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 23, 1996.
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, 1996 was 5,667,042 shares.
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DYNAMICS RESEARCH CORPORATION
INDEX
Page
Part I Financial Information Number
Item 1. Financial Statements
Consolidated Balance Sheets -
March 23, 1996 and December 30, 1995 . . . . . . . . . . 3
Consolidated Statements of Income -
Twelve Weeks Ended March 23, 1996 and
March 25, 1995 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Twelve Weeks Ended March 23, 1996 and
March 25, 1995 . . . . . . . . . . . . . . . . . . . . . 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
<PAGE>
PART I. FINANCIAL INFORMATION
DYNAMICS RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
(unaudited)
ASSETS March 23, 1996 December 30, 1995
CURRENT ASSETS:
Cash and cash equivalents $ 166 $ 777
Receivables, less allowances of
$413 in 1996 and $586 in 1995 23,985 16,095
Unbilled expenditures and fees
on contracts in process 10,542 16,383
Inventories 3,087 2,612
Refundable income taxes 283 286
Prepaid expenses and other
current assets 1,448 1,284
Total current assets 39,511 37,437
Property, plant and equipment, at cost
Land 1,126 1,126
Building 7,774 7,774
Machinery and equipment 35,154 33,352
Less accumulated depreciation
and amortization (26,799) (25,743)
Net property, plant and equipment 7,255 16,509
Excess of purchase price over net assets
of business acquired, net 1,866 0
Total assets $ 58,632 $ 53,946
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable $ 4,200 $ 0
Accounts and drafts payable 4,014 3,550
Accrued payroll and employee benefits 7,184 6,416
Deferred contract and other revenue 384 983
Other accrued expenses 1,214 1,691
Accrued and current deferred income taxes 4,649 4,407
Current portion of long-term debt 1,213 1,217
Total current liabilities 22,858 18,264
Long-term debt 1,200 1,500
Deferred income taxes 976 976
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 - 6,663,150 shares in 1996
and 6,618,880 in 1995 666 662
Less: Treasury stock - 996,108 in 1996 and
1995, at par value (100) (100)
Capital in excess of par value 9,398 9,219
Retained earnings 23,634 23,425
Total shareholders' investment 33,598 33,206
Total liabilities and
shareholders' investment $ 58,632 $ 53,946
The accompanying notes are an integral part of these consolidated
financial statements.
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DYNAMICS RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share data)
(unaudited)
Twelve Weeks Ended
March 23, 1996 March 25, 1995
Product sales and contract revenue:
Contract revenue $ 20,474 $ 17,243
Product sales 6,153 4,686
Total revenue 26,627 21,929
Costs and expenses:
Cost of contract revenue 18,534 15,894
Cost of goods 4,559 4,078
Selling, engineering and
administrative expenses 3,100 2,559
Total costs and expenses 26,193 22,531
Operating income (loss) 434 (602)
Interest expense, net 100 41
Income (loss) before provision
for income taxes 334 (643)
Provision (benefit) for income taxes 125 (255)
Net income (loss) $ 209 $ (388)
Net income (loss) per common share: $ .04 $ (.07)
Weighted average
common shares outstanding 5,653,975 5,629,448
The accompanying notes are an integral part of these consolidated
financial statements.
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DYNAMICS RESEARCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Twelve Weeks Ended
March 23, 1996 March 25, 1995
Cash provided by operations:
Net income (loss) $ 209 $ (388)
Depreciation and amortization 1,180 884
Provision for receivable reserves 9 14
1,398 510
Cash provided by (used for)
working capital:
Receivables (7,899) 23
Unbilled expenditures and
fees on contracts in process 5,841 3,304
Inventories (475) 121
Refundable income taxes 3 350
Prepaid expenses and other
current assets (164) (95)
Accounts and drafts payable 464 (107)
Accrued payroll and employee benefits 768 1,187
Deferred contract and other revenue (599) 44
Other accrued expenses (10) (15)
Accrued and current
deferred income taxes (225) (163)
Net cash provided by
(used for) operations (898) 5,159
Cash used for investing activities:
Additions to property,
plant and equipment, net (1,792) (617)
Excess of purchase price over net assets
of business acquired, net (2,000) 0
Net cash used for
investing activities: (3,792) (617)
Cash provided by (used for) financing activities:
Net borrowings (repayment)
under line of credit agreements 4,196 (1,205)
Principal payments under
long-term borrowings (300) (300)
Proceeds from the exercise
of stock options 183 -
Purchase of treasury shares - (23)
Net cash provided by (used for)
financing activities 4,079 (1,528)
Net increase (decrease) in cash
and cash equivalents (611) 3,014
Cash and cash equivalents
at the beginning of the year 777 206
Cash and cash equivalents
at the end of the period $ 166 $ 3,220
Supplemental disclosures of cash flow information:
Cash paid during the twelve week period for:
Interest $ 108 $ 70
Income taxes $ 659 $ 30
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
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 23,
1996 may not be indicative of the results that may be expected for
the fiscal year ending December 28, 1996.
Note 2. Inventories are comprised of the following (in thousands of dollars):
March 23, 1996 December 30, 1995
Work in process $ 877 $ 686
Raw materials and subassemblies 2,210 1,926
Total inventories $3,087 $2,612
<PAGE>
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Total revenue increased $4,698,000 or 21% for the first twelve weeks
of 1996 compared to the similar period in 1995, consisting of increases
in both the precision products and systems and services business
segments.
Contract revenues for the systems and services segment increased 19%
for the first quarter of 1996 compared to the same period in 1995. This
growth was attributable primarily to contract awards announced during
1995, added work under the Company's long running core Navy program, and
the January 1996 acquisition of an Air Force services business. 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. Much of the Company's contract
revenue relates to the development and operation of computer-based
management information and logistics support systems, as well as other
information technology services. The Company is continuing to pursue
additional programs both within the Department of Defense (DoD) and with
other government agencies.
During the first quarter the Company acquired the Massachusetts
based operations of Support Systems Associates, Inc. (SSAI) for $2
million in cash. The acquired business included a prime contract to
provide services under the Air Force's Technical & Engineering
Management Support (TEMS) program which had an unfunded backlog with a
potential value of approximately $24 million that may be used to support
both existing business and new tasking over the next three years.
Product sales increased 31% for the first twelve weeks of 1996
compared to the same period in 1995. This increase is principally the
result of increased sales of precision electroformed components for a
line of commercial ink-jet printers.
Cost of contract revenue as a percentage of contract revenue
decreased to 91% for the first twelve weeks of 1996 from 92% for the
same period in 1995. Profit margins in the Defense services segment of
the Company's business continue to be 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.
Cost of goods as a percentage of product sales for the first
twelve weeks of 1996 was 74%, down from 87% in 1995. This decrease was
primarily the result of the benefit of increased production levels of
the new electroformed components for commercial ink-jet printers. The
first quarter of 1995 included a pre-tax provision of $517,000 to
provide for the replacement of certain units due to a specific
manufacturing problem. The problem was corrected and the provision
covered the cost of all affected units.
Selling, engineering and administrative expenses increased 21% from
1995 principally due to increased research and development efforts by
the Company in connection with a software design and development tool
which was announced during the second quarter of 1996.
Interest expense, net was $100,000 in 1996 compared to $41,000 in
1995. This increase resulted from a higher level of average borrowings
during the first quarter of 1996 which was due to delays in the funding
of government contracts, the purchase of an Air Force services business
and increased capital expenditures to increase electroforming
manufacturing capacity.
<PAGE>
The effective tax rate for the first twelve weeks of 1996 was 37.4%
compared to 39.7% in 1995. The principal reason for the decrease in
1996 was a lower net state income tax rate. 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 1996, the Company's cash and cash
equivalents decreased by $611,000. Receivables increased $7,890,000 to
$23,985,000 at March 23, 1996 from $16,095,000 at December 30, 1995
while unbilled expenditures and fees on contracts in process decreased
$5,841,000 to $10,542,000 from $16,383,000. These changes are
principally due to the final billing of retained costs and fees on a
large fixed price contract as well as invoicing provisions on various
contracts.
Capital spending during the first quarter of 1996 was $1,792,000,
consisting principally of commercial manufacturing production equipment
and office computer equipment. This increased level of capital spending
is expected to continue during the second quarter of 1996 as a result of
the planned increase in the Company's electroform production capacity.
The Company's primary sources of liquidity have been cash flow from
operations and bank credit lines. At March 23, 1996, $16,800,000 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.
Forward Looking Information
This report includes certain forward-looking statements about the
Company's business including the effect of the federal budget on the
Company's sales, anticipated capital spending, and research and
development spending. Such forward-looking statements are subject to
risk and uncertainties that could cause the actual results to vary
materially. These risks and uncertainties, discussed in more detail in
the Company's Form 10-K for the year ended December 30, 1995, include
possible reductions in federal funding for the Company's customers and
potential customers, concentration of customers, risks of sustaining
existing contracts and orders thereunder at the same or increasing
levels and obtaining of new contracts, high levels of competition and
difficulties of entering new markets, government contracting issues
including audit adjustments and costs of completing fixed price
contracts, supply difficulties, warranty claims, and factors affecting
the business segments in which the Company operated and the economy
generally.
<PAGE>
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.
<PAGE>
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 3, 1996 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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