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 15, 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 July 16, 1996 was 5,683,525 shares.
DYNAMICS RESEARCH CORPORATION
INDEX
Page
Part I Financial Information Number
Item 1. Financial Statements
Consolidated Balance Sheets -
June 15, 1996 and December 30, 1995 . . . 3
Consolidated Statements of Income -
Twelve and Twenty-Four Weeks Ended
June 15, 1996 and June 17, 1995 . . . . . 4
Consolidated Statements of Cash Flows -
Twenty-Four Weeks Ended June 15, 1996 and
June 17, 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
PART I. FINANCIAL INFORMATION
DYNAMICS RESEARCH CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
(unaudited)
ASSETS June 15, 1996 December 30, 1995
CURRENT ASSETS:
Cash and cash equivalents $ 454 $ 777
Receivables, less allowances of
$413 in 1996 and $402 in 1995 19,332 16,095
Unbilled expenditures and
fees on contracts in process 13,886 16,383
Inventories 3,275 2,612
Refundable income taxes 284 286
Prepaid expenses and
other current assets 1,055 1,284
Total current assets 38,286 37,437
Property, plant and equipment, at cost
Land 1,126 1,126
Building 7,774 7,774
Machinery and equipment 38,567 33,352
Less accumulated depreciation
and amortization (27,880) (25,743)
Net property, plant and equipment 19,587 16,509
Excess of purchase price
over net assets
of business acquired, net 1,679 0
Total assets $ 59,552 $ 53,946
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable $ 4,500 $ 0
Accounts and drafts payable 3,262 3,550
Accrued payroll and employee benefits 7,504 6,416
Deferred contract and other revenue 861 983
Other accrued expenses 1,517 1,691
Current deferred income taxes 4,649 4,407
Current portion of long-term debt 1,210 1,217
Total current liabilities 23,503 18,264
Long-term debt 900 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 - 6,679,633 shares in 1996
and 6,618,880 in 1995 668 662
Less: Treasury stock - 996,108 in 1996
and 1995, at par value (100) (100)
Capital in excess of par value 9,473 9,219
Retained earnings 24,132 23,425
Total shareholders' investment 34,173 33,206
Total liabilities and
shareholders' investment $ 59,552 $ 53,946
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 15, 1996 June 17, 1995 June 15, 1996 June 17, 1995
Product sales
and contract revenue:
Contract revenue $ 21,490 $ 18,771 $ 41,964 $ 36,014
Product sales 6,883 5,165 13,036 9,851
Total revenue 28,373 23,936 55,000 45,865
Costs and expenses:
Cost of
contract revenue 19,419 16,806 37,953 32,700
Cost of goods 4,731 4,184 9,290 8,262
Selling, engineering
and administrative
expenses 3,350 2,396 6,450 4,955
Total costs
and expenses 27,500 23,386 53,693 45,917
Operating income (loss) 873 550 1,307 (52)
Interest expense, net 69 20 169 61
Income (loss) before
provision for
income taxes 804 530 1,138 (113)
Provision (benefit)
for income taxes 306 212 431 (43)
Net income (loss) $ 498 $ 318 $ 707 $ (70)
Net income (loss)
per common share: $ .09 $ .06 $ .12 $ (.01)
Weighted average
common shares
outstanding 5,672,704 5,612,668 5,662,810 5,620,431
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 15, 1996 June 17, 1995
Cash provided by operations:
Net income (loss) $ 707 $ (70)
Depreciation and amortization 2,448 1,828
Provision for receivable reserves 11 (183)
3,166 1,575
Cash provided by (used for) working capital:
Receivables (3,248) 21
Unbilled expenditures and
fees on contracts in process 2,497 3,254
Inventories (663) (125)
Refundable income taxes 2 479
Prepaid expenses and other current assets 229 164
Accounts and drafts payable (288) (727)
Accrued payroll and employee benefits 1,088 1,561
Deferred contract and other revenue (122) 89
Other accrued expenses 3 57
Accrued and current deferred income taxes 65 40
Net cash provided by (used for)
working capital: (437) 4,813
Net cash provided by (used for) operations 2,729 6,388
Cash used for investing activities:
Additions to property, plant and
equipment, net (5,215) (1,288)
Excess of purchase price over net assets
of business acquired, net (1,990) 0
Net cash used for investing activities: (7,205) (1,288)
Cash provided by (used for) financing activities:
Net borrowings (repayments)
under line of credit agreements 4,493 (1,209)
Principal payments under
long-term borrowings (600) (600)
Proceeds from the exercise of stock options 260 --
Purchase of treasury shares 0 (229)
Net cash provided by (used for)
financing activities 4,153 (2,038)
Net increase (decrease) in cash
and cash equivalents (323) 3,062
Cash and cash equivalents
at the beginning of the year 777 206
Cash and cash equivalents
at the end of the period $ 454 $ 3,268
Supplemental disclosures of
cash flow information:
Cash paid during the twenty-four
week period for:
Interest $ 196 $ 136
Income taxes $ 676 $ 38
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 15, 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):
June 17, 1996 December 30, 1995
Work in process $ 1,046 $ 686
Raw materials and subassemblies 2,229 1,926
Total inventories $ 3,275 $ 2,612
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Total revenue increased $4,437,000 or 19% for the second twelve
weeks of 1996 compared to the same period in 1995, consisting of
increases in both the precision products and systems and services
business segments.
Contract revenue for the systems and services segment increased 14%
for the second quarter of 1996 compared to the same period in 1995.
This growth was attributable primarily to revenue generated under
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.
Product sales increased 33% for the second 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
remained the same at 90% for the second twelve weeks of 1996 compared to
the same period in 1995.
Cost of goods as a percentage of product sales for the second twelve
weeks of 1996 was 69%, down from 81% 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.
Selling, engineering and administrative expenses increased 40% 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.
Net interest expense was $69,000 in the second quarter of 1996
compared to $20,000 for the same period in 1995. This increase resulted
from a higher level of average borrowings during the second quarter of
1996 which was due to delays in the funding of government contracts,
increased capital expenditure levels to increase electroforming
manufacturing capacity, and the Company's purchase of an Air Force
service business during the first quarter of 1996.
The effective tax rate for the second twelve weeks of 1996 was 38.06%
compared to 40.00% in 1995. The principal reason for the decrease in
1996 was a lower net state income tax rate as a result of increased
state investment tax credits available. The Company accounts for income
taxes in accordance with the Statement of Financial Accounting Standards
No. 109 - Accounting for Income Taxes (SFAS 109).
Liquidity and Capital Resources
During the first six months of fiscal 1996, the Company's cash and
cash equivalents decreased by $323,000. Receivables increased
$3,237,000 to $19,332,000 from $16,095,000 at December 30, 1995 while
unbilled expenditures and fees on contracts in process decreased
$2,497,000 to $13,886,000 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 half of 1996 was $5,215,000
consisting principally of manufacturing production equipment and office
computer equipment. This increased level of capital spending was
principally the result of the Company's commitment to increase its
electroform production capacity during the first half of 1996.
The Company's primary sources of liquidity have been cash flow from
operations and bank credit lines. At June 15, 1996, $16,500,000 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.
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.
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 26, 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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