FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3879
DynCorp
(Exact name of registrant as specified in its charter)
Delaware 36-2408747
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Edmund Halley Drive, Reston, VA 22091-3436
(Address of principal executive offices) (Zip Code)
(703) 264-0330
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date. 8,712,142 shares of common stock having a par value of
$0.10 per share were outstanding at March 30, 1995.
DYNCORP
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
March 30, 1995 and December 31, 1994
Consolidated Condensed Statements of Operations -
Three Months Ended March 30, 1995 and March 31, 1994
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 30, 1995 and March 31, 1994
Notes to Consolidated Condensed Financial Statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11 - Computations of Earnings Per Common Share
PART I. FINANCIAL INFORMATION
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 30, 1995 AND DECEMBER 31, 1994
(Dollars in Thousands)
UNAUDITED
ASSETS
March 30, December 31,
1995 1994
Current Assets:
Cash and short-term investments (including
restricted cash of $16,834 in 1995 and
$8,748 in 1994) $ 28,035 $ 12,404
Notes and current portion of long-term 524 393
receivables
Accounts receivable and contracts in process
(net of allowance for doubtful accounts
of $4,075 in 1995 and $3,992 in 1994)
(Note 3) 200,802 208,519
Inventories of purchased products and
supplies, at lower of cost (first-in,
first-out) or market 6,086 6,354
Other current assets 9,600 7,792
Total current assets 245,047 235,462
Long-Term Receivables 1,429 1,594
Property and Equipment (net of accumulated
depreciation and amortization of $38,066
in 1995 and $48,156 in 1994) (Note 4) 33,943 60,362
Intangible Assets (net of accumulated amortization
of $26,249 in 1995 and $51,580 in 1994) 93,863 94,792
Other Assets 10,192 10,120
$384,474 $402,330
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 30, 1995 AND DECEMBER 31, 1994
(Dollars in Thousands)
UNAUDITED
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
March 30, December 31,
1995 1994
Current Liabilities:
Notes payable and current portion of
long-term debt (Note 4) $ 22,961 $ 3,344
Accounts payable 20,753 25,529
Advances on contracts in process 3,768 5,389
Accrued liabilities 103,996 110,121
Total current liabilities 151,478 144,383
Long-Term Debt (Note 5) 192,575 230,608
Other Liabilities and Deferred Credits
(Notes 4 and 5) 29,693 17,801
Total liabilities 373,746 392,792
Commitments, Contingencies and Litigation (Note 8) - -
Redeemable Common Stock $18.20 per share
redemption value, 125,714 shares issued
and outstanding 2,288 2,288
Stockholders' Equity:
Capital stock, $0.10 par value:
Preferred stock, Class C (Note 2) 3,000 3,000
Common stock 923 789
Common stock warrants 11,489 11,486
Unissued common stock under restricted stock plan 7,566 9,923
Paid-in surplus 138,288 118,068
Deficit (119,805) (118,256)
Unearned ESOP Shares (Note 6) (13,750) -
Common stock held in treasury (9,952) (8,817)
Cummings Point Industries, Inc. note receivable (9,319) (8,943)
Total stockholders' equity 8,440 7,250
Total Liabilities, Redeemable Common Stock
and Stockholders' Equity $384,474 $402,330
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
UNAUDITED
Three Months Ended
March 30, March 31,
1995 1994
Revenues $ 260,202 $ 259,537
Costs and expenses:
Cost of services 249,565 248,722
Selling and corporate administrative 4,417 4,196
Interest income (888) (539)
Interest expense 7,200 6,735
Other 938 1,579
261,232 260,693
Loss before income taxes, minority interest
and extraordinary item (1,030) (1,156)
Provision for income taxes (Note 7) 90 184
Loss before minority interest and
extraordinary item (1,120) (1,340)
Minority Interest 302 249
Loss before extraordinary item (1,422) (1,589)
Extraordinary loss from early extinguishment
of debt, net of tax benefit of $89 (Note 5) 127 -
Net loss $ (1,549) $ (1,589)
Weighted average number of common shares outstanding
and dilutive common stock equivalents:
Primary and fully diluted 8,083,896 5,421,750
Loss per common share - primary and fully diluted:
Loss before extraordinary item $ (0.23) $ (0.36)
Extraordinary item (0.02) -
Net loss for common stockholders $ (0.25) $ (0.36)
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
March 30, March 31,
1995 1994
Cash Flows from Operating Activities:
Net loss $ (1,549) $(1,589)
Adjustments to reconcile net loss from
operations to net cash provided (used):
Depreciation and amortization 3,836 5,107
Pay-in-kind interest on Junior
Subordinated Debentures 4,158 3,685
Restricted Stock Plan - 292
Loss on repurchase of debentures (Note 5) 216 -
Noncash interest income (376) (325)
Other (973) (672)
Changes in current assets and liabilities,
net of acquisitions:
(Increase) decrease in current assets except
cash, short-term investments and notes
receivable 6,177 (12,466)
Increase (decrease) in current liabilities
except notes payable and current portion
of long-term debt (12,522) 5,323
Cash used by operating activities (1,033) (645)
Cash Flows from Investing Activities:
Sale of property and equipment (Note 4) 40,545 53
Proceeds received from notes receivable 33 7
Purchase of property and equipment,
net of capitalized leases (3,453) 336
Assets and liabilities of acquired businesses
excluding cash acquired - (1,535)
Other (15) (699)
Cash provided (used) by investing activities 37,110 (1,838)
Cash Flows from Financing Activities:
Treasury stock purchased (1,135) (330)
Payment on indebtedness (Note 4) (19,454) (1,218)
Sale of stock to Employee Stock Ownership
Plan (Note 6) 4,250 3,750
Repurchase of debentures (Note 5) (3,422) -
Other (685) -
Treasury stock sold - 159
Cash provided (used) from financing
activities (20,446) 2,361
Net Increase (Decrease) in Cash and Short-term
Investments 15,631 (122)
Cash and Short-term Investments at Beginning
of the Period 12,404 22,806
Cash and Short-term Investments at End of the Period $28,035 $22,684
Supplemental Cash Flow Information:
Cash paid for income taxes $ 507 $ 76
Cash paid for interest $ 3,006 $ 2,759
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. The unaudited consolidated condensed financial statements
included herein have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading.
It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form
10-K. In the opinion of the Company, the unaudited
consolidated condensed financial statements included herein
reflect all adjustments of a normal recurring nature necessary
to present fairly the financial position, the results of
operations and the cash flows for such interim periods. The
results of operations for such interim periods are not
necessarily indicative of the results for the full year.
2. At March 30, 1995, $7,396,000 of Class C Preferred Stock
cumulative dividends have not been accrued or paid.
3. At March 30, 1995, $16,834,000 of cash and short-term
investments and $125,484,000 of accounts receivable are
restricted as collateral for the Contract Receivable
Collateralized Notes, Series 1992-1.
4. On February 7, the Company sold its Corporate headquarters to
RREEF America Reit Corp. C and entered into a 12-year lease
with RREEF as the landlord. The facility was sold for
$16,030,000 and the proceeds were used to satisfy the mortgage
on the building which was due to mature on March 27, 1995. A
net gain of $2,573,000 was realized on the transaction and will
be amortized over the life of the lease.
In separate transactions on January 20 and February 7, the
Company secured $24,000,000 of equipment refinancing. The book
value of the equipment totalling $8,063,000 has been removed
from the balance sheet and the $15,937,000 gain has been
deferred and will be credited to income as an adjustment to
lease expense.
Utilizing the cash generated from the equipment financing, the
Company intends to issue a tender offer for $20
million of its 16% Junior Subordinated
Debentures immediately following the filing of this Form 10-Q.
In the event less than $20 million of debentures are tendered,
the Company presently plans to exercise its right under the
indenture agreement to call any deficiency.
5. During the first quarter the company repurchased $3,500,000
face value of its 16% Junior Subordinated Debentures. The gain
on the repurchase, the write-off of the related unamortized
discount and deferred debt expense and associated transaction
fees have been reported as an extraordinary loss.
6. During the first quarter the Employee Stock Ownership Plan
issued a promissory note to the Company in the amount of
$18,000,000 and the Company issued 1,208,059 shares of common
stock to the ESOP. The unpaid balance of the note has been
reflected as a reduction in stockholders' equity. As payments
are made on the note, the shares will be allocated to the
participants' accounts. ESOP expense for the first quarter was
$4,432,000.
7. The first quarter tax provision represents the federal tax
benefit for operating losses less the federal tax provision of
a majority owned subsidiary required to file a separate return.
Additionally, the Company recognized a state tax provision and
a foreign tax credit in the first quarter of 1995. The 1994
tax provision reflects only that of the majority owned
subsidiary referred to previously.
8. 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 $31,000,000 (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 1993, 2,115 claims had been filed and
during the year 709 additional claims were filed with 1,273
claims being settled. In 1994, 1,135 additional claims were
filed and 353 were settled. In the first quarter of 1995, 274
new claims were filed with 49 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. 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 has retained certain liability in connection with
its 1989 divestiture of its major electrical contracting
business, Dynalectric Company ("Dynalectric"). The Company and
Dynalectric were sued in 1989 by a former Dynalectric
subcontractor. The subcontractor has alleged that its
subcontract to furnish certain software and services in
connection with a major municipal traffic signalization project
was improperly terminated by Dynalectric Company and that
Dynalectric is liable to the former subcontractor for a variety
of additional claims, the aggregate dollar amount of which have
not been formally recited in the subcontractor's complaint.
Dynalectric has also filed certain counterclaims against the
former subcontractor. The Company and Dynalectric believe that
they have valid defenses, and/or that any liability would be
more than offset by recoveries under the counterclaims. The
Company has established reserves for the contemplated defense
costs and for the cost of obtaining enforcement of arbitration
provisions contained in the contract.
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.
A majority 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 March 30,
1995 that will have a material adverse effect on the Company's
consolidated financial position or results of operations.
9. Subsequent Event - The Company filed a Form S-1 with the SEC on
May 12, 1995 for review and comment. The Form S-1 is to
register approximately 11,969,000 shares of Common stock,
2,450,000 of which are intended to be used for employee
benefit, bonus and stock purchase plans and 9,519,000 of which
may be sold by current shareholders and/or the Company in an
Internal Market which the Company intends to establish during
1995. The Company is unable to predict when this Form S-1
registration statement will become effective.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of financial condition and results of
operations should be read in conjunction with the 1994 Form 10-K.
Working capital at March 30, 1995 was $93.6 million compared to
$91.1 million at December 31, 1994, an increase of $2.5 million.
Increases were attributable to a $12.5 million decrease in current
liabilities and a $15.6 million increase in cash and short term
investments. Offsetting these decreases was the reclassification
to current of $20 million representing the value of 16% Junior
Subordinated Debentures subject to tender (see Note 4 to the
Consolidated Financial Statements) and also a $7.7 million
decrease in accounts receivable. At March 30, 1995, $142.3
million of cash, short-term investments and accounts receivable is
restricted as collateral for the Contract Receivable
Collateralized Notes.
Operating activities produced a negative cash flow of $1.0 million
for the first quarter of 1995 compared to a negative cash flow of
$0.6 million for the comparable period in 1994. Excluding the
effect of the changes in current assets and liabilities, operating
activities produced a positive cash flow of $5.3 million in 1995
compared to $6.5 million in 1994. The 1995 net change in current
assets and liabilities resulted in a use of cash of $6.3 million
compared to $7.1 million in 1994. These changes were due to
normal cyclical changes in contract receivables and payables.
Funds of $37.1 million were generated from investing activities
during the first quarter of 1995. The principal source, $40.5
million, was attributable to the sale/leaseback and financing of
certain property and equipment. This was offset by $3.5 million
expended to purchase new equipment.
Financing activities used funds of $20.4 million, principally for
the payment of debt and repurchase of the Company's 16% Junior
Subordinated debentures.
At March 30, 1995, backlog (including option years on government
contracts) was $2.766 billion compared to $2.206 billion at
December 31, 1994.
Results of Operations (Dollars in thousands)
Three Months Ended
March 30, March 31,
1995 1994 Change
Revenues:
Government Sector $211,637 $192,589 9.9 %
Commercial Sector $ 48,565 $ 66,948 (27.5)%
Gross Margin $ 10,637 $ 10,815 (1.6)%
As a percent of revenues 4.1% 4.2%
Selling and Corporate
Administrative Expenses $ 4,417 $ 4,196 5.3 %
As a percent of revenues 1.7% 1.6%
Interest Expense (net) $ 6,312 $ 6,196 1.9 %
Other Expenses $ 938 $ 1,579 (40.6)%
Tax Provision $ 90 $ 184 (51.1)%
The increase in the Government Sector's revenues attributable to
an acquisition in the fourth quarter of 1994 ($16.3 million) and
new contract awards (approximately $13.0 million) was offset by
the declines from contracts lost in recompetition and reduced
level of effort on continuing contracts. The Commercial Sector's
revenues were down significantly from the comparable quarter in
1994 primarily due to the completion of contracts for a major
customer whose business had allowed the Phoenix facility to
operate at full capacity during the first quarter of 1994.
Revenues in the first quarter of 1995 for the ground support and
maintenance operations were $34.2 million and $14.4 million,
respectively, compared to 1994 revenues of $33.4 million and $33.6
million.
Gross margin as a percent of revenue was 4.1% in the first quarter
of 1995 compared to 4.2% for the comparable period in 1994.
Despite the favorable revenue trend, the Government Sector's gross
margin was virtually unchanged from the first quarter of 1994.
The decreased workload in the aircraft maintenance operations
yielded a gross margin of 2.5% as compared to a margin of 1.6% for
the same quarter 1994, however, aggregate margins decreased. The
Company is continuing to pursue the possible sale, spinoff, shut
down or curtailment of operations of all or a portion of the
aircraft maintenance unit. The Company has hired an investment
advisor to market the business and is currently in discussions
with potential buyers. The Company is currently evaluating offers
received for the maintenance unit and is in discussions with a
potential buyer for another significant subsidiary. The Company is
unable to predict the outcome of these offers and discussuions.
Interest income in the first quarter of 1995 was greater than the
comparable period of 1994 due to the compounding interest at 17%
on the Cummings Point Industries, Inc. note receivable and higher
cash and short-term investment balances which yielded additional
interest income.
Interest expense for the first quarter of 1995 was $7.2 million,
up from $6.7 million for the first quarter 1994. The increase is
attributable to the compounding of interest on the 16% pay-in-kind
debentures.
Other expense consists of the following (in thousands):
Three Months Ended
March 30, March 31,
1995 1994
Amortization of cost in excess of
net assets acquired $838 $814
Provision for nonrecovery of receivables 188 323
ESOP repurchase premium - 318
Other (88) 124
$938 $1,579
The first quarter tax provision represents the federal tax benefit
for operating losses less the federal tax provision of a majority
owned subsidiary required to file a separate return.
Additionally, the Company recognized a state tax provision and a
foreign tax credit in the first quarter of 1995. The 1994 tax
provision reflects only that of the majority owned subsidiary
referred to previously.
The Company continues to be highly leveraged, and its ability to
meet future debt service and working capital requirements is
dependent on increased future earnings and cash flow from
operations, the expansion of an accounts receivable facility
financing, the continuation of ESOP stock purchases in lieu of
cash retirement contributions and reduction of its debt expense.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
This item is incorporated herein by reference to Note 8 to the
Consolidated Condensed Financial Statements included elsewhere in
this quarterly Report on Form 10-Q.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computations of Earnings Per Common Share
(b) Reports on Form 8-K
None filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DYNCORP
Date: May 15, 1995 T. E. Blanchard
T. E. Blanchard
Senior Vice President
and Chief Financial Officer
Date: May 15, 1995 G. A. Dunn
G. A. Dunn
Vice President and Controller
Exhibit 11
DYNCORP AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER COMMON SHARE
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended
March 30, March 31,
1995 1994
PRIMARY AND FULLY DILUTED
Earnings:
Loss before extraordinary item $ (1,422) $ (1,589)
Extraordinary item 127 -
Net loss (1,549) (1,589)
Preferred stock Class C dividends
not accrued or paid 448 375
Net loss for common stockholder $ (1,997) $ (1,964)
Shares:
Weighted average common shares outstanding 8,083,896 5,421,750
Loss before extraordinary item $ (0.23) $ (0.36)
Extraordinary item (0.02) -
Net loss for common stockholders $ (0.25) $ (0.36)