EXHIBIT 13
FIVE YEAR FINANCIAL DATA (Unaudited)
(Dollars in thousands, except per share amounts)
YEAR ENDED JANUARY 31,
------------------------------------------------------------
1996 1995(1) 1994(2) 1993 1992
-------- -------- -------- -------- --------
Financial Results
Revenues $358,976 $336,943 $305,453 $300,067 $302,506
Income (loss) from operations 39,737 23,146 (2,301) 27,258 28,704
Income (loss) before income tax
provision (benefit) 37,009 19,148 (2,859) 26,608 24,174
Income tax provision (benefit) 14,750 5,750 (350) 10,100 8,700
Net income (loss) 22,259 13,398 (2,509) 16,508 15,474
Net income (loss) per share $ 1.42 $ .88 $ (.16) $ 1.03 $ .96
Average number of shares outstanding 15,685 15,225 15,535 16,066 16,138
Dividends paid per share $ .36 $ .36 $ .36 $ .33 $ .29
Financial Position
Current ratio 1.6 1.5 1.5 1.6 1.7
Working capital $ 40,763 $ 35,614 $ 36,217 $ 38,792 $ 39,836
Total assets 235,260 240,757 220,173 214,739 217,578
Long-term debt, including
current maturities 28,540 50,525 47,351 25,350 39,751
Stockholders' equity 128,198 113,123 100,147 121,317 112,316
(1) Includes a special charge of $11,339 pre-tax, $5,189 after-tax or $.34 per
share.
(2) Includes a special charge of $25,000 pre-tax, $15,500 after-tax or $1.00 per
share.
QUARTERLY MARKET DATA (Unaudited)
The Company's Common Stock is traded on the Nasdaq National Market System under
the symbol "NLCS." As of January 31, 1996, there were approximately 1,900
stockholders of record. Set forth below is certain information regarding the
sales prices of, and dividends paid with respect to, the Company's Common Stock
during the year ended January 31, 1996 and 1995:
YEAR ENDED JANUARY 31, 1996
-------------------------------------
Quarter 1st 2nd 3rd 4th
- --------------------- ------- ------- ------- -------
Sales prices per share
High $17.75 $21.50 $22.00 $22.00
Low 14.86 16.25 17.75 17.50
Dividends paid per share $ .09 $ .09 $ .09 $ .09
YEAR ENDED JANUARY 31, 1995
-------------------------------------
Quarter 1st 2nd 3rd 4th
- ------------------------ ------- ------- ------- -------
Sales prices per share
High $ 13.50 $ 13.25 $ 14.75 $ 17.25
Low 10.88 10.50 11.50 12.13
Dividends paid per share $ .09 $ .09 $ .09 $ .09
QUARTERLY RESULTS OF OPERATIONS
(In thousands, except per share amounts)
THREE MONTHS ENDED
-----------------------------------------------
April 30 July 31 October 31 January 31
-------- ------- ---------- ----------
Year Ended January 31, 1996
Revenues $74,297 $88,442 $97,321 $98,916
Gross profit 29,114 33,957 35,037 38,608
Net income 2,365 5,644 6,172 8,078
Net income per share $ 0.15 $ 0.36 $ 0.39 $ 0.52
Year Ended January 31, 1995
Revenues $68,750 $80,131 $94,608 $93,454
Gross profit 27,081 31,165 31,239 38,452
Net income 1,950 4,715 4,578 2,155(1)
Net income per share $ 0.13 $ 0.31 $ 0.30 $ 0.14
(1) Includes a $5,189 after-tax special charge ($ .34 per share).
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The fiscal years referenced herein are as follows:
Fiscal Year Year Ended
1995 - January 31, 1996
1994 - January 31, 1995
1993 - January 31, 1994
Income and Expense Items as a Percentage of Revenues
Fiscal Year 1995 1994 1993
- ------------------------------------------------------------
Revenues
Net sales 82.5% 80.8% 77.5%
Maintenance and support 17.5 19.2 22.5
- ------------------------------------------------------------
Total revenues 100.0 100.0 100.0
Costs Of Revenues
Cost of sales(1) 60.9 60.1 57.4
Cost of maintenance and support(2) 66.6 70.0 73.6
- ------------------------------------------------------------
Total gross profit 38.1 38.0 38.9
Operating Expenses
Sales and marketing 12.5 13.1 15.7
Research and development 3.9 4.0 3.1
General and administrative 10.7 10.6 12.7
Special charges -- 3.4 8.2
- -------------------------------------------------------------
Income (loss) from operations 11.1 6.9 (0.8)
Income (loss) before taxes 10.3 5.7 (0.9)
Net income (loss) 6.2% 4.0% (0.8)%
=============================================================
(1) As a percentage of sales revenue.
(2) As a percentage of maintenance and support revenue.
National Computer Systems, Inc. (the Company or NCS) operates two business
segments. The Company's largest business segment is Data Collection Services and
Systems. This segment markets those products and related application software
and services predominantly in education, but also to business, government and
health care markets through its various operating units. The Financial Systems
segment designs, develops and markets asset management software and service,
primarily for bank trust departments. This includes systems for personal trust
asset management for individuals and corporate trust applications such as stock
and bond transfer systems.
RECAP OF 1995 RESULTS
Total revenues in fiscal 1995 were up 6.5% from the prior year to a record
$359.0 million. The Company's overall gross profit percentage on revenues was
relatively constant with the prior year, while total gross profit dollars
increased over fiscal 1994 by $8.8 million or 6.9%. Sales and marketing expenses
increased slightly, by $.6 million, however, those expenses declined to 12.5% of
revenues from 13.1% in fiscal 1994. Research and development expenses increased
by $.5 million, remaining relatively constant, year-to-year, as a percent of
revenues. General and administrative expenses increased by $2.4 million, also
relatively constant, year-to-year, as a percent of revenues. The Company's
income from operations increased 15.2% to $39.7 million over the prior year
income from operations of $34.4 million, before the 1994 special charges
discussed below. Interest expense declined slightly as lower average borrowing
levels were somewhat offset by higher interest rates. Net income of $22.3
million or $1.42 per share compares to fiscal 1994 net income of $18.6 million
or $1.22 per share before the 1994 special charges.
SPECIAL CHARGES
In fiscal 1994, the Company recorded an $11.3 million special charge consisting
of three components: The restructuring and statutory reorganization of the
Company's German operations, the discontinuation of an employee benefits
software development project, and the write-down of certain investments in
anticipation of disposition. See Note 2 of Notes to Consolidated Financial
Statements for further discussion.
In fiscal 1993, the Company recorded a $25 million special charge, $22.8 million
of which was to terminate the Ultrust product and the related Cambridge,
Massachusetts operations dedicated to the product. The charge also included $2.2
million for the restructuring of the Administrative Software division of the
Education business, principally the closing of the Company's Salt Lake City
software development facility and the consolidation of product development
activities into facilities in Mesa, Arizona. See Note 2 of Notes to Consolidated
Financial Statements for further discussion.
REVENUES
Fiscal 1995 versus Fiscal 1994. Total revenues for fiscal 1995 were up 6.5% to
$359.0 million from $336.9 million in fiscal 1994. Revenue growth in fiscal 1995
as compared to fiscal 1994, by NCS business segment, was as follows:
Data Collection Services and Systems -
Education + 6.3%
Business, Government, Health Care and other + 4.8%
Overall + 5.6%
Financial Systems +11.6%
Data Collection Services and Systems benefited from higher volumes of
educational assessments and student financial aid services at the Company's Iowa
City service center. Higher software licensing revenues from school
administrative software were also a significant factor in the year-to-year
increase. Higher services revenues, notwithstanding lower hardware maintenance
revenues, as well as improved hardware and forms sales generated the revenue
growth for Business, Government and Health Care. Substantially all of the
revenue growth in Financial Systems was due to the acquisition of its
International Private Banking subsidiary in the latter part of fiscal 1994. See
Note 3 of Notes to Consolidated Financial Statements for further discussion. By
revenue category, net sales were up 8.8% in fiscal 1995 over fiscal 1994 due to
the higher assessment, software licensing and services revenues mentioned above,
as well as increased proprietary hardware sales. Maintenance and support
revenues were down 2.8% due to lower third-party hardware maintenance revenues,
partially offset by higher software support revenues.
Fiscal 1994 versus Fiscal 1993. Total revenues for fiscal 1994 were up 10.3% to
$336.9 million from $305.5 million in fiscal 1993. Revenue growth in fiscal 1994
as compared to fiscal 1993, by NCS business segment, was as follows:
Data Collection Services and Systems -
Education +19.5%
Business, Government, Health Care and other + 1.4%
Overall +10.5%
Financial Systems + 9.3%
Significantly higher volumes of educational assessment and student financial aid
services at the Company's Iowa City service center were the principal factors in
the growth in Data Collection revenues in education. Approximately half of the
revenue growth in Financial Systems was due to the acquisition in the third
quarter of fiscal 1994. See Note 3 of Notes to Consolidated Financial Statements
for further discussion.
By revenue category, net sales were up 15.0% in fiscal 1994 over fiscal 1993 due
to the higher Data Collection revenues in education and student financial aid
services mentioned above, among other increases. Maintenance and support
revenues were down 5.9% due to lower third-party hardware maintenance revenues,
offset somewhat by increases in proprietary maintenance services and software
support.
COST OF REVENUES AND GROSS PROFITS
Fiscal 1995 versus Fiscal 1994. The Company's overall gross profit percentage of
38.1% for fiscal 1995 was slightly improved over the prior year percentage of
38.0%. The gross profit on net sales declined by 0.8 percentage points
year-to-year principally due to lower relative margins on assessment revenues at
the Company's Iowa City service center. This decline was partially offset by
higher margins on domestic non-educational Data Collection Services and Systems
revenues. Maintenance and support margins improved by 3.4 percentage points in
fiscal 1995 over the prior year, totally offsetting the aforementioned decline
in margins on net sales. The year-to-year improvement came from software support
margins.
Fiscal 1994 versus Fiscal 1993. In fiscal 1994, the Company's overall gross
profit declined to 38.0% of total revenues from 38.9% in fiscal 1993. By revenue
category, the gross profit on net sales declined by 2.7 percentage points in
fiscal 1994 from the prior year, due in large measure to lower relative margins
on certain of the incremental student financial aid project revenues at the Iowa
City service center. This was offset by improved gross profit on maintenance and
support revenues, which increased by 3.6 percentage points in fiscal 1994, due
principally to higher margins on hardware maintenance services and improved
software support margins, owing largely to the discontinuance of Ultrust.
OPERATING EXPENSES
Fiscal 1995 versus Fiscal 1994. Sales and marketing expenses increased by $.6
million in fiscal 1995 over fiscal 1994. As a percentage of revenues, sales and
marketing expenses declined by 0.6 percentage points, to 12.5% of total
revenues. This decline is a result of the continuing Company-wide efforts to
manage these costs and expenses.
Research and development expenses increased $.5 million in fiscal 1995 over
fiscal 1994. This increase relates principally to enhancements to the Company's
scanning and imaging technology and related software.
General and administrative expenses increased by $2.4 million or 6.6% in fiscal
1995 from the prior year. As a percent of revenues, these expenses remained
constant year-to-year. The increase reflects additional spending of over $1.0
million to introduce and install enhanced product and project management methods
and tools.
Fiscal 1994 versus Fiscal 1993. In fiscal 1994, sales and marketing expenses
decreased $4.0 million from the prior fiscal year. This, coupled with increased
revenues, decreased these expenses as a percentage of total revenues by 2.6
percentage points. This improvement was due to a concerted Company-wide effort
to reduce these expenses and make sales and marketing efforts more productive
than in fiscal 1993.
Research and development expenses increased $4.1 million or 43.3% in fiscal 1994
over fiscal 1993 due directly to new software product initiatives across the
Company, particularly in Financial Systems and Data Collection relating to
education.
General and administrative expenses declined by $2.9 million or 7.4% in fiscal
1994 from the prior fiscal year. This decrease year-to-year is due to direct
efforts to reduce these expenses.
INTEREST EXPENSE
Interest expense decreased by $0.2 million in fiscal 1995 from the prior year.
The year-to-year decrease is primarily the result of lower average borrowing
levels for the latter half of the year, somewhat offset by slightly higher
interest rates.
Interest expense increased $1.3 million in fiscal 1994 over fiscal 1993. This
was due to higher average borrowing levels in fiscal 1994, as debt levels
increased significantly in the latter part of fiscal 1993 and modestly in fiscal
1994. Interest rates also increased in fiscal 1994 from the prior year. See
Capital Resources and Liquidity below for further discussion of cash flow and
debt.
OTHER INCOME AND EXPENSE
Other income and expense for 1995 and 1994 included no large or unusual items.
Other income in fiscal 1993 includes a $1.6 million gain from the sale of assets
of the Company's Catalog Card Division. This division's net assets and results
of operations were not material to NCS.
INCOME TAXES
The effective income tax rate for fiscal 1995 was 39.9%, which was higher than
the statutory rate as a result of losses from foreign subsidiaries which the
Company is unable to recognize as a benefit in its 1995 tax provision.
The effective income tax rate for fiscal 1994 was 30.0% which was significantly
reduced by the net tax benefits related to the reorganization of the Company's
German operations. See Note 6 of the Notes to Consolidated Financial Statements.
The effective income tax benefit rate for fiscal 1993 was 12.2%, which was
significantly lower than the statutory rate and Company's historical effective
rate. The rate impact of permanent book/tax differences was magnified due to the
low absolute dollar amount of the pre-tax loss.
CAPITAL RESOURCES AND LIQUIDITY
During fiscal 1995, the Company generated $51.9 million of cash from operating
activities. Cash was used for capital expenditures and other investing
activities totaling $19.5 million, debt reduction of $21.0 million, dividends of
$5.6 million and stock repurchases, net of issuances, of $1.9 million. The
Company had paid off its revolving debt balances by January 31, 1996, and had
accumulated cash and cash equivalents of $5.2 million, an increase of $4.0
million from a year earlier.
During fiscal 1994, the Company generated $42.2 million of cash from operations.
The special charges incurred in fiscal 1994 had, after considering tax benefits,
a slightly positive impact on cash from operations. The Company invested $28.3
million in property, plant and equipment in fiscal 1994, which was unusually
high due to the addition of new buildings in Mesa, Arizona and Iowa City, Iowa.
Other investing activities consisted of $6.9 million of software capital
additions, and $3.2 million of investments in two minor acquisitions. The
activities above, and all other cash needs, were financed with cash from
operations and $4.1 million of additional borrowings.
The Company had long-term debt balances, including current maturities of $28.5
million, $50.5 million, and $47.4 million at January 31, 1996, 1995, and 1994
respectively. The items causing the changes in debt balances are described
above. At January 31, 1996, the Company's debt to total capital ratio was 18.2%
compared to 30.9% a year earlier and 32.1% two years earlier. The Company
believes that the current debt to total capital ratio is at an acceptable level
which will allow the Company flexibility to fund future growth initiatives.
Looking toward fiscal 1996, the Company maintains a $40 million revolving credit
facility, all of which was unused at January 31, 1996. The Company expects, in
fiscal 1996, to use its cash flows to fund current operating activities as well
as internal growth in its businesses and possible acquisitions. In 1996, capital
expenditures and software development are expected to remain relatively
constant. The Company considers the $40 million credit facility, cash on hand
and funds from operations to be adequate to meet foreseeable cash requirements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JANUARY 31,
--------------------
1996 1995
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 5,174 $ 1,195
Receivables 81,241 79,149
Inventories 18,740 20,455
Prepaid expenses and other 9,666 9,925
-------- --------
Total Current Assets 114,821 110,724
-------- --------
Property, Plant and Equipment
Land, buildings and improvements 50,044 48,202
Machinery and equipment 103,111 101,336
Rotable service parts 6,793 9,256
Equipment held for lease 7,086 7,583
Accumulated depreciation (87,836) (83,648)
-------- --------
79,198 82,729
-------- --------
Other Assets, net
Acquired and internally developed software products 23,222 27,234
Non-current receivables and other assets 15,593 17,027
Goodwill 2,426 3,043
-------- --------
41,241 47,304
-------- --------
Total Assets $235,260 $240,757
======== ========
LIABILITIES AND STOCKHOLERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 4,005 $ 5,212
Accounts payable 19,077 20,655
Accrued expenses 27,997 29,495
Deferred income 18,521 18,645
Income taxes 4,458 1,103
-------- --------
Total Current Liabilities 74,058 75,110
-------- --------
Deferred Income Taxes 8,469 7,211
Long-Term Debt - less current maturities 24,535 45,313
Commitments and Contingencies - -
Stockholders' Equity
Preferred stock - -
Common stock - issued and outstanding -
15,365 and 15,310 shares, respectively 461 459
Paid-in capital 3,427 3,795
Retained earnings 130,007 114,546
Deferred compensation (5,697) (5,677)
-------- --------
Total Stockholders' Equity 128,198 113,123
-------- --------
Total Liabilities and Stockholders' Equity $235,260 $240,757
======== ========
See Notes to Consolidated Financial Statements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JANUARY 31,
------------------------------
1996 1995 1994
-------- -------- --------
Revenues
Net sales $296,136 $272,305 $236,737
Maintenance and support 62,840 64,638 68,716
-------- -------- --------
Total revenues 358,976 336,943 305,453
Cost of Revenues
Cost of sales 180,392 163,744 135,943
Cost of maintenance and support 41,868 45,262 50,589
-------- -------- --------
Gross profit 136,716 127,937 118,921
Operating Expenses
Sales and marketing 44,773 44,138 48,104
Research and development 13,938 13,422 9,364
General and administrative 38,268 35,892 38,754
Special charges - 11,339 25,000
-------- -------- --------
Income (Loss) From Operations 39,737 23,146 (2,301)
Interest expense 3,311 3,465 2,200
Other (income) expense (583) 533 (1,642)
-------- -------- --------
Income (Loss) Before Income Tax Provision (Benefit) 37,009 19,148 (2,859)
Income tax provision (benefit) 14,750 5,750 (350)
-------- -------- --------
Net Income (Loss) $ 22,259 $ 13,398 $ (2,509)
======== ======== ========
Net Income (Loss) Per Share $ 1.42 $ 0.88 $ (0.16)
Average Shares Outstanding 15,685 15,225 15,535
See Notes to Consolidated Financial Statements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK
--------------- PAID-IN RETAINED DEFERRED
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TOTAL
------ ------ ------- -------- ------------ -----------
Balance January 31, 1993 15,899 $477 $13,390 $115,716 $ (8,266) $121,317
Shares issued for employee stock
purchase and option plans 135 4 1,741 - - 1,745
Repurchase of common stock (1,053) (32) (15,317) (566) - (15,915)
Restricted stock awards 2 - 186 - (33) 153
ESOP debt payment - - - - 1,000 1,000
Restricted stock compensation accrual - - - - 226 226
Net loss - - - (2,509) - (2,509)
Cash dividends paid - $.36 per share - - - (5,581) - (5,581)
Foreign currency translation adjustment - - - (289) - (289)
------ ------ -------- --------- --------- ---------
Balance January 31, 1994 14,983 449 - 106,771 (7,073) 100,147
Shares issued for employee stock
purchase and option plans 152 5 1,492 - - 1,497
Repurchase of common stock (32) (1) (359) - - (360)
Restricted stock awards (59) (2) (430) - 432 -
Shares issued for business acquisition 266 8 3,092 - - 3,100
ESOP debt payment - - - - 1,000 1,000
Restricted stock compensation accrual - - - - (36) (36)
Net income - - - 13,398 - 13,398
Cash dividends paid - $.36 per share - - - (5,453) - (5,453)
Foreign currency translation adjustment - - - (170) - (170)
------ ------ ------- --------- --------- ----------
Balance January 31, 1995 15,310 459 3,795 114,546 (5,677) 113,123
Shares issued for employee stock
purchase and option plans 208 6 2,446 - - 2,452
Repurchase of common stock (233) (7) (4,445) - - (4,452)
Restricted stock awards 80 3 1,576 - (1,579) -
Shares issued for business acquisition - - 55 - - 55
ESOP debt payment - - - - 1,000 1,000
Restricted stock compensation accrual - - - - 559 559
Net income - - - 22,259 - 22,259
Cash dividends paid - $.36 per share - - - (5,570) - (5,570)
Foreign currency translation adjustment - - - (1,228) - (1,228)
------ ----- ------ --------- --------- ---------
Balance January 31, 1996 15,365 $461 $3,427 $130,007 $ (5,697) $128,198
====== ===== ====== ========= ========= =========
See Notes to Consolidated Financial Statements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JANUARY 31,
------------------------------
1996 1995 1994
-------- -------- --------
Operating Activities
Net income (loss) $ 22,259 $ 13,398 $ (2,509)
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation 15,643 15,559 16,289
Amortization 11,791 8,412 8,388
Deferred income taxes and other 3,747 (400) (2,434)
Non-cash special charges - 10,375 17,805
Changes in operating assets and liabilities
(net of acquired amounts):
Accounts receivable (2,133) (3,392) (12,346)
Inventory and other current assets 542 (4,285) (3,765)
Accounts payable and accrued expenses 272 3,183 3,879
Deferred income (190) (613) 652
------- ------- -------
Net Cash Provided By Operating Activities 51,931 42,237 25,959
------- ------- -------
Investing Activities
Divestitures (acquisitions), net - (3,216) (1,198)
Purchases of property, plant and equipment (14,091) (29,185) (23,852)
Capitalized software products (4,826) (6,928) (11,474)
Other - net (535) (3,245) (1,728)
------- ------- -------
Net Cash Used In Investing Activities (19,452) (42,574) (38,252)
Financing Activities
Net increase (decrease) in revolving credit borrowing (13,065) 1,100 18,500
Net increase (decrease) in other borrowings (7,920) 3,024 4,501
Issuance (repurchase) of common stock, net (1,945) 1,137 (14,170)
Dividends paid (5,570) (5,453) (5,581)
------- ------- -------
Net Cash Provided By
(Used In) Financing Activities (28,500) (192) 3,250
------- ------- -------
Increase (Decrease) In Cash and Cash Equivalents 3,979 (529) (9,043)
Cash and Cash Equivalents - Beginning of Year 1,195 1,724 10,767
------- ------- -------
Cash and Cash Equivalents - End of Year $ 5,174 $ 1,195 $ 1,724
======= ======= =======
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1 - ACCOUNTING POLICIES
The fiscal years referenced herein are as follows:
Fiscal Year Year Ended
1995 - January 31, 1996
1994 - January 31, 1995
1993 - January 31, 1994
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions between consolidated entities have been eliminated.
USE OF ESTIMATES: The consolidated financial statements have been prepared in
accordance with the generally accepted accounting principles which requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Those assumptions
and estimates are subject to constant revision, and actual results could differ
from those estimates.
CASH AND EQUIVALENTS: All investments purchased with an original maturity of
three months or less are considered to be cash equivalents. Cash equivalents are
carried at cost which approximates fair market value.
INVENTORIES: Inventories are stated at the lower of first-in, first-out cost or
market. Components of inventory as of January 31, are summarized as follows:
1996 1995
- ----------------------------------------------------------------
Finished Goods $ 6,416 $ 6,408
Scoring services and work in process 8,694 8,974
Raw materials and purchased parts 3,630 5,073
- ----------------------------------------------------------------
$18,740 $20,455
================================================================
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost
and depreciated over the estimated useful lives of the assets using principally
the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes. Significant improvements are capitalized to
property, plant and equipment accounts, while maintenance and repairs are
expensed currently. Rental income from equipment held for lease is recognized as
earned using the operating method of accounting for such leases. Depreciation is
computed using the straight-line method based on the assets' estimated useful
lives ranging from two to forty years.
ROTABLE SERVICE PARTS: Parts continually repaired and reused are carried at cost
and depreciated over their estimated useful lives ranging from three to five
years. Such amounts are reflected as a separate category of property, plant and
equipment.
ACQUIRED AND INTERNALLY DEVELOPED SOFTWARE PRODUCTS: Acquired software product
amounts originate from the allocation of purchase prices of acquired companies
and direct acquisition of software, or rights to software. These products are
generally large, complex, mission-critical application software packages with
established market positions. Products in this category are generally assigned
lives of five years. Internally developed software products represent costs
capitalized in accordance with Statement of Financial Accounting Standards No.
86. Accordingly, software production costs incurred subsequent to establishing
technological feasibility, as defined, are capitalized. Amortization of these
products is computed on a product by product basis ratably as a percentage of
estimated revenue, subject to minimum straight-line amortization over the
products' estimated useful lives of two to five years. Expected revenues and
useful lives are estimates which are subject to changes in technology and
marketplace requirements and are, therefore, subject to revision. The Company
periodically evaluates its software products for impairment by comparison of the
carrying value of the product against anticipated product margins. The carrying
value is adjusted, if necessary. An employee benefits software product and the
Ultrust software product were discontinued in fiscal 1994 and fiscal 1993,
respectively. Refer to Note 2 for further discussion.
A summary of software activity is as follows:
Internally Accumulated
Acquired Developed Amortization Total
- ---------------------------------------------------------------------------
Balance, January 31, 1993 $16,684 $29,065 $(15,583) $30,166
Additions 1,165 11,474 - 12,639
Product discontinuation (4,522) (18,495) 5,212 (17,805)
Dispositions - (1,558) 1,057 (501)
Amortization - - (4,407) (4,407)
- ----------------------------------------------------------------------------
Balance, January 31, 1994 13,327 20,486 (13,721) 20,092
Additions 7,868 6,928 - 14,796
Product discontinuation - (2,983) 25 (2,958)
Amortization - - (4,696) (4,696)
- ----------------------------------------------------------------------------
Balance, January 31, 1995 21,195 24,431 (18,392) 27,234
Additions - 4,826 - 4,826
Dispositions (532) (213) 459 (286)
Amortization - - (8,552) (8,552)
- ----------------------------------------------------------------------------
Balance, January 31, 1996 $20,663 $29,044 $(26,485) $23,222
============================================================================
GOODWILL: Goodwill arising from business acquisitions is amortized on a
straight-line basis over periods ranging from five to twenty years, generally
ten years. Amortization expense was $624 in fiscal 1995, $1,179 in fiscal 1994
and $1,146 in fiscal 1993. Accumulated amortization was $3,109 and $2,493 as of
January 31, 1996 and 1995, respectively.
ACCRUED EXPENSES: Major components of accrued expenses consisted of the
following as of January 31:
1996 1995
- ------------------------------------------------
Employee compensation $13,811 $12,960
Taxes other than income 3,587 3,410
Royalties 2,176 2,241
Scoring 1,477 2,169
Special charges - 679
Other 6,946 8,036
- ------------------------------------------------
$27,997 $29,495
================================================
REVENUE RECOGNITION: Revenue from product sales and software licensing is
recognized at the time of shipment, except in instances where material
fulfillment obligations exist beyond shipment. In such cases, revenue is not
recognized until such obligations are substantially fulfilled or is recognized
in accordance with specific contract terms. Hardware maintenance and software
support revenues are recognized ratably over the contractual period. Revenue
from other services is recognized when such service is performed.
OTHER (INCOME) EXPENSE: Other (income) expense for the year ended January 31,
1994 includes a $1,556 gain on the sale of the assets of the Company's Catalog
Card Division to an entity controlled by the Company's then Chairman of the
Board. The sale was for cash and notes totaling $2,350, including interest. The
disinterested directors of the Company determined that the terms of the sale
were fair and reasonable to the Company. Notes receivable of $1,199 and $1,454,
net, from the acquiring entity are carried in non-current receivables on the
accompanying consolidated balance sheets at January 31, 1996 and 1995,
respectively.
PER SHARE DATA: Net income (loss) per share is based on the weighted average
number of shares of Common Stock and dilutive common stock equivalents
outstanding during the year.
IMPAIRMENT OF LONG-LIVED ASSETS: In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present.
The Company will be subject to SFAS No. 121 in the first quarter of 1996 and,
based on current estimates and assumptions, believes the effect of adoption will
not be material.
STOCK-BASED COMPENSATION: In October, 1995, the FASB issued SFAS No. 123,
Accounting for Stock-Based Compensation. The Company currently accounts for
stock options and awards to employees under the provisions of Accounting
Principles Board Opinion No. 25. The Company has not determined whether to
continue to account for stock option under the current method or adopt the
provisions of SFAS No. 123. The impact of adopting this new standard, at this
point, has not been determined. All transactions entered into during the fiscal
years ended January 31, 1996 and 1997 will require footnote disclosure in 1997
as if the new method had been adopted.
NOTE 2 - SPECIAL CHARGES
In the fourth quarter of fiscal 1994, the Company recorded an $11.3 million
pre-tax special charge consisting of three components: the restructuring and
statutory reorganization of the Company's German operations, the discontinuation
of an employee benefits software development project, and the write-down of
certain unconsolidated investments in anticipation of disposition.
The German restructuring and reorganization amounted to a $3.7 million pre-tax
charge to liquidate two of the Company's three operating subsidiaries in Germany
and consolidate all remaining operations, principally distribution and
maintenance, into one remaining subsidiary. The pre-tax charge was principally
to write down goodwill and other assets ($2.9 million) to liquidation values and
the balance of this charge was to accrue exit costs for leased facilities and
other obligations. There were, however, significant tax benefits triggered by
these actions, so that the net after-tax effect of this restructuring was only
$.5 million. These actions are complete and the liquidation will become official
upon the expiration of the German statutory notice periods.
The discontinuation of the employee benefit software product resulted in a $3.2
million pre-tax charge. The charge was principally to write off internal
software development costs and acquired third-party software licenses. The
after-tax effect of this action was approximately $2.0 million.
The balance of the pre-tax special charge ($4.4 million) was to write down
investments in four companies in anticipation of values which will be realized
as the Company proceeds with an orderly disposition of these investments. The
after-tax effect of the write-down of these investments was $2.7 million. One of
these investments was disposed of during fiscal 1995, and a second is under
contract for disposition. The Company continues to hold, for sale, the remaining
two investments whose net carrying value is insignificant.
The special charges totaled $11.3 million pre-tax and $5.2 million or 34 cents
per share on an after-tax basis. These actions represent largely asset
write-downs with related tax benefits and therefore, actually generated cash for
the Company, before considering disposition proceeds.
In the fourth quarter of fiscal 1993, the Company recorded a $25 million pre-tax
special charge. This amount consisted of a $22.8 million charge to terminate the
Ultrust product and related operations, including a non-cash write-off of $17.8
million of software investment, $2.7 million of severance costs, and $2.3
million of facility exit costs, customer accommodations and other items.
The balance of the charge was for the closing of a software development facility
in Salt Lake City and consolidation of those functions into the Company's Mesa,
Arizona facility. Substantially all of this $2.2 million charge related to
severance and other employee-related costs.
This charge reduced fiscal 1993 after-tax earnings by $15.5 million or $1.00 per
share. The cash outlay required by this charge was essentially completed in
1994.
NOTE 3 - SIGNIFICANT TRANSACTIONS
During fiscal 1994, the Company completed two minor acquisitions. In July, 1994,
the Company completed the acquisition of Abacus Data Group, Inc., a developer of
Windows-based instructional management software for the education market. The
purchase price was approximately $3.8 million in a combination of cash and
common stock of the Company, plus contingent earn-out payments, and was
allocated principally to software products and goodwill. In October, 1994, the
Company completed the acquisition of an international private banking product,
DECBank APSYS, along with certain related business assets and operations in
Geneva, Switzerland. The purchase price was approximately $2.9 million in cash
plus assumption of certain liabilities, which was allocated principally to
software products. The operating results of these acquired entities were not
material to NCS.
The Company holds an investment in Dimensional Medicine Inc. (DMI) which is
comprised of 27.5 million shares of DMI common stock (representing 85% of the
outstanding common shares) and a long-term note receivable. The Company has not
consolidated the financial results of DMI as it has been the Company's intention
to divest of the DMI shares. The Company anticipates closing on the sale of DMI
in the first half of 1996. DMI's financial position and results of operations
are not material to the Company.
Fees charged to DMI for installation and servicing of DMI systems were $206 in
fiscal 1995, $518 in fiscal 1994, and $999 in fiscal 1993. Rates and prices
charged for these services approximate those which would prevail between
unrelated parties. The balance of the long-term note, $602 as of January 31,
1996 and $865 as of January 31, 1995, is reflected in non-current receivables in
the accompanying consolidated balance sheets.
NOTE 4 - LEASES
The Company leases office facilities under noncancelable operating leases which
expire in various years through 2001. Rental expense for all operating leases
was $10,138 in fiscal 1995, $11,026 in fiscal 1994, and $11,242 in fiscal 1993 .
Future minimum rental expense as of January 31, 1996, for noncancelable
operating leases with initial or remaining terms in excess of one year is
$25,150 and is payable as follows: fiscal 1996 - $6,785; fiscal 1997 - $5,799;
fiscal 1998 - $4,804; fiscal 1999 - $3,180; fiscal 2000 - $2,368 and $2,214
beyond.
NOTE 5 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt at January 31, consisted of the following:
1996 1995
- --------------------------------------------------
Revolving credit borrowing $ - $19,600
Secured notes 15,000 15,000
Unsecured note 6,535 6,173
ESOP borrowings 4,000 5,000
Other borrowings, 3,005 4,212
principally foreign
- --------------------------------------------------
28,540 50,525
Less current maturities (4,005) (5,212)
- --------------------------------------------------
Long-term debt $24,535 $45,313
==================================================
Revolving Credit Borrowings: The Company has a $40,000 unsecured revolving
credit facility that terminates August 1, 1998. Interest on debt outstanding
under this facility is computed, at the Company's discretion, based on the prime
rate or the London Interbank Offered Rate (LIBOR). During the year ended January
31, 1996, the interest rate approximated 1.0 % below the prime rate. The Company
pays a fee at an annual rate of .25% on the unused facility amount. The credit
facility contains covenants with which the Company is in compliance.
Secured Notes: In July, 1990 the Company issued $15,000 of 9.88% Secured Notes
due in July, 1997. Interest is paid monthly during the term. The notes are
secured by certain Company-owned real estate. The credit facility contains
covenants with which the Company is in compliance.
Unsecured Note: This unsecured term note is due in five principal payments of
$1,307 per year beginning in April, 1997 and bears interest at .95% over LIBOR.
ESOP Borrowing: The ESOP loan, secured by unallocated shares of Common Stock and
guaranteed by the Company, is due in May 1996. The balance of the loan will be
refinanced, prior to May 1, 1996, for an additional three year period, with
annual payments of $1,000. Interest is payable at rates which approximate 3.5%
under the prime rate.
Scheduled Maturities: The aggregate principal amounts of long-term debt
scheduled for repayment in each of the five fiscal years 1996 through 2000 are
$4,005, $17,307, $2,307, $2,307, and $1,307, respectively. In each fiscal year,
interest paid approximates interest expense plus capitalized interest of $175 in
1994 and $338 in 1993.
NOTE 6 - INCOME TAXES
The components of the provision for income taxes are as follows:
Current
-----------------------
Year ended January 31, Federal State Foreign Deferred Total
- -----------------------------------------------------------------
1996 $12,787 $1,789 $ 70 $ 104 $14,750
1995 6,175 691 384 (1,500) 5,750
1994 1,566 398 40 (2,354) (350)
- -----------------------------------------------------------------
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities as of January 31, are as follows:
1996 1995
- ---------------------------------------------------------
Deferred tax assets:
Foreign operating loss carryforwards $2,050 $ 831
Accrued vacation pay 1,648 1,572
Rotable service parts amortization 1,510 1,612
Reserves for uncollectibles 1,284 3,223
Intangible amortization 1,219 1,047
Capital loss carryforward 783 71
Special charges 497 1,395
Other 705 806
Valuation allowance (1,910) (831)
- ----------------------------------------------------------
Total deferred tax assets 7,786 9,726
- ----------------------------------------------------------
Deferred tax liabilities:
Net capitalized software 7,199 7,183
Accelerated depreciation 5,823 5,847
Product cost amortization 1,265 842
Purchased software amortization 1,088 2,016
Installment sales 830 894
Other 50 155
- ----------------------------------------------------------
Total deferred tax liabilities 16,255 16,937
- ----------------------------------------------------------
Net deferred tax liabilities $ 8,469 $ 7,211
==========================================================
A reconciliation of the Company's statutory and effective tax rate is presented
below:
YEAR ENDED JANUARY 31,
--------------------------
1996 1995 1994
------ ------ ------
Statutory rate 35.0% 35.0% (35.0)%
State income taxes net of
federal benefit 3.2 2.3 9.2
Intangible amortization 0.7 3.0 12.9
Foreign sales corporation (0.1) (0.6) (4.7)
Research and development credits (0.3) (2.5) (24.2)
Affordable housing credit (0.7) (1.4) -
Foreign operating losses 2.3 0.8 27.1
Foreign investment loss - (10.2) -
Federal rate adjustment - - 9.8
Other, net (0.2) 3.6 (7.3)
- ---------------------------------------------------------------
Effective rate 39.9% 30.0% (12.2)%
===============================================================
In the year ended January 31, 1995, the tax rate benefit from the foreign
investment losses principally reflects U.S. tax benefits triggered by the
restructuring and reorganization of the Company's German operations discussed in
Note 2.
In the year ended January 31, 1994, the Federal rate adjustment item above is
due to the SFAS No. 109 requirement to increase deferred tax liabilities to
reflect current statutory income tax rates. During that year, after the
Company's adoption of this standard, the U.S. Federal statutory rate increased
from 34% to 35%. This adjustment reflects the resulting increase in the deferred
tax liability of $280. The Company also incurred foreign operating losses of
approximately $2.7 million for the year ended January 31, 1994, which could not
currently be tax benefited, and, therefore, unfavorably impacted the effective
tax benefit rate. None of the remaining items in the year ended January 31, 1994
rate reconciliation above were unusual in nature or amount in comparison to
prior years, however, the rate effects are magnified due to the low absolute
dollar amount of the pre-tax loss.
The Company made tax payments of $10,335, $5,549, and $7,312 in the fiscal years
ended January 31, 1996, 1995 and 1994, respectively.
NOTE 7 - STOCKHOLDERS' EQUITY
The Company has 10,000,000 shares of $.01 par value Preferred Stock authorized
and issuable in one or more series as the Board of Directors may determine; none
is outstanding. 50,000,000 shares of $.03 par value Common Stock are authorized.
There are no restrictions on retained earnings.
The Company has five Employee Stock Option Plans (1982, 1984, 1986, 1990 and
1995). Options to purchase Common Stock of the Company are granted to employees
at 100% of fair market value on the date of grant and are exercisable over a 60
or 63 month period. Outstanding options under all plans are summarized as
follows:
SHARES PRICE PER SHARE
- ---------------------------------------------------------------
Balance, January 31, 1994 909,350 $ 7.75 to $17.60
Granted 272,250 12.50 to 15.00
Cancelled (300,200) 7.75 to 17.60
Exercised (76,900) 7.75 to 15.00
- ---------------------------------------------------------------
Balance, January 31, 1995 804,500 7.75 to 16.75
- ---------------------------------------------------------------
Granted 222,750 16.75 to 21.25
Cancelled (65,950) 8.25 to 20.13
Exercised (159,350) 7.75 to 16.75
- ---------------------------------------------------------------
Balance, January 31, 1996 801,950 $12.00 to $21.25
===============================================================
Options for 163,650 and 188,050 shares became exercisable during fiscal 1995 and
1994, respectively, and options for 228,250 and 235,750 shares were exercisable
at January 31, 1996 and 1995, respectively. Shares available for grant under the
Plans totaled 380,250 and 209,600 at January 31, 1996 and 1995, respectively.
At January 31, 1996, non-qualified options not covered by the Plans to purchase
102,000 shares at $8.25 to $17.60 per share were outstanding. At January 31,
1995, non-qualified options not covered by the Plans to purchase 107,000 shares
at $8.25 to $17.60 per share were outstanding.
At January 31, 1996, there were 43,000 outstanding options under the
Non-Employee Director Stock Option Plan with exercise prices from $8.25 to
$18.00 per share. At January 31, 1995, there were 36,000 outstanding options
under the Plan with exercise prices from $8.25 to $16.00 per share.
The Company has an Employee Stock Purchase Plan. There were 135,510 shares
available for purchase under the Plan at January 31, 1996.
NOTE 8 - EMPLOYEE BENEFIT PLANS
EMPLOYEE SAVINGS PLAN: The Company has a qualified 401(k) Employee Savings Plan
covering substantially all employees. Company contributions are discretionary.
The Company's contributions to the Plan, representing 401(k) matching
contributions only, were $1,900, $1,700 and $1,674 in fiscal years 1995, 1994,
and 1993, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN: The Company has an Employee Stock Ownership Plan
(ESOP) covering substantially all employees. Benefits, to the extent vested,
become available upon retirement or termination of employment. During 1989, the
ESOP Trust borrowed $10,000 to purchase 792,000 shares of Common Stock. Each
year, the Company makes contributions to the ESOP which are charged to
compensation expense, and used by the ESOP Trust to make loan interest and
principal payments. With each principal payment, a portion of the Common Stock
is allocated to participating employees. In fiscal 1995, the Company's
contribution to the Plan was $1,000 plus interest of $63, which is net of
dividends on unallocated shares of $171. The Company's contribution to the Plan
was $1,000 in fiscal 1994 and fiscal 1993, and interest, which was totally
offset by dividends on unallocated shares, was $206 in fiscal 1994 and $168 in
fiscal 1993. There were 316,800 and 396,000 unallocated shares at January 31,
1996 and 1995, respectively.
The ESOP Trust borrowing, which is guaranteed by the Company, is reflected in
long-term debt, and the Company's obligation to make future contributions to the
ESOP for debt repayment is reflected as a reduction of Stockholders' Equity in
the consolidated financial statements.
LONG-TERM INCENTIVE PLAN: During fiscal 1995, pursuant to a Long-Term Incentive
Plan approved by the stockholders in fiscal 1990, 92,400 shares of Common Stock
were issued to participants on a restricted basis, all of which were outstanding
at January 31, 1996. The shares will be earned by, and released to, the
participants two-thirds on January 31, 1998, and one-third on January 31, 1999,
upon the achievement of specified revenue growth and cumulative earnings
objectives for the three fiscal years ended January 31, 1998, as defined in the
Plan. The cost of the Plan is being accrued over the three year measurement
period. The Plan also contains a cash award element, for each of the three
fiscal years, which is earned only upon attainment of specified annual earnings
objectives as defined in the Plan.
During fiscal 1990, pursuant to the Plan, 171,400 shares of Common Stock were
issued to participants on a restricted basis. At January 31, 1996, 81,650 shares
remain outstanding due to forfeitures by original participants. The shares will
be earned by, and released to, the participants at the end of 10 years, but
release can be accelerated by attainment of 20% return on equity in a fiscal
year, as defined in the Plan. The cost of the Plan is being accrued over the
10-year earning period and will be accelerated if so earned. The Plan also
contains a cash award element which is earned only upon attainment of the 20%
return on equity.
NOTE 9 - CONTINGENCY
The Company has received a claim from a former customer for expenses, alleged
loan defaults, and other damages related to performance under a loan processing
and servicing contract. The Company has tendered the defense of this claim to
its insurer, and the insurer has accepted that defense subject to a reservation
of rights. The Company and its insurer intend to vigorously contest this claim.
While the claim has not yet been fully articulated, the Company believes that
any such claim would be substantially covered by insurance and would not have a
material effect on the Company's financial position.
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, requires disclosue of fair
value information about financial instruments for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the estimates and assumptions
used, including the discount rate and estimates of future cash flows.
At January 31, 1996 and 1995, the Company had non-current investments and notes
receivable (non-trade) with carrying values of $4,104 and $3,514 respectively,
which approximate fair value at those respective dates.
At January 31, 1996 and 1995, the Company's $15,000, 9.88% Secured Notes had a
fair value of approximately $15,900 and $15,500, respectively, based on the
Company's current borrowing rate for comparable borrowing arrangements. The
Company's ESOP and other long-term debt values approximates market due to the
variable interest rate features of the obligations.
NOTE 11 - BUSINESS SEGMENT DATA
The Company operates two business segments. The predominance of the Company's
business is in the Data Collection Services and Systems segment. This segment
markets those products and services and related application software to
education, business, government and health care markets through various
operating units. The Financial Systems segment designs, develops and markets
asset management software, primarily for bank trust departments. This includes
systems for personal trust asset management for individuals and corporate trust
applications such as stock and bond transfer systems. Below is a summary of
certain financial information related to the two segments for fiscal years ended
January 31.
DATA COLLECTION FINANCIAL
SERVICES AND SYSTEMS SYSTEMS TOTAL
---------------------------- -------------------------- -----------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- ------- ------- -------- -------- --------
Revenues $300,883 $284,875 $257,813 $ 58,093 $52,068 $47,640 $358,976 $336,943 $305,453
======== ======== ======== ======== ======= ======= ======== ======== ========
Operating income (loss) 42,017 37,316 25,447 9,648 2,820 (19,621) 51,665 40,136 5,826
Special charges included above - 3,718 2,200 - 3,175 22,800 - 6,893 25,000
Corporate expense 11,928 16,990(1) 8,127
Interest and other expense, net 2,728 3,998 558
-------- -------- --------
Total income (loss) before
income taxes 37,009 19,148 (2,859)
======== ======== ========
Identifiable assets 191,571 201,312 177,664 33,093 31,382 25,340 224,664 232,694 203,004
Corporate assets 10,596 8,063 17,169
-------- -------- --------
Total assets 235,260 240,757 220,173
======== ======== ========
Depreciation and amortization 22,378 19,579 20,263 4,445 3,553 3,507 26,823 23,132 23,770
Corporate depreciation
and amortization 611 839 907
-------- -------- --------
Total depreciation and
amortization 27,434 23,971 24,677
======== ======== ========
Capital expenditures 12,288 31,317 24,425 6,233 4,374 9,391 18,521 35,691 33,816
Corporate capital expenditures 396 422 1,510
-------- -------- --------
Total capital expenditures $ 18,917 $ 36,113 $ 35,326
======== ======== ========
(1) Includes special charge of $4,446.
Capital expenditures include property, plant and equipment additions and
capitalized software. The Company's foreign operations and export sales are less
than 10% of total revenues. Sales to all government agencies for the fiscal
years ended January 31, 1996, 1995 and 1994 were $148,313, $143,187, and
$110,107 of which $42,664, $41,455, and $23,001, respectively, were to U.S.
government agencies, principally the U.S. Department of Education, with the
remainder to state and local government agencies, predominantly school districts
and state departments of education. The Company considers its credit risk in
trade receivables to be minimal with regard to the governmental customers
described above. With regard to the Company's non-governmental customers,
including those in the Financial Systems segment, credit investigations are
performed to minimize credit losses, which historically have been insignificant.
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
National Computer Systems, Inc.
We have audited the accompanying consolidated balance sheets of National
Computer Systems, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended January 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Computer
Systems, Inc. and subsidiaries at January 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1996, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
March 3, 1996