UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-3879
DynCorp
(Exact name of registrant as specified in its charter)
Delaware 36-2408747
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
2000 Edmund Halley Drive, Reston, VA 22091-3436
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 264-0330
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:
17% Redeemable Pay-In-Kind Class A Preferred Stock, par value $0.10
per share
(Title of class)
16% Pay-In-Kind Junior Subordinated Debentures due 2003
(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. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. The registrant's voting stock is
not publicly traded; therefore the aggregate market value of the
less than 1.0% of outstanding voting stock held by nonaffiliates
is not available.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date. 4,727,181 shares of common stock having a par value of
$0.10 per share were outstanding March 10, 1994.
TABLE OF CONTENTS
1993 FORM 10-K
Item
Part I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
Part II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8. Financial Statements and Supplementary Data
Auditors' Report
Financial Statements
Consolidated Balance Sheets
Assets
Liabilities, Redeemable Common Stock and Stockholders' Equity
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
Part III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
PART I
ITEM 1. BUSINESS
General Information
The Company provides diversified management, technical and
professional services to government and commercial customers
throughout the United States and to a limited extent in certain
foreign countries. Generally, these services are provided under
written contracts which may be fixed-price, time-and-material or
cost reimbursable depending on the work requirements and other
individual circumstances. The Company performs these services
through several operating units. For business reporting purposes
these operating units are combined into two categories:
Government Services and Commercial Services. (In 1992 and 1991
the Company reported through four operating groups: The
Government Services Group, the Applied Sciences Group, the
Commercial Aviation Services Group and the Postal Operations
Division.)
Government Services provides services to all branches of the
Department of Defense and to NASA, the Department of State, the
Department of Energy, the Environmental Protection Agency, the
Centers for Disease Control, the National Institutes of Health,
the Postal Service and other U.S. Government agencies and foreign
governments. These services encompass a wide range of management,
technical and professional services covering the following areas:
Aviation Services, including engineering, maintenance,
modification, and operational and logistical support of
military aircraft and weapons systems.
Facilities Management Services, including specialized
facilities operations, maintenance and management support on
military installations and at other federal operating
locations.
Security and Telecommunications Services, including the
design, installation and maintenance of security and
telecommunications systems.
Range Operations, Test and Evaluation Services, including the
test and evaluation of military hardware and weapons systems
at Government test ranges, and research, development and
engineering services.
Computer and Information Services, including software
development and maintenance, computer center operations, data
processing and analysis, database administration,
telecommunications, and operation and maintenance of
integrated electronic systems.
Health and Information Technology Services, including a full
range of health services, medical care, environmental and
biomedical research, and information technology services to
such customers as the Centers for Disease Control, the
National Institutes of Health and the Environmental
Protection Agency.
Energy, Environmental and Management Consulting Services,
including technical and program management consulting
services to the U.S. Government and private industry clients
in areas such as energy, environmental engineering, robotics,
nuclear weapons security, artificial intelligence and
information processing.
Commercial Services is composed of two major operating units that
provide aircraft maintenance, ground support, cargo handling,
passenger services and aircraft fueling to domestic and
international air carriers throughout the U.S. In 1993, business
proposals were submitted in several European countries and
aviation ground support services were provided in Russia. The two
major operating units of Commercial Services are as follows:
Aircraft Maintenance includes maintenance checks, component
overhaul, heavy structural maintenance, airframe and system
maintenance and modification on a wide variety of passenger
and cargo aircraft including wide-body aircraft.
Ground Support Services includes cargo handling, cabin
grooming, line maintenance, ticketing and passenger handling
and boarding services. Auxiliary support services include
bus and limousine operation, security, baggage service and
passenger screening operations. Also includes into-plane
fueling services and the management and operation of tank
farms and fuel distribution systems.
Industry Segments
The Company has one line of business, which is to provide
management and technical services to commercial and government
organizations in support of the customers' facilities and/or operations.
Backlog
The Company's backlog of business (including estimated value of
option years on government contracts) was $2.772 billion at the
close of 1993, compared to a year-end 1992 backlog of $2.241
billion. Of the total backlog on December 31, 1993, $1.823
billion is expected to produce revenues after 1994.
Contracts with the U.S. Government are generally written for
periods of three to five years. Because of appropriation
limitations in the federal budget process, firm funding is usually
made for only one year at a time, with the remainder of the years
under the contract expressed as a series of one-year options.
U.S. Government contracts contain standard provisions for
termination for the convenience of the U.S. Government, pursuant
to which the Company is generally entitled to recover costs
incurred, settlement expenses, and profit on work completed to
termination.
The Company's ground support services contracts with airlines
generally run for one to three years. Some contracts are
terminable on short notice, but the Company's experience has been
that few airlines choose to exercise this option given the
difficulty of integrating a replacement provider into the
airline's schedule. The Company is usually paid for its ground
services at a fixed contract rate on a per-flight basis (every
takeoff and landing). For heavy aircraft maintenance checks,
carriers solicit bids for the required services. Awards are made
on the basis of price, quality of service and past performance.
For routine line maintenance, the Company charges a flat rate
based on the service and the frequency of visits.
Competition
The general fields in which the Company conducts business are all
highly competitive, with competition based on a variety of factors
including, but not limited to, price, service and past experience.
Competitors of the Company vary in size with some having a larger
financial resource base. However, the Company believes that it
has been awarded many contracts because of its technical know-how
and past service record. Some of the major competitors of the
Company are as follows:
Government Services Commercial Services
SAIC AMR Services, Inc.
BDM Hudson General Corp
Computer Science Corp. Ogden Aviation Services
Johnson Controls Lockheed
Tracor Page Avjet
Brown and Root Delfort Aviation Inc.
Vitro ASI
Foreign Operations
The Company has a minority investment in an affiliate company
which operates in Saudi Arabia. In addition, the Company in 1993
established operations in Mexico and Russia. None of these
foreign operations are material to the Company's financial
position or results of operations.
Other activities of the Company presently include the providing
of services within the United States to certain foreign customers.
These services for foreign customers are generally paid for in
United States dollars. The Company also performs services in
foreign countries under U.S. Government contracts.
The risks associated with the Company's foreign operations in
regard to foreign currency fluctuation, and political and economic
conditions in foreign countries are not significant.
Incorporation
The Company was incorporated in Delaware in 1946.
Employees
The Company had approximately 21,800 employees at December 31,
1993.
ITEM 2. PROPERTIES
The Company is a service-oriented company, and as such the
ownership or leasing of real property is an activity which is not
material to an understanding of the Company's operations.
Properties owned or leased include office facilities, hangars,
warehouses used in connection with the storage of inventories and
fabrication of materials associated with various services rendered
and servicing facilities used in the Company's commercial aviation
operations. None of the properties is unique; however, several of
the leases constitute partially exclusive rights to operate at
certain airports. All of the Company's owned facilities are
located within the United States. In the opinion of management,
the facilities employed by the Company are adequate for the
present needs of the business. Reference is made to the
Consolidated Financial Statements and Notes, included elsewhere in
this Annual Report on Form 10-K, for additional information
concerning capital expenditures and lease commitments for
property.
ITEM 3. LEGAL PROCEEDINGS
This item is incorporated herein by reference to Note 16 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 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
DynCorp's common stock is not publicly traded. There were
approximately 336 record holders of DynCorp common stock at
December 31, 1993. In addition, the DynCorp Employee Stock
Ownership Plan Trust owns stock on behalf of approximately 29,000
present and former employees of the Company. Cash dividends have
not been paid on the common stock since 1988.
ITEM 6. SELECTED FINANCIAL DATA
The following table of selected financial data of the Company should be
read in conjunction with the Company's Consolidated Financial Statements
included elsewhere in this Annual Report on Form 10-K. (Dollars in
thousands except per share data.)
Years Ended December 31,
1993 1992 1991 1990 1989
Revenues $953,144 $911,422 $807,186 $717,391 $646,107
Loss before extraordinary item $(13,414) $(20,816) $(12,595) $(14,417) $(13,594)
Extraordinary gain (loss) (a) - (2,526) 192 726 -
Net loss $(13,414) $(23,342) $(12,403) $(13,691) $(13,594)
Net loss for common stockholders $(13,414) $(24,301) $(17,583) $(18,752) $(19,939)
Earnings (loss) per common share:
Primary -
Loss before extraordinary item $ (2.87) $ (4.49) $ (3.97) $ (4.28) $ (4.37)
Extraordinary gain (loss) (a) - (0.49) 0.04 0.15 -
Net loss $ (2.87) $ (4.98) $ (3.93) $ (4.13) $ (4.37)
Fully Diluted $ (2.87) $ (4.98) $ (3.93) $ (4.13) $ (4.37)
Cash dividends per common share $ - $ - $ - $ - $ -
YEAR-END DATA
Long-term debt (excluding
current maturities) $216,425 $199,762 $121,251 $103,584 $110,969
Redeemable preferred stock $ - $ - $ 24,884 $ 19,705 $ 21,062
Redeemable common stock $ 2,200 - - - -
Stockholders' equity $ 6,166 $ 3,884 $ 26,598 $ 27,416 $ 26,346
Total assets $382,456 $348,273 $316,361 $289,354 $298,650
<FN>
(a) The extraordinary gain (loss) in 1992, 1991 and 1990 results from the early extinguishment of debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
In 1993, the Company achieved record revenues, incurred the
smallest loss ($11.1 million) before income taxes, minority
interest and extraordinary item since the leveraged buy-out by
its management and Employee Stock Ownership Plan in 1988, and
ended the year with the largest backlog in its history. In fact,
but for losses in the Commercial Services' aircraft maintenance
business ($6.6 million), unusual write-offs and expenses in
connection with two acquisitions ($3.6 million) and the above
market PIK interest (approximately $4.1 million) the Company
would have been profitable for the year. However, the Company
continues to be highly leveraged, and its debt expense continued
to be excessive in comparison to its earnings and cash flow.
Some of the major events in 1993 were:
- Completed the acquisition of Technology Applications, Inc.
and the purchase of certain net assets of Science Management
Corporation's Information Division and NMI Systems, Inc.
- Eliminated the Commercial Services Administrative Group,
resulting in improved efficiencies and reduced general and
administrative expenses.
- Completed the relocation of the Miami, Florida aircraft
maintenance operation to larger hanger facilities which will
permit the Company to perform maintenance on wide-body
aircraft.
- Received the last payment from the ESOP on its $100 million
loan from the Company.
Revenues from the Department of Defense were $543 million in
1993 compared to $538 million in 1992 and $523 million in 1991.
These revenues represented 56.9% of total 1993 revenues compared
to 59.0% in 1992 and 64.8% in 1991. This represents the
Company's third year of its strategic long range plan to continue
to grow or maintain its defense business while focusing primarily
on the growth of non-defense business.
Following is a three-year summary of operations, cash flow and
long-term debt and redeemable preferred stock (in thousands):
Years Ended December 31,
1993 1992 1991
Operations
Revenues $953,144 $911,422 $807,186
Gross profit 39,557 28,146 23,886
Selling and corporate
administrative (18,267) (20,476) (17,935)
Interest, net (23,099) (22,458) (16,826)
Other (9,324) (5,860) (7,717)
Loss before income taxes, minority
interest and extraordinary item $(11,133) $(20,648) $(18,592)
Cash Flow
Net loss $(13,414) $(23,342) $(12,403)
Depreciation and amortization 19,818 19,372 24,473
Pay-in-kind interest 13,142 6,590 11,950
Working capital items (7,704) (7,559) (823)
Other (1,222) 283 (1,920)
Cash provided (used) by
operations 10,620 (4,656) 21,277
Investing activities (15,611) (18,130) (8,622)
Financing activities 7,817 26,868 (110)
Increase in cash and short-
term investments $ 2,826 $ 4,082 $ 12,545
December 31,
1993 1992 1991
Long-term Debt and Redeemable Preferred Stock
Junior Subordinated Debentures,
net of discount $ 86,947 $ 73,489 $ 75,612
Contract Receivable
Collateralized Notes 100,000 100,000 -
Employee Stock Ownership Plan Term
and Revolving Credit Loan - - 38,215
Mortgages payable 23,416 19,436 -
Other notes payable and
capitalized leases 9,899 9,507 9,861
Class A Preferred Stock - - 24,884
$220,262 $202,432 $148,572
The following discussion of the Company's results of operations
is directed toward the two major categories, Government Services
and Commercial Services.
Results of Operations
Revenues - Revenues for 1993 were $953.1 million compared to
1992 revenues of $911.4 million, an increase of $41.7 million
(4.6%). Government Services (GS) had an increase of $49.1
million (6.7%) while Commercial Services (CS) had a decrease of
$7.4 million (4.0%). The increase in GS's revenues includes
approximately $15.1 million from businesses acquired in December
1992 and February and December 1993, $16.0 million from the
Postal contracts which were in the start-up phase in 1992 but
were fully operational in 1993, and $17.9 million from new
contract awards offset partially by contracts completed and/or
not renewed. The overall decline in CS's 1993 revenues results
from low volume in the aircraft maintenance activities and the
impact of relocating the Miami, Florida maintenance operation to
a new hangar facility; offset partially by increases in ground
support services. Aircraft maintenance 1993 revenues decreased
to $57.3 from $74.3 million in 1992 while ground support
services' 1993 revenues increased to $118.6 million from $109.0
million in 1992.
The increase in 1992 revenues of $104.2 million (11.9%) over 1991
was attributable to a combination of internal growth and the
effect of acquisitions; GS increased $73.6 million (11.2%) and
CS increased $30.6 million (20.1%). The increase in GS's
revenues includes approximately $18.2 million from businesses
acquired in April and May of 1991, $16.3 million from the Postal
Service contracts awarded in the latter part of 1991 with the
remaining increase attributable to the net increase in contract
awards over contracts completed and/or not renewed. The increase
in CS's revenues includes $23.0 million from higher volume in
aircraft maintenance and $7.6 million from ground support
services. The absence of the negative impact of the Persian Gulf
War on ground support services also contributed to the overall
increase in CS's 1992 revenues.
Cost of Services/Gross Margins - Cost of services was 95.8% of
revenues in 1993, 96.9% in 1992 and 97% in 1991 which resulted in
gross margins of $39.6 million (4.1%), $28.1 million (3.1%) and
$23.9 million (3.0%) respectively. GS's 1993 gross margins were
improved while CS's 1993 margins declined from that of the prior
year. The improvement in GS's gross margins was principally due
to improved profit performance on new contracts started in 1992
and the early part of 1993 (in particular the Postal and the
Department of Energy contracts). CS's decline in gross margin
was the result of reduced volume in the aircraft maintenance
activities, offset partially by improved gross margins of the
ground support activities. Aircraft maintenance had gross margin
losses of $6.6 million in 1993 compared to $.4 million in 1992.
Also contributing to the decline in CS's margins were
approximately $.6 million of costs associated with the relocation
of the Miami, Florida aircraft maintenance operations to larger
hangar facilities at the Miami, Florida airport.
The 1992 gross margin, compared to 1991, was adversely impacted
by approximately $7.0 million of nonrecurring insurance claims
related to prior years, losses on the start-up of the new Postal
contracts and a decline in GS's margins. These charges and the
decline in GS's margins substantially offset increased gross
margins in CS maintenance activities and a reduction in the
amount of amortization of merger related contract write-ups.
Selling and Corporate Administrative - Selling and corporate
administrative expenses as a percentage of revenues were 1.9% in
1993 and 2.2% in both 1992 and 1991. There were both increases
and decreases in 1993 of the various elements and components of
these expenses, however, the two most significant factors
contributing to the decrease of $2.2 million from 1992 were cost
reductions made in CS's general and administrative expenses and a
decrease in GS's marketing and bid and proposal costs from the
unusually high amount incurred in 1992 on a contract proposal for
the Department of Energy's Strategic Petroleum Reserve in
Louisiana. Even though selling and corporate administrative
expenses as a percentage of revenues were the same in both 1992
and 1991, the dollar amount increased $2.5 million over 1991.
This increase was caused principally by marketing and proposal
costs associated with the bidding of the Department of Energy
Contract mentioned above and costs, principally the addition of
staff, incurred in developing new nondefense business and
customers.
Interest - Interest expense in 1993 of $25.5 million was $.6
million higher than 1992. This small increase was primarily the
result of the Contract Receivable Collateralized Notes being
outstanding for the full year of 1993 compared to approximately
eleven months in 1992, interest on the mortgage for the Corporate
office building was for the full year of 1993 compared to five
months in 1992 and an increase in the amount of capitalized
leases outstanding, all of which were partially offset by a
reduction in the accrual of interest on possible payments of
Federal income taxes. Interest expense in 1992 was $24.9
million compared to $18.9 in 1991. This increase in 1992 was
principally the result of the issuance of the Contract Receivable
Collateralized Notes, compounding of Junior Subordinated
Debentures due to pay-in-kind interest, accrual of interest on
possible payments of federal income taxes and interest on the
mortgage assumed on July 31, 1992 for the Corporate office
building.
Interest income in 1993 of $2.4 million was approximately the
same as that in 1992 while interest income in 1992 was $.3
million higher than 1991. Even though interest rates were lower
in 1992 than 1991, the Company had more excess funds available
for investment and owned the Cummings Point Industries, Inc. note
receivable with an interest rate of 17%.
Other - The net increase in 1993 from 1992 is caused primarily by
accelerated amortization of costs in excess of net assets of a
recently acquired business and legal and other expenses
associated with another acquired business. (The legal and other
expenses relate to events which occurred prior to the businesses
being acquired by the Company.) The net decrease in 1992
compared to 1991 is caused primarily by adjustment of reserves
for environmental costs related to divested businesses,
obligations to repurchase shares from terminated ESOP
participants at a premium in excess of the fair value, and other
transactions related to divested businesses.
(In thousands)
1993 1992 1991
Amortization of costs in excess
of net assets acquired and
deferred ESOP costs $4,830 $ 3,793 $3,791
Provision for nonrecovery of
receivables 1,141 965 953
ESOP Repurchase Premium 1,507 2,787 3,680
Legal and other expenses associated
with an acquired business 2,070 - -
Environmental costs of divested
businesses - 1,000 709
Gain on sale of warrants obtained in
divestitures - (756) (1,331)
Other divested business adjustments(224) (1,929) (85)
Total Other $9,324 $ 5,860 $7,717
Income Taxes - In 1993, the Company recorded a foreign income tax
provision and a state income tax benefit and in addition, for its
majority owned subsidiary which is required to file a separate
return, a federal income tax provision. In 1992, the Company
recorded only a foreign income tax provision. In 1993 and 1992,
the Company did not recognize any federal income tax benefit on
its losses because of the uncertainty regarding the level of
future income. In 1991, the effective income tax rate was 32.3%.
The income tax benefit for 1991 is less than the federal
statutory rate because of nondeductibility of amortization of
goodwill and value assigned to contracts and fixed assets in
connection with the 1988 merger and reorganization.
Cash Flow
Cash and short-term investments increased to $22.8 million at
December 31, 1993, from $20.0 million at the prior year-end.
Working capital at December 31, 1993, was $73.8 million compared
to $59.2 million at December 31, 1992. The working capital
increase was primarily the result of expanded business volume.
The 1993 ratio of current assets to current liabilities was 1.53
compared to 1.47 in 1992 (as restated). At December 31, 1993,
$17.6 million of cash and short-term investments and $107.1
million of accounts receivable were restricted as collateral for
the Contract Receivable Collateralized Notes.
In 1993, operating activities produced cash flow of $10.6
million compared to a negative cash flow of $4.7 million in 1992
(for an improvement of $15.3 million). The two major reasons for
the improved cash flow from operating activities were a decrease
of $9.9 million in the amount of loss for 1993 compared to 1992
and an increase of $6.6 million of pay-in-kind interest on Junior
Subordinated Debentures. In 1992, the Company had voluntarily
elected to pay the interest due December 31, 1992 in cash rather
than pay-in-kind.
Investing activities used $15.6 million of cash, of which
$10.9 million was used for the acquisition of businesses (see
Note 15 to the Consolidated Financial Statements included
elsewhere in this Form 10-K) and another $5.4 million was used
for the purchase of property and equipment. In addition, $1.3
million of contract phase-in costs of a new long-term contract
were incurred and deferred. These costs will be amortized over
the duration of the contract. In 1992, investing activities used
$18.1 million of cash. The primary use of cash was the purchase
of property and equipment for $11.4 million and another $4.6
million was the net increase in notes receivable resulting
primarily from the loan to Cummings Point Industries, Inc. In
1991, investing activities used $8.6 million of cash. The
principal uses were the purchase of property and equipment for
$12.1 million and the acquisitions of businesses for $6.3 million
offset by proceeds received from notes receivable of $8.4
million.
Financing activities provided cash of $7.8 million in 1993.
Payments of $16.1 million were received on the loan to the
Employee Stock Ownership Plan (the last and final payment on the
loan from the Company was received in December, 1993), $6.3
million was used for payments on indebtedness and $2 million was
used to purchase treasury stock. In 1992, financing activities
provided cash of $26.9 million principally from the payments
received from the ESOP plus surplus funds from the new financing
arrangement of $100 million. During 1992, the Company used $38.1
million to pay in full its outstanding balance under the Restated
Credit Agreement, $33.3 million for redemption of all of the
outstanding Class A Preferred Stock plus accrued dividends and
$10.2 million for the partial redemption of its 16% Junior
Subordinated Debentures. In 1991, the Company received payments
of $15.4 from the ESOP and borrowed $6.0 million under its
revolving credit, which funds were offset by payments on
indebtedness of $17.0 million and the purchase of treasury stock
and Junior Subordinated Debentures of $4.9 million.
Liquidity and Capital Resources
At December 31, 1993, the Company's debt totaled $220.3
million compared to $202.4 million the prior year-end and $148.6
million at December 31, 1991, including redeemable preferred
stock. The net increase in debt resulted principally from the
pay-in-kind interest of $13.1 million on the Junior Subordinated
Debentures and the $4.0 million mortgage assumed in the
acquisition of Technology Applications, Inc. The Company had a
net increase in cash and short-term investments of $2.8 million,
$4.1 million and $12.5 million in 1993, 1992 and 1991,
respectively. However, without the pay-in-kind interest on the
Junior Subordinated Debentures (interest becomes payable in cash
effective with the December 31, 1995 payment) and the payments
received on the loan to the Employee Stock Ownership Plan (ESOP),
the Company would have had a net decrease in cash and short-term
investments of $26.4 million, $18.6 million and $14.8 million in
1993, 1992 and 1991, respectively. Annualized interest expense
at January 1, 1994 is approximately $28.4 million of which $15.3
million of interest on the Junior Subordinated Debentures is
payable in kind. The only significant debt maturing in the next
three years is the mortgage of approximately $19 million on the
Corporate Office, which matures in March, 1995. The Company
intends to refinance this mortgage before it matures.
The Company believes that it can achieve the required cash
flow by continued profit improvement, reduced debt service cost
and/or the continuation of its contribution to the ESOP which can
be used to purchase common stock from the Company. The Company
plans to continue its Value Improvement Program which was
initiated in late 1992 to reduce and/or eliminate operating costs
and loss operations, turn around the losses in Commercial
Services' aircraft maintenance operations, and to improve the
gross margins in Government Services. To reduce its debt service
costs, the Company is presently in discussions with its
investment bankers to replace its high interest rate Junior
Subordinated Debentures through the issuance of new senior notes
or an initial public offering, or both. In addition, the Company
and the ESOP have an agreement in principal under which the ESOP
will continue during 1994 to purchase Company common stock to
fund the ESOP retirement benefit.
The Company is also considering its alternatives, including
the possible sale or spinoff, in respect to CS's aircraft
maintenance unit which has incurred operating losses in the last
three years. Selected financial operating data of the aircraft
maintenance unit is as follows (in thousands except number of
employees):
1993 1992 1991
Revenues $57,288 $74,253 $51,221
Operating losses $(6,629) $(428) $(1,137)
Net assets including Goodwill
at December 31, $44,354 $43,328 $42,775
Backlog at December 31, $11,368 $ - $12,584
Number of employees 701 631 627
These units are continuing to face an extremely competitive
market with some competitors willing to buy market share at or
below cost. At this point, the Company does not believe that the
assets and goodwill associated with this unit has been
permanently impaired; however, it is possible that future events
may require a write-down of the carrying value.
Although the Company has made some progress to diversify into
non-defense business activities, the Company is still heavily
dependent on the Department of Defense. Due to the procurement
cycles of its customers (generally three to five years), the
Company's revenues and margins are subject to continual
recompetition. In a typical annual cycle approximately 20% to
30% of the Company's business will be recompeted, and the Company
will bid on several new contracts. Existing contracts can be
lost or rewon at lower margins at any time and new contracts can
be won. The net outcome of this bidding process, which in any
one year can have a dramatic impact on future revenues and
earnings, is impossible to predict. Also, if the U.S. Government
budget is reduced or spending shifts away from locations or
contracts for which the Company provides services, the Company's
success in retaining current contracts or obtaining new contracts
could be significantly reduced. The Company's Commercial
Services business is likewise highly competitive and subject to
the economic conditions of the domestic and foreign airline
industry.
In summary, the Company continues to be highly leveraged, and
its ability to meet its future debt service and working capital
requirements is dependent upon increased future earnings and cash
flow from operations, extension of the ESOP and the reduction of
its debt expense.
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
31, 1993 and 1992, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the
three years in the periods ended December 31, 1993. These
financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an 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 31, 1993 and 1992, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules
listed in Item 14 of the Form 10-K are presented for purposes of
complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules
have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required
to be set forth therein in relation to the basic financial
statements taken as a whole.
Washington, D.C.,
March 22, 1994.
ARTHUR ANDERSEN & CO.
DynCorp and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
1993 1992
Assets
Current Assets:
Cash and short-term investments (includes restricted
cash and short-term investments of $17,632 in 1993
and $16,768 in 1992) (Notes 2 and 4) $ 22,806 $ 19,980
Notes and current portion of long-term receivables
(Notes 2 and 8) (a) 235 161
Accounts receivable and contracts in process
(Notes 2, 3 and 4) 177,470 151,970
Inventories of purchased products and supplies,
at lower of cost (first-in, first-out) or market 6,467 6,137
Prepaid income taxes (Note 10) 127 1,836
Other current assets 6,724 5,708
Total Current Assets 213,829 185,792
Long-term Receivables, due through 1998 (Note 2) 274 342
Property and Equipment, at cost (Notes 1 and 14):
Land 5,539 5,234
Buildings and leasehold improvements 33,498 30,324
Machinery and equipment 64,907 50,842
103,944 86,400
Accumulated depreciation and amortization (42,996) (32,258)
Net property and equipment 60,948 54,142
Intangible Assets, net of accumulated amortization
(Notes 1 and 15) 93,890 94,653
Other Assets (Notes 2 and 4) 13,515 13,344
Total Assets $382,456 $348,273
(a) December 1992 has been restated to conform to the 1993 presentation.
See accompanying notes.
DynCorp and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
1993 1992
Liabilities, Redeemable Common Stock and Stockholders' Equity
Current Liabilities:
Notes payable and current portion of long-term debt
(Notes 2 and 4) $ 3,837 $ 2,670
Accounts payable (Note 2) 25,376 18,763
Deferred revenue and customer advances (Note 1) 2,178 2,188
Accrued income taxes (Notes 1 and 10) 3,074 345
Accrued expenses (Note 5) 105,578 102,667
Total Current Liabilities 140,043 126,633
Long-term Debt (Notes 2, 4 and 15) 216,425 199,762
Deferred Income Taxes (Notes 1 and 10) 1,269 1,189
Other Liabilities and Deferred Credits (Note 2) 16,353 16,805
Total Liabilities 374,090 344,389
Commitments, Contingencies and Litigation (Notes 14 and 16)
Redeemable Common Stock $17.50 per share redemption value,
125,714 shares issued and outstanding (Note 6) 2,200 -
Stockholders' Equity (Note 7)
Capital stock, par value ten cents per share -
Preferred stock, Class C, 18% cumulative,
convertible, $24.25 liquidation value,
123,711 shares authorized and issued and outstanding 3,000 3,000
Common stock, authorized 15,000,000 shares;
issued 5,015,139 shares in 1993 and 4,913,385
shares in 1992 502 491
Common stock warrants 15,119 15,119
Unissued common stock under restricted stock plan 10,395 9,941
Paid-in surplus 95,983 96,408
Retained earnings (deficit) (105,425) (92,011)
Common stock held in treasury, at cost; 285,987
shares and 178,100 warrants in 1993 and 325,211
shares and 180,210 warrants in 1992 (5,840) (6,538)
Cummings Point Industries, Inc. note
receivable (Note 8) (a) (7,568) (6,410)
Employee Stock Ownership Plan Loan (Note 9) - (16,116)
Total stockholders' equity 6,166 3,884
Total Liabilities, Redeemable Common Stock
and Stockholders' Equity $382,456 $348,273
(a) December 1992 has been restated to conform to 1993 presentation.
See accompanying notes.
DynCorp and Subsidiaries Consolidated Statements of Operations
For the Years Ended December 31 (Dollars in thousands except per share data)
1993 1992 1991
Revenues (Note 1) $953,144 $911,422 $807,186
Costs and expenses:
Cost of services 913,587 883,276 783,300
Selling and corporate administrative 18,267 20,476 17,935
Interest expense 25,538 24,876 18,910
Interest income (2,439) (2,418) (2,084)
Other 9,324 5,860 7,717
Total costs and expenses 964,277 932,070 825,778
Loss before income taxes, minority interest
and extraordinary item (11,133) (20,648) (18,592)
Provision (benefit) for income taxes (Note 10) 1,329 168 (5,997)
Loss before minority interest and
extraordinary item (12,462) (20,816) (12,595)
Minority interest (Note 1) 952 - -
Loss before extraordinary item (13,414) (20,816) (12,595)
Extraordinary gain (loss) from early
extinguishment of debt, net of income
taxes of $99 in 1991 (Note 4) - (2,526) 192
Net loss (13,414) (23,342) (12,403)
Preferred Class A dividends declared and
paid and accretion of discount - 959 5,180
Net loss for common stockholders $(13,414)$ (24,301) $(17,583)
Earnings (Loss) Per Common Share (Note 12)
Primary and fully diluted:
Loss before extraordinary item $ (2.87)$ (4.49)$ (3.97)
Extraordinary item - (0.49) 0.04
Net loss for common stockholders $ (2.87)$ (4.98)$ (3.93)
See accompanying notes.
DynCorp and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31 (Dollars in thousands)
Unissued
Common Cummings
Stock Employee Point
Under Retained Stock Industries
Preferred Common Stock Restricted Paid-in Earnings Treasury Ownership Note
Stock Stock Warrants Stock Plan Surplus (Deficit) Stock Plan Loan Receivable
Balance, December 31, 1990 $3,000 $474 $15,119 $ 5,903 $101,469 $(50,128) $ (804) $(47,617) $ -
Pay-in-kind Preferred Stock
Class A dividends (5,056)
Accretion of Preferred Stock Class A
discount and issuance costs (123)
Adjustment of the purchase of
Preferred Stock Class A (11)
Treasury stock purchased (Note 7) (2,810)
Stock issued under the Management
Employees Stock Purchase
Plan (Note 7) 25 373
Accrued compensation (Note 7) 3,785
Payments received on Employee Stock
Ownership Plan Loan (Note 9) 15,402
Net loss (12,403)
Balance, December 31, 1991 3,000 474 15,119 9,688 101,483 (67,710) (3,241) (32,215) -
Pay-in-kind Preferred Stock
Class A dividends (934)
Accretion of Preferred Stock Class A
discount and issuance costs (25)
Stock issued under Restricted
Stock Plan (Note 7) 17 (3,011) 2,994
Purchase of Preferred Stock Class A (8,047)
Treasury stock purchased (Note 7) (3,448)
Stock issued under the Management
Employees Stock Purchase Plan
(Note 7) (22) 151
Accrued compensation (Note 7) 3,264
Payments received on Employee Stock
Ownership Plan (Note 9) 16,099
Cummings Point Industries note
receivable (Note 8) (a) (5,500)
Accrued interest on note receivable
(Note 8) (a) (910)
Net loss (23,342)
Balance December 31, 1992 3,000 491 15,119 9,941 96,408 (92,011) (6,538) (16,116) (6,410)
Stock issued under Restricted
Stock Plan (Note 7) 11 (1,781) 1,770
Treasury stock purchased (Note 7) (1,980)
Stock issued under the Management
Employees Stock Purchase
Plan (Note 7) 5 41
Accrued compensation (Note 7) 2,235
Payments received on Employee Stock
Ownership Plan (Note 9) 16,116
Contribution of stock to ESOP
(Note 9) 437
Stock issued in conjunction
with acquisition (Notes 6 and 15) (2,200) 2,200
Accrued interest on note
receivable (Note 8) (1,158)
Net loss (13,414)
Balance December 31, 1993 $3,000 $502 $15,119 $10,395 $ 95,983 $(105,425) $(5,840) $ - $ (7,568)
<FN>
(a) Restated to conform to the 1993 presentation.
See accompanying notes.
DynCorp and Subsidiaries Consolidated Statements of Cash Flows
For the Years Ended December 31 (Dollars in thousands)
1993 1992 1991
Cash Flows from Operating Activities:
Net loss $(13,414) $(23,342)$(12,403)
Adjustments to reconcile net loss from operations
to net cash provided by operating activities:
Depreciation and amortization 19,818 19,372 24,473
Pay-in-kind interest on Junior Subordinated
Debentures (Note 4) 13,142 6,590 11,950
Loss (gain) on purchase of Junior
Subordinated Debentures (Note 4) - 2,526 (291)
Deferred income taxes 521 (2,114) (4,933)
Accrued compensation under Restricted Stock Plan 2,235 3,264 3,785
Noncash interest income (1,158) (910) -
Other (2,820) (2,483) (481)
Change in assets and liabilities, net of acquisitions and dispositions:
Increase in accounts receivable and contracts
in process (9,698) (14,904) (14,298)
(Increase) decrease in inventories (326) 280 (174)
(Increase) decrease in other current assets 1,159 2,797 (1,117)
Increase in current liabilities except notes payable
and current portion of long-term debt 1,161 4,268 14,766
Cash provided (used) by operating activities 10,620 (4,656) 21,277
Cash Flows from Investing Activities:
Sale of property and equipment 1,422 1,262 1,974
Proceeds received from notes receivable 558 1,353 8,439
Purchase of property and equipment (5,423) (11,400) (12,106)
Increase in notes receivable (Note 8) - (5,934) -
Increase in investments in affiliates (99) (1,888) -
Deferred income taxes from "safe harbor"
leases (Note 10) (441) (314) (338)
Deferred income taxes related to the merger
and disposition of businesses - - 342
Assets and liabilities of acquired businesses,
excluding cash acquired (Notes 1 and 15) (10,890) (905) (6,262)
Other (738) (304) (671)
Cash used by investing activities (15,611) (18,130) (8,622)
Cash Flows from Financing Activities:
Purchase of Class A Preferred Stock and
Junior Subordinated Debentures (Note 4) - (42,466) (2,074)
Treasury stock purchased (Note 7) (1,980) (3,448) (2,810)
Payment on indebtedness (6,365) (41,040) (17,026)
Increase in bank borrowings - - 6,000
Refinancing proceeds (Note 4) - 100,000 -
Deferred financing expenses (Note 4) - (1,524) -
Dividends paid on Class A Preferred Stock - (861) -
Treasury stock sold under Management Employees
Stock Purchase Plan 46 108 398
Reduction in loan to Employee Stock Ownership
Plan (Note 9) 16,116 16,099 15,402
Cash provided (used) by financing activities 7,817 26,868 (110)
Net Increase in Cash and Short-term Investments 2,826 4,082 12,545
Cash and Short-term Investments at
Beginning of the Period 19,980 15,898 3,353
Cash and Short-term Investments at
End of the Period $ 22,806 $ 19,980 $ 15,898
See accompanying notes.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation -- All majority-owned subsidiaries have
been included in the financial statements and all significant
intercompany accounts and transactions have been eliminated. Outside
investors' interest in minority owned subsidiaries is reflected as
minority interest. Investments less than 50% owned are accounted for
using the equity method of accounting.
Contract Accounting -- Contracts in process are stated at the lower
of actual cost incurred plus accrued profits or net estimated
realizable value of incurred costs, reduced by progress billings.
The Company records income from major fixed-price contracts,
extending over more than one accounting period, using the percentage-
of-completion method. During performance of such contracts,
estimated final contract prices and costs are periodically reviewed
and revisions are made as required. The effects of these revisions
are included in the periods in which the revisions are made. On
cost-plus-fee contracts, revenue is recognized to the extent of costs
incurred plus a proportionate amount of fee earned, and on time-and-
material contracts, revenue is recognized to the extent of billable
rates times hours delivered plus material and other reimbursable
costs incurred. Losses on contracts are recognized when they become
known. Disputes arise in the normal course of the Company's business
on projects where the Company is contesting with customers for
additional funds because of events such as delays or changes in
contract specifications. For fixed-price contracts, such disputes,
whether claims or unapproved changes 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.
It is the Company's policy to provide reserves for the
collectibility of accounts receivable when it is determined that it
is probable that the Company will not collect all amounts due and the
amount of reserve requirement can be reasonably estimated.
Property and Equipment -- The Company computes depreciation and
amortization using both straight-line and accelerated methods. The
estimated useful lives used in computing depreciation and
amortization on a straight-line basis are: building, 15-33 years;
machinery and equipment, 3-20 years; and leasehold improvements, term
of lease. Accelerated depreciation is based on a 150% declining
balance method with light-duty vehicles assigned a three-year life
and machinery and equipment assigned a five-year life. Depreciation
and amortization expense was $9,670,000 for 1993, $9,275,000 for 1992
and $10,759,000 for 1991.
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 statement of operations. Expenditures for maintenance
and repairs are charged to expense as incurred, and major additions
and improvements are capitalized.
Intangible Assets -- At December 31, 1993, intangible assets consist
of $91,942,000 of unamortized goodwill and $1,948,000 of value
assigned to contracts. Goodwill is being amortized on a straight-
line basis over periods up to forty years. Amortization expense was
$3,990,000, $2,953,000 and $2,952,000 in 1993, 1992 and 1991,
respectively. Amounts allocated to contracts are being amortized
over the lives of the contracts for periods up to ten years.
Amortization of amounts allocated to contracts was $3,555,000,
$4,566,000 and $7,763,000 in 1993, 1992 and 1991, respectively.
Cumulative amortization of $16,116,000 and $31,720,000 has been
recorded through December 31, 1993, of goodwill and value assigned to
contracts, respectively.
The Company assesses and measures impairment of intangible
assets, including goodwill, based on several factors including the
probable fair market value, probable future cash flows and net
income and the aggregate value of the business as a whole. See
Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, on Liquidity and Capital
Resources, included elsewhere in this Form 10-K concerning possible
impairment.
Income Taxes -- As prescribed by Statement of Financial Accounting
Standards (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.
Postretirement Health Care Benefits -- The Company provides no
significant postretirement health care or life insurance benefits to
its retired employees other than allowing them to continue as
participants in the Company's plans with the retiree paying the full
cost of the premium. The Company has determined, based on an
actuarial study, that it has no liability under Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
Postemployment Benefits -- The Company has no liability under
Statement of Financial Accounting Standard 112, "Employers'
Accounting for Postemployment Benefits," as it provides no benefits
as defined.
New Accounting Pronouncements -- The Financial Accounting Standards
Board issued Statement 114, "Accounting by Creditors for Impairment
of a Loan," and Statement 115, "Accounting for Certain Investments in
Debt and Equity Securities," in May 1993. The statements are
required to be adopted in 1995 and 1994, respectively. The Company
has no significant financial instruments of the nature described and
therefore believes the statements will not have a material effect on
its results of operations or financial condition.
The Company intends to contribute approximately $15 million to the
Employee Stock Ownership Plan in 1994 to acquire common stock at a
per share value to be determined by an independent appraisal. At
such time, the Company will adopt SOP 93-6, "Employer's Accounting
for Employee Stock Ownership Plans," issued in November 1993 and
effective for financial statements issued after December 15, 1993.
Consolidated Statement of Cash Flows -- For purposes of this
Statement, short-term investments which consist of certificates of
deposit and government repurchase agreements with a maturity of
ninety days or less are considered cash equivalents.
Cash paid for income taxes was $1,232,000 for 1993, $4,054,000
for 1992 and $944,000 for 1991.
Cash paid for interest, excluding the interest paid under the
Employee Stock Ownership Plan term loan, was $11,706,000 for 1993,
$17,212,000 for 1992 and $3,371,000 for 1991.
Noncash investing and financing activities consist of the
following (in thousands):
1993 1992 1991
Acquisitions of businesses:
Assets acquired $31,675 $ 3,524 $14,849
Liabilities assumed (17,198) (1,248) (6,959)
Stock issued (2,200) - -
Notes issued and other liabilities (1,382) (592) (1,764)
Cash paid for fees and noncompete covenant - - 141
Cash acquired (5) (779) (5)
Net cash 10,890 905 6,262
Pay-in-kind interest on Junior
Subordinated Debentures (Note 4) 13,142 6,590 11,950
Pay-in-kind dividends and accretion of
discount on preferred stock - - 5,056
Unissued common stock under
restricted stock plan (Note 7) 2,235 3,264 3,785
Capitalized equipment leases and notes
secured by property and equipment 5,294 1,792 1,759
Mortgage note assumed (Note 4) - 19,456 -
(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 Accounts Payable - The carrying amount
approximates their fair value.
Notes and long-term receivables - The carrying amount approximates the
fair value because of the short maturity of these instruments.
Investments (included in "Other Assets") - The Company has an
investment in convertible debentures and preferred stock of an untraded
company. Based upon the financial statements of this business, the
carrying value of these investments approximates their fair value.
Long-term debt and other liabilities - The fair value of the Company's
long-term debt is based on the quoted market price for its Junior
Subordinated Debentures, the current rate as if the issue date were
December 31, 1993 for its Collateralized Notes. For the remaining long-
term debt (see Note 4) and other liabilities, the carrying amount
approximates the fair value.
Cummings Point Industries, Inc. Note Receivable - The carrying value
approximates the fair value. (See Note 8.)
The estimated fair values of the Company's financial instruments are
as follows (in thousands):
1993 1992
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and short-term investments $ 22,806 $ 22,806 $19,980 $19,980
Accounts receivable 177,470 177,470 151,970 151,970
Notes and long-term receivables (a) 509 509 503 503
Investments 2,116 2,116 2,439 2,439
Accounts Payable 25,376 25,376 18,763 18,763
Long-term debt and
other liabilities 218,758 229,012 200,950 208,623
Cummings Point note receivable 7,568 7,568 6,410 6,410
(a) December 1992 has been restated to conform to the 1993 presentation
of the Cummings Point Industries, Inc. note receivable.
(3) Accounts Receivable and Contracts in Process
The components of accounts receivable and contracts in process were
as follows (in thousands):
1993 1992
U.S. Government:
Billed and billable $ 83,822 $ 83,722
Recoverable costs and accrued profit on progress
completed but not billed 25,473 20,218
Retainage due upon completion of contracts 1,287 1,762
110,582 105,702
Commercial Customers:
Billed and billable (less allowances for doubtful accounts
of $1,469 in 1993 and $3,415 in 1992) 43,660 32,239
Recoverable costs and accrued profit on progress completed
but not billed 23,228 14,029
66,888 46,268
$177,470 $151,970
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 not billed is composed primarily of amounts
recognized as revenues, but which are not contractually billable at
the balance sheet dates.
The Company performs substantial services for the commercial
aviation industry. Receivables from domestic and foreign airline and
leasing companies were approximately $38,700,000 and $26,600,000 at
December 31, 1993 and 1992, respectively.
(4) Long-term Debt
At December 31, 1993 and 1992, long-term debt consisted of (in
thousands):
1993 1992
Contract Receivable Collateralized Notes,
Series 1992-1 $100,000 $100,000
Junior Subordinated Debentures, net of
unamortized discount of $5,175 and $5,491 86,947 73,489
Mortgages payable 23,416 19,436
Notes payable, due in installments through
2002, 9.27% weighted average interest rate 6,689 6,343
Capitalized equipment leases 3,210 3,164
220,262 202,432
Less current portion 3,837 2,670
$216,425 $199,762
Maturities of long-term debt as of December 31, 1993, were as
follows (in thousands):
1994 $ 3,837
1995 21,638
1996 2,157
1997 101,527
1998 1,044
Thereafter 90,059
On January 23, 1992, the Company's wholly owned subsidiary, Dyn
Funding Corporation (DFC), completed a private placement of
$100,000,000 of 8.54% Contract Receivable Collateralized Notes,
Series 1992-1 (the "Notes"). The Notes are collateralized by the
right to receive proceeds from certain U.S. Government contracts and
certain eligible accounts receivable of commercial customers of the
Company and its subsidiaries. Credit support for the Notes is
provided by overcollateralization in the form of additional
receivables. The Company retains an interest in the excess balance
of receivables through its ownership of the common stock of DFC.
Additional credit and liquidity support is provided to the Notes
through a cash reserve fund. Interest payments are made monthly with
monthly principal payments beginning February 28, 1997. (The period
between January 23, 1992 and January 30, 1997 is referred to as the
Non-Amortization Period.) The notes are projected to have an average
life of five years and two months and to be fully repaid by July 30,
1997.
Upon receiving the proceeds from the sale of the Notes, DFC
purchased from the Company an initial pool of receivables for
$70,601,000, paid $1,524,000 for expenses and deposited $3,000,000
into a reserve fund account and $24,875,000 into a collection account
with Bankers Trust Company as Trustee pending additional purchases of
receivables from the Company. Of the proceeds received from DFC, the
Company used $38,112,000 to pay the outstanding balances of the
Employee Stock Ownership Plan term loan and revolving loan facility
under the Restated Credit Agreement and $33,280,000 was used for the
redemption of all of the outstanding Class A Preferred Stock plus
accrued dividends (the redemption price per share was $25.00 plus
accrued dividends of $.66). The Company expensed $1,432,000
(reported as an extraordinary loss) of unamortized deferred debt
expense pertaining to the term loan and revolving loan facility which
was paid in full. The Company charged $8,047,000 of unamortized
discount and deferred issuance costs associated with the redemption
of the Class A Preferred Stock to paid-in surplus.
On an ongoing basis, cash receipts from the collection of the
receivables are used to make interest payments on the Notes, pay a
servicing fee to the Company, and purchase additional receivables
from the Company. Beginning February 28, 1997, instead of purchasing
additional receivables, the cash receipts will be used to repay
principal on the Notes. During the Non-Amortization Period, cash in
excess of the amount required to purchase additional receivables and
meet payments on the Notes is to be paid to the Company subject to
certain collateral coverage tests. The receivables pledged as
security for the Notes are valued at a discount from their stated
value for purposes of determining adequate credit support. DFC is
required to maintain receivables, at their discounted values, plus
cash on deposit at least equal to the outstanding balance of the Notes.
Commencing March 30, 1994, the Notes may be redeemed in whole, but
not in part, at the option of DFC at a price equal to the principal
amount of the Notes plus accrued interest plus a premium (as
defined).
Mandatory redemption (payment of the Notes in full plus a premium)
is required in the event that (i) the collateral value ratio test is
equal to or less than .95 as of three consecutive monthly
determination dates and the Company has not substituted receivables
or deposited cash into the collection account to bring the collateral
value ratio above .95; or (ii) three special redemptions are required
within any consecutive 12-month period; or (iii) the aggregate stated
value of all ineligible receivables which have been ineligible
receivables for more than 30 days exceeds 7% of the aggregate
collateral balance and the collateral value ratio is less than 1.00.
Special redemption (payment of a portion of the Notes plus a
premium) is required in the event that the collateral value ratio
test is less than 1.00 as of two consecutive monthly determination
dates and the Company has not substituted receivables or deposited
cash into the collection account to bring the collateral value ratio
to 1.00.
Also, DFC may not purchase additional eligible receivables if the
Company has an interest coverage ratio (as defined) of less than
1.10; or if the Company has more than $40 million of scheduled
principal debt (as defined) due within 24 months prior to the
amortization date or $20 million of scheduled principal debt due
within 12 months prior to the amortization date.
At December 31, 1993, $17,632,000 of cash and short-term
investments and $107,091,000 of accounts receivable are restricted as
collateral for the Notes.
As of December 31, 1993, the Company had two separate unsecured
revolving credit facilities available. One facility, which matured
January 23, 1994, provided that the Company could borrow up to
$10,000,000 less any outstanding letters of credit. At the Company's
option, amounts borrowed under this facility bear interest at either
prime rate plus 1% or Eurodollar rate plus 2%, all as defined. The
other revolving credit facility, which matured January 31, 1994,
provided that the Company could borrow up to $5,000,000 at a per
annum interest rate equal to 1% plus the prime interest rate
established by the Bank. The Company paid commitment fees of $68,000
and $73,000 in 1993 and 1992, respectively, which equal 1/2 of 1%
per annum on the unused loan commitments. At December 31, 1993, the
Company had $12,084,000 available under these Revolving Credit
Facilities.
In March 1994, the Company entered into a secured revolving credit
agreement which provides a $5,000,000 line of credit plus a
$2,500,000 revolving letter of credit facility. The agreement is
secured by the stock of the Company's Commercial Aviation
subsidiaries and selected fixed assets. Advances under the line of
credit will bear interest at a per annum interest rate equal to 1%
plus the prime interest rate established by the bank. For each
letter of credit issued, the Company must assign a cash collateral
deposit in favor of the bank for 100% of the face value of the letter
of credit. The Company will pay a fee of 1.5% per annum computed on
the face amount of the letter of credit for the period the letter of
credit is scheduled to be outstanding. The credit agreement will
expire July 1, 1994.
The Junior Subordinated Debentures (Debentures) mature on June 30,
2003, and bear interest of 16% per annum, payable semi-annually. The
effective interest rate is 19.4%. The Company may, at its option,
prior to September 9, 1995, pay the interest either in cash or issue
additional Debentures. The Debentures are subject to annual
mandatory redemption beginning June 30, 1999. The Company may, at
its option, redeem in whole or in part, at any time, the Debentures
at their face value plus accrued interest. During 1993, 1992 and
1991, $13,142,000, $6,590,000 and $11,950,000, respectively, of
additional Debentures were issued in lieu of cash interest payments.
Using a lottery selection method, the Company called for partial
redemption of $10,000,000 face value plus accrued interest for cash
redemption on August 10, 1992. The lottery resulted in redeeming
$9,698,000 face value of the Debentures. Open market purchases
during 1992 retired $290,000 of the Debentures. The related
unamortized discount, deferred debt expense and expenses, net of
applicable income taxes, were reported as an extraordinary loss in
1992.
The Company received title to its corporate office building on July
31, 1992 by assuming a mortgage of $19,456,000. At the Company's
option, the interest on the mortgage may be computed from time to
time under one of three methods based on the Certificate of Deposit
Rate, LIBOR Rate or the Prime Rate, all as defined. Also, the
Company was required to pay additional interest through May 27, 1993.
The additional interest was the difference between a fixed rate of
9.36% and a floating rate based upon an imputed amount of
$31,900,000. The original mortgage maturity date was May 27, 1993;
however, as provided, the Company extended the mortgage to March 27,
1995 with an increase in the interest rate of 1/2% per annum plus an
extension fee (based on the principal amount of the mortgage
outstanding) of .42% on May 27, 1993 and .50% on March 27, 1994.
The Company acquired the Alexandria, VA headquarters of Technology
Applications, Inc. on November 12, 1993. A mortgage of $3,344,000
bearing interest at 8% per annum was assumed. Payments are made
monthly and the mortgage matures in April 2003. Additionally, a
$1,150,000 promissory note was issued. The note bears interest at 7%
per annum. Payments under the note shall be made quarterly through
October, 1998.
Deferred debt issuance costs are being amortized using the
effective interest rate method over the terms of the related debt.
At December 31, 1993, unamortized deferred debt issuance costs were
$1,339,000 and amortization for 1993, 1992 and 1991 was $328,000,
$420,000 and $2,309,000, respectively.
(5) Accrued Expenses
At December 31, 1993 and 1992, accrued expenses consisted of the
following (in thousands):
1993 1992
Salaries and wages $ 43,698 $ 38,906
Insurance 17,202 23,802
Interest 6,233 6,187
Payroll and miscellaneous taxes 10,412 9,123
Accrued contingent liabilities and operating reserves 19,028 16,440
Other 9,005 8,209
$105,578 $102,667
(6) Redeemable Common Stock
In conjunction with the acquisition of Technology Applications,
Inc. (see Note 15), the Company issued put options on 125,714 shares
of common stock. The holder may, 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 fair market
value at the time of exercise.
(7) Stockholders' Equity
Class C Preferred Stock is convertible, at the option of the
holder, into one share of common stock, adjusted for any stock
splits, stock dividends or redemption. At conversion the holders of
Class C Preferred Stock are also entitled to receive such warrants as
have been distributed to the holders of the common stock. Dividends
accrue at an annual rate of 18%, compounded quarterly. At December
31, 1993, cumulative dividends of $5,342,000 have not been recorded
or paid. Dividends will be payable only when cash dividends are
declared with respect to common stock and only in an aggregate amount
equal to the aggregate amount of dividends that such holders would
have been entitled to receive if such Class C Preferred Stock had
been converted into common stock. Each holder of Class C Preferred
Stock is entitled to one vote per share on any matter submitted to
the holders of common stock for stockholder approval. In addition,
so long as any Class C Preferred Stock is outstanding, the Company is
prohibited from engaging in certain significant transactions without
the affirmative vote of the holders of a majority of the outstanding
Class C Preferred Stock.
The Company has issued warrants to the Class C Preferred
stockholders and to certain common stockholders to purchase a maximum
of 5,891,987 shares of common stock of the Company. At December 31,
1993, warrants were outstanding to purchase 5,713,887 shares of
common stock of the Company. Each warrant is exercisable to obtain
one share of common stock for $0.25. Rights under the warrants lapse
no later than September 9, 1998. The Board of Directors has
authorized a new stockholders' agreement which will permit current
stockholders to convert warrants to shares on a noncash basis.
The Company has a Restricted Stock Plan (the Plan) under which
management and key employees may be awarded shares of common stock
based on the Company's performance. The Company has reserved
1,025,037 shares of common stock for issuance under the Plan. Under
the Plan, Restricted Stock Units (Units) are granted to participants
who are selected by the Compensation Committee of the Board of
Directors. Each Unit will entitle the participant upon achievement
of the performance goals (all as defined) to receive one share of the
Company's common stock. Units cannot be converted into shares of
common stock until the participant's interest in the Units has
vested. Vesting occurs upon completion of the specified periods as
set forth in the Plan. In 1993, 1992 and 1991, the Company accrued
as compensation expense $2,235,000, $3,264,000 and $3,785,000,
respectively, under the Plan which was charged to cost of services
and corporate administrative expenses.
The Company has a Management Employees Stock Purchase Plan (the
Stock Purchase Plan) whereby employees in management, supervisory or
senior administrative positions may purchase shares of the Company's
common stock along with warrants at current fair value. The Board
of Directors is responsible for establishing the fair value for
purposes of the Stockholders Agreement and the Management Employees
Stock Purchase Plan. The determination has been based upon the most
recent appraisal of the Company's common stock prepared by the
financial advisors to the Employee Stock Ownership Plan Committee,
adjusted to reflect the absence of a control-share premium, lack of
liquidity, reductions in the warrant exercise price, and inflationary
forces. At December 31, 1993, the fair value was determined to be
$59.52 per share including 6.6767 warrants. Treasury stock, which
the Company acquired from terminated employees who had previously
purchased the stock from the Company, is being issued to employees
purchasing stock under the Stock Purchase Plan.
In accordance with ERISA regulations and the Employee Stock
Ownership Plan Documents, the ESOP Trust or the Company are obligated
to purchase vested common stock shares from ESOP participants (see
Note 9) at the fair value (as determined by an independent appraiser)
as long as the Company's common stock is not publicly traded.
Participants receive their vested shares upon retirement, becoming
totally 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. In the event the fair value of a
share is less than $27.00, the Company is committed to pay through
December 31, 1996, up to an aggregate of $16,000,000, the difference
(Premium) between the fair value and $27.00 per share. As of
December 31, 1993, the Company has purchased 327,411 shares from
participants and has expended $3,069,000 of the $16,000,000
commitment. Based on the fair value of $17.99 per share at December
31, 1993, the Company estimates a total Premium of $8,500,000 and an
aggregate annual commitment to repurchase shares from the ESOP
participants upon death, disability, retirement and termination as
follows; $3,600,000 in 1994, $5,900,000 in 1995, $4,000,000 in 1996,
$3,000,000 in 1997, $4,300,000 in 1998 and $56,800,000 thereafter.
The fair value is charged to Treasury Stock at the time of
repurchase. The estimated Premium of $8,500,000 is being recorded
over the life of the ESOP and reported as "Other" expense in the
income statement. Through December 31, 1993, $7,181,000 of the
Premium had been recorded and recognized as compensation expense.
The Company is presently in discussions with its investment bankers
to replace the Junior Subordinated Debentures through the issuance of
new senior notes or an initial public offering or a combination of
the two. In the event of an initial public offering, the unpaid
balance of the $16 million premium may become payable.
Under the DynCorp Stockholders' Agreement which expired on March
11, 1994, the Company was committed, upon an employee's termination
of employment, to purchase common stock shares held by employees
pursuant to the merger (Management Investor Shares), through the
Stock Purchase Plan or through the Restricted Stock Plan. The share
price is fair value ($59.52 per share including 6.6767 warrants at
December 31, 1993) as determined by the Board of Directors for
Management Investor Shares and Stock Purchase Plan shares. Such
shares outstanding at December 31, 1993, were 262,298, with 1,751,285
warrants attached. The share price for Restricted Stock Plan shares
($17.99 at December 31, 1993) is fair value as set forth in the
appraisal of shares held by the ESOP. However, the Company may not
purchase more than $250,000 of Management Investor shares or
Restricted Stock shares in any fiscal year without the approval of
the Class C Preferred stockholders. The Board of Directors has
authorized an extension of the Stockholders' agreement, pending
acceptance by the shareholders, which will contain similar repurchase
obligations.
(8) Cummings Point Industries, Inc. Note Receivable
The Company loaned $5,500,000 to Cummings Point Industries, Inc.
("CPI"), of which Capricorn Investors, L.P. ("Capricorn") owns more
than 10%. The indebtedness is represented by a promissory note (the
"Note"), bearing interest at the annual rate of 17%, which provides
that interest is payable quarterly but that interest payments may not
be payable in cash but may be added to the principal of the Note.
The Note is subordinated to all senior debt of CPI. The Note, which
was issued February 12, 1992, was due three months thereafter;
however, the Company, at its option, has extended and may further
extend the maturity date in three month increments to no later than
February 12, 1995. By separate agreement and as security to the
Company, Capricorn has agreed to purchase the Note from the Company
upon three months' notice, for the amount of outstanding principal
plus accrued interest. As additional security, Capricorn's purchase
obligation is collateralized by certain common stock and warrants
issued by the Company and owned by Capricorn. The note has been
reflected as a reduction in stockholders' equity as it is anticipated
the collateral will be used to satisfy the obligation.
(9) Employee Stock Ownership Plan
In September, 1988, the Company established an Employee Stock
Ownership Plan (the Plan). The Company borrowed $100 million and
loaned the proceeds, on the same terms as the Company's borrowings,
to the Plan to purchase 4,123,711 shares of common stock of the
Company (the "ESOP loan"). The common stock purchased by the Plan
was held in a collateral account as security for the ESOP loan from
the Company. The Company was obligated to make contributions to the
Plan in at least the same amount as required to pay the principal and
interest installments under the Plan's borrowings. The Plan used the
Company contributions to repay the principal and interest on the ESOP
loan. As the ESOP loan was liquidated, shares of the Company's
common stock were released from the collateral account and allocated
to participants of the Plan. As of December 31, 1993, the loan has
been fully repaid.
In March, 1991, the Employee Stock Ownership Plan was amended to
provide for an additional contribution of no fewer than 25,000 shares
of common stock in 1993 and 625,000 shares in 1994. The Company may,
at its option, contribute cash in lieu of the aforementioned shares
of common stock, based on the most recent valuation of such stock.
The Company has an agreement in principle with the ESOP to contribute
approximately $15 million in cash or stock in 1994, inclusive of the
625,000 shares, to satisfy its funding obligations.
The Plan covers a majority of the employees of the Company.
Participants in the Plan become fully vested after four years of
service. All of the 4,148,711 shares owned by the ESOP have been
allocated to participants as of December 31, 1993. The Company
recognizes ESOP expense each year based on contributions committed to
be made to the Plan. The Company's cash contributions were
determined based on the ESOP's debt service. Stock contributions are
determined in accordance with the amended agreement. In 1993 cash
and stock contributions to the ESOP were $16,608,000 and $437,000
respectively, 1992 and 1991 cash contributions were $17,275,000 and
$18,805,000, respectively. These amounts were charged to cost of
services and selling and corporate administrative expenses (including
$491,000, $1,450,000 and $3,231,000 of interest on the ESOP term
loan).
(10) Income Taxes
The Company changed from Statement of Financial Accounting
Standards (SFAS) No. 96 to Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" effective
January 1, 1992. There was no significant cumulative effect from
this change and prior year financial statements were not restated.
Earnings (loss) before income taxes and minority interest (but
including extraordinary item - see Note 4) were derived from the
following (in thousands):
1993 1992 1991
Domestic operations $(11,240) $(23,378) $(18,393)
Foreign operations 107 204 92
$(11,133) $(23,174) $(18,301)
The provision (benefit) for income taxes (and including
extraordinary item - see Note 4) consisted of the following (in
thousands):
1993 1992 1991
Current:
Federal $ 723 $ 416 $ (867)
Foreign 170 168 567
State (85) 193 (665)
808 777 (965)
Deferred:
Federal 500 (416) (5,106)
State 21 (193) 173
521 (609) (4,933)
Total $ 1,329 $ 168 $(5,898)
The components of and changes in deferred taxes are as
follows (in thousands):
Deferred Deferred
Dec.31, Expense Dec. 31, Expense Jan. 1,
1993 (Benefit) 1992 (Benefit) 1992
Increase due to federal rate change $ 402 $ (402) $ - $ - $
Benefit of state tax on temporary differences
and state net operating loss carryforwards 4,858 (1,135) 3,723 (2,211) 1,512
Benefit of foreign tax credit carryforwards 2,530 (1,073) 1,457 - 1,457
Difference between book and tax method of
accounting for depreciation and amortization (390) 1,020 630 (398) 232
Difference between book and tax method of
accounting for income on U.S. Government
contracts (8,844) 1,195 (7,649) 2,988 (4,661)
Deferred compensation expense 5,416 (113) 5,303 (2,344) 2,959
Operating reserves and other accruals 17,573 (2,644) 14,929 (6,200) 8,729
Difference between book and tax method of
accounting for certain employee benefits 719 (1,243) (524) 73 (451)
Amortization of intangibles (148) (204) (352) (945) (1,297)
Other, net (179) 173 (6) 186 180
Net deferred tax asset before valuation
allowance 21,937 (4,426) 17,511 (8,851) 8,660
Federal valuation allowance (11,300) 3,812 (7,488) 6,031 (1,457)
State valuation allowance (4,858) 1,135 (3,723) 2,211 (1,512)
Total temporary differences affecting
tax provision 5,779 521 6,300 (609) 5,691
Deferred taxes from "safe harbor"
lease transactions (7,048) (441) (7,489) (314) (7,803)
Net deferred tax liability $(1,269) $ 80 $(1,189) $ (923) $(2,112)
The components of the changes in deferred taxes are as
follows (in thousands):
1991
Difference between book and tax method
of accounting for depreciation and
amortization $(1,233)
Difference between book and tax method
of accounting for income on U.S.
Government contracts 2,668
Deferred compensation expense (255)
Operating reserves and other accruals (3,661)
Difference between book and tax
method of accounting for certain
employee benefits (485)
Amortization of intangibles (2,051)
Other, net 84
Total temporary differences affecting
tax provision (4,933)
Deferred taxes from "safe harbor" lease transactions (338)
Taxes related to the merger and
disposition of businesses 342
$(4,929)
The tax provision (benefit) differs from the amounts
obtained by applying the statutory U.S. Federal income tax rate
to the pre-tax loss amounts. The differences can be reconciled
as follows (in thousands):
1993 1992 1991
Expected Federal income tax benefit $(3,785) $(7,879) $(6,222)
Valuation allowance 3,812 6,031 -
State and local income taxes, net of
Federal income tax benefit (42) - (325)
Nondeductible amortization of intangibles
and other costs 1,552 2,300 2,651
Foreign income tax 84 99 585
Tax credits, primarily foreign (359) (222) (2,663)
Other, net 67 (161) 76
Tax provision (benefit) $1,329 $ 168 $(5,898)
In 1993, the Company recorded a $170,000 foreign income tax
provision and a $64,000 state income tax benefit. However, due
to the uncertainty regarding the level of future taxable income,
the Company did not recognize any federal tax benefits on the
losses incurred in 1993. The federal tax provision of $1,223,000
is that of a majority owned subsidiary which is required to file
a separate federal return.
The Company's U.S. Federal income tax returns have been
audited through 1984. The Internal Revenue Service has performed
an examination of the Company's tax returns for the period 1985-
88 and has proposed several adjustments, the most significant of
which relates to deductions taken by the Company for expenses
incurred in the 1988 merger. The Company and its attorneys are
currently protesting these proposed adjustments with the IRS
appeals office. Taxes and accrued interest associated with these
proposed adjustments, including the ongoing effects of similar
adjustments in future years, are approximately $15,700,000. In
the opinion of management, based in part upon opinion of its
attorneys, the tax liability, if any, for these proposed
adjustments will not have a material adverse effect on the
consolidated results of operations and financial position of the
Company.
The Company has state net operating losses and foreign tax
credit carryforwards available to offset future taxable income
and income taxes. Following are the net operating losses and
foreign tax credits by year of expiration (in thousands):
Year of Foreign State Net
Expiration Tax Credits Operating Losses
1994 $2,341 $ -
1995 - 2,448
1996 189 20
2005 - 8,145
2006 - 66
2007 - 472
$2,530 $11,151
(11) Pension Plans
Union employees who are not participants in the ESOP are covered
by multiemployer pension plans under which the Company pays fixed
amounts, generally per hours worked, according to the provisions of
the various labor contracts. In 1993, 1992 and 1991, the Company
expensed $2,400,000, $2,693,000 and $2,900,000, 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.
The Company makes contributions to a defined benefit pension plan
for employees working on one cost plus U.S. Government contract.
The plan is accounted for in accordance with the requirements of
Statement of Financial Accounting Standards No. 87. The pension
plan had assets of $5,642,000 and projected benefit obligations of
$5,356,000 at September 30, 1993 (the plan's fiscal year end). This
pension plan remains in effect regardless of changes in contractors
which may occur as a result of the recompetition process.
(12) Earnings Per Share
Primary earnings per share is based on the weighted average number
of common and dilutive common equivalent shares outstanding during
the period. In addition, 1993 and 1992 include as outstanding
common stock, shares earned and vested but unissued under the
Restricted Stock Plan. For years 1993, 1992 and 1991, the
outstanding warrants and shares which would be issued under the
assumed conversion of Class C Preferred Stock have been excluded
from the calculation of earnings per share as their effect is
antidilutive because of the losses incurred during the periods (see
also Note 6). Further, the loss per common share for 1993, 1992 and
1991 includes the effect of the unpaid dividends on the Class C
Preferred Stock ($1,347,000 in 1993, $1,129,000 in 1992 and $947,000
in 1991 - see Note 7) and, in addition, for 1991 and 1992 the
dividends paid on Class A Preferred Stock. The average number of
shares used in determining primary earnings per share was 5,141,319
for 1993, 5,102,621 for 1992 and 4,719,407 for 1991.
(13) Incentive Compensation Plans
The Company has several formal incentive compensation plans which
provide for incentive payments 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. Incentive compensation expense was $7,067,000
for 1993, $6,058,000 for 1992 and $5,788,000 for 1991.
(14) Leases
The Company has capitalized all significant leases which meet the
criteria for classification as capital leases, principally leases
for vehicles and equipment. Capitalized leases are amortized over
the useful lives of the assets.
Future minimum lease payments required under operating leases that
have remaining noncancellable lease terms in excess of one year at
December 31, 1993 and payments under capitalized leases are
summarized below:
Operating Capitalized
Leases Leases
Years Ending December 31,
1994 $ 6,805 $1,519
1995 6,562 1,022
1996 4,080 651
1997 3,683 489
1998 2,727 77
Thereafter 7,831 -
Total minimum lease payments $31,688 $3,758
Less interest on capitalized leases 548
Present value of capitalized leases
as of December 31, 1993 (Note 4) $3,210
Net rent expense for leases, excluding amounts for capitalized
leases, was $16,553,000 for 1993, $14,706,000 for 1992 and
$14,980,000 for 1991.
(15) Acquisitions
On November 12, 1993 the Company acquired Technology Applications,
Inc. (TAI). Aggregate cash paid, notes issued and mortgages assumed
totaled $11,419,000 and 125,714 shares of common stock valued at
$2,200,000 were issued (see Note 6). TAI, located in Alexandria,
Virginia, provides tactical and nontactical software engineering and
logistics services to industry as well as defense and civilian
government agencies. The acquisition was accounted for as a
purchase and $2,710,000 of goodwill was recorded which will be
amortized over 40 years.
The Company also acquired certain assets of Science Management
Corporation ("SMC") and NMI Systems Inc. ("NMI") on February 18,
1993 and December 10, 1993, respectively, for an aggregate of
$5,352,000 in cash, notes and other liabilities. SMC provides
information processing, systems management and related consulting
services, primarily to the U.S. Government. Key customers include
the U.S. Postal Service, Centers for Disease Control and the
Department of Education. NMI, headquartered in Fairfax, VA,
provides telecommunications operations, engineering and local and
wide area network design and consulting services primarily for the
Environmental Protection Agency, the U.S. Treasury and the Internal
Revenue Service. Both of these acquisitions were accounted for as
purchases. Goodwill of $3,373,000 was recorded and will be
amortized over periods up to 40 years. The allocation period for
the NMI acquisition remains open pending resolution of certain
contract issues.
Consolidated revenues, loss before extraordinary item, net loss
and loss per share for the years ended December 31, 1993 and 1992,
adjusted on an unaudited pro forma basis as if the above
acquisitions and the acquisition in 1992 (BK Dynamics Inc. was
acquired on December 15, 1992 for an aggregate of $2,277,000 in cash
and notes) had been consummated at the beginning of the respective
periods, are as follows (in thousands except per share amounts):
Unaudited
1993 1992
Revenues $999,285 $993,180
Loss before extraordinary item $(11,951) $(19,307)
Net loss for common stockholders (a) $(13,298) $(22,792)
Net loss per common share $ (2.64) $ (4.58)
(a) The net loss for common stockholders includes Preferred Class
A dividends declared and paid and accretion of discount of
$959,000 in 1992.
(16) Commitments, Contingencies and Litigation
The Company is involved in various claims and lawsuits, including
contract disputes and claims based on allegations of negligence and
other tortious conduct. The Company is also potentially liable for
certain environmental, personal injury, tax and contract dispute
issues related to the prior operations of divested businesses. In
most cases, the Company has denied, or believes it has a basis to
deny, liability, and in some cases has offsetting claims against the
plaintiffs or third parties.
Damages currently claimed by the various plaintiffs for these
items which may not be covered by insurance aggregate approximately
$34,000,000 (including compensatory and possible punitive damages
and penalties).
A former subsidiary, which discontinued its business activities in
1986, has been named as one of many defendants in civil lawsuits
which have been filed in various state courts against manufacturers,
distributors and installers of asbestos products. (The subsidiary
had discontinued the use of asbestos products prior to being
acquired by the Company.) The Company has also been named as a
defendant in several of these actions. At the beginning of 1991, 31
claims had been filed and during the year 360 additional claims were
filed with one claim being settled. In 1992, 1,755 additional
claims were filed and 73 were settled. In 1993, 662 new claims were
filed with 1,204 claims being settled. Defense has been tendered to
and accepted by the Company's insurance carriers. The former
subsidiary was a nonmanufacturer that installed or distributed
industrial insulation products. Accordingly, the Company strongly
believes that the subsidiary has substantial defenses against
alleged secondary and indirect liability. The Company has provided
a reserve for the estimated uninsured legal costs to defend the
suits and the estimated cost of reaching reasonable no-fault
liability settlements of $18,000,000 less estimated insurance
coverages of $11,000,000. The amount of the reserve has been
estimated based on the number of claims filed and settled to date,
number of claims outstanding, current estimates of future filings,
trends in costs and settlements, and the advice of the insurance
carriers and counsel.
The Company and a wholly-owned subsidiary acquired in 1991 are the
subjects of separate investigations by federal investigators who are
reviewing, respectively, the accuracy of the Company's equipment
maintenance records on a military equipment maintenance contract,
and the appropriateness of pricing proposals submitted by the
subsidiary to a government agency prime contractor for software
development services. The Company and subsidiary are cooperating
with the investigators. The Company has provided a reserve for the
estimated legal costs associated with these investigations.
The Company has also been notified of certain proposed tax
adjustments by the IRS relative to the deduction taken by the
Company for expenses incurred in the 1988 merger.
The Company is a party to other civil lawsuits which have arisen
in the normal course of business for which potential liability,
including costs of defense, are covered by insurance policies.
The Company has recorded its best estimate of the liability that
will result from these matters. While it is not possible to predict
with certainty the outcome of the 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 presently 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 or consolidated financial
position of the Company.
The major portion of the Company's business involves contracting
with departments and agencies of, and prime contractors to, the U.S.
government and as such 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. In management's opinion, there are no outstanding
issues of this nature at December 31, 1993 that would have a
material adverse effect on the Company's consolidated financial
position or results of operations.
The Company is highly leveraged, and its ability to meet its
future debt service and working capital requirements is dependent
upon several factors. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations for a
discussion on the Company's Liquidity and Capital Resources,
included elsewhere in this Form 10-K.
(17) Business Segment
The Company operates in one line of business, that of providing
management and technical services to industry and government
organizations primarily to support the customers' facilities and/or
operations on a turn-key (full) service basis.
The Company has no significant foreign operations or assets
outside the United States. The largest single customer of the
Company is the U.S. Government. The Company had prime contract
revenues from the U.S. Government of $663 million in 1993, $674
million in 1992 and $600 million in 1991. Included in revenues from
the U.S. Government are revenues from the Department of Defense of
$543 million in 1993, $538 million in 1992 and $523 million in 1991.
No other customer accounted for more than 10% of revenues in any
year.
(18) Quarterly Financial Data (Unaudited)
A summary of quarterly financial data for 1993 and 1992 is as follows
(in thousands, except per share data):
1993 Quarters 1992 Quarters
First Second Third Fourth First Second Third Fourth
Revenues $231,560 $235,567 $239,013 $247,005 $215,095 $228,990 $218,848 $248,489
Gross profit (a) 6,726 9,507 8,219 15,104 6,982 8,532 5,803 6,829
Earnings (loss) before
income taxes,
minority interest and
extraordinary item (6,015) (2,548) (2,953) 383 (3,036) (5,014) (8,407) (4,191)
Minority interest (a) 118 386 113 335 - - - -
Extraordinary item (b) - - - - (1,432) (1,036) (56) (2)
Net loss (6,186) (2,979) (3,854) (395) (4,498) (6,081) (8,483) (4,280)
Preferred dividends and
accretion of discount - - - - 959 - - -
Net loss for common
stockholders (6,186) (2,979) (3,854) (395) (5,457) (6,081) (8,483) (4,280)
Earnings (loss) per
common share:
Primary and fully diluted:
Loss before
extraordinary item (1.26) (0.65) (0.82) (0.15) (0.83) (1.04) (1.71) (0.91)
Extraordinary item (b) - - - - (0.28) (0.20) (0.01) -
Net loss for common
stockholders (1.26) (0.65) (0.82) (0.15) (1.11) (1.24) (1.72) (0.91)
<FN>
(a) The first two quarters of 1993 have been restated to (
present minority interest in operations as a separate
line item.
(b) Loss from early extinguishment of debt (see Note 4). (
Quarterly data may not equal annual totals due to rounding.
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
Directors
Herbert S. Winokur, Jr., 50 Director and Chairman of the Board
since 1988, term expires 1996
President, Winokur Holdings, Inc.
(investment company)
Formerly Senior Executive Vice President, Member Office of
the President, and Director, Penn Central Corporation.
Director of ENRON Corporation; NacRe Corp.; NHP, Inc.; and
Marine Drilling Companies, Inc.
Dan R. Bannister, 63* Director since 1985, term expires
1995
Chief Executive Officer since 1985
President since 1984
Director of Industrial Training
Corporation
T. Eugene Blanchard, 63* Nominee for Director, term expires 1997
Director since 1988
Senior Vice President and Chief
Financial Officer since 1979
Russell E. Dougherty, 73 Director since 1989, term expires 1996
Attorney, McGuire, Woods, Battle &
Boothe (law firm)
Retired General, United States Air Force; served as
Commander-in-Chief, Strategic Air Command and Chief of
Staff, Allied Command, Europe. From 1980 to 1986 served as
Executive Director of the Air Force Association and
Publisher of Air Force Magazine. Member of the Defense
Science Board. Trustee of the Institute for Defense
Analysis. Director of The Aerospace Corp.
James H. Duggan, 58* Director since 1988, term expires 1996
Executive Vice President since 1987
President of Applied Sciences Group
since 1991
Paul G. Kaminski, 51 Director since 1988, term expires
1995
Chairman and Chief Executive Officer of
Technology Strategies & Alliances
(strategic partnership consulting)
Retired Colonel, United States Air Force. Director of
Atlantic Aerospace & Electronics; Delfin Systems, Inc.;
Geodynamics, Inc.; Jaycor; Microwave Technology Inc.; ISX
Corp.; and Michigan Development Corp. Chairman of the
Defense Science Board.
Dudley C. Mecum II, 59 Nominee for Director, term expires 1997
Director since 1988
Partner, G.L. Ohrstrom & Co. (investment
company)
Formerly Chairman of Mecum Associates, Inc. Served as Group
Vice President and Director, Combustion Engineering, Inc.
Director of The Travelers Inc., Lyondell Petrochemical
Company, Vicorp Restaurants Inc., Fingerhut Companies, Inc.,
and Roper Industries Inc.
David L. Reichardt, 51* Director since 1988, term expires
1995
Senior Vice President and General
Counsel since 1986
President of Dynalectric Company, a subsidiary of DynCorp,
from 1984 to 1986. Vice President and General Counsel of
DynCorp from 1977 to 1984.
Other Executive Officers
Patrick G. Deasy, 55* Vice President since 1993
President of DynAir Ground Services
Group since 1993, President of DynAir
Services Inc. since 1985
Gerald A. Dunn, 60* Vice President since 1973
Controller since 1967
H. Montgomery Hougen, 58 Corporate Secretary and Deputy General
Counsel since 1984
Richard A. Hutchinson, 49 Treasurer since 1978
Marshal J. Hyman, 48 Vice President since 1993
Director of Taxes since 1986
Paul V. Lombardi, 52* Vice President since 1992
President of Government Services Group
since 1992
Senior Vice President and Group General Manager, Planning
Research Corporation from 1990 to 1992. Senior Vice
President and Group General Manager, Advanced Technology
Inc. from 1988 to 1990.
Gregory Moyer, 45 Vice President, Human Resources and
Administration since 1993
Vice President, Human Resources and Quality, Planning
Research Corporation from 1989 to 1993.
John H. Saunders, 37 Vice President, Finance since 1993
Director of Corporate Finance since 1990
Vice President, Finance, Government
Services Group from 1987 to 1990
Donald S. Sullenberger, 53 Vice President, Quality Improvement
since 1991. Retired Colonel,
United States Air Force. Division
Manager, DynCorp, Holloman Support
Division from 1987 to 1991
Richard L. Webb, 61* Vice President since 1988
President of DynAir Technical Services
Group since 1993, President of Aviation
Services Group from 1985 to 1993
Robert G. Wilson, 52 Vice President and General Auditor
since 1985
*Officers designated by an asterisk are deemed to be
officers for purposes of Rule 16a-1(f), as promulgated in
Release No. 34-28869.
Stockholders Agreement
In anticipation of the merger of DME Holdings, Inc. into the
Company, which occurred in September, 1988, the stockholders and
other investors in DME Holdings, Inc. entered into a Stockholders
Agreement, dated March 11, 1988. This Agreement, to which most
of the holders of voting stock of DynCorp, except the Employee
Stock Ownership Plan Trust and participants in such Plan to whom
shares have been distributed, are parties, provides that the
Company's management employees as a group and the outside
investors acting through Capricorn Investors as a group are each
entitled to nominate four of the nine authorized directors and,
in concert, to nominate a ninth director, for which nominees all
the parties are required to vote. Each of the eight current
directors, including those currently nominated to succeed
themselves, was initially nominated by this procedure. The
Stockholders Agreement expired on March 11, 1994, but a
replacement Stockholders Agreement, effective as of such
expiration date and having similar terms, has been approved by
the Board of Directors and is expected to be adopted by the
respective parties.
ITEM 11. EXECUTIVE COMPENSATION
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 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 Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compen-
Name and Principal Salary Bonus(1) Compen- Award(s)(2) Options/ Payouts sation (3)
Position Year ($) ($) sation($) ($) SARs (#) ($) ($)
Dan R. Bannister 1993 339,896 155,000 17,465
President & Chief 1992 317,800 140,000 16,634
Executive Officer 1991 296,618 140,000 33,934 19,128
James H. Duggan 1993 248,736 90,000 12,813
Executive Vice 1992 234,688 80,000 13,767
President & President 1991 226,115 80,000 20,695 16,261
Appl. Sci. Group
T. Eugene Blanchard 1993 200,591 90,000 17,018
Senior Vice President 1992 189,131 75,000 16,634
& Chief Financial 1991 181,784 75,000 19,128
Officer
David L. Reichardt 1993 193,371 90,000 11,793
Senior Vice President 1992 181,934 75,000 10,360
& General Counsel 1991 172,478 75,000 12,854
Paul V. Lombardi 1993 219,663 100,000 105,000 11,960
Vice President & 1992 47,859 60,000 105,000 2,338
President, Government 1991 - - -
Services Group
(1) Column (d) reflects bonuses earned and expensed during year,
whether paid during or after such year.
(2) Value of restricted stock units determined in accordance
with Restricted Stock Plan. Units awarded in 1991 could vest in
less than three years, in the event of earlier issuance of a tax
ruling regarding the allocation of shares within the Employee
Stock Ownership Plan (ESOP). There is no provision to pay
dividends on restricted stock units. The following table
reflects the number of restricted stock units in the respective
accounts of the named individuals, whether vested or unvested,
and the aggregate valuation as of December 31, 1993.
Name No. of Value ($)
Units
Dan R. Bannister 55,292 967,610
James H. Duggan 58,764 1,028,370
T.Eugene Blanchard 47,980 839,650
David L. Reichardt 32,528 569,240
Paul V. Lombardi 12,000 210,000
(3) Column (i) includes individual's pro rata share of the
Company's contribution to the ESOP Trust, estimated for 1993, and
the Company-paid portion of group term-life insurance premiums
covering the individual, as reflected in the following table.
Name ESOP Contributions ($) Insurance Premiums($)
1993 1992 1991 1993 1992 1991
Dan R. Bannister 8,912 8,912 11,406 8,553 7,722 7,722
James H. Duggan 8,912 8,912 11,406 3,901 4,855 4,855
T. Eugene Blanchard 8,912 8,912 11,406 8,106 7,722 7,722
David L. Reichardt 8,912 8,912 11,406 2,881 1,448 1,448
Paul V. Lombardi 8,912 1,810 - 3,048 528 -
Compensation of Directors
Non-employee directors of the Company receive an annual
retainer fee of $16,500 as directors and $2,750 for each
committee on which they serve. The Company also pays non-
employee directors a meeting fee of $1,000 for attendance at each
Board meeting and $500 for attendance at committee meetings.
Directors are reimbursed for expenses incurred in connection with
attendance at meetings and other Company functions.
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.
Employment-Type Contracts
In September, 1987, the Company entered into change-in-
control severance agreements with Messrs. Bannister, Duggan,
Blanchard, and Reichardt, and certain other executive officers of
DynCorp (the "Severance Agreements"). Each Severance Agreement
provides that certain benefits, including a lump-sum payment,
will be triggered if such executive is terminated following a
change in control during the term of that executive's Severance
Agreement, unless such termination occurs under certain
circumstances set forth in the Severance Agreements. The
Severance Agreements expire on December 31, 1994, but they are
automatically extended. The amount of such lump sum payment
would be equal to 2.99 times the sum of the executive's annual
salary and the average annual amount paid to the executive
pursuant to certain applicable compensation-type plans in the
three years preceding the year in which the termination occurs.
Other benefits include payment of any incentive compensation
which has been allocated or awarded but not yet paid to the
executive for a fiscal year or other measuring period preceding
termination and a pro rata portion to the date of termination of
the aggregate value of incentive compensation awards for
uncompleted periods under such plans. Each Severance Agreement
also provides that, if the aggregate of the lump sum payment to
the executive and any other payment or benefit included in the
calculation of "parachute payments" within the meaning of Section
280G of the Internal Revenue Code exceeds the amount the Company
is entitled to deduct on its federal income tax return, the
severance payments shall be reduced until no portion of the
aggregate termination payments to the executive is not so
deductible or the severance payment is reduced to zero. The
Severance Agreements also provide that the Company will reimburse
the executive for legal fees and expenses incurred by the
executive as a result of termination except to the extent that
the payment of such fees and expenses would not be, or would
cause any other portion of the aggregate termination payments not
to be, deductible by reason of Section 280G of the Code. The
Company has an employment contract with Mr. Lombardi, under which
Mr. Lombardi receives salary at an annual rate of $215,000;
subject to earlier termination for specified reasons, the
contract continues until September 30, 1994.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board of
Directors during 1993 were: Herbert S. Winokur, Jr., Chairman of
the Board and Director; Russell E. Dougherty, Director; and Paul
G. Kaminski, Director. None of the members are current or former
employees of the Company, and, except for Mr. Winokur, whose
relationship to Capricorn Investors, L.P. ("Capricorn") is
described in Item 12, none have any relationship with the Company
of the nature contemplated by Rule 404 of Regulation S-K.
On February 12, 1992, the Company loaned $5,500,000 to
Cummings Point Industries, Inc. ("CPI"), a Delaware corporation
of which Capricorn owns more than 10%. The indebtedness is
represented by a promissory note (the "Note"), bearing interest
at the annual rate of 17%, which provides that interest is
payable quarterly but that interest payments may be added to the
principal of the Note rather than being paid in cash. The Note
is subordinated to all senior debt of CPI. The Note was due six
months after issuance, but it has been, and may continue to be,
automatically extended for three-month periods until no later
than February 12, 1995. By separate agreement, Capricorn agreed
to purchase the Note from the Company upon three months' notice,
for the amount of outstanding principal plus accrued interest.
The purchase obligation is secured by certain common stock and
warrants issued by the Company and owned by Capricorn.
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
Voting Securities
As of March 1, 1994, the Company had 4,728,563 shares of
Common Stock and 123,711 shares of Class C Preferred Convertible
Stock outstanding, which constituted all the outstanding voting
securities of the Company. If all the shares issuable upon
exercise of outstanding warrants, all the shares issuable upon
conversion of outstanding Class C Preferred Convertible Stock and
exercise of related warrants, and shares issuable as a result of
scheduled expiration within 60 days of Restricted Stock Plan
deferrals (but excluding any vesting of Restricted Stock Plan
units or shares subsequent to March 1, 1994) were issued, the
outstanding voting securities following such dilution would
consist of 10,570,267 shares of Common Stock (and no shares of
Class C Stock). The following tables show beneficial ownership
of issued voting shares as a percentage of currently outstanding
stock and beneficial ownership of issued and issuable shares as a
percentage of common stock on a fully diluted basis assuming all
such conversions, exercises, and issuances.
Security Ownership of Certain Beneficial Owners
The following table presents information as of March 1,
1994, concerning the only known beneficial owners of five percent
or more of the Company's Common Stock and Class C Preferred
Stock.
Amount & Amount &
Nature of Nature of Percent
Title Ownership Percent Ownership of
Name and Address of of of Outstand- of of Diluted Diluted
Beneficial Owner Class ing Shares Class Shares (3) Shares (3)
Chemical Bank, Common 3,816,841 80.7% 3,816,841 36.1%
Trustee of the Direct(1) Direct (1)
DynCorp Employee Stock
Ownership Trust
450 W. 33rd Street
New York, NY 10001-2697
Capricorn Investors, Common 292,369 6.2% 4,117,127 39.0%
L.P.(2) Direct Direct
72 Cummings Point
Road
Stamford, CT 06902
Capricorn Investors, Class C 123,711 100% N/A -
L.P.(2) Preferred Direct
72 Cummings Point Road
Stamford, CT 06902
(1) Shares are held for the accounts of participants in the
ESOP. When allocated to individual participant accounts,
shares are voted upon instruction of the individual
participants. Until so allocated, shares are voted upon the
instruction of the ESOP Administrative Committee, 2000
Edmund Halley Drive, Reston, Virginia 22091-3436.
(2) Herbert S. Winokur, Jr., Chairman of the Board and a
Director of the Company, is the President of Winokur
Holdings, Inc., which is the managing partner of Capricorn
Holdings, G.P., which in turn is the general partner of
Capricorn Investors, L.P.
(3) Assumes dilution described above.
Security Ownership of Management(1)
Beneficial ownership of the Company's equity securities by
directors and nominees for election to the Board, and all current
officers and directors as a group, are set forth below:
Amount & Amount &
Nature of Nature of Percent
Title Ownership Percent Ownership of
Name and Title of of of Outstand- of of Diluted Diluted
Beneficial Owner Class ing Shares(2) Class(3) Shares (4) Shares(3)
(4)
D. R. Bannister Common 55,030 Direct} 1.3% 305,620 Direct} 3.0%
President & 6,952 Indirect} 6,952 Indirect}
Director
T. E. Blanchard Common 19,385 Direct} * 148,746 Direct} 1.5%
Senior Vice 5,763 Indirect} 14,109 Indirect}
President
& Director
R. E. Dougherty -- -- -- -- -- - --
Director
J. H. Duggan Common 16,146 -- * 123,881 Direct} 1.3%
Executive Vice 7,278 12,426 Indirect}
President &
Director
P. J. Kaminski -- -- -- -- -- -- --
Director
D. C. Mecum II -- -- -- -- -- -- --
Director
D. L. Reichardt Common 10,905 Direct} * 58,430 Direct} *
Senior Vice 5,994 Indirect} 10,748 Indirect}
President
& Director
H. S. Winokur, Common 292,369 Indirect 6.2% 4,117,127 Indirect 39.0%
Jr.(5)
Chairman of the Class C 123,711 Indirect 100% N/A --
Board & Preferred
Director
All officers Common 159,793 Direct} 10.7% 910,596 Direct} 48.5%
and 345,198 Indirect} 4,216,487 Indirect}
directors as a
group Class C 123,711 Indirect 100% N/A -- --
Preferred
(1) As disclosed in filings under the Securities Exchange Act of
1934 or otherwise known to the Company as of March 1, 1994.
Shares held by the ESOP trustee but within individual voting
control are included in the table, whether or not vested.
(2) Restricted stock units which have not been converted into
shares of stock and distributed pursuant to the Company's
Restricted Stock Plan as of March 1, 1994 are not
transferable by or within the voting control of the
participants. Such units are not included herein.
(3) An asterisk indicates that beneficial ownership is less than
one percent of the class.
(4) Assumes dilution described above.
(5) Includes securities owned by Capricorn. See preceding table
for relationship of Mr. Winokur thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Dougherty is of counsel to the law firm of McGuire,
Woods, Battle & Boothe, which firm has provided legal services to
the Company from time to time.
During 1993, Bankers Trust Company was a lender to the
Company pursuant to a revolving credit agreement in the amount of
$10,000,000; except for letters of credit issued thereunder and
still outstanding, the credit agreement has expired. Bankers
Trust Company also provides various trustee, banking, and other
financial and advisory services to the Company. An affiliated
company of Bankers Trust Company is a partner in Capricorn.
Officers and directors who obtained securities through the
Company's Management Employees Stock Purchase Plan and Restricted
Stock Plan are subject to the Stockholders Agreement described in
Item 10. Under the terms of the Stockholders Agreement, the
Company's securities can not be sold individually to outside
parties. Management employees of the Company whose employment is
terminated, except retiring employees who could elect to retain
their securities indefinitely, are required to sell such
securities, at the fair market price established by the Board of
Directors from time to time, to the other stockholders or to the
Company, and the Company is required to repurchase such
securities at such price, subject to restrictions imposed by its
Certificate of Incorporation and various financing agreements.
The Stockholders Agreement expired on March 11, 1994, but a
replacement Stockholders Agreement, effective as of such
expiration date and having similar terms, has been approved by
the Board of Directors and is expected to be adopted by the
respective parties.
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. See Table
of Contents
2. Financial statement Schedules.
Schedule III - Condensed Financial Information of Registrant
DynCorp (Parent Company)
Balance Sheets
Assets
Liabilities and Stockholders' Equity
Statements of Operations
Statements of Cash Flows
Notes to Condensed Financial Statements
Schedule VIII - Valuation and Qualifying Accounts for the
Years Ended December 31, 1993, 1992, and 1991.
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 3
(1) Certificate of Incorporation, as currently in effect,
consisting of Restated Certification of Incorporation
(incorporated by reference to Registrant's Form 10-K
for 1992, File No. 1-3879)
(2) Registrant's By-laws as amended to date.
Exhibit 4
(1) Specimen 16% Pay-in-Kind Junior
Subordinated Debentures due 2003 Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(2) Indenture for $100,000,000 of 8.54% Contract Receivables
Collateralized Notes, Series 1992-1, Due 1997, dated
as of January 1, 1992, between Dyn Funding Corporation
(wholly owned subsidiary of the Registrant) and Bankers
Trust Company, as trustee (incorporated by reference to
Registrant's Form 8-K filed February 7, 1992, File No. 1-
3879)
(3) Specimen 18% Class C Preferred Stock Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(4) Specimen Common Stock Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(5) Specimen Class A Common Stock Warrant Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(6) Specimen Class B Common Stock Warrant Certificate.
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(7) Indenture Agreement for 16% Pay-in-kind Junior Subordinated
Debenture (incorporated by reference to Exhibit 4.1 to
Form S-4 filed July 27, 1988)
(8) Statement Respecting Warrants and Lapse of Certain
Restrictions
(incorporated by reference to Registrant's
Form 10-K for 1988, File No. 1-3879)
(9) Amendment (effective March 26, 1991) to Statement Respecting
Warrants and Lapse of Certain Restrictions (incorporated by
reference to Registrant's Form 10-K for 1990, File No. 1-
3879)
(10) Article Four of the Restated Certificate of Incorporation
(incorporated by reference to Registrant's Form 10-K for
1992, File No. 1-3879)
The Registrant, by signing this Report, agrees to furnish the
Securities and Exchange Commission, upon its request, a copy of any
instrument which defines the rights of holders of long-term debt of
the Registrant.
Exhibit 10
(1) Deferred Compensation Plan.
(incorporated by reference to Registrant's Form 10-K for
1987, File No. 1-3879)
(2) Management Incentive Plan (MIP)
(3) DynCorp Executive Incentive Plan (EIP)
(4) Management Severance Agreements.
(incorporated by reference to Exhibits (c)(4) through (c)(12)
to Schedule 14D-9 filed by Registrant January 25, 1988.
(5) Employment agreement of Richard L. Webb, Vice President,
Aviation Services, dated June 24, 1992 (incorporated by
reference to Registrant's Form 10-K for 1992, File No. 1-
3879)
(6) Employment agreement of Paul V. Lombardi,
Vice President, Government Services Group
(7) Restricted Stock Plan.
Exhibit 11
(1) Computations of Earnings Per Common Share for the
Years Ended December 31, 1993, 1992, and 1991
Exhibit 21
(1) Subsidiaries of the Registrant
Exhibit 24
(1) Consent of Independent Public Accountants
(b) Reports on Form 8-K
None filed during the fourth quarter
ended December 31, 1993
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 31, 1994 By: D. R. Bannister
D. R. Bannister
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.
D. R. Bannister President and Director March 31, 1994
D. R. Bannister (Principal Executive Officer)
J. H. Duggan Executive Vice President March 31, 1994
J. H. Duggan and Director
T. E.Blanchard Senior Vice President March 31, 1994
T. E. Blanchard Chief Financial Officer
and Director
D. L. Reichardt Senior Vice President March 31, 1994
D. L. Reichardt General Counsel and Director
G. A. Dunn Vice President March 31, 1994
G. A. Dunn and Controller
(Principal Accounting Officer)
D. C. Mecum II Director March 31, 1994
D. C. Mecum II
H. S. Winokur, Jr. Director March 31, 1994
H. S. Winokur, Jr.
DynCorp (Parent Company)
SCHEDULE III - Condensed Financial Information of Registrant
Balance Sheets
(Dollars in Thousands)
ASSETS
December 31,
1993 1992
Current Assets:
Cash and short-term investments $ 6,894 $ 5,822
Notes and current portion of long-term receivables (a) - 1
Accounts receivable and contracts in process,
net of allowance for doubtful accounts (Note 3) 20,723 18,153
Inventories of purchased products and supplies 513 419
Other current assets 3,718 5,710
Total current assets 31,848 30,105
Investment in and advances to subsidiaries and affiliates 70,277 50,005
Property and Equipment, net of accumulated depreciation
and amortization 9,836 11,479
Intangible Assets, net of accumulated amortization 86,811 90,374
Other Assets 6,040 7,513
Total Assets $204,812 $189,476
(a) December 1992 has been restated to conform to 1993 presentation of the
Cummings Point Industries, Inc. note receivable.
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries
are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements"
DynCorp (Parent Company)
SCHEDULE III - Condensed Financial Information of Registrant
Balance Sheets
(Dollars in Thousands)
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
December 31,
1993 1992
Current Liabilities:
Notes payable and current portion of
long-term debt (Note 2) $ 3,392 $ 2,601
Accounts payable (a) 11,594 7,776
Advances on contracts in process 864 668
Accrued liabilities (a) 71,855 77,283
Total current liabilities 87,705 88,328
Long-term Debt (Note 2) 93,150 80,294
Other Liabilities and Deferred Credits 15,591 16,970
Total Liabilities 196,446 185,592
Commitments, Contingencies and Litigation - -
Redeemable Common Stock $17.50 per share redemption value,
125,714 shares issued and outstanding 2,200 -
Stockholders' Equity:
Capital stock, $0.10 par value:
Preferred stock, Class C 3,000 3,000
Common stock 502 491
Common stock warrants 15,119 15,119
Unissued common stock under restricted stock plan 10,395 9,941
Paid-in surplus 95,983 96,408
Deficit (105,425) (92,011)
Common stock held in treasury (5,840) (6,538)
Cummings Point Industries, Inc. note receivable (b) (7,568) (6,410)
Employee Stock Ownership Plan Loan - (16,116)
Total Stockholders' Equity 6,166 3,884
Total Liabilities, Redeemable Common Stock
and Stockholders' Equity $204,812 $189,476
(a) December 1992 has been restated to conform to the 1993 presentation.
(b) December 1992 has been restated to conform to 1993 presentation of the
Cummings Point Industries, Inc. note receivable.
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries
are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements."
DynCorp (Parent Company)
SCHEDULE III - Condensed Financial Information of Registrant
Statements of Operations
(Dollars in Thousands)
For the Years Ended December 31,
1993 1992 1991
Revenues $552,662 $557,675 $513,601
Costs and Expenses:
Cost of services 528,776 542,901 501,584
Selling and corporate administrative 10,994 12,534 10,473
Interest expense 14,950 14,608 18,295
Interest income (1,969) (1,693) (2,006)
Other (Note 3) 23,902 23,490 8,805
576,653 591,840 537,151
Loss before income taxes, equity in net income
of subsidiaries and extraordinary item (23,991) (34,165) (23,550)
Benefit for income taxes (1,561) (3,900) (7,951)
Loss before equity in net income of subsidiaries
and extraordinary item (22,430) (30,265) (15,599)
Equity in net income of subsidiaries 9,016 9,449 3,004
Loss before extraordinary item (13,414) (20,816) (12,595)
Extraordinary gain (loss) from early retirement
of debt, net of income tax provision - (2,526) 192
Net Loss (13,414) (23,342) (12,403)
Preferred Stock Class A dividends declared
and paid and accretion of discount - 959 5,180
Net Loss for Common Stockholders $(13,414)$(24,301) $(17,583)
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries
are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements."
DynCorp (Parent Company)
SCHEDULE III - Condensed Financial Information of Registrant
Statements of Cash Flow
(Dollars in Thousands)
For the Years Ended December 31,
1993 1992 1991
Cash Flows from Operating Activities:
Net loss $(13,414) $(23,342) $(12,403)
Adjustments to reconcile net loss from operations
to net cash provided by operating activities:
Depreciation and amortization 7,834 9,510 14,713
Pay-in-kind interest on Junior
Subordinated Debentures 13,142 6,590 11,950
Loss (gain) on purchase of Junior
Subordinated Debentures - 2,526 (291)
Deferred income taxes 521 (666) (5,167)
Accrued compensation under Restricted
Stock Plan 2,047 2,354 3,061
Noncash interest income (1,158) (910) -
Other (1,936) (4,363) (1,312)
Change in assets and liabilities, net of acquisitions
and dispositions and sale of accounts receivable in 1993:
Decrease in accounts receivable and
contracts in process (2,570) (10,173) (11,446)
(Increase) decrease in inventories (93) (72) 254
(Increase) decrease in other
current assets 1,992 986 (577)
Increase (decrease) in current
liabilities except notes payable and
current portion of long-term debt (976) 6,690 16,418
Cash provided (used) by
operating activities 5,389 (10,870) 15,200
Cash Flows from Investing Activities:
Sale of property and equipment 829 130 103
Proceeds received from notes receivable - 1,346 8,423
Purchase of property and equipment (928) (2,381) (2,519)
Increase in notes receivable - (5,500) -
Increase in investments and affiliates - (1,888) -
Deferred income taxes from "safe harbor" leases - (20) (104)
Deferred income taxes related to the merger and
disposition of businesses - - 342
Other 345 (201) (66)
Cash provided (used) from
investing activities 246 (8,514) 6,179
Cash Flows from Financing Activities:
Purchase of Preferred Stock Class A and
Junior Subordinated Debentures - (42,466) (2,074)
Treasury stock purchased (1,979) (3,448) (2,810)
Payment on indebtedness (4,725) (41,010) (17,005)
Increase in bank borrowings - - 6,000
Accounts receivable sold (Note 3) - 63,682 -
Dividends paid on Class A Preferred Stock - (861) -
Treasury stock sold under Management Employees
Stock Purchase Plan 46 108 398
Reduction in loan to Employee Stock
Ownership Plan 16,116 16,099 15,402
Change in intercompany balances, net (14,021) 14,050 (8,438)
Cash provided (used) from
financing activities (4,563) 6,154 (8,527)
Net Increase (Decrease) in Cash and
Short-term Investments 1,072 (13,230) 12,852
Cash and Short-term Investments at Beginning
of the Period 5,822 19,052 6,200
Cash and Short-term Investments at End
of the Period $ 6,894 $ 5,822 $ 19,052
The "Notes to Consolidated Financial Statements" of DynCorp and
Subsidiaries are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements."
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
Pursuant to the rules and regulations of the Securities and
Exchange Commission, the Condensed Financial Statements of the
Registrant do not include all of the information and notes
normally included with financial statements prepared in
accordance with generally accepted accounting principles. It is,
therefore, suggested that these Condensed Financial Statements be
read in conjunction with the Consolidated Financial Statements
and Notes included elsewhere in this Annual Report on Form 10-K.
2. Long-term Debt
At December 31, 1993 and 1992, long-term debt consisted of:
1993 1992
(In thousands)
Junior Subordinated Debentures, net of unamortized
discount of $5,175 and $5,491 $86,947 $73,489
Notes payable, due in installments through 2002,
9.3% weighted average interest rate 6,643 6,242
Capitalized equipment leases 2,952 3,164
96,542 82,895
Less current portion 3,392 2,601
$93,150 $80,294
Maturities of long-term debt as of December 31, 1993, were as
follows:
Years Ending December 31, (In Thousands)
1994 $ 3,392
1995 2,267
1996 1,747
1997 1,106
1998 688
Thereafter 92,517
3.Accounts Receivable
At December 31, 1992, the Company sold $63,682,000 of its
accounts receivable to Dyn Funding Corporation (DFC), a wholly
owned subsidiary of the Company. DFC was established in January,
1992 to issue $100,000,000 of Contract Receivable Collateralized
Notes (Notes) and to purchase eligible accounts receivable from
the Company and its subsidiaries. On an ongoing basis, the cash
received by DFC from collection of the receivables is used to
make interest payments on the Notes, pay a servicing fee to the
Company and purchase additional receivables from the Company (see
Note 4 to Consolidated Financial Statements included elsewhere in
this Form 10-K).
The Company receives 97% of the face value of the accounts
receivable sold to DFC. The 3% discount from the face value of
the accounts receivable is recorded as an expense by the Company
at the time of sale. In 1993 and 1992, the Company recorded as
expense $16,298,000 and $17,308,000 which is reflected in "Other"
in the accompanying "Statements of Operations" (in the
"Consolidated Statements of Operations" of DynCorp and
Subsidiaries this expense is offset by the gain recognized by DFC).
DynCorp and Subsidiaries
SCHEDULE VIII - Valuation and Qualifying Accounts
For the Years Ended December 31, 1993, 1992, and 1991
(Dollars in Thousands)
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts(1) Deductions(2) Period
Year Ended December 31, 1993
Allowance for doubtful accounts $3,415 $1,141 $ 79 $3,166 $1,469
Year Ended December 31, 1992
Allowance for doubtful accounts $2,532 $ 965 $ 254 $ 336 $3,415
Year Ended December 31, 1991
Allowance for doubtful accounts $1,336 $ 953 $ 333 $ 90 $2,532
<FN>
(1) Includes recovery of prior year writeoffs.
(2) Writeoff of uncollectible accounts.