Document/Exhibit Description Pages Size
1: 10-K Annual Report 15± 69K
2: EX-10.1 Material Contract 7± 29K
3: EX-10.2 Material Contract 3± 11K
4: EX-10.3 Material Contract 7± 29K
5: EX-11 Statement re: Computation of Earnings Per Share 2± 9K
6: EX-13 Annual or Quarterly Report to Security Holders 24± 111K
7: EX-21 Subsidiaries of the Registrant 1 5K
8: EX-23 Consent of Experts or Counsel 1 7K
9: EX-24 Power of Attorney 1 9K
10: EX-27 Financial Data Schedule (Pre-XBRL) 1 9K
EX-13 — Annual or Quarterly Report to Security Holders
Exhibit Table of Contents
EXHIBIT 13
PORTIONS OF THE
ANNUAL REPORT TO STOCKHOLDERS
FOR THE FISCAL YEAR ENDED JANUARY 31, 1995
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FIVE-YEAR FINANCIAL DATA (Unaudited)
(Dollars in thousands, except per share amounts)
YEAR ENDED JANUARY 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Financial Results
Revenues ...................... $336,943 $305,453 $300,067 $302,506 $315,283
Income (loss) from operations . 23,146(1) (2,301)(2) 27,258 28,704 28,064
Income (loss) before income tax
provision (benefit) ......... 19,148 (2,859) 26,608 24,174 20,972
Income tax provision (benefit). 5,750 (350) 10,100 8,700 7,950
Net income (loss).............. 13,398 (2,509) 16,508 15,474 13,022
Net income (loss) per share.... $ .88 $ (.16) $ 1.03 $ .96 $ .82
Average number of shares
outstanding ................. 15,225 15,535 16,066 16,138 15,891
Dividends paid per share ...... $ .36 $ .36 $ .33 $ .29 $ .28
Financial Position
Current ratio ................. 1.5 1.5 1.6 1.7 2.0
Working capital ............... $ 35,614 $ 36,217 $ 38,792 $ 39,836 $ 51,351
Total assets .................. 240,757 220,173 214,739 217,578 225,159
Long-term debt, including
current maturities ........... 50,525 47,351 25,350 39,751 57,991
Stockholders' equity .......... 113,123 100,147 121,317 112,316 100,646
<FN>
(1) Includes a $11,339 pre-tax special charge. (2) Includes a $25,000 pre-tax
special charge.
</FN>
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QUARTERLY MARKET DATA (Unaudited)
The Company's stock is traded on the NASDAQ National Market System under
the symbol "NLCS." As of January 31, 1995, there were approximately 2,000
stockholders of record.
YEAR ENDED JANUARY 31, 1995
-------------------------------------
Quarter 1st 2nd 3rd 4th
--------------------------------- -------- -------- -------- -------
Sales prices per share
High .................... $ 13.50 $ 13.25 $ 14.75 $ 17.25
Low ..................... 10.88 10.50 11.50 12.13
Dividends paid per share ........ $ .09 $ .09 $ .09 $ .09
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YEAR ENDED JANUARY 31, 1994
-------------------------------------
Quarter 1st 2nd 3rd 4th
--------------------------------- -------- -------- -------- -------
Sales prices per share
High .................... $ 16.00 $ 18.00 $ 17.75 $ 13.25
Low ..................... 13.25 14.88 11.50 10.25
Dividends paid per share ........ $ .09 $ .09 $ .09 $ .09
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QUARTERLY RESULTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
THREE MONTHS ENDED
-------------------------------------------
April 30 July 31 October 31 January 31
-------- ------- ---------- ----------
Year Ended January 31, 1995
Revenues ...................... $68,750 $80,131 $94,608 $93,454
Gross profit .................. 27,081 31,165 31,239 38,452
Net income .................... 1,950 4,715 4,578 2,155 (1)
Net income per share .......... $ 0.13 $ 0.31 $ 0.30 $ 0.14
Year Ended January 31, 1994
Revenues ...................... $68,514 $75,669 $77,645 $83,625
Gross profit .................. 26,789 30,996 27,870 33,266
Net income (loss) ............. 1,732 4,233 1,505 (9,979) (2)
Net income (loss) per share ... $ 0.11 $ 0.27 $ 0.10 $ (0.66)
<FN>
(1) Includes a $11,339 pre-tax special charge. (2) Includes a $25,000 pre-tax
special charge.
</FN>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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INCOME AND EXPENSE ITEMS AS A PERCENTAGE OF REVENUES
FISCAL YEAR
-----------------------------
1994 1993 1992
------ ------ ------
Revenues
Net sales ............................ 80.8% 77.5% 77.1%
Maintenance and support .............. 19.2 22.5 22.9
----- ----- -----
Total revenues ............... 100.0 100.0 100.0
Cost of Revenues
Cost of sales(1) ..................... 60.1 57.4 57.7
Cost of maintenance and support(2) ... 70.0 73.6 76.1
----- ----- -----
Total gross profit ........... 38.0 38.9 38.1
Operating Expenses
Sales and marketing .................. 13.1 15.7 13.2
Research and development ............. 4.0 3.1 3.0
General and administrative ........... 10.6 12.7 12.9
Special charges ...................... 3.4 8.2 --
----- ----- -----
Income (loss) from operations ................ 6.9 (0.8) 9.1
Income (loss) before taxes ................... 5.7 (0.9) 8.9
----- ----- -----
Net income (loss) ............................ 4.0% (0.8)% 5.5%
===== ===== =====
<FN>
(1) As a percentage of sales revenue.
(2) As a percentage of maintenance and support revenue.
</FN>
Note: The fiscal years referenced herein are as follows: fiscal 1994 - year
ended January 31, 1995; fiscal 1993 - year ended January 31, 1994; fiscal 1992 -
year ended January 31, 1993.
National Computer Systems, Inc. (the Company or NCS) operates two business
segments. The predominance of the Company's business is centered around its
proprietary optical scanning hardware and forms technology. This segment markets
those products and related application software and services predominantly in
education, but also to business, government, and healthcare markets through its
various operating units. The financial systems segment designs, develops and
markets asset management software, primarily for bank trust departments. This
includes systems for personal trust asset management for individuals and
corporate trust applications such as stock and bond transfer systems.
RECAP OF 1994 RESULTS
Total revenues in fiscal 1994 were a record $336.9 million, up 10.3% from the
prior year. The Company's overall gross profit percentage on revenues declined
slightly (.9 of one percent) from last year, however, total gross profit dollars
exceeded the prior year by $9.0 million or 7.6%. The revenue growth was achieved
with $4.0 million less sales and marketing expense than in the prior year, with
those expenses declining to 13.1% of revenues in fiscal 1994 from 15.7% in
fiscal 1993. Research and development expenses increased by $4.1 million in
fiscal 1994, principally directed at new products. General and administrative
expenses declined by $2.9 million from the prior year. The Company's income from
operations, before the special charges discussed below, grew to $34.5 million or
10.2% of revenues in fiscal 1994 from $22.7 million or 7.4% of revenues in
fiscal 1993. Interest expense was $1.3 million higher in fiscal 1994 than the
prior fiscal year, due to higher average borrowing levels and higher interest
rates. A $1.6 million disposition gain realized in fiscal 1993 and reflected in
other income and expense did not recur in fiscal 1994. Income, before the
special charges described below, totaled $18.6 million or $1.22 per share
compared with $13.0 million or $.84 per share in fiscal 1993. After pre-tax
special charges described below of $11.3 million in fiscal 1994 and $25.0
million in fiscal 1993, net income was $13.4 million or $.88 per share in fiscal
1994 compared to a net loss of $2.5 million or $.16 per share in fiscal 1993.
SPECIAL CHARGES
In fiscal 1994, the Company recorded an $11.3 million special charge consisting
of three components: the restructuring and statutory reorganization of the
Company's German operations, the discontinuation of an employee benefits
software development project, and the write-down of certain investments in
anticipation of disposition. These actions should reduce ongoing operating
expenses by approximately $1 million annually. See Note 2 of Notes to
Consolidated Financial Statements for further discussion.
In fiscal 1993, the Company recorded a $25 million special charge, $22.8 million
of which was to terminate the Ultrust product and the related Cambridge,
Massachusetts operations dedicated to the product. Ultrust was a sophisticated
asset management system for the largest trust banks in the market and included
full multi-currency accounting and other features designed to facilitate global
asset management. While Ultrust was intended to be marketed as packaged
software, it became apparent that the Ultrust product could not meet the level
of customized, individualized functionality, on an economically viable basis,
that customers in this market segment demanded. Also, rapid changes in
technology since the commencement of development, while not fatal to its
viability, limited the potential for the product. Further investment in the
product could not be justified and the product was terminated. The charge also
included $2.2 million for the restructuring of the administrative software
division of the NCS Education business, principally the closing of the Company's
Salt Lake City software development facility and the consolidation of product
development activities into facilities in Mesa, Arizona. See Note 2 of Notes to
Consolidated Financial Statements for further discussion.
REVENUES
Fiscal 1994 versus Fiscal 1993. Total revenues for fiscal 1994 were up 10.3% to
$336.9 million from $305.5 million in fiscal 1993. Total revenues for fiscal
1994 as compared to fiscal 1993, by major NCS business area, were as follows:
Education +19.5%
Business, Government,
Healthcare and other +1.4%
Financial Systems +9.3%
Significantly higher volumes of educational assessment and student financial aid
processing at the Company's Iowa City service center were the principal factors
in the growth in revenues in education. Approximately half of the revenue growth
in financial systems was due to a minor acquisition in the third quarter of
fiscal 1994. See Note 3 of Notes to Consolidated Financial Statements for
further discussion. Going forward, the financial systems business faces
challenges related to certain industry trends, such as consolidation by
financial institutions. However, the Company believes opportunities exist to
expand its offerings of products and services and to pursue asset management
organizations other than banks.
By revenue category, net sales were up 15.0% in fiscal 1994 over fiscal 1993 due
to the higher education and student financial aid revenues mentioned above,
among other increases. Maintenance and support revenues were down 5.9% due to
lower third-party hardware maintenance revenues, offset somewhat by increases in
proprietary services and software support.
FISCAL 1993 VERSUS FISCAL 1992.
Total revenues for fiscal 1993 were up 1.8% to $305.5 million from $300.1
million in fiscal 1992. Total revenue results for fiscal 1993 as compared to
fiscal 1992 by major NCS business area were as follows:
Education +6.1%
Business, Government,
Healthcare and other +4.5%
Financial Systems -12.4%
Significantly higher volumes of educational assessment and student financial aid
processing at the Company's Iowa City service center resulted in an overall
increase in education revenues, notwithstanding the loss of approximately $8
million of Guaranteed Student Loan (GSL) contract revenue. Financial system's
revenues were down due to the absence of any Ultrust sales in 1993, versus $5.8
million of such revenues in fiscal 1992. Ultrust has been discontinued as
described above. The results of financial systems, and NCS as a whole, were
significantly impacted by the operating losses in the Ultrust product line,
which will not recur in the future.
By revenue category, net sales were up 2.3% in fiscal 1993 over fiscal 1992 due
to the higher assessment and processing revenues mentioned above, as well as
increased scannable forms sales. Maintenance and support revenues were up very
slightly from year to year as both software support and hardware maintenance
were up only marginally.
COST OF REVENUES AND GROSS PROFITS
Fiscal 1994 versus Fiscal 1993. In fiscal 1994, the Company's overall gross
profit declined slightly to 38.0% of total revenues from 38.9% in fiscal 1993.
By revenue category, the gross profit on net sales declined by 2.7 percentage
points in fiscal 1994 from the prior year, due in large measure to lower
relative margins on certain of the incremental revenues at the Iowa City service
center. This was offset by gross profit on the maintenance and support revenues,
which improved by 3.6 percentage points in fiscal 1994, due principally to
higher margins on hardware maintenance services and improved software support
margins owing largely to the discontinuance of Ultrust.
The Company is experiencing significant price increases for the type of paper
most commonly used in its scannable forms product. This is consistent with paper
price movements in the general marketplace and the Company will attempt to
offset these increases, to the extent possible, with increases in productivity
and, where necessary, with price increases to its customers. It is the Company's
current belief that these price increases will unfavorably impact gross profit
to some extent, but should not materially impact overall profitability.
Fiscal 1993 versus Fiscal 1992. The Company's overall gross profit percentage
improved to 38.9% in fiscal 1993 from 38.1% in fiscal 1992. The gross profit on
net sales improved 0.3 percentage points year to year as a percentage of net
sales due principally to improved margins on non-GSL student financial aid
processing. Maintenance and support gross profit improved by 2.5 percentage
points year to year as a percentage of related revenues due to lower parts costs
related to hardware maintenance.
OPERATING EXPENSES
Fiscal 1994 versus Fiscal 1993. In fiscal 1994, sales and marketing expenses
decreased $4.0 million from the prior fiscal year. This, coupled with increased
revenues, decreased these expenses as a percentage of total revenues by 2.6
percentage points. This improvement over fiscal 1993 is due to a concerted
Company-wide effort to reduce these expenses and make sales and marketing
efforts more productive.
Research and development expenses increased $4.1 million or 43.3% in fiscal 1994
over fiscal 1993 due directly to new software product initiatives across the
Company, particularly in financial systems and education.
General and administrative expenses declined by $2.9 million or 7.4% in fiscal
1994 from the prior fiscal year. This decrease year-to-year is due to
Company-wide efforts to reduce these expenses.
Fiscal 1993 versus Fiscal 1992. Sales and marketing expenses increased by $8.4
million in fiscal 1993 over fiscal 1992. This was a 21.2% increase year to year
and was incurred in all the major business areas. The increase was intended to
increase sales momentum, and while sales did increase slightly in fiscal 1993,
they did not increase as much as anticipated.
Research and development expenses were up slightly in fiscal 1993 from the prior
year. This increase was spread among all NCS businesses, with the largest
increase coming in scanning hardware and software engineering.
Total general and administrative expenses were essentially unchanged from fiscal
1992 to fiscal 1993.
INTEREST EXPENSE
Interest expense increased $1.3 million in fiscal 1994 over fiscal 1993. This
was due to higher average borrowing levels in fiscal 1994, as debt levels
increased significantly in the latter part of fiscal 1993 and modestly in fiscal
1994. Interest rates also increased in fiscal 1994 from the prior year. See
Capital Resources and Liquidity below for further discussion of cash flow and
debt.
Interest expense increased by $0.3 million in fiscal 1993 from fiscal 1992. The
increase was due to an increase in the average borrowings outstanding, as
interest rates did not vary significantly.
OTHER INCOME AND EXPENSE
Other income and expense in fiscal 1994 included no large or unusual items and
was, therefore, insignificant.
Other income in fiscal 1993 includes a $1.6 million gain from the sale of assets
of the Company's Catalog Card Division. This division's net assets and results
of operations were not material to NCS.
During fiscal 1992, the Company concluded certain litigation with a resulting
net gain of approximately $1.0 million which is included in other income and
expense. This gain reflects the favorable resolution of certain claims relating
to the original procurement of the GSL processing contract in 1987.
INCOME TAXES
The effective income tax rate for fiscal 1994 was 30.0% which was significantly
reduced by the net tax benefit related to the reorganization of the Company's
German operations. See Note 6 of the Notes to Consolidated Financial Statements.
The effective income tax benefit rate for fiscal 1993 was 12.2%, which was
significantly lower than the statutory rate and the Company's historical
effective rate. The rate impact of permanent book/tax differences is magnified
due to the low absolute dollar amount of the pre-tax loss. The effective income
tax rate for fiscal 1992 was 38.0%.
CAPITAL RESOURCES AND LIQUIDITY
During fiscal 1994, the Company generated $42.2 million of cash from operations
which represented a return to historical cash generation levels. The special
charges incurred in fiscal 1994 had, after considering tax benefits, a slightly
positive impact on cash from operations. The Company invested $28.3 million in
property, plant and equipment in fiscal 1994, which was unusually high due to
the addition of new buildings in Mesa, Arizona and Iowa City, Iowa. Software
capital additions were down to $6.9 million in fiscal 1994, principally due to
the discontinuation of Ultrust. Also, $3.2 million of cash was invested in two
minor acquisitions. The activities above, and all other cash needs, were
financed with cash from operations and $4.1 million of additional borrowings.
During fiscal 1993, the Company generated $26.0 million of cash from operating
activities. This level was significantly below the prior year's generation of
$54.3 million due to the lower level of income, lower non-cash expenses, and
growth in receivables. The significant receivables growth was due to heavy
billing activity in the last quarter of the fiscal year as the Company's days of
billings outstanding remained virtually constant with the prior year. The
accrued expense increase in fiscal 1993 included the residual of the special
charges, which required cash outlay in the first half of fiscal 1994. Cash was
used for capital expenditures and other investing activities totaling $38.3
million. This investment level is higher than the fiscal 1992 amount of $24.5
million due to higher property, plant and equipment expenditures, including an
additional forms plant in the United Kingdom, and investments in software
development prior to the discontinuation of Ultrust. The Company also
repurchased over one million shares of Common Stock during fiscal 1993, using
$15.9 million of cash. All these activities described above were financed with
cash from operations, $9.0 million of cash on hand, and increased borrowings of
$23.0 million during fiscal 1993.
The Company had long-term debt balances, including current maturities of $50.5
million, $47.4 million, and $25.4 million at January 31, 1995, 1994, and 1993,
respectively. The items causing the changes in debt balances are described
above. At January 31, 1995, the Company's debt to total capital ratio was 30.9%
compared to 32.1% a year earlier and 17.3% two years earlier. The Company
believes that the debt to total capital ratio is currently within an acceptable
operating range.
Looking toward fiscal 1995, the Company maintains a $40 million revolving credit
facility, $20.4 million of which was unused at January 31, 1995. The Company
expects cash flow from operations to be at traditional levels in fiscal 1995 and
will use such cash to fund capital expenditures and reduce debt to the extent
possible. In fiscal 1995, capital expenditures are likely to decrease, as there
are no new facilities planned, and software development will approximate 1994
levels. The Company considers the $40 million credit facility and funds from
operations to be adequate to meet foreseeable cash requirements.
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NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
JANUARY 31,
----------------------
1995 1994
---------- ---------
Current Assets
Cash and cash equivalents ........................... $ 1,195 $ 1,724
--------- ---------
Receivables
Trade ....................................... 77,209 70,100
Other ....................................... 1,940 5,328
--------- --------
79,149 75,428
--------- --------
Inventories ......................................... 20,455 17,370
Prepaid expenses and other .......................... 9,925 9,198
--------- --------
Total Current Assets ........................ 110,724 103,720
--------- --------
Property, Plant and Equipment
Land, buildings and improvements .................... 48,202 37,254
Machinery and equipment.............................. 101,336 88,950
Rotable service parts ............................... 9,256 11,085
Equipment held for lease ............................ 7,583 8,205
Accumulated depreciation ............................ (83,648) (75,988)
-------- --------
82,729 69,506
-------- --------
Other Assets, net
Acquired and internally developed software products . 27,234 20,092
Non-current receivables, investments and other assets 17,027 21,896
Goodwill ............................................ 3,043 4,959
-------- ---------
47,304 46,947
-------- ---------
Total Assets ................................ $ 240,757 $ 220,173
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt ................ $ 5,212 $ 2,677
Accounts payable .................................... 20,655 18,777
Accrued expenses .................................... 29,495 27,093
Deferred income ..................................... 18,645 18,956
Income taxes ........................................ 1,103 --
-------- ---------
Total Current Liabilities ................... 75,110 67,503
-------- ---------
Deferred Income Taxes ....................................... 7,211 7,849
Long-Term Debt - less current maturities .................... 45,313 44,674
Commitments and contingencies
Stockholders' Equity
Preferred stock ..................................... -- --
Common stock - issued and outstanding -
15,310 and 14,983 shares, respectively ...... 459 449
Paid-in capital ..................................... 3,795 --
Retained earnings ................................... 114,546 106,771
Deferred compensation ............................... (5,677) (7,073)
-------- ---------
Total Stockholders' Equity ................... 113,123 100,147
--------- ----------
Total Liabilities and Stockholders' Equity.... $ 240,757 $220,173
========= ==========
See Notes to Consolidated Financial Statements.
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NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JANUARY 31,
-------------------------------------
1995 1994 1993
---------- ---------- ---------
Revenues
Net sales ............................................. $ 272,305 $ 236,737 $ 231,483
Maintenance and support ............................... 64,638 68,716 68,584
--------- --------- ---------
Total revenues ........................ 336,943 305,453 300,067
Cost of Revenues
Cost of sales ......................................... 163,744 135,943 133,457
Cost of maintenance and support........................ 45,262 50,589 52,207
--------- --------- ---------
Gross profit .......................... 127,937 118,921 114,403
Operating Expenses
Sales and marketing ................................... 44,138 48,104 39,695
Research and development .............................. 13,422 9,364 8,865
General and administrative ............................ 35,892 38,754 38,585
Special charges........................................ 11,339 25,000 --
--------- --------- ---------
Income (Loss) From Operations ................................. 23,146 (2,301) 27,258
Interest expense ...................................... 3,465 2,200 1,889
Other (income) expense ................................ 533 (1,642) (1,239)
--------- --------- ---------
Income (Loss) Before Income Tax Provision (Benefit) ........... 19,148 (2,859) 26,608
Income tax provision (benefit)........................ 5,750 (350) 10,100
--------- --------- ---------
Net Income (Loss) ............................................. $ 13,398 $ (2,509) $ 16,508
========= ========= ========
Net Income (Loss) Per Share ................................... $ 0.88 $ (0.16) $ 1.03
Average Shares Outstanding .................................... 15,225 15,535 16,066
See Notes to Consolidated Financial Statements.
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NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK
------------------
PAID-IN RETAINED DEFERRED
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TOTAL
------ ------ ------- -------- ------------ -----
Balance January 31, 1992 ........................ 16,027 $481 $15,846 $105,152 $ (9,163) $112,316
Shares issued for employee stock
purchase and option plans ....... 194 6 2,222 -- -- 2,228
Repurchase of common stock .............. (338) (10) (4,931) -- -- (4,941)
Restricted stock awards.................. 16 -- 253 -- (253) --
ESOP debt payment ....................... -- -- -- -- 1,000 1,000
Restricted stock compensation accrual ... -- -- -- -- 150 150
Net income .............................. -- -- -- 16,508 -- 16,508
Cash dividends paid - $.33 per share .... -- -- -- (5,261) -- (5,261)
Foreign currency translation adjustment.. -- -- -- (683) -- (683)
------ ---- ------- -------- ------- --------
Balance January 31, 1993 ........................ 15,899 477 13,390 115,716 (8,266) 121,317
Shares issued for employee stock
purchase and option plans ....... 135 4 1,741 -- -- 1,745
Repurchase of common stock .............. (1,053) (32) (15,317) (566) -- (15,915)
Restricted stock awards.................. 2 -- 186 -- (33) 153
ESOP debt payment ....................... -- -- -- -- 1,000 1,000
Restricted stock compensation accrual ... -- -- -- -- 226 226
Net income (loss) ....................... -- -- -- (2,509) -- (2,509)
Cash dividends paid - $.36 per share .... -- -- -- (5,581) -- (5,581)
Foreign currency translation adjustment.. -- -- -- (289) -- (289)
------ ---- ------- ------- ------- --------
Balance January 31, 1994 ........................ 14,983 449 -- 106,771 (7,073) 100,147
Shares issued for employee stock
purchase and option plans ....... 152 5 1,492 -- -- 1,497
Repurchase of common stock .............. (32) (1) (359) -- -- (360)
Restricted stock awards.................. (59) (2) (430) -- 432 --
Shares issued for business acquisition .. 266 8 3,092 -- -- 3,100
ESOP debt payment ....................... -- -- -- -- 1,000 1,000
Restricted stock compensation accrual ... -- -- -- -- (36) (36)
Net income .............................. -- -- -- 13,398 -- 13,398
Cash dividends paid - $.36 per share .... -- -- -- (5,453) -- (5,453)
Foreign currency translation adjustment.. -- -- -- (170) -- (170)
------- ---- ------- -------- -------- ---------
Balance January 31, 1995 ........................ 15,310 $459 $ 3,795 %114,546 $ (5,677) $ 113,123
======= ==== ======= ======== ======== =========
See Notes to Consolidated Financial Statements.
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NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JANUARY 31,
-------------------------------------
1995 1994 1993
-------- -------- -------
Operating Activities
Net income (loss) ................................................... $13,398 $ (2,509) $ 16,508
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation ........................................ 15,559 16,289 18,426
Amortization ........................................ 8,412 8,388 10,131
Deferred income taxes and other...................... (400) (2,434) (501)
Non-cash special charges ............................ 10,375 17,805 --
Changes in operating assets and liabilities
(net of acquired amounts):
Accounts receivable ................. (3,392) (12,346) 1,830
Inventory and other current assets .. (4,285) (3,765) 3,100
Accounts payable and accrued expenses 3,183 3,879 552
Deferred income...................... (613) 652 4,278
------- -------- --------
Net Cash Provided By Operating Activities ........... 42,237 25,959 54,324
------- -------- --------
Investing Activities
Divestitures (acquisitions) ......................................... (3,216) (1,198) 154
Purchases of property, plant and equipment .......................... (28,251) (21,935) (12,894)
Purchases of rotable service parts .................................. (934) (1,917) (1,490)
Capitalized software products ....................................... (6,928) (11,474) (8,409)
Other - net ......................................................... (3,245) (1,728) (1,906)
------- -------- --------
Net Cash Used In Investing Activities ............... (42,574) (38,252) (24,545)
Financing Activities
Net increase (decrease) in revolving credit borrowing ............... 1,100 18,500 (15,000)
Net increase in other borrowings .................................... 3,024 4,501 1,599
Issuance (repurchase) of common stock, net .......................... 1,137 (14,170) (2,713)
Dividends paid ...................................................... (5,453) (5,581) (5,261)
------- -------- --------
Net Cash Provided By
(Used In) Financing Activities ................... (192) 3,250 (21,375)
------- -------- --------
Increase (Decrease) In Cash and Cash Equivalents ............................ (529) (9,043) 8,404
Cash and Cash Equivalents - Beginning of Year ............................... 1,724 10,767 2,363
------- -------- --------
Cash and Cash Equivalents - End of Year ..................................... $ 1,195 $ 1,724 $ 10,767
======= ======== ========
See Notes to Consolidated Financial Statements.
NATIONAL COMPUTER SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 - ACCOUNTING POLICIES
FISCAL YEARS: The fiscal years referenced herein are as follows: fiscal 1994 -
year ended January 31, 1995; fiscal 1993 - year ended January 31, 1994; fiscal
1992 - year ended January 31, 1993.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions between consolidated entities have been eliminated.
CASH AND CASH EQUIVALENTS: All investments purchased with an original maturity
of three months or less are considered to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of first-in, first-out cost or
market. Components of inventory at January 31 are summarized as follows:
1995 1994
------- -------
Finished goods $ 6,408 $ 6,094
Scoring services and work in process 8,974 6,117
Raw materials and purchased parts 5,073 5,159
------- -------
$20,455 $17,370
======= =======
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost
and depreciated over the estimated useful lives of the assets using principally
the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes. Significant improvements are capitalized to
property, plant and equipment accounts, while maintenance and repairs are
expensed currently. Rental income from equipment held for lease is recognized as
earned using the operating method of accounting for such leases. Depreciation is
computed using the straight-line method based on the assets' estimated useful
lives.
ROTABLE SERVICE PARTS: Parts continually repaired and reused are carried
at cost and depreciated over their estimated useful lives ranging from three to
five years. Such amounts are reflected as a separate category of property, plant
and equipment.
ACQUIRED AND INTERNALLY DEVELOPED SOFTWARE PRODUCTS: Acquired software product
amounts originate from the allocation of purchase prices of acquired companies
and assets. These products are generally large, complex, mission-critical
application software packages with established market positions. Products in
this category are generally assigned lives of five years. Internally developed
software products represent costs capitalized in accordance with Statement of
Financial Accounting Standards No. 86. Accordingly, software production costs
incurred subsequent to establishing technological feasibility, as defined, are
capitalized. Amortization of these products is computed on a product by product
basis ratably as a percentage of expected revenue, subject to minimum
straight-line amortization over the products' estimated useful lives of 2 to 5
years. An employee benefits product and the Ultrust software product were
discontinued in fiscal 1994 and fiscal 1993, respectively. Refer to Note 2 for
further discussion.
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
[Enlarge/Download Table]
A summary of software activity is as follows:
INTERNALLY ACCUMULATED
ACQUIRED DEVELOPED AMORTIZATION TOTAl
-------- ---------- ------------ -------
Balance, January 31, 1992 ...................... $16,684 $20,656 $ (9,429) $ 27,911
Additions .............................. -- 8,409 -- 8,409
Amortization ........................... -- -- (6,154) (6,154)
------- ------- -------- --------
Balance, January 31, 1993 ...................... 16,684 29,065 (15,583) 30,166
Additions .............................. 1,165 11,474 -- 12,639
Product discontinuation ................ (4,522) (18,495) 5,212 (17,805)
Dispositions ........................... -- (1,558) 1,057 (501)
Amortization ........................... -- -- (4,407) (4,407)
------- ------- -------- --------
Balance, January 31, 1994 ...................... 13,327 20,486 (13,721) 20,092
Additions .............................. 7,868 6,928 -- 14,796
Product discontinuation ................ -- (2,983) 25 (2,958)
Amortization ........................... -- -- (4,696) (4,696)
------- ------- -------- --------
Balance, January 31, 1995 ...................... $21,195 $24,431 $(18,392) $ 27,234
======= ======= ======== ========
GOODWILL: Goodwill arising from business acquisitions is amortized on a
straight-line basis over periods ranging from 5 to 20 years, generally 10 years.
Amortization expense was $1,179 in fiscal 1994, $1,146 in fiscal 1993 and $1,049
in fiscal 1992. Accumulated amortization was $2,493 and $6,253 as of January 31,
1995 and 1994, respectively.
ACCRUED EXPENSES: Major components of accrued expenses consisted of the
following as of January 31:
1995 1994
------- -------
Employee compensation ............ $12,960 $10,168
Taxes other than income .......... 3,410 3,383
Royalties ........................ 2,241 2,196
Scoring .......................... 2,169 2,355
Special charges .................. 679 5,328
Other ............................ 8,036 3,663
------- -------
$29,495 $27,093
======= =======
REVENUE RECOGNITION: Revenue from product sales and software licensing is
recognized at the time of shipment, except in instances where material
fulfillment obligations exist beyond shipment. In such cases, revenue is not
recognized until such obligations are fulfilled or is recognized in accordance
with specific contract terms. Hardware maintenance and software support revenues
are recognized ratably over the contractual period. Revenue from other services
is recognized when such service is performed.
OTHER (INCOME) EXPENSE: Other (income) expense for the year ended January 31,
1994 includes a $1,556 gain on the sale of the assets of the Company's Catalog
Card Division to an entity controlled by the Company's Chairman. The sale was
for cash and notes totaling $2,350, including interest. The disinterested
directors of the Company determined that the terms of the sale were fair and
reasonable to the Company. Notes receivable of $1,454 and $1,525, net, from the
acquiring entity are carried in non-current receivables on the accompanying
consolidated balance sheets at January 31, 1995 and 1994, respectively. Other
(income) expense for the year ended January 31, 1993 includes $1,027, net,
related to the conclusion of certain litigation in the Company's favor.
Per Share Data: Net income (loss) per share is based on the weighted average
number of shares of Common Stock and common stock equivalents outstanding during
the year.
NOTE 2 - SPECIAL CHARGES
In the fourth quarter of fiscal 1994, the Company recorded an $11.3 million
pre-tax special charge consisting of three components: the restructuring and
statutory reorganization of the Company's German operations, the discontinuation
of an employee benefits software development project, and the write-down of
certain unconsolidated investments in anticipation of disposition.
The German restructuring and reorganization amounted to a $3.7 million pre-tax
charge to liquidate two of the Company's three operating subsidiaries in Germany
and consolidate all remaining operations, principally distribution and
maintenance, into one remaining subsidiary. The pre-tax charge was principally
to write down goodwill and other assets ($2.9 million) to liquidation values and
the balance of this charge was to accrue exit costs for leased facilities and
other obligations. There were, however, significant tax benefits triggered by
these actions, so the net after-tax effect of this restructuring was only $.5
million. These actions are complete and the liquidation will become official
upon the expiration of the German statutory notice periods.
The discontinuation of the employee benefit software product resulted in a $3.2
million pre-tax charge. The Company will incorporate certain of the functions
originally planned for this new product into its existing products, thereby
reducing development cost and time to market. The charge was principally to
write off internal software development costs and acquired third-party software
licenses ($3.0 million). The balance of the charge was to accrue for severance
(six employees) and other costs. All such actions related to this
discontinuation are complete. The after-tax effect of this action was
approximately $2.0 million.
The balance of the pre-tax special charge ($4.4 million) was to write down
investments in four companies in anticipation of values which will likely be
realized as the Company proceeds with an orderly disposition of these
investments. These investments were, in all but one case, originally made to
promote operating synergies with the Company, however, the Company's intentions
with regard to these investments have changed and they have become
non-strategic. It is intended, but not certain, that these dispositions will be
completed in the next six months. The after-tax effect of the write-down of
these investments was $2.7 million.
The special charges total $11.3 million pre-tax and $5.2 million or 34 cents per
share on an after-tax basis. These actions, as described above, represent
largely asset write-downs with related cash tax benefits and will, therefore,
actually generate cash for the Company before considering disposition proceeds.
In the fourth quarter of fiscal 1993, the Company recorded a $25 million pre-tax
special charge. This amount consisted of a $22.8 million charge to terminate the
Ultrust product and related operations, including a non-cash write-off of $17.8
million of software investment, $2.7 million of severance costs, and $2.3
million of facility exit costs, customer accommodations and other items.
The balance of the charge was for the closing of a software development facility
in Salt Lake City and consolidation of those functions into the Company's Mesa,
Arizona facility. Substantially all of this $2.2 million charge related to
severance, relocation, and other employee-related costs.
This charge reduced fiscal 1993 after-tax earnings by $15.5 million or $1.00 per
share.
NOTE 3 - SIGNIFICANT TRANSACTIONS
During fiscal 1994, the Company completed two minor acquisitions. In July, 1994,
the Company completed the acquisition of Abacus Data Group, Inc., a developer of
Windows-based instructional management software for the education market. The
purchase price was approximately $3.8 million in a combination of cash and
common stock of the Company, plus contingent earn-out payments, and was
allocated principally to software products and goodwill. In October, 1994, the
Company completed the acquisition of an international private banking product,
DECBank APSYS, along with certain related business assets and operations in
Geneva, Switzerland. The purchase price was approximately $2.9 million in cash
plus assumption of certain liabilities, which was allocated principally to
software products. The operating results of these acquired entities were not
material to NCS.
During fiscal 1993, the Company reached an agreement with Dimensional Medicine
Inc. (DMI) to convert notes and accounts receivable from DMI into 27.5 million
shares of DMI common stock (representing 85% of the outstanding common shares)
and a long-term note. The Company has not consolidated the financial results of
DMI since completion of the transaction, because it is the Company's intention
to divest of the DMI shares, and its control is, therefore, temporary. DMI's
financial position and results of operations are not material to the Company.
During fiscal 1994, the Company further reduced the carrying value of its
investment in DMI.
Fees charged to DMI for installation and servicing of DMI systems were $518 in
fiscal 1994, $999 in fiscal 1993 and $1,354 in fiscal 1992. Rates and prices
charged for these services approximate those which would prevail between
unrelated parties. The balance of the long-term note, $865 as of January 31,
1995 and $1,105 as of January 31, 1994, is reflected in other assets in the
accompanying consolidated balance sheets. The net receivables from DMI included
in trade receivables were not material as of January 31, 1995 or 1994.
NOTE 4 - LEASES
The Company leases office facilities under noncancelable operating leases which
expire in various years through 2001. Rental expense for all operating leases
was $11,026 in fiscal 1994, $11,242 in fiscal 1993 and $10,029 in fiscal 1992.
Future minimum rental expense as of January 31, 1995, for noncancelable
operating leases with initial or remaining terms in excess of one year is
$27,277 and is payable as follows: fiscal 1995 - $6,539; fiscal 1996 - $5,673;
fiscal 1997 - $4,608; fiscal 1998 - $3,834; fiscal 1999 - $2,789 and $3,834
beyond.
NOTE 5 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt at January 31, consisted of the following:
1995 1994
------- -------
Revolving credit borrowing ............. $19,600 $18,500
Secured notes .......................... 15,000 15,000
Unsecured note ......................... 6,713 6,175
ESOP borrowing ......................... 5,000 6,000
Other borrowings, principally foreign .. 4,212 1,676
------- -------
50,525 47,351
Less current maturities ................ (5,212) (2,677)
------- -------
Long-term debt ......................... $45,313 $44,674
======= =======
Revolving Credit Borrowings: The Company has a $40,000 unsecured revolving
credit facility which terminates August 1, 1996. Interest on debt outstanding
under this facility is computed, at the Company's discretion, based on the prime
rate or the London Interbank Offered Rate (LIBOR). During the year ended January
31, 1995, the interest rate approximated 1.5% below the prime rate. The Company
pays a fee at an annual rate of .25% on the unused facility amount. The credit
facility contains covenants with which the Company is in compliance.
Secured Notes: In July, 1990 the Company issued $15,000 of 9.88% Secured Notes
due in 1997. Interest is paid monthly during the term. The notes are secured by
certain Company-owned real estate. The credit facility contains covenants with
which the Company is in compliance.
Unsecured Note: During fiscal 1993, the Company opened a Sterling-based credit
facility with a bank to finance plant construction in the United Kingdom. During
fiscal 1994, the credit facility was converted to an unsecured term note due in
five principal payments of (pound)850 per year beginning in April, 1997 and
bearing interest at .95% over the Sterling LIBOR rate. The outstanding balance
on the note at January 31, 1995 was (pound)4,250 or $6,713.
ESOP Borrowing: The ESOP loan, secured by unallocated shares of Common Stock and
guaranteed by the Company, is payable over seven years in annual payments of
$1,000 with the balance due May 1996. Interest is payable quarterly at rates
which approximate 3.5% under the prime rate.
Scheduled Maturities: The aggregate principal amounts of long-term debt
scheduled for repayment in each of the five fiscal years 1995 through 1999 are
$5,212, $23,600, $16,343, $1,343, and $1,343, respectively. In each fiscal year,
interest paid approximates interest expense plus capitalized interest of $175 in
1994, $338 in 1993 and $209 in 1992.
NOTE 6 - INCOME TAXES
Effective February 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
109. As permitted under the standard, prior years' financial statements have not
been restated. The cumulative effect of adopting SFAS 109 was not material.
The components of the provision for income taxes are as follows:
[Download Table]
CURRENT
--------------------------
YEAR ENDED JANUARY 31, FEDERAL STATE FOREIGN DEFERRED TOTAL
---------------------- ------- ----- ------- -------- --------
1995 (Liability method) ....... $6,175 $ 691 $ 384 $(1,500) $5,750
1994 (Liability method) ....... 1,566 398 40 (2,354) (350)
1993 (Deferred method)......... 8,535 1,088 426 51 10,100
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities at January 31 are as follows:
[Download Table]
1995 1994
------ ------
Deferred tax assets:
Reserves for uncollectibles ................ $ 3,223 $ 1,470
Rotable service parts amortization ......... 1,612 1,787
Accrued vacation pay ....................... 1,572 1,515
Special charges ............................ 1,395 534
Intangible amortization .................... 1,047 767
Foreign operating loss carryforwards ....... 831 1,966
Other ...................................... 877 742
Valuation allowance ........................ (831) (1,966)
-------- --------
Total deferred tax assets .................. 9,726 6,815
-------- --------
Deferred tax liabilities:
Net capitalized software ................... 7,183 6,300
Accelerated depreciation ................... 5,847 4,951
Purchased software amortization ............ 2,016 1,617
Installment sales .......................... 894 987
Other ...................................... 997 809
-------- --------
Total deferred tax liabilities ............. 16,937 14,664
-------- --------
Net deferred tax liabilities ............... $ 7,211 $ 7,849
======== ========
NOTE 6 - INCOME TAXES (CONTINUED)
A reconciliation of the Company's statutory and effective tax rate is presented
below:
[Download Table]
YEAR ENDED JANUARY 31,
--------------------------
1995 1994 1993
---- ---- ----
Statutory rate ............................... 35.0% (35.0)% 34.0%
State income taxes net of federal benefit .... 2.3 9.2 2.7
Intangible amortization ...................... 3.0 12.9 2.0
Foreign sales corporation .................... (0.6) (4.7) (0.2)
Research and development credits ............. (2.5) (24.2) (1.0)
Affordable housing credit .................... (1.4) -- --
Foreign operating losses ..................... 0.8 27.1 0.6
Foreign investment loss ...................... (10.2) -- --
Federal rate adjustment ...................... -- 9.8 --
Other, net ................................... 3.6 (7.3) (0.1)
----- ------ ------
Effective rate ............................... 30.0% (12.2)% 38.0%
===== ====== ======
In the year ended January 31, 1995, the tax rate benefit from the foreign
investment losses principally reflects U.S. tax benefits triggered by the
restructuring and reorganization of the Company's German operations discussed in
Note 2.
In the year ended January 31,1994, the Federal rate adjustment item above is due
to the Statement of Financial Accounting Standards No. 109 requirement to
increase deferred tax liabilities to reflect current statutory income tax rates.
During fiscal 1993, after the Company's adoption of this standard, the U.S.
Federal statutory rate increased from 34% to 35%. This adjustment reflects the
resulting increase in the deferred tax liability of $280. The Company also
incurred foreign operating losses of approximately $2.7 million for the year
ended January 31, 1994, which could not currently be tax benefited, and,
therefore, unfavorably impacted the effective tax benefit rate. None of the
remaining items in the year ended January 31, 1994 rate reconciliation above
were unusual in nature or amount in comparison to prior years, however, the rate
effects are magnified due to the low absolute dollar amount of the pre-tax loss.
The Company made tax payments of $5,549, $7,132 and $7,638 during the fiscal
years ended January 31, 1995, 1994 and 1993, respectively.
NOTE 7 - STOCKHOLDER'S EQUITY
The Company has 10,000,000 shares of $.01 par value Preferred Stock authorized
and issuable in one or more series as the Board of Directors may determine; none
is outstanding. 50,000,000 shares of $.03 par value Common Stock are authorized.
There are no restrictions on retained earnings.
The Company has four Employee Stock Option Plans (1982, 1984, 1986, and 1990).
Options to purchase Common Stock of the Company are granted to employees at 100%
of fair market value on the date of grant and are exercisable over a five-year
period. Outstanding options under all Plans are summarized as follows:
SHARES PRICE PER SHARE
-------- -----------------
Balance, January 31,1993 799,850 $ 7.75 to $16.50
Granted 230,500 12.00 to 17.60
Cancelled (50,870) 8.00 to 16.25
Exercised (70,130) 7.75 to 15.00
------- -----------------
Balance, January 31,1994 909,350 7.75 to 17.60
Granted 272,250 12.50 to 15.00
Cancelled (300,200) 7.75 to 17.60
Exercised (76,900) 7.75 to 15.00
------- -----------------
Balance, January 31,1995 804,500 $ 7.75 to $16.75
======= =================
Options for 188,050 and 194,050 shares became exercisable during fiscal 1994 and
1993, respectively, and options for 235,750 and 275,800 shares were exercisable
at January 31, 1995 and 1994, respectively. Shares available for grant under the
Plans totaled 209,600 and 260,552 at January 31, 1995 and 1994, respectively.
At January 31, 1995, non-qualified options not covered by the Plans to purchase
107,000 shares at $8.25 to $17.10 per share were outstanding. At January 31,
1994, non-qualified options not covered by the Plans to purchase 13,000 shares
at $12.88 to $16.00 per share were outstanding.
At January 31, 1995, there were 36,000 outstanding options under the
Non-Employee Director Stock Option Plan with per share prices from $8.25 to
$16.00. At January 31, 1994, there were 30,000 outstanding options under the
Plan with per share prices from $8.25 to $16.00.
The Company has an Employee Stock Purchase Plan. There were 192,603 shares
available for purchase under the Plan at January 31, 1995.
NOTE 8 - EMPLOYEE BENEFIT PLANS
EMPLOYEE SAVINGS PLAN: The Company has a qualified 401(k) Employee Savings Plan
covering substantially all employees. Company contributions are discretionary.
The Company's contributions to the Plan, representing 401(k) matching
contributions only, were $1,700, $1,674 and $1,438 in fiscal years 1994, 1993,
and 1992, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN: The Company has an Employee Stock Ownership Plan
(ESOP) covering substantially all employees. Benefits, to the extent vested,
become available on retirement or termination of employment. During fiscal 1989,
the ESOP Trust borrowed $10,000 to purchase 792,000 shares of Common Stock. Each
year, the Company makes contributions to the ESOP which are then used to make
loan interest and principal payments. With each principal payment, which is
charged to compensation expense, a portion of the Common Stock is allocated to
participating employees. The Company's contribution to the Plan was $1,000 in
fiscal 1994 and fiscal 1993 and interest, which was totally offset by dividends
on unallocated shares, was $206 in fiscal 1994 and $168 in fiscal 1993. In
fiscal 1992, the Company's contribution to the Plan was $1,000, and interest
totaled $240, which was offset by dividends on unallocated shares of $220. There
were 396,000 and 475,200 unallocated shares at January 31, 1995 and 1994,
respectively.
The ESOP Trust Borrowing, which is guaranteed by the Company, is reflected in
long-term debt and the Company's obligation to make future contributions to the
ESOP for debt repayment is reflected as a reduction of Stockholders' Equity in
the consolidated financial statements.
LONG-TERM INCENTIVE PLAN: During fiscal 1990, pursuant to a Long-Term Incentive
Plan approved by the stockholders, 171,400 shares of Common Stock were issued to
participants on a restricted basis. At January 31, 1995, 87,900 shares remain
outstanding due to forfeitures by original participants. The shares will be
earned by, and released to, the participants at the end of 10 years, but release
can be accelerated by attainment of 20% return on equity in a fiscal year, as
defined in the Plan. The cost of the Plan is being accrued over the 10-year
earning period and will be accelerated if so earned. The Plan also contains a
cash award element which is earned only upon attainment of the 20% return on
equity.
NOTE 9 - CONTINGENCY
The Company has received a claim from a customer for expenses, alleged loan
defaults, and other damages related to performance under a loan processing and
servicing contract. The Company has tendered the defense of this claim to its
insurer and the insurer has accepted that defense subject to a reservation of
rights. The Company and its insurer intend to vigorously contest this claim.
While the claim has not yet been fully articulated, the Company believes that
any such claim would be substantially covered by insurance and would not have a
material effect on the Company's financial position.
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure of fair
value information about financial instruments for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows.
At January 31, 1995 and 1994, the Company had non-current investments and notes
receivable (non-trade) with carrying values of $3,514 and $8,608 respectively,
which approximate fair value at those respective dates.
At January 31, 1995 and 1994, the Company's $15,000, 9.88% Secured Notes had a
fair value of approximately $15,500 and $16,100, respectively, based on the
Company's current borrowing rate for comparable borrowing arrangements. The
Company's ESOP and other long-term debt approximates market due to the variable
interest rate features of the obligations.
NOTE 11 - BUSINESS SEGMENT DATA
The Company operates two business segments. The predominance of the Company's
business consists of several interdependent business units, centered around its
proprietary optical scanning hardware and forms technology. This segment markets
those products and services and related application software to education,
business, government, and healthcare markets through the various operating
units. The financial systems segment designs, develops and markets asset
management software, primarily for bank trust departments. This includes systems
for personal trust asset management for individuals and corporate trust
applications such as stock and bond transfer systems. Below is a summary of
certain financial information related to the two segments for fiscal years ended
January 31.
[Enlarge/Download Table]
OPTICAL SCANNING PRODUCTS,
SERVICES AND FINANCIAL
RELATED SOFTWARE SYSTEMS TOTAL
------------------------------ ---------------------------- ------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ----
Revenues $284,875 $257,813 $245,709 $52,068 $47,640 $54,358 $336,943 $305,453 $300,067
======== ======== ======== ======= ======= ======= ======== ======== ========
Operating income (loss) 37,316 25,447 28,802 2,820 (19,621) 6,564 40,136 5,826 35,366
Special charges included above 3,718 2,200 3,175 22,800 6,893 25,000
Corporate expense 16,990(1) 8,127 8,108
Interest and other expense, net 3,998 558 650
-------- -------- --------
Total income (loss) before
income taxes 19,148 (2,859) 26,608
======== ======== ========
Identifiable assets 201,312 177,664 151,252 31,382 25,340 40,787 232,694 203,004 192,039
Corporate assets 8,063 17,169 22,700
-------- -------- --------
Total assets 240,757 220,173 214,739
======== ======== ========
Depreciation and amortization 19,579 20,263 22,920 3,553 3,507 5,002 23,132 23,770 27,922
Corporate depreciation
and amortization 839 907 635
-------- -------- --------
Total depreciation and
amortization 23,971 24,677 28,557
======== ======== ========
Capital expenditures 31,317 24,425 17,286 4,374 9,391 5,089 35,691 33,816 22,375
Corporate capital expenditures 422 1,510 418
-------- -------- -------
Total capital expenditures $ 36,113 $ 35,326 $ 22,793
======== ======== =======
<FN>
(1) Includes special charge of $4,446.
</FN>
Capital expenditures include property, plant and equipment additions as well as
rotable service parts and capitalized software. The Company's foreign operations
and export sales are less than 10% of total revenues. Sales to all government
agencies for the fiscal years ended January 31, 1995, 1994 and 1993 were
$129,832, $97,198, and $95,232 of which $28,100, $23,001, and $26,134,
respectively, were to U.S. government agencies, principally the U.S. Department
of Education, with the remainder to state and local government agencies,
predominantly school districts and state departments of education.
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
National Computer Systems, Inc.
We have audited the accompanying consolidated balance sheets of National
Computer Systems, Inc. and subsidiaries as of January 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended January 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National Computer Systems, Inc. and subsidiaries at January 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended January 31, 1995, in conformity with
generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Minneapolis, Minnesota
March 15, 1995
Dates Referenced Herein and Documents Incorporated by Reference
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