<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 May 31, 1999
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
(Exact name of registrant as specified in its charter)
Commission File Number 0-15295
---------------------
DELAWARE 63-0713665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
4090 Memorial Parkway, South
Huntsville, Alabama 35802-1326
(256) 883-1140
(Address, including zip code and telephone number, 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
14,237,532 SHARES OUTSTANDING ON May 31, 1999
---------------------
================================================================================
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
QUARTERLY REPORT FOR THE PERIOD ENDED MAY 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
Part I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the Three Months and
Nine Months Ended May 31, 1999 and May 31, 1998 (Unaudited)............... 1
Condensed Consolidated Balance Sheets as of May 31, 1999 and August 31,
1998 (Unaudited).......................................................... 2-3
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended May 31, 1999 and May 31, 1998 (Unaudited)....... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended May 31, 1999 and May 31, 1998 (Unaudited)........................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited).......... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 9-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 21
Item 6. Exhibits and Reports on Form 8-K.......................................... 22
Signatures................................................................ 23
</TABLE>
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
Restated Restated
---------------------------------------------------------------------------
(amounts in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues............................................ $ 127,075 $ 118,478 $ 327,040 $ 299,527
Costs and expenses:
Direct and allocable costs..................... 106,303 100,230 272,626 251,150
General and administrative expenses............ 11,585 9,463 31,827 25,771
Amortization of intangibles.................... 1,111 1,252 3,173 3,540
Special charges (1) and (2).................... __ 2,000 4,297 2,000
---------------------------------------------------------------------------
Total costs and expenses................... $ 118,999 $ 112,945 $ 311,923 $ 282,461
---------------------------------------------------------------------------
Operating profit.................................... 8,076 5,533 15,117 17,066
Other income (expense):
Interest expense............................... (304) (93) (525) (286)
Other income, principally interest............. 102 170 396 766
Equity in earnings of unconsolidated
affiliates................................. 142 61 384 351
Minority interest in consolidated subsidiaries. (148) (183) (146) (677)
---------------------------------------------------------------------------
Income before income taxes.......................... 7,868 5,488 15,226 17,220
Income taxes........................................ 3,190 2,117 5,938 6,638
---------------------------------------------------------------------------
Net income.......................................... $ 4,678 $ 3,371 $ 9,288 $ 10,582
===========================================================================
Earnings per common share........................... $ .33 $ .25 $ .67 $ .78
===========================================================================
Earnings per common share assuming dilution......... $ .33 $ .24 $ .65 $ .75
===========================================================================
Weighted average common shares...................... 14,015,333 13,649,522 13,929,442 13,558,343
===========================================================================
Weighted average common shares and
common equivalent shares....................... 14,269,333 14,181,465 14,238,106 14,080,735
===========================================================================
</TABLE>
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) CONTINUED
NOTE: The Company has not declared or paid dividends in any of the periods
presented. All prior periods have been restated to reflect the acquisition
of Welkin Associates, Ltd., which was accounted for as a pooling of
interests.
(1) For the nine months ended May 31, 1998, the special charges of $2,000,000
relates to the acquisition of Mnemonic Systems, Inc. by the Company on April 15,
1998.
(2) For the nine months ended May 31, 1999, the special charges of $4,297,000
relates to the impairment of goodwill associated with Nichols TXEN Corporation,
a wholly owned subsidiary of the Company.
See accompanying notes.
1
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
May 31, August 31,
1999 1998
Restated
--------------------------------------------------
ASSETS (amounts in thousands)
<S> <C> <C>
Current assets:
Cash and temporary cash investments.................. $ 18,048 $ 11,275
Accounts receivable.................................. 118,501 113,392
Deferred income taxes................................ 2,541 2,488
Other................................................ 3,701 3,939
--------------------------------------------------
Total current assets............................. 142,791 131,094
Long-term investments..................................... 607 1,519
Property and equipment:
Computers and related equipment...................... 35,170 29,465
Furniture, equipment and improvements................ 14,131 12,210
Equipment - contracts................................ 5,022 5,771
--------------------------------------------------
54,323 47,446
Less accumulated depreciation........................ 28,022 25,011
--------------------------------------------------
Net property and equipment....................... 26,301 22,435
Deferred income taxes..................................... 1,033 __
Goodwill and other intangibles (net of accumulated
amortization)........................................ 72,681 57,262
Software development costs (net of accumulated
amortization)........................................ 3,967 3,928
Investment in affiliates.................................. 9,999 9,607
Other assets.............................................. 4,707 1,491
--------------------------------------------------
Total assets.............................................. $ 262,086 $ 227,336
==================================================
</TABLE>
NOTE: The Company has not declared or paid dividends in any of the periods
presented. All prior periods have been restated to reflect the
acquisition of Welkin Associates, Ltd., which was accounted for as a
pooling of interests.
See accompanying notes.
2
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
May 31, August 31,
1999 1998
Restated
--------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (amounts in thousands except
share data)
<S> <C> <C>
Current liabilities:
Accounts payable..................................... $ 31,278 $ 24,278
Accrued compensation and benefits.................... 21,735 18,317
Income taxes payable................................. 2,936 1,681
Current maturities of long-term debt................. 997 997
Borrowing on line of credit.......................... 20,000 5,000
Deferred revenue..................................... __ 1,797
Other................................................ 438 1,040
--------------------------------------------
Total current liabilities........................ 77,384 53,110
Deferred income taxes..................................... __ 354
Long-term debt:
Industrial development bonds......................... 1,077 1,335
Long-term notes...................................... 1,112 1,613
--------------------------------------------
Total long-term debt............................. 2,189 2,948
Minority interest in consolidated subsidiaries............ 384 1,177
Stockholders' equity:
Common stock, par value $.01 per share
Authorized- 30,000,000 shares
Issued - 14,237,532 and 13,997,455 shares,
respectively..................................... 142 140
Additional paid-in capital........................... 98,722 95,631
Retained earnings.................................... 84,553 75,264
Less cost of treasury stock - 168,500 shares......... (1,288) (1,288)
--------------------------------------------
Total stockholders' equity....................... 182,129 169,747
--------------------------------------------
Total liabilities and stockholders' equity................ $ 262,086 $ 227,336
============================================
</TABLE>
NOTE: The Company has not declared or paid dividends in any of the periods
presented. All prior periods have been restated to reflect the
acquisition of Welkin Associates, Ltd., which was accounted for as a
pooling of interests.
See accompanying notes.
3
<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'
Shares Amount Capital Earnings Stock Equity
-----------------------------------------------------------------------------------------------
(amounts in thousands except share data)
For the Nine Months Ended May 31, 1999
--------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1998 13,997,455 $ 140 $ 95,631 $ 75,264 $ (1,288) $ 169,747
Exercise of stock options 122,214 1 1,233 __ __ 1,234
Employee stock purchases 117,863 1 1,859 __ __ 1,860
Net income __ __ __ 9,288 __ 9,288
-----------------------------------------------------------------------------------------------
Balance, May 31, 1999 14,237,532 $ 142 $ 98,723 $ 84,552 $ (1,288) $ 182,129
===============================================================================================
For the Nine Months Ended May 31, 1998 - Restated
-------------------------------------------------
Balance, August 31, 1997 13,553,346 $ 135 $ 90,076 $ 61,545 $ (1,288) $ 150,468
Exercise of stock options 227,509 2 2,296 __ __ 2,298
Employee stock purchases 75,046 1 1,576 __ __ 1,577
Adjustment for Welkin __ __ __ (479) (479)
Net income __ __ __ 10,582 __ 10,582
-----------------------------------------------------------------------------------------------
Balance, May 31, 1998 13,855,901 $ 138 $ 93,948 $ 71,648 $ (1,288) $ 164,446
===============================================================================================
</TABLE>
NOTE:The Company has not declared or paid dividends in any of the periods
presented. All prior periods have been restated to reflect the acquisition
of Welkin Associates, Ltd., which was accounted for as a pooling of
interests.
See accompanying notes.
4
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
May 31, May 31,
1999 1998
Restated
------------------------------------------
(amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 9,288 $ 10,582
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts......................... 284 __
Depreciation............................................ 5,683 4,273
Amortization of intangibles............................. 3,173 3,540
Equity in earnings of unconsolidated affiliates......... (384) (351)
Minority interest....................................... 146 677
Deferred income taxes................................... (1,440) (749)
Special charges......................................... 4,297 2,000
Changes in assets and liabilities net of effects of acquisitions:
Accounts receivable..................................... (11) (13,417)
Other assets............................................ (2,924) (1,129)
Accounts payable........................................ 5,480 (3,339)
Accrued compensation and benefits....................... 2,836 7,152
Income taxes payable.................................... 1,137 524
Other current liabilities............................... (3,828) 1,781
--------------------------------------------
Total adjustments....................................... 2,690 (8,428)
--------------------------------------------
Net cash provided by operating activities............. 23,737 11,544
Cash flows from investing activities:
Purchase of property and equipment........................... (9,660) (7,306)
Purchase of long-term investment............................. __ (100)
Purchase of capitalized software............................. (682) (557)
Payments for acquisitions, net of cash acquired.............. (24,816) (12,266)
Payments for investment in affiliates........................ (8) (1,110)
Proceeds from long-term investments.......................... 912 1,313
--------------------------------------------
Net cash used by investing activities................. (34,254) (20,026)
Cash flows from financing activities:
Proceeds from issuance of common stock....................... 3,093 3,875
Proceeds from line of credit borrowings...................... 30,000 __
Payments on line of credit borrowings........................ (15,000) (10,000)
Payments of long-term debt................................... (803) (711)
---------------------------------------------
Net cash provided (used) by financing activities...... 17,290 (6,836)
---------------------------------------------
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CONTINUED
For the Nine Months Ended
-------------------------
May 31, May 31,
1999 1998
Restated
------------------------------------------
(amounts in thousands)
Net increase (decrease) in cash and temporary cash
investments............................................. 6,773 (15,318)
Cash and temporary cash investments at beginning
of period............................................... 11,275 23,964
------------------------------------------
Cash and temporary cash investments at end of period......... $ 18,048 $ 8,646
==========================================
</TABLE>
See accompanying notes.
5
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
May 31, 1999
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 - 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 first reported on the new EPS basis in the second quarter ended February
28, 1998. All prior period EPS amounts (including information regarding EPS in
interim financial statements, earnings summaries, and selected financial data)
have been restated to conform to the provisions of Statement No. 128.
In June 1997,the FASB issued Statement No. 130, Reporting Comprehensive
Income (SFAS 130). Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components. Adoption of
Statement No. 130 by the Company on September 1, 1998 had no impact on the
Company's consolidated results of operations or stockholders' equity.
In June 1997, the FASB issued Statement No. 131, Disclosures About
Segments of an Enterprise and Related Information (SFAS 131). Statement No. 131
changes the method of determining segments from that currently required, and
requires the reporting of certain information about such segments. A final
determination regarding any changes to the segment information currently
provided will be made and reported in the Form 10-K for the period ending August
31, 1999.
Note 3 - Reclassification
----------------
Certain prior period amounts have been reclassified to conform with the
current period's presentation.
6
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 4 - Acquisitions
------------
On March 10, 1999 the Company completed the purchase of Murray & West
Consulting, Inc./Trans-Link USA, Incorporated (Murray & West). Murray & West
provides implementation and integration consulting services and continued
support of SAP of America, Inc., enterprise resource planning software, known as
SAP(TM) R/3. Aggregate consideration of $16.2 million was paid at closing.
Payment of additional consideration is contingent upon achieving specified
operating results as defined in the purchase agreement. Goodwill of
approximately $13.4 million acquired in the transaction is being amortized using
the straight-line method over an estimated useful life of fifteen years.
On March 17, 1999 the Company completed the purchase of Prism
Consulting Group, L.L.C. (Prism). Prism provides SAP(TM) R/3 implementation
services. Aggregate consideration of $5.8 million was paid at closing. Payment
of additional consideration is contingent upon achieving specified operating
results as defined in the purchase agreement. Goodwill of approximately $4.9
million acquired in the transaction is being amortized using the straight-line
method over an estimated useful life of fifteen years.
Note 5 - Investment in Affiliates
------------------------
As of May 31, 1999 the Company held a 50% interest in NCCIM, L.L.C. at
an aggregate cost of $1,345,000. Undistributed equity earnings of $909,000 are
included in the May 31, 1999 retained earnings balance reported in the
Consolidated Balance Sheet.
Note 6 - Line of Credit
--------------
The Company executed its existing bank line of credit in November, 1997.
The credit agreement provides for unsecured borrowings up to $100,000,000 and
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. At May 31, 1999, there was
$20,000,000 outstanding on this line of credit at an effective interest rate of
5.35%.
7
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Note 7 - Earnings Per Share
------------------
The following table sets forth the computation of earnings per common
share and earnings per common share assuming dilution:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
Restated Restated
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income and income available to
common stockholders and income
available to common stockholders
after assumed conversions.............. $ 4,678,000 $ 3,371,000 $ 9,288,000 $ 10,582,000
=====================================================================
Denominator:
Denominator for earnings per common
share - weighted average common
shares................................. 14,015,333 13,649,522 13,929,442 13,558,843
Effect of dilutive securities:
Employee stock options................. 254,000 531,943 308,664 521,892
Denominator for earnings per common share
assuming dilution - adjusted
weighted average common shares
and assumed coversions................. 14,269,333 14,181,465 14,238,106 14,080,735
=====================================================================
Earnings per common share....................... $ .33 $ .25 $ .67 $ .78
=====================================================================
Earnings per common share assuming
dilution................................... $ .33 $ .24 $ .65 $ .75
=====================================================================
</TABLE>
8
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS QUARTERLY REPORT
CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED IN SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS
RISKS AND UNCERTAINTIES THAT COULD CAUSE 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, 1998, AND IN THE FOLLOWING
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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," "PLANS," OR WORDS OF SIMILAR IMPORT. SIMILARLY,
STATEMENTS THAT DESCRIBE THE COMPANY'S FUTURE PLANS, OBJECTIVES, GOALS OR
STRATEGIES ARE FORWARD-LOOKING STATEMENTS.
Overview and Business Environment
- ---------------------------------
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 U.S. Department of Defense (DOD), other federal agencies,
state and local governments, healthcare and insurance organizations, and other
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 investments to expand the business of the Company and
gain industry knowledge.
The Company is organized into four strategic business units, reflecting
the particular market focus of each line of business. The Defense and
Intelligence unit, formerly Nichols Federal, provides technical services
primarily to U.S. Government defense agencies. The Government Information
Technology unit, formerly Nichols InfoFed, provides information and technology
solutions and services to a variety of governmental agencies. The Commercial
Information Technology unit, formerly Nichols InfoTec, provides information and
technology services to various commercial clients, state and local government
agencies and judicial systems. The Healthcare Information Technology unit, known
as Nichols TXEN Corporation and formerly known as Nichols SELECT, provides
information and administrative services to clients in the healthcare and
insurance industries. For the nine months ended May 31, 1999, the percentage of
total revenues attributable to the four business units was approximately 54% for
Defense and Intelligence, 23% for Government IT, 11% for Commercial IT, and 12%
for Healthcare IT.
9
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Risk Factors
- ------------
The Company's business and financial performance are subject to risks
and uncertainties, including those discussed below.
ACQUISITION STRATEGY
Expansion through acquisitions is an important component of the
Company's overall business strategy. The Company has successfully completed
fifteen strategic acquisitions and alliances since September 1, 1994, most of
which have centered on 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.
PERFORMANCE OF LARGE SYSTEMS INTEGRATION CONTRACTS
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.
VARIABILITY OF QUARTERLY EARNINGS OR OPERATING RESULTS
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, integrate and deliver to the customer large amounts of 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 equipment purchases which occur on a periodic basis
depending on contract terms and modifications.
10
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
UNCERTAINTIES ASSOCIATED WITH GOVERNMENT CONTRACTS
The Company performs 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.
CONTRACT PROFIT EXPOSURE
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.
The Company assumes greater financial risk on fixed-price contracts
than on either time-and-materials or cost-reimbursement contracts. As the
Company increases its commercial business, it believes that an increasing
percentage of its contracts will be fixed-priced. Failure to anticipate
technical problems, estimate costs accurately, or control costs during
performance of a fixed-price contract, may reduce the Company's profit or cause
a loss. In addition, greater risks are involved under time-and-materials
contracts than under cost-reimbursement contracts because the Company assumes
the responsibility for the delivery of specified skills at a fixed hourly rate.
Although management believes that adequate provision for its fixed-price and
time-and-materials contracts is reflected in the Company's financial statements,
no assurance can be given that this provision is adequate or that losses on
fixed-price and time-and-materials contracts will not occur in the future.
11
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
POTENTIAL FOREIGN CONTRACT CLAIMS AGAINST MNEMONIC SYSTEMS, INC.
On March 1, 1999, the Company settled a claim of patent infringement
asserted by Forensic Technology, Inc., with respect to the DRUGFIRE system
offered by the Company's subsidiary, Mnemonic Systems, Inc., used for the
examination of fired cartridges by law enforcement agencies. The settlement
permitted the Company to use the technology allegedly covered by the patent in
the United States on a royalty-free basis. As part of the settlement, the
Company agreed to cease the sale of the DRUGFIRE product in foreign countries.
The Company has received claims from foreign sales representatives alleging that
a breach of contract occurred when the Company withdrew from foreign markets.
Such claims, if successful,could have a material adverse effect on the Company's
business. See "Legal Proceedings."
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, the percentage
which certain items in the consolidated statements of income bear to
consolidated revenues:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
May 31, May 31, Percentage May 31, May 31, Percentage
1999 1998 Change 1999 1998 Change
Restated Restated
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 7.3% 100.0% 100.0% 9.2%
Costs and expenses:
Direct and allocable costs........... 83.6 84.6 6.1 83.4 83.8 8.6
General and administrative expenses.. 9.1 8.0 22.4 9.7 8.6 23.5
Amortization of intangibles.......... 0.9 1.1 (11.3) 1.0 1.2 (10.4)
Special charges ..................... 0.0 1.7 n/a 1.3 0.7 114.9
-------------------------------------------------------------------------------
Total costs and expenses......... 93.6 95.4 5.4 95.4 94.3 10.1
-------------------------------------------------------------------------------
Operating profit.......................... 6.4 4.7 46.0 4.6 5.7 (11.4)
Interest expense.......................... (0.3) (0.1) 226.9 (0.2) (0.1) 83.6
Other income, principally interest........ 0.1 0.1 (40.0) (0.1) 0.2 (48.3)
Equity in earnings of unconsolidated
affiliates............................. 0.1 0.1 132.8 (0.1) 0.1 9.4
Minority interest in consolidated
subsidiaries........................... (0.1) (0.2) (19.1) (0.0) (0.2) (78.4)
-------------------------------------------------------------------------------
Income before income taxes................ 6.2 4.6 43.4 4.2 5.7 (11.6)
Income taxes.............................. 2.5 1.8 50.7 1.8 2.2 (10.5)
-------------------------------------------------------------------------------
Net income................................ 3.7% 2.8% 38.8% 2.4% 3.5% (12.2)%
===============================================================================
</TABLE>
12
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
The Company had a backlog of approximately $1.3 billion, including
options of $940.0 million, at May 31, 1999. The Company had a backlog of
approximately $1.2 billion, including options of $787.0 million, at May 31,
1998. Backlog represents the amount of revenues expected to be realized from
awarded contracts. Therefore, the amount in backlog is typically less than the
face amount of the contract. The amount includes estimates based on the
Company's experience with similar awards and customers and estimates of revenues
that would be recognized from the performance of options, under existing
contracts, that may be exercised by the customer. These estimates are reviewed
periodically and are adjusted based on the latest available information.
Historically, these adjustments have not been significant. Because contracts in
backlog are typically multi-year contracts, an increase in backlog may not
translate into proportional revenue growth in any future period.
The table below presents contract award and backlog data for the periods
indicated:
May 31, May 31,
1999 1998
Restated
-----------------------------------
(amounts in thousands)
Contract award amount............ $ 387,548 $ 183,196
Backlog (with options)........... $ 1,321,070 $ 1,138,331
Backlog (without options)........ $ 381,036 $ 372,212
COMPARISON OF OPERATING RESULTS FOR FISCAL THIRD QUARTER 1999 WITH FISCAL THIRD
QUARTER 1998
REVENUES. Revenues increased $8.6 million (7.3%) for the three months and
$27.5 million (9.2%) for the nine months ended May 31, 1999 as compared to the
three months and nine months ended May 31, 1998. The revenues of the Defense and
Intelligence unit, representing approximately 54% of the Company's consolidated
revenue increased $3.9 million (2.3%) for the nine months ended May 31, 1999 as
compared to the nine months ended May 31, 1998, primarily as a result of
continued growth in existing contract base. The revenues of the Government IT
unit, representing approximately 23% of the Company's consolidated revenue
increased $8.4 million (12.4%) for the nine months ended May 31, 1999 compared
to the nine months ended May 31, 1998 primarily as a result of the acquisition
of Mnemonic Systems, Incorporated. The revenues of the Commercial IT unit,
representing approximately 11% of the Company's consolidated revenue, increased
$7.7 million (26.4%) for the nine months ended May 31, 1999 as compared to the
nine months ended May 31, 1998 primarily as a result of the purchase of Murray &
West, Inc./Translink USA and Prism Consulting Group, L.L.C. Revenues of the
Healthcare IT unit, representing 12% of the Company's consolidated revenue,
increased $7.6 million (24.9%) for the nine months ended May 31, 1999 compared
to the nine months ended May 31, 1998 as a result of continued growth in the
number of new customers and increased use of its services by existing customers.
OPERATING PROFIT. In the second quarter, the Company recorded a pretax
intangible asset impairment charge of $4.3 million related to its Healthcare IT
unit. Operating profit, including the $4.3 million intangible asset impairment
charge, increased $2.5 million (46%) for the three months and decreased $1.9
million (11.4%) for the nine months ended May 31, 1999 as compared to the three
months and nine months ended May 31, 1998. Operating profit, excluding the $4.3
million intangible asset impairment charge, increased $2.4 million (13.8%) for
the nine months ended May 31, 1999 as compared to the nine months ended May 31,
1998.
13
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Direct and allocable costs increased $21.5 million (8.6%) for the nine
months ended May 31, 1999 as compared to the nine months ended May 31 1998, as a
result of increases in revenue. General and administrative expenses increased
$6.1 million (23.5%) for the nine months ended May 31, 1999 as compared to the
nine months ended May 31, 1998, primarily as a result of the acquisition of
Mnemonic Systems, Incorporated, Murray & West, Inc./Translink USA and Prism
Consulting Group, L.L.C completed in April 1998 and March 1999, respectively.
Amortization of intangibles decreased $0.2 million (10.4%). The $4.3 million
intangible asset impairment charge related to the Healthcare IT unit represents
1.4% of the total costs and expenses for the nine months ended May 31, 1999. For
the nine months ended May 31, 1998, the special charges of $2,000,000 relates to
the acquisition of Mnemonic Systems, Inc. by the Company on April 15, 1998.
Total costs and expenses were 93.6% of revenue for the three months and
95.4% for the nine months ended May 31, 1999 as compared to 95.3% for the three
months and 94.3% for nine months ended May 31, 1998.
OPERATING MARGIN. Operating margin was 6.4% for the three months,
including the $4.3 million intangible asset impairment charge, and 4.6% for the
nine months ended May 31, 1999 as compared to a 4.7% operating margin for the
three months and 5.7% for the nine months ended May 31, 1998. Operating margin,
excluding the $4.3 million intangible asset impairment charge, was 5.9% for the
nine months ended May 31, 1999. The Defense and Intelligence unit realized a
5.8% operating margin for the nine months ended May 31, 1999 as compared to a
5.1% operating margin for the nine months ended May 31, 1998. This improvement
is principally the result of increases in award fees and margins on
time-and-material contracts. The Government IT unit realized a 6.1% operating
margin for the nine months ended May 31, 1999 as compared to a 6.2% operating
margin for the nine months ended May 31, 1998. This decrease is primarily the
result of declines in high margin contracts and lower margins on modifications
awarded to existing contracts. The Commercial IT unit realized a (-0.1%)
operating margin for the nine months ended May 31, 1999 as compared to a 4.8%
operating margin for the nine months ended May 31, 1998. Over the first two
quarters of fiscal year 1999, the Commercial IT unit incurred increased costs
associated with underutilization of staff and infrastructure costs in excess of
that required to support the business. New business and operating strategies
have been implemented to correct these problems and reduce costs. The $4.3
million intangible asset impairment charge related to the Healthcare IT unit's
decreased the Company's operating margin to 0.6% for the nine months ended May
31, 1999 as compared to a 12.9% operating margin for the nine months ended May
31, 1998. The Healthcare IT unit realized an 11.9% operating margin, excluding
the $4.3 million intangible asset impairment charge, for the nine months ended
May 31, 1999.
14
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
OTHER INCOME (EXPENSE). Other expense increased $163,000 for the three
months ended May 31, 1999 and other income decreased $45,000 for the nine months
ended May 31, 1999 as compared to the three months and nine months ended May 31,
1998. 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 comprised of the cost
associated with the long-term borrowings of the Company, the commitment fee on
unused line of credit, and the average outstanding borrowing on the Company's
line of credit.
Equity in earnings of unconsolidated affiliates for the nine months
ended May 31, 1999 and 1998 primarily represents the Company's share of the
earnings of NCCIM, L.L.C. a joint venture, 50% of which is owned by the Company.
Minority interest primarily represent the minority partner's share of
earnings of Nichols Holland Corporation a joint venture, 91.6% of which is owned
by the Company as of May 31, 1999 (See Note 5 of Notes of Condensed Consolidated
Financial Statements). The decrease in minority interest of $0.04 million for
the nine months ended May 31, 1999 as compared to the nine months ended May 31,
1998 is principally the result of decreased profitability and the decrease of
the minority partner's interest.
INCOME TAXES. Income taxes as a percentage of income before taxes was
39% for the nine months ended May 31, 1999 as compared to 38.5% for the nine
months ended May 31, 1998. The increase is primarily a result of the differences
between financial and taxable income related to the amortization of intangibles.
NET INCOME. Net income, including the $4.3 million intangible asset
impairment charge, increased $1.3 million (38.8%) for the three months and
decreased $1.3 million (12.2%) for the nine months ended May 31, 1999 as
compared to the three months and nine months ended May 31, 1998. Net income,
excluding the $4.3 million intangible asset impairment charge, increased $3.0
million (28.4%) for the nine months ended May 31, 1999 as compared to the nine
months ended May 31, 1998. The decreases are a result of the matters discussed
above.
EARNINGS PER SHARE ASSUMING DILUTION. Earnings per share assuming
dilution were $0.33 for the three months and $0.65 for the nine months ended May
31, 1999 including the $4.3 million intangible asset impairment charge as
compared to $0.24 for the three months and $0.75 for the nine months ended May
31, 1998. Earnings per share assuming dilution, excluding the $4.3 million
intangible asset impairment charge, were $0.95 for the nine months ended May 31,
1999. Net income, including the $4.3 million intangible asset impairment charge,
decreased 12.2% ($1.3 million), while weighted average common shares and common
equivalent shares increased 1.1% (157,371 shares), for the nine months ended May
31, 1999 as compared to the nine months ended May 31, 1998. Net income,
excluding the $4.3 million intangible asset impairment charge, increased 28.4%
($3.0 million) for the nine months ended May 31, 1999.
15
<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
program. Working capital was $65.4 million and $77.9 million at May 31, 1999 and
1998, respectively. Operating activities provided cash of $23.7 million and
$11.5 million for the nine months ended May 31, 1999 and May 31, 1998,
respectively. Investing activities used cash of $30.6 million and $20.0 million
for the nine months ended May 31, 1999 and May 31, 1998, respectively. Financing
activities provided cash of $17.3 million for the nine months ended May 31, 1999
and used cash of $6.8 million for the nine months ended May 31, 1998.
Cash provided by operating activities increased by $12.2 million for
the nine months ended May 31, 1999 as compared to the nine months ended May 31,
1998 as a result of increased net income (excluding the $4.3 million intangible
asset charge) and improvements in the management of working capital.
Cash used for investing activities was $30.6 million for the nine
months ended May 31, 1999. The Company purchased Murray & West, Inc./Trans-Link
USA, Inc. and Prism and an additional 35% ownership in Nichols Holland
Corporation for approximately $14.6 million, $5.3 million, and $5.2 million,
respectively. Purchases of property and equipment were $9.7 million and $7.3
million for the nine months ended May 31, 1999 and 1998, respectively.
Cash provided by financing activities was $17.3 million for the nine
months ended May 31, 1999. The Company realized proceeds from the sale of common
stock of $3.1 million and $3.9 million for the nine months ended May 31, 1999
and 1998, respectively. Cash of $0.8 million was used to reduce long-term debt.
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. At May 31,
1999, there was $20,000,000 outstanding on this line of credit.
The Company regularly evaluates potential acquisition candidates and
completed two acquisitions in the third quarter of fiscal year 1999. On March
10, 1999 the Company purchased Murray & West, Inc./Trans-Link USA, Inc. for
approximately $14.6 million and on March 17, 1999 it purchased Prism Consulting
Group, L.L.C. for approximately $5.3 million. These acquisitions complement the
Company's SAP(TM) R/3 implementation, integration, and support business.
16
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
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 for its next four fiscal quarters 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.
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.
Year 2000
- ---------
OVERVIEW
Historically, certain computerized systems have had two digits rather
than four digits to define the applicable year, which could result in
recognizing a date using "00" as the year 1900 rather than the year 2000. This
could cause significant software failures or miscalculations and is generally
referred to as the "Year 2000" problem.
The Company recognizes that the impact of the Year 2000 problem extends
beyond its computer hardware and software and may affect utility and
telecommunication services, as well as the systems of customers and suppliers.
17
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
In response to the Year 2000 problem, the Company has developed a
compliance program to evaluate and address date related problems with the
Company's internal systems, services, products, and the systems and products of
the Company's vendors and suppliers. The compliance program is managed by the
Vice President of Corporate Information Systems and Services, and is patterned
after the United States General Accounting Office (GAO) and Office of Management
and Budget project management model. The Company's Year 2000 compliance program
includes five major phases:
Awareness Phase. The Year 2000 problem is defined and managers at the
executive level are educated about potential date related problems and the
potential impact to the Company and its customers from Year 2000 date handling
errors. A Year 2000 program team is established and an overall strategy is
developed.
Assessment Phase. The Year 2000 program team assesses the Year 2000
impact on the Company by: (i) identifying core business areas and processes;
(ii) performing an inventory and analysis of systems supporting the core
business areas; (iii) contacting third party service providers, and software and
hardware vendors to determine Year 2000 issues and their plans for becoming Year
2000 compliant; and (iv) prioritizing conversion or replacement of systems.
Renovation Phase. The Year 2000 program team corrects Year 2000
problems identified in the Assessment Phase by modifying program software,
updating databases, replacing systems or utilizing other appropriate methods.
Implementation Phase. The Year 2000 program team tests, verifies, and
validates converted or replaced systems, applications, databases and utilities
within a limited operational environment.
Validation Phase. The Year 2000 program team fully implements converted
or replaced systems, applications, databases and utilities. The Year 2000
program team also performs extensive testing of all system changes.
As part of the awareness phase the Company has reviewed
- Mission Essential Software Systems
- Mission Essential Computational Systems (hardware)
- Mission Essential Facilities Systems, including elevators, heating and
air conditioning systems, photocopying machines and utility services
- Mission Essential Network Systems
- Customer Software Services, provided by the Company's business units
- Mission Essential Vendor-Supplied Software and Services
18
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
The Company considers a system "mission essential" if a failure in that
system would materially disrupt the ability of the Company to perform
contractual services or to process business information in a timely manner. The
Company monitors the status of its Year 2000 compliance program and routinely
updates its Intranet to provide compliance data to its managers and employees.
The Company provides services and products to the U.S.
Government pursuant to specific contractual terms and exact specifications. The
Company believes that it will be responsible for upgrading only those services
or products that specify Year 2000 compliance and do not yet meet this
requirement. The Company is not currently aware of any such services or
products.
STATUS AND TIMETABLE FOR YEAR 2000 COMPLIANCE
The Company has developed a master timetable for its Year 2000
compliance program. The updated status of each major category of mission
essential systems is as follows:
System Category Phase Estimated Date
For Compliance
- ----------------------------------------- ---------- -----------------
Mission Essential Software Systems Validation Completed
- ----------------------------------------- ---------- -----------------
Mission Essential Computational Systems Validation Completed
- ----------------------------------------- ---------- -----------------
Mission Essential Network Systems Validation Completed
- ----------------------------------------- ---------- -----------------
Mission Essential Facilities Systems Validation Completed
- ----------------------------------------- ---------- -----------------
Mission Essential Customer Systems Validation Completed
- ----------------------------------------- ---------- -----------------
Mission Essential Vendor-Supplied Services Validation Unknown
- ----------------------------------------- ---------- -----------------
The phases listed above represent the status of the majority of
products within each category. There may be, within each "system," components at
a lower or higher phase in the Year 2000 assessment.
19
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONTINGENCY PLANS
The Company has completed the validation phase for each of its mission
essential systems. Contingency plans for upgrading microcomputers that might
have been overlooked in the remediation process and for facility items that
might have unforeseen problems are in place. The Company has minimized its
exposure to Year 2000 failures of vendor supplied products by adding Year 2000
compliance as a standard condition to its purchase orders. These contracts also
reference Federal Acquisition Regulation 39.106, which addresses Year 2000
compliance issues. The Company has negotiated a Risk Management Insurance Policy
designed to protect the Company in the event that it is involved in litigation
arising from errors and omissions relating to Year 2000 issues.
COST FOR YEAR 2000 COMPLIANCE
The Company believes that the total cost of its Year 2000 compliance
activity will not be material to the Company's operation, liquidity, and capital
resources. The Company estimates that the total cost for its Year 2000
compliance will be $688,500 which represents 11,475 hours of analysis,
modification, and testing, and $34,500 for new equipment purchases. To date, the
Company has completed 11,000 hours of Year 2000 compliance work, and purchased
new equipment valued at $27,000, for a total cost of $676,800. All
mission-essential systems are Year 2000 compliant. The remaining labor and
equipment dollars will be used to continue Year 2000 reviews of suppliers and
non-essential systems.
YEAR 2000 RISKS FACED BY THE COMPANY
Although the Company believes that its Year 2000 compliance program is
comprehensive, the Company may not be able to identify, successfully remedy or
assess all date-handling problems in its business systems or operations or those
of its customers and suppliers. As a result, the Year 2000 problem could have a
materially adverse affect on the Company's business, financial condition or
results of operations.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
20
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Pursuant to a purchase agreement dated April 15, 1998, the Company
purchased all of the capital stock of Mnemonic Systems, Inc. (MSI), from Artis
B. Isaac (Isaac). On July 1, 1998, Forensic Technology WAI, Inc. (Forensic),
filed suit against MSI in United States District Court for the Eastern District
of Virginia, Alexandria Division, seeking injunctive relief, as well as monetary
damages. Forensic alleged that the DRUGFIRE system offered by MSI and used for
the examination of fired cartridges infringed a United States patent issued to
Forensic on August 5, 1997. MSI denied the allegation of infringement, and
sought to have the patent invalidated on several grounds. This matter was
settled on March 1, 1999, by the parties by an agreement that entitles
MSI to use the technology allegedly covered by the patent in the United States
on a royalty-free basis. MSI agreed to cease use of the technology allegedly
covered by the patent in other countries. No damages were paid by MSI in
connection with the settlement of the litigation. The Company is seeking
recovery of its attorney fees and other damages related to this litigation from
Isaac pursuant to an indemnity agreement.
21
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
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 during the quarter ended
May 31, 1999.
22
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
SIGNATURES
MANAGEMENT REPRESENTATION
The accompanying unaudited Consolidated Balance Sheets at May 31, 1999, and
August 31, 1998 as well as the Consolidated Statements of Income, Consolidated
Statements of Changes in Stockholders' Equity and Consolidated Statements of
Cash Flows for the nine months ended May 31, 1999 and 1998, 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.
July 15, 1999 By: Allen E. Dillard
- ------------- ----------------
Date Allen E. Dillard
Vice President and Chief
Financial Officer (Principal
Financial 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
July 15, 1999 By: Allen E. Dillard
- ------------- ----------------
Date Allen E. Dillard
Vice President and Chief
Financial Officer (Principal
Financial and Accounting
Officer)
23
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<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 18,048
<SECURITIES> 0
<RECEIVABLES> 118,501
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 142,791
<PP&E> 54,323
<DEPRECIATION> (28,022)
<TOTAL-ASSETS> 262,086
<CURRENT-LIABILITIES> 77,384
<BONDS> 2,189
0
0
<COMMON> 142
<OTHER-SE> 181,987
<TOTAL-LIABILITY-AND-EQUITY> 262,086
<SALES> 327,040
<TOTAL-REVENUES> 327,040
<CGS> 311,923
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