FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 1-3879
DynCorp
(Exact name of registrant as specified in its charter)
Delaware 36-2408747
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2000 Edmund Halley Drive, Reston, VA 22091-3436
(Address of principal executive offices) (Zip Code)
(703) 264-0330
(Registrant's telephone number, including area code)
(Former name, former address and former 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 practicable
date. 5,046,530 shares of common stock having a par value of
$0.10 per share were outstanding at March 31, 1994.
DYNCORP
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
March 31, 1994 and December 31, 1993
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 1994 and April 1, 1993
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1994 and April 1, 1993
Notes to Consolidated Condensed Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11 - Computations of Earnings Per Common Share
PART I. FINANCIAL INFORMATION
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1994 AND DECEMBER 31, 1993
(Dollars in Thousands)
UNAUDITED
ASSETS
March 31, December 31,
1994 1993
Current Assets:
Cash and short-term investments (including
restricted cash of $21,029 in 1994 and
$17,632 in 1993) $ 22,684 $ 22,806
Notes and current portion of long-term receivables 235 235
Accounts receivable and contracts in process (net of
allowance for doubtful accounts of $1,913 in 1994
and $1,469 in 1993) (Note 3) 189,180 177,470
Inventories of purchased products and supplies,
at lower of cost (first-in, first-out) or market 6,491 6,467
Prepaid income taxes 127 127
Other current assets 7,456 6,724
Total current assets 226,173 213,829
Long-Term Receivables 267 274
Property and Equipment (net of accumulated
depreciation and amortization of $45,663 in 1994
and $42,996 in 1993) 60,737 60,948
Intangible Assets (net of accumulated amortization
of $42,477 in 1994 and $43,336 in 1993) 94,009 93,890
Other Assets 13,427 13,515
$394,613 $382,456
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1994 AND DECEMBER 31, 1993
(Dollars in Thousands)
UNAUDITED
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
March 31, December 31,
1994 1993
Current Liabilities:
Notes payable and current portion of
long-term debt $ 22,980 $ 3,837
Accounts payable (Note 3) 32,403 25,376
Advances on contracts in process 1,205 2,178
Accrued liabilities 107,921 108,652
Total current liabilities 164,509 140,043
Long-Term Debt 202,805 216,425
Other Liabilities and Deferred Credits 16,948 17,622
Total liabilities 384,262 374,090
Commitments, Contingencies and Litigation (Note 6) - -
Redeemable Common Stock $17.50 per share redemption value,
125,714 shares issued and outstanding 2,200 2,200
Stockholders' Equity:
Capital stock, $0.10 par value:
Preferred stock, Class C (Note 2) 3,000 3,000
Common stock 533 502
Common stock warrants 15,119 15,119
Unissued common stock under restricted stock plan 10,634 10,395
Paid-in surplus 99,689 95,983
Deficit (107,014) (105,425)
Common stock held in treasury (5,917) (5,840)
Cummings Point Industries, Inc. note receivable (7,893) (7,568)
Total stockholders' equity 8,151 6,166
Total Liabilities, Redeemable Common Stock
and Stockholders' Equity $394,613 $382,456
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
UNAUDITED
Three Months Ended
March 31, April 1,
1994 1993
Revenues $259,537 $231,560
Costs and expenses:
Cost of services 248,722 224,835
Selling and corporate administrative 4,196 4,895
Interest income (539) (471)
Interest expense 6,735 6,476
Other 1,579 1,841
260,693 237,576
Loss before income taxes and minority interest (1,156) (6,016)
Provision for income taxes (Note 5) 184 52
Loss before minority interest (1,340) (6,068)
Minority Interest (a) 249 118
Net loss $ (1,589) $ (6,186)
Weighted average number of common shares outstanding
and dilutive common stock equivalents:
Primary and fully diluted 5,421,750 5,149,843
Loss per common share - primary and fully diluted:
Net loss for common stockholders $ (0.36) $ (1.26)
(a) 1993 restated to conform to 1994 presentation.
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
March 31, April 1,
1994 1993
Cash Flows from Operating Activities:
Net loss $(1,589) $(6,186)
Adjustments to reconcile net loss from operations
to net cash provided (used) by operating activities:
Depreciation and amortization 5,107 4,455
Pay-in-kind interest on Junior Subordinated
Debentures 3,685 3,159
Restricted Stock Plan 292 862
Noncash interest income (325) (272)
Other (672) (735)
Changes in current assets and liabilities,
net of acquisitions:
(Increase) decrease in current assets except
cash, short-term investments and
notes receivable (12,466) 814
Increase (decrease) in current liabilities
except notes payable and current portion
of long-term debt 5,323 (4,776)
Cash used by operating activities (645) (2,679)
Cash Flows from Investing Activities:
Sale of property and equipment 53 180
Proceeds received from notes receivable 7 35
Purchase of property and equipment, net of
capitalized leases 336 (1,125)
Assets and liabilities of acquired businesses
excluding cash acquired (Note 4) (1,535) (1,851)
Other (699) (1,302)
Cash used by investing activities (1,838) (4,063)
Cash Flows from Financing Activities:
Treasury stock purchased (330) (445)
Payment on indebtedness (1,218) (918)
Reduction in loan to Employee Stock Ownership Plan - 4,029
Sale of stock to Employee Stock Ownership Plan 3,750 -
Other note payable - 333
Treasury stock sold 159 45
Cash provided from financing activities 2,361 3,044
Net Decrease in Cash and Short-term Investments (122) (3,698)
Cash and Short-term Investments at Beginning of the Period 22,806 19,980
Cash and Short-term Investments at End of the Period $22,684 $16,282
Supplemental Cash Flow Information:
Cash paid for income taxes $ 76 $ 106
Cash paid for interest $ 2,759 $ 2,822
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. The unaudited consolidated condensed financial statements
included herein have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading.
It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form
10-K. In the opinion of the Company, the unaudited
consolidated condensed financial statements included herein
reflect all adjustments of a normal recurring nature necessary
to present fairly the financial position, the results of
operations and the cash flows for such interim periods. The
results of operations for such interim periods are not
necessarily indicative of the results for the full year.
2. At March 31, 1994, $5,718,000 of Class C Preferred Stock
cumulative dividends have not been accrued or paid.
3. At March 31, 1994, $21,029,000 of cash and short-term
investments and $103,999,000 of accounts receivable are
restricted as collateral for the Contract Receivable
Collateralized Notes, Series 1992-1 and $12,313,000 of bank
overdrafts has been included in accounts payable.
4. On December 10, 1993, the Company acquired certain assets of
NMI Systems, Inc. ("NMI") and at December 31, 1993 the
allocation period for recording this acquisition remained open,
pending resolution of certain contract issues. Interim
adjustments to the purchase price were recorded in the first
quarter of 1994.
5. The Company did not recognize any federal income tax benefits
on the losses incurred in the three months ended March 31, 1994
and April 1, 1993 because of the uncertainty regarding the
level of future taxable income. The federal tax provision
reflected in the first quarter 1994 is that of a majority owned
subsidiary which is required to file a separate federal return.
The 1993 tax provision relates to foreign taxes on foreign
source income.
6. The Company is involved in various claims and lawsuits,
including contract disputes and claims based on allegations of
negligence and other tortious conduct. The Company is also
potentially liable for certain environmental, personal injury,
tax and contract dispute issues related to the prior operations
of divested businesses. In most cases, the Company has denied,
or believes it has a basis to deny, liability, and in some
cases has offsetting claims against the plaintiffs or third
parties. Damages currently claimed by the various plaintiffs
for these items which may not be covered by insurance aggregate
approximately $34,000,000 (including compensatory and possible
punitive damages and penalties).
A former subsidiary, which discontinued its business activities
in 1986, has been named as one of many defendants in civil
lawsuits which have been filed in various state courts against
manufacturers, distributors and installers of asbestos
products. (The subsidiary had discontinued the use of asbestos
products prior to being acquired by the Company.) The Company
has also been named as a defendant in several of these actions.
At the beginning of 1992, 390 claims had been filed and during
the year 1,755 additional claims were filed with 73 claims
being settled. In 1993, 662 additional claims were filed and
1,204 were settled. In the first quarter of 1994, two new
claims were filed with 496 claims being settled. Defense has
been tendered to and accepted by the Company's insurance
carriers. The former subsidiary was a nonmanufacturer that
installed or distributed industrial insulation products.
Accordingly, the Company strongly believes that the subsidiary
has substantial defenses against alleged secondary and indirect
liability. The Company has provided a reserve for the
estimated uninsured legal costs to defend the suits and the
estimated cost of reaching reasonable no-fault liability
settlements of $18,000,000 for claims less estimated insurance
coverages of $11,000,000. The amount of the reserve has been
estimated based on the number of claims filed and settled to
date, number of claims outstanding, current estimates of future
filings, trends in costs and settlements, and the advice of the
insurance carriers and counsel.
The Company and a wholly-owned subsidiary acquired in 1991 are
the subjects of separate investigations by federal
investigators who are reviewing, respectively, the accuracy of
the Company's equipment maintenance records on a military
equipment maintenance contract, and the appropriateness of
pricing proposals submitted by the subsidiary to a government
agency prime contractor for software development services. The
Company and subsidiary are cooperating with the investigators.
The Company is a party to other civil lawsuits which have
arisen in the normal course of business for which potential
liability, including costs of defense, are covered by insurance
policies.
The Company has also been notified of certain proposed tax
adjustments by the IRS relative to the deduction taken by the
Company for expenses incurred in the 1988 merger.
The Company has recorded its best estimate of the liability
that will result from these matters. While it is not possible
to predict with certainty the outcome of the litigation and
other matters discussed above, it is the opinion of the
Company's management, based in part upon opinions of counsel,
insurance in force and the facts presently known, that
liabilities in excess of those recorded, if any, arising from
such matters would not have a material adverse effect on the
results of operations or consolidated financial position of the
Company.
A majority of the Company's business involves contracting with
departments and agencies of, and prime contractors to, the U.S.
government and as such are subject to possible termination for
the convenience of the government and to audit and possible
adjustment to give effect to unallowable costs under cost-type
contracts or to other regulatory requirements affecting both
cost-type and fixed-price contracts. In management's opinion,
there are no outstanding issues of this nature at March 31,
1994 that will have a material adverse effect on the Company's
consolidated financial position or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of financial condition and results of
operations should be read in conjunction with the 1993 Form 10-K.
Working capital at March 31, 1994 was $61.7 million compared to
$73.8 million at December 31, 1993, a decrease of $12.1 million.
Decreases were attributable to a $5.3 million increase in current
liabilities and the reclassification of the $18.8 million mortgage
on the corporate headquarters. The mortgage matures in March
1995; however, it is the Company's intent to either refinance the
obligation or consummate a sale/leaseback arrangement. Partially
offsetting these decreases was a $11.7 million increase in
accounts receivable. At March 31, 1994, $125.0 million of cash,
short-term investments and accounts receivable is restricted as
collateral for the Contract Receivable Collateralized Notes and
$12.3 million of bank overdrafts has been included in accounts
payable. The Company had $5 million available under a line of
credit at March 31, 1994 and is in the process of securing
additional lines of credit.
Operating activities produced a negative cash flow of $.6 million
for the first quarter of 1994 compared to a negative cash flow of
$2.7 million for the comparable period in 1993. Excluding the
effect of the changes in current assets and liabilities, operating
activities produced a positive cash flow of $6.5 million in 1994
compared to $1.3 million in 1993. This increase in operating cash
flow results primarily from a decrease in the net loss for the
first quarter of 1994 compared to the first quarter of 1993. The
1994 net change in current assets and liabilities resulted in a
use of cash of $7.1 million compared to a use of cash of $4.0
million in 1993.
Funds of $1.8 million were used for investing activities during
the first quarter of 1994. The principal uses were the payment of
$1.5 million of additional consideration related to a December
1993 acquisition and $.6 million of phase-in costs which were
deferred and will be amortized over the duration of the newly
awarded contracts. Partially offsetting this use of cash was an
excess of capital lease proceeds over capital expenditures in the
first quarter.
Financing activities provided funds of $2.4 million, principally
from the sale of stock to the Employee Stock Ownership Plan,
partially offset by payments on indebtedness and the purchase of
treasury stock.
At March 31, 1994, backlog (including option years on government
contracts) was $2.528 billion compared to $2.772 billion at
December 31, 1993.
The Company extended the ESOP in the first quarter by contributing
$3.8 million in cash which was used by the ESOP to purchase
316,189 common shares. In addition, the Company is continuing its
efforts with its investment bankers to replace its high interest
rate Junior Subordinated debentures through the issuance of new
senior notes or an initial public offering of stock, or both.
Results of Operations (Dollars in thousands)
Three Months Ended
March 31, April 1,
1994 1993 Change
Revenues:
Government Services (GS) $192,589 $188,035 2.4%
Commercial Services (CS) $ 66,948 $ 43,525 53.8%
Gross Margin $ 10,815 $ 6,725 60.8%
As a percent of revenues 4.2% 2.9%
Selling and Corporate
Administrative Expenses $ 4,196 $ 4,895 (14.3)%
As a percent of revenues 1.6% 2.6%
Interest Expense (net) $ 6,196 $ 6,005 3.2%
Other Expenses $ 1,579 $ 1,841 (14.2)%
Tax Provision $ 184 $ 52 253.8%
The increase in GS revenues attributable to businesses acquired in
the fourth quarter of 1993 ($10.8 million) and new contract awards
(approximately $14.9 million) was offset by the declines from
contracts lost in recompetition and reduced level of effort on
continuing contracts. CS revenues were significantly improved
primarily due to above normal workload at the Phoenix and Miami
maintenance facilities and an overall increase in airline activity
as compared to the first quarter of 1993. Revenues in the first
quarter of 1994 for the ground support and maintenance operations
were $33.4 million and $33.6 million, respectively, compared to
1993 revenues of $28.8 million and $14.8 million.
Gross margin as a percent of revenue was 4.2% in the first quarter
of 1994 compared to 2.9% for the comparable period in 1993. The
same factors which contributed to the growth in revenue also
favorably impacted gross margin. Government Services' gross
margin was additionally enhanced by the improved margin on a
Department of Energy contract which was being phased in during the
first quarter of 1993 and a full quarter's earnings related to an
acquisition consummated in February 1993. The increased workload
in the aircraft maintenance operations yielded a gross margin of
1.6% as compared to a negative margin of 3.2% for the same quarter
1993. However, the Company is continuing to pursue the possible
sale or spinoff of this unit.
Selling and corporate administrative expenses decreased in amount
and as a percentage of revenue in the first quarter of 1994 as
compared to 1993. The most significant reduction, $.4 million, is
the result of the elimination of the Commercial Services
Administrative Group. Other decreases are attributable to the
consolidation of certain accounting and administrative functions
within the Government Services Administrative Group and an
overall, ongoing effort to manage expense growth.
Interest income in the first quarter of 1994 was greater than the
comparable period of 1993 principally due to the compounding
interest at 17% on the Cummings Point Industries, Inc. note
receivable.
Interest expense for the first quarter of 1994 was $6.7 million,
up slightly from $6.5 million for the first quarter 1993.
Increases resulted from the compounding of interest on the 16%
pay-in-kind debentures as well as interest payments on real estate
mortgages assumed in conjunction with an acquisition in the fourth
quarter of 1993.
The decrease in other expenses in the first quarter of 1994 as
compared to 1993 is primarily due to the collection of a
receivable which had previously been written off.
The Company did not recognize any federal income tax benefits on
the losses incurred in the three months ended March 31, 1994 and
April 1, 1993 because of the uncertainty regarding the level of
future taxable income. The federal tax provision reflected in the
first quarter 1994 is that of a majority owned subsidiary which is
required to file a separate federal return. The 1993 tax
provision relates to taxes on foreign source income.
In summary, despite somewhat improved operating results, the
Company continues to be highly leveraged, and its ability to meet
future debt service and working capital requirements is dependent
on sustained increases in earnings, increased cash flow from
operations and reduction of its debt, either through refinancing,
an initial public offering or a combination of the two.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
This item is incorporated herein by reference to Note 6 to the
Consolidated Condensed Financial Statements included elsewhere in
this quarterly Report on Form 10-Q.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computations of Earnings Per Common Share
(b) Reports on Form 8-K
None filed during the quarter.
SIGNATURES
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.
DYNCORP
Date: May 16, 1994 T. E. Blanchard
T. E. Blanchard
Senior Vice President
and Chief Financial Officer
Date: May 16, 1994 G. A. Dunn
G. A. Dunn
Vice President and Controller
Exhibit 11
DYNCORP AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER COMMON SHARE
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended
March 31, April 1,
1994 1993
PRIMARY AND FULLY DILUTED
Earnings:
Net loss $ (1,589) $ (6,186)
Preferred stock Class C dividends
not accrued or paid 375 314
Net loss for common stockholder $ (1,964) $ (6,500)
Shares:
Weighted average common shares
outstanding 5,421,750 5,149,843
Net loss for common stockholders $ (0.36) $ (1.26)
