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: June 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 July 31, 1995, the registrant had
outstanding 12,900,953 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
June 30, 1995 (Unaudited) and December 31, 1994...... 2
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1995 and 1994
(Unaudited) ........................................ 3
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 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>
June 30, December 31,
1995 1994
--------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 33,160 $ 45,314
Accounts receivable, net 198,771 215,923
Prepaid expenses and other 9,053 8,842
------- --------
Total current assets 240,984 270,079
Property and equipment, net 41,948 40,569
Intangible assets, net 11,412 13,814
Deposits and other 6,463 5,896
Equity in and advances to affiliates 5,678 5,193
------- -------
Total assets $306,485 $335,551
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $146,170 $166,298
Debt currently payable 4,152 426
Income taxes payable 1,600 3,000
Deferred tax liability 5,919 5,441
------- -------
Total current liabilities 157,841 175,165
Deferred tax liability 5,243 5,243
Long term debt 57,538 82,750
Severance and other 17,483 17,248
Minority interest 20,305 14,040
-------- -------
Total liabilities 258,410 294,446
------- -------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value;
500,000 shares authorized, none issued
Common stock, $.01 par value; 125 95
12,483,276 and 9,473,275 shares
issued and outstanding at June 30,
1995 and December 31, 1994;
Additional paid in capital 61,458 12,336
Receivable for stock offering proceeds (49,465) --
Retained earnings 35,602 28,398
Deferred compensation (614) (279)
Cumulative translation adjustment 969 555
------ -------
Total stockholders' equity 48,075 41,105
------- -------
Total $ 306,485 $ 335,551
======= =======
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 For the six
months ended months ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 213,064 $174,421 $404,965 $339,584
------- ------- ------- -------
Cost of sales 178,744 141,658 335,734 276,427
Selling, general and 20,854 22,179 40,239 41,968
administrative
Depreciation,
amortization and other 4,676 4,823 10,298 9,871
----- ----- ------ -----
Operating profit 8,790 5,761 18,694 11,318
Interest expense, net 1,364 668 2,485 916
Equity in earnings of (503) (513) (835) (899)
affiliates
Minority interest 786 397 3,012 979
----- ----- ------ ------
Income before income taxes 7,143 5,209 14,032 10,322
Provision for income taxes 3,273 2,204 6,828 4,409
----- ------ ----- -----
Net Income $ 3,870 $ 3,005 $ 7,204 $ 5,913
===== ===== ===== =====
Earnings Per Share:
Net income per share $ 0.38 $ 0.26 $ 0.71 $ 0.50
==== ===== ==== ====
Weighted average
shares outstanding 10,237 11,412 10,113 11,840
====== ====== ====== ======
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 six months ended June 30, 1995 and 1994
(unaudited, in thousands)
<S> <C> <C>
1995 1994
---- ----
Cash flows from operating activities:
Net cash provided by (used in) operating
activities $ 7,220 $ (6,580)
----- -----
Cash flows from investing activities:
Additions to property and equipment (5,235) (5,166)
Purchase of businesses -- (4,529)
Reimbursement of acquisition costs 1,143 --
Contributions from minority owners 1,862 --
Distributions from unconsolidated 800 1,175
affiliates
Investment in unconsolidated affiliates (799) (750)
------ ------
Net cash used in investing activities (2,229) (9,270)
------ ------
Cash flows from financing activities:
Net (repayments of) proceeds from (21,573) 24,796
revolving borrowings
Payment of debt issuance costs -- (219)
Proceeds from assets held for resale -- 666
Proceeds from issuance of common stock 1,274 913
Acquisition of common stock (1,088) (37,793)
------ -------
Net cash used in financing activities (21,387) (11,637)
------- --------
Effect of exchange rate changes on cash 4,242 1,296
------ ------
Net decrease in cash (12,154) (26,191)
Cash, beginning of period 45,314 48,875
------ ------
Cash, end of period $33,160 $ 22,684
====== ======
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 June 30, 1995
and for interim periods ended June 30, 1995 and 1994, are
unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The
condensed 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.
(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 49% for the six months ended June 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, in the second quarter a charge
of $388,000 was recognized 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
----
In April 1995, the Company exercised its second and last
option to extend the term of its working capital facility for an
additional one year term through July 1998. Subsequent to the
stock offering described below, the Company decided to replace
this credit facility with a new, unsecured facility.
Accordingly, a charge of $0.5 million for deferred financing
costs relating to the existing credit facility was recognized
during the second quarter. The new agreement provides a working
capital facility of $150 million for a term of 5 years. 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.
(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 were received subsequent to June 30,
and 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 the 1995 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.
<PAGE>
BDM INTERNATIONAL, INC.
Item 2. Managements' Discussion and Analysis
------ ------------------------------------
Results of Operations
---------------------
REVENUE
Revenue for the three and six months ended June 30, 1995,
increased $38.6 million and $65.4 million, respectively, over
comparable periods in 1994, representing a 22.2% increase for the
three month comparison and a 19.3% increase for the six month
comparison. This revenue increase was all internal growth; no
acquisitions have been done in 1995. For both the three and six
month periods, at least 75% of the growth was attributable to the
historic business base, primarily in the area of systems and
software integration, contributed by both BDM Federal and BDM
Technologies. Increased revenues for BDM Europe was driven
primarily by exchange rate fluctuations between the German mark
and the U.S. dollar.
COST OF SALES
Cost of sales, which includes salaries, benefits,
subcontractor expenses, material and overhead costs, increased as
a percentage of revenue for the three and six months ended June
30, 1995, compared to the same periods in 1994. The increase was
due to two factors: in the second quarter of 1994, several fixed-
price contracts came to an end and resulted in settlement
revenues that had no associated costs; and the second quarter
1995 results contained a higher level of computer hardware sales
at lower margins when compared to the same period in 1994.
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 six months
ended June 30, 1995 compared to the same periods in 1994. This
decrease was attributable to discontinued R&D activities incurred
during 1994 of $1.9 million for the second quarter and $3.9
million for the six months. Excluding these discontinued
activities, SG&A as a percentage of revenue for the three and six
months ended June 30, 1994, were 11.6% and 11.2%, respectively.
Further decrease was caused by the continuation of cost controls
at the German subsidiary and the maturation of the commercial
subsidiary formed in 1993.
DEPRECIATION, AMORTIZATION AND OTHER
Depreciation, amortization and other costs as a percentage
of revenue decreased for the three and six months ended June 30,
1995, compared to the same periods in 1994 due to a $1.6 million
write-off of remaining goodwill from the FACE acquisition,
reflecting management's estimate of the non-recoverability of
this asset. Excluding this write-off, the costs remained
relatively constant while revenue increased. The last
acquisition was in early 1994 and no significant increases were
experienced in capital expenditure spending.
<PAGE>
BDM INTERNATIONAL, INC.
Item 2. Managements' Discussion and Analysis (cont'd)
------ --------------------------------------------
Results of Operations
---------------------
INTEREST EXPENSE
Net interest expense increased as a percentage of revenue
for the three and six months ended June 30, 1995 compared to the
same periods in 1994 due to a higher weighted average debt
balance during 1995 compared to 1994. The increase in debt was
the result of the Company's repurchase of 2.6 million outstanding
shares of common stock from institutional investors in May 1994.
The weighted average interest rates incurred during the six
months ended June 30, 1995 and 1994 were 8.65% and 6.03%,
respectively, also contributing to the higher interest expense.
In addition, a one-time charge of $0.5 million related to the
write-off of capitalized financing costs on the existing credit
facility was recognized in the second quarter of 1995.
MINORITY INTEREST
Minority interest increased as a percentage of revenue for
the first three months of 1995 compared to the same period in
1994. The increase was due to increased earnings in the German
subsidiary as well as a full quarter impact of a 60% owned joint
venture operating in Saudi Arabia which began in May 1994. The
six-month results ended June 30, 1995 reflect a greater increase
compared to the six months ended June 30, 1994 due to the
operation of the 60% owned joint venture for all six months in
1995. Minority interest recognized on this contract during the
six months ended June 30, 1995 was $1.2 million. Of this amount,
$0.4 million represented the one-time recognition in March 1995
of profit negotiations applicable to services provided since the
inception of the contract in 1994.
Vinnell currently has a contract to provide training
services to the Saudi Arabian National Guard which represented
55% of its total revenue in 1994. The contract was competed by
the client and Vinnell was awarded, through a joint venture in
which it is a 51% partner, a three year follow-on contract for
$163 million which began in July 1995. The contract's results of
operations will be consolidated, and the other partner's minority
ownership interest of 49% will be reflected as a minority
interest. Due to the new ownership arrangement, the Company
expects an increase in minority interest from this new contract
when compared to the previous contract.
PROVISION FOR INCOME TAXES
The provision for income tax expense increased as a
percentage of income before taxes during the six months ended
June 30, 1995 compared to the same period in 1994 as a result of
a charge of $1.6 million recognized in the first quarter of 1995
to reflect management's estimate of the non-recoverability of
unamortized goodwill generated in an earlier business
acquisition. 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.
<PAGE>
BDM INTERNATIONAL, INC.
Item 2. Managements' Discussion and Analysis (cont'd.)
------ ----------------------------------------------
Liquidity and Financial Condition
---------------------------------
At June 30, 1995, the Company had working capital of $83.1
million compared to $100.2 million at December 31, 1994. The
Company's principal sources of liquidity continue to be cash flow
from operations and borrowings under the Company's credit
facility. In April 1995, the Company exercised its second option
to extend the term of this facility for an additional one year
through July 1998. As of June 30, 1995, the Company was eligible
to borrow an additional $65.0 million (net of outstanding letters
of credit) in accordance with the terms of its credit facility
and was in compliance with all restrictive covenants contained
therein.
Subsequent to the stock offering described below, the
Company decided to replace this credit facility with a new,
unsecured facility. Accordingly, a charge of $0.5 million
relating to deferred financing costs was recognized during the
second quarter. The new agreement provides a working capital
facility of $150 million for a term of 5 years. 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.
Gross proceeds of $53.2 million from the public stock
offering were received subsequent to June 30, 1995, and $49.4
million has been applied against outstanding borrowings under the
Credit Facility and the extinguishment of $3.7 million in
subordinated debt. On a pro forma basis, outstanding debt as of
June 30, 1995, was approximately $11.7 million.
Cash flow provided by investing activities is primarily
related to amounts received in accordance with the IABG
acquisition agreement. In March 1995, the current shareholders
entered into a Trust Agreement with a bank to administer the
remaining 23% sale of shares to employees and others. Prior to
such sale and on behalf of the future owners, the bank advanced
to IABG 23% of a required capital infusion of $1.9 million due in
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. Pursuant to the Trust Agreement, the current shareholders
agreed to repurchase, in the proportion of the total shares they
owned at such date, any trust shares not sold to employees and
others as of December 31, 2000.
The terms of the original acquisition also required the new
owners to provide IABG with three guaranteed equity infusions.
The equity guarantee remaining as of June 30, 1995, is due in a
final installment of approximately $8.7 million on November 16,
1995. BDM's share of this equity guarantee is 45%. The equity
infusion due from the 23% trust will then also be advanced by the
bank trustee to the extent any portion of the trust remains
unsold to employees or other investors.
Other investing cash flow activities include fluctuations in
the timing of working capital infusions to and earnings
distributions from Vinnell's unconsolidated joint ventures as
well as planned capital expenditures.
<PAGE>
BDM INTERNATIONAL, INC.
Item 2. Management's' Discussion and Analysis (cont'd.)
------ ------------------------------------------------
Liquidity and Financial Condition, cont.
---------------------------------------
Financing activities, facilitated by the net proceeds from
the above cash flow activities, were comprised primarily of the
reduction of the Company's working capital facility by $21.6
million. In addition, the Company continued the employee benefit
of enabling employees to purchase shares of common stock at
current value, and has continued to repurchase certain
outstanding shares in order to minimize dilution in the
Company's ownership resulting from the employee purchases. The
Company implemented a new employee stock purchase plan which
allows employees, beginning in July 1995, to purchase shares of
common stock at a discount. This new plan is expected to
increase the cash flow from financing activities beginning in the
third quarter of 1995.
During the six months ended June 30, 1995, the fluctuation
in the value of the German mark to the U.S. dollar resulted in a
$4.2 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>
BDM INTERNATIONAL, INC.
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.
August 9, 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
EXHIBIT 11.1
BDM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE
(Amounts in Thousands, Except Per Share Data)
Three Months Six Months
Ended Ended
June 30, June 30,
------- --------
1995 1994 1995 1994
----- ---- ---- ----
Net Income $3,870 $3,005 $7,204 $5,913
===== ===== ===== =====
Shares used for
primary earnings per share:
Weighted averaged 9,650 10,916 9,544 11,428
shares outstanding
Dilutive effect of 587 496 569 412
common stock equivalents- --- --- --- ---
noncontingent stock options
Total shares used for
primary earnings 10,237 11,412 10,113 11,840
per share
Additional shares used
for fully diluted
earnings per share:
Increase for dilutive
effect of contingent 139 127 162 192
stock options ----- ----- ----- ------
Total shares used
for fully diluted 10,376 11,539 10,275 12,032
earnings per share ====== ====== ====== ======
Earnings per share:
Primary $0.38 $0.26 $0.71 $0.50
==== ==== ==== ====
Fully diluted $0.37 $0.26 $0.70 $0.49
==== ==== ==== ====
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 33,160
<SECURITIES> 0
<RECEIVABLES> 198,771
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 240,984
<PP&E> 41,948
<DEPRECIATION> 0
<TOTAL-ASSETS> 306,485
<CURRENT-LIABILITIES> 157,841
<BONDS> 0
<COMMON> 125
0
0
<OTHER-SE> 47,950
<TOTAL-LIABILITY-AND-EQUITY> 306,485
<SALES> 404,965
<TOTAL-REVENUES> 404,965
<CGS> 335,734
<TOTAL-COSTS> 386,271
<OTHER-EXPENSES> 2,177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,485
<INCOME-PRETAX> 14,032
<INCOME-TAX> 6,828
<INCOME-CONTINUING> 7,204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,204
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.70
</TABLE>
