SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2000 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
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:
Common Stock
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| 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 is based on the Company's March 15, 2001 internal
market price of $31.00 per share. Approximately 4.6% of outstanding voting stock
is held by nonaffiliates and has an aggregate market value of $14,952,478.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 10,435,954 shares of common
stock having a par value of $0.10 per share were outstanding March 22, 2001.
TABLE OF CONTENTS
2000
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 3-4
6. Selected Financial Data 5-6
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-13
8. Financial Statements and Supplementary Data
Report of Independent Public Accountants 14
Financial Statements
Consolidated Balance Sheets
Assets 15
Liabilities and Stockholders' Equity 16
Consolidated Statements of Operations 17
Consolidated Statements of Cash Flows 18
Consolidated Statements of Stockholders' Equity 19
Notes to Consolidated Financial Statements 20-36
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 36
Part III
10.Directors and Executive Officers of the Registrant 37-39
11.Executive Compensation 40-42
12.Security Ownership of Certain Beneficial Owners and Management 42-43
13.Certain Relationships and Related Transactions 44
Part IV
14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K 44-45
Signatures 46
Schedule II-Valuation and Qualifying Accounts 47
PART I
ITEM 1. BUSINESS
General Information
DynCorp and subsidiaries (collectively the "Company") provide 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 Departments of Defense, Energy, State, and
Justice, 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 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 programs, 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 fiscal years ended 2000, 1999, and 1998 were $909.6 million, $695.5
million, and $600.6 million, respectively.
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, government operational outsourcing, network and
communications engineering, seat management, metrology engineering,
healthcare information and technology services and security and
intelligence programs. Revenues for fiscal years ended 2000, 1999, and
1998 were $671.4 million, $635.9 million, and $633.1 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. Revenues for the fiscal year ended 2000 and the twenty days
ended December 30, 1999, were $228.1 million and $13.9 million,
respectively. 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 and $233.6
million for 1999 and 1998, 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 $6.1 billion at December 28, 2000, compared to
December 30, 1999 backlog of $4.4 billion, a net increase of $1.7 billion. The
net increase in backlog was primarily due to two domestic U.S. Air Force
aviation maintenance contracts and two international programs with the U.S. Air
Force and U.S. Army awarded in 2000 to DTS. The backlog at December 28, 2000
consisted of $3.9 billion for DTS, $1.8 billion for DI&ET, and $0.4 billion for
DIS compared to December 30, 1999 of $2.2 billion for DTS, $1.7 billion for
DI&ET, and $0.5 billion for DIS. Of the total backlog at December 28, 2000, $4.6
billion is expected to produce revenues after 2001: DTS $3.0 billion, DI&ET $1.3
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. The Company derived 98%, 93%, and 95% of its revenues from
contracts and subcontracts with the U.S. Government in 2000, 1999, and 1998
respectively. Prime contracts comprised 79% of revenue in 2000, 75% of revenue
in 1999, and 72% of revenue in 1998. Prime contracts with the Department of
Defense ("DoD") represented 44% of revenue in 2000, and 40% of revenue in 1999
and 1998, respectively. In 2000, 1999, and 1998, 99% of the Company's prime
contract revenue was from the U.S. Government.
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 the contracts with foreign customers 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 20,000
employees worldwide, the Company is one of the largest employee-owned companies
in the United States.
Employees
At December 28, 2000, the Company employed 19,404 full-time and 1,438 part-time
employees. Approximately 993 employees were located outside of the United
States. Of the Company's U.S. employees, 4,223 were covered by various
collective bargaining agreements with labor unions.
At year-end, the Company had approximately 432 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 pay off the mortgage on the property.
ITEM 3. LEGAL PROCEEDINGS
This item is incorporated herein by reference to Note 18 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 2000.
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 and the Capital Accumulation and Retirement Plan
("Savings Plans"), 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 trustees of the Savings Plans ; and
- eligible employees and directors, on a pro rata basis.
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 first to the next 10,000 shares offered by
each remaining seller and then to the next 20,000 shares offered by each
remaining seller, and offers to sell in excess of 30,500 shares will then be
accepted on a pro rata basis.
The foregoing procedure does not apply to "accelerated distribution" shares to
be sold by the Savings Plan trustees. In February 2001, terminated ESOP
participants who were scheduled to receive distributions in 2002 and later
years were offered the opportunity to accelerate the distribution of those
shares they would otherwise receive in those years. Electing participants must
put their shares to the trust, which will sell as many shares on the Internal
Market as there are purchase orders remaining after the procedure described in
the foregoing paragraph is completed. The cash proceeds from such sales will be
used to pay the put purchase price. The number of accelerated distribution
shares on each Internal Market trade date will be equal to the number of shares
which the trustee can sell, and each electing participant will receive a pro
rata distribution.
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 for the past two years.
Quarter Ended Formula Price ($) Market Factor
------------- ----------------- -------------
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
March 30, 2000 22.75 1.50
June 29, 2000 23.50 1.39
September 28, 2000 22.75 1.24
December 28, 2000 29.00 0.94
There were approximately 767 and 722 record holders of DynCorp common stock at
December 28, 2000 and December 30, 1999, respectively. The Savings Plans' Trusts
owns 8,539,382 shares, or 82% of total outstanding shares, on behalf of
approximately 40,000 current and former employees of the Company. Cash dividends
have not been paid on the common stock since 1988. The Company's financing
instruments severely restrict its ability to pay cash dividends.
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.) References to "note" are the
footnotes to the audited Consolidated Financial Statements.
Fiscal Year Ended
-----------------
Dec 28 Dec 30 Dec 31 Dec 31 Dec 31
2000 (a) 1999 (b) 1998 (c) 1997 (d) 1996 (e)
-------- -------- -------- -------- --------
Statement of Operations Data:
Revenues $ 1,809,109 $ 1,345,281 $ 1,233,707 $ 1,145,937 $ 1,021,453
Cost of services $ 1,705,257 $ 1,280,239 $ 1,173,151 $ 1,096,246 $ 970,163
Corporate general and administrative $ 29,350 $ 21,741 $ 18,630 $ 17,785 $ 18,241
Interest expense $ 41,408 $ 18,943 $ 14,144 $ 12,432 $ 10,220
Earnings from continuing operations before
extraordinary item and certain other
expenses (f) $ 10,042 $ 9,487 $ 15,585 $ 15,579 $ 12,774
Earnings from continuing operations before
extraordinary item (g) $ 9,894 $ 7,590 $ 15,055 $ 7,422 $ 11,949
Net earnings $ 9,894 $ 5,989 $ 15,055 $ 7,422 $ 14,629
Common stockholders' share of net earnings $ 8,052 $ 5,895 $ 15,055 $ 7,422 $ 12,345
EBITDA (h) $ 81,308 $ 42,112 $ 45,226 $ 29,274 $ 34,948
Earnings per share from continuing operations
before extraordinary item
Basic $ 0.94 $ 0.75 $ 1.47 $ 0.83 $ 1.14
Diluted $ 0.92 $ 0.73 $ 1.43 $ 0.70 $ 0.82
Common stockholders' shares of net earnings
Basic $ 0.77 $ 0.59 $ 1.47 $ 0.83 $ 1.46
Diluted $ 0.75 $ 0.57 $ 1.43 $ 0.70 $ 1.05
Balance Sheet Data:
Total assets $ 644,341 $ 639,673 $ 379,238 $ 390,122 $ 368,752
Long-term debt excluding current maturities $ 283,889 $ 334,944 $ 152,121 $ 152,239 $ 103,555
Redeemable common stock $ 246,330 $ 189,116 $ 183,861 $ 154,840 $ 139,322
<FN>
(a) 2000 includes $5,998 for the replacement of core systems, including DIS
systems.
(b) 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 research and development write-off $6,400, settlement of
a suit with a former electrical subcontractor $2,200, and write-off of
cost in excess of net assets acquired of consolidated subsidiary $1,234.
(c) 1998 includes reversal of $670 reserve for asbestos litigation (see Note
18 (a)), $1,177 accrual for subcontractor suit, reversal of $2,500
reserve for contract compliance issues, and $2,159 expense for the
replacement of core systems.
(d) 1997 includes $7,800 accrual of costs related to asbestos litigation
(see Note 18 (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 12).
(e) 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.
(f) Certain other expenses include costs and expenses associated with
divested businesses of $148 in 2000, $1,897 in 1999, $530 in 1998,
$8,157 in 1997, and $825 in 1996.
(g) The extraordinary loss, net of income taxes, in 1999 of $1,601 resulted
from the early extinguishment of debt.
(h) EBITDA as defined by management consists of net earnings before
extraordinary item, income tax provision, net interest expense,
depreciation and amortization. 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. See Item 7 for
further discussion on EBITDA.
</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 2000, 1999, and 1998. 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 U.S.
Departments of Defense, Energy, State, and Justice, 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.
On December 10, 1999, the Company acquired GTE Information Systems LLC, a
subsidiary of GTE Corporation and changed its name to DynCorp Information
Systems LLC. It operates as a separate subsidiary of the Company. The
acquisition was accounted for as a purchase; accordingly, operating results for
DynCorp Information Systems LLC have been included from the date of acquisition.
The Company has three Strategic Business Segments: DynCorp Information and
Enterprise Technology ("DI&ET"), DynCorp Technical Services ("DTS") and DynCorp
Information Systems LLC ("DIS").
Revenue and Operating Profit
In 2000, revenue increased by $463.8 million, or 34.5%, from 1999 compared to a
$111.6 million, or 9.0%, increase in 1999 revenue over 1998. Operating profit,
defined as the excess of revenues over operating expenses and certain
nonoperating expenses, increased by $37.5 million, or 59.4%, from 1999 compared
to a $5.4 million, or 9.4%, increase in 1999 operating profit from 1998. The
operating profit was $100.6 million, $63.1 million, and $57.7 million in 2000,
1999, and 1998, respectively. The growth in revenue and operating profit was due
to new contract wins, increased tasking on existing contracts, and the full year
impact of DIS, which was acquired in late 1999. DIS accounted for approximately
$214.2 million, or 46.2%, of the revenue increase and approximately $16.8
million, or 44.9%, of the operating profit increase from 1999.
DTS revenue and operating profit showed significant growth for the twelve months
ended December 28, 2000. Revenues were $909.6 million in 2000 compared to $695.5
million in 1999, an increase of $214.1 million or 30.8%. Operating profit
increased by $10.9 million to $42.4 million, or 34.6%, from $31.5 million in
1999. The increase in revenue resulted from stronger growth in its international
services, logistics support and aviation services businesses. International
services had increased tasking on State Department contracts providing
protective support and police services in several countries, increased services
on a contract in support of the government's drug eradication program, and
increases on an international logistical support contract including work in
Bosnia and East Timor. There were several new military base contracts for
logistics services and increases in the level of tasking on contracts providing
repair and maintenance on military aircraft. DTS's revenues were also increased
by the phase-in of a new contract with the U.S. Army in the fourth quarter of
2000. The increase in operating profit resulted from higher revenue as noted
above. In addition, operating profits grew faster than revenues due to improved
profit margins in some of its service areas. These increases in operating
profits were offset slightly by a decrease in profits on a DTS start-up venture.
The DTS business unit increased backlog by 77.3% over 1999 to $3.9 billion at
December 28, 2000, primarily due to the award of several significant aviation
maintenance contracts including two domestic U.S. Air Force bases (Andrews AFB
and Vance AFB) and two international programs: one with the U.S. Army and the
other with the U.S. Air Force. They also won several key recompetes including a
significant sole source contract with the U.S. State Department. Due to recent
contract wins, management believes the DTS business area will continue to grow
in 2001, but at a slower rate than that experienced 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. Due to the recent significant global contract wins, DTS will continue
to focus on an international strategy, while maintaining and developing its
strong aviation services and infrastructure support markets.
DTS revenues increased $94.9 million, or 15.8%, to $695.5 million in 1999 as
compared to $600.6 million in 1998. Operating profit increased by $5.0 million,
or 18.8%, from $26.5 million in 1998 to $31.5 million in 1999. 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 to provide technical and support services to the U.S. Air Force at
Columbus Air Force Base. 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.
DI&ET revenues were $671.4 million in 2000, an increase of $35.5 million, or
5.6% over 1999 revenues of $635.9 million. The revenue increases were primarily
due to increases on a subcontract for the Department of Commerce for the 2000
Census, which began generating revenue in the second half of 1999, and growth of
revenues on a contract with the U.S. Postal Service, which began operations in
1999 and was fully operational in 2000. Also contributing to DI&ET's increased
revenues was growth in a joint venture for vaccine technology services for the
Department of Defense, which was just starting up in 1999, increased tasking on
several General Services Administration Indefinite Delivery Indefinite Quantity
("IDIQ") contracts, higher volumes on data abstraction and analysis contracts in
health information technology services, and an outsourcing contract awarded in
late 1999 with the Department of Housing and Urban Development which became
operational in 2000. Partially offsetting these increases in revenue were the
loss of a subcontract for the U.S. Postal Service and a contract with the
Immigration and Naturalization Service. Revenues on these two contracts in 1999
totaled $55.5 million.
The subcontract for the Department of Commerce for the 2000 Census will report
significantly lower revenues in the first quarter of 2001, due to the expected
wind-down of the contract. This subcontract reported revenues of $44.6 million
in 2000. Management expects that two new contracts awarded in 2000, one with the
Department of Defense providing end-to-end personnel security investigation
services and the other with the General Services Administration providing
battlefield simulation for the U.S. Army, will partially offset this lost
revenue in 2001.
DI&ET's operating profit increased by $9.7 million to $40.3 million from $30.6
million in 1999, a 31.8% increase. The largest increase in operating profit
resulted from the Department of Commerce 2000 Census subcontract, which provided
$4.7 million of the increase. DI&ET experienced growth in operating profits on
several General Services Administration IDIQ contracts and its joint venture for
vaccine technology services for the Department of Defense. Also contributing to
the increase in operating profit were operating losses in 1999 on certain
contracts that did not continue in 2000. Offsetting the increase in operating
profit was the loss of the Immigration and Naturalization Service contract in
1999, which had $3.8 million in operating profit in 1999.
DI&ET's 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 subcontract from the Department of Commerce for the
2000 Census 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 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.
Operating profit decreased slightly by $0.6 million, or 1.8% to $30.6 million in
1999 from $31.1 million in 1998. 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 subcontract from the Department of Commerce for the
2000 Census, 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.
Management believes DI&ET's revenues will grow in 2001 similar to the 2000
growth rate. However, much of the growth will be dependent upon DI&ET's success
in obtaining 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 revenues
of $228.1 million in 2000 and $13.9 million for the twenty-day period ended
December 30, 1999. Operating profit was $17.8 million in 2000 and $1.0 million
for the twenty-day period in 1999. 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 and
$233.6 million for 1999 and 1998, respectively. A lack of new contract awards to
DIS has resulted in modest revenue growth. Management believes that DIS'
revenues will continue to grow modestly in 2001.
Cost of Services
Cost of services was 94.3%, 95.2%, and 95.1% of revenue in 2000, 1999, and 1998,
respectively. The decrease in the cost of services percentage of revenue from
1999 was attributable to the higher margin DIS business acquired in 1999,
partially offset by significant growth in the lower margin DTS business. DIS
cost of services were 92.4% and 92.9% of revenue in 2000 and 1999, respectively.
DTS cost of services was 95.3% and 95.5% of revenue in 2000 and 1999,
respectively. Cost of services increased by $425.0 million from 1999, or 33.2%.
DIS cost of services comprised $197.8, or 46.5%, of the increase from 1999. Cost
of services increased by $107.1 million from 1998, or 9.1%.
Corporate General and Administrative
Corporate general and administrative expense increased in 2000 by $7.6 million,
or 35.0%, over 1999, to $29.4 million as compared to $21.7 million and $18.6
million in 1999 and 1998, respectively. Corporate general and administrative
expense as a percentage of revenue was 1.6% in 2000 and 1999, and 1.5% in 1998.
The higher expense in 2000 was primarily due to increased costs for converting
DIS to the Company's financial systems and increases in the cost of corporate
operations. Management expects corporate general and administrative costs to be
slightly less in 2001 as a result of the completion of the conversion of DIS to
the Company's financial systems.
The increase in corporate general and administrative expense in 1999 compared to
1998 resulted from the Company's deployment of new financial and human resource
software packages. During these two years, the software design and development
stage of the project was completed, and related costs were capitalized as
intangible assets. Corporate general and administrative expenses were reduced in
1999 by $2.0 million and in 1998 by $2.5 million due to reversal of reserves for
old contract compliance issues, which were settled in the Company's favor during
those years.
Interest Expense and Interest Income
Interest expense for 2000 was $41.4 million, or 2.3% of revenues, as compared to
$18.9 million, or 1.4% of revenues reported for 1999. The increase in interest
expense was attributable to higher average debt levels and higher average
interest rates in 2000, as compared to 1999. The average annual levels of
borrowing were approximately $337.2 million in 2000 compared to $203.8 million
in 1999. The average annual levels of borrowing and the average interest rates
increased in 2000 over 1999 as a result of the acquisition of DIS in December
1999, which the Company financed through additional borrowings under higher cost
debt instruments (see working capital and cash flow discussion).
Interest expense was $18.9 million in 1999, up from $14.1 million in 1998. The
increase in interest expense was attributable to higher average debt levels
throughout 1999, $0.5 million interest expense associated with the settlement of
a subcontractor suit from a former electrical contracting subsidiary, and a $0.7
million refund of interest expense from the Internal Revenue Service in 1998.
The refund decreased 1998 interest expense and therefore increased the change in
1999 expense compared to 1998. The average annual levels of borrowing were
approximately $203.8 million in 1999 compared to $163.1 million in 1998. The
average annual level of indebtedness increased in 1999 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). At the end of 1999,
the Company borrowed an additional $167.5 million for the acquisition of DIS.
Interest income was $1.5 million, $1.4 million, and $1.6 million in 2000, 1999,
and 1998, 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. In 2000, the Company received $0.5 million in
interest income on tax refunds due to amendments of prior years' tax returns.
The twelve-month average balance of cash and short-term investments was $16.1
million in 2000, $19.8 million in 1999, and $10.9 million in 1998.
Amortization of Intangibles of Acquired Companies
Amortization of intangibles of acquired companies increased by $3.9 million to
$15.4 million in 2000 compared to $11.4 million in 1999. In 1999, amortization
of intangibles of acquired companies increased by $8.5 million from $2.9 million
in 1998. The increase in amortization of intangibles of acquired companies in
2000 resulted from the full year impact of the amortization of intangible assets
that were recorded in connection with the December 1999 acquisition of DIS. Also
contributing to the increase in amortization of intangibles of acquired
companies was the finalization of the purchase accounting related to the evalu-
ation of the estimated future cash flows of contracts and other assets acquired
from GTE Information Systems LLC. Based on these evaluations, the Company
increased certain reserves by $70.1 million and wrote off $19.4 million of
assets and expenses to those reserves during 2000. These changes resulted in in-
creases to intangibles of acquired companies of $45.9 million (which accordingly
resulted in an increase in the amortization of intangibles of acquired
companies) and increases to deferred tax assets of $24.2 million.
The increase in amortization of intangibles of acquired companies in 1999
resulted mostly from the amortization of intangible assets recorded in
connection with the acquisition of DIS. In 1999, there was also an in-process
research and development write-off of $6.4 million associated with the acqui-
sition of DIS and a write-off of $1.2 million of cost in excess of net assets
acquired for a business that was divested in February 2000. Amortization
costs related to the DIS intangibles in 2000 and 1999 totaled $13.5 million and
$7.1 million (which includes the $6.4 million write-off), respectively.
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. Based on current
projections, management estimates income tax payments, net of tax refunds, of
$12.8 million in 2001.
No valuation allowance for deferred federal tax assets was deemed necessary at
December 28, 2000 or December 30, 1999. The Company has provided a valuation
allowance for deferred state tax assets of $5.5 million and $4.8 million at
December 28, 2000 and December 30, 1999, respectively, 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 $142.5
million at December 28, 2000 compared to $165.2 million at December 30, 1999, a
decrease of $22.7 million. The ratio of current assets to current liabilities at
December 28, 2000 was 1.6 compared to 1.7 at December 30, 1999. The decrease is
primarily the result of lower accounts receivable due to faster customer
collections and increases in certain accrued expenses. During 2000, management
placed a greater emphasis on its receivable collection and cash management.
These decreases were offset by payments of the current portions of the long-term
debt.
For the year ended December 28, 2000, the Company's cash flow from operations
was $55.7 million, increasing $41.8 million from $13.8 million cash provided by
operations in 1999. The increase resulted primarily from higher customer
collections, partially offset by payments on accounts payable. In 1999, the
increase in cash flow from operations over 1998 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 in operations was $7.8 million and resulted
mostly from increases in accounts receivable due to increased revenues and
start-up of new contracts and the settlement of the Fuller-Austin bankruptcy.
Cash provided by investing activities for the year ended December 28, 2000
totaled $8.1 million. In February 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 pay off the mortgage on the
property. In October 2000, the Company sold various high-end communications
equipment on a DIS contract to a third party for $20.4 million and
simultaneously closed on a lease of the equipment from the new owner. Offsetting
the cash provided from these sales was cash used for the purchase of property
and equipment of approximately $21.0 million, which included approximately $11.1
million of equipment purchased in the first half of 2000 and sold in the October
2000 sale-leaseback transaction as noted above. Management expects purchases of
equipment and property to be lower in 2001. In September 2000, the Company
purchased $1.6 million of certain net assets of a company which develops and
markets proprietary decision-support software and provides related consulting
services to evaluate and profile performance of providers engaged by healthcare
payers. Also in September 2000, the Company sold $2.3 million of certain net
assets of a DTS aerospace research and development unit. The purchase price in
both of these transactions is subject to adjustment.
Cash used in investing activities in 1999 totaled $185.0 million and included
acquisition costs of $167.5 million and capital expenditures of $19.8 million.
Acquisition costs were related to the acquisition of DIS in December 1999.
Capital expenditures included $13.9 million for the purchase of property and
equipment and $5.9 million for new software for internal use. The Company had
capitalized a total of $11.6 million of costs related to internal use software
as of December 30, 1999. Investing activities used funds of $20.1 million in
1998, principally for the acquisition of FMAS for $10.2 million, the purchase of
property and equipment of $4.8 million, and the purchase of new software for
internal use of $5.6 million.
In 2000, financing activities used funds of $56.4 million primarily for
voluntary prepayments on the Senior Secured Credit Agreement Term A and B Loans,
the Revolving Credit Facility and the mortgage on the Alexandria, Virginia
office building that the Company sold in the first quarter of 2000. The Company
reduced its outstanding borrowings under the Term A Loans by $30.0 million, the
Term B Loans by $23.1 million, and the Revolving Credit Facility by $7.0
million. Offsetting these reductions in cash flows was the net receipt of $2.7
million of payments on loans from the Employee Stock Ownership Trust and the
issuance of $3.4 million of additional 15% Subordinated Notes for pay-in-kind
interest.
In 1999, financing activities provided funds of $172.7 million. The Company
borrowed $223.8 million under a Senior Secured Credit Agreement. The borrowings
were 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. 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.
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 customer 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.
On December 10, 1999, the Company and its wholly owned subsidiary, Dyn Funding
Corporation, 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. 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 28, 2000 and December 30,
1999, the Company was in compliance with these covenants.
As of December 28, 2000 the Company's total debt was $284.0 million, a decrease
of $59.2 million from December 30, 1999, primarily due to voluntary prepayments
on the Term A and Term B Loans.
On December 28, 2000, the Company voluntarily repaid $30.0 million of Term A
Loans, prepaying all scheduled principal installments due in 2001 and partially
prepaying the scheduled principal installment due in February 2002. As a
consequence of this prepayment, the Term A Loans are to be repaid in an
installment of $1.3 million in February 2002 and then eleven quarterly
installments of $6.3 million beginning in May 2002. On March 7, 2000, the
Company voluntarily repaid $7.1 million of Term B Loans, prepaying all scheduled
principal payments of Term B Loans from February 2001 through December 2004, and
partially prepaying the scheduled principal payment due in February 2005. On
December 28, 2000, the Company voluntarily repaid $15.0 million of Term B Loans,
prepaying the remaining scheduled principal payment due in February 2005 and
partially prepaying the scheduled principal payment due in May 2005. As a
consequence of these prepayments, the Term B Loans are to be repaid in an
installment of $5.7 million in May 2005 and then six quarterly installments of
$11.9 million beginning in August 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 28, 2000, there were no
borrowings under the revolving line of credit, and at December 30, 1999, there
were $7.0 million of borrowings. Letters of credit outstanding were $9.5 million
and $7.4 million at December 28, 2000 and December 30, 1999, respectively, under
the line of credit. The amount available was $80.5 million and $75.6 million,
respectively, as of December 28, 2000 and December 30, 1999.
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 ("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 to the
Consolidated Financial Statements). The Subordinated Notes bear interest at
15.0% per annum, payable semi-annually. The Company may, at its option, prior to
December 15, 2004, pay the interest in cash or in additional Subordinated Notes.
On December 28, 2000, the Company paid $3.2 million cash interest on the
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.
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 several significant operating leases for facilities, furniture
and equipment. Minimum lease payments over the next 11 years are estimated to be
$220.6 million, including $37.2 million in 2001. Of the $37.2 million 2001
minimum lease payments, $12.9 million related to DIS leases (including the sale
and leaseback of various high-end communications equipment as noted above),
$10.4 million the Company entered into under a contract with the U.S. Postal
Service, and $6.5 million related to the new corporate headquarters building.
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.
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.
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 estate of 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.
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 U.S. 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. Readers are cautioned
that the Company's definition of EBITDA may not necessarily be comparable to
similarly titled captions used by other companies due to the potential
inconsistencies in the method of calculation. The following represents the
Company's computation of EBITDA (in thousands):
For Fiscal Years Ended
----------------------
2000 1999 1998
---- ---- ----
Net earnings $ 9,894 $ 5,989 $15,055
Depreciation and amortization 27,494 13,572 8,825
Interest expense, net 39,937 17,550 12,544
Income taxes 6,326 4,649 9,559
Extraordinary item, net of tax - 1,601 -
Amortization of deferred debt expense (2,300) (1,210) (721)
Debt issue discount (43) (39) (36)
------- ------- -------
EBITDA $81,308 $42,112 $45,226
======= ======= =======
In 2000, EBITDA increased by $39.2 million, or 93.1%, to $81.3 million as
compared to 1999. EBITDA decreased by $3.1 million, or 6.9%, to $42.1 million in
1999 over 1998. The increases in EBITDA in 2000, as compared to 1999, are
primarily attributable to higher operating profits. In 2000, operating profits
increased by $37.5 million, or 59% over 1999. DIS, which was purchased in
December 1999, accounted for approximately $16.8 million, or 45.0%, of this
increase. 1999 operating profits increased only by $5.4 million, or 9.4% over
1998. The above net earnings amounts include DIS transition expenses of $5.5
million and $0.1 million in 2000 and 1999, respectively. These expenses relate
to administrative and accounting support provided by the former parent
corporation and affiliates of DIS, which is expected to end by the first quarter
of 2001. Also included in these expenses are costs related to transitioning
these services to the Company. Management expects future administrative and
accounting support services to be significantly less than the 2000 expenses.
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 18(b)
to the Consolidated Financial Statements). The Company's liability, in the
aggregate, with respect to these matters is not expected to be material to the
Company's results of operations or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has a policy to use derivative financial instruments to manage its
market risk exposures from fluctuations in interest rates on its floating rate
debt and foreign exchange rates as warranted. The Company manages its exposure
to this market risk through the monitoring of its available financing
alternatives including, in certain circumstances, the use of derivative
financial instruments. The Company has managed its exposure to changes in
interest rates by effectively capping at 7.5% the base interest rate on a
notional amount of $100.0 million of its LIBOR indexed debt until February 2002.
In December 2000, the Company entered in a two year and 28-day swap agreement,
wherein the Company pays approximately 6.2% annualized interest on a notional
amount of $35.0 million on a quarterly basis beginning on January 4, 2001 and
ending on January 6, 2003. The objective of this transaction is to neutralize
the cash flow variability for the hedged debt. The Company does not hold or
issue derivative financial instruments for trading purposes. For more
information related to the Company's floating rate debt, see Long-term Debt in
the Notes to the Consolidated Financial Statements.
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 28, 2000 and December 30,
1999, and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the two fiscal years in the period ended
December 28, 2000 and the year ended December 31, 1998. These financial state-
ments and the schedule referred to below are the responsibility of the Company's
management.Our responsibility is to express an opinion on these financial state-
ments 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 28, 2000 and December 30, 1999, and the results of its operations and
its cash flows for each of the two fiscal years in the period ended December
28, 2000 and the year 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, Virginia ARTHUR ANDERSEN LLP
March 7, 2001
DynCorp and Subsidiaries
Consolidated Balance Sheets
As of the Fiscal Years Ended
(In thousands)
December 28, December 30,
2000 1999
Assets
- ------
Current Assets:
Cash and cash equivalents $ 12,954 $ 5,657
Accounts receivable and contracts in process, net 334,354 357,411
Prepaid income taxes 1,139 6,558
Other current assets 35,268 28,582
--------- ---------
Total Current Assets 383,715 398,208
Property and Equipment, at cost:
Land 22 621
Buildings and leasehold improvements 13,805 28,957
Machinery and equipment 37,772 32,800
--------- ---------
51,599 62,378
Accumulated depreciation and amortization (23,833) (21,583)
--------- ---------
Net Property and Equipment 27,766 40,795
Intangible Assets, net 181,677 149,159
Deferred Income Taxes 10,980 -
Other Assets 40,203 51,511
--------- ---------
Total Assets $ 644,341 $ 639,673
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
DynCorp and Subsidiaries
Consolidated Balance Sheets
As of the Fiscal Years Ended
(In thousands, except share amounts)
December 28, December 30,
2000 1999
---- ----
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Notes payable and current portion of long-term debt $ 124 $ 8,242
Accounts payable 67,761 85,357
Deferred revenue and customer advances 7,631 6,048
Accrued income taxes 5,904 2,100
Accrued expenses 159,819 131,274
-------- ---------
Total Current Liabilities 241,239 233,021
Long-term Debt 283,889 334,944
Deferred Income Taxes - 4,547
Other Liabilities and Deferred Credits 90,283 51,171
Contingencies and Litigation (Note 18)
Temporary Equity:
Redeemable common stock at redemption value
ESOP shares, 7,504,653 and 7,350,937 shares issued
and outstanding in 2000 and 1999, respectively,
subject to restrictions 238,346 182,974
Other redeemable common stock, 426,217 shares issued
and outstanding in 2000 and 1999 7,984 6,142
Stockholders' Equity:
Common stock, par value ten cents per share, authorized
20,000,000 shares; issued 4,758,897
and 4,908,447 shares in 2000 and 1999, respectively 476 491
Paid-in surplus 134,638 133,338
Accumulated other comprehensive income 3 (9)
Reclassification to temporary equity for redemption value
greater than par value (245,540) (188,339)
Deficit (64,835) (72,887)
Common stock held in treasury, at cost; 2,264,625
and 2,301,262 shares in 2000 and 1999, respectively (42,142) (43,062)
Unearned ESOP shares - (2,658)
-------- ---------
Total Liabilities and Stockholders' Equity $644,341 $ 639,673
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
DynCorp and Subsidiaries
Consolidated Statements of Operations
For the Fiscal Years Ended
(In thousands, except per share amounts)
December 28, December 30, December 31,
2000 1999 1998
---- ---- ----
Revenues $1,809,109 $1,345,281 $1,233,707
---------- ---------- ----------
Costs and expenses:
Cost of services 1,705,257 1,280,239 1,173,151
Corporate general and administrative 29,350 21,741 18,630
Interest expense 41,408 18,943 14,144
Interest income (1,471) (1,393) (1,600)
Amortization of intangibles of acquired companies 15,362 11,419 2,911
Other income (532) (875) (224)
---------- ---------- ----------
Total costs and expenses 1,789,374 1,330,074 1,207,012
---------- ---------- ----------
Earnings from continuing operations before income taxes,
minority interest, and extraordinary item 19,735 15,207 26,695
Provision for income taxes 6,326 4,649 9,559
---------- ---------- ----------
Earnings from continuing operations before minority interest
and extraordinary item 13,409 10,558 17,136
Minority interest 3,515 2,968 2,081
---------- ---------- ----------
Earnings from continuing operations before extraordinary item 9,894 7,590 15,055
Extraordinary loss from early extinguishment of debt, net of income taxes - 1,601 -
---------- ---------- ----------
Net earnings $ 9,894 $ 5,989 $ 15,055
========== ========== ==========
Accretion of other redeemable common stock to redemption value 1,842 94 -
---------- ---------- ----------
Common stockholders' share of net earnings $ 8,052 $ 5,895 $ 15,055
========== ========== ==========
Common stockholders' share of net earnings per common share:
Basic earnings per share $ 0.77 $ 0.59 $ 1.47
Diluted earnings per share $ 0.75 $ 0.57 $ 1.43
Weighted-average number of shares
outstanding for basic earnings per share 10,477 10,044 10,242
Weighted-average number of shares
outstanding for diluted earnings per share 10,704 10,273 10,514
The accompanying notes are an integral part of these consolidated financial
statements.
DynCorp and Subsidiaries
Consolidated Statements of Cash Flows
For the Fiscal Years Ended
(In thousands)
December 28, December 30, December 31,
2000 1999 1998
---- ---- ----
Cash Flows from Operating Activities:
Common stockholders' share of net earnings $ 8,052 $ 5,895 $ 15,055
Adjustments to reconcile net earnings
to net cash provided (used) by operating activities:
Depreciation and amortization 27,494 13,572 8,825
Accretion of other redeemable common stock to redemption value 1,842 94 -
Purchased in-process research and development - 6,400 -
Deferred income taxes (22,230) (7,630) 1,463
Proceeds from insurance settlement for asbestos claims - - 1,462
Change in reserve for divested business - Fuller-Austin - - (10,797)
Changes in reserves for divested business - other - (2,000) (1,698)
Capitalized costs incurred on existing contracts - (2,473) -
Other 914 1,687 (63)
Change in assets and liabilities, net of acquisitions and dispositions:
Decrease (increase) in accounts receivable and contracts
in process 24,853 (37,919) (52,416)
Decrease (increase) in other current assets 1,841 (326) (963)
Increase in current liabilities except notes payable
and current portion of long-term debt 12,888 36,535 31,380
---------- -------- ---------
Cash provided (used) by operating activities 55,654 13,835 (7,752)
---------- -------- ---------
Cash Flows from Investing Activities:
Sale of property and equipment 30,685 610 1,293
Purchase of property and equipment (20,960) (13,878) (4,797)
Capitalized cost of new financial and human resource systems - (5,969) (5,598)
Deferred income taxes from "safe harbor" leases (597) (481) (257)
(Increase) decrease in investment in unconsolidated subsidiaries (1,230) 1,363 (302)
Assets and liabilities of acquired business (1,620) (167,504) (10,239)
Proceeds from sale of business 2,300 - -
Other (496) 884 (231)
---------- -------- ---------
Cash provided (used) by investing activities 8,082 (184,975) (20,131)
---------- -------- ---------
Cash Flows from Financing Activities:
Treasury stock purchased - (7,208) (6,194)
Payments on indebtedness (406,618) (253,491) (20,371)
Proceeds from debt issuance 344,005 428,552 28,113
Pay-in-kind interest on Subordinated Notes 3,397 - -
Proceeds from issuance of redeemable common stock - 6,048 -
Payments received on ESOT loans 2,958 10,577 5,932
Loans to ESOT (300) (11,082) -
Other 119 (687) (111)
---------- -------- ---------
Cash (used) provided by financing activities (56,439) 172,709 7,369
---------- -------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 7,297 1,569 (20,514)
Cash and Cash Equivalents at Beginning of the Fiscal Year 5,657 4,088 24,602
---------- -------- ---------
Cash and Cash Equivalents at End of the Fiscal Year $ 12,954 $ 5,657 $ 4,088
========== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
DynCorp and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Fiscal Years Ended
(In thousands)
Adjustment Accumulated
Common for Redemption Unearned Other
Common Stock Paid-in Value Greater Treasury ESOP Comprehensive
Stock Warrants Surplus than Par Value Deficit Stock Shares Income
----- -------- ------- -------------- ------- ----- ------ ------
Balance, December 31, 1997 $ 478 $1,259 $125,412 $(154,138) $(93,837) $(28,703) $(8,085) $ -
Employee compensation plans
(option exercises, restricted stock
plan,incentive bonus) 4 - 891 - - (960) - -
Treasury stock purchased - - - - - (6,386) - -
Warrants and stock options
exercised 35 (1,259) 903 - - 409 - -
Payment received on ESOT 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, incentive bonus) 7 - (6) - - (321) - -
Stock issued under mezzanine
financing 43 - 6,006 - - - - -
Treasury stock purchased - - - - - (7,208) - -
Warrants and stock options - - 28 - - 107 - -
exercised
Payment received on ESOT note - - - - - - 10,577 -
Loans to ESOT - - - - - - (11,082) -
Reclassification to redeemable
common stock (57) - - (5,105) - - - -
Accretion of other redeemable
common stock to redemption 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)
Employee compensation plans
(option exercises, restricted stock
plan, incentive bonus) - - (542) - - 920 - -
Payment received on ESOT note - - - - - - 2,958 -
Loans to ESOT - - - - - - (300) -
Reclassification to redeemable
common stock (15) - - (55,359) - - - -
Accretion of other redeemable
common stock to redemption value - - 1,842 (1,842) (1,842) - - -
Translation adjustment and other - - - - - - - 12
Net earnings - - - - 9,894 - -
------ ------ -------- --------- -------- -------- ------- ---
Balance, December 28, 2000 $ 476 $ - $134,638 $(245,540) (64,835) (42,142) $ - $ 3
====== ====== ======== ========= ======== ======== ======= ====
The accompanying notes are an integral part of these consolidated financial
statements.
DynCorp and Subsidiaries
Notes to Consolidated Financial Statements
December 28, 2000
(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 U.S. Departments of
Defense, Energy, State, and Justice, 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 Company's fiscal year is the 52 or
53-week period ending the last Thursday in December. Previously, the Company had
a calendar year end.
Use of Estimates:
The preparation of financial statements in conformity with U.S. 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 contract losses,
litigation reserves, and 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 fees 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 the reserve requirement can
be reasonably estimated.
Property and Equipment:
The Company computes depreciation using either the straight-line or double
declining balance method. The estimated useful lives used in computing
depreciation are buildings, 15-33 years; machinery and equipment, 3-15 years;
and leasehold improvements, the lesser of the useful life or the remaining term
of the lease. Depreciation expense was $7,044 for 2000, $5,412 for 1999, and
$4,781 for 1998.
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, net of accumulated amortization, as of
December 28, 2000 and December 30, 1999 are summarized below (in millions):
Amortization
Period 2000 1999
------ ---- ----
Goodwill.................................. 10 to 40 years $154.5 $109.8
Capitalized software...................... 8 years 9.0 10.6
Core and developed technology............ 5 years 6.1 7.6
Contracts acquired........................ up to 10 years 0.6 8.4
Assembled workforce....................... 7 years 5.6 6.5
Patent.................................... 17 years 5.9 6.3
------ ------
Total net intangibles..................... $181.7 $149.2
Intangible assets are being amortized using the straight-line method for the
periods noted above. Intangible asset amortization expense was $16,964, $12,597,
and $3,076 in 2000, 1999, and 1998, respectively. Intangible asset amortization
expense for 1999 includes $1.2 million acceleration of goodwill amortization due
to impairment. Intangible asset accumulated amortization of $66,193 and $55,755
has been recorded through December 28, 2000 and December 30, 1999, 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 will 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
market risk exposures from fluctuations in interest rates on its floating rate
debt and foreign exchange rates as warranted. The Company manages its exposure
to this market risk through the monitoring of its available financing
alternatives including, in certain circumstances, the use of derivative
financial instruments. The Company has managed its exposure to changes in
interest rates by effectively capping at 7.5% the base interest rate on a
notional amount of $100.0 million of its LIBOR indexed debt until February 2002.
In December 2000, the Company entered into a two year and 28-day swap agreement,
wherein the Company pays approximately 6.2% annualized interest on a notional
amount of $35.0 million on a quarterly basis beginning on January 4, 2001 and
ending on January 6, 2003. The objective of this transaction is to neutralize
the cash flow variability for the hedged debt. The Company does not hold or
issue derivative financial instruments for trading purposes.
Recently Issued Accounting Standards:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Hedging Activities - an
Amendment of FASB Statement No. 133." SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income based on the guidelines stipulated in SFAS 133. The Company
adopted the provisions of SFAS 133 and 138 on January 1, 2001. Because of the
Company's limited 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.
In September 2000, the FASB issued SFAS No. 140, which replaces SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," and rescinds SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." SFAS 140 revises SFAS 125's
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of the SFAS 125's provisions without reconsideration. SFAS 140 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. SFAS 140 is to be
applied prospectively with certain exceptions. SFAS 140 is not expected to have
a material impact on the Company's consolidated results of operations or
financial position.
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.
Investing and financing activities include the following:
2000 1999 1998
---- ---- ----
Acquisitions of businesses:
Assets acquired $ 4,403 $ 212,642 $ 11,185
Liabilities assumed (2,783) (45,138) (946)
Cash acquired - 36 -
-------- ---------- --------
Net cash $ 1,620 $ 167,540 $ 10,239
-------- ---------- --------
In 2000, the Company acquired certain assets and liabilities of a company which
developed and marketed proprietary decision-support software and provided
related consulting services to evaluate and profile performance of providers
engaged in healthcare. The Company also acquired GTE Information Systems LLC in
1999 and FMAS Corporation in 1998. The purchase price of these acquisitions has
been allocated to the assets acquired and liabilities assumed based on estimated
fair value at the date of acquisition, under the purchase method of accounting.
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 year ended December 28,
2000, other than net income. Translation adjustment of $(0.01) million is the
only component of comprehensive income for the year ended December 30, 1999,
other than net income.
Reclassifications:
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 values
of the Company's Senior Secured Credit Agreement Loans, Revolving Credit
Facility, and the 15% Subordinated Notes approximated their fair values at
December 28, 2000. The fair value of the Company's 9 1/2% Senior Subordinated
Notes, based on the current rate as if the issue date was December 28, 2000, was
$81.0 million, as compared to a book value of $99.6 million as of December 28,
2000. The fair value of the Company's 9 1/2% Senior Subordinated 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. For the remaining
long-term debt (see Note 4) and other liabilities and deferred credits, the
carrying amounts approximate the fair values.
(3) Accounts Receivable and Contracts in Process, Net
The components of accounts receivable and contracts in process were as follows
for the years ending December 28, 2000 and December 30, 1999:
2000 1999
---- ----
U.S. Government:
Billed and billable $254,731 $238,709
Recoverable costs and accrued profit on progress
completed but not billed 25,801 47,885
Retainage due upon completion of contract 2,006 2,769
-------- --------
282,538 289,363
-------- --------
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 $4,071 in 2000 and $3,156 in 1999) 47,890 52,063
Recoverable costs and accrued profit on progress completed
but not billed 3,926 15,985
-------- --------
51,816 68,048
-------- --------
$334,354 $357,411
======== ========
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 28, 2000 will be collected within one
year except for approximately $2,965.
(4) Long-term Debt
At December 28, 2000 and December 30, 1999, long-term debt consisted of:
2000 1999
---- ----
Senior Secured Credit Agreement - Term A Loan $ 70,000 $100,000
Senior Secured Credit Agreement - Term B Loan 76,900 100,000
Senior Secured Credit Agreement - Revolving Credit Facility - 6,970
15% Subordinated Notes 37,349 33,952
9 1/2% Senior Subordinated Notes 99,627 99,584
8% Mortgage payable - 2,575
Notes payable 137 105
-------- --------
284,013 343,186
Less current portion 124 8,242
-------- --------
$283,889 $334,944
======== ========
Debt maturities as of December 28, 2000, were as follows:
2001 $ 124
2002 20,013
2003 25,000
2004 25,000
2005 29,400
Thereafter 184,476
--------
$284,013
========
On December 10, 1999, the Company and its wholly owned subsidiary, Dyn Funding
Corporation, 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 costs.
On December 28, 2000, the Company voluntarily repaid $30.0 million of Term A
Loans, prepaying all scheduled principal installments due in 2001 and partially
prepaying the scheduled principal installment due in February 2002. As a
consequence of this prepayment, the Term A Loans are to be repaid in an
installment of $1.3 million in February 2002 and then eleven quarterly
installments of $6.3 million beginning in May 2002. On March 7, 2000, the
Company voluntarily repaid $7.1 million of Term B Loans, prepaying all scheduled
principal payments of Term B Loans from February 2001 through December 2004, and
partially prepaying the scheduled principal payment due in February 2005. On
December 28, 2000, the Company voluntarily repaid $15.0 million of Term B Loans,
prepaying the remaining scheduled principal payment due in February 2005 and
partially prepaying the scheduled principal payment due in May 2005. As a
consequence of these prepayments, the Term B Loans are to be repaid in an
installment of $5.7 million in May 2005 and then six quarterly installments of
$11.9 million beginning in August 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 28, 2000 and December 30,
1999, $0 million and $7.0 million of borrowings and $9.5 million and $7.4
million of letters of credit were outstanding, respectively, under the revolving
line of credit. The amount available was $80.5 million and $75.6 million,
respectively, as of December 28, 2000 and December 30, 1999.
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 ("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
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. 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 Subordinated Notes. On December 28, 2000, the Company paid $3.2 million
cash interest on the Subordinated 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 Subordinated 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 2002 to 100.0% in 2005 and thereafter. In addition,
the Company may redeem up to 35.0% of the aggregate principal amount of the
Senior Subordinated 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 Subordinated Notes remains outstanding.
The Senior 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.
The Credit Agreement and indentures for the Subordinated Notes and Senior
Subordinated Notes contain customary restrictions on the ability of the Company
to undertake certain activities, such as the incurrence 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 headquarters property of Technology Applications, Inc.
("TAI") on November 12, 1993, in conjunction with its acquisition of TAI, and
assumed a mortgage on the property of $3.3 million bearing interest at 8.0% per
annum. On February 29, 2000, the Company sold the property for $10.5 million in
cash and simultaneously entered into a lease agreement for the property. The
8.0% mortgage was repaid with proceeds from the sale of the property .
Deferred debt issuance costs are being amortized using the effective interest
rate method over the term of the related debt. At December 28, 2000, and
December 30, 1999, unamortized deferred debt issuance costs were $10,071 and
$12,113, respectively and amortization for 2000, 1999 and 1998 was $2,300,
$1,210, and $721, respectively. Amortization of debt issue discount was $43,
$39, and $36 in 2000, 1999 and 1998, respectively.
Cash paid for interest was $31,458 for 2000, $16,209 for 1999, and $13,454 for
1998.
(5) Accrued Expenses
At December 28, 2000 and December 30, 1999, accrued expenses consisted of the
following:
2000 1999
---- ----
Salaries and wages $ 79,216 $ 73,028
Insurance 25,298 24,147
Interest 7,279 4,313
Payroll and miscellaneous taxes 19,925 12,051
Accrued contingent liabilities and operating reserves
(see Note 18) 21,944 10,105
Other 6,157 7,630
-------- --------
$159,819 $131,274
======== ========
(6) Employee Stock Ownership Plan
In September 1988, the Company established an Employee Stock Ownership Plan
("ESOP"). The Company borrowed $100.0 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, were 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. In 2000, the ESOP utilized 2000
contributions and loans to make the required principal and interest payments on
the aforementioned notes, pay administrative fees, purchase 27,490 shares of
stock on the internal market and purchase 25,175 shares of stock from other
stockholders. At December 28, 2000, there were no unpaid balances on these
subsequent loans. 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 28, 2000, the ESOP owned 7,504,653 shares. The Company recognizes
compensation expense each year based on the cash contribution for the year. In
2000, 1999, and 1998, cash contributions to the ESOP were $13,350, $13,220,
and $12,600, respectively. These amounts were charged to Cost of Services and
Corporate General and Administrative Expenses.
Effective January 1, 2001, the Company established two new plans: the Savings
and Retirement Plan and the Capital Accumulation and Retirement Plan
(collectively, the "Savings Plans"). At the same time, the ESOP was merged into
the two plans. The Company stock accounts of participants in the ESOP were
transferred to one or the other of the Savings Plans, and Savings Plans
participants have the same distribution and put rights for these ESOP shares as
they had in the ESOP. See Note 11 for discussion of the Savings Plans.
(7) Redeemable Common Stock
Common stock which is redeemable has been reflected as Temporary Equity at the
redemption value at each balance sheet date and consists of the following:
Balance at Balance at
Redemption December 28, Redemption December 30,
Shares Value 2000 Shares Value 1999
---------- ---------- ------------ ---------- ---------- ------------
ESOP Shares 3,313,729 $35.25 $ 116,809 3,313,729 $27.50 $ 91,128
4,190,924 $29.00 121,537 4,037,208 $22.75 91,846
--------- ---------- --------- ---------
7,504,653 $ 238,346 7,350,937 $ 182,974
========= ========== ========= =========
Other Redeemable
Common Stock 426,217 $18.73 $ 7,984 426,217 $14.41 $ 6,142
========= ========== ========= =========
ESOP Shares
In accordance with ERISA regulations and the ESOP documents, the ESOP Trust may
purchase and 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 investors, including 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 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", as determined by the
trustee was $35.25 per share as of December 28, 2000. The additional shares
obtained by the ESOP in 1994 through 2000 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 as determined by the
trustee was $29.00 per share as of December 28, 2000. 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 or the Company
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 $35.25 and $29.00 per share as of December 28, 2000, the estimated
maximum contingent liability to repurchase shares from the ESOP participants
upon death, disability, retirement and termination is as follows: $12,018 in
2001, $15,467 in 2002, $17,772 in 2003, $19,095 in 2004, $18,810 in 2005, and
$155,184 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. As explained above in Note 6, the ESOP was merged into the Savings
and Retirement Plan and the Capital Accumulation and Retirement Plan effective
January 1, 2001. All rights and obligations of the ESOP and its participants
remain intact in the new plans.
Other Redeemable Common Stock
On December 10,1999, the Company entered into an agreement with various
financial institutions for the sale of 426,217 shares of the Company's stock and
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 22.0% for the first quarter after the put is not honored up
to 52.0% during the sixteenth quarter. The annual accretion in the fair value of
these shares is reflected as a reduction of common stockholders' share of net
earnings on the consolidated statements of operations.
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 28, 2000:
Redeemable Common Stock
-------------------------------------
Other ESOP Total
----- ---- -----
Balance, December 31, 1997 $3,017 $151,823 $154,840
Shares purchased by ESOP - 1,482 1,482
Shares released from collateral - 5,932 5,798
ESOP diversification (a) - (4,074) (4,074)
Adjustment of shares to fair market value 32 25,649 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
Shares purchased by ESOP - 568 568
Shares purchased on the Internal Market - 612 612
Shares released from collateral - 2,958 2,958
Shares pledged as collateral - (300) (300)
ESOP diversification (a) - (3,838) (3,838)
Adjustment of shares to fair market value 1,842 55,372 57,214
------ -------- --------
Balance, December 28, 2000 $7,984 $238,346 $246,330
====== ======== ========
<FN>
(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.
</FN>
(8) Common Stock
At December 28, 2000, common stock includes those shares issued to outside
investors, officers and directors, current and former employees, the ESOP, 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.
(9) 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 (as defined in the Plan) 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.
(10) Acquisitions
In September 2000, the Company purchased for $2.5 million certain assets and
liabilities of a company which developed and marketed proprietary
decision-support software and provides related consulting services to evaluate
and profile performance of healthcare providers. The purchase price has been
allocated to the assets acquired and liabilities assumed based on preliminary
estimated fair value at the date of acquisition, under the purchase method of
accounting. Goodwill, net of accumulated amortization, associated with this
purchase is $2.9 million as of December 28, 2000.
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. On December 13, 1999, the name of GTE
Information Systems LLC 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. In 2000, the Company
finalized the purchase accounting related to the evaluation of the estimated
future cash flows of contracts and other assets acquired from GTE Information
Systems LLC. Based on these evaluations, the Company increased certain reserves
by $70.1 million. The Company wrote off $19.4 million of assets and expenses to
these reserves during 2000. These changes resulted in increases to goodwill and
deferred tax assets of $45.9 million and $24.2 million, respectively. The
purchase price was allocated to the assets acquired and the liabilities assumed
based on estimated fair value at the date of acquisition. At December 28, 2000,
$110.5 million of goodwill, net of accumulated amortization, is recorded based
on the allocation of the purchase price and is being amortized over 30 years.
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
---- ----
(unaudited) (unaudited)
Revenue $1,560,971 $1,457,870
Net earnings 4,251 3,219
Basic earnings per share $0.42 $0.31
Diluted earnings per share $0.41 $0.31
(11) Savings Plans
In 2000, the Company had a Savings and Retirement Plan ("SARP") which was
intended to qualify under section 401(k) of the Internal Revenue Code ("IRC").
The plan allowed eligible employees to defer 1.0% to 15.0% of their compensation
on a pretax basis for contribution to their SARP accounts. In 1996, the Company
began matching 100.0% of the first 1.0% of employee deferrals and 25.0% of the
next 4.0% of employee contributions, provided the employee contribution was
invested in Company stock funds. Matching contributions are invested in
additional shares of the Company's common stock. As of December 28, 2000, the
SARP held 1,039,376 shares. The Company has expensed approximately $2,617,
$1,937, and $1,624, in 2000, 1999, and 1998, respectively, related to these
matching contributions.
Effective January 1, 2001, the Company revised its SARP to establish two plans:
the Savings and Retirement Plan and the Capital Accumulation and Retirement Plan
("Savings Plans"), which are intended to qualify under section 401(k) of the
IRC. At the same time, the ESOP was merged into the two plans. The Company stock
accounts of participants in the ESOP were transferred to one or the other of the
Savings Plans, and Savings Plan participants have the same distribution and put
rights for these ESOP shares as they had in the ESOP. Substantially all
employees participate in one of the two Savings Plans.
Under the revised Savings and Retirement Plan, the Company may make a match of
up to 50.0% of the first 8.0% of employee salary deferrals and an additional
match of 50.0% of the first 3.0% of such salary deferrals invested in the
Company stock investment funds; the Company may also make a discretionary
contribution of 1.0% of compensation on behalf of participants. All Company
contributions are invested in the company stock investment fund for such
participants. Under the Capital Accumulation and Retirement Plan, the initial
Company match is 25.0% of up to 8.0% of employee salary deferrals and the
Company may make an additional match of 50.0% of the first 3.0% of such salary
deferrals invested in the Company stock investment fund. The Company may also
make a discretionary contribution of 2.0% of compensation. All Company
contributions, other than those used to pay administrative expenses are either
in the form of Company stock or must be used by the Savings Plans to acquire
Company stock.
(12) 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
2000 1999 1998
---- ---- ----
Domestic operations $ 20,132 $ 15,936 $ 26,909
Foreign operations (397) (729) (214)
-------- -------- -------
$ 19,735 $ 15,207 $ 26,695
======== ======== ========
The provision (benefit) for income taxes consisted of the following:
Fiscal Years Ended
2000 1999 1998
---- ---- ----
Current:
Federal $ 14,254 $ 1,577 $ 7,616
Foreign 1,700 120 22
State 471 636 458
--------- --------- --------
16,425 2,333 8,096
--------- --------- --------
Deferred:
Federal (10,369) 4,461 2,933
Foreign - - (1,470)
State (486) (2,167) 298
--------- --------- --------
(10,855) 2,294 1,761
---------- --------- --------
Valuation Allowance:
Federal - - -
State 756 22 (298)
--------- --------- --------
756 22 (298)
--------- --------- --------
Total $ 6,326 $ 4,649 $ 9,559
========= ========= ========
The components of deferred taxes are as follows:
December 28, December 30,
2000 1999
---- ----
Deferred tax (liabilities) assets:
Employee benefits $ (902) $ (1,933)
Contracts revenue recognition (11,480) (17,739)
Other, net (847) (653)
-------- ----------
Total deferred tax liabilities (13,229) (20,325)
-------- ----------
Deferred tax assets (liabilities):
Deferred compensation 1,085 922
Operating reserves and other accruals 14,144 13,572
Depreciation and amortization 1,420 (1,118)
Increase due to federal rate change 335 335
Benefit of state tax on temporary
differences and state net operating
loss carryforwards 5,514 5,028
-------- ----------
Total deferred tax assets 22,498 18,739
-------- ----------
Total temporary differences
before valuation allowances 9,269 (1,586)
Valuation allowances:
State (5,514) (4,758)
-------- ----------
Total temporary differences
affecting tax provision 3,755 (6,344)
"Safe harbor" leases (4,035) (4,632)
Acquired contingent reserves 26,899 9,946
-------- ----------
Net deferred tax asset (liability) $ 26,619 $ (1,030)
======== ==========
No valuation allowance was required for the Company's federal deferred tax
assets at December 28, 2000 and December 30, 1999. 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 asset(liability) includes current deferred tax assets of $15,639 and $3,517
as of December 28, 2000 and December 30, 1999, 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 1996.
Cash paid for income taxes was $5,514 for 2000, $4,942 for 1999, and $7,338 for
1998.
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
2000 1999 1998
------- ------- -------
Expected federal income tax provision $ 6,907 $ 5,322 $ 9,343
Minority interest not included in tax provision (831) (446) (277)
State and local income taxes, net of
federal income tax benefit (provision) 482 (1,637) 297
Nondeductible amortization of intangibles
and other costs 1,235 1,173 724
Foreign income tax provision (benefit) 1,700 120 (1,448)
Foreign and fuel tax credits (2,614) (54) (27)
Other, net (553) 171 947
------- ------- -------
Tax provision $ 6,326 $ 4,649 $ 9,559
======= ======= =======
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
---------- ----------------
2000 $ 705
2001 592
2002 3,482
2003 743
2004 2,506
Through 2019 68,096
--------
$ 76,124
========
(13) Pension and Postretirement Benefits Plans
Multiemployer Pension Plan
- --------------------------
Union employees who are not participants in the ESOP or Savings Plans 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 2000, 1999, and 1998, the Company expensed $4,481, $4,241,
and $3,782, 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 Pension Plans
- -----------------------------------------------
On December 11, 1999, the Company's subsidiary, DIS, 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's employees.
The benefits to be paid under this plan are generally based on years of credited
service and average final earnings. DIS'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 DIS'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.
Postretirement Benefit Plan
- ---------------------------
On December 11, 1999, a majority of DIS's employees became covered under a
postretirement healthcare and life insurance benefit plan sponsored by DIS. The
determination of benefit cost for the postretirement health plan is generally
based on comprehensive hospital, medical and surgical benefit plan provisions.
The following is a reconciliation of the benefit obligations, plan assets, and
funded status of the Company's Defined Benefit Pension and Union Pension Plans
and Postretirement Benefit Plan:
Change in Benefit Obligation Pension Benefits Postretirement Benefits
---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
Benefit obligation at beginning of year $ 44,553 $ - $ 21,608 $ -
Service cost 2,953 153 188 10
Interest cost 3,642 173 1,631 84
Actuarial (gain) loss (3,803) - 779 -
Participant contributions - - 96 5
Acquisitions - 44,281 - 21,593
Benefits paid (9,808) (54) (1,670) (84)
-------- -------- -------- --------
Benefit obligation at end of year $ 37,537 $ 44,553 $ 22,632 $ 21,608
Change in Plan Assets Pension Benefits Postretirement Benefits
---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
Fair value of assets at beginning of year $ 57,604 $ - $ 12,090 $ -
Actual return on plan assets 2,743 258 - 41
Unrecognized net actuarial (loss) gain (1,605) - 1,545 -
Acquisitions - 57,400 - 12,049
Employer contributions - - (3,495) 79
Employee contributions - - 96 5
Benefits paid (9,808) (54) (1,670) (84)
-------- -------- -------- --------
Fair value of assets at end of year $ 48,934 $ 57,604 $ 8,566 $ 12,090
Funded Status Reconciliation Pension Benefits Postretirement Benefits
---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
Funded status $13,003 $ 13,051 $(15,611) $ (9,518)
Unrecognized net actuarial (loss) gain (1,605) - 1,545 -
------- -------- --------- ---------
Net prepaid (unfunded) benefit cost $11,398 $ 13,501 $(14,066) $ (9,518)
Assumptions Pension Benefits Postretirement Benefits
---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
Discount rate 7.50% 7.75% 7.50% 7.75%
Varying rates of increase in
Compensation levels based on age 5.00% 5.00% - -
Expected weighted-average long-term
rate of return on assets 9.00% 9.00% 6.75% 6.75%
Assumed health care cost trend rate:
Post-65 claim group - - 6.50% 6.50%
Pre-65 claim group - - 6.50% 6.50%
Net periodic pension cost and postretirement benefit costs included the
following:
Pension Benefits Postretirement Benefits
---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
Service cost $ 2,953 $ 153 $ 188 $ 10
Interest cost 3,642 173 1,631 84
Expected return on plan assets (4,941) (258) (765) (41)
------- ----- ------ ----
Net periodic pension cost $ 1,654 $ 68 $1,054 $ 53
For the postretirement benefit plan the health care cost trend rates are assumed
to decline gradually by 0.25% until the ultimate rate of 5.50% is reached in
2004 for post-65 and pre-65 claim groups and will remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
1-Percentage-Point 1-Percentage-Point
Increase Decrease
-------- --------
Effect on total of service and
interest cost components $ 80 $ (71)
Effect on accumulated
Postretirement benefit obligation $1,230 $(1,093)
(14) Net Earnings Per Common Share
Basic earnings per common share ("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:
2000 1999 1998
---- ---- ----
Weighted-average shares outstanding for basic EPS 10,477 10,044 10,242
Effect of dilutive securities:
Warrants - - 131
Stock options 227 229 141
------ ------ ------
Weighted-average shares outstanding for diluted EPS 10,704 10,273 10,514
====== ====== ======
(15) 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. In 2000, the
chief executive officer was awarded 25,000 shares of the Company's stock under
the Company's Long-Term Incentive Stock Plan, which will vest entirely and be
distributable at such time as, but only in the event that, the price of common
stock exceeds $40.00 per share by a date no later than December 31, 2002.
(16) 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 non-qualified 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. Following an action by the Compensation Committee in February
2001, options granted during 1999 and 2000 will generally vest based on the
market price for the Company's common stock over a six-year period. Options
which do not vest during the first six 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 a non-qualified Stock Option Plan in 1995, whereby options
could be granted to officers, directors, 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 four 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:
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Outstanding, January 1 1,603,150 1,238,600 878,000
Granted 447,000 468,750 389,500
Exercised (95,813) (5,400) (16,900)
Canceled or terminated (329,337) (98,800) (12,000)
- -------------------------------------------------------------------------------------------------------------
Outstanding, December 28, 30, and 31 1,625,000 1,603,150 1,238,600
Exercisable 643,100 564,920 365,360
Average price
Outstanding, beginning of year $20.29 $18.69 $17.05
Granted 23.50 24.38 22.13
Exercised 17.04 17.26 14.90
Canceled or terminated 22.95 19.82 16.17
Outstanding, end of year 20.82 20.29 18.69
Weighted average grant date fair value of options was $23.88, $24.38, and $22.12
for 2000, 1999, and 1998, respectively.
The following table summarizes information about stock options outstanding at
December 28, 2000:
Weighted-Average
Range of Number Weighted-Average Remaining
Prices Outstanding Exercise Price Contractual Life
- ------------------------------------------------------------------------------------------------------------
$14.50 - 19.00 611,600 $16.81 2.15
20.00 - 23.25 281,000 21.57 6.52
23.50 - 24.50 732,400 23.88 9.06
The following table summarizes information about stock options exercisable at
December 28, 2000:
Range of Number Weighted-Average
Prices Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------
$14.50 - 19.00 516,600 $16.62
20.00 - 23.25 126,500 21.39
There were no exercisable shares in the $23.50 - $24.50 range of exercise
prices.
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 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------
Common stockholders' share of
net earnings
As reported $8,052 $5,895 $15,055
Pro forma 7,451 5,186 14,900
Basic earnings per share
As reported 0.77 0.59 1.47
Pro forma 0.71 0.52 1.45
Diluted earnings per share
As reported 0.75 0.57 1.43
Pro forma 0.70 0.50 1.42
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 5.9%, 5.2%, and 4.6%, for 2000, 1999, and
1998, respectively.
(17) Leases
Future minimum lease payments required under operating leases that have
remaining noncancellable lease terms in excess of one year at December 28, 2000
are summarized below:
Fiscal Years Ending,
====================
2001 $ 37,249
2002 35,963
2003 34,562
2004 25,277
2005 19,568
Thereafter 68,022
---------
Total minimum lease payments $ 220,641
=========
Net rent expense for leases of $42,426, $34,769, and $31,138 for 2000, 1999,
and 1998, respectively, has been charged to Cost of Services and Corporate
General and Administrative Expense.
(18) 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 tortuous 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 $17.2 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-2000 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 lawsuits 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.
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. 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
In December 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.In October 2000, the United States District
Court for the District of Columbia granted summary judgment in favor of the
Company and its subsidiary. The former teaming partner has appealed. The
resolution of this matter is not expected to have a material impact on the
Company's results of operations or financial condition.
In September, 2000, the Company became aware of significant errors in
pre-acquisition estimates of the cost to complete a major telephone installation
and operation contract that was undertaken in 1998 by GTE Information Systems
LLC, now known as DynCorp Information Systems LLC, a wholly owned subsidiary of
the Company. The Company acquired GTE Information Systems LLC from Contel, Inc.,
a subsidiary of GTE, Inc., in December 1999 . As a consequence of these errors,
the Company recorded a loss reserve for the contract in the amount of $73.0
million, which has a remaining balance of $56.1 million at December 28, 2000.
Under applicable purchase accounting rules this loss has been recorded as part
of the purchase price of GTE Information Systems LLC. The Company has notified
GTE Corporation of the circumstance and has indicated that a claim will be
forthcoming. The Company is currently in discussions with the government agency
customer regarding certain changes to the telephone system contract. The Company
believes that the current reserve is sufficient to cover any further material
loss in connection with the completion of the telephone contract.
Regarding 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 $17.2 million discussed above. The
estimated probable liability for these issues is approximately $9.5 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 $9.5 million at December 28, 2000 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. A
majority of the audits have been completed on the Company's incurred contract
costs through 1998. 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 28, 2000 that will have a material adverse effect on the
Company's consolidated financial condition, results of operations, or liquidity.
(19) Business Segments
The Company has three reportable segments, DynCorp Technical Services ("DTS"),
DynCorp Information and Enterprise Technology ("DI&ET"), and DynCorp Information
Systems LLC ("DIS"). These three reportable segments are strategic business
units that provide distinctly different services to a variety of customers. DTS
provides a myriad of specialized technical services including aviation services,
range technical services, base operations, and logistics support. DI&ET provides
a wide range of information technology services and other professional services
including network and communications engineering, government operational
outsourcing, healthcare information and technology services, and security and
intelligence programs. 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 98.0%, 93.0%, and 95.0% of its revenues from contracts and
subcontracts with the U.S. Government in 2000, 1999, and 1998, respectively.
Prime contracts comprised 79.0% of revenue in 2000, 75.0% of revenue in 1999,
and 72.0% of revenue in 1998. Prime contracts with the Department of Defense
("DoD") represented 44.0 % of revenue in 2000, and 40.0% of revenue in 1999 and
1998, respectively. In 2000, the Company's second largest customer was the
Department of State, comprising 11.0% of revenue. No other customer accounted
for more than 10.0% of revenues in any year.
Revenue, operating profit, identifiable assets, capital expenditures, and
depreciation and amortization by segment are presented below:
Fiscal Years Ended
2000 1999 (c) 1998 (c)
---- ------- -------
Revenue
-------
DTS $ 909,601 $ 695,499 $ 600,618
DI&ET 671,380 635,881 633,089
DIS 228,128 13,901 -
----------- --------- -----------
$ 1,809,109 $ 1,345,281 $ 1,233,707
=========== =========== ===========
Operating Profit
----------------
DTS $ 42,442 $ 31,523 $ 26,525
DI&ET 40,302 30,575 31,138
DIS 17,809 989 -
----------- ----------- -----------
100,553 63,087 57,663
----------- ----------- -----------
Corporate general and administrative 29,350 21,741 18,630
Interest expense 41,408 18,943 14,144
Interest income (1,471) (1,393) (1,600)
Goodwill amortization (a) 4,608 2,958 1,575
Amortization of other intangibles of acquired companies (b) 10,754 8,461 1,336
Costs associated with divested businesses 148 286 530
Minority interest included in operating profit (3,515) (2,968) (2,081)
Other miscellaneous (464) (148) (1,566)
----------- ----------- -----------
Earnings from continuing operations
before income taxes, minority interest, and
extraordinary item $ 19,735 $ 15,207 $ 26,695
=========== =========== ===========
Fiscal Years Ended
2000 1999
---- ----
Identifiable Assets
-------------------
DTS $ 194,889 $ 173,629
DI&ET 172,548 205,798
DIS 230,544 206,083
Corporate 46,360 54,163
----------- -----------
$ 644,341 $ 639,673
=========== ===========
<FN>
(a) 1999 includes write-off of the unamortized goodwill balance of an impaired investment.
(b) 1999 includes write-off of in-process research and development.
(c) Data has been restated to give recognition to the current reportable segment structure.
</FN>
Fiscal Years Ended
2000 1999 1998
---- ---- ----
Capital Expenditures
--------------------
DTS $ 2,704 $ 2,519 $ 1,129
DI&ET 4,631 8,266 2,064
DIS 13,169 872 -
Corporate 2,273 2,221 1,604
---------- ---------- --------
$ 22,777 $ 13,878 $ 4,797
========== ========== ========
Fiscal Years Ended
2000 1999 1998
---- ---- ----
Depreciation and Amortization
-----------------------------
DTS $ 1,345 $ 2,132 $ 1,349
DI&ET 4,600 6,641 5,651
DIS 14,687 860 -
Corporate 6,862 3,939 1,825
---------- ---------- -------
$ 27,494 $ 13,572 $ 8,825
========== ========== ========
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
2000 1999 1998
---- ---- ----
Equity Investees' Earnings
- --------------------------
DTS $ 667 $ 362 $ 1,563
Fiscal Years Ended
2000 1999 1998
---- ---- ----
Investment in Equity Investees
- ------------------------------
DTS $ 3,695 $ 2,490 $ 4,136
DI&ET 25 - -
-------- -------- ----------
$ 3,720 $ 2,490 $ 4,136
======== ======== ==========
(20) Quarterly Financial Data (Unaudited)
A summary of quarterly financial data for 2000 and 1999 is as follows:
2000 Quarters(a) 1999 Quarters
------------------------------------- --------------------------------------
(unaudited) (unaudited)
----------- -----------
First Second Third Fourth First Second Third Fourth(b)
----- ------ ----- ------ ----- ------ ----- ---------
Revenues $428,500 $445,302 $467,673 $467,634 $311,886 $321,262 $334,635 $377,498
Gross profit 21,150 25,024 26,878 30,800 16,517 17,442 16,281 14,802
Earnings (loss) from continuing operations
before income taxes, minority interest
and extraordinary item 1,397 4,310 5,804 8,224 7,588 5,490 6,532 (4,403)
Minority interest 577 635 625 1,678 1,103 205 590 1,070
Net earnings (loss) 476 2,131 3,004 4,283 3,891 3,312 3,636 (4,850)
Net Earnings (loss) per common share:
Basic earnings (loss) per share $ 0.01 $ 0.16 $ 0.24 $ 0.36 $ 0.38 $ 0.33 $ 0.37 $ (0.49)
Diluted earnings (loss) per share $ 0.01 $ 0.16 $ 0.24 $ 0.34 $ 0.38 $ 0.32 $ 0.36 $ (0.49)
<FN>
(a) 2000 includes a full year of amortization of DIS goodwill and intangibles
(b) 1999 Fourth Quarter includes:
- In-process research and development write-off and 20 days of amortization
of DIS goodwill and other intangibles
</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, including presidents
of principal business units, are:
Name Age Position
- ---- --- --------
Dan R. Bannister 70 Director and Chairman of the Board
T. Eugene Blanchard 70 Director
Michael P. C. Carns 63 Director
Russell E. Dougherty 80 Director
Paul G. Kaminski 58 Director
Paul V. Lombardi 59 Director, President and Chief Executive Officer *
Dudley C. Mecum II 66 Director
David L. Reichardt 58 Director, Senior Vice President and General Counsel*
H. Brian Thompson 62 Director
Herbert S. Winokur, Jr. 57 Director and Chairman of the Executive Committee
Stephen J. Cannon 46 President of principal business unit *
Joseph L. Cunningham 53 President of principal business unit *
John J. Fitzgerald 47 Vice President and Controller *
Patrick C. FitzPatrick 61 Senior Vice President and Chief Financial Officer *
Venkat R. Gopalan 39 Vice President, Management Information Systems
Paul T. Graham 34 Vice President and Treasurer *
H. Montgomery Hougen 65 Vice President and Secretary and Deputy General Counsel
Marshall S. Mandell 58 Senior Vice President, Corporate Development *
James P. McCoy 57 President of principal business unit *
W. Ben Medley 54 President of principal business unit *
Ruth Morrel 46 Vice President, Law and Compliance
Charlene A. Wheeless 36 Vice President, Corporate Communications
Robert G. Wilson 59 Vice President and General Auditor
<FN>
* Officers designated by an asterisk are deemed to be "officers" for purposes of Rule 16a-1(f), as
promulgated in Release No. 34-28869.
</FN>
DIRECTORS
Dan R. Bannister Director since 1985
Mr. Bannister, age 70, 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 and Chairman of
the Northern Virginia Roundtable. His current term as a director expires in
2001.
T. Eugene Blanchard Director since 1988
Mr. Blanchard, age 70, 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 Administrative Committee of the Company's Savings and
Retirement Plan and Capital Accumulation and Savings Plan. He is a director of
Landmark Systems Corporation. His current term as a director expires in 2003.
Michael P. C. Carns Director since November 2000
General Carns, age 63, was the President and Director of the Center for
International Political Economy from 1995 to 2000. He is a retired General,
United States Air Force, who served as Vice Chief of Staff, United States Air
Force and as Director of the Joint Staff, Joint Chiefs of Staff. He is a member
of the Defense Science Board and the Board of Advisors, National Security
Agency. He is a director of Engineered Support Systems Inc. His current term as
a director expires in 2002.
Russell E. Dougherty Director since 1989
General Dougherty, age 80, 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 2001.
Paul G. Kaminski Director since 1997
Dr. Kaminski, age 58, also served as a director of the Company from 1988 to
1994. He is President and Chief Executive Officer of Technovation, Inc.
(consulting) and a General Partner of Global Technology Partners (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 1985 to 1994. He is a director of Anteon
Corporation; Condor Systems, Inc.; General Dynamics Corporation, and Veridian
Corporation. His current term as a director expires in 2001.
Paul V. Lombardi Director since 1994
Mr. Lombardi, age 59, 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. and Chairman of the Professional Services Council
(services industry trade association). His current term as a director expires in
2003.
Dudley C. Mecum II Director since 1988
Mr. Mecum, age 66, 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.; and Suburban Propane Partners LLP. His current
term as a director expires in 2003.
David L. Reichardt Director since 1988
Mr. Reichardt, age 58, 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 62, is President of Universal Telecommunications, Inc.
(private investment and advisory firm). He was Chairman and Chief Executive
Officer of Global TeleSystems Group, Inc. from 1999 to 2000. He was Chairman and
Chief Executive Officer of LCI International Inc. from 1991 to 1998, Vice
Chairman of Qwest Communications International Inc. from June to December 1998,
and Chairman of Telecom Eireann in 1999. From 1981 to 1990, he was Executive
Vice President, MCI Communications Corporation. He is a director of Bell Canada
International Inc., Williams Communications Group, Inc., Arraycomm, Inc.,
I.C.L., Ltd., and a member of the management committee of Paging Brazil Holding
Company, LLC. He is Co-Chair for the Americas of the Global Information
Infrastructure Commission. His current term as a director expires in 2002.
Herbert S. Winokur, Jr. Director since 1988
Mr. Winokur, age 57, 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 CCC Information Services Group, Inc.; ENRON
Corporation; Mrs. Fields Holdings, Inc.; and NATCO Group Inc. His current term
ss 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 the following corporate officers and
presidents of principal business units:
Stephen J. Cannon, age 46, President, DynCorp International LLC, has served in
that capacity since January 2001. He was Senior Vice President of DynCorp
Technical Services, Inc. from 1993 to 2000.
Joseph L Cunningham, age 53, President, DynCorp Information & Enterprise
Technology, Inc., has served in that capacity since June, 2000. He was Senior
Vice President, DynCorp Information & Enterprise Technology, Inc. from 1998 to
2000; Vice President, Professional Services Group, Northrop Grumman Corporation
in 1998; and Director, Professional Services Group, Northrop Grumman Corporation
from 1996 to 1998.
John J. Fitzgerald, age 47, 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 61, 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.
Venkat R. Gopalan, age 39, Vice President and Chief Information Officer, has
served in that capacity since June 2000. He was Senior Director, Business
Standards Group, DynCorp Information and Enterprise Technology, Inc., from 1998
to 2000; and Director, Standards Group, DynCorp Information and Enterprise
Technology, Inc., from 1996 to 1998.
Paul T. Graham, age 34, 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 65, 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.
Marshall S. Mandell, age 58, 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 57, President of DynCorp Information Systems LLC, has served
in that capacity and as President of the Information Systems business unit since
1999. He served as Executive Vice President of the Information & Enterprise
Technology business unit from 1998 to 1999. He was Senior Vice President of the
Professional Technical Services business unit of GRC International, Inc. from
1995 to 1997.
W. Ben Medley, age 54, President of DynCorp Technical Services LLP, has served
in that capacity since January 2001. He was President of BAE SYSTEMS, Flight
Systems of BAE SYSTEMS North America, Inc. from 1998 to 2001, President, Marconi
Flight Systems, Inc. in 1998, and Vice President, Aerospace Operations, Tracor,
Inc. from 1996 to 1998.
Ruth Morrel, age 46, Vice President, Law and Compliance, has served in that
capacity since 1994. She served as Group General Counsel from 1984 to 1994.
Charlene A. Wheeless, age 36, 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 59, 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
annual Restricted Securities
compen- stock underlying All other
Name and principal Salary Bonus sation award(s) options/SARs compensation
position Year ($) ($)1) ($)(2) ($) (#) ($)(4)
(a) (b) (c) (d) (e) (f) (g) (i)
- ----------------------------------------------------------------------------------------------------------------------
Paul V. Lombardi 2000 395,385 278,400 14,173 587,500(3) 30,000 12,496
President & Chief 1999 370,400 78,800 5,386 -- 70,000 11,893
Executive Officer 1998 342,104 185,300 -- -- -- 14,283
- ----------------------------------------------------------------------------------------------------------------------
Patrick C. FitzPatrick 2000 283,154 165,300 11,501 -- 10,000 13,527
Senior Vice 1999 272,170 43,300 5,227 -- 30,000 14,793
President & Chief 1998 248,947 129,800 -- -- -- 10,896
Financial Officer
- ----------------------------------------------------------------------------------------------------------------------
Marshall S. Mandell 2000 238,154 139,200 11,349 -- 10,000 9,475
Senior Vice 1999 224,446 36,200 4,471 -- 30,000 9,144
President, Business 1998 212,724 87,300 -- -- 40,000 10,854
Development
- ----------------------------------------------------------------------------------------------------------------------
David L. Reichardt 2000 283,154 165,300 11,349 -- 30,000 12,556
Senior Vice 1999 272,170 43,300 5,371 -- 30,000 14,144
President & General 1998 248,947 204,800 -- -- -- 16,706
Counsel
- ----------------------------------------------------------------------------------------------------------------------
Joseph L. Cunningham 2000 187,234 110,900 10,823 -- 40,000 6,942
President, DynCorp 1999 156,971 63,500 10,215 -- 15,000 8,067
Information & 1998 33,333 -- -- -- -- 1,867
Enterprise Technology,
Inc.
- ----------------------------------------------------------------------------------------------------------------------
<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 (e) reflects payments in lieu of reimbursement of insurance costs.
(3) Mr. Lombardi was awarded 25,000 shares of restricted stock, which will
vest entirely and be distributable at such time as, but only in the event
that, the price of common stock exceeds $40.00 per share by a date no
later than December 31, 2002. No dividends will be paid on the restricted
stock. The shares shown in column (f) constitute the only shares of
restricted stock owned by Mr. Lombardi.
(4) Column (i) includes respective individual's pro rata share of the
Company's contribution to the former Employee Stock Ownership Plan
("ESOP"), Company-matching contributions to the Savings and Retirement
Plan ("SARP"), and the imputed income for Company-paid premiums for
supplemental executive retirement plan life and term life insurance.
These amounts are:
</FN>
- ----------------------------------------------------------------------------------------------------------------------
ESOP contributions ($) SARP contributions ($) Imputed Income ($)
---------------------- ---------------------- ------------------
Name 2000(1) 1999 1998 2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Mr. Lombardi 4,320 4,273 4,435 3,000 2,886 3,000 5,176 4,735 6,848
- ----------------------------------------------------------------------------------------------------------------------
Mr. FitzPatrick 4,320 4,273 4,435 2,625 2,500 2,338 6,582 8,020 4,122
- ----------------------------------------------------------------------------------------------------------------------
Mr. Mandell 4,320 4,273 4,435 2,250 2,143 2,143 2,905 2,728 4,277
- ----------------------------------------------------------------------------------------------------------------------
Mr. Reichardt 4,320 4,273 4,435 3,281 3,125 3,125 4,955 6,746 9,146
- ---------------------------------------------------------------------------- -----------------------------------------
Mr. Cunningham 4,320 4,273 993 -- -- -- 2,622 3,794 894
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Individual allocations of 2000 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
Individual Grants term
- ---------------------------------------------------------------------------------------------------------------------
Number of Percent of total
securities options/ SARs Exercise
underlying granted to or base
options/SARs employees in price Expiration
Name granted (#) fiscal year ($/Share) date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
- ---------------------------------------------------------------------------------------------------------------------
Mr. Lombardi 30,000 7.0% 23.50 06/20/2010 1,148,445 1,828,770
- ---------------------------------------------------------------------------------------------------------------------
Mr. FitzPatrick 10,000 2.3% 23.50 06/20/2010 382,815 609,590
- ---------------------------------------------------------------------------------------------------------------------
Mr. Mandell 10,000 2.3% 23.50 06/20/2010 382,815 609,590
- ---------------------------------------------------------------------------------------------------------------------
Mr. Reichardt 10,000 2.3% 23.50 06/20/2010 382,815 609,590
- ---------------------------------------------------------------------------------------------------------------------
Mr. Cunningham 40,000 9.4% 23.50 06/20/2010 1,531,260 2,438,360
- ---------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
- ----------------------------------------------------------------------------------------------------------------------
Number of securities
underlying unexercised Value of unexercised
options/SARs at fiscal in-the-money options/SARs
year-end (#) at fiscal year-end ($)
Shares
acquired on Value Exercisable/ Exercisable/
Name exercise(#) realized ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- ----------------------------------------------------------------------------------------------------------------------
Mr. Lombardi -- -- 112,000 143,000 1,392,000 687,000
- ----------------------------------------------------------------------------------------------------------------------
Mr. FitzPatrick -- -- 60,000 80,000 570,000 570,000
- ----------------------------------------------------------------------------------------------------------------------
Mr. Mandell -- -- 56,500 66,000 582,250 389,000
- ----------------------------------------------------------------------------------------------------------------------
Mr. Reichardt -- -- 85,000 55,000 1,042,500 362,500
- ----------------------------------------------------------------------------------------------------------------------
Mr. Cunningham -- -- 2,500 52,500 13,750 283,750
- ----------------------------------------------------------------------------------------------------------------------
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 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, 2001
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 of Directors 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, other than Mr. Bannister, 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.
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
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table presents information as of March 12, 2001, 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 Savings and Retirement Plan Trust 6,541,752 62.6%
c/o DynCorp Direct (1)
11710 Plaza America Drive
Reston, Virginia 20190
--------------------------------------------------------------------------------------------------------
DynCorp Capital Accumulation and Retirement Plan Trust 1,997,630 19.1%
c/o DynCorp Direct (1)
11710 Plaza America Drive
Reston, Virginia 20190
--------------------------------------------------------------------------------------------------------
<FN>
(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.
(2) The Company provides administration for, and regularly contributes funds
to, the Plans, which are the Company's principal employee retirement
benefit plans.
</FN>
SECURITY OWNERSHIP OF MANAGEMENT
The following table presents information as of March 12, 2001 concerning
the beneficial ownership of the Company's common stock by directors and named
executive officers and all directors, officers, and presidents of principal
business units as a group. Shares held indirectly include those held on behalf
of the individuals in the SARP Trust.
- --------------------------------------------------------------------------------------------------------------------
Amount & nature of ownership
- --------------------------------------------------------------------------------------------------------------------
Outstanding Obtainable within Percent of
Name and title of beneficial owner shares 60 days (1) Total shares (2)
- --------------------------------------------------------------------------------------------------------------------
D. R. Bannister 265,331 165,000 430,331 Direct }4.2%
Chairman of the Board & Director 43,221 43,221 Indirect
- --------------------------------------------------------------------------------------------------------------------
T. E. Blanchard(3) 37,812 83,000 120,812 Direct }1.5%
Director 51,026 51,026 Indirect
- --------------------------------------------------------------------------------------------------------------------
M. P. C. Carns -- -- Direct *
Director
- --------------------------------------------------------------------------------------------------------------------
J. L. Cunningham 547 19,167 19,714 Direct *
President, DynCorp Information & 412 412 Indirect
Enterprise Technology, Inc.
- ------------------------------------------------------------------------------------------- ------------------------
R. E. Dougherty 4,864 -- 4,864 Direct *
Director
- --------------------------------------------------------------------------------------------------------------------
P. C. FitzPatrick 2,080 93,333 95,413 Direct *
Senior Vice President & Chief 4,742 4,742 Indirect
Financial Officer
- --------------------------------------------------------------------------------------------------------------------
P. G. Kaminski -- 10,000 10,000 Direct *
Director
- --------------------------------------------------------------------------------------------------------------------
P. V. Lombardi 28137 186,667 214,804 Direct }2.0%
President, Chief Executive Officer & 8,392 8,392 Indirect
Director
- --------------------------------------------------------------------------------------------------------------------
M. S. Mandell 8,653 86,833 95,487 Direct *
Senior Vice President, Corporate 3,848 3,848 Indirect
Development
- --------------------------------------------------------------------------------------------------------------------
D. C. Mecum II 2,825 5,000 7,825 Direct *
Director
- --------------------------------------------------------------------------------------------------------------------
D. L. Reichardt 23,738 141,361 165,099 Direct *
Senior Vice President, General Counsel 6,892 6,892 Indirect
& Director
- --------------------------------------------------------------------------------------------------------------------
H. B. Thompson -- 2,500 2,500
Director
- --------------------------------------------------------------------------------------------------------------------
H. S. Winokur, Jr. 18,139 -- 18,139 Direct }3.8%
Director 409,773 409,773 Indirect
- --------------------------------------------------------------------------------------------------------------------
All directors, officers, and 439,666 941,253 1,380,919 Direct }17.1%
presidents of principal business 556,535 556,535 Indirect
units as a group
- --------------------------------------------------------------------------------------------------------------------
<FN>
(1) Column reflects shares issuable upon exercise of in-the-money options
which will be vested as of the end of such period and estimated shares to
be issued in March 2001 pursuant to Executive Incentive Plan.
(2) Reflects aggregate direct and indirect shares as a percentage of
outstanding shares plus shares obtainable by these persons within 60
days. 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 Information
Mr. Blanchard serves as Chairman of the Administrative Committees for the
Company's Savings Plans and was, in 2000, Chairman of Administrative Committee
for the Employee Stock Ownership Plan. He is compensated for these duties at an
hourly fee and is reimbursed for expenses. Total fees in the amount of $39,190
were paid to Mr. Blanchard in 2000.
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 28,
2000, December 30, 1999 and December 31, 1998.
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 10-K for 1999, File No.
1-3879)
4.1 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. 333-25355)
4.2 Specimen Common Stock Certificate (incorporated by reference to
Registrant's Form 10-K for 1988, File No. 1-3879)
4.3 Article Fourth of the Amended and Restated Certificate of
Incorporation (incorporated by reference to Registrant's
Form 10-K/A for 1995, File No. 1-3879)
4.4 Credit Agreement by and among Citicorp USA,Inc.,certain Lenders,
the Registrant and Dyn Funding Corporation, dated December
10, 1999 (incorporated by reference to Registrant's Form
8-K, File No. 1-3879)
4.5 Purchase Agreement dated as of December 10, 1999 among certain
Purchasers and the Registrant relating to $40,000,000
Aggregate Principal Amount of 15% Senior Subordinated Notes
due 2007 (incorporated b y reference to Registrant's Form
8-K, filed December 27, 1999, File No. 1-3879)
4.6 Registration Rights Agreement, dated as of December 10, 1999,
among the Registrant, DB Capital Investors, L.P., The
Northwestern Mutual Life Insurance Society, and Wachovia
Capital Investors (incorporated by reference to
Registrant's Form 8-K, filed December 27, 1999, File No.
1-3879)
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 (incorporate by reference to
Registrant's Form 10-K for 1999, File No. 1-3879)
10.3 Executive Incentive Plan (incorporated by reference to
Registrant's Form 10-K for 1999, 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, 1988)
10.5 Amendment to Severance Agreement of Paul V. Lombardi, Vice
President,Government Services Group and currently President
& 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 (incorp-
orated 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 (filed herewith)
10.10 1995 Long-Term Incentive Stock Plan (incorporated by reference
to Registrant's Form 10-K for 1999, File No. 1-3879)
10.11 Key Executive Share-Option Compensation Plan (incorporated by
reference to Registrant's Form 10-K for 1999, 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
None filed.
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 27, 2001 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 27, 2001
- ------------------------
P. V. Lombardi (Chief Executive Officer)
/S/ P. C. FitzPatrick Senior Vice President - March 27, 2001
- ------------------------
P. C. FitzPatrick Chief Financial Officer
/S/ D. L. Reichardt Senior Vice President - March 27, 2001
- ------------------------
D. L. Reichardt General Counsel and Director
/S/ J. J. Fitzgerald Vice President March 27, 2001
- ------------------------
J. J. Fitzgerald and Controller
(Chief Accounting Officer)
/S/ D. R. Bannister Director March 27, 2001
- ------------------------
D. R. Bannister
/S/ T. E. Blanchard Director March 27, 2001
- ------------------------
T. E. Blanchard
/S/ H. S. Winokur, Jr. Director March 27, 2001
- ------------------------
H. S. Winokur, Jr.
/S/ D. C. Mecum II Director March 27, 2001
- ------------------------
D. C. Mecum II
/S/ M. P. Carns Director March 27, 2001
- ------------------------
M. P. Carns
/S/ R. E. Dougherty Director March 27, 2001
- ------------------------
R. E. Dougherty
/S/ P. G. Kaminski Director March 27, 2001
- ------------------------
P. G. Kaminski
/S/ H. B. Thompson Director March 27, 2001
- ------------------------
H. B. Thompson
DynCorp and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Fiscal Years Ended, 2000, 1999 and 1998
(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 28, 2000
Allowance for doubtful accounts $ 3,156 $ 1,487 $ (588) $ 16 $ 4,071
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