SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
EXCHANGE ACT OF 1934
For the quarter Commission File
ended: June 30, 1997 Number: 000-23966
BDM International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1561881
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1501 BDM Way, McLean, Virginia 22102-3204
(Address of principal executive office) (Zip Code)
Registrant's telephone number
including area code: 703-848-5000
Not Applicable
(Former name, former address, and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of the close of business on June 30, 1997, the registrant had outstanding
29,379,211 shares of Common Stock, par value $.01 per share.
<PAGE>
PART I
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BDM International, Inc.:
Consolidated Balance Sheets as of
June 30, 1997 (Unaudited) and December 31, 1996...................2
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) ....3
Condensed Consolidated Statements of Cash Flow for the
Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) ....4
Notes to Consolidated Financial Statements (Unaudited) ....................5
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40,052 $ 79,376
Accounts receivable, net 272,889 234,105
Prepaid expenses and other 8,909 7,695
---------------- ---------------
Total current assets 321,850 321,176
Property and equipment, net 58,261 48,519
Intangible assets, net 67,831 35,881
Deposits and other 6,012 9,586
Equity in and advances to affiliates 5,714 5,492
---------------- ---------------
Total assets $ 459,668 $ 420,654
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 151,711 $ 164,399
Debt currently payable 7,991 3,487
Income taxes payable 2,114 5,230
Deferred tax liability 12,295 11,155
---------------- ---------------
Total current liabilities 174,111 184,271
Deferred tax liability 2,444 2,544
Long term debt 58,362 22,813
Severance and other 11,021 13,911
Minority interest 31,560 29,860
---------------- ---------------
Total liabilities 277,498 253,399
---------------- ---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
500,000 shares authorized, none issued - -
Common stock, $.01 par value; 29,379,211
and 14,414,020 shares issued and
outstanding at June 30, 1997 and
December 31, 1996, respectively 293 144
Additional paid in capital 114,995 103,537
Treasury stock (526) -
Retained earnings 75,805 64,465
Deferred compensation (3,724) (1,419)
Cumulative translation adjustment (4,673) 528
---------------- ---------------
Total stockholders' equity 182,170 167,255
---------------- ---------------
Total liabilities and stockholders' equity $ 459,668 $ 420,654
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BDM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 272,789 $ 251,854 $ 523,367 $ 476,961
--------- --------- --------- ---------
Cost of sales 229,184 211,334 437,394 400,226
Selling, general and administrative 27,635 23,328 51,920 43,769
Depreciation, amortization and other 5,594 4,536 9,911 8,594
--------- --------- --------- ---------
Operating profit 10,376 12,656 24,142 24,372
Interest (income) expense, net 222 (765) (688) (1,013)
Equity in earnings of affiliates (455) (465) (927) (916)
Minority interest 2,748 2,258 5,919 5,179
--------- --------- --------- ---------
Income before income taxes 7,861 11,628 19,838 21,122
Provision for income taxes 3,396 4,973 8,498 9,060
--------- --------- --------- ---------
Net income $ 4,465 $ 6,655 $ 11,340 $ 12,062
========= ========= ========= =========
Earnings per common share and
common share equivalent:
Net income per share $ 0.15 $ 0.22 $ 0.37 $ 0.42
========= ========= ========= ========
Weighted average common
shares and common share
equivalents outstanding 30,555 29,816 30,484 28,648
========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BDM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
For the six months ended June 30, 1997 and 1996
(unaudited, in thousands)
<TABLE>
<CAPTION>
For the six months ended
June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net cash (used in) provided by operating activities $ (24,012) $ 11,084
----------- ----------
Cash flow from investing activities:
Additions to property and equipment (19,906) (8,037)
Purchase of business, net of cash acquired (33,894) (8,695)
Distributions from unconsolidated affiliates 600 990
Investment in unconsolidated affiliates 0 (1,358)
--------- -----------
Net cash used in investing activities (53,200) (17,100)
---------- -----------
Cash flow from financing activities:
Net borrowings (repayments) of credit facility 44,975 (22,950)
Repayment of acquisition debt (6,249) (1,954)
Proceeds from issuance of common stock 5,782 25,448
Acquisition of treasury stock (526) -
---------- -----------
Net cash provided by (used in) financing activities 43,982 (1,456)
---------- -----------
Effect of exchange rate changes on cash
and cash equivalents (6,094) (2,854)
---------- -----------
Net decrease in cash and cash equivalents (39,324) (10,326)
Cash and cash equivalents, beginning of period 79,376 69,143
---------- -----------
Cash and cash equivalents, end of period $ 40,052 $ 58,817
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
The accompanying financial statements of BDM International, Inc. and
its subsidiaries (BDM or the Company) as of June 30, 1997 and for interim
periods ended June 30, 1997 and 1996, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
The balance sheet data as of December 31, 1996, was derived from the Company's
audited financial statements. Certain other information and disclosures included
in the Company's annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the above referenced rules and regulations. It is suggested that these
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest annual report
to the Securities and Exchange Commission on Form 10-K.
The accompanying consolidated financial statements reflect all
adjustments and reclassifications that, in the opinion of management, are
necessary for a fair presentation. All such adjustments and reclassifications
have been deemed to be of a recurring nature except as described in this report.
(2) Income Taxes
The Company uses the estimated annual effective rate method for interim
income tax purposes. The difference between the combined statutory federal,
state, and foreign income tax rate of 42% and the Company's actual effective
income tax rate of 43% for the three and six months ended June 30, 1997 and
1996, is primarily attributable to goodwill amortization which is not deductible
for federal income tax purposes, thus resulting in the higher effective tax rate
and the impact of the Company's international expansion into countries with
higher income tax rates than the United States.
(3) Earnings Per Share
Net income per common share is net income divided by the weighted
average number of common shares and common share equivalents outstanding during
the period. The Company's common share equivalents consist entirely of stock
options.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS
128). FAS 128 simplifies the existing earnings per share (EPS) computations
under Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises
disclosure requirements, and increases the comparability of EPS data on an
international basis. In simplifying the EPS computations, the presentation of
primary EPS is replaced with basic EPS, with the principal difference being that
common stock equivalents are not considered in computing basic EPS. In addition,
FAS 128 requires dual presentation of basic and diluted EPS. FAS 128 is
effective for financial statements issued for periods ending after December 15,
1997. Had FAS 128 been effective for the second quarter of 1997, basic EPS would
have been $0.15 and $0.39 for the three and six months ended June 30, 1997 and
$0.24 and $0.45 for the three and six months ended June 30, 1996. Diluted EPS
would have been $0.15 and $0.37 for the three and six months ended June 30, 1997
and $0.22 and $0.42 for the three and six months ended June 30, 1996.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(4) Capital stock transactions
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
6, 1997. Distribution of the additional shares took place on March 20, 1997. In
connection with the split, the Company's Board of Directors approved the
increase in the number of shares of Common Stock authorized for issuance to
100,000,000 shares, subject to approval of shareholders which was received on
May 9, 1997. The shares and per share data in the consolidated financial
statements have been restated to reflect this stock split.
(5) Acquisitions
On April 30, 1997, the Company acquired Largotim Holdings, Ltd., a
worldwide distributor and integrator of enterprise resource planning software
and solutions, for approximately $39 million. The transaction has been accounted
for as a purchase, resulting in goodwill of approximately $21 million to be
amortized over fifteen years. Included in the purchase price is the acquisition
of intangible assets of approximately $15 million, which will be amortized over
periods ranging from four to fifteen years. The transaction also provides
additional consideration to the sellers if certain profitability targets are met
by December 31, 1998.
During 1996, the Company completed several acquisitions. 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. On November 4, 1996, the Company purchased the operations of
RGTI Systems Software, a company specializing in warehouse management solutions
for $18.4 million. Effective November 1, 1996, the Company aquired the assets of
two related companies, Advances Systems Design, Inc. (ASD) and Software
Engineering, Inc. (SEI) for $4.8 million. These companies provide services in
state and local government human services systems design and development.
These acquisitions were accounted for as purchases with aggregate
goodwill of approximately $25 million in 1996. The results of their operations
are included in the consolidated results of the Company from the dates of
acquisition.
(6) 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. This organizational realignment resulted in a pre-tax restructuring
charge of $5.8 million to 1996 third quarter earnings, which included a
write-down of $3.1 million of certain assets of GCL, 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 flow expected from that area of
business after changes in strategic direction resulting from the business
realignment. During the fourth quarter of 1996 and the first quarter of 1997,
the Company made payments of $452,000 and $448,000, respectively against the
restructuring reserve related primarily to severance and lease costs. The
Company made no payments against the restructuring reserve during the second
quarter of 1997. At June 30, 1997, approximately $591,000 remained in the
reserve balance.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(7) Other Matters
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 amounts 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.
<PAGE>
Item 2. Managements' Discussion and Analysis
OVERVIEW
As the Company announced prior to quarter end, several factors affected
the results of the second quarter of 1997, resulting in lower than expected
revenue and profit. These factors included a delivery delay on a hardware
contract, the continued unfavorable impact of foreign exchange rates, and a
funding issue on a large state government contract. Revenue for the second
quarter of 1997 was $272.8 million, an 8% increase over the second quarter of
1996 (10% excluding exchange rates). Revenue from services, excluding hardware
sales, increased 13% for the quarter (15% excluding exchange rates). Net income
was $4.5 million for the quarter, down from the prior year largely due to the
impact of the state government contract. Earnings per share was $0.15 for the
second quarter, reflecting the net income shortfall described above and the
two-for-one stock split announced in February of this year.
For the six months ended June 30, 1997, revenue was $523.4 million, up
10% over the comparable period in 1996 (12% excluding exchange rates). Revenue
from services increased 12% for the first half of 1997 (14% excluding exchange
rates). Net income was $11.3 million and earnings per share was $0.37 for the
six month period. Proposal backlog was approximately $1.4 billion as of June 30,
1997, up from $1.2 billion as of the end of the first quarter of 1997. Contract
backlog as of June 30, 1997, was stable at $2.1 billion.
REVENUE
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
(in millions,except percentages) (in millions,except percentages)
1997 % 1996 % 1997 % 1996 %
---- - ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Client Category
US Department of Defense $ 76.4 28% $ 103.7 41% $ 166.0 32% $ 186.5 39%
International Defense 75.9 28% 57.6 23% 148.9 28% 116.5 25%
Civil Government 54.6 20% 55.5 22% 95.1 18% 101.0 21%
Commercial 65.9 24% 35.1 14% 113.4 22% 73.0 15%
------- ---- ------- ---- ------- ---- ------- ----
Total $ 272.8 100% $ 251.9 100% $ 523.4 100% $ 477.0 100%
======= ==== ======= ==== ======= ==== ======= ====
Strategic Business Unit
Federal Systems $ 106.8 39% $ 127.7 51% $ 225.6 43% $ 234.8 49%
Enterprise Management Services 70.8 26% 50.0 20% 127.4 24% 95.7 20%
BDM Europe 43.4 16% 48.2 19% 86.8 17% 100.4 21%
Integrated Supply Chain Solutions 24.3 9% 4.7 2% 36.6 7% 8.7 2%
State and Local Systems 15.2 6% 12.2 4% 25.3 5% 23.0 5%
BDM Technologies 12.3 4% 9.1 4% 21.7 4% 14.4 3%
------ --- ------- ---- ------- ---- ------ ----
Total $ 272.8 100% $ 251.9 100% $ 523.4 100% $ 477.0 100%
======= ==== ======= ==== ======= ==== ======= ====
Services Provided
Information Technology $ 140.0 51% $ 102.7 41% $ 262.4 50% $ 207.3 43%
Technical Services 110.1 41% 112.9 45% 218.0 42% 212.4 45%
Enterprise Management 22.7 8% 36.3 14% 43.0 8% 57.3 12%
------- ---- ------- ---- ------- ---- ------- ----
Total $ 272.8 100% $ 251.9 100% $ 523.4 100% $ 477.0 100%
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
<PAGE>
Revenue by Client Category
US Department of Defense (DOD): Revenue derived from the US Department
of Defense (DOD) decreased 26% and 11% for the three and six months
ended June 30, 1997, respectively, compared with the same periods in
1996. The Company experienced a delay in the delivery of a $15 million
hardware contract which contributed to the DOD revenue shortfall, as
preannounced on June 9, 1997. In addition, there has been a decrease in
revenue from indefinite-delivery/indefinite-quantity (ID/IQ) contracts,
largely due to a drop in subcontractor revenue. Task orders on these
contracts have also been below expectations as Federal agencies
determine how to allocate information technology budgets between Year
2000 projects and other critical technology requirements. These
reductions were partially offset by increases in a number of other
contracts, including systems and services for the National Guard and
support for major military programs.
International Defense: Revenue from international defense business
increased 32% and 28% for the three and six months ended June 30, 1997,
over the comparable periods in the previous year, due to higher revenue
from the Company's contracts in Saudi Arabia. This growth was offset by
a reduction of revenue in Germany due to the end of "blanket order
agreements" with the German Ministry of Defense (MOD), which were
available for a three-year period following the acquisition of IABG in
late 1993. Effective January 1, 1997, each task with the MOD requires a
new contract, which has proven to be an administratively slower
process. Exchange rates, as a result of a stronger US dollar, also had
an unfavorable impact on the growth of the Company's European defense
activities.
Civil Government: Revenue from civil government contracts declined 2%
and 6% for the three and six month periods ended June 30, 1997,
compared to the same periods in 1996. This decline reflected several
factors cited in earlier disclosures, including a decline in revenue
from environmental restoration and waste management programs for the
Department of Energy as a result of continued budget reductions. Lower
pass-through contracts from the German government and the decline of
the German mark versus the US dollar were also contributing factors.
These reductions are partially offset by work performed for various
state governments on Year 2000 projects.
Commercial: The increase of 88% and 55% in commercial revenue for the
three and six months ended June 30, 1997, reflects the rapid organic
growth of BDM's businesses, as well as acquisitions during 1996 and
1997 of enterprises serving commercial customers. The Company's organic
growth is the result of Year 2000 projects with commercial customers,
and services in the semiconductor integration, enterprise resource
planning and integration, and business process transformation business
areas. The international commercial business was impacted by the
aforementioned decline in the German mark to US dollar. Excluding the
impact of the currency fluctuations, commercial revenue would have
nearly doubled (an increase of 95%) in the second quarter of 1997.
Revenue by Strategic Business Unit
Federal Systems: Revenue from Federal Systems decreased 16% and 4% for
the three and six months ended June 30, 1997, respectively, due to
lower activity on ID/IQ contracts and lower hardware sales, as
discussed above. In addition, the Company continues to experience lower
revenue from programs with the Department of Energy. These reductions
were partially offset by increases on a number of other contracts, many
of which relate to information technology services and support.
Integrated Supply Chain Solutions: Revenue from Integrated Supply Chain
Solutions quadrupled in the second quarter of 1997 over the previous
year period, and tripled for the six month period in 1997 over 1996.
This growth reflects an increase in the Company's organic business in
the second quarter, as well as revenue from the Largotim and RGTI
acquisitions.
Enterprise Management Services: The Enterprise Management Services
business unit derives revenue from technical services as well as
enterprise management activities. Revenue from Enterprise Management
Services grew 42% and 33% for the three and six months ended June 30,
1997, respectively, as a result of higher revenue in most aspects of
its business, including its work in Saudi Arabia and additional Job
Corps Center revenue. This growth was partially offset by a reduction
resulting from the end of the Company's contract to provide support
services at a US Air Force Base.
<PAGE>
BDM Europe: Revenue from BDM Europe declined due to the impact of
unfavorable exchange rates, which amounted to $5.3 million for the
second quarter and $10.7 million for the six month ended June 30, 1997.
BDM Europe experienced modest growth in local currency, largely as a
result of nearly 50% growth in the Company's Dutch subsidiary, FACE,
which provides systems integration services to European commercial
companies. As mentioned above, the Company's German subsidiary has
experienced administrative delays with a new contracting process with
the German MOD that has slowed the growth at BDM Europe to a certain
extent.
State and Local Systems: Revenue increased 25% and 10% for the three
and six months ended June 30, 1997, compared to the same periods in the
prior year. The increases were primarily driven by Year 2000 work for
various state governments, as well as the impact of the ASD acquisition
completed at the end of 1996, and were offset by declines in other
areas of state government business. In particular, as was preannounced
on June 9, 1997, the Company has experienced difficulties on one of its
state contracts. The Company is in discussions with the customer with
the goal of restructuring the approach and the contract. Until a
resolution is reached, the Company will not recognize revenue for
services on this contract. This decision is based on the Company's
inability to reach an agreement with the customer on a detailed systems
design in a timely manner and the customer's inability to approve time
and materials task orders for certain phases of the contract.
BDM Technologies: Revenue grew 35% for the quarter and 51% for the
first six months compared to last year. This business unit comprises
several developmental units including the Year 2000 product line,
Internet/Intranet Technology, Network Security, and IT Services. Due to
the developmental nature of this unit, the quarterly results may be
more variable than those of the strategic business units.
Revenue by Services Provided
Starting with the first quarter of 1997, the Company redefined
its revenue by service type in an effort to more clearly present the
business activities of the Company. The new categories are Information
Technology, Technical Services, and Enterprise Management.
Information Technology : Includes all activities where the principal
result of the effort (1) pertains to the requirements, design,
implementation, operation, or maintenance of an information system; (2)
utilizes one or more information technology products as the principal
means of producing results; or (3) relates directly to studies or
analysis wherein the dominant aspect is information technology or the
application of information technology. Revenue in this area increased
36% and 27% for the three and six months ended June 30, 1997,
respectively, compared to the same periods in 1996. This increase was
driven by revenue from Year 2000 work with commercial and state
customers and higher information technology revenue in the Integrated
Supply Chain Solutions and BDM Technologies business units, as well as
revenue from companies acquired in 1997 and 1996.
Technical Services : Includes a broad range of scientific, engineering,
technical assistance, and consulting services that are not encompassed
in the information technology category described above. Technical
Services revenue was relatively flat for the second quarter of 1997.
Growth in a number of contracts, particularly the expansion of work in
Saudi Arabia and technical support for a variety of military programs
was offset by lower hardware revenue for defense clients and lower
services revenue from the German MOD (in part due to the weak German
mark).
Enterprise Management: Represents business in which the Company manages
and operates research and development centers and other facilities on
behalf of its customers. An increase in the Company's Job Corps Center
business was offset by a decline due to the completion of a support
contract at a US Air Force Base. In addition, the program for the
National Institute of Petroleum Research changed at the end of 1996
when a portion of the management and operations contract was converted
to a separate contract to perform research and technical services. This
portion of revenue is now classified as Technical Services.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected financial data, expressed as a
percentage of revenue:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of sales 84.0 83.9 83.6 83.9
Selling, general, and administrative 10.1 9.3 9.9 9.2
Depreciation, amortization, and other 2.1 1.8 1.9 1.8
------- ------- -------- ---------
Operating profit 3.8 5.0 4.6 5.1
Interest expense (income), net 0.1 (0.3) (0.1) (0.2)
Equity in earnings of affiliates (0.2) (0.2) (0.2) (0.2)
Minority interest 1.0 0.9 1.1 1.1
------- ------- -------- ---------
Income before taxes 2.9 4.6 3.8 4.4
Provision for income taxes 1.2 2.0 1.6 1.9
------- ------- -------- ---------
Net income 1.6% 2.6% 2.2% 2.5%
======== ======== ========= ==========
</TABLE>
COST OF SALES
Cost of sales, which includes salaries, benefits, subcontractor
expenses, materials and overhead costs, remained relatively flat as a percentage
of revenue in the three months ended June 30, 1997, compared to the three months
ended June 30, 1996. Cost of sales as a percentage of revenue decreased slightly
for the six months ended June 30, 1997, compared to the same period in 1996, due
to a lower level of hardware pass-throughs. These pass-throughs represent the
procurement of computer hardware and other equipment on behalf of customers, and
often tend to yield lower profit margins than revenue from services.
SELLING, GENERAL AND ADMINISTRATION
Selling, general, and administrative (SG&A) expense, which includes the
Company's research and development costs (R&D), increased as a percentage of
revenue for the three and six months ended June 30, 1997, compared to the same
periods in the previous year. This increase was largely due to investments made
for recruiting, marketing, and research and development, primarily related to
software development and enhancements. These investments were focused on the
Company's Year 2000 efforts and integrated supply chain activities. The increase
also includes the SG&A of several commercial companies acquired during 1997 and
1996, which have higher SG&A consistent with typical commercial operations.
DEPRECIATION, AMORTIZATION, AND OTHER
Depreciation, amortization, and other costs increased in the second
quarter of 1997, compared to the second quarter of 1996. The depreciation
component increased, reflecting depreciation expense of acquired businesses and
an increase from the implementation of a new financial and management
information system in the fourth quarter of 1996 at Federal Systems. These
increases were partially offset by the impact of the German mark to US dollar
exchange rate on depreciation related to fixed assets in Germany. Amortization
expense increased for the three and six months ended June 30, 1997, compared to
the same periods in the prior year, reflecting amortization of goodwill and
other intangible assets associated with acquisitions completed during 1996 and
1997.
INTEREST EXPENSE (INCOME), NET
The Company reported net interest expense of $0.2 million for the
second quarter of 1997, and net interest income of $0.7 million for the six
months ended June 30, 1997. This is compared to net interest income of $0.8
million and $1.0 million for the comparable periods in 1996, respectively. This
change reflects interest costs on acquisitions completed during 1996 and 1997,
as well as lower advances from customers in Germany that reduced interest earned
on cash balances.
<PAGE>
EQUITY IN EARNINGS OF AFFILIATES
Equity in earnings of affiliates represents the Company's share of
earnings from unconsolidated joint ventures. These amounts have remained stable
compared to the prior year period.
MINORITY INTEREST
The minority interest share of earnings increased somewhat during the
second quarter of 1997 compared to the same period in the previous year. This
increase reflects improved profitability of joint ventures in the Middle East.
PROVISION FOR INCOME TAXES
The difference between the combined statutory federal, state, and
foreign income tax rate of 42% and the Company's actual effective income tax
rate of 43% is primarily attributable to certain goodwill amortization that is
not deductible for federal income tax purposes. This effective income tax rate
also reflects the impact of the Company's international expansion into countries
with higher income tax rates than the United States.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operating activities reflects an increase
in days sales outstanding, and lower advances from international customers
received than in prior periods. Cash from other aspects of operations partially
offset this reduction in cash flow, and a slight increase in borrowings on the
Company's revolving credit agreement also provided additional resources to cover
peak cash needs during the period.
Cash flow related to investing activities included cash paid to acquire
businesses, including $32.1 million paid for Largotim and $1.8 million for ASD.
Capital expenditures of $19.9 million included a cash payment of approximately
$7.6 million made in the first quarter of 1997 related to the purchase of
property by the Company's German subsidiary, IABG.
Financing activities consisted primarily of changes in borrowings on
the Company's working capital facility for the acquisition of Largotim and
repayment of other acquisition debt. In addition, the Company continued to
provide a benefit to employees by enabling them to purchase shares of common
stock through stock option exercises and an employee stock purchase plan.
Financing cash flow for the first quarter of the prior year also included the
net proceeds from a public stock offering of $15.3 million completed in March of
1996.
***
The foregoing discussion of various factors that may impact 1997
performance contain 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 and 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>
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11. Statement of Computation of Earnings Per Share
(b) Reports on Form 8-K:
None.
<PAGE>
BDM INTERNATIONAL, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
July 25, 1997 BDM INTERNATIONAL, INC.
C. Thomas Faulders, III
-------------------------------
C. Thomas Faulders, III
Executive Vice President, Treasurer
and Chief Financial Officer
<PAGE>
BDM INTERNATIONAL, INC.
INDEX TO EXHIBITS
Exhibit No.
11. Statement of Computation of Earnings Per Share
27. Financial Data Schedule
BDM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $4,465 $6,655 $11,340 $12,062
====== ====== ======= =======
Shares used for primary earnings per share:
Weighted averaged
shares outstanding 29,227 14,036 29,084 13,498
Dilutive effect of common
stock equivalents-noncontingent
stock options 1,328 872 1,400 826
------ ------ ------- -------
Total shares used for primary
earnings per share 30,555 14,908 30,484 14,324
Additional shares used for fully diluted
earnings per share:
Increase for dilutive effect of
contingent stock options 1 22 1 100
------ ------ ------ ------
Total shares used for
fully diluted earnings per share 30,556 14,930 30,485 14,424
====== ====== ====== ======
Earnings per share:
Primary $0.15 $0.45 $0.37 $0.84
===== ===== ===== =====
Fully diluted $0.15 $0.45 $0.37 $0.84
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 40,052
<SECURITIES> 0
<RECEIVABLES> 272,889
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 321,850
<PP&E> 58,261
<DEPRECIATION> 0
<TOTAL-ASSETS> 459,668
<CURRENT-LIABILITIES> 174,111
<BONDS> 0
0
0
<COMMON> 293
<OTHER-SE> 181,877
<TOTAL-LIABILITY-AND-EQUITY> 459,668
<SALES> 523,367
<TOTAL-REVENUES> 523,367
<CGS> 437,394
<TOTAL-COSTS> 499,225
<OTHER-EXPENSES> 4,992
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (688)
<INCOME-PRETAX> 19,838
<INCOME-TAX> 8,498
<INCOME-CONTINUING> 11,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,340
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
