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 28, 1996
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. 8,011,716 shares
of common stock having a par value of $0.10 per share were outstanding at
March 28, 1996.
DYNCORP
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
March 28, 1996 and December 31, 1995
Consolidated Condensed Statements of Operations -
Three Months Ended March 28, 1996 and March 30, 1995
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 28, 1996 and March 30, 1995
Consolidated Statement of Permanent Stockholders' Equity
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 5. Other Information
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 28, 1996 AND DECEMBER 31, 1995
(Dollars in Thousands)
March 28,
1996 December 31,
Assets Unaudited 1995
Current Assets:
Cash and short-term investments $ 1,986 $ 31,151
Accounts receivable and contracts in process (Note 3) 182,704 179,706
Inventories of purchased products and supplies,
at lower of cost (first-in, first-out) or market 1,198 1,383
Other current assets 8,941 8,095
Total current assets 194,829 220,335
Property and Equipment (net of accumulated
depreciation and amortization of $23,762 in
1996 and $22,600 in 1995) 19,414 19,028
Intangible Assets (net of accumulated amortization
of $40,121 in 1996 and $39,598 in 1995) 50,165 50,689
Other Assets (Notes 3 and 9) 84,473 85,438
Total Assets $348,881 $375,490
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 28,1996 AND DECEMBER 31,1995
(Dollars in Thousands)
March 28,
1996 December 31,
Unaudited 1995
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable and current portion of long-term debt $ 1,068 $ 1,260
Accounts payable 33,027 38,007
Advances on contracts in process 2,119 4,814
Accrued liabilities 91,562 111,526
Total current liabilities 127,776 155,607
Long-Term Debt 103,952 104,112
Other Liabilities and Deferred Credits (Note 9) 91,546 89,909
Contingencies and Litigation (Note 9) - -
Temporary Equity (Note 4):
Redeemable Common Stock
ESOP Shares, 3,529,562 shares issued at $18.90
and 2,516,479 at $15.00 in 1996 and 3,535,192
at $18.10 and 2,516,802 at $14.50 in 1995,
subject to restrictions 104,456 100,481
Management Investors, 20,334 shares issued at $113.48,
202,399 at $18.90, and 1,674,526 at $15.00 in 1996
and 21,287 at $109.64, 256,196 at $18.10 and 1,804,595
at $14.50 in 1995, subject to restrictions 31,251 33,138
Other, 125,714 shares issued at $18.90 and $18.10 in
1996 and 1995, respectively 2,376 2,275
Permanent Stockholders' Equity:
Preferred Stock, Class C 18% cumulative, convertible,
$24.25 liquidation value (liquidation value including
unrecorded dividends of $12,397 in 1996 and $11,863
in 1995), 123,711 shares authorized, issued and
outstanding (Note 2) 3,000 3,000
Common Stock, par value ten cents per share, authorized
20,000,000 shares; issued 1,799,001 shares in 1996
and 1,588,587 shares in 1995 180 159
Common Stock Warrants 11,289 11,305
Paid-in Surplus 148,104 148,202
Reclassification to temporary equity for redemption
value greater than par value (Note 4) (137,165) (135,223)
Deficit (113,647) (115,888)
Common Stock Held in Treasury, at cost; 1,445,923 shares
and 173,988 warrants in 1996 and 1,235,509 shares and
173,988 warrants in 1995 (24,237) (21,084)
Unearned ESOP Shares - (503)
Total Liabilities and Stockholders' Equity $348,881 $375,490
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 28, March 30,
1996 1995(a)
Revenues:
Information and Engineering Technology $ 71,012 $ 60,594
Aerospace Technology 85,530 76,112
Enterprise Management 85,184 74,930
Total revenue 241,726 211,636
Costs and expenses:
Cost of services 231,139 203,822
Selling and corporate administrative 4,460 4,340
Interest income (614) (836)
Interest expense 2,580 4,477
Other 424 634
Total cost and expenses 237,989 212,437
Earnings (loss) from continuing operations before
income taxes, minority interest and extraordinary item 3,737 (801)
Provision (benefit) for income taxes (Note 5) 1,200 (28)
Earnings (loss) from continuing operations before
minority interest and extraordinary item 2,537 (773)
Minority interest 296 302
Earnings (loss) from continuing operations before
extraordinary item 2,241 (1,075)
Loss from discontinued operations, net of tax
benefit of $119 - 347
Earnings (loss) before extraordinary item 2,241 (1,422)
Extraordinary loss from early extinguishment of debt,
net of tax benefit of $89 - 127
Net earnings (loss) $ 2,241 $ (1,549)
Preferred Class C dividends not declared or
recorded (Note 2) (534) (448)
Common stockholders' share of earnings (loss) $ 1,707 $ (1,997)
Weighted average number of common shares outstanding
and dilutive common stock equivalents (Note 6):
Primary and fully diluted 12,231,005 8,083,896
Earnings (loss) per common share - primary and fully diluted:
Continuing operations before extraordinary item $ 0.14 $ (0.19)
Discontinued operations - (0.04)
Extraordinary item - (0.02)
Common stockholders' share of earnings (loss) $ 0.14 $ (0.25)
(a) Restated for discontinued operations.
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
Three Months Ended
March 28, March 30,
1996 1995
Cash Flows from Operating Activities:
Net earnings (loss) $ 2,241 $(1,549)
Adjustments to reconcile net loss from operations
to net cash provided (used):
Depreciation and amortization 2,145 2,538
Accrued interest on Junior Subordinated Debentur - 1,580
Loss from discontinued operations - 347
Payment of income taxes on gain on sale of
discontinued operations (13,990) -
Loss on repurchase of debentures - 216
Other (485) (267)
Changes in current assets and liabilities,
net of acquisitions:
(Increase) decrease in current assets except
cash, short-term investments and notes
receivable (3,659) 6,345
Increase (decrease) in current liabilities
except notes payable and current portion of
long-term debt (11,801) (11,839)
Cash used by continuing operations (25,549) (2,629)
Cash provided by discontinued operations - 3,026
Cash (used) provided by operating activities (25,549) 397
Cash Flows from Investing Activities:
Sale of property and equipment 1 16,337
Purchase of property and equipment (1,502) (741)
Decrease (increase) in cash on deposit for letters of credit 2,070 (100)
Investment activities of discontinued operations - 21,367
Other (14) (14)
Cash provided by investing activities 555 36,849
Cash Flows from Financing Activities:
Treasury stock purchased (3,153) (1,135)
Payment on indebtedness (313) (19,164)
Stock released to Employee Stock Ownership Plan (Note 7) 503 4,250
Repurchase of debentures - (3,422)
Deferred financing expenses (Note 8) (1,209) -
Financing activities of discontinued operations - (902)
Other 1 89
Cash used from financing activities (4,171) (20,284)
Net Increase (Decrease) in Cash and Short-term Investments (29,165) 16,962
Cash and Short-term Investments at Beginning of the Period 31,151 7,738
Cash and Short-term Investments at End of the Period $ 1,986 $24,700
Supplemental Cash Flow Information:
Cash paid for income taxes $14,040 $ 73
Cash paid for interest $ 2,106 $ 2,861
See accompanying notes to consolidated condensed financial statements.
<TABLE>
DynCorp and Subsidiaries
Consolidated Statements of Permanent Stockholders' Equity
(Dollars in thousands)
UNAUDITED
<CAPTION>
Adjustment
for
Redemption
Value Greater Unearned
Preferred Common Stock Paid-in than Treasury ESOP
Stock Stock Warrants Surplus Par Value Deficit Stock Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 3,000 $ 159 $11,305 $148,202 $(135,223) $(115,888) $ (21,084) $ (503)
Stock issued under
Restricted Stock Plan (98) 98
Treasury stock purchases 21 3,220 (3,153)
Warrants exercised (16)
Payment received on ESOP note 503
Net earnings 2,241
Adjustment of shares
to fair value (5,260)
Balance, March 28, 1996 $ 3,000 $ 180 $11,289 $148,104 $(137,165) $(113,647) $ (24,237) $ -
</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/A. 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.
2. At March 28, 1996, $9,397,000 of Class C Preferred Stock cumulative
dividends have not been accrued or paid.
3. At March 28, 1996, $107,410,000 of accounts receivable are restricted as
collateral for the Contract Receivable Collateralized Notes, Series 1992-1.
Additionally, $3,000,000 of cash is restricted as collateral for the Notes
and $4,174,000 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
March 28, 1996.
Accounts receivable are net of an allowance for doubtful accounts of $8,800
in 1996 and 1995.
4. The following are the changes in Redeemable Common Stock for the three
months ended March 28, 1996:
Redeemable Common Stock (in thousands)
Management
Other ESOP Investors Total
Balance at December 31, 1995 $ 2,275 $100,481 $33,138 $135,894
Treasury stock purchased (107) (2,964) (3,071)
Adjustment of shares to
fair value 101 4,082 1,077 5,260
Balance at March 28, 1996 $2,376 $104,456 $31,251 $138,083
5. The first quarter tax provision is based on an estimated annual effective
tax rate, excluding expenses not deductible for tax. The 1995 tax benefit
represents the federal tax benefit for operating losses, less the federal
tax provision of a majority owned subsidiary required to file a separate
return.
6. 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 any unallocated ESOP shares. For the three months ended
March 28, 1996, approximately 4,074,000 unexercised warrants and 2,400
stock options have been included as share equivalents using the treasury
stock method. The warrants and options are antidilutive in the March 30,
1995 calculation of loss per share and are thus excluded from the weighted
average shares outstanding.
7. In March 1996, the Company contributed $3,600,000 in cash to the Employee
Stock Ownership Plan (the ESOP). Upon approval by the SEC, the ESOP is
expected to use the cash contributed to purchase shares of the Company's
common stock through the internal market (see Note 10). It is not the
Company's intention to issue new shares to satisfy the first quarter stock
contribution to the ESOP.
Additionally, in the first quarter of 1996, the ESOP paid the balance of
the note outstanding at December 31, 1995, plus accrued interest. Upon
payment of the note, 33,764 shares of common stock were allocated to the
participants' accounts.
8. In March 1996, the Company amended and restated its existing $20,000,000
line of credit with Citicorp North America, Inc. to provide for a
$50,000,000 revolving credit facility which will provide funds for
acquisitions, working capital and capital expenditures. The facility
matures in four years, with no payments required until the end of the
second year. The credit agreement contains the customary restrictive
covenants for such a loan; management does not believe that any of the
covenants will be unduly restrictive.
At March 28, 1996, the Company had incurred $1,209,000 of deferred debt
expense related to the amended credit facility, which will be amortized
over four years.
9. The Company and its subsidiaries and affiliates are 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 personal injury, tax, environmental and
contract dispute issues related to the prior operations of divested
businesses. In most cases, the Company and its subsidiaries have denied,
or believe they have a basis to deny, liability, and in some cases have
offsetting claims against the plaintiffs, third parties or insurance
carriers. The amount of possible damages currently claimed by the various
plaintiffs for these items, a portion of which is expected to be covered by
insurance, aggregate approximately $120,000,000 (including compensatory and
possible punitive damages and penalties). This amount includes estimates
for claims which have been filed without specified dollar amounts or for
amounts which are in excess of recoveries customarily associated with the
stated causes of action; it does not include any estimate for claims which
may have been incurred but which have not yet been filed. The Company has
recorded such damages and penalties that are considered to be probable
recoveries against the Company or its subsidiaries. These issues are
described in the Company's latest report on Form 10-K/A.
The Company has recorded its best estimate of the aggregate liability that
will result from these matters. While it is not possible to predict with
certainty the outcome of litigation, it is the opinion of the Company's
management, based in part upon opinions of counsel, insurance in force and
the facts currently 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, consolidated financial position or liquidity of
the Company over the long-term. However, it is possible that the timing of
the resolution of individual issues could result in a significant impact on
the operating results and/or liquidity for an individual future reporting
period.
The major portion of the Company's business involves contracting with
departments and agencies of, and prime contractors to, the U.S. Government,
and such contracts 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
March 28, 1996 that will have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
10. The Company has filed a Form S-1 with the SEC 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 1996. The
registration statement became effective May 10, 1996.
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 1995 Form 10-K/A, filed on May 10,1996.
Working capital at March 28, 1996 was $67.1 million compared to $64.7 million
at December 31, 1995, an increase of $2.4 million. The decrease in both
current liabilities and cash are due primarily to the repurchase of common
shares during the first quarter and payment in March, 1996, of
federal and state income taxes resulting from the gain on the sale of the
Commercial Aviation business, which was divested in 1995.
At March 28, 1996, $107.4 million of accounts receivable are restricted as
collateral for the Contract Receivable Collateralized Notes.
Funds of $1.0 million were generated from investing activities during the first
quarter of 1996. Cash utilized to purchase property and equipment was offset
by reduced cash balances required on deposit for various letters of credit.
Financing activities used funds of $4.2 million, principally for the purchase
of treasury stock and expenses related to securing the Citicorp North America,
Inc. line of credit.
Cash used by continuing operations was $25.5 million in the first quarter of
1996 as compared to $2.6 million in the first quarter 1995. The 1996 net
change in current assets and liabilities resulted in a use of cash of $15.5
million compared to $5.5 million in 1995. Excluding the effects of the changes
in current assets and liabilities and the payment of taxes related to the gain
on the sale of discontinued operations, operations produced cash flow of $3.9
million in 1996 compared to $2.9 million in 1995.
At March 28, 1996, backlog (including option years on government contracts) was
$2.838 billion compared to $2.887 billion at December 31, 1995.
Results of Operations
Revenues for the first quarter of 1996 were $241.7 million, up $30.1 million
from $211.6 million in the first quarter of 1995. Increases attributable to
new contract awards during 1995 and growth on existing contracts were partially
offset by contract losses and contract phase-outs.
Cost of Services was 95.6% of revenue for the first quarter of 1996 compared to
96.3% for the comparable period in 1995, resulting in gross margins of $10.6
million (4.4%) and $7.8 million (3.7%), respectively. The increase in gross
margin was attributable to both improved margins on existing contracts and
the incremental increase due to new contract awards.
Interest income in the first quarter of 1996 was less than the comparable
period in 1995 principally due to the cessation of interest accruals on the 17%
Cummings Point Industries, Inc. note receivable which was paid in full in
August 1995.
Interest expense was $2.6 million in the first quarter 1996, down $1.9 million
from the comparable period in 1995. The decrease is due to the retirement in
1995 of all the 16% Junior Subordinated debentures as well as the sale and
leaseback of the Company's headquarters in February 1995, eliminating the
mortgage and associated interest expense.
Other expense consists of the following major items (in thousands):
Three Months Ended
March 28, March 30,
1996 1995
Amortization of costs in excess
of net assets acquired $ 377 $ 456
Provision for nonrecovery of
receivables 106 -
Equity in unconsolidated subsidiaries (142) (1)
Miscellaneous 83 179
$ 424 $ 634
The first quarter 1996 tax provision is based on an estimated annual effective
tax rate, excluding expenses not deductible for tax. The 1995 tax benefit
represents the federal tax benefit for operating losses, less the federal tax
provision of a majority owned subsidiary required to file a separate return.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
This item is incorporated herein by reference to Note 9 to the Consolidated
Condensed Financial Statements included elsewhere in this quarterly Report on
Form 10-Q.
ITEM 5. Other Information
Possible Sale or Merger of the Company - The Company has engaged Bear Stearns
& Co. Inc., an investment banking firm, to analyze the Company and its
businesses with a view to determining the potential value of the Company to a
third-party purchaser. Under the engagement, the Board of Directors has the
option to authorize Bear Stearns to discuss the possible acquisition of the
Company or portion of the Company with third-party potential buyers. It is
possible that the Board of Directors will authorize such discussions, although
no specific buyer or proposal has been identified to or by the Company.
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
The Company amended the Forms 8-K filed in July and September, 1995 to report
the final purchase price and the net gain on the sale of the Commercial Aviation
business.
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 13, 1996 T. E. Blanchard
T. E. Blanchard
Senior Vice President
and Chief Financial Officer
Date: May 13, 1996 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)
March 28, March 30,
PRIMARY AND FULLY DILUTED 1996 1995
Earnings:
Earnings (loss) from continuing operations
before extraordinary item $ 2,241 $ (1,075)
Discontinued operations - (347)
Extraordinary item - (127)
Net earnings (loss) 2,241 (1,549)
Preferred stock Class C dividends not accrued
or paid (534) (448)
Common stockholders' share of earnings (loss) $ 1,707 $ (1,997)
Shares:
Weighted average common shares outstanding 8,154,327 8,083,896
Common stock issuable upon exercise of warrants 4,074,291 -
Common stock issuable upon exercise of stock options 2,387 -
12,231,005 8,083,896
Earnings (loss) from continuing operations
before extraordinary item $ 0.14 $ (0.19)
Discontinued operations - (0.04)
Extraordinary item - (0.02)
Common stockholders' share of earnings (loss) $ 0.14 $ (0.25)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRST QUARTER 10 - Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10 - Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-28-1996
<CASH> 1,986
<SECURITIES> 0
<RECEIVABLES> 182,713
<ALLOWANCES> 9
<INVENTORY> 1,198
<CURRENT-ASSETS> 194,829
<PP&E> 43,176
<DEPRECIATION> 23,762
<TOTAL-ASSETS> 348,881
<CURRENT-LIABILITIES> 127,776
<BONDS> 103,952
0
3,000
<COMMON> 180
<OTHER-SE> (115,656)
<TOTAL-LIABILITY-AND-EQUITY> 25,607
<SALES> 241,726
<TOTAL-REVENUES> 241,726
<CGS> 0
<TOTAL-COSTS> 231,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,580
<INCOME-PRETAX> 3,737
<INCOME-TAX> 1,200
<INCOME-CONTINUING> 2,241
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 2,241
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
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