4
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 March 25, 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 April 8, 1995 was 5,625,448 shares.
DYNAMICS RESEARCH CORPORATION
INDEX
Page
Part I Financial
Information Number
Item 1. Financial Statements
Consolidated Balance Sheets -
March 25, 1995 and December 31, 1994 . . . . . . . . . . . . . . . .
. . 3
Consolidated Statements of Income -
Twelve Weeks Ended March 25, 1995 and
March 19, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . 4
Consolidated Statements of Cash Flows -
Twelve Weeks Ended March 25, 1995 and
March 19, 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 March 25, 1995
December 31, 1994
CURRENT ASSETS:
Cash and cash equivalents $3,220 $ 206
Receivables, less allowances of $600 in 1995 and $586 in 1994
14,902 14,939
Unbilled expenditures and fees on contracts in process 14,890
18,194
Inventories 2,232 2,353
Refundable income taxes 535 885
Prepaid expenses and other current assets 1,425 1,330
Total current assets 37,204 37,907
Property, plant and equipment, at cost
Land 1,126 1,126
Building 7,774 7,774
Machinery and equipment 30,851 30,234
Less accumulated depreciation and amortization 23,948 23,064
Net property, plant and equipment 15,803 16,070
Total assets $53,007 $53,977
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable $ -- $1,200
Accounts and drafts payable 3,335 3,442
Accrued payroll and employee benefits 5,836 4,649
Deferred contract and other revenue 938 894
Other accrued expenses 1,520 1,535
Accrued and current deferred income taxes 4,578 4,741
Current portion of long-term debt 1,221 1,221
Total current liabilities 17,428 17,682
Long-term debt 2,412 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 - 946,047 in 1995 and 940,047 shares in
1994, at par value (95) (94)
Capital in excess of par value 9,262 9,284
Retained earnings 22,478 22,866
Total shareholders' investment 32,302 32,713
Total liabilities and shareholders' investment $53,007 $
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 Weeks Ended
March 25, 1995March 19, 1994
Product sales and contract revenue:
Contract revenue $17,243 $18,560
Product sales 4,686 4,132
Total revenue 21,929 22,692
Cost and expenses:
Cost of contract revenue 15,894 16,422
Cost of goods 4,078 3,253
Selling, engineering
and administrative expenses 2,559 2,321
Total operating costs and expenses 22,531 21,996
Operating income (loss) (602) 696
Interest expense, net 41 76
Income (loss) before provision
for income taxes (643) 620
Provision (benefit) for income taxes (255) 230
Net income (loss) $(388) $ 390
Net income (loss) per common share: $(.07) $ .07
Weighted average common shares outstanding5,629,4485,634,463
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)
Twelve Weeks Ended
March 25, 1995March 19, 1994
Cash provided by operations:
Net income (loss) $(388) $ 390
Depreciation and amortization 884 958
496 1,348
Cash provided by (used for) working capital:
Receivables 37 4,871
Unbilled expenditures and fees on contracts in process 3,304
(2,747)
Inventories 121 (30)
Refundable income taxes 350 25
Prepaid expenses and other current assets (95) (389)
Accounts and drafts payable (107) (1,063)
Accrued payroll and employee benefits 1,187 496
Deferred contract and other revenue 44 44
Other accrued expenses (15) 424
Accrued and current deferred income taxes (163) 199
Net cash generated (used) in operations 5,159 3,178
Cash provided by (used for) investing activities:
Additions to property, plant and equipment, net (617)
(405)
Cash provided by (used for) financing activities:
Net (repayment) under line of credit agreements (1,205)
(646)
Proceeds (repayment) from mortgage loan (300) (300)
Proceeds from the exercise of stock options - 97
Purchase of treasury shares (23) (13)
Net cash generated (used) in financing activities (1,528)
(862)
Net increase (decrease) in cash and cash equivalents 3,014
1,911
Cash and cash equivalents at the beginning of the year 206 140
Cash and cash equivalents at the end of the period $3,220 $
2,051
Supplemental disclosures of cash flow information:
Cash paid during the twelve week period for:
Interest $ 70 $ 89
Income taxes $ 30 $ 34
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 ended March 25,
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):
March 25, 1995December 31, 1994
Work in process $ 800 $ 603
Raw materials and subassemblies 1,432 1,750
Total inventories $2,232 $2,353
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Total revenue decreased $763,000 or 3% for the first twelve weeks of
1995 compared to the similar period in 1994, reflecting the net effect of
increased commercial product sales offset by a decrease in the primarily
defense related contract services business.
Contract revenue decreased 7% for the first quarter of 1995 compared to
the same period in 1994. The overall Systems division's business base
declined from last year due to reduced effort on the Company's Air Force
logistics information systems programs, as compared to the first quarter of
1994. 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 revenues relate to systems which continue to receive budgetary
support.
Product sales increased 13% for the first twelve weeks of 1995 compared
to the same period in 1994. This increase is principally the result of
production of a new line of custom encoder devices for a customer in the
automotive industry and increased sales of electroformed components for a
line of commercial printers. In addition, first quarter growth reflects
strong order performance for the Company's standard encoder products and
precision measurement scales. Management believes that order levels for
these standard products reflect a strong U.S. manufacturing economy.
Cost of contract revenue as a percentage of contract revenue increased
to 92% for the first twelve weeks of 1995 from 88% for the same period in
1994. Profit margins in the Defense services segment of the Company's
business have been under pressure due to a combination of factors. As
previously discussed, competitive pricing and shifting of certain "time and
materials" type business from prime contracts to subcontracts has lowered
the hourly billing rates available to the Company. Also, the Company is
realizing lower profitability on certain fixed price contracts. Late in
1994, the Company took cost reduction measures to help offset the impact of
the above factors. However, the Company continues to aggressively pursue
new business opportunities.
Cost of goods as a percentage of product sales for the first twelve
weeks of 1995 was 87%, up from 79% in 1994. During the first quarter of
1995, the Company incurred a pre-tax charge of $517,000 to provide for the
replacement of certain units due to a specific manufacturing problem. The
problem has been corrected and provision has been made to cover the cost of
all affected units.
Selling, engineering and administrative expenses increased 10% from
1994 principally as a result of an increase in research and development
expenditures.
Interest expense, net was $41,000 in 1995 compared to $76,000 in 1994.
This decrease resulted from the paydown of the mortgage on the Company's
Andover facility coupled with the reduction of short-term debt resulting
from positive cash flow generated during the quarter.
The effective tax rate for the first twelve weeks of 1995 was 39.7%
compared to 37.1% in 1994. The principle reasons for the increase in 1995
were decreased targeted jobs and state investment tax credits. The Company
accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes (SFAS 109).
Liquidity and Capital Resources
During the first quarter of 1995, the Company's cash and cash equivalents
increased by $3,014,000. The reduction in unbilled receivables was the most
significant working capital item. Billed receivables decreased $37,000 to
$14,902,000 at March 25, 1995 from $14,939,000 at December 31, 1994 while
unbilled expenditures and fees on contracts in process decreased $3,304,000
to $14,890,000 from $18,194,000. These changes are principally due to
invoicing provisions on various contracts and the timing and collection of
these invoices.
Capital spending during the first quarter of 1995 was $617,000, consisting
principally of office computer equipment and commercial manufacturing
production equipment. Capital spending may increase somewhat in subsequent
quarters, relative to the first quarter of 1995, depending on specific
computer system and manufacturing requirements.
The Company's primary sources of liquidity have been cash flow from
operations and bank credit lines. At March 25, 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 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: May 5, 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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