<PAGE>
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: September 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 October 31, 1997, the registrant had outstanding
29,711,492 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
September 30, 1997 (Unaudited) and December 31, 1996..................2
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1997 and 1996 (Unaudited) ..3
Condensed Consolidated Statements of Cash Flow for the
Nine Months Ended September 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>
September 30, December 31,
1997 1996
----------------- -----------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 51,212 $ 79,376
Accounts receivable, net 282,558 234,105
Prepaid expenses and other 24,191 7,695
----------------- -----------------
Total current assets 357,961 321,176
Property and equipment, net 59,616 48,519
Intangible assets, net 65,435 35,881
Deposits and other 7,728 9,586
Equity in and advances to affiliates 6,414 5,492
----------------- -----------------
Total assets $ 497,154 $ 420,654
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 156,160 $ 164,399
Debt currently payable 7,987 3,487
Income taxes payable 5,231 5,230
Deferred tax liability 21,313 11,155
----------------- -----------------
Total current liabilities 190,691 184,271
Deferred tax liability 1,674 2,544
Long term debt 81,033 22,813
Severance and other 10,676 13,911
Minority interest 30,285 29,860
----------------- -----------------
Total liabilities 314,359 253,399
----------------- -----------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; - -
500,000 shares authorized, none issued
Common stock, $.01 par value; 29,614,947 and 14,414,020
shares issued and outstanding at September 30, 1997 and
December 31, 1996, respectively 296 144
Additional paid in capital 117,627 103,537
Treasury stock (526) -
Retained earnings 73,605 64,465
Deferred compensation (3,463) (1,419)
Cumulative translation adjustment (4,744) 528
----------------- -----------------
Total stockholders' equity 182,795 167,255
----------------- -----------------
Total liabilities and stockholders' equity $ 497,154 $ 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 nine months
ended September 30, ended September 30,
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenue $ 294,949 $ 246,766 $ 818,316 $ 723,727
<S> <C> <C> <C> <C>
-------------- -------------- ------------- ------------
Cost of sales 262,925 205,133 700,319 605,359
Selling, general and administrative 27,365 23,454 79,285 67,223
Depreciation, amortization and other 5,593 4,474 15,503 13,068
Provision for restructuring - 5,760 - 5,760
-------------- -------------- ------------- ------------
Operating profit (loss) (934) 7,945 23,209 32,317
Interest (income) expense, net 658 (452) (30) (1,465)
Equity in earnings of affiliates (303) (374) (1,230) (1,290)
Minority interest 2,342 1,818 8,261 6,997
-------------- -------------- ------------- ------------
Income (loss) before income taxes (3,631) 6,953 16,208 28,075
Provision (benefit) for income taxes (1,431) 3,053 7,068 12,114
-------------- -------------- ------------- ------------
Net income (loss) $ (2,200) $ 3,900 $ 9,140 $ 15,961
============== ============== ============== =============
Earnings (loss) per common share
and common share equivalent:
Net income (loss) per share $ (0.07) $ 0.13 $ 0.30 $ 0.55
============== =============== ============== =============
Weighted average common
shares and common share
equivalents outstanding 29,485 30,192 30,613 28,990
=============== =============== ============== =============
</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 nine months ended September 30, 1997 and 1996
(unaudited, in thousands)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
1997 1996
<S> <C> <C>
---------- ----------
Cash flow from operating activities:
Net cash (used in) provided by operating activities $ (29,625) $ 27,569
---------- ----------
Cash flow from investing activities:
Additions to property and equipment (25,962) (12,218)
Purchase of business, net of cash acquired (33,894) (8,695)
Distributions from unconsolidated affiliates 600 1,886
Investment in unconsolidated affiliates (750) (2,358)
---------- ----------
Net cash used in investing activities (60,006) (21,385)
---------- ----------
Cash flow from financing activities:
Net borrowings (repayments) of credit facility 68,804 (26,203)
Repayment of debt (7,382) (1,954)
Proceeds from issuance of common stock 8,138 28,363
Payment of dividend (2,162) (2,013)
Acquisition of treasury stock (526) -
---------- ----------
Net cash provided by (used in) financing activities 66,872 (1,807)
---------- ----------
Effect of exchange rate changes on cash
and cash equivalents (5,405) (2,280)
----------- -----------
Net (decrease) increase in cash and cash equivalents (28,164) 2,097
Cash and cash equivalents, beginning of period 79,376 69,143
---------- ---------
Cash and cash equivalents, end of period $ 51,212 $ 71,240
========== =========
</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 September 30, 1997 and for interim
periods ended September 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 for the three and nine months ended September 30, 1997 and 1996,
is primarily attributable to goodwill amortization which is not deductible for
federal income tax purposes.
(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. For the three months ended September 30, 1997, common share equivalents
were excluded from the computation of weighted average shares because they were
anti-dilutive.
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 third quarter of 1997, basic EPS would
have been $(0.07) and $0.31 for the three and nine months ended September 30,
1997 and $0.14 and $0.59 for the three and nine months ended September 30, 1996.
Diluted EPS would have been $(0.07) and $0.30 for the three and nine months
ended September 30, 1997 and $0.13 and $0.55 for the three and nine months ended
September 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 acquired 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 Geoscience Consultants, Ltd.
(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 nine
months of 1997, the Company made payments of $452,000 and $1.0 million,
respectively, against the restructuring reserve related primarily to severance
and lease costs. At September 30, 1997, there was no balance remaining in the
restructuring reserve.
<PAGE>
BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(7) Subsequent Event - Resolution of State Government Contract
----------------------------------------------------------
On October 31, 1997, the Company and a certain state government
customer agreed on a resolution that ended the program performance. The
consolidated financial statements as of and for the three months ended September
30, 1997, have been adjusted to reflect the results of this subsequent event.
The Company recorded a pre-tax charge of $14.7 million ($0.28 per share) to
third quarter earnings representing costs associated with an uncollected
receivable on the state government contract, as well as miscellaneous project,
consultant, and personnel costs.
(8) 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
- --------
A significant revenue increase of 20% was posted for the third quarter
of 1997 compared to the same period in 1996. This was accomplished despite the
unfavorable effects from the impact of exchange rates which would have produced
a 23% increase and a certain state government contract in which $2.4 million of
revenue was not recognized for the quarter. Net loss of $2.2 million and loss
per share of $0.07 for the quarter were also affected by the state government
contract and the unfavorable exchange rates. As was announced on November 3,
1997, the Company and a certain state government customer agreed on a resolution
which ended the program performance. In connection with this resolution, the
Company took a pre-tax charge of $14.7 million ($0.28 per share) to third
quarter earnings representing costs associated with an uncollected receivable on
the contract, as well as miscellaneous project, consultant, and personnel costs.
For the nine months ended September 30, 1997, revenue was $818 million,
up 13% over the comparable period in 1996 (16% excluding exchange rates). Net
income was $9.1 million and earnings per share was $0.30 for the nine month
period. Contract backlog as of September 30, 1997, increased to $2.4 billion,
largely due to significant awards in the past three months. As proposals were
converted to awards, the proposal backlog declined to approximately $1.1 billion
as of September 30, 1997, down from $1.4 billion as of the end of the second
quarter of 1997.
REVENUE
- -------
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
(in millions, except percentages) (in millions, except percentages)
1997 % 1996 % 1997 % 1996 %
---- - ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Strategic Business Unit
- -----------------------
Federal Systems $116.8 39% $118.7 48% $342.5 42% $353.4 49%
Enterprise Management Services 84.8 29% 50.0 20% 212.2 26% 145.7 20%
BDM Europe 40.5 14% 49.7 20% 127.3 16% 150.1 21%
Integrated Supply Chain Solutions 25.0 8% 7.5 3% 61.6 7% 17.6 2%
State and Local Systems 13.8 5% 10.9 5% 39.0 5% 32.5 5%
BDM Technologies 14.0 5% 10.0 4% 35.7 4% 24.4 3%
------ --- ------ --- ------ --- ------ ---
Total $294.9 100% $246.8 100% $818.3 100% $723.7 100%
====== === ====== === ====== === ====== ===
Client Category
- ---------------
US Department of Defense $ 85.4 29% $ 91.9 37% $251.4 31% $278.3 38%
International Defense 90.5 30% 61.2 25% 239.3 29% 177.6 26%
Civil Government 48.7 17% 53.8 22% 143.9 18% 154.8 20%
Commercial 70.3 24% 39.9 16% 183.7 22% 113.0 16%
------ --- ------ --- ------ --- ------ ---
Total $294.9 100% $246.8 100% $818.3 100% $723.7 100%
====== === ====== === ====== === ====== ===
Services Provided
- -----------------
Information Technology 139.7 47% $104.3 42% 402.0 49% $311.5 43%
Technical Services 132.5 45% 108.1 44% 350.6 43% 320.5 44%
Enterprise Management 22.7 8% 34.4 14% 65.7 8% 91.7 13%
------ --- ------ --- ------ --- ------- ---
Total $294.9 100% $246.8 100% $818.3 100% $723.7 100%
====== === ====== === ====== === ======= ===
</TABLE>
<PAGE>
Revenue by Strategic Business Unit
- ----------------------------------
Federal Systems: Revenue from Federal Systems decreased 2% and 3% for
the three and nine months ended September 30, 1997, respectively,
compared with the same periods in 1996. The Company experienced a
decrease in revenue from indefinite-delivery/indefinite-quantity
(ID/IQ) contracts. Task orders on these contracts have been below
expectations as Federal agencies determine how to allocate information
technology budgets between Year 2000 projects and other critical
technology requirements. In particular, the amount of revenue
contribution from subcontractors was below expectations. These
reductions were partially offset by increases on a number of other
contracts relating to information technology services and support as
well as the delivery of a hardware pass-through which slipped from the
second to the third quarter of 1997.
Enterprise Management Services: Revenue from Enterprise Management
Services grew 70% and 46% for the three and nine months ended September
30, 1997, respectively, compared to similar periods last year. This is
a result of higher revenue in most aspects of its business, including
its technical services and training work in Saudi Arabia with increased
levels of directed purchases during the quarter and the operations of
Job Corps Centers. 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. Revenue from the Bradley Fighting
Vehicle contract will be down temporarily in the fourth quarter due to
funding shortfalls. It is expected that an amendment providing
additional funding will be signed during the fourth quarter.
BDM Europe: Revenue from BDM Europe declined largely due to the impact
of unfavorable exchange rates, which amounted to $8.4 million for the
third quarter and $19.5 million for the nine months ended September 30,
1997. Lower pass-through contracts from the German government were also
a contributing factor.
Integrated Supply Chain Solutions: Revenue from Integrated Supply Chain
Solutions doubled in the third quarter of 1997 over the prior year
period, and nearly tripled for the nine month period in 1997 over 1996.
This growth reflects a rapid increase in the Company's organic business
in the third quarter, as well as revenue from the Largotim and RGTI
acquisitions. Growth in organic business is derived from new contract
awards in enterprise resource planning (ERP), business transformation
services and solutions, manufacturing control systems integration, and
warehouse management systems.
State and Local Systems: Revenue increased 27% and 20% for the three
and nine months ended September 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. These increases were
partially offset by declines in other areas of state government
business. In particular, as was previously disclosed, the Company has
experienced difficulties on one of its state contracts and did not
recognize revenue for services on this contract. As mentioned above, a
resolution was agreed subsequent to quarter-end which resulted in a
charge to earnings recognized in the third quarter.
BDM Technologies: Revenue grew 40% for the quarter and 46% for the nine
months of 1997, compared to last year. This business unit comprises
several developmental units including the Company's Year 2000 solution
offerings, Internet/Intranet Technology, Network Security, and IT
Services. In particular, the rapid organic growth of the Year 2000
projects created the expansion in BDM Technologies. Due to the
developmental nature of this unit, the quarterly results may be more
variable than those of the strategic business units.
Revenue by Client Category
- --------------------------
US Department of Defense (DOD): Revenue derived from the US Department
of Defense (DOD) decreased 7% and 10% for the three and nine months
ended September 30, 1997, respectively, compared with the same periods
in 1996. The decline in revenue is due to lower activity on ID/IQ
contracts as described above. 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
such as ballistic missile defense.
International Defense: Revenue from international defense business
increased 48% and 35% for the three and nine months ended September 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
somewhat offset by the unfavorable impact of changes in exchange rates,
as the US dollar continued to grow stronger compared to the German
mark.
Civil Government: Revenue from civil government contracts declined 9%
and 7% for the three and nine month periods ended September 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, and
the effect of difficulties encountered on a certain state government
contract. 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 were partially offset by work
performed for various state governments on Year 2000 projects and an
increase in revenue from the Company's Job Corps Center contracts.
Commercial: The increase of 76% and 63% in commercial revenue for the
three and nine months ended September 30, 1997, reflects the rapid
organic growth of BDM's commercial business, as well as acquisitions
during 1996 and 1997 of enterprises serving commercial customers. The
Company's organic growth is the result of both Year 2000 projects and
Integrated Supply Chain Solutions business. International commercial
business was impacted by the aforementioned decline in the German mark
to the US dollar. Excluding the impact of currency fluctuations,
commercial revenue would have increased 86% in the third quarter of
1997.
Revenue by Services Provided
- ----------------------------
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
34% and 29% for the three and nine months ended September 30, 1997,
respectively, compared to the same periods in 1996. This increase was
driven by higher information technology revenue in the Integrated
Supply Chain Solutions and BDM Technologies business units, as well as
Year 2000 work with commercial and state customers and 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 grew 23% in the third quarter and 9% for the nine
months of 1997, reflecting growth in a number of contracts for a
variety of military programs. These increases were partially offset by
lower services revenue from the German Ministry of Defense (in part due
to the strong US dollar).
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.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth selected financial data, expressed as a
percentage of revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.1 83.1 85.6 83.6
Selling, general, and administrative 9.3 9.5 9.7 9.3
Depreciation, amortization, and other 1.9 1.8 1.9 1.8
Provision for restructuring - 2.4 - 0.8
----- ----- ----- -----
Operating profit (loss) (0.3) 3.2 2.8 4.5
Interest expense (income), net 0.2 (0.2) 0.0 (0.2)
Equity in earnings of affiliates (0.1) (0.1) (0.2) (0.2)
Minority interest 0.8 0.7 1.0 1.0
----- ----- ----- -----
Income (loss) before taxes (1.2) 2.8 2.0 3.9
Provision (benefit) for income taxes (0.5) 1.2 0.9 1.7
----- ----- ----- -----
Net income (loss) (0.7)% 1.6% 1.1% 2.2%
===== ===== ===== =====
</TABLE>
COST OF SALES
- -------------
Cost of sales, which includes salaries, benefits, subcontractor
expenses, materials and overhead costs, increased as a percentage of revenue in
the three and nine months ended September 30, 1997, compared to the same periods
in 1996, due to a charge of $14.7 million related to the aforementioned state
contract. In addition, there is a higher level of hardware pass-throughs and
other directed purchases. 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 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 for the three months ended September 30, 1997, compared to the third
quarter of 1996. This decrease was due mainly to the impact of a higher level of
hardware pass-throughs and other directed purchases in the third quarter of
1997, compared to the same period in 1996. These hardware sales had less of an
impact on the nine-month period, in which the investments made for recruiting,
marketing, and research and development, primarily related to software
development and enhancements, are reflected in a higher cost of sales
percentage. 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 third
quarter and the nine months of 1997, compared to the same periods in 1996. The
increased depreciation component reflected 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 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 nine months ended September 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 $.7 million for the third
quarter of 1997, and net interest income of $30,000 for the nine months ended
September 30, 1997. This is compared to net interest income of $.5 million and
$1.5 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.
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
relatively stable compared to the prior year period.
MINORITY INTEREST
- -----------------
The minority interest share of earnings increased during the third
quarter of 1997, compared to the same period in the previous year. This increase
reflects the improved profitability of IABG and the 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 is primarily attributable to certain goodwill amortization that is not
deductible for federal income tax purposes.
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 than
in prior periods. A high level of hardware pass-throughs and other directed
purchases late in the third quarter of 1997 was a significant driver of the
increase in days sales outstanding. 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 $26 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. IABG also made a dividend
payment in the third quarter of 1997, $2.2 million of which was paid to minority
owners.
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:
11.1 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.
November 14, 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.
11.1 Statement of Computation of Earnings Per Share
EXHIBIT 11.1
BDM INTERNATIONAL, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net (loss) income $(2,200) $ 3,900 $ 9,140 $15,961
======= ======= ======= =======
Shares used for primary earnings per share:
Weighted averaged shares
outstanding 29,485 28,398 29,225 27,276
Dilutive effect of common stock
equivalents-noncontingent
stock options - 1,794 1,388 1,714
------- ------- ------- -------
Total shares used for primary
earnings per share 29,485 30,192 30,613 28,990
Additional shares used for fully
diluted earnings per share:
Increase for dilutive effect of
contingent stock options - 114 21 294
-------- ------- ------- -------
Total shares used for
fully diluted earnings per share 29,485 30,306 30,634 29,284
======= ======= ======= =======
Earnings (loss) per share:
Primary $(0.07) $0.13 $0.30 $0.55
======= ===== ===== =====
Fully diluted $(0.07) $0.13 $0.30 $0.55
======= ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 51,212
<SECURITIES> 0
<RECEIVABLES> 282,558
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 357,961
<PP&E> 59,616
<DEPRECIATION> 0
<TOTAL-ASSETS> 497,154
<CURRENT-LIABILITIES> 190,691
<BONDS> 0
0
0
<COMMON> 296
<OTHER-SE> 182,499
<TOTAL-LIABILITY-AND-EQUITY> 497,154
<SALES> 818,316
<TOTAL-REVENUES> 818,316
<CGS> 700,319
<TOTAL-COSTS> 795,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (30)
<INCOME-PRETAX> 16,208
<INCOME-TAX> 7,068
<INCOME-CONTINUING> 9,140
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,140
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
