FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1999 Commission file number 1-3879
DynCorp
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(Exact name of registrant as specified in its charter)
Delaware 36-2408747
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2000 Edmund Halley Drive, Reston, VA 20191-3436
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(Address of principal executive offices) (Zip Code)
(703) 264-0330
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(Registrant's telephone number, including area code)
Former fiscal year - December 31
- --------------------------------------------------------------------------------
(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.
Class Outstanding as of May 11, 1999
----- ------------------------------
Common Stock, $0.10 Par Value 10,022,854
<PAGE>
DYNCORP AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED APRIL 1, 1999
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
April 1, 1999 and December 31, 1998 3-4
Consolidated Condensed Statements of Operations for
Three Months Ended April 1, 1999 and April 2, 1998 5
Consolidated Condensed Statements of Cash Flows for
Three Months Ended April 1, 1999 and April 2, 1998 6
Consolidated Statement of Stockholders' Equity 7
Notes to Consolidated Condensed Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
APRIL 1, 1999 AND DECEMBER 31, 1998
(In thousands)
April 1,
1999 December 31,
Unaudited 1998
--------- ------------
<S> <C> <C>
Assets
- ------
Current Assets:
Cash and cash equivalents $ 12,377 $ 4,088
Accounts receivable and contracts in process, net 258,302 257,670
Inventories of purchased products and supplies,
at lower of cost (first-in, first-out) or market 638 769
Other current assets 17,820 15,775
-------- --------
Total current assets 289,137 278,302
Property and Equipment (net of accumulated
depreciation and amortization of $29,071 in 1999
and $27,538 in 1998) 18,764 18,544
Intangible Assets (net of accumulated amortization
of $50,857 in 1999 and $50,030 in 1998) 62,287 58,796
Other Assets 32,367 23,596
-------- --------
Total Assets $402,555 $379,238
======== ========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
APRIL 1, 1999 AND DECEMBER 31, 1998
(In thousands, except share amounts)
April 1,
1999 December 31,
Unaudited 1998
--------- ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Notes payable and current portion of
long-term debt $ 27,251 $ 8,145
Accounts payable 55,179 66,885
Deferred revenue and customer advances 3,175 2,542
Accrued liabilities 118,991 110,051
-------- --------
Total current liabilities 204,596 187,623
Long-Term Debt 152,090 152,121
Other Liabilities and Deferred Credits 35,231 27,644
Contingencies and Litigation
Temporary Equity:
Redeemable Common Stock -
ESOP Shares, 7,168,510 and 7,082,422 shares
issued and outstanding in 1999 and 1998,
respectively, subject to restrictions 182,835 180,812
Other, 125,714 shares issued and outstanding
in 1998 - 3,049
Stockholders' Equity:
Common Stock, par value ten cents per share,
authorized 20,000,000 shares; issued
5,021,541 shares in 1999 and 4,976,423 shares
in 1998 502 498
Paid-in Surplus 127,216 127,216
Accumulated other comprehensive income (7) (10)
Reclassification to temporary equity for
redemption value greater than par value (182,118) (183,140)
Deficit (74,891) (78,782)
Common Stock Held in Treasury, at cost;
2,168,697 shares in 1999 and 2,005,728 shares
in 1998 (39,556) (35,640)
Unearned ESOP Shares (3,343) (2,153)
--------- ---------
Total Liabilities and Stockholders' Equity $402,555 $379,238
========= =========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
UNAUDITED
Three Months Ended
------------------
April 1, 1999 April 2, 1998
------------- -------------
<S> <C> <C>
Revenues $311,886 $297,873
Costs and Expenses:
Costs of services 295,369 283,936
Corporate general and administrative 5,417 5,267
Interest income (777) (349)
Interest expense 4,054 3,794
Other 235 366
--------- ---------
Total costs and expenses 304,298 293,014
Earnings before income taxes and minority interest 7,588 4,859
Provision for income taxes 2,594 1,776
--------- ---------
Earnings before minority interest 4,994 3,083
Minority interest 1,103 420
--------- ---------
Net earnings $ 3,891 $ 2,663
========= =========
Basic earnings per share $ 0.38 $ 0.27
Diluted earnings per share $ 0.38 $ 0.25
Weighted average number of shares outstanding for
basic earnings per share 10,176 10,000
Weighted average number of shares outstanding for
diluted earnings per share 10,328 10,463
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
Three Months Ended
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April 1, 1999 April 2, 1998
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<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 3,891 $ 2,663
Adjustments to reconcile net earnings from
operations to net cash provided (used):
Depreciation and amortization 2,310 2,088
Other (142) 536
Changes in current assets and liabilities, net
of acquisitions:
Increase in current assets except cash and
cash equivalents (2,520) (19,280)
Decrease in current liabilities excluding
notes payable and current portion of
long-term debt (2,491) (1,320)
--------- ----------
Cash provided (used) by operating activities 1,048 (15,313)
Cash Flows from Investing Activities:
Sale of property and equipment 13 4
Purchase of property and equipment (1,453) (832)
Assets and liabilities of acquired business - (10,000)
Increases in investment in unconsolidated
affiliates (951) (478)
Capitalized cost of new financial and human
resource systems (4,311) (1,845)
Other (26) 200
-------- ---------
Cash used by investing activities (6,728) (12,951)
Cash Flows from Financing Activities:
Treasury stock purchased (4,149) (50)
Payment on indebtedness (47,456) (161)
Proceeds from borrowings 66,522 20,000
Payment received on Employee Stock
Ownership Plan note 1,057 1,659
Loan to Employee Stock Ownership Plan (2,247) -
Other 242 (80)
------- --------
Cash provided from financing activities 13,969 21,368
Net Increase (Decrease) in Cash and Cash
Equivalents 8,289 (6,896)
Cash and Cash Equivalents at Beginning of
the Period 4,088 24,602
-------- --------
Cash and Cash Equivalents at End of the
Period $12,377 $17,706
======= =======
Supplemental Cash Flow Information:
Cash paid for income taxes $ 1,292 $ 730
======= =======
Cash paid for interest $ 5,568 $ 7,438
======= =======
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
UNAUDITED
Adjustment for Accumulated
Redemption Value Unearned Other
Common Paid-in Greater than Treasury ESOP Comprehensive
Stock Surplus Par Value Deficit Stock Shares Income
------ ------- ---------------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 498 $127,216 $(183,140) $(78,782) $(35,640) $(2,153) $(10)
Employee compensation plans (option
exercises, restricted stock plan,
incentive bonus) 233
Treasury stock purchased (4,149)
Loans to the Employee Stock Ownership Plan (2,247)
Payment received on Employee Stock
Ownership Plan note 1,057
Reclassification to Redeemable Common Stock 4 1,022
Other 3
Net earnings 3,891
----- -------- ---------- --------- --------- -------- ------
Balance, April 1, 1999 $ 502 $127,216 $(182,118) $(74,891) $(39,556) $(3,343) $ (7)
===== ======== ========== ========= ========= ======== ======
</TABLE>
<PAGE>
DYNCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 1, 1999
UNAUDITED
Note 1. Basis of Presentation
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 recommended 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 (consisting
of normal recurring 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. Certain amounts
presented for prior periods have been reclassified to conform to the 1999
presentation.
Note 2. Accounts Receivable and Contracts in Process
At April 1, 1999 and December 31, 1998, $114.2 million and $87.9 million,
respectively, of accounts receivable were restricted as collateral for the
7.486% Contract Receivable Collateralized Notes. Additionally, $1.5
million of cash was restricted as collateral for the Notes and has been
included in Other Assets on the accompanying Consolidated Condensed
Balance Sheets at April 1, 1999 and December 31, 1998.
Accounts receivable are net of an allowance for doubtful accounts of
$0.2 million at April 1, 1999 and $1.1 million at December 31, 1998.
Note 3. Redeemable Common Stock
Common stock which is redeemable has been reflected as Temporary Equity at
each balance sheet date and consists of the following:
<TABLE>
<CAPTION>
Balance at Balance at
Redeemable April 1, Redeemable December 31,
Shares Value 1999 Shares Value 1998
------ ---------- ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ESOP Shares 3,382,340 $27.75 $ 93,860 3,382,340 $27.75 $ 93,860
3,786,170 $23.50 88,975 3,700,082 $23.50 86,952
--------- -------- --------- --------
7,168,510 $182,835 7,082,422 $180,812
========= ======== ========= ========
Other Shares 125,714 $24.25 $ 3,049
======= ========
</TABLE>
In accordance with the Employee Retirement Income Security Act regulations
and the Employee Stock Ownership Plan ("ESOP") documents, the Company is
obligated, unless the ESOP Trust purchases the shares, to purchase
distributed common stock shares from ESOP participants on retirement or
termination at fair value as long as the Company's common stock is not
publicly traded. However, under the Subscription Agreement with the ESOP
dated September 9, 1988, the Company is permitted to defer put options if,
under Delaware law, the capital of the Company would be impaired as a
result of such repurchase.
<PAGE>
In conjunction with the acquisition of Technology Applications, Inc. in
1993, the Company issued put options on 125,714 shares of common stock. On
January 12, 1999, the holder exercised the put option on these 125,714
shares of common stock at the applicable price of $24.25 per share.
Note 4. Employee Stock Ownership Plan
From time to time, the Company makes collateralized loans to the Employee
Stock Ownership Trust to purchase shares, pay administrative expenses, and
to pay off expiring loans. During the first quarter of 1999, the Company
loaned the ESOP $2.2 million. The unpaid loan balance, reflected as a
reduction of stockholders' equity, was $3.3 million and $2.2 million at
April 1, 1999 and December 31, 1998, respectively. The unpaid loan
balances represented 144,658 shares at April 1, 1999, and 99,309 shares at
December 31, 1998.
Note 5. Income Taxes
The provision for income taxes in 1999 and 1998 is based upon an estimated
annual effective tax rate, including the impact of differences between the
book value of assets and liabilities recognized for financial reporting
purposes and the basis recognized for tax purposes.
Note 6. Earnings Per Share
The following table sets forth the reconciliation of shares for basic EPS
to shares for diluted EPS. Basic EPS is computed by dividing earnings by
the weighted average number of common shares outstanding and contingently
issuable shares. The weighted average number of common shares outstanding
includes issued shares less shares held in treasury and any unallocated
ESOP shares. Shares earned and vested but unissued under the Restricted
Stock Plan are contingently issuable shares whose condition for issuance
has been satisfied and as such have been included in the calculation of
basic EPS. Diluted EPS is computed similarly except the denominator is
increased to include the weighted average number of stock warrants and
options outstanding, assuming the treasury stock method.
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 1, April 2,
1999 1998
-------- --------
<S> <C> <C>
Weighted average shares outstanding for
basic EPS 10,176 10,000
Effect of dilutive securities:
Warrants - 341
Stock options 152 122
------ ------
Weighted average shares outstanding for
diluted EPS 10,328 10,463
====== ======
</TABLE>
<PAGE>
Note 7. Recently Issued Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. ("SOP") 98-5, "Reporting on the
Costs of Start-up Activities," which became effective for fiscal years
beginning after December 15, 1998. The statement provides guidance on the
financial reporting of start-up costs and organization costs and requires
costs of start-up activities to be expensed as incurred. The adoption of
this statement, effective January 1, 1999, did not have a material impact
on the Company's financial statements.
AICPA SOP No. 98-9, "Software Revenue Recognition," was issued in December
1998. SOP No. 98-9 amends SOP No. 97-2 to require recognition for
multiple-element arrangements by means of the "residual method" in certain
circumstances. The provisions of SOP No. 98-9 that extend the deferral of
certain passages of SOP No. 97-2 became effective December 15, 1998. All
provisions are effective for transactions entered into in fiscal years
beginning after March 15, 1999. Earlier application for financial
statements or information that has not been issued is permitted and
retroactive application is prohibited. SOP No. 98-9 is not expected to have
a material impact on the Company's consolidated results of operations or
financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Because of the Company's minimal
use of derivatives, the Company does not expect that the adoption of the
new standard will have a material impact on the results of operations or
financial condition.
Note 8. Business Segments
Effective January 1, 1999, DynCorp realigned its three Strategic Business
Segments into two focused sectors. The Company's Information and
Engineering Technology Unit and most of its Enterprise Management Unit were
combined to become DynCorp Information and Enterprise Technology. Aerospace
Technology and the remaining parts of Enterprise Management were combined
to become DynCorp Technical Services. The purpose of this realignment was
to provide focus and clarity to the Company's businesses and enable the
Company to better serve its customers by concentrating technical services
and information technology competencies in individual single business unit
structures. Information for business segments for the first quarter of 1998
has been restated to give effect to this change.
<PAGE>
Revenues, operating profit and identifiable assets for the Company's two
business segments for the first quarter of 1999 and the comparable period
for 1998 are presented below:
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 1, April 2,
1999 1998
-------- --------
<S> <C> <C>
Revenues
--------
DynCorp Information and Enterprise Technology $155,456 $151,799
DynCorp Technical Services 156,430 146,074
-------- --------
$311,886 $297,873
======== ========
Operating Profit (a)
--------------------
DynCorp Information and Enterprise Technology $ 8,970 $ 7,939
DynCorp Technical Services 6,960 5,560
-------- --------
15,930 13,499
Corporate general and administrative 5,417 5,267
Interest income (777) (349)
Interest expense 4,054 3,794
Goodwill amortization 393 393
Minority interest included in operating profit (1,103) (420)
Amortization of intangibles of acquired companies 384 324
Other miscellaneous (26) (369)
--------- ---------
Earnings from continuing operations
Before income taxes and minority interest $ 7,588 $ 4,859
========= =========
</TABLE>
<TABLE>
<CAPTION>
April 1, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Identifiable Assets
-------------------
DynCorp Information and Enterprise Technology $188,737 $193,094
DynCorp Technical Services 148,250 141,514
Corporate 65,568 44,630
-------- --------
$402,555 $379,238
======== ========
(a) Defined as the excess of revenues over operating expenses and certain
nonoperating expenses.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the consolidated
results of operations and financial condition of DynCorp and its subsidiaries
(collectively, the "Company"). The discussion should be read in conjunction with
the interim condensed consolidated financial statements and notes thereto and
the Company's annual report on Form 10-K for the year ended December 31, 1998.
Results of Operations
- ---------------------
The Company provides diversified management, technical and professional services
to primarily U.S. Government customers throughout the United States of America
and internationally. The Company's customers include various branches of the
Department of Defense, the Department of Energy, NASA, the Department of State,
the Department of Justice and various other U.S., state and local government
agencies, commercial clients and foreign governments. The following discusses
the Company's results of operations for the three months ended April 1, 1999 and
the comparable period for 1998.
Revenues and Operating Profit
- -----------------------------
Revenues for the first quarter of 1999 were $311.9 million, compared to $297.9
million for the comparable period in 1998, an increase of $14.0 million or 4.7%.
Operating profit, defined as the excess of revenues over operating expenses and
certain non-operating expenses, was $15.9 million for the first quarter of 1999,
compared to $13.5 million for the first quarter of 1998, an increase of $2.4
million, or 17.8%.
DynCorp Information and Enterprise Technology reported revenues of $155.5
million for the first quarter of 1999 compared to $151.8 million for the same
quarter in 1998, an increase of $3.7 million or 2.4%. Operating profit increased
by $1.1 million to $9.0 million, or 13.9% from $7.9 million in the first quarter
of 1998. The increase in revenues in the first quarter of 1999 compared to the
first quarter of 1998 resulted from higher volume of state contract business,
increased volume on a contract with the U.S. Postal Service, and increased
tasking and performance of indefinite delivery/indefinite quantity ("IDIQ")
contracts for the Department of Defense, the General Services Administration,
and the Health Care Finance Administration. Also contributing to the revenue
increase was the impact of full quarter results for FMAS, a medical outcome
measurement and data abstraction services company acquired in February 1998.
Partially offsetting these increases in revenues was the loss in a recompetition
of significant portions of the work scope of an enterprise contract at the DoE
Rocky Flats location, and a reduction in the level of services on an enterprise
contract at the Hanford location due to funding cutbacks.
DynCorp Information and Enterprise Technology has been notified that two
contracts are being terminated for convenience by the customer. These contracts
are expected to end during the second quarter. Revenue and operating profit for
these two contracts during the first quarter were $12.4 million and $0.8
million, respectively. It is management's opinion that new business and growth
of existing business will replace the revenue loss. The expected net profit from
these contracts was not significant.
DynCorp Information and Enterprise Technology's increase in operating profit,
first quarter 1999 vs. first quarter 1998, resulted from increased profits on
the aforementioned state contracts, the contract with the U.S. Postal Service,
and improved profitability on previously awarded IDIQ contracts. Also
contributing was increased profits on an Immigration and Naturalization Service
contract. These increased profits more than offset the decrease in profits from
the loss of an enterprise contract at the Rocky Flats location.
<PAGE>
DynCorp Technology Services first quarter 1999 revenues were $156.4 million
compared to $146.1 million for the first quarter of 1998, an increase of $10.3
million, or 7.1%. Operating profit increased by $1.4 million to $7.0 million, or
25.0% from $5.6 million in the first quarter of 1998. The increase in revenues
resulted from increased level of effort on a contract providing technical and
support services for the United States Air Force at Columbus AFB, which was
awarded late in 1998 but was fully operational in the first quarter of 1999,
growth in two State Department contracts with Qatar and Kuwait, and increases in
the purchase of reimbursable materials.
DynCorp Technology Services' increase in operating profit first quarter 1999 vs.
first quarter 1998 resulted from the increased level of effort on the United
States Air Force contract and the growth in the State Department contracts. Also
contributing to the higher operating profits, were no bid and proposal costs at
Fort Rucker in the first quarter of 1999 vs. the first quarter of 1998. Fort
Rucker was won in a recompetition in 1998.
Cost of Services
- ----------------
Cost of Services for the first quarter 1999 was 94.7% of revenue as compared to
95.3% for the comparable period in 1998. This resulted in gross margins of $16.5
million for the first quarter of 1999 as compared to $13.9 million for the first
quarter of 1998. The same contract wins and losses that affected revenues and
operating profits similarly effected gross margin.
Corporate General and Administrative
- ------------------------------------
Corporate general and administrative expense for the first quarter of 1999 was
$5.4 million, compared to $5.3 million for the comparable period in 1998, an
increase of $0.1 million. The slight increase in the first quarter corporate
general and administrative expense primarily resulted from the Company's design
and development of new financial and human resource software packages as
described below under Year 2000.
Interest Expense
- ----------------
Interest expense was $4.1 million in the first quarter of 1999, up from $3.8
million in the first quarter of 1998. The increase was principally due to
additional borrowings in 1999 from the utilization of the Company's line of
credit. The additional borrowings were primarily used to fund the Company's
working capital needs.
Income Taxes
- ------------
The provision for income taxes in 1999 and 1998 is based upon an estimated
annual effective tax rate, including the impact of differences between the book
value of assets and liabilities recognized for financial reporting purposes and
the basis recognized for tax purposes. The provision for income taxes increased
by $0.8 million for the three months ended April 1, 1999 from the comparable
period in 1998 as a result of the increase in 1999 pre-tax income. The Company's
effective tax rate approximated 40% for the three months ended April 1, 1999.
Backlog
- -------
The Company's backlog of business, which includes awards under both prime
contracts and subcontracts as well as the estimated value of option years on
government contracts, was $4.1 billion at April 1, 1999, unchanged from December
31, 1998. The backlog at April 1, 1999 consisted of $2.1 billion for DynCorp
Technical Services and $2.0 billion for DynCorp Information and Enterprise
Technology compared to December 31, 1998 backlog of $2.0 billion for DynCorp
Technical Services and $2.1 billion for DynCorp Information and Enterprise
Technology. The Company has been awarded significant indefinite delivery,
indefinite quantity ("IDIQ") contracts with GSA and NASA to provide
comprehensive desktop computer, server and intra-center communication support.
The Company's backlog at April 1, 1999 does not include any significant value
for these contracts because the Company cannot reasonably estimate the future
revenues from these contracts.
<PAGE>
Working Capital and Cash Flow
- -----------------------------
Working capital, defined as current assets less current liabilities, was $84.5
million at April 1, 1999 compared to $90.7 million at December 31, 1998, a
decrease of $6.2 million. This decrease was primarily the result of the
additional borrowings against the Contract Receivable Collateralized Class B
Variable Rate Note.
Cash provided by operations was $1.0 million in the first three months of 1999,
as compared to $15.3 million cash used the same year-ago quarter. During the
first quarter of 1998, the implementation of a new procedure for payment by the
Defense Finance and Accounting Service ("DFAS") caused significant delays in
payment on certain of the Company's contracts with the Defense Department. As
the implementation at DFAS progressed, delays in payments have become less
significant. This event was primarily responsible for the change in operating
cash for the first quarter of 1999 compared to the first quarter of 1998.
Investing activities used funds of $6.7 million in the three months ended April
1, 1999 principally for the purchase of property and equipment, and the
capitalized cost of new software for internal use as part of the Company's Year
2000 plan. The Company has capitalized $11.6 million of internal use software
and anticipates capitalizing another $1.1 million over the next nine months.
During the first three months of 1998, investing activities used funds of $13.0
million, principally for the acquisition of FMAS and for the purchase of new
software for internal use.
Financing activities provided net funds of $14.0 million in the first quarter of
1999, which consisted primarily of additional borrowing against the Contract
Receivable Collateralized Class B Variable Rate Note, as described above. The
proceeds were used to make a loan to the Employee Stock Ownership Plan, to fund
the Company's purchase of common stock from investors, and to finance working
capital needs. During the first quarter of 1998, financing activities provided
funds of $21.4 million which consisted primarily of $20.0 million borrowed
against the Contract Receivable Collateralized Class B Variable Rate Note to
finance working capital needs.
The Company expects to acquire additional shares of its stock from ESOP stock
puts and other investors during the remainder of the year. The amounts of stock
purchases is dependent upon the number of puts exercised, the amount of excess
sellers vs. buyers, if any, in the Company's internal market, and limitations on
stock repurchases in the Company's debt agreements.
Earnings before Interest, Taxes, Depreciation, and Amortization
- ---------------------------------------------------------------
Earnings before Interest, Taxes, Depreciation, and Amortization ("EBITDA") as
defined by management, consists of net earnings before income tax provision, net
interest expense, and depreciation and amortization. EBITDA represents a measure
of the Company's ability to generate cash flows and does not represent net
income or cash flows from operating, investing and financing activities as
defined by generally accepted accounting principles ("GAAP"). EBITDA is not a
measure of performance or financial condition under GAAP, but is presented to
provide additional information about the Company to the reader. EBITDA should be
considered in addition to, but not as a substitute for, or superior to, measure
of financial performance reported in accordance with GAAP. EBITDA has been
adjusted for the amortization of deferred debt expense and debt issue discount
which are included in "interest expense" in the Consolidated Statements of
Operations and included in "amortization and depreciation" in the Consolidated
Statements of Cash Flows. Readers are cautioned that the Company's definition of
EBITDA may not necessarily be comparable to similarly titled captions used by
other companies due to the potential inconsistencies in the method of
calculation. The following presentation represents the Company's computation of
EBITDA (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 1, April 2,
1999 1998
-------- --------
<S> <C> <C>
Net earnings $ 3,891 $2,663
Depreciation and amortization 2,310 2,088
Interest expense, net 3,277 3,445
Income taxes 2,594 1,776
Amortization of deferred debt expense (186) (177)
Debt issue discount (9) (8)
-------- -------
EBITDA $11,877 $9,787
======== =======
</TABLE>
Year 2000 Readiness Disclosure
- ------------------------------
The "Year 2000" issue ("Y2K") concerns the inability of some computer software
and hardware to accommodate "00" in the two digit data field used to identify
the year. The principal Y2K risk to the Company would come from an extended
failure of one or more of its core systems (financial, payroll, and human
resources).
A Year 2000 analysis of the Company's core financial, human resources and
payroll systems software was conducted in 1997. The software packages were found
to be non-compliant, prompting a replacement of these packages. The
implementation of the replacement package is underway with a projected
completion date of July 1999 for human resources and payroll and December 1999
for the financial systems. Deployment of the new human resources and payroll
systems was completed for the DTS strategic business area in January 1999. Total
capitalized expenditures for the resystemization effort were $11.6 million as of
April 1, 1999. The Company anticipates additional capitalized expenditures of
$1.1 million for the remainder of 1999.
In the event the replacement of core systems cannot be completed before the end
of the fourth quarter of 1999, a contingency plan has been activated to install
an updated compliant version of the Company's current financial software package
in all locations that may not be converted by year-end. Six conversions have
already been completed, and the remaining conversions will be completed by the
fall of 1999.
The core systems assessment included contact with third-party
telecommunications, employee benefits, insurance, and other providers. Letters
have been obtained from these providers, who generally state that they are
working on the Y2K problem. Follow-up contacts are planned in 1999 to ascertain
progress by these providers.
A Year 2000 Program Management Plan has been developed to address other Y2K
compliance issues. A multifunctional task group is overseeing assessment and
remediation or replacement efforts in the areas of core systems, network and
office automation, and field information and non-information systems. No major
problems have yet been identified that would materially affect the Company's
ability to perform on any of its significant contracts. These assessments
include third-party service providers and other vendors on whom a given contract
might depend.
One area of possible vulnerability that is being addressed is the payment
capability of the various government payment offices receiving and processing
invoices from a given contract site. Efforts have been started by the Company to
assess this issue. A letter received in late December from the DFAS office in
Arlington, Virginia stated that 77% of the payment offices are Y2K compliant,
with 100% compliance expected by March 31, 1999. A recent check of the DFAS web
site indicated that May 31, 1999 is the target date for full compliance for all
DoD payment systems and contingency plans are being developed to assure that Y2K
does not adversely affect DFAS' ability to make payments.
<PAGE>
Another assessment being pursued by contract sites is on government-furnished
equipment ("GFE"). If GFE is critical to performance on a contract and is not
compliant, a failure could affect contract performance. While this may not be
material to the Company as a whole, individual contracts are ensuring that
non-compliant GFE is assessed and remediation responsibilities are delineated.
No major problems have yet been identified that would materially affect the
Company's ability to perform on any of its significant contracts.
An employee awareness program was initiated in mid-1998 that is intended to
inform employees and managers of the potential for Y2K problems. In addition to
creating general awareness, this program is intended to address "home grown"
office automation systems and stand alone PC's. None of these types of systems
is considered mission critical to the Company as a whole.
Infrastructure items that may have Y2K compliance problems such as desktop
workstations, network components, and servers, are being systematically repaired
or replaced as part of the normal infrastructure replacement strategy. The
annual expenditures for these components are not significantly above levels that
can be expected in the normal course of business. Depreciation and amortization
expenses for the resystemization and for these infrastructure components are
allowable costs under government contracts.
Recommended clauses for contracts and purchases have been adopted and are being
used to protect the Company from inappropriate litigation.
In summary, the primary Y2K vulnerability for the Company is possible failure of
core systems. The resystemization effort is a top priority within DynCorp, with
dedicated teams and incentive plans for keeping these employees throughout the
project. Contingency plans are being executed in the event of a delay.
Millennium Coordinators are overseeing the Y2K effort at each business unit, and
a multi-functional team of executives, headed by the Y2K Program Manager and
chaired by the Corporate Chief Information Officer acts as a Y2K steering
committee. While assessments are still underway at the contract level, progress
is being made to complete assessments and impact analyses in the first half of
1999. Once the assessments of contracts and tasks that represent some 80% of
company revenue are completed and evaluated, appropriate "what-if" scenarios and
contingency planning will begin.
Forward Looking Statements
- --------------------------
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward-looking statements" that are
based on management's expectations, estimates, projections and assumptions.
Words such as "expects," "anticipates," "plans," "believes," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements that include, but are not limited to, projections of
future performance, assessment of contingent liabilities and expectations
concerning liquidity, cash flow and contract awards. Such forward-looking
statements are made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995. These statements are not guarantees of
future performance and involve certain risks and uncertainties that are
difficult to predict. Therefore, actual future results and trends may differ
materially from what is forecast in forward-looking statements due to a variety
of factors, including the Company's successful execution of internal performance
plans; the outcome of litigation in process; labor negotiations; changing
priorities or reductions in the U.S. Government defense budget; and termination
of government contracts due to unilateral government action.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit 3.2 - Registrant's by-laws as amended to date.
(b) Reports on Form 8-K
On February 26, 1999, the Company filed a report on Form 8-K reporting item
8, "change in fiscal year".
<PAGE>
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, 1999 /s/ P. C. FitzPatrick
---------------------------
P.C. FitzPatrick
Senior Vice President
and Chief Financial Officer
Date: May 13, 1999 /s/ J. J. Fitzgerald
----------------------------
J.J. Fitzgerald
Vice President
and Corporate Controller
<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-30-1999
<PERIOD-END> APR-01-1999
<CASH> 12,377
<SECURITIES> 0
<RECEIVABLES> 258,544
<ALLOWANCES> 242
<INVENTORY> 638
<CURRENT-ASSETS> 289,137
<PP&E> 47,835
<DEPRECIATION> 29,071
<TOTAL-ASSETS> 402,555
<CURRENT-LIABILITIES> 204,596
<BONDS> 0
0
0
<COMMON> 502
<OTHER-SE> 10,136
<TOTAL-LIABILITY-AND-EQUITY> 402,555
<SALES> 311,886
<TOTAL-REVENUES> 311,886
<CGS> 0
<TOTAL-COSTS> 295,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,054
<INCOME-PRETAX> 7,588
<INCOME-TAX> 2,594
<INCOME-CONTINUING> 3,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,891
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
DYNCORP BY-LAWS Amended 2/23/99
ARTICLE I
Office
Section 1. The registered office of the Corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware, and the name of the
resident agent is The Company Corporation.
Section 2. The Corporation may also have offices in the Reston area of Fairfax
County, Commonwealth of Virginia, and at such other places either within or
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
Stockholders' Meetings
Section 1. All meetings of the stockholders for the election of directors shall
be held at the office of the Corporation in the Reston area of Fairfax County,
Virginia, or at such other place either within or without the State of Delaware
as may be fixed from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such place and time as shall be stated in the notice of the meeting or
in a duly executed waiver of notice thereof.
Section 2. An annual meeting of stockholders shall be held on the second Monday
of May in each year if not on a legal holiday, and if a legal holiday then on
the next secular day following, at 1:30 p.m. or at such other date and/or time
as shall be designated by the Board of Directors and stated in the notice of
meeting, at which they shall elect directors by a plurality vote and transact
such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting or any special meeting shall be
served upon or mailed to each stockholder entitled to vote thereat at such
address as appears on the books of the Corporation, except as provided by the
statutes or these By-Laws, at least ten days prior to the meeting.
Section 4. At least ten days before every election of directors, a complete list
of stockholders entitled to vote at said election, arranged in alphabetical
order, with the address of each and the number of voting shares held by each,
shall be prepared by the Secretary. Such list shall be open at the place where
the election is to be held, during ordinary business hours, for said ten days,
to the examination of any stockholder for any purpose germane to the meeting,
and shall be produced and kept at the time and place of election during the
whole time thereof and subject to the inspection of any stockholder who may be
present.
Section 5. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the Certificate of Incorporation,
may be called by the Chairman of the Board or the President and shall be called
by the President or Secretary at the request in writing of a majority of the
Board of Directors or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 6. Business transacted at all special meetings shall be confined to the
objects stated in the notice.
Section 7. The holders of at least one-third of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
be requisite and shall constitute a quorum at all meetings of the stockholders
for the transaction of business except as otherwise provided by statute, the
Certificate of Incorporation, or these By-Laws. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 8. When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy and voting thereon shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
the Certificate of Incorporation, or these By-Laws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. At any meeting of the stockholders, every stockholder having the
right to vote thereat shall be entitled to vote in person or by proxy appointed
by an instrument in writing subscribed by such stockholder and bearing a date
not more than three years prior to said meeting, unless said instrument provides
for a longer period. Each stockholder shall have one vote for each share of
stock having voting power, registered in his name on the books of the
Corporation, and except where the transfer books of the Corporation shall have
been closed or a date shall have been fixed as a record date for the
determination of its stockholders entitled to vote, no share of stock shall be
voted on at any election of directors which shall have been transferred on the
books of the Corporation within twenty days next preceding such election of
directors. At the elections of directors of the Corporation, each stockholder
having voting power shall be entitled to exercise the right of cumulative
voting, if any, as provided in the Certificate of Incorporation.
Section 10. Unless otherwise provided by the statutes or the Certificate of
Incorporation, whenever the vote of stockholders is required or permitted to be
taken in connection with any corporate action, the meeting and vote of
stockholders may be dispensed with, if the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action if such meeting and vote were held shall consent in writing
to such corporate action being taken. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE III
Directors
Section 1. Subject to the provision of the Certificate of Incorporation, 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 in these
By-Laws, 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 directors of the
first class shall expire at the next succeeding annual meeting, the initial term
of directors of the second class shall expire at the second succeeding annual
meeting, and the initial term of directors of the third class shall expire at
the third succeeding annual meeting. Thereafter at the conclusion of each term,
each class of nominated directors 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
any 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).
Section 2. 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.
Section 3. The property, business, and affairs of the Corporation shall be
managed by or under the direction of its Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute, the Certificate of Incorporation, or these By-Laws directed or
required to be exercised or done by the stockholders.
Committees of Directors
Section 4. The Board of Directors at its first meeting after each annual meeting
of the stockholders shall designate three or more of its members, to include the
Chairman of the Board and the Chief Executive Officer, if the Chief Executive
Officer is a member of the Board of Directors, who shall constitute the
Executive Committee of the Board of Directors. The Executive Committee shall
have and may exercise all of the powers of the Board of Directors as may be
lawfully delegated in the management of the business and affairs of the
Corporation and shall have the power to authorize the seal of the Corporation to
be affixed to all papers which may require it. The Board of Directors may
designate one or more of its members as alternate members of the Executive
Committee, who may replace any absent or disqualified member at any meeting of
the Executive Committee. In the absence or disqualification of a member of the
Executive Committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member; provided
however, that in no event shall the Executive Committee have the authority to
consider or act upon matters concerning United States Government security.
Section 5. The Board of Directors may, by resolution or resolutions passed by a
majority of the whole Board, designate one or more additional committees
consisting of two or more of the directors of the Corporation. Such additional
committee or committees shall have and may exercise such powers and shall have
such names as are provided in said resolution or resolutions.
Section 6. The committees shall keep regular minutes of their proceedings and
report the same to the Board when required.
Advisory Directors
Section 7. The Board of Directors may appoint advisory directors whose
experience and knowledge would be useful to the Board, said advisory directors
to be former members of the Board or current stockholders. Such advisory
directors shall be no more than four in number and shall serve at the pleasure
of the Board, with terms expiring as of each annual meeting of stockholders.
Advisory directors shall be given notice of and may attend meetings of the Board
of Directors but shall not be considered members of the Board of Directors.
Advisory directors shall have no right to vote and shall not be counted in
determining whether a quorum is present at any meeting. Advisory directors shall
not be charged with responsibilities, nor shall they be subject to the
liabilities of directors. An advisory director may be appointed as an advisory
member of any committee of the Board.
Compensation of Directors and Advisory Directors
Section 8. Directors or advisory directors, as such, shall not receive any
stated salary for their services but, by resolution of the Board, may be allowed
an annual retainer fee and/or a fixed sum for attendance at each regular or
special meeting of the Board, together with any expenses of attendance; provided
that nothing herein contained shall be construed to preclude any director or
advisory director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 9. Members of special or standing committees may, by resolution of the
Board, be allowed an annual retainer fee and/or a fixed sum for attending
committee meetings, together with any expenses of attendance.
Meetings of the Board
Section 10. The first meeting of the Board after each annual meeting of
stockholders shall be held at such time and place either within or without the
State of Delaware as shall be fixed by the vote of the stockholders at the
annual meeting or by the Board of Directors prior to the annual meeting, and no
notice of such meeting shall be necessary to the newly elected directors in
order legally to constitute the meeting, provided a quorum shall be present, or
they may meet at such place and time as shall be fixed by the consent in writing
of all the directors.
Section 11. Regular meetings of the Board may be held without notice at such
time and place either within or without the State of Delaware as shall from time
to time be determined by the Board.
Section 12. Special meetings of the Board may be called by the Chairman of the
Board or by the President on one day's notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
Chairman of the Board or the President or the Secretary in like manner and on
like notice on the written request of two directors.
Section 13. At all meetings of the Board, the presence of four directors, or, if
fewer, a majority of the whole Board, shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as otherwise specifically provided by
statute, the Certificate of Incorporation, or these By-Laws. If a quorum shall
not be present at any meeting of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 14. Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 15. Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meetings.
ARTICLE IV
Reimbursement and Indemnification of
Officers, Directors, and Advisory Directors
Section 1. The Corporation shall indemnify any 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, arbitrative, or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was or has agreed to become a director,
advisory director, officer, employee, or agent of the Corporation, or is or was
serving or has agreed to serve at the request of the Corporation as a director,
advisory director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, against costs,
charges, expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit, or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation or, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending, or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was or has agreed to become a director,
advisory director, officer, employee, or agent of the Corporation, or is or was
serving or has agreed to serve at the request of the Corporation as a director,
advisory director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, against costs,
charges, and expenses (including attorneys' fees) actually and reasonably
incurred by him or on his behalf in connection with the defense or settlement of
such action or suit and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such costs, charges, and expenses which the
Court of Chancery or such other court shall deem proper.
Section 3. Notwithstanding the other provisions of these By-Laws, to the extent
that a director, advisory director, officer, employee, or agent of the
Corporation has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, or proceeding referred to in this Article IV or in defense of any
claim, issue, or matter therein, he shall be indemnified against all costs,
charges, and expenses (including attorneys' fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
Section 4. Any indemnification under these By-Laws (unless ordered by a court)
shall be made by the Corporation unless a determination is made that
indemnification of the director, advisory director, officer, employee, or agent
is not proper in the circumstances, because he has not met the applicable
standard of conduct set forth in these By-Laws. Such determination may be made
(1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
Section 5. Costs, charges, and expenses (including attorneys' fees) incurred by
a person referred to in this Article IV in defending a civil or criminal action,
suit, or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit, or proceeding; provided, however, that the
payment of such costs, charges, and expenses incurred by a director, advisory
director, or officer in his capacity as a director, advisory director, or
officer (and not in any other capacity in which service was or is rendered while
a director, advisory director, or officer) in advance of the final disposition
of such action, suit, or proceeding shall be made only upon receipt of an
undertaking by or on behalf of the director, advisory director, or officer to
repay all amounts so advanced in the event that it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article IV. Such costs, charges, and expenses incurred by
other employees and agents maybe so paid upon such terms and conditions, if any,
as the Board of Directors deems appropriate. The Board of Directors may, in the
manner set forth above, and upon approval of such director, advisory director,
officer, employee, or agent of the Corporation, authorize the Corporation's
counsel to represent such person in any action, suit, or proceeding, whether or
not the Corporation is a party to such action, suit, or proceeding.
Section 6. Any indemnification or advance of costs, charges, and expenses under
these By-Laws shall be made promptly, and in any event within 60 days, upon the
written request of the director, advisory director, officer, employee, or agent.
The right to indemnification or advances as granted by these By-Laws shall be
enforceable by the director, advisory director, officer, employee, or agent in
any court of competent jurisdiction, if the Corporation denies such request, in
whole or in part, or if no disposition thereof is made within 60 days. Such
person's costs and expenses incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action (other than an action brought to enforce a claim for the advance
of costs, charges, and expenses under Section 5 of this Article IV where the
required undertaking, if any, has been received by the Corporation) that the
claimant has not met the standard of conduct set forth in these By-Laws, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, its independent legal
counsel, and its stockholders) to have made a determination prior to the
commencement of such action that the indemnification of the claimant is proper
in the circumstances, because he has met the applicable standard of conduct set
forth in these By-Laws, or the fact that there has been an actual determination
by the Corporation (including its Board of Directors, its independent legal
counsel, and 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.
Section 7. The rights of indemnity provided in these By-Laws shall not be deemed
exclusive, and the Corporation may, by contract, the Certificate of
Incorporation, vote of stockholders or disinterested directors, or otherwise,
further indemnify directors, advisory directors, officers, employees, or agents
of the Corporation to the full extent permitted under the laws of the State of
Delaware or any other applicable laws, now or hereafter in effect, both as to
matters in such person's official capacity and as to action in another capacity
while holding such office, and the provisions of these By-Laws shall inure to
the benefit of a person who has ceased to be a director, advisory director,
officer, employee, or agent and to the benefit of the heirs, executors, and
administrators of such a person. All rights to indemnification under these
By-Laws shall be deemed to be a contract between the Corporation and each
director, advisory director, officer, employee, or agent of the Corporation who
serves or served in such capacity at any time while these By-Laws are in effect.
Any repeal or modification of these By-Laws or any repeal or modification of
relevant provisions of the Delaware General Corporation Law or any other
applicable laws shall not in any way diminish any rights to indemnification of
such director, advisory director, officer, employee, or agent or the obligations
of the Corporation arising hereunder.
Section 8. The foregoing rights shall be available in respect of any claim,
action, suit, or proceeding whether or not based upon matters which antedate the
adoption or amendment of these By-Laws.
Section 9. If this Article IV or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director, advisory director, officer, employee, and
agent of the Corporation as to costs, charges, expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement with respect to any
action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, including an action by or in the right of the
Corporation, to the full extent permitted by any applicable portion of these
By-Laws that shall not have been so invalidated and to the full extent permitted
by applicable law.
ARTICLE V
Notices
Section 1. Whenever, under the provisions of the statutes, the Certificate of
Incorporation, or these By-Laws, notice is required to be given to any director
or stockholder, it shall not be construed solely to mean personal notice, but
such notice may be given in writing, by mail, by depositing the same in a post
office or letter box, in a post-paid sealed wrapper, addressed to such director
or stockholder at such address as appears on the books of the Corporation and
such notice shall be deemed to be given at the time when the same shall be thus
mailed.
Section 2. Whenever any notice is required to be given under the provisions of
the statutes, the Certificate of Incorporation, or these By-Laws, a waiver
thereof in writing signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE VI
Officers
Section 1. The officers of the Corporation shall be chosen by the Directors and
shall include a Chairman of the Board, a President, a Vice President, a
Secretary, a Treasurer and a General Auditor. The Board of Directors may also
choose one or more Executive Vice Presidents, one or more Senior Vice
Presidents, and additional Vice Presidents, and the Board of Directors or the
Chief Executive Officer may also choose one or more Assistant Vice Presidents,
Assistant Secretaries, and Assistant Treasurers. Two or more offices may be held
by the same person, unless the Certificate of Incorporation or these By-Laws
otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual meeting
of the stockholders shall choose a Chairman of the Board from its members, and a
President, one or more Vice Presidents, a Secretary, and a Treasurer, none of
whom need be a member of the Board.
Section 3. The Board may appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.
Section 4. The salaries of all officers, other than assistant officers, of the
Corporation shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the whole Board of Directors. If any office
becomes vacant for any reason, the vacancy may be filled as provided above.
The Chairman of the Board
Section 6. The Chairman of the Board shall preside at all meetings of the
stockholders, Board of Directors, and Executive Committee and shall be
ex-officio a member of all of the standing committees, excepting, however, such
Audit Committee or Committees as may be established by the Board of Directors
from time to time. He shall see that all votes and resolutions of the Board are
carried into effect. He shall also perform such other duties as may from time to
time be assigned to him by the Board of Directors or the Executive Committee.
The President and Chief Executive Officer
Section 7. The President shall be the Chief Executive Officer of the
Corporation. He shall report to the Board of Directors and shall have active and
general charge and control of all affairs of the Corporation. He may execute
bonds, mortgages, and other contracts requiring a seal, under the seal of the
Corporation, except where required by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of the Corporation. He
shall also perform such other duties as the Executive Committee or the Board of
Directors shall prescribe.
Vice Presidents
Section 8. The Executive Vice President shall, subject to the direction of the
President, be responsible for the operations of the Corporation. He shall, in
the absence or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties as the President,
the Executive Committee, or the Board of Directors may prescribe.
Section 9. The Senior Vice Presidents shall perform such duties as the
President, the Executive Committee, the Board of Directors, or the Executive
Vice President to whom they may report shall prescribe.
Section 10. The Vice Presidents shall perform such duties as the President, the
Executive Committee, the Board of Directors, or the Executive Vice President or
any Senior Vice President to whom they may report directly or indirectly may
prescribe.
The Secretary and Assistant Secretaries
Section 11. The Secretary shall attend all sessions of the Board and all
meetings of the stockholders and record all votes and the minutes of proceedings
in a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and in his capacity as Secretary shall perform such other duties as
may be prescribed by the Board of Directors, the Executive Committee, the
Chairman of the Board, or the President. He shall keep in a safe custody the
seal of the Corporation and, when authorized by the Board, affix the same to any
instrument requiring it, and, when so affixed, it shall be attested by his
signature or by the signature of the Treasurer or an Assistant Secretary or an
Assistant Treasurer or such other officer who may be so authorized by the Board
of Directors.
Section 12. The Assistant Secretaries in the order designated from time to time
by the Secretary shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties as the Board of Directors shall prescribe.
The Treasurer and Assistant Treasurers
Section 13. The Treasurer shall have the custody of the corporate funds and
securities and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Executive Committee or the Board of Directors.
Section 14. He shall disburse the funds of the Corporation as may be ordered by
the Executive Committee or the Board, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
the regular meetings of the Board or whenever they may require it, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation.
Section 15. If required by the Board of Directors, he shall give the Corporation
a bond (which shall be renewed every six years) in such sum and with such surety
or sureties as shall be satisfactory to the Board for the faithful performance
of the duties of his office and for the restoration to the Corporation in case
of his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in his possession
or under his control belonging to the Corporation.
Section 16. The Assistant Treasurers in the order of their seniority shall, in
the absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties as the Executive
Committee or the Board of Directors shall prescribe.
General Auditor
Section 17. The General Auditor shall, subject to guidance from the Audit
Committee of the Board of Directors, organize and maintain an effective audit
program for the Corporation, including coordination of the internal audit
activities of the Corporation with those of the independent public accountants
who are called upon to certify the Corporation's annual financial statements.
The scope of the audit shall encompass all of the managerial, administrative,
financial, and operational functions of the Corporation.
ARTICLE VI
Certificates of Stock
Section 1. The certificates of stock of the Corporation shall be numbered and
shall be entered in the books of the Corporation as they are issued. They shall
exhibit the holder's name and number of shares and shall be signed by the
Chairman of the Board or the President or a Vice President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issuance. Any of or all the
signatures on the certificate may be a facsimile.
Transfer of Stock
Section 2. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to, or to cause such
transaction to be electronically recorded in the name of, the person entitled
thereto, cancel the old certificate, and record the transaction upon its books.
Closing of Transfer Books
Section 3. The Board of Directors shall have the power to close the stock
transfer books of the Corporation for a period not exceeding sixty days
preceding the date of any meeting of stockholders or the date for payment of any
dividend or the date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect or for a period not
exceeding sixty days in connection with obtaining the consent of stockholders
for any purpose; provided, however, that in lieu of closing the stock transfer
books as aforesaid, the Board of Directors may fix in advance a date, not
exceeding sixty days preceding the date of any meeting of stockholders, or the
date for the payment of any dividend, or the date for the allotment of rights,
or the date when any change or conversion or exchange of capital stock shall go
into effect or a date in connection with obtaining such consent, as a record
date for the determination of the stockholders entitled to notice of, and to
vote at, any such meeting, and any adjournment thereof, or entitled to receive
payment of any such dividend, or any such allotment or rights, or to exercise
the rights in respect of any such change, conversion, or exchange of capital
stock or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
Registered Stockholders
Section 4. The Corporation shall be entitled to treat the holder of record of
any share or shares of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
Lost Certificate
Section 5. The Board of Directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.
Right of First Refusal
Section 6. As to any share of Common Stock issued on or after May 11, 1995, such
share may not be sold or transferred by the holder thereof to any third party,
other than (1) by descent or distribution, (2) by bona fide gift, or (3) by bona
fide sale after the holder thereof has first offered in writing to sell the
share to the corporation at the same price and under substantially the same
terms as apply to the intended sale and the corporation has failed or declined
in writing to accept such terms within 14 days of receipt of such written offer
by the Secretary of the corporation or has refused to proceed to a closing on
the transaction within a reasonable time after such acceptance; provided,
however, that the sale to the third party following such failure, declination,
or refusal must be made on the same terms which were not previously accepted by
the corporation and within 60 days following such event, or the corporation must
again be offered such refusal rights prior to a sale of such share; provided
further, however, that this Section shall not apply to (A) any transactions made
at current market price through the corporation's internal stock market; (B) any
transactions made at any time while the Common Stock is listed for trading on a
national securities exchange or on the over-the-counter market; (C) sales to the
corporation's Employee Stock Ownership Plan; or (D) shares which have been
reissued to the holder in exchange for shares issued prior to May 11, 1995 to
the extent such previously issued shares were not subject to any right of first
refusal by the corporation or its shareholders.
ARTICLE VII
General Provisions
Dividends
Section 1. Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors, from time to time in its absolute discretion, thinks proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Board shall think conducive to the interest of the Corporation,
and the Board may modify or abolish any such reserve in the manner in which it
was created.
Directors' Annual Statement
Section 3. The Board of Directors shall present at each annual meeting, and when
called for by vote of the stockholders at any special meeting of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
Checks
Section 4. All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
Fiscal Year
Section 5. The fiscal year shall be the 52- or 53-week period ending on the last
Thursday in December, effective from and after the 52-week period ending
December 30, 1999.
Seal
Section 6. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal,
Delaware", and said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
Amendments
Section 1. These By-Laws may be altered, amended, or repealed at any regular
meeting of the stockholders or at any special meeting of the stockholders at
which a quorum is present or represented, provided notice of the proposed
alteration, amendment, or repeal be contained in the notice of such special
meeting, by the affirmative vote of a majority of the stock entitled to vote at
such meeting and present or represented thereat, or by the affirmative vote of a
majority of the Board of Directors at any regular meeting of the Board or at any
special meeting of the Board if notice of the proposed alteration or repeal be
contained in the notice of such special meeting.
