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 September 28, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3879
DynCorp
(Exact name of registrant as specified in its charter)
Delaware 36-2408747
(State or other jurisdiction of (I.R.S. Employer
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. 8,570,052 shares
of common stock having a par value of $0.10 per share were outstanding at
September 28, 1995.
DYNCORP
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
September 28, 1995 and December 31, 1994
Consolidated Condensed Statements of Operations -
Three and Nine Months Ended September 28, 1995
and September 29, 1994
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 28, 1995
and September 29, 1994
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
SEPTEMBER 28, 1995 AND DECEMBER 31, 1994
(Dollars in Thousands)
UNAUDITED
September 28, December 31,
1995 1994 (a)
Current Assets:
Cash and short-term investments (b) $ 18,543 $ 7,738
Notes and current portion of long-term
receivables 235 87
Accounts receivable and contracts in
process (Note 5) 176,654 172,731
Inventories of purchased products and supplies,
at lower of cost (first-in, first-out) or market 853 793
Other current assets (Note 5) 16,374 6,733
Net current assets of discontinued operations (Note 2) - 18,316
Total current assets 212,659 206,398
Long-Term Receivables 304 433
Property and Equipment (net of accumulated depreciation
and amortization of $27,717 in 1995 and $26,937 in
1994) (Note 6) 18,139 37,849
Intangible Assets (net of accumulated amortization
of $25,922 in 1995 and $37,290 in 1994) 50,145 51,837
Other Assets (Note 5) (b) 14,499 15,441
Net Noncurrent Assets of Discontinued Operations (Note 2) - 67,042
$295,746 $379,000
(a) Restated for discontinued operations. See Note 2.
(b) Restricted cash has been reclassified at December 31, 1994 to conform
with current period presentation. See Note 5.
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 28, 1995 AND DECEMBER 31, 1994
(Dollars in Thousands)
UNAUDITED
September 28, December 31,
1995 1994 (a)
Current Liabilities:
Notes payable and current portion of
long-term debt (Note 7) $ 6,438 $ 3,004
Accounts payable 27,524 18,878
Advances on contracts in process 2,859 3,863
Accrued liabilities 111,296 95,512
Total current liabilities 148,117 121,257
Long-Term Debt (Notes 6 and 7) 104,546 230,444
Other Liabilities and Deferred Credits 16,285 17,761
Total liabilities 268,948 369,462
Contingencies and Litigation (Note 12) - -
Redeemable Common Stock at Redemption Value;
125,714 shares at $18.20 and 238,289 shares at $14.90
issued and outstanding in 1995 and 125,714 shares
at $18.20 issued and outstanding in 1994 (Note 3) 5,838 2,288
Common Stock Held by ESOP, at Fair Value;
3,628,639 shares at $18.20 and 2,516,300 shares at
$14.90 issued and outstanding in 1995 and 3,691,003
shares at $18.20 and 1,312,459 shares at $14.60
issued and outstanding in 1994 (Note 1) 103,534 86,338
Preferred Stock Class C, 18% cumulative, convertible,
$24.25 liquidation value, 123,711 shares authorized,
issued and outstanding (Note 4) 3,000 3,000
Common Stock, par value ten cents per share, authorized
15,000,000 shares; issued 2,504,261 shares in 1995
and 2,765,393 shares in 1994 250 277
Common Stock Warrants 11,331 11,486
Unissued Common Stock under restricted stock plan 7,553 9,923
Paid-in Surplus 31,677 32,242
Deficit (117,904) (118,256)
Common Stock Held in Treasury, at cost; 728,488 shares
and 173,988 warrants in 1995 and 459,309 shares and
173,988 warrants in 1994 (13,231) (8,817)
Cummings Point Industries Note Receivable (Note 8) - (8,943)
Unearned ESOP shares (Note 9) (5,250) -
Total $295,746 $379,000
(a) Restated for discontinued operations. See Note 2.
See accompanying notes to consolidated condensed financial statements.
<TABLE>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
UNAUDITED
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1995 1994 (a) 1995 1994 (a)
<S> <C> <C> <C> <C>
Revenues $244,592 $205,764 $666,168 $596,926
Costs and expenses:
Cost of services 234,807 196,099 638,752 570,428
Selling and corporate administrative 5,674 4,055 14,982 12,613
Interest income (982) (648) (2,895) (1,750)
Interest expense 3,558 4,254 12,076 12,350
Other 415 1,682 1,412 3,708
243,472 205,442 664,327 597,349
Earnings (loss) from continuing operations
before income taxes, minority interest and
extraordinary item 1,120 322 1,841 (423)
Provision (benefit) for income taxes (Note 10) (2,797) 1,569 (2,252) 2,089
Earnings (loss) from continuing operations
before minority interest and extraordinary item 3,917 (1,247) 4,093 (2,512)
Minority Interest 286 226 943 787
Earnings (loss) from continuing operations
before extraordinary item 3,631 (1,473) 3,150 (3,299)
Loss from discontinued operations
net of income taxes (Note 2) (464) (2,772) (731) (3,466)
Gain on sale of discontinued operations,
net of income taxes (Note 2) 716 - 716 -
Earnings (loss) before extraordinary item 3,883 (4,245) 3,135 (6,765)
Extraordinary loss from early extinguishment
of debt, net of tax benefit of $1,914 and
$2,003 (Note 7) (2,656) - (2,783) -
Net Earnings (Loss) $ 1,227 $ (4,245) $ 352 $ (6,765)
Weighted average number of common shares
outstanding and dilutive common stock
equivalents (Note 11):
Primary and fully diluted 12,893,284 7,888,081 12,558,287 6,467,892
Earnings (loss) per common share - primary
and fully diluted:
Continuing operations for common
stockholders $ 0.24 $ (0.24) $ 0.14 $ (0.69)
Discontinued operations 0.02 (0.35) 0.00 (0.54)
Extraordinary item (0.20) - (0.22) -
Net earnings (loss) for common stockholders $ 0.06 $ (0.59) $ (0.08) $ (1.23)
(a) Restated for discontinued operations. See Note 2.
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
UNAUDITED
Nine Months Ended
<CAPTION>
Sept. 28, Sept. 29,
1995 1994(a)
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss) $ 352 $ (6,765)
Adjustments to reconcile net earnings (loss) from operations
to net cash provided (used) by operating activities:
Depreciation and amortization 9,028 9,435
Pay-in-kind interest on Junior Subordinated Debentures - 11,349
Restricted Stock Plan - 1,228
Loss, before tax, on repurchase of Junior Subordinated
Debentures (Note 7) 4,786 -
<Earnings> loss before tax from discontinued
operations (Note 2) (29,539) 4,678
Noncash interest income - (1,000)
Other (2,378) (1,515)
Changes in current assets and liabilities, net of acquisitions:
(Increase) decrease in current assets except cash,
short-term investments and notes receivable (13,623) 3,467
Increase (decrease) in current liabilities except notes
payable and current portion of long-term debt 21,065 (9,925)
Cash provided (used) by continuing operations (10,309) 10,952
Cash used by discontinued operations (3,042) (1,975)
Cash provided (used) by operating activities (13,351) 8,977
Cash Flows from Investing Activities:
Sale of property and equipment (Note 6) 16,513 1,125
Purchase of property and equipment (3,724) (3,043)
Assets and liabilities of acquired businesses
excluding cash acquired - (6,812)
Proceeds from notes receivable (Note 8) 9,900 85
Proceeds from sale of discontinued operations (Note 2) 134,500 -
Deposits for letters of credit (Note 5) (1,791) (91)
Investment activities of discontinued operations (Note 2) (15,434) (2,556)
Other (611) (814)
Net cash provided (used) by investing activities 139,353 (12,106)
Cash Flows from Financing Activities:
Treasury stock purchased (4,414) (2,780)
Payment on indebtedness (Note 6) (20,310) (3,227)
Redemption of Junior Subordinated Debentures (Note 7) (102,278) -
Stock released to Employee Stock Ownership Plan (Note 9) 12,750 12,650
Treasury stock sold - 159
Financing activities of discontinued operations (228) (441)
Other (717) (3)
Net cash provided (used) from financing activities (115,197) 6,358
Net Increase in Cash and Short-term Investments 10,805 3,229
Cash and Short-term Investments at Beginning of the Period 7,738 11,772
Cash and Short-term Investments at End of the Period $ 18,543 $15,001
Supplemental Cash Flow Information:
Cash paid for income taxes $ 1,530 $ 107
Cash paid for interest $ 18,840 $ 10,558
(a) Restated for discontinued operations. See Note 2.
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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 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.
In order to more clearly present the relationship between the ESOP
shareholders and the Management and Outside Investor shareholders, the
individual stockholder accounts have been presented separately. In
previously issued financial statements, the stockholders' accounts were
aggregated. The Common Stock Held by ESOP is presented at fair value to
reflect the obligation of the Company to purchase ESOP shares from retired
and terminated participants as long as the Company's common stock is not
publicly traded.
2. During the second quarter of 1995, the Company's Board of Directors
determined that it would be in the Company's best interest to discontinue
its Commercial Aviation Business operations. On June 30, 1995, the Company
sold all of its subsidiaries engaged in commercial aircraft
maintenance and modification to Sabreliner Corporation for $12,500,000 in
cash, subject to adjustment to the final closing date balance sheet and
subject to additional payments based on future business revenue of the sold
companies. On August 31, 1995 the Company sold all of its subsidiaries
engaged in commercial aviation ground handling services,
cargo handling, and refueling to ALPHA Airports Group Plc for $122,000,000
in cash, subject to adjustment to the final closing date balance sheet.
The net proceeds received from these sales were in excess of the book value
of the net assets of the business and were used primarily to retire
debt and satisfy existing equipment funding obligations of the ground
handling unit. As a result of these divestitures, the business has
been classified as discontinued operations for financial reporting
purposes.
The components of discontinued operations on the consolidated condensed
balance sheets and statements of operations are as follows (in thousands):
December 31,
1994
Notes and current portion of
long term receivables $ 306
Accounts receivable 35,788
Inventories of purchased products 5,561
Other current assets 1,059
Accounts payable (7,921)
Other current liabilities (16,477)
Net current assets of discontinued
operations $ 18,316
Property and equipment (net) $ 22,513
Goodwill 42,955
Other assets 1,863
Other liabilities (203)
Net noncurrent assets
of discontinued operations $ 67,128
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1995(a) 1994 1995(a) 1994
Revenues $ 26,825 $ 39,164 $130,708 $156,091
Costs of services 25,082 39,937 123,291 151,124
Interest expense and other 2,367 3,235 7,978 9,645
Gain on sale of subsidiaries (30,100) - (30,100) -
Income tax provision (benefit) 29,224 (1,236) 29,554 (1,212)
Net earnings (loss) from
discontinued operations $ 252 $ (2,772) $ (15) $ (3,466)
(a) The results of operations for 1995 are not comparable to 1994 due
to the interim divestiture of the maintenance and ground handling
operations.
3. In conjunction with the sale of the Commercial Aviation business, the
Company has committed to repurchase management and restricted stock
shares held by employees of the divested unit. At September 29, 1995,
134,848 shares had been repurchased and recorded as treasury stock and the
balance has been reflected as Redeemable Common Stock.
4. At September 28, 1995, $8,353,000 of Class C Preferred Stock cumulative
dividends have not been accrued or paid. These dividends are payable only
to the extent that dividends are paid on the Company's common stock and
they will not be paid in the event the Class C Preferred stock is converted
into common stock.
5. At September 28, 1995, $99,739,000 of accounts receivable are restricted as
collateral for the Contract Receivable Collateralized Notes, Series 1992-1
("Notes"). Restricted cash on deposit required to meet certain collateral
value ratios which totalled $9,376,000 has been classified as other current
assets on the balance sheet at September 28, 1995.
Additionally, $3,000,000 of cash is restricted as collateral for the Notes
and $4,728,000 of cash is restricted as collateral for letters of credit
required for certain contracts, most with terms of from three to five
years. This restricted cash has been included in Other Assets on the
balance sheet at September 28, 1995. To conform with the current period
presentation, restricted cash of $3,000,000 and $2,937,000 representing
collateral for the Notes and letters of credit, respectively, has been
reclassified to Other Assets at December 31, 1994.
Accounts receivable are net of an allowance for doubtful accounts of
$8,800 in 1995 and 1994.
6. On February 7, 1995, the Company sold its Corporate headquarters building
to RREEF America Reit Corp. C and entered into a 12-year lease with RREEF
as the landlord. The facility was sold for $13,780,000 and the proceeds
were applied to the mortgage on the building which was due to mature on
March 27, 1995. A net gain of $2,573,000 was realized on the transaction
and is being amortized over the life of the lease.
7. During the first nine months of 1995, the Company repurchased or called
$102,450,000 of its 16% Junior Subordinated debentures. On October 12,
1995, the Company issued a call for the remaining $3,693,000, and
accordingly, these debentures have been classified as current notes
payable at September 28, 1995. The write-off of the unamortized discount,
deferred debt expense and tax, net of the gain on repurchase, if any,
has been reported as an extraordinary item.
8. In February, 1992, the Company loaned $5,500,000 to Cummings Point
Industries, Inc., of which Capricorn Investors, L.P. ("Capricorn") owns
more than 10%. By separate agreement and as security to the Company,
Capricorn agreed to purchase the Note from the Company upon three months
notice, for the amount of outstanding principal plus accrued interest. As
additional security, Capricorn's purchase obligation was collateralized by
certain common stock and warrants issued by the Company and owned by
Capricorn. The note, which had been reflected as a reduction in
stockholders' equity, was paid in full on August 10, 1995.
9. In March, 1995, the Employee Stock Ownership Plan issued a promissory note
to the Company in the amount of $18,000,000 and the Company issued
1,208,059 shares of common stock to the ESOP. The unpaid balance of the
note has been reflected as a reduction in stockholders' equity. As
payments are made on the note, the shares will be allocated to the
participants' accounts. ESOP expense for continuing operations was
$4,136,000 and $11,607,000 for the quarter and first nine months of 1995,
respectively.
10. The provision for income taxes for the quarter and nine months of 1995
is based on an estimated annual effective tax rate excluding expenses
not deductible for income tax purposes and, in addition, includes the
tax provision of a majority owned subsidiary required to file a separate
return. Additionally, in the third quarter of 1995, a federal tax
benefit was recorded to reverse tax valuation reserves for deferred
taxes which may now be used to offset a portion of the tax on
the gain from the sale of the Commercial Aviation business. The 1994
tax provision reflects only that of the majority owned subsidiary referred
to previously.
The income tax provision or benefit for the items shown net of tax (i.e.
discontinued operations and extraordinary item), is calculated in
proportion to their individual effect on income tax expense or benefit
after the allocation of tax to continuing operations. The provision, net of
the deferred tax reserve adjustment noted above, is payable in March 1996,
and has been recorded as a current liability.
11. The weighted average number of common shares outstanding includes issued
shares or shares issuable under the Restricted Stock Plan less shares
held in treasury and unallocated ESOP shares held by the ESOP Trust
in 1995. Unexercised warrants of 4,131,339 and 4,151,925 for the three and
nine months ended September 28, 1995, respectively, are included as share
equivalents, using the treasury stock method.
12. 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, some of which may not be covered by insurance and which have not
been fully reserved for in the financial statements, aggregate
approximately $20,000,000 (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 1993, 2,115 claims had been filed and during the year 711
additional claims were filed with 1,275 claims being settled. In 1994,
1,135 additional claims were filed and 353 were settled. In the first nine
months of 1995, 3,100 new claims were filed with 169 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. 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 has retained certain liability in connection with its 1989
divestiture of its major electrical contracting business, Dynalectric
Company ("Dynalectric"). The Company and Dynalectric were sued in 1988 by
a former Dynalectric subcontractor. The subcontractor has alleged that its
subcontract to furnish certain software and services in connection with a
major municipal traffic signalization project was improperly terminated by
Dynalectric and that Dynalectric is liable to the former subcontractor, for
a variety of additional claims, the aggregate dollar amount of which have
not been formally recited in the subcontractor's complaint. Dynalectric
has also filed certain counterclaims against the former subcontractor. The
Company and Dynalectric believe that they have valid defenses, and/or that
any liability would be more than offset by recoveries under the
counterclaims. The Company has established reserves for the contemplated
defense costs and for the cost of obtaining enforcement of arbitration
provisions contained in the contract.
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 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, the
consolidated financial position or the liquidity 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 addition, the Company is
occasionally the subject of investigations by the Department of Justice and
other investigative organizations, resulting from employee and other
allegations regarding business practices. In management's opinion, there
are no outstanding issues of this nature at September 28, 1995 that will
have a material adverse effect on the Company's consolidated financial
position or results of operations.
13. The Company filed Forms S-1 and S-1/A (an amendment) with the SEC on May
12, and October 6, 1995, respectively, to register shares of common
stock, a majority of which had been previously issued. Of the
11,969,000 shares being registered, 2,450,000 are intended to be used
for employee benefit, bonus and stock purchase plans and 9,519,000 may
be traded by current shareholders and/or the Company in an Internal
Market which the Company intends to establish during 1995. The Company
is unable to predict when this registration statement will become
effective.
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 1994 10-K.
Working capital at September 28, 1995 was $64.5 million compared to $85.1
million at December 31, 1994, a decrease of $20.6 million. This decrease
resulted from increased federal income tax liability, a decrease in net assets
of discontinued operations and an offsetting increase in restricted and
unrestricted cash, all of which were attributable to the sale of the Commercial
Aviation business.
At September 28, 1995, $99.7 million of accounts receivable are restricted as
collateral for the Contract Receivable Collateralized Notes and additionally,
restricted cash on deposit required to meet certain collateral value
ratios, which totalled $9.4 million, has been classified as other current
assets. Additionally, $3.0 million of cash is restricted as collateral for the
Notes and $4.7 million of
cash is restricted as collateral for letters of credit required for certain
contracts, most with terms of from three to five years. This restricted cash
has been included in Other Assets on the balance sheet at September 28, 1995.
To conform with the current period presentation, restricted cash of $3.0
million and $2.9 million representing collateral for the Notes and letters of
credit, respectively, has been reclassified to Other Assets at December 31,
1994.
Cash used by continuing operations was $10.3 million for the first nine months
of 1995 compared to cash provided of $11.0 million for the comparable period in
1994. Numerous factors, both positive and negative, contributed to the change:
(i) a $11.8 million payment in cash of accrued interest on the 16% Subordinated
Debentures as opposed to payment in kind in 1994, (ii) a $6.4 million increase
in earnings from continuing operations (iii) an increase in restricted cash of
$11.2 million, and (iv) a $3.9 milion increase in accounts receivable. Current
liabilities increased due to the accrual of income tax liability resulting
from the gain on the sale of the Commercial Aviation business (see Note 10
to the consolidated financial statements dated September 28, 1995).
The proceeds from the sale of the Commercial Aviation business, the
sale/leaseback of the Corporate headquarters facility and the collection of the
Cummings Point Industries, Inc. note receivable all contributed to the $139.4
million in funds provided from investing activities.
The $115.2 million use of funds from financing activities substantially
consisted of the utilization of the proceeds referred to previously to redeem
$102.3 million of its 16% Junior Subordinated debentures and to extinguish the
mortgage on the Corporate headquarters.
At September 28, 1995, backlog (including option years on government contracts)
was $2.961 billion compared to $2.011 billion at December 31, 1994.
Results of Operations
Revenues - Revenues from continuing operations for the third quarter and first
nine months of 1995 were $244.6 million and $666.2 million, up $38.8 million
and $69.2 million over comparative periods in 1994. Increases in revenue
attributable to an acquisition completed in the fourth quarter of 1994 ($13.5
million and $46.2 million for the third quarter and nine months of 1995,
respectively) and new contract awards (approximately $57.4 million and $94.8
million for the third quarter and nine months of 1995, respectively) were
partially offset by declines from contracts lost in recompetition and reduced
levels of services on continuing contracts.
Cost of Services for the third quarter of 1995 was 96.0% of revenue compared to
95.3% for the same period in 1994, and for the first nine months of 1995, cost
of sales was 95.9% compared to 95.6% in 1994. This resulted in gross margins
of $9.8 million (4.0%) for the third quarter of 1995 compared to $9.7 million
(4.7%) for the third quarter of 1994 and $27.4 million (4.1%) and $26.5 million
(4.4%) for the first nine months of 1995 and 1994, respectively. Increases
in gross margin attributable to an acquisition completed in the fourth
quarter of 1994 were offset by decreases from contracts lost in recompetition
and lower margins on new contracts.
Selling, Corporate & Administrative expense was 2.3% of revenue for the third
quarter as compared to 2.0% for the comparable quarter in 1994. For the first
nine months, selling, corporate and administrative expense was 2.2% of revenue
compared to 2.1% for the comparable period in 1994. The increases are
attributable to increased facility costs resulting from the sale/leaseback of
the corporate headquarters building and increased marketing and bid and
proposal costs.
Interest income for both the quarter and first nine months was greater than
during comparable periods in 1994 primarily due to higher cash and short term
investment balances which yielded greater interest income.
Interest expense for both the quarter and first nine months of 1995 was less
than comparable periods in 1994 due to the sale and leaseback of the Company's
headquarters and subsequent payoff of the mortgage and also to the declining
balance of the Company's 16% Junior Subordinated Debentures.
Other consists of the following items (in thousands):
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1995 1994 1995 1994
Amortization of costs in excess
of net assets acquired $ 456 $ 480 $1,368 $1,397
Amortization of deferred ESOP costs - 126 - 513
ESOP repurchase premium - 316 - 936
Equity in net loss of affiliate - 334 - 334
Miscellaneous (41) 426 44 528
$ 415 $1,682 $1,412 $3,708
Income taxes - The provision for income taxes for the quarter and nine months
of 1995 is based on an estimated annual effective tax rate excluding expenses
not deductible for income tax purposes and, in addition, includes the tax
provision of a majority owned subsidiary required to file a separate return.
Additionally, in the third quarter of 1995, a federal tax benefit was recorded
to reverse tax valuation reserves for deferred taxes which may now be used
to offset a portion of the gain on the sale of the Commercial Aviation
business. The 1994 tax provision reflects only that of the majority owned
subsidiary referred to previously.
The operating income of the discontinued businesses was substantially offset by
the allocation of goodwill amortization and interest expense that is expected
to be eliminated as a result of the divestitures.
The proceeds from the sale of the Commercial Aviation business were
substantially offset by the net assets sold, the write-off of the applicable
goodwill and deferred organizational costs of the unit, payment of lease
funding obligations and applicable income taxes.
Despite the significant progress made towards reducing its debt, the Company
remains highly leveraged in respect to its earnings, cash flow and equity.
Although $122.6 million of debt has been extinguished utilizing the proceeds
from the sale of the Commercial Aviation business, the sale/leaseback of the
corporate headquarters facility, the collection of the Cummings Point
Industries, Inc. note receivable and other sources, $111.0 million of debt
remains outstanding; $100.0 million of this debt, the Dyn Funding Contract
Receivable Collateralized Notes Receivable becomes payable beginning in
February, 1997. At September 28, 1995 the Company had an additional
accounts receivable financing facility of $20.0 million, none of which
was being utilized. This facility will expire in June 1996. Additionally, the
Company's income tax liability for 1995, including the provision recorded as
a result of the sale of the Commercial Aviation business (see Note 10 to the
consolidated financial statements dated September 28, 1995) is payable in
March 1996 and is estimated at approximately $25.0 million. The Company's
ability to meet future debt service and working capital requirements is
dependent upon increased earnings and cash flow from operations and the
refinancing of the remaining debt.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
This item is incorporated herein by reference to Note 12 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 3 - Certificate of Incorporation as currently in effect, consisting
of Restated Certification of Incorporation
Exhibit 11 - Computations of Earnings Per Common Share
(b) Reports on Form 8-K
On September 11, 1995, the Company filed a report on Form 8-K reporting
Item 2, "Acquisition or Disposition of Assets," relating to the sale of
the stock of all of its subsidiaries engaged in the business of providing
aviation ground handling services.
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: November 13, 1995 T. E. Blanchard
T. E. Blanchard
Senior Vice President
and Chief Financial Officer
Date: November 13, 1995 G. A. Dunn
G. A. Dunn
Vice President and Controller
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
DYNCORP
FIRST: The name of the corporation is DynCorp.
SECOND: Its registered office in the State of Delaware is located at 1209 Orange
Street, in the City of Wilmington, County of New Castle. The name and address of
its registered agent are The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
THIRD: The nature of the business, or objects or purposes to be transacted,
promoted or carried on are to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware (the "DGCL").
FOURTH: The total number of shares of capital stock which the corporation shall
have authority to issue is 20,123,711 shares, consisting of two classes of
capital stock:
(i) 123,711 shares of Class C Convertible Preferred Stock, par
value $0.10 per share (the "Class C Preferred Stock"); and
(ii) 20,000,000 shares of Common Stock, par value $0.10 per
share (the "Common Stock").
The designations, preferences, powers, qualifications, special or
relative rights or privileges of the Class C Preferred Stock and Common Stock
shall be as follows:
A. Class C Preferred Stock
1. Rank. The shares of Class C Preferred Stock shall, upon the
liquidation, dissolution or winding up of the affairs of the corporation, rank
(i) senior and prior to the Common Stock and to any other class or series of
capital stock of the corporation hereafter issued unless the terms of such class
or series of capital stock of the corporation specifi cally provide that shares
of such class or series shall rank prior to or on a parity with the shares of
Class C Preferred Stock (shares of Common Stock and any other class or series of
capital stock of the corporation the terms of which do not specifically provide
that shares of such class or series shall rank prior to or on a parity with the
shares of Class C Preferred Stock are collectively referred to in this Section A
of Article FOURTH as the "Junior Securities"); (ii) on a parity with any other
class or series of capital stock of the corporation hereafter issued for fair
value as determined by the Board of Directors the terms of which specifically
provide that shares of such class or series shall rank on a parity with the
shares of Class C Preferred Stock (shares of such class or series are
collectively referred to in this Section A of Article FOURTH as the "Parity
Securities"); and (iii) junior to any class or series of capital stock of the
corporation hereafter issued with the consent of the holders of a majority of
the outstanding shares of Class C Preferred Stock pursuant to subparagraph (c)
of paragraph 5 hereof the terms of which specifically
provide that shares of such class or series shall rank senior to shares of Class
C Preferred Stock (shares of any class or series of capital stock of the
corporation hereafter issued the terms of which provide that shares of such
class or series shall rank prior to shares of Class C Preferred Stock are
collectively referred to in this Section A of Article FOURTH as the "Senior
Securities").
2. Dividends.
(a) From and after the date of issuance, the holders of
outstanding shares of Class C Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, to the extent permitted
under the DGCL, cumulative cash dividends in the amount of $4.365 per annum per
share of Class C Preferred Stock. Dividends on outstanding shares of Class C
Preferred Stock shall be fully cumulative and shall accrue, whether or not
declared, from the respective dates of issuance of such shares of Class C
Preferred Stock until paid. Accumulated unpaid dividends shall compound
quarterly from each March 31, June 30, September 30 and December 31 at the rate
of 18% per annum. For purposes of this paragraph 2(a), shares of Class C
Preferred Stock issued by the corporation upon the consummation of the merger of
DME Holdings, Inc. into DynCorp shall be deemed to have been issued on March 11,
1988. Dividends shall be computed on the basis of a 365-day year and the actual
number of days elapsed.
(b) Accumulated and unpaid dividends shall be declared by
the Board of Directors and paid to the holders of record of outstanding shares
of Class C Preferred Stock on each dividend payment date selected by the Board
of Directors of the corporation (each such date is referred to herein as a
"Common Dividend Payment Date") for payment of cash dividends on any outstanding
shares of Common Stock. On each Common Dividend Payment Date, each holder of
outstanding shares of Class C Preferred Stock shall be entitled to receive
dividends on its shares of Class C Preferred Stock in an aggregate amount equal
to the aggregate amount of dividends that such holder would have been entitled
to receive if all of such holder's shares of Class C Preferred Stock had been
converted to Common Stock pursuant to paragraph 4 of this Section A of Article
FOURTH immediately prior to the payment of such dividend, provided that the
aggregate amount of such dividends shall not in any event exceed the aggregate
amount of accrued and unpaid dividends computed in accordance with paragraph
2(a) of this Section A of Article Fourth. Such dividends shall be payable to the
holders of record of outstanding shares of Class C Preferred Stock as their
names shall appear on the stock register of the corporation on such record date,
not more than sixty or less than ten days preceding each such Dividend Payment
Date, as shall be fixed by the Board of Directors in advance of payment of each
such dividend. All dividends shall be paid pro rata to the holders of
outstanding shares of Class C Preferred Stock entitled thereto.
Dividends shall not be declared or paid with respect to Class C Preferred Stock
except in connection with the payment of dividends on Common Stock as provided
in this paragraph 2(b).
(c) Dividends shall not be paid on the outstanding shares of
Class C Preferred Stock for any period in which dividends for the current or any
prior period or mandatory redemption payments due in the current or any prior
period have not been paid in full on any outstanding Senior Securities.
(d) Subject to the foregoing provisions of this paragraph 2,
the Board of Directors may declare and the corporation may pay or set apart
for payment dividends and other distributions on any Parity Securities or
Junior Securities and may purchase or otherwise acquire any Parity Securities or
Junior Securities or any convertible securities, warrants, rights, calls or
options exercisable for or convertible into any Parity Securities or Junior
Securities and the holders of outstanding shares of Class C Preferred Stock
shall not be entitled to share therein.
3. Liquidation.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the corporation, before
any distribution or payment shall be made to the holders of any outstanding
Junior Securities, subject to the rights of creditors, the holders of
outstanding shares of Class C Preferred Stock shall be entitled to be paid out
of the assets of the corporation available for distribution to stockholders, an
amount in cash equal to $24.25 per share, together with an amount in cash equal
to all accrued but unpaid dividends on such shares to the date fixed for the
liquidation, dissolution or winding up of the affairs of the corporation;
provided, however, that the holders of outstanding shares of Class C Preferred
Stock shall not be entitled to receive such preferential liquidation payments
until the preferential liquidation payments on all outstanding Senior Securities
have been paid in full. Except as provided in the first sentence of this
paragraph, the holders of outstanding shares of Class C Preferred Stock shall
not be entitled to any distribution in the event of the liquidation, dissolution
or winding up of the affairs of the corporation. If, upon any such liqui dation,
dissolution or winding up of the affairs of the corporation, the assets of the
corporation available for distribution to the holders of outstanding shares of
Class C Preferred Stock and outstanding Parity Securities shall be insufficient
to permit the payment in full to such holders and to the holders of any Parity
Securities of the full amount of the preferential liquidation amounts to which
they are then entitled, the entire assets of the corporation thus distributable
shall be distributed among the holders of outstanding shares of Class C
Preferred Stock and Parity Securities ratably in proportion to the full amount
to which such holders would otherwise be entitled if such assets were sufficient
to permit payment in full. After the payment of all preferential liquidation
amounts to which the holders of outstanding shares of Class C Preferred Stock
shall be entitled, such holders shall not be entitled to any further
participation in any distribution of the assets of the corporation to its
stockholders.
(b) For purposes of this paragraph 3, neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the corporation nor the consolidation or merger of the corporation with or into
any other corporation shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the corporation, unless
such voluntary sale, conveyance, exchange or transfer shall be in connection
with a plan of liquidation, dissolution or winding up of the affairs of the
corporation.
4. Conversion.
(a) From and after the date of issuance, each share of
Class C Preferred Stock shall be convertible, at the option of the holder
thereof, into one fully paid and nonassessable share of Common Stock, subject to
adjustment as hereinafter set forth in subparagraph (d) of this paragraph 4 and,
to the extent provided in subparagraph (e) of this paragraph 4, into a warrant
or option to purchase shares of Common Stock.
(b) To exercise such conversion option, the holder of shares
of Class C Preferred Stock shall surrender the certificate or certificates
representing the shares of Class C Preferred Stock to be converted, duly
endorsed for transfer to the corporation, at the principal executive office of
the corporation and shall give written notice, postage prepaid, by certified or
registered mail, return receipt requested, or by hand delivery, to the
corporation at its principal executive office, of the election of such holder to
convert all or a portion of the shares of Class C Preferred Stock represented by
the certificate or certificates surrendered into shares of Common Stock which
notice shall set forth the name or names in which the certificate or
certificates representing the shares of Common Stock to be issued upon
conversion are to be issued. Conversion shall be deemed to have been effected on
the date of receipt by the corporation of such notice and the certificate or
certificates to be surrendered for conversion (the "Conversion Date"). As
promptly as practicable thereafter, the corporation shall issue to or upon the
written order of such holder, (i) a certificate or certificates for the number
of full shares of Common Stock to which such holder is entitled and (ii) a
certificate or certificates or other appropriate instrument representing the
number of warrants and or options, if any, to which such holder is entitled. The
conversion of shares of Class C Preferred Stock into shares of Common Stock
shall be deemed to be effective and such holder, or the person or persons
designated by such holder, shall be deemed to have become a holder of record of
the shares of Common Stock issuable upon conversion of such shares of Class C
Preferred Stock at the beginning of business on the applicable Conversion Date
unless the transfer books of the corporation are closed on such date, in which
event such holder shall be deemed to have become a holder of record of the
shares of Common Stock issued upon conversion of the shares of Class C Preferred
Stock on the next succeeding date on which the transfer books of the corporation
are open. Upon conversion of only a portion of the number of shares of Class C
Preferred Stock represented by a certificate or certificates surrendered for
conversion, the corporation shall issue and deliver to or upon the written order
of the holder of the certificate or certificates so surrendered a new
certificate or certificates representing the number of shares of Class C
Preferred Stock not so converted.
(c) No fractional shares of Common Stock shall be issued
upon conversion of shares of Class C Preferred Stock. In lieu of issuing
fractional shares of Common Stock upon conversion of shares of Class C Preferred
Stock, the corporation shall pay a cash adjustment in respect of such fractional
shares of Common Stock equal to the fair market value thereof, as determined in
good faith by the Board of Directors of the corporation. The corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
outstanding shares of Class C Preferred Stock, the full number of shares of
Common Stock deliverable upon the conversion of all shares of Class C Preferred
Stock from time to time outstanding.
(d) The number of shares of Common Stock into which a share
of Class C Preferred Stock shall be convertible as set forth in subparagraph (a)
of this paragraph 4, shall be subject to adjustment from time to time as
follows:
(i) In case the corporation shall at any time
subdivide its outstanding shares of Common Stock or shall issue a dividend or
other distribution payable in shares of Common Stock, then effective
immediately after the effective date of such subdivision or from and after the
record date fixed by the Board of Directors of the corporation for such dividend
or other distribution, as the case may be, the number of shares of Common Stock
issuable upon conversion of a share of Class C Preferred Stock shall be adjusted
to equal the sum of (A) that number of shares of Common Stock issuable upon
conversion of a share of Class C Preferred Stock immediately prior to such date
and (B) that number of shares of Common Stock as would have been issuable on
such shares as a result of such subdivision, dividend or distribution, as the
case may be, had such conversion occurred immediately prior to such subdivision,
dividend or distribution;
(ii) In case the corporation shall at any time combine
its outstanding shares of Common Stock, then effective immediately after the
effective date of such combination the number of shares of Common Stock issuable
upon conversion of a share of Class C Preferred Stock shall be adjusted to equal
the number obtained by multiplying the number of shares of Common Stock issuable
upon conversion of a share of Class C Preferred Stock immediately prior to such
date by the Combination Ratio (as hereinafter defined). The Combination Ratio
shall equal a fraction, the numerator of which shall be the number of shares of
Common Stock issuable on such shares as a result of such combination, had such
conversion occurred immediately prior to such combination and the denominator of
which shall be the number of shares of Common Stock issuable upon conversion of
a share of Class C Preferred Stock immediately prior to such combination.
(iii) In case the corporation shall at any time
recapitalize or reclassify its capital stock, or in case of any consolidation or
merger of the corporation with or into any other person (other than a
consolidation or merger in which the corporation is the continuing entity and
which does not result in any change in the capital stock of the corporation) or
in case of the sale or other disposition of all or substantially all the assets
of the corporation as an entirety to any other person, then in each such case
each outstanding share of Class C Preferred Stock shall after such
recapitalization, reclassification, consolidation, merger, sale or other
disposition be convertible into the kind and number of shares of capital stock
or other securities or assets of the corporation or of the entity resulting from
such consolidation or surviving such merger or to which such assets shall have
been sold or otherwise disposed of to which the holder thereof would have been
entitled if immediately prior to such recapitalization, reclassification,
consolidation, merger, sale or other disposition such holder had converted its
shares of Class C Preferred Stock. The provisions set forth above shall apply to
successive recapitalizations, reclassifications, consoli dations, mergers, sales
or other dispositions.
(e) In the case the corporation shall, at any time, make a
distribution to the holders of Common Stock of warrants or options to purchase
shares of Common Stock, then, effective from and after the record date fixed by
the Board of Directors of the corporation for such distribution, upon the
conversion of a share of Class C Preferred Stock, the holder of such share shall
be entitled to receive, in addition to any shares of Common Stock issuable upon
such conversion, warrant(s) or option(s) (the "Conversion Warrants") to purchase
that number of shares of Common Stock as would have been purchasable pursuant to
the warrant(s) or option(s) that such holder would have been entitled to receive
had the conversion occurred immediately prior to such distribution; provided,
however, the number of shares issuable upon exercise of such Conversion Warrants
shall be adjusted upon issuance of such Conversion Warrants in
accordance with the terms thereof to reflect all such adjustments as would have
been made if such Conversion Warrants had been issued on the date of original
distribution of warrants or options to the holders of Common Stock. Any such
Conversion Warrants shall have terms identical to the terms of the applicable
warrants or options previously issued to the holders of Common Stock (the
"Underlying Warrants"), provided that such Conversion Warrants shall be
exercisable, commencing on the date of their issuance pursuant to this paragraph
4, for a number of years equal to the total number of years during which the
Underlying Warrants are or were exercisable; and provided further that the
exercise price per share of Common Stock issuable upon exercise of the
Conversion Warrants shall, so long as any Underlying Warrants remain outstanding
and in effect, be equal to the exercise price per Common Share under such
Underlying Warrants, and thereafter shall be adjusted in accordance with the
terms of the Conversion Warrants.
(f) Upon the occurrence of any event described in
subparagraph (d) or (e) of this paragraph 4, the corporation shall promptly
furnish to each holder of Class C Preferred Stock a certificate of an officer of
the corporation setting forth the number of shares of Common Stock and/or
Conversion Warrants issuable upon conversion of such holder's Class C Preferred
Stock after all adjustments required by such subparagraph (d) or (e) and a brief
statement of the facts accounting for such adjustment.
(g) All shares of Common Stock issued upon conversion of
shares of Class C Preferred Stock shall, upon issuance, be duly and validly
issued, fully paid and nonassessable and free from all liens and charges. All
accrued and unpaid dividends on outstanding shares of Class C Preferred Stock
surrendered for conversion shall be forfeited.
5. Voting Rights.
(a) So long as any shares of Class C Preferred Stock are
outstanding, the holders of shares of Class C Preferred Stock shall be entitled
(voting, except with respect to those matters enumerated below in subparagraph
(d) of this paragraph 5, together with the holders of outstanding shares of
Common Stock of the corporation as a class) to vote on or otherwise consent to
any matter requiring the voter consent of the stockholders of the corporation
under the laws of the State of Delaware.
(b) Each holder of outstanding shares of Class C Preferred
Stock shall be entitled to one vote for each share of Class C Preferred Stock
held of record by such holder on the record date fixed by the Board of Directors
of the corporation for determining the stockholders of the corporation entitled
to vote or otherwise consent to any matter.
(c) So long as any shares of Class C Preferred Stock are
outstanding, the corporation will not, without the affirmative consent or vote
at an annual or special meeting of stockholders of the holders of at least a
majority of the outstanding shares of Class C Preferred Stock (excluding
treasury shares and shares held by subsidiaries of the corporation), voting as a
class, create any class or series of capital stock ranking prior to the Class C
Preferred Stockas to dividends, mandatory redemption payments or upon the
liquidation, dissolution or winding up of the affairs of the corporation, or
amend, alter or repeal the corporation's Certificate of Incorporation to affect
adversely the powers, rights or preferences of the shares of Class C Preferred
Stock.
(d) So long as any shares of Class C Preferred Stock are
outstanding, the affirmative consent or vote at an annual or special meeting of
stockholders (or, in lieu of such a meeting, the written consent) of the holders
of at least a majority of the outstanding shares of Class C Preferred Stock
(excluding treasury shares), voting as a class, shall be required for the
corporation to, or to permit any of its subsidiaries to:
(i) directly or indirectly, create, incur, assume,
guarantee or otherwise become liable with respect to indebtedness for borrowed
money in an aggregate amount outstanding at any time in excess of $15,000,000
other than (A) indebtedness evidenced by 16% Pay-in-Kind Junior Subordinated
Debentures Due 2003, including in-kind dividends thereon; (B) unsecured
indebtedness between the corporation and its subsidiaries incurred in the
ordinary course of the corporation's cash management system; (C) indebtedness
not to exceed the principal amount of $150,000,000 issued by a wholly owned
financing subsidiary of the corporation and secured by accounts receivable; and
(D) indebtedness of the corporation incurred as a result of promissory notes
issued as payment for shares of stock repurchased or redeemed upon the exercise
of put options by beneficiaries of the corporation's Employee Stock Ownership
Plan;
(ii) directly or indirectly, create, incur, assume,
guarantee or otherwise become or remain liable with respect to (A) any agreement
for the lease, hire or use of any real or personal property required to be
characterized as a capital lease in accordance with general ly accepted
accounting principles in an amount in excess of $2,000,000 or (B) any agreement
for the lease, hire or use of any real or personal property required to be
characterized as an operating lease in accordance with generally accepted
accounting principles in an amount payable during the term of such lease in
excess of $2,000,000;
(iii) issue shares of capital stock (common or
preferred), capital stock equivalents, securities convertible into capital
stock, or options, warrants, or other rights to acquire capital stock; provided,
however, that the corporation may (A) issue shares of Common Stock pursuant to
the terms of warrants outstanding as of May 15, 1995; (B) issue shares of Common
Stock upon the conversion of Class C Preferred Stock pursuant to subparagraph
(a) of paragraph 4 of Section A of this Article FOURTH; (C) issue shares of
Common Stock pursuant to the terms of warrants issued pursuant subparagraph (e)
of paragraph 4 of Section A of this Article FOURTH; (D) issue up to 850,000
shares of Common Stock as matching shares pursuant to the corporation's Savings
and Retirement Plan; (E) issue up to 100,000 shares of Common Stock as the
discount portion of the purchase price of shares purchased pursuant to the
corporation's Employee Stock Purchase Plan; (F) issue up to 1,200,000 shares of
Common Stock pursuant to the corporation's 1995 Stock Option Plan; and (G) issue
up to 300,000 shares of Common Stock in lieu of cash bonuses pursuant to the
corporation's Executive Incentive Plan;
(iv) declare, make or pay any dividends on any shares
of capital stock, by any means whatsoever, or purchase, redeem, or otherwise
acquire, any shares of its capital stock, or set aside any funds for any such
purpose; provided, however, that the corporation may (A) pay dividends on the
Class C Preferred Stock in accordance with the applicable provisions of this
Article FOURTH, (B) pay liabilities related to the surrender of certificates for
capital stock previously redeemed or canceled, (C) repurchase, as and to the
extent required by law or contractual obligation, shares of Common Stock
distributed by the
corporation's Employee Stock Ownership Plan to participants in such plan, (D)
repurchase shares of Common Stock held by employees of the corporation (other
than shares distributed to employees by the corporation's Employee Stock
Ownership Plan), provided that the aggregate cost of such repurchases pursuant
to this clause D shall not exceed $250,000 in any fiscal year of the
corporation, and (E) convert shares of Class C Preferred Stock into shares of
Common Stock and warrants or options in accordance with the applicable
provisions of this Article FOURTH;
(v) employ or terminate the employment of the chief
executive officer or the chief operating officer of the corporation or any
executive officer reporting directly to either of them, or materially alter the
terms of any employment agreement or other arrangement with the corporation of
such officer or officers;
(vi) directly or indirectly, lend any amount to, incur
any indebtedness to, or enter into any contracts material to its business or
operations with, any of its officers or directors, any of its sharehold ers, any
member of the immediate families of such officers, directors or shareholders, or
any firm or corporation in which such persons have an ownership interest;
provided that the corporation may make advances and loans to officers in the
ordinary course of business in an aggregate amount outstanding at any time not
to exceed $1,500,000 and may incur indebtedness to officers in the ordinary
course of business in form of deferred compensation and accrued vacation
compensation;
(vii) sell, lease, license, transfer or cause or permit
the sale, lease, license or transfer of the assets of the corporation or its
subsidiaries (other than inventory in the ordinary course of business or
uneconomic or obsolete equipment in the ordinary course of business) if the
aggregate book value of such assets, when added to all other assets sold,
leased, licensed or transferred (excluding sales described in the parenthetical
clause above) within the four consecutive preceding fiscal quarters exceeds
$2,000,000;
(viii) acquire, whether by purchase, lease, license,
merger, joint venture or otherwise, any assets (other than inventory, materials
and equipment in the ordinary course of business) if the cost thereof, when
added to the cost of all other assets acquired during the four consecutive
preceding fiscal quarters, exceeds $2,000,000; or
(ix) alter or repeal those provisions of the By-Laws of
the corporation which pertain generally to the election and duties of the
directors of the corporation or which affect the rights and powers of the
shareholders of the corporation.
B. Common Stock
1. Rank. The Common Stock shall, with respect to the payment
of dividends and upon the liquidation, dissolution or winding up of the affairs
of the corporation, rank (i) senior and prior to any class or series of capital
stock of the corporation hereafter issued the terms of which specifically
provide that shares of such class or series shall rank junior to the shares of
Common Stock (shares of such class or series are collectively referred to in
this Section B of Article FOURTH as the "Junior Securities"); (ii) on a parity
with and any other class or series of capital stock of the corporation hereafter
issued the terms of which specifically provide that shares of such class or
series shall rank on a parity with the shares of Common Stock (shares of such
class or series are
collectively referred to in this Section B of Article FOURTH as the "Parity
Securities"); and (iii) junior to the shares of Class C Preferred Stock and to
any other class or series of capital stock of the corporation hereafter issued
unless the terms of such class or series of capital stock of the corporation
specifically provide that shares of such series or class shall rank junior to or
on a parity with shares of Common Stock (shares of Class C Preferred Stock and
any other class or series of capital stock of the corporation hereafter issued
the terms of which do not specifically provide that shares of such class or
series shall rank junior to or on a parity with the shares of Common Stock are
collectively referred in this Section B of Article FOURTH as the "Senior
Securities").
2. Dividends.
(a) From and after the date of issuance, the holders of
outstanding shares of Common Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, to the extent permitted under the DGCL, cash
dividends on each dividend payment date selected by the Board of Directors of
the corporation (each such date is referred to herein as a "Dividend Payment
Date"), in such amounts as the Board of Directors shall from time to time
determine; provided, however, that no dividends on outstanding shares of Common
Stock shall be declared or paid unless, concurrently with such declaration or
payment, dividends in an equal amount per share are also declared or paid, as
the case may be, on any outstanding Parity Securities. Such dividends shall be
payable to the holders of record of outstanding shares of Common Stock as their
names shall appear on the stock register of the corporation on such record date,
not more than sixty or less than ten days preceding each such Dividend Payment
Date, as shall be fixed by the Board of Directors in advance of payment of each
such dividend. All dividends shall be paid pro rata to the holders of outstand
ing shares of Common Stock entitled thereto.
(b) Dividends shall not be paid on the outstanding shares of
Common Stock for any period in which dividends for the current or any prior
period or mandatory redemption payments due in the current or any prior period
have not been paid in full on any outstanding Senior Securities, or, with
respect to the Class C Preferred Stock, unless dividends thereon are paid
concurrently with such payment in accordance with paragraph 2(a) of Section A of
this Article FOURTH.
3. Liquidation.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the corporation, after the payment
of all preferential liquidation payments on outstanding Senior Securities,
subject to rights of creditors, the holders of outstanding shares of Common
Stock, the holders of any warrants exercisable for shares of Common Stock (to
the extent the terms of such warrants entitle the holders thereof to receive any
assets of the corporation available for distribution) and any other Parity
Securities shall be entitled to receive the entire assets of the corporation
available for distribution to such holders. Each such holder of outstanding
shares of Common Stock shall be entitled to receive that portion of the assets
of the corporation available for distribution which the number of shares of
Common Stock held by such holder bears to the total number of shares of Common
Stock and shares of any Parity Securities outstanding on the effective date of
such voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the corporation.
4. Voting Rights. The holders of shares of Common Stock shall
be entitled to vote on or otherwise consent to any matter requiring the vote or
consent of the stockholders of the corporation under the laws of the State of
Delaware. Each holder of outstanding shares of Common Stock shall be entitled to
one vote for each share of Common Stock held of record by such holder on the
record date fixed by the Board of Directors of the corporation for determining
the stockholders of the corporation entitled to vote or otherwise consent to
such matter.
FIFTH: The corporation is to have perpetual existence.
SIXTH: The private property of the stockholders shall not be
subject to the payment of corporate debts to any extent whatever.
SEVENTH: In furtherance, and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the By-Laws of the corporation;
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the corporation; and
To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper purpose or to
abolish any such reserve in the manner in which it was created.
By resolution or resolutions passed by a majority of the whole
Board of Directors to designate one or more committees, each committee to
consist of two or more of the directors of the corporation, which to the extent
provided in said resolution or resolutions or in the By-Laws of the corporation,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the corporation, and may have power to
authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
stated in the By-Laws of the corporation or as may be determined from time to
time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the holders
of a majority of the capital stock issued and outstanding having voting power
given at a stockholders meeting duly called for that purpose, or when authorized
by the written consent of the holders of a majority of the voting stock issued
and outstanding, to sell, lease or exchange all of the property and assets of
the corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may be in whole or in
part shares of stock in, and/or other securities of, any other corporation or
corporations, as its Board of Directors shall deem expedient and for the best
interests of the corporation.
The corporation may in its By-Laws confer powers upon its
Board of Directors in addition to the foregoing, and in addition to the powers
and authorities expressly conferred upon it by statute.
EIGHTH: Meetings of stockholders may be held outside the State of Delaware, if
the By-Laws so provide. The books of the corporation may be kept (subject to any
provision contained in the statutes) outside of the State of Delaware at such
place or places as may be from time to time designated by the Board of
Directors.
NINTH: The corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
TENTH: No stockholder of this corporation shall have any
preemptive or preferential right, nor shall any stockholder be entitled as such,
as a matter of right, to subscribe for or purchase any part of any new or
additional issue of capital stock of the corporation of any class, whether now
or hereafter authorized, and whether issued for money or for a consideration
other than money, or of any issue of securities or obligations convertible into
stock.
ELEVENTH: In all elections of directors of the corporation
each holder of a share of Class C Preferred Stock of the corporation and each
holder of a share of Common Stock of the corporation entitled to vote for the
election of directors shall be entitled to as many votes as shall equal the
number of votes which, except for the provisions of this Article ELEVENTH, such
holder would be entitled to cast for the election of directors with respect to
the number of shares of Class C Preferred Stock or Common Stock, as the case may
be, held by such holder which are eligible to so vote multiplied by the number
of directors to be elected. Each holder of shares of Class C Preferred Stock and
each holder of a share of Common Stock entitled to vote for the election of
directors may cast all of such votes for a single director or may distribute
such votes among the number of directors to be elected, or any two or more of
them, as such holder sees fit. No director so elected may be removed by the
stockholders of the corporation if the votes cast against his removal would be
sufficient to elect him at an election at which the same total number of votes
were cast in favor of such director and the entire Board of Directors, or class
of directors of which such director is a member, were then being elected.
TWELFTH: The property, business and affairs of the corporation
shall be managed and controlled by the Board of Directors. Subject to the other
provisions of this Restated Certificate of Incorporation providing for the
expansion of the number of directors constituting the whole Board of Directors
in certain circumstances, the number of directors of the corporation shall not
be less than nine (9), nor more than twelve (12), the exact number of directors
to be determined from time to time by resolution of a majority of the whole
Board of Directors, and such exact number shall be nine (9) until otherwise
determined by resolution adopted by affirmative vote of a majority of the whole
Board of Directors. As used herein, the term "whole Board" means the total
number of directors which the corporation would have if there were no vacancies.
The Board of Directors shall be divided into three classes, as nearly equal
in number as the then total number of directors constituting the whole Board
permits, with the term of office of one class expiring each year. The initial
term of office of directors of the first class shall expire at the next
succeeding annual meeting of stockholders of the corporation; the initial term
of office of directors of the second class shall expire at the second succeeding
annual meeting of stockholders of the corporation; and the initial term of
office of directors of the third class shall expire at the third succeeding
annual meeting of stockholders of the corporation. At the conclusion of each
term, nominated directors of the class whose term of office has expired shall
stand for election for a three year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office;
provided further that the policy regarding mandatory retirement of directors
shall be as established by a majority of the whole Board of Directors, and any
incumbent director reaching the mandatory retirement age last established prior
to his most recent election to the Board of Directors shall be eligible to serve
only through the date he attains such mandatory retirement age (regardless of
the remaining term of such incumbent director's class). Any vacancy on the Board
of Directors that results from an increase in the number of directors may be
filled by a majority of the whole Board of Directors, and any other vacancy
occurring in the Board of Directors may be refilled by a majority of the whole
Board of Directors, although less than a quorum, or by a sole remaining
director.
Any director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor.
THIRTEENTH: A director of this corporation shall not be personally liable
to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except that this Article THIRTEENTH
shall not eliminate or limit a director's liability (i) for any breach of the
director s duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended after approval by the stockholders of this Article
THIRTEENTH to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended from time to
time. Any repeal or modification of this Article THIRTEENTH shall not increase
the personal liability of any director of this corporation or otherwise
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification. The provisions of this
Article THIRTEENTH shall not be deemed to limit or preclude indemnification of a
director by the corporation for any liability of a director which has not been
eliminated by the provisions of this Article THIRTEENTH.
FOURTEENTH: (a) Each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and held
harmless by the corporation to the fullest extent authorized or permitted by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended, against all expense, liability and loss (including
attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) actually and reasonably incurred by such
person in connection with such action, suit or proceeding, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person; provided, however, that, except as
provided in this clause (a) of Article FOURTEENTH, the corporation shall
indemnify any such person seeking indemnification in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if such
action, suit or proceeding (or part thereof) was authorized by the Board of
Directors of the corporation. The right to indemnification conferred in this
clause (a) of Article FOURTEENTH shall be a contract right and shall include the
right to be paid by the corporation the expenses incurred in defending any such
action, suit or proceeding in advance of its final disposition; provided,
however, that if the General Corporation Law of the State of Delaware requires,
the payment of such expenses incurred by a director or officer in his capacity
as such in advance of the final disposition of any such action, suit or
proceeding shall be made only upon receipt by the corporation of an undertaking
by or on behalf of such director or officer to repay all amounts so advanced if
it shall ultimately be determined that such director or officer is not entitled
to be indemnified under this clause (a) of Article FOURTEENTH or otherwise. The
corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) If a claim under clause (a) of Article FOURTEENTH is not
paid in full by the corporation within thirty days after a written claim has
been received by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the corporation. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circum stances
because he has met the applicable standard of conduct set forth in the General
Corporation Law of the State of Delaware, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition set forth
herein shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
(d) The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of Delaware.
<TABLE>
Exhibit 11
DYNCORP AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER COMMON SHARE
(Dollars in Thousands Except Per Share Amounts)
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Earnings:
Net earnings (loss) from continuing operations $ 3,631 $(1,473) $ 3,150 $(3,299)
Preferred stock Class C dividends not accrued
or paid (489) (410) (1,404) (1,177)
Net earnings (loss) from continuing operations
for common stockholder 3,142 (1,883) 1,746 (4,476)
Earnings (loss) from discontinued operations 252 (2,772) (15) (3,466)
Extraordinary item (2,656) - (2,783) -
Net earnings (loss) for common stockholder $ 738 $(4,655) $(1,052) $(7,492)
Earnings (loss) per common share:
Continuing operations for common stockholder $ 0.24 $ (0.24) $ 0.14 $ (0.69)
Discontinued operations 0.02 (0.35) 0.00 (0.54)
Extraordinary item (0.20) - (0.22) -
$ 0.06 $ (0.59) $ (0.08) $ (1.23)
Shares:
Weighted average common shares
outstanding (Note 11) 12,893,284 7,888,081 12,558,287 6,467,892
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-28-1995
<CASH> 18,543
<SECURITIES> 0
<RECEIVABLES> 177,202
<ALLOWANCES> 9
<INVENTORY> 853
<CURRENT-ASSETS> 212,659
<PP&E> 45,856
<DEPRECIATION> 27,717
<TOTAL-ASSETS> 295,746
<CURRENT-LIABILITIES> 148,117
<BONDS> 104,546
<COMMON> 250
0
3,000
<OTHER-SE> 17,710
<TOTAL-LIABILITY-AND-EQUITY> 295,746
<SALES> 666,168
<TOTAL-REVENUES> 666,168
<CGS> 0
<TOTAL-COSTS> 638,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,076
<INCOME-PRETAX> 1,841
<INCOME-TAX> (2,252)
<INCOME-CONTINUING> 3,150
<DISCONTINUED> (15)
<EXTRAORDINARY> (2,783)
<CHANGES> 0
<NET-INCOME> 352
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
