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, 1995
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 2.4% 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. 8,024,645 shares of common stock having a par value of $0.10
per share were outstanding March 08, 1996.
TABLE OF CONTENTS
1995 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
Report of Independent Public Accountants
Financial Statements
Consolidated Balance Sheets
Assets
Liabilities, Redeemable Common Stock and Stockholders' Accounts
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Accounts
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 primarily government customers
throughout the United States and internationally. Generally,
these services are provided under written contracts which may be
fixed-price, time-and-material or cost-type depending on the
work requirements and other individual circumstances.
The Company 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
Postal Service and other U.S., state and local government
agencies and foreign governments. These services encompass a
wide range of management, technical and professional services
covering the following areas:
Information and Engineering Technology includes software
development and maintenance, computer center operations, data
processing and analysis, database administration,
telecommunications support and operations, maintenance and
operation of integrated electronic systems and networking of
electronic systems in a local and wide area environment.
Also included are environmental regulation development,
quality assurance studies and research, management of
information relating to the proper handling of hazardous
materials and substances, alternative energy research and
evaluation, and energy security studies and assessments.
Additionally, this unit provides services in support of
nuclear safeguards and security research and development.
Specialized disciplines include the development of physical
security systems, vulnerability and risk assessments, and
human reliability.
Aerospace Technology includes engineering, maintenance,
modification, operational and logistical support of military
aircraft; technical and evaluation services at test and
training ranges; engineering, manufacturing and installation
of aircraft system upgrades; structural repairs that extend
airframe life for the aging fleet of military aircraft;
ground based logistical support and staff augmentation; and
engineering and technical services for high-technology space
and missile systems programs.
Enterprise Management includes the operation, maintenance and
management of major governmental enterprises and
installations, ranging from the turnkey responsibility for
operation of all aspects of a single base (such as a military
installation) to assumption of responsibility for the
staffing of particular functions at various locations for a
single customer. Disciplines included within operational
responsibility vary, but generally include scientific
support, operation of sophisticated electronic and mechanical
systems, construction and demolition, environmental
remediation and the handling of and accountability for
inventories of equipment and materials/supplies and other
property. Also included are testing and evaluation of
military hardware systems at government test ranges,
collection and processing of data, maintenance of targets,
ranges and laboratory facilities, developmental testing of
complex weapon systems, security systems work and technology
transfer into commercial applications.
Industry Segments
The Company has one line of business, which is to provide
management, technical and professional services to primarily
government organizations in support of the customers' operations
or facilities.
Backlog
The Company's backlog of business (including estimated value
of option years on government contracts) was $2.887 billion at
the close of 1995, compared to a year-end 1994 backlog of $2.011
billion. Of the total backlog at December 31, 1995, $2.029
billion is expected to produce revenues after 1996.
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. The Company's experience has been that the Government
generally exercises these options. U.S. Government contracts
contain standard provisions for termination at 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.
Competition
The markets which the Company services are highly
competitive. In each of its operating areas, the Company's
competition is quite fragmented, with no single competitor
holding a significant market position. Some of the Company's
competitors are large, diversified firms with substantially
greater financial resources and larger technical staffs than the
Company has available to it. Government agencies also compete
with and are potential competitors of the Company because they
can utilize their internal resources to perform certain types of
services that might otherwise be performed by the Company.
Foreign Operations
The Company has a minority investment in an unaffiliated
company in Saudi Arabia. Discussions are underway regarding the
sale of the Company's minority interest to one or more of the
other Saudi stockholders. In addition, the Company in 1993
established operations in Mexico. None of these foreign
operations is normally material to the Company's financial
position or results of operations; however, in 1995 the Company's
Mexican operations incurred a loss of $4.4 million (see Management's
Discussion and Analysis of Cost of Services/Gross Margin). The Company
is currently evaluating whether it will continue its Mexican operations.
Other activities of the Company presently include the
providing of services in foreign countries under contracts with
the U.S. Government, the United Nations, and other foreign
customers.
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 16,900 employees at December
31, 1995.
ITEM 2. PROPERTIES
The Company is primarily 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. The Company owns two office buildings. The Company
leases numerous commercial facilities used in connection with the
various services rendered to its customers, including its
corporate headquarters, a 149,000 square foot facility under a
12-year lease. None of the properties is unique. 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.
ITEM 3. LEGAL PROCEEDINGS
This item is incorporated herein by reference to Note 20 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
An annual meeting of stockholders was held on October 31,
1995. Dan R. Bannister and David L. Reichardt were re-elected to
three-year terms as Class I Directors. The other Directors who
continued in office after the election were T. Eugene Blanchard,
Russell E. Dougherty, Paul V. Lombardi, Dudley C. Mecum II, and
Herbert S. Winokur, Jr.
At the meeting, the stockholders also approved an amendment
of the Amended and Restated Certificate of Incorporation, which
deleted the former Class A and Class B Preferred Stock as
authorized classes of stock and increased the authorized number
of shares of Common Stock from 15 million to 20 million shares;
approved the 1995 Employee Stock Purchase Plan, whereby employees
may purchase stock on the Company-sponsored internal stock market
at a 5% discount; approved the 1996 Executive Incentive Plan,
under which 25% of the amount of bonuses earned are to be paid in
the form of shares of Common Stock; and approved the 1995 Stock
Option Plan. The votes on such matters were as follows:
Matter For Against Withheld Abstained
Election of Class I Directors
Dan R. Bannister 7,872,944 473,713
David L. Reichardt 7,925,083 421,574
Amendment of Certificate of 7,282,922 683,742 379,992
Incorporation
Approval of Employee 7,489,337 591,644 265,676
Stock Purchase Plan
Approval of Executive 6,313,662 1,565,037 467,958
Incentive Plan
Approval of Stock Option Plan 7,129,888 859,376 357,392
Because none of the Company's voting stock is held in "street
name", there are no "broker non-votes".
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 420 record holders of DynCorp common stock at
December 31, 1995. In addition, the DynCorp Employee Stock
Ownership Plan Trust owns stock on behalf of approximately 31,000
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 presents summary selected historical
financial data derived from the Consolidated Financial Statements
of the Company, which have been audited by Arthur Andersen LLP
for each of the five years. During the periods presented, the
Company paid no cash dividends on its Common Stock. The
following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements
and related notes thereto, included elsewhere in this Annual
Report on Form 10-K. (Dollars in thousands except per share
data.)
Years Ended December 31,
1995(b) 1994(a)(d) 1993(a)(e) 1992(a)(f) 1991(a)
Statement of Operations Data:
Revenues $908,725 $818,683 $777,216 $728,244 $654,710
Cost of services $871,471 $783,095 $742,455 $707,905 $634,126
Gross Profit $ 37,254 $ 35,588 $ 34,761 $ 20,339 $ 20,584
Selling and corporate administrative $ 18,705 $ 16,887 $ 17,547 $ 18,503 $ 15,538
Interest expense $ 14,856 $ 14,903 $ 14,777 $ 14,629 $ 12,135
Earnings (loss) from continuing
operations before extraordinary item (c) $ 5,274 $ (352) $ (4,485) $(14,112) $ (7,568)
Net earnings (loss) $ 2,368 $(12,831) $(13,414) $(23,342) $ (12,403)
Common stockholders' share of earnings (loss) $ 453 $(14,437) $(14,761) $(25,430) $ (18,530)
Earnings (loss) per share from continuing
operations before extraordinary
item for common stockholders $ 0.27 $ (0.29) $ (1.13) $ (3.18) $ (2.90)
Balance Sheet Data:
Total assets $375,490 $396,000 $360,103 $338,135 $298,725
Long-term debt excluding current maturities $104,112 $230,444 $215,939 $198,770 $119,949
Redeemable preferred stock $ - $ - $ - $ - $ 24,884
Redeemable common stock $129,843 $121,170 $ 89,996 $ 85,450 $ 81,848
<FN>
(a) Restated for the discontinuance of the Commercial Aviation business.
(b) 1995 included $7,707,000 reversal of income tax reserves (see Note 14),
$4,362,000 accrued for losses and reserves related to the Company's Mexican
operation, $2,400,000 accrual of legal fees related to the defense of a
lawsuit filed by a subcontractor of a former electrical contracting
subsidiary (see Notes 13 and 20) and $5,300,000 accrued for
uninsured costs related to a former subsidiary's use of asbestos products (see Notes 13 and 20).
(c) The extraordinary loss in 1995 of $2,886,000 and 1992 of $2,526,000 and the gain
in 1991 of $192,000 results from the early extinguishment of debt.
(d) 1994 includes $3,250,000 (see Note 13) write-off of investment in unconsolidated
subsidiary, $2,665,000 (Notes 13 and 20) accrual of legal fees related to
the defense of a lawsuit filed by a subcontractor of a former electrical contracting
subsidiary, $1,830,000 (see Note 13) credit for reversal of legal costs associated
with an acquired business and $4,069,000 (see Note 14) reversal of income tax
reserves.
(e) 1993 includes $2,000,000 of legal and other expenses associated with an acquired
business (see Note 13). 1993 also includes $988,000 accelerated amortization
of costs in excess of net assets of an acquired business, for assets that were
subsequently determined to have been overvalued at the time of acquisition.
(f) 1992 Cost of Services includes approximately $6,000,000 for settlement of
claims against the Company related to prior years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
In June 1995, the Company's Board of Directors concluded that
it was in the best interests of the Company to divest its
Commercial Aviation business. On June 30, 1995, the Company sold
the stock of all its subsidiaries engaged in the business of
commercial aircraft heavy maintenance for $13.7 million to
Sabreliner Corporation. On August 31, 1995 the Company sold to
ALPHA Airports Group Plc, all of its subsidiaries engaged in
commercial airline ground handling, passenger services, aircraft
fueling, aircraft line maintenance and cargo handling for $122
million (subject to adjustment). As a result of the decision to
divest itself of the entire Commercial Aviation Business, which
constituted a major class of customer, the related accounts have
been classified as discontinued operations for financial
reporting purposes. See Note 2, "Discontinued Operations" to the
Consolidated Financial Statements. The following discussion and
amounts exclude the discontinued operations of the Commercial
Aviation Business unless stated otherwise.
Following is a summary of operations, cash flow and long-
term debt (in thousands):
Years Ended December 31,
1995 1994 1993
Operations
Revenues $ 908,725 $818,683 $777,216
Gross Profit 37,254 35,588 34,761
Selling and corporate administrative (18,705) (16,887) (17,547)
Interest, net (11,052) (12,505) (12,349)
Other (10,058) (7,654) (7,109)
Provision (benefit) for income taxes (9,090) (2,236) 1,289
Earnings (loss) from continuing
operations before minority interest
and extraordinary item $ 6,529 $ 778 $ (3,533)
Cash Flow
Net earnings (loss) $ 2,368 $(12,831) $(13,414)
Depreciation and amortization 11,348 16,340 13,151
Pay-in-kind interest - 8,787 6,676
Working capital items (16,293) (26,216) (12,544)
Other 16,321 511 3,207
Discontinued operations (3,355) 22,770 11,273
Cash provided by operating activities 10,389 9,361 8,349
Investing activities 139,939 (22,235) (18,527)
Financing activities (126,915) 8,840 7,817
Increase (decrease) in cash and
short-term investments $ 23,413 $ (4,034) $ (2,361)
December 31,
1995 1994 1993
Long-term Debt (including current maturities)
Contract Receivable Collateralized Notes $ 100,000 $100,000 $100,000
Junior Subordinated Debentures - 102,658 86,947
Mortgages payable 3,802 22,285 23,416
Other notes payable and
capitalized leases 1,570 8,505 8,785
$ 105,372 $233,448 $219,148
Revenues - Revenues from continuing operations were $908.7
million in 1995 compared to $818.7 million in 1994, an increase
of $90.0 million (11.0%). The increase in revenue was primarily
attributable to businesses acquired in October 1994 ($46.9
million) and new contract awards or contracts which were in the
start-up phase in 1994 but were fully operational in 1995 ($127.0
million). These increases were offset primarily by declines from
contracts lost in recompetition and reduced level of effort on
existing contracts and also due to the shutdown of the Federal
Government in November and December, 1995 and the subsequent
furloughs resulting from stalled federal budget negotiations.
Revenues from continuing operations were $818.7 million in
1994 compared to $777.2 million in 1993, an increase of $41.5
million (5.3%). The increase in revenue was primarily
attributable to businesses acquired in November and December 1993
and October 1994 ($52.5 million), new contract awards or
contracts which were in the start-up phase in 1993 but were fully
operational in 1994 ($73.3 million) and a retroactive adjustment
on one contract for wage increases mandated by the Department of
Labor under the Service Contract Act ($7.0 million). These
increases were offset by declines from contracts lost in
recompetition and reduced level of effort on existing contracts.
Cost of Services/Gross Margins - Cost of services from continuing
operations was 95.9% of revenue in 1995, 95.7% in 1994 and 95.5%
in 1993, which resulted in gross margins of $37.3 million (4.1%),
$35.6 million (4.3%) and $34.8 million (4.5%), respectively. The
1995 gross margin was adversely affected by losses of $4.4 million
in connection with the Company's effort to further expand its
Mexican operations and to complete a contract for the design and installation
of a large security system in Mexico. These losses included such expenses as
business development and marketing expenses, currency devaluation
losses, a reserve for completion of the security system contract
and severance costs associated with the reduction and realignment of the
local workforce. The loss incurred by the Mexican operations along with the
effect of the shutdown of the Federal Government in November and again
in December substantially offset increased earnings from an acquisition
which was consumated in October 1994 and new contract awards net
of contract losses.
The increase in the 1994 gross margin over 1993 was attributable
primarily to acquisitions consummated in November and December, 1993 and
October, 1994, and new contract awards which were partially
offset by decreases related to lost contracts and reduced level
of services on existing contracts.
Selling and Corporate Administrative - Selling and corporate
administrative expenses as a percentage of revenue was 2.1% in
1995 and 1994 and 2.3% in 1993. Even though selling and corporate
administrative expenses as a percentage of revenue remained the
same in 1995 as in 1994, the dollar amount increased $1.8 million
over 1994. This increase is primarily attributable to increased
facility costs resulting from the sale and leaseback of the
Corporate headquarters building at a cost in excess of the
previous cost of ownership. The decrease of $0.7 million in 1994
from 1993 was primarily attributable to a decrease in Restricted
Stock Plan expense due to the award of fewer shares in 1994 than in 1993.
Interest - Interest expense in 1995 was $14.9 million, virtually
unchanged from 1994. However, there were different factors
affecting the amount of interest expense for these years. 1995
included the effect of the declining balance and eventual
redemption of all the 16% Junior Subordinated Debentures and the
liquidation of the mortgage on the Corporate office building,
which was sold and leased back; 1994 included nonrecurring
credits resulting from the reversal of interest accruals due to a
favorable settlement with the Internal Revenue Service of the
Company's tax liability for the period 1985-1988.
Interest expense was $14.9 million in 1994, compared to $14.8
million in 1993. Increases resulting from the compounding of the
pay-in-kind interest on the Junior Subordinated Debentures and
the inclusion of a full year of interest on mortgages assumed in
conjunction with an acquisition in the fourth quarter of 1993
were offset by the reversal of interest accruals related to the
Company's tax liability, referred to previously.
Interest income was $3.8 million in 1995, up from $2.4 million
in 1994. The increase, due to greater interest yields on higher
cash and short-term investment balances, was partially offset by
the collection of the 17% Cummings Point Industries, Inc. note
receivable in August, 1995.
Interest income in 1994 was approximately the same as that of
1993. Although the interest on the Cummings Point Industries,
Inc. note receivable was higher in 1994 than 1993 because of
compounding, 1993 included the recording of prior years' interest
income (and offsetting bank fee expense) on cash balances in
various operating accounts.
Other - The increase in other expense in 1995 as compared to 1994
is due to several different factors (see Note 13 to the Consolidated
Financial Statements). In 1995, the Company recorded a charge of
$5.3 million to increase its reserve for the estimated future
uninsured costs to defend and settle asbestos claims (see Note 20(a)
to the Consolidated Financial Statements). In addition, in 1995, 1994 and
1993, the Company recorded charges of $2.4 million, $2.7 million and $0.5
million, respectively, to increase its reserves for the estimated
costs (primarily legal defense) to resolve a lawsuit filed by a
subcontractor to a former subsidiary (see Note 20(b) to the
Consolidated Financial Statements). The determination of these
reserves is subject to numerous uncertainties and judgements which are
described in Note 20(a) and (b) and it is possible that additional reserves
may be required in the future.
Other expense in 1994 as compared to 1993 contained several
variances: (i) the 1994 write-off of $3.3 million of the Company's
50.1% investment in an unconsolidated subsidiary, (ii) accrual of
legal fees and environmental costs related to divested
businesses, (iii) reversal of reserves of $1.8 million for legal
and other expenses associated with events which predated the
Company's acquisition of another business and (iv) nonrecurrence of
accelerated amortization of $1.0 million of cost in excess of net
assets of an acquired business that was determined in 1993 to be
overvalued. See Note 13, "Other Expense," to the Consolidated
Financial Statements.
Income Taxes - The benefit for income taxes in 1995 reflects a
tax provision based on an estimated annual effective tax rate,
excluding expenses not deductible for tax and the reversal of
$7.7 million of tax valuation reserves for deferred tax assets which
are now expected to be used in the 1995 tax return. The 1994 federal
tax benefit resulted from the reversal of tax reserves for the IRS
examination and the benefit for operating losses, net of a valuation
allowance, less the federal tax provision of a majority owned
subsidiary required to file a separate return. The Federal tax provision
recognized in 1993 was only that of the majority owned subsidiary
referred to previously.
Intangible Assets -- Intangible assets principally consist of the
excess of the acquisition cost over the fair value of the net
tangible assets of businesses acquired. In accordance with the
guidance provided in APB No. 16, the Company assesses and
allocates, to the extent possible, excess acquisition price to
identifiable intangible assets and any residual is considered
goodwill. A large portion of the intangible assets is goodwill
which resulted from the 1988 LBO and merger, accounted for as a
purchase, and represents the existing technical capabilities,
customer relationships and ongoing business reputation that had
been developed over a significant period of time. The Company
believes that these relationships and the value of the Company's
business reputation were and continue to be long-term intangible
assets with an almost infinite life. Since the APB No. 17
limitation is 40 years, this period is used for amortization
purposes for the majority of the goodwill. The value assigned to
identifiable intangible assets at the time of the LBO and merger
in 1988 was amortized over applicable estimated useful lives and
was fully amortized as of December 31, 1994.
Working Capital and Cash Flow
Working capital at December 31, 1995 was $64.7 million
compared to $85.1 million at December, 1994, a decrease of $20.4
million. This decrease resulted from increased Federal income
tax liability (payable in March, 1996), a decrease in net assets
of discontinued operations and an offsetting increase in
restricted cash, all of which were attributable to the sale of
the Commercial Aviation business. The ratio of current assets to
current liabilities at December 31, 1995 was 1.42 compared to
1.70 at December 31, 1994.
At December 31, 1995, $113.6 million of accounts receivable
are restricted as collateral for the Contract Receivable
Collateralized Notes (the "Notes"). Additionally, $3.0 million
of cash is restricted as collateral for the Notes and $6.2
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 December 31, 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 provided by continuing operations was $13.8 million in
1995 compared to cash used of $1.0 million in 1994. Numerous factors
contributed to the change: (i) payment in cash of accrued
interest on the 16% Subordinated Debentures in 1995 as opposed to payment
in kind in 1994, (ii) a $15.2 million increase in earnings and
(iii) a $6.9 million 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. For the year 1994, continuing operations used $1.0
million of cash compared to cash provided of $6.0 million in
1993. The deterioration from 1993 to 1994 was primarily due to
an increase in accounts receivable attributable to delays and
interruptions in the usual billing and collection procedures.
This decrease in cash from operations was partially offset by
increased non-cash amortization and pay-in-kind interest as well
as a reduction in net loss.
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 $139.9 million of
funds provided from investing activities in 1995. For the year
1994, investing activities used $22.2 million of cash, of which
$14.3 million was used for the acquisition of businesses and
another $3.7 million was used for the purchase of property and
equipment. For the year 1993, investing activities used $18.5
million of cash which included $10.9 million for acquisitions of
businesses and $3.6 million for the purchase of property and
equipment.
The $126.9 million use of funds from financing activities in
1995 substantially consisted of the utilization of the proceeds
referred to previously to redeem $106.0 million of 16% Junior
Subordinated Debentures, to extinguish the mortgage on the
Corporate headquarters, and to purchase treasury shares. These
uses were partially offset by funds provided from sale of stock
to the ESOP of $17.5 million. For the year 1994, financing
activities provided cash of $8.8 million. The sale of stock to
the ESOP contributed $17.1 million of cash of which $4.5 million
was used for payments on indebtedness, and $3.2 million was used
to purchase treasury stock. For the year 1993, financing
activities provided cash of $7.8 million. Payments of $16.1
million were received on the loan to the ESOP, $5.8 million was
used for payments on indebtedness and $2.0 million was used to
purchase treasury stock. The treasury stock purchases were
primarily to meet ERISA requirements to repurchase ESOP shares.
Liquidity and Capital Resources
At December 31, 1995, the Company's debt totaled $105.4
million compared to $233.4 million at December 31, 1994 and
$219.1 million at December 31, 1993. The decrease in debt from
December 31, 1994 to December 31, 1995 resulted from the
redemption of $106.0 million of Junior Subordinated Debentures
and the liquidation of the $18.2 million mortgage on the
Company's headquarters building. The funds used for the
liquidation of debt were obtained from the sale of the Commercial
Aviation business, the sale/leaseback of the Company's
headquarters building and the collection of the Cummings Point
Industries, Inc. note receivable. The increase in debt for 1994
and 1993 resulted principally from the pay-in-kind interest on
the Junior Subordinated Debentures.
The Company had an increase in cash and short-term
investments of $23.4 million from December 31, 1994 to December
31, 1995, which resulted primarily from the aforementioned
transactions. The Company had a net decrease in cash and short-
term investments of $4.0 million and $2.4 million in 1994 and
1993, respectively. The decrease for 1994 was caused to a large
degree by net investments in acquired businesses of $14.3 million
and an increase in accounts receivable and contracts in process
of $22.5 million. The latter increase was largely attributable
to a delay in finalizing the terms on a new contract and an
internal disruption in a government finance office, both of which
occurred in the fourth quarter of 1994. The Company's cash flow
was favorably impacted in 1994 and 1993 through the utilization
of pay-in-kind interest on the Junior Subordinated Debentures and
the sale of stock to the ESOP totaling $32.4 million and $29.2
million, respectively. The Company paid in cash the June 29,
1995 interest payment on its 16% Junior Subordinated Debentures
and on October 12, 1995, called the balance of the debentures outstanding.
On June 30, 1995, the Company sold the stock of its
subsidiaries engaged in the business of aircraft maintenance to
Sabreliner Corporation for $13.7 million in cash subject to
possible additional payments based on future business revenue of
the sold subsidiaries. On August 31, 1995, the Company sold to
ALPHA Airports Group Plc, all of its subsidiaries engaged in
ground handling for $122 million in cash, subject to final
adjustments based on the closing balance sheet. The net proceeds
from these transactions were in excess of the book value of the
net assets of the discontinued businesses and a gain of $1.4
million, net of income taxes, was recognized in 1995. The
proceeds were used primarily to retire DynCorp debt and satisfy existing
equipment financing obligations of the Ground Handling unit.
These two sales represented the entire Commercial Aviation
business.
On July 25, 1995, the Company entered into a revolving
credit facility with Citicorp North America, Inc. under which the
Company may borrow up to $20 million secured by specified
eligible government contract receivables ($15 million) and other
receivables ($5 million). The agreement requires the Company to
maintain compliance with certain covenants and will expire on the
earlier of July 23, 1996 or the refinancing of the existing $100
million Contract Receivable Collateralized Notes. In the event
that the financing facility underlying the Contract Receivable
Collateralized Notes is expanded, the Company is required to pay
down the Citicorp North America, Inc. revolving credit facility.
There were no borrowings under this line of credit at December
31, 1995. On March 14, 1996, the Company concluded an agreement
with Citicorp for a $50 million Senior Secured Revolving Credit facility
which amends and restates the aforementioned $20 million facility.
The Company agreed to contribute up to $18.0 million in cash
or stock to the ESOP to satisfy ESOP funding obligations for 1995
and a portion of 1996. The amount of the Company's annual
contribution to the ESOP is determined by, and within the
discretion of, the Board of Directors and may be in the form of
cash, Common Stock or other qualifying securities. In accordance
with ERISA requirements and the ESOP plan documents, in the event
that an employee participating in the ESOP is terminated,
retires, dies or becomes disabled while employed by the Company,
the ESOP Trust or the Company is obligated to repurchase shares
of Common Stock distributed to such former employee under the
ESOP, until such time as the Common Stock becomes "Readily
Tradable Stock," as defined in the ESOP plan documents. (See
Note 7 to the Consolidated Financial Statements.) Through
December 31, 1996, the Company will be obligated to pay the
higher of $27.00 per share or the fair market value at the time
of repurchase for any such shares. In the event the fair market
value of a share is less than $27.00, the Company is committed to
pay through December 31, 1996, up to an aggregate of $16.0
million, the difference ("Premium") between the fair market value
and $27.00 per share. As of December 31, 1995, the Company had
paid a total of $5.4 million of the premium to such former
employees. As of December 31, 1995, fair market value was
determined to be $18.10 per share (for shares with a control
premium) for shares allocated in the years 1988 through 1993, and
$14.50 per share (for shares without a control premium) for
shares allocated in 1994 and 1995. The Company estimates an aggregate
annual commitment to repurchase shares from the ESOP participants
as follows: $3.9 million in 1996, $2.8 million in 1997, $5.5
million in 1998, $6.0 million in 1999, $6.6 million in 2000 and
$78.2 million thereafter.
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, third parties or
insurance carriers. 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 mentioned 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, consolidated financial position or
liquidity of the Company over the long-term. However, it is
possible that the timing of the resolution of individual issues
could result in a significant impact on the operating results
and/or liquidity for an individual future reporting period. (See
Note 20 to the Consolidated Financial Statements.)
At December 31, 1995, the Company had $105.4 million of debt
remaining of which $100 million (Contract Receivable
Collateralized Notes, Series 1992-1) becomes payable beginning in
February, 1997. Additionally, the Company's income tax liability
for 1995, including the provision recorded as a result of the
sale of the Commercial Aviation Business is payable in March, 1996
and is estimated to be approximately $12.0 million.
Assuming improved cash flow from the Company's continuing
operations, the potential expansion of the financing facility
underlying the Contract Receivable Collateralized Notes and the
continuation of other programs which have been initiated to
improve operations and cash flows, management believes the
Company will be able to meet its debt obligations and working
capital requirements. In addition, subject to covenants in the
amended Revolving Credit facility, the Company expects to make cash
contributions to the ESOP in 1996 to enable the ESOP to purchase
shares directly from other shareholders.
The Company's primary source of cash and cash equivalents is from
operations. The Company's principal customer is the U.S. Government.
This provides for a dependable flow of cash from the collection of its
accounts receivable. Additionally, many of the contracts with the U.S.
Government provide for progress billings based on costs incurred.
These progress billings reduce the amount of cash that would
otherwise be required during the performance of these contracts.
Although the Company has made some progress toward
diversification into non-defense business activities, the
Company's largest single customer continues to be the Department
of Defense (55% of revenue in 1995). 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
ability to retain current contracts or obtain new contracts could
be significantly reduced.
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, 1995 and 1994, and the related consolidated statements of
operations, stockholders' accounts and cash flows for each of the
three years in the period ended December 31, 1995. These
consolidated 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 consolidated
financial statements and schedules 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, 1995 and 1994, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, 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., ARTHUR ANDERSEN LLP
March 15, 1996
DynCorp and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
1995 1994(a)
Current Assets:
Cash and short-term investments (Notes 1 and 5) $ 31,151 $ 7,738
Accounts receivable and contracts in process
(Notes 3, 4 and 5) 179,706 172,731
Inventories of purchased products and supplies,
at lower of cost (first-in, first-out) or market 1,383 793
Deferred income taxes (Note 14) - 2,698
Other current assets 8,095 4,122
Net current assets of discontinued operations (Note 2) - 18,316
Total Current Assets 220,335 206,398
Property and Equipment, at cost (Notes 1 and 18):
Land 1,621 5,372
Buildings and leasehold improvements 9,773 24,348
Machinery and equipment 30,234 25,868
41,628 55,588
Accumulated depreciation and amortization (22,600) (17,739)
Net property and equipment 19,028 37,849
Intangible Assets, net of accumulated amortization
(Notes 1, 13 and 19) 50,689 51,837
Other Assets (Notes 5 and 20) 85,438 32,788
Net Noncurrent Assets of Discontinued Operations (Note 2) - 67,128
Total $375,490 $396,000
(a) Restated for the discontinuance of the Commercial Aviation business
(see Note 2).
See accompanying notes.
DynCorp and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
1995 1994(a)
Current Liabilities:
Notes payable and current portion of long-term debt
(Notes 3 and 5) $ 1,260 $ 3,004
Accounts payable (Note 3) 38,007 18,878
Deferred revenue and customer advances (Note 1) 4,814 3,863
Accrued income taxes (Notes 1, 3 and 14) 11,374 30
Accrued expenses (Note 6) 100,152 95,482
Total Current Liabilities 155,607 121,257
Long-term Debt (Notes 3 and 5) 104,112 230,444
Deferred Income Taxes (Notes 1 and 14) 2,917 1,210
Other Liabilities and Deferred Credits (Notes 3 and 20) 86,992 33,551
Total Liabilities 349,628 386,462
Contingencies and Litigation (Note 20) - -
Redeemable Common Stock, at fair value (Note 7) 129,843 121,170
Preferred Stock, Class C 18% cumulative, convertible,
$24.25 liquidation value (liquidation value including
unrecorded dividends $11,863,000 in 1995 and $9,948,000
in 1994), 123,711 shares authorized, issued and
outstanding (Note 8) 3,000 3,000
Common Stock, par value ten cents per share, authorized
20,000,000 shares; issued 1,588,587 shares in 1995
and 812,387 shares in 1994 (Note 9) 159 81
Common Stock Warrants (Note 10) 11,305 11,486
Unissued Common Stock under restricted stock plan (Note 10) 5,908 9,923
Paid-in Surplus 13,122 (106)
Deficit (115,888) (118,256)
Common Stock Held in Treasury, at cost; 1,234,157 shares
and 173,988 warrants in 1995 and 459,309 shares and
173,988 warrants in 1994 (21,084) (8,817)
Unearned ESOP Shares (Note 12) (503) -
Cummings Point Industries Note Receivable (Notes 3 and 11) - (8,943)
Total $375,490 $396,000
(a) Restated for the discontinuance of the Commercial Aviation business
(see Note 2).
See accompanying notes.
DynCorp and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31
(Dollars in thousands except per share data)
1995 1994(a) 1993(a)
Revenues (Note 1) $908,725 $818,683 $777,216
Costs and expenses:
Cost of services $871,471 $783,095 $742,455
Selling and corporate administrative 18,705 16,887 17,547
Interest expense 14,856 14,903 14,777
Interest income (3,804) (2,398) (2,428)
Other (Note 13) 10,058 7,654 7,109
Total costs and expenses 911,286 820,141 779,460
Loss from continuing operations before income taxes,
minority interest and extraordinary item (2,561) (1,458) (2,244)
Provision (benefit) for income taxes (Note 14) (9,090) (2,236) 1,289
Earnings (loss) from continuing operations before
minority interest and extraordinary item 6,529 778 (3,533)
Minority interest (Note 1) 1,255 1,130 952
Earnings (loss) from continuing operations before
extraordinary item 5,274 (352) (4,485)
Loss from discontinued operations, net of
income taxes (Note 2) (1,416) (12,479) (8,929)
Gain on sale of discontinued operations, net of
income taxes (Note 2) 1,396 - -
Earnings (loss) before extraordinary item 5,254 (12,831) (13,414)
Extraordinary loss from early extinguishment
of debt, net of income taxes (Note 5) (2,886) - -
Net earnings (loss) $ 2,368 $(12,831) $(13,414)
Preferred Class C dividends not declared or
recorded (Note 8) (1,915) (1,606) (1,347)
Common stockholders' share of earnings (loss) $ 453 $(14,437) $(14,761)
Earnings (Loss) Per Common Share (Note 16)
Primary and fully diluted:
Continuing operations before extraordinary item $ 0.27 $ (0.29) $ (1.13)
Discontinued operations - (1.83) (1.74)
Extraordinary item (0.23) - -
Common stockholders' share of earnings (loss) $ 0.04 $ (2.12) $ (2.87)
(a) Restated for the discontinuance of the Commercial Aviation business
(see Note 2).
See accompanying notes.
DynCorp and Subsidiaries
Consolidated Statements of Stockholders' Accounts
For the Years Ended December 31
(Dollars in thousands)
Unissued
Common
Stock
Under
Redeemable Preferred Common Stock Restricted Paid-in
Stock(a) Stock Stock(a) Warrants Stock Plan Surplus(a) Deficit
Balance December 31, 1992 $85,450 $ 3,000 $ 65 $15,119 $ 9,941 $11,384 $(92,011)
Stock issued under Restricted Stock Plan (Note 10) 1,781 (1,781)
Treasury stock purchased (Notes 7 and 9) (1,985) 11 1,974
Stock issued under the Management
Employees Stock Purchase Plan (Note 7) 47 (42)
Accrued compensation (Note 10) 2,235
Payments received on Employee Stock
Ownership Plan (Note 12)
Contribution of stock to Employee Stock Ownership Plan
(Note 12) 437 (3) (434)
Stock issued in conjunction with acquisition (Note 7) 2,200 (12) (2,188)
Accrued interest on note receivable (Note 11)
Net loss (13,414)
Adjustment of shares to fair value 2,066 (2,066)
Balance, December 31, 1993 89,996 3,000 61 15,119 10,395 8,628 (105,425)
Stock issued under Restricted Stock Plan (Note 10) 1,718 (1,694) (24)
Treasury stock purchased (Notes 7 and 9) (2,645) 20 (57) 2,349
Stock issued under the Management Employees
Stock Purchase Plan (Note 7) 37 (39)
Warrants exercised (Note 10) 3,944 (3,576)
Accrued compensation (Note 10) 1,222
Contribution of stock to Employee Stock Ownership Plan
(Note 12) 17,100
Accrued interest on note receivable (Note 11)
Net loss (12,831)
Adjustment of shares to fair value 11,020 (11,020)
Balance, December 31, 1994 121,170 3,000 81 11,486 9,923 (106) (118,256)
Stock issued under Restricted Stock Plan (Note 10) 4,311 (4,015) (296)
Treasury stock purchased (Notes 7 and 9) (12,240) 78 11,925
Warrants exercised or canceled (Note 10) 179 (181) 22
Contribution of stock to Employee Stock Ownership Plan
(Note 12) 18,000
Payment received on Employee Stock Ownership Plan note
(Note 12)
Accrued interest on note receivable (Note 11)
Collection of note receivable (Note 11)
Net earnings 2,368
Adjustment of shares to fair value (1,577) 1,577
Balance, December 31, 1995 $129,843 $ 3,000 $ 159 $11,305 $ 5,908 $13,122 $(115,888)
(a) Restated to conform to the balance sheet presentation (see Note 1).
See accompanying notes.
DynCorp and Subsidiaries
Consolidated Statements of Stockholders' Accounts
For the Years Ended December 31
(Dollars in thousands)
Employee
Stock Cummings
Ownership Point
Plan Loan Industries
Treasury and Unearned Note
Stock ESOP Shares Receivable
Balance December 31, 1992 $ (6,538) $(16,116) $(6,410)
Stock issued under Restricted Stock Plan (Note 10)
Stock issued under the Management
Treasury stock purchased (Notes 7 and 9) (1,980)
Employees Stock Purchase Plan (Note 7) 41
Payments received on Employee Stock
Ownership Plan (Note 12) 16,116
Accrued compensation (Note 10)
Contribution of stock to Employee Stock Ownership Plan
(Note 12) 437
Stock issued in conjunction with acquisition (Note 7) 2,200
Accrued interest on note receivable (Note 11) (1,158)
Net loss
Adjustment of shares to fair value
Balance, December 31, 1993 (5,840) - (7,568)
Stock issued under Restricted Stock Plan (Note 10)
Treasury stock purchased (Notes 7 and 9) (2,690)
Stock issued under the Management Employees
Stock Purchase Plan (Note 7) 32
Warrants exercised (Note 10) (319)
Accrued compensation (Note 10)
Contribution of stock to Employee Stock Ownership Plan
(Note 12)
Accrued interest on note receivable (Note 11) (1,375)
Net loss
Adjustment of shares to fair value
Balance, December 31, 1994 (8,817) - (8,943)
Stock issued under Restricted Stock Plan (Note 10)
Treasury stock purchased (Notes 7 and 9) (12,267)
Warrants exercised or canceled (Note 10)
Contribution of stock to Employee Stock Ownership Plan
(Note 12) (13,750)
Payment received on Employee Stock Ownership Plan note
(Note 12) 13,247
Accrued interest on note receivable (Note 11) (951)
Collection of note receivable (Note 11) 9,894
Net earnings
Adjustment of shares to fair value
Balance, December 31, 1995 $(21,084) $ (503) $ -
See accompanying notes.
DynCorp and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31
(Dollars in thousands)
1995 1994(a) 1993(a)
Cash Flows from Operating Activities:
Net earnings (loss) $ 2,368 $(12,831) $(13,414)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 11,348 16,340 13,151
Pay-in-kind interest on Junior Subordinated
Debentures (Note 5) - 8,787 6,676
Loss, before tax, on purchase of Junior
Subordinated Debentures (Note 5) 4,786 - -
Loss from discontinued operations (Note 2) 20 12,479 8,929
Deferred income taxes 4,959 (2,258) 521
Accrued compensation under Restricted Stock Plan - 1,222 2,235
Noncash interest income - (1,375) (1,158)
Change in reserves of businesses divested in 1988 7,700 2,318 1,738
Other (1,124) 604 (129)
Change in assets and liabilities, net of
acquisitions and dispositions:
Increase in accounts receivable and contracts
in process (6,975) (22,502) (2,030)
(Increase) decrease in inventories (340) (466) 96
(Increase) decrease in other current assets (1,222) 5,648 (1,223)
Decrease in current liabilities except notes
payable and current portion of long-term debt(7,756) (8,896) (9,387)
Cash provided (used) by continuing operations 13,764 (930) 6,005
Cash (used) provided by operating activities of
discontinued operations (3,375) 10,291 2,344
Cash provided by operating activities 10,389 9,361 8,349
Cash Flows from Investing Activities:
Sale of property and equipment 16,294 1,944 927
Proceeds received from notes receivable 8,950 6 446
Purchase of property and equipment (4,789) (3,742) (3,576)
Deferred income taxes from "safe harbor"
leases (Note 14) (554) (499) (441)
Assets and liabilities of acquired businesses
(excluding cash acquired) (Notes 1 and 19) (1,092) (14,312) (10,890)
Proceeds from sale of discontinued operations
(Note 2) 135,700 - -
Cash on deposit for letters of credit (Note 5) (3,307) (21) (2,916)
Investing activities of discontinued operations (11,439) (4,781) (1,424)
Other 176 (830) (653)
Cash provided (used) by investing activities 139,939 (22,235) (18,527)
Cash Flows from Financing Activities:
Treasury stock purchased (Note 7) (12,267) (3,182) (1,980)
Payment on indebtedness (25,172) (4,499) (5,844)
Redemption of Junior Subordinated Debentures
(Note 5) (105,971) - -
Stock released to Employee Stock Ownership Plan
(Note 12) 17,497 17,100 16,116
Treasury stock sold - 159 46
Financing activities of discontinued operations (228) (697) (521)
Other (774) (41) -
Cash (used) provided by financing activities (126,915) 8,840 7,817
Net Increase (Decrease) in Cash and Short-term
Investments 23,413 (4,034) (2,361)
Cash and Short-term Investments at Beginning
of the Year 7,738 11,772 14,133
Cash and Short-term Investments at End of the Year$ 31,151 $ 7,738 $ 11,772
(a) Restated for the discontinuance of the Commercial Aviation business
(see Note 2).
See accompanying notes.
DynCorp and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
(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 (see Note
2). Outside investors' interest in the majority owned subsidiaries
is reflected as minority interest. Investments less than 50% owned
are accounted for using the equity method of accounting.
Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period.
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
collection of funds because of events such as delays, changes in
contract specifications and questions of cost allowability or
collectibility. Such disputes, whether claims or unapproved change
orders in the process of negotiation, are recorded at the lesser of
their estimated net realizable value or actual costs incurred and
only when realization is probable and can be reliably estimated.
Claims against the Company are recognized where loss is considered
probable and reasonably determinable in amount.
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.
It is the Company's policy to defer labor and related costs
incurred in connection with the phase-in/start-up of new contracts (after the
award of the contract) when such costs are significant to the contract and
are not reimbursed separately by the customer. These deferred costs are
generally amortized over the original contract period and option years
which are considered probable to be exercised.
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, the
lesser of the useful life or the term of the 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
$5,100,000 for 1995, $4,978,000 for 1994 and $4,468,000 for 1993.
Cost of property and equipment sold or retired and the related
accumulated depreciation or amortization is removed from the accounts
in the year of disposal, and any gains or losses are reflected in the
consolidated statements of operations. Expenditures for maintenance
and repairs are charged to expense as incurred, and major additions
and improvements are capitalized.
Intangible Assets -- Intangible assets principally consist of the
excess of the acquisition cost over the fair value of the net
tangible assets of businesses acquired. In accordance with the
guidance provided in APB No. 16, the Company assesses and allocates,
to the extent possible, excess acquisition price to identifiable
intangible assets and any residual is considered goodwill. A large
portion of the intangible assets is goodwill which resulted from the
1988 LBO and merger, accounted for as a purchase, and represents the
existing technical capabilities, customer relationships and ongoing
business reputation that had been developed over a significant period
of time. The Company believes that these relationships and the value
of the Company's business reputation were and continue to be long-
term intangible assets with an almost infinite life. Since the APB
No. 17 limitation is 40 years, this period is used for amortization
purposes for the majority of the goodwill. The value assigned to
identifiable intangible assets at the time of the LBO and merger in
1988 was amortized over applicable estimated useful lives and was
fully amortized as of December 31, 1994.
At December 31, 1995, intangible assets consist of $47,846,000
of unamortized goodwill and $2,843,000 of value assigned to
contracts. Goodwill is being amortized on a straight-line basis over
periods up to forty years ($47,461,000 forty years, $158,000 thirty
years and $227,000 ten years). Amortization expense was $2,081,000, $4,343,000
(see Note 13(a)) and $2,568,000 in 1995, 1994 and 1993, 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 $624,000, $2,051,000 and $3,555,000 in
1995, 1994 and 1993, respectively. Cumulative amortization of
$13,785,000 and $29,895,000 has been recorded through December 31,
1995, of goodwill and value assigned to contracts, respectively.
The Company assesses potential impairment of intangible assets,
including goodwill, on a continuing basis. The Company uses an
estimate of its future undiscounted cash flows to evaluate whether
the intangible assets, including goodwill, are recoverable. The
amount of impairment, if any, is measured based on projected
discounted cash flows using a discount rate reflecting the Company's
average cost of funds.
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, less valuation allowances, if
required.
Environmental Liabilities -- The Company accrues environmental costs
when it is probable that a liability has been incurred and the amount
can be reasonably estimated. Recorded liabilities have not been
discounted.
Contingent Liabilities -- The Company's accounting policy is to
accrue an estimated loss from a loss contingency when it is probable
that an asset has been impaired or a liability has been incurred at
the date of the financial statements and the amount of the loss can
be reasonably estimated. The accrual for a loss contingency may
include such costs as legal costs, settlement and compensating
amounts, estimated punitive damages and penalties.
Treasury Stock -- The Company records the purchase of treasury stock
at the lower of acquired cost or fair value. The amount in excess of
fair value, as in the case of shares acquired from ESOP participants,
is recorded as compensation expense (see Note 7).
Employee Stock Ownership Plan -- The Company has adopted Statement of
Position (SOP) 93-6, "Employers Accounting for Employee Stock
Ownership Plans," issued in November 1993 and effective for financial
statements issued after December 15, 1993.
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 a
participant 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 SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions."
Postemployment Benefits -- The Company has no liability under SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," as it
provides no benefits as defined.
Other -- The Financial Accounting Standards Board issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," and SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," in May 1993 and SFAS No. 119, "Disclosure About
Derivative Financial Instruments," in October 1994. The Company
holds no significant financial instruments of the nature described in
these pronouncements and therefore believes the statements do not
have a material effect on its results of operations or financial
condition.
New Accounting Pronouncements -- SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" requires that long-lived assets and certain intangibles
be reviewed for impairment when events or circumstances indicate the
carrying amount of an asset may not be recoverable. The Company's
practice is consistent with the guidelines as set forth in the
Statement. The Statement was issued in March, 1995 and is effective
for fiscal years beginning after December 15, 1995.
SFAS No. 123, "Accounting for Stock-Based Compensation" was
issued in October, 1995 and is effective for fiscal years beginning
after December 15, 1995. The Statement encourages, but does not
require, adoption of the fair value based method of accounting for
employee stock options and other stock compensation plans. The
Company has opted to account for its stock option plan, which was
adopted in October 1995, in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees." By doing so, the
Company, beginning in 1996, will be required to make proforma
disclosure of net income and earnings per share as if the fair value
based method for accounting defined in Statement 123 had been
applied.
Consolidated Statements of Cash Flows -- For purposes of these
statements, 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 and short-
term investments at December 31, 1995 exclude $9,244,000 of
restricted cash which is classified as Other Assets.
Classification -- Consistent with industry practice, assets and
liabilities relating to long-term contracts and programs are
classified as current although a portion of these amounts is not
expected to be realized within one year.
Cash paid for income taxes was $3,140,000 for 1995, $1,145,000
for 1994 and $1,059,000 for 1993.
Cash paid for interest, excluding the interest paid under the
Employee Stock Ownership Plan term loan, was $22,100,000 for 1995,
$10,984,000 for 1994 and $11,545,000 for 1993. The increase in 1995
over prior years resulted from the payment in cash (as opposed to
payment-in-kind) of interest on the Company's 16% Junior Subordinated
Debentures (see below).
Noncash investing and financing activities consist of the
following (in thousands):
1995 1994 1993
Acquisitions of businesses:
Assets acquired $ 2,772 $30,302 $31,675
Liabilities assumed (1,680) (15,990) (17,198)
Stock issued - - (2,200)
Notes issued and other liabilities - - (1,382)
Cash acquired - - (5)
Net cash $ 1,092 $14,312 $10,890
Pay-in-kind interest on Junior
Subordinated Debentures (Note 5) $ - $15,329 $13,142
Unissued common stock under
restricted stock plan (Note 10) $ - $ 1,222 $ 2,235
Capitalized equipment leases and notes
secured by property and equipment $ - $ 121 $ -
Change in Presentation of Stockholders' Accounts -- The
presentation of the stockholders' accounts in the balance sheets has
been revised as a result of classifying the ESOP shareholders and
management investor shareholders separately from outside investors
because of the redemption feature of the common stock held by the
ESOP and management investor shareholders. In previously issued
financial statements, the stockholders' accounts were aggregated.
(See Note 7).
(2) Discontinued Operations
On June 29, 1995, the Company's Board of Directors determined
that it would be in the Company's best interest to discontinue the
entire Commercial Aviation Business operations. On June 30, 1995,
the Company sold all of its subsidiaries engaged in the business of
commercial aircraft maintenance and modification to Sabreliner
Corporation for $13,700,000 in cash, subject to additional payments
based on future business revenues of the sold companies. On August
31, 1995, the Company sold all of its subsidiaries engaged in the
business of 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 were in excess of the book value of
the net assets of the businesses and a gain of $1,396,000, net of
income taxes, has been recognized. Goodwill arising out of the 1988
LBO and merger had been allocated to the commercial aviation business
based on net assets at that time and projected earnings before interest,
taxes, depreciation and amortization. The net proceeds were used
primarily to retire DynCorp debt and satisfy existing equipment funding
obligations of the Ground Handling unit. As a result of these
divestitures, these businesses have been classified as discontinued
operations for financial reporting purposes. These two sales
resulted in the divestiture of the Company's entire Commercial
Aviation business.
The Company retained certain contingent liabilities of the
Commercial Aviation Business. These contingent liabilities include
the normal general warranties and representations and certain
specific issues regarding environmental, insurance and tax matters.
The Company has recorded $3,250,000 to cover these contingent
liabilities of which $750,000 relates to environmental issues (see
Note 20, paragraph d).
The components of discontinued operations on the consolidated
condensed balance sheets and statements of operations are as follows
(in thousands):
December 31, 1994
Accounts receivable and contracts in process $ 35,788
Inventories of purchased products and supplies 5,561
Other current assets 1,365
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
Years Ended December 31,
1995(a) 1994 1993
Revenues $130,709 $203,389 $175,928
Cost of services (b) 123,698 195,109 171,132
Interest expense and other (d) 7,236 14,237 13,685
Asset impairment (c) - 9,492 -
Pre-tax gain on discontinued operations (29,998) - -
Income tax provision (benefit) 29,793 (2,970) 40
Loss from discontinued operations $ (20) $(12,479) $ (8,929)
(a) The results of operations for 1995 are not comparable to
prior years due to the interim divestitures of the
maintenance and ground handling operations.
(b) During 1994, the Company revised its estimate of the useful
lives of certain machinery and equipment to conform to its
actual experience with fixed asset lives. It was determined
the useful lives of these assets ranged from three to ten
years as compared to the two to seven year lives previously
utilized. The effect of this change was to reduce
depreciation expense and net loss from discontinued
operations for the year ended December 31, 1994, by
approximately $2,115,000 or $0.31 per share.
(c) The Company continually evaluated its alternatives in
respect to the unsatisfactory performance by the Aircraft
Maintenance unit which posted an operating loss of
$5,351,000 in 1994, its fourth consecutive year of operating
losses. In 1991 and 1992, the unit experienced operating
losses of $1,137,000 and $428,000, respectively. In 1994,
after posting an operating loss of $6,629,000 in 1993, the
Company began exploring possible alternatives for the
disposition, curtailment or closing of the unit. For the
first six months of 1994, the unit was approximately at a
breakeven level. In the third quarter, the Company engaged
an investment advisor to market the maintenance unit and
entered into discussions with a potential business partner.
At December 31, 1994, the status of the unit was unresolved
pending the outcome of discussions with potential investors
and a major customer. These discussions could have resulted
in one of a number of alternatives, including the
consummation of a joint venture, the procurement of long-
term contracts, sale of the entire unit or the failure to
negotiate any transaction at all. Management projections
indicated that the maintenance unit should be profitable in
1995 with the exception of one site. The Company believed
that if it was unable to consummate a satisfactory
resolution through any of these alternatives, the most
likely course of action would be to consolidate its
operations by closing one of the maintenance facilities. In
management's opinion, no single alternative (i.e., entering
into a joint venture, the curtailment of operations or shut
down of one or more facilities, or the divestiture of the
unit as a whole) was more or less likely to occur; however,
the Company believed that it had suffered at least a partial
impairment of its investment in this unit. Accordingly, it
recorded an estimate of the applicable goodwill ($5,242,000)
and other assets ($4,250,000) that would be written down in
the event the consolidation or shut-down of one of the
facilities became necessary. The amount of goodwill
represents the unamortized balance as of December 31, 1994
of the goodwill allocated to the maintenance unit in Florida
at the time of the Company's 1988 LBO and merger. The
amount of write-down of other assets consists of estimated
losses to dispose of the inventory, property and equipment
and to otherwise reserve for shut-down/consolidation of
facilities. The Florida operation was the most likely
location to be closed since it had been incurring losses for
several years and a loss was projected for 1995. On June
30, 1995, the Company sold the entire Aircraft Maintenance
unit to Sabreliner Corporation (see the first paragraph of
this Note 2).
(d) The Company has charged interest expense to discontinued
operations of $7,950,000, $10,715,000 and $10,761,000 in
1995, 1994 and 1993, respectively. The interest expense
charged is the sum of the interest on the debt of the
discontinued operations assumed by the buyers plus an
allocation of other consolidated interest that was not directly
attributable to the continuing operations of the Comapny. The
amount allocated was based on the ratio of net assets of the
discontinued operations to the sum of total net assets of
the Company plus consolidated debt other than debt of the
discontinued operations that were assumed by the buyer and
debt that was not directly attributed to any other
operations of the Company. Subsequent to the discontinuance,
the allocated interest (and applicable debt) was substantially
eliminated by using the proceeds of the sale to pay off
DynCorp debt in amounts substantially equal to the amounts
used to allocate interest to the discontinued business
activities.
(3) 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, Accounts Payable and Accrued Income Taxes -
The carrying amount approximates the fair value due to the short
maturity of these instruments.
Long-term debt and other liabilities - The fair value of the
Company's long-term debt is based on the current rate as if the issue
date were December 31, 1995 and 1994 for its Collateralized Notes and
on the quoted market price for its Junior Subordinated Debentures.
For the remaining long-term debt (see Note 5) and other liabilities
the carrying amount approximates the fair value.
Cummings Point Industries, Inc. Note Receivable - The carrying
value approximated the fair value (see Note 11).
The estimated fair values of the Company's financial instruments at
December 31, are as follows (in thousands):
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and short-term investments $ 31,151 $ 31,151 $ 7,738 $ 7,738
Accounts receivable 179,706 179,706 172,731 172,731
Accounts payable 38,007 38,007 18,878 18,878
Accrued income taxes 9,177 9,177 30 30
Long-term debt and other
liabilities 104,112 105,584 232,830 228,951
Cummings Point Industries, Inc.
note receivable - - 8,943 8,943
(4) Accounts Receivable and Contracts in Process
The components of accounts receivable and contracts in process were
as follows at December 31 (in thousands):
1995 1994
U.S. Government:
Billed and billable $109,937 $111,950
Recoverable costs and accrued profit on
progress completed but not billed 26,130 28,546
Retainage due upon completion of contracts 1,901 4,046
137,968 144,542
Other Customers (primarily subcontracts from
U.S. Government prime contractors and other state,
local and quasi-government agencies):
Billed and billable (less allowance for
doubtful accounts of $9 in 1995 and 1994) 32,479 22,781
Recoverable costs and accrued profit on
progress completed but not billed 9,259 5,408
41,738 28,189
$179,706 $172,731
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. It is expected that all amounts at December
31, 1995 will be collected within one year except for approximately
$11,500,000.
(5) Long-term Debt
At December 31, 1995 and 1994, long-term debt consisted of (in thousands):
1995 1994
Contract Receivable Collateralized Notes, Series 1992-1 $100,000 $100,000
Junior Subordinated Debentures, net of
unamortized discount of $4,793 in 1994 - 102,658
Mortgages payable 3,802 22,285
Notes payable, due in installments through
2002, 9.88% weighted average interest rate 1,570 6,993
Capitalized equipment leases (see Note 18) - 1,512
105,372 233,448
Less current portion 1,260 3,004
$104,112 $230,444
Debt maturities as of December 31, 1995, were as follows (in thousands):
1996 $ 1,260
1997 100,564
1998 498
1999 297
2000 328
Thereafter 2,425
$105,372
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 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.
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, 1995, $113,597,000 of accounts receivable are
restricted as collateral for the Notes. Additionally, $3,000,000 of
cash is restricted as collateral for the Notes and $6,244,000 of cash
is restricted as collateral for letters of credit required for
certain contracts, most with terms of three to five years. The
Company negotiated an agreement which provides for a $7,500,000
revolving letter of credit facility. 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. This restricted cash has been included
in Other Assets on the balance sheet at December 31, 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.
On July 25, 1995, the Company entered into a revolving credit
facility with Citicorp North America, Inc. under which the Company
may borrow up to $20,000,000 secured by specified eligible
government contract receivables ($15,000,000) and other receivables
($5,000,000). The agreement requires the Company to maintain
compliance with certain covenants and will expire on the earlier of
July 23, 1996 or the refinancing of the existing Contract Receivable
Collateralized Notes. The Company utilized this credit facility
sporadically throughout the latter part of 1995, with maximum
borrowings of $5,500,000 in late August. There were no borrowings
under this line of credit at December 31, 1995. In the event that
the financing facility underlying the Contract Receivable
Collateralized Notes is expanded, the Company is required to pay down
the Citicorp North America, Inc. revolving credit facility.
During 1995, the Company repurchased or called all of the
outstanding 16% Junior Subordinated Debentures. The Company has
recorded an extraordinary loss of $2,886,000, net of an income tax
benefit of $1,900,000 consisting primarily of the write-off of
unamortized discount or deferred financing costs and also various
transaction costs. The Debentures were scheduled to mature on June
30, 2003, and bore interest at 16% per annum, payable semi-annually.
The Company could, at its option, prior to September 9, 1995, pay the
interest either in cash or issue additional Debentures. During 1994
and 1993, $15,329,000 and $13,142,000, respectively, of additional
Debentures were issued in lieu of cash interest payments (includes
$6,542,000 and $6,466,000 in 1994 and 1993 respectively, allocated to
discontinued operations).
The Company obtained title to its corporate office building on July
31, 1992 by assuming a mortgage of $19,456,000. The 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. On February
7, 1995, the Company sold the 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. A net gain of $3,430,000 was realized on the
transaction and is being amortized over the life of the lease. Since
the Company's intent was to discharge its obligation under the
mortgage with noncurrent assets, the amount was included in long-term
debt at December 31, 1994.
The Company acquired the Alexandria, VA headquarters of Technology
Applications, Inc. ("TAI") on November 12, 1993, in conjunction with
the acquisition of TAI. 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, 1995, unamortized deferred debt issuance costs were
$790,000 and amortization for 1995, 1994 and 1993 was $743,000,
$324,000 and $328,000, respectively.
(6) Accrued Expenses
At December 31, 1995 and 1994, accrued expenses consisted of the
following (in thousands):
1995 1994
Salaries and wages $42,063 $ 45,181
Insurance 14,921 9,564
Interest 4,541 4,716
Payroll and miscellaneous taxes 9,402 8,881
Accrued contingent liabilities and
operating reserves (see Note 20) 24,015 19,875
Other 5,210 7,265
$100,152 $ 95,482
(7) Redeemable Common Stock
In conjunction with the acquisition of Technology Applications,
Inc. in November 1993, 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
value at the time of exercise. At December 31, 1995 and 1994,
125,714 shares of common stock were outstanding at a per share fair
value (as described in the following paragraph) of $18.10 at December
31, 1995 and $18.20 at December 31, 1994.
In accordance with ERISA regulations and the Employee Stock
Ownership Plan (the Plan) documents, the ESOP Trust or the Company is
obligated to purchase vested common stock shares from ESOP
participants (see Note 12) at the fair value (as determined by an
independent appraiser) as long as the Company's common stock is not
publicly traded. The shares initially bought by the ESOP in 1988
were bought at a "control price," reflecting the higher price that
buyers typically pay when they buy an entire company (as the ESOP and
other investors did in 1988). A special provision in the ESOP's 1988
agreement permits participants to receive a "control price" when they
sell these shares back to the Company under the ESOP's "put option"
provisions. This "control price," determined by the appraiser as of
December 31, 1995, was $18.10 per share. The additional shares
received by the ESOP in 1993 and 1994 were at a "minority interest
price," reflecting the lower price that buyers typically pay when
they are buying only a small piece of a company (as the ESOP did in
these years). Participants do not have the right to sell these
shares at the "control price." The minority interest price
determined by the independent appraiser as of December 31, 1995 was
$14.50 per share. Participants receive their vested shares upon
retirement, becoming disabled, or death, over a period of one to five
years and for other reasons of termination over a period of one to
ten years, all as set forth in the Plan documents. 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, 1995, the Company has purchased 617,236 shares
from participants and has expended $5,949,000 of the $16,000,000
commitment. Based on the fair values of $18.10 and $14.50 per share
at December 31, 1995, 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; $3,900,000 in 1996, $2,800,000 in 1997,
$5,500,000 in 1998, $6,000,000 in 1999, $6,600,000 in 2000 and
$78,232,000 thereafter. The fair value is charged to treasury stock
at the time of repurchase. The estimated Premium of $8,500,000 has
been recorded as Other Expense in the Consolidated Statements of
Operations in 1989 through 1994 (see Note 13). At December 31, 1995
and 1994, $2,551,000 and $4,121,000, respectively, of the estimated
Premium is included in Accrued Expenses and $100,481,000 and
$86,338,000 (3,535,195 and 2,516,802 shares outstanding at December
31, 1995 at fair values of $18.10 and $14.50 per share, respectively,
and 3,691,003 and 1,312,459 shares outstanding at December 31, 1994
at fair values of $18.20 and $14.60, respectively) is included in
Redeemable Common Stock.
Redeemable common stock held by management investors includes those
shares issued to management investors pursuant to the merger in 1988,
shares issued through the Restricted Stock Plan (see Note 10) and
shares issued through the Management Employees Stock Purchase Plan
(the Stock Purchase Plan). The Stock Purchase Plan allowed employees
in management, supervisory or senior administrative positions to
purchase shares of the Company's common stock along with warrants at
current fair value. The Board of Directors was responsible for
establishing the fair value for purposes of the Stockholders
Agreement and the Stock Purchase Plan. The Stock Purchase Plan was
discontinued in 1994. Treasury stock, which the Company acquired
from terminated employees who had previously purchased shares from
the Company, was issued to employees purchasing stock under the Stock
Purchase Plan.
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, through the Stock Purchase Plan or through
the Restricted Stock Plan. If the Company's common stock becomes
publicly traded, the commitment by the Company to purchase these
shares is terminated. The share price at December 31, 1995 for the
Restricted Stock, Management Investor and Stock Purchase shares was
$14.50 per common share and $109.64 for each share for which warrants
have not been exercised (one share of common stock at $14.50 per
share plus 6.6767 warrants at $14.25 per warrant). 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. A new stockholders
agreement, adopted March 11, 1994, contains similar repurchase
obligations and expires March 10, 1999. On May 10, 1995, the Board
of Directors, with the consent of the Class C Preferred stockholder,
approved the establishment of an Internal Market as a replacement for
the resale procedures included in the Dyncorp Stockholders Agreement.
The Internal Market permits eligible stockholders to sell shares of
common stock on four predetermined days each year. While the Company
is initiating the Internal Market in an effort to provide liquidity
to stockholders, there can be no assurance that there will be
sufficient liquidity to permit stockholders to resell their shares on
the Internal Market. At December 31, 1995, 1,387,330, 256,196 and
21,287 shares were outstanding at fair values of $14.50, $18.10 and
$109.64 per share, respectively, and at December 31, 1994, 1,664,966,
255,539 and 32,471 shares were outstanding at fair values of $14.60,
$18.20 and $110.41 per share, respectively.
Following are the changes in Redeemable Common Stock for the three
years ended December 31, 1995 (in thousands):
Redeemable Common Stock
Management
Other ESOP Investors Total
Balance, December 31, 1992 $ - $ 67,900 $ 17,550 $ 85,450
Stock issued in conjunction with acquisition 2,200 2,200
Stock issued under Restricted Stock Plan (Note 10) 1,781 1,781
Treasury stock purchased (1,465) (520) (1,985)
Stock issued under Management Employee Stock
Repurchase Plan 47 47
Contribution of stock to ESOP (Note 12) 437 437
Adjustment of shares to fair value 1,873 193 2,066
Balance, December 31, 1993 2,200 68,745 19,051 89,996
Stock issued under Restricted Stock Plan (Note 10) 1,718 1,718
Treasury stock purchased (2,344) (301) (2,645)
Stock issued under Management Employee
Stock Purchase Plan 37 37
Warrants exercised (Note 10) 3,944 3,944
Contribution of stock to ESOP (Note 12) 17,100 17,100
Adjustment of shares to fair value 88 2,837 8,095 11,020
Balance, December 31, 1994 2,288 86,338 32,544 121,170
Stock issued under Restricted Stock Plan (Note 10) 4,311 4,311
Treasury stock purchased (2,904) (9,336) (12,240)
Warrants exercised (Note 10) 179 179
Contribution of stock to ESOP (Note 12) 18,000 18,000
Adjustment of shares to fair value (13) (953) (611) (1,577)
Balance, December 31, 1995 $2,275 $100,481 $ 27,087 $129,843
(8) Preferred Stock Class C
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 holder of
Class C Preferred Stock is 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, 1995, cumulative dividends of $8,863,000 have not been recorded
or paid. Dividends will be payable only in the event of a
liquidation of the Company or 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 holder would have been
entitled to receive if such Class C Preferred Stock had been
converted into common stock. The 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 holder of the outstanding Class C
Preferred Stock.
(9) Common Stock
Common stock includes those shares issued to outside investors and
shares issued through the Restricted Stock Plan, Management Employees
Stock Purchase Plan, the ESOP and Management Investor Shares which
have been purchased by the Company and are being held as treasury
stock.
(10) Common Stock Warrants and Restricted Stock
The Company initially issued warrants on September 9, 1988 to the
Class C Preferred stockholder and to certain common stockholders to
purchase a maximum of 5,891,987 shares of common stock of the
Company. The warrants issued to Class C Preferred stockholder and to
certain common stockholders were recorded at their fair value of
$2.43 per warrant and warrants issued to a lender were recorded at
$3.28 per warrant. Each warrant is exercisable to obtain one share
of common stock. The stockholder may exercise the warrant and pay in
cash the exercise price of $0.25 for one share of common stock or may
sell back to the Company a sufficient number of the exercised shares
to equal the value of the warrants to be exercised. During 1995,
74,670 warrants were exercised or canceled and 4,322,449 warrants
were outstanding at December 31, 1995. Rights under the warrants
lapse no later than September 9, 1998.
The Company had a Restricted Stock Plan (the Plan) under which
management and key employees could be awarded shares of common stock
based on the Company's performance. The Company initially reserved
1,023,037 shares of common stock for issuance under the Plan. Under
the Plan, Restricted Stock Units (Units) were granted to participants
who were selected by the Compensation Committee of the Board of
Directors. Each Unit entitled the participant upon achievement of
the performance goals (all as defined) to receive one share of the
Company's common stock. Units could not be converted into shares of
common stock until the participant's interest in the Units had
vested. Vesting occurred upon completion of the specified periods as
set forth in the Plan. In 1994 and 1993, the Company accrued as
compensation expense $1,222,000 and $2,235,000, respectively, under
the Plan which was charged to cost of services and selling and
corporate administrative expenses.
(11) Cummings Point Industries, Inc. Note Receivable
The Company loaned $5,500,000 (the "Note") to Cummings Point
Industries, Inc. ("CPI"), 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 previously been reflected as a reduction in stockholders'
accounts, was paid in full in August, 1995.
(12) 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 was
fully repaid.
In accordance with subsequent amendments to the Employee Stock
Ownership Plan, the Company contributed an additional 25,000 shares
of common stock in December 1993 and in 1994 contributed cash of
$17,435,000 which the ESOP used to acquire 1,312,459 shares and to
pay interest and administrative expenses. In March, 1995, the
Company sold 1,208,059 additional shares of common stock to the ESOP
for a cash purchase price of approximately $18,000,000; the cash paid
was generated by a contribution from the Company of $4,250,000 and a
loan by the Company to the ESOP in the amount of $13,750,000 payable
in quarterly installments through 1996. Payments through December
31, 1995, were $17,497,000. To enable it to satisfy its loan
commitments, the Company is obligated to contribute cash to the ESOP.
The Plan covers a majority of the employees of the Company.
Participants in the Plan become fully vested after four years of
service. Of the 6,669,229 shares acquired by the ESOP, 6,635,466
have been either issued or allocated to participants as of December
31, 1995. The remaining shares, representing the unpaid balance on
the note receivable from the ESOP, have been reflected as a reduction
in stockholders' equity. The Company recognizes ESOP expense each
year based on the fair value of the shares committed to be released.
The Company's cash contributions were determined based on the ESOP's
debt service and other expenses. Stock contributions are determined
in accordance with the amended agreement. In 1995 and 1994, cash
contributions to the ESOP were $17,497,000 and $17,435,000,
respectively; 1993 cash and stock contributions were $16,608,000 and
$437,000 respectively. These amounts were charged to cost of
services and selling and corporate administrative expenses (including
interest on the ESOP term loan of $491,000 in 1993).
(13) Other Expenses
Years Ended December 31,
(In thousands)
1995 1994 1993
Amortization of costs in excess
of net assets acquired (f)(see Note 1) $ 2,143 $ 2,347 $ 3,408
ESOP Repurchase Premium (see Note 7) - 1,323 1,507
Write-off of investment in
unconsolidated subsidiary (a) - 3,250 -
Legal and other expense accruals
associated with an acquired business (b) - (1,830) 2,070
Costs associated with businesses discontinued in 1988
and prior years
* Asbestos liability issues (c) 5,300 -
* Subcontractor suit (d) 2,400 2,665 500
* Enviornmental costs (see Note 20(d)) - (347) 366
* Other (e) - - (573)
Miscellaneous 215 246 (169)
Total Other $10,058 $ 7,654 $ 7,109
(a) The Company initally invested in this subsidiary in 1992.
In June 1994, the Company paid an additional $1,250,000 to
increase its holdings in the subsidiary from 40%
to 50.1% and the subsidiary concurrently borrowed $6.0 million
from another investor. The total acquisition cost exceeded
the underlying equity in net assets by $2,582,000. The
subsidiary's stockholders' agreement defined certain trigger
events which, upon their occurrence, transferred control of
the subsidiary from DynCorp to the other shareholders. These
trigger events occurred in the fourth quarter of 1994 and the
subsidiary's lenders called the loans in 1995. These actions,
coupled with financial and cash flow projections provided by
the subsidiary's management, have caused the Company to
determine that its investment has been permanently impaired.
As such, $3,250,000 representing the investment and excess
purchase price was charged to Other Expenses in 1994. The
investment was disposed of in 1995.
(b) In 1993, $470,000 of expenses were incurred and an accrual was
established for estimated future legal costs and possible
fines and penalties associated with a federal investigation of
an allegation that false statements were made in connection
with a pricing proposal submitted by an acquired business
prior to its acquisition in 1991. The investigation was
concluded in 1994 with the government finding no basis for
prosecution. As a consequence, the Company not only recovered
a portion of its prior expenses, but also avoided any fines
and penalties; consequently, the unused portion of the accrual
was reversed in 1994.
(c) Reserves for potential uninsured costs to defend and settle
future asbestos claims against a former subsidiary (see
Note 20(a)).
(d) Reserves for the estimated costs (primarily legal defense) to
resolve a lawsuit filed by a subcontractor of a former subsidiary
(see Note 20(b)).
(e) The credit in 1993 is a combination of reductions of reserves
established in 1987 and 1988 for assumed liabilities and
losses on disposition of assets that the Company retained from
the discontinued and/or divested businesses in 1987 and 1989.
(f) The Company acquired certain assets of Science Management
Corporation ("SMC") for $1,851,000 on February 18, 1993 and
allocated $1,162,000 of the purchase price to goodwill and
$633,000 to contracts. In the fourth quarter of 1993, the
Company became aware of apparent misrepresentations by the
sellers. The Company reconsidered the estimated future
undiscounted net income of SMC based on the revised facts and
determined that an impairment write-down was necessary. Based
upon this reassessment, $988,000 of the original goodwill was
written off and included in amortization of costs in excess of
net assets acquired. The remaining amount of goodwill is being
amortized over thirty years.
(14) Income Taxes
Earnings (loss) from continuing operations before income taxes and
minority interest (but including extraordinary item - see Note 5)
were derived from the following (in thousands):
1995 1994 1993
Domestic operations $ (3,111) $ (642) $ (2,317)
Foreign operations (4,236) (816) 73
$ (7,347) $ (1,458) $ (2,244)
The provision (benefit) for income taxes consisted of the following
(in thousands):
1995 1994 1993
Current:
Federal $(10,322) $ (91) $ 683
Foreign (2,234) 54 170
State (1,493) 59 (85)
(14,049) 22 768
Deferred:
Federal 2,042 (2,199) 500
Foreign 1,000 - -
State 1,917 (59) 21
4,959 (2,258) 521
Total $ (9,090) $(2,236) $ 1,289
The components of and changes in deferred taxes are as follows (in thousands):
Deferred Deferred Deferred
Dec. 31, Expense Dec. 31, Expense Dec. 31, Expense
1995 (Benefit) 1994 (Benefit) 1993 (Benefit)
Deferred tax liabilities:
Difference between book and tax
method of accounting for
depreciation and amortization $ (347) $ 806 $ 459 $ (632) $ (173) $ 204
Difference between book and tax
method of accounting for certain
employee benefits (1,160) 1,535 375 223 598 (1,194)
Difference between book and tax method
of accounting for income on U.S.
Government contracts (9,786) 885 (8,901) 38 (8,863) 1,216
Amortization of intangibles (798) (275) (1,073) 925 (148) (204)
Other, net (27) (26) (53) 37 (16) 178
Total deferred tax liabilities (12,118) 2,925 (9,193) 591 (8,602) 200
Deferred tax assets:
Deferred compensation expense 2,431 1,621 4,052 1,346 5,398 (380)
Operating reserves and other accruals 18,985 1,290 20,275 (5,358) 14,917 (2,604)
Increase due to federal rate change 335 - 335 - 335 (335)
Deferred taxes of discontinued operations,
retained by the Company - 4,018 4,018 (1,517) 2,501 901
Benefit of state tax on temporary
differences and state net operating
loss carryforwards 4,591 983 5,574 (716) 4,858 (1,135)
Benefit of foreign, targeted jobs, R&E
and AMT tax credit carryforwards - 2,812 2,812 (282) 2,530 (1,073)
Total deferred tax assets 26,342 10,724 37,066 (6,527) 30,539 (4,626)
Federal valuation allowance (6,555) (7,707) (14,262) 2,962 (11,300) 3,812
State valuation allowance (4,591) (983) (5,574) 716 (4,858) 1,135
Total temporary differences affecting
tax provision 3,078 4,959 8,037 (2,258) 5,779 521
Deferred taxes from "safe harbor"
lease transactions (5,995) (554) (6,549) (499) (7,048) (441)
Net deferred tax asset (liability) $ (2,917) $ 4,405 $ 1,488 $ (2,757) $ (1,269) $ 80
The tax provision (benefit) differs from the amounts obtained by applying the
statutory U.S. Federal income tax rate to the pre-tax loss from continuing
operations amounts. The differences can be reconciled as follows (in thousands):
1995 1994 1993
Expected Federal income tax benefit $ (896) $ (510) $ (763)
Valuation allowance (7,707) 2,962 3,812
State and local income taxes, net of
Federal income tax benefit 275 - (42)
Tax benefit of discontinued operations - (191) (2,721)
Reversal of tax reserves for IRS examination - (4,069) -
Nondeductible amortization of intangibles
and other costs (263) 635 1,069
Foreign income tax - 54 96
Foreign, targeted job, R&E, AMT and
fuel tax credits (257) (537) (189)
Other, net (242) (580) 27
Tax provision (benefit) $(9,090) $(2,236) $ 1,289
The Company's U.S. Federal income tax returns have been
audited through 1993. The Internal Revenue Service has completed
two examinations of the Company's tax returns; for the period
1985-1988 and for the period 1989-1993. The IRS proposed several
adjustments to both periods, the most significant of which
related to deductions taken by the Company for expenses incurred
in the 1988 merger. The Company and the IRS settled these
proposed adjustments for the 1985-1988 audit in 1994; however,
the Joint Congressional Committee on Taxation did not issue its
approval of the proposed settlement until December 7, 1995. The
Company and the IRS agreed upon the proposed adjustments of the
1989-1993 audit in 1995, and such proposal is currently under
review by the Joint Congressional Committee on Taxation. Tax
of $1.4 million was paid in 1995 for the 1985-1988 audit.
Remaining taxes and accrued interest associated with these two
audits, which have not yet been assessed, are approximately $2.3
million.
The benefit for income taxes in 1995 reflects a tax
provision based on an estimated annual effective tax rate,
excluding expenses not deductible for tax and the reversal of
$7.7 million of tax valuation reserves for deferred taxes which
will be realized in the 1995 tax return. The 1994 federal tax benefit
resulted from the reversal of tax reserves for the IRS examination and
the tax benefit for operating losses, net of a valuation allowance,
less the federal tax provision of a majority owned subsidiary
required to file a separate return. The Federal tax
provision recognized in 1993 was only that of the majority owned
subsidiary referred to previously.
The Company has state net operating loss carryforwards
available to offset future taxable income. Following are the net
operating losses by year of expiration (in thousands):
Year of State Net
Expiration Operating Losses
2000 $ 1,286
2002 278
2005 112
2010 39,443
$41,119
(15) 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 1995, 1994 and 1993, the Company
expensed $2,514,000, $2,367,000 and $2,321,000, 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.
(16) Earnings (Loss) Per Common Share
Primary earnings or loss per share is based on the weighted
average number of common and dilutive common equivalent shares
outstanding during the period. In addition, shares earned and
vested but unissued under the Restricted Stock Plan are included as
outstanding common stock. For years 1994 and 1993, warrants
outstanding have been excluded from the calculation of loss per
share as their effect is antidilutive because of the losses incurred
during the periods (see also Note 10). For years 1995, 1994 and
1993, 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. The earnings or
loss per common share for 1995, 1994 and 1993 includes the effect of
the unpaid dividends on the Class C Preferred Stock ($1,915,000 in
1995, $1,606,000 in 1994 and $1,347,000 in 1993). The average
number of shares used in determining primary earnings or loss per
share was 12,556,347 in 1995, 6,802,012 in 1994 and 5,141,319 for
1993.
(17) 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 $6,692,000
for 1995, $7,067,000 for 1994 and $6,180,000 for 1993.
(18) Leases
Future minimum lease payments required under operating leases that
have remaining noncancellable lease terms in excess of one year at
December 31, 1995 are summarized below (in thousands):
Years Ending December 31,
1996 $ 9,762
1997 8,229
1998 7,147
1999 6,040
2000 1,778
Thereafter 8,471
Total minimum lease payments $41,427
Net rent expense for leases was $24,734,000 for 1995, $14,286,000
for 1994 and $10,425,000 for 1993.
(19) Acquisitions
On October 31, 1994, the Company acquired all of the issued and
outstanding shares of stock of CBIS Federal Inc. for a cash payment
of $8,159,000 subject to adjustment based on the closing balance
sheet. In June, 1995, the Company made a final payment to the
seller and in the fourth quarter, the allocation of the purchase
price was finalized. The acquisition was accounted for as a
purchase and $8,141,000 of goodwill and $2,500,000 of value assigned
to contracts was recorded which will be amortized over 40 years and
10 years, respectively.
(20) Contingencies and Litigation
The Company and its subsidiaries and affiliates are involved
in various claims and lawsuits, including contract disputes and
claims based on allegations of negligence and other tortious
conduct. The Company is also potentially liable for certain
personal injury, tax, environmental and contract dispute issues
related to the prior operations of divested businesses. In most
cases, the Company and its subsidiaries have denied, or believe
they have a basis to deny, liability, and in some cases have
offsetting claims against the plaintiffs, third parties or
insurance carriers. The amount of possible damages currently
claimed by the various plaintiffs for these items, a portion of
which is expected to be covered by insurance, aggregate
approximately $120,000,000 (including compensatory and possible
punitive damages and penalties). This amount includes estimates
for claims which have been filed without specified dollar amounts
or for amounts which are in excess of recoveries customarily
associated with the stated causes of action; it does not include
any estimate for claims which may have been incurred but which
have not yet been filed. The Company has recorded such damages
and penalties that are considered to be probable recoveries
against the Company or its subsidiaries. These issues are
described below.
(a) A former acquired subsidiary, Fuller-Austin Insulation
Company (the 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 beginning in 1986 (principally Texas) against
manufacturers, distributors and installers of asbestos
products. The subsidiary was a nonmanufacturer that
installed or distributed industrial insulation products.
The subsidiary had discontinued the use of asbestos products
prior to being acquired by the Company in 1974. These
claims are not part of a class action.
The claimants generally allege injuries to their health
caused by inhalation of asbestos fibers. Many of the
claimants seek punitive damages as well as compensatory
damages. The amount of damages sought is impacted by a
multitude of factors. These include the type and
severity of the disease sustained by the claimant (i.e.
mesothelioma, lung cancer, other types of cancer,
asbestosis or pleural changes); the occupation of the
claimant; the duration of the claimant's exposure to
asbestos-containing products; the number and financial
resources of the defendants; the jurisdiction in which
the claim is filed; the presence or absence of other
possible causes of the claimant's illness; the
availability of legal defenses such as the statute of
limitations; and whether the claim was made on an
individual basis or as part of a group claim.
Claim Exposure:
As of March 1, 1996, 8,630 plaintiffs have filed claims
against the subsidiary and various other defendants.
Of these claims 1,187 have been dismissed, 1,898 have
been resolved without an admission of liability at an
average cost of $5,000 per claim (excluding legal
defense costs) and an additional 2,606 claims have been
settled in principle (subject to future processing and
funding) at an average cost of $1,950 per claim.
Following is a summary of claims filed against the
subsidiary through March 1, 1996:
Years
Prior 1993 1994 1995 1996(1) Total
Claims filed 2,160 668 1,026 4,647 129 8,630
Claims dismissed (14) (65) (21) (1,035) (52) (1,187)
Claims resolved (76) (1,142) (333) (182) (165) (1,898)
Settlements in process (2,606)
Claims outstanding at March 1, 1996 2,939
(1) January 1 - March 1, 1996
In connection with these claims the subsidiary's primary
insurance carriers have incurred approximately $16,300,000
(including $6,800,000 of legal defense costs but excluding
$5,100,000 for settlements in process) to defend and settle
the claims and, in addition, judgments have been entered
against the subsidiary for jury verdicts of $6,500,000 which
have not been paid and which are under appeal by the
subsidiary. Through December 31, 1995, the Company and the
subsidiary have charged to expense approximately $12,500,000
consisting of $6,200,000 of charges under retrospectively
rated insurance policies and $6,300,000 of reserves for
potential uninsured legal and settlement costs related to
these claims. These charges substantially eliminate any
further exposure for retrospectively determined premium
payments under the retrospectively rated insurance policies.
During 1995, the subsidiary continued its strategy to
require direct proof that claimants had significant exposure
to asbestos as the result of the subsidiary's operations.
This has resulted in an increased level of trial activity.
The subsidiary believes that this strategy will have the
near term effect of increasing average per-case resolution
cost but will reduce the overall cost of asbestos personal
injury claims in the long run by limiting indemnity payments
only to claimants who can establish significant asbestos-
related impairment and exposure to the subsidiary's
operations and by substantially reducing indemnity payments
to individuals who are unimpaired or who did not have
significant exposure to asbestos as a result of the
subsidiary's operations. Further, the level of filed claims
has become significant only since 1992, and therefore, the
subsidiary has a relatively brief history (compared to
manufacturers and suppliers) of claims volume and a limited
data file upon which to estimate the number or costs of
claims that may be received in the future. Also, effective
September 1, 1995, the State of Texas enacted tort reform
legislation which is believed to have caused a nonrecurring
surge in the volume of filed claims in 1995 immediately
prior to the effective date of the legislation.
The Company and its defense counsel have analyzed the 8,630
claim filings incurred through March 1, 1996. Based on this
analysis and consultation with its professional advisors,
the subsidiary has estimated its cost, including legal
defense costs, to be $20,000,000 for claims filed and still
unsettled and $40,000,000 as its minimum estimate of future
costs of unasserted claims, including legal defense costs.
No upper limit of exposure can presently be reasonably
estimated. The Company cautions that these estimates are
subject to significant uncertainties including the future
effect of the State of Texas enacted tort reform
legislation, the size of jury verdicts, success of appeals
in process, the number and financial resources of future
plaintiffs, and the actions of other defendants. Therefore,
actual experience may vary significantly from such estimates. At
December 31, 1995 and 1994 (restated), the subsidiary
recorded an estimated liability for future indemnity
payments and defense costs related to currently unsettled
claims and minimum estimated future claims of $60,000,000
and $17,000,000, respectively (recorded as long-term
liability).
Insurance coverage:
Defense has been tendered to and accepted by the
subsidiary's primary insurance carriers, and by certain of
the Company's primary insurance carriers that issued
policies under which the subsidiary is named as an
additional insured; however, only one such primary carrier
has partially accepted defense without a reservation of
rights. The Company believes that the subsidiary has at
least $12,000,000 in unexhausted primary coverage (net of
deductibles and self-insured retentions but including
disputed coverage) under its liability insurance policies to
cover the unsettled claims, verdicts and future unasserted
claims and defense costs. When the primary limits are
exhausted, liability for both indemnity and legal defense
will be tendered to the excess coverage carriers, all of
which have been notified of the pendency of the asbestos
claims. The Company and the subsidiary have approximately
$490,000,000 of additional excess and umbrella insurance
that is generally responsive to asbestos claims. This
amount excludes approximately $92,000,000 of coverage issued
by insolvent carriers of which $35,000,000 is the next
insurance layer above the Company's primary coverage carrier
for policy years 1979 through 1984. All of the Company's
and the subsidiary's liability insurance policies cover
indemnity payments and defense fees and expenses subject to
applicable policy terms and conditions.
Coverage litigation:
The Company and the subsidiary have instituted litigation in
Los Angeles Superior Court, California, against their
primary and excess insurance carriers, to obtain declaratory
judgments from the Court regarding the obligations of the
various carriers to defend and pay asbestos claims. The
issues in this litigation include the aggregate liability of
the carriers, the triggering and drop-down of excess
coverage and allocation of losses covering multiple carriers
and insolvent carriers, and various other issues relating to
the interpretation of the policy contracts. The Company and
the subsidiary have analyzed their insurance policies and
the history of coverage and insurance reimbursement for
these types of claims, and have consulted with knowledgeable
third party experts with significant experience in insurance
coverage matters. Based on these analyses, discussions, and
consultations with legal counsel, management believes that
it is probable that the Company and the subsidiary will
prevail in obtaining judicial rulings confirming the
availability of a substantial portion of the coverage,
assuming no additional carrier insolvencies. The subsidiary
recorded in Other Assets $60,000,000 and $17,000,000 (not
including reserves of $7,000,000 and $2,000,000,
respectively) at December 31, 1995 and 1994 (restated),
respectively, representing the amounts that it expects to
recover from its insurance carriers for the payment of
currently unsettled and estimated future claims. The
Company cautions, however, that pending the outcome of the
coverage litigation, such insurance coverage is unconfirmed
and the actual amounts available to or recoverable by the
Company and the subsidiary could, depending upon the outcome
of the litigation and/or negotiation, be lower.
While the Company and the subsidiary believe that they have
recorded sufficient liability to satisfy the subsidiary's
reasonably anticipated costs of present and future
plaintiffs' suits, it is not possible to predict the amount
or timing of future suits or the future solvency of its
insurers. In the event that currently unsettled and future
claims exceed the recorded liability of $60,000,000, the
Company believes that the judicially determined and/or
negotiated amounts of excess and umbrella insurance coverage
that will be available to cover additional claims will be
significant; however, it is unable to predict whether or not
such amounts will be adequate to cover all additional claims
without further contribution by its subsidiary.
(b) 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 in Bergen
County Superior Court, New Jersey, by a former Dynalectric
joint venture partner/subcontractor (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 fraudulently
diverted funds due, misappropriated its trade secrets and
proprietary information, fraudulently induced it to enter
the joint venture, and conspired with other defendants to
commit acts in violation of the New Jersey Racketeering
Influenced and Corrupt Organization Act. The aggregate
dollar amount of these claims has 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
offset by recoveries under the counterclaims. Discovery is
ongoing; no trial date has been scheduled. The Company
believes that it has established adequate reserves
($4,023,000 at December 31, 1995) for the contemplated
defense costs and for the cost of obtaining enforcement of
arbitration provisions contained in the contract.
(c) In November, 1994, the Company acquired an information
technology business which was involved in various disputes
with federal and state agencies, including two contract
default actions and a qui tam suit by a former employee
alleging improper billing of a federal government agency
customer. The Company has contractual rights to
indemnification from the former owner of the acquired
subsidiary with respect to the defense of all such claims
and litigation, as well as all liability for damages when
and if proven. In October, 1995, one of the federal
agencies asserted a claim against the subsidiary and gave
the Company notice that it intended to offset against the
contract under which the claim arose. To date, the agency
has withheld approximately $3,300,000 allegedly due the
agency under one of the aforementioned disputes. The
Company has submitted a demand for indemnification to the
former owner of the subsidiary which has been denied. The
Company has commenced arbitration of the indemnification
denial under the terms of the acquisition agreement which
the former owner is fighting in federal district court. The
Company expects to recover in full.
(d) As to environmental issues, neither the Company nor any of
its subsidiaries is named a potentially responsible party at
any site. The Company, however, did undertake, as part of
the 1988 divestiture of a petrochemical engineering
subsidiary, an obligation to install and operate a soil and
water remediation system at a subsidiary research facility
site in New Jersey. The Company is required to pay the
costs of continued operation of the remediation system
through 1996 (see Note 13). In addition, the Company,
pursuant to the sale of the Commercial Aviation Business, is
responsible for the costs of clean-up of environmental
conditions at certain designated sites. Such costs may
include the removal and subsequent replacement of
contaminated soil, concrete, tanks, etc. that existed prior
to he sale of the Commercial Aviation Business (see Note 2).
(e) The Company is a party to other civil and contractual
lawsuits which have arisen in the normal course of business
for which potential liability, including costs of defense,
which constitute the remainder of the $120,000,000 discussed
above. The estimated probable liability for these issues is
approximately $10,000,000 and is substantially covered by
insurance. The Company has recorded an offsetting asset
(Other Assets) and liability (long-term liability) of
$10,000,000 million at December 31, 1995 for these items.
The Company has recorded its best estimate of the aggregate
liability that will result from these matters. While it is not
possible to predict with certainty the outcome of litigation and
other matters discussed above, it is the opinion of the Company's
management, based in part upon opinions of counsel, insurance in
force and the facts currently known, that liabilities in excess
of those recorded, if any, arising from such matters would not
have a material adverse effect on the results of operations,
consolidated financial position or liquidity of the Company over
the long-term. However, it is possible that the timing of the
resolution of individual issues could result in a significant
impact on the operating results and/or liquidity for an
individual future reporting period.
The major portion of the Company's business involves
contracting with departments and agencies of, and prime
contractors to, the U.S. Government, and such contracts are
subject to possible termination for the convenience of the
government and to audit and possible adjustment to give effect to
unallowable costs under cost-type contracts or to other
regulatory requirements affecting both cost-type and fixed-price
contracts. 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
December 31, 1995 that will have a material adverse effect on the
Company's consolidated financial position, results of operations
or liquidity.
(21) Business Segment
The Company operates in one line of business: that of providing
management, technical and professional services to primarily
government organizations in support of the customers' operations
and/or facilities on a turn-key (full) service basis.
The Company does not have 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 $769 million in 1995, $723
million in 1994 and $663 million in 1993. Included in revenues from
the U.S. Government are revenues from the Department of Defense of
$504 million in 1995, $487 million in 1994 and $539 million in 1993.
No other customer accounted for more than 10% of revenues in any
year.
(22) Quarterly Financial Data (Unaudited)
A summary of quarterly financial data for 1995 and 1994 is as follows
(in thousands, except per share data):
1995 Quarters 1994 Quarters
First Second Third (a) Fourth(b) First Second Third Fourth(c)
Revenues $211,636 $209,940 $244,592 $242,557 $192,589 $198,573 $205,764 $221,757
Gross profit 7,815 9,816 9,785 9,838 7,352 9,481 9,665 9,090
Earnings (loss) from continuing
operations before income taxes,
minority interest and
extraordinary item (801) 1,522 1,120 (4,402) (1,370) 626 322 (1,036)
Minority interest 302 355 286 312 249 311 226 344
Discontinued operations (347) 80 252 (5) 16 (710) (2,772) (9,013)
Net earnings (loss) (1,549) 674 1,227 2,016 (1,589) (930) (4,245) (6,067)
Earnings (loss) per common share:
Primary and fully diluted:
Continuing operations $ (0.12) $ 0.01 $ 0.24 $ 0.13 $ (0.36) $ (0.10) $ (0.24) $ 0.32
Discontinued operations (0.03) 0.01 0.02 - - (0.11) (0.35) (1.14)
Extraordinary item (0.01) - (0.20) (0.01) - - - -
Net earnings (loss) for
common stockholders $ (0.16) $ 0.02 $ 0.06 $ 0.12 $ (0.36) $ (0.21) $ (0.59) $ (0.82)
<FN>
Quarterly financial data may not equal annual totals due to rounding.
Quarterly earnings per share data will not equal annual total.
(a) 1995 Third Quarter includes:
- $3,300,000 reversal of income tax reserves (see Note 14)
- $2,656,000 loss, net of tax, on extinguishment of debt (Note 5)
(b)1995 Fourth Quarter includes:
- $4,362,000 accrual for losses and reserves related to the Company's
Mexican operations (see Management's Discussion and Analysis of
Financial Condition and Results of Operations - Gross Margins)
- $2,400,000 accrual for legal fees related to the defense of a lawsuit
filed by a subcontractor of a former electrical contracting subsidiary
(see Notes 13 and 20)
- $5,300,000 accrual for uninsured costs related to a former
subsidiary's use of asbestos products (see Notes 13 and 20)
- $4,407,000 reversal of income tax reserves (see Note 14)
(c)1994 Fourth Quarter includes:
- $3,250,000 write-off of investment in unconsolidated subsidiary (see
Note 13)
- $2,665,000 accrual for legal fees related to the defense of a lawsuit
filed by a subcontractor of a former electrical contracting subsidiary
(see Notes 13 and 20)
- $1,830,000 credit for reversal of legal costs accrued in the fourth
quarter of 1993 (see Note 13)
- $4,069,000 reversal of income tax reserves (see Note 14)
(23) Subsequent Events
In March 1996, the Company amended and restated its existing $20.0 million
line of credit with Citicorp North America, Inc. to provide for a $50.0
million revolving credit facility which will provide working capital and
capital expenditures financing. The facility matures in four years, with no
payments required until the end of the second year. The credit agreement
contains the customary restrictive covenants for such a loan, but, if the
Company meets its projections, Management does not believe that any of the
covenants would be unduly restrictive.
ITEM 9 CHANGES 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., 52 Nominee. 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, 65* Director since 1985, term expires 1998. Chief
Executive Officer since 1985; President since 1984.
Director of Industrial Training Corporation.
T.Eugene Blanchard, 65* Director since 1988, term expires 1997. Senior
Vice President and Chief Financial Officer since 1979.
Russell E. Dougherty, 75 Nominee. 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. Former
member of the Defense Science Board; Trustee of the
Institute for Defense Analysis; Trustee of The Aerospace
Corp.
Paul V. Lombardi, 54* Director since July, 1994, term expires 1997. Chief
Operating Officer since November, 1995; Executive
Vice President since 1994; Vice President 1992 to
1994; President of Federal Sector 1994 to 1995,
President of Government Services Group 1992 to 1994.
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.
Dudley C. Mecum II, 61 Director since 1988, term expires 1997. 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 Group, Lyondell
Petrochemical Company, Vicorp Restaurants Inc.,
Fingerhut Companies, Inc., Roper Industries Inc., and
Harrow Industries Inc.
David L.Reichardt, 53* Director since 1988, term expires
1998. 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. Director, Advanced
Communication and Information Services, L.L.C.
OTHER EXECUTIVE OFFICERS
Robert B. Alleger, Jr., 50* Vice President since February, 1996. President
of Aerospace Technology Strategic Business Unit
("SBU") since February, 1996. Vice President,
Systems Support Services, Lockheed Martin Services,
Inc. from 1992 to February, 1996. Vice President,
Business Development, GE Government Services, General
Electric Company from 1989 to 1992.
Gerald A. Dunn, 62* Vice President since 1973; Controller since 1967.
Mark C. Filteau, 45* Vice President since 1994. President of
Information and Engineering Technology SBU since 1994.
President of Planning Research Corporation, Public
Sector from 1992 to 1994. Vice President and Senior Vice
President of BDM International from 1986 to 1992.
Charles L. Hendershot,37 Vice President, Contract
Administration & Operational Reporting since February
1996. Vice President & Controller, Government Services
Group from 1990 to 1995; Vice President & Controller,
Federal Sector from 1995 to 1996.
H. Montgomery Hougen, 60 Vice President since 1994; Corporate Secretary
and Deputy General Counsel since 1984.
Richard A. Hutchinson, 51 Treasurer since 1978.
Marshal J. Hyman, 50 Vice President since 1993; Director of
Taxes since 1986.
James A. Mackin, 48 Vice President, Labor Relations & Employee
Benefits since February, 1996. Vice President, Human
Resources, Federal Sector from 1995 to 1996; Vice
President, Human Resources, Government Services Group
from 1986 to 1995.
Marshall S. Mandell, 53 Vice President, Business Development since 1994; Vice
President, Business Development, Applied Science
Group from 1992 to 1994. Senior Vice President,
Eastern Computers, Inc. from 1991 to 1992; President,
Systems Engineering Group, Ogden/Evaluation Research
Corporation from1984 to 1991.
Carl H. McNair, Jr., 62* Vice President since 1994;
President, Enterprise Management SBU since 1994;
President, Support Services Division from 1990 to 1994.
Ruth Morrel, 41 Vice President, Law & Compliance since 1994;
Group General Counsel from 1984 to 1994.
Henry H. Philcox, 54 Vice President and Chief Information Officer since
August, 1995. Chief Information Officer, Internal
Revenue Service from 1990 to June, 1995.
Richard E. Stephenson, 60 Vice President, Technology &
Government Relations since 1994; Vice President
Strategic Planning, Government Services Group from 1991
to 1994.
Robert G. Wilson, 54 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
Under the terms of the New Stockholders Agreement which expires on March
10, 1999, which has been adopted by substantially all management stockholders,
including the officers named above, the management stockholders and outside
investors who control approximately 53% of the voting stock on a fully diluted
basis have agreed to the following procedure for election of directors.
Capricorn Investors, discussed below, on behalf of itself and certain outside
investors nominates four directors; Company management nominates four directors;
and the two groups shall agree on a ninth director, for whom all of the parties
have agreed to vote. All of the current directors and nominees have been
selected by this process.
ITEM 11. EXECUTIVE COMPENSATION
Compensation
The following table sets forth information regarding annual and long-term
compensation for the chief executive officer, the other four most highly
compensated executive officers of the Company, and an additional former
executive officer. 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
Annual Restricted Securities All Other
Compen- Stock Underlying LTIP Compen-
Name and Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($)(1) ($)(2) ($) ($)(3) SARs ($) ($)(4)
Dan R. Bannister 1995 325,853 165,000 13,535
President & Chief 1994 325,000 165,000 27,159
Executive Officer 1993 339,896 155,000 17,465
Paul V. Lombardi 1995 257,071 105,900 3,228
Executive Vice President & 1994 240,405 100,000 19,394
Chief Operating Officer 1993 219,663 100,000 107,940(5) 11,960
Operating Officer
James H. Duggan 1995 265,593 75,000 57,088(6)
Executive Vice President(6) 1994 243,147 90,000 19,875
1993 248,736 90,000 12,813
T. Eugene Blanchard 1995 207,866 88.300 6,167
Senior Vice President & 1994 196,915 95,000 19,876
Chief Financial Officer 1993 200,591 90,000 17,018
David L. Reichardt 1995 206,008 88,300 2,872
Senior Vice President & 1994 190,547 95,000 17,906
General Counsel 1993 193,371 90,000 11,793
Mark C. Filteau 1995 185,01 83,500 1,758
Vice President & Business 1994 7,116 40,000 145,600(7) 199
Unit President 1993 n/a n/a n/a
<FN>
(1) 1993 salary included special year-end adjustment.
(2) Column (d) reflects bonuses earned and expensed during year, whether paid
during or after such year.
(3) Value of restricted stock units determined in accordance with Restricted
Stock Plan. There is no provision to pay dividends on restricted stock
units. The following table reflects the number of restricted stock units
in the respective accounts of the named individuals, whether vested and
deferred or unvested, and the aggregate valuation as of February 22, 1996.
Name No. of Units Value ($)
Dan R. Bannister 65,711 $952,810
Paul V. Lombardi 14,238 $206,451
James H. Duggan 42,664 $618,628
T.Eugene Blanchard 59,172 $857,994
David L.Reichardt 21,402 $310,329
Mark C. Filteau 9,973 $144,609
(4) Column (i) includes individual's pro rata share of the Company's
contribution to the Employee Stock Ownership Plan Trust, a contributory
pension plan in which substantially all of the Company's employees
participate, the amount of which has not been calculated for 1995, as of
the date of this report, and the Company-paid portion of group term-life
insurance and split-premium life insurance premiums covering the
individual, as reflected in the following table.
ESOP Contributions($) Insurance Premiums ($)
Name 1995 1994 1993 1995 1994 1993
Dan R. Bannister see above 6,832 8,912 13,535 20,327 8,553
Paul V. Lombardi " 6,832 8,912 3,228 12,562 3,048
James H. Duggan " 6,832 8,912 7,088 13,043 3,901
T. Eugene Blanchard " 6,832 8,912 6,167 13,044 8,106
David L. Reichardt " 6,832 8,912 2,872 11,074 2,881
Mark C. Filteau " 199 n/a 1,758 n/a n/a
(5) 14,238 shares vested December 31, 1995.
(6) Mr. Duggan served as Executive Vice President until November 10, 1995.
Column (i) includes $50,000 special payment relating to sale of the
Commercial Aviation Business.
(7) Up to 4,987 shares vested December 31, 1995, but the exact number is
dependent upon subsequent calculation of Company's 1995 performance.
Up to 4,987 shares will vest December 31, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential realizable
value at assumed
annual rates of stock
price appreciation
Individual Grants for option term
Number of Percent of
securities total options/ Exercise
underlying SARS granted or base
options/SARs to employees price Expiration
Name granted (#) in fiscal year ($/Sh) date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
Dan R. Bannister 65,000 20.3% 14.90 11/10/02 394,290 918,840
Paul V. Lombardi 40,000 12.5% 14.90 11/10/02 242,640 565,440
James H. Duggan n/a - - - - -
T. Eugene Blanchard 18,000 5.6% 14.90 11/10/02 109,188 254,448
David L. Reichardt 25,000 7.8% 14.90 11/10/02 151,650 353,400
Mark C. Filteau 12,500 3.9% 14.90 11/10/02 75,825 176,700
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of
securities Value of
underlying unexercised
unexercised in-the-money
options/SARs options/ SARs
at fiscal at fiscal
year-end (#) year-end ($)
Shares Value
acquired on realized Exercisable/ Exercisable/
Name exercise (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
Dan R. Bannister n/a n/a 0 / 65,000 0 / 0
Paul V. Lombardi n/a n/a 0 / 40,000 0 / 0
James H. Duggan n/a n/a 0 / 0 n/a
T. Eugene Blanchard n/a n/a 0 / 18,000 0 / 0
David L. Reichardt n/a n/a 0 / 25,000 0 / 0
Mark C. Filteau n/a n/a 0 / 12,500 0 / 0
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 1987, the Company entered into change-in-control severance agreements
with Messrs. Bannister, Duggan, Blanchard, Reichardt, and Dunn, and certain
other executive officers of DynCorp, and in 1995, it entered into a similar
agreement with Mr. Lombardi (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, 1996, 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.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board of Directors during
1995 were: Herbert S. Winokur, Jr., Chairman of the Board and Director; Russell
E. Dougherty, Director; and, until September 11, 1995, Michael T. Masin, a
former Director. None of the members are, or were, current or former employees
of the Company, and, except for Mr. Winokur, whose relationship to Capricorn
Investors, L.P. ("Capricorn") is described below, none have any relationship
with the Company of the nature contemplated by Rule 404 of Regulation S-K.
Mr. Winokur 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. On February 12, 1992, the Company loaned $5,500,000 to
Cummings Point Industries, Inc. ("CPI"), a Delaware corporation of which
Capricorn owned more than 10%. The indebtedness was represented by a promissory
note (the "Note"), bearing interest at the annual rate of 17%, which provided
that interest was payable quarterly but that interest payments could be added to
the principal of the Note rather than being paid in cash. The Note was
subordinated to all senior debt of CPI. The Note was due six months after
issuance, but it was automatically extended for three-month periods. 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 was secured by certain common stock and warrants issued
by the Company and owned by Capricorn. The Note was repaid in full, together
with accrued interest, on August 10, 1995.
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 February 26, 1996, the Company had 8,024,645 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 shares
issuable upon exercise of outstanding warrants, shares issuable upon exercise of
all vested options, shares issuable upon conversion of outstanding Class C
Preferred Convertible Stock and exercise of related warrants, and shares
issuable as a result of immediate vesting and expiration of deferrals under the
Restricted Stock Plan were to be issued, the outstanding voting securities
following such dilution would consist of 12,847,020 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 February 26, 1996,
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
Ownership Ownership
of Percent of Percent
Name and Address of Title of Outstanding of Diluted of Diluted
Beneficial Owner Class Shares Class Shares(3) Shares (3)
Trustees of the DynCorp Common 6,113,249 76.2% 6,113,249 47.6%
Employee Direct(1) Direct(1)
Stock Ownership Plan
("ESOP") Trust, c/o
DynCorp
2000 Edmund Halley Dr.
Reston, VA 22091
Capricorn Investors, Common 292,369 3.6% 4,117,127 32.0%
L.P.(2) Direct Direct
72 Cummings Point Road
Stamford, CT 06902
Capricorn Investors, Class C 123,711 100.0% 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. Shares are
voted in accordance with instructions received from participants. Shares
as to which no instructions are received are voted in the same
proportions.
(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 exercise of all outstanding warrants, exercise of all vested
options, conversion of Class C Stock, exercise of warrants issuable upon
such conversion, full vesting of all remaining Restricted Stock Plan
units, and distribution of all deferred units under Restricted Stock Plan.
Security Ownership of Management(1)
Beneficial ownership of the Company's equity securities by directors and
nominees for election to the Board, and by all current officers and directors as
a group, is set forth below:
Amount & Amount &
Nature of Nature of
Ownership Ownership
of Percent of Percent
Name and Address of Title of Outstanding of Diluted of Diluted
Beneficial Owner Class Shares (2) Class(3) Shares(4) Shares (3)(4)
D. R. Bannister Common 306,072 Direct} 3.9% 371,783 Direct} 2.9%
President & 7,644 Indirect} 7,644 Indirect}
Director
T. E. Blanchard Common 146,019 Direct} 2.0% 205,191 Direct} 1.7%
Senior Vice 14,608 Indirect} 14,608 Indirect}
President
& Director
R. E. Dougherty Common 2,331 Direct * 4,000 Direct *
Director
P. V. Lombardi Common 5,275 Direct} * 19,513 Direct} *
Executive Vice 839 Indirect} 1,119 Indirect}
President &
Director
D. C. Mecum II Common -- -- -- 4,000 Direct *
Director
D. L. Reichardt Common 70,710 Direct} 1.0% 88,738 Direct} *
Senior Vice 11,311 Indirect} 11,311 Indirect}
President
& Director
H. S. Winokur, Jr.(5) Common 292,369 Indirect 3.6% 4,117,127 Indirect 32.0%
Chairman of the Class C 123,711 Indirect 100.0% n/a --
Board & Director Preferred
All officers and Common 707,692 Direct} 13.5% 935,706 Direct} 40.0%
directors as a 371,926 Indirect} 4,198,051 Indirect}
group
Class C 123,711 Indirect 100.0% n/a -- --
Preferred
<FN>
(1) Includes information as of February 26, 1996. Shares held by the ESOP
trustees and allocated to the officers and directors are included in the
table, as outstanding shares in the case of vested shares, and as diluted
shares in the case of unvested shares.
(2) Restricted stock units which have not been vested or are vested but
deferred and not distributed pursuant to the Company's Restricted Stock
Plan as of February 26, 1996 are not transferable by or within the voting
control of the participants. Such units are not included in outstanding
shares but are included in fully diluted shares.
(3) An asterisk indicates that beneficial ownership is less than one percent
of the class.
(4) Assumes exercise of all outstanding warrants, vesting and exercise of all
outstanding options, conversion of Class C Stock, exercise of warrants
issuable upon such conversion, full vesting and distribution of all
remaining Restricted Stock Plan units.
(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.
Officers and directors who obtained securities through the Company's
Management Employees Stock Purchase Plan and Restricted Stock Plan are subject
to the New Stockholders Agreement described above. Under the terms of the New
Stockholders Agreement, the Company's securities cannot be sold individually to
outside parties. Management employees of the Company whose employment is
terminated may elect to retain their securities indefinitely, or under certain
circumstances may be 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.
See also Item 11, "Compensation Committee Interlocks and Insider
Participation".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. All financial statements.
2. Financial statement Schedules.
Schedule I - Condensed Financial Information of Registrant
DynCorp (Parent Company)
Balance Sheets
Assets
Liabilities and Stockholders' Accounts
Statements of Operations
Statements of Cash Flows
Notes to Condensed Financial Statements
Schedule II - Valuation and Qualifying Accounts for the
Years Ended December 31, 1995, 1994, and 1993.
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
(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)
(11)Amended and Restated Credit Agreement by and among
Citicorp North America, Inc. and DynCorp dated March 14, 1996.
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)
(incorporated by reference to Registrant's Form 10-K for 1993,
File No. 1-3879)
(3) DynCorp Executive Incentive Plan (EIP)
(incorporated by reference to Registrant's Form 10-K for 1994,
File No. 1-3879)
(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
(incorporated by reference to Registrant's Form 10-K for 1993,
File No. 1-3879)
(7) Restricted Stock Plan
(incorporated by reference to Registrant's Form 10-K for 1993,
File No. 1-3879)
(8) Stock Option Plan
Exhibit 11
(1) Computations of Earnings Per Common Share for the
Years Ended December 31, 1995, 1994, and 1993
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, 1995
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 22, 1995 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 22, 1995
D. R. Bannister (Principal Executive Officer)
P. V. Lombardi Executive Vice President March 22, 1995
P. V. Lombardi and Director
T. E. Blanchard Senior Vice President March 22, 1995
T. E. Blanchard Chief Financial Officer
and Director
D. L. Reichardt Senior Vice President March 22, 1995
D. L. Reichardt General Counsel and Director
G. A. Dunn Vice President and Controller March 22, 1995
G. A. Dunn (Principal Accounting Officer)
D. C. Mecum II Director March 22, 1995
D. C. Mecum II
H. S. Winokur, Jr. Director March 22, 1995
H. S. Winokur, Jr.
DynCorp (Parent Company)
SCHEDULE I - Condensed Financial Information of Registrant
Balance Sheets
(Dollars in Thousands)
December 31,
1995 1994(a)
Current Assets:
Cash and short-term investments $ 30,352 $ 6,358
Accounts receivable and contracts in process,
net of allowance for doubtful accounts (Note 3) 28,170 32,481
Inventories of purchased products and supplies 1,166 722
Other current assets 6,674 4,787
Total current assets 66,362 44,348
Investment in and advances to subsidiaries and affiliates 34,154 58,975
Property and Equipment, net of accumulated depreciation
and amortization 7,340 7,899
Intangible Assets, net of accumulated amortization 32,887 35,753
Other Assets 8,690 6,602
Net Noncurrent Assets of Discontinued Operations - 57,434
Total $149,433 $211,011
(a) Restated for the discontinuance of the Commercial Aviation business.
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 I - Condensed Financial Information of Registrant
Balance Sheets
(Dollars in Thousands)
December 31,
1995 1994(a)
Current Liabilities:
Notes payable and current portion of
long-term debt (Note 2) $ 902 $ 2,636
Accounts payable 24,614 9,998
Advances on contracts in process 1,033 2,711
Accrued liabilities 80,836 62,637
Net current liabilities of discontinued operations - 283
Total current liabilities 107,385 78,265
Long-Term Debt (Note 2) 662 108,502
Other Liabilities and Deferred Credits 15,524 14,706
Total Liabilities 123,571 201,473
Contingencies and Litigation - _
Redeemable Common Stock, at Redemption Value 129,843 121,170
Preferred Stock, Class C 3,000 3,000
Common Stock 159 81
Common Stock Warrants 11,305 11,486
Unissued Common Stock under restricted stock plan 5,908 9,923
Paid-in Surplus 13,122 (106)
Deficit (115,888) (118,256)
Common Stock Held in Treasury (21,084) (8,817)
Unearned ESOP Shares (503) -
Cummings Point Industries Note Receivable - (8,943)
Total $149,433 $211,011
(a) Restated for the discontinuance of the Commercial Aviation
business.
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 I - Condensed Financial Information of Registrant
Statements of Operations
(Dollars in Thousands)
For the Years Ended December 31,
1995 1994(a) 1993(a)
Revenues $584,021 $536,836 $552,662
Costs and Expenses:
Cost of services 570,808 514,711 528,776
Selling and corporate administrative 12,552 11,894 13,133
Interest expense 5,375 4,643 4,350
Interest income (2,759) (1,945) (1,969)
Other (Note 3) 22,583 29,732 22,479
608,559 559,035 566,769
Loss from continuing operations before
income taxes, equity in net income of
subsidiaries and extraordinary item (24,538) (22,199) (14,107)
Benefit for income taxes (25,340) (8,952) (1,561)
Earnings (loss) from continuing operations before
equity in net income of subsidiaries and
extraordinary item 802 (13,247) (12,546)
Equity in net income of subsidiaries 4,472 12,895 8,061
Earnings (loss) from continuing operations before
extraordinary item 5,274 (352) (4,485)
Loss from discontinued operations, net of
income taxes (20) (12,479) (8,929)
Earnings (loss) before extraordinary item 5,254 (12,831) (13,414)
Extraordinary loss from early extinguishment
of debt (2,886) - -
Net earnings (loss) $ 2,368 $(12,831) $(13,414)
Preferred Class C dividends not declared
or recorded (1,915) (1,606) (1,347)
Common stockholders' share of earnings (loss) $ 453 $(14,437) $(14,761)
(a) Restated for the discontinuance of the Commercial Aviation
business.
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 I - Condensed Financial Information of Registrant
Statements of Cash Flows
(Dollars in Thousands)
For the Years Ended December 31,
1995 1994(a) 1993(a)
Cash Flows from Operating Activities:
Net loss $ 2,368 $(12,831) $(13,414)
Adjustments to reconcile net loss from operations
to net cash (used) provided by operating activities:
Depreciation and amortization 5,437 5,911 6,413
Pay-in-kind interest on Junior Subordinated
Debentures - 15,329 13,142
Loss, before tax, on purchase of Junior
Subordinated Debentures 4,786 - -
Loss from discontinued operations 20 12,479 8,929
Deferred income taxes 2,707 (59) 521
Accrued compensation under Restricted Stock Plan - (329) 2,047
Noncash interest income - (1,375) (1,158)
Change in reserves of businesses divested in 1988 7,700 2,318 1,738
Other (2,021) (923) (1,692)
Change in assets and liabilities, net of acquisitions
and dispositions:
(Increase) decrease in accounts receivable and
contracts in process 4,311 (11,758) (2,570)
Increase in inventories (445) (209) (93)
(Increase) decrease in other current assets (1,886) (1,069) 1,992
Decrease in current liabilities except notes
payable and current portion of long-term debt (5,994) (10,003) (7,609)
Cash provided (used) by continuing operations 16,983 (2,519) 8,246
Cash (used) provided by discontinued operations (1,416) (2,946) (7,495)
Cash provided (used) by operating activities 15,567 (5,465) 751
Cash Flows from Investing Activities:
Sale of property and equipment 27 660 829
Purchase of property and equipment,
net of capitalized leases (1,926) 1,734 (928)
Proceeds received from notes receivable 8,943 - -
Proceeds from sale of discontinued operations 135,700 - -
Investing activities of discontinued operations (41,669) - -
Increase in investments in affiliates - 1,500 -
Cash on deposit for letters of credit (3,307) (21) (2,916)
Other (229) (617) 345
Cash provided (used) from investing activities 97,539 3,256 (2,670)
Cash Flows from Financing Activities:
Treasury stock purchased (12,267) (3,182) (1,979)
Payment on indebtedness (6,659) (3,349) (4,219)
Treasury stock sold - 159 46
Redemption of Junior Subordinated Debentures (105,971) - -
Stock released to Employee Stock Ownership Plan 17,497 17,100 16,116
Financing activities of discontinued operations - (652) (506)
Other financing transactions (864) 49 -
Change in intercompany balances, net 19,152 (5,536) (9,383)
Cash (used) provided from financing activities (89,112) 4,589 75
Net Increase (Decrease) in Cash and Short-term
Investments 23,994 2,380 (1,844)
Cash and Short-term Investments at Beginning
of the Year 6,358 3,978 5,822
Cash and Short-term Investments at End of
the Year $ 30,352 $ 6,358 $ 3,978
(a) Restated for the discontinuance of the Commercial Aviation business.
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 I - Notes to Condensed Financial Statements
December 31, 1995
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, 1995 and 1994, long-term debt consisted of (in thousands):
1995 1994
Junior Subordinated Debentures, net of unamortized
discount of $4,793 in 1994 $ - $102,658
Notes payable, due in installments through 2002,
9.88% weighted average interest rate 1,564 6,968
Capitalized equipment leases - 1,512
1,564 111,138
Less current portion 902 2,636
$ 662 $108,502
Maturities of long-term debt as of December 31, 1995, were as follows
(in thousands):
1996 $ 902
1997 203
1998 126
1999 143
2000 161
Thereafter 29
$1,564
3. Accounts Receivable
At December 31, 1992, the Company had 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 5 to Consolidated
Financial Statements included elsewhere in this Annual Report
on 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 1995 and 1994, the Company
recorded as expense $16,406,000 and $16,032,000 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 II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1995, 1994 and 1993
(Dollars in Thousands)
Balance at Charged to Charged Balance
Beginning Costs and to Other Deduct- at End of
Description of Period Expenses Accounts ions Period
Year Ended December 31, 1995
Allowance for doubtful accounts $ 9 $ - $ - $ - $ 9
Year Ended December 31, 1994
Allowance for doubtful accounts (1) $ 9 $ - $ - $ - $ 9
Year Ended December 31, 1993
Allowance for doubtful accounts (1) $ 9 $ - $ - $ - $ 9
(1) Restated for discontinuance of the Commercial Aviation business (see Note 2).