1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 31, 1996
-------------------------------
NICHOLS RESEARCH CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-15295 63-0713665
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4040 South Memorial Parkway, Huntsville, Alabama 35802-1326
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(Address, including zip code, of principal executive office)
(205) 883-1140
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(Registrant's telephone number, including area code)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Advanced Marine Enterprises, Inc. (AME)
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Advanced Marine Enterprises, Inc.
We have audited the accompanying balance sheet of Advanced Marine
Enterprises, Inc. as of May 31, 1996, and the related statements of income,
stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Marine Enterprises,
Inc. at May 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Birmingham, Alabama
July 1, 1996
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ADVANCED MARINE ENTERPRISES, INC.
BALANCE SHEET
MAY 31, 1996
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 412,284
Accounts receivable (Note 2).................................................. 7,028,322
Employee advances and other receivables....................................... 26,571
Prepaid expenses.............................................................. 172,837
-----------
Total current assets.................................................. 7,640,014
Property, equipment and improvements:
Furniture and fixtures........................................................ 422,582
Computers and related equipment............................................... 4,425,393
Automobiles................................................................... 143,323
Leasehold improvements........................................................ 349,301
-----------
5,340,599
Less accumulated depreciation and amortization................................ (3,385,675)
-----------
Net property, equipment and improvements...................................... 1,954,924
Other assets.................................................................... 4,763
-----------
Total assets.......................................................... $ 9,599,701
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 2,176,176
Accrued expenses.............................................................. 1,057,851
Accrued compensation and benefits............................................. 1,037,428
Billings in excess of cost and estimated earnings............................. 305,827
-----------
Total current liabilities............................................. 4,577,282
Commitments and contingencies (Notes 4 and 8)
Stockholders' equity:
Common stock, Series A, $1 par value; authorized 60,000 shares, 27,900 shares
issued and outstanding (Note 5)............................................ 27,900
Common stock, Series B, $1 par value; authorized 500,000 shares, 271,642
shares issued and outstanding.............................................. 271,642
Additional paid-in capital.................................................... 949,906
Retained earnings............................................................. 4,167,528
Less cost of 30,192 shares treasury stock (Note 7)............................ (394,557)
-----------
Total stockholders' equity............................................ 5,022,419
-----------
Total liabilities and stockholders' equity............................ $ 9,599,701
===========
See accompanying notes.
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ADVANCED MARINE ENTERPRISES, INC.
STATEMENT OF INCOME
YEAR ENDED MAY 31, 1996
Revenue......................................................................... $35,543,255
Costs and expenses:
Direct and allocable expenses................................................. 22,873,960
General and administrative expenses........................................... 10,772,582
-----------
Total costs and expenses.............................................. 33,646,542
-----------
Operating profit................................................................ 1,896,713
Other income (expense):
Other income.................................................................. 97,951
Interest expense.............................................................. (4,197)
-----------
Net income............................................................ $ 1,990,467
===========
See accompanying notes.
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ADVANCED MARINE ENTERPRISES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED MAY 31, 1996
COMMON STOCK, COMMON STOCK,
SERIES A SERIES B
--------------------- ----------------------
NUMBER OF NUMBER OF ADDITIONAL TOTAL
SHARES SHARES PAID-IN RETAINED TREASURY STOCKHOLDERS'
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL EARNINGS STOCK EQUITY
----------- ------- ----------- -------- ---------- ----------- --------- -------------
BALANCE AT MAY 31,
1995................ 7,425 $ 7,425 266,354 $266,354 $ 171,603 $ 6,071,959 $(325,108) $ 6,192,233
Stock issued.......... 20,475 20,475 5,288 5,288 778,303 -- -- 804,066
Stock repurchased..... -- -- -- -- -- -- (69,449) (69,449)
Dividends paid........ -- -- -- -- -- (3,894,898) -- (3,894,898)
Net income............ -- -- -- -- -- 1,990,467 -- 1,990,467
------ ------- ------- -------- --------- ---------- --------- ------------
BALANCE AT MAY 31,
1996................ 27,900 $27,900 271,642 $271,642 $ 949,906 $ 4,167,528 $(394,557) $ 5,022,419
====== ======= ======= ======== ========= ========== ========= ============
See accompanying notes.
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ADVANCED MARINE ENTERPRISES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED MAY 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................................... $1,990,467
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of property, equipment and improvements........................... 4,392
Depreciation and amortization.................................................. 778,960
Changes in assets and liabilities:
Accounts receivable......................................................... 3,185,397
Employee advances and other receivables..................................... 118,271
Other assets................................................................ (52,461)
Accounts payable............................................................ 883,573
Accrued expenses............................................................ 33,561
Accrued compensation and benefits........................................... (319,676)
Billings in excess of cost and estimated earnings........................... (247,376)
----------
Net cash provided by operating activities........................................ 6,375,108
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, equipment and improvements....................... 30,200
Purchase of property, equipment and improvements................................. (1,329,198)
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Net cash used in investing activities............................................ (1,298,998)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock............................................................. 804,066
Purchase of treasury stock....................................................... (69,449)
Net payments under line of credit agreement...................................... (1,371,771)
Dividends paid................................................................... (3,894,898)
----------
Net cash used in financing activities............................................ (4,532,052)
----------
Net increase in cash and cash equivalents........................................ 544,058
Bank overdrafts at beginning of year............................................. (131,774)
----------
Cash and cash equivalents at end of year......................................... $ 412,284
==========
See accompanying notes.
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ADVANCED MARINE ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Advanced Marine Enterprises, Inc. (AME) provides naval architectural and
marine engineering services, including the development and support of analytic
software systems, modeling and simulation services and simulator systems, to the
Department of Navy and other customers.
Revenue Recognition
The major portion of the Company's revenues result from services performed
under U.S. Government contracts, either directly or through subcontracts.
Revenue on cost-plus-fee contracts (including award fee) is recognized based on
reimbursable costs incurred plus estimated fees earned thereon. Revenue on
fixed-price contracts is recognized using the percentage of completion method
based on costs incurred in relation to total estimated costs. Revenue on
time-and-materials contracts is recognized to the extent of fixed billable rates
for hours plus reimbursable costs. Provisions for losses on contracts are
recognized in the period in which the loss is first determinable. Contracts in
process are stated at cost incurred plus estimated earnings, less amounts billed
to customers. Consistent with industry standards, amounts relating to long-term
contracts are classified as current assets although a portion of these amounts
are not expected to be realized within one year.
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Temporary Cash Investments
The Company considers as cash and cash equivalents those securities that
are available upon demand or have maturities of three months or less at the time
of purchase. The Company adopted Financial Accounting Standard Board Statement
No. 115, Accounting for Certain Investments in Debt and Equity Securities, in
the current year. Such adoption had no material affect on the accompanying
financial statements. The Company records investments at their fair value which
approximates market value.
Property, Equipment and Improvements
Property, equipment and improvements are stated at cost. Depreciation of
property and equipment is being provided over the estimated useful lives of the
assets, ranging from three to seven years, principally by use of the
straight-line method. Leasehold improvements are amortized on a straight-line
basis over the shorter of their estimate useful lives or the life of the
respective lease, ranging from one to five years.
2. ACCOUNTS RECEIVABLE
The following summary shows the elements of accounts receivable from
long-term contracts and programs at May 31, 1996:
Billed receivables....................................................... $2,416,601
Recoverable costs and accrued profit on progress completed -- not
billed................................................................. 4,611,721
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$7,028,322
==========
Accounts receivable includes $6,233,554 due from the U.S. Government at May
31, 1996. Unbilled accounts receivable include retainages of $886,593 at May 31,
1996.
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ADVANCED MARINE ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. BANK OVERDRAFT
The Company maintains a line of credit with a bank which provides that
checks presented for payment in excess of the Company's cash balance be covered
by draws from the line of credit. Interest payments were $4,197 for the year
ended May 31, 1996. In connection with the transaction described
in Note 9, the line of credit agreement was terminated on May 31, 1996.
4. COMMITMENTS AND CONTINGENCIES
Government contracts
Certain of the Company's contracts are with agencies of the U.S.
Government, with over 90% of its revenues for the year ended May 31, 1996 from
the U.S. Navy. The Company's income from these contracts is subject to audit,
with audits having been completed through the year ended May 31, 1992. In the
opinion of management, adjustments, if any, would not have a material effect on
the financial position of the Company at May 31, 1996.
The Defense Contract Audit Agency (DCAA) performed an incurred cost audit
of the Company's books and records for the three years ended May 31, 1995 and
have issued their preliminary findings which included a significant proposed
adjustment. Pursuant to the Stock Purchase Agreement described in Note 9, the
Company is entitled to indemnification by the stockholders identified therein in
an amount equal to any adjustments that arise in connection with this audit. In
the opinion of management, final adjustments as a result of this audit, if any,
would not have a material effect on the financial position of the Company at May
31, 1996.
Profit-sharing plan
The Company has a profit-sharing plan which provides for the distribution
of cash awards to eligible employees. Contributions under the plan are at the
discretion of the Board of Directors in an amount not to exceed the maximum
amount allowable under applicable provisions of the Internal Revenue Code. The
contribution for the year ended May 31, 1996 was $500,000.
Operating leases
The Company leases its office space over periods ranging from one to five
years. Certain of these leases provide for annual increases based on increases
in real estate taxes, operating costs and the Consumer Price Index. Rent expense
was $1,934,902 for the period ended May 31, 1996. Minimum rental payments
required under operating leases, and the future minimum sublease rentals, for
the years ending May 31, are as follows:
1997..................................................................... $1,651,236
1998..................................................................... 1,160,628
1999..................................................................... 890,045
2000..................................................................... 870,576
2001..................................................................... 798,028
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$5,370,513
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ADVANCED MARINE ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCK OPTION PLANS
Under the terms of its employee stock option plan, adopted January 27,
1987, options to purchase shares of the Company's Series A common stock are
granted at a price equal to the market price of the stock at the date of grant
as determined by the Company's stock purchase agreement. Following is a summary
of transactions for the year ending May 31, 1996:
SHARES UNDER
OPTION
------------
Outstanding, beginning of year.......................................... 18,975
Granted during the year................................................. 6,788
Exercised during the year (at prices ranging from $8.83 to $19.04)...... (25,763)
Outstanding, end of year................................................ --
----------
Eligible for exercise, end of year...................................... --
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6. INCOME TAXES
No provision has been made for federal or state income tax for the year
ended May 31, 1996. Under Subchapter S of the Internal Revenue Code, the Company
has elected not to be taxed as a corporation and the shareholders have consented
to include their pro-rata share of the income or loss in their individual tax
returns.
7. TREASURY STOCK
As of May 31, 1996, officers of the Company have sold a total of 9,288
shares of common stock to the Company at a cost of $125,287.
8. LITIGATION
The Company, and certain employees of the Company, are defendants in an
action titled PRC, Inc. v. Advanced Marine Enterprises, Inc., et al., wherein
PRC, Inc. alleged that the Company and certain of its employees conspired to
unlawfully take the business of the PRC Engineering Department. The judge in
this matter issued preliminary findings and preliminary damages in the form of a
bench ruling in favor of PRC, Inc. The Company has been ordered to pay PRC
Inc.'s attorney fees, and a hearing to quantify the amount of such award is
expected in late July 1996. Pursuant to the Stock Purchase Agreement described
in Note 9, the Company is entitled to indemnification by the stockholders
identified therein in an amount equal to any damages that arise in connection
with this matter.
Two former employees, in unrelated matters, have made claims for damages
arising out of termination of their employment. The outcome of the pending
claims cannot be determined at this time. Pursuant to the Stock Purchase
Agreement described in Note 9, the Company is entitled to indemnification by the
stockholders identified therein in an amount equal to any damages that arise in
connection with these matters.
9. SUBSEQUENT EVENT
On May 31, 1996, Nichols Research Corporation (NRC) entered into a Stock
Purchase Agreement (the Agreement) and purchased all of the issued and
outstanding capital stock of AME from the shareholders of AME pursuant to that
Agreement. The AME shares were purchased for $16,500,000 in cash and common
stock of NRC. The purchase price is based on a base book value of the Company of
$4,000,000. If the Company's actual book value as of May 31, 1996, is greater or
less than base book value, the purchase price will be increased or decreased by
the same dollar amount as the difference and will be a post-closing adjustment
to the consideration paid at closing. Actual book value will be the amount of
the Company's net assets less liabilities per the balance sheet of the Company
as of May 31, 1996.
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(b) Pro Forma Financial Information.
The unaudited pro forma condensed consolidated statements of income
have been prepared by Registrant based upon assumptions deemed proper by it.
The unaudited pro forma condensed consolidated statements of income were
prepared assuming that the acquisition took place as of the beginning of the
year ended August 31, 1995. The unaudited pro forma condensed consolidated
statements of income presented herein are shown for illustrative purposes only
and are not necessarily indicative of the future results of operations of
Registrant, or of the results of operations of Registrant that would have
actually occurred had the transaction been in effect as of the date or for the
periods presented.
The unaudited pro forma condensed consolidated statements of income
should be read in conjunction with the historical financial statements and
related notes of Registrant.
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NICHOLS RESEARCH CORPORATION
AND ADVANCED MARINE ENTERPRISES, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED AUGUST 31, 1995
AME HISTORICAL NRC AND AME
NRC HISTORICAL YEAR ENDED PRO ORMA YEAR
YEAR ENDED AUGUST 31, PRO FORMA ENDED AUGUST
AUGUST 31, 1995 1995 ADJUSTMENTS 31, 1995
--------------- -------------- ----------- ---------------
(IN THOUSANDS EXCEPT SHARE DATA)
Revenues............................ $ 170,331 $ 30,485 $ -- $ 200,816
Costs and expenses:
Direct and allocable costs........ 147,584 20,471 -- 168,055
General and administrative
expenses....................... 12,917 8,212 833 (1) 21,962
---------- -------- ------- ----------
Total costs and
expenses................ 160,501 28,683 833 190,017
---------- -------- ------- ----------
Operating profit.................... 9,830 1,802 (833) 10,799
Other income (expense):
Interest expense.................. (114 (17) (250)(2) (381)
Other income, principally
interest....................... 1,602 60 1,662
---------- -------- ------- ----------
Income before income taxes.......... 11,318 1,845 (1,083) 12,080
Income taxes........................ 4,116 -- 277 (3) 4,393
---------- -------- ------- ----------
Net income.......................... $ 7,202 $ 1,845 $(1,360) $ 7,687
========== ======== ======= ==========
Net income per common share......... $ 1.15 $ 1.21
========== ==========
Weighted average number of common
and common equivalent shares
outstanding....................... 6,279,109 72,044 (4) 6,351,153
========== ======= ==========
See notes to unaudited pro forma condensed consolidated statements of income.
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NICHOLS RESEARCH CORPORATION
AND ADVANCED MARINE ENTERPRISES, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME (UNAUDITED)
NINE MONTHS ENDED MAY 31, 1996
NRC AND AME
PRO FORMA
NRC HISTORICAL AME HISTORICAL NINE MONTHS
NINE MONTHS NINE MONTHS ENDED
ENDED ENDED PRO FORMA MAY 31,
MAY 31, 1996 MAY 31, 1996 ADJUSTMENTS 1996
-------------- -------------- ----------- -----------
(IN THOUSANDS EXCEPT SHARE DATA)
Revenues............................... $153,202 $ 27,871 $ -- $ 181,073
Costs and expenses:
Direct and allocable contract
costs............................. 129,735 17,853 -- 147,588
General and administrative
expenses.......................... 13,879 8,611 625(1) 23,115
-------------- -------------- --------- ----------
Total costs and expenses..... 143,614 26,464 625 170,703
-------------- -------------- --------- ----------
Operating profit....................... 9,588 1,407 (625) 10,370
Other income (expense):
Interest expense..................... (226) (5) (188)(2) (419)
Other income, principally interest... 749 98 -- 847
-------------- -------------- --------- ----------
Income before income taxes............. 10,111 1,500 (813) 10,798
Income taxes........................... 3,670 -- 249(3) 3,919
-------------- -------------- --------- ----------
Net income............................. $ 6,441 $ 1,500 $(1,062) $ 6,879
=========== =========== ========= ==========
Net income per common share............ $ .96 $ 1.01
=========== ==========
Weighted average number of common and
common equivalent shares
outstanding.......................... 6,741,527 72,044(4) 6,813,571
=========== ========= ==========
See notes to unaudited pro forma condensed consolidated statements of income.
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NOTES TO NICHOLS RESEARCH CORPORATION
AND ADVANCED MARINE ENTERPRISE, INC.
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
PRO FORMA INCOME STATEMENT ADJUSTMENTS
(1) To record the amortization of goodwill for the year ended August 31, 1995
and the nine months ended May 31, 1996, based on estimated goodwill of
$12,500,000 amortized over fifteen years.
(2) To record the net interest cost of the acquisition based upon the Company's
average borrowing rate and average amounts earned on invested cash and cash
equivalents for the year ended August 31, 1995 and the nine months ended May
31, 1996.
(3) Under Subchapter S of the Internal Revenue Code, AME elected not to be taxed
as a corporation and the shareholders have consented to include their
pro-rata share of the income or loss in their individual tax returns.
Therefore, no provision has been made for federal or state income taxes for
the year ended August 31, 1995 or the nine months ended May 31, 1996. The
pro forma adjustment represents an assumed tax provision based upon AME's
income for the year ended August 31, 1995, and nine months ended May 31,
1996, less the amortization of goodwill and net interest expense calculated
using the Company's effective rate of 36.37% and 36.30% for the year ended
August 31, 1995 and the nine months ended May 31, 1996, respectively.
(4) Net income per common share assumes the shares issued in conjunction with
the acquisition were issued on September 1, 1994 and were outstanding for
the entire year.
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(c) Exhibits.
None.
SIGNATURE
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 hereunto duly authorized.
NICHOLS RESEARCH CORPORATION
(Registrant)
By: Chris H. Horgen
---------------------------------
Chris H. Horgen
Chief Executive Officer and
Chairman of the Board
Date: July 24, 1996