<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 November 30, 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
11,600,848 SHARES OUTSTANDING ON November 30 ,1996
_____________________
================================================================================
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
QUARTERLY REPORT FOR THE PERIOD ENDED NOVEMBER 30, 1996
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the Three Months Ended November 30, 1996
and November 30, 1995 (Unaudited)
Balance Sheets as of November 30, 1996 and August 31, 1996 (Unaudited)
Statements of Changes in Stockholders' Equity for the Three Months
Ended November 30, 1996 and November 30, 1996 (Unaudited)
Statements of Cash Flows for the Three Months Ended November 30, 1996
and November 30, 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 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
November 30, November 30,
1996 1995
-------------------------------
(amounts in thousands except
share data)
Revenues............................... $ 82,847 $ 49,030
Costs and expenses:
Direct and allocable costs........... 72,648 41,671
General and administrative expenses.. 5,802 4,421
--------------------------------
Total costs and expenses......... 78,450 46,092
--------------------------------
Operating profit....................... 4,397 2,938
Other income (expense):
Other income, principally interest... 262 272
Interest expense..................... (68) (39)
Equity in earnings of unconsolidated
affiliates......................... 137 -
Minority interest in consolidated
subsidiary......................... (120) -
---------------------------------
Income before income taxes............. 4,608 3,171
Income taxes........................... 1,673 1,157
---------------------------------
Net income............................. $ 2,935 $ 2,014
=================================
Net income per common share............ $ .24 $ .20
=================================
Weighted average number of common and
common equivalent shares.............. 12,193,169 9,963,457
NOTE: The Company has not declared or paid dividends in any of the periods
presented. All references to the number of shares and per share amounts
have been restated to reflect the effect of a three-for-two stock split
effective October 21, 1996.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
November 30, August 31,
1996 1996
----------------------------------
(amounts in thousands)
ASSETS
Current assets:
Cash and temporary cash investments....... $ 4,721 $ 21,419
Accounts receivable....................... 110,195 90,232
Deferred income taxes..................... 1,519 1,519
Other..................................... 2,822 2,384
----------------------------------
Total current assets.................. 119,257 115,554
Long-term investments...................... 4,472 4,483
Property and equipment:
Computers and related equipment........... 17,991 17,182
Furniture, equipment and improvements..... 7,127 6,915
Equipment-contracts....................... 5,771 5,771
----------------------------------
30,889 29,868
Less accumulated depreciation.............. 15,563 14,721
Net property and equipment................ 15,326 15,147
Goodwill (net of accumulated amortization.. 20,784 21,004
Other assets............................... 6,380 5,776
----------------------------------
Total assets............................... $ 166,219 $ 161,964
==================================
NOTE: All references to the number of shares and per share amounts have been
restated to reflect the effect of a three-for-two stock split effective October
21, 1996.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CONTINUED
November 30, August 31,
1996 1996
-----------------------------------
(amounts in thousands except
per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................... $ 29,452 $ 31,032
Accrued compensation and benefits.... 10,072 9,037
Income taxes payable................. 1,873 238
Current maturities of long-term debt. 763 764
Other................................ 906 1,808
---------------------------------
Total current liabilities........ 43,066 42,879
Deferred income taxes................. 1,340 1,340
Long-term debt:
Industrial development bonds......... 1,777 1,777
Long-term notes...................... 2,873 3,007
---------------------------------
Total long-term debt.............. 4,650 4,784
Minority interest in consolidated
subsidiary........................... 120 -
Stockholders' equity:
Common stock, par value $.01 per
share
Authorized - 20,000,000 shares
Issued - 11,769,348 and 11,651,018
shares, respectively............... 118 117
Additional paid-in capital........... 60,217 59,071
Retained earnings.................... 57,996 55,061
Less cost of treasury stock -
168,500 shares...................... (1,288) (1,288)
---------------------------------
Total stockholders'equity........ 117,043 112,961
---------------------------------
Total liabilities and stockholders'
equity............................... $ 166,219 $ 161,964
NOTE: All references to the number of shares and per share amounts have been
restated to reflect the effect of a three-for-two stock split effective
October 21, 1996.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Treasury Stockholders'
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(amounts in thousands except share data)
For the Three Months Ended November 30, 1996
--------------------------------------------
Balance, August 31, 1996...... 11,651,018 $117 $59,071 $55,061 $ (1,288) $ 112,961
Exercise of stock options..... 102,051 1 809 - - 810
Employee stock purchases...... 16,279 - 337 - - 337
Net income.................... - - - 2,935 - 2,935
-------------------------------------------------------------------------
Balance, November 30, 1996... 11,769,348 $118 $60,217 $57,996 $ (1,288) $ 117,043
=========================================================================
For the Three Months Ended November 30, 1995
--------------------------------------------
Balance, August 31, 1995...... 9,658,840 $ 97 $24,225 $45,669 $ (2,143) $ 67,848
Exercise of stock options..... 152,986 1 850 - - 851
Employee stock purchases...... 15,172 - 200 - - 200
Net income.................... - - - 2,014 - 2,014
-------------------------------------------------------------------------
Balance, November 30, 1995.... 9,826,998 $ 98 $25,275 $47,683 $ (2,143) $ 70,913
=========================================================================
NOTE: All references to the number of shares and per share amounts have been
restated to reflect the effect of a three-for- two stock split effective
October 21, 1996.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
November 30, November 30,
1996 1995
-----------------------------
(amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 2,935 $ 2,014
Adjustments to reconcile net income
to net cash used by operating
activities:
Depreciation and amortization...... 1,318 1,017
Equity in earnings of
unconsolidated affiliates........ (137) -
Minority interest.................. 120 -
Changes in assets and liabilities net
of effects of acquisitions:
Accounts receivable................... (20,163) (6,817)
Other assets.......................... (761) (296)
Accounts payable...................... (1,580) (3,738)
Accrued compensation and benefits..... 1,035 255
Income taxes payable.................. 1,635 255
Other current liabilities (902) 292
-----------------------------
Total adjustments..................... (19,435) (9,032)
-----------------------------
Net cash used by operating
activities........................ (16,500) (7,018)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..... (1,021) (1,100)
Payment for investment in affiliates... (189) (400)
-----------------------------
Net cash used by investing
activities........................ (1,210) (1,500)
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) CONTINUED
For the Three Months Ended
November 30, November 30,
1996 1995
-----------------------------
(amounts in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock................................. 1,147 1,051
Payments of long-term debt............. (135) (240)
-----------------------------
Net cash provided by financing
activities........................ 1,012 811
-----------------------------
Net decrease in cash and temporary cash
investments........................... (16,698) (7,707)
Cash and temporary cash investments at
beginning of period................... 21,419 17,196
-----------------------------
Cash and temporary cash investments at
end of period......................... $ 4,721 $ 9,489
=============================
NON-CASH TRANSACTIONS:
Adjustment to purchase price
allocation............................ $ 200 $ -
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 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 majority-owned subsidiaries
and joint ventures. All significant intercompany balances and transactions
have been eliminated in consolidation. The Company's earnings in unconsolidated
affiliates and joint ventures are accounted for using the equity method.
NOTE 2 - STOCK SPLIT
-----------
On October 9, 1996 the Board of Directors declared a three-for-two stock split
which was paid to shareholders of record on October 21, 1996. The split was
effected on November 4, 1996 by a stock dividend of one share for every two
shares of common stock outstanding, with cash paid in lieu of fractional
shares based on the stock value on record date. All references to the number
of shares and per share amounts have been restated to reflect the effect of the
split for all periods presented.
NOTE 3 - NEW PRONOUNCEMENTS
------------------
The Company adopted Financial Accounting Standards Board Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, on September 1, 1996. The Company has reviewed long-lived
assets and identifiable intangible assets used in operation of the business and
concluded the assets are not impaired.
If events or changes occur to indicate that an impairment does exist, an
assessment of the need for an impairment write-down will be performed.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OEPRATIONS
Results of Operations
- ---------------------
The Company is a leading provider of technical and information technology (IT)
services, including information processing, systems development and systems
integration. The Company provides these services to a wide range of clients,
including the DOD, other federal agencies, state and local governments,
healthcare and insurance organizations, and commercial enterprises. The
Company's business strategy consists of three key elements: (i) maintain the
Company's leadership in technology; (ii) apply the Company's technology to
create solutions for new clients; and (iii) make strategic acquisitions and
form alliances to expand the business of the Company and gain industry
knowledge. The Company's business and financial performance are subject to
risks and uncertainties, including those discussed below.
The Company is organized in four strategic business units, reflecting the
particular market focus of each line of business. Nichols Federal provides
technical services primarily to U.S. government defense agencies. Nichols
InfoFed provides information and technology services to a variety of
governmental agencies. Nichols InfoTec provides information and technology
services to various commercial clients, other than healthcare or insurance
industry clients. Nichols SELECT provides information services to clients in
the healthcare and insurance industries. For the quarter ended November 30,
1996, the percentage of total revenues attributable to the four business units
were approximately 52% for Nichols Federal, 38% for Nichols InfoFed, 5%
for Nichols InfoTec, and 5% for Nichols SELECT.
Expansion through acquisitions is an important component of the Company's
overall business strategy. The Company has successfully completed seven
strategic acquisitions and alliances since September 1, 1994. The Company's
continued ability to grow by acquisitions is dependent upon, and may be
limited by, the availability of compatible acquisition candidates at reasonable
prices, the Company's ability to fund or finance acquisitions on acceptable
terms, and the Company's ability to maintain or enhance the profitability of
any acquired business.
As part of the Company's business strategy to enter new markets, the Company
intends to pursue large systems integration contracts in both the government
and commercial markets, although competition for such contracts is intense
and many of the Company's competitors have greater resources than the
Company. While such contracts are working capital intensive, requiring large
equipment and software purchases to be funded by the Company before payment
from the customer, the Company believes such contracts offer attractive
revenue growth and margin expansion opportunities for the Company's range of
technical expertise and capabilities.
The Company's revenues and earnings may fluctuate from quarter to quarter based
on such factors as the number, size and scope of projects in which the Company
is engaged, the contractual terms and degree of completion of such projects,
expenditures required by the Company in connection with such projects, any
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Results of Operations (continued)
- ---------------------------------
delays incurred in connection with such projects, employee utilization rates,
the adequacy of provisions for losses, the accuracy of estimates of resources
required to complete ongoing projects, and general economic conditions. Under
certain contracts, the Company is required to purchase, integrate and deliver
to the customer large computer processing systems and other equipment.
Revenues are accrued as costs to deliver these systems are incurred and as a
result, quarterly revenues will be impacted by fluctuations related to
significant system integration contracts which occur on a periodic basis
depending on contract terms and modifications.
The Company's services are provided primarily through three types of
contracts: fixed-price, time-and-materials and cost-reimbursement contracts.
Fixed-price contracts require the Company to perform services under a
contract at a stipulated price. Time-and-materials contracts reimburse the
Company for the number of labor hours expended at an established hourly rate
negotiated in the contract, plus the cost of materials incurred. Under cost-
reimbursement contracts, the Company is reimbursed for all actual costs
incurred in performing the contract to the extent that such costs are within
the contract ceiling and allowable under the terms of the contract, plus a fee
or profit.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
The following tables set forth, for the periods indicated, the percentage which
certain items in the consolidated statements of income bear to consolidated
revenues, and the percentage change of such items for the periods indicated:
Percentage of Revenue
For the Three Months Ended
November 30, November 30, Percentage
1996 1995 Change
-----------------------------------------
Revenues......................... 100.0% 100.0% 69.0%
Costs and expenses:
Direct and allocable costs...... 87.7 85.0 74.3
General and administrative
expenses....................... 7.0 9.0 31.2
---------------------------
Total costs and expenses....... 94.7 94.0 70.2
---------------------------
Operating profit................. 5.3 6.0 49.6
Interest expense................. (0.1) (0.1) 74.4
Other income..................... 0.3 0.6 2.6
---------------------------
Income before income taxes....... 5.5 6.5 45.3
Income taxes..................... 2.0 2.4 44.6
---------------------------
Net income....................... 3.5% 4.1% 45.7%
===========================
The table below presents contract award and backlog data for the periods
indicated:
Quarter Ended November 30,
1996 1995
--------------------------
(amounts in thousands)
Contract award amount............ $ 21,000 $ 16,458
Backlog (with options)........... 946,783 473,727
Backlog (without options)........ 498,882 261,924
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
COMPARISON OF OPERATING RESULTS FOR FISCAL FIRST QUARTER 1997 WITH FISCAL
FIRST QUARTER 1996
REVENUES. Revenues increased $33.8 million (69.0%) for the three months ended
November 30, 1996 as compared to the three months ended November 30, 1995.
First quarter revenues increased as a result of revenue from the HPCM contracts
and the acquisition of AME completed in May 1996, but decreased as a result
of the completion of the FedEx contract in 1996.
OPERATING PROFIT. Operating profit increased $1.5 million (49.6%) for the
three months ended November 30, 1996. Costs and expenses were 94.7% of
revenues for the three months ended November 30, 1996 as compared to 94.0%
for the three months ended November 30, 1995. The increase in direct and
allocable costs as a percentage of revenues was primarily the result of
hardware purchases under the recently awarded HPCM contracts. The increase
of $1.4 million in general and administrative expenses is primarily from the
amortization of goodwill as well as general and administrative expenses
of AME acquired in 1996.
OTHER INCOME (EXPENSE). Other income consists primarily of interest income.
Substantially all available cash is invested in interest-bearing accounts or
fixed income instruments.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES. Equity in earnings of
unconsolidated affiliates primarily represents the Company's share of earnings
from TXEN, Inc. The increase is due to increased revenues and improved
profitability of TXEN for the period ended November 30, 1996.
MINORITY INTEREST. Minority interest represents the majority partners share
of earnings of Holland Technology Group, a joint venture. The increase is a
result of the increased profitability of this venture which began in fiscal
1996.
INCOME TAXES. Income taxes as a percentage of income before taxes was 36.3%
for the three months ended November 30, 1996 as compared to 36.5% for the
three months ended November 30, 1995.
NET INCOME. Net income increased $0.9 million (45.7%) for the three months
ended November 30, 1996 as compared to the three months ended November 30,
1995. The increase is the result of the reasons discussed above.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Liquidity and Capital Resources
- -------------------------------
Historically, the Company's positive cash flow from operations and available
credit facilities, have provided adequate liquidity and working capital to
fully fund the Company's operational needs and support the acquisition
activities. Working capital was $76.2 million and $72.7 million at November 30,
1996 and 1995, respectively. Operating activities used cash of $16.5 million
and $7.0 million for the three months ended November 30, 1996 and 1995,
respectively. The Company realized proceeds from the sale of Common Stock of
$1.1 million and $1.0 million for three months ended November 30, 1996 and
1995, respectively.
The Company has a bank line of credit of $73.5 million which expires in March
1997, unless renewed. The credit agreement provides for interest at London
Interbank Offered Rate plus 1.25% and a commitment fee on the unused portion
of the line of credit. Outstanding borrowings are secured primarily by
accounts receivable. As of November 30, 1996 there were no outstanding
borrowings under the line of credit.
Purchases of property and equipment were $1.0 and $1.1 million for the three
months ended November 30, 1996 and 1995, respectively.
In fiscal 1996, the Company was awarded the HPCM Contracts for information
system development and computer system integration activities, which will
require the Company to acquire substantial amounts of computer hardware as
part of these integrated systems. The Company continues to actively pursue
other contracts that could require the integration of significant computer
equipment components. The timing of payments to suppliers and payments from
customers under the Company's system integration contracts could cause cash
flows from operations to fluctuate from period to period.
The Company believes that its existing capital resources, together with
available borrowing capacity, will be sufficient to fund operating needs,
finance acquisitions of property and equipment for information technology
programs and computer system integration activities, and make strategic
acquisitions, if appropriate.
Effects of Inflation
- --------------------
Substantially all contracts awarded to the Company have been based on proposals
which reflect estimated cost increases due to inflation. Historically,
inflation has not had a significant impact on the Company.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
PART II - OTHER INFORMATION
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 three months
ended November 30, 1996.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
SIGNATURES
MANAGEMENT REPRESENTATION
-------------------------
The accompanying unaudited Consolidated Balance Sheets at November 30, 1996,
and August 31, 1996 as well as the Consolidated Statements of Income,
Consolidated Statements of Changes in Stockholders' Equity and Consolidated
Statements of Cash Flows for the three months ended November 30, 1996 and 1995,
have been prepared in accordance with instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring accruals,
considered necessary for a fair presentation have been included.
January 14, 1997 Allen E. Dillard
- ------------------------------- __________________________
Date Allen E. Dillard
Vice President and 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
January 14, 1997 By
- ------------------------------- -----------------------
Date Allen E. Dillard
Vice President and
Chief Financial Officer
(Principal Finance and
Accounting Officer)
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 4,721
<SECURITIES> 0
<RECEIVABLES> 110,195
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 119,257
<PP&E> 30,889
<DEPRECIATION> 15,563
<TOTAL-ASSETS> 166,219
<CURRENT-LIABILITIES> 43,066
<BONDS> 4,650
0
0
<COMMON> 118
<OTHER-SE> 116,925
<TOTAL-LIABILITY-AND-EQUITY> 166,219
<SALES> 82,847
<TOTAL-REVENUES> 82,847
<CGS> 72,648
<TOTAL-COSTS> 72,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 4,608
<INCOME-TAX> 1,673
<INCOME-CONTINUING> 2,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,935
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
