<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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
------- -------
COMMISSION FILE NUMBER 0-20284
CITATION COMPUTER SYSTEMS, INC.
-----------------------------------------------------------
(Exact name of the Company as specified in its charter)
MISSOURI 43-1174397
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
424 SOUTH WOODS MILL ROAD, CHESTERFIELD, MISSOURI 63017
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 579-7900
----------------------------------
(The Company's telephone number, including area code)
-----------------------
Indicate by check mark whether the Company (1) has filed all reports required
to be filled 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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Company's Common Stock, par value $0.10
per share, at November 3, 1996, was 3,774,197 shares.
Exhibit Index on Page 18 Page 1 of 18
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages F-1 to F-7 hereof.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996, TO THREE MONTHS ENDED
SEPTEMBER 30, 1995.
GENERAL. The Company reported substantially improved earnings from
operations for the second quarter of fiscal 1997. Net earnings, before a
charge for restructuring of operations in the United Kingdom, increased from
$20,000 or $0.01 per share in the second quarter of fiscal 1996 to $390,000 or
$0.10 per share in the first quarter of fiscal 1997.
During the second quarter of fiscal 1997, the Company recorded a $1.3
million pretax charge to cover the restructuring of its operations in the
United Kingdom. As part of its ongoing efforts to reduce costs and improve
operating efficiency, the Company will consolidate development and other
functions previously performed in the United Kingdom into its St. Louis
headquarters and write off capitalized software related to discontinued
development projects in the United Kingdom. See Note 2 of the consolidated
financial statements for further information.
On August 26, 1996, the Company acquired a reimbursement management system
from Computer Systems Excellence, Inc., for $1.2 million. The Company will
market the product under the name C-MAX Contract Management System. C-MAX is a
Windows-based software product that provides information needed to manage
managed care contracts and transactions with indemnity payors. The system
consists of two integrated modules: a reimbursement management module that
documents and tracks the management and profitability of contracts, prospective
payments and claims; and a systems management module that controls the link to
the healthcare provider's patient accounting system.
Any forward looking statements set forth herein are necessarily subject to
significant uncertainties and risks. The words "believes," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements. Actual results could be materially different as a result of
various possibilities, including difficulties or delays in the introduction of
new products or the revision of existing products, significant changes in
healthcare regulation, economic downturns in any of the Company's markets,
competitors, new entrants into the Company's markets, increased price pressure,
the availability of suitable acquisition candidates, customer reduction caused
by industry consolidation or other factors or marketplace acceptance of Windows
NT as an operating platform.
Page 2
<PAGE> 3
Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
REVENUES. Total revenue increased 36.7% from $4.6 million for the second
quarter of fiscal 1996 to $6.3 million for the second quarter of fiscal 1997,
due to a 71.6% increase in system sales revenue partially offset by a 0.8%
decrease in service revenue.
System sales revenue for the second quarter increased $1.7 million from
$2.4 million in fiscal 1996 to $4.1 million in fiscal 1997. The 71.6% increase
in system sales was primarily attributable to an increase in the number of
systems shipped in the second quarter of fiscal 1997 compared to the second
quarter of fiscal 1996. System sales represented 65.0% and 51.8% of total
revenues for the second quarter of fiscal 1997 and 1996, respectively.
Service revenue for the second quarter was essentially unchanged at $2.2
million in both fiscal 1996 and 1997. This is primarily due to a decrease in
contract renewals during the quarter from an earlier consolidation in the
healthcare industry which has not yet been offset by sales to new customers.
Service revenue represented 35.0% and 48.2% of total revenues for the second
quarter of fiscal 1997 and 1996, respectively.
COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT. Cost of products and
services sold include cost of system sales and cost of service revenue. Cost
of system sales include hardware sold, installation and training expenses, and
software amortization costs. Cost of service revenue includes all client
service expenses plus an allocation of certain other overhead expenses. As a
percentage of total revenue, the total cost of products and services sold
decreased from 51.4% in the second quarter of fiscal 1996 to 43.4% in the
second quarter of fiscal 1997. For the second quarter of fiscal 1997 and 1996,
total cost of products and services sold were $2.7 million and $2.4 million,
respectively.
The decrease in the percentage of cost of products and services sold as a
percent of total revenues was primarily due to the decrease in client service
expenses due to the office consolidation in fiscal 1996 and the increase in
total revenue partially offset by an increase in software amortization costs.
Software amortization costs of $0.5 million in the second quarter of fiscal
1997 and $0.4 million in the second quarter of fiscal 1996 represented 18.1%
and 17.7%, respectively, of total costs of products and services sold.
Gross profit as a percentage of total revenues increased from 48.6% in the
second quarter of fiscal 1996 to 56.6% in the second quarter of fiscal 1997.
The increase in gross profit as a percentage of total revenues was primarily
attributable to the increase in system sales revenue.
Page 3
<PAGE> 4
RESEARCH AND DEVELOPMENT COSTS. Total outlays for software development
for the second quarter of fiscal 1996 and 1997 are as follows (000's):
<TABLE>
<CAPTION>
FY97 FY96
R&D EXPENSE 2ND QTR. 2ND QTR.
---------- --------
<S> <C> <C>
R&D spending $1,388.9 $1,218.0
Less - R&D capitalized 369.6 762.4
-------- --------
Total R&D expense 1,019.3 455.6
Software amortization (cost of prod. sold) 500.2 421.9
-------- --------
Total R&D expensed $1,519.5 $ 877.5
======== ========
SOFTWARE DEVELOPMENT COST, NET
Beginning of period $4,901.8 $4,294.1
R&D capitalized per above 369.6 762.4
Software acquired (C-MAX)* 651.7 --
-------- --------
5,923.1 5,056.5
Less - Write-off - U.K. (587.3) --
Software amortization (500.2) (421.9)
Other adjustment 7.4 4.2
-------- --------
End of period $4,843.0 $4,638.8
======== ========
</TABLE>
*Software acquired relates to the purchase of the contract management
system.
The Company anticipates that due to the nature of the planned development
activities (e.g. product enhancements versus the significant development effort
involved in porting software to a new operating system), the ratio of software
development costs capitalized to total software development outlays will
decline in future periods as compared to recent years. For the second quarter
of fiscal years 1996 and 1997, the Company capitalized 62.6% and 26.6%,
respectively, of software development spending.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
as a percentage of total revenues decreased from 38.6% in the second quarter of
fiscal 1996, to 30.2%, in the second quarter of fiscal 1997. Total selling and
administrative expenses increased $0.1 million to $1.9 million in this year's
second quarter, primarily due to expenditures with higher selling and
administrative costs to support international and domestic operations.
OPERATING INCOME. Operating income increased $0.6 million, excluding the
restructuring charge, in the second quarter of fiscal 1997, compared with the
second quarter of fiscal 1996. The operating margin increased from 0.2% to
10.3% in the second quarter of fiscal 1996 and 1997, respectively, reflecting a
shift of the product mix to more profitable products.
Page 4
<PAGE> 5
COMPARISON OF SIX MONTHS ENDED SEPTEMBER 30, 1996, TO SIX MONTHS ENDED
SEPTEMBER 30, 1995.
GENERAL. For the first six months of fiscal 1997 and 1996, net income,
before the restructuring charge of $1.3 million in fiscal 1997 and the $1.0
million office consolidation charge in fiscal 1996, was $1.1 million, or $0.27
per share, compared with $0.4 million, or $0.12 a share, in the prior year.
Net income after the charges was $0.06 per share, or $252,000, in the first
half of fiscal 1997, compared with a net loss of $0.05 per share, or $178,000,
in the comparable period of fiscal 1996.
During the first quarter of fiscal 1996, the Company recorded a $1.0
million pretax charge to cover office consolidation and relocation expenses
associated with the consolidation of the Company's facilities in Madison,
Wisconsin, into its St. Louis headquarters. See Note 3 of the consolidated
financial statements for further information.
REVENUES. Total revenue increased 26.6% to $13.0 million for the first
six months of fiscal 1997 from $10.3 million for the first six months of fiscal
1996, due primarily to higher system sales revenue.
System sales revenue for the first six months increased by $2.5 million,
from $5.8 million in fiscal 1996 to $8.3 million in fiscal 1997. The 42.0%
increase in system sales was primarily attributable to an increase in the
average price of systems shipped in fiscal 1997 compared to fiscal 1996.
System sales represented 56.9% of total revenues for the first six months of
fiscal 1996 and 63.9% of total revenues for the same period in fiscal 1997.
Service revenue for the first six months increased by $0.3 million, from
$4.4 million in fiscal 1996 to $4.7 million in fiscal 1997. The 6.2% increase
was primarily due to additional sales and renewals of service contracts from
existing customers. Service revenue represented 36.1% of total revenues for
the first six months of fiscal 1997 and 43.1% for the first six months of
fiscal 1996 due to the substantial increase in system revenues.
COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT. As a percentage of
total revenue, the total cost of products and services sold decreased from
48.7% in the first six months of fiscal 1996 to 42.1% in the first six months
of fiscal 1997. The decrease in the percentage of revenue is primarily due to
an increase in high margin sales and a decrease in client service expense.
Systems cost of sales as a percentage of systems sales was 50.6% in the first
six months of fiscal 1997 as compared with 62.6% in the first six months of
fiscal 1996. For the first six months of fiscal 1997 and 1996, total cost of
products and services sold were $5.5 million and $5.0 million, respectively.
Gross profit as a percentage of total revenues increased from 51.3% in the
first six months of fiscal 1996 to 57.9% in the first six months of fiscal
1997. In dollar amounts, gross profit increased 42.8% from $5.3 million in
fiscal 1996 to $7.5 million in fiscal 1997. The increase in gross profit as a
percentage of total revenues was primarily attributable to the increase in
systems sales revenue which was not entirely offset by a corresponding increase
in cost.
Page 5
<PAGE> 6
RESEARCH AND DEVELOPMENT COSTS. Total outlays for software development
for the first six months of fiscal 1996 and 1997 are as follows ($000's):
<TABLE>
<CAPTION>
FY97 FY96
R&D EXPENSE SIX MONTHS SIX MONTHS
------------- ----------
<S> <C> <C>
R&D spending $ 2,610.5 $2,346.3
Less - R&D capitalized 988.8 1,443.9
--------- --------
Total R&D expense 1,621.7 902.4
Software amortization (cost of prod. sold) 1,021.5 804.3
--------- --------
Total R&D expensed $ 2,643.2 $1,706.7
========= ========
</TABLE>
<TABLE>
<CAPTION>
FY97 FY96
SOFTWARE DEVELOPMENT COST, NET SIX MONTHS SIX MONTHS
---------- ----------
<S> <C> <C>
Beginning of period $ 4,762.5 $3,942.3
R&D capitalized per above 988.8 1,443.9
Software acquired (C-MAX)* 651.7 --
--------- --------
6,403.0 5,386.2
Less - write-off - U.K. (587.3) --
Software amortization (1,021.5) (804.3)
Other adjustment 48.8 56.9
--------- --------
End of period $ 4,843.0 $4,638.8
========= ========
</TABLE>
*Software acquired relates to the purchase of the contract management
system.
The Company anticipates that due to the nature of the planned development
activities (e.g. product enhancements versus the significant development effort
involved in porting software to a new operating system), the ratio of software
development costs capitalized to total software development outlays will
decline in future periods as compared to recent years. For the six months of
fiscal years 1996 and 1997, the Company capitalized 61.5% and 38.3%,
respectively, of software development costs.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased from $3.7 million in the first six months of fiscal 1996 to $4.2
million in the first six months of fiscal 1997, and increase of 13.1%. Total
selling and administrative expenses increased primarily due to expenditures
associated with higher selling and administrative costs to support operations.
Selling and administrative expenses as a percentage of total revenues decreased
from 36.2% in fiscal 1996 to 32.3% in fiscal 1997.
OPERATING INCOME. Operating income increased from $0.7 million, excluding
the $1.0 million relocation charge, in the first six months of fiscal 1996 to
$1.7 million, excluding the $1.3 million restructuring charge, in the first six
months of fiscal 1997, an increase of 160%. Including the respective charges,
operating income increased from a loss of $0.3 million to $0.4 million in the
first six months of fiscal 1996 and 1997, respectively.
Page 6
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flows from operations.
At September 30, 1996, the Company had cash and cash equivalents in the amount
of $0.6 million as compared to $2.1 million at March 31, 1996. The cash
balance decreased by $1.5 million primarily due to amounts paid for income
taxes ($0.8 million), Computer Systems Excellence, Inc. ($0.7 million), capital
investments ($0.4 million), and software development costs ($2.6 million),
offset in part by the use of the line of credit, ($1.0 million).
As of September 30, 1996, the Company had a line of credit agreement that
allows the Company to borrow up to $2.0 million with interest at the lender's
prime rate. The line of credit is secured by the Company's accounts
receivable, inventory, and equipment. The Company has $1.0 million in
borrowings outstanding under the line of credit agreement at September 30,
1996.
During the first six months of fiscal 1997, the Company recorded debt of
$0.5 million relating to the purchase of the contract management system to be
paid in eight quarterly payments.
The Company anticipates using cash and debt for general corporate
purposes, including: financing international growth and development efforts,
financing enhancements and expansion of the Company's product line, financing
capital improvements and completing the United Kingdom restructuring. In
addition, the Company is evaluating and will continue to evaluate the
acquisition of complementary businesses and products. The Company is not
currently negotiating any acquisitions.
The Company believes that its cash and cash equivalents, together with
current borrowing facilities, cash generated from operations, and other
liquidity sources, will be sufficient to fund its anticipated cash
requirements. The Company's ability to meet its cash requirements on a
long-term basis will depend on profitable operations and consistent and timely
collection of its accounts receivable.
SUBSEQUENT EVENTS
On July 16, 1996 the Company filed a registration statement with the Securities
and Exchange Commission covering a proposed offering of 2,732,311 shares of its
Common Stock, of which 732,311 shares were offered for the account of certain
current shareholders. The proposed offering was terminated on October 8, 1996
and no sales were made pursuant to it. As of September 30, 1996, $0.1 million
was included in other prepaid expenses which will be written off in the third
quarter of fiscal 1997.
Page 7
<PAGE> 8
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no reportable proceedings.
ITEM 2. CHANGE IN SECURITIES
(a) Not applicable.
(b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not applicable.
(b) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on August 15, 1996.
Two matters were submitted to a vote of the shareholders of the Company: the
election of the Directors to Class 1 and consideration of the appointment of
Price Waterhouse to serve as independent auditors of the Company.
Two persons were nominated to fill the two director positions that were
open. These nominees, and the vote cast with respect to each, are listed
below:
Nominee Votes For Votes Withheld Broker Non-votes
- -------------------------------------------------------------------------------
Fred L. Brown 3,517,004 44,717 -0-
William H.J. Seabrook 3,161,881 399,840 -0-
Each of the two nominees was elected and will serve until the 1999 Annual
Meeting of Shareholders or until their successors are duly qualified and
elected.
The second measure to be put to a vote of the shareholders was the
ratification of Price Waterhouse to serve as independent auditors of the
Company for the fiscal year ending March 31, 1997. To approve the proposal,
the affirmative vote of a majority of the shares represented in person and by
proxy at the Annual Meeting was required. The affirmative votes equaled
3,515,437; votes against were 44,484; abstentions were 1,800; and no broker
non-votes. The affirmative votes equaled 98.7 percent of the shares present in
person or by proxy at the Annual Meeting, and thus the proposal was approved.
No other matters were submitted to the shareholders of the Company.
Page 8
<PAGE> 9
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index for list of Exhibits.
(b) None.
Page 9
<PAGE> 10
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITATION COMPUTER SYSTEMS, INC.
Date: November 13, 1996 By: /s/ Richard D. Neece
---------------------------------
Richard D. Neece
Executive Vice President
& Chief Financial Officer
(Principal Financial & Accounting Officer)
Page 10
<PAGE> 11
CITATION Computer Systems, Inc.
CONSOLIDATED BALANCE SHEET
(OOO's)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
Sept. 30, March 31,
Assets 1996 1996
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 631.0 $ 2,146.3
Accounts receivable:
Trade, net 9,870.8 10,919.4
Other 26.0 35.6
Inventories (Note 4) 670.8 537.1
Prepaid expenses and other current assets 658.7 704.3
Income taxes receivable 630.4 -
Deferred tax asset 82.7 82.7
--------- ---------
Total current assets 12,570.4 14,425.4
Software development costs, net 4,843.0 4,762.5
Property and equipment, net 1,614.9 1,756.1
Long-term accounts receivable (Note 7) 1,905.5 0.0
Other assets 724.0 313.2
--------- ---------
Total assets $21,657.8 $21,257.2
========= =========
Liabilities and shareholders' equity:
Current liabilities:
Current portion of long-term debt $ 143.1 $ 143.0
Accounts payable 1,588.0 1,420.6
Accrued bonuses 0.0 475.0
Other accrued liabilities 1,414.0 2,161.0
Restructuring reserve 159.4 -
Deferred service revenue 1,790.2 2,316.9
--------- ---------
Total current liabilities 5,094.7 6,516.5
Long-term debt 1,788.5 450.0
Deferred tax liability 1,676.4 1,676.4
--------- ---------
8,559.6 8,642.9
--------- ---------
Commitments (Note 6) - -
Shareholders' equity:
Common stock 376.8 374.8
Paid-in capital 6,269.6 6,127.7
Retained earnings 6,432.0 6,180.1
Equity adjustment from foreign currency
translation 19.8 (68.3)
--------- ---------
13,098.2 12,614.3
--------- ---------
Total liabilities and shareholders' equity $21,657.8 $21,257.2
========= =========
</TABLE>
F-1
Page 11
See accompanying notes to consolidated financial statements
<PAGE> 12
CITATION Computer Systems, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(OOO's, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
----------------------- ----------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
(unaudited) (unaudited) (unaudited) (unaudited
<S> <C> <C> <C> <C>
Net system sales and service revenues:
System sales $4,127.2 $2,404.6 $ 8,309.9 $ 5,852.0
Service revenue 2,221.2 2,239.9 4,700.3 4,427.8
-------- -------- --------- ---------
6,348.4 4,644.5 13,010.2 10,279.8
-------- -------- --------- ---------
Cost of products and service sold:
System costs 2,039.5 1,703.0 4,202.3 3,662.5
Service costs 718.1 684.9 1,274.7 1,342.0
-------- -------- --------- ---------
2,757.6 2,387.9 5,477.0 5,004.5
-------- -------- --------- ---------
Gross profit 3,590.8 2,256.6 7,533.2 5,275.3
Research and development expense 1,019.3 455.6 1,621.7 902.4
Selling and administrative expenses 1,916.8 1,790.9 4,205.4 3,717.0
Restructuring charge (Note 2) 1,303.5 - 1,303.5 -
Office consolidation and relocation
expense (Note 3) - - - 1,000.0
-------- -------- --------- ---------
Operating income (loss) (648.8) 10.1 402.6 (344.1)
Other income:
Interest income (expense), net (4.6) 23.2 10.3 52.0
-------- -------- --------- ---------
Income (loss) before income taxes (653.4) 33.3 412.9 (292.1)
Provision (benefit) for income taxes (254.8) 13.0 161.0 (113.9)
-------- -------- --------- ---------
Net income (loss) ($398.6) $ 20.3 $ 251.9 ($178.2)
======== ======== ========= =========
Net earnings (loss) per common share:
Primary and fully diluted ($0.11) $ 0.01 $ 0.06 ($0.05)
-------- -------- --------- ---------
Weighted average number of shares used in
computing net earnings per common share:
Primary and fully diluted 3,765 3,740 3,948 3,718
======== ======== ========= =========
</TABLE>
F-2
Page 12
See accompanying notes to consolidated financial statements
<PAGE> 13
CITATION Computer Systems, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(OOO's)
<TABLE>
<CAPTION>
Six months ended
September 30,
-------------------------
1996 1995
------------ -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 11,630.1 $10,849.8
Cash paid to suppliers and employees (11,252.6) (9,173.9)
Cash paid for restructuring charge (142.8) 0.0
Cash paid for office consolidation and relocation 0.0 (334.1)
Income taxes paid (822.0) 57.3
Interest paid (43.4) (28.7)
Interest received and other 86.2 80.4
---------- ---------
Net cash (used in) provided by operating activities: (544.5) 1,450.8
---------- ---------
Cash flows from investing activities:
Capital expenditures (369.6) (187.7)
Software development costs (1,689.4) (1,500.7)
---------- ---------
Net cash used in investing activities: (2,059.0) (1,688.4)
---------- ---------
Cash flows from financing activities:
Principal payments on long-term debt (71.3) (48.8)
Proceeds from long-term debt 960.0 0.0
Proceeds from sale of common stock pursuant to
exercise of stock options
111.4 38.6
---------- ---------
Net cash provided by (used in) financing activities 1,000.1 (10.2)
---------- ---------
Effect of exchange rate changes on cash 88.1 (82.6)
---------- ---------
Net increase in cash and cash equivalents (1,515.3) (330.4)
Cash and cash equivalents, beginning of year 2,146.3 2,634.2
---------- ---------
Cash and cash equivalents, end of period $ 631.0 $ 2,303.8
========== =========
</TABLE>
F-3
Page 13
See accompanying notes to consolidated financial statements
<PAGE> 14
CITATION Computer Systems, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(000's)
<TABLE>
<CAPTION>
Six months ended
September 30,
-------------------------
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Reconcilation of net income (loss) to net cash
provided by operating income activities:
Net income (loss) $ 251.9 ($178.2)
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization of property and
equipment 500.9 454.5
Amoritzation of software development costs 1,021.5 804.3
Amoritzation of other assets 40.8 42.0
Non-cash restructuring charge 871.5 -
Non-cash office consolidation and relocation charge - 665.9
Non-cash 401k matching contribution 32.5 -
Decrease in accounts receivable 868.9 602.0
Increase in current income taxes receivable (661.0) (56.6)
(Increase) decrease in inventories (133.7) 111.8
Increase in prepaid expenses and other assets (491.0) (36.4)
Increase in LT accounts receivable (1,905.5) -
(Decrease) increase in accounts payable 167.4 (953.6)
(Decrease) increase in customer deposits (5.5) 90.3
Decrease in accrued bonuses (475.0) -
(Decrease) increase in other accrued liabilities (101.5) 27.0
Decrease in deferred service revenue (526.7) (122.2)
-------- --------
Net cash provided by operating activities ($544.5) $1,450.8
======== ========
</TABLE>
F-4
Page 14
See accompanying notes to consolidated financial statements
<PAGE> 15
CITATION Computer Systems, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(000's, except for number of shares)
<TABLE>
<CAPTION>
Common Stock
------------------------------
Additional Foreign
Number Par Paid-in Retained Currency
of Shares Value Capital Earnings Translation Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 (audited) 3,747,882 $374.8 $6,127.7 $6,180.1 ($68.3) $12,614.3
Net income (unaudited) 251.9 251.9
Sale of common stock pursuant to exercise
of stock options 18,000 1.8 109.6 111.4
Issuance of common stock for 401K Company
matching contribution 2,022 0.2 32.3 32.5
Foreign currency translation adjustment
(unaudited) 88.1 88.1
--------- ------ -------- -------- ----- ---------
Balance, September 30, 1996 (unaudited) 3,767,904 $376.8 $6,269.6 $6,432.0 $19.8 $13,098.2
--------- ------ -------- -------- ----- ---------
</TABLE>
F-5
Page 15
See accompanying notes to consolidated financial statements
<PAGE> 16
CITATION COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial information for the three and six month
periods ended September 30, 1996 and 1995 is unaudited.
Financial Statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting
principles, have been omitted in this Form 10-QSB pursuant to the
Rules and Regulations of the Securities and Exchange Commission.
However, in the opinion of the Company, the disclosures contained in
this Form 10-QSB are adequate to make the information presented not
misleading. See Notes to Financial Statements as incorporated by
reference in the Company's Annual Report on Form 10-KSB, dated June
26, 1996, which includes financial statements and notes thereto for
the year ended March 31, 1996.
In the opinion of the Company, the accompanying unaudited financial
statements include all adjustments, consisting solely of normal
recurring adjustments, necessary to present fairly the Balance
Sheet at September 30, 1996, the Statement of Operations for the
three and six months ended September 30, 1996 and 1995, the
Statement of Cash Flows for the six months ended September 30, 1996
and 1995, and the Statement of Shareholders' Equity for the six
months ended September 30, 1996. The interim results, however, are
not necessarily indicative of results for any future period.
2. RESTRUCTURING OF OPERATIONS
During the second quarter of fiscal 1997, the Company took a $1.3
million pretax charge against earnings for restructuring its
operations in the United Kingdom. Included in the charge is $0.6
million related to the write-off of capitalized software costs, and
$0.2 million for severance and closure costs, and $0.5 million for
other assets.
3. OFFICE CONSOLIDATION AND RELOCATION
In June, 1995 the Company decided to consolidate the majority of the
operations of it's Madison facility into its St. Louis headquarters.
A pretax charge of $1.0 million was recorded in the first quarter
of 1995 results of operations to provide for the costs of the
consolidation of facilities and relocation of certain employees and
equipment.
F-6
Page 16
<PAGE> 17
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
Sept. 30, March 31,
1996 1996
--------- ---------
<S> <C> <C>
Hardware and third party software $453.4 $322.0
Field service equipment 217.4 215.1
------ ------
$670.8 $537.1
====== ======
</TABLE>
5. GRANTING OF STOCK OPTIONS
During the three months ended September 30, 1996 nonqualified options
to purchase 80,000 shares of Common Stock were granted at an exercise
price of $14.25 per share. The options become exercisable six months
after the date of grant. In addition, qualified options to purchase
2,000 shares of Common Stock were issued at an exercise price of
$15.75 per share. These options become exercisable six months after
the date of grant.
6. COMMITMENTS
The Company from time to time is a party to certain lawsuits.
Management does not expect the outcome of any litigation to have a
material effect on the Company's financial position or results of
operations. As of the date hereof, the Company does not know of any
pending lawsuits.
7. LONG-TERM ACCOUNTS RECEIVABLE
The Company has provided extended payment terms to an overseas
customer for a maximum period of three years.
8. ACQUIRED REIMBURSEMENT MANAGEMENT SYSTEM
On August 26, 1996, the Company acquired a reimbursement management
system from Computer Systems Excellence, Inc. for $1.2 million. The
Company paid $0.7 million at closing and recorded $0.5 million debt to
be paid in eight quarterly payments. Software development in the
amount of $0.7 million has been capitalized.
9. SUBSEQUENT EVENTS.
On July 16, 1996 the Company filed a registration statement with the
Securities and Exchange Commission covering a proposed offering of
2,732,311 shares of its Common Stock, of which 732,311 shares were
offered for the account of certain current shareholders. The proposed
offering was terminated on October 8, 1996 and no sales were made
pursuant to it. As of September 30, 1996, $0.1 million was included
in other prepaid expenses which will be written off in the third
quarter of fiscal 1997.
F-7
Page 17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential Page
Number Exhibit Number
- ------ ------- ---------------
<S> <C> <C>
3(a) Restated Articles of Incorporation of the Company; *
incorporated by reference to the corresponding
Exhibit to the Company's Registration Statement on
Form S-1 of the Company, Registration No. 33-48332
3(b) Restated By-laws of the Company; incorporated by *
reference to the corresponding Exhibit to the
Company's Registration Statement of Form S-1 of the
Company, Registration No. 33-48332
4(a) Specimen Common Stock Certificate; incorporated by *
reference to the corresponding Exhibit to the
Company's Registration Statement on Form S-1 of the
Company, Registration No. 33-48332
4(b) Registration Rights Agreement, dated May 29, 1992, *
between the Company and Capital For Business, Inc;
incorporated by reference to the corresponding
Exhibit to the Company's Registration Statement on
Form S-1 of the Company, Registration No. 33-48332
27(a) Financial Data Schedule
</TABLE>
*Incorporated by reference as set forth in Exhibit description.
CITATION Computer Systems, Inc.
Form 10-QSB Page 18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 631
<SECURITIES> 0
<RECEIVABLES> 10,065
<ALLOWANCES> 169
<INVENTORY> 671
<CURRENT-ASSETS> 12,570
<PP&E> 5,618
<DEPRECIATION> 4,003
<TOTAL-ASSETS> 21,658
<CURRENT-LIABILITIES> 5,095
<BONDS> 0
0
0
<COMMON> 377
<OTHER-SE> 12,721
<TOTAL-LIABILITY-AND-EQUITY> 21,658
<SALES> 8,310
<TOTAL-REVENUES> 13,010
<CGS> 4,202
<TOTAL-COSTS> 5,477
<OTHER-EXPENSES> 7,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (10)
<INCOME-PRETAX> 413
<INCOME-TAX> 161
<INCOME-CONTINUING> 252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
