February 28,
1995. The increase was primarily the results of the revenues from
an information technology services contract with a commercial
customer and the revenues contributed by two information
technology subsidiaries acquired late in the 1995 fiscal year.
Revenue from Government Systems and Technologies contracts was
approximately $55,115,000 (56 percent), revenue from Government
Information Services contracts was approximately $22,191,000 (23
percent) and revenue from Commercial/Healthcare Information
Services contracts was approximately $20,727,000 (21 percent) for
the six months ended February 29, 1996.
Costs and expenses were 93.7 percent of revenues for the three
months and 93.9 percent of revenues for the six months ended
February 29, 1996, as compared to 93.7 percent for both the three
months and six months ended February 28, 1995. The reduction in
direct and allocable costs as a percentage of revenues is offset
by increases in general and administrative expenses which reflect
the efforts to use contract cost reductions and increased margins
to fund planned increases in business development and marketing
efforts, primarily with commercial opportunities.
Other income consists primarily of interest income. Substantially
all available cash is invested in interest bearing accounts or
fixed income instruments. The 27.4 percent decrease in other
income for the six months ended February 29, 1996 as compared to
the six months ended February 28, 1995 is the result of the use of
cash to make strategic acquisitions and investments in affiliates.
<PAGE>
Net income increased 22.4 percent, or $375,000 for the three
months and 23.0 percent, or $761,000 for the six months ended
February 29, 1996, as compared to the same periods in the prior
year. The increase is the result of reasons discussed above.
Financial Condition
- -------------------
For the six months ended February 29, 1996, operating activities
provided $3,778,000 in cash as compared to $6,036,000 during the
six months ended February 28, 1995. The decrease in cash provided
is the result of changes in the balances of operating assets and
liabilities. The Company realized proceeds from the issuance of
common stock of $1,560,000 for the six months ended February 29,
1996 as compared to $663,000 during the six months ended February
28, 1995. During the six months ended February 28, 1995, the
Company also reissued 70,000 shares of treasury stock, providing
cash of $734,000.
Working capital was $50,683,000 at February 29, 1996 as compared
to $51,265,000 at February 28, 1995. The Company's working
capital ratios were 3.5:1 at February 29, 1996 as compared to
3.7:1 at February 28, 1995. The Company also has $4,507,000
invested primarily in fixed income instruments which are
classified as noncurrent assets at February 29, 1996, as compared
to $4,555,000 at February 28, 1995.
The Company has a bank line of credit which provides for borrowing
up to $73,500,000, secured primarily by accounts receivable.
During the six months ended February 29, 1996, the Company had no
outstanding borrowings under the provisions of this line of
credit. Long-term debt includes a term note used to purchase
computer hardware for lease to a customer under a system
integration contract. The proceeds from an Alabama State
Industrial Development Bond are being used to expand information
technology programs.
Purchases of property and equipment were $2,022,000 during the six
months ended February 29, 1996, as compared to $887,000 during the
six months ended February 28, 1995. The Company is upgrading its
enterprise information systems as well as replacing capital assets
in the normal course of business.
The Company is actively pursuing new contracts for information
systems development and computer system integration activities
which could require the Company to acquire substantial amounts of
computer hardware. One such contract, High Performance Computing
Modernization Program (HPCM), was awarded in March 1996. On April
2, 1996, as part of its overall strategic plan, the Company signed
a letter of intent to acquire Advanced Marine Enterprises, Inc.
(AME). The Company believes that its existing capital resources,
together with available borrowing capacity, are sufficient to fund
these activities.
<PAGE>
During the six months ended February 29, 1996, the Company won new
contract awards totaling approximately $74,172,000 as compared to
approximately $88,324,000 for the six months ended February 28,
1995. The trend in contract awards is for increased amounts to be
awarded in options.
The Company's backlog at February 29, 1996 and February 28, 1995
was as follows:
1996 1995
---- ----
Base period contracts and exercised
options, net of services provided.... $283,520,000 $266,703,000
Options................................ 195,943,000 276,238,000
------------ ------------
Total................................ $479,463,000 $542,941,000
============ ============
Backlog at February 29, 1996 decreased compared to February 28,
1995 due to the lower value of new contract awards. At February
29, 1996 the Company has proposals outstanding on several
substantial contracts. The HPCM award in March 1996 has an
estimated value of $155.5 million (including options). Contracts
with the U.S. Government, either directly or through subcontracts,
are the primary source of backlog values.
The Company's business is dependent upon its ability to win new
contracts, the funding levels of awarded contracts and the
Company's ability to perform under contract provisions.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On January 11, 1996, the annual meeting of the CompanyOs
stockholders was held at the Corporate Headquarters in Huntsville,
Alabama. Proxies were solicited and cast by the Company's
transfer agent, Chemical Mellon Shareholder Services, New York,
New York. Matters put to vote and acted upon were the election of
the Board of Directors of the Company, amendment to the Nichols
Research Corporation 1991 Stock Option Plan, amendment to
Certificate of Incorporation and the ratification of the Company's
external auditors.
All directors were elected for a term of one year and will serve
until the next annual meeting. Directors elected were as follows:
For Withheld
Chris H. Horgen 5,204,295 228,582
Michael J. Mruz 5,200,968 231,909
Roy J. Nichols 5,205,425 227,452
Patsy L. Hattox 5,202,990 229,887
Roger P. Heinisch 5,205,259 227,618
John R. Wynn 5,182,317 250,560
William E. Odom 5,205,525 227,352
James R. Thompson, Jr. 5,198,508 234,369
Phil E. DePoy 5,198,061 234,816
Robert W. Hager 5,198,149 234,728
The Nichols Research Corporation 1991 Stock Option Plan was
amended. Voting for amendment were 3,121,382 shares, voting
against were 1,397,636 shares and 236,810 shares abstained.
Article IV of the Company's Certificate of Incorporation was
amended. Voting for the amendment were 4,748,186 shares, voting
against were 616,651 shares and 11,840 shares abstained.
Ernst & Young, LLP was ratified to serve as the CompanyOs
independent auditors for the fiscal year ending August 31, 1996.
Voting for ratification were 5,421,033 shares, voting against were
2,231 shares and 9,613 shares abstained.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) The Company has not filed any reports on Form 8-K for the six
months ended February 29, 1996.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
SIGNATURES
MANAGEMENT REPRESENTATION
-------------------------
The accompanying unaudited Consolidated Balance Sheets at
February 29, 1996, and August 31, 1995 as well as the Consolidated
Statements of Income for the three months ended February 29, 1996
and February 28, 1995 and the Consolidated Statements of Income,
Consolidated Statements of Changes in Stockholders' Equity and
Consolidated Statements of Cash Flows for the six months ended
February 29, 1996 and February 28, 1995, 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.
April 12, 1996 Allen E. Dillard
-------------- ----------------
Date 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.
NICHOLS RESEARCH CORPORATION
April 12, 1996 Allen E. Dillard
-------------- ----------------
Date Allen E. Dillard
Chief Financial Officer
(Principal Finance and
Accounting Officer)
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> FEB-29-1996
<CASH> 18,784
<SECURITIES> 0
<RECEIVABLES> 48,460
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 70,767
<PP&E> 24,915
<DEPRECIATION> 13,003
<TOTAL-ASSETS> 99,415
<CURRENT-LIABILITIES> 20,084
<BONDS> 4,663
<COMMON> 66
0
0
<OTHER-SE> 73,407
<TOTAL-LIABILITY-AND-EQUITY> 99,415
<SALES> 98,033
<TOTAL-REVENUES> 98,033
<CGS> 83,022
<TOTAL-COSTS> 83,022
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 6,391
<INCOME-TAX> 2,326
<INCOME-CONTINUING> 4,065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,065
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
