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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 February 28, 1995
OR
( ) TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _______________
To _____________
_____________________
Nichols Research Corporation
Commission File Number 0-15295
(Exact name of registrant as specified in its charter)
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DELAWARE 63-0713665
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
4040 Memorial Parkway, South
Huntsville, Alabama 35802-1326
(205) 883-1140
(Address, including zip code, of principal offices)
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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
6,092,550 SHARES OUTSTANDING ON February 28, 1995
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NICHOLS RESEARCH CORPORATION
QUARTERLY REPORT FOR THE PERIOD ENDED FEBRUARY 28, 1995
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Statements of Income for the Three Months
and Six Months Ended February 28, 1994 and
February 28, 1995 1
Balance Sheets as of August 31, 1994,
February 28, 1994, and February 28, 1995 2-3
Statements of Changes in Stockholders'
Equity for the Six Months Ended February 28,
1994 and February 28, 1995 4
Statements of Cash Flows for the Year Ended
August 31, 1994 and for the Six Months Ended
February 28, 1994 and February 28, 1995 5
Notes to Financial Statements 6
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-9
Part II.OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security
Holders 10
Item 6.(b)Reports on Form 8-K
The Company has not filed any reports on Form
8-K for the three months ended February 28, 1995.
Signatures 11
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NICHOLS RESEARCH CORPORATION
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
STATEMENTS OF INCOME
For the Three Months Ended For the Six MonthsEnded
-------------------------- ------------------------
February 28, February 28, February 28, February 28,
1994 1995 1994 1995
(amounts in thousands except per share data)
Revenues from
contracts $32,787 $36,174 $66,866 $72,404
Costs and expenses:
Direct and allocable
contract costs 28,382 31,344 57,552 62,982
General and
administrative 2,057 2,542 4,502 4,864
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Total costs and
expenses 30,439 33,886 62,054 67,846
---------------------------------------------------
Operating profit 2,348 2,288 4,812 4,558
Other income 228 379 443 671
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Income before income
taxes 2,576 2,667 5,255 5,229
Income taxes 944 991 1,930 1,925
---------------------------------------------------
Net income $1,632 $1,676 $3,325 $3,304
===================================================
Net income per common
share $.26 $.27 $.53 $.54
===================================================
Weighted average
number of common
and common equivalent
shares 6,360,536 6,197,376 6,313,696 6,166,972
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NOTE: The Company has not declared or paid dividends in any of the periods
presented.
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NICHOLS RESEARCH CORPORATION
BALANCE SHEETS
August 31, February 28, February 28,
1994 1994 1995
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(amounts in thousands)
ASSETS
Current assets:
Cash and temporary cash
investments $19,355 $15,002 $27,603
Contract receivables 39,620 41,755 40,377
Deferred income taxes 1,283 1,459 1,283
Other 2,010 1,197 1,169
----------------------------------------------
Total current assets 62,268 59,413 70,432
Long-term investments 7,894 8,197 4,555
Furniture, fixtures and equipment,
at cost:
Furniture and equipment 12,472 12,050 13,365
Vehicles 29 29 29
Leasehold improvements 1,160 1,123 1,541
Equipment - contracts 5,771 5,771 5,771
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19,432 18,973 20,706
Less accumulated depreciation 8,924 7,744 10,397
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Net furniture, fixtures and
equipment 10,508 11,229 10,309
Other assets 91 132 2,758
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Total assets $ 80,761 $ 78,971 $ 88,054
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NICHOLS RESEARCH CORPORATION
BALANCE SHEETS
August 31, November 30, November 30,
1994 1993 1994
(amounts in thousands except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $12,483 $10,253 $10,962
Accrued employee leave 2,852 2,627 2,848
Accrued salaries 1,494 1,231 1,552
Income taxes payable - _ 1,035
Accrued profit sharing contribution 385 1,259 1,584
Current maturities of long-term debt 962 962 1,187
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Total current liabilities 18,176 16,332 19,168
Deferred income taxes 949 478 949
Long-term debt:
Industrial development bonds _ _ 2,000
Long-term notes 4,328 4,809 3,847
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Total long-term debt 4,328 4,809 5,847
Stockholders' equity:
Common stock, par value $.01 per share
Authorized - 10,000,000 shares
Issued - 6,262,137, 6,221,377,
and 6,345,050 shares,
respectively 63 62 64
Additional paid-in capital 22,528 22,191 23,190
Retained earnings 38,467 35,286 41,771
Less cost of treasury stock
322,500, 15,000 and 252,500
shares, respectively (3,750) (187) (2,935)
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Total stockholders' equity 57,308 57,352 62,090
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Total liabilities and stockholders'
equity $80,761 $78,971 $88,054
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STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Stock Total
(amounts in thousands except per share data)
For the Six Months Ended February 28, 1994
Balance, August 31, 1993 6,030,997 $60 $20,679 $31,961 $ _ $52,700
Sale of common stock 190,380 2 1,512 _ _ 1,514
Purchase of 15,000 shares
of treasury stock _ _ _ _ (187) (187)
Net income for the period _ _ _ 3,325 _ 3,325
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Balance, February
28, 1995 6,221,377 $62 $22,191 $35,286 $(187) $57,352
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For the Six Months Ended February 28, 1995
Balance, August 31, 1994 6,262,137 $63 $22,528 $38,467 $(3,750) $57,308
Sale of common stock 82,913 1 662 _ _ 663
Purchase of 70,000 shares
of treasury stock _ _ _ _ 815 815
Net income for the period _ _ _ 3,304 _ 3,304
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Balance, February
28, 1995 6,345,050 $64 $23,190 $41,771 $(2,935)$62,090
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STATEMENTS OF CASH FLOWS
Year Ended For the Six Months Ended
August 31, February 28, February 28,
1994 1994 1995
(amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period $6,056 $3,325 $ 3,304
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 1,858 677 1,303
Gain on sale of furniture,
fixtures and equipment (14) (14) _
Loss on sale of investments _ _ 34
Deferred income taxes 647 _ _
Changes in assets and liabilities
net of effects of purchase of
Communications and Systems
Specialists,Inc. (CSSi):
Contract receivables 1,165 (970) 118
Other assets (1,053) (281) 956
Trade accounts payable (107) (2,337) (1,792)
Accrued employee leave (181) (406) (4)
Accrued salaries (202) (466) 13
Income taxes payable (240) (240) 906
Accrued profit sharing contribution (865) 9 1,198
Other current liabilities (4) (4) _
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Total adjustments 1,004 (4,032) 2,732
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Net cash provided (used) by
operating activities 7,510 (707) 6,036
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for furniture, fixtures and
equipment (7,301) (6,832) (887)
Purchase of long-term investments (7,894) (7,196) _
Payment for non-compete agreements _ _ (900)
Payment for the purchase of CSSi,
net of cash acquired _ _ (905)
Payment for investment in TXEN _ _ (1,521)
Proceeds from maturity of long-term
investments 1,000 _ 3,284
Proceeds from the sale of furniture,
fixtures and equipment 32 23 _
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Net cash used by investing
activities (14,163) (14,005) (929)
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STATEMENTS OF CASH FLOWS
Year Ended For the Six Months Ended
August 31, February 28, February 28,
1994 1994 1995
(amounts in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 1,851 1,514 663
Proceeds from sale of treasury stock _ _ 734
Proceeds from long-term notes 5,771 5,771 _
Proceeds for industrial development
bonds _ _ 2,225
Purchase of treasury stock (3,750) (187) _
Payment of long-term debt (480) _ (481)
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Net cash provided by financing
activities 3,392 7,098 3,141
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Net increase (decrease) in cash (3,261) (7,614) 8,248
Cash and temporary cash
investments at beginning
of period 22,616 22,616 19,355
Cash and temporary cash
investments at end of period $ 19,355 $ 15,002 $ 27,603
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Non-cash transactions:
Deferred compensation resulting
from the exercise on non-
statutory stock options $ _ $ _ $ 81
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NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The 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.
NOTE 2 - ACQUISITION AND INVESTMENT
On September 1, 1994 the Company acquired 100% interest in Communications
& Systems Specialists, Inc., (CSSi), an information systems
development company. Aggregate consideration of approximately
$1,800,000 was paid. The financial statements as of and for the three
months and six months ended February 28, 1995 include the results of
the acquired company.
In December 1994 the Company purchased a 19% interest in TXEN, Inc.,
an information systems development company in the healthcare industry.
The Company paid approximately $1,500,000 and holds an option to
purchase additional shares in the future.
NOTE 3 - NON-STATUTORY STOCK OPTIONS
On September 1, 1994 the president of the Company was granted and
exercised options to purchase 70,000 shares of common stock of the
Company. The shares are subject to mandatory repurchase by the Company
for a period of two years at the exercise price in accordance with the
terms of the employment agreement.
NOTE 4 - LONG-TERM DEBT
On January 1, 1995 the Company received $2,225,000 in bond proceeds
from the Alabama State Industrial Development Authority. The
proceeds are restricted for use in acquiring certain capital assets and
are included on the balance sheet as cash and temporary cash
investments. The bond is payable in equal annual principal
installments of $222,500 through January 2005. The bond bears a
variable rate of interest computed monthly but contains an option for
a fixed rate for a specified length of time.
The bond is secured by a letter of credit.
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Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
For the six months ended February 28, 1995, operating activities
provided $6,035,764 in cash as compared to using $706,683 during the
six months ended February 28, 1994. Proceeds from the sale of the
Company's common stock during the six months ended February 28, 1995
were $663,413 as compared to $1,513,994 during the six months ended
February 28, 1994. The Company reissued treasury stock, generating
$734,000 in cash for thesix months ended February 28, 1995.
The Company's working capital was $51,264,000 at February 28, 1995
as compared to $43,081,000 at February 28, 1994. The Company's
working capital ratios were 3.67:1 at February 28, 1995 as compared to
3.64:1 at February 28, 1994. The Company also has $4,554,729 invested
primarily in fixed income instruments at February 28, 1995, as compared
to $8,196,700 at February 28, 1994.
The Company increased its bank line of credit to $26,000,000
from $22,000,000 in January 1995. The line of credit consists of
$15,000,000 unsecured and $11,000,000 secured by contract receivables.
During the six months ended February 28, 1995, the Company had no
outstanding borrowings under the provisions of this line of credit.
The Company received $2,225,000 in January 1995 of industrial
development bond proceeds from the State of Alabama. The funds are
restricted for use in acquiring certain capital assets as approved by
the State Industrial Development Authority. The bond is secured by a
letter of credit.
The Company purchased $887,000 of capital assets during the six
months ended February 28, 1995, as compared to $6,832,000 during the
six months ended February 28, 1994. In fiscal year 1994 the capital
asset purchases included $5,771,000 of computer hardware for lease to a
customer under a computer system integration contract. The Company is
actively seeking new contracts for information systems development
and computer systems integration which could require the Company to
acquire substantial amounts of computer hardware for resale or lease
to customers. Significant new awards for computer systems integration
programs could require the Company to obtain additional financing from
banks or other sources.
During the six months ended February 28, 1995, the Company won new
contract awards totaling approximately $88,324,000 as compared to
approximately $79,800,000 for the six months ended February 28, 1994.
The trend in contract awards is for increased amounts to be awarded in
options.
The Company's backlog at February 28, 1995 and February 28, 1994 , was
as follows:
1994 1995
Base period contracts and exercised
options, net of services provided $292,900,000 $266,703,000
Options 215,100,000 276,238,000
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Total $508,000,000 $542,941,000
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RESULTS OF OPERATIONS
For the Three Months Ended
February 28, February 28, Amount of Percent
1994 1995 Change Change
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(amounts in thousands)
Revenues from contracts $ 32,787 $36,174 $3,387 10.3%
Cost and expenses:
Direct and allocable contract
costs 28,382 31,344 2,962 10.4
General and administrative 2,057 2,542 485 23.6
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Total cost and expenses 30,439 33,886 3,447 11.3
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Operating profit 2,348 2,288 (60) (2.6)
Other income 228 379 151 66.2
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Income before income taxes 2,576 2,667 91 3.5
Income taxes 944 991 47 5.0
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Net income $ 1,632 $ 1,676 $ 44 2.7%
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For the Six Months Ended
February 28, February 28, Amount of Percent
1994 1995 Change Change
(amounts in thousands)
Revenues from contracts $ 66,866 $72,404 $5,538 8.3%
Cost and expenses:
Direct and allocable contract
costs 57,552 62,982 5,430 9.4
General and administrative 4,502 4,864 362 8.0
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Total cost and expenses 62,054 67,846 5,792 9.3
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Operating profit 4,812 4,558 (254) (5.3)
Other income 443 671 229 51.8
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Income before income taxes 5,255 5,229 (26) (0.5)
Income taxes 1,930 1,925 (5) (0.3)
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Net income $ 3,325 $ 3,304 $ 21 (0.6)%
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RESULTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
February 28, February 28, February 28, February 28,
1994 1995 1994 1995
Revenues from contracts 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Direct and allocable contract
costs 86.5 86.7 86.1 87.0
General and administrative 6.3 7.0 6.7 6.7
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Total cost and expenses 92.8 93.7 92.8 93.7
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Operating profit 7.2 6.3 7.2 6.3
Other income 0.7 1.0 0.7 1.0
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Income before income taxes 7.9 7.3 7.9 7.3
Income taxes 2.9 2.7 2.9 2.7
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Net income 5.0% 4.6% 5.0% 4.6%
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Revenues from contracts increased 10.3 percent for the three months
ended February 28, 1995 and 8.3 percent for the six months ended
February 28, 1995, as compared to the three months and six months
ended February 28, 1994. Revenues from contracts are dependent upon
the Company's ability to obtain new contracts and the continued
funding of awarded contracts. The Company has not experienced
significant funding reductions with respect to existing contracts,
although such reductions could occur in the future.
The Company believes, however, that opportunities will continue to
exist for contract awards in the technical sectors of DOD,
NASA, state governments and other government agencies which will
provide the Company with the ability to increase revenues.
Costs and expenses as a percentage of revenues from contracts were
93.7 percent for the three months and six months ended February 28,
1995, as compared to 92.8 percent for the three months and six months
ended February 28, 1994. Operating profit as a percentage of revenues
from contracts was 6.3 percent for the three months and six months ended
February 28, 1995, as compared to 7.2 percent for the three months and
six months ended February 28, 1994. The increased costs as a percentage
of contract revenues and the decrease in operating profit are a result
of planned increases in business development efforts and an increase in
subcontractor and direct material costs on time and material contracts,
which are passed through to customers with no fee. Increased
competition may result in reduced fees on new contract awards.
Significant changes in the level of subcontractor and direct material
costs could impact profit margins.
Other income increased from $228,000 for the three months and $443,000
for the six months ended February 28, 1994, to $379,000 for the three
months and $671,000 for the six months ended February 28, 1995.
Other income consists primarily of interest income. Substantially all
available cash of the Company is invested in interest bearing accounts
and fixed income instruments.
Net income was $1,676,000 for the three months and $3,304,000 for the
six months ended February 28, 1995, as compared to $1,632,000 for the
three months and $3,325,000 for the six months ended February 28,
1994, a decrease of 0.6 percent and an increase of 2.7 percent,
respectively. Net income as a percentage of revenues from contracts
decreased from 5.0 percent for the three months and six months ended
February 28, 1994 to 4.6 percent for the three months and six months ended
February 28,1995.
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PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 12, 1995, the annual meeting of the Company's stockholders
was held at the Corporate Headquarters in Huntsville, Alabama. Proxies
were solicited and cast by the Company's transfer agent, Chemical
Bank, New York, New York. Matters put to vote and acted upon were the
election of the Board of Directors of the Company, amendment to the
Nichols Research Corporation 1991 Incentive Stock Option Plan, and the
ratification of the Company's external auditors.
All directors were elected for a term of one year and will serve until
the next annual meeting. Directors elected were as follows:
For Withheld
Chris H. Horgen 5,075,278 295,629
Michael J. Mruz 5,045,299 325,608
Roy J. Nichols 5,075,415 295,492
Patsy L. Hattox 5,045,449 316,458
Roger P. Heinisch 5,083,498 287,409
William E. Odom 5,083,172 287,735
James R. Thompson, Jr. 5,076,104 294,803
John R. Wynn 5,058,204 312,703
Phil E. DePoy 5,073,601 297,306
Robert W. Hager 5,082,288 288,619
The Nichols Research Corporation 1991 Incentive Stock Option Plan
was amended. Voting for amendment were 4,063,532 shares, voting against
were 288,619 shares and 113,739 shares abstained.
Ernst & Young, LLP was ratified to serve as the Company's
independent auditors for the fiscal year ending August 31, 1995.
Voting for ratification were 5,230,336 shares, voting against were
9,667 shares and 130,904 shares abstained.
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SIGNATURES
MANAGEMENT REPRESENTATION
The Balance Sheets at February 28, 1995, and February 28, 1994 as
well as the Statements of Income, Statements of Changes in Stockholders'
Equity and Statements of Cash Flows for the three months and six
months ended February 28, 1995 and February 28, 1994, are unaudited
by independent public accountants; however, in the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of
operations for the periods presented and financial position for the
dates presented have been made.
Date: April 14, 1995 Allen E. Dillard
----------------------------
Allen E. Dillard
Chief Financial Officer
(Principal Finance and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: April 14, 1995 Allen E. Dillard
----------------------------
Allen E. Dillard
Chief Financial Officer
(Principal
Finance and
Accounting
Officer)