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 September 9, 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 October 19, 1995 was 5,575,387 shares.
DYNAMICS RESEARCH CORPORATION
INDEX
Page
Part I Financial
Information Number
Item 1. Financial Statements
Consolidated Balance Sheets -
September 9, 1995 and December 31, 1994 . . . . . . . . . . . . . . .
. . . 3
Consolidated Statements of Income -
Twelve and Thirty-Six Weeks Ended September 9, 1995 and
September 3, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Thirty-Six Weeks Ended September 9, 1995 and
September 3, 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 September 9, 1995
December 31, 1994
CURRENT ASSETS:
Cash and cash equivalents $ 518 $ 206
Receivables, less allowances of $475 in 1995 and $586 in 1994
16,389 14,939
Unbilled expenditures and fees on contracts in process 16,351
18,194
Inventories 2,557 2,353
Refundable income taxes 406 885
Prepaid expenses and other current assets 939 1,330
Total current assets 37,160 37,907
Property, plant and equipment, at cost
Land 1,126 1,126
Building 7,774 7,774
Machinery and equipment 32,000 30,234
Less accumulated depreciation and amortization (25,253) (23,064)
Net property, plant and equipment 15,647 16,070
Total assets $52,807 $53,977
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable $ -- $1,200
Accounts and drafts payable 2,588 3,442
Accrued payroll and employee benefits 6,179 4,649
Deferred contract and other revenue 1,071 894
Other accrued expenses 1,387 1,535
Accrued and current deferred income taxes 4,971 4,741
Current portion of long-term debt 1,221 1,221
Total current liabilities 17,417 17,682
Long-term debt 1,803 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 9,060 9,284
Retained earnings 23,105 22,866
Total shareholders' investment 32,722 32,713
Total liabilities and shareholders' investment $52,807 $
53,977
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>
Twelve Thirty-Six
Weeks Ended Weeks Ended
Sept. 9, 1995Sept. 3, 1994Sept. 9, 1995 Sept. 3, 1994
<S> <C> <C> <C> <C>
Product sales and contract revenue:
Contract revenue $19,043 $17,319 $55,057 $55,550
Product sales 5,311 4,254 15,162 12,371
Total revenue 24,354 21,573 70,219 67,921
Cost and expenses:
Cost of contract revenue 17,422 18,591 50,122 52,565
Cost of product sales 3,845 3,361 12,107 9,758
Selling, engineering and
administrative expenses 2,543 2,320 7,498 7,021
Total operating costs and expenses 23,810 24,272 69,727
69,344
Operating income (loss) 544 (2,699) 492 (1,423)
Interest expense (income), net 45 123 106 275
Income (loss) before
provision for income taxes 499 (2,822) 386 (1,698)
Provision (benefit) for income taxes 190 (1,088) 147
(656)
Net income (loss) $ 309 $(1,734) $ 239 $(1,042)
Net income (loss) per common share: $ .06 $ (.31) $
.04 $ (.18)
</TABLE>
Weighted average common shares outstanding5,575,3875,641,348 5,606,918
5,638,641
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 9, 1995September 3, 1994
Cash provided by operations:
Net income (loss) $ 239 $(1,042)
Depreciation and amortization 2,831 2,888
Provision for receivable reserves (126) 6
2,944 1,852
Cash provided by (used for) working capital:
Receivables (1,324) 3,580
Unbilled expenditures and fees on contracts in process 1,843
(409)
Inventories (204) 133
Refundable income taxes 479 529
Prepaid expenses and other current assets 391 178
Accounts and drafts payable (854) (1,318)
Accrued payroll and employee benefits 1,530 1,231
Deferred contract and other revenue 177 (1,657)
Other accrued expenses (148) 238
Accrued and current deferred income taxes 230 (1,251)
2,120 1,254
Net cash generated (used) in operations 5,064 3,106
Cash provided by (used for) investing activities:
Additions to property, plant and equipment, net (2,408)
(2,014)
Cash provided by (used for) financing activities:
Net borrowings (repayments) under line of credit agreements
(1,214) (356)
Principal payment under mortgage agreement (900) (900)
Proceeds from the exercise of stock options -- 97
Purchase of treasury shares (230) (15)
Net cash generated (used) in financing activities (2,344)
(1,174)
Net increase (decrease) in cash and cash equivalents 312 (82)
Cash and cash equivalents at the beginning of the year 206 140
Cash and cash equivalents at the end of the period $ 518 $ 58
Supplemental disclosures of cash flow information:
Cash paid during the thirty-six week period for:
Interest $ 199 $ 284
Income taxes $ 39 $ 105
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 9, 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):
September 9, 1995December 31, 1994
Work in process $ 861 $ 603
Raw materials and subassemblies 1,696 1,750
Total inventories $2,557 $2,353
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Total revenue increased $2,781,000 or 13% for the third quarter of 1995
compared to the similar period in 1994. Product sales increased
$1,057,000, or 25%, while contract revenue increased $1,724,000, or 10%,
for the third quarter of 1995 compared to the same period in 1994.
The increase in product sales comes from the Company's commercial
products manufacturing Divisions, Encoder and Metrigraphics. The Encoder
Division experienced strong demand for its line of motion and position
sensing devices, including its optical encoder used in a high volume
automotive application. Metrigraphics growth is attributable to sales of
its electroformed nozzle plate used in inkjet printer cartridges.
Third quarter contract revenue increased 10% compared to the 1994's
third quarter. During the first half of 1995, the Company won several
indefinite order type contracts, including information technology and
engineering contracts supporting Tinker AFB in Oklahoma, the U.S. Air
Force's air staff in Washington, D.C., and the Internal Revenue Service.
These contracts gradually contribute to revenue as the customers assign
tasking. In the third quarter, the Air Force awards referred to above
began to contribute to increased revenue. Third quarter results for 1994
also included a non-recurring $1.0 million adjustment to revenue in
connection with a contract with the United States Air Force, based upon the
Company's evaluation of uncertainty of recovery of certain costs incurred
to date. 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 revenue as a percentage of contract revenue decreased
to 91% for the third quarter of 1995 from 107% for the same period in 1994.
Although profit margins for this segment of the Company's business continue
to be under pressure, performance has improved as staff has been assigned
to revenue producing contracts. Also, included in 1994 third quarter
results were 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 non-recovery of certain contract costs.
Cost of goods as a percentage of product sales for the third quarter of
1995 was 72%, down from 79% in 1994. This 7% decrease in cost of goods
sold as a percentage of sales resulted from the commercial divisions' new
encoder and electroform product lines operating at increased volumes,
resulting in manufacturing efficiencies.
Selling, engineering and administrative expenses decreased slightly as
a percentage of total revenue. Higher spending in the third quarter of
1995 relates to a research and development effort at the Company's Test
Equipment Division.
Net interest expense was $45,000 in the third quarter of 1995 compared
to $123,000 for the same period in 1994. Cash flow from operations, even
at depressed earnings levels, has been sufficient to fund capital spending
requirements and reduce borrowings.
Liquidity and Capital Resources
Receivables increased $1,450,000 to $16,389,000 at September 9, 1995 from
$14,939,000 at December 31, 1994. Of the increase, $540,000 results from
the growth of the commercial products businesses. Commercial inventories
have not increased as strong customer demand has resulted in higher
inventory turnover ratios. Unbilled expenditures and fees on contracts in
process decreased $1,843,000 to $16,351,000 from $18,194,000. The decrease
in unbilled expenditures is primarily attributable to invoicing of costs
under various Government contracts in accordance with contractual
provisions.
In order to support the growth of the Company's commercial products
business, a capital spending plan has been developed to scale up production
capacity over the next several years. Current outstanding capital
commitments include $3.3 million to increase electroform production
capacity.
The Company's primary sources of liquidity have been cash flow from
operations and bank credit lines. At September 9, 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
including the capital spending program described above.
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 19, 1995 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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-09-1995
<CASH> 518
<SECURITIES> 0
<RECEIVABLES> 32,740
<ALLOWANCES> 0
<INVENTORY> 2,557
<CURRENT-ASSETS> 37,160
<PP&E> 40,900
<DEPRECIATION> 25,253
<TOTAL-ASSETS> 52,807
<CURRENT-LIABILITIES> 17,417
<BONDS> 3,024
<COMMON> 657
0
0
<OTHER-SE> 32,065
<TOTAL-LIABILITY-AND-EQUITY> 52,807
<SALES> 5,311
<TOTAL-REVENUES> 24,354
<CGS> 3,845
<TOTAL-COSTS> 21,267
<OTHER-EXPENSES> 2,543
<LOSS-PROVISION> 64
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 499
<INCOME-TAX> 190
<INCOME-CONTINUING> 309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 309
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
