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 Twelve Weeks Ended June 17,
1995.
OR
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act
of 1934
For the Transition Period from to
.
Commission File 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 01810-5498
(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 July 13, 1995 was 5,575,387 shares.
DYNAMICS RESEARCH CORPORATION
INDEX
Page Part I
Financial
Information Number
Item 1. Financial Statements
Consolidated Balance Sheets -
June 17, 1995 and December 31, 1994 . . . . . . . . . . . . . . .
.
.
. 3
Consolidated Statements of Income -
Twelve and Twenty-Four Weeks Ended June 17, 1995 and
June 11, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . . 4
Consolidated Statements of Cash Flows -
Twenty-Four Weeks Ended June 17, 1995 and
June 11, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . . 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 June
17,
1995
December 31, 1994
CURRENT ASSETS:
Cash and cash equivalents $3,268 $
206
Receivables, less allowances of $404 in 1995 and $586 in
1994 15,101
14,939
Unbilled expenditures and fees on contracts in process 14,940
18,194
Inventories 2,478
2,353
Refundable income taxes 406
885
Prepaid expenses and other current assets 1,166
1,330
Total current assets 37,359
37,907
Property, plant and equipment, at cost
Land 1,126
1,126
Building 7,774
7,774
Machinery and equipment 31,522
30,234
Less accumulated depreciation and amortization
(24,892) (23,064)
Net property, plant and equipment 15,530
16,070
Total assets
$52,889
$53,977
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable $ -
- - -
$1,200
Accounts and drafts payable
2,715
3,442
Accrued payroll and employee benefits
6,210
4,649
Deferred contract and other revenue
983
894
Other accrued expenses
1,592
1,535
Accrued and current deferred income taxes 4,781
4,741
Current portion of long-term debt
1,221
1,221
Total current liabilities
17,502
17,682
Long-term debt
2,108
2,717
Deferred income taxes
865
865
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 - 6,571,495 shares in 1995 and 6,571,495 in 1994
657 657
Less: Treasury stock - 996,108 in 1995 and 940,047 shares in
1994, at par value (100) (94)
Capital in excess of par value 9,061 9,284
Retained earnings 22,796 22,866
Total shareholders' investment 32,414 32,713
Total liabilities and shareholders' investment $52,889
$ 53,977
The accompanying notes are an integral part of these
consolidated financial statements.
DYNAMICS RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share data)
(unaudited)
Twelve Twenty-
four
Weeks Ended Weeks Ended
June 17, 1995June 11, 1994June 17, 1995 June
11, 1994
Product sales and contract revenue:
Contract revenue $18,771 $19,671 $36,014 $38,231
Product sales 5,165 3,985 9,851
8,117
Total revenue 23,936 23,656 45,865
46,348
Cost and expenses:
Cost of contract revenue 16,806 17,552 32,700
33,974
Cost of product sales 4,184 3,144 8,262
6,397
Selling, engineering and
administrative expenses 2,396 2,380 4,955
4,701
Total operating costs and expenses 23,386 23,076 45,917
45,072
Operating income (loss) 550 580 (52)
1,276
Interest expense (income), net 20 76 61 152
Income (loss) before provision for income taxes 530 504
(113) 1,124
Provision (benefit) for income taxes 212 202 (43)
432
Net income (loss) $ 318 $ 302 $(70) $ 692
Net income (loss) per common share: $ .06 $ .05 $(.01)
$
.12
Weighted average common shares outstanding5,612,6685,641,583
5,620,431 5,637,481
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)
Twenty-Four Weeks
Ended June 17,
1995June 11, 1994
Cash provided by operations:
Net income (loss) $ (70) $ 692
Depreciation and amortization 1,828 1,921
Provision for receivable reserves (190) 3
1,568 2,616
Cash provided by (used for) working capital:
Receivables 28 419
Unbilled expenditures and fees on contracts in process
3,254 (1,543)
Inventories (125) (117)
Refundable income taxes 479 29
Prepaid expenses and other current assets 164
138 Accounts and drafts payable
(727)
(1,562)
Accrued payroll and employee benefits 1,561 630
Deferred contract and other revenue 89
(1,701)
Other accrued expenses 57 350
Accrued and current deferred income taxes 40
407 4,820
(2,950)
Net cash generated (used) in operations 6,388 (334)
Cash provided by (used for) investing activities:
Additions to property, plant and equipment, net
(1,288)
(1,757)
Cash provided by (used for) financing activities:
Net borrowings (repayments) under line of credit agreements
(1,209) 2,756
Proceeds (repayment) from mortgage loan (600) (600)
Proceeds from the exercise of stock options --
97 Purchase of treasury shares (229)
(16)
Net cash generated (used) in financing activities (2,038)
2,237
Net increase (decrease) in cash and cash equivalents 3,062
146
Cash and cash equivalents at the beginning of the year 206
140 Cash and cash equivalents at the end of the period $3,268
$ 286
Supplemental disclosures of cash flow information:
Cash paid during the twenty-four week period for:
Interest $ 136 $
164
Income taxes $ 38 $
35
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 twenty-
four weeks ended June 17, 1995 may not be indicative of the
results that may be expected for the fiscal year ending December
30, 1995.
Note 2. Inventories are
comprised
of the following (in thousands of dollars):
June 17, 1995December 31,
1994 Work in process $ 752 $ 603
Raw materials and subassemblies 1,726 1,750
Total inventories $2,478 $2,353
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Total revenue increased $280,000 or 1% for the second twelve weeks of
1995, reflecting the net effect of commercial product sales growth of
$1,180,000, or 30%, partially offset by a decrease in the defense
related contract services business. Both of the Company's commercial
divisions contributed to the increase in product sales. Encoder sales
of precision position and motion sensing devices used in a variety of
industrial equipment accounted for approximately 56% of the product
sales growth. Sales of precision electroformed parts used in commercial
ink-jet printers accounted for much of the remainder of the growth.
Contract revenue decreased 5% for the second quarter of 1995 compared
to the same period in 1994. The decrease was principally due to the
reduction in effort on the Company's Air Force logistics information
systems programs, as compared to the second quarter of 1994. The
Company's contract awards during the first half of 1995 to support Air
Force logistics activities at Tinker Air Force Base in Oklahoma and for
the Air Staff in Washington are expected to begin producing revenue
during the third and fourth quarters, as tasking is assigned. 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 is difficult to predict. Presently, the Company's core program
revenue relates to systems which continue to receive budgetary support.
On June 27, 1995, the Company announced that it was awarded a prime
contract to provide information processing support services to the
Internal Revenue Service. The contract is for one year plus four one
year options, provides for cost plus fixed-fee tasking, and has a
ceiling of $40 million for each year. Actual revenue will depend on
the results of future tasking.
Profit margins in the Defense services segment of the Company's
business continue to be under pressure. Cost of contract revenue as a
percentage of contract revenue increased to 90% for the second twelve
weeks of 1995 from 89% for the same period in 1994, however,
performance has improved from 92% cost of contract revenue during the
first quarter of 1995 as staff has been assigned to revenue producing
contracts.
Cost of goods as a percentage of product sales for the second twelve
weeks of 1995 was 81%, up from 79% in the same in 1994, but down from
87% for the first quarter of 1995. The first quarter included costs
incurred for the replacement of certain units due to a specific
manufacturing problem. The problem has been corrected and the cost to
replace all affected units has either been reserved or incurred during
the six month period ending June 17, 1995.
Net interest expense was $20,000 in the second quarter of 1995
compared to $76,000 for the same period in 1994. During the second
quarter of 1995, the Company had minimal line of credit borrowings.
Interest expense relates to the Company's mortgage debt. Invested cash
balances averaged $2.2 million during the second quarter of 1995.
Liquidity and Capital Resources
During the first six months of fiscal 1995, the Company's cash and cash
equivalents increased by $3,062,000. The reduction in unbilled
receivables of $3.3 million was the most significant working capital
item reflecting the close-out of certain prior year government
contracts. Operations generated $1.6 million of cash despite a small
net loss for the first half of 1995. Non-cash expense for depreciation
and amortization amounted to $1.8 million during the first half of
1995.
Capital spending during the first half of 1995 was $1.3 million
consisting principally of computer equipment and commercial
manufacturing production equipment. Management expects to increase
capital spending during the second half of 1995 as the Company invests
in additional manufacturing equipment to increase its commercial
product production capacity.
The Company's primary sources of liquidity have been cash flow from
operations and bank credit lines. At June 17, 1995, $21,000,000 was
available under the Company's current lines of credit. The Company
believes that its liquid assets, cash flow from operations and
available bank credit lines 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: July 25, 1995 By: /s/ Douglas
R.
Potter
Douglas R. Potter
Vice President of Finance and Chief
Financial Officer
(Principal financial and accounting
officer)
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