SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act
Of 1934
For the fiscal year ended December 30, 1999 or
[ ] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the transition period from to
---- ----
Commission file number: 1-3879
DynCorp
(Exact name of registrant as specified in its charter)
Delaware 36-2408747
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11710 Plaza America Drive, Reston, Virginia 20190
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 261-5000
Former address: 2000 Edmund Halley Drive, Reston, Virginia 20191
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
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. [X]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The registrant's voting stock is not publicly traded; therefore,
the aggregate market value of approximately 7% of outstanding voting stock held
by nonaffiliates is not available.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 10,413,708 shares of common
stock having a par value of $0.10 per share were outstanding March 28, 2000.
TABLE OF CONTENTS
1999
FORM 10-K
Item Page
Part I
1. Business 1-3
2. Properties 3
3. Legal Proceedings 3
4. Submission of Matters to a Vote of Security Holders 3
Part II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters 3-5
6. Selected Financial Data 5-6
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-14
8. Financial Statements and Supplementary Data
Report of Independent Public Accountants 15
Financial Statements
Consolidated Balance Sheets
Assets 16
Liabilities and Stockholders' Equity 17
Consolidated Statements of Operations 18
Consolidated Statements of Cash Flows 19
Consolidated Statements of Stockholders' Equity 20
Notes to Consolidated Financial Statements 21-37
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 37
Part III
10.Directors and Executive Officers of the Registrant 38-40
11.Executive Compensation 40-43
12.Security Ownership of Certain Beneficial Owners and
Management 43-44
13.Certain Relationships and Related Transactions 44
Part IV
14.Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 45-48
PART I
ITEM 1. BUSINESS
General Information
DynCorp and subsidiaries (collectively the "Company") provides diversified
management, technical and professional services primarily to U.S. Government
customers throughout the United States and internationally. The Company
provides services to various branches of the Department of Defense, Energy,
State, Justice, and Agriculture, the Drug Enforcement Agency, the National
Institute of Health, the Defense Information Systems Agency, the National
Aeronautics and Space Administration and various other U.S., state and local
government agencies, commercial clients and foreign governments. Generally,
these services are provided under both prime contracts and subcontracts, which
may be fixed-price, time-and-material or cost-type contracts depending on the
work requirements and other individual circumstances. These services encompass
a wide range of management, technical and professional services covering the
following areas:
DynCorp Information and Enterprise Technology ("DI&ET"), based in Reston,
Virginia, designs, develops, supports and integrates software and
hardware systems to provide customers with comprehensive solutions for
information management and engineering needs. DI&ET provides a wide range
of information technology solutions including information technology
("IT") lifecycle support, electronic records and media management,
network and communications engineering, seat management, metrology
engineering, operational outsourcing, healthcare information and
technology services and security and intelligence programs. Revenues for
fiscal years ended 1999, 1998, and 1997 were $635.9 million, $633.1
million, and $553.3 million, respectively.
DynCorp Technical Services ("DTS"), based in Fort Worth, Texas, delivers
a myriad of specialized technical services including aviation services,
base operations, range technical services, contingency services,
international program, space and re-entry system services, logistics
support services, personal and physical security services and marine
services. These services are provided to the U.S. Government as well as
the United Nations and other foreign organizations at various locations
throughout the world depending on the customer's requirements. Revenues
for 1999, 1998, and 1997 were $695.5 million, $600.6 million, and $592.6
million, respectively.
DynCorp Information Systems LLC ("DIS"), based in Chantilly, Virginia,
provides a broad range of integrated telecommunications services and
information technology solutions in the areas of professional services,
business systems integration, information infrastructure solutions and IT
operations and support. DIS is DynCorp's full-service voice/data
integrator and has an established business base in the Federal defense
and civil markets. DIS was acquired on December 10, 1999 from GTE
Corporation. Revenue for the twenty days ended December 30, 1999, was
$13.9 million and was included in the Company's consolidated results of
operations. Full year revenues, which are not included in the Company's
results of operations except for the portion representing the twenty days
ended December 30, 1999, as noted above, were $221.6 million, $233.6
million, and $209.4 million, for 1999, 1998 and 1997, respectively.
Industry Segments
For business segment reporting, DI&ET, DTS and DIS each constitute reportable
business segments.
Backlog
The Company's backlog of business, which includes awards under both prime
contracts and subcontracts, as well as the estimated value of option years on
government contracts, was $4.4 billion at December 30, 1999, compared to
December 31, 1998 backlog of $4.1 billion, a net increase of $0.3 billion. The
increase resulted primarily from the acquisition of GTE Information Systems LLC.
The backlog at December 30, 1999 consisted of $2.2 billion for DTS, $1.7 billion
for DI&ET, and $0.5 billion for DIS compared to December 31, 1998 backlog of
$2.0 billion for DTS and $2.1 billion for DI&ET. Of the total backlog at
December 30, 1999, $3.0 billion is expected to produce revenues after 2000: DTS
$1.5 billion, DI&ET $1.2 billion, and DIS $0.3 billion.
Contracts with the U.S. Government are generally written for periods of three to
five years with a few Federal contracts awarded with options up to eight and ten
years. Because of appropriation limitations in the Federal budget process, firm
funding is usually made for only one year at a time, and, in some cases, for
periods of less than one year, with the remainder of the years under the
contract expressed as a series of one-year options. The Company's experience has
been that the Government generally exercises these options. Amounts included in
backlog are based on the contract's total awarded value and the Company's
estimates regarding the amount of the award that will ultimately result in the
recognition of revenue. These estimates are based on the Company's experience
with similar awards and similar customers. Estimates are reviewed periodically
and appropriate adjustments are made to the amounts included in backlog and in
unexercised contract options. Historically, these adjustments have not been
significant. In 1999, 98.9% of the Company's prime contract revenue was from the
U.S. Government, 54.1% attributable to the Department of Defense.
During 1998, the Company was awarded significant indefinite delivery, indefinite
quantity ("IDIQ") contracts with GSA and NASA to provide comprehensive desktop
computer, server and intra-center communication support. These contracts were
multiple awards and have estimated values in the billions of dollars. The
Company's backlog at December 30, 1999 does not include any value for these
contracts, except for one contract under GSA, because the Company has not
received any contract tasks and cannot reasonably estimate the future revenues
from these contracts.
Competition
The markets that the Company services are highly competitive. In each of its
business areas, the Company's competition is quite fragmented, with no single
competitor holding a significant market position. The Company experiences
vigorous competition from industrial firms, university laboratories, non-profit
institutions, and U.S. Government agencies. Many of the Company's competitors
are large, diversified firms with substantially greater financial resources and
larger technical staffs than the Company has available. Government agencies also
compete with and are potential competitors of the Company because they can
utilize their internal resources to perform certain types of services that might
otherwise be performed by the Company. A majority of the Company's revenues is
derived from contracts with the U.S. Government and its prime contractors, and
such contracts are awarded on the basis of negotiations or competitive bids
where price is a significant factor.
Foreign Operations
The Company currently provides services in foreign countries under contracts
with the U.S. Government, the United Nations, and other foreign customers. None
of these foreign operations is material to the Company's financial position or
results of operations.
The risks associated with the Company's foreign operations relating to foreign
currency fluctuation and political and economic conditions in foreign countries
have not been significant.
Incorporation
The Company was incorporated in Delaware in 1946. With more than 19,000
employees worldwide, the Company is one of the largest employee-owned companies
in the United States.
Employees
At December 30, 1999, the Company employed 17,713 full-time and 1,554 part-time
employees. Approximately 3,163 employees were located outside of the United
States. Of the Company's U.S. employees, 3,671 were covered by various
collective bargaining agreements with labor unions.
At year-end, the Company had approximately 497 vacant positions, a majority of
which was for IT professionals. The scarcity of IT professionals is a common
predicament within the industry. The Company is actively recruiting to fill
these vacancies utilizing extensive advertising, participation in job fairs,
sign-on bonuses, and other recruitment incentives.
Forward Looking Statements
Certain matters discussed or incorporated by reference in this report are
forward-looking statements within the meaning of the federal securities laws.
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, there can be
no assurance that its expectations will be achieved. Factors that could cause
actual results to differ materially from the Company's current expectations
include the early termination of, or failure of a customer to exercise option
periods under, a significant contract; the inability of the Company to generate
actual customer orders under indefinite delivery, indefinite quantity contracts;
technological change; the inability of the Company to manage its growth or to
execute its internal performance plan; the inability of the Company to integrate
the operations of acquisitions; the inability of the Company to attract and
retain the technical and other personnel required to perform its various
contracts; general economic conditions; and other risks discussed elsewhere in
this report and in other filings of the Company with the Securities and Exchange
Commission.
ITEM 2. PROPERTIES
The Company is primarily a service-oriented company and, as such, the ownership
or leasing of real property is an activity that is not material to an
understanding of the Company's operations. The Company leases numerous
commercial facilities used in connection with the various services rendered to
its customers. None of the properties is unique. In the opinion of management,
the facilities employed by the Company are adequate for the present needs of the
business.
On February 29, 2000, the Company sold an office building located in Alexandria,
Virginia to a third party for $10.5 million, and simultaneously closed on a
lease of that property from the new owner. The Company used a portion of the net
proceeds to payoff the mortgage on the property.
ITEM 3. LEGAL PROCEEDINGS
This item is incorporated herein by reference to Note 20 to the Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
DynCorp's common stock is not publicly traded. However, the Company has
established an Internal Market to provide liquidity for its stockholders.
Shares available for trading in the Internal Market are registered under the
Securities Act of 1933. The Internal Market generally permits stockholders to
sell shares of common stock which have been registered for such sale on four
predetermined days each year, subject to purchase demand.
Sales of common stock on the Internal Market are made at established prices for
the common stock determined pursuant to the formula and valuation process
described below (the "Formula Price") to active employees and directors of the
Company, subject to state securities regulations, and to the trustees of the
Savings and Retirement Plan ("SARP") and the Employee Stock Ownership Plan
("ESOP"), as well as the administrator of the Employee Stock Purchase Plan
("ESPP"), who may purchase shares of common stock for their respective trusts
and plans.
If the aggregate purchase orders exceed the number of shares available for
sale, the Company may, but is not obligated to, sell shares of common stock on
the Internal Market. Further, the following prospective purchasers will have
priority, in the order listed:
- the administrator of the ESPP;
- the trustee of the SARP;
- eligible employees and directors, on a pro rata basis; and
- the trustees of the ESOP.
If the aggregate number of shares offered for sale on the Internal Market is
greater than the aggregate number of shares sought to be purchased, offers by
stockholders to sell 500 shares or less, or up to the first 500 shares if more
than 500 shares are offered, will be accepted first. If, however, there are
insufficient purchase orders to support the primary allocation of 500 shares,
then the purchase orders will be allocated equally among all of the proposed
sellers up to the first 500 shares offered for sale by each seller. Thereafter,
a similar procedure will be applied to the next 10,000 shares offered by each
remaining seller, and offers to sell in excess of 10,500 shares will then be
accepted on a pro-rata basis. The Company may, but is not required to, purchase
shares offered for sale in the Internal Market, to the extent the number of
shares offered exceeds the number sought to be purchased. All sellers on the
Internal Market (other than the Company and its retirement plans) will pay a
commission equal to one percent of the proceeds from such sales. Purchasers on
the Internal Market pay no commission.
The market price of the common stock is established pursuant to the valuation
process described below, which uses the formula set forth below to determine
the Formula Price at which the Common Stock trades in the Internal Market. The
Formula Price is reviewed on a quarterly basis, generally in conjunction with
Internal Market trade dates.
The Formula Price per share of common stock is the product of seven times the
operating cash flow ("CF"), where operating cash flow is represented by
earnings before interest, taxes, depreciation and amortization of the Company
for the four fiscal quarters immediately preceding the date on which a price
revision is made, multiplied by a market factor ("Market Factor" denoted MF)
plus the non-operating assets at disposition value (net of disposition costs)
("NOA"), minus the sum of interest bearing debt adjusted to market and other
outstanding securities senior to common stock ("IBD"), the whole divided by the
number of shares of common stock outstanding at the date on which a price
revision is made, on a fully diluted basis assuming exercise of all outstanding
options and shares deferred under a former restricted stock plan ("ESO"). The
Market Factor is a numeric factor which reflects existing securities market
conditions relevant to the valuation of such stock. The Formula Price of the
common stock, expressed as an equation, is as follows:
[(CFx7)MF+NOA-IBD]
------------------
Formula Price = ESO
The Board of Directors believes that the valuation process and Formula result
in a fair price for the common stock within a broad range of financial
criteria. Other than quarterly review and possible modification of the Market
Factor, the Board of Directors will not change the Formula unless (i) in the
good faith exercise of its fiduciary duties and after consultation with its
professional advisors, the Board of Directors determines that the formula no
longer results in a stock price which reasonably reflects the value of the
Company on a per share basis, or (ii) a change in the Formula or the method of
valuing the common stock is required under applicable law.
The following table sets forth the Formula Price for the common stock and the
Market Factor by quarter since the adoption of the Formula by the Board of
Directors in August 1995.
Quarter Ended Formula Price ($) Market Factor
------------- ----------------- -------------
December 31, 1995 14.50 2.14
March 28, 1996 14.50 2.14
June 27, 1996 15.00 1.36
September 26, 1996 16.75 1.15
December 31, 1996 19.00 1.15
March 27, 1997 20.00 1.27
June 26, 1997 20.00 1.27
September 25, 1997 20.00 1.27
December 31, 1997 20.00 1.23
April 2, 1998 21.00 1.29
July 2, 1998 22.50 1.33
October 1, 1998 23.25 1.30
December 31, 1998 20.00 1.16
April 1, 1999 23.50 1.21
July 1, 1999 24.50 1.21
September 30, 1999 24.00 1.08
December 30, 1999 23.50 1.11
The price at December 30, 1999 is based on third quarter data and has not been
revised to reflect the current valuation. The ESOP valuation price was $22.75.
Prior to August 1995, the market value of the common stock was established
periodically by the Board of Directors for purposes of repurchases under a
former stockholders agreement. Based on the Board's review of valuations set by
the ESOP Trust, the price per share by quarter was as follows:
March 30, 1995 $14.90
June 29, 1995 $14.90
September 28, 1995 $14.90
There were approximately 722 record holders of DynCorp common stock at December
30, 1999. The DynCorp Employee Stock Ownership Plan Trust owns 7,451,989 shares
on behalf of approximately 33,000 current and former employees of the Company.
In addition, the Company's Savings and Retirement Plan holds 763,758 shares.
Cash dividends have not been paid on the common stock since 1988.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents summary selected historical financial data derived
from the audited Consolidated Financial Statements of the Company for each of
the five years presented. During these periods, the Company paid no cash
dividends on its Common Stock. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited Consolidated Financial Statements and
related notes thereto, included elsewhere in this Annual Report on Form 10-K.
(Dollars in thousands, except per share data.) Reference to "note" are the
footnotes to the audited consolidated financial statements.
Fiscal Year Ended
Dec 30 Dec 31 Dec 31 Dec 31 Dec 31
1999 (a) 1998(b) 1997(c) 1996(d) 1995(e)
-------- ------- ------- ------- -------
Statement of Operations Data:
Revenues $1,345,281 $1,233,707 $1,145,937 $1,021,453 $908,725
Cost of services $1,280,239 $1,173,151 $1,096,246 $ 970,163 $871,317
Corporate general and administrative $ 21,741 $ 18,630 $ 17,785 $ 18,241 $ 18,705
Interest expense $ 18,943 $ 14,144 $ 12,432 $ 10,220 $ 14,856
Earnings from continuing operations
before extraordinary item and certain
other expenses (f) $ 9,487 $ 15,585 $ 15,579 $ 12,774 $ 12,974
Earnings from continuing operations
before extraordinary item (g) $ 7,590 $ 15,055 $ 7,422 $ 11,949 $ 5,274
Net earnings $ 5,989 $ 15,055 $ 7,422 $ 14,629 $ 2,368
Common stockholders' share of net earnings $ 5,895 $ 15,055 $ 7,422 $ 12,345 $ 453
EBITDA (h) $ 42,112 $ 45,226 $ 29,274 $ 34,948 $ 17,841
Earnings per share from continuing
operations before extraordinary
item for common stockholders
Basic $ 0.75 $ 1.47 $ 0.83 $ 1.14 $ 0.40
Diluted $ 0.73 $ 1.43 $ 0.70 $ 0.82 $ 0.29
Common stockholders' share of net earnings
Basic $ 0.59 $ 1.47 $ 0.83 $ 1.46 $ 0.05
Diluted $ 0.57 $ 1.43 $ 0.70 $ 1.05 $ 0.04
Balance Sheet Data:
Total assets $ 639,673 $ 379,238 $ 390,122 $ 368,752 $ 375,490
Long-term debt excluding current maturities $ 334,944 $ 152,121 $ 152,239 $ 103,555 $ 104,112
Redeemable common stock $ 189,116 $ 183,861 $ 154,840 $ 139,322 $ 135,894
[FN]
(a) 1999 includes reversal of $2,000 reserve for favorable resolution of
contract compliance issues, $4,387 for the replacement of core systems,
DIS in-process R&D write-off $6,400, settlement of a suit with a former
electrical subcontractor $2,200 (see Notes 13 and 20(a)), and write-off
of cost in excess of net assets acquired of consolidated subsidiary
$1,234.
(b) 1998 includes reversal of $670 reserve for asbestos litigation (see
Notes 13 and 20(a)), $1,177 accrual for subcontractor suit (see Notes 13
and 20(a)), reversal of $2,500 reserve for contract compliance issues,
and $2,159 expense for the replacement of core systems.
(c) 1997 includes $7,800 accrual of costs related to asbestos litigation
(see Notes 13 and 20(a)), $2,488 reversal of income tax valuation
allowance and $2,055 reversal of accrued interest related to IRS
examinations and potential disallowance of deductions (see Note 14).
(d) 1996 includes $3,299 accrual for supplemental pension and other fees
payable to retiring officers and a member of the Board of Directors,
$1,286 write-off of cost in excess of net assets acquired of an
unconsolidated subsidiary, $1,250 credit for a revised estimate of the
ESOP Put Premium and $4,067 reversal of income tax valuation allowance.
(e) 1995 includes $7,707 reversal of income tax valuation allowance, $4,362
accrued for losses and reserves related to the Company's Mexican
operation, $2,400 accrual of legal fees related to the defense of a
lawsuit filed by a subcontractor of a former electrical contracting
subsidiary and $5,300 accrued for uninsured costs related to claims
against a former subsidiary for alleged use of asbestos containing
products.
(f) Certain other expenses include costs and expenses associated with
divested businesses of $1,897 in 1999, $530 in 1998, $8,157 in 1997,
$825 in 1996, and $7,700 in 1995, (see Note 13).
(g) The extraordinary loss, net of income taxes, in 1999 and 1995 of $1,601
and $2,886, respectively, resulted from the early extinguishment of
debt.
(h) EBITDA as defined by management consists of earnings from continuing
operations before extraordinary item and before interest, taxes,
depreciation and amortization. EBITDA represents a measure of the Company's
ability to generate cash flow and does not represent net income or cash
flow from operating, investing and financing activities as defined by
generally accepted accounting principles ("GAAP"). EBITDA is not a measure
of performance or financial condition under GAAP, but is presented to
provide additional information about the Company to the reader. EBITDA
should be considered in addition to, but not as a substitute for, or
superior to, measures of financial performance reported in accordance with
GAAP. EBITDA has been adjusted for the amortization of deferred debt
expense and debt issuance discount which are included in "interest expense"
in the Consolidated Statements of Operations and included in "depreciation
and amortization" in the Consolidated Statements of Cash Flows.
Amortization of deferred debt expense was $1,211 in 1999, $721 in 1998,
$706 in 1997, $829 in 1996, and $743 in 1995. Amortization of debt issuance
discount was $39 in 1999, $36 in 1998 and $26 in 1997.
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of DynCorp and
subsidiaries' (collectively, the Company) consolidated results of operations and
financial condition for the fiscal years ended 1999, 1998, and 1997. The
discussion should be read in conjunction with the Company's audited consolidated
financial statements and accompanying notes.
Overview
The Company provides diversified management, technical, and professional
services primarily to U.S. Government customers throughout the United States and
internationally. The Company's customers include various branches of the
Department of Defense and the Department of Energy, NASA, the Department of
State, the Department of Justice, and various other U.S., state and local
government agencies, commercial clients and foreign governments.
Effective January 1, 1999, the Company realigned its three Strategic Business
Segments into two focused sectors. The Company's Information and Engineering
Technology Unit and most of its Enterprise Management Unit were combined to
become DynCorp Information and Enterprise Technology ("DI&ET"). Aerospace
Technology and the remaining parts of Enterprise Management were combined to
become DynCorp Technical Services ("DTS"). The purpose of this realignment was
to provide focus and clarity to the Company's businesses and enable the Company
to better serve its customers by concentrating technical services and
information technology competencies in individual single business unit
structures. Business segment information for 1998 and 1997 has been restated to
give effect to this change.
On December 10, 1999, the Company completed its acquisition of GTE Information
Systems LLC, a subsidiary of GTE Corporation. On December 13, 1999, the name of
the Company was changed to DynCorp Information Systems LLC ("DIS"). It will
operate as a separate subsidiary of the Company. The acquisition was accounted
for as a purchase; accordingly, operating results for DIS have been included
from the date of acquisition.
Revenue and Operating Profit
In 1999, revenue increased by $111.6 million, or 9.0%, from 1998 compared to a
$87.8 million, or 7.7% increase in 1998 revenue over 1997. Operating profit,
defined as the excess of revenues over operating expenses and certain
nonoperating expenses, increased by $5.4 million, or 9.4%, from 1998 compared to
a $9.1 million, or 18.7% increase in 1998 operating profit from 1997. The
operating profit was $63.1 million, $57.7 million, and $48.6 million in 1999,
1998, and 1997, respectively.
DTS revenue and operating profit showed continued growth for the twelve months
ended December 30, 1999. Revenues were $695.5 million in 1999 compared to $600.6
million in 1998, an increase of $94.9 million or 15.8%. Operating profit
increased by $5.0 million to $31.5 million, or 18.8%, from $26.5 million in
1998. The DTS business unit had increased tasking on State Department contracts
providing support services to Kosovo and East Timor, increased services on a
contract in support of the government's drug eradication program, and increased
services in Qatar. The increase in both revenue and operating profit resulted
in part from a contract for the providing of technical and support services to
the United States Air Force at Columbus AFB. The 1999 revenue includes a full
year's revenue from this contract, which became operational in the fourth
quarter of 1998. Also contributing to the increase in revenue were increases in
the purchase of reimbursable materials for the customer at Fort Rucker. Slightly
offsetting these revenue increases were lower revenues on certain base
operations support contracts.
The DTS business unit increased backlog by 10.0% over 1998 to $2.2 billion at
December 30, 1999, primarily due to expansion of several contracts, including
the aforementioned State Department contracts, and the winning of several
contracts in recompetition. Management believes the DTS business area will
continue to grow in 2000. However, the nature of the procurement process and
the volume of the Company's business, portions of which are subject to
recompetition annually, can have a dramatic impact on revenues and operating
profit. Additionally, the U.S. Government has the right to terminate contracts
for convenience or may reduce the volume of services ordered.
DTS revenues increased 1.4% to $600.6 million in 1998 as compared to $592.6
million in 1997. Operating profit increased by 15.3% from $23.0 million in 1997
to $26.5 million in 1998. The increase in both revenues and operating profit was
attributable to new contract wins and growth in several existing contracts. The
DTS business unit was awarded a new contract with the United Nations to provide
support services in Angola, new Department of State contracts providing
protective services in Kosovo, Bosnia, and Haiti, and a contract with Kuwait
providing repair and maintenance on military aircrafts. A new contract, which
became operational in the fourth quarter, for the providing of technical and
support services to the United States Air Force at Columbus AFB, and the
addition of the operations of two more ships in the marine services area,
contributed to DTS's growth in 1998 revenues. Increased services on existing
contracts and the development and installation of a new information system at
Fort Rucker also contributed to the twelve months revenue increase. Partially
offsetting these increases in revenues were reduced business volumes due to
several contract completions.
DI&ET revenues were $635.9 million in 1999, a 0.4% increase over 1998 revenues
of $633.1 million. The revenue increase was due in part to the start-up of a
contract with the U.S. Postal Service, which was awarded in 1998, but became
operational in 1999, and a sub-contract from the Department of Commerce Census
Cenus 2000 that was also awarded in 1998 but became operational in 1999. DI&ET
health information technology services' revenues increased due to a full year
impact of FMAS, a medical outcome measurement and data abstraction services
company acquired in 1998, and growth in a joint venture for vaccine technology
services to the Department of Defense. Also contributing to the revenue
increases were higher volumes of state and local contract business, increased
tasking on several indefinite delivery/indefinite quantity ("IDIQ") contracts,
and new business with the customer at the Norco location. Partially offsetting
these increases in revenue was the loss in recompetition of significant portions
of the work scope of an enterprise contract at the Department of Energy Rocky
Flats location. In the twelve months of 1998, Rocky Flats' revenue was $71.0
million.
DI&ET's operating profit decreased slightly to $30.6 million from $31.1 million
in 1998, a 1.8% decrease. The operating profit decrease resulted from losses on
two state government contracts, a write-off associated with a vaccine lab
business that was divested during 1999, and the loss of a contract at the DOE
Rocky Flats location. Rocky Flats operating profit for the twelve months ended
December 31, 1998 was $4.3 million. Partially offsetting these decreases in
operating profit were increases due to the start-up of the contracts with the
U.S. Postal Service and the sub-contract from the Department of Commerce Census
2000, the higher volumes in health information technology services, and improved
profitability on previously awarded IDIQ contracts. Also offsetting the
decreases in DI&ET's operating profit was the receipt of an award fee on a
contract that was greater than accrued (expected), and operating profits on
contracts in 1999 which reflected losses in 1998.
DI&ET's revenues were $633.1 million in 1998, a 14.4% increase over 1997
revenues of $553.3 million. Operating profit increased $5.6 million, or 21.7% to
$31.1 million from $25.6 million in 1997. The increases in revenues and
operating profit were attributable to new IDIQ contract tasks and sole source
contracts with the Department of Defense, Environmental Protection Agency, and
the Health Care Finance Administration. Increased volume on a subcontract to the
U. S. Postal Service, new state contract business, and increased tasking and
level of effort on several existing contracts also contributed to DI&ET's
revenue and operating profit increases.
Management believes DI&ET's revenues will continue to show small growth in 2000.
However, much of the growth will be dependent upon DI&ET's success in servicing
new orders under its IDIQ contracts. Additionally, the U.S. Government has the
right to terminate contracts for convenience or may reduce the volume of
services ordered.
DIS, which was acquired on December 10, 1999, from GTE Corporation, had revenue
of $13.9 million in the twenty-day period ended December 30, 1999. Managemenent
expects the revenue for 2000 to be greater than the prior year revenue. However,
there are no assurances because the nature of the procurement process and the
volume of the business, which is subject to recompetition annually, can have
a dramatic impact on revenues and operating profit. Additionally, the U.S.
Government has the right to terminate contracts for convenience or may reduce
the volume of services ordered.
Corporate General and Administrative
Corporate general and administrative expenses increased in 1999 by $3.1 million,
or 16.7%, over 1998, to $21.7 million as compared to $18.6 million and $17.8
million in 1998 and 1997, respectively. Corporate general and administrative
expense as a percentage of revenue was 1.6% in 1999, 1.5% in 1998, and 1.6% in
1997. The higher expense in 1999 was primarily the result of the Company's
deployment of new financial and human resource software packages. The software
design and development stage of the project has been completed, and related
costs have been capitalized as intangible assets, as discussed below under Year
2000. $4.4 million of expenses for the resystemization effort and expenses
incurred related to potential acquisitions were offset by the $2.0 million
reversal of reserves for old contract compliance issues, which were settled in
the Company's favor during 1999. The comprehensive resystemization effort is
projected to add approximately $4.2 million to corporate general and
administrative expense in 2000.
The increase in corporate general and administrative expense in 1998 compared to
1997 resulted from the resystemization effort, which added $2.2 million to
corporate general and administrative expense. This expense and increases in
other expenses were offset by the $2.5 million reversal of reserves for old
contract compliance issues, which were settled in the Company's favor during
1998.
Interest Expense and Interest Income
Interest expense for 1999 was $18.9 million as compared to $14.1 million
reported for 1998. The increase in interest expense was attributable to higher
average debt levels throughout 1999, $0.5 million interest expense associated
with settlement of a subcontractor suit from a former electrical contracting
subsidiary, and a $0.7 million interest expense refund received from the
Internal Revenue Service in 1998. The refund, received in 1998, decreased 1998
interest expense and therefore increases the change in 1999 expense compared to
1998. The weighted annual levels of borrowing were approximately $203.8 million
in 1999 compared to $163.1 million in 1998. The weighted annual level of
indebtedness increased due to borrowings used to fund the acquisition of DIS and
borrowings used to fund working capital requirements (see working capital and
cash flow discussion). Management expects interest expense to increase in 2000
due to a higher level of indebtedness resulting from additional borrowings of
approximately $167.5 million at the end of 1999 for the acquisition of DIS.
Interest expense was $14.1 million in 1998, up from $12.4 million in 1997. The
increase was due to the greater level of outstanding indebtedness throughout
1998. The average level of outstanding indebtedness was $163.0 million in 1998,
as compared to $150.9 million in 1997. Levels of indebtedness increased due to
the FMAS acquisition, payments to settle the Fuller-Austin bankruptcy, and
increased capital required for growth in the Company's business (see working
capital and cash flow discussion). Offsetting the increase in interest expense
attributable to the greater level of outstanding indebtedness was a refund of
$0.7 million of interest assessed in prior years by the Internal Revenue Service
on the Company's Federal income taxes.
Interest income was $1.4 million, $1.6 million, and $2.0 million in 1999, 1998,
and 1997, respectively. The fluctuations are primarily attributable to the
balance of cash and short-term investments throughout any given year and the
average rates of interest. The twelve-month weighted average balance of cash and
short-term investments was $19.8 million in 1999, $10.9 million in 1998, and
$25.0 million in 1997.
Other Expense
Other expense increased by $7.9 million to $10.5 million in 1999 compared to
$2.7 million and $10.3 million in 1998 and 1997, respectively. The higher
expense in 1999 resulted from expenses of $1.7 million for the settlement of a
suit with a former electrical subcontractor, write-off of $1.2 million of cost
in excess of net assets acquired for a business that was divested in February,
2000, in-process R&D write-off of $6.4 million associated with the acquisition
of DIS, and higher amortization of intangible assets also associated with the
acquisition of DIS. The lower expense in 1998 resulted from the absence of
charges such as that incurred in 1997. In 1997 the Company increased reserves by
$7.8 million for asbestos litigation resulting from a subsidiary's agreement in
principle to settle globally approximately 11,000 pending asbestos personal
injury claims and unknown future claims pursuant to Section 524(g) of the U.S.
Bankruptcy Code and a related contingent settlement agreement between the
Company and the subsidiary for the release of the Company from any subsidiary
asbestos liability (see Notes 13 and 20(a) to the Consolidated Financial
Statements and the discussion of "Liquidity and Capital Resources" which
follows).
The Company anticipates that other expense will increase in 2000 due to higher
goodwill and other intangible amortization expense resulting from the
acquisition of DIS.
Income Taxes
The provision for income taxes is based on reported earnings, adjusted to
reflect the impact of permanent differences between the book value of assets and
liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes. In 1999, the Company reversed state income taxes
provided in prior years related to the favorable resolution of state tax audit
issues. In 1998, the Company reversed foreign taxes provided in prior years due
to their expected utilization as foreign tax credits. Additionally, $2.5 million
of tax valuation reserves were reversed in 1997. Based on current projections,
management estimates tax payments, net of tax refunds, of $13.7 million in 2000.
No valuation allowance for deferred federal tax assets was deemed necessary at
December 30, 1999. The Company has provided a valuation allowance for deferred
state tax assets of $4.8 million at December 30, 1999 due to the uncertainty of
achieving future earnings in either the time frame or in the particular state
jurisdiction needed to realize the tax benefit.
Extraordinary Item
In the fourth quarter of 1999, the Company recorded an extraordinary item
totaling $1.6 million (gross extraordinary item of $2.5 million net of income
tax benefit of $0.9 million). The charge was recorded in connection with the
early extinguishment of secured indebtedness due to refinancing of the Company's
debt in order to complete the acquisition of DIS.
Working Capital and Cash Flows
Working capital, defined as current assets less current liabilities, was $165.2
million at December 30, 1999 compared to $90.7 million at December 31, 1998, an
increase of $74.5 million. This increase is primarily the result of an increase
in accounts receivable, attributable to the acquisition of DIS, increased
revenues as discussed above, and slow collections on several contracts due to
start-up of new contracts. The ratio of current assets to current liabilities at
December 30, 1999 was 1.7 compared to 1.5 at December 31, 1998. The increase
resulted from the higher accounts receivable balance at December 30, 1999
compared to December 31, 1998.
For the year ended December 30, 1999, the Company's cash flow from operations
was $13.8 million, increasing $6.1 million from $7.8 million cash used in
operations in 1998. The increase in cash flow from operations was primarily
attributable to the absence in 1999 of payments related to the settlement of the
Fuller-Austin bankruptcy and from the absence of an increase in accounts
receivable similar to that of 1998, which was caused by increased revenues and
start-up of new contracts. In 1998 the cash used by operations resulted mostly
from increases in accounts receivable due to increased revenues and start-up of
new contracts. Also contributing to the increase in cash used by operations was
the settlement of the Fuller-Austin bankruptcy, which used $8.5 million. In
1997, cash provided by operations was $9.9 million. The cash provided by
operations was attributable to higher costs and expenses that did not use cash
in 1997 such as reserves established for the Fuller-Austin settlement.
Cash used in investing activities for the year ended December 30, 1999 totaled
$185.0 million and included acquisition costs of $167.5 million and capital
expenditures of $19.8 million. Acquisition costs related to the acquisition of
DIS on December 10, 1999. Capital expenditures included $13.9 million for the
purchase of property and equipment and $5.9 million for new software for
internal use as part of the Company's Year 2000 plan. The Company has
capitalized a total of $11.7 million of costs related to internal use software
on its December 30, 1999 balance sheet. Investing activities used funds of $20.1
million in 1998, principally for the acquisition of FMAS $10.2 million, the
purchase of property and equipment $4.8 million, and the purchase of new
software for internal use as part of the Company's Year 2000 plan $5.6 million.
In 1997, investing activities used funds of $8.3 million, attributable to the
purchase of property and equipment $5.1 million, and the remainder of the cash
used was mostly for funding of the Company's 47% interest in a minority owned
company, and a loan to the same company.
In 1999, financing activities provided funds of $172.7 million. The Company
borrowed $223.8 million under a Senior Secured Credit Agreement. Of the total
borrowings under the credit agreement, $125.0 million was used for partial
payment of the purchase price for DIS. The balance of the borrowings was used to
make an optional redemption of the Company's outstanding 7.486% Fixed Rate
Contract Receivable Collateralized Notes, Series 1997-1 ("the Notes"), Class A,
to reduce irrevocably the Company's Floating Rate Contract Receivable
Collateralized Notes, Series 1997-1, Class B and to pay transactional expenses
and for general corporate operating purposes. The Company issued $40.0 million
face value of its subordinated pay-in kind notes for $33.9 million and issued
426,217 shares of the Company's stock for $6.1 million. The proceeds were used
for payment of the balance of the purchase price for DIS.
Financing activities provided funds of $7.4 million in 1998. The proceeds from
the draw on the Class B Notes were used to fund working capital needs. In 1997,
financing activities utilized funds of $3.0 million. The proceeds from the
issuance of the 9 1/2% Senior Notes and the 7.486% Contract Receivable
Collateralized Notes were used to retire the maturing 8.54% Contract Receivable
Collateralized Notes, to make a loan to the ESOP to fund the purchase of the
Class C Preferred Stock, to fund the Company's purchase of common stock and
warrants from certain investors, and to pay transaction fees associated with the
placement of the Senior Notes and amendments to the terms of the Company's
revolving line of credit.
Liquidity and Capital Resources
The Company's primary source of cash and cash equivalents is from operations and
financing activities. The Company's principal customer is the U.S. Government.
This provides for a dependable flow of cash from the collection of accounts
receivable. Additionally, many of the contracts with the U.S. Government provide
for progress billings based on costs incurred. These progress billings reduce
the amount of cash that would otherwise be required during the performance of
these contracts.
As of December 30, 1999 the Company's total debt was $343.2 million, an increase
of $182.9 million from December 31, 1998, primarily due to borrowing of $167.5
million used to fund the acquisition of GTE Information Systems, LLC.
On December 10, 1999, the Company entered into a Senior Secured Credit Agreement
with a group of financial institutions. Under the Credit Agreement, the Company
borrowed $100.0 million under Term A loans maturing December 9, 2004, $100.0
million under Term B loans maturing December 9, 2006, and $23.8 million under a
$90.0 million revolving line of credit. Upon the closing of the Credit
Agreement, the Company terminated its previous revolving line of credit
facility.
The Credit Agreement contains customary restrictions on the ability of the
Company to undertake certain activities, such as the incurrance of additional
debt, the payment of dividends on or the repurchase of the Company's common
stock, the merger of the Company into another company, the sale of substantially
all the Company's assets, and the acquisition of the stock or substantially all
the assets of another company. The Credit Agreement also stipulates that the
Company must maintain certain financial ratios, including specified ratios of
earnings to fixed charges, debt to earnings, and accounts receivable to
borrowings under the Credit Agreement. At December 30, 1999, the Company was in
compliance with these covenants.
The Term A Loans are to be repaid in sixteen quarterly installments of $6.3
million beginning in February 2001. The Term B Loans are to be repaid in twenty
quarterly installments of $0.3 million starting in February 2000 and then eight
quarterly installments of $11.9 million beginning in February 2005. At the
option of the Company, borrowings under the Credit Agreement bear interest at
either LIBOR or a base rate established by the bank, plus a margin that varies
based upon the Company's ratio of debt to earnings.
The Company is charged a commitment fee of 0.5% per annum on unused commitments
under the revolving line of credit. At December 30, 1999, $7.0 million was
outstanding under the line of credit and $75.6 million additional was available.
On December 10, 1999, the Company entered into an agreement with various
financial institutions for the sale of $40.0 million face value of the Company's
subordinated pay-in-kind notes due 2007, with an estimated fair value of $33.9
million (Senior Subordinated Notes), and for the sale of 426,217 shares of the
Company's stock with an estimated fair value of $6.1 million (see Note 7). The
Subordinated Notes bear interest at 15.0% per annum, payable semi-annually
in-kind. The Company may, at its option, prior to December 15, 2004, pay the
interest in cash or in additional Subordinated Notes. The Subordinated Notes are
redeemable, in whole or in part, at the option of the Company, on or after
December 15, 2000 at a redemption price that ranges from 114.0% in 2000 to
100.0% in 2006 and thereafter. The Subordinated Notes are general unsecured
obligations of the Company and will be subordinated in right of payment to all
existing and future senior debt of the Company and to the Senior Notes.
At December 31, 1998, $87.9 million of accounts receivable were restricted as
collateral for the 7.486% Contract Receivable Collateralized Notes. At December
31, 1998, $1.5 million of cash was restricted as collateral for the Notes and
has been included in Other Assets on the accompanying Consolidated Balance
Sheet. The notes were paid off on December 10, 1999.
The Company had a $15.0 million line of credit that it utilized through December
9, 1999, never exceeding $8.9 million in borrowings at any given point in time.
As noted above, on December 10, 1999, the Company terminated this revolving line
of credit facility.
The Company has embarked on a comprehensive resystemization effort (see "Year
2000") and had expenditures in 1999 of $10.4 million, of which $6.0 million was
capitalized and $4.4 million was expensed. The Company is projecting
expenditures in 2000 of $4.2 million. The resystemization will necessitate
replacing some of the Company's desktop workstations over the next year, at a
cost of approximately $4.0 million.
The Board of Directors has issued an enabling resolution that provides for the
repurchase of up to 500,000 shares of the Company's common stock at a price not
to exceed the current market price, subject to all applicable financial
covenants. Management continuously reviews alternative uses of excess cash and
debt capacity for purposes of acquisitions, dividends, repurchase of shares and
other financial matters.
The Company anticipates contributing approximately $14.1 million in cash to the
Employee Stock Ownership Plan ("ESOP") in 2000. The amount of the Company's
annual contribution to the ESOP is determined by and within the discretion of
the Board of Directors and may be in the form of cash, common stock, or other
qualifying securities. In accordance with ERISA requirements and the ESOP
documents, in the event that an employee participating in the ESOP is
terminated, retires, dies, or becomes disabled while employed by the Company,
the ESOP Trust or the Company is obligated to repurchase shares of common stock
distributed to such former employee under the ESOP ("ESOP Participant Puts"),
until such time as the common stock becomes "readily tradable stock," as defined
in the ESOP plan document. (See Note 7 to the Consolidated Financial
Statements.)
To the extent the ESOP Participant Puts, debt service, administrative expenses,
and interest expense exceed the Company's 2000 contribution, the Company would
fund the ESOP Participant Puts. The Company projects these payments to be less
than $2.0 million in 2000.
On February 29, 2000, the Company sold an office building located in Alexandria,
Virginia to a third party for $10.5 million, and simultaneously closed on a
lease of that property from the new owner. The Company used a portion of the net
proceeds to payoff the mortgage on the property. The Company anticipates selling
other non-strategic assets from time to time in the future.
In conjunction with the acquisition of Technology Applications, Inc. in November
1993, the Company issued put options on 125,714 shares of its common stock. On
January 12, 1999, the former owner of Technology Applications, Inc. exercised
the put option on the 125,714 shares at a price of $24.25 per share. The
Company's repurchase of this common stock required cash of $3.0 million.
On December 10, 1998, pursuant to the terms of a Global Settlement Agreement
among the Company, its wholly owned inactive subsidiary, Fuller-Austin
Insulation Company ("Fuller-Austin"), a committee representing various asbestos
claimants, and the legal representative of unknown future asbestos claimants,
the Company transferred and conveyed all of its interests in Fuller-Austin to an
unrelated independent bankruptcy settlement trust ("Trust") established in
accordance with Section 524(g) of the U.S. Bankruptcy Code. The Trust was
established pursuant to a Confirmation Order entered jointly on November 13,
1998 by the United States District and Bankruptcy Courts in Wilmington,
Delaware. The Trust is part of a Plan of Reorganization of Fuller-Austin
approved in the Confirmation Order for the resolution of present and future
asbestos personal injury and other claims against Fuller-Austin. In
consideration of the transfer and certain other payments by DynCorp to the Trust
aggregating approximately $8.5 million (a portion of which was recorded in prior
years including $7.8 million reserved by the Company in 1997 in anticipation of
the Global Settlement), both the Trust and Fuller-Austin have given DynCorp full
indemnification with respect to all present and future asbestos claims arising
from the operations of Fuller-Austin. The Confirmation Order also channels all
present and future asbestos claims related to Fuller-Austin's operations to the
Trust. (See Note 21(a) to the Consolidated Financial Statements for the history
of the Fuller-Austin asbestos claims and other circumstances related to the
Global Settlement and Fuller-Austin bankruptcy filing.)
On March 17, 1997, the Company issued $100.0 million of 9 1/2% Senior
Subordinated Notes ("Senior Notes") with a scheduled maturity in 2007. Interest
is payable semi-annually, in arrears, on March 1 and September 1 of each year.
The Senior Notes are redeemable, in whole or in part, at the option of the
Company, on or after March 1, 2002 at a redemption price which ranges from
104.75% in 2000 to 100.00% in 2005 and thereafter. In addition, at any time
prior to March 1, 2000, the Company may redeem up to 35% of the aggregate
principal amount of the Senior Notes (at a redemption price of 109.50%) with
proceeds generated from a public offering of equity, provided at least 65% of
the original aggregate amount of the Senior Notes remains outstanding. The
Senior Notes are general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future senior debt of the
Company.
On January 23, 1997, the Company entered into an agreement with Capricorn
Investors, L.P. ("Capricorn") in which Capricorn agreed to waive its rights to
nominate directors of the Company and also waived certain voting rights of the
Company's then outstanding Class C Preferred Stock. In return for these waivers,
the Company paid a fee and authorized Capricorn to distribute a substantial
portion of the shares of common stock and warrants and all of the outstanding
shares of Class C Preferred Stock to its investors. On February 5, 1997, the
Employee Stock Ownership Trust purchased from certain of these investors all of
the Company's Class C Preferred Stock. The ESOP subsequently converted the Class
C Preferred Stock into common shares and common share warrants and exercised the
related warrants. Concurrently with the ESOP's purchase, the Company acquired
certain number of the outstanding common shares and common stock warrants held
by other Capricorn investors. The purchase price of these securities was $56.4
million ($19.55 per common share or warrant), of which half, $28.2 million, was
paid in cash ($9.3 million and $18.9 million, was paid by the ESOP and the
Company, respectively) and short-term notes were issued for the balance (notes
issued by the ESOP and the Company were $9.3 million and $18.9 million,
respectively).
The Company engaged in the aforementioned equity repurchases in order to
eliminate the potential effect of certain preferential voting rights given the
Class C Preferred Stock in the Company's certificate of incorporation; to reduce
the outstanding and fully diluted equity of the Company; to provide treasury
shares for future issuance to employees under the Company's various compensation
and benefit plans without the need for issuance of new shares; and to provide
additional shares for the ESOP, which can only acquire shares by purchase from
the Company or other stockholders. The ESOP's purpose for engaging in the
aforementioned transaction was to acquire shares for the allocation to
participants' accounts in 1997 and 1998. In addition to converting a portion of
the Company's total capitalization from equity capitalization to debt
capitalization, the transactions reduced the Company's fully diluted equity,
thus improving the Company's diluted earnings per share.
Year 2000 Readiness Disclosure
The principal "Year 2000" issue ("Y2K") risk to the Company would have come from
an extended failure of one or more of its core systems (financial, payroll, and
human resources). Replacement of the Company's core financial, human resources
and payroll systems software was initiated following a Year 2000 analysis
conducted in 1997 that found these programs to be non-compliant for the
millennium date rollover. Deployment of a new human resources and payroll system
was launched and completed prior to the end of 1999. Due to the large number of
conversions and the need to convert the core systems of DIS, the financial
systems implementation is now scheduled for completion in late 2001. A
contingency plan was activated to install an updated compliant version of the
Company's current financial software package in all locations where conversion
to the new Enterprise Resource Planning package was not assured prior to 2000.
The updates were completely implemented by November 30, 1999, and no failures
were reported during or after the rollover.
Total expenditures for the Y2K effort were approximately $19.5 million as of
December 30, 1999, of which $11.6 million represented capitalized software
costs.
A Year 2000 Program Management Plan was developed and a Y2K Project Office
launched in mid-1998 to address other Y2K compliance issues. A multifunctional
task group oversaw assessment and remediation or replacement efforts in the
areas of core systems, network and office automation, and field information and
non-information systems. No problems have been found following the rollover
other than very minor, possibly Y2K-related aberrations that were quickly
addressed, usually within minutes. No problems have been found that materially
affected the Company's ability to perform on its significant contracts. These
assessments included third-party service providers and other vendors on whom a
given contract might depend.
The core systems assessment included initial contact in 1998 with third-party
telecommunications, employee benefits, insurance, and other providers.
Documentation obtained from these providers generally stated that they were
addressing the Y2K problem. Follow-up contacts to ascertain the progress of
these providers was also conducted in late 1999 and no problems were reported.
The Company also assessed its vulnerability arising from payment capability of
the various government payment offices receiving and processing invoices from a
contract site. No problems surfaced with either the Defense Finance and
Accounting Service (DFAS) or the Department of Energy payment office. DoD and
DoE contracts represent a large portion of the Company's work.
The Company also conducted assessments on government furnished equipment ("GFE")
at contract sites. No failures affecting contract performance were experienced.
Infrastructure items that could have had Y2K compliance problems such as desktop
workstations, network components, and servers, were tested, and repaired or
replaced. The annual expenditures for these components were not significantly
above levels that could be expected in the normal course of business, given the
Company's infrastructure replacement plan and budget.
In summary, the primary Y2K vulnerability for the Company was the possible
failure of core systems. This did not happen, as the resystemization effort was
a top priority within the Company, with dedicated teams and incentive plans for
retaining key employees throughout the project.
Assessments at the contract level were completed to the extent possible. These
assessments included analysis of the readiness of hardware, software, prime and
subcontractors, customers, suppliers and vendors, data dependencies, and
facilities. These assessments added value in that there were no reported issues
on any contracts.
Many Y2K-related actions will have long-term benefits to the Company. In 1999
the Company:
o upgraded much of the hardware and software company-wide, bringing the
Company to a higher level of technology, with the added benefit of
establishing a more "level playing field" system-wide that in the long run
should be easier to maintain;
o developed an expertise in contingency planning, which is a growing
opportunity in government contracting;
o became much more attuned to software virus issues and potential problems,
has increased security measures accordingly and has been alerted to
investigate other enhanced security precautions; and
o documented its inventories of IT and non-IT equipment.
Environmental Matters
Neither the Company nor any of its subsidiaries has been named as a Potentially
Responsible Party (as defined in the Comprehensive Environmental Response,
Compensation, and Liability Act) at any site. The Company has incurred costs for
the installation and operation of a soil and water remediation system and for
the clean up of environmental conditions at certain other sites (see Note 20(b)
to the Consolidated Financial Statements). The Company's liability, in the
aggregate, with respect to these matters is not deemed to be material to the
Company's results of operations or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's only use of derivative financial instruments is to manage its
exposures to fluctuations in interest rates and foreign exchange rates. The
Company does not hold or issue derivative financial instruments for trading
purposes. There were no such financial instruments held during 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is contained in the Company's Consolidated
Financial Statements and Financial Statement Schedules included elsewhere in
this Annual Report on Form 10-K.
Report of Independent Public Accountants
To DynCorp:
We have audited the accompanying consolidated balance sheets of DynCorp (a
Delaware corporation) and subsidiaries as of December 30, 1999 and December 31,
1998, and the related consolidated statements of operations, cash flows and
stockholders' equity for the year ended December 30, 1999 and each of the two
years in the period ended December 31, 1998. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial position of DynCorp and subsidiaries as of
December 30, 1999 and December 31, 1998, and the results of its operations and
its cash flows for the year ended December 30, 1999 and each of the two years in
the period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II, listed in Item 14 of the
Form 10-K, is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Vienna, VA ARTHUR ANDERSEN LLP
March 21, 2000
DynCorp and Subsidiaries
Consolidated Balance Sheets
As of the Fiscal Years Ended
(In thousands)
1999 1998
---- ----
Assets
Current Assets:
Cash and cash equivalents $ 5,657 $ 4,088
Accounts receivable and contracts in
process, net 357,411 258,216
Prepaid income taxes 6,558 4,204
Other current assets 28,582 11,794
-------- --------
Total Current Assets 398,208 278,302
Property and Equipment, at cost:
Land 621 621
Buildings and leasehold improvements 28,957 11,845
Machinery and equipment 32,800 33,616
-------- --------
62,378 46,082
Accumulated depreciation and amortization (21,583) (27,538)
-------- --------
Net Property and Equipment 40,795 18,544
-------- --------
Intangible Assets, net 149,159 58,796
Other Assets 51,511 23,596
-------- --------
Total Assets $639,673 $379,238
======== ========
See accompanying notes to the consolidated financial statements.
DynCorp and Subsidiaries
Consolidated Balance Sheets
As of the Fiscal Years Ended
(In thousands, except share amounts)
Liabilities and Stockholders' Equity 1999 1998
- ------------------------------------ ---- ----
Current Liabilities:
Notes payable and current portion of long-term debt $ 8,242 $ 8,145
Accounts payable 85,357 66,885
Deferred revenue and customer advances 6,048 2,542
Accrued income taxes 2,100 1,934
Accrued expenses 131,274 108,117
-------- --------
Total Current Liabilities 233,021 187,623
Long-term Debt 334,944 152,121
Deferred Income Taxes 4,547 12,498
Other Liabilities and Deferred Credits 51,171 15,146
Contingencies and Litigation - -
Temporary Equity:
Redeemable common stock at redemption value
ESOP shares, 7,350,937 and 7,082,422 shares issued
and outstanding in 1999 and 1998, respectively,
subject to restrictions 182,974 180,812
Other, 426,217 and 125,714 shares issued and
outstanding in 1999 and 1998, respectively 6,142 3,049
Stockholders' Equity:
Common stock, par value ten cents per share,
authorized 20,000,000 shares; issued 4,908,447
shares in 1999 and 4,976,423 shares in 1998 491 498
Paid-in surplus 133,338 127,216
Accumulated other comprehensive income (9) (10)
Reclassification to temporary equity for redemption
value (188,339) (183,140)
Deficit (72,887) (78,782)
Common stock held in treasury, at cost; 2,301,262
shares in 1999 and 2,005,728 shares 1998 (43,062) (35,640)
Unearned ESOP shares (2,658) (2,153)
-------- --------
Total Liabilities and Stockholders' Equity $639,673 $379,238
======== ========
See accompanying notes to the consolidated financial statements.
DynCorp and Subsidiaries
Consolidated Statements of Operations
For the Fiscal Years Ended
(In thousands, except per share amounts)
1999 1998 1997
------ ------ ------
Revenues $1,345,281 $1,233,707 $1,145,937
--------- --------- ---------
Costs and expenses:
Cost of services 1,280,239 1,173,151 1,096,246
Corporate general and administrative 21,741 18,630 17,785
Interest expense 18,943 14,144 12,432
Interest income (1,393) (1,600) (2,018)
Other expense 10,544 2,687 10,349
--------- --------- ---------
Total costs and expenses 1,330,074 1,207,012 1,134,794
--------- --------- ---------
Earnings from continuing operations
before income taxes, minority
interest, and extraordinary item 15,207 26,695 11,143
Provision for income taxes 4,649 9,559 2,282
------ ------ ------
Earnings from continuing operations
before minority interest and
extraordinary item 10,558 17,136 8,861
Minority interest 2,968 2,081 1,439
------ ------ ------
Earnings from continuing operations
before extraordinary item 7,590 15,055 7,422
Extraordinary loss from early extinguishment
of debt, net of income taxes 1,601 - -
------ ------ ------
Net earnings $ 5,989 $ 15,055 $ 7,422
========== ========== =========
Accretion of Mezzanine Shares
to redeemable value 94 - -
---------- ---------- ---------
Common stockholders' share of net earnings $ 5,895 $ 15,055 $ 7,422
========== ========== =========
Net Earnings per common share:
Basic earnings per share $ 0.59 $ 1.47 $ 0.83
Diluted earnings per share $ 0.57 $ 1.43 $ 0.70
Weighted average number of shares
outstanding for basic earnings per share 10,044 10,242 8,985
Weighted average number of shares
outstanding for diluted earnings per share 10,273 10,514 10,638
See accompanying notes to the consolidated financial statements.
DynCorp and Subsidiaries
Consolidated Statements of Cash Flows
For the Fiscal Years Ended
(In thousands)
1999 1998 1997
------ ------ ------
Cash Flows from Operating Activities:
Common stockholders' share of net
earnings $ 5,895 $ 15,055 $ 7,422
Adjustments to reconcile net earnings
to net cash provided (used) by operating
activities:
Depreciation and amortization 13,572 8,825 9,888
Purchased in-process research and
development 6,400 - -
Deferred income taxes (7,630) 1,463 4,165
Proceeds from insurance settlement
for asbestos claims - 1,462 1,488
Change in reserve for divested business -
Fuller-Austin - (10,797) 7,800
Changes in reserves for divested
business - other (2,000) (1,698) 357
Capitalized costs incurred on existing
contracts (2,473) - -
Other 1,781 (63) (882)
Change in assets and liabilities, net
of acquisitions and dispositions:
Increase in accounts receivable and
contracts in process (37,919) (52,416) (15,311)
Increase in other current assets (326) (963) (1,305)
Increase (decrease) in current
liabilities except notes payable and
current portion of long-term debt 36,535 31,380 (3,685)
-------- -------- --------
Cash provided (used) by operating
activities 13,835 (7,752) 9,937
-------- -------- --------
Cash Flows from Investing Activities:
Sale of property and equipment 610 1,293 318
Proceeds received from notes receivable - - 4
Purchase of property and equipment (13,878) (4,797) (5,110)
Capitalized cost of new financial and
human resource systems (5,969) (5,598) -
Deferred income taxes from "safe harbor"
leases (481) (257) (309)
Increase in investment in unconsolidated
subsidiaries 1,363 (302) (2,038)
Increase in notes receivable to equity
investee - - (867)
Assets and liabilities of acquired
business (excluding cash acquired) (167,504) (10,239) -
Other 884 (231) (255)
--------- --------- ---------
Cash used by investing activities (184,975) (20,131) (8,257)
--------- --------- ---------
Cash Flows from Financing Activities:
Treasury stock purchased (7,208) (6,194) (923)
Payment on indebtedness (253,491) (20,371) (100,208)
Proceeds from debt issuance 428,552 28,113 149,484
Common stock and warrants purchased
from investors - - (37,819)
Proceeds from issues of redeemable
common stock 6,048 - -
Payments on ESOP loans 10,577 5,933 5,189
Loans to ESOP (11,082) - (13,274)
Deferred financing expenses - - (5,080)
Other (687) (112) (324)
--------- --------- ---------
Cash provided (used) by financing
activities 172,709 7,369 (2,955)
--------- ---------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,569 (20,514) (1,275)
Cash and Cash Equivalents at Beginning
of the Fiscal Year 4,088 24,602 25,877
--------- --------- ---------
Cash and Cash Equivalents at End of the
Fiscal Year $ 5,657 $ 4,088 $ 24,602
========= ========= =========
See accompanying notes to the consolidated financial statements.
DynCorp and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Fiscal Years Ended
(In thousands)
Accumulated
Adjustment for
Common Redemption Unearned Other
Preferred Common Stock Paid-in Value Greater Treasury ESOP Comprehensive
Stock Stock Warrants Surplus than Par Value Deficit Stock Shares Income
-------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $3,000 $332 $11,139 $148,234 $(138,694) $(101,259) ($25,235) - -
Stock issued under Restricted
Stock Plan - 13 - (802) - - - - -
Treasury stock issued - - - - - - 233 - -
Treasury stock purchased - - - - - - (907) - -
Warrants & stock options exercised - 111 (2,683) 2,981 - - - - -
Class C Preferred Stock converted
& warrants exercised (3,000) 95 (2,007) 5,119 - - - - -
Common stock purchased &
warrants exercised - - (5,190) (30,120) - - (2,794) - -
Loans to ESOP - - - - - - - (13,274) -
Payment received on ESOP note - - - - - - - 5,189 -
Net earnings - - - - - 7,422 - - -
Reclassification to Redeemable - - - -
Common Stock - (73) - - (15,444) - - - -
------ ---- ------ ------- --------- -------- -------- ------- -----
Balance, December 31, 1997 - $478 $1,259 $125,412 $(154,138) $(98,837) $(28,703) $(8,085) $ -
Employee compensation plans (option
exercises, restricted stock plan, - 4 - 891 - - (960) - -
incentive bonus)
Treasury stock purchased - - - - - - (6,386) - -
Warrants & stock options exercised - 35 (1,259) 903 - - 409 - -
Payment received on ESOP note - - - - - - - 5,932 -
Reclassification to Redeemable
Common Stock - (19) - - (29,002) - - - -
Translation adjustment - - - 10 - - - - (10)
Net earnings - - - - - 15,055 - - -
------ ---- ----- -------- --------- --------- -------- ------- -----
Balance, December 31, 1998 - $498 - $127,216 $(183,140) $(78,782) $(35,640) $(2,153) $(10)
Employee compensation plans (option
exercises, restricted stock plan, - 7 - (6) - - (321) - -
incentive bonus)
Stock issued under Mezzanine financing - 43 - 6,006 - - - - -
Treasury stock purchased - - - - - - (7,208) - -
Warrants & stock options exercised - - - 28 - - 107 - -
Payment received on ESOP note - - - - - - - 10,577 -
Loans to ESOP - - - - - - - (11,082) -
Reclassification to Redeemable Common
Stock - (57) - - (5,105) - - - -
Accretion of mezzanine shares to
Redeemable value - - - 94 (94) (94) - - -
Translation adjustment - - - - - - - - 1
Net earnings - - - - - 5,989 - - -
--- ---- --- -------- ---------- --------- --------- -------- ----
Balance, December 30, 1999 - $491 - $133,338 $(188,339) $(72,887) $(43,062) $(2,658) $(9)
=== ==== === ======== ========== ========= ========= ======== ====
See accompanying notes to the consolidated financial statements.
DynCorp and Subsidiaries
Notes to Consolidated Financial Statements
December 30, 1999
(Dollars in thousands, except per share amounts or where otherwise noted)
(1) The Company and Summary of Significant Accounting Policies
Description of Business and Organization:
DynCorp, a Delaware corporation (the "Company") provides diversified management,
technical and professional services primarily to U.S. Government customers
throughout the United States and internationally. Organized in 1946, the Company
provides services to various branches of the Departments of Defense, Energy,
State, Justice, and Agriculture, the Drug Enforcement Agency, the National
Institute of Health, the Defense Information Systems Agency, the National
Aeronautics and Space Administration and various other U.S., state and local
government agencies, commercial clients and foreign governments. Generally,
these services are provided under both prime contracts and subcontracts, which
may be fixed-price, time-and-material or cost-type contracts depending on the
work requirements and other individual circumstances. These services encompass a
wide range of management, technical and professional services.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and balances have
been eliminated in consolidation. All majority-owned subsidiaries have been
included in the financial statements. Investments in which the Company owns a
20% to 50% ownership interest, are accounted for by the equity method while
investments of less than 20% ownership are accounted for under the cost method.
Outside investors' interest in the majority-owned subsidiaries is reflected as
minority interest. Effective in 1999 the fiscal year is the 52 or 53 weeks
period ending the last Thursday in December. Previously, the Company had a
calendar year-end.
Use of Accounting Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Estimates include accrued liabilities such as incentive
compensation awards, which are not paid out until the following year. Actual
results could differ from those estimates.
Contract Accounting:
Contracts in process are stated at the lower of actual cost incurred plus
accrued profits or net estimated realizable value of incurred costs, reduced by
progress billings. The Company records income from major fixed-price contracts,
extending over more than one accounting period, using the
percentage-of-completion method. During performance of such contracts, estimated
final contract prices and costs are periodically reviewed and revisions are made
as required. The effects of these revisions are included in the periods in which
the revisions are made. On cost-plus-fee contracts, revenue is recognized to the
extent of costs incurred plus a proportionate amount of fee earned, and on
time-and-material contracts, revenue is recognized to the extent of billable
rates times hours delivered plus material and other reimbursable costs incurred.
Losses on contracts are recognized when they become known. Disputes arise in the
normal course of the Company's business on projects where the Company is
contesting with customers for collection of funds because of events such as
delays, changes in contract specifications and questions of cost allowability or
collectibility. Such disputes, whether claims or unapproved change orders in the
process of negotiation, are recorded at the lesser of their estimated net
realizable value or actual costs incurred and only when realization is probable
and can be reliably estimated. Claims against the Company are recognized where
loss is considered probable and reasonably determinable in amount.
Accounts Receivable:
It is the Company's policy to provide reserves for the collectibility of
accounts receivable when it is determined that it is probable that the Company
will not collect all amounts due and the amount of reserve requirement can be
reasonably estimated.
Property and Equipment:
The Company computes depreciation using the straight-line method. The estimated
useful lives used in computing depreciation are buildings, 15-33 years;
machinery and equipment, 3-20 years; and leasehold improvements, the lesser of
the useful life or the term of the lease. Depreciation expense was $5,412 for
1999, $4,781 for 1998 and $4,881 for 1997.
Cost of property and equipment sold or retired and the related accumulated
depreciation or amortization is removed from the accounts in the year of
disposal, and any gains or losses are reflected in the consolidated statements
of operations. Expenditures for maintenance and repairs are charged to expense
as incurred, and major additions and improvements are capitalized.
Intangible Assets:
The major classes of intangible assets as of December 30, 1999 and December 31,
1998 are summarized below (in millions):
Amortization
Period 1999 1998
Goodwill..................... 10 to 40 years $109.8 $44.9
Capitalized Software... 8 years 10.6 5.9
Core & developed technology... 5 years 7.6 -
Contracts acquired............ up to 10 years 8.4 1.1
Assembled workforce........... 7 years 6.5 -
Patent...................... 17 years 6.3 6.9
------ -----
Total net intangibles....... $149.2 $58.8
Intangible assets are being amortized using the straight-line method for the
periods noted above. Amortization expense was $8,160, $1,575, and $1,560 in
1999, 1998, and 1997, respectively (see Note 13 ). Amortization expense for 1999
includes $1.2 million acceleration of goodwill amortization due to impairment.
Accumulated amortization of $55,755 and $50,030 has been recorded through
December 30,1999 and December 31, 1998, respectively.
Long-lived assets and identifiable intangibles are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In performing the review for impairment, the
Company estimates the future cash flows expected to result from the use of the
asset. If impaired, the Company would write down the asset to its fair market
value. If the asset is held for sale, the Company reviews its fair value less
cost to sell. In 1999, the Company expensed $1.7 million related to impaired
assets including the $1.2 million noted above.
Derivative Financial Instruments:
The Company has a policy to use derivative financial instruments to manage its
exposures to fluctuations in interest rates and foreign exchange rates as
warranted. The Company does not hold or issue derivative financial instruments
for trading purposes. There were no such financial instruments held during 1999.
Recently Issued Accounting Standards:
In April 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-up Activities," which became effective for fiscal years beginning after
December 15, 1998. The statement provides guidance on the financial reporting of
start-up costs and organization costs and requires costs of start-up activities
to be expensed as incurred, except for long-term contracts. The adoption of this
statement, effective January 1, 1999, did not have a material impact on the
Company's financial statements.
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137, which deferred the effective
date of SFAS 133. In June 1998, FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. Because of the Company's minimal use of derivatives, the
Company does not expect that the adoption of this new standard will have a
material impact on its results of operations, financial condition or cash flows.
Consolidated Statements of Cash Flows:
For purposes of these statements, short-term investments, which consist of
government treasury bills and time deposits with a maturity of ninety days or
less, are considered cash equivalents. At December 30, 1999, checks not yet
presented for payment of $11.1 million in excess of cash balances were included
in accounts payable on the accompanying balance sheet. The Company had
sufficient funds available to cover these outstanding checks when they were
presented for payment. Cash and short-term investments at December 31, 1998,
excludes $1.5 million of restricted cash which is classified as Other Assets.
Investing and financing activities include the following:
1999 1998 1997
Acquisitions of businesses:
Assets acquired $ 212,642 $ 11,185 $ -
Liabilities assumed (45,138) (946) -
Cash acquired 36 - -
---------- --------- -----------
Net cash $ 167,540 $ 10,239 $ -
---------- --------- -----------
Capitalized equipment leases and
notes secured by property and
equipment $ - $ - $ 626
The Company acquired GTE Information Systems LLC in 1999 and FMAS Corporation in
1998.
Comprehensive Income:
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income," which requires the presentation and disclosure
of comprehensive income. Translation adjustment of $(0.01) million is the only
component of the Company's comprehensive income for the years ended December 30,
1999 and December 31, 1998 other than net income.
Reclassifications:
Consistent with industry practice, assets and liabilities relating to long-term
contracts and programs are classified as current although a portion of these
amounts is not expected to be realized within one year.
Certain prior year information has been reclassified to conform to the current
year presentation.
(2) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate the
value:
Accounts receivable and contracts in process, net, prepaid income taxes,
accounts payable and accrued income taxes - The carrying amount approximates the
fair value due to the short maturity of these instruments.
Long-term debt and other liabilities and deferred credits - The carrying value
of the Company's Senior Secured Credit Agreement and its 15.0% Senior
Subordinated Notes approximated the fair value. The fair value of the Company's
Senior Notes, based on the current rate as if the issue date was December 30,
1999 was $92.4 million, as compared to a book value of $99.6 million in 1999.
The fair value of the Company's 7.486% Contract Receivable Collateralized Notes
and the Senior Notes, based on the current rate as if the issue dates were
December 31, 1998 was $154.4 million, as compared to a book value of $149.5
million in 1998. For the remaining long-term debt (see Note 4) and other
liabilities and deferred credits, the carrying amount approximates the fair
value.
(3) Accounts Receivable and Contracts in Process
The components of accounts receivable and contracts in process were as follows
for the years ending December 30, 1999 and December 31, 1998:
1999 1998
------ ------
U.S. Government:
Billed and billable $238,709 $158,190
Recoverable costs and accrued profit
on progress completed but not billed 47,885 23,374
Retainage due upon completion of contract 2,769 2,641
------- -------
289,363 184,205
------- -------
Other Customers (primarily subcontracts from
U.S. Government prime contracts and contracts
with state, local and quasi-government
agencies):
Billed and billable (less allowance for
doubtful accounts of $3,156 in 1999
and $1,126 in 1998) 52,063 54,520
Recoverable costs and accrued profit on
progress completed but not billed 15,985 19,491
-------- --------
68,048 74,011
-------- --------
$357,411 $258,216
======== ========
Billed and billable include amounts earned and contractually billable at
year-end but which were not billed because customer invoices had not yet been
prepared at year-end. Recoverable costs and accrued profit on progress completed
but not billed is composed primarily of amounts recognized as revenues, but
which are not contractually billable at the balance sheet dates. It is expected
that all amounts outstanding at December 30, 1999 will be collected within one
year except for approximately $5,892.
(4) Long-term Debt
At December 30, 1999 and December 31, 1998, long-term debt consisted of:
1999 1998
------ ------
Senior Secured Credit Agreement - Term A Loan $100,000 $ -
Senior Secured Credit Agreement - Term B Loan 100,000 -
Senior Secured Credit Agreement - Revolving
Credit Facility 6,970 -
15% Senior Subordinated Notes 33,952 -
9 1/2% Senior Notes 99,584 99,546
7.486% Contract Receivable Collateralized
Notes, Series 1997-1, Class A - 50,000
Floating Rate Contract Receivable Collateralized
Notes, Series 1997-1, Class B - 7,000
8% Mortgage payable 2,575 2,729
Notes payable 105 991
------- -------
343,186 160,266
Less current portion 8,242 8,145
-------- --------
$334,944 $152,121
Debt maturities as of December 30, 1999, were as follows:
2000 $ 8,242
2001 26,180
2002 26,195
2003 28,034
2004 26,000
Thereafter 228,535
--------
$343,186
========
On December 10, 1999, the Company entered into a Senior Secured Credit Agreement
(the "Credit Agreement") with a group of financial institutions. Under the
Credit Agreement, the Company borrowed $100.0 million under Term A loans
maturing December 9, 2004, $100.0 million under Term B loans maturing December
9, 2006, and $23.8 million under a $90.0 million revolving line of credit
maturing December 9, 2004. Of the total borrowings under the Credit Agreement,
$125.0 million was used for partial payment of the purchase price for GTE
Information Systems LLC. An additional $112.0 million of the borrowings was used
to make an optional redemption of Dyn Funding Corporation's outstanding 7.486%
Fixed Rate Contract Receivable Collateralized Notes, Series 1997-1, Class A and
to reduce irrevocably Dyn Funding Corporation's Floating Rate Contract
Receivable Collateralized Notes, Series 1997-1, Class B. The remainder was used
to pay transactional expenses and for general corporate operating purposes. Upon
the closing of the Credit Agreement, the Company terminated its previous
revolving line of credit facility.
The Credit Agreement stipulates that the Company must maintain certain financial
ratios, including specified ratios of earnings to fixed charges, debt to
earnings, and accounts receivable to borrowings under the Credit Agreement.
On December 10, 1999, the Company incurred an extraordinary loss of $2.5 million
($1.6 million after tax or $0.16 for basic and diluted earnings per share) in
connection with the early retirement of the $50.0 million 7.486% Fixed Rate
Contract Receivable Collateralized Notes. The extraordinary loss was comprised
of the payment of a yield maintenance premium and the write-off of associated
debt issuance cost.
The Term A Loans are to be repaid in sixteen quarterly installments of $6.3
million beginning in February 2001. The Term B Loans are to be repaid in twenty
quarterly installments of $0.3 million starting in February 2000 and then eight
quarterly installments of $11.9 million beginning in February 2005. At the
option of the Company, borrowings under the Credit Agreement bear interest at
either LIBOR or a base rate established by the bank, plus a margin that varies
based upon the Company's ratio of debt to earnings.
The Company is charged a commitment fee of 0.5% per annum on unused commitments
under the revolving line of credit. As of December 30, 1999, $7.0 million of
borrowings and $7.4 million of letters of credit were outstanding under the line
of credit, and the amount available was $75.6 million.
On December 10, 1999, the Company entered into an agreement with various
financial institutions for the sale of $40.0 million face value of the Company's
subordinated pay-in-kind notes due 2007, with an estimated fair value of $33.9
million (Senior Notes), and for the sale of 426,217 shares of the Company's
stock with an estimated fair value of $6.1 million (see Note 7). The proceeds
were used for payment of the balance of the purchase price for GTE Information
Systems LLC. The Subordinated Notes bear interest at 15.0% per annum, payable
semi-annually in-kind. The Company may, at its option, prior to December 15,
2004, pay the interest in cash or in additional Subordinated Notes. The
Subordinated Notes are redeemable, in whole or in part, at the option of the
Company, on or after December 15, 2000 at a redemption price that ranges from
114.0% in 2000 to 100.0% in 2006 and thereafter. The Subordinated Notes are
general unsecured obligations of the Company and will be subordinated in right
of payment to all existing and future senior debt of the Company and to the
Senior Notes.
On March 17, 1997, the Company issued $100.0 million of 9 1/2% Senior
Subordinated Notes ("Senior Subordinated Notes") with a scheduled maturity in
2007. Interest is payable semi-annually, in arrears, on March 1 and September 1
of each year. The Senior Notes are redeemable, in whole or in part, at the
option of the Company, on or after March 1, 2002 at a redemption price which
ranges from 104.8% in 2000 to 100.0% in 2005 and thereafter. In addition, at any
time prior to March 1, 2000, the Company may redeem up to 35.0% of the aggregate
principal amount of the Senior Notes (at a redemption price of 109.5%) with
proceeds generated from a public offering of equity, provided at least 65.0%
of the original aggregate amount of the Senior Notes remains outstanding. The
Senior Notes are general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future senior debt of the
Company.
The Credit Agreement and indentures for the Senior Notes and Senior Subordinated
Notes contains customary restrictions on the ability of the Company to undertake
certain activities, such as the incurrance of additional debt, the payment of
dividends on or the repurchase of the Company's common stock, the merger of the
Company into another company, the sale of substantially all the Company's
assets, and the acquisition of the stock or substantially all the assets of
another company.
The Company acquired the Alexandria, VA headquarters of Technology Applications,
Inc. ("TAI") on November 12, 1993, in conjunction with the acquisition of TAI. A
mortgage of $3,344 bearing interest at 8.0% per annum was assumed. Payments are
made monthly and the mortgage matures in April 2003. On February 29, 2000, the
Company sold the related property for $10.5 million in cash and simultaneously
entered into a lease agreement for the property. The 8.0% mortgage was paid off
at this time.
Deferred debt issuance costs are being amortized using the effective interest
rate method over the term of the related debt. At December 30, 1999, and
December 31, 1998, unamortized deferred debt issuance costs were $12,113 and
$4,924, respectively and amortization for 1999, 1998 and 1997 was $1,211, $721,
and $706, respectively. Amortization of debt issue discount was $39, $36, and
$26 in 1999, 1998 and 1997, respectively.
Cash paid for interest was $16,209 for 1999, $13,454 for 1998, and $13,076 for
1997.
(5) Accrued Expenses
At December 30, 1999 and December 31, 1998, accrued expenses consisted of the
following:
1999 1998
---- ----
Salaries and wages $ 73,028 $ 49,566
Insurance 24,147 21,419
Interest 4,345 1,993
Payroll and miscellaneous taxes 12,051 10,836
Accrued contingent liabilities and
operating reserves (see Note 20) 10,105 17,999
Other 7,598 6,304
-------- --------
$131,274 $108,117
======== ========
(6) Employee Stock Ownership Plan
In September 1988, the Company established an Employee Stock Ownership Plan
("ESOP"). The Company borrowed $100 million and loaned the proceeds, on the same
terms as the Company's borrowings, to the ESOP to purchase 4,123,711 shares of
common stock of the Company. The ESOP acquired 2,797,812 additional shares from
1993 through 1996 either through contributions of stock from the Company, or
contributions of cash from the Company with which the ESOP then purchased shares
either from the Company, on the Internal Market, or directly from other
stockholders.
At the beginning of 1997, the ESOP had considerable cash on hand. Utilizing this
cash and loans from the Company, the ESOP purchased all of the Company's Class C
Preferred Stock. The ESOP subsequently converted the Class C Preferred Stock and
exercised the related warrants, at which time the Company issued 949,642 shares
of common stock to the ESOP. The purchase price for the Class C Preferred Stock
was $18,566 ($19.55 per share, after exercise of warrants) of which half was
paid in cash ($8,277 on hand and $1,006 loaned from the Company) and notes were
issued for the balance. The notes, and related accrued interest, have been paid
in full as of December 30, 1999.
In 1999, the ESOP utilized 1999 contributions and loans to make the required
principal and interest payments on the aforementioned notes, pay administrative
fees, purchase 95,735 shares of stock on the internal market and purchase
273,139 shares of stock from other stockholders. At December 30, 1999, the
unpaid balance on these subsequent loans, $2,658, representing 101,052 shares,
was reflected as a reduction in stockholders' equity. The ESOP covers a majority
of the employees of the Company. Participants in the ESOP become fully vested
after four years of service. At December 30, 1999, the ESOP owned 7,451,989
shares, of which most has been allocated to participants. The Company recognizes
compensation expense each year based on the cash contribution for the year. In
1999, 1998, and 1997, cash contributions to the ESOP were $13,220, $12,600, and
$11,200, respectively. These amounts were charged to Cost of Services and
Corporate General and Administrative Expenses.
(7) Redeemable Common Stock
Common stock which is redeemable has been reflected as Temporary Equity at the
redeemable value at each balance sheet date and consists of the following:
Balance at Balance at
Redeemable December 30, Redeemable December 31,
Shares Value 1999 Shares Value 1998
------- ------ ------ ------- ------ ------
ESOP Shares 3,313,729 $27.50 $ 91,128 3,382,340 $27.75 $ 93,860
4,037,208 $22.75 91,846 3,700,082 $23.50 86,952
--------- -------- --------- --------
7,350,937 $182,974 7,082,422 $180,812
========= ======== ========= ========
Other Shares 426,217 $14.41 $ 6,142 125,714 $24.25 $ 3,049
========= ======== ========= =========
ESOP Shares
In accordance with ERISA regulations and the Employee Stock Ownership Plan (the
"Plan") documents, the ESOP Trust or the Company is obligated to purchase vested
common stock shares from ESOP participants (see Note 6) at the fair value (as
determined by an independent appraiser) until such time as the Company's common
stock is publicly traded. The shares initially bought by the ESOP in 1988 were
bought at a "control price," reflecting the higher price that buyers typically
pay when they buy an entire company (as the ESOP and other investors did in the
1988 LBO). A special provision in the ESOP's 1988 agreement permits participants
to receive a "control price" when they sell these shares back to the Company
under the ESOP's "put option" provisions. This "control price", determined by
the appraiser on February 21, 2000, was $27.50 per share as of December 30,
1999. The additional shares obtained by the ESOP in 1994 through 1999 were at a
"minority interest price", reflecting the lower price that buyers typically pay
when they are buying only a small piece of a company. Participants do not have
the right to sell these shares at the "control price". The minority interest
price determined by the independent appraiser on February 21, 2000, was $22.75
per share as of December 30, 1999. Participants receive their vested shares upon
retirement, becoming disabled, or death over a period of one to five years and
for other reasons of termination over a period of one to ten years, all as set
forth in the Plan documents. The ESOP Trust purchases participants' shares at
the applicable price, utilizing cash available from the Company's contributions
and loans (see Note 6). The participant can elect to receive stock in kind
instead of a participant put. Based on fair values of $27.50 and $22.75 per
share as of December 30, 1999, the estimated aggregate annual commitment to
repurchase shares from the ESOP participants upon death, disability, retirement
and termination is as follows: $8,424 in 2000, $12,559 in 2001, $15,084 in 2002,
$17,043 in 2003, $22,649 in 2004 and $107,215 thereafter. Under the Subscription
Agreement with the ESOP dated September 9, 1988, the Company is permitted to
defer put options if, under Delaware law, the capital of the Company would be
impaired as a result of such repurchase.
Other Shares
On December 10,1999, the Company entered into an agreement with various
financial institutions for the sale of 426,271 shares of the Company's stock and
Senior Subordinated Notes (see Note 4). Under a contemporaneous registration
rights agreement, the holders of these shares of stock will have a put right to
the Company commencing on December 10, 2003, at a price of $40.53 per share,
unless one of the following events has occurred prior to such date or the
exercise of the put right: (1) an initial public offering of the Company's
common stock has been consummated; (2) all the Company's common stock has been
sold; (3) all the Company's assets have been sold in such a manner that the
holders have received cash payments; or (4) the Company's common stock has been
listed on a national securities exchange or authorized for quotation on the
Nasdaq National Market System for which there is a public market of at least
$100 million for the Company's common stock. If, at the time of the holders'
exercise of the put right the Company is unable to pay the put price because of
financial covenants in loan agreements or other provisions of law, the Company
will not honor the put at that time, and the put price will escalate for a
period of up to four years, at which time the put must be honored. The
escalation rate increases during such period until the put is honored, and the
rate varies from an annualized factor of 22% for the first quarter after the put
is not honored up to 52% during the sixteenth quarter.
In conjunction with the acquisition of TAI in November 1993, the Company issued
put options on 125,714 shares of common stock. The holder could, at any time
commencing on December 31, 1998 and ending on December 31, 2000, sell these
shares to the Company at a price per share equal to the greater of $17.50; or,
if the stock is publicly traded, the market value at a specified date; or, if
the Company's stock is not publicly traded, the ESOP control price at the time
of exercise. On January 12, 1999, the holder exercised the put option on these
shares at the applicable price of $24.25 per share.
Following are the changes in Redeemable Common Stock for the three years ended
December 30, 1999:
Redeemable Common Stock
-------------------------------------
Other ESOP Total
------ ----- ------
Balance, December 31, 1996 $2,979 $136,343 $139,322
Shares purchased on Internal Market - 205 205
Shares purchased by ESOP not
collateralized by notes - 13,371 13,371
Adjustment of shares to fair value 38 1,904 1,942
------ -------- --------
Balance, December 31, 1997 3,017 151,823 154,840
Shares purchased by ESOP - 1,482 1,482
Shares released from collateral - 5,798 5,798
ESOP diversification (a) - (4,074) (4,074)
Adjustment of shares to fair market value 32 25,783 25,815
------ -------- --------
Balance, December 31, 1998 3,049 180,812 183,861
Exercise of put option (3,049) - (3,049)
Shares purchased by the ESOP - 6,466 6,466
Shares purchased on the Internal Market - 2,319 2,319
Shares released from collateral - 10,577 10,577
Shares pledged as collateral - (11,082) (11,082)
ESOP diversification (a) - (2,652) (2,652)
Issuance of common stock with put rights 6,048 - 6,048
Adjustment of shares to fair value 94 (3,466) (3,372)
------ -------- --------
Balance December 30, 1999 $6,142 $182,974 $189,116
====== ======== ========
(a) Under diversification rules, as defined by the Plan, ESOP participants have
the option of receiving a distribution of up to 25.0% of their aggregate
accounts, in order to convert Company stock into another type of
investment. The option extends over a five-year period beginning after the
participant has reached age 55 and has ten years of participation in the
ESOP. At the sixth year, the distribution right increases to 50.0% of the
participant's account.
(8) Preferred Stock, Class C
Dividends on the Class C Preferred Stock accrued at an annual rate of 18.0%,
compounded quarterly. At December 31, 1996, cumulative dividends of $11,147 had
not been recorded or paid. In February 1997, the ESOP purchased all of the Class
C Preferred Stock, which was immediately converted into Common Stock.
(9) Common Stock
At December 30, 1999, Common Stock includes those shares issued to outside
investors, officers and directors, current and former employees and the Savings
and Retirement Plan ("SARP"), as well as any ESOP or SARP shares that have been
distributed in kind to former participants in the plans.
(10) Common Stock Warrants and Restricted Stock
The Company initially issued warrants on September 9, 1988 to certain
stockholders to purchase a maximum of 5,891,987 shares of common stock of the
Company. The warrants were recorded at their fair value of $2.43 per warrant and
warrants issued to a lender were recorded at $3.28 per warrant. Each warrant was
exercisable to obtain one share of common stock. The stockholder could exercise
the warrant and pay in cash the exercise price of $0.25 for one share of common
stock or sell back to the Company a sufficient number of the exercised shares to
equal the value of the warrants to be exercised. All warrants were either
exercised or canceled before their September 9, 1998 expiration date. There were
no warrants outstanding at December 30, 1999 and December 31, 1998,
respectively.
The Company had a Restricted Stock Plan (the "Plan") under which management and
key employees could be awarded shares of common stock based on the Company's
performance. The Company initially reserved 1,023,037 shares of common stock for
issuance under the Plan. Under the Plan, Restricted Stock Units ("Units") were
granted to participants who were selected by the Compensation Committee of the
Board of Directors. Each Unit entitled the participant upon achievement of the
performance goals (all as defined) to receive one share of the Company's common
stock. Units could not be converted into shares of common stock until the
participant's interest in the Units had vested. Vesting occurred upon completion
of the specified periods as set forth in the Plan.
(11) Acquisitions
On December 10, 1999, the Company acquired GTE Information Systems LLC, a
subsidiary of GTE Corporation, for $167.5 million in cash and has accounted for
the acquisition as a purchase. The purchase price has been allocated to the
assets acquired and the liabilities assumed based on preliminary estimated fair
value at the date of acquisition. In addition, $6.4 million of the purchase
price was allocated to in-process research, which the Company has expensed at
the date of acquisition. $67.7 million of goodwill has been recorded on a
preliminary basis based on the allocation of the purchase price and will be
amortized over 30 years. On December 13, 1999, the name of the Company was
changed to DynCorp Information Systems LLC ("DIS"). It will operate as a
separate subsidiary of the Company. Operating results for DIS have been
included from the date of acquisition.
The following unaudited pro forma combined financial information presents the
historical results of operations of the Company and DIS, with pro forma
adjustments as if DIS had been acquired as of the beginning of the periods
presented. The unaudited pro forma information is not necessarily indicative of
what the results of operations actually would have been if the transaction had
occurred as of the beginning of those periods, or of future results of
operations.
1999 1998
------ ------
Revenue $1,560,971 $1,457,870
Net income 4,251 3,219
Basic earnings per share $0.42 $0.31
Diluted earnings per share $0.41 $0.31
On February 2, 1998, the Company acquired a majority of the net assets of FMAS
Corporation ("FMAS"), a medical outcome measurement and data abstraction
services company headquartered in Rockville, MD, for $10.2 million in cash. FMAS
is a leading provider of proprietary outcome performance measurement systems to
DoD treatment facilities as well as other public and governmental facilities.
The acquisition has been accounted for as a purchase, and $7.1 million of value
assigned to a pending patent, $0.4 million of goodwill, and $0.4 million of
value assigned to contracts has been recorded based on allocation of the
purchase price. These amounts will be amortized over 17 years, 15 years, and the
life of the contracts, respectively.
(12) Savings Plan
The Company has a Savings and Retirement Plan which is intended to qualify under
section 401(k) of the Internal Revenue Code. The plan allows eligible employees
to contribute from 1.0% to 15.0% of their income on a pretax basis. In 1996, the
Company began matching 100.0% of the first 1.0% of employee contributions and
25.0% of the next 4.0% of employee contributions, provided the employee
contribution was invested in the Company's Stock Fund. Matching contributions
are invested in additional shares of the Company's common stock. The Company has
expensed approximately $1,937, $1,624, and $1,224, in 1999, 1998, and 1997,
respectively, related to these matching contributions.
(13) Other Expenses
Fiscal Years Ended
1999 1998 1997
---- ---- ----
Amortization of costs in excess
of net assets acquired (see Note 1) $2,957 $1,575 $1,560
In-process research and development write-off 6,400 - -
Provision for non-recovery of receivables 1,434 900 629
Legal and other expense accruals
associated with business discontinued in 1995 - - 177
Costs associated with businesses discontinued
in 1988 and prior years
o Asbestos liability issues (a) - (670) 7,800
o Subcontractor suit (b) 1,700 1,177 -
o Environmental costs (see Note 20(b)) - 23 180
Miscellaneous (c) (1,947) (318) 3
------- ------ -------
Total Other $10,544 $2,687 $10,349
======= ====== =======
(a) In connection with the global settlement that transferred ownership of
the Fuller-Austin Insulation Company ("Fuller-Austin") to a
post-Fuller-Austin bankruptcy settlement trust (the "Trust") for the
benefit of present and future asbestos claimants (see Note 20(a)), the
Company reserved an additional $7.8 million in 1997 for the transfer of
certain property and insurance rights to the Trust, and the payment to
the Trust of certain cash consideration. In 1998, a portion
representing excess over future needs was reversed.
(b) Reserves for the estimated costs to resolve a lawsuit filed by a
subcontractor of a former subsidiary (see Note 20(b)).
(c) 1999 miscellaneous consists predominately of gains on sales of certain
assets and other miscellaneous items.
(14) Income Taxes
As prescribed by SFAS No. 109, "Accounting for Income Taxes", the Company
utilizes the asset and liability method of accounting for income taxes. Under
this method, deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Valuation allowances are
provided if required.
Earnings (loss) from continuing operations before income taxes, minority
interest, and extraordinary item (see Note 4) were derived from the following:
Fiscal Years Ended
1999 1998 1997
---- ---- ----
Domestic operations $ 15,936 $ 26,909 $ 11,422
Foreign operations (729) (214) (279)
-------- -------- --------
$ 15,207 $ 26,695 $ 11,143
======== ======== ========
The provision (benefit) for income taxes consisted of the following:
Fiscal Years Ended
1999 1998 1997
---- ---- ----
Current:
Federal $11,523 $ 7,616 $(1,926)
Foreign 120 22 43
State 636 458 -
------- ------- --------
12,279 8,096 (1,883)
------- ------- --------
Deferred:
Federal (5,485) 2,933 6,653
Foreign - (1,470) -
State (2,167) 298 499
--------- ------ ------
(7,652) 1,761 7,152
--------- ------ ------
Valuation Allowance:
Federal - - (2,488)
State 22 (298) (499)
------- ------ -------
22 (298) (2,987)
------- ------ -------
Total $ 4,649 $ 9,559 $2,282
======= ======= ======
The components of deferred taxes are as follows:
Dec. 30, Dec. 31,
1999 1998
-------- --------
Deferred tax liabilities:
Employee benefits $ (1,933) $ (2,223)
Contracts revenue recognition (17,739) (13,280)
Intangible amortization (66) (249)
Depreciation and other amortization (1,052) (993)
Other, net (653) (132)
--------- --------
Total deferred tax liabilities (21,443) (16,877)
Deferred tax assets:
Deferred compensation 922 1,251
Operating reserves and other accruals 23,518 13,138
Increase due to federal rate change 335 335
Benefit of state tax on temporary
differences and state net operating
loss carryforwards 5,028 2,861
------ ------
Total deferred tax assets 29,803 17,585
------ ------
Total temporary differences
before valuation allowances 8,360 708
Valuation allowances:
State (4,758) (4,736)
------- ---------
Total temporary differences
affecting tax provision 3,602 (4,028)
------ ---------
"Safe harbor" leases (4,632) (5,113)
-------- ---------
Net deferred tax liability $(1,030) $ (9,141)
======== =========
No Federal valuation allowance was required for the Company's deferred tax
assets at December 30, 1999, and December 31, 1998. State valuation allowances
represent reserves for income tax benefits, which are not recognized due to
uncertainty regarding future earnings in the applicable states. The net deferred
tax liability includes current deferred tax assets of $3,517 and $3,357 as of
December 30, 1999 and December 31, 1998, respectively, which are included in
Other Current Assets on the consolidated balance sheets.
The Company's U.S. Federal income tax returns have been cleared with the IRS
through 1993.
Cash paid for income taxes was $4,942 for 1999, $7,338 for 1998, and $2,676 for
1997.
The tax provision differs from the amounts obtained by applying the statutory
U.S. Federal income tax rate to the earnings from continuing operations before
minority interest. The differences are reconciled as follows:
Fiscal Years Ended
1999 1998 1997
----- ----- -----
Expected Federal income tax provision $5,322 $9,343 $ 3,900
Minority interest not included in tax
provision (446) (277) (70)
Valuation allowance - - (2,488)
State and local income taxes, net of
Federal income tax benefit (1,637) 297 -
Nondeductible amortization of intangibles
and other costs 1,173 724 726
Foreign income tax 120 (1,448) 43
Foreign and fuel tax credits (54) (27) (31)
Other, net 171 947 202
------ ------ ------
Tax provision $4,649 $9,559 $2,282
====== ====== ======
The Company has state net operating loss carryforwards available to offset
future taxable income. Following are the net operating losses by year of
expiration:
Year of State Net
Expiration Operating Losses
---------- ----------------
1999 $ 726
2000 800
2001 403
2002 331
2003 1,019
Through 2013 64,098
-------
$67,377
=======
(15) Pension and Postretirement Benefits Plans
Multiemployer Pension Plan
Union employees who are not participants in the ESOP are covered by
multiemployer pension plans under which the Company pays fixed amounts,
generally per hours worked, according to the provisions of the various labor
contracts. In 1999, 1998, and 1997, the Company expensed $3,954, $3,538, and
$3,451, respectively, for these plans. Under the Employee Retirement Income
Security Act of 1974 as amended by the Multiemployer Pension Plan Amendments Act
of 1980, an employer is liable upon withdrawal from or termination of a
multiemployer plan for its proportionate share of the plan's unfunded vested
benefits liability. Based on information provided by the administrators of the
majority of these multiemployer plans, the Company does not believe there is any
significant amount of unfunded vested liability under these plans.
Defined Benefit Pension and Union Benefit Plans
On December 11, 1999, the Company began participating in the DIS Pension Plan
for Salaried Employees, which is a noncontributory defined benefit pension plan
sponsored by DIS, covering a majority of DIS' employees. The benefits to be paid
under this plan are generally based on years of credited service and average
final earnings. The Company's funding policy, subject to the minimum funding
requirements of employee benefit and tax laws, is to contribute such amounts as
are determined on an actuarial basis to accumulate funds sufficient to meet the
plan's benefit obligation to employees upon their retirement. The assets of the
plan consist primarily of corporate equities, government securities and
corporate debt securities.
Also on December 11, 1999, certain of the Company's union employees began
participating in the DynCorp Information Systems LLC Union Pension Plan, which
is a noncontributory defined benefit pension and a postretirement healthcare and
life insurance benefit plan, sponsored by DIS.
The significant weighted-average assumptions used by the Company for the pension
measurements were as follows at December 30, 1999:
Discount rate 7.75%
Rate of compensation increase 5.00%
Expected return on plan assets 9.00%
Net periodic benefit cost for the Company's pension plans is $68 for the year
ended December 30, 1999. The projected benefit obligation and fair value of the
pension plans' assets at December 30, 1999 is $44,553 and $57,604, respectively.
The net prepaid benefit cost at December 30, 1999 is therefore $13,051.
Postretirement Benefit Plan
On December 11, 1999, a majority of the Company's DIS employees became covered
under a postretirement healthcare and life insurance benefit plan sponsored by
DIS. The determination of benefit cost for postretirement health plan is
generally based on comprehensive hospital, medical and surgical benefit plan
provisions.
The weighted-average assumptions used by the Company in the actuarial
computations for postretirement benefits were as follows at December 30, 1999:
Discount rate 7.75%
Expected return on plan assets 6.75%
Net periodic benefit cost for the Company's postretirement healthcare and life
insurance benefit plan as of December 30, 1999 is $53. The projected benefit
obligation and fair value of the postretirement benefit plan's assets at
December 30, 1999 is $21,608 and $12,090, respectively. The net accrued benefit
liability at December 30, 1999 is therefore $9,518.
(16) Net Earnings Per Common Share
Basic EPS is computed by dividing common stockholders' share of net earnings by
the weighted average number of common shares outstanding and contingently
issuable shares. The weighted average number of common shares outstanding
includes issued shares less shares held in treasury and any unallocated ESOP
shares. Shares earned and vested but unissued under the Restricted Stock Plan
are contingently issuable shares whose condition for issuance have been
satisfied and as such have been included in the calculation of basic EPS.
Diluted EPS is computed similarly except the denominator is increased to include
the weighted average number of stock warrants and options outstanding, assuming
the treasury stock method.
The following is a reconciliation of shares for basic EPS to shares for diluted
EPS for the fiscal years ended:
1999 1998 1997
---- ---- ----
Weighted average shares outstanding for
basic EPS 10,044 10,242 8,985
Effect of dilutive securities:
Warrants - 131 1,524
Stock options 229 141 129
------ ------ ------
Weighted average shares outstanding for
diluted EPS 10,273 10,514 10,638
====== ====== ======
(17) Incentive Compensation Plans
The Company has several formal incentive compensation plans that provide for
incentive payments of cash and stock to officers and key employees. Incentive
payments under these plans are based upon operational performance, individual
performance or a combination thereof, as defined in the plans.
(18) Stock Option Plan
In March 1999, the Company adopted a Long-Term Incentive Stock Plan, which
authorizes the grant of performance-based stock and cash incentive compensation
in the form of stock options, stock appreciation rights, restricted stock,
performance grants and awards, and other stock-based grants and awards. Specific
terms relating to the grant are set by the Compensation Committee at the time of
the grant. Stock options granted under the Plan permit optionees to purchase a
designated number of shares of common stock at an exercise price set by the
Committee, which establishes vesting and exercise provisions to be set forth in
individual option agreements. The exercise price may not be lower than the fair
market value of the shares as of the time the option is granted. Options granted
during 1999 generally vest based on cumulative profit performance of the Company
against a projected return over a four-year period. Options, which do not vest
during the first four years, will vest if, but only if, the employee is still
employed by the Company at the earlier of the eighth anniversary of the grant or
the employee's 65th birthday. Options that are not exercised within ten years of
the grant date will expire.
The Company adopted an incentive stock option plan in 1995, whereby options
could be granted to officers and other key employees to purchase a maximum of
1,250,000 common shares at an option price not less than the most recently
determined fair market value as of the grant date. The grants are exercisable
only when vested and vest proportionately over a period of seven or five years,
depending on the date of the grant. Options that are not exercised within ten or
seven years from the date of the grant, depending on the date of the grant,
shall expire. The fair value of each option grant is equal to the Formula Price
at the date of grant.
Stock option activity was as follows:
1999 1998 1997
- ------------------------------------------------------------------------------
Outstanding January 1 1,238,600 878,000 789,900
Granted 468,750 389,500 145,000
Exercised (5,400) (16,900) (9,000)
Canceled or terminated (98,800) (12,000) (47,900)
- ------------------------------------------------------------------------------
Outstanding December 30, 31, and 31 1,603,150 1,238,600 878,000
Exercisable 564,920 365,360 199,600
Average price
Outstanding, beginning of Year $18.69 $17.05 $16.55
Granted 24.38 22.13 19.48
Exercised 17.26 14.90 14.90
Canceled or terminated 19.82 16.17 16.61
Outstanding, end of year 20.29 18.69 17.05
Weighted average grant date fair value of options was $24.38, $22.12, and $19.54
for 1999, 1998, and 1997, respectively.
The following table summarizes information about stock options outstanding at
December 30, 1999:
Weighted-Average
Range of Number Weighted-Average Remaining
Prices Outstanding Exercise Price Contractual Life
- -------------------------------------------------------------------------------
$14.50 - 19.00 722,900 $16.82 3.15
20.00 - 23.25 419,500 21.76 5.32
23.50 - 24.50 460,750 24.38 6.57
- -------------------------------------------------------------------------------
The following table summarizes information about stock options exercisable at
December 30, 1999:
Range of Number Weighted-Average
Prices Exercisable Exercise Price
- -------------------------------------------------------------------------------
$14.50 - 19.00 466,720 $16.58
20.00 - 23.25 98,200 21.50
- ------------------------------------------------------------------------------
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the Company
has elected to account for its employee stock option plan under APB Opinion No.
25 "Accounting for Stock Issued to Employees." Accordingly, no compensation cost
has been recognized for this plan. Had compensation cost for the plan been
determined based on the fair value at the grant date consistent with SFAS No.
123, common stockholders' share of net earnings and earnings per share would
have been as follows:
Fiscal Years Ended 1999 1998 1997
- ------------------------------------------------------------------------------
Common stockholders' share of
net earnings
As reported $5,895 $15,055 $7,422
Pro forma 5,186 14,900 7,145
Basic earnings per share
As reported 0.59 1.47 0.83
Pro forma 0.52 1.45 0.80
Diluted earnings per share
As reported 0.57 1.43 0.70
Pro forma 0.50 1.42 0.67
The minimum value is estimated on the date of grant assuming a five year
expected life of the options, a volatility factor of zero, a dividend yield of
zero, and a risk-free interest rate of 5.2%, 4.6%, and 5.7%, for 1999, 1998, and
1997, respectively.
(19) Leases
Future minimum lease payments required under operating leases that have
remaining noncancellable lease terms in excess of one year at December 30, 1999
are summarized below:
Fiscal Years Ending,
--------------------
2000 $ 30,349
2001 28,508
2002 27,646
2003 26,383
2004 19,689
Thereafter 76,003
--------
Total minimum lease payments $208,578
========
Net rent expense for leases of $34,769, $31,138 and $21,577 for 1999, 1998 and
1997, respectively, has been charged to Cost of Services and Corporate General
and Administrative Expense.
(20) Contingencies and Litigation
The Company and its subsidiaries and affiliates are involved in various claims
and lawsuits, including contract disputes and claims based on allegations of
negligence and other tortious conduct. The Company is also potentially liable
for certain personal injury, tax, environmental, and contract dispute issues
related to the prior operations of divested businesses. In addition, certain
subsidiary companies are potentially liable for environmental, personal injury,
and contract and dispute claims. In most cases, the Company and its subsidiaries
have denied, or believe they have a basis to deny liability, and in some cases
have offsetting claims against the plaintiffs, third parties or insurance
carriers. The total amount of damages currently claimed by the plaintiffs in
these cases is estimated to be approximately $41.0 million (including
compensatory punitive damages and penalties). The Company believes that the
amount that will actually be recovered in these cases will be substantially less
than the amount claimed. After taking into account available insurance, the
Company believes it is adequately reserved with respect to the potential
liability for such claims. The estimates set forth above do not reflect claims
that may have been incurred but have not yet been filed. The Company has
recorded such damages and penalties that are considered to be probable
recoveries against the Company or its subsidiaries.
(a) Certain Pre-1999 Contingent Liability
A former subsidiary, Fuller-Austin Insulation Company ("Fuller-Austin"), which
discontinued its industrial insulation business activities in 1986, became a
defendant in various personal injury law suits that were filed against
manufacturers, distributors and installers of products allegedly containing
asbestos. Fuller-Austin was a non-manufacturer that installed and occasionally
distributed industrial insulation products.
Effective September 4, 1998, Fuller-Austin filed a Plan of Reorganization (the
"Plan") under Chapter 11 of the United States Bankruptcy Code (the "Code") in
the United States Bankruptcy Court for the District of Delaware.
The filing of the Plan followed a year of negotiations among a committee
representing asbestos claimants (the "Committee"), a legal representative of the
unknown future claimants (the "Legal Representative"), Fuller-Austin, and the
Company. As a consequence of these negotiations, the Plan was developed as part
of a pre-packaged filing by Fuller-Austin under Section 524(g) of the Code.
Section 524(g) is designed to deal specifically with the resolution under the
Code of obligations of debtors that have asbestos liability.
In furtherance of the Plan and the proposed global settlement, representatives
of Fuller-Austin, the Company as Fuller-Austin's parent and sole stockholder,
the Committee, and the Legal Representative negotiated a separate release
agreement under which the Company has been released from any and all present and
future liability for Fuller-Austin asbestos liability, in consideration of the
transfer of certain Company property (including all the outstanding stock of
Fuller-Austin) and certain insurance rights to the Fuller-Austin settlement
trust, and the payment to the trust of certain cash consideration. The total
amount reserved for this purpose at December 31, 1997 was $14.0 million, in
anticipation of the settlement under the Release Agreement.
Effective December 10, 1998, pursuant to the terms of a Confirmation Order
entered jointly on November 13, 1998 by the United States District and
Bankruptcy Courts in Wilmington, Delaware, and the terms of the Release
Agreement, the Company transferred and conveyed all of its interests in
Fuller-Austin (including all of Fuller-Austin's liabilities) to a trust (the
"Trust") established by the Confirmation Order in accordance with Section 524(g)
of the Code. The Trust is part of the Plan approved in the Confirmation Order
for the resolution of present and future asbestos personal injury and other
claims against Fuller-Austin. As part of the Confirmation Order, the Courts
issued an injunction channeling all future asbestos claims against Fuller-Austin
or the Company to the Trust. The Trust has also undertaken to indemnify the
Company against any and all future asbestos and other liability related to
Fuller-Austin or the past ownership of Fuller-Austin by the Company.
Effective December 11, 1998, the liabilities and assets of Fuller-Austin were
removed from the consolidated financial statements in accordance with the Plan
and Confirmation Order. The decreases in the balance sheet resulting from this
de-consolidation of Fuller-Austin is as follows:
Cash and cash equivalents $ 8,476
Property and equipment $ 1,248
Other assets $44,462
Accrued liabilities $ 8,464
Other liabilities and deferred credits $45,722
Under the terms of the Release Agreement, the Trust will continue to have access
on an exclusive basis to certain Company insurance aggregating as much as
$251,500 and issued during the periods 1974 through 1986, under which
Fuller-Austin is an additional insured.
(b) General Litigation
The Company retained certain potential liability in connection with its 1989
divestiture of its major electrical contracting business, Dynalectric Company
("Dynalectric"). The Company and Dynalectric were sued in 1988 in Bergen County
Superior Court, New Jersey, by a former Dynalectric joint venture
partner/subcontractor ("Subcontractor") claiming unspecified damages for
improper subcontract termination, misappropriation of technology, and fraud,
among other allegations. The New Jersey Court ordered the parties to arbitration
in December of 1997. Under the terms of a July 9, 1998 arbitration award and a
decision by the Court on certain discovery sanctions and indemnification
obligations, Dynalectric was required to pay the Subcontractor a total of $2.73
million, of which the Company was responsible for two-thirds. The Subcontractor
filed an action to vacate the arbitration award and indicated its intention to
pursue other actions against Dynalectric and the Company. Effective December 27,
1999, the Subcontractor, the Company and Dynalectric executed a mutual
settlement finally resolving all issues related to the original Subcontractor
allegations and the court and arbitration proceedings. Under the settlement
terms, Dynalectric was obligated to pay the Subcontractor $3.0 million,
two-thirds of which was ultimately paid by the Company. The resolution of these
matters did not have a material impact on the Company's results of operations or
financial condition.
In November, 1994, the Company acquired an information technology business which
was involved in various disputes with federal and state agencies, including two
contract default actions and a qui tam suit by a former employee alleging
improper billing of a federal government agency customer. The Company has
contractual rights to indemnification from the former owner of the acquired
subsidiary with respect to the defense of all such claims and litigation, as
well as all liability for damages when and if proven. In October 1995, one of
the federal agencies asserted a claim against the subsidiary and gave the
Company notice that it intended to withhold payments against the contract under
which the claim arose. The agency withheld approximately $3.0 million due the
Company under one of the aforementioned disputes. In January, 2000, pursuant to
a settlement negotiated by the former subsidiary owner, the federal agency
repaid the Company approximately $2.8 million of the offset funds. The Company
is pursuing a claim against the former subsidiary owner for the balance of the
offset amount, plus interest since the date of offset. The offset amount,
excluding interest, is included in accounts receivable and contracts in process
on the balance sheet as of December 30, 1999. The Company believes that it has
meritorious claims for the recovery of these amounts under the terms of the
acquisition agreement indemnification provisions.
In December of 1997, a subsidiary of the Company filed an action against an
unrelated teaming partner to enforce the terms of a teaming agreement under
which the subsidiary was to receive a subcontract upon the award of a ship
operation contract to the teaming partner. The teaming partner filed a counter
claim against the Company's subsidiary alleging approximately $15 million of
damages related to the subsidiary's alleged interference with the teaming
partner's efforts to purchase a ship. The subsidiary is defending against the
counter claim and believes that it has meritorious defenses. The resolution of
this matter is not expected to have a material impact on the Company's results
of operations or financial condition.
As to environmental issues, neither the Company, nor any of its subsidiaries, is
named a Potentially Responsible Party (as defined in the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA)) at any site.
The Company, however, did undertake, as part of the 1988 divestiture of a
petrochemical engineering subsidiary, an obligation to install and operate a
soil and water remediation system at a subsidiary research facility site in New
Jersey and also is required to pay the costs of continued operation of the
remediation system. In addition, the Company, pursuant to the 1995 sale of its
Commercial Aviation Business, is responsible for the costs of clean-up of
environmental conditions at certain designated sites. Such costs may include the
removal and subsequent replacement of contaminated soil, concrete, and
underground storage tanks, that existed prior to the sale of the Commercial
Aviation Business. The resolution of these matters is not expected to have a
material impact on the Company's results of operations or financial condition.
The Company believes it has adequate accruals for any liability it may incur
arising from the designated sites.
The Company is a party to other civil and contractual lawsuits that have arisen
in the normal course of business for which potential liability, including costs
of defense, constitutes the remainder of the $41.0 million discussed above. The
estimated probable liability for these issues is approximately $18.0 million and
is substantially covered by insurance. All of the insured claims are within
policy limits and have been tendered to and accepted by the applicable carriers.
The Company has recorded an offsetting asset (Other Assets) and liability (Other
Liabilities and Deferred Credits) of $18.0 million at December 30, 1999 for
these items.
The Company has recorded its best estimate of the aggregate liability that will
result from these matters. While it is not possible to predict with certainty
the outcome of litigation and other matters discussed above, it is the opinion
of the Company's management, based in part upon opinions of counsel, insurance
in force, and the facts currently known, that liabilities in excess of those
recorded, if any, arising from such matters would not have a material adverse
effect on the results of operations, consolidated financial condition or
liquidity of the Company over the long-term. However, it is possible that the
timing of the resolution of individual issues could result in a significant
impact on the operating results and/or liquidity for one or more future
reporting periods.
The major portion of the Company's business involves contracting with
departments and agencies of, and prime contractors to, the U.S. Government, and
such contracts are subject to possible termination for the convenience of the
government and to audit and possible adjustment to give effect to unallowable
costs under cost-type contracts or to other regulatory requirements affecting
both cost-type and fixed-price contracts. Payments received by the Company for
allowable direct and indirect costs are subject to adjustment and repayment
after audit by government auditors if the payments exceed allowable costs.
Audits have been completed on the Company's incurred contract costs through 1995
with the exception of two contracts. Reports on several completed audits have
not been issued pending resolution of minor items. The Company has included an
allowance for excess billings and contract losses in its financial statements
that it believes is adequate based on its interpretation of contracting
regulations and past experience. There can be no assurance, however, that this
allowance will be adequate. The Company is aware of various costs questioned by
the government, but cannot determine the outcome of the audit findings at this
time. In addition, the Company is occasionally the subject of investigations by
various investigative organizations, resulting from employee and other
allegations regarding business practices. In management's opinion, there are no
outstanding issues of this nature at December 30, 1999 that will have a material
adverse effect on the Company's consolidated financial condition, results of
operations or liquidity.
(21) Business Segments
The Company has three reportable segments, DynCorp Information and Enterprise
Technology ("DI&ET"), DynCorp Technical Services ("DTS") and DynCorp Information
Systems LLC ("DIS"). These three reportable segments are strategic business
units that provide distinctly different services to a variety of customers.
DI&ET designs, develops, supports and integrates software and hardware systems
to provide customers with comprehensive solutions for information management and
engineering needs. DTS provides services ranging from aviation maintenance to
multifaceted aerospace sciences, technology and avionics engineering. DIS offers
a full range of integrated telecommunications services and information
technology solutions in the area of professional services, business systems
integration, information infrastructure solutions and information technology
operations and support.
The Company evaluates performance based primarily on operating profit, but also
evaluates return on net assets and days sales outstanding. Operating profit is
the excess of revenues over operating expenses and certain nonoperating
expenses.
The Company derived 93%, 95% , and 97% of its revenues from contracts and
subcontracts with the U.S. Government in 1999, 1998, and 1997 respectively.
Prime contracts comprised 75% of revenue in 1999 and 72% of revenue in 1998 and
1997, respectively. Prime contracts with the Department of Defense ("DoD")
represented 40%, of revenue in 1999 and 1998, respectively, and 45% in 1997. In
1999, the Company's second largest customer was the Department of Energy,
comprising 12% of revenue. No other customer accounted for more than 10% of
revenues in any year.
Revenue, operating profit, identifiable assets, capital expenditures, and
depreciation and amortization by segment are presented below:
Fiscal Years Ended
1999 1998 (c) 1997 (c)
------ --------- ---------
Revenue
DI&ET $ 635,881 $ 633,089 $ 553,334
DTS 695,499 600,618 592,603
DIS 13,901 - -
---------- ---------- ----------
$1,345,281 $1,233,707 $1,145,937
========== ========== ==========
Operating Profit
DI&ET $ 30,575 $ 31,138 $ 25,581
DTS 31,523 26,525 23,007
DIS 989 - -
---------- ----------- --------
63,087 57,663 48,588
---------- ----------- --------
Corporate general and
administrative 21,741 18,630 17,785
Interest expense 18,943 14,144 12,432
Interest income (1,393) (1,600) (2,018)
Goodwill amortization (a) 2,958 1,575 1,560
Costs associated with divested
businesses 286 530 8,157
Minority interest included in
operating profit (2,968) (2,081) (1,439)
Acquisition costs 8,461 1,336 2,203
Other miscellaneous (148) (1,566) (1,235)
---------- ----------- ---------
Earnings from continuing
operations before income
taxes, minority interest,
and extraordinary item $ 15,207 $ 26,695 $ 11,143
========== ========= ========
Fiscal Years Ended
1999 1998 1997
------ ----- -----
Identifiable Assets
DI&ET $ 205,798 $ 193,094 $ 137,956
DTS 173,629 141,514 104,230
DIS 206,083 - -
Corporate (b) 54,163 44,630 147,936
---------- ---------- --------
$ 639,673 $ 379,238 $390,122
========== ========== ========
(a) 1999 includes write off of the unamortized goodwill balance of an impaired
investment.
(b) 1997 includes assets related to probable insurance indemnification
recoveries pertaining to a former subsidiary (see Note 20(a)).
(c) Data has been restated to give recognition to the 1999 composition of
reportable segments.
Fiscal Years Ended
1999 1998 1997
---- ---- ----
Capital Expenditures
--------------------
DI&ET $ 8,266 $ 2,064 $ 2,433
DTS 2,519 1,129 1,820
DIS 872 - -
Corporate 2,221 1,604 857
-------- -------- --------
$ 13,878 $ 4,797 $ 5,110
======== ======== ========
Fiscal Years Ended
1999 1998 1997
----- ----- -----
Depreciation and Amortization
-----------------------------
DI&ET $ 6,641 $ 5,651 $ 3,775
DTS 2,132 1,349 2,337
DIS 860 - -
Corporate 3,939 1,825 3,776
--------- -------- -------
$ 13,572 $ 8,825 $ 9,888
========= ======== =======
The equity in net income of investees accounted for by the equity method
included in operating profit and the amount of investment in equity method
investees included in identifiable assets for each segment is presented below:
Fiscal Years Ended
1999 1998 1997
------ ------ ------
Equity Investees Earnings
-------------------------
DTS $ 362 $ 1,563 $ 1,130
--------- --------- -----------
$ 362 $ 1,563 $ 1,130
========= ========= ===========
Fiscal Years Ended
1999 1998 1997
----- ----- -----
Investment in Equity Investees
------------------------------
DTS $ 2,490 $ 4,136 $ 3,834
--------- --------- ---------
$ 2,490 $ 4,136 $ 3,834
========= ======== =========
(22) Quarterly Financial Data (Unaudited)
A summary of quarterly financial data for 1999 and 1998 is as follows:
1999 Quarters 1998 Quarters
-------------------------------------- --------------------------------------
First Second Third Fourth(a) First Second Third Fourth(b)
----- ------ ----- --------- ----- ------ ----- ---------
Revenues $311,886 $321,262 $334,635 $377,498 $297,873 $303,602 $316,358 $315,874
Gross profit 16,517 17,442 16,114 14,969 13,937 15,675 16,297 14,647
Earnings from continuing operations
before income taxes, minority interest
and extraordinary item 7,588 5,490 6,532 (4,403) 4,859 5,853 7,196 8,787
Minority interest 1,103 205 590 1,070 420 528 485 648
Net earnings (loss) 3,891 3,312 3,636 (4,850) 2,663 3,195 4,026 5,171
Net Earnings (loss) per common share:
Basic earnings (loss) per share $0.38 $0.33 $0.37 $(0.49) $ 0.27 $ 0.31 $ 0.39 $ 0.50
Diluted earnings (loss) per share $0.38 $0.32 $0.36 $(0.49) $ 0.25 $ 0.30 $ 0.38 $ 0.50
[FN]
(a) 1999 Fourth Quarter includes:
- In-process research and development write-off and amortization of DIS
goodwill and other intangibles
(b) 1998 Fourth Quarter includes:
- $2,500 reversal of reserve for contract compliance issues
</FN>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are:
Name Age Position
- ---- --- --------
Dan R. Bannister 69 Director and Chairman of the Board
T. Eugene Blanchard 69 Director
Russell E. Dougherty 79 Director
Paul G. Kaminski 57 Director
Paul V. Lombardi 58 Director, President and Chief Executive
Officer *
Dudley C. Mecum II 65 Director
David L. Reichardt 57 Director, Senior Vice President and General
Counsel *
H. Brian Thompson 61 Director
Herbert S. Winokur, Jr. 56 Director and Chairman of the Executive
Committee
Robert B. Alleger, Jr. 54 Vice President, Technical Services and
President of the Technical Services Business
Unit
John J. Fitzgerald 46 Vice President and Controller *
Patrick C. FitzPatrick 60 Senior Vice President and Chief Financial
Officer *
Paul T. Graham 33 Vice President and Treasurer
H. Montgomery Hougen 64 Vice President and Secretary and Deputy
General Counsel
Roxane P. Kerr 51 Senior Vice President, Human Resources and
Administration *
Marshall S. Mandell 57 Senior Vice President, Corporate Development *
James P. McCoy 56 President of the Information Systems business
unit *
Ruth Morrel 45 Vice President, Law and Compliance
Henry H. Philcox 59 Vice President and Chief Information Officer
Charlene A. Wheeless 35 Vice President, Corporate Communications
Robert G. Wilson 58 Vice President and General Auditor
* Officers designated by an asterisk are deemed to be "officers" for
purposes of Rule 16a-1(f), as promulgated in Release No. 34-28869.
DIRECTORS
Dan R. Bannister Director since 1985
Mr. Bannister, age 69, Chairman of the Board, has served in that capacity since
1997. He served as President of the Company from 1984 to 1997 and as Chief
Executive Officer from 1985 to 1997. He retired as an active employee of the
Company in 1999. He is a director of ITC Learning Corporation. His current term
as a director expires in 2001.
T. Eugene Blanchard Director since 1988
Mr. Blanchard, age 69, served as Senior Vice President and Chief Financial
Officer from 1979 to 1997, when he retired as an active employee of the Company.
He is the Chairman of the Company's Employee Stock Ownership Plan Committee and
a trustee of the Employee Stock Ownership Plan Trust. He is a director of
Landmark Systems Corporation. His current term as a director expires in 2000.
Russell E. Dougherty Director since 1989
General Dougherty, age 79, was an attorney with the law firm of McGuire, Woods,
Battle & Boothe until his retirement in 1999. He is a retired General, United
States Air Force, who served as Commander-in-Chief, Strategic Air Command and
Chief of Staff, Allied Command, Europe. From 1980 to 1986, he served as
Executive Director of the Air Force Association and Publisher of Air Force
Magazine. He was formerly a member of the Defense Science Board; trustee of the
Institute for Defense Analysis; and trustee of The Aerospace Corp. His current
term as a director expires in 2000.
Paul G. Kaminski Director since 1997
Dr. Kaminski, age 57, also served as a director of the Company from 1988 to
1994. He is President and Chief Executive Officer of Technovation, Inc.
(consulting and investment banking). He served in the United States Department
of Defense as Under Secretary of Defense for Acquisition and Technology from
1994 to 1997. He was Chairman and Chief Executive Officer of Technology
Strategies & Alliances (strategic partnership consulting) from 1993 to 1994. He
is a director of Anteon Corporation; Condor Systems, Inc.; DeCrane Aircraft
Holdings, Inc.; Eagle Picher Technologies, LLC; and General Dynamics
Corporation. His current term as a director expires in 2001.
Paul V. Lombardi Director since 1994
Mr. Lombardi, age 58, has served as President and Chief Executive Officer since
1997. He served as Chief Operating Officer from 1995 to 1997; as Executive Vice
President from 1994 to 1997; as Vice President from 1992 to 1994; as President
of the Federal Sector from 1994 to 1995; and as President of the Government
Services Group from 1992 to 1994. He was Senior Vice President and Group General
Manager, Planning Research Corporation from 1990 to 1992. He is a director of
Avid Medical Systems, Inc. His current term as a director expires in 2000.
Dudley C. Mecum II Director since 1988
Mr. Mecum, age 65, is a Managing Director of Capricorn Holdings LLC (private
investment company). He was a partner, G. L. Ohrstrom & Co. (investment firm)
from 1989 to 1997. He served as Group Vice President and Director, Combustion
Engineering, Inc. from 1985 to 1988, and previously as Vice Chairman, Peat,
Marwick & Mitchell. He is a director of CCC Information Services Group, Inc.;
Citigroup Inc.; Lyondell, Inc.; Suburban Propane Partners LLP; and Travelers
Property and Casualty Inc. His current term as a director expires in 2000.
David L. Reichardt Director since 1988
Mr. Reichardt, age 57, has served as Senior Vice President and General Counsel
of the Company since 1986. He served as President of Dynalectric Company, a
former subsidiary of the Company, from 1984 to 1986 and as Vice President and
General Counsel of DynCorp from 1977 to 1984. His current term as a director
expires in 2001.
H. Brian Thompson Director since 1999
Mr. Thompson, age 61, has served as Chairman and Chief Executive Officer of
Global TeleSystems Group, Inc. since March 1999. He was Chairman and Chief
Executive Officer of LCI International Inc. from 1991 to 1998 and Vice Chairman
of Qwest Communications International Inc. from June to December 1998. From
1981 to 1990, he was Executive Vice President, MCI Communications Corporation.
He is a director of Bell Canada International Inc. and Williams Communications
Group, Inc. and a member of the management committee of Paging Brazil Holding
Company, LLC. His current term as a director expires in 2002.
Herbert S. Winokur, Jr. Director since 1988
Mr. Winokur, age 56, served as Chairman of the Board from 1988 to 1997. He is
Chairman and Chief Executive Officer of Capricorn Holdings, Inc. (private
investment company) and Managing General Partner of three Capricorn Investors
limited partnerships concentrating on investments in restructure situations. He
was formerly Senior Executive Vice President and Director, Penn Central
Corporation. He is a director of Azurix Corp.; CCC Information Services Group,
Inc.; ENRON Corporation; Mrs. Fields Holdings, Inc.; and The WMF Group, Ltd. His
current term as a director expires in 2002.
OTHER EXECUTIVE OFFICERS
In addition to the executive officers named above, who are also directors, the
Company's executive officers include:
Robert B. Alleger, Jr., age 54, Vice President, Technical Services, has served
in that capacity since 1996 and as President of DynCorp Technical Services,
Inc. and President of the Technical Services business unit since January 1999.
He served as President of the Aerospace Technology business unit from 1996
through 1998. He was Vice President, Systems Support Services, Lockheed Martin
Services, Inc. from 1992 to 1996 and Vice President, Business Development, GE
Government Services, General Electric Company from 1989 to 1992.
John J. Fitzgerald, age 46, Vice President and Controller, has served in that
capacity since 1997. He was Vice President and Controller, PRC, Inc. from 1992
to 1997; Chief Financial Officer and Treasurer of American Safety Razor Company
from 1990 to 1992; Vice President and Controller of American Bank Stationery
Company from 1988 to 1990; and Chief Financial Officer and Treasurer of
Physician's Pharmaceutical Services, Inc. from 1986 to 1988.
Patrick C. FitzPatrick, age 60, Senior Vice President and Chief Financial
Officer, has served in that capacity since 1997. He also served as Treasurer
during 1997. He was Chief Financial Officer, American Mobile Satellite
Corporation from 1996 to 1997; Senior Vice President and Chief Financial Officer
of PRC, Inc. from 1992 to 1996; and President and Chief Operating Officer,
Oxford Real Estate Management Services from 1990 to 1992.
Paul T. Graham, age 33, Vice President and Treasurer, has served in that
capacity since 1997. He was Finance Manager of the Company from 1992 to 1994,
Assistant Treasurer from 1994 to 1997, and Director of Finance from 1995 to
1997.
H. Montgomery Hougen, age 64, Vice President and Secretary and Deputy General
Counsel, has served as a Vice President since 1994 and as Corporate Secretary
and Deputy General Counsel since 1984.
Roxane P. Kerr, age 51, Senior Vice President, Human Resources and
Administration, has served in that capacity since 1998. She was Director of
Human Resources, North America, LucasVerity Plc from 1993 to 1998 and a private
human resources consultant from 1992 to 1993.
Marshall S. Mandell, age 57, Senior Vice President, Corporate Development, has
served in that capacity since 1998. He served as Vice President, Business
Development from 1994 to 1998. He also served as Acting President of the
Information and Engineering Technology strategic business unit from 1997 to
1998. He served as Vice President, Business Development, Applied Sciences Group
from 1992 to 1994. He was Senior Vice President, Eastern Computers, Inc. from
1991 to 1992 and President of the Systems Engineering Group, Ogden/Evaluation
Research Corporation from 1984 to 1991.
James P. McCoy, age 56, President of DynCorp Information Systems LLC, has served
in that capacity and as President of the Information Systems business unit since
December 1999. He served as Executive Vice President of the Information &
Enterprise Technology business unit from 1998 to December 1999. He was Senior
Vice President of the Professional Technical Services business unit of GRC
International, Inc. from 1995 to 1997.
Ruth Morrel, age 45, Vice President, Law and Compliance, has served in that
capacity since 1994. She served as Group General Counsel from 1984 to 1994.
Henry H. Philcox, age 59, Vice President and Chief Information Officer, has
served in that capacity since 1995. He was Chief Information Officer of the
Internal Revenue Service from 1990 to 1995.
Charlene A. Wheeless, age 35, Vice President, Corporate Communications, has
served in that capacity since February 2000. She served as Director, Corporate
Communications from 1996 to 2000 and as Manager, Corporate Communications from
1992 to 1995. She was Director, Employee Communications for PRC, Inc. from 1995
to 1996.
Robert G. Wilson, age 58, Vice President and General Auditor, has served in that
capacity since 1985.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that all required persons filed all required reports
under Section 16 of the Securities Exchange Act in a timely manner.
Item 11. Executive Compensation
The following table sets forth information regarding annual and long-term
compensation for the chief executive officer and the other four most highly
compensated executive officers of the Company (the "named executive officers").
The table does not include information for any fiscal year during which a named
executive officer did not hold such a position with the Company.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual compensation Awards
Other Securities
annual underlying All other
Name and principal position Salary ($) Bonus compen-sation options/SARs (#) compensation
(a) Year (c) ($) (1) ($) (f) ($) (2)
(b) (d) (e) (i)
Paul V. Lombardi 1999 370,400 78,000 -- 70,000 11,940
President & Chief 1998 342,104 185,300 -- -- 14,283
Executive Officer 1997 332,789 160,000 177 -- 8,307
Patrick C. FitzPatrick 1999 272,170 43,300 -- 30,000 14,840
Senior Vice President & 1998 248,947 129,800 -- -- 10,896
Chief Financial Officer 1997 241,933 90,000 -- 100,000 11,060
Marshall S. Mandell 1999 224,446 36,200 -- 30,000 9,191
Senior Vice President 1998 212,724 87,300 -- 40,000 10,854
Business Development 1997 204,248 73,300 364 -- 10,155
David L. Reichardt 1999 272,170 43,300 -- 30,000 14,191
Senior Vice President & 1998 248,947 204,800 -- -- 16,706
General Counsel 1997 245,082 90,000 244 -- 11,738
Robert B. Alleger, Jr. 1999 227,077 103,500 -- 35,000 13,007
President of the Technical 1998 191,585 88,200 -- 20,000 12,788
Services business unit 1997 184,777 81,000 141 -- 9,252
<FN>
(1) Column (d) reflects bonuses earned and expensed during year, whether
paid during or after such year. Twenty percent of executive incentive
plan bonuses is normally paid in the form of shares of Common Stock,
valued at then-current market value.
(2) Column (i) includes respective individual's pro rata share of the
Company's contribution to the Employee Stock Ownership Plan ("ESOP"),
Company-matching contributions to the Savings and Retirement Plan
("SARP") and the imputed income, according to IRS tax tables, for
Company-paid premiums for supplemental executive retirement plan life
and term life insurance. These amounts are:
</FN>
ESOP contributions ($) SARP contributions ($) Imputed Income ($)
Name 1999(1) 1998 1997 1999 1998 1997 1999 1998 1997
Mr. Lombardi 4,320 4,435 4,356 2,886 3,000 2,850 4,735 6,848 1,101
Mr. FitzPatrick 4,320 4,435 4,356 2,500 2,338 1,267 8,020 4,122 5,437
Mr. Mandell 4,320 4,435 4,356 2,143 2,143 2,361 2,728 4,277 3,438
Mr. Reichardt 4,320 4,435 4,356 3,125 3,125 1,269 6,746 9,146 6,112
Mr. Alleger 4,320 4,435 4,356 4,570 2,106 -- 3,937 6,247 4,896
<FN>
(1) Individual allocations of 1999 ESOP contributions have been estimated.
</FN>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential realizable value
at assumed annual rates of
stock price appreciation for
option term
Individual Grants
Number of Percent of total
securities options/ SARs
underlying granted to Exercise or
options/SARs employees in base price Expiration
Name granted (#) fiscal year ($/Share) date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
Mr. Lombardi 70,000 15.2% $24.50 7/15/09 2,793,735 4,448,710
Mr. FitzPatrick 30,000 6.5% $24.50 7/15/09 1,197,315 1,906,590
Mr. Mandell 30,000 6.5% $24.50 7/15/09 1,197,315 1,906,590
Mr. Reichardt 30,000 6.5% $24.50 7/15/09 1,197,315 1,906,590
Mr. Alleger 35,000 7.6% $24.50 7/15/09 1,396,868 2,224,355
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of securities
underlying unexercised Value of unexercised
options/SARs at fiscal in-the-money options/ SARs
year-end (#) at fiscal year-end ($)
Shares acquired
on exercise(#) Value Exercisable/ Exercisable/
Name (b) realized ($) Unexercisable Unexercisable
(a) (c) (d) (e)
Mr. Lombardi -- -- 86,000 114,000 599,200 284,800
Mr. FitzPatrick -- -- 40,000 90,000 160,000 240,000
Mr. Mandell -- -- 38,000 74,500 204,000 123,500
Mr. Reichardt -- -- 65,000 65,000 442,000 223,000
Mr. Alleger -- -- 21,800 61,200 100,280 78,520
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has established a Supplemental Executive Retirement Plan for
certain senior executives, including the named executive officers, whereby the
individuals (or their beneficiaries) receive payments having an aggregate amount
equal to 150% of the sum of their final annual salary rate plus their final
target annual bonus, paid over the ten-year period following their normal
retirement, disability retirement, and, in some cases, early retirement. Upon
their death following such retirement, the individuals' beneficiaries will also
receive an additional aggregate lump-sum payment equal to one-half of the
foregoing amount. In the event of their death prior to retirement, the
individuals' beneficiaries will receive, in lieu of the foregoing payments, an
aggregate lump-sum payment equal to 100% of the sum of their final annual salary
rate plus their final target annual bonus. The Company funds some of such
potential payments through split-dollar life insurance policies.
CHANGE-IN-CONTROL AGREEMENTS
The Company has entered into change-in-control agreements with the named
executive officers (the "Severance Agreements"). Each Severance Agreement
provides that certain benefits, including a lump-sum payment, will be triggered
if the executive is terminated following a change in control of the Company,
unless termination occurs under certain circumstances set forth in the Severance
Agreements. A change in control would occur if the Company were to be
substantially acquired by a new owner or if a majority of the Board of Directors
were replaced. The Severance Agreements currently expire on December 31, 2000
but are subject to annual automatic renewal unless terminated by the Board of
Directors. The amount of such lump-sum payment would be 2.99 times the sum of
the executive's annual salary and the average incentive compensation for the
three prior years. Other benefits include payment of incentive compensation not
yet paid for the prior year and a pro rata portion of incentive compensation
awards for the current year. Each Severance Agreement also provides a reduction
if the proposed payments exceed the amount the Company is entitled to deduct on
its federal income tax return. The Severance Agreements also provide that the
Company will reimburse the individual for legal fees and expenses incurred by
the executive as a result of termination.
COMPENSATION OF DIRECTORS
Mr. Bannister receives an annual fee of $144,000 to serve as Chairman of
the Board and member of various Board committees and to provide other services
to the Company.
Other non-employee directors of the Company receive an annual retainer fee
of $20,000 as directors and $2,750 for each committee on which they serve. The
chairmen of the Business Ethics and Compliance, Compensation, and Executive
Committees receive an additional annual fee of $2,000, and the chairman of the
Audit Committee receives an additional annual fee of $3,000. The Company also
pays non-employee directors a meeting fee of $1,000 for attendance at each Board
meeting and $500 for attendance at committee meetings. Directors are reimbursed
for expenses incurred in connection with attendance at meetings and other
Company functions.
In 1999, 5,000 stock options, having an exercise price equal to the
then-current fair market value, were awarded to Mr. Thompson, pursuant to the
Company's 1995 Stock Option Plan.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
The Company has purchased and paid the premium for insurance in respect of
claims against its directors and officers and in respect of losses for which the
Company may be required or permitted by law to indemnify such directors and
officers. The directors insured are the directors named herein and all directors
of the Company's subsidiaries. The officers insured are all officers and
assistant officers of the Company and its subsidiaries. There is no allocation
or segregation of the premium as regards specific subsidiaries or individual
directors and officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee are current or former
employees of or have a business or other relationship with the Company. No
executive officer of the Company serves on the board of directors or
compensation committee of any entity (other than subsidiaries of the Company)
whose directors or executive officers served on the Board of Directors or
Compensation Committee of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2000, the Company had 10,410,958 shares of Common Stock
outstanding, which constituted all the outstanding voting securities of the
Company. If all shares issuable upon exercise of all vested and unvested options
and shares issuable as a result of expiration of deferrals under a former
Restricted Stock Plan were to be issued, the outstanding voting securities
following such events (the "fully diluted shares") would consist of 11,998,981
shares of Common Stock. The following tables show beneficial ownership of
outstanding voting shares as a percentage of currently outstanding stock and
beneficial ownership of issued and issuable shares as a percentage of common
stock on a fully diluted basis assuming all such exercises and issuances.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table presents information as of March 15, 2000, concerning
the only beneficial owners of five percent or more of the outstanding shares of
the Company's common stock.
Name and address of Amount & nature of Percent of
beneficial owner ownership shares
DynCorp Employee Stock Ownership Plan Trust 7,451,989 71.6%
c/o DynCorp Direct (1)
11710 Plaza America Drive
Reston, Virginia 20190
DynCorp Saving and Retirement Plan Trust 763,758 7.3%
c/o DynCorp Direct (1)
11710 Plaza America Drive
Reston, Virginia 20190
(1) The Trusts hold these shares for the accounts of several thousand
participants who are current or former employees of the Company. The
Trustees vote the shares in accordance with instructions received from
participants.
SECURITY OWNERSHIP OF MANAGEMENT
The following table presents information as of March 15, 2000 concerning
the beneficial ownership of the Company's common stock by directors and named
executive officers and all directors and officers as a group. Shares held
indirectly include those held on behalf of the individuals in the ESOP and SARP
Trusts.
Amount & nature of ownership
Name and title of beneficial owner Outstanding Obtainable within Total Percent of
shares 60 days (1) shares (2)
R. B. Alleger, Jr. 2,239 28,400 30,639 Direct *
President of the Technical Services 4,303 4,303 Indirect
business unit
D. R. Bannister 263,289 132,000 395,289 Direct }3.7%
Chairman of the Board & Director 48,290 48,290 Indirect
T. E. Blanchard(3) 38,426 64,900 103,326 Direct }1.3%
Director 51,828 51,828 Indirect
R. E. Dougherty 4,276 0 4,276 Direct *
Director
P. C. FitzPatrick 2,720 50,000 52,720 Direct *
Senior Vice President & Chief 4,257 4,257 Indirect
Financial Officer
P. G. Kaminski 0 7,500 7,500 Direct *
Director
P. V. Lombardi 25,334 104,000 129,334 Direct }1.1%
President, Chief Executive Officer
& Director 7,750 7,750 Indirect
M. S. Mandell 5,501 54,000 59,501 Direct *
Senior Vice President, Corporate 3,367 3,367 Indirect
Development
D. C. Mecum II 2,825 2,500 5,325 Direct *
Director
D. L. Reichardt 28,738 80,000 108,738 Direct 1.0%
Senior Vice President, General 6,425 6,425 Indirect
Counsel & Director
H. B. Thompson 0 0 0
Director
H. S. Winokur, Jr. 25,639 0 25,639 Direct }3.6%
Director 409,773 409,773 Indirect
All directors and officers as a group 439,969 593,800 1,033,769 Direct }13.5%
580,434 580,434 Indirect
[FN]
(1) Column reflects shares issuable upon exercise of options, which will be
vested as of the end of such period.
(2) Reflects aggregate direct and indirect shares as a percentage of fully
diluted shares. An asterisk indicates that beneficial ownership is less than
one percent of the class.
(3) Mr. Blanchard disclaims beneficial ownership of 40,000 shares owned by
his spouse.
</FN>
Item 13. Certain Relationships and Related Transctions
Mr. Blanchard serves as Chairman of the Administrative Committee for the
Company's Employee Stock Ownership Plan and as a trustee of the Employee Stock
Ownership Plan Trust. He is compensated at an hourly fee rate and is reimbursed
for expenses. Total fees in the amount of $48,000 were paid to Mr. Blanchard in
1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. All financial statements.
2. Financial statement Schedules.
Schedule II - Valuation and Qualifying Accounts for the Years Ended December
30, 1999 and December 31, 1998 and 1997.
All other financial schedules not listed have been omitted since the required
information is included in the Consolidated Financial Statements or the notes
thereto, or is not applicable or required.
3. Exhibits.
Exhibit Description
3.1 Certificate of Incorporation, as currently in effect, consisting of
Amended and Restated Certification of Incorporation (incorporated by
reference to Registrant's Form 10-K/A for 1995, File No. 1-3879)
3.2 Registrant's By-laws as amended to date (incorporated by reference
to Registrant's Form S-1, File No. 1-3879)
4.1 Indenture and supplement, dated April 18, 1997 between Dyn Funding
Corporation (a wholly-owned subsidiary of the Registrant) and Bankers
Trust Company relating to Contract Receivable Collateralized Notes
(incorporated by reference to Registrant's Post-Effective Amendment
No. 1 on Form S-2 to Form S-1, File No. 33-59279)
4.2 Indenture, dated March 17, 1997, between the Registrant and United
States Trust Company of New York relating to the 9 1/2% Senior
Subordinated Notes due 2007 (incorporated by reference to Registrant's
Form S-4, File No. 333-2535)
4.3 Specimen Common Stock Certificate (incorporated by reference to
Registrant's Form 10-K for 1988, File No. 1-3879)
4.4 Article Fourth of the Amended and Restated Certificate of
Incorporation (incorporated by reference to Registrant's Form 10-K
for 1992, File No. 1-3879)
4.5 Second Amended and Restated Credit Agreement by and among Citicorp
North America, Inc., certain lenders, and the Registrant dated May
15, 1997 (incorporated by reference to Registrant's Form S-4, File No.
333-2535)
4.6 Stockholders Agreement (incorporated by reference to Registrant's
Form S-1, File No. 33-59279)
10.1 Deferred Compensation Plan (incorporated by reference to
Registrant's Form 10-K for 1987, File No. 1-3879)
10.2 Management Incentive Plan (incorporated by reference to Registrant's
Form 10-K for 1997, File No. 1-3879)
10.3 Executive Incentive Plan (incorporated by reference to Registrant's
Form 10-K for 1997, File No. 1-3879)
10.4 Severance Agreements (incorporated by reference to Exhibits (c)(4)
through (c)(12) to Schedule 14D-9 filed by Registrant January 25,
1998)
10.5 Amendment to Severance Agreement of Paul V. Lombardi, Vice President,
Government Services Group and currently President and Chief Executive
Officer (incorporated by reference to Registrant's Form 10-K for 1993,
File No. 1-3879)
10.6 Amendment to Severance Agreement of Patrick C. FitzPatrick, Senior
Vice President and Chief Financial Officer (incorporated by reference
to Registrant's Form 10-K for 1996, File No. 1-3879)
10.7 Amendment to Severance Agreement of David L. Reichardt, Senior Vice
President and General Counsel (incorporated by reference to
Registrant's Form 10-K for 1996, File No. 1-3879)
10.8 Restricted Stock Plan (incorporated by reference to Registrant's
Form 10-K/A for 1995, File No. 1-3879)
10.9 1995 Stock Option Plan, as amended (incorporated by reference to
Registrant's Form 10-K for 1997, File No. 1-3879)
21 Subsidiaries of the Registrant (filed herewith)
23 Consent of Independent Public Accountants (filed herewith)
(b) Reports on Form 8-K
Form 8-K was filed on December 27, 1999 for the December 10, 1999 acquisition of
100% of the limited liability company interest of GTE Information Systems LLC
from Contel Federal Systems, Inc., a subsidiary of GTE Corporation. Item 7 of
the Form 8-K included the Purchase Agreements, Credit Agreement, and
Registration Rights Agreement.
An amendment to the aforementioned Form 8-K, Form 8-K/A, was filed on February
23, 2000 and included the audited financial statements of Information Systems
Division as of December 31, 1998 and 1997, together with auditors' report, the
unaudited pro forma combined statements of operation for the nine-month and
twelve-month periods ending September 30, 1999 and December 31, 1998,
respectively, giving effect to the acquisition, and the notes to the unaudited
pro forma combined financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DYNCORP
March 22, 2000 By: /s/ P.V. Lombardi
------------------
P. V. Lombardi
President and Chief
Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ P. V. Lombardi
_____________________ President and Director March 22, 2000
P. V. Lombardi (Chief Executive Officer)
/s/ P.C. FitzPatrick
_____________________ Senior Vice President - March 22, 2000
P. C. FitzPatrick Chief Financial Officer
/s/ D.L. Reichardt
_____________________ Senior Vice President - March 22, 2000
D. L. Reichardt General Counsel and Director
/s/ J.J. Fitzgerald
_____________________ Vice President March 22, 2000
J. J. Fitzgerald and Controller
(Chief Accounting Officer)
/s/ D.R. Bannister
_____________________ Director March 22, 2000
D. R. Bannister
/s/ T.E. Blanchard
_____________________ Director March 22, 2000
T. E. Blanchard
/s/ H.S. Winokur, Jr.
_____________________ Director March 22, 2000
H. S. Winokur, Jr.
/s/ D.C. Mecum II
_____________________ Director March 22, 2000
D. C. Mecum II
/s/ R.E. Dougherty
____________________ Director March 22, 2000
R. E. Dougherty
/s/ P.G. Kaminski
____________________ Director March 22, 2000
P. G. Kaminski
/s/ H.B. Thompson
____________________ Director March 22, 2000
H. B. Thompson
DynCorp and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Fiscal Years Ended, 1999, 1998 and 1997
(Dollars in thousands)
Balance at Charged to Write-off of Balance
Beginning Costs and Uncollectible at End of
Description of Period Expenses Accounts Other Period
Year Ended December 30, 1999
Allowance for doubtful accounts $ 1,126 $ 1,434 $(130) $ 726 $3,156
Year Ended December 31, 1998
Allowance for doubtful accounts $ 476 $ 900 $(234) $ (16) $1,126
Year Ended December 31, 1997
Allowance for doubtful accounts $ 229 $ 629 $(382) $ - $ 476