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 September 28, 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. 8,570,052 shares
of common stock having a par value of $0.10 per share were outstanding at
September 28, 1995.
DYNCORP
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
September 28, 1995 and December 31, 1994
Consolidated Condensed Statements of Operations -
Three and Nine Months Ended September 28, 1995
and September 29, 1994
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 28, 1995
and September 29, 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
SEPTEMBER 28, 1995 AND DECEMBER 31, 1994
(Dollars in Thousands)
UNAUDITED
September 28, December 31,
1995 1994 (a)
Current Assets:
Cash and short-term investments (b) $ 18,543 $ 7,738
Notes and current portion of long-term
receivables 235 87
Accounts receivable and contracts in
process (Note 5) 176,654 172,731
Inventories of purchased products and supplies,
at lower of cost (first-in, first-out) or market 853 793
Other current assets (Note 5) 16,374 6,733
Net current assets of discontinued operations (Note 2) - 18,316
Total current assets 212,659 206,398
Long-Term Receivables 304 433
Property and Equipment (net of accumulated depreciation
and amortization of $27,717 in 1995 and $26,937 in
1994) (Note 6) 18,139 37,849
Intangible Assets (net of accumulated amortization
of $25,922 in 1995 and $37,290 in 1994) 50,145 51,837
Other Assets (Note 5) (b) 14,499 15,441
Net Noncurrent Assets of Discontinued Operations (Note 2) - 67,042
$295,746 $379,000
(a) Restated for discontinued operations. See Note 2.
(b) Restricted cash has been reclassified at December 31, 1994 to conform
with current period presentation. See Note 5.
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 28, 1995 AND DECEMBER 31, 1994
(Dollars in Thousands)
UNAUDITED
September 28, December 31,
1995 1994 (a)
Current Liabilities:
Notes payable and current portion of
long-term debt (Note 7) $ 6,438 $ 3,004
Accounts payable 27,524 18,878
Advances on contracts in process 2,859 3,863
Accrued liabilities 111,296 95,512
Total current liabilities 148,117 121,257
Long-Term Debt (Notes 6 and 7) 104,546 230,444
Other Liabilities and Deferred Credits 16,285 17,761
Total liabilities 268,948 369,462
Contingencies and Litigation (Note 12) - -
Redeemable Common Stock at Redemption Value;
125,714 shares at $18.20 and 238,289 shares at $14.90
issued and outstanding in 1995 and 125,714 shares
at $18.20 issued and outstanding in 1994 (Note 3) 5,838 2,288
Common Stock Held by ESOP, at Fair Value;
3,628,639 shares at $18.20 and 2,516,300 shares at
$14.90 issued and outstanding in 1995 and 3,691,003
shares at $18.20 and 1,312,459 shares at $14.60
issued and outstanding in 1994 (Note 1) 103,534 86,338
Preferred Stock Class C, 18% cumulative, convertible,
$24.25 liquidation value, 123,711 shares authorized,
issued and outstanding (Note 4) 3,000 3,000
Common Stock, par value ten cents per share, authorized
15,000,000 shares; issued 2,504,261 shares in 1995
and 2,765,393 shares in 1994 250 277
Common Stock Warrants 11,331 11,486
Unissued Common Stock under restricted stock plan 7,553 9,923
Paid-in Surplus 31,677 32,242
Deficit (117,904) (118,256)
Common Stock Held in Treasury, at cost; 728,488 shares
and 173,988 warrants in 1995 and 459,309 shares and
173,988 warrants in 1994 (13,231) (8,817)
Cummings Point Industries Note Receivable (Note 8) - (8,943)
Unearned ESOP shares (Note 9) (5,250) -
Total $295,746 $379,000
(a) Restated for discontinued operations. See Note 2.
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 Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1995 1994 (a) 1995 1994 (a)
Revenues $244,592 $205,764 $666,168 $596,926
Costs and expenses:
Cost of services 234,807 196,099 638,752 570,428
Selling and corporate administrative 5,674 4,055 14,982 12,613
Interest income (982) (648) (2,895) (1,750)
Interest expense 3,558 4,254 12,076 12,350
Other 415 1,682 1,412 3,708
243,472 205,442 664,327 597,349
Earnings (loss) from continuing operations
before income taxes, minority interest and
extraordinary item 1,120 322 1,841 (423)
Provision (benefit) for income taxes (Note 10) (2,797) 1,569 (2,252) 2,089
Earnings (loss) from continuing operations
before minority interest and extraordinary item 3,917 (1,247) 4,093 (2,512)
Minority Interest 286 226 943 787
Earnings (loss) from continuing operations
before extraordinary item 3,631 (1,473) 3,150 (3,299)
Loss from discontinued operations
net of income taxes (Note 2) (464) (2,772) (731) (3,466)
Gain on sale of discontinued operations,
net of income taxes (Note 2) 716 - 716 -
Earnings (loss) before extraordinary item 3,883 (4,245) 3,135 (6,765)
Extraordinary loss from early extinguishment
of debt, net of tax benefit of $1,914 and
$2,003 (Note 7) (2,656) - (2,783) -
Net Earnings (Loss) $ 1,227 $ (4,245) $ 352 $ (6,765)
Weighted average number of common shares
outstanding and dilutive common stock
equivalents (Note 11):
Primary and fully diluted 12,893,284 7,888,081 12,558,287 6,467,892
Earnings (loss) per common share - primary
and fully diluted:
Continuing operations for common
stockholders $ 0.24 $ (0.24) $ 0.14 $ (0.69)
Discontinued operations 0.02 (0.35) 0.00 (0.54)
Extraordinary item (0.20) - (0.22) -
Net earnings (loss) for common stockholders $ 0.06 $ (0.59) $ (0.08) $ (1.23)
(a) Restated for discontinued operations. See Note 2.
See accompanying notes to consolidated condensed financial statements.
DYNCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
UNAUDITED
Nine Months Ended
Sept. 28, Sept. 29,
1995 1994(a)
Cash Flows from Operating Activities:
Net earnings (loss) $ 352 $ (6,765)
Adjustments to reconcile net earnings (loss) from operations
to net cash provided (used) by operating activities:
Depreciation and amortization 9,028 9,435
Pay-in-kind interest on Junior Subordinated Debentures - 11,349
Restricted Stock Plan - 1,228
Loss, before tax, on repurchase of Junior Subordinated
Debentures (Note 7) 4,786 -
<Earnings> loss before tax from discontinued
operations (Note 2) (29,539) 4,678
Noncash interest income - (1,000)
Other (2,378) (1,515)
Changes in current assets and liabilities, net of acquisitions:
(Increase) decrease in current assets except cash,
short-term investments and notes receivable (13,623) 3,467
Increase (decrease) in current liabilities except notes
payable and current portion of long-term debt 21,065 (9,925)
Cash provided (used) by continuing operations (10,309) 10,952
Cash used by discontinued operations (3,042) (1,975)
Cash provided (used) by operating activities (13,351) 8,977
Cash Flows from Investing Activities:
Sale of property and equipment (Note 6) 16,513 1,125
Purchase of property and equipment (3,724) (3,043)
Assets and liabilities of acquired businesses
excluding cash acquired - (6,812)
Proceeds from notes receivable (Note 8) 9,900 85
Proceeds from sale of discontinued operations (Note 2) 134,500 -
Deposits for letters of credit (Note 5) (1,791) (91)
Investment activities of discontinued operations (Note 2) (15,434) (2,556)
Other (611) (814)
Net cash provided (used) by investing activities 139,353 (12,106)
Cash Flows from Financing Activities:
Treasury stock purchased (4,414) (2,780)
Payment on indebtedness (Note 6) (20,310) (3,227)
Redemption of Junior Subordinated Debentures (Note 7) (102,278) -
Stock released to Employee Stock Ownership Plan (Note 9) 12,750 12,650
Treasury stock sold - 159
Financing activities of discontinued operations (228) (441)
Other (717) (3)
Net cash provided (used) from financing activities (115,197) 6,358
Net Increase in Cash and Short-term Investments 10,805 3,229
Cash and Short-term Investments at Beginning of the Period 7,738 11,772
Cash and Short-term Investments at End of the Period $ 18,543 $15,001
Supplemental Cash Flow Information:
Cash paid for income taxes $ 1,530 $ 107
Cash paid for interest $ 18,840 $ 10,558
(a) Restated for discontinued operations. See Note 2.
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 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.
In order to more clearly present the relationship between the ESOP
shareholders and the Management and Outside Investor shareholders, the
individual stockholder accounts have been presented separately. In
previously issued financial statements, the stockholders' accounts were
aggregated. The Common Stock Held by ESOP is presented at fair value to
reflect the obligation of the Company to purchase ESOP shares from retired
and terminated participants as long as the Company's common stock is not
publicly traded.
2. During the second quarter of 1995, the Company's Board of Directors
determined that it would be in the Company's best interest to discontinue
its Commercial Aviation Business operations. On June 30, 1995, the Company
sold all of its subsidiaries engaged in commercial aircraft
maintenance and modification to Sabreliner Corporation for $12,500,000 in
cash, subject to adjustment to the final closing date balance sheet and
subject to additional payments based on future business revenue of the sold
companies. On August 31, 1995 the Company sold all of its subsidiaries
engaged in commercial aviation ground handling services,
cargo handling, and refueling to ALPHA Airports Group Plc for $122,000,000
in cash, subject to adjustment to the final closing date balance sheet.
The net proceeds received from these sales were in excess of the book value
of the net assets of the business and were used primarily to retire
debt and satisfy existing equipment funding obligations of the ground
handling unit. As a result of these divestitures, the business has
been classified as discontinued operations for financial reporting
purposes.
The components of discontinued operations on the consolidated condensed
balance sheets and statements of operations are as follows (in thousands):
December 31,
1994
Notes and current portion of
long term receivables $ 306
Accounts receivable 35,788
Inventories of purchased products 5,561
Other current assets 1,059
Accounts payable (7,921)
Other current liabilities (16,477)
Net current assets of discontinued
operations $ 18,316
Property and equipment (net) $ 22,513
Goodwill 42,955
Other assets 1,863
Other liabilities (203)
Net noncurrent assets
of discontinued operations $ 67,128
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1995(a) 1994 1995(a) 1994
Revenues $ 26,825 $ 39,164 $130,708 $156,091
Costs of services 25,082 39,937 123,291 151,124
Interest expense and other 2,367 3,235 7,978 9,645
Gain on sale of subsidiaries (30,100) - (30,100) -
Income tax provision (benefit) 29,224 (1,236) 29,554 (1,212)
Net earnings (loss) from
discontinued operations $ 252 $ (2,772) $ (15) $ (3,466)
(a) The results of operations for 1995 are not comparable to 1994 due
to the interim divestiture of the maintenance and ground handling
operations.
3. In conjunction with the sale of the Commercial Aviation business, the
Company has committed to repurchase management and restricted stock
shares held by employees of the divested unit. At September 29, 1995,
134,848 shares had been repurchased and recorded as treasury stock and the
balance has been reflected as Redeemable Common Stock.
4. At September 28, 1995, $8,353,000 of Class C Preferred Stock cumulative
dividends have not been accrued or paid. These dividends are payable only
to the extent that dividends are paid on the Company's common stock and
they will not be paid in the event the Class C Preferred stock is converted
into common stock.
5. At September 28, 1995, $99,739,000 of accounts receivable are restricted as
collateral for the Contract Receivable Collateralized Notes, Series 1992-1
("Notes"). Restricted cash on deposit required to meet certain collateral
value ratios which totalled $9,376,000 has been classified as other current
assets on the balance sheet at September 28, 1995.
Additionally, $3,000,000 of cash is restricted as collateral for the Notes
and $4,728,000 of cash is restricted as collateral for letters of credit
required for certain contracts, most with terms of from three to five
years. This restricted cash has been included in Other Assets on the
balance sheet at September 28, 1995. To conform with the current period
presentation, restricted cash of $3,000,000 and $2,937,000 representing
collateral for the Notes and letters of credit, respectively, has been
reclassified to Other Assets at December 31, 1994.
Accounts receivable are net of an allowance for doubtful accounts of
$8,800 in 1995 and 1994.
6. On February 7, 1995, the Company sold its Corporate headquarters building
to RREEF America Reit Corp. C and entered into a 12-year lease with RREEF
as the landlord. The facility was sold for $13,780,000 and the proceeds
were applied to 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 is being amortized over the life of the lease.
7. During the first nine months of 1995, the Company repurchased or called
$102,450,000 of its 16% Junior Subordinated debentures. On October 12,
1995, the Company issued a call for the remaining $3,693,000, and
accordingly, these debentures have been classified as current notes
payable at September 28, 1995. The write-off of the unamortized discount,
deferred debt expense and tax, net of the gain on repurchase, if any,
has been reported as an extraordinary item.
8. In February, 1992, the Company loaned $5,500,000 to Cummings Point
Industries, Inc., of which Capricorn Investors, L.P. ("Capricorn") owns
more than 10%. By separate agreement and as security to the Company,
Capricorn 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 was collateralized by
certain common stock and warrants issued by the Company and owned by
Capricorn. The note, which had been reflected as a reduction in
stockholders' equity, was paid in full on August 10, 1995.
9. In March, 1995, 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 continuing operations was
$4,136,000 and $11,607,000 for the quarter and first nine months of 1995,
respectively.
10. The provision for income taxes for the quarter and nine months of 1995
is based on an estimated annual effective tax rate excluding expenses
not deductible for income tax purposes and, in addition, includes the
tax provision of a majority owned subsidiary required to file a separate
return. Additionally, in the third quarter of 1995, a federal tax
benefit was recorded to reverse tax valuation reserves for deferred
taxes which may now be used to offset a portion of the tax on
the gain from the sale of the Commercial Aviation business. The 1994
tax provision reflects only that of the majority owned subsidiary referred
to previously.
The income tax provision or benefit for the items shown net of tax (i.e.
discontinued operations and extraordinary item), is calculated in
proportion to their individual effect on income tax expense or benefit
after the allocation of tax to continuing operations. The provision, net of
the deferred tax reserve adjustment noted above, is payable in March 1996,
and has been recorded as a current liability.
11. The weighted average number of common shares outstanding includes issued
shares or shares issuable under the Restricted Stock Plan less shares
held in treasury and unallocated ESOP shares held by the ESOP Trust
in 1995. Unexercised warrants of 4,131,339 and 4,151,925 for the three and
nine months ended September 28, 1995, respectively, are included as share
equivalents, using the treasury stock method.
12. 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, some of which may not be covered by insurance and which have not
been fully reserved for in the financial statements, aggregate
approximately $20,000,000 (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 711
additional claims were filed with 1,275 claims being settled. In 1994,
1,135 additional claims were filed and 353 were settled. In the first nine
months of 1995, 3,100 new claims were filed with 169 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 1988 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 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, the
consolidated financial position or the liquidity 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 addition, the Company is
occasionally the subject of investigations by the Department of Justice and
other investigative organizations, resulting from employee and other
allegations regarding business practices. In management's opinion, there
are no outstanding issues of this nature at September 28, 1995 that will
have a material adverse effect on the Company's consolidated financial
position or results of operations.
13. The Company filed Forms S-1 and S-1/A (an amendment) with the SEC on May
12, and October 6, 1995, respectively, to register shares of common
stock, a majority of which had been previously issued. Of the
11,969,000 shares being registered, 2,450,000 are intended to be used
for employee benefit, bonus and stock purchase plans and 9,519,000 may
be traded 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 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 10-K.
Working capital at September 28, 1995 was $64.5 million compared to $85.1
million at December 31, 1994, a decrease of $20.6 million. This decrease
resulted from increased federal income tax liability, a decrease in net assets
of discontinued operations and an offsetting increase in restricted and
unrestricted cash, all of which were attributable to the sale of the Commercial
Aviation business.
At September 28, 1995, $99.7 million of accounts receivable are restricted as
collateral for the Contract Receivable Collateralized Notes and additionally,
restricted cash on deposit required to meet certain collateral value
ratios, which totalled $9.4 million, has been classified as other current
assets. Additionally, $3.0 million of cash is restricted as collateral for the
Notes and $4.7 million of
cash is restricted as collateral for letters of credit required for certain
contracts, most with terms of from three to five years. This restricted cash
has been included in Other Assets on the balance sheet at September 28, 1995.
To conform with the current period presentation, restricted cash of $3.0
million and $2.9 million representing collateral for the Notes and letters of
credit, respectively, has been reclassified to Other Assets at December 31,
1994.
Cash used by continuing operations was $10.3 million for the first nine months
of 1995 compared to cash provided of $11.0 million for the comparable period in
1994. Numerous factors, both positive and negative, contributed to the change:
(i) a $11.8 million payment in cash of accrued interest on the 16% Subordinated
Debentures as opposed to payment in kind in 1994, (ii) a $6.4 million increase
in earnings from continuing operations (iii) an increase in restricted cash of
$11.2 million, and (iv) a $3.9 milion increase in accounts receivable. Current
liabilities increased due to the accrual of income tax liability resulting
from the gain on the sale of the Commercial Aviation business (see Note 10
to the consolidated financial statements dated September 28, 1995).
The proceeds from the sale of the Commercial Aviation business, the
sale/leaseback of the Corporate headquarters facility and the collection of the
Cummings Point Industries, Inc. note receivable all contributed to the $139.4
million in funds provided from investing activities.
The $115.2 million use of funds from financing activities substantially
consisted of the utilization of the proceeds referred to previously to redeem
$102.3 million of its 16% Junior Subordinated debentures and to extinguish the
mortgage on the Corporate headquarters.
At September 28, 1995, backlog (including option years on government contracts)
was $2.961 billion compared to $2.011 billion at December 31, 1994.
Results of Operations
Revenues - Revenues from continuing operations for the third quarter and first
nine months of 1995 were $244.6 million and $666.2 million, up $38.8 million
and $69.2 million over comparative periods in 1994. Increases in revenue
attributable to an acquisition completed in the fourth quarter of 1994 ($13.5
million and $46.2 million for the third quarter and nine months of 1995,
respectively) and new contract awards (approximately $57.4 million and $94.8
million for the third quarter and nine months of 1995, respectively) were
partially offset by declines from contracts lost in recompetition and reduced
levels of services on continuing contracts.
Cost of Services for the third quarter of 1995 was 96.0% of revenue compared to
95.3% for the same period in 1994, and for the first nine months of 1995, cost
of sales was 95.9% compared to 95.6% in 1994. This resulted in gross margins
of $9.8 million (4.0%) for the third quarter of 1995 compared to $9.7 million
(4.7%) for the third quarter of 1994 and $27.4 million (4.1%) and $26.5 million
(4.4%) for the first nine months of 1995 and 1994, respectively. Increases
in gross margin attributable to an acquisition completed in the fourth
quarter of 1994 were offset by decreases from contracts lost in recompetition
and lower margins on new contracts.
Selling, Corporate & Administrative expense was 2.3% of revenue for the third
quarter as compared to 2.0% for the comparable quarter in 1994. For the first
nine months, selling, corporate and administrative expense was 2.2% of revenue
compared to 2.1% for the comparable period in 1994. The increases are
attributable to increased facility costs resulting from the sale/leaseback of
the corporate headquarters building and increased marketing and bid and
proposal costs.
Interest income for both the quarter and first nine months was greater than
during comparable periods in 1994 primarily due to higher cash and short term
investment balances which yielded greater interest income.
Interest expense for both the quarter and first nine months of 1995 was less
than comparable periods in 1994 due to the sale and leaseback of the Company's
headquarters and subsequent payoff of the mortgage and also to the declining
balance of the Company's 16% Junior Subordinated Debentures.
Other consists of the following items (in thousands):
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1995 1994 1995 1994
Amortization of costs in excess
of net assets acquired $ 456 $ 480 $1,368 $1,397
Amortization of deferred ESOP costs - 126 - 513
ESOP repurchase premium - 316 - 936
Equity in net loss of affiliate - 334 - 334
Miscellaneous (41) 426 44 528
$ 415 $1,682 $1,412 $3,708
Income taxes - The provision for income taxes for the quarter and nine months
of 1995 is based on an estimated annual effective tax rate excluding expenses
not deductible for income tax purposes and, in addition, includes the tax
provision of a majority owned subsidiary required to file a separate return.
Additionally, in the third quarter of 1995, a federal tax benefit was recorded
to reverse tax valuation reserves for deferred taxes which may now be used
to offset a portion of the gain on the sale of the Commercial Aviation
business. The 1994 tax provision reflects only that of the majority owned
subsidiary referred to previously.
The operating income of the discontinued businesses was substantially offset by
the allocation of goodwill amortization and interest expense that is expected
to be eliminated as a result of the divestitures.
The proceeds from the sale of the Commercial Aviation business were
substantially offset by the net assets sold, the write-off of the applicable
goodwill and deferred organizational costs of the unit, payment of lease
funding obligations and applicable income taxes.
Despite the significant progress made towards reducing its debt, the Company
remains highly leveraged in respect to its earnings, cash flow and equity.
Although $122.6 million of debt has been extinguished utilizing the proceeds
from the sale of the Commercial Aviation business, the sale/leaseback of the
corporate headquarters facility, the collection of the Cummings Point
Industries, Inc. note receivable and other sources, $111.0 million of debt
remains outstanding; $100.0 million of this debt, the Dyn Funding Contract
Receivable Collateralized Notes Receivable becomes payable beginning in
February, 1997. At September 28, 1995 the Company had an additional
accounts receivable financing facility of $20.0 million, none of which
was being utilized. This facility will expire in June 1996. Additionally, the
Company's income tax liability for 1995, including the provision recorded as
a result of the sale of the Commercial Aviation business (see Note 10 to the
consolidated financial statements dated September 28, 1995) is payable in
March 1996 and is estimated at approximately $25.0 million. The Company's
ability to meet future debt service and working capital requirements is
dependent upon increased earnings and cash flow from operations and the
refinancing of the remaining debt.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
This item is incorporated herein by reference to Note 12 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 3 - Certificate of Incorporation as currently in effect, consisting
of Restated Certification of Incorporation
Exhibit 11 - Computations of Earnings Per Common Share
(b) Reports on Form 8-K
On September 11, 1995, the Company filed a report on Form 8-K reporting
Item 2, "Acquisition or Disposition of Assets," relating to the sale of
the stock of all of its subsidiaries engaged in the business of providing
aviation ground handling services.
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: November 13, 1995 T. E. Blanchard
T. E. Blanchard
Senior Vice President
and Chief Financial Officer
Date: November 13, 1995 G. A. Dunn
G. A. Dunn
Vice President and Controller