SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
AMENDMENT NO. 2 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 22, 2002 (December 10,
1999)
DynCorp
(Exact name of registrant as specified in its charter)
Delaware 1-3879
(State or other jurisdiction of incorporation) (Commission File Number)
36-2408747
(IRS Employer Identification No.)
11710 Plaza America Drive, Reston, Virginia 20190
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 261-5000
The registrant hereby amends and restates Item 7 to its Current Report on Form
8-K, filed with the Securities and Exchange Commission as of December 27, 1999,
to add financial statements exhibits relating to the business acquired.
Item 7. -- Financial Statements and Exhibits
Exhibit 1 Purchase Agreement , dated as of October 29, 1999, between
the registrant and Contel Federal Systems , Inc . joined in to
the extent set forth therein by GTE Corporation. (previously
filed)
Exhibit 2 Credit Agreement, dated as of December 10, 1999 , among the
registrant, Citicorp USA, as administrative agent, and Citibank,
N.A., Citicorp USA, Inc., Bankers Trust Company, and First Union
National Bank, as lenders. (previously filed)
Exhibit 3 Purchase Agreement , dated as of December 10, 1999, among the
registrant, DB Capital Investors, L.P., The Northwestern Mutual
Life Insurance Company, and Wachovia Capital Investments . (pre-
viously filed)
Exhibit 4 Registration Rights Agreement, dated as of December 10, 1999,
among the registrant, DB Capital Investors, L.P., The Northwestern
Mutual Life Insurance Company, and Wachovia Capital Investments.
(previously filed)
Exhibit 5 Audited financial statements of Information Systems Division (A
Division of GTE Government Systems Corporation) as of December 31,
1998 and 1997, together with auditors' report. (previously filed)
Exhibit 6 Unaudited pro forma combined statements of operation for the
nine-month and twelve-month periods ending September 30, 1999 and
December 31, 1998, respectively, giving effect to the acquisition
as though it had occurred on the first day of the respective
periods ; unaudited pro forma combined balance sheet as of
September 30, 1999, giving effect to the acquisition as though it
had occurred on September 30, 1999; and notes to unaudited pro
forma combined financial statements. (previously filed)
Exhibit 7 Unaudited financial statements of Information Systems Division
(A Division of GTE Government Systems Corporation) as of September
30, 1999. (filed herewith)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DynCorp
Date: April 22, 2002
/S/ H. Montgomery Hougen
------------------------
H. Montgomery Hougen
Vice President and Secretary
INFORMATION SYSTEMS DIVISION
(A Division of GTE Government Systems Corporation)
UNAUDITED CONDENSED BALANCE SHEETS
September 30, 1999 and December 31, 1998
(in thousands)
September 30, December 31,
1999 1998
---- ----
Assets
------
Current Assets:
Cash and cash equivalents $ 4 $ -
Receivable, net 68,968 85,128
Due from affiliates 312 187
Inventories 5,198 7,274
Deferred income taxes 4,860 5,062
Other 2,110 456
------------------------ ------------------------
Total current assets 81,452 98,107
Property, Plant, and Equipment, net 10,940 7,296
Deferred Income Taxes 9,948 11,906
Other Assets, Net 237 434
------------------------ ------------------------
Total Assets $ 102,577 $ 117,743
======================== ========================
Liabilities and Net Parent Company Investment
---------------------------------------------
Current Liabilities:
Note payable - affiliate $ 5,486 $ -
Accounts payable 6,943 7,563
Advance billings 7,504 10,672
Accrued liabilities 3,095 16,031
------------------------ ------------------------
Total current liabilities 23,028 34,266
Employee Benefit Plan Obligations 27,231 28,361
Net Parent Company Investment 52,318 55,116
------------------------ ------------------------
Total Liabilities and Net Parent Company Investment $ 102,577 $ 117,743
======================== ========================
The accompanying notes are an integral part of these financial statements.
INFORMATION SYSTEMS DIVISION
(A Division of GTE Government Systems Corporation)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenue:
Affiliate $ 207 $ 24 $ 631 $ 43
Nonaffiliate 54,642 53,434 158,594 135,598
----------------- ----------------- ----------------- -----------------
Total revenue 54,849 53,458 159,225 135,641
Operating Costs and Expenses:
Costs of sales (exclusive of depreciation and amortization) 44,154 43,448 130,764 112,459
Research and development 235 555 807 1,185
Selling, general and administrative 6,034 5,402 17,186 11,675
Depreciation and amortization 663 685 1,988 2,055
----------------- ----------------- ----------------- -----------------
Total operating costs and expenses 51,086 50,090 150,745 127,374
----------------- ----------------- ----------------- -----------------
Operating income 3,763 3,368 8,480 8,267
Interest Expense 225 297 919 915
----------------- ----------------- ----------------- -----------------
Income before provision for income taxes 3,538 3,071 7,561 7,352
Provision for Income Taxes 1,432 1,258 3,064 3,011
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Net income $ 2,106 $ 1,813 $ 4,497 $ 4,341
================= ================= ================= =================
The accompanying notes are an integral part of these financial statements.
INFORMATION SYSTEMS DIVISION
(A Division of GTE Government Systems Corporation)
UNAUDITED STATEMENT OF NET PARENT COMPANY INVESTMENT
For the nine months ended September 30, 1999
(in thousands)
Net Parent
Company
Investment
----------
Balance, December 31, 1998 $ 55,116
Net income 4,497
Net transfers to GSC and other (7,295)
---------------------------
Balance, September 30, 1999 $ 52,318
===========================
The accompanying notes are an integral part of these financial statements.
INFORMATION SYSTEMS DIVISION
(A Division of GTE Government Systems Corporation)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
-----------------
September 30, September 30,
1999 1998
---- ----
Cash Flows from Operating Activities
Net income $ 4,497 $ 4,341
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,988 2,055
Changes in assets and liabilities:
Receivables 16,160 1,827
Due from affiliates (125) 69
Inventories 2,076 1,103
Deferred income taxes 2,160 -
Other current assets (1,654) -
Other assets - 172
Accounts payable (620) 3,849
Advance billings (3,168) 1,238
Accrued liabilities (12,936) (9,934)
Employee benefit plan obligations (1,130) 4,996
------------------------- -------------------------
------------------------- -------------------------
Net cash provided by operating activities 7,248 9,716
------------------------- -------------------------
Cash Flows from Investing Activities
Net capital expenditures (5,435) (2,142)
------------------------- -------------------------
------------------------- -------------------------
Net cash used in investing activities (5,435) (2,142)
------------------------- -------------------------
Cash Flows from Financing Activities
Net transfers to GSC and other (7,295) (7,632)
Proceeds from note payble with affiliate 5,486 -
------------------------- -------------------------
------------------------- -------------------------
Net cash used in financing activities (1,809) (7,632)
------------------------- -------------------------
Increase (decrease) in cash and cash equivalents 4 (58)
Cash and Cash Equivalents, Beginning of Year $ - $ 58
------------------------- -------------------------
------------------------- -------------------------
Cash and Cash Equivalents, End of Year $ 4 $ -
========================= =========================
The accompanying notes are an integral part of these financial statements.
INFORMATION SYSTEMS DIVISION
(A Division of GTE Government Systems Corporation)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 1999
(in thousands)
(1) Summary of Significant Accounting Policies
Description of Business and Organization:
The Information Systems Division ("ISD" or the "Division") is a division of GTE
Government Systems Corporation ("GSC"). GSC was incorporated in Delaware in 1982
and is a wholly-owned subsidiary of Contel Federal Systems, Inc. ("CFS"), which
in turn is a wholly owned subsidiary of GTE Corporation ("GTE"). Headquartered
in Needham Heights, Massachusetts, GSC provides communications and information
solutions and services.
On September 1, 1999, General Dynamics Corporation acquired GTE Government
Systems Corporation, except for ISD and certain other assets and liabilities of
GSC. Also effective September 1, 1999, the assets and liabilities of ISD were
transferred to GTE Information Systems LLC, a wholly-owned subsidiary of CFS.
On December 10, 1999, GTE Information Systems LLC was sold to DynCorp.
Nature of Operations
Information Systems Division provides a broad range of integrated telecom-
munications services and information solutions to the U.S. Department of
Defense, government civilian agencies, state and local governments, and selected
commercial customers. Headquartered in Chantilly, Virginia, ISD is organized
into two business areas: Defense Market and Civil Market.
Revenue Recognition and Unbilled Receivables
The Division provides services under fixed price, cost reimbursement, time and
material, and level of effort contracts. Revenues are generally recognized using
the percentage of completion method as costs are incurred, and include
applicable fees in the proportion that costs incurred bear to total estimated
costs.
Changes in contract fee rates result in cumulative fee adjustments booked to
current period income. Award fees under cost reimbursement contracts are
generally recognized upon receipt of contract modification incorporating the
award. When a loss is indicated on any contract in process, provision for the
estimated loss is charged to income currently, as measured by comparing
projected revenues against projected costs prior to the absorption of general
and administrative (G&A) expenses.
Accrued revenues in excess of billings are reported as unbilled receivables.
Such amounts usually become billable upon
completion of a specific phase of the contract, negotiation of contract
modifications, completion of government audit or acceptance by the customer. The
Division's unbilled receivables are generally expected to be billed and
collected within one year. Costs related to certain contracts, including
applicable indirect costs, are subject to audit by the U.S. government. Price
adjustment reserves are established for flexibly priced contracts to recognize
the estimated difference between overhead and G&A rates used to record sales and
the expected recoverable rates after negotiation with the government. Billings
in excess of accrued revenues are reported as advance billings.
The Division generally requires that funded contract value be awarded in order
to accrue revenue and margin. Amounts related to claims are included in revenues
only when they can be reliably estimated and realization is probable.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions,
including estimates of anticipated contract costs and revenues utilized in the
earnings recognition process, 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. Actual results could differ from those estimates.
Certain amounts presented for prior periods have been reclassified to conform to
the 1999 presentation.
Income Taxes
The Division accounts for income taxes using the liability method as set forth
in Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under this method, deferred taxes and liabilities are established
for the temporary differences between the accounting bases and tax bases of the
Division's assets and liabilities. Deferred taxes are measured using enacted tax
rates. Provisions for income taxes recognize the tax effect of all revenue and
expense transactions as well as any changes during the period in deferred tax
assets and liabilities. The effects of changes in tax rates and laws on deferred
tax assets and liabilities are reflected in net income in the period in which
such changes are enacted.
The Division's results are included in GTE's consolidated federal income tax
return and certain state income tax returns. For purposes of these financial
statements, the Division is using the separate return method to allocate income
tax expense. Under the separate return method, the income tax provision reflects
what the Division's current and deferred tax expense would have been had the
Division filed separate tax returns. For purposes of these financial statements,
all accrued income taxes have been included in the net parent company investment
account.
Financial Instruments
The fair values of the Division's financial instruments, accounts payable and
receivables, closely approximate their carrying value.
Inventories
Inventories consist primarily of contract work completed in advance of customer
funding, and procurements in advance of customer requirements designed to
achieve pricing breaks and/or to maintain anticipated delivery schedules.
Inventory is tracked based on actual cost and stated at the lower of cost or net
realizable value.
Property, Plant and Equipment
Property, plant and equipment is stated at original cost. Assets lives
and depreciation methods are generally as follows:
Data processing equipment 6 years Double declining balance
Machinery and equipment 3-20 years Double declining balance
Buildings and improvements 20-50 years Straight line or 150%declining balance
Furniture and fixtures 7-15 years Double declining balance
Property under capital
leases Life of lease Double declining balance
Revenue assets purchased for specific contracts are depreciated as direct
contract charges on a straight-line basis over the contract term.
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. The cost and
accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss on disposition, if any, is recognized in income.
Other Assets
Other assets consist of capitalized software development costs. Software
development costs for new software and for enhancements to existing software are
expensed as incurred prior to the establishment of technological feasibility and
subsequent to general release of the product. Software development costs, after
technological feasibility, have been capitalized and are being amortized on a
straight-line basis over the estimated life of the products or three years,
whichever is less.
(2) Transactions with Parent and Affiliates
The Division is billed by GSC for certain management, research and development,
accounting, treasury, human resource and brand name advertising services. In
addition, GSC through GTE provides financing, investment and cash management
services for the Division. The amounts charged for these transactions are based
on a beneficiary analysis performed by GTE and GSC with expenses prorated and
invoiced accordingly.
The Division performs services under contract for other GTE affiliates.
Affiliates of the Division provide services as subcontractors pursuant to
certain contracts of the Division. These services are billed directly to the
customer by the affiliate; accordingly, there are no accounts receivable or
accounts payable related to these services on the accompanying balance sheet of
the Division. The Division does not earn
any profit on these services provided by their affiliates.
(3) Contingencies and litigation
The Division, as a government contractor, is from time to time subject to U.S.
government investigations relating to its operations. Government contractors
that are found to have violated the False Claims Act, or are indicted or
convicted for violations of other federal laws, or are considered not to be
responsible contractors may be suspended or debarred from government contracting
for some period of time. Such convictions could also result in fines. Given the
Division's dependence on government contracting, suspension or debarment could
have a material adverse effect on the Division.
The Division is subject to a number of proceedings arising out of the normal
conduct of its business. Management believes that the ultimate resolution of
these matters will not have a material adverse effect on the results of
operations or the financial position of the Division.
(4) Business Segments
Effective January 1, 1998, the Division adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
their performance.
The Division's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business unit requires different technologies, employee skill sets and market
strategies.
Defense Market
The Defense Market segment provides systems, software and network engineering,
commercial-off-the-shelf integration, and workflow management services to select
U.S. Department of Defense agencies. ISD's core defense customer base includes
the Defense Information Systems Agency (DISA) and the Joint Chiefs of Staff.
Revenues for the Defense Market segment were $32,801 and $91,983 for the three
and nine months ended September 30, 1999, respectively. Revenues for the Defense
Market segment were $27,752 and $66,812 for the three and nine months ended
September 30, 1998, respectively.
Civil Markets
The Civil Markets segment provides telecommunications and IT products and
services, including network engineering, software, telecommunications engineer-
ing, workflow management, commercial off the shelf equipment integration and Web
development to civilian agencies of the federal government. The primary federal
agencies supported are the Department of
Treasury, Justice, State, Transportation, and Commerce. Revenues for the Civil
Markets segment were $20,277 and $60,163 for the three and nine months ended
September 30, 1999, respectively. Revenues for the Civil Markets segment were
$24,599 and $65,167 for the three and nine months ended September 30, 1998,
respectively.
The accounting policies of the operating segments are described in the summary
of significant accounting policies (see Note 1). The chief operating decision
makers evaluate performance based on several factors, of which the primary
financial measure is gross margin less certain selling costs. The Division
operates only within the United States.
Intersegment revenues are generally based on arm's-length transactions between
the segments, and include an equitable allocation of all related costs. Common
operating expenses are allocated between segments either on revenues or specific
identification. Interest expense is allocated between segments based on
revenues. All significant intersegment amounts have been eliminated.
The U.S. government contributes over 10% of the revenues for each segment. No
other single customer contributes over 10% of the revenue for any individual
segment.