11
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Quarterly Period Ended September 3, 1994.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from to .
Commission File No.1-7348
DYNAMICS RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2211809
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
60 Frontage Road, Andover, Massachusetts 01810
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (508) 475-9090
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 .
The number of shares outstanding of the Registrant's Common stock, par
value $.10 per share, at October 11, 1994 was 5,641,348 shares.
DYNAMICS RESEARCH CORPORATION
INDEX
Page
Part I Financial
Information Number
Item 1. Financial Statements
Consolidated Balance Sheets -
September 3, 1994 and December 25, 1993 . . . . . . . . . . . . . . .
. . . 3
Consolidated Statements of Income -
Twelve and Thirty-Six Weeks Ended September 3, 1994 and
September 4, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Thirty-Six Weeks Ended September 3, 1994 and
September 4, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . .
. . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . .
. . . . . . . 7
Part II. Other Information
Item 6. Exhibits and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . 9
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 10
PART I. FINANCIAL INFORMATION
DYNAMICS RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
(unaudited)
ASSETS September 3, 1994
December 25, 1993
CURRENT ASSETS:
Cash and cash equivalents $ 58 $ 140
Receivables, less allowances of $392 in 1994 and $418 in 1993
16,430 20,016
Unbilled expenditures and fees on contracts in process 17,462
17,053
Inventories 2,497 2,630
Refundable income taxes 24 553
Prepaid expenses and other current assets 1,137 1,315
Total current assets 37,608 41,707
Property, plant and equipment, at cost
Land 1,126 1,126
Building 7,774 7,774
Machinery and equipment 31,036 29,472
Less accumulated depreciation and amortization (23,023) (20,585)
Net property, plant and equipment 16,913 17,787
Total assets $54,521 $59,494
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable $2,900 $3,301
Accounts and drafts payable 3,009 4,327
Accrued payroll and employee benefits 5,967 4,736
Deferred contract and other revenue 1,416 3,073
Other accrued expenses 1,182 944
Accrued income taxes 67 --
Current deferred income taxes 3,213 4,531
Current portion of long-term debt 1,221 1,200
Total current liabilities 18,975 22,112
Long-term debt 3,024 3,900
Deferred income taxes 1,045 1,045
SHAREHOLDERS' INVESTMENT:
Preferred stock, par value $.10 per share -
5,000,000 shares authorized, none issued
Common stock, par value $.10 per share -
Authorized - 15,000,000 shares
Issued - 6,571,595 shares in 1994 and 6,028,155 in 1993 657
603
Less: Treasury stock - 930,247 in 1994 and 927,357 shares in
1993, at par value (93) (93)
Capital in excess of par value 9,313 6,977
Retained earnings 21,600 24,950
Total shareholders' investment 31,477 32,437
Total liabilities and shareholders' investment $54,521 $
59,494
The accompanying notes are an integral part of these consolidated
financial statements.
<TABLE>
DYNAMICS RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share data)
(unaudited)
<CAPTION>
Thirty-Six Twelve
Weeks Ended Weeks Ended
Sept. 3, 1994Sept. 4, 1993Sept. 3, 1994 Sept. 4, 1993
<S> <C> <C> <C> <C>
Product sales and contract revenue:
Contract revenue $55,550 $61,234 $17,319 $18,997
Product sales 12,371 8,066 4,254 2,895
Total revenue 67,921 69,300 21,573 21,892
Cost and expenses:
Cost of contract revenue 52,565 51,474 18,591 15,797
Cost of product sales 9,758 6,788 3,361 2,414
Selling, engineering and
administrative expenses 7,021 8,518 2,320 3,313
Total operating costs and expenses 69,344 66,780 24,272
21,524
Operating income (loss) (1,423) 2,520 (2,699) 368
Interest expense (income), net 275 145 123 55
Income (loss) before provision for income taxes (1,698) 2,375
(2,822) 313
Provision (benefit) for income taxes (656) 941 (1,088)
124
Net income (loss) $(1,042)$1,434 $(1,734) $ 189
Net income (loss) per common share: $ (.18)$ .25 (1)$
(.31) $ .03 (1)
Weighted average common shares outstanding5,638,6415,639,875 (1)
5,641,348 5,650,823 (1)
</TABLE>
(1) Earnings per share and weighted average common shares outstanding have
been restated for the May 1994 10% stock dividend.
The accompanying notes are an integral part of these consolidated financial
statements.
DYNAMICS RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Thirty-Six Weeks Ended
September 3, 1994September 4, 1993
Cash provided by operations:
Net income (loss) $(1,042) $1,434
Depreciation and amortization 2,888 2,701
Provision for receivable reserves 6 50
1,852 4,185
Cash provided by (used for) working capital:
Receivables 3,580 (411)
Unbilled expenditures and fees on contracts in process (409)
(876)
Inventories 133 (496)
Refundable income taxes 529 1,328
Prepaid expenses and other current assets 178 138
Accounts and drafts payable (1,318) (2,581)
Accrued payroll and employee benefits 1,231 (8)
Deferred contract and other revenue (1,657) 134
Other accrued expenses 238 299
Accrued and current deferred income taxes (1,251) 321
1,254 (2,152)
Net cash generated (used) in operations 3,106 2,033
Cash provided by (used for) investing activities:
Additions to property, plant and equipment, net (2,014)
(11,582)
Cash provided by (used for) financing activities:
Net borrowings (repayments) under line of credit agreements
(356) 1,903
Proceeds from issuance of the mortgage loan - 6,000
Principal payment under mortgage agreement (900) (600)
Proceeds from the exercise of stock options 97 198
Purchase of treasury shares (15) (325)
Net cash generated (used) in financing activities (1,174)
7,176
Net increase (decrease) in cash and cash equivalents (82)
(2,373)
Cash and cash equivalents at the beginning of the year 140
2,908
Cash and cash equivalents at the end of the period $ 58 $ 535
Supplemental disclosures of cash flow information:
Cash paid during the thirty-six week period for:
Interest $ 284 $ 171
Income taxes $ 105 $ 541
The accompanying notes are an integral part of these consolidated financial
statements.
DYNAMICS RESEARCH CORPORATION
Notes to Consolidated Financial Statements
Note 1. The unaudited consolidated financial statements presented herein
have been prepared by the registrant pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to such rules and
regulations, although the registrant believes that the disclosures are
adequate to make the information presented not misleading. The
accompanying consolidated financial statements have not been audited
by independent accountants, but in the opinion of the management such
financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the results
of operations.
The results of operations for the twelve weeks and thirty-six weeks
ended September 3, 1994 may not be indicative of the results that may
be expected for the fiscal year ending December 31, 1994.
Note 2. Inventories are comprised
of the following (in thousands of dollars):
September 3, 1994December 25, 1993
Work in process $ 843 $ 632
Raw materials and subassemblies 1,654 1,998
Total inventories $2,497 $2,630
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Total revenues decreased $319,000 or 1% for the third twelve weeks of
1994 compared to the similar period in 1993. Product sales increased
$1,359,000, or 47%, while contract revenue decreased $1,678,000, or 9%, for
the third quarter of 1994 compared to the same period in 1993.
The increase in product sales comes from the Company's commercial
component manufacturing Divisions, Encoder and Metrigraphics. The Encoder
Division experienced strong demand for its line motion sensing devices
along with growth from its automotive industry device. Metrigraphics
growth is attributable to sales of its electroformed products.
The contract revenue decrease continues to reflect reduced hourly rates
and related revenue from an engineering services program (TEMS) performed
for the Air Force at Hanscom Air Force Base in Massachusetts coupled with a
reduction in scope on the Company's Weapons System Management Information
Systems (WSMIS) program for the U.S. Air Force. Third quarter results also
included a non-recurring $1.0 million adjustment to revenue in connection
with a contract with the United States Air Force. The adjustment is based
upon the Company's most recent evaluation of expected profitability of this
multi-year contract and the uncertainty of recovery of certain costs
incurred to date. After this charge, revenue from the first thirty-six
weeks includes $3.6 million related to enhancements to the Company's Air
Force aircraft maintenance information system for which the Company is
currently negotiating with the Air Force on a definitized statement of
work. The statement of work being finalized relates to a contract awarded
to the Company which, with options, may continue for two and one-half
years.
Defense budget pressures and priorities may alter the future scope of
defense programs, and the potential impact of these changes on the
Company's future revenue remains difficult to predict.
Cost of contract revenues as a percentage of contract revenues
increased to 107% for the third twelve weeks of 1994 from 83% for the same
period in 1993. The increase was due to the adverse effect on profit
margins from lower TEMS billing rates as well as a reduced contribution to
fixed expenses resulting from lower contract revenue. Third quarter
results also included non-recurring charges totaling $1.25 million,
consisting of $750,000 related to staff reductions at the Company's Systems
Division and $500,000 to provide for the risk of recovery of certain costs
incurred under an agreement with the Government.
Cost of goods as a percentage of product sales for the third twelve
weeks of 1994 was 79%, down from 83% in 1993. The 4% decrease in cost of
goods sold as a percentage of sales was the result of the commercial
division's new product lines becoming fully operational in 1994, thereby
eliminating the start-up costs incurred during 1993. The increased volume
on both the new encoder line and the electroform line resulted in
manufacturing efficiencies which resulted in the decreased cost of sales
percentage.
Selling, engineering and administrative expenses decreased 30% from
1993 principally as a result of staff reductions made during the fourth
quarter of 1993.
Interest expense, net was $123,000 in the third quarter of 1994
compared to $55,000 for the same period in 1993. This increase resulted
from a higher level of average borrowings in 1994 coupled with an increase
in average interest rates.
Liquidity and Capital Resources
Receivables decreased $3,586,000 to $16,430,000 at September 3, 1994 from
$20,016,000 at December 25, 1993 while unbilled expenditures and fees on
contracts in process increased $409,000 to $17,462,000 from $17,053,000.
The increase in unbilled expenditures is primarily attributable to the
aircraft maintenance information system spending as discussed above offset,
in part, by increased invoicing of costs under various Government contracts
in accordance with contractual provisions. Working capital decreased
$962,000 during the thirty-six weeks of 1994 to $18,633,000 at September 3,
1994 as a result of the $2.25 million in non-recurring charges during the
third quarter of 1994.
The Company's primary sources of liquidity have been cash flow from
operations and bank credit lines. At September 3, 1994, $18,100,000 was
available under the Company's current lines of credit. The Company
believes that its liquid assets, cash flow from operations and available
bank lines of credit will satisfy its operating and capital requirements
for the foreseeable future.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) The Registrant did not file any reports on Form 8-K during the
twelve-week period for which this report is filed.
SIGNATURE
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.
DYNAMICS RESEARCH CORPORATION
(Registrant)
Date: October 17, 1994 By: /s/ Douglas R. Potter
Douglas R. Potter
Vice President of Finance and Chief Financial
Officer
(Principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-03-1994
<CASH> 58
<SECURITIES> 0
<RECEIVABLES> 16,430
<ALLOWANCES> 392
<INVENTORY> 2,497
<CURRENT-ASSETS> 37,608
<PP&E> 39,936
<DEPRECIATION> 23,023
<TOTAL-ASSETS> 54,521
<CURRENT-LIABILITIES> 18,975
<BONDS> 0
<COMMON> 657
0
0
<OTHER-SE> 30,820
<TOTAL-LIABILITY-AND-EQUITY> 54,521
<SALES> 12,371
<TOTAL-REVENUES> 67,921
<CGS> 9,758
<TOTAL-COSTS> 69,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 275
<INCOME-PRETAX> (1,698)
<INCOME-TAX> (656)
<INCOME-CONTINUING> (1,042)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,042)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
