SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
EXCHANGE ACT OF 1934
For the quarter Commission File
ended: March 31, 1996 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 April 26, 1996, the registrant had outstanding
13,950,507 shares of 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
March 31, 1996 (Unaudited) and December 31, 1995............2
Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1995 (Unaudited) .....3
Condensed Consolidated Statements of Cash Flow for the
Three Months Ended March 31, 1996 and 1995 (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>
March 31, December 31,
1996 1995
----------------- ----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 66,152 $ 69,143
Accounts receivable, net 205,029 219,354
Prepaid expenses and other 3,496 6,157
----------------- ----------------
Total current assets 247,677 294,654
Property and equipment, net 46,524 45,722
Intangible assets, net 26,181 9,615
Deposits and other 8,054 8,580
Equity in and advances to affiliates 5,149 5,222
----------------- ----------------
Total assets $ 360,585 $ 363,793
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 149,245 $ 168,253
Debt currently payable 3,295 449
Income taxes payable 1,972 3,465
Deferred tax liability 5,588 6,363
----------------- ----------------
Total current liabilities 160,100 178,530
Deferred tax liability 3,518 3,638
Long term debt 9,941 25,900
Severance and other 13,474 12,099
Minority interest 28,500 28,157
----------------- ----------------
Total liabilities 215,533 248,324
----------------- ----------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
500,000 shares authorized, none issued - -
Common stock, $.01 par value;
13,897,290 and 12,962,342 shares
issued and outstanding at March 31,
1996 and December 31, 1995,
respectively 139 130
Additional paid in capital 91,635 68,535
Retained earnings 52,197 46,790
Deferred compensation (293) (395)
Cumulative translation adjustment 1,374 409
----------------- ----------------
Total stockholders' equity 145,052 115,469
----------------- ----------------
Total liabilities and stockholders' equity $ 360,585 $ 363,793
================= ================
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
ended March 31,
----------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenue $ 225,107 $ 191,901
------------ ------------
Cost of sales 188,892 156,989
Selling, general and administrative 20,441 19,385
Depreciation, amortization and other 4,058 5,622
------------ ------------
Operating profit 11,716 9,905
Interest (income) expense, net (248) 1,121
Equity in earnings of affiliates (451) (332)
Minority interest 2,921 2,227
------------ ------------
Income before income taxes 9,494 6,889
Provision for income taxes 4,087 3,555
------------ ------------
Net income $ 5,407 $ 3,334
============= ============
Earnings per common and
common equivalent share:
Net income per share $ 0.39 $ 0.33
============ ============
Weighted average common
shares outstanding 13,978 9,979
============= ============
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BDM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
For the three months ended March 31, 1996 and 1995
(unaudited, in thousands)
<S> <C> <C>
1996 1995
-------------- --------------
Cash flow from operating activities:
Net cash provided by operating activities $ 12,155 $ 10,683
------------- -------------
Cash flow from investing activities:
Additions to property and equipment (4,349) (1,832)
Purchase of businesses, net of cash acquired (8,695) --
Reimbursement of acquisition costs -- 1,143
Contributions from minority owners -- 1,862
Distributions from unconsolidated affiliates 300 500
Investment in unconsolidated affiliates -- (100)
------------- --------------
Net cash (used in) provided by investing activities (12,744) 1,573
-------------- ------------
Cash flow from financing activities:
Net repayments of revolving borrowings (22,754) (19,000)
Proceeds from issuance of common stock 22,215 588
Acquisition of treasury stock -- (1,026)
------------- -------------
Net cash used in financing activities (539) (19,438)
-------------- ------------
Effect of exchange rate changes on cash (1,862) 4,753
-------------- ------------
Net decrease in cash and cash equivalents (2,991) (2,429)
Cash and cash equivalents, beginning of period 69,143 45,314
------------- -------------
Cash and cash equivalents, end of period $ 66,152 $ 42,885
============== =============
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
its subsidiaries (BDM or the Company) as of March 31, 1996 and for interim
periods ended March 31, 1996 and 1995, 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, 1995, 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. All such adjustments and reclassifications have been deemed to be
of recurring nature, except for the write-off of goodwill in March 1995, as
discussed below.
(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 42% and the Company's actual effective income tax rate of 43% for
the three months ended March 31, 1996, is primarily attributable to goodwill
amortization which is not deductible for federal income tax purposes, thus
resulting in the higher effective tax rate. The difference between the combined
statutory federal and state income tax rate of 41% and the Company's actual
effective income tax rate of 52% for the three months ended March 31, 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 during the
three months ended March 31, 1995, is not deductible for federal income tax
purposes, thus resulting in the higher effective tax rate.
(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) Capital stock transactions
--------------------------
On March 27, 1996, the Company completed a secondary offering of common
stock to the public in which 3,220,000 shares of Common Stock were sold at
$36.50 per share. Of the total 3,220,000 shares sold, 450,000 were primary
shares and the remaining 2,770,000 shares were sold by certain of the Company's
shareholders, including 400,000 of Class B shares, which were converted to
Common Stock immediately prior to the offering. The net proceeds of $15.3
million will be used for general corporate purposes and to finance future
acquisitions.
(5) Acquisition
-----------
On February 20, 1996, the Company completed the acquisition of three
affiliated companies - CW Systems, Inc., IG Systems, Inc. and Melco Systems,
Inc. - for $18.5 million. The acquired companies specialize in providing
information technology systems and services to large commercial organizations in
various industries, as well as to various state agencies. The acquisition of
these companies has been accounted for as a purchase, and the results of their
operations have been included in the Company's consolidated statement of income
since the date of acquisition. Of the total purchase price, $8.8 million was
paid out of existing cash balances and $9.7 million was financed through notes
payable to the previous owners. The notes are payable over two years and bear an
interest rate equal to the prevailing yield rate on twenty-six week United
States Treasury Bills, determined every six months. Interest is payable on a
quarterly basis. Resulting goodwill totaled $16 million, and will be amortized
on a straight-line basis over 15 years. Other intangible assets, relating to
non-compete agreements, totaled $1.4 million and will be amortized over two
years.
<PAGE>
Item 2. Managements' Discussion and Analysis
- ------- ------------------------------------
Overview
The Company maintained its strong growth rates for the first quarter of
1996 with an increase over the comparable period in 1995 in revenue of 17%, net
income of 62% and earnings per share of 18%. Contract backlog and proposal
backlog have remained fairly stable at $1.6 billion and $1.2 billion,
respectively. However, a number of significant proposals were submitted
subsequent to quarter end which increased the proposal backlog to approximately
$2 billion as of April 18, 1996. Several contract wins in early April also
boosted the contract backlog.
The Company also acquired three affiliated information technology
companies and completed a secondary offering to the public of 3,220,000 shares
of common stock, including 450,000 primary shares, at $36.50 per share
Revenue
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
(in millions, except percentages)
<S> <C> <C> <C> <C>
Clients Served
--------------
U.S. Department of Defense $82.8 37% $67.0 35%
International Defense 58.9 26 46.5 24
Civil Government 45.5 20 48.9 26
Commercial 37.9 17 29.5 15
------ --- ------ ---
Total $225.1 100% $191.9 100%
====== === ====== ===
Services Provided
-----------------
Systems and Software Integration $ 83.9 37% $ 54.4 28 %
Computer and Technical Services 119.9 53 116.8 61
Enterprise Management and Operations 21.3 10 20.7 11
------ --- ------ ---
Total $225.1 100% $191.9 100 %
====== ==== ====== ===
Subsidiaries
------------
BDM Federal $119.0 53% $ 97.5 51%
BDM Technologies 17.1 8 12.2 6
BDM Europe 52.2 23 48.8 26
Vinnell Corporation 36.8 16 33.4 17
------ --- ------- ---
Total $225.1 100% $191.9 100%
====== ==== ====== ===
</TABLE>
Clients Served
- --------------
Revenue for the three months ended March 31, 1996, increased $33
million (17%) over the comparable period in 1995. The 23% increase in U.S.
Defense revenue was attributable to the continued expansion of BDM's system
development and integration work for various Defense clients under the DEIS
contract. The 26% international defense increase was due to growth of IABG's
contracts with the German Ministry of Defense, as well as higher revenue earned
on BDM Federal's contract with the Royal Saudi Air Force. The 7% decline in
civil government revenue reflects reductions in BDM's civil government work in
Germany and the impact of budget cuts in 1995 on work for the Department of
Energy. These reductions were partially offset by growth in Vinnell's Job Corps
Center contracts and BDM Technologies' state government contracts. The 29%
increase in commercial work reflected the growth of commercial information
technology (IT) work, as well as the acquisition completed in late February.
<PAGE>
Services Provided
- -----------------
The 54% increase in systems and software integration revenue was driven
by BDM Federal and BDM Technologies contracts with the Defense Information
Systems Agency (the DEIS contract), the American Red Cross and a variety of
commercial clients. The computer and technical services growth was largely due
to the expansion of work for the Royal Saudi Land Forces, as well as added work
performed by IABG for the German Defense Ministry.
Subsidiaries
- ------------
Revenue at BDM Federal grew 22% due to growth in its IT business,
primarily related to work performed for the Department of Defense. The revenue
increase at BDM Technologies was largely due to growth in its commercial IT
work, as well as the acquisition completed in late February. Additional work
performed for the German Ministry of Defense and commercial clients contributed
to BDM Europe's higher revenue. Finally, Vinnell's revenue increase was driven
by its contracts for the newer Job Corps Centers and work for the Royal Saudi
Land Forces, although these increases were partially offset by a decrease in
revenue for a contract with the Saudi Arabian National Guard.
The following table sets forth selected financial data, expressed as a
percentage of revenue:
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Revenue 100.0 % 100.0%
Cost of sales 83.9 81.8
Selling, general and administrative 9.1 10.1
Depreciation, amortization and other 1.8 2.9
------ -----
Operating profit 5.2 5.2
Interest (income) expense, net (0.1) 0.6
Equity in earnings of affiliates (0.2) (0.2)
Minority interest 1.3 1.2
------ -----
Income before taxes 4.2 3.6
Provision for income taxes 1.8 1.9
------ -----
Net income 2.4% 1.7%
====== =====
</TABLE>
Cost of Sales
Cost of sales, which includes salaries, benefits, subcontractor
expenses, and material and overhead costs, increased as a percentage of revenue
for the three months ended March 31, 1996, compared to the same period in 1995.
This increase results primarily from a one-time profit recognition in March 1995
as a result of negotiations on a Vinnell contract, applicable to services
provided since the inception of the contract in May 1994, which lowered the 1995
cost of sales percentage.
<PAGE>
Selling, General and Administrative
The decrease in selling, general and administrative (SG&A) expense as a
percentage of revenue in the first quarter of 1996 compared to the same period
in 1995 reflects revenue growth accompanied by fairly stable SG&A costs. In
addition, the Company continues to achieve overhead cost savings in several of
its subsidiaries.
Depreciation, Amortization and Other
Depreciation, amortization and other costs decreased as a percentage of
revenue for the three months ended March 31, 1996, compared to the same period
in 1995, largely due to a $1.6 million write-off of goodwill in the first
quarter of 1995 related to the FACE acquisition. In addition, the Company's
higher revenue base has been accompanied by relatively flat costs, also
contributing to the lower percentage. Amortization expense related to
acquisitions completed in the first quarter of 1996 was not significant.
Interest (Income) Expense, net
The Company had net interest income of $0.3 million for the three
months ended March 31, 1996, compared to net interest expense of $1.1 million
for the same period in 1995. This resulted from applying $49.4 million of
proceeds in July 1995 from the initial public offering of stock (the IPO) to
reduce outstanding borrowings.
Minority Interest
The minority interest share of earnings increased as a percentage of
revenue for the first quarter of 1996 compared to the same period in 1995. This
increase reflects improved profitability of the Company's German subsidiary and
Vinnell's joint ventures in the Middle East. In addition, Vinnell's contract
with the Saudi Arabian National Guard was performed under a joint venture
beginning in July 1995, in which Vinnell 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. This
contract was performed solely by Vinnell in the first quarter of 1995, and thus,
reported no minority interest at that time. These increases were partially
offset by a reduction in minority interest from 1995 to 1996 due to a one-time
profit recognition in March 1995 as a result of negotiations on a Vinnell joint
venture in Saudi Arabia.
Provision for Income Taxes
The provision for income taxes decreased as a percentage of income
before income taxes for the three months ended March 31, 1996, over the same
period in 1995. The effective rate decrease related to the write-off of $1.6
million in goodwill from the FACE acquisition in the first quarter of 1995,
which was not deductible for income tax purposes. Offsetting this somewhat was
an increase in the Company's statutory tax rate from 41% in 1995 to 42% in 1996,
reflecting the impact of the Company's international expansion into countries
with higher income tax rates than in the United States. This higher income tax
rate considers foreign tax credits which may expire prior to their use.
<PAGE>
Liquidity and Financial Condition
- ---------------------------------
In an effort to increase the number of shares which are publicly
traded, the Company completed a secondary offering of common stock to the public
on March 27, 1996 in which 3,220,000 shares of common stock were sold at $36.50
per share. Of the total 3,220,000 shares sold, 450,000 were primary shares and
the remaining 2,770,000 shares were sold by certain of the Company's
stockholders, including 400,000 of Class B shares, which were converted to
Common Stock immediately prior to the offering. The net proceeds of $15.3
million will be used for general corporate purposes and to finance future
acquisitions.
Other significant sources of liquidity continue to be cash flow from
operations ($9.2 million for the first quarter of 1996) and the Company's $150
million revolving credit agreement.
Cash flow related to investing activities primarily consists of the
investment made for the acquisition of three affiliated companies. On February
20, 1996, the Company completed the acquisition of CW Systems, Inc., IG Systems,
Inc. and Melco Systems, Inc. for $18.5 million, $8.8 million of which was paid
out of existing cash balances and $9.7 million was financed through notes
payable to the previous owners. The acquired companies specialize in providing
information technology systems and services to large commercial organizations in
several industries, as well as to certain state agencies. Goodwill totaled $16
million, and will be amortized on a straight-line basis over 15 years. Other
intangible assets, relating to non-compete agreements, totaled $1.4 million and
will be amortized over two years.
Other investing activities included capital expenditures, which have
increased due to the implementation of a new enterprise reporting system (SAP)
at BDM Federal, and working capital infusions to and earnings distributions from
Vinnell's unconsolidated joint ventures.
Financing activities include the net proceeds from the secondary stock
offering of $15.3 million and the reduction of the Company's working capital
facility by $22.9 million. In addition, the Company continued to benefit its
employees by enabling them to purchase shares of common stock through stock
option exercises and the employee stock purchase plan.
During the three months ended March 31, 1996, the fluctuation in the
value of the German mark to the U.S. dollar resulted in a $1.9 million decrease
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 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:
The Company filed a Form 8-K dated February 20, 1996 related
to the acquisition of three affiliated companies: CW Systems,
Inc., IG Systems, Inc., and Melco Systems, Inc.
<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.
April 30, 1996 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 Ended
March 31,
-------------------
1996 1995
------ ------
Net Income $5,407 $3,334
====== ======
Shares used for
primary earnings per share:
Weighted averaged shares
outstanding 13,178 9,434
Dilutive effect of common stock
equivalents-noncontingent stock
options 800 545
------ ------
Total shares used for primary
earnings per share 13,978 9,979
====== =====
Additional shares used for
fully diluted earnings per share:
Increase for dilutive effect of
contingent stock options 71 92
------ ------
Total shares used for
fully diluted earnings per share 14,049 10,071
====== ======
Earnings per share:
Primary $0.39 $0.33
====== ======
Fully diluted $0.38 $0.33
====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 66,152
<SECURITIES> 0
<RECEIVABLES> 205,029
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 247,677
<PP&E> 46,524
<DEPRECIATION> 0
<TOTAL-ASSETS> 360,585
<CURRENT-LIABILITIES> 160,100
<BONDS> 0
0
0
<COMMON> 139
<OTHER-SE> 144,913
<TOTAL-LIABILITY-AND-EQUITY> 360,585
<SALES> 225,107
<TOTAL-REVENUES> 225,107
<CGS> 188,892
<TOTAL-COSTS> 213,391
<OTHER-EXPENSES> 2,470
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (248)
<INCOME-PRETAX> 9,494
<INCOME-TAX> 4,087
<INCOME-CONTINUING> 5,407
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,407
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.38
</TABLE>
