SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter Commission File
ended: September 30, 1995 Number: 000-23966
BDM International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1561881
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1501 BDM Way, McLean, Virginia 22102-3204
(Address of principal executive office) (Zip Code)
Registrant's telephone number
including area code: 703-848-5000
Not Applicable
(Former name, former address, and former fiscal year, if
changed since last report)
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
As of the close of business on October 30, 1995, the registrant
had outstanding 12,318,234 shares of Common Stock, par value $.01
per share, and 400,000 shares of Class B Common Stock, par value
$.01 per share.
<PAGE>
PART I
Item 1. Financial Statements.
- -------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BDM International, Inc.:
Consolidated Balance Sheets as of
September 30, 1995 (Unaudited) and December 31, 1994 2
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1995 and 1994
(Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and 1994
(Unaudited) 4
Notes to Consolidated Financial Statements (Unaudited) 5
<PAGE>
<TABLE>
<CAPTION>
BDM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<S> <C> <C>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 48,729 $ 45,314
Accounts receivable, net 194,325 215,923
Prepaid expenses and other 7,334 8,842
-------- --------
Total current assets 250,388 270,079
Property and equipment, net 43,165 40,569
Intangible assets, net 11,065 13,814
Deposits and other 7,008 5,896
Equity in and advances to affiliates 6,614 5,193
------- -------
Total assets $ 318,240 $ 335,551
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 156,116 $ 166,298
Debt currently payable 39 426
Income taxes payable 2,051 3,000
Deferred tax liability 7,490 5,441
-------- --------
Total current liabilities 165,696 175,165
Deferred tax liability 7,224 5,243
Long term debt 2,746 82,750
Severance and other 16,903 17,248
Minority interest 19,846 14,040
------- -------
Total liabilities 212,415 294,446
------- -------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value;
500,000 shares authorized, none issued
Common stock, $.01 par value; 127 95
12,715,581 and 9,473,275 shares
issued and outstanding at September
30, 1995 and December 31, 1994
Additional paid in capital 64,393 12,336
Retained earnings 40,892 28,398
Deferred compensation (485) (279)
Cumulative translation adjustment 898 555
-------- --------
Total stockholders' equity 105,825 41,105
-------- --------
Total liabilities and $ 318,240 $ 335,551
stockholders' equity ======= =======
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BDM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)
(unaudited)
For the three months For the nine months
ended September 30, ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
-------- ------- -------- --------
Revenue $215,900 $195,477 $620,864 $535,061
------- ------- ------- -------
Cost of sales 183,272 164,221 519,007 443,672
Selling, general and 19,577 20,216 59,814 62,184
administrative
Depreciation, 3,712 3,693 14,011 10,540
amortization and other ------ ----- ------ ------
Operating profit 9,339 7,347 28,032 18,665
Interest (income) (360) 1,212 2,125 2,128
expense, net
Equity in earnings of (436) (465) (1,271) (1,364)
affiliates
Minority interest 973 1,197 3,986 2,176
----- ----- ------ ------
Income before income taxes 9,162 5,403 23,192 15,725
Provision for income taxes 3,871 2,303 10,698 6,712
----- ----- ------ -----
Net income $5,291 $3,100 $12,494 $9,013
----- ----- ------- -----
Earnings Per Share:
Net income per share $0.40 $0.31 $1.11 $0.81
---- ---- ---- -----
Weighted average
shares outstanding 13,376 9,904 11,226 11,103
------ ----- ------ ------
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BDM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1995 and 1994
(unaudited, in thousands)
<S> <C> <C>
1995 1994
------- -------
Cash flows from operating activities:
Net cash provided by (used in) operating $ 38,663 $ (358)
activities
Cash flows from investing activities:
Additions to property and equipment (12,724) (7,190)
Purchase of businesses -- (4,529)
Reimbursement of acquisition costs 1,143 --
Contributions from minority owners 1,862 --
Distributions from unconsolidated 1,050 1,175
affiliates
Investment in unconsolidated affiliates (1,576) (1,750)
------- --------
Net cash used in investing activities (10,245) (12,294)
-------- ---------
Cash flows from financing activities:
Net (repayments of) proceeds from (76,341) 26,709
revolving borrowings
Payment of debt issuance costs -- (219)
Proceeds from assets held for resale -- 666
Proceeds from issuance of common stock 52,677 1,651
Repayment of debt (3,700) --
Acquisition of treasury stock (1,097) (37,793)
------- -------
Net cash used in financing activities (28,461) (8,986)
Effect of exchange rate changes on cash 3,458 1,501
------ --------
Net increase (decrease) in cash 3,415 (20,137)
Cash, beginning of period 45,314 48,875
------- -------
Cash, end of period $48,729 $28,738
======= =======
The accompanying notes are in integral part of these financial
statements.
</TABLE>
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
The accompanying financial statements of BDM International,
Inc. and subsidiaries (BDM or the Company) as of September 30,
1995 and for interim periods ended September 30, 1995 and 1994,
are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The
balance sheet data as of December 31, 1994, was derived from the
Company's audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Certain other information and disclosures included in the
Company's annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to the above referenced rules and regulations.
It is suggested that these financial statements be read in
conjunction with the consolidated financial statements and the
notes thereto included in the Company's latest annual report to
the Securities and Exchange Commission on Form 10-K.
The accompanying financial statements reflect all
adjustments and reclassifications that, in the opinion of
management, are necessary for a fair presentation. Revenue and
cost of sales for the third quarter of 1994 have been restated to
be consistent with the presentation used for the full year in the
1994 annual report. In the third quarter of 1994, $12.7 million
was reflected in both revenue and cost of sales representing a
pass-through of certain amounts collected by IABG on behalf of
its former owner. This treatment was reversed in the fourth
quarter by netting such amounts in the statement of operations
for the full year, which had no impact on operating profit or net
income, and did not recur in 1995.
(2) Income Taxes
The Company uses the estimated annual effective rate method
for interim income tax purposes. The Company also recognizes an
expense for U.S. income taxes on undistributed earnings of its
foreign subsidiaries as though the earnings had been distributed.
The difference between the combined statutory federal and
state income tax rate of 41% and the Company's actual effective
income tax rate of 46% for the nine months ended September 30,
1995, is primarily attributable to a charge of $1.6 million
recognized in the first quarter of 1995 to reflect management's
estimate of the recoverability of unamortized goodwill generated
in an earlier business acquisition. This charge as well as the
majority of the Company's other goodwill amortization is not
deductible for federal income tax purposes, thus resulting in the
higher effective tax rate. In addition, a charge of $388,000 was
recognized in the second quarter reflecting the write-off of a
deferred tax benefit relating to net operating loss carryforwards
which are no longer expected to provide a future tax benefit.
(3) Earnings Per Share
Net income per common share is net income divided by the
weighted average number of common shares and common share
equivalents outstanding during the period. The Company's common
share equivalents consist entirely of stock options.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(4) Industrieanlagen-Betriebsgesellschaft mbH (IABG)
At the time of BDM's acquisition of 45% of IABG, through its
subsidiary BDM Europe in November 1993, 15% of IABG was retained
by its former owner, IVG, and the remaining 40% was retained in a
trust for ultimate sale to employees and other investors. In
October 1994, Buck Werke GmbH & Co. KG (Buck), a German company,
acquired 12% of IABG and IVG acquired an additional 5%. The
remaining 23% continued to be retained in trust for sale to
employees and other investors.
In the first quarter of 1995, the current shareholders
entered into a Trust Agreement with a bank to administer the
remaining sale of shares to employees and others. Prior to such
sale and on behalf of the future owners, the bank advanced to
IABG $1.9 million for 23% of a required capital infusion due IABG
from its shareholders in November 1994, as well as $1.1 million
to BDM for the reimbursement of 23% of the transaction costs
incurred by the Company in acquiring IABG. The trustee bank will
recover the advances from the ultimate purchasers of the 23% IABG
ownership portion. Pursuant to the Trust Agreement, the current
shareholders, BDM, IVG and Buck, agree to repurchase, in the
proportion of the total shares they owned at the date of the
Trust Agreement, any trust shares not sold to employees and
others as of December 31, 2000.
(5) Debt
The Company closed on a new revolving credit agreement,
replacing the Company's previous credit agreement. Accordingly,
a charge of $0.5 million for deferred financing costs relating to
the existing credit facility was recognized during the second
quarter of 1995. The new agreement provides an unsecured
multicurrency revolving credit line of $150 million for a term of
five years, at an interest rate based on LIBOR plus margins. The
agreement includes covenants which limit the amount of the
Company's debt compared to total capitalization and compared to
earnings before interest, taxes, depreciation, and amortization.
In addition, dividends can only be paid after September 1, 1996,
and are not to exceed 20% of the cumulative net income subsequent
to July 1, 1996. Conditions also exist which limit the
investments which can be made in existing subsidiaries and non-
subsidiaries. As of September 30, 1995 borrowings of $2.7
million were outstanding under the Agreement.
(6) Capital stock transactions
On June 28, 1995, the sale of 2,875,000 shares of common
stock to the public was finalized for $53.2 million. The net
proceeds of $49.4 million have been applied against outstanding
borrowings under the working capital facility and the
extinguishment of $3.7 million in subordinated debt.
On June 28, 1995, the Company established a qualified non-
compensatory Employee Stock Purchase Plan (the Plan) which has
reserved 750,000 shares of common stock for issuance under the
Plan. The Plan allows all employees of the Company's domestic
subsidiaries to purchase a limited amount of common stock at a
discount during the offering period of July 1, 1995 to June 30,
1996. The purchase price of the Company's common stock is the
lesser of $15.725, which is 85% of the initial offer price of
$18.50 per share in the public offering on June 28, 1995, or 85%
of the market value at the end of each month. During the three
months ended September 30, 1995, the Plan participants purchased
112,045 shares at $15.725 per share.
<PAGE>
<TABLE>
Item 2. Managements' Discussion and Analysis
- ----------------------------------------------
Results of Operations
- ---------------------
For the three For the nine
months ended months ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
-------- ------- -------- --------
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of Sales 84.9 84.0 83.6 82.9
Selling, general & 9.1 10.3 9.6 11.6
administratie
Depreciation, amortization 1.7 1.9 2.3 2.0
and other
------ ----- ----- -----
Operating Profit 4.3 3.8 4.5 3.5
Interest(income) (0.2) 0.6 0.3 0.4
expense, net
Equity in earnings of (0.2) (0.2) (0.2) (0.3)
affiliates
Minority interst 0.5 0.6 0.6 0.4
----- ----- ----- ----
Incme before income taxes 4.2 2.8 3.7 2.9
Provision for income taxes 1.8 1.2 1.7 1.3
----- ----- ----- ----
Net Income 2.5% 1.6% 2.0% 1.7%
===== ===== ===== =====
</TABLE>
Revenue
Revenue for the three and nine-month periods ended September
30, 1995, increased $20 million (10%) and $86 million (16%),
respectively, over comparable periods in 1994. This revenue
increase resulted from internal growth attributable to systems
and software integration services performed by BDM Federal and
BDM Technologies. Specifically, contracts with the Defense
Information Systems Agency, the American Red Cross, and various
state governments contributed to higher revenue for the 1995
periods. In addition, Vinnell's contract with the Royal Saudi
Land Forces experienced higher revenue in 1995 compared to the
prior year period. Our German subsidiary, IABG, had lower than
expected revenue growth of 5% as a result of a reduction in
directed subcontracts.
Revenue and cost of sales for the third quarter of 1994 have
been restated to be consistent with the presentation used for the
full year in the 1994 annual report. In the third quarter of
1994, $12.7 million was reflected in both revenue and cost of
sales representing a pass-through of certain amounts collected by
IABG on behalf of its former owner. This treatment was reversed
in the fourth quarter by netting such amounts in the statement of
operations for the full year, which had no impact on operating
profit or net income, and did not recur in 1995.
Future revenue will be generated from the contract backlog
($1.7 billion as of September 30, 1995) and new contract awards.
<PAGE>
Item 2. Managements' Discussion and Analysis (cont'd)
Results of Operations
Cost of Sales
Cost of sales, which includes salaries, benefits,
subcontractor expenses, and material and overhead costs, was
relatively stable as a percentage of revenue for the three and
nine months ended September 30, 1995, compared to the same
periods in 1994. The relationship of cost of sales to revenue
fluctuates from period to period due to the timing of hardware
material purchases and other direct costs.
Selling, General and Administrative
Selling, general and administrative (SG&A) expense,
including the Company's research and development (R&D) costs,
decreased as a percentage of revenue for the three and nine
months ended September 30, 1995, over the same periods in 1994.
The decrease in SG&A expense as a percentage of revenue reflects
the benefit from cost controls at several of the Company's
subsidiaries. In addition, the decrease experienced in the nine-
month comparison was attributable to R&D activities of $3.9
million which were discontinued in June of 1994.
Depreciation, Amortization and Other
Depreciation, amortization and other costs decreased as a
percentage of revenue for the three months ended September 30,
1995, compared to the same period in 1994; the Company's higher
revenue base has been accompanied by relatively flat costs.
Depreciation, amortization and other costs for the nine months
ended September 30, 1995, increased as a percentage of revenue
because of a $1.6 million write-off of goodwill in the first
quarter of 1995 from the FACE acquisition. Goodwill has not
increased during 1995 as there have been no new acquisitions.
Interest Income (Expense)
The Company had net interest income of $0.4 million for the
three months ended September 30, 1995, compared to net interest
expense of $1.2 million for the same period in 1994. This
resulted from applying proceeds from the public offering of stock
(the IPO) to reduce outstanding borrowings. In addition, the
average interest rate incurred, when there were borrowings,
during the third quarter of 1995 was lower than that in the third
quarter of 1994, due in part to the more favorable terms on the
Company's new revolving credit facility.
Net interest expense incurred during the nine months ended
September 30, 1995, was stable compared to the same period in
1994. The Company had a higher average outstanding debt balance
during the first six months of 1995 compared to the first half of
1994 as a result of repurchasing 2.6 million shares in May 1994.
This was offset, however, by the lower average debt balance in
the third quarter of 1995 compared to 1994 results from applying
the proceeds of the IPO.
<PAGE>
Item 2. Managements' Discussion and Analysis (cont'd)
Results of Operations
Minority Interest
The minority interest share of earnings decreased as a
percentage of revenue for the third quarter of 1995 compared to
the same period in 1994 due to lower earnings at our German
subsidiary for the third quarter. Minority interest as a
percentage of revenue increased for the nine months ended
September 30, 1995, over the same period in 1994 due to a full
quarter impact of a 60% owned joint venture operating in Saudi
Arabia. In addition, beginning in the third quarter, Vinnell's
work with the Saudi Arabian National Guard was performed under a
joint venture in which the Company is a 51% partner. The results
of this operation are included in the Company's consolidated
financial statements, with the other partner's 49% ownership
interest reflected as minority interest.
Provision for Income Taxes
The provision for income taxes increased as a percentage of
income before income taxes for the three and nine months ended
September 30, 1995, over the same periods in 1994. The effective
rate increase related to the expensing of $1.6 million in
goodwill from the FACE acquisition in the first quarter of 1995
which is not deductible for income tax purposes. In addition, an
increase in the provision was recognized during the second
quarter of 1995, reflecting the write-off of a deferred tax
benefit relating to net operating loss carryforwards at FACE
which are no longer expected to provide a future tax benefit.
Liquidity and Financial Condition
The Company's principal sources of liquidity continue to be
cash flow from operations and borrowings under the credit
facility. In addition, net proceeds of $49.4 million from the
public stock offering were received in July 1995, and were
applied in the third quarter against outstanding borrowings under
the credit facility and the extinguishment of $3.7 million in
subordinated debt. Available credit under the new credit
agreement as of September 30, 1995, was approximately $130
million.
Cash flow related to investing activities largely consists
of capital expenditures, which increased due to the
implementation of a new accounting system at one of the Company's
subsidiaries. In addition, as discussed in paragraph (4) of the
notes to the financial statements, amounts received in accordance
with the IABG acquisition agreement also contributed to cash
flows from investing activities.
<PAGE>
Item 2. Managements' Discussion and Analysis (cont'd.)
Liquidity and Financial Condition
Other investing cash flow activities include fluctuations in
the timing of working capital infusions to and earnings
distributions from Vinnell's unconsolidated joint ventures.
Financing activities include the proceeds from the public
stock offering of $49.4 million and the reduction of the
Company's working capital facility by $76 million year-to-date.
In addition, the Company continued the employee benefit of
enabling employees to purchase shares of common stock through
stock option exercise and the employee stock purchase plan. The
Company received approximately $1.8 million as a result of stock
purchased under the new employee stock purchase plan.
During the nine months ended September 30, 1995, the
fluctuation in the value of the German mark to the U.S. dollar
resulted in a $3.6 million increase in cash as reported in U.S.
dollars in the accompanying financial statements due to the
significant balance of cash maintained by IABG.
General
Management believes the Company has sufficient liquidity and
working capital resources necessary to conduct planned business
operations, debt service requirements, planned investments,
capital expenditures, and to ensure compliance with restrictive
bank covenants for the foreseeable future.
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11. Statement of Computation of Earnings Per Share
(b) Reports on Form 8-K:
None
<PAGE>
BDM INTERNATIONAL, INC.
SIGNATURES
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.
October 31,1995 BDM INTERNATIONAL, INC.
C. Thomas Faulders, III
_________________________________
C. Thomas Faulders, III
Executive Vice President, Treasurer
and Chief Financial Officer
<PAGE>
BDM INTERNATIONAL, INC.
INDEX TO EXHIBITS
Exhibit No.
11. Statement of Computation of Earnings Per Share
<TABLE>
<CAPTION>
EXHIBIT 11.1
BDM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE
(Amounts in Thousands, Except Per Share Data)
Three Months Nine Months
Ended Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
----- ------ ---- -----
Net Income $5,291 $3,100 $12,494 $9,013
----- ----- ------ -----
Shares used for
primary earnings
per share:
Weighted averaged 12,579 9,386 10,572 10,642
shares outstanding
Dilutive effect of 797 518 654 461
common stock ------ ----- ------ -----
equivalents-non-
contingent stock
options
Total shares used 13,376 9,904 11,226 11,103
for primary
earnings per share
Additional shares used
for fully diluted
earnings per share:
Increase for dilutive 54 54 221 140
effect of contingent -- -- --- ---
stock options
Total shares used 13,430 9,958 11,447 11,243
for fully diluted ------ ----- ------ ------
earnings per share
Earnings per share:
Primary $.40 $.31 $1.11 $.81
---- ---- ----- ----
Fully diluted $.39 $.31 $1.09 $.80
---- ---- ----- ----
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 48,729
<SECURITIES> 0
<RECEIVABLES> 194,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 250,388
<PP&E> 43,165
<DEPRECIATION> 0
<TOTAL-ASSETS> 318,240
<CURRENT-LIABILITIES> 165,696
<BONDS> 0
<COMMON> 127
0
0
<OTHER-SE> 105,698
<TOTAL-LIABILITY-AND-EQUITY> 318,240
<SALES> 620,864
<TOTAL-REVENUES> 620,864
<CGS> 519,007
<TOTAL-COSTS> 592,832
<OTHER-EXPENSES> 2,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,125
<INCOME-PRETAX> 23,192
<INCOME-TAX> 10,698
<INCOME-CONTINUING> 12,494
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,494
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.09
</TABLE>
