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 7, 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 October 7, 1996
was 5,688,335 shares.
DYNAMICS RESEARCH CORPORATION
INDEX
Page
Part I Financial Information Number
Item 1. Financial Statements
Consolidated Balance Sheets -
September 7, 1996 and December 30, 1995 . . . 3
Consolidated Statements of Income -
Twelve and Thirty-Six Weeks Ended
September 7, 1996 and September 9, 1995 . . . 4
Consolidated Statements of Cash Flows -
Thirty-Six Weeks Ended September 7, 1996
and September 9, 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 September 7, 1996 December 30, 1995
CURRENT ASSETS:
Cash and cash equivalents $ 3,912 $ 777
Receivables, less allowances of
$435 in 1996 and $475 in 1995 20,163 16,095
Unbilled expenditures and
fees on contracts in process 17,070 16,383
Inventories 3,504 2,612
Refundable income taxes 282 286
Prepaid expenses and
other current assets 894 1,284
Total current assets 45,825 37,437
Property, plant and equipment, at cost
Land 1,126 1,126
Building 7,774 7,774
Machinery and equipment 40,491 33,352
Less accumulated depreciation
and amortization (28,903) (25,743)
Net property, plant and equipment 20,488 16,509
Excess of purchase price over net assets
of business acquired, net 1,493 0
Total assets $ 67,806 $ 53,946
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Notes payable $ 11,650 $ 0
Accounts and drafts payable 4,223 3,550
Accrued payroll and employee benefits 7,570 6,416
Deferred contract and other revenue 164 983
Other accrued expenses 1,748 1,691
Current deferred income taxes 4,649 4,407
Current portion of long-term debt 1,205 1,217
Total current liabilities 31,209 18,264
Long-term debt 600 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 - 6,684,443 shares in 1996
and 6,618,880 in 1995 669 662
Less: Treasury stock - 996,108 in 1996
and 1995, at par value (100) (100)
Capital in excess of par value 9,489 9,219
Retained earnings 24,963 23,425
Total shareholders' investment 35,021 33,206
Total liabilities and
shareholders' investment $ 67,806 $ 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 Thirty-Six
Weeks Ended Weeks Ended
Sept. 7, 1996 Sept. 9, 1995 Sept. 7, 1996 Sept. 9, 1995
Product sales
and contract revenue:
Contract revenue $ 23,441 $ 19,043 $ 65,405 $ 55,057
Product sales 6,488 5,311 19,524 15,162
Total revenue 29,929 24,354 84,929 70,219
Cost and expenses:
Cost of
contract revenue 21,109 17,422 59,062 50,122
Cost of product sales 4,451 3,845 13,741 12,107
Selling, engineering
and administrative
expenses 2,904 2,543 9,354 7,498
Total operating costs
and expenses 28,464 23,810 82,157 69,727
Operating income (loss) 1,465 544 2,772 492
Interest expense
(income), net 114 45 283 106
Income (loss) before
provision for income taxes 1,351 499 2,489 386
Provision (benefit) for
income taxes 520 190 951 147
Net income (loss) $ 831 $ 309 $ 1,538 $ 239
Net income (loss) per
common share: $ .15 $ .06 $ .27 $ .04
Weighted average common
shares outstanding 5,685,930 5,575,387 5,669,987 5,606,918
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)
<TABLE>
<CAPTION>
Thirty-Six Weeks Ended
September 7, 1996 September 9, 1995
<S> <C> <C>
Cash provided by operations:
Net income (loss) $ 1,538 $ 239
Depreciation and amortization 3,657 2,831
Provision for receivable reserves 33 (111)
5,228 2,959
Cash provided by (used for)
working capital:
Receivables (4,101) (1,339)
Unbilled expenditures and
fees on contracts in process (687) 1,843
Inventories (892) (204)
Refundable income taxes 4 479
Prepaid expenses and other current assets 390 391
Accounts and drafts payable 673 (854)
Accrued payroll and employee benefits 1,154 1,530
Deferred contract and other revenue (819) 177
Other accrued expenses (34) (148)
Accrued and current deferred income taxes 333 230
(3,979) 2,105
Net cash generated (used) in operations 1,249 5,064
Cash provided by (used for)
investing activities:
Additions to property, plant
and equipment, net (7,139) (2,408)
Excess of purchase price over net assets
of business acquired, net (1,990) 0
Net cash used for investing activities: (9,129) (2,408)
Cash provided by (used for) financing activities:
Net borrowings (repayments)
under line of credit agreements 11,650 (1,214)
Principal payments under
long-term borrowings (912) (900)
Proceeds from the exercise of stock options 277 --
Purchase of treasury shares -- (230)
Net cash generated (used)
in financing activities 11,015 (2,344)
Net increase (decrease) in cash
and cash equivalents 3,135 312
Cash and cash equivalents
at the beginning of the year 777 206
Cash and cash equivalents
at the end of the period $ 3,912 $ 518
Supplemental disclosures of cash flow information:
Cash paid during the thirty-six week period for:
Interest $ 309 $ 199
Income taxes $ 678 $ 39
</TABLE>
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 7, 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):
September 7, 1996 December 30, 1995
Work in process $ 1,183 $ 686
Raw materials and subassemblies 2,321 1,926
Total inventories $ 3,504 $ 2,612
Item 2. Management Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Total revenue increased $5,575,000 or 23% for the third
quarter of 1996 compared to the third quarter of 1995,
consisting of increases in both the precision products and
systems and services business segments.
Product sales increased by $1,177,000 or 22% for the
third quarter of 1996 primarily from the increased sales of
precision electroformed components for a line of ink-jet
printers.
Contract revenue increased by $4,398,999 or 23% for the
third quarter of 1996 compared to the same period in 1995.
The increase in contract revenue was attributable primarily
to revenue generated under contract awards announced during
1995 and 1996, 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 remains 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.
Cost of contract revenue as a percentage of contract
revenue decreased slightly to 90% for the third quarter of
1996 from 91% for the same period in 1995.
Cost of goods as a percentage of product sales for
the third quarter of 1996 was 69%, down from 72% in 1995.
This 3% decrease in cost of goods sold as a percentage of
sales resulted from the benefit of increased production
levels of the new electroformed components for commercial
ink-jet printers.
Selling, engineering and administrative expenses
increased 14% from the same period in 1995 principally due
to the 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 $114,000 in the third quarter
of 1996 compared to $45,000 for the same period in 1995.
The increase resulted from a higher level of average
borrowing during the third quarter of 1996 which was due to
increased capital expenditure levels to increase electroform
manufacturing capacity, increased unbilled and billed
receivables due to delays in the funding of government
contracts coupled with the 23% growth of this segment during
the quarter, and the Company's purchase of an Air Force
service business during the first quarter of 1996.
The effective tax rate for the third twelve weeks of 1996
was 38.5% compared to 38.1% in 1995. The 1996 effective tax
rate reflects the additional state investment tax credit
available as a result of the Company's capital investment in
additional electroform manufacturing capacity. 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 three fiscal quarters of 1996, the
Company's cash generated by operations was $1,249,000, which
included working capital growth of $3,979,000. The major
components of working capital are billed and unbilled
accounts receivable that increased with the growth of sales
as well as timing of the collection of government accounts.
Cash provided by net income and non-cash charges increased
to $5,228,000 in 1996 from $2,959,000 in 1995.
Capital spending during the first three quarters of
1996 was $7,139,000 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. Capital spending and the cost of the Company's
acquisition of a business in the first quarter have been
financed under the Company's available bank lines of credit.
The Company's primary sources of liquidity have been
cash flow from operations and bank credit lines. At
September 7, 1996, $9,350,000 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 on
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: October 21, 1996 By: /s/ Douglas R. Potter
Douglas R. Potter
Vice President of Finance and CFO
(Principal financial and accounting officer)
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<PERIOD-END> SEP-7-1996
<CASH> 3,912
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<RECEIVABLES> 37,233
<ALLOWANCES> 0
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<PP&E> 49,391
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<OTHER-SE> 34,352
<TOTAL-LIABILITY-AND-EQUITY> 67,806
<SALES> 19,524
<TOTAL-REVENUES> 84,929
<CGS> 13,741
<TOTAL-COSTS> 72,803
<OTHER-EXPENSES> 9,354
<LOSS-PROVISION> 33
<INTEREST-EXPENSE> 283
<INCOME-PRETAX> 2,489
<INCOME-TAX> 951
<INCOME-CONTINUING> 1,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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