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 March 30, 2000 Commission file number 1-3879
DynCorp
(Exact name of registrant as specified in its charter)
Delaware 36-2408747
(State of incorporation or organization) (I.R.S. Employer Identification No.)
11710 Plaza America Drive, Reston, Virginia 20190
(Address of principal executive offices) (Zip Code)
(703) 261-5000
(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. |X| Yes |_| 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 April 29, 2000
----- --------------------------------
Common Stock, $0.10 par value 10,402,313
<PAGE>
DYNCORP AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 30, 2000
INDEX
Page
----
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
March 30, 2000 and December 30, 1999 3-4
Consolidated Condensed Statements of Operations for
Three Months Ended March 30, 2000 and April 1, 1999 5
Consolidated Condensed Statements of Cash Flows for
Three Months Ended March 30, 2000 and April 1, 1999 6
Consolidated Statement of Stockholders' Equity 7
Notes to Consolidated Condensed Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
-----------------------------
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 30, 2000 AND DECEMBER 30, 1999
(In thousands)
March 30,
2000 December 30,
Unaudited 1999
--------- ------------
<S> <C> <C>
Assets
- ------
Current Assets:
Cash and cash equivalents $ 9,113 $ 5,657
Accounts receivable (net of allowance for doubtful accounts
of $2,522 in 2000 and $3,156 in 1999) 334,301 357,411
Other current assets 39,572 35,140
-------- --------
Total current assets 382,986 398,208
Property and Equipment (net of accumulated depreciation
and amortization of $19,103 in 2000 and $21,583 in 1999) 36,991 40,795
Intangible Assets (net of accumulated amortization of
$59,935 in 2000 and $55,755 in 1999) 145,327 149,159
Other Assets 53,008 51,511
-------- --------
Total Assets $618,312 $639,673
======== ========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 30, 2000 AND DECEMBER 30, 1999
(In thousands, except share amounts)
March 30,
2000 December 30,
Unaudited 1999
--------- ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Notes payable and current portion of long-term debt $ 14,356 $ 8,242
Accounts payable 58,996 85,357
Deferred revenue and customer advances 7,168 6,048
Accrued liabilities 141,370 133,374
------- -------
Total current liabilities 221,890 233,021
Long-Term Debt 320,446 334,944
Other Liabilities and Deferred Credits 57,121 55,718
Contingencies and Litigation - -
Temporary Equity:
Redeemable common stock -
ESOP shares, 7,440,518 and 7,350,937
shares issued and outstanding in 2000 and 1999,
respectively, subject to restrictions 185,012 182,974
Other, 426,217 shares issued and outstanding in
2000 and 1999, respectively 6,568 6,142
Stockholders' Equity:
Common stock, par value ten cents per share, authorized 20,000,000 shares;
issued 4,818,865 and 4,908,447 sharesin 2000 and 1999, respectively 482 491
Paid-in surplus 133,376 133,338
Accumulated other comprehensive income (4) (9)
Reclassification to temporary equity for redemption value
greater than par value (190,793) (188,339)
Deficit (72,835) (72,887)
Common stock held in treasury, at cost; 2,283,288 and
2,301,262 shares in 2000 and 1999, respectively (42,651) (43,062)
Unearned ESOP shares (300) (2,658)
-------- --------
Total Liabilities and Stockholders' Equity $618,312 $639,673
======== ========
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
------------------
March 30, April 1,
2000 1999
---- ----
<S> <C> <C>
Revenues $428,500 $311,886
Costs and expenses:
Costs of services 407,350 295,369
Corporate general and administrative 6,633 5,417
Interest income (827) (777)
Interest expense 10,168 4,054
Other 3,779 235
------- -------
Total costs and expenses 427,103 304,298
Earnings before income taxes and minority interest 1,397 7,588
Provision for income taxes 344 2,594
------- -------
Earnings before minority interest 1,053 4,994
Minority interest 577 1,103
------- -------
Net earnings $ 476 $ 3,891
======= =======
Accretion of mezzanine shares to redeemable value 424 -
Common stockholders' share of net earnings $ 52 $ 3,891
======= =======
Basic earnings per share $ 0.01 $ 0.38
Diluted earnings per share $ 0.01 $ 0.38
Weighted average number of shares
outstanding for basic earnings per share 10,411 10,176
Weighted average number of shares
outstanding for diluted earnings per share 10,638 10,328
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
------------------
March 30, April 1,
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Common stockholders' share of net earnings $ 52 $ 3,891
Adjustments to reconcile net earnings from operations to net cash
provided by operating activities:
Depreciation and amortization 6,013 2,310
Other 288 (142)
Changes in current assets and liabilities, net of acquisitions:
Decrease (increase) in current assets except cash and cash equivalents 18,678 (2,520)
Decrease in current liabilities excluding notes payable
and current portion of long-term debt (21,225) (2,491)
------- -------
Cash provided by operating activities 3,806 1,048
Cash Flows from Investing Activities:
Sale of property and equipment 9,715 13
Purchase of property and equipment (3,663) (1,453)
Increase in investments in unconsolidated affiliates (184) (951)
Capitalized cost of new financial and human resource systems (50) (4,311)
Other (155) (26)
------- -------
Cash provided (used) by investing activities 5,663 (6,728)
Cash Flows from Financing Activities:
Treasury stock purchased - (4,149)
Payment on indebtedness (84,748) (47,456)
Proceeds from debt issuance 74,853 66,522
Pay-in kind interest on Subordinated Notes 1,500 -
Payment received on Employee Stock Ownership Trust note 2,658 1,057
Loan to Employee Stock Ownership Trust (300) (2,247)
Other 24 242
------- -------
Cash (used) provided by financing activities (6,013) 13,969
Net Increase in Cash and Cash Equivalents 3,456 8,289
Cash and Cash Equivalents at Beginning of the Period 5,657 4,088
------- -------
Cash and Cash Equivalents at End of the Period $ 9,113 $12,377
======= =======
Supplemental Cash Flow Information:
Cash paid for income taxes $ 2,097 $ 1,292
======= =======
Cash paid for interest $ 6,390 $ 5,568
======= =======
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 Par Treasury ESOP Comprehensive
Stock Surplus Value Deficit Stock Shares Income
----- ------- ----- ------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1999 $491 $133,338 $(188,339) $(72,887) $(43,062) $(2,658) $(9)
Employee compensation plans
(option exercises, restricted
stock plan, incentive bonus) (386) 411
Loans to the Employee Stock
Ownership Trust (300)
Payment received on
Employee Stock Ownership
Trust note 2,658
Reclassification to Redeemable
common stock (9) (2,030)
Accretion of mezzanine shares
to redeemable value 424 (424) (424)
Translation adjustment 5
Net earnings 476
---- -------- --------- -------- -------- ------- ----
Balance, March 30, 2000 $482 $133,376 $(190,793) $(72,835) $(42,651) $(300) $(4)
==== ======== ========== ========= ======== ======= ====
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
DYNCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 30, 2000
UNAUDITED
Note 1. Basis of Presentation
The Company has prepared the unaudited consolidated condensed financial
statements included herein 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 are 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 2000
presentation.
Note 2. Redeemable Common Stock
Common stock which is redeemable upon the exercise of puts under the
Company's Employee Stock Ownership Plan ("ESOP") and under the
registration rights agreement noted below has been reflected as Temporary
Equity at each balance sheet date and consists of the following:
<TABLE>
<CAPTION>
Balance at Balance at
Redeemable March 30, Redeemable December 30,
Shares Value 2000 Shares Value 1999
------------ -------------- ------------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ESOP Shares 3,313,729 $27.50 $ 91,128 3,313,729 $27.50 $ 91,128
4,126,789 $22.75 93,884 4,037,208 $22.75 91,846
--------- --------- --------- ---------
7,440,518 $ 185,012 7,350,937 $ 182,974
========= ========= =========
Other Shares 426,217 $15.41 $ 6,568 426,217 $14.41 $ 6,142
========= ========= ========= =========
</TABLE>
In accordance with the Employee Retirement Income Security Act regulations
and the 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.
On December 10, 1999, the Company entered into an agreement with various
financial institutions for the sale of 426,217 shares of the Company's
stock and Subordinated Notes. Under a contemporaneous registration rights
agreement, the holders of these shares of stock will have a put right to
the Company commencing on December 10, 2003, at a price of $40.53 per
share, unless one of the following events has occurred prior to such date
or the exercise of the put right: (1) an initial public offering of the
Company's common stock has been consummated; (2) all the Company's common
stock has been sold; (3) all the Company's assets have been sold in such a
manner that the holders have received cash payments; or (4) the Company's
common stock has been listed on a national securities exchange or
authorized for quotation on the Nasdaq National Market System for which
there is a public market of at least $100 million for the Company's common
stock. If, at the time of the holders' exercise of the put right the
Company is unable to pay the put price because of financial covenants in
loan agreements or other provisions of law, the Company will not honor the
put at that time, and the put price will escalate for a period of up to
four years, at which time the put must be honored. The escalation rate
increases during such period until the put is honored, and the rate varies
from an annualized factor of 22% for the first quarter after the put is
not honored up to 52% during the sixteenth quarter.
Note 3. Employee Stock Ownership Trust
From time to time, the Company makes collateralized loans to the Employee
Stock Ownership Trust ("ESOT") to purchase shares and pay off expiring
loans. During the first three months of 2000, the Company loaned the ESOT
$0.3 million and the ESOT paid back to the Company $2.7 million of the
outstanding loan balance. The unpaid loan balance, reflected as a
reduction of stockholders' equity, was $0.3 million and $2.7 million at
March 30, 2000 and December 30, 1999, respectively. The unpaid loan
balances represented 11,470 and 101,052 unallocated shares at March 30,
2000, and December 30, 1999, respectively.
Note 4. Income Taxes
The provision for income taxes in 2000 and 1999 is based upon an estimated
annual effective tax rate. This rate includes the impact of permanent
differences between the book value of assets and liabilities recognized
for financial reporting purposes and the basis recognized for tax
purposes.
Note 5. 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 common
stockholders' share of net 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 conditions for issuance have 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 options outstanding, assuming the
treasury stock method.
<TABLE>
<CAPTION>
Three Months Ended
March 30, April 1,
2000 1999
---- ----
<S> <C> <C>
Weighted average shares outstanding for basic EPS 10,411 10,176
Effect of dilutive securities:
Stock options 227 152
------ ------
Weighted average shares outstanding for diluted EPS 10,638 10,328
====== ======
</TABLE>
Note 6. Business Segments
The Company has three reportable segments, DynCorp Information and
Enterprise Technology ("DI&ET"), DynCorp Technical Services ("DTS") and
DynCorp Information Systems LLC ("DIS"). DI&ET designs, develops, supports
and integrates software and hardware systems to provide customers with
comprehensive solutions for information management and engineering needs.
DTS provides services ranging from aviation maintenance to multifaceted
aerospace sciences, technology and avionics engineering. DIS offers a full
range of integrated telecommunications services and information technology
solutions in the area of professional services, business systems
integration, information infrastructure solutions and information
technology operations and support.
Revenues, operating profit and identifiable assets for the Company's three
business segments for 2000 and the comparable periods for 1999 are
presented below:
<TABLE>
<CAPTION>
Three Months Ended
March 30, April 1,
2000 1999
---- ----
<S> <C> <C>
Revenues
- --------
DI&ET $166,522 $155,456
DTS 209,185 156,430
DIS 52,793 -
-------- --------
$428,500 $311,886
======== ========
Operating Profit (a)
- ----------------
DI&ET $ 8,704 $ 8,970
DTS 8,475 6,960
DIS 3,390 -
-------- -------
20,569 15,930
Corporate general and administrative 6,633 5,417
Interest income (827) (777)
Interest expense 10,168 4,054
Goodwill amortization 942 393
Minority interest included in operating profit (577) (1,103)
Amortization of intangibles of acquired companies 2,816 384
Other miscellaneous 17 (26)
-------- -------
Earnings before income taxes and minority interest $ 1,397 $ 7,588
======== =======
March 30, December 30,
2000 1999
---- ----
Identifiable Assets
-------------------
DI&ET $ 190,565 $ 205,798
DTS 182,345 173,629
DIS 195,308 206,083
Corporate 50,094 54,163
--------- ---------
$ 618,312 $ 639,673
========= =========
(a) Defined as the excess of revenues over operating expenses and certain non-operating 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 30, 1999.
Results of Operations
- ---------------------
The Company provides diversified management, technical and professional services
primarily to U.S. Government customers throughout the United States and
internationally. The Company's customers include various branches of the
Department of Defense, the Department of Energy, the Department of State, the
Department of Justice, National Aeronautics and Space Administration and various
other U.S., state and local government agencies, commercial clients and foreign
governments. The following discusses the Company's results of operations and
financial condition for the three months ended March 30, 2000 and the comparable
period for 1999.
Revenues and Operating Profit
- -----------------------------
Revenues for the first quarter of 2000 were $428.5 million, compared to $311.9
million for the comparable period in 1999, an increase of $116.6 million, or
37.4%. Operating profit, defined as the excess of revenues over operating
expenses and certain non-operating expenses, was $20.6 million for the first
quarter of 2000, compared to $15.9 million for the comparable period in 1999, an
increase of $4.6 million or 29.1%. The increase in both revenues and operating
profit was attributable to the DIS acquisition in December 1999 and internal
growth.
DynCorp Information and Enterprise Technology ("DI&ET") reported revenues of
$166.5 million for the first quarter of 2000 compared to $155.5 million for the
same quarter in 1999, an increase of $11.1 million or 7.1%. The increase in
revenues in the first quarter of 2000 compared to the first quarter of 1999
resulted from growth on a sub-contract from the Department of Commerce Bureau of
the Census, which began generating revenue in the second half of 1999, and
growth in a contract with the U.S. Postal Service, which became operational in
1999. DI&ET health information technology services' revenues increased due to
growth in a joint venture for vaccine technology services to the Department of
Defense. Also contributing to DI&ET's revenue growth was the receipt of an award
fee on a contract that was greater than accrued (expected), increased tasking on
several indefinite delivery/indefinite quantity ("IDIQ") contracts and higher
volumes of state and local contract business. Partially offsetting these
increases in revenue was the loss of a sub-contract with the U.S. Postal Service
and the Immigration and Naturalization Service.
For the first quarter ended March 30, 2000, operating profit for DI&ET decreased
slightly by $0.3 million to $8.7 million, or 3.0%, from $9.0 million in the
first quarter of 1999. The decrease in operating profit resulted primarily from
the loss of the subcontract with the U.S. Postal Services and a contract with
the Immigration and Naturalization Service. Offsetting these decreases in
operating profit was the aforementioned award fee, higher volumes in health
information technology services, and the reversal of reserves related to a
business that was sold.
DynCorp Technical Services' ("DTS") first quarter 2000 revenues were $209.2
million compared to $156.4 million for the first quarter of 1999, an increase of
$52.8 million or 33.7%. Operating profit increased by $1.5 million to $8.5
million, or 21.8%, from $7.0 million in the first quarter of 1999. The increase
in revenues resulted from increased tasking on State Department contracts
providing protective support services in several countries, increased services
on a contract in support of the government's drug eradication program, and
increases in the level of effort on contracts providing repair and maintenance
on military aircrafts. Also contributing to the increase in revenue were
increases in the purchase of reimbursable materials for the customer at Fort
Rucker and increased services on certain base operations support contracts.
DTS' increase in operating profit for the first quarter of 2000 compared to the
first quarter of 1999 resulted from the growth in the State Department contracts
providing protective services and the increases in services providing repair and
maintenance on military aircraft. Slightly offsetting these increases in
operating profit were decreases in certain marine services operations contracts.
DynCorp Information Systems LLC ("DIS"), which was acquired on December 10,
1999, from GTE Corporation, had revenues of $52.8 million and operating profit
of $3.4 million for the first quarter of 2000. The Company's actual results for
the three-month period ending April 1, 1999 do not include DIS results.
Cost of Services
- ----------------
Cost of services for the first quarter 2000 was 95.1% of revenue as compared to
94.7% for the comparable period in 1999. The increase in the first quarter cost
of services' percentage compared to the comparable period of 1999 was due to
higher phase-in costs for new contracts at DTS in the first three months of
2000.
Corporate General and Administrative Expense
- --------------------------------------------
Corporate general and administrative expense for the first quarter of 2000 was
$6.6 million, compared to $5.4 million for the comparable period in 1999, an
increase of $1.2 million. The increase relates primarily to the Company's
implementation of the new financial and human resource software packages. The
Company has moved from the design and development phase of this resystemization
into the implementation phase and is now expensing versus capitalizing the
associated costs.
Interest Expense
- ----------------
Interest expense was $10.2 million in the first quarter of 2000, up from $4.1
million in the first quarter of 1999. The increase in interest expense was
attributable to higher average debt levels as a result of the DIS acquisition
and higher weighted average interest rates in the first three months of 2000
compared to the first three months of 1999.
Other Expense
- -------------
Other expense was $3.8 million for the first quarter of 2000, compared to $0.2
million for the comparable period of 1999. The increase reflects additional
amortization costs of intangible assets related to the acquisition of DIS in
December 1999.
Income Taxes
- ------------
The provision for income taxes in 2000 and 1999 is based upon an estimated
annual effective tax rate, including the impact of permanent 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 decreased by $2.3 million for the three months ended March 30, 2000 from
the comparable period in 1999. The decrease was due to lower pretax income off-
set by a higher effective tax rate in the first quarter of 2000, compared to the
same period in 1999. The Company's effective tax rate approximated 42.0% for the
three months ended March 30, 2000 compared to 40.0% in the comparable period in
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 $4.3 billion at March 30, 2000, compared to $4.4
billion at December 30, 1999, a net decrease of $0.1 billion. The backlog at
March 30, 2000 consisted of $2.2 billion for DTS, $1.7 billion for DI&ET, and
$0.4 billion for DIS compared to December 30, 1999 backlog of $2.2 billion for
DTS, $1.7 billion for DI&ET, and $0.5 billion for DIS.
Working Capital and Cash Flow
- -----------------------------
Working capital, defined as current assets less current liabilities, was $161.1
million at March 30, 2000 compared to $165.2 million at December 30, 1999, a
decrease of $4.1 million. This decrease was primarily the result of a higher
current portion of long-term debt and lower accounts receivable balance, which
was partially offset by a lower accounts payable balance at March 30, 2000. The
higher current portion of long-term debt along with the higher customer
collections and seasonality in accounts payable contributed to the lower
working capital balance.
For the three months ended March 30, 2000, the Company's cash flow from
operations increased $2.8 million to $3.8 million from the comparable period for
1999. The increase in cash provided by operations was primarily attributable to
higher customer collections in the first three months of 2000 compared to the
first three months of 1999. Partially offsetting the cash from higher customer
collections was cash used for payment of accounts payable.
Investing activities provided funds of $5.7 million in the three months ended
March 30, 2000. The Company sold an office building located in Alexandria,
Virginia to a third party for $10.5 million, and simultaneously closed on a
lease of that property from the new owner. The Company used a portion of the net
proceeds to pay off the mortgage on the property. Partially offsetting the cash
provided from the sale of the office building was cash used for the purchase of
other property and equipment. During the first three months of 1999, investing
activities used funds of $6.7 million 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.
Cash used in financing activities for the three months ended March 30, 2000
totaled $6.0 million and included the payoff of the mortgage on the Alexandria
office building that the Company sold. The Company also reduced its outstanding
borrowings under the Senior Secured Credit Agreement Term B loans maturing
December 9, 2006. During the first quarter of 1999, financing activities
provided net funds of $14.0 million, which consisted primarily of additional
borrowing against the Contract Receivable Collateralized Class B Variable Rate
Note. The proceeds were used to make a loan to the Employee Stock Ownership
Trust, to fund the Company's purchase of common stock from investors, and to
finance working capital needs.
The Company anticipates selling non-strategic assets from time to time in the
future.
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 flow and does not represent net income
or cash flow 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, measures
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):
<TABLE>
<CAPTION>
Three Months Ended
March 30, April 1,
2000 1999
---- ----
<S> <C> <C>
Net earnings $ 476 $3,891
Depreciation and amortization 6,013 2,310
Interest expense, net 9,341 3,277
Income taxes 344 2,594
Amortization of deferred debt expense (271) (186)
Debt issue discount (10) (9)
------ ------
EBITDA $ 15,893 $11,877
======== =======
</TABLE>
Year 2000 Compliance
- --------------------
The principal "Year 2000" ("Y2K") risk to the Company would have come from an
extended failure of one or more of its core systems (financial, payroll, and
human resources). The Company completed all Y2K readiness work and did not
experience any material adverse impacts as a result of the Y2K date transition.
No problems were found that materially affected the Company's ability to perform
on its significant contracts.
Assessments at the contract level were completed to the extent possible. These
assessments included analysis of the readiness of hardware, software, prime and
subcontractors, customers, suppliers and vendors, data dependencies, and
facilities. There were no material issues on any contracts.
The Company does not believe it has any continued exposure to the Y2K issue.
Forward Looking Statements
- --------------------------
Certain matters discussed or incorporated by reference in this report are
forward-looking statements within the meaning of the federal securities laws.
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, there can be
no assurance that its expectations will be achieved. Factors that could cause
actual results to differ materially from the Company's current expectations
include the early termination of, or failure of a customer to exercise option
periods under a significant contract; the inability of the Company to generate
actual customer orders under indefinite delivery, indefinite quantity contracts;
technological change; the inability of the Company to manage its growth or to
execute its internal performance plan; the inability of the Company to integrate
the operations of acquisitions; the inability of the Company to attract and
retain the technical and other personnel required to perform its various
contracts; general economic conditions; and other risks discussed elsewhere in
this report and in other filings of the Company with the Securities and Exchange
Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company is exposed to market risk from changes in interest rates on its
floating rate debt. For more information related to the Company's floating rate
debt, see Long-term Debt in the Notes to the Consolidated Financial Statements
in the Form 10-K. The Company manages its exposure to this market risk through
the monitoring of its available financing alternatives including, in certain
circumstances, the use of derivative financial instruments. The Company has
managed its exposure to changes in interest rates by effectively capping at 7.5%
the base interest rate on $100.0 million of its LIBOR indexed debt. The
Company's only use of derivative financial instruments is to manage its
exposures to fluctuations in interest rates and foreign exchange rates. The
Company does not hold or issue derivative financial instruments for trading
purposes.
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
None filed.
(b) Reports on Form 8-K
An amendment to the Form 8-K dated December 27, 1999, Form 8-K/A, was filed
on February 23, 2000 and included the audited financial statements of
Information Systems Division as of December 31, 1998 and 1997, together with
auditors' report, the unaudited pro forma combined statements of operations
for the nine-month and twelve-month periods ending September 30, 1999 and
December 31, 1998, respectively, giving effect to acquisition, and the notes
to the unaudited pro forma combined financial statements.
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 15, 2000 /s/ P.C. FitzPatrick
--------------------
P.C. FitzPatrick
Senior Vice President
and Chief Financial Officer
Date: May 15, 2000 /s/ J.J. Fitzgerald
-------------------
J.J. Fitzgerald
Vice President
and Corporate Controller
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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