================================================================================ 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, 1999 ----------------- 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 0-15295 Nichols Research Corporation (Exact name of registrant as specified in its charter) ____________________________ DELAWARE 63-0713665 -------- ---------- (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification no.) 4090 Memorial Parkway, South Huntsville, Alabama 35802-1326 (256) 883-1140 (Address, including zip code and telephone number of principal offices) ____________________________ NO CHANGE (Former name, address and fiscal year if changed since last report) ____________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. COMMON STOCK, $.01 PAR VALUE 14,155,230 SHARES OUTSTANDING ON February 28, 1999 ____________________________ ================================================================================ FORM 10-Q NICHOLS RESEARCH CORPORATION QUARTERLY REPORT FOR THE PERIOD ENDED FEBRUARY 28, 1999 INDEX Page ---- Part I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Income for the Three Months and Six Months Ended February 28, 1999 and February 28, 1998 (Unaudited)....................... 1 Balance Sheets as of February 28, 1999 and August 31, 1998 (Unaudited).... 2-3 Statements of Changes in Stockholders' Equity for the Six Months Ended February 28, 1999 and February 28, 1998 (Unaudited)................. 4 Statements of Cash Flows for the Six Months Ended February 28, 1999 and February 28, 1998 (Unaudited)......................................... 5 Notes to Financial Statements (Unaudited)................................. 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................... 10-20 Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 20 Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders....................... 21 Item 6. Exhibits and Reports on Form 8-K.......................................... 22 Signatures .......................................................................... 23 FORM 10-Q NICHOLS RESEARCH CORPORATION PART I - FINANCIAL INFORMATION Item 1 - Financial Statements CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended For the Six Months Ended ----------------------------------- ---------------------------------- February 28, February 28, February 28, February 28, 1999 1998 1999 1998 Restated Restated ------------------------------------------------------------------------ (amounts in thousands except share data) Revenues ....................................... $ 98,616 $ 92,509 $ 199,965 $ 181,049 Costs and expenses: Direct and allocable costs................. 81,645 76,976 166,323 150,920 General and administrative expenses........ 10,209 8,433 20,242 16,308 Amortization of intangibles.................. 1,041 1,193 2,062 2,288 Special charge............................. 4,297 - 4,297 - ----------------------------------------------------------------------- Total costs and expenses............... 97,192 86,602 192,924 169,516 ----------------------------------------------------------------------- Operating profit................................ 1,424 5,907 7,041 11,533 Other income (expense): Interest expense........................... (151) (103) (221) (193) Other income, principally interest......... 148 311 294 596 Equity in earnings of unconsolidated affiliates............................. 114 160 242 290 Minority interest in consolidated subsidiaries........................... 68 (163) 2 (494) ----------------------------------------------------------------------- Income before income taxes...................... 1,603 6,112 7,358 11,732 Income taxes.................................... 482 2,349 2,748 4,521 ----------------------------------------------------------------------- Net income...................................... $ 1,121 $ 3,763 $ 4,610 $ 7,211 ======================================================================= Earnings per common share....................... $ .08 $ .28 $ .33 $ .53 ======================================================================= Earnings per common share - assuming dilution... $ .08 $ .27 $ .32 $ .51 ======================================================================= Weighted average number of common shares........ 13,921,315 13,550,930 13,885,576 13,512,753 ======================================================================= Weighted average number of common and common equivalent shares............... 14,261,779 14,050,049 14,206,186 14,035,987 ======================================================================= NOTE: The Company has not declared or paid dividends in any of the periods presented. All prior periods have been restated to reflect the acquisition of Welkin Associates, Ltd., which was accounted for as a pooling of interests. See accompanying notes. 1 FORM 10-Q NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) February 28, August 31, 1999 1998 Restated ----------------------------------------------- (amounts in thousands) ASSETS Current assets: Cash and temporary cash investments.................. $ 5,889 $ 11,275 Accounts receivable.................................. 116,556 113,392 Deferred income taxes................................ 2,513 2,488 Other................................................ 2,362 3,939 ----------------------------------------------- Total current assets............................. 127,320 131,094 Long-term investments.................................... 1,260 1,519 Property and equipment: Computers and related equipment...................... 33,077 29,465 Furniture, equipment and improvements................ 13,479 12,210 Equipment-contracts.................................. 3,617 5,771 ----------------------------------------------- 50,173 47,446 Less accumulated depreciation............................ 25,699 25,011 ----------------------------------------------- Net property and equipment........................... 24,474 22,435 Goodwill and other intangibles (net of accumulated amortization)........................................ 55,267 57,262 Software development costs (net of accumulated amortization)........................................ 4,052 3,928 Investment in affiliates................................. 9,938 9,607 Other assets............................................. 3,370 1,491 ----------------------------------------------- Total assets............................................. $ 225,681 $ 227,336 =============================================== NOTE: The Company has not declared or paid dividends in any of the periods presented. All prior periods have been restated to reflect the acquisition of Welkin Associates, Ltd., which was accounted for as a pooling of interests. 2 FORM 10-Q NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) CONTINUED February 28, August 31, 1999 1998 Restated ------------------------------------------- (amounts in thousands except per share data) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable..................................... $ 19,106 $ 24,278 Accrued compensation and benefits.................... 20,455 18,317 Income taxes payable................................. 158 1,681 Current maturities of long-term debt................. 997 997 Borrowings on line of credit......................... 5,000 5,000 Deferred revenue..................................... 397 1,797 Other................................................ 548 1,040 ------------------------------------------- Total current liabilities........................ 46,661 53,110 Deferred income taxes.................................... __ 354 Long-term debt: Industrial development bonds......................... 1,113 1,335 Long-term notes...................................... 1,161 1,613 ------------------------------------------- Total long-term debt............................. 2,274 2,948 Minority interest in consolidated subsidiaries........... 289 1,177 Stockholders' equity: Common stock, par value $.01 per share Authorized - 30,000,000 shares Issued 14,155,230 and 13,997,455 shares, respectively..................................... 142 140 Additional paid-in capital........................... 97,729 95,631 Retained earnings.................................... 79,874 75,264 Less cost of treasury stock - 168,500 shares......... (1,288) (1,288) ------------------------------------------- Total stockholders' equity....................... 176,457 169,747 ------------------------------------------- Total liabilities and stockholders' equity................ $ 225,681 $ 227,336 =========================================== NOTE: The Company has not declared or paid dividends in any of the periods presented. All prior periods have been restated to reflect the acquisition of Welkin Associates, Ltd., which was accounted for as a pooling of interests. 3 FORM 10-Q NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) Additional Total Common Stock Paid-In Retained Treasury Stockholders' Shares Amount Capital Earnings Stock Equity ----------------------------------------------------------------------------------------------- (amounts in thousands except share data) For the Six Months Ended February 28, 1999 ------------------------------------------ Balance, August 31, 1998 (Restated) 13,997,455 $ 140 $ 95,631 $ 75,264 $ (1,288) $ 169,747 Exercise of stock options 79,700 1 822 - - 823 Employee stock purchases 78,075 1 1,276 - - 1,277 Net income - - - 4,610 - 4,610 ----------------------------------------------------------------------------------------------- Balance, February 28, 1999 14,155,230 $ 142 $ 97,729 $ 79,874 $ (1,288) $ 176,457 =============================================================================================== For the Six Months Ended February 28, 1998 - Restated ----------------------------------------------------- Balance, August 31, 1997 13,553,346 $ 135 $ 90,076 $ 61,545 $ (1,288) $ 150,468 Exercise of stock options 167,523 2 1,709 - - 1,711 Employee stock purchases 49,421 - 1,053 - - 1,053 Adjustment for Welkin - - - (479) - (479) Net income - - - 7,211 - 7,211 ----------------------------------------------------------------------------------------------- Balance, February 28, 1998 13,770,290 $ 137 $ 92,838 $ 68,277 $ (1,288) $ 159,964 =============================================================================================== NOTE: The Company has not declared or paid dividends in any of the periods presented. All prior periods have been restated to reflect the acquisition of Welkin Associates, Ltd., which was accounted for as a pooling of interests. 4 FORM 10-Q NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended ------------------------ February 28, February 28, 1999 1998 Restated -------------------------------------- (amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 4,610 $ 7,211 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for doubtful accounts...................... 56 - Depreciation......................................... 3,787 2,645 Amortization......................................... 2,062 2,288 Equity in earnings of unconsolidated affiliates...... (242) (290) Minority interest.................................... (2) 494 Deferred taxes....................................... (379) 75 Special charges...................................... 4,297 - Changes in assets and liabilities net of effects of acquisitions: Accounts receivable.................................. (3,220) 5,956 Other assets......................................... (302) (1,502) Accounts payable..................................... (5,172) (7,726) Accrued compensation and benefits.................... 2,138 3,725 Income taxes payable................................. (1,523) 757 Other current liabilities............................ (1,683) 264 -------------------------------------- Total adjustments.................................... (183) 6,686 -------------------------------------- Net cash provided (used) by operating activities. 4,427 13,897 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment........................ (5,702) (5,245) Purchase long-term investments............................ - (100) Purchase capitalized software............................. (512) (355) Payment for acquisition, net of cash...................... (5,200) - Payment for investment in affiliates...................... (84) (1,028) Proceeds from long-term investments....................... 259 1,145 -------------------------------------- Net cash used by investing activities............ (11,239) (5,583) FORM 10-Q NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)CONTINUED For the Six Months Ended ------------------------ February 28, February 28, 1999 1998 Restated -------------------------------------- (amounts in thousands) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock.................... 2,100 2,764 Payments of long-term debt................................ (674) (492) Proceeds from borrowings on line of credit................ 10,000 - Payments on line of credit borrowings..................... (10,000) (10,000) -------------------------------------- Net cash provided (used) by financing activities..................................... 1,426 (7,728) -------------------------------------- Net increase (decrease) in cash and temporary cash investments.......................................... (5,386) 586 Cash and temporary cash investments at beginning of period............................................ 11,275 23,964 ====================================== Cash and temporary cash investments at end of period...... $ 5,889 $ 24,550 ====================================== 5 FORM 10-Q NICHOLS RESEARCH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) February 28, 1999 Note 1 - Basis of Presentation --------------------- The condensed consolidated financial statements (and all other information in this report) have not been examined by independent auditors, but in the opinion of the Company, all adjustments, consisting of the normal recurring accruals necessary for a fair presentation of the results for the period, have been made. The condensed consolidated financial statements include the accounts of Nichols Research Corporation and its majority-owned subsidiaries and joint ventures. All significant intercompany balances and transactions have been eliminated in consolidation. The Company's earnings in unconsolidated affiliates and joint ventures are accounted for using the equity method. Note 2 - Accounting Pronouncements ------------------------- In February 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, Earnings Per Share. The overall objective of Statement No. 128 is to simplify the calculation of earnings per share (EPS) and achieve comparability with recently issued international accounting standards. The Company first reported on the new EPS basis in the second quarter ended February 28, 1998. All prior period EPS amounts (including information regarding EPS in interim financial statements, earnings summaries, and selected financial data) have been restated to conform to the provisions of Statement No. 128. In June 1997, the FASB issued Statement No. 130,Reporting Comprehensive Income (SFAS 130). Statement No. 130 establishes new rules for the reporting and display of comprehensive income and it components. Adoption of Statement No. 130 by the Company on September 1, 1998 had no impact on the Company's consolidated results of operations or stockholders' equity. In June 1997, the FASB issued Statement No. 131, Disclosures About Segments of an Enterprise and Related Information (SFAS 131). Statement No. 131 changes the method of determining segments from that currently required, and requires the reporting of certain information about such segments. The Company has not finalized how its segments will be reported or whether and to what extent segment information will differ from that currently presented. Note 3 - Reclassification ---------------- Certain prior period amounts have been reclassified to conform with the current period's presentation. 6 FORM 10-Q NICHOLS RESEARCH CORPORATION Note 4 - Impairment of Long-lived Assets ------------------------------- During the second quarter of fiscal year 1999 the Company evaluated the operations of its Practice Management Services unit in accordance with Financial Accounting Standards No. 121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF, to determine if an adjustment was necessary to the carrying value of the Company's intangible assets. Therefore, in accordance with applicable accounting rules, management prepared an undiscounted cash flow analysis over the estimated recovery period to determine if these intangible assets were still recoverable. Management prepared the analysis with assumptions that reflected its current outlook on the business. Since the undiscounted cash flow model showed an impairment of the Company's long-lived assets, the Company used a discounted cash flow model to measure the fair value of these long-lived assets. The fair value calculation determined that the fair value of the long-lived assets was less than book value. As a result, in the second quarter of fiscal year 1999 the Company recorded a pretax intangible asset impairment charge of $4.3 million which was included in Special charges on the Consolidated Statements of Income for the quarter ended February 28, 1999. Note 5 - Acquisitions ------------ On January 15, 1999, the Company completed the purchase of an additional 35% ownership in Nichols ENTEC Systems, L.L.C (Nichols ENTEC). Nichols ENTEC provides SAP(TM) R/3 implementation services to both Fortune 500 and mid-size companies and resells SAP(TM) R/3 software to mid-sized companies in selected states. Aggregate consideration of approximately $5.2 millions was paid at closing. Additional consideration is contingent upon achieving specified operating results as defined in the purchase agreement. The goodwill of approximately $4.1 million resulting from this transaction is being amortized using the straight-line method over an estimated useful life of fifteen years. Note 6 - Investment in Affiliates ------------------------ As of February 28, 1999 the Company holds a 50% interest in NCCIM, L.L.C.. at an aggregate cost of $1,345,000. Undistributed equity earnings of $766,000 are included in the February 28, 1999 Retained Earnings balance reported in the Consolidated Balance Sheet. FORM 10-Q NICHOLS RESEARCH CORPORATION Note 7 - Line of Credit -------------- The Company has a bank line of credit which provides for unsecured borrowings up to $100,000,000. The credit agreement provides for interest at London Interbank Offered Rate (LIBOR) plus a margin ranging from 0.325% to 0.450% and a facility fee, payable quarterly, of approximately 0.125% on the unused portion of the line of credit. The short-term commitment agreement ($50,000,000) expired in November, 1998 and was renewed for one year. The short-term commitment agreement continues to be renewable annually and the long- term commitment agreement ($50,000,000) is renewable in November, 2000. At February 28, 1999, there was $5,000,000 outstanding on this line of credit at an effective interest rate of 5.29 percent. 7 FORM 10-Q NICHOLS RESEARCH CORPORATION Note 8 - Earnings Per Share ------------------ The following table sets forth the computation of earnings per common share and earnings per common share assuming dilution: For the Three Months Ended For the Six Months Ended -------------------------- ------------------------ February 28, February 28, February 28, February 28, 1999 1998 1999 1998 Restated Restated ------------------------------------------------------------------------ Numerator: Net income and income available to common stockholders and income available to common stockholders after assumed conversions............................ $ 1,121,000 $ 3,763,000 $ 4,610,000 $ 7,211,000 ======================================================================== Denominator: Denominator for earnings per common share - weighted average common shares................................. 13,921,315 13,550,930 13,885,576 13,512,753 Effect of dilutive securities: Employee stock options................. 340,464 499,119 320,610 523,234 Denominator for earnings per common share assuming dilution - adjusted weighted average common shares and assumed coversions................. 14,261,779 14,050,049 14,206,186 14,035,987 ======================================================================== Earnings per common share....................... $ .08 $ .28 $ .33 $ .53 ======================================================================== Earnings per common share assuming dilution................................... $ .08 $ .27 $ .32 $ .51 ======================================================================== FORM 10-Q NICHOLS RESEARCH CORPORATION Note 9 - Restatement ----------- In connection with the Company's filing of a Form S-3 registration statement unrelated to its subsidiary, Nichols TXEN Corporation (TXEN), the Company engaged in discussions with the Staff of the Securities and Exchange Commission (SEC) regarding the purchase price allocation related to its 1997 acquisition of TXEN, including the amount allocated to in-process research and development. The Company and its independent auditors, Ernst & Young LLP, believed the purchase price allocation recorded and related amortization charges, were in accordance with widely recognized appraisal practices and generally accepted accounting principles. However, the SEC Staff has recently expressed views on in-process research and development as set forth in a letter dated September 15, 1998 to the American Institute of Certified Public Accountants. The Company, in consultation with its independent auditors and based on discussions with the Staff, has adjusted the amount originally allocated to acquired in-process research and development and, accordingly, has restated its 1997 and 1998 consolidated financial statements. As a result, the 1997 write-off of acquired research and development was decreased $3.5 million from the $12.0 million amount previously recorded to $8.5 million. 8 FORM 10-Q NICHOLS RESEARCH CORPORATION Intangible assets and net income were increased by a like amount because the write-off was not tax deductible. For 1998, amortization of intangibles increased $225 thousand or $0.02 per common share and $0.01 per common share assuming dilution, respectively. Accordingly, 1998 earnings per share and earnings per common share assuming dilution were reduced by $0.02 and $0.01 to $1.04 and $1.01, respectively. For the first two quarters of 1999, amortization of intangibles increased $112 thousand. 9 FORM 10-Q NICHOLS RESEARCH CORPORATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS QUARTERLY REPORT CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED IN SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES ARE DISCUSSED IN MORE DETAIL IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 31, 1998, AND IN THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECTION OF THIS QUARTERLY REPORT. THESE FORWARD-LOOKING STATEMENTS CAN BE GENERALLY IDENTIFIED AS SUCH BECAUSE THE CONTENT OF THE STATEMENTS WILL USUALLY CONTAIN SUCH WORDS AS THE COMPANY OR MANAGEMENT "BELIEVES," "ANTICIPATES," "EXPECTS," "PLANS," OR WORDS OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT DESCRIBE THE COMPANY'S FUTURE PLANS, OBJECTIVES, GOALS OR STRATEGIES ARE FORWARD-LOOKING STATEMENTS. Overview and Business Environment - --------------------------------- The Company is a leading provider of technical and information technology (IT) services, including information processing, systems development and systems integration. The Company provides these services to a wide range of clients, including the Department of Defense (DOD), other federal agencies, state and local governments, healthcare and insurance organizations, and other commercial enterprises. The Company's business strategy consists of three key elements: (i) maintain the Company's leadership in technology; (ii) apply the Company's technology to create solutions for new clients; and (iii) make strategic acquisitions and investments to expand the business of the Company and gain industry knowledge. The Company is organized into four strategic business units, reflecting the particular market focus of each line of business. The Defense and Intelligence unit, formerly Nichols Federal, provides technical services primarily to U.S. Government defense agencies. The Government Information Technology unit, formerly Nichols InfoFed, provides information and technology solutions and services to a variety of governmental agencies. The Commercial Information Technology unit, formerly Nichols InfoTec, provides information and technology services to various commercial clients, state and local government agencies and judicial systems. The Healthcare Information Technology unit, formerly Nichols SELECT, provides information and administrative services to clients in the healthcare and insurance industries. For the six months ended February 28, 1999, the percentage of total revenues attributable to the four business units was approximately 58% for Defense and Intelligence, 19% for Government IT, 10% for Commercial IT, and 13% for Healthcare IT. Risk Factors - ------------ The Company's business and financial performance are subject to risks and uncertainties, including those discussed below. 10 FORM 10-Q NICHOLS RESEARCH CORPORATION Acquisition Strategy - -------------------- Expansion through acquisitions is an important component of the Company's overall business strategy. The Company has successfully completed thirteen strategic acquisitions and alliances since September 1, 1994, most of which have centered on IT and healthcare information services markets. Since the respective dates of the acquisitions, the Company has integrated these acquired entities in order to draw on the Company's base of technical expertise and capabilities in designing solutions for government, commercial, and healthcare clients. The Company's continued ability to grow by acquisitions is dependent upon, and may be limited by, the availability of compatible acquisition candidates at reasonable prices, the Company's ability to fund or finance acquisitions on acceptable terms, and the Company's ability to maintain or enhance the profitability of any acquired business. Performance of Large Systems Integration Contracts - -------------------------------------------------- As part of the Company's business strategy to enter new markets, the Company continues to pursue large systems integration contracts in both the government and commercial markets, although competition for such contracts is intense and many of the Company's competitors have greater resources than the Company. While such contracts are working capital intensive, requiring large equipment and software purchases to be funded by the Company before payment from the customer, the Company believes such contracts offer attractive revenue growth and margin expansion opportunities for the Company's range of technical expertise and capabilities. Variability of Quarterly Earnings or Operating Results - ------------------------------------------------------ The Company's revenues and earnings may fluctuate from quarter to quarter based on such factors as the number, size, and scope of projects in which the Company is engaged, the contractual terms and degree of completion of such projects, expenditures required by the Company in connection with such projects, any delays incurred in connection with such projects, employee utilization rates, the adequacy of provisions for losses, the accuracy of estimates of resources required to complete ongoing projects, and general economic conditions. Under certain contracts, the Company is required to purchase, integrate and deliver to the customer large amounts of computer processing systems and other equipment. Revenues are accrued as costs to deliver these systems are incurred, and as a result, quarterly revenues will be impacted by fluctuations related to equipment purchases which occur on a periodic basis depending on contract terms and modifications. Uncertainties Associated With Government Contracts - -------------------------------------------------- The Company performs its services under U.S. Government contracts that usually require performance over a period of one to five years. Long-term contracts may be conditioned upon continued availability of Congressional appropriations. Variances between anticipated budgets and Congressional 11 FORM 10-Q NICHOLS RESEARCH CORPORATION appropriations may result in delay, reduction, or termination of such contracts. Contractors can experience revenue uncertainties with respect to available contract funding during the first quarter of the government's fiscal year beginning October 1, until differences between budget requests and appropriations are resolved. The Company's contracts with th U.S. Government and its prime contractors are subject to termination, in whole or in part, either upon default by the Company or at the convenience of the government. The termination for convenience provisions generally entitle the Company to recover costs incurred, settlement expenses, and profit on work completed prior to termination. Because the Company contracts to supply goods and services to th U.S. Government, it is also subject to other risks, including contract suspensions, audit adjustments, protests by disappointed bidders of contract awards which can result in the re-opening of the bidding process and changes in government policies or regulations. Contract Profit Exposure - ------------------------ The Company's services are provided primarily through three types of contracts: fixed-price, time-and-materials and cost-reimbursement contracts. Fixed-price contracts require the Company to perform services under a contract at a stipulated price. Time-and-materials contracts reimburse the Company for the number of labor hours expended at an established hourly rate negotiated in the contract, plus the cost of materials incurred. Under cost-reimbursement contracts, the Company is reimbursed for all actual costs incurred in performing the contract to the extent that such costs are within the contract ceiling and allowable under the terms of the contract, plus a fee or profit. The Company assumes greater financial risk on fixed-price contracts than on either time-and-materials or cost-reimbursement contracts. As the Company increases its commercial business, it believes that an increasing percentage of its contracts will be fixed-priced. Failure to anticipate technical problems, estimate costs accurately, or control costs during performance of a fixed-price contract, may reduce the Company's profit or cause a loss. In addition, greater risks are involved under time-and-materials contracts than under cost-reimbursement contracts because the Company assumes the responsibility for the delivery of specified skills at a fixed hourly rate. Although management believes that adequate provision for its fixed-price and time-and-materials contracts is reflected in the Company's financial statements, no assurance can be given that this provision is adequate or that losses on fixed-price and time-and-materials contracts will not occur in the future. 12 FORM 10-Q NICHOLS RESEARCH CORPORATION Results of Operations - --------------------- The following tables set forth, for the periods indicated, the percentage which certain items in the consolidated statements of income bear to consolidated revenues, and the percentage change of such items for the periods indicated: For the Three Months Ended For the Six Months Ended ---------------------------------------------- ---------------------------------------------- February 28, February 28, February 28, February 28, 1999 1998 Percentage 1999 1998 Percentage Restated Change Restated Change ---------------------------------------------------------------------------------------------- Revenues 100.0% 100.0% 6.6% 100.0% 100.0% 10.4% Costs and expenses: Direct and allocable costs..... 82.8 83.2 6.1 83.2 83.3 10.2 General and administrative expenses..................... 10.3 9.1 21.1 10.1 9.0 24.1 Amortization of intangibles.... 1.1 1.3 (12.7) 1.0 1.3 (9.9) Special charge................. 4.4 - N/A 2.2 - N/A ---------------------------------------------------------------------------------------------- Total costs and expenses... 98.6 93.6 12.2 96.5 93.6 13.8 ---------------------------------------------------------------------------------------------- Operating profit.................... 1.4 6.4 (75.9) 3.5 6.4 (38.9) Interest expense.................... (0.2) (0.1) 46.6 (0.1) (0.1) 14.5 Other income, principally interest.. 0.2 0.3 (52.4) 0.2 0.3 (50.7) Equity in earnings of unconsolidated affiliates......................... 0.1 0.2 (28.8) 0.1 0.2 (16.6) Minority interest in consolidated Subsidiaries................... 0.1 (0.2) 141.7 0.0 (0.3) 100.4 ---------------------------------------------------------------------------------------------- Income before income taxes.......... 1.6 6.6 (73.8) 3.7 6.5 (37.3) Income taxes........................ 0.5 2.5 (79.5) 1.4 1.4 (39.2) ---------------------------------------------------------------------------------------------- Net income.......................... 1.1% 4.1% (70.2)% 2.3% 2.3% (36.1)% ============================================================================================== FORM 10-Q NICHOLS RESEARCH CORPORATION The table below presents contract award and backlog data for the periods indicated: February 28, February 28, 1999 1998 Restated --------------------------------------- (amounts in thousands) Contract award amount..................... $ 105,484 $ 103,241 Backlog (with options).................... $ 1,156,487 $ 1,186,336 Backlog (without options)................. $ 336,622 $ 496,503 13 FORM 10-Q NICHOLS RESEARCH CORPORATION COMPARISON OF OPERATING RESULTS FOR FISCAL SECOND QUARTER 1999 WITH FISCAL SECOND QUARTER 1998 REVENUES. Revenues increased $6.1 million (6.6%) for the three months and $18.9 million (10.4%) for the six months ended February 28, 1999 as compared to the three months and six months ended February 28, 1998. The revenues of the Defense and Intelligence unit, representing approximately 58% of the Company's consolidated revenue increased $4.1 million (3.7%) for the six months ended February 28, 1999 as compared to the six months ended February 28, 1998 primarily as a result of continued growth in existing contract base. The revenues of the Government IT unit, representing approximately 19% the Company's consolidated revenue, increased $5.2 million (15.5%) for the six months ended February 28, 1999 compared to the six months ended February 28, 1998 primarily as a result of the acquisition of Mnemonic Systems, Incorporated. The revenues of the Commercial IT unit, representing approximately 10% of the Company's consolidated revenue, increased $3.4 million (20.4%) for the six months ended February 28, 1999 as compared to the six months ended February 28, 1998 primarily as a result of its expanded business base. Revenues of the Healthcare IT unit, representing 13% of the Company's consolidated revenue, increased $6.2 million (32.5%) for the six months ended February 28, 1999 compared to the six months ended February 28, 1998 as the result of continued growth in the number of customers contracted and expanded use of its other services by existing customers. OPERATING PROFIT. In the second quarter, the Company recorded a pretax intangible asset impairment charge of $4.3 million related to its Practice Management Service unit. Operating profit, including the $4.3 million intangible asset impairment charge, decreased $4.5 million (75.9%) for the three months and $4.5 million (38.9%) for the six months ended February 28, 1999 as compared to the three months and six months ended February 28, 1998. Operating profit, excluding the $4.3 million intangible asset impairment charge, decreased $0.2 million (3.1%) for the three months and $0.2 million (1.7%) for the six months ended February 28, 1999 as compared to the three months and six months ended February 28, 1998. Direct and allocable costs increased $15.4 million (10.2%) for the six months ended February 28, 1999 as compared to the six months ended February 28, 1998, as a result of increases in revenue. General and administrative expenses increased $3.9 million (24.1%) for the six months ended February 28, 1999 as compared to the six months ended February 28, 1998, primarily as a result of the acquisition of Mnemonic Systems, Incorporated completed in April 1998. Amortization of intangibles decreased $0.2 million (9.9%). The $4.3 million intangible asset impairment charge related to the Practice Management Services division, represents 2.2% of the total costs and expenses for the six months ended February 28, 1999. Total costs and expenses were 98.6% of revenue for the three months and 96.5% for the six months ended February 28, 1999 as compared to 93.6% for the three months and 93.6% for six months ended February 28, 1998. 14 FORM 10-Q NICHOLS RESEARCH CORPORATION OPERATING MARGIN. Operating margin, including the $4.3 million intangible asset impairment charge, was 1.4% for the three months and 3.5% for the six months ended February 28, 1999 as compared to 6.4% for the three months and six months ended February 28, 1998. Operating margin, excluding the $4.3 million intangible asset impairment charge, was 5.8% for the three months and 5.7% for the six months ended February 28, 1999. The Defense and Intelligence unit realized a 6.0% operating margin for the six months ended February 28, 1999 as compared to 5.1% for the six months ended February 28, 1998. This improvement is principally the result of increases in award fees and margins on time-and- material contracts. The Government IT unit realized a 7.0% operating margin for the six months ended February 28, 1999 as compared to 7.7% for the six months ended February 28, 1998. This decrease is primarily the result of a declines in high margin contracts and lower margins on modifications awarded to existing contracts. The Commercial IT unit realized a (7.1%) operating margin for the six months ended February 28, 1999 as compared to 5.1% for the six months ended February 28, 1998. The Commercial IT unit is in the final phases of transforming itself into a market focused organization that services specific target markets. Over the first two quarters of fiscal year 1999, the Commercial IT unit incurred increased costs associated with underutilization of staff, hiring employees in anticipation of contracts that did not materialize, infrastructure costs, and performing unprofitable contracts. New business and operating strategies have been implemented to correct these problems and reduce costs. The negative effect on operating profits and margins in the Commercial IT unit is expected to decrease during the final two quarters of fiscal year 1999 resulting in improved profits and margins in the Commercial IT unit. The Healthcare IT unit realized a 12.2% operating margin, excluding the $4.3 million intangible asset impairment charge, for the six months ended February 28, 1999 as compared to 12.6% for the six months ended February 28, 1998. The $4.3 million intangible asset impairment charge is related to the Healthcare IT unit's Practice Management Services division and represents a decrease of 2.2% in the Company's operating margin for the six months ended February 28,1999. OTHER INCOME (EXPENSE). Other income (expense) decreased $36,000 for the three months and increased $118,000 for the six months ended February 28, 1999 as compared to the three months and six months ended February 28, 1998. Other income includes equity in earnings of unconsolidated affiliates and interest income; other expense includes interest expense and minority interest. Interest income is from the investment of the Company's cash reserves. Substantially all available cash is invested in interest-bearing accounts or fixed income instruments. Interest expense is comprised of the cost associated with the long-term borrowings of the Company, the commitment fee on unused line of credit, and the average outstanding borrowing on the Company's line of credit. Equity in earnings of unconsolidated affiliates for the six months ended February 28, 1999 and 1998 primarily represents the Company's share of the earnings of NCCIM, L.L.C. a joint venture, 50% of which is owned by the Company. Minority interest primarily represents the minority partner's share of earnings of Nichols ENTEC, L.L.C. a joint venture, 95% of which is owned by the Company as of January 15,1999 (See Note 5 of Notes of Condensed Consolidated Financial Statements). The decrease in minority interest of $0.5 million for the six months ended February 28, 1999 as compared to the six months ended February 28, 1998 is principally the result of decreased profitability and the decrease of the minority partner interest. 15 FORM 10-Q NICHOLS RESEARCH CORPORATION INCOME TAXES. Income taxes as a percentage of income before taxes was 37.3% for the six months ended February 28, 1999 as compared to 38.5% for the six months ended February 28, 1998. The decrease is primarily a result of the differences between financial and taxable income related to the amortization of intangibles. NET INCOME. Net income, including the $4.3 million intangible asset impairment charge, decreased $2.6 million (70.2%) for the three months and $2.6 million (36.1%) for the six months ended February 28, 1999 as compared to the three months and six months ended February 28, 1998. Net income, excluding the $4.3 million intangible asset impairment charge, decreased $0.1 million (3.8%) for the three months and $0.1 million (1.4%) for the six months ended February 28, 1999 as compared to the three months and six months ended February 28, 1998. The decreases are a result of the matters discussed above. EARNINGS PER SHARE ASSUMING DILUTION. Earnings per share assuming dilution, including the $4.3 million intangible asset impairment charge, were $0.08 for the three months and $0.32 for the six months ended February 28, 1999 as compared to $0.27 for the three months and $0.51 for the six months ended February 28, 1998. Earnings per share assuming dilution, excluding the $4.3 million intangible asset impairment charge, were $0.25 for the three months and $0.50 for the six months ended February 28, 1999. Net income, including the $4.3 million intangible asset impairment charge, decreased 36.1% ($2.6 million), while weighted average common shares and common equivalent shares increased 1.2% (170,199 shares) for the six months ended February 28, 1999 as compared to the six months ended February 28, 1998. Net income, excluding the $4.3 million intangible asset impairment charge, decreased 1.4% ($0.1 million) for the six months ended February 28, 1999 Liquidity and Capital Resources - ------------------------------- Historically, the Company's positive cash flow from operations and available credit facilities have provided adequate liquidity and working capital to fully fund the Company's operational needs and support the acquisition program. Working capital was $80.3 million and $77.1 million at February 28, 1999 and 1998, respectively. Operating activities provided cash of $4.4 million and $13.9 million for the six months ended February 28, 1999 and February 28, 1998, respectively. Investing activities used cash of $11.2 million and $5.6 million for the six months ended February 28, 1999 and February 28, 1998, respectively. Financing activities provided cash of $1.4 million for the six months ended February 28, 1999 and used cash of $7.7 million for the six months ended February 28, 1998. Cash provided by operating activities decreased by $9.5 million for the six months ended February 28, 1999 as compared to the six months ended February 28, 1998 as a result of changes in operating assets and liabilities. Cash used for investing activities was $11.2 million for the six months ended February 28, 1999. The Company purchased an additional 35% ownership in Nichols ENTEC for approximately $5.2 million. Purchases of property and equipment were $5.7 million and $5.2 million for the six months ended February 28, 1999 and 1998, respectively. 16 FORM 10-Q NICHOLS RESEARCH CORPORATION Cash provided by financing activities was $1.4 million for the six months ended February 28, 1999. The Company realized proceeds from the sale of common stock of $2.1 million and $2.8 million for the six months ended February 28, 1999 and 1998, respectively. Cash of $0.7 million was used to reduce long-term debt. The Company negotiated its bank line of credit in November 1998. The agreement provides for unsecured borrowings up to $100,000,000. The credit agreement provides for interest at London Interbank Offered Rate (LIBOR) plus a margin ranging from 0.325% to 0.450% and a facility fee, payable quarterly, of approximately 0.125% on the unused portion of the line of credit. The short-term commitment agreement ($50,000,000) is renewable annually and the long-term commitment agreement ($50,000,000) is renewable in November 2000. At February 28, 1999, there was $5,000,000 outstanding on this line of credit. The Company regularly evaluates potential acquisition candidates and has completed two acquisitions to date in the third quarter of fiscal year 1999. On March 10, 1999 the Company purchased Murray & West, Inc./Trans-Link USA, Inc. for approximately $14.6 million and on March 17, 1999 it purchased Prism Consulting Group, L.L.C. for approximately $5.3 million. These acquisitions complement the Company's SAP(TM) implementation, integration, and support business. The Company continues to actively pursue contracts for information system development and computer system integration activities, which could require the Company to acquire substantial amounts of computer hardware for resale or lease to customers. The timing of payments to suppliers and payments from customers under the Company's system integration contracts could cause cash flows from operations to fluctuate from period to period. The Company believes that for its next four fiscal quarters its existing capital resources, together with available borrowing capacity, will be sufficient to fund operating needs, finance acquisitions of property and equipment, and make strategic acquisitions, if appropriate. Effects of Inflation - -------------------- Substantially all contracts awarded to the Company have been based on proposals which reflect estimated cost increases due to inflation. Historically, inflation has not had a significant impact on the Company. YEAR 2000 Overview - -------- Historically, certain computerized systems have had two digits rather than four digits to define the applicable year, which could result in recognizing a date using "00" as the year 1900 rather than the year 2000. This could cause significant software failures or miscalculations and is generally referred to as the "Year 2000" problem. 17 FORM 10-Q NICHOLS RESEARCH CORPORATION The Company recognizes that the impact of the Year 2000 problem extends beyond its computer hardware and software and may affect utility and telecommunication services, as well as the systems of customers and suppliers. In response to the Year 2000 problem, the Company has developed a compliance program to evaluate and address date related problems with the Company's internal systems, services, products, and the systems and products of the Company's vendors and suppliers. The compliance program is managed by the Vice President of Corporate Information Systems and Services, and is patterned after the United States General Accounting Office (GAO) and Office of Management and Budget project management model. The Company's Year 2000 compliance program includes five major phases: Awareness Phase. The Year 2000 problem is defined and managers at the executive level are educated about potential date related problems and the potential impact to the Company and its customers from Year 2000 date handling errors. A Year 2000 program team is established and an overall strategy is developed. Assessment Phase. The Year 2000 program team assesses the Year 2000 impact on the Company by: (i) identifying core business areas and processes; (ii) performing an inventory and analysis of systems supporting the core business areas; (iii)contacting third party service providers, and software and hardware vendors to determine Year 2000 issues and their plans for becoming Year 2000 compliant; and (iv) prioritizing conversion or replacement of systems. Renovation Phase. The Year 2000 program team corrects Year 2000 problems identified in the Assessment Phase by modifying program software, updating databases, replacing systems or utilizing other appropriate methods. Implementation Phase. The Year 2000 program team tests, verifies, and validates converted or replaced systems, applications, databases and utilities within a limited operational environment. Validation Phase. The Year 2000 program team fully implements converted or replaced systems, applications, databases and utilities. The Year 2000 program team also performs extensive testing of all system changes. As part of the awareness phase the Company has reviewed - Mission Essential Software Systems - Mission Essential Computational Systems (hardware) - Mission Essential Facilities Systems, including elevators, heating and air conditioning systems, photocopying machines and utility services - Mission Essential Network Systems - Customer Software Services, provided by the Company's business units - Mission Essential Vendor-Supplied Software and Services 18 FORM 10-Q NICHOLS RESEARCH CORPORATION The Company considers a system "mission essential" if a failure in that system would materially disrupt the ability of the Company to perform contractual services or to process business information in a timely manner. The Company monitors the status of its Year 2000 compliance program and routinely updates its Intranet to provide compliance data to its managers and employees. The Company provides services and products to the U.S. Government pursuant to specific contractual terms and exact specifications. The Company believes that it will be responsible for upgrading only those services or products that specify Year 2000 compliance and do not yet meet this requirement. The Company is not currently aware of any such services or products. Status and Timetable for Year 2000 Compliance - --------------------------------------------- Nichols Research has developed a master timetable for its year 2000 compliance program. The updated status of each major category of mission essential systems is as follows: System Category Phase Estimated Date For Compliance ==================================================== ================= ======================================== Mission Essential Software Systems Renovation April 1999 Mission Essential Computational Systems Renovation April 1999 Mission Essential Network Systems Validation Completed Mission Essential Facilities Systems Validation Completed Mission Essential Customer Systems Renovation April 1999 Mission Essential Vendor-Supplied Services Validation Unknown The phases listed above represent the status of the majority of products within each category. There may be, within each "system," components at a lower or higher phase in the Year 2000 assessment. While the Mission Essential Vendor Supplied services category is listed as having an Unknown estimated date for compliance, many of the services within this category have had their validation phase completed. FORM 10-Q NICHOLS RESEARCH CORPORATION Contingency Plans - ----------------- Because the Company's Year 2000 conversions are expected to be completed prior to any potential disruption to the Company's business, the Company has not yet completed the development of a comprehensive Year 2000 contingency plan. However, the Company has minimized its exposure to Year 2000 failures of vendor supplied products by adding Year 2000 compliance as a standard condition to its purchase orders. These contracts also reference Federal Acquisition Regulation 39.106, which addresses Year 2000 compliance issues. The Company is currently negotiating a Risk Management Insurance Policy designed to protect the Company in the event that it is involved in litigation arising from errors and omissions relating to Year 2000 issues. If the Company determines that its business is at material risk of disruption due to the Year 2000 problem, or anticipates that its Year 2000 conversions will not be completed in a timely fashion, the Company will work to develop a detailed contingency plan. 19 FORM 10-Q NICHOLS RESEARCH CORPORATION Cost for Year 2000 Compliance - ----------------------------- The Company believes that the total cost of its Year 2000 compliance activity will not be material to the Company's operation, liquidity and capital resources. The Company estimates that the total cost for its Year 2000 compliance will be $688,500 which represents 11,475 hours of analysis, modification and testing, and $34,500 for new equipment purchases. To date, the Company has completed 8,830 hours of Year 2000 compliance work, and purchased new equipment valued at $27,000, for a total cost of $542,000. Year 2000 Risks Faced by the Company - ------------------------------------ Although the Company believes that its Year 2000 compliance program is comprehensive, the Company may not be able to identify, successfully remedy or assess all date-handling problems in its business systems or operations or those of its customers and suppliers. As a result, the Year 2000 problem could have a materially adverse affect on the Company's business, financial condition or results of operations. Item 3 - Quantitative and Qualitative Disclosures About Market Risk Not Applicable. 20 FORM 10-Q NICHOLS RESEARCH CORPORATION PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders On January 14, 1999, 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, ChaseMellon Shareholder Services, New York, New York. Matters put to vote and acted upon were the proposal to amend the Company's 1988 Employee Stock Purchase Plan to increase the number of shares, amend the Company's 1988 Employee Stock Purchase Plan to change the exercise price of options issued under the Plan, and to ratify appointment of Ernst & Young LLP as the Company's independent auditors for the current fiscal year. 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 11,297,453 136,949 Michael J. Mruz 11,300,907 133,495 Charles A. Leader 11,005,565 428,837 Roy J. Nichols 11,308,583 125,819 Patsy L. Hattox 11,307,109 127,293 Roger P. Heinisch 11,338,244 96,158 John R. Wynn 11,260,433 173,969 William E. Odom 11,337,299 97,103 James R. Thompson, Jr. 11,338,922 95,480 Phil E. DePoy 11,338,650 95,752 Thomas L. Patterson 11,308,828 125,574 David Friend 11,336,561 97,841 Daniel W. McGlaughlin 11,328,168 106,234 The Amendment to the Company's 1988 Employee Stock Purchase Plan to increase the number of shares by 1,000,000 was approved. Voting for approval were 8,260,580 shares, voting against were 1,256,428 shares, and 151,496 shares abstained. The Amendment to the Company's 1988 Employee Stock Purchase Plan to change the exercise price of options issued was approved. Voting for amendment were 10,201,172 shares, voting against 1,133,895 shares, and 99,335 shares abstained. Ernst & Young, LLP was ratified to serve as the Company's independent auditors for the fiscal year ending August 31, 1999. Voting for ratification were 11,341,137 shares, voting against were 19,308 shares and 73,957 shares abstained. 21 FORM 10-Q NICHOLS RESEARCH CORPORATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit No. Description ----------- ----------- 10 Memorandum of Understanding Regarding Michael J. Mruz's Resignation as Nichols Research CEO* 10.1 Amendment No. 1 to Employment Agreement between Nichols Research Corporation and Charles A. Leader* 27 Financial Data Schedule * Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. b) Reports on Form 8-K. On January 15, 1999, the Company filed a current report on Form 8-K/A dated August 31, 1997, to revise Footnote 1 contained in the Notes to the TXEN, Inc. financial statements. This revision added a section entitled "Research and Development" detailing the research and development costs incurred by TXEN, Inc. during fiscal years June 30, 1996 and 1997. On February 5, 1999, the Company filed a current report Form 8-K dated January 15, 1999, reporting (i) the filing of Form S-1 Registration Statement relating to the initial public offering of stock by Nichols TXEN Corporation, (ii) the Company's acquisition of an additional 35% interest in Nichols ENTEC Systems, L.L.C. and (iii) the signing of a Letter of Intent to acquire all of the capital stock of Murray and West, Inc. and Trans-Link USA, Inc. 22 FORM 10-Q NICHOLS RESEARCH CORPORATION SIGNATURES MANAGEMENT REPRESENTATION ------------------------- The accompanying unaudited Consolidated Balance Sheets at February 28, 1999, and August 31, 1998 as well as the Consolidated Statements of Income, Consolidated Statements of Changes in Stockholders' Equity and Consolidated Statements of Cash Flows for the six months ended February 28, 1999 and 1998, have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. April 14, 1999 By: Allen E. Dillard - -------------- ------------------- Date Allen E. Dillard Corporate Vice President, Chief Financial Officer and Corporate Treasurer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NICHOLS RESEARCH CORPORATION April 14, 1999 By: Allen E. Dillard - -------------- ------------------- Date Allen E. Dillard Corporate Vice President, Chief Financial Officer and Corporate Treasurer (Principal Financial and Accounting Officer) 23