SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended: Commission File Number:
December 31, 1996 000-23966
BDM International, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE EI 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)
703-848-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section
12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.01 per share Nasdaq
Securities registered pursuant to section 12(g) of the Act:
NONE
(Title of class)
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
persons considered by the registrant for this purpose to be non-affiliates of
the registrant on January 31, 1997, computed with reference to the closing price
of the Common Stock on Nasdaq as reported for January 31, 1997, was
$538,527,570.30.
As of the close of business February 28, 1997, the registrant had
outstanding 14,494,751 shares of Common Stock, par value $.01 per share.
Documents Incorporated By Reference
Certain information called for by Part III of the Form 10-K will either be
filed with the Commission under Regulation 14A under the Securities Exchange Act
of 1934 or by amendment to this Form 10-K, in either case on or before April 30,
1997.
<PAGE>
PART I
Item 1. Business.
BDM International, Inc. ("BDM") is a multinational information
technology company that operates in three interrelated markets: Systems and
Software Integration, Computer and Technical Services and Enterprise Management
and Operations. The Company serves public and private sector clients, including
the Department of Defense ("DOD") (approximately 36% of total revenue in 1996),
international defense agencies (approximately 27%), civil government agencies
(approximately 20%) and commercial clients (approximately 17%).
The Company was formed in 1959 by Drs. Joseph V. Braddock, Bernard J.
Dunn and Daniel F. McDonald as "Braddock, Dunn & McDonald, Incorporated," which
was later reorganized as BDM International, Inc. (the "Predecessor Company").
The Predecessor Company was a public company from 1980 until 1988, when Ford
Aerospace Corporation ("Ford Aerospace"), then a wholly owned subsidiary of Ford
Motor Company ("Ford"), acquired all of the outstanding stock of the Predecessor
Company.
In October 1990, on behalf of certain investors, The Carlyle Group,
L.P. ("Carlyle"), a Washington, D.C.-based private merchant bank, formed BDM
Holdings, Inc. ("Holdings"), a Delaware corporation, and a wholly owned
subsidiary corporation named New BDM, Inc. ("New BDM") which acquired
substantially all of the assets of the Predecessor Company (the "1990
Acquisition"). Shortly after the 1990 Acquisition, New BDM changed its name to
BDM International, Inc. In December 1992, Holdings and BDM International, Inc.
changed their names to BDM International, Inc. and BDM Federal, Inc. ("BDM
Federal"), respectively.
In March 1992, the Company acquired the outstanding common stock of
Vinnell Corporation ("Vinnell"), a company that specializes in international
on-site operations and maintenance and training services largely in the Middle
East. In January 1993, the Company began operating a new subsidiary, BDM
Technologies, Inc. ("BDM Technologies"), to focus on applying its core
competencies to serve commercial and state and local government clients.
Effective January 1, 1993, a new subsidiary, BDM Europe BV ("BDM Europe"),
acquired two European businesses, FACE Industrial Automation BV and Logisticon
BV, and merged them into a single entity called FACE, located in Eindhoven, The
Netherlands. FACE provides systems integration and technical services to
industrial clients, primarily in the areas of automated distribution and
advanced manufacturing systems. In November 1993, BDM Europe acquired management
control of, through a 45% ownership interest in,
Industrieanlagen-Betriebsgesellschaft mbH ("IABG"), located in Ottobrunn,
Germany. The interest was acquired primarily from
Industrieverwaltungsgesellschaft AG (IVG) under a privatization plan approved by
the relevant ministries of the German Government, the principal owner of IVG.
IABG provides test and evaluation and information services, principally to the
German Government. In February 1994, the Company acquired Geoscience
Consultants, Ltd. ("GCL"), a company that provides environmental assessment and
engineering services to industrial and governmental clients. For financial
reporting purposes, GCL is included under BDM Federal. In February 1996, the
Company acquired three affiliated companies - CW Systems, Inc., IG Systems, Inc.
and Melco Systems, Inc. - which provide information technology services and
systems support to commercial and public sector clients. In November 1996, the
Company acquired the operations of RGTI Systems Software, a company specializing
in warehouse management solutions. In December 1996, the Company acquired the
assets of two related companies, Advanced Systems Design, Inc. and Software
Engineering, Inc., which provide human services system design and development to
state and local governments. All three acquisitions are included for financial
reporting purposes under BDM Technologies.
Effective December 31, 1996, the Company reorganized its business
operations into five strategic business units: Federal Systems, State and Local
Systems, Enterprise Management Services, Integrated Supply Chain Solutions and
BDM Europe. In addition, BDM Technologies development unit was established to
focus on promising new areas of business.
Unless the context otherwise requires, reference herein to "the
Company" or "BDM" includes BDM International, Inc. and its subsidiaries.
The principal office and corporate headquarters of the Company is
located at 1501 BDM Way, McLean, Virginia 22102-3204, and its telephone number
is (703) 848-5000.
Business Areas
In 1996, the Company, through its subsidiaries, engaged in contracts
and programs on behalf of public and private sectors. A cross-section follows,
showing major contract and program areas, by subsidiary.
BDM Federal. The following are examples of contracts and program areas
in which BDM Federal performs systems and software integration, computer and
technical services and enterprise management and operations services. The
Company:
- Modernizes the way information is managed by both defense and
civil government agencies under the Defense Enterprise Integration
Services ("DEIS") Program contract. The work includes developing
an overall enterprise architecture to integrate disparate
information systems, known as legacy systems, introducing modern
information technologies, and re-engineering information
management processes. BDM was one of six prime contractors on the
DEIS contract, and received the second highest dollar volume of
delivery order awards (approximately $200 million) among the six
contractors since the program began in 1994. In July 1996, BDM was
selected to participate in the five-year follow-on DEIS II
contract. 1996 revenue was approximately $118.4 million.
- Provides systems and software integration services to the
Securities and Exchange Commission ("SEC") as the developer of the
Electronic Data Gathering, Analysis and Retrieval System
("EDGAR"). This system permits publicly held companies to file
reports electronically with the SEC, thus replacing paper filings,
and provides for immediate public dissemination of financial
filing and reporting data. EDGAR is now operational, and all
public companies have made the transition to filing via EDGAR. BDM
has submitted a proposal for the next generation of the EDGAR
system, which is scheduled to be awarded in 1998. 1996 revenue was
approximately $8.6 million.
- Consolidates defense logistics computer systems for the United
States Air Force ("USAF") under the DMRD-924 Program. The Company
provides systems and software integration services, ranging from
hardware acquisition to large-scale systems integration, pursuant
to a DOD directive mandating consolidation of computer sites to
enhance performance and reduce costs. 1996 revenue was
approximately $22.5 million.
- Provides comprehensive systems integration services to various
state and local school districts in the areas of financial and
administrative software applications, instructional applications,
system architectures and network designs, teacher and
administrator training and management consulting. The Company is
working to advance the productivity and efficiency of
administrative systems and improve student performance. The
Company's largest contract in this area ($27.5 million), awarded
in 1995, combines systems integration with outsourcing of the
school district's information services department. 1996 revenue in
this area was approximately $13.5 million.
- Supports the Department of Energy ("DOE") in development of plans
and technologies and the implementation of strategies to advance
its waste management, technology development and environmental
restoration programs. The Company performs information systems
support, technical assessments and other services to help the DOE
meet federally mandated responsibility for waste management and
site cleanup under the Resource Conservation Recovery Act, the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 and other laws and regulations. 1996 revenue was
approximately $12.0 million.
- Provides logistic support services to the Royal Saudi Air Force
encompassing information technology services, logistics and
supply, training, engineering and systems maintenance,
administration and other areas. 1996 revenue was approximately
$40.8 million.
- Provides the Ballistic Missile Defense Organization with
comprehensive engineering and technical systems assistance in
areas such as systems architecture and design, system simulation
and modeling, command, control, communications and intelligence,
systems testing and logistics planning. 1996 revenue was
approximately $26.2 million.
- Manages and operates elements of the Joint Readiness Training
Center of the U.S. Army Training and Doctrine Command, where
approximately 50,000 soldiers a year are trained on integrated
battlefields with near-real-time performance feedback. Systems
designed and operated by BDM collect data through lasers,
electronics and videos to provide the U.S. Army with the most
comprehensive experience and data feedback short of actual combat.
In October 1996, BDM was awarded a five-year follow-on contract to
continue this work. 1996 revenue was approximately $16.1 million.
- Creates and implements systems and processes to improve blood
collections, processing and distribution for the American Red
Cross. Tasks involve developing standard operating procedures,
installing hardware and software, and providing training to Red
Cross personnel. This is a joint activity with BDM Technologies.
Aggregate 1996 revenue was approximately $13.4 million.
BDM Technologies. The following are examples of contracts and program
areas in which BDM Technologies performs systems and software integration,
computer and technical services and enterprise management and operations for
commercial and state and local government clients. The Company:
- Designs and integrates state-wide information systems aimed at
strengthening welfare and human services management and provides
tested solutions in such areas as child welfare and child support
enforcement. Major programs are underway in Alabama, Iowa,
Missouri, Montana and other states. In Montana, the BDM-designed
child support enforcement system was the nation's first to achieve
the federal certification that all such systems are required to
have. 1996 revenue in this area was approximately $26.1 million.
- Automates warehouse distribution and control operations to improve
distribution process efficiencies for major national and
international clients including Ford Motor Company ("Ford"),
Franklin Mint, Merck and Co., Inc., Ortho-McNeil, Inc., Bell
Canada, Federal Express, Dot Foods and Spalding. Using the
Company's proprietary MARC(TM) system, BDM helps clients achieve
increased inventory accuracy, improved response time and other
benefits. 1996 revenue in this area was approximately $12.7
million.
- Performs application outsourcing, maintenance and support and
develops critical software enhancements to various information
systems for Ford. BDM Technologies has been directly involved in
the development and implementation of Computer Integrated
Manufacturing applications for Ford's Electronics Division. In
addition, BDM Technologies has also designed, developed and
implemented several key client/server applications for Ford.
1996 revenue was approximately $4.6 million.
- Provides systems integration and manufacturing execution services
to support clients in the semiconductor manufacturing industry.
Representative clients include Advanced Micro Devices, Sony
Semiconductors, National Semiconductor, Hitachi Semiconductor and
Zilog. 1996 revenue was approximately $6.3 million.
BDM Europe. The following are examples of program areas in which BDM
Europe provides systems and technology services, primarily to German Government
and industrial clients. BDM Europe:
- Provides information technology and systems support in software
standardization, development and integration of management
information systems for government and commercial clients and
strengthening of command, control, communications and intelligence
systems for the German Ministry of Defense. 1996 revenue was
approximately $38.2 million.
- Performs environmental assessments, both to meet requirements at
contaminated sites (site inventory, investigation, assessment and
remediation engineering) and to support environmental planning and
the development of improved remediation systems and techniques.
1996 revenue was approximately $16.1 million.
- Analyzes, tests, evaluates and simulates defense systems,
missions, and operations for the German Ministry of Defense.
Typical programs involve engineering assessments of new weapons
systems and platforms, support of Battlefield Training Centers,
design and simulation of camouflage measures and development and
implementation of computer-based models for operational analysis
and training. 1996 revenue was approximately $66.1 million.
- Tests commercial and military aircraft structures, such as the
Airbus A330/340 airliners and the Tornado and new Eurofighter
aircraft; programs include testing of major assemblies, components
and structural elements to identify structural weaknesses and
improve safety and service life. 1996 revenue was approximately
$20.9 million.
- Performs comprehensive testing of satellites and other space
structures, space simulation, thermal vacuum testing, vibration
and shock-testing and project monitoring for the German Ministry
of Research and Technology, the European Space Agency, and private
clients at the Space Test Center in Ottobrunn, Germany.
1996 revenue was approximately $19.1 million.
- Tests vehicles and their components for various German automobile
manufacturers and suppliers such as BMW, Audi and Volkswagen,
including climatic testing, emissions testing and mechanical tests
of suspension and steering elements. 1996 revenue was
approximately $4.3 million.
- Operates the Magnetic Levitation ("MagLev") test facility in
Elmsland, Germany, including the performance of numerous technical
investigations and demonstration runs. The successful operation of
this facility contributed to the decision of the German Government
to implement the first MagLev service route in Germany connecting
Hamburg and Berlin. 1996 revenue was approximately $12.3 million.
Vinnell. The following are examples of contracts under which Vinnell
performs training and complementary capabilities in technical services as well
as enterprise management and operations for its clients in the United States and
abroad. The Company:
- Provides training, logistical support and comprehensive
developmental, advisory and operational services under the Saudi
Arabian National Guard ("SANG") Modernization Program. Beginning
July 1, 1995, this work is performed by a joint venture, of which
Vinnell owns 51%. Aggregate 1996 revenue was approximately $67.0
million.
- Performs training, logistical support and comprehensive
developmental, advisory and operational services for FMC Arabia
(an affiliate of FMC Corporation) in connection with the fielding
of the Bradley Fighting Vehicle System for the Royal Saudi Land
Forces. This work is being performed through an affiliate, of
which Vinnell owns 60%. Aggregate 1996 revenue was approximately
$50.3 million.
- Manages and operates seven Job Corps Centers in the United States
for the Department of Labor ("DOL") under a program designed to
bring education and vocational training to disadvantaged youth.
Aggregate 1996 revenue was approximately $38.1 million.
- Manages and operates U.S. military facilities in Turkey and three
USAF facilities in Oman, provides personnel support services in
Egypt and operations and maintenance services at a U.S. Army base
in the United States under joint ventures with Brown & Root
Services Corporation, Airwork Ltd., SEACOR Services, Inc. and
Tecom Services, Inc., respectively. Total 1996 revenue earned by
these joint ventures was approximately $92.2 million. As a 50%
partner in these joint ventures, Vinnell reports earnings using
the equity method. Aggregate equity in earnings from these joint
ventures was approximately $2.0 million in 1996.
Contracts
Types of Contracts. The Company's services are provided through three
types of contracts: fixed-price, time-and-material and cost-reimbursable
contracts. Fixed-price contracts require the Company to perform services under
the contract at a stipulated price. Time-and-material contracts reimburse the
Company for the number of labor hours expended at established hourly rates
negotiated in the contract and the cost of materials incurred. Cost-reimbursable
contracts reimburse the Company for all actual costs incurred in performing the
contract to the extent that such costs are within the contract ceiling and
allowable under the terms of the contract, plus a fee or profit.
The Company assumes greater financial risk on fixed-price contracts
than on either time-and-material or cost-reimbursable contracts. Commercial
contracts are generally fixed-price contracts. Failure to anticipate technical
problems, estimate costs accurately, or control costs during contract
performance may reduce the Company's profit or cause a loss. Greater risks are
involved under time-and-material contracts than under cost-reimbursable
contracts because the Company assumes the responsibility for the delivery of
specified skills at a fixed hourly rate. Higher profit margins are generally
negotiated with the government for fixed-price and time-and-material contracts
because the Company bears the risk that increased or unexpected costs may reduce
the Company's profit or cause a loss, while lower than anticipated costs may
result in increased profit.
The following table shows the approximate percentage of revenue by
contract type recognized by the Company during the indicated periods:
Years Ended
December 31,
--------------------------------------
Type Of Contract 1996 1995 1994
---------------- ---- ---- ----
Cost-reimbursable.................... 35% 39% 43%
Fixed-price.......................... 30 28 30
Time-and-material.................... 35 33 27
------- ------- -------
Total 100% 100% 100%
======= ======= =======
Award of Contracts. The Company may obtain a government contract after
the solicitation by the relevant government agencies, in open and free
competition, of sealed bids from various suppliers or through the process of
negotiation with the Government. Under certain circumstances, most government
agencies are authorized to enter into contracts based on negotiation rather than
sealed bids.
<PAGE>
Negotiated contracts may or may not involve the solicitation of
competitive proposals. Generally, negotiated contracts are entered into without
competitive solicitation when the services or supplies desired by the government
can be obtained from only one available source. In most noncompetitive
procurements, the government solicits a proposal from the contractor and then
negotiates the price and other terms in accordance with the applicable federal
regulations.
Government Contract Operations. Many of the government programs in
which the Company participates as a contractor or subcontractor may extend for
several years, but they are normally funded on an annual basis. The Company's
government contracts and subcontracts are subject to modification, curtailment,
and termination in the event of changes in government funding. Accordingly, all
of the Company's contracts and subcontracts involving the U.S. Government may be
terminated at any time by the U.S. Government, without cause, for the
convenience of the U.S. Government. If a U.S. Government contract is terminated
for convenience, the Company would be entitled to receive compensation for the
services provided or costs incurred at the time of termination and a negotiated
amount of the profit on the contract.
The Company's costs and revenue under government contracts are subject
to adjustment as a result of audits by the Defense Contract Audit Agency. Audits
of costs incurred have been completed on all years through 1988. Audits for 1989
through 1996 have not been completed. However, management does not believe the
results of these audits will have a material effect on the Company's financial
position or results of future operations.
Backlog. The Company's backlog at December 31, 1996 was approximately
$2.3 billion compared to approximately $1.7 billion at December 31, 1995.
Approximately 33% of the Company's backlog at December 31, 1996 is expected to
be converted to revenue within the current fiscal year.
The Company's backlog amounts are composed of funded and unfunded
components. Funded backlog consists of the dollar portion of contracts that is
currently appropriated by the government client or other clients and allocated
to the contract by the purchasing government agency or otherwise authorized for
payment by the client upon completion of a specified portion of work. The
Company's funded backlog was approximately $439 million and $667 million as of
December 31, 1996 and 1995, respectively. Although unfunded backlog can include
up to the stated award value of the contract including renewals or extensions
that have been priced but still remain at the discretion of the client whether
to fund, the Company, to be conservative, often recognizes only a portion of
stated award values on multi-year contracts into its backlog records. Because
many of the Company's contracts are multi-year contracts, total backlog may
include revenue expected to be realized several years into the future. The
unfunded backlog may not be an indicator of future contract revenue or earnings
because there is no assurance that the unfunded portion of the Company's backlog
will be funded. In addition, most of the contracts included in backlog are
subject to termination for the convenience of the government client.
Backlog Summary By Component
As of December 31,
------------------------------------
Type Of Contract 1996 1995 1994
---------------- ---- ---- ----
(dollars in millions)
Funded................................. $ 439 $ 667 $ 535
Unfunded............................... 1,811 1,021 1,003
----- ----- -----
Total............................ $2,250 $1,688 $1,538
====== ====== ======
Marketing
The Company's marketing activities are conducted both by centralized
business development offices within the strategic business units and by its
professional managers who have technical expertise and whose efforts are
supplemented by the Company's staff of engineers, scientists and analysts. The
business development offices are responsible for developing and maintaining
detailed account plans and for creating and managing a major target list. The
operating units support the business development offices in target qualification
and pursuit. Proposals are managed jointly by the operating units and their
respective business development office. The Company supports the marketing
efforts of its personnel through the direct participation of senior management
and supervisory employees. These marketing efforts are further supported by a
corporate proposal center, organized team reviews of proposals and a formal
corporate training program. The Company believes that this marketing approach
enables it to anticipate and serve the needs of its clients and ensures that
those who are seeking to obtain business for the Company have the necessary
technical expertise and resources both to develop proposals that satisfy
clients' requirements and to participate in or supervise the performance of
services that ultimately may be provided.
Competition
The information systems industry in which the Company operates is
highly fragmented with no single company or small group of companies in a
dominant position. The Company's competitors include large, diversified firms
with substantially greater financial resources and larger technical staffs than
the Company as well as firms which receive preferences under set-aside programs.
Some of the Company's competitors also operate in international markets, along
with other concerns which operate exclusively or primarily outside the United
States. Some of the larger competitors offer services in a number of markets
which overlap many of the same areas in which the Company offers services, while
certain companies are focused on only one or a few of these markets. The firms
which compete with the Company are consulting firms, computer services firms,
applications software companies and accounting firms, as well as the computer
service arms of computer manufacturing companies and defense and aerospace
firms. In addition, the internal staffs of client organizations, non-profit
federal contract research centers and universities are, in effect, competitors
of the Company. The primary factors of competition in the business in which the
Company is engaged include technical, management and marketing competence, as
well as price.
Proprietary Information
The Company believes that its business is dependent on its technical
and organizational knowledge, practices and procedures. The Company claims a
proprietary interest in certain of its work products, software programs,
methodologies and know-how. Some of the proprietary information is protected by
confidentiality agreements and other means.
The U.S. Government has certain proprietary rights to software programs
and other products that result from the Company's services under U.S. Government
contracts or subcontracts. The U.S. Government may disclose such information to
third parties, including competitors of the Company. In the case of
subcontracts, the prime contractors may also have certain rights to such
programs and products.
Employees And Employee Representation
As of March 1, 1997, the Company had approximately 8,700 full-time and
part-time employees. Joint ventures, in which the Company is a partner, employed
approximately 3,000 additional individuals as of this date. In addition, the
Company enters into agreements with a large number of consultants on a
project-specific basis who are engaged by the Company to perform specialized
work on contracts or to provide expertise in support of marketing and contract
activities. With the exception of approximately 43 Vinnell employees, and except
as discussed in the next paragraph, no other employees of the Company are
represented by a union and, to the knowledge of the Company, no union organizing
activities are in progress.
As a corporation organized under the laws of and operating in Germany,
IABG is subject to the German Co-determination Law. Under this law, certain
German workers have a right to representation on supervisory boards of a company
and, through Workers' Councils, have a say in issues relating to corporate
operations, particularly those having a direct impact on workers. Approximately
40% of IABG's employees are covered by the tariff agreements of the German
metalworkers union, IG Metall. The tariff negotiations determine the annual
raises and weekly working hours for the people covered by this tariff agreement.
Negotiations have been completed to cover the period through December 31, 1998.
Financial Information About Foreign and Domestic Operations and Export Sales
For information regarding revenue, operating profit or loss, and assets
attributable to each of the Company's geographic areas, see Note 16 to the
Consolidated Financial Statements in Item 8.
Item 2. Facilities.
The Company leases all of its offices and other facilities. The
Company's corporate headquarters are located in McLean, Virginia. The Company
also leases office buildings as principal offices in Fairfax, Virginia;
Albuquerque, New Mexico; Houston, Texas; Denver, Colorado; Germantown, Maryland;
Kettering, Ohio; Huntsville, Alabama; Falls Church, Virginia; Boulder, Colorado;
Eindhoven, The Netherlands; and Ottobrunn, Germany.
In addition to these principal offices, as of March 1, 1997, the
Company maintained offices or facilities in connection with the performance of
its contracts in over 50 other locations. A portion of these premises is
subleased to others. In addition to the Company's offices and facilities,
Company personnel are frequently assigned to client locations throughout the
country and overseas.
For additional information on the Company's leases and rental expenses
thereunder, see Note 17 of the Notes to Consolidated Financial Statements.
Item 3. Legal Proceedings.
The Company is a party to various legal actions, claims, government
inquiries and audits resulting from the normal course of business. The Company
believes that any resulting liability should not have a material adverse effect
on the Company.
In addition, as disclosed in the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1996, the Company has been informed that a
civil "qui tam" lawsuit has been filed against the Company and has received a
copy of the Complaint in that action. The matter is currently under Court seal.
Under a qui tam suit, often referred to as a "whistle blower" suit, a private
plaintiff generally alleges that false claims have been made to the U.S.
Government and receives a portion of the recovery, if any, achieved by the
Government. The Government has an opportunity to investigate the Complaint and
make a determination whether to join the case. The private plaintiff can pursue
the action against the Company in the name of the U.S. Government at his own
expense if the Government declines to join the case. The Complaint alleges
violation under the federal False Claims Act in connection with certain
mischarging under overseas government contracts administered by the U.S. Air
Force, related to certain housing rented in connection with overseas operations,
alleged improper hiring of and payments to certain employees, alleged improper
payments to a subcontractor, and alleged improper purchases and payments made in
support of client activities. Aggregate revenue from these contracts in calendar
year 1996 was approximately $41 million. In connection with this case, BDM has
received a subpoena for information in a civil investigation underway by the
Office of Inspector General of the Department of Defense and an Assistant U.S.
Attorney for the Eastern District of Virginia with respect to the matters
alleged in the Complaint. BDM will cooperate fully with the Government and
expects to make extensive document production in response to the subpoena.
The Company is engaged in providing services and products under contracts
with the U.S. Government and, to a lesser degree, under foreign government
contracts, some of which are administered by the U.S. Government. All such
contracts are subject to extensive legal and regulatory requirements, and the
above mentioned investigation apparently focuses on whether the Company's
overseas operations in connection with the subject contracts were conducted in
accordance with such requirements. The lawsuit and related investigation could
result in administrative, civil or criminal liabilities, including
reimbursements, fines or penalties being imposed. Under the provisions of the
False Claims Act, a civil penalty of between $5,000 and $10,000 can be assessed
for each claim, plus three times the amount of any damages sustained by the
Government. The Complaint seeks such relief but does not specify the amount of
damages. In addition to damages, a finding of civil or criminal liability could
lead to suspension or debarment of the contractor if it is found to be not
currently responsible, which would make some or all of the contractor's
operations ineligible to be awarded U.S. Government contracts for a period of
time. Such civil or criminal liability or suspension or debarment could have a
material adverse effect on the Company. Management is unable to make a
meaningful estimate of the amount or range of loss that could result from this
litigation, however, management does not anticipate that the ultimate resolution
of this litigation will have a material effect on the Company's consolidated
financial position.
Item 4. Submission Of Matters To A Vote Of Security Holders.
No matters were submitted during the fourth quarter of 1996 to a vote
of security holders.
Item 4a. Executive Officers Of The Registrant.
The executive officers of the Company, their positions with the
Company, and their principal occupations during the past five years are set
forth below.
Name Age Position(s) With Company
---- --- ------------------------
Frank C. Carlucci........... 66 Chairman of the Board and Director
William E. Conway, Jr....... 47 Vice Chairman and Director
Philip A. Odeen............. 61 President, Chief Executive Officer
and Director
C. Thomas Faulders, III..... 47 Executive Vice President, Treasurer,
and Chief Financial Officer
William C. Hoover........... 47 Executive Vice President
Helen M. Seltzer............ 50 Corporate Vice President
Dr. William E. Sweeney, Jr.. 58 Chairman of the Board, BDM Europe,
General Manager and Chairman of the
Management Board, IABG, and
Director
Roy V. Woodle............... 61 President and Chief Executive Officer,
Vinnell
Set forth below is certain information regarding the backgrounds of
each of the executive officers of the Company.
FRANK C. CARLUCCI has served as Chairman of the Board of Directors of
the Company since October 1990. Mr. Carlucci has been Chairman and a Managing
Director of The Carlyle Group, L.P. ("Carlyle") since 1993 and served as Vice
Chairman of Carlyle from 1989 to 1993. Mr. Carlucci served as U.S. Secretary of
Defense from 1987 to 1989 and has served in a number of other government
positions, including Ambassador to Portugal, Deputy Secretary of Defense and
Assistant to the President for National Security Affairs.
WILLIAM E. CONWAY, JR. has served as Vice Chairman of the Board of
Directors of the Company since October 1990. Mr. Conway has been a Managing
Director of Carlyle since 1987.
PHILIP A. ODEEN has served as President, Chief Executive Officer and a
Director of the Company since May 1992. Mr. Odeen served with Coopers & Lybrand,
an international auditing and consulting firm, as Vice Chairman, Management
Consulting Services from 1991 to 1992, and as Managing Partner from 1978 to
1991. Mr. Odeen has served in a number of government positions, including
Director, Program Analysis, National Security Council, and Principal Deputy
Assistant Secretary of Defense.
C. THOMAS FAULDERS, III has served as Executive Vice President,
Treasurer and Chief Financial Officer of the Company since April 24, 1995. He
also serves as Acting President of the Company's Integrated Supply Chain
Solutions unit. Mr. Faulders served with Comsat Corporation, a provider of
international communications and entertainment, as Vice President and Chief
Financial Officer from 1992 to 1995. From 1985 to 1992, he served in several
senior management positions with MCI Communications Corporation, a long distance
service provider.
WILLIAM C. HOOVER joined the Company on June 3, 1996 as Executive Vice
President of the Company. He also serves as President of the Company's Federal
Systems unit and as Acting President of the State and Local Systems unit. From
November 1994 to May 1996, Mr. Hoover served as President and Chief Operating
Officer of PRC, Inc., which provides systems engineering and integration and
software development, engineering and information services to federal government
customers. From September 1992 to October 1994, he served as President of
PRC/Federal Systems Group. From April 1992 to September 1992, he was Executive
Vice President and General Manager of USI/Commercial Systems Group. From January
1992 to March 1992, he served as Senior Vice President and General Manager of
PRC/Engineering Technology Group. Mr. Hoover initially joined PRC in 1980.
HELEN M. SELTZER joined the Company as Senior Vice President, Product
Marketing, on March 15, 1996. She currently serves as President of the BDM
Technologies unit and as Corporate Vice President of the Company. Ms. Seltzer
served as Vice President, Marketing/Sales Access Services at Bell Atlantic from
1993 to 1995. From 1983 to 1993, she served in several senior management
positions at MCI Communications Corporation.
DR. WILLIAM E. SWEENEY, JR. has served as an Executive Vice President
and a Director of the Company since October 1990 and as Chairman of the Board of
BDM Europe and General Manager and Chairman of the Management Board of IABG
since 1993. Dr. Sweeney joined the Predecessor Company in 1977 and has held a
number of senior management positions.
ROY V. WOODLE has served as President and Chief Executive Officer of
Vinnell since June 1993 and January 1994, respectively. Mr. Woodle joined
Vinnell in 1983 as Vice President, Program Development and from 1988 to 1993, he
served as Senior Vice President.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock has been traded on the Nasdaq Stock Market
(Symbol: BDMI) since June 29, 1995. Before that date, the shares were not listed
on any national exchange or on the over-the-counter market. As of February 28,
1997, there were 3,496 shareholders of record of Common Stock.
The following table sets forth the high and low sales prices of the
Common Stock of the Company as reported by the Nasdaq Stock Market for each of
the quarters indicated:
High Low
---- ---
1995
2nd Quarter (June 29-30) $21.50 $19.88
3rd Quarter $28.50 $20.25
4th Quarter $30.50 $23.75
1996
1st Quarter $41.13 $25.44
2nd Quarter $49.00 $36.25
3rd Quarter $61.50 $45.00
4th Quarter $60.00 $44.25
1997
1st Quarter (through March 6, 1997) $57.25 $41.25
Dividend Policy
The Company does not have a policy of paying regular dividends and has
no present intention of paying any dividends. The payment of dividends is
subject to the discretion of the Board of Directors of the Company and will
depend on the Company's results of operations, financial position and capital
requirements; general business conditions; restrictions imposed by financing
arrangements, if any; legal restrictions on the payment of dividends; and other
factors, such as continued growth opportunities in which to invest, which the
Board of Directors deems relevant. In addition, pursuant to the Company's credit
facility, dividends can only be paid after September 1, 1996 and are not to
exceed 20% of the Company's cumulative net income subsequent to July 1, 1996.
The Company paid a dividend on December 15, 1993 of $.50 per share of Common
Stock and Class B Common Stock. The payment of future dividends by the Company
should not be assumed.
Recent Sales of Unregistered Securities
Since January 1, 1994, the Company has sold and issued the following
unregistered securities:
1. Under the Director Stock Purchase Plan, the Company sold to certain
directors a total of 24,674 shares of Common Stock at a purchase price ranging
from $8.00 to $53.875 per share.
2. The Compensation Committee has granted to selected members of management
Management Incentive Stock Options to purchase a total of 34,442 shares of
Common Stock, net of forfeitures, at an exercise price equal to par value $.01
per share.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from the
registration provisions of the Securities Act set forth in Section 4(2) thereof
as transactions not involving a public offering, the respective purchasers
thereof having acquiring such shares for their respective accounts without a
view to the distribution thereof.
<PAGE>
Item 6. Selected Financial Data.
The consolidated statement of operations data set forth below with
respect to the calendar years ended December 31, 1996, 1995, 1994, 1993 and 1992
and the consolidated balance sheet data at December 31, 1996, 1995, 1994, 1993
and 1992 have been derived from, and are qualified by reference to, the
Company's consolidated financial statements and notes thereto audited by Coopers
& Lybrand L.L.P., independent accountants. The selected consolidated financial
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and notes thereto in Items 7 and 8.
<TABLE>
<CAPTION>
Years Ended December 31,
1996 (1) 1995 1994 1993 (4) 1992 (5)
-------- ---- ---- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations:
Revenue $1,001,559 $ 889,974 $ 774,249 $ 558,292 $ 424,389
Cost of sales 841,315 752,107 643,728 460,186 348,191
Selling, general and administrative 89,147 80,804 82,950 63,847 41,940
Depreciation, amortization and other 17,333 18,154 20,627 12,089 14,802
Purchased in-process R&D 10,760 -- -- -- --
Provision for restructuring 5,760 -- -- -- --
---------- --------- --------- --------- ---------
Operating profit 37,244 38,909 26,944 22,170 19,456
Interest (income) expense, net (1,656) 1,474 3,481 4,178 5,302
Equity in earnings of affiliates (2,010) (1,835) (1,841) (2,223) (1,852)
Minority interest 9,576 5,863 2,526 1,555 --
---------- --------- --------- --------- ---------
Income before income taxes 31,334 33,407 22,778 18,660 16,006
Provision for income taxes 13,659 15,015 9,700 7,632 6,552
---------- --------- --------- --------- ---------
Income before extraordinary gain
and cumulative effect of
accounting change 17,675 18,392 13,078 11,028 9,454
Extraordinary gain, net of tax -- -- -- 413 --
Cumulative effect of accounting change -- -- -- -- (115)
---------- --------- --------- --------- ---------
Net income $ 17,675 $ 18,392 $ 13,078 $ 11,441 $ 9,339
========== ========= ========= ========= =========
Earnings Per Share:
Income before extraordinary gain
and cumulative effect of
accounting change $ 1.21 $ 1.56 $ 1.20 $ 0.92 $ 0.81
Extraordinary gain -- -- -- 0.03 --
Cumulative effect of accounting change -- -- -- -- (0.01)
---------- --------- --------- --------- ---------
Net income $ 1.21 $ 1.56 $ 1.20 $ 0.95 $ 0.80
========== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1996 (1) 1995 (2) 1994 (3) 1993 (4) 1992 (5)
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets $ 321,176 $ 294,654 $ 270,079 $ 242,800 $ 135,775
Total assets 420,654 363,793 335,551 303,436 174,816
Current liabilities 184,271 178,530 175,165 161,052 81,033
Long-term debt 22,813 25,900 82,750 48,480 38,423
Stockholders' equity 167,255 115,469 41,105 62,909 54,932
</TABLE>
(1) On February 20, 1996, the Company acquired three related companies, CW
Systems, Inc., IG Systems, Inc., and Melco Systems, Inc., for $18.5
million. The transaction was accounted for as a purchase and is included
in the Company's consolidated financial statements from the date of its
acquisition.
<PAGE>
On November 4, 1996, the Company acquired the assets of RGTI Systems
Software (RGTI) for approximately $18.4 million. As a result of the
acquisition, BDM has recorded a $10.8 million pre-tax charge in 1996
relating to the write-off of purchased in-process research and
development. The acquisition was accounted for as a purchase and is
included in the Company's consolidated financial statements from the
effective date of its acquisition.
The increase in stockholders' equity in 1996 includes the impact of net
proceeds of $15.3 million from the Company's public offering of 450,000
million primary shares of Common Stock completed on March 27, 1996.
(2) The increase in stockholders' equity and the decrease in long-term debt
in 1995 reflect the impact of net proceeds of $49.4 million from the
Company's initial public offering of 2.875 million shares of Common
Stock on June 28, 1995.
(3) The decline in stockholders' equity and the increase in long-term debt
in 1994 reflect the impact of the repurchase of 2.6 million shares of
Common Stock and Class B Common Stock for $36.4 million on May 27, 1994.
(4) On November 16, 1993, the Company acquired a 45% interest in IABG and
entered into an agreement which gives the Company voting control of IABG
and permits the Company to manage IABG's operations. The Company's
financial statements consolidate IABG's financial position and results
of operations and report the remaining owners' 55% interest as a
minority interest. This acquisition was accounted for as a purchase, and
the Company's consolidated results of operations include IABG from the
date of its acquisition through its subsidiary, BDM Europe.
(5) On March 13, 1992, the Company acquired the outstanding common stock of
Vinnell for approximately $29.6 million, including transaction expenses.
This acquisition was accounted for as a purchase, and the Company's
consolidated results of operations include Vinnell from the date of its
acquisition.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OVERVIEW
The Company achieved a major milestone in 1996 with revenue of $1
billion, representing 13% growth over 1995. Net income of $17.7 million and
earnings per share of $1.21 reflect the impact of two one-time, pre-tax charges,
a $5.8 million provision for restructuring and a $10.8 million write-off of
in-process research and development as a result of the acquisition of RGTI
Systems Software (RGTI). Excluding these charges, the Company's earnings growth
was substantial. Pro forma net income grew to $27.3 million, representing 48%
growth over 1995, and pro forma earnings per share increased to $1.87, 20%
growth over 1995. These results followed strong growth in revenue (15%), net
income (41%), and earnings per share (30%) from 1994 to 1995. In addition, the
Company achieved record contract awards of $1.5 billion in 1996, an increase of
approximately 40% over 1995. Contract backlog grew 33% to $2.3 billion and
proposal backlog grew 15% to $1.5 billion as of December 31, 1996, compared to
year-end 1995.
BDM's continued strong core growth was masked by fluctuations in
hardware sales and exchange rates. Hardware sales declined to 9% of revenue in
1996, compared to almost 12% in 1995. Services revenue increased by almost 17%.
Excluding the impact of changes in foreign currency rates, services revenue
would have grown 18%.
There were a number of important events in 1996 that position the
Company for long-term expansion and growth. Several acquisitions were completed
of information technology companies primarily serving commercial clients. During
the year, BDM also established systems and software alliances with several major
commercial companies, including Cap Gemini (Year 2000), Baan (implementation
services for Baan's Enterprise Resource Planning software), SAP America (sale of
BDM's security product, CYBERSHIELD(TM)), and Novell (implementation services
for Novell's GroupWise 5). In addition, a new alignment of the Company's
business operations was announced in the third quarter of 1996 establishing a
structure of Strategic Business Units and Development Units to enhance the ways
that BDM develops, markets, and delivers its services.
This reorganization became effective January 1, 1997.
REVENUE
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Client Category
- ---------------
U.S. Department of Defense $ 362.2 36% $ 331.6 37% $ 244.6 32%
International Defense 270.5 27% 222.8 25% 193.5 25%
Civil Government 197.6 20% 199.8 23% 227.3 29%
Commercial 171.3 17% 135.8 15% 108.8 14%
-------- --- ------- --- ------- ---
Total $ 1,001.6 100% $ 890.0 100% $ 774.2 100%
========= === ======= === ======= ===
Services Provided
- -----------------
Systems & Software Integration $ 356.6 36% $ 273.5 31% $ 197.0 26%
Computer & Technical Services 523.0 52% 505.0 57% 490.9 63%
Enterprise Management & Operations 122.0 12% 111.5 12% 86.3 11%
--------- --- ------- --- ------- ---
Total $ 1,001.6 100% $ 890.0 100% $ 774.2 100%
========= === ======= === ======= ===
Subsidiary
- ----------
BDM Federal $ 531.2 53% $ 475.5 53% $ 411.6 53%
BDM Technologies 95.5 10% 57.5 7% 38.8 5%
BDM Europe 205.2 20% 215.8 24% 197.5 26%
Vinnell Corporation 169.7 17% 141.2 16% 126.3 16%
--------- --- ------- --- ------- ---
Total $ 1,001.6 100% $ 890.0 100% $ 774.2 100%
========= ==== ======== === ======= ===
</TABLE>
<PAGE>
Revenue by Client Category
U.S. Department of Defense (DOD): Revenue derived from the U.S.
Department of Defense (DOD) increased 9% in 1996. The primary
contributor to this growth was the Company's systems and software
integration work for various defense activities. In addition, BDM
Federal experienced growth in defense test and evaluation and technical
support for ballistic missile defense and other military programs. This
growth was partially offset by lower revenue from the sale of hardware
in support of several contracts with the DOD. Revenue from the DOD
increased 36% from 1994 to 1995, reflecting the first full year of the
DEIS program and higher revenue from the procurement of defense
equipment year over year.
International Defense: Revenue from international defense business
increased 21% and 15% for 1996 and 1995, due largely to higher revenue
earned on the Company's contracts in Saudi Arabia. Exchange rate
fluctuations impacted the growth of the Company's European activities
as a result of a stronger U.S. dollar in 1996.
Civil Government: Revenue from civil government contracts was
essentially flat from 1995 to 1996, and decreased from 1994 to 1995.
There are several factors driving these results. The Company has
experienced a decline in revenue generated from environmental
restoration and waste management programs for the Department of Energy
as a result of budget reductions. There was also a decline in revenue
generated from state government contracts from 1995 to 1996. This
reflects the impact of the new Federal Welfare Reform law enacted in
1996, as well as the Federal government's decision to delay by two
years the deadline by which states must have federally certified
information systems in place to manage and track their child support
enforcement programs. In addition, the Company has experienced
implementation difficulties on one of its state contracts. The Company
is currently in discussions with the client and a resolution is
expected in 1997. Until a resolution is reached, the Company is not
recognizing profit on the contract. The reduction in civil government
revenue also reflects lower pass-through contracts from the German
government and the decline of the German mark versus the U.S. dollar.
Partially offsetting these reductions was Vinnell's Job Corps Center
business which experienced substantial growth in 1996.
Commercial: The increase of 26% and 25% in commercial revenue for 1996
and 1995 reflects the growth of information technology work for various
private sector clients, including clients of companies acquired during
the year. This growth was also fueled by increases in revenue from
semiconductor manufacturing integration, warehouse automation, business
process transformation, and other services. The international
commercial business was impacted by the aforementioned fluctuations in
the German mark to U.S. dollar exchange rate. Excluding the impact of
the currency fluctuations, commercial revenue would have increased by
30% in 1996.
Revenue by Services Provided
Systems and Software Integration revenue increased 30% and 39%
in 1996 and 1995, compared to the previous years. This increase was
driven by growth in BDM Federal's system integration work primarily for
various defense activities and in systems-related services provided to
a wide variety of commercial clients. The increase in Computer and
Technical Services revenue of 4% and 3% for 1996 and 1995 was a result
of growth in a number of contracts including the expansion of work for
the Royal Saudi Land Forces, the Saudi Arabian National Guard, test and
evaluation programs, and technical support for ballistic missile
defense and other military programs. Vinnell's Job Corps Center
management contracts were a major driver of the increase in Enterprise
Management and Operations revenue for both 1996 and 1995.
<PAGE>
Revenue by Subsidiary
Revenue at BDM Federal grew 12% and 16% for 1996 and 1995.
This increase reflects expanded work for a wide variety of federal
agencies, most notably involving information technology services for
various defense activities, and also increased services and support in
defense test and evaluation, ballistic missile defense, and other
military programs. This was partially offset by lower revenue
associated with the sale of hardware in support of several DOD
contracts, and a decline in work for the U.S. Department of Energy. The
66% revenue increase at BDM Technologies reflected acquisitions during
1996 and organic growth in commercial information technology work in
both 1996 and 1995. Fluctuations in the exchange rate of the German
mark to the U.S. dollar masked the modest increase in BDM Europe's
local currency revenue for 1996. This real growth in local currency
reflected additional work performed for the German Ministry of Defense
and a variety of German commercial clients. Vinnell's revenue increased
20% and 12% in 1996 and 1995, as a result of higher revenue in most
aspects of Vinnell's business, including its work for the Royal Saudi
Land Forces, the Saudi Arabian National Guard, and additional Job Corps
Center business.
RESULTS OF OPERATIONS
The following table sets forth selected financial data. The 1996
periods are presented using pro forma amounts which exclude the impact of the
$5.8 million pre-tax restructuring charge and the $10.8 million pre-tax
write-off for purchased in-process research and development:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
Pro Pro
Forma Forma
1996 1996 1995 1994
-----------------------------------------------------
($ in millions)
<S> <C> <C> <C> <C>
Revenue $1,001.6 100.0% 100.0% 100.0%
Cost of sales 841.3 84.0 84.5 83.1
Selling, general and administrative 89.2 8.9 9.1 10.7
Depreciation, amortization and other 17.3 1.7 2.0 2.7
-------- ----- ----- -----
Operating profit 53.8 5.4 4.4 3.5
Interest (income) expense, net (1.7) (0.2) 0.2 0.4
Equity in earnings of affiliates (2.0) (0.2) (0.2) (0.2)
Minority interest 9.6 1.0 0.6 0.3
-------- ----- ----- -----
Income before taxes 47.9 4.8 3.8 3.0
Provision for income taxes 20.6 2.1 1.7 1.3
-------- ----- ----- -----
Net income $ 27.3 2.7% 2.1% 1.7%
======== ===== ===== =====
</TABLE>
Cost of Sales
Cost of sales, which includes salaries, benefits, subcontractor
expenses, materials and overhead costs, decreased as a percentage of revenue in
1996 compared to 1995 largely due to a high level of hardware pass-throughs in
1995. These pass-throughs represent the procurement of computer hardware and
other equipment on behalf of clients, and often earn lower margins than revenue
from services. Sales pertaining to such materials as a percent of revenue were
8.9% in 1996 and 11.6% in 1995. Cost of sales as a percentage of revenue
increased from 1994 to 1995, also due primarily to the high level of hardware
sales in 1995.
<PAGE>
Selling, General and Administrative
Selling, general and administrative (SG&A) expense, which includes the
Company's research and development costs (R&D), decreased as a percentage of
revenue in 1996 compared to the previous year. This decrease was largely the
result of revenue growth that has outpaced the growth of SG&A expenses, as well
as improved cost controls at several of the Company's subsidiaries.
Excluding the effect of a write-off of purchased in-process research
and development expenses associated with the Company's acquisition of RGTI,
which is presented on a separate line, SG&A expense increased $8.3 million
compared to 1995. This increase is due to investments made for recruiting,
marketing, and research and development. These investments were focused on the
Company's Year 2000 efforts, computer network security, state child support and
welfare systems, and the enhancement of the MARC(TM) warehouse automation and
distribution product. The increase also includes the SG&A of several companies
acquired during 1996.
Also contributing to the decline in SG&A expense as a percentage of
revenue from 1994 to 1995 was a single R&D project which was started in 1993 and
discontinued in 1994. SG&A included approximately $5.3 million for this project
in 1994. Excluding this nonrecurring transaction, SG&A as a percentage of
revenue was 10.2% in 1994.
Depreciation, Amortization and Other
Depreciation, amortization and other costs decreased slightly as a
percentage of revenue in 1996 and 1995 compared to the prior years. These
decreases are primarily the result of reduced costs year over year, while
revenue increased. The depreciation component remained relatively flat in 1996
compared to the previous year, reflecting the implementation of a new financial
and management information system in the fourth quarter of 1996 at BDM Federal,
offset by the impact of the German mark to U.S. dollar exchange rate on
depreciation related to fixed assets in Germany. Depreciation expense was
relatively flat in 1995 compared to 1994.
The Company reported a net decrease of amortization expense in 1996
compared to 1995 due to a $1.6 million write-off in 1995 of unamortized goodwill
for FACE. In addition, certain intangible assets became fully amortized in 1996
which also reduced the expense compared to 1995. These reductions were partially
offset by an increase in 1996 of approximately $2 million related to
amortization of goodwill and other intangible assets associated with new
acquisitions completed during the year.
Interest (Income) Expense, Net
The Company had net interest income of $1.7 million in 1996, compared
to net interest expense of $1.5 million for 1995. This resulted from applying
$49.4 million of net proceeds in July 1995 from the initial public stock
offering, and $15.3 million of net proceeds from an additional stock offering in
March 1996, to reduce outstanding borrowings. Also contributing to the reduction
in interest expense in 1996 was a one-time charge of $0.5 million in 1995
related to the write-off of capitalized financing costs on the credit facility
which was replaced last year. The Company's cash flow from operations of $39.9
million for 1996 also contributed to higher interest income. The decline of
interest expense from 1994 to 1995 was also largely driven by the reduction of
outstanding borrowings subsequent to the initial public stock offering in July
1995.
<PAGE>
Equity in Earnings of Affiliates
Equity in earnings of affiliates represents the Company's share of
earnings from Vinnell's unconsolidated joint ventures. These amounts have
remained fairly stable compared to the prior years.
Minority Interest
The minority interest share of earnings increased as a percentage of
revenue for 1996 and 1995, compared to the previous years. This increase
reflects improved profitability of IABG and the expansion of Vinnell's joint
ventures in the Middle East. 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. This contract was performed solely by Vinnell in the
first half of 1995, and thus, reported no minority interest at that time.
Provision for Income Taxes
The provision for income taxes was unusually high as a percentage of
income before income taxes in 1995, compared to 1996 and 1994. This high
effective income tax rate in 1995 resulted from the write-off of $1.6 million in
goodwill from the FACE acquisition in the first quarter of last year, which was
not deductible for income tax purposes. Partially offsetting the decrease in
1996 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 the United States.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow continued to increase in 1996 over the previous year,
providing sufficient liquidity to support the Company's operational needs. In
addition, the Company has paid approximately $20 million related to acquisitions
completed during the year. The Company's revolving credit agreement, cash from
operations, as well as the proceeds from a public stock offering, provided
additional resources to cover peak cash needs during the year. As of December
31, 1996, the Company had $122.8 million available for borrowing on the
revolving credit agreement.
Cash flow related to investing activities primarily consists of capital
expenditures, which have increased due to the implementation of a new financial
and management information system (SAP) at BDM Federal, as well as the
investments made for several acquisitions completed during the year. Other
investing activities included working capital infusions to and earnings
distributions from Vinnell's unconsolidated joint ventures.
Financing activities included the $15.3 million net proceeds from the
secondary stock offering completed in March and the reduction of the Company's
working capital facility by $16 million. In addition, the Company continued to
provide a benefit to its employees by enabling them to purchase shares of common
stock through stock option exercises and an employee stock purchase plan. Also
included in financing activities is a dividend payment of $2.0 million made by
the Company's German subsidiary, IABG, to its minority shareholders.
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>
OTHER MATTERS
Acquisitions
As discussed in Note 3, the Company completed several acquisitions
during 1996, primarily of information technology companies serving commercial
clients. These acquisitions had an aggregate purchase price of $41.7 million and
generated goodwill of approximately $25 million.
Restructuring
The Company announced a new alignment of its business operations during the
third quarter of 1996. This new organization consists of five strategic business
units -- Federal Systems, State and Local Systems, Integrated Supply Chain
Solutions, BDM Europe and Enterprise Management Services. In addition, the new
BDM Technologies will comprise development units focused on promising IT areas,
including Internet/Intranet technology, computer network security, Year 2000+
solutions and services, IT support services, and others. A horizontally-focused
effort directed by "Practice Leaders" is also being implemented to facilitate
cross-company synergy in such areas as software process improvement, business
process reengineering, and Year 2000+ solutions and services. These practice
leaders will be responsible for developing and implementing repeatable solutions
and processes across the Company, using common tool sets and standard
methodologies. This new alignment was effective January 1, 1997.
The new organizational alignment resulted in a one-time, pre-tax
restructuring charge of $5.8 million to third quarter earnings, which included a
write-down of $3.1 million of the net investment in the Company's environmental
subsidiary, severance costs totaling $1.8 million for approximately 40 employees
across the Company, and the accrual of approximately $0.9 million for certain
facility expenses. Anticipated future savings from these changes are expected to
be reinvested in human capital and research and development programs to support
future growth.
Legal Matters
As discussed in Note 17 to the financial statements, the Company has been
informed that a civil "qui tam" lawsuit has been filed against the Company and
has received a copy of the Complaint in that action. The matter is currently
under Court seal. The Complaint alleges violation under the federal False Claims
Act in connection with certain mischarging under overseas government contracts
administered by the U.S. Air Force, related to certain housing rented in
connection with overseas operations, alleged improper hiring of and payments to
certain employees, alleged improper payments to a subcontractor, and alleged
improper purchases and payments made in support of client activities. Management
is unable to make a meaningful estimate of the amount or range of loss that
could result from this litigation, however, managment does not anticipate that
the ultimate resolution of this litigation will have a material effect on the
Company's consolidated financial position.
New Headquarters
During 1996, BDM signed a letter of intent to move its corporate
headquarters to a new facility in Reston, Virginia. The Company expects the move
to take place when the lease on the current building expires in January 1999.
<PAGE>
Selected Quarterly Operating Results
The following table sets forth certain unaudited consolidated statement
of operations data expressed in dollars and as a percentage of total revenue for
the eight most recent fiscal quarters. This data has been derived from unaudited
consolidated financial statements of the Company that, in the opinion of
management, include all adjustments necessary for a fair presentation in
accordance with generally accepted accounting principles. The 1996 results
include one-time, pre-tax charges of $5.8 million for restructuring in the third
quarter, and $10.8 million for purchased in-process research and development in
the fourth quarter. The Company's results of operations for a particular quarter
are not necessarily indicative of the results of operations for any future
period. The Company's quarterly results have varied considerably in the past and
are likely to vary from quarter to quarter in the future.
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------
1996 1995
-------------------------------------- -------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
(in millions, except percentages and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $277.8 $246.8 $251.9 $225.1 $269.1 $215.9 $213.1 $191.9
Operating profit 4.9 7.9 12.7 11.7 10.9 9.3 8.8 9.9
Net income 1.7 3.9 6.7 5.4 5.9 5.3 3.9 3.3
Earnings per share $0.11 $0.26 $0.45 $0.39 $0.44 $0.40 $0.38 $0.33
Weighted average shares
outstanding 15.2 15.2 14.9 14.0 13.6 13.4 10.2 10.0
As a Percentage of Revenue:
Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating profit 1.8 3.2 5.0 5.2 4.0 4.3 4.1 5.2
Net income 0.6 1.6 2.6 2.4 2.2 2.5 1.8 1.7
</TABLE>
Variability of Quarterly Results
Fluctuations in the Company's quarterly revenue depend on a number of
factors, some of which are beyond the Company's control. These factors include,
among others, the timing of contracts, the timing of equipment shipments, delays
in client acceptance of the Company's services, the length of the revenue cycle,
client budget changes, and currency fluctuations.
Impact of Statement of Financial Accounting Standards 123 (SFAS 123)
The Financial Accounting Standards Board has issued SFAS 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS 123, BDM adopted
the new standard in 1996, and chose to continue the current accounting for
stock-based compensation. The Company has reported the pro forma net income and
earnings per share, calculated using the new accounting rules, in the footnotes
to the financial statements, as well as other disclosures required by SFAS 123.
International Operations
In connection with its international operations, the Company is subject
to various risks inherent in foreign activities. These risks may include
unstable economic and political conditions, changes in trade policies and
regulations of countries involved, fluctuations in currency exchange rates and
requirements for letters of credit or bank guarantees. Certain of the Company's
contracts are foreign military sales, which mitigate such risks because the
contracts are governed by U.S. Government procurement regulations. Much of the
Company's other international operations are in Western European countries,
mainly in Germany and The Netherlands, which have experienced relatively stable
political conditions and regulatory environments. The Company is exposed to
risks associated with fluctuations in exchange rates, including the German Mark,
the Saudi Riyal, the Kuwaiti Dinar, the Turkish Lira, and the Dutch Guilder. The
Company limits its exposure to these risks by incurring and paying for its
expenses in the same currencies as those of its revenue. In addition, certain
contracts performed overseas have provisions which provide for reimbursement of
losses arising from currency fluctuations. It is the Company's policy not to
enter into derivative financial instruments for speculative purposes.
There were no derivative financial instruments outstanding as of December 31,
1996.
Effects Of Inflation
The impact of inflation on the Company's business has been
insignificant to date, and the Company believes that it will continue to be
insignificant for the foreseeable future.
***
The foregoing discussion of various factors that may impact 1997
performance contains certain forward looking statements. In addition, the
Company or its representatives from time to time may make or have made certain
forward looking statements. Those forward looking statements made by the Company
or its representatives are qualified in their entirety by reference to the
discussion in this document, other public documents, and the discussion of
important factors that could cause the Company's actual results to differ
materially from those projected or discussed in those forward looking
statements. It is intended that the foregoing constitute meaningful cautionary
statements so as to obtain the protections of the safe harbor established for
such statements by the Private Securities Litigation Reform Act of 1995.
###
<PAGE>
Item 8. Consolidated Financial Statements.
Index to Financial Statements
Pages
BDM International, Inc.
Report of Independent Accountants....................................... 23
Consolidated Balance Sheets as of December 31, 1996 and 1995............ 24
Consolidated Statements of Operations for the years ended December 31, 1996,
1995, and 1994..................................................... 25
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995, and 1994.................................. 25
Consolidated Statements of Cash Flow for the years ended December 31, 1996,
1995, and 1994..................................................... 27
Notes to Consolidated Financial Statements.............................. 28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
BDM International, Inc.
We have audited the accompanying consolidated balance sheets of BDM
International, Inc. and Subsidiaries (the Company) as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flow for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BDM
International, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flow for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
February 5, 1997, except for Notes 11 and 12,
for which the date is March 3, 1997
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 79,376 $ 69,143
Accounts receivable, net 234,105 219,354
Prepaid expenses and other 7,695 6,157
------------ -------------
Total current assets 321,176 294,654
Property and equipment, net 48,519 45,722
Intangible assets, net 35,881 9,615
Deposits and other 9,586 8,580
Equity in and advances to affiliates 5,492 5,222
------------ -------------
Total assets $ 420,654 $ 363,793
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 164,399 $ 168,253
Debt currently payable 3,487 449
Income taxes payable 5,230 3,465
Deferred income taxes 11,155 6,363
------------ -------------
Total current liabilities 184,271 178,530
Deferred income taxes 2,544 3,638
Long term debt 22,813 25,900
Severance and other 13,911 12,099
Minority interest 29,860 28,157
------------ -------------
Total liabilities 253,399 248,324
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued -- --
Common stock, $.01 par value; 50,000,000 shares
authorized, 14,414,020 shares issued and outstanding
at December 31, 1996; 12,962,342 shares issued and
outstanding at December 31, 1995 (See Note 11) 144 130
Additional paid in capital 103,537 68,535
Retained earnings 64,465 46,790
Deferred compensation (1,419) (395)
Cumulative translation adjustment 528 409
------------ -------------
Total stockholders' equity 167,255 115,469
------------ -------------
Total liabilities and stockholders' equity $ 420,654 $ 363,793
============ =============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue $ 1,001,559 $ 889,974 $ 774,249
----------- --------- ---------
Cost of sales 841,315 752,107 643,728
Selling, general and administrative 89,147 80,804 82,950
Depreciation, amortization and other 17,333 18,154 20,627
Purchased in process R&D 10,760 -- --
Provision for restructuring 5,760 -- --
----------- --------- ---------
Operating profit 37,244 38,909 26,944
Interest (income) expense, net (1,656) 1,474 3,481
Equity in earnings of affiliates (2,010) (1,835) (1,841)
Minority interest 9,576 5,863 2,526
------------ ---------- ---------
Income before income taxes 31,334 33,407 22,778
Provision for income taxes 13,659 15,015 9,700
------------ --------- ---------
Net income $ 17,675 $ 18,392 $ 13,078
=========== ========= =========
Earnings per common share (See Note 11):
Net income per common share $ 1.21 $ 1.56 $ 1.20
=========== ========= =========
Weighted average common shares outstanding 14,593 11,818 10,941
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
(See Note 11)
<TABLE>
<CAPTION>
Class B Additional
Common Common Paid in Retained
Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 11,299 $ 113 750 $ 7 $ 48,849 $15,320
Issuance of common stock 251 3 -- -- 2,262 --
Deferred compensation -- -- -- -- -- --
Tax benefits applicable to stock option plans -- -- -- -- 11 --
Cancellation of deferred stock options -- -- -- -- (29) --
Purchase of treasury stock -- -- -- -- -- --
Cancellation of treasury stock (2,478) (25) (350) (3) (38,757) --
Foreign currency translation adjustments -- -- -- -- -- --
Income tax provision on translation adjustment -- -- -- -- -- --
Net income -- -- -- -- -- 13,078
------ ------ ------- ------- -------- ------
Balance at December 31, 1994 9,072 91 400 4 12,336 28,398
Issuance of common stock 3,581 36 -- -- 56,880 --
Costs of stock issuance -- -- -- -- (774) --
Deferred compensation (12) -- -- -- 501 --
Tax benefits applicable to stock option plans -- -- -- -- 688 --
Purchase of treasury stock -- -- -- -- -- --
Cancellation of treasury stock (79) (1) -- -- (1,096) --
Foreign currency translation adjustments -- -- -- -- -- --
Net income -- -- -- -- -- 18,392
------ ------ ------- ------- -------- --------
Balance at December 31, 1995 12,562 126 400 4 68,535 46,790
Issuance of common stock 1,452 14 -- -- 31,522 --
Conversion of Class B common stock to
common stock 400 4 (400) (4) -- --
Costs of stock issuance -- -- -- -- (510) --
Deferred compensation -- -- -- -- 1,960 --
Tax benefits applicable to stock option plans -- -- -- -- 2,030 --
Foreign currency translation adjustments -- -- -- -- -- --
Net income -- -- -- -- -- 17,675
------ ------ ------- ------- -------- --------
Balance at December 31, 1996 14,414 $ 144 -- $ -- $103,537 $64,465
====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Treasury Cumulative
Deferred Stock Translation Stockholders'
Compensation Shares Amount Adjustment Equity
------------ ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ (805) (100) $ (800) $ 225 $ 62,909
Issuance of common stock -- -- -- -- 2,265
Deferred compensation 497 -- -- -- 497
Tax benefits applicable to stock option plans -- -- -- -- 11
Cancellation of deferred stock options 29 -- -- -- --
Purchase of treasury stock -- (2,728) (37,985) -- (37,985)
Cancellation of treasury stock -- 2,828 38,785 -- --
Foreign currency translation adjustments -- -- -- 643 643
Income tax provision on translation adjustment -- -- -- (313) (313)
Net income -- -- -- -- 13,078
-------- ------ ------ ------- ----------
Balance at December 31, 1994 (279) -- -- 555 41,105
Issuance of common stock -- -- -- -- 56,916
Costs of stock issuance -- -- -- -- (774)
Deferred compensation (116) -- -- -- 385
Tax benefits applicable to stock option plans -- -- -- -- 688
Purchase of treasury stock -- (79) (1,097) -- (1,097)
Cancellation of treasury stock -- 79 1097 -- --
Foreign currency translation adjustments -- -- -- (146) (146)
Net income -- -- -- -- 18,392
-------- ------ ------ ------- ----------
Balance at December 31, 1995 (395) -- -- 409 115,469
Issuance of common stock -- -- -- -- 31,536
Conversion of Class B common stock to
common stock -- -- -- -- --
Costs of stock issuance -- -- -- -- (510)
Deferred compensation (1,024) -- -- -- 936
Tax benefits applicable to stock option plans -- -- -- -- 2,030
Foreign currency translation adjustments -- -- -- 119 119
Net income -- -- -- -- 17,675
-------- ------ ------ ------- ----------
Balance at December 31, 1996 $ (1,419) -- $ -- $ 528 $167,255
======== ====== ====== ======= ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flow from operating activities:
Cash received from clients $ 985,942 $ 889,900 $ 746,335
Cash paid to suppliers and employees (939,161) (846,920) (725,312)
Income taxes paid (8,802) (11,514) (11,204)
Interest received 3,112 2,689 1,142
Interest paid (1,234) (3,641) (5,087)
--------- --------- ---------
Net cash provided by operating activities 39,857 30,514 5,874
--------- --------- ---------
Cash flow from investing activities:
Additions to property and equipment (18,406) (17,754) (9,620)
Purchases of new businesses, net of cash acquired (19,633) -- (4,479)
Reimbursement of acquisition costs -- 1,535 1,362
Contributions from minority owners -- 7,097 2,482
Distributions from unconsolidated affiliates 3,551 2,850 2,775
Investment in unconsolidated affiliates (2,388) (1,589) (1,936)
--------- --------- ---------
Net cash used in investing activities (36,876) (7,861) (9,416)
--------- --------- ---------
Cash flow from financing activities:
Net (repayments of) proceeds from borrowings (16,461) (53,169) 31,601
Repayment of term debt (1,969) (3,700) --
Proceeds from issuance of common stock 31,026 56,142 2,265
Payment of dividend to minority shareholders (2,013) -- --
Acquisition of common stock -- (1,097) (37,985)
--------- --------- ---------
Net cash provided by (used in) financing activities 10,583 (1,824) (4,119)
--------- --------- ---------
Effect of exchange rate changes on cash and
cash equivalents (3,331) 3,000 4,100
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 10,233 23,829 (3,561)
--------- --------- ---------
Cash and cash equivalents, beginning of period 69,143 45,314 48,875
--------- --------- ---------
Cash and cash equivalents, end of period $ 79,376 $ 69,143 $ 45,314
========= ======== =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
BDM International, Inc. ("BDM" or "the Company") was privately owned
from its inception in 1959 until 1980, when it became a publicly owned company.
BDM was purchased by and became a wholly-owned subsidiary of Ford Aerospace
Corporation ("Ford Aerospace") in June 1988. BDM remained a wholly owned
subsidiary of Ford Aerospace until members of senior management and an investor
group led by The Carlyle Group, L.P. ("Carlyle"), a Washington, D.C.-based
private merchant bank, acquired substantially all of the assets, liabilities and
business of BDM on October 23, 1990. On June 28, 1995, BDM completed a public
offering of common stock in which 2.875 million shares were sold at $18.50 per
share. BDM's stock began trading on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") on June 29, 1995.
BDM is a multinational information technology company that operates
primarily in three interrelated markets: systems and software integration,
computer and technical services and enterprise management and operations. The
Company operates principally in the United States, Europe and the Middle East.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include all majority-owned or
controlled subsidiaries and joint ventures of the Company. All significant
intercompany accounts and transactions have been eliminated. The Company's
earnings in unconsolidated joint ventures are accounted for using the equity
method.
Revenue Recognition
The Company's revenue is derived primarily from long-term contracts of
various types. Revenue on cost reimbursable contracts is recognized to the
extent of costs incurred plus a proportionate amount of fee. Revenue on
fixed-price contracts is recognized using the percentage-of-completion method
based on the relationship of actual costs incurred to total costs estimated to
be incurred over the duration of the contract. Revenue on time-and-material
contracts is recognized based on actual hours delivered at the contracted hourly
rate plus the cost of any materials incurred. The fees under certain government
contracts may be increased or decreased in accordance with cost or performance
incentive provisions which measure actual performance against established
targets or other criteria. Such incentive fee awards or penalties are included
in revenue at the time the amounts can be reasonably determined.
Provisions for anticipated contract losses are recognized at the time they
become known.
Progress payments received in advance from customers are applied first
to any amount of unbilled accounts receivable on the related contracts. Any
excess of the payments received in advance over the related unbilled accounts
receivable is recorded as an advance payment liability.
Foreign Currency Translation
The results of operations from foreign subsidiaries are translated to
U.S. dollars using the average exchange rates during the period. Assets and
liabilities are translated to U.S. dollars at the exchange rate in effect at the
balance sheet date. The resulting cumulative translation adjustments are
reflected in stockholders' equity.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Summary of Significant Accounting Policies-(Continued)
Consolidated Statements of Cash Flow
Cash flow from the operations of the Company's foreign subsidiaries are
calculated based on their reporting currencies. The effect of exchange rate
changes on the cash and cash equivalents held in foreign currencies is reported
separately in the Consolidated Statements of Cash Flow.
The Company considers all highly liquid financial instruments with
purchased maturities of three months or less to be cash equivalents.
Property and Equipment
Property, equipment and furniture are recorded at cost, or assigned
fair value if acquired through an acquisition. Furniture and equipment are
depreciated over their estimated useful lives, ranging from three to ten years,
primarily using the declining balance method. Leasehold improvements are
amortized over their estimated useful lives or the related lease terms,
whichever is shorter, using the straight-line method. Maintenance and repairs
are charged to expense as incurred.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of acquiring businesses over
the fair value of identifiable net tangible and intangible assets acquired.
Goodwill is amortized on a straight-line basis over the period for which the
Company estimates it will benefit directly from the acquisition. Although the
period of benefit from goodwill can be difficult to estimate, the Company
considers goodwill to be recoverable as long as the acquisition generates
positive cash flow from operations after implementation of the Company's
strategic plan or completion of reorganization efforts, if any. Recoverability
of goodwill is evaluated quarterly based on current undiscounted cash flow
projections of each specific acquired business. To date, the maximum
amortization period for goodwill has been fifteen years, even though most of the
Company's acquisitions would project positive cash flow from operations for a
much longer period.
Goodwill is amortized over periods ranging from seven to fifteen years.
Intangible assets are recorded at cost, or assigned fair value if
acquired through a business acquisition. Intangible assets are amortized on a
straight-line basis over the term of the underlying asset or the estimated
period of benefit, currently ranging from two to five years, or in the case of
contract backlog, over the remaining terms of the acquired contracts in relation
to the recognition of related contract revenue.
Research and Development Costs
Research and development costs are expensed as incurred and are
included in selling, general and administrative costs. Research and development
costs amounted to $4.6 million, $2.0 million, and $7.1 million for the years
ended December 31, 1996, 1995, and 1994, respectively. In addition, the Company
expensed $10.8 million of costs related to the acquisition of RGTI in 1996 for
research and development activities in process at the time of acquisition.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Summary of Significant Accounting Policies-(Continued)
Capitalized Software Development Costs
Certain costs of internally developed software are capitalized and
amortized over the economic useful life of the related software product.
Unamortized capitalized software development costs were approximately $12
million at December 31, 1996.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recorded in the
financial statements or tax returns. Deferred tax assets and liabilities
represent the tax effects of differences between the financial statement
carrying amounts and the tax basis carrying amounts of the Company's assets and
liabilities. These differences are calculated based upon the statutory tax rates
in effect in the years in which the differences are expected to reverse. The
effect of subsequent changes in tax rates on deferred tax balances is recognized
in the period in which a tax rate change is enacted.
Foreign income taxes that are reimbursable pursuant to the related
contract terms are classified as contract costs rather than as a component of
the Company's provision for income taxes.
Earnings Per Common Share
Earnings per common share is computed by dividing net income by the sum
of the weighted average number of common and common equivalent shares
outstanding. The Company's common equivalent shares, consisting entirely of
options to purchase common stock, are calculated using the treasury stock method
which assumes the exercise of all outstanding stock options with the
hypothetical proceeds being used to repurchase shares for treasury.
Financial Instruments
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash equivalents and accounts receivable.
The carrying value of financial instruments approximates fair value since all
such instruments are either short-term in nature or bear interest at rates which
are indexed to current market interest rates.
The Company's cash management policy is to use available cash balances,
primarily from its domestic subsidiaries, to reduce the outstanding balance of
the revolving line of credit. To mitigate exposures to foreign currency risks
associated with using the available cash of foreign subsidiaries or joint
ventures, only the portion of available cash balances deemed not necessary for
short-term operations of the foreign subsidiary are considered eligible for
inclusion in the centralized cash management activities of the Company. The
majority of the cash balance at December 31, 1996, belongs to IABG (the
Company's German subsidiary). At December 31, 1996, approximately $52 million
was invested primarily in deposits with various German banks of high credit
ratings, with purchased maturities of one month or less. These investments are
insured up to amounts prescribed by German law. Although there were no other
investments as of December 31, 1996, significant excess cash balances of
domestic subsidiaries not used to extinguish debt are routinely invested in high
quality commercial paper for periods ranging from overnight to one week. It is
the Company's policy to hold such investments to maturity.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Summary of Significant Accounting Policies-(Continued)
In connection with its international operations, the Company is exposed
to risks associated with fluctuations in currency exchange rates, including the
German Mark, the Saudi Riyal, the Kuwaiti Dinar, the Turkish Lira and the Dutch
Guilder. The Company limits its exposure to these risks by incurring and paying
for its expenses in the same currencies as those of its revenue. In addition,
certain contracts performed overseas have provisions which provide for
reimbursement of losses arising from currency fluctuations. The Company may
enter into forward exchange contracts, options and swaps as a hedge against
certain foreign currency risks. It is the Company's policy not to enter into
derivative financial instruments for speculative purposes. There were no
derivative financial instruments outstanding as of December 31, 1996.
The Company generally provides uncollateralized credit to its
customers. Advance payments are obtained from a large portion of foreign
government customers pursuant to the appropriation practices of the related
governments. The Company continually assesses the financial strength of
commercial companies for whom significant subcontracts are performed. The
Company also enters into letters of credit and performance guarantees in the
ordinary course of business as required by certain contracts and proposal
requirements.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements and disclosures to conform them to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies as of the dates of the financial statements, and the
reported amounts of revenue and expenses during the reporting periods. Actual
results could differ from management's estimates.
3. Acquisitions
CW Systems, Inc., IG Systems, Inc., and Melco Systems, Inc.: On
February 20, 1996, the Company acquired 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 statement of operations 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. Resulting
goodwill totaled $16.8 million, and is being amortized over 15 years. Other
intangible assets of $1.4 million related to non-compete agreements are being
amortized over two years.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Acquisitions-(Continued)
RGTI: On November 4, 1996, the Company acquired the operations of RGTI
Systems Software (RGTI), a company specializing in warehouse management
solutions. The purchase price of $18.4 million included non-compete agreements
totaling $750,000 for a period of four years and retention payments to certain
key management team members totaling $1.6 million to be paid in annual
installments through December 1999. The remaining purchase price consisted of
$9.4 million cash paid at settlement and $6.6 million of assumed net
liabilities. In addition, the purchase agreement provides an additional $6.35
million purchase price contingent upon the achievement of targeted earnings
through the year 2000. This acquisition was accounted for as a purchase, and the
results of RGTI's operations have been included in the Company's consolidated
statements of operations since the effective date of the transaction. The
Company expensed $10.8 million relating to the write-off of purchased in-process
research and development. As of the effective date of this acquisition, the
technological feasibility of the in-process technology had not yet been
established and the technology was deemed to have no alternative future use.
Resulting goodwill totaled approximately $5.2 million and is being amortized
over seven years.
ASD: The Company also acquired the assets of two related companies,
Advanced Systems Design, Inc. (ASD) and Software Engineering, Inc. (SEI). These
companies provide services in state and local government human services systems
design and development. This acquisition was accounted for as a purchase, and
the results of ASD's operations have been included in the Company's consolidated
statements of operations since November 1, 1996, which represents the date upon
which effective control of the operations of ASD and SEI was assumed by the
Company. The Company paid $4.8 million, of which $1.5 million relates to
non-compete agreements for three years. The remaining $3.3 million will be paid
out of BDM's cash balances subsequent to year end.
Goodwill resulting from the transaction totaled $3 million and is being
amortized over 10 years.
GCL: On February 16, 1994, the Company acquired Geoscience Consultants,
Ltd. (GCL), an environmental services consulting business, for an acquisition
price of approximately $4.3 million. The acquisition was financed with
borrowings from the Company's working capital facility.
Pro Forma Information (unaudited)
The following unaudited pro forma combined condensed statements of
operations set forth the consolidated results of operations of the Company for
the years ended December 31, 1996 and 1995 as if the above mentioned
acquisitions had occurred as of January 1, 1995. This unaudited pro forma
information does not purport to be indicative of the actual financial position
or the results that would actually have occurred if the combinations had been in
effect for the years ended December 31. The 1996 pro forma information excludes
the write-off of certain purchased research and development of $10.8 million
pre-tax ($0.43 net of tax per common share). The 1995 pro forma information
includes the write-off of certain purchased research and development of $10.8
million pre-tax ($0.53 net of tax per common share), (dollars in thousands):
1996 1995
------------ ----------
Revenue $ 1,025,821 $ 951,183
============ ==========
Net income $ 24,101 $ 12,063
============ ==========
Net income per common share $ 1.65 $ 1.02
============ ==========
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4. Supplemental Cash Flow Information
The following is a reconciliation of net income to net cash provided by
operating activities for the years ended December 31, (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net income $ 17,675 $ 18,392 $ 13,078
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,737 17,761 16,466
Loss on disposal of property 625 376 --
Equity in earnings of affiliates (2,010) (1,835) (1,841)
Minority interest 5,446 3,797 2,526
Provision for contract losses 4,114 4,400 5,138
Deferred compensation expense 936 349 497
Purchased in-process R&D 10,760 -- --
Provision for restructuring, non-cash items 5,308 -- --
Deferred income taxes 3,698 (684) 2,563
Other 2,416 89 (749)
Cash effect of changes in current assets and liabilities:
Accounts receivable (10,688) (9,525) (36,543)
Prepaid expenses and other (1,224) 1 (10,265)
Accounts payable and accrued (16,714) (3,072) 13,204
Income taxes payable 2,778 465 1,800
-------- -------- --------
Net cash provided by operating activities $ 39,857 $ 30,514 $ 5,874
======== ======== ========
</TABLE>
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. Accounts Receivable
Accounts receivable consisted of the following at December 31, (dollars
in thousands):
1996 1995
---------- ----------
U.S. Government contracts:
Billed $ 115,384 $ 134,847
Unbilled:
Retention 23,968 16,866
Other 9,674 3,841
---------- ----------
Total 149,026 155,554
Other contracts:
Billed 72,311 52,570
Unbilled:
Retention 9,785 5,402
Other 23,870 22,338
---------- ---------
Total 105,966 80,310
Other 5,036 4,220
Allowance for possible contract losses and
uncollectible amounts (25,923) (20,730)
---------- ---------
Net accounts receivable $ 234,105 $ 219,354
========== =========
Unbilled retention balances are billable at contract completion or upon
attainment of other specified contract milestones. Other unbilled amounts
consisted primarily of: contractually earned services not yet billable because
of stipulated installment billing provisions, approximately $28.2 million and
$19.4 million at December 31, 1996 and 1995, respectively; revenue recognized
pursuant to customer authorizations prior to the execution of contractual
documentation was not material in 1996 and was $1.7 million at December 31,
1995; and a specific receivable related to a contract performed in Saudi Arabia
whereby the Company will owe severance to terminated employees at contract
completion, approximately $1.8 million and $1.9 million at December 31, 1996 and
1995, respectively. This liability is included in accrued severance. Management
anticipates that substantially all unbilled receivables as of December 31, 1996,
exclusive of retention balances, will be billed and collected in 1997. Based on
the Company's experience with similar contracts in recent years, retention
balances of approximately $6.6 million at December 31, 1996, are not expected to
be collected within the coming year. It is common industry practice to include
such amounts in working capital.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Property and Equipment
Property and equipment consisted of the following at December 31,
(dollars in thousands):
1996 1995
---- ----
Equipment and office furniture $ 64,022 $ 58,563
Leasehold improvements 10,059 9,559
----------- ----------
74,081 68,122
Accumulated depreciation and amortization (25,562) (22,400)
----------- ----------
Net property and equipment $ 48,519 $ 45,722
=========== ==========
Depreciation expense was $13.0 million, $13.4 million, and $12.5
million for the years ended December 31, 1996, 1995, and 1994, respectively.
7. Intangible Assets
Intangible assets consisted of the following at December 31, (dollars
in thousands):
1996 1995
---- ----
Goodwill $ 33,369 $ 11,480
Less: Accumulated amortization (3,689) (2,695)
----------- -----------
29,680 8,785
----------- -----------
Intangible Assets:
Intangible pension asset (Note 13) 2,605 --
Covenants not to compete 7,500 3,850
Other 437 1,770
----------- -----------
10,542 5,620
Less: Accumulated amortization (4,341) (4,790)
----------- -----------
6,201 830
----------- -----------
Total $ 35,881 $ 9,615
=========== ===========
During 1996, the Company recorded goodwill related to acquisitions of
approximately $25 million and non-compete agreements of $3.7 million.
In connection with a restructuring during 1996, as described in Note 8,
the Company wrote off unamortized goodwill of $2.4 million related to its
environmental subsidiary, GCL. This write-off, which was determined based on an
analysis of future cash flow expected from that area of business after changes
in strategic direction resulting from the Company's business realignment, is
included in the provision for restructuring in the consolidated statement of
operations.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
7. Intangible Assets-(Continued)
Unamortized goodwill for the acquisition of FACE totaling $1.6 million
was expensed during 1995, as it was determined to be no longer recoverable.
Several factors contributed to this change in recoverability. The acquired
company's anticipated utilization of its technology for other industries was not
realized, and synergies between BDM's technologies and acquired technologies did
not result in an expansion of the customer base as expected. In addition, an
economic downturn in The Netherlands contributed to a deterioration in the
revenue base. These factors resulted in negative cash flow projected for this
particular business. The write-off of this goodwill was included in
depreciation, amortization and other in the consolidated statements of
operations.
8. Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses were as follows
at December 31, (dollars in thousands):
1996 1995
---- ----
Accounts payable $ 63,578 $ 63,567
Accrued expenses:
Advance payments 27,782 31,876
Accrued salaries/benefits 45,547 39,967
Accrued vacation 18,586 18,838
Restructuring/severance 7,093 10,245
Environmental matters 1,088 1,356
Other 725 2,404
----------- -----------
$ 164,399 $ 168,253
=========== ===========
Restructuring/Severance Liability
Prior to the Company's acquisition of IABG, IABG found it necessary to
reduce its reliance on the German government for the majority of its revenue. In
addition to redirecting marketing efforts in non-defense areas, IABG sought
means to reduce operating costs. IABG therefore determined that it would be
necessary to reduce its workforce through involuntary terminations. As
prescribed by German law and pursuant to the German government's plan for
privatization of IABG, a severance plan was developed by IABG providing for the
estimated number of involuntary employee reductions, the conditions for
termination and the method for determining the amount of severance due to the
terminating employees. IABG's workforce reductions began in 1994 and will
continue through 1997. In connection with the approval of the plan by the German
government and prior to the acquisition of IABG by the Company, an estimate for
the severance totaling $34.2 million was accrued. Benefits paid through 1996
totaling $20.1 million have been applied against the original accrual.
Management believes the remaining liability will be adequate to cover future
benefits claimed pursuant to the plan. The remaining liability as of December
31, 1996 has been classified among current and long-term liabilities according
to IABG's plan for effecting the actual employee reductions.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. Accounts Payable and Accrued Expenses-(Continued)
The Company announced a new alignment of its business operations in the
third quarter of 1996, described in management's discussion and analysis. The
new business alignment resulted in a one-time provision for restructuring of
$5.8 million, which included a write-down of $3.1 million of certain assets of
GCL (see Note 7), severance costs totaling $1.8 million for approximately 40
employees across several subsidiaries, and the accrual of approximately $0.9
million for certain facility expenses. The write-down at GCL affected primarily
goodwill and fixed assets, and was determined based on analyses of future cash
flows expected from that area of business after changes in strategic direction
resulting from the business realignment. During the fourth quarter of 1996, the
Company made payments of approximately $450,000 against the restructuring
reserve primarily related to severance costs, and had a remaining balance in the
reserve of approximately $1.8 million as of December 31, 1996.
9. Debt
Long-term debt consisted of the following at December 31, (dollars in
thousands):
1996 1995
---- ----
Revolving line of credit $ 9,800 $ 25,830
Promissory notes from acquisitions 12,793 --
Non-competition promissory notes 3,650 --
Other 57 519
----------- -----------
26,300 26,349
Less: current portion (3,487) (449)
----------- ------------
Total long-term debt $ 22,813 $ 25,900
=========== ===========
During 1995, the Company entered into a revolving credit agreement
which 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 borrowings
in relation to total capitalization and compared to earnings before interest,
taxes, depreciation and amortization. In addition, dividends were prohibited
until 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 nonsubsidiaries. As
of December 31, 1996, the Company had $122.8 million available for borrowing
under this credit agreement and was in compliance with all covenants. In
connection with the replacement of the previous facility, the Company expensed
$0.5 million of capitalized financing costs during 1995.
In connection with the acquisitions described in Note 3, the Company
has promissory notes due to selling shareholders as follows:
CW Systems, Inc., IG Systems, Inc., and Melco Systems, Inc.: As of
December 31, 1996, the Company has $8.2 million of promissory notes payable over
two years to the sellers of these companies, as well as promissory notes of $1.4
million associated with covenants not-to-compete for certain key employees.
In addition, the Company paid $2.0 million during 1996 to settle debt acquired
in this transaction.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9. Debt-(Continued)
RGTI: In connection with the acquisition of RGTI, the Company issued
promissory notes of $750,000 payable over four years, associated with covenants
not-to-compete for certain key employees. The remaining purchase price was paid
in cash to the sellers.
ASD: The Company has $6.1 million of debt outstanding related to this
transaction as of December 31, 1996. This amount includes $3.3 million in
promissory notes to the sellers for sale of the Company, $1.5 million
representing non-competition promissory notes payable over three years, and the
remaining $1.3 million for debt acquired in the transaction.
All acquisition notes described above bear interest payable on a
quarterly basis at prevailing market rates.
Maturities of debt outstanding at December 31, 1996, were as follows:
1997--$3.5 million; 1998--$11.6 million; 1999--$0.7 million; and 2000--$10.5
million.
Total interest expense incurred in 1996, 1995, and 1994 was $6.4
million, $4.4 million and $5.1 million, respectively. Excluding facility fees,
the weighted average interest rate incurred for the years ended December 31,
1996, 1995 and 1994, was 7.39%, 8.0% and 6.7%, respectively.
10. Income Taxes
The components of income before income taxes were as follows for the
years ended December 31, (dollars in thousands):
1996 1995 1994
---- ---- ----
Domestic $ 17,763 $ 25,890 $ 12,335
Foreign 13,571 7,517 10,443
----------- ----------- -----------
Income before income taxes $ 31,334 $ 33,407 $ 22,778
=========== =========== ===========
The provision for income taxes included the following for the years ended
December 31, (dollars in thousands):
1996 1995 1994
---- ---- ----
Current provision:
Federal $ 4,656 $ 9,530 $ 3,193
State 794 1,634 942
Foreign 4,511 4,535 3,000
----------- ----------- -----------
Total current provision 9,961 15,699 7,135
----------- ----------- -----------
Deferred provision(benefit):
Federal 1,819 (3,745) 1,629
State 312 (642) 223
Foreign 1,567 3,703 713
----------- ----------- -----------
Total deferred
provision (benefit) 3,698 (684) 2,565
----------- ----------- -----------
Total provision for
income taxes $ 13,659 $ 15,015 $ 9,700
=========== =========== ===========
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
10. Income Taxes-(Continued)
The actual provision for income taxes as a percentage of income before
taxes varies from the U.S. Federal statutory income tax rate for the following
reasons:
1996 1995 1994
---- ---- ----
U.S. Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal income
tax benefits 6.0 6.0 6.0
Tax effect relating to non-deductible
goodwill amortization 1.7 2.7 1.6
Tax effect relating to rate differential
of foreign operations 0.9 1.2 --
--- --- --
Effective income tax rate 43.6% 44.9% 42.6%
===== ===== =====
The sources and tax effects of temporary differences which result in a
net deferred income tax liability were as follows as of December 31, (dollars in
thousands):
1996 1995
---- ----
Financial reporting basis of net assets acquired $ 6,114 $ 5,532
Other 145 308
Revenue recognition 25,660 23,251
----------- ---------
Gross deferred tax liability 31,919 29,091
----------- ---------
Depreciation 1,360 735
Accrued expenses 5,159 9,215
Foreign operating loss carryforward -- 669
Accruals in excess of deductible write-offs 7,878 5,981
Foreign tax credit carryforwards 3,823 2,490
----------- ---------
Gross deferred tax asset 18,220 19,090
----------- ---------
Net deferred liability $ 13,699 $ 10,001
=========== =========
As of December 31, 1996, the Company had foreign tax credit
carryforwards (FTC's) of $3.8 million which expire in various years through
2001. Utilization of the FTC's is subject to certain limitations, including the
future amount of taxable foreign source income, the effective tax rate on such
income and the amount of future U.S. taxable income. Management believes that it
is more likely than not that foreign tax credits will be realizable based on
projections of future low-taxed foreign source income.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. Stockholders' Equity
Description of Capital Stock
The Company is authorized to issue a total of 52,500,000 shares of
capital stock, consisting of 500,000 shares of Preferred Stock, 50,000,000
shares of Common Stock and 2,000,000 shares of Class B Common Stock, all shares
with $.01 par value. The Preferred Stock may be issuable in one or more series
from time to time at the discretion of the Board of Directors. The Board of
Directors is authorized to fix the respective designation, relative rights,
preferences, qualifications, restrictions and limitations of each series.
Each share of Common Stock is entitled to one vote in elections of
directors and all other matters required or permitted to be submitted to a vote
of the stockholders. The holders of Class B Common Stock have no voting rights.
Holders of both Common Stock and Class B Common Stock are entitled to receive
dividends, when and if declared by the Board of Directors of the Company. The
shares of Class B Common Stock are convertible into the same number of shares of
Common Stock upon their disposition in connection with the occurrence of certain
events including a sale of all or substantially all of the Common Stock of the
Company; a merger or consolidation of the Company in which the stockholders of
the Company receive cash and/or marketable securities in exchange for their
stock; and an underwritten public offering of Common Stock of the Company.
Stock Split
On February 21, 1997, the Company's Board of Directors declared a
two-for-one split of the Company's common shares, effected in the form of a
stock dividend, to shareholders of record as of the close of business on March
20, 1997. Distribution of the additional shares will take place on March 20,
1997. The consolidated financial statements presented have not been restated to
reflect this stock split. In connection with the stock split, the Company's
Board of Directors increased the number of shares of Common Stock authorized for
issuance to 100,000,000 shares. Had the consolidated financial statements been
restated to reflect the stock split, the weighted average number of shares
outstanding would have been approximately 29,186,000, 23,636,000, and 21,882,000
shares and earnings per common share would have been $0.61, $0.78, and $0.60 for
the years ended December 31, 1996, 1995, and 1994, respectively.
Stock Offering
On March 27, 1996, the Company completed an 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 number of shares offered, 450,000 shares 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
approximately $15.3 million were used for general corporate purposes and to
finance acquisitions.
Investor Stock Purchase Agreement
An Investor Stock Purchase Agreement, executed at the time of the
purchase of the Company in October 1990, provides the Company and members of the
Investor Group with the right of first refusal in the event any member of the
Investor Group desires to sell the shares purchased under the agreement, subject
to certain exceptions. The agreement also provides for anti-dilution, piggy-back
and demand registration rights. With the exception of the underwriters'
discount, most of the expenses incurred in connection with the exercise of such
registration rights by certain stockholders would be borne by the Company.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. Stockholders' Equity-(Continued)
Common Stock Purchase
On May 27, 1994, the Company reacquired 2,250,000 shares and 350,000
shares of its outstanding Common Stock and Class B Common Stock, respectively,
for its then fair value of $14.00 per share, respectively, from the Investor
Group. Coincident with this stock purchase, these common shares, as well as all
previously acquired treasury shares, were canceled.
Fair Value of Common Stock
From the acquisition of the Company in October 1990, through June 28,
1995, there was no public market for the Company's Common Stock. The fair value
of the Company's Common Stock was determined by the Board of Directors based
primarily on periodic valuations performed by an independent valuation company.
On June 28, 1995, the Company's public offering of common stock was effective,
and its Common Stock began trading on June 29, 1995, on the Nasdaq System. The
fair value of the Company's Common Stock has since been determined based on
Nasdaq quotation systems.
12. Equity Participation Programs
Employee Stock Purchase Plans
The Company implemented an Employee Stock Purchase Plan in March 1993.
The Plan allowed participants to buy Common Stock at fair market value through
payroll deductions. Each participating employee was able to purchase up to 26
shares of Common Stock per month at the fair market value per share. On various
occasions since inception of the Plan, the Company has acquired an aggregate of
282,072 shares of its outstanding Common Stock for use by this plan at its then
fair market value ranging from $8.00 through $17.25. During the years ended
December 31, 1995 and 1994, the Plan participants purchased 51,174 and 127,120
shares for an average of $16.17 and $12.75 per share, respectively.
Effective July 1, 1995, the above plan was discontinued and replaced
with the 1995 Employee Stock Purchase Plan (the 1995 Plan). The 1995 Plan is a
qualified non-compensatory employee stock purchase plan, and there were 750,000
shares of common stock reserved for issuance under this plan. The 1995 Plan
allowed 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 stock was the
lesser of $15.725, which was 85% of the initial offer price of $18.50 per share
in the public offering, or 85% of the market value at the end of each month.
During 1996 and 1995, participants in the 1995 Plan purchased 432,301 and
317,699 shares at $15.725 per share.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
12. Equity Participation Programs-(Continued)
During 1996, the 1995 Employee Stock Purchase Plan was replaced by the
1996 Employee Stock Purchase Plan (the 1996 Plan). The 1996 Plan is a
non-compensatory employee stock purchase plan which reserved 1,000,000 shares of
Common Stock for issuance. The 1996 Plan allows all employees of the Company's
domestic subsidiaries to purchase up to 500,000 shares annually in 1996 and
1997, at a discount during the offering period. The purchase price under the
1996 Plan is the lesser of 85% of the market value at each purchase date or 85%
of the market value as set at the beginning of each six month period from the
inception of the 1996 Plan, and the purchase is subject to a 90 day holding
period. During 1996, participants in this plan purchased 133,481 shares at
prices ranging from $37.83 to $42.71.
1990 Stock Option Plan
In 1990, the Company established a Stock Option Plan (the 1990 Plan) to
provide officers and key employees with up to 1,562,500 qualified or
non-qualified incentive stock options to purchase shares of Common Stock. The
1990 Plan provides that qualified incentive stock options (as defined in the
Internal Revenue Code) have an exercise price equal to the fair market value of
the Common Stock on the date of the option grant. Non-qualified incentive stock
options have exercise prices as determined by the Compensation Committee of the
Board of Directors. The 1990 Plan provides for adjustments in the number of
shares related to stock options and their respective exercise prices in the
event of stock dividends or stock splits, and for adjustments in the event that
the Company effects a recapitalization or other change in its capital structure.
Options granted pursuant to the 1990 Plan vest over periods ranging from one to
five years. As of December 31, 1996, the Company had 683,483 shares of Common
Stock reserved for issuance upon exercise of this plan's remaining outstanding
options, and 19,456 shares of Common Stock reserved for future option grants.
1994 Stock Option Plan
In 1994, the Company's Board of Directors reserved 1,000,000 shares of
Common Stock and established the 1994 Stock Option Plan to succeed the 1990
Plan. The continuation 1994 Plan has identical provisions as the predecessor
1990 Plan. At December 31, 1996, the Company had 634,092 shares of Common Stock
reserved for issuance upon exercise of outstanding options and 338,826 shares of
Common Stock reserved for future option grants.
1997 Stock Option Plan
On February 21, 1997, the Company's Board of Directors reserved
1,250,000 shares of Common Stock and established the 1997 Stock Option Plan (the
1997 Plan) to succeed the 1994 Plan. The continuation 1997 Plan has identical
provisions as the 1990 and 1994 Plans, except that it allows certain employees
to convert their incentive stock options to non-qualified stock options upon
terminating employment with the Company. The 1997 Plan is subject to shareholder
approval.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
12. Equity Participation Programs-(Continued)
Management Incentive Stock Purchase Program
In 1991, the Company established the Management Incentive Stock
Purchase Program (MIS Plan), which provides for the granting of up to 1,111,111
nonqualified options to purchase shares of Common Stock to certain senior
members of management. The option exercise price is $.01 per share. Intended to
serve as incentive compensation for management, a portion of these option grants
vests each year based on management's ability to meet defined minimum
performance criteria, with the remainder vesting based on tenure. Upon option
grant, the Company records deferred compensation equal to the difference between
the fair market value of the Company's Common Stock on the date of grant and the
option exercise price. Performance based options are revalued each quarter based
on the fair market value at the end of the quarter. The deferred compensation is
expensed over the vesting term of the underlying options. All options pursuant
to this plan have been granted. As of December 31, 1996, the Company had 23,192
shares of Common Stock reserved for issuance upon exercise of the outstanding
options.
Stock option activity pursuant to these plans has been as follows:
MIS Plan Non-MIS Plans
Exercise Price Exercise Price
Shares Per Share Shares Per Share
Balance,
December 31, 1993 128,853 $ .01 940,515 $4.00- $8.00
Granted -- -- 471,050 8.00- 14.00
Exercised (17,291) .01 (99,678) 4.00- 8.00
Forfeited (20,208) .01 (95,589) 4.00- 12.00
---------- ----------
Balance,
December 31, 1994 91,354 .01 1,216,298 4.00- 14.00
Granted 30,000 .01 392,950 14.00- 26.38
Exercised (96,354) .01 (238,892) 4.00- 12.00
Forfeited -- .01 (92,560) 5.25- 14.00
---------- ----------
Balance,
December 31, 1995 25,000 .01 1,277,796 4.00- 26.38
Granted 4,442 .01 522,108 0.01- 52.25
Exercised (6,250) .01 (433,303) 4.00- 17.25
Forfeited -- .01 (49,026) 4.00- 38.75
---------- ----------
Balance,
December 31, 1996 23,192 $ .01 1,317,575 $4.00- $52.25
========== ====== ========= ==============
On March 3, 1997, the Company granted options to purchase an aggregate
of 504,425 shares of Common Stock to certain employees at an exercise price
equal to the fair value of $44.25 per share at that date. This grant is subject
to shareholder approval of the 1997 Plan.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
12. Equity Participation Programs-(Continued)
Directors' Stock Purchase Plan
Members of the Company's Board of Directors are eligible to receive
their compensation in the form of Common Stock in lieu of cash. During 1996,
1995, and 1994, the Company issued 2,794, 7,369, and 14,296 shares,
respectively, of Common Stock for this purpose. During 1995 and 1994, the
Company purchased 6,298 and 13,750 shares, respectively, of its outstanding
Common Stock for $14.00 per share for use by this plan. As of December 31, 1996,
the Company had 7,594 shares of Common Stock reserved for issuance upon the
exercise of the board members' option to receive compensation in this form.
Pro Forma Information in Accordance with SFAS 123
The Company applies APB Opinion 25 and related interpretations in
accounting for its equity participation programs. Accordingly, no compensation
cost has been recognized for its incentive stock option plans and its employee
stock purchase plans, except as described above for the MIS Plan. The
compensation cost that has been charged against income for the MIS plan was
approximately $936,000, $298,000, and $90,000 for 1996, 1995, and 1994,
respectively. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of accounting under SFAS 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
1996 1995
---- ----
Net Income As reported $17,675 $18,392
Pro forma $11,033 $15,025
Net income per common share As reported $1.21 $1.56
Pro forma $0.76 $1.28
The fair value of each option is estimated on the date of grant using a
type of Black-Scholes option-pricing model with the following weighted-average
assumptions used for option grants during the years ended December 31, 1996 and
1995, respectively: dividend yield of 0%, expected volatility of 40%, risk-free
interest rate of 5.9%, and expected terms of 4 years. The fair value of the
employee stock purchase plans was determined using the same assumptions for
dividend yield, expected volatility, and risk-free interest rate. The expected
term used for the employee stock purchase plans was 6 months.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
12. Equity Participation Programs-(Continued)
A summary of the status of the Company's stock option plans is
presented below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Options outstanding, beginning of period 1,302,796 $10.90 1,307,652 $ 7.78
Options exercised (439,553) 8.98 (335,246) 5.14
Options canceled (49,026) 22.53 (92,560) 11.62
Options granted 526,550 37.54 422,950 17.34
------- -----------
Options outstanding, end of period 1,340,767 20.88 1,302,796 10.90
========= =========
Options exercisable at end of period 511,233 9.68 629,177 7.52
======= =======
Weighted average fair value of options
granted during the period 16.16 7.52
</TABLE>
As of December 31, 1996, the weighted average remaining contractual
life of options outstanding was 7.6 years.
13. Retirement Plans
The Company maintains a 401(k) plan covering substantially all
full-time employees of the Company's domestic subsidiaries. Employees may direct
the investment of their contributions among several mutual fund options.
Employees may contribute up to the maximum allowed by federal regulations,
currently 15% of their monthly salary or a maximum of $9,500. The Company
contributes an amount equal to 25% of the first 4% of the employee's salaries
contributed to the plan by the employee. The Company also maintains a separate
401(k) plan that mirrors the BDM 401(k) Plan described above and covers
employees of BDM-Oklahoma, Inc., a BDM subsidiary. For the years ended December
31, 1996, 1995 and 1994, the Company's contribution to these plans was
approximately $1,031,000, $907,000 and $842,000, respectively. At the time of
the Company's change in ownership in 1990, employees were allowed a one-time
option to purchase the Company's Common Stock with balances in their plan.
Effective July 1, 1995, the BDM Stock Fund became an active fund option in BDM's
401(k) Savings Plan. A total of 285,367 and 303,661 common shares were held by
the participants of the plan as of December 31, 1996 and 1995, respectively.
The Company also sponsors several other defined contribution plans for
substantially all of the employees of IABG. Participation in the plans is
voluntary; however, participants are required to make contributions to the plans
equal to 50% of the amount of the Company contribution. Company contributions
are based on percentages of the employees' monthly salary up to maximum monthly
benefits. The plans are fully funded and assets of the plans are invested in
insurance company annuities. The Company incurred approximately $3.9 million,
$3.8 million and $3.5 million in plan contribution expense for the years ended
December 31, 1996, 1995 and 1994, respectively.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
13. Retirement Plans-(Continued)
The Company has a defined benefit pension plan (the Retirement Plan)
and a supplemental executive retirement plan (SERP) providing noncontributory
retirement benefits for eligible employees. Benefits are determined based upon
years of service and employee compensation. The Company's funding policy is to
contribute annually, at a minimum, amounts required by applicable laws and
regulations. Retirement Plan assets are invested in a portfolio of diversified
equity securities and mutual funds, corporate and government bonds, and
short-term investments. In addition, BDM Oklahoma has a defined benefit pension
plan which mirrors the Retirement Plan.
The net periodic pension expense for these defined benefit plans
included the following components for the years ended December 31, (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost $ 6,079 $ 4,883 $ 4,975
Interest cost on projected benefit obligation 5,968 5,153 5,752
Actual return on plan assets (8,103) (11,978) (526)
Net amortization and deferral 2,258 7,681 (5,590)
----------- --------- ---------
Net periodic pension expense $ 6,202 $ 5,739 $ 4,611
=========== ========= =========
</TABLE>
The funded status of the Company's defined benefit plans as well as
other disclosures required by Statement of Financial Accounting Standard No.
87--Accounting for Employee Benefit Plans (FAS 87) were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Retirement Retirement
Plans SERP Plans SERP
----- ---- ----- ----
<S> <C> <C> <C> <C>
Actuarial present value of vested benefit
obligation $ 82,329 $ 1,375 $ 64,635 $ 1,804
========== ========= ============ ==========
Actuarial present value of accumulated
benefit obligation $ 85,706 $ 1,718 $ 68,216 $ 1,804
========== ========= ============ ==========
Plan assets at fair value $ 77,329 $ -- $ 65,539 $ --
Actuarial present value of projected
benefit obligation (94,047) (1,752) (74,626) (1,896)
---------- --------- -------- ----------
Plan assets less than projected benefit
obligation (16,718) (1,752) (9,087) (1,896)
Unrecognized prior service cost 2,419 45 2,761 54
Unrecognized net gain (loss) 8,739 (124) 783 84
Adjustment required to recognize minimum
liability (2,605) -- -- (46)
---------- --------- ------------ ----------
Accrued pension cost $ (8,165) $ (1,831) $ (5,543) $ (1,804)
========== ========= ============ ==========
</TABLE>
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
13. Retirement Plans-(Continued)
The actuarial present values of the vested benefit obligations shown
above represent the amount to which employees are entitled based on the
employees' expected dates of separation or retirement. Assumptions, based on
actual historical results, used in accounting for the defined benefit plans were
as follows as of December 31,:
1996 1995 1994
---- ---- ----
Discount rate for projected benefits 7.75% 7.75% 8.5%
Average wage increases 4.0% 4.0% 4.0%
Expected long-term return on plan assets 9.5% 9.5% 10.0%
On January 1, 1995, the Company made a disbursement of $16.7 million to
fully settle certain benefits of the Retirement Plan with the purchase of an
insurance contract. This resulted in a net loss of $349,000 recognized in 1995.
The Company also maintains another defined benefit pension plan
covering nine past and present members of the management board of IABG. Benefits
are determined based on the members' years of service and compensation. The
Company had an accrued balance of $5.7 million and $5.9 million for this pension
obligation as of December 31, 1996 and 1995, respectively. The contribution
expense amounted to $674,000 in 1996 and $345,000 in 1995. No additional pension
disclosures required by FAS 87 have been provided since the majority of the
members covered by the plan have retired and the liability reflected in these
financial statements for this plan will not increase significantly in the
future.
The Company maintains a self-insurance plan to cover the costs of
certain employee health benefits. As of December 31, 1996 and 1995, the
estimated balance accrued for the cost of incurred but unreported claims was
approximately $2 million. The Company's annual liability for claims expense is
contractually limited pursuant to an agreement with an insurance company. The
actual claims expense for 1996 did not exceed the contractual maximum.
14. Transactions With Related Parties
The Chairman and Vice Chairman of the Company's Board of Directors are
the Chairman and a Managing Director, respectively, of Carlyle. The Company
retains Carlyle to provide certain advisory and consulting services for an
annual fee of $500,000 plus expenses. Total amounts incurred by the Company
related to these services for the years ended December 31, 1996, 1995 and 1994
were approximately $503,000, $506,000 and $505,000, respectively.
Prior to its privatization by the German government in 1993, IVG was
majority owned by the German government. Contract revenue derived by IABG from
the German government and its ministries totaled $109.5 million, $120.4 million,
and $118.5 million, respectively, for the years ended December 31, 1996, 1995,
and 1994. The total amount receivable from the German government at December 31,
1996 and 1995 was $7.7 million and $10.5 million, respectively.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
14. Transactions with Related Parties-(Continued)
IABG leases most of its facilities from IVG (a 20% owner of IABG).
Total rent expense incurred with IVG for the years ended December 31, 1996, 1995
and 1994 was $8.0 million, $8.1 million and $7.3 million, respectively. IABG
earns a market rate of interest on a related $6.5 million lease deposit with
IVG. Interest income earned during 1996 and 1995 amounted to $223,000 and
$254,000, respectively.
15. Unconsolidated Affiliates
The Company has ownership interests ranging from 40% to 50% in certain
unconsolidated joint ventures. The Company's investments in and advances to the
unconsolidated joint ventures, as well as the location of the ventures'
operations, are summarized as follows (dollars in thousands):
Ownership at December 31,
December 31, 1996 1996 1995
----------------- ---- ----
VBR, Turkey 50% $ 1,216 $1,556
AWV, Sultanate of Oman 50% 1,622 2,063
Seavin, Egypt 50% 1,067 1,153
TVS, U.S. 40% 1,381 --
Others 45% 206 450
------- -------
$ 5,492 $ 5,222
======= =======
Combined summarized financial information of all of the Company's joint
ventures was as follows as of December 31, or for the years then ended (dollars
in thousands):
1996 1995
---- ----
Current assets $ 18,352 $ 14,951
Non-current assets 1,511 966
Current liabilities 8,020 6,169
Non-current liabilities 702 56
Revenue 92,216 75,092
Gross profit 5,030 4,545
Net income 3,479 2,995
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
16. Major Clients And Geographic Operations
Major Clients
Revenue from major clients was as follows for the years ended December
31, (dollars in thousands):
1996 1995 1994
---- ---- ----
U.S. Government (including subcontract
revenue from government primes) $ 481,886 $ 449,504 $ 376,980
International defense agencies 270,478 222,755 193,523
Other government agencies 77,909 81,878 94,966
Commercial 171,286 135,837 108,780
----------- ----------- -----------
Total $ 1,001,559 $ 889,974 $ 774,249
=========== =========== ===========
The Company had one contract that generated revenue of $118.4 million
in 1996, representing approximately 12% of total revenue. No contract
individually represented more than 10% of total revenue in 1995 or 1994.
Geographic Operations
Revenue, operating profit and assets by geographic area of all
consolidated subsidiaries were as follows for the years ended December 31,
(dollars in thousands):
1996 1995 1994
---- ---- ----
Revenue:
North America $ 618,746 $ 547,660 $ 438,474
Europe 207,006 216,738 201,418
Middle East 175,807 125,576 134,357
----------- ---------- ----------
Total $ 1,001,559 $ 889,974 $ 774,249
=========== ========== ==========
Operating profit:
North America $ 13,057 $ 29,867 $ 16,559
Europe 5,726 1,838 2,064
Middle East 18,461 7,204 8,321
----------- ---------- ----------
Total $ 37,244 $ 38,909 $ 26,944
=========== ========== ==========
Assets:
North America $ 274,076 $ 221,488 $ 209,983
Europe 101,380 127,009 103,582
Middle East 45,198 15,296 21,986
----------- ---------- ----------
Total $ 420,654 $ 363,793 $ 335,551
=========== ========== ==========
The operating profit for North America in 1996 include a one-time,
pre-tax restructuring charge of $5.8 million and a write-off of $10.8 million
for purchased in-process research and development. Europe's results for 1995
include a one-time write off of $1.6 million for goodwill discussed in Note 7.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
17. Commitments And Contingencies
Government Audits
Payments to the Company on United States or foreign government
contracts are subject to adjustments upon audit by various agencies of the
respective governments. Audits currently in progress are in varying stages of
completion; however, management does not expect the results of these audits, or
audits related to any operations prior to December 31, 1996, subsequently
initiated, to have a material effect on the Company's financial position,
results of operations, or liquidity.
Litigation and Claims
The Company has been informed that a civil "qui tam" lawsuit has been
filed against the Company and has received a copy of the Complaint in that
action. The matter is currently under Court seal. The Complaint alleges
violation under the Federal False Claims Act in connection with certain
mischarging under overseas government contracts administered by the U. S. Air
Force, related to certain housing rented in connection with overseas operations,
alleged improper hiring of and payments to certain employees, alleged improper
payments to a subcontractor, and alleged improper purchases and payments made in
support of client activities. Aggregate revenue from these contracts in calendar
year 1996 was approximately $41 million. In connection with this case, BDM has
received a subpoena for information in a civil investigation underway by the
Office of Inspector General of the Department of Defense and an Assistant U. S.
Attorney for the Eastern District of Virginia with respect to the matters
alleged in the Complaint. BDM will cooperate fully with the Government and
expects to make extensive document production in response to the subpoena.
The Company is engaged in providing services and products under contracts
with the U. S. Government and, to a lesser degree, under foreign government
contracts, some of which are administered by the U. S. Government. All such
contracts are subject to extensive legal and regulatory requirements, and the
above mentioned investigation apparently focuses on whether the Company's
overseas operations in connection with the subject contracts were conducted in
accordance with such requirements. The lawsuit and related investigation could
result in administrative, civil or criminal liabilities, including
reimbursements, fines or penalties being imposed. Under the provisions of the
False Claims Act, a civil penalty of between $5,000 and $10,000 can be assessed
for each claim, plus three times the amount of any damages sustained by the
Government. The Complaint seeks such relief but does not specify the amount of
damages. In addition to damages, a finding of civil or criminal liability could
lead to suspension or debarment of the contractor if it is found to be not
currently responsible, which would make some or all of the contractor's
operations ineligible to be awarded U. S. Government contracts for a period of
time. Such civil or criminal liability or suspension or debarment could have a
material adverse effect on the Company. Management is unable to make a
meaningful estimate of the amount or range of loss that could result from this
litigation, however, mangement does not anticipate that the ultimate resolution
of this litigation will have a material effect on the Company's consolidated
financial position.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
17. Commitments And Contingencies-(Continued)
The Company is a party to various other legal actions, claims, government
inquiries and audits resulting from the normal course of business. The Company
believes that any resulting liability should not have a material effect on the
financial position, results of operations, or liquidity of the Company.
Environmental Matters
One of the Company's wholly-owned subsidiaries was previously notified
by the United States Environmental Protection Agency (EPA) that it is one of
several potentially responsible parties (PRPs) for remediation in connection
with asbestos present at two sites. The subsidiary, along with other PRPs,
entered into a consent decree with the EPA in 1992, by which the subsidiary and
the other PRPs are obligated to reimburse the EPA for costs incurred in its
assessment and monitoring of approximately $1.6 million and to undertake work to
address the environmental exposure as defined in the consent decree. The Company
originally accrued $4.4 million which management believed to be the best
estimate of the liability for this claim. Amounts paid and charged against this
provision through 1996 totaled approximately $3.4 million. Management believes
that the remaining accrual for this contingency of $1.0 million is sufficient to
cover costs to be incurred related to the subsidiary's performance pursuant to
the consent decree.
Another of the Company's subsidiaries was previously notified by the
Massachusetts Department of Environmental Protection that it is also one of
several PRPs in an environmental matter arising as a result of work performed on
a contract with the U.S. Air Force. The U.S. Air Force has reimbursed the
company for all costs incurred to date in connection with this matter. No costs
were incurred by the Company in 1996, 1995 or 1994 relative to this contingency.
No accrual has been recorded as of December 31, 1996 as the risk of loss to the
Company is considered to be remote, and the remaining potential amounts involved
are considered to be immaterial.
Lease Commitments
The Company leases office space and equipment under various operating
lease agreements. Leases for principal office space typically have terms of five
to twenty years and carry optional renewal periods of five to twenty years. Most
leases include provisions for periodic rent escalations based on changes in
various economic indices. Amounts representing aggregate rent expense on all
operating leases, excluding equipment rented for use on specific contracts and
reimbursed pursuant to the terms of those contracts, totaled $29.4 million,
$31.7 million, and $35.4 million for the years ended December 31, 1996, 1995,
and 1994, respectively.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
17. Commitments And Contingencies-(Continued)
Future minimum payments on non-cancelable operating leases were as follows
on December 31, 1996 (dollars in thousands):
Wholly-owned
subsidiaries IABG
------------ ----
Year ending Office Office
December 31, Space Equipment Space Equipment
------------ ----- --------- ----- ---------
1997 $ 20,777 $ 539 $ 6,649 $ 985
1998 16,513 315 4,796 399
1999 6,087 79 4,539 26
2000 2,778 10 4,539 --
2001 1,598 -- 4,539 --
Thereafter 4,601 -- 55,535 --
--------- --------- ------- ---------
Total $ 52,354 $ 943 $80,597 $ 1,410
========= ========= ======= =========
The Company's share of the future minimum lease commitments of IABG is
45%. The remaining 55% of the commitment is the responsibility of the
subsidiary's other owners. During December of 1996, IABG signed an agreement in
which it plans to purchase a portion of the property leased from IVG during 1997
for approximately $7.8 million. In addition, a leasing company will purchase
from IVG property used by IABG and lease that same property to IABG. This new
lease will have a term of 17 years, with an option to purchase this property at
a formula price after 10 years or at the end of the lease.
As of December 31, 1996, IABG had cash collateral of $6.4 million held
by the lessor for its facilities which were leased under the former lease
through the year 2004. Approximately $3.7 million of this deposit will be
applied to the purchase of property by IABG described above. The remaining
amount will be held by the lessor and will be reduced every 2 years by
approximately $282,000 starting at the end of 1997 and ending in 2003. The
remaining amount of approximately $1.7 million will be held by the lessor as
long as the contract exists. Cash on deposit is interest-bearing and interest
income will accrue at current market rates payable quarterly.
On January 8, 1997, the Company signed an agreement to lease office
space for its corporate headquarters beginning February 1, 1999. The agreement
is for a period of 12 years, with BDM's option to renew for two terms of 5 years
each, and base rent starting at approximately $3.5 million in the first year
plus a pro rata share of operating expenses. Escalation of the base rent ranges
from 2% to 3% per year. As part of this agreement, BDM will receive an
improvement allowance to be determined based on the actual amount of space
leased by the Company.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
17. Commitments And Contingencies-(Continued)
Sublease Commitments
Sublease rental income earned was $2.2 million, $2.5 million and $4.4
million during the years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum payments on non-cancelable subleases were as follows as of
December 31, 1996 (dollars in thousands):
Year ending
December 31,
1997 $ 1,960
1998 551
1999 48
2000 --
2001 --
Thereafter --
--------------
Total $ 2,559
==============
18. Selected Quarterly Data (Unaudited) (Dollars In Thousands, Except Per Share
Data):
1995
First Second(1) Third Fourth
Revenue $ 191,901 $ 213,064 $ 215,900 $ 269,109
Operating profit 9,905 8,790 9,339 10,875
Net income 3,334 3,870 5,291 5,897
Earnings per share 0.33 0.38 0.40 0.44
Sale prices of Common stock:
High n/a 21 1/2 28 1/2 30 1/2
Low n/a 19 7/8 20 1/4 23 3/4
1996
First Second Third Fourth
Revenue $ 225,107 $ 251,854 $ 246,766 $ 277,832
Operating profit 11,716 12,656 7,945 4,927
Net income 5,407 6,655 3,900 1,713
Earnings per share 0.39 0.45 0.26 0.11
Sale prices of Common stock
High 41 1/8 49 61 1/2 60
Low 25 7/16 36 1/4 45 44 1/4
(1) Sale price of common stock commencing June 29, 1995.
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
None
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Reference is made to Item 4A of Part I hereof for certain information
required by this Item 10. Additional information required by this item is hereby
incorporated by reference from the Company's definitive proxy statement to be
filed with the Commission under Section 14A of the Securities Exchange Act of
1934 on or before April 30, 1997, or shall be filed by amendment to this Form
10-K on or prior to such date.
Item 11. Executive Compensation.
The information required by this item is hereby incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission under Section 14A of the Securities Exchange Act of 1934 on or before
April 30, 1997, or shall be filed by amendment to this Form 10-K on or prior to
that date.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is hereby incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission under Section 14A of the Securities Exchange Act of 1934 on or before
April 30, 1997 or shall be filed by amendment to this Form 10-K on or prior to
that date.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is hereby incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission under Section 14A of the Securities Exchange Act of 1934 on or before
April 30, 1997, or shall be filed by amendment to this Form 10-K on or prior to
that date.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)1. Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules:
All schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial
Statements or the notes thereto under Item 8.
(a)3. Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation.+++
3.2 Amended and Restated By-Laws.
4.1 Specimen Common Stock certificate.++++++
4.2 Investor Stock Purchase Agreement, dated October 23, 1990, among
BDM Holdings, Inc., The Carlyle Partners Leveraged Capital Fund
I, L.P., Equitable Partnership II, L.P., Equitable Deal Flow
Fund, L.P., and the Richard King Mellon Foundation.+
4.3 Amendment No. 1 to Investor Stock Purchase Agreement, dated May 31, 1995.+++++
10.1 Agreement, dated November 16, 1993, among the Federal Republic of Germany,
Industrieanlagen-Betriebsgesellschaft mbH, BDM International, Inc., Industrieverwaltungsgesellschaft
AG amd IABG
Holding GmbH.++
10.2 Voting Rights Agreement, dated November 16, 1993, between Industrieverwaltungsgesellschaft AG and
BDM Europe BV.+ +
10.3 1990 Stock Option Plan.+*
10.4 Form of Management Incentive Stock Purchase Agreement.+*
10.5 Form of Director Stock Purchase Plan Purchase Authorization.+++*
10.6 BDM International, Inc. 401(k) Savings Plan.+++++++*
10.7 The BDM Retirement Plan.+++++++*
10.8 The BDM International, Inc. Supplemental Executive Retirement Plan, effective December 26, 1984.+*
10.9 BDM International, Inc. Defined Contribution Supplemental Executive Retirement Plan, effective
October 8, 1993.+++*
10.10 The BDM Corporation Cash and Stock Incentive Compensation Plan.+*
10.11 1994 Stock Option Plan.++++*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
10.12 Revolving Credit Agreement, dated as of September 7, 1995, among BDM International, Inc., the
Lenders party thereto, Corestates Bank, N.A. as Co-Agent and The First National Bank of Chicago as
Agent.+++++++
11 Statement of Computation of Earnings Per Share.
21 Subsidiaries of BDM International, Inc.
23.1 Consent of Coopers & Lybrand
27 Financial Data Schedule.
</TABLE>
- -----------------------
* Management contract or compensatory plan or arrangement.
+ Incorporated herein by reference to Registration Statement on
Form S-1 (File No. 33-38405) of BDM Holdings, Inc. filed with the
SEC on February 14, 1991.
++ Incorporated herein by reference to Amendment No. 1 to Current
Report on Form 8-K/A (File No.33-38405) of BDM International,
Inc. filed with the SEC on January 31, 1994.
+++ Incorporated herein by reference to the Annual Report on Form
10-K for the year ended December 31, 1993 ( File No. 33-38405)
filed with the SEC on March 31, 1994.
++++ Incorporated herein by reference to the Annual Report on
Form 10-K for the year ended December 31,
1994 (File No. 000-23966) of BDM International, Inc. filed with
the SEC on March 30, 1995.
+++++ Incorporated herein by reference to Amendment No. 3 to the
Registration Statement on Form S-1 (File No. 33-77096) of
BDM International, Inc. filed with the SEC on June 20, 1995.
++++++ Incorporated herein by reference to Amendment No. 4 to the
Registration Statement on Form S-1 (File No. 33-77096) of
BDM International, Inc. filed with the SEC on June 26, 1995.
+++++++ Incorporated herein by reference to the Registration Statement
on Form S-3 (File No. 333-01513) of BDM International, Inc.
filed with the SEC on March 6, 1996.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
fourth quarter of 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in McLean, Virginia on
March 13, 1997.
BDM INTERNATIONAL, INC.
By /s/ PHILIP A. ODEEN
-----------------------
Philip A. Odeen
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
(i) Principal executive officer:
/s/ PHILIP A. ODEEN President March 13, 1997
-------------------
Philip A. Odeen
(ii) Principal financial officer:
/s/ C. THOMAS FAULDERS, III Executive Vice March 13, 1997
--------------------------- President and Chief
C. Thomas Faulders, III Financial Officer
(iii) Principal accounting officer:
/s/ JUDITH N.HUNTZINGER Corporate Vice March 12, 1997
----------------------- President and
Judith N. Huntzinger Controller
(iv) Directors:
/s/ JEANETTE GRASSELLI BROWN Director February 21, 1997
----------------------------
Dr. Jeanette Grasselli Brown
<PAGE>
Signature Title Date
/s/ FRANK C. CARLUCCI Director February 21, 1997
---------------------
Frank C. Carlucci
/s/ WILLIAM E. CONWAY, JR. Director February 21, 1997
--------------------------
William E. Conway, Jr.
/s/ PHILLIP R. COX Director February 21, 1997
------------------
Phillip R. Cox
/s/ NEIL GOLDSCHMIDT Director March 5, 1997
--------------------
Neil Goldschmidt
/s/ WALTHER LEISLER KIEP Director February 21, 1997
------------------------
Walther Leisler Kiep
/s/ PHILIP A. ODEEN Director March 13, 1997
-------------------
Philip A. Odeen
/s/ THOMAS G. RICKS Director February 21, 1997
-------------------
Thomas G. Ricks
/s/ WILLIAM E. SWEENEY, JR. Director February 21, 1997
---------------------------
Dr. William E. Sweeney, Jr.
/s/ EARLE C. WILLIAMS Director February 21, 1997
---------------------
Earle C. Williams
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation.+++
3.2 Amended and Restated By-Laws.
4.1 Specimen Common Stock certificate.++++++
4.2 Investor Stock Purchase Agreement, dated October 23, 1990, among BDM Holdings, Inc., The Carlyle
Partners Leveraged Capital Fund I, L.P., Equitable Partnership, II, L.P., Equitable Deal Flow Fund,
L.P., the Richard King Mellon Foundation.+
4.3 Amendment No. 1 to Investor Stock Purchase Agreement, dated May 31, 1995.+++++
10.1 Agreement, dated November 16, 1993, among the Federal Republic of Germany,
Industrieanlagen-Betriebsgesellschaft mbH, BDM International, Inc., Industrieverwaltungsgesellschaft
AG and IABG Holding GmbH.++
10.2 Voting Rights Agreement, dated November 16, 1993, between Industrieverwaltungsgesellschaft AG and
BDM Europe BV.++
10.3 1990 Stock Option Plan.+*
10.4 Form of Management Incentive Stock Purchase Agreement.+*
10.5 Form of Director Stock Purchase Plan Purchase Authorization.+++*
10.6 BDM International, Inc. 401(k) Savings Plan.+++++++*
10.7 The BDM Retirement Plan.+++++++*
10.8 The BDM International, Inc. Supplemental Executive Retirement Plan, effective December 26, 1984.+*
10.9 BDM International, Inc. Defined Contribution Supplemental Executive Retirement Plan, effective
October 8, 1993.+++*
10.10 The BDM Corporation Cash and Stock Incentive Compensation Plan.+*
10.11 1994 Stock Option Plan.++++*
10.12 Revolving Credit Agreement, dated as of September 7, 1995 among BDM International, Inc., the Lenders
party thereto, CoreStates Bank, N.A., as Co-Agent and The First National Bank of Chicago as
Agent.+++++++
11 Statement of Computation of Earnings Per Share.
21 Subsidiaries of BDM International, Inc.
23.1 Consent of Coopers & Lybrand.
27 Financial Data Schedule.
</TABLE>
- -------------------------
* Management contract or compensatory plan or arrangement.
+ Incorporated herein by reference to Registration Statement on
Form S-1 (File No. 33-38405) of BDM Holdings, Inc. filed with the
SEC on February 14, 1991.
++ Incorporated herein by reference to Amendment No. 1 to Current
Report on Form 8-K/A (File No.33-38405) of BDM International,
Inc. filed with the SEC on January 31, 1994.
+++ Incorporated herein by reference to the Annual Report on Form
10-K for the year ended December 31, 1993 ( File No. 33-38405)
filed with the SEC on March 31, 1994.
++++ Incorporated herein by reference to the Annual Report on Form
10-K for the year ended December 31,1994 (File No. 000-23966) of
BDM International, Inc. filed with the SEC on March 30, 1995.
+++++ Incorporated herein by reference to Amendment No. 3 to the
Registration Statement on Form S-1 (File No. 33-77096) of
BDM International, Inc. filed with the SEC on June 20, 1995.
++++++ Incorporated herein by reference to Amendment No. 4 to the
Registration Statement on Form S-1 (File No. 33-77096) of
BDM International, Inc. filed with the SEC on June 26, 1995.
+++++++ Incorporated herein by reference to the Registration Statement on
Form S-3 (File No. 333-01513) of BDM International, Inc. filed
with the SEC on March 6, 1996.
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
BDM INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
ARTICLE I - OFFICES ........................................1
Section 1. Registered Office..................................1
Section 2. Other Offices......................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS 1
Section 1. Place of Meetings..................................1
Section 2. Annual Meeting of Stockholders.....................1
Section 3. Quorum; Adjourned Meetings
and Notice Thereof.................................1
Section 4. Voting.............................................2
Section 5 Proxies............................................2
Section 6. Special Meetings...................................2
Section 7. Notice of Stockholders Meetings...................3
Section 8. Maintenance and Inspection of
Stockholder List...................................3
Section 9. Stockholder Action by Written
Consent Without a Meeting..........................4
ARTICLE III - DIRECTORS ........................................4
Section 1. The Number of Directors............................4
Section 2. Vacancies..........................................4
Section 3. Powers.............................................5
Section 4. Place of Directors Meetings........................5
Section 5. Regular Meetings...................................5
Section 6. Special Meetings...................................6
Section 7. Quorum.............................................6
Section 8. Action Without Meeting.............................6
Section 9. Telephonic Meetings................................6
Section 10. Committees of Directors............................7
Section 11. Minutes of Committee Meetings......................7
Section 12. Compensation of Directors..........................8
Section 13. Indemnification....................................8
ARTICLE IV - OFFICERS ........................................8
Section 1. Officers...........................................8
Section 2. Election of Officers...............................9
Section 3. Compensation of Officers...........................9
Section 4. Term of Office; Removal and Vacancies..............9
Section 5. Chairman of the Board..............................9
Section 6. President..........................................9
<PAGE>
TABLE OF CONTENTS (Continued)
Page
ARTICLE IV - OFFICERS (Continued)
Section 7. Vice Presidents...................................10
Section 8. Secretary.........................................10
Section 9. Assistant Secretary...............................11
Section 10. Treasurer.........................................11
Section 11. Assistant Treasurer...............................11
Section 12. Appointed Vice Presidents.........................12
ARTICLE V - CERTIFICATES OF STOCK .......................................12
Section 1. Certificates......................................12
Section 2. Signatures on Certificates........................12
Section 3. Statement of Stock Rights,
Preferences, Privileges...........................12
Section 4. Lost Certificates.................................13
Section 5. Transfers of Stock................................13
Section 6. Fixing Record Date................................14
Section 7. Registered Stockholders...........................14
ARTICLE VI - GENERAL PROVISIONS .......................................14
Section 1. Dividends.........................................14
Section 2. Payment of Dividends; Directors' Duties...........15
Section 3. Checks............................................15
Section 4. Fiscal Year.......................................15
Section 5. Corporate Seal....................................15
Section 6. Manner of Giving Notice...........................15
Section 7. Waiver of Notice..................................16
Section 8. Annual Statement..................................16
ARTICLE VII - AMENDMENTS .......................................16
Section 1. Amendment by Directors or
Stockholders......................................16
<PAGE>
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of stockholders shall be held at any place within
or outside the State of Delaware designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
principal executive office of the corporation.
Section 2. The annual meeting of stockholders shall be held each year
on a date and a time designated by the Board of Directors. At each annual
meeting directors shall be elected and any other proper business may be
transacted.
Section 3. A majority of the stock issued and outstanding and entitled
to vote at any meeting of stockholders, the holders of which are present in
person or represented by proxy, shall constitute a quorum for the transaction of
business except as otherwise provided by law, by the Certificate of
Incorporation, or by these By-Laws. A quorum, once established, shall not be
broken by the withdrawal of enough votes to leave less than a quorum and the
votes present may continue to transact business until adjournment. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, a majority of the voting stock represented in person or by proxy
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
Section 4. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes, or
the Certificate of Incorporation, or these By-Laws, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
Section 5. At each meeting of the stockholders, each stockholder having
the right to vote may vote in person or may authorize another person or persons
to act for him by proxy appointed by an instrument in writing subscribed by such
stockholder and bearing a date not more than three years prior to said meeting,
unless said instrument provides for a longer period. All proxies must be filed
with the Secretary of the corporation at the beginning of each meeting in order
to be counted in any vote at the meeting. Each stockholder shall have one vote
for each share of stock having voting power, registered in his name on the books
of the corporation on the record date set by the Board of Directors as provided
in Article V, Section 6 hereof. All elections shall be had and all questions
decided by a plurality vote.
Section 6. Special meetings of the stockholders, for any purpose, or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the President and shall be called by the
President or the Secretary at the request in writing of a majority of the Board
of Directors, or at the request in writing of stockholders owning at least ten
percent (10%)in amount of the entire capital stock of the corporation issued and
outstanding, and entitled to vote; provided, however, any special meeting of
stockholders called less than 181 days following the last meeting of
stockholders may be called by the President and shall be called by the President
or Secretary at the request in writing of a majority of the Board of Directors,
or at the request in writing of stockholders owning at least fifty percent (50%)
in amount of the entire capital stock of the Corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 7. Whenever stockholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given which notice
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. The
written notice of any meeting shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of the meeting. If mailed, notice is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the corporation.
Section 8. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 9. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of ouch stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were prevent and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
Board shall be not less than one (1) and not more than fifteen (15). The exact
number of directors shall be determined by resolution of the Board, and the
initial number of directors shall be one (1). The directors need not be
stockholders. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified;
provided, however, that unless otherwise restricted by the Certificate of
Incorporation or by law, any director or the entire Board of Directors may be
removed, either with or without cause, from the Board of Directors at any
meeting of stockholders by a majority of the stock represented and entitled to
vote thereat.
Section 2. Vacancies on the Board of Directors by reason of death,
resignation, retirement, disqualification, removal from office, or otherwise,
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. The directors so
chosen shall hold office until the next annual election of directors and until
their successors are duly elected and shall qualify, unless sooner replaced by a
vote of the shareholders. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The property and business of the corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities by these By-Laws expressly conferred upon them, the Board
may exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The directors may hold their meetings and have one or more
offices, and keep the books of the corporation outside of the State of Delaware.
Section 5. Regular meetings of the Board of Directors may be held
without notice at such time and place as shell from time to time be determined
by the Board.
Section 6. Special meetings of the Board of Directors may be called by
the President on forty-eight hours' notice to each director, either personally
or by mail or by telegram; special meetings shall be called by the President or
the Secretary in like manner and on like notice on the written request of two
directors.
Section 7. At all meetings of the Board of Directors a majority of the
authorized number of directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the vote of a majority of the
directors prevent at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute, by the Certificate of Incorporation or by these By-Laws. If a quorum
shall not be present at any meeting of the Board of Directors the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present. If only one
director is authorized, such sole director shall constitute a quorum. At any
meeting, a director shall have the right to be accompanied by counsel provided
that such counsel shall agree to any confidentiality restrictions reasonably
imposed by the corporation.
Section 8. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee. Section 9. Unless otherwise
restricted by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
COMMITTEES OF DIRECTORS
Section 10. The Board of Directors may, by resolution pasted by a
majority of the whole Board, designate one or more committees, each such
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the By-Laws of the corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Section 11. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 12. Unless otherwise restricted by the Certificate of
Incorporation or these By Laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
INDEMNIFICATION
Section 13. The Corporation shall indemnify every person who was or is
a party or is or was threatened to be made a party to any action, suit, or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director or officer of the Corporation or, while
a director or officer or employee of the Corporation, is or was serving at the
request of the Corporation as a director, officer, employee, agent or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including counsel fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, to the full extent permitted by
applicable law.
ARTICLE IV
OFFICERS
Section 1. The Board of Directors shall elect a President, one or more
Vice Presidents, a Secretary, and a Treasurer. The Board of Directors in its
discretion, also may elect a Chairman of the Board and one or more Vice
Chairmen, Assistant Secretaries and Assistant Treasurers. In the event there are
two or more Vice Presidents, then one or more may be designated as Executive
Vice President, Senior Vice President, or other similar or dissimilar title. At
the time of the election of officers, the directors may by resolution determine
the order of their rank. Any number of offices may be held by the same person
unless the Certificate of Incorporation or these By-Laws otherwise provide.
Section 2. The Board of Directors, at its first meeting after each
annual meeting of stockholders, shall elect the officers of the Corporation.
Section 3. The compensation of all elected officers and agents of the
Corporation shall be determined by the Board of Directors.
Section 4. The officers of the Corporation shall hold office until
their successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. If the office of any
officer or officers becomes vacant for any reason, the vacancy shall be filled
by the Board of Directors.
CHAIRMAN OF THE BOARD
Section 5. The Chairman of the Board, if such an officer be elected,
shall, if present, preside at all meetings of the Board of Directors and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board of Directors or prescribed by these By-Laws. The
Chairman of the Board may, in the discretion of the Board of Directors, also be
the Chief Executive Officer of the Corporation and, if so, shall have the powers
and duties prescribed for the Chief Executive Officer in Section 6 of this
Article IV.
PRESIDENT
Section 6. Unless the Chairman is also the Chief Executive Officer and
subject to such supervisory powers as may be given by the Board of Directors to
the Chairman of the Board, if any, the President shall be the Chief Executive
Officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
officers of the Corporation. He shall preside at all meetings of the
stockholders and, in the absence of the Chairman of the Board, or if there be
none, at all meetings of the Board of Directors. He shall be an ex-officio
member of all committees and shall have the general powers and duties of
management usually vested in the office of President and Chief Executive Officer
of the Corporation, and shall have such other powers and duties as may be
prescribed by the Board of Directors or these By-Laws.
VICE PRESIDENTS
Section 7. In the absence or disability of the President, the Vice
Presidents in order of their rank as fixed by the Board of Directors, or if not
ranked, the Vice President designated by the Board of Directors, shall perform
all the duties of the President, and when so acting shall have all the powers of
and be subject to all the restrictions upon the President. The Vice Presidents
shall have such other duties as from time to time may be prescribed for them,
respectively, by the Board of Directors.
SECRETARY AND ASSISTANT SECRETARY
Section 8. The Secretary shall attend all sessions of the Board of
Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these By-Laws. He shall keep
the seal of the Corporation, and when authorized by the Board, affix the same to
any instrument requiring it, and when so affixed it shall be attested by his
signature or by the signature of an Assistant Secretary. The Board of Directors
may give general authority to any other officer to affix the seal of the
Corporation and to attest the affixing by his signature.
Section 9. The Assistant Secretary, or if there be more than one, the
Assistant Secretaries, in the order determined by the Board of Directors, or if
there be no such determination, the Assistant Secretary designated by the Board
of Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
TREASURER AND ASSISTANT TREASURER
Section 10. The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
Corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the Corporation.
Section 11. The Assistant Treasurer, or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of Directors,
or if there be no such determination, the Assistant Treasurer designated by the
Board of Directors, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
APPOINTED VICE PRESIDENTS
Section 12. The President (or, in the event there is a Chairman of the
Board and the Chairman of the Board also is the Chief Executive Officer of the
Corporation, the Chairman of the Board) may from time to time appoint one or
more Vice Presidents with such powers and duties as may be designated or
approved by the President (or, if applicable, the Chairman of Board).
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Every holder of stock of the corporation shall be entitled
to have a certificate signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the President or a Vice
President, and by the Secretary or an Assistant Secretary, or the Treasurer or
an Assistant Treasurer of the corporation, certifying the number of shares
represented by the certificate owned by such stockholder in the corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
Section 3. If the corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue, to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 4. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 5. Upon surrender to the corporation, or the transfer agent of
the corporation, of a certificate for sharer duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, the
corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its book.
FIXING RECORD DATE
Section 6. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders, or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action; the Board of Directors may fix a record date which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the m sting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 7. The corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend there say be set aside out of
any funds of the corporation available for dividends such sun or sums as the
directors from time to tine, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interests of the
corporation, and the directors may abolish any such reserve.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers as the Board of Directors may from
time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon the name of
the corporation, they are of its organization and the words "Corporate Seal,
Delaware". Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
NOTICES
Section 6. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, address d to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors say also be given by telegram.
Section 7. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ANNUAL STATEMENT
Section 8. The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VII AMENDMENTS
Section 1. These By-Laws may be altered, amended or repealed or new
By-Laws may be adopted by the stockholders or by the Board of Directors at any
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new By-Laws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
By-Laws is conferred upon the Board of Directors by the Certificate of
Incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal By-Laws.
The foregoing By-Laws were adopted by the Board of Directors on
October 2, 1990, as amended on January 28, 1991, April 24, 1992, December 9,
1992 and January 3, 1997.
......................
Secretary
EXHIBIT 11
BDM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE
(Amounts in Thousands, Except Per Share Data)
For the Years Ended
1996 1995 1994
Net Income $17,675 $ 18,392 $13,078
======= ======== =======
Shares used for primary earnings per share:
Weighted average shares
outstanding 13,730 11,121 10,417
Dilutive effect of common stock
equivalents-noncontingent options 863 697 524
------- -------- -------
Total shares used for primary
earnings per share 14,593 11,818 10,941
Additional shares used for fully diluted
earnings per share:
Increase for dilutive effect of
contingent stock options 89 187 63
------- -------- -------
Total shares used for
fully diluted earnings
per share 14,682 12,005 11,004
======= ======== =======
Earnings per share:
Primary $1.21 $1.56 $1.20
===== ===== =====
Fully diluted $1.20 $1.53 $1.19
===== ===== =====
EXHIBIT 21
SUBSIDIARIES
at March 1, 1997
Incorporation
Wholly owned subsidiaries of BDM International, Inc.:
The BDM Corporation of Saudi Arabia...............................Delaware
BDM-Oklahoma, Inc.................................................Delaware
BDM Technologies, Inc.............................................Delaware
Vinnell Corporation...............................................Delaware
BDM Europe BV..............................................The Netherlands
Wholly owned active subsidiaries of Vinnell Corporation:
Logistics & Transportation Services, Inc..........................Delaware
Vinnell Mining and Minerals Corporation.........................California
Wholly owned subsidiaries of BDM Europe BV:
FACE Holding BV............................................The Netherlands
LOGISTICON BV..............................................The Netherlands
Partially owned subsidiaries of BDM Europe BV:
IABG Holding GmbH..................................................Germany
Umwelttechnologie und Sanierungsmanagement GmbH....................Germany
Wholly owned subsidiary of IABG Holding GmbH:
Industrieanlagen-Betriebsgesellschaft mit beschrankter Haftung.....Germany
Partially owned subsidiary of IABG Holding GmbH:
Umwelttechnologie und Sanierungsmanagement GmbH....................Germany
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
BDM International, Inc. on Form S-8 of our report dated February 5, 1997, on our
audits of the consolidated financial statements of BDM International, Inc. and
Subsidiaries as of December 31, 1996 and 1995, and for the years ended December
31, 1995, 1995 and 1994, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 18, 1997
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