<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, 1997
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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
13,120,828 SHARES OUTSTANDING ON November 30, 1997
_____________________
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
QUARTERLY REPORT FOR THE PERIOD ENDED NOVEMBER 30, 1997
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the Three Months Ended
November 30, 1997 and November 30, 1996 (Unaudited) 1
Balance Sheets as of November 30, 1997 and
August 31, 1997 (Unaudited) 2-3
Statements of Changes in Stockholders' Equity for the
Three Months Ended November 30, 1997 and November 30,
1996 (Unaudited) 4
Statements of Cash Flows for the Three Months Ended
November 30, 1997 and November 30, 1996 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<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,
1997 1996
----------------------------------------
(amounts in thousands except share data)
Revenues $ 83,949 $ 82,847
Costs and expenses:
Direct and allocable contract costs 69,955 72,648
General and administrative expenses 7,563 5,292
Amortization of intangibles 1,039 510
------------------------------
Total costs and expenses 78,557 78,450
------------------------------
Operating profit 5,392 4,397
Other income (expense):
Interest expense (90) (68)
Other income, principally interest 277 262
Equity in earnings of unconsolidated
affiliates 130 137
Minority interest in consolidated affiliates (331) (120)
------------------------------
Income before income taxes 5,378 4,608
Income taxes 2,049 1,673
------------------------------
Net income $ 3,329 $ 2,935
==============================
Earnings per share $ .25 $ .24
------------------------------
Weighted average number of common
and common equivalent shares 13,581,086 12,193,169
==============================
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,
1997 1997
------------------------------
(amounts in thousands)
ASSETS
Current assets:
Cash and temporary cash investments $ 16,305 $ 23,354
Accounts receivable 92,790 93,425
Deferred income taxes 2,102 2,102
Other 3,637 3,311
------------------------------
Total current assets 114,834 122,192
Long-term investments 3,280 3,738
Property and equipment:
Computers and related equipment 23,829 21,956
Furniture, equipment and improvements 10,641 9,666
Equipment-contracts 5,771 5,771
------------------------------
40,241 37,393
Less accumulated depreciation 19,976 18,715
------------------------------
Net property and equipment 20,265 18,678
Goodwill and other intangibles (net of
accumulated amortization) 47,330 48,130
Software development costs (net of
accumulated amortization) 4,139 4,271
Investment in affiliates 8,956 8,363
Other assets 751 783
------------------------------
Total assets $ 199,555 $ 206,155
==============================
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CONTINUED
November 30, August 31,
1997 1997
------------------------------
(amounts in thousands except
per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,615 $ 28,448
Accrued compensation and benefits 12,728 11,388
Income taxes payable 1,999 369
Current maturities of long-term debt 761 761
Borrowings on line of credit ----- 10,000
Deferred revenue 3,350 3,114
Other 229 1,534
------------------------------
Total current liabilities 43,682 55,614
Deferred income taxes 1,816 1,816
Long-term debt:
Industrial development bonds 1,558 1,558
Long-term notes 2,332 2,467
------------------------------
Total long-term debt 3,890 4,025
Minority interest in consolidated subsidiary 638 307
Stockholders' equity:
Common stock, par value $.01 per share
Authorized - 20,000,000 shares
Issued - 13,289,328 and 13,137,657
shares, respectively 133 131
Additional paid-in capital 91,820 90,015
Retained earnings 58,864 55,535
Less cost of treasury stock-168,500 shares (1,288) (1,288)
------------------------------
Total stockholders' equity 149,529 144,393
------------------------------
Total liabilities and stockholders' equity $ 199,555 $ 206,155
==============================
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional Total
Common Stock Paid-In Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
--------------------------------------------------------------------------------------
(amounts in thousands except share data)
For the Three Months Ended November 30, 1997
--------------------------------------------
Balance,August 31,1997 13,137,657 $ 131 $ 90,015 $ 55,535 $ (1,288) $ 144,393
Exercise of stock options 127,398 1 1,321 ---- ---- 1,322
Employee stock purchases 24,273 1 484 ---- ---- 485
Net Income ---- ---- ---- 3,329 ---- 3,329
--------------------------------------------------------------------------------------
Balance, November 30, 1997 13,289,328 $ 133 $ 91,820 $ 58,864 $ (1,288) $ 149,529
======================================================================================
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
=====================================================================================
</TABLE>
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,
1997 1996
---------------------------------
(amounts in thousands)
Cash flows from operating activities:
Net income $ 3,329 $ 2,935
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation 1,261 842
Amortization 1,039 510
Equity in earnings of unconsolidated
affiliates (130) (137)
Minority interest 331 120
Changes in assets and liabilities net
of effects of acquisitions:
Accounts receivable 635 (20,163)
Other assets (294) (627)
Accounts payable (3,833) (1,581)
Accrued compensation and benefits 1,340 1,035
Income taxes payable 1,630 1,635
Other current liabilities (1,069) (902)
--------------------------------
Total adjustments 910 (19,268)
--------------------------------
Net cash provided (used) by operating
activities 4,239 (16,333)
Cash flows from investing activities:
Purchase of property and equipment (2,848) (1,021)
Purchase of long-term investments (100) ----
Purchase of capitalized software (62) (167)
Payment for investment in affiliates (500) (189)
Proceeds from maturity of long-term
investments 550 ----
--------------------------------
Net cash used by investing activities (2,960) (1,377)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,807 1,147
Payments of long-term debt (135) (135)
Payments on line of credit borrowings (10,000) ----
--------------------------------
Net cash provided (used) by
financing activities (8,328) 1,012
--------------------------------
Net decrease in cash and temporary cash
investments (7,049) (16,698)
Cash and temporary cash investments at
beginning of period 23,354 21,419
--------------------------------
Cash and temporary cash investments at
end of period $ 16,305 $ 4,721
================================
Supplemental disclosure of non-cash
transactions:
Issuance of stock as consideration in
acquisitions ---- ----
Adjustment to purchase price allocation ---- $ 200
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 1997
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 - Reclassification
Certain prior period amounts have been reclassified to conform with the
current period's presentation and the final purchase price allocation for
TXEN, Inc.
Note 4 - Investment in affiliates
The Company increased its capital investment by $500,000 in NCCIM, LLC. As of
November 30, 1997 the Company holds a 50% interest at an aggregate cost of
$1,345,000.
Note 5 - Line of Credit
The Company renegotiated its bank line of credit in November, 1997. The
agreement provides for unsecured borrowings up to $100,000,000. The credit
agreement provides for interest at London Interbank Offered Rate (LIBOR) plus a
margin ranging from 0.325% to 0.450% and a facility fee, payable quarterly, of
approximately 0.125% on the unused portion of the line of credit. The
short-term commitment agreement ($50,000,000) is renewable annually and the
long-term commitment agreement ($50,000,000) is renewable in November, 2000.
There were no outstanding borrowings on this line of credit at November 30,
1997.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview and Business Environment
The Company is a leading provider of high-performance technology-based
solutions and services where information access, movement, and evaluation are
mission-critical to an organization's success. The Company provides these
services to a wide range of clients, including the Department of Defense (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 in its current markets; (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.
In July 1996, the Company announced a formal organization definition for its
four strategic business units. The organizations reflect 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. Nichols TXEN provides information services to clients in
the healthcare and insurance industries. For the quarter ended November 30,
1997, the percentage of total revenues attributable to the four business units
was approximately 56% for Nichols Federal, 23% for Nichols InfoFed, 10% for
Nichols InfoTec, and 11% for Nichols TXEN.
Expansion through acquisitions is an important component of the Company's
overall business strategy. The Company has successfully completed eight
strategic acquisitions and alliances since September 1, 1994, most of which
have centered on information technology (IT) and healthcare information
services markets. Since the respective dates of the acquisitions, the Company
has integrated these acquired entities in order to draw on the Company's base
of technical expertise and capabilities in designing solutions for government,
commercial, and healthcare clients. 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
continues 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
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 and resell to the
customer large amounts of computer hardware and other equipment. Revenues are
accrued when this equipment is acquired for resale, and as a result, quarterly
revenues will be impacted by fluctuations related to equipment purchases which
occur on a periodic basis depending on contract terms.
The Company performs a majority of its services under U.S. Government contracts
that usually require performance over a period of one to five years. Long-term
contracts may be conditioned upon continued availability of Congressional
appropriations. Variances between anticipated budgets and Congressional
appropriations may result in delay, reduction, or termination of such
contracts. Contractors can experience revenue uncertainties with respect to
available contract funding during the first quarter of the government's fiscal
year beginning October 1, until differences between budget requests and
appropriations are resolved. The Company's contracts with the U.S. Government
and its prime contractors are subject to termination, in whole or in part,
either upon default by the Company or at the convenience of the government. The
termination for convenience provisions generally entitle the Company to recover
costs incurred, settlement expenses, and profit on work completed prior to
termination. Because the Company contracts to supply goods and services to the
U.S. Government, it is also subject to other risks, including contract
suspensions, audit adjustments, protests by disappointed bidders of contract
awards which can result in the re-opening of the bidding process and changes in
government policies or regulations.
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.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS QUARTERLY REPORT
CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED IN SECIONT 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS
RISKS AND UNCERTAINTIES THAT COULD CASUE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND
UNCERTAINTIES ARE DISCUSSED IN MORE DETAIL IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 31, 1997, AND IN THE MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
SECTION OF THIS QUARTERLY REPORT. THESE FORWARD-LOOKING STATEMENTS CAN BE
GENERALLY IDENTIFIED AS SUCH BECAUSE THE CONTENT OF THE STATEMENTS WILL USUALLY
CONTAIN SUCH WORDS AS THE COMPANY OR MANAGEMENT "BELIEVES," "ANTICIPATES,"
"EXPECTS," "HOPES," AND WORDS OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT
DESCRIBE THE COMPANY'S FUTURE PLANS, OBJECTIVES, GOALS OR STRATEGIES ARE
FORWARD-LOOKING STATEMENTS.
Results of Operations
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
1997 1996 Change
--------------------------------- ----------
Revenues 100.0% 100.0% 1.3%
Costs and expenses:
Direct and allocable costs 83.3 87.7 (3.7)
General and administrative expenses 9.0 6.4 42.9
Amortization of intangibles 1.3 0.6 103.7
---------------------------------
Total costs and expenses 93.6 94.7 0.1
---------------------------------
Operating profit 6.4 5.3 22.6
Interest expense (0.1) (0.1) 32.4
Other income,principally interest 0.3 0.2 5.7
Equity in earnings of unconsolidated
affiliates 0.2 0.2 (5.1)
Minority interest in consolidated
subsidiaries (0.4) (0.1) 175.8
--------------------------------
Income before income taxes 6.4 5.5 16.7
Income taxes 2.4 2.0 22.5
--------------------------------
Net income 4.0% 3.5% 13.4%
================================
The table below presents contract award and backlog data for the periods
indicated:
Quarter Ended November 30,
1997 1996
----------------------------
(amounts in thousands)
Contract award amount $ 37,928 $ 21,000
Backlog (with options) $ 1,203,338 $ 946,783
Backlog (without options) $ 372,574 $ 498,882
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Comparison of Operating Results for Fiscal First Quarter 1998 with Fiscal First
Quarter 1997
Revenues. Revenues increased $1.1 million (1.3%) for the fiscal quarter ended
November 30, 1997 as compared to the fiscal quarter ended November 30, 1996.
First quarter 1998 revenues increased as a result of revenues from SAP software
and implementation services and the acquisition of TXEN, Inc. completed in
August 1997, and decreased as a result of the completion of a series of system
integration contracts.
Operating Profit. Operating profit increased $1.0 million (22.6%) for the
fiscal quarter ended November 30, 1997 as compared to the fiscal quarter ended
November 30, 1996. Total costs and expenses were 93.6% of revenues for the
fiscal quarter ended November 30, 1997 as compared to 94.7% for the fiscal
quarter ended November 30, 1996. Direct and allocable costs decreased as a
percent of revenues (83.3% compared to 87.7%) as a result of fewer hardware
purchases under systems integration contracts. General and administrative
expense increased $2.2 million (42.9%), primarily as a result of the
acquisition of TXEN, Inc. completed in August 1997. Amortization of
intangibles increased $0.5 million (103.7%) for the fiscal quarter ended
November 30, 1997 as compared to the fiscal quarter ended November 30, 1996
primarily as a result of the amortization of the intangibles recorded for the
TXEN, Inc. acquisition completed in August 1997.
Other Income (Expense). Other income (expense) decreased $225,000 for the
fiscal quarter ended November 30, 1997 as compared to the fiscal quarter ended
November 30, 1996. Other income includes equity in earnings of unconsolidated
affiliates and interest income; other expense includes interest expense and
minority interest. Interest income is from the investment of the Company's
cash reserves. Substantially all available cash is invested in
interest-bearing accounts or fixed income instruments. Interest expense is
primarily from the long-term borrowings of the Company and the commitment fee
on unused line of credit.
Equity in earnings of unconsolidated affiliates for the fiscal quarter ended
November 30, 1997 primarily represents the Company's share of the earnings of
NCCIM, LLC a joint venture, 50% of which is owned by the Company; while the
comparable amount for the fiscal quarter ended November 30,1996 represented the
Company's share of earnings of TXEN, Inc. As of August 1997, TXEN, Inc. became
a wholly-owned subsidiary of the Company.
Minority interest primarily represents the minority partner's share of
earnings of Nichols ENTEC, LLC a joint venture, 60% of which is owned by the
Company. The increase in minority interest of $0.2 million for the fiscal
quarter ended November 30, 1997 as compared to the fiscal quarter ended
November 30, 1996 is primarily the result of an increase in SAP software
and implementation services.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Income Taxes. Income taxes as a percentage of income before taxes was 38.1% in
the fiscal quarter ended November 30, 1997 as compared to 36.3% in the fiscal
quarter ended November 30, 1996. The increase is a result of the differences
between financial and taxable income related to the amortization of
intangibles.
Net Income. Net income increased $0.4 million (13.4%) for the fiscal quarter
ended November 30, 1997 as compared to the fiscal quarter ended November 30,
1996. The increase is a result of the discussions above.
Earnings per share. Earnings per share for the fiscal quarter ended November
30, 1997 were $0.25 as compared to $0.24 for fiscal quarter ended November 30,
1996, an increase of 4.2%. Net income increased 13.4% ($0.4 million), while
weighted average shares outstanding increased 11.4% (1,387,917 shares) for
fiscal quarter ended November 30, 1997 as compared to fiscal quarter ended
November 30, 1996.
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 program.
Working capital was $71.2 million and $76.2 million at November 30, 1997 and
1996, respectively. Operating activities provided cash of $4.2 million for the
quarter ended November 30, 1997 and used cash of $16.3 million for the quarter
ended November 30, 1996. Investing activities used cash of $3.0 million for
the quarter ended November 30, 1997 and $1.4 million for the quarter ended
November 30, 1996. Financing activities used cash of $8.3 million for the
quarter ended November 30, 1997 and provided cash of $1.0 million for the
quarter ended November 30, 1996.
Cash provided by operating activities increased $20.5 million for the quarter
ended November 30, 1997 as compared to the quarter ended November 30, 1996. The
primary difference is the result of a temporary increase in Accounts Receivable
at November 30, 1996 due to systems integration contract invoices.
Cash used for investing activities was $3.0 million for the quarter ended
November 30, 1997. Purchases of property and equipment were $2.8 million and
$1.0 million for the fiscal quarters ended November 30, 1997 and 1996,
respectively. The Company realized net proceeds of $0.5 million from the
maturity of long-term investments. An additional $0.5 million capital
contribution was made to NCCIM, LLC.
Cash used for financing activities was $8.3 million for the quarter ended
November 30, 1997. The primary use of cash for financing activities during
the first fiscal quarter of 1998 was the repayment of the $10 million
indebtedness under the bank line of credit. The Company realized proceeds from
the sale of common stock of $1.8 million and $1.1 million for the the fiscal
quarters ended November 30, 1997 and 1996, respectively.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
The Company renegotiated its bank line of credit in November, 1997. The
agreement provides for unsecured borrowings up to $100,000,000. The credit
agreement provides for interest at London Interbank Offered Rate (LIBOR) plus a
margin ranging from 0.325% to 0.450% and a facility fee, payable quarterly, of
approximately 0.125% on the unused portion of the line of credit. The
short-term commitment agreement ($50,000,000) is renewable annually and the
long-term commitment agreement ($50,000,000) is renewable in November, 2000.
There were no outstanding borrowings on this line of credit at November 30,
1997.
The Company is regularly evaluating potential acquisition candidates. The
purchase price allocation for TXEN, Inc. was finalized during the first fiscal
quarter of 1998. The $29.9 million preliminarily classified as goodwill has
been reallocated as follows: $15.4 million to goodwill, $12.7 million to other
intangibles and $1.8 million to capitalized software development. Goodwill and
other intangibles of $27.4 million are being amortized using the straight-line
method over an estimated useful life of twenty years. Other intangibles of $0.7
million are being amortized using the straight-line method over an estimated
useful life of seven years. The amount allocated to capitalized software
development is being amortized using the straight-line method over an estimated
useful life of five years. The final allocation will result in an earlier
recognition of amortization expense of approximately $0.3 million per year for
the first five years following acquisition.
The Company continues to actively pursue contracts for information system
development and computer system integration activities, which could require the
Company to acquire substantial amounts of computer hardware for resale or lease
to customers. 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, and make strategic
acquisitions, if appropriate.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings Per Share. The overall objective of Statement No.
128 is to simplify the calculation of earnings per share (EPS) and achieve
comparability with recently issued international accounting standards. The
Company will first report on the new EPS basis in the second quarter ending
February 28, 1998. Subsequent to the effective date, all prior period EPS
amounts (including information regarding EPS in interim financial statements,
earnings summaries, and selected financial data) are required to be restated to
conform to the provisions of Statement No. 128.
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) Reports on Form 8-K. A current report on Form 8-K dated August 31, 1997,
(i) reporting on the Registrant's acquisition of TXEN, Inc. (TXEN) and (ii)
providing the audited financial statements of TXEN for the years ended June 30,
1997 and 1996, was filed with the Commission September 11, 1997. An amendment
to that Form 8-K was filed with the Commission on November 10, 1997, to file
the proforma financial information of TXEN.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
SIGNATURES
MANAGEMENT REPRESENTATION
The accompanying unaudited Consolidated Balance Sheets at November 30, 1997,
and August 31, 1997 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, 1997 and 1996,
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, 1998 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, 1998 By: Allen E. Dillard
- --------------------- -----------------------------------------
Date Allen E. Dillard
Vice President and Chief Financial Officer
(Principal Finance and Accounting Officer)
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