SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter Commission File
ended: March 31, 1995 Number: 000-23966
BDM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1561881
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1501 BDM Way, McLean, Virginia 22102-3204
(Address of principal executive office) (Zip Code)
Registrant's telephone number
including area code: 703-848-5000
Not Applicable
(Former name, former address, and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of the close of business on April 30, 1995, the registrant had
outstanding 9,582,940 shares of Common Stock, par value $.01 per share, and
400,000 shares of Class B Common Stock, par value $.01 per share.
PART I
Item 1. Financial Statements.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BDM International, Inc.:
Consolidated Balance Sheets as of
March 31, 1995 (Unaudited) and December 31, 1994..............2
Consolidated Statements of Operations for the
Three Months Ended March 31, 1995 and 1994 (Unaudited)........3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994 (Unaudited)......4
Notes to Consolidated Financial Statements.........................5
BDM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
1995 1994
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 42,885 $ 45,314
Accounts receivable, net 188,791 215,923
Prepaid expenses and other 7,257 8,842
--------------- ------------
Total current assets 238,933 270,079
Property and equipment, net 41,539 40,569
Intangible assets, net 12,648 13,814
Deposits and other 6,629 5,896
Equity in and advances to affiliates 5,029 5,193
--------------- ------------
Total assets $ 304,778 $ 335,551
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 149,502 $ 166,298
Debt currently payable 4,183 426
Income taxes payable 798 3,000
Deferred tax liability 4,277 5,441
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Total current liabilities 158,760 175,165
Deferred tax liability 5,242 5,243
Long term debt 60,130 82,750
Severance and other 17,482 17,248
Minority interest 18,735 14,040
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Total liabilities 260,349 294,446
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Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value;
500,000 shares authorized, none issued
Common stock, $.01 par value; 95 95
9,475,656 and 9,473,275 shares issued
and outstanding at March 31,1995
and December 31, 1994; 12,049,905
shares and 11,949,905 shares issued
and outstanding, respectively
at December 31, 1993
Additional paid in capital 11,968 12,336
Retained earnings 31,732 28,398
Deferred compensation (183) (279)
Cumulative translation adjustment 817 555
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Total stockholders' equity 44,429 41,105
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Total $ 304,778 $ 335,551
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The accompanying notes are an integral part of these financial statements.
BDM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)
(unaudited)
Three months ended
1995 1994
---------------------
Revenue $191,901 $165,163
Cost of sales 156,989 135,334
Selling, general and administrative 19,385 19,373
Depreciation, amortization and other 5,622 4,899
----------------------
Operating profit 9,905 5,557
Interest expense, net 1,121 248
Equity in earnings of affiliates (332) (386)
Minority interest 2,227 582
---------------------
Income before income taxes 6,889 5,113
Provision for income taxes 3,555 2,205
---------------------
Net income $3,334 $2,908
=====================
Earnings Per Share:
Net income per share $0.33 $0.24
=====================
Weighted average shares outstanding 9,979 12,289
=====================
The accompanying notes are an integral part of these financial statements.
BDM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1995 and 1994
(unaudited, in thousands)
1995 1994
------------ -----------
Cash flows from operating activities:
Net cash provided by (used in) operating $ 10,683 $(10,240)
activities
Cash flows from investing activities:
Additions to property and equipment (1,832) (2,611)
Purchase of businesses -- (4,450)
Reimbursement of acquisition costs 1,143 --
Contributions from minority owners 1,862 --
Distributions from unconsolidated affiliates 500 200
Investment in unconsolidated affiliates (100) (500)
------------ -----------
Net cash provided by (used in) investing 1,573 (7,361)
activities
Cash flows from financing activities:
Net (repayments of) proceeds from revolving
borrowings (19,000) 5,264
Proceeds from issuance of common stock 588 307
Acquisition of common stock (1,026) (1,200)
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Net cash (used in) provided by financing (19,438) 4,371
activities
Effect of exchange rate changes on cash 4,753 (45)
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Net decrease in cash (2,429) (13,275)
Cash, beginning of period 45,314 48,875
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Cash, end of period $ 42,885 $ 35,600
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The accompanying notes are in integral part of these financial statements.
BDM INTERNATIONAL, INC .
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
-------
The accompanying financial statements of BDM International, Inc. and
subsidiaries (BDM International, Inc.) as of March 31, 1995 and for interim
periods ended March 31, 1995 and 1994, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. The condensed balance sheet data as of December 31, 1994 was
derived from the Company's audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. Certain other information and disclosures included in the
Company's annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
the above referenced rules and regulations. It is suggested that these
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest annual
report to the Securities and Exchange Commission on Form 10-K.
The accompanying financial statements reflect all adjustments and
reclassifications that, in the opinion of management, are necessary for a
fair presentation. All such adjustments and reclassifications have been
deemed to be of recurring nature.
(2) INCOME TAXES
------------
The Company uses the estimated annual effective rate method for
interim income tax purposes. The Company also recognizes an expense for
U.S. income taxes on undistributed earnings of its foreign subsidiaries as
though the earnings had been distributed.
The difference between the combined statutory federal and state income
tax rate of 41% and the Company's actual effective income tax rate of 52%
for the three months ended March 31, 1995 is primarily attributable to a
charge of $1.6 million recognized in the first quarter of 1995 to reflect
management's estimate of the recoverability of unamortized goodwill
generated in an earlier business acquisition. This charge as well as the
majority of the Company's other goodwill amortization is not deductible for
federal income tax purposes, thus resulting in the higher effective tax
rate.
(3) EARNINGS PER SHARE
------------------
Net income per common share is net income divided by the weighted
average number of common shares and common share equivalents outstanding
during the period. The Company's common share equivalents consist entirely
of stock options.
BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(4) INDUSTRIEANLAGEN-BETRIEBSGESELLSCHAFT MBH (IABG)
------------------------------------------------
At the time of BDM's acquisition of 45% of IABG,through its subsidiary
BDM Europe in November 1993, 15% of IABG was retained by its former owner,
IVG, and the remaining 40% was retained in a trust for ultimate sale to
employees and other investors. In October 1994, Buck Werke GmbH & Co. KG
(Buck), a German company, acquired 12% of IABG and IVG acquired an
additional 5%. The remaining 23% continued to be retained in trust for
sale to employees and other investors.
In the first quarter of 1995, the current shareholders entered into a
Trust Agreement with a bank to administer the remaining sale of shares to
employees and others. Prior to such sale and on behalf of the future owners,
the bank advanced to IABG $1.9 million for 23% of a required capital infusion
due IABG from its shareholders in November 1994, as well as $1.1 million to
BDM for the reimbursement of 23% of the transaction costs incurred by the
Company in acquiring IABG. The trustee bank will recover the advances from
the ultimate purchasers of the 23% IABG ownership portion. Pursuant to the
Trust Agreement, the current shareholders, BDM, IVG and Buck, agree to
repurchase, in the proportion of the total shares they owned at the date
of the Trust Agreement, any trust shares not sold to employees and others
as of December 31, 2000.
(5) DEBT
----
In April 1995, the Company exercised its second and last option to
extend the term of its working capital facility for an additional one year
term through July 1998.
(6) CAPITAL STOCK TRANSACTIONS
--------------------------
On May 12, 1995 the Company filed a Form S-1 with the Securities and
Exchange Commission to register approximately 2,500,000 shares of common
stock for sale to the public.
BDM INTERNATIONAL, INC.
Item 2. Managements' Discussion and Analysis
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Results of Operations
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REVENUE
Revenue increased $26.7 million, or 16%, during the three months ended
March 31, 1995 over the same period in 1994. All subsidiaries contributed
to this growth. The following table depicts the quarterly revenue
generated by subsidiary (in millions):
Three months ended
March 31,
1995 1994
------------ -----------
BDM Federal (1) $97.5 51% $87.2 53%
BDM Technologies 12.2 6 5.5 3
BDM Europe (2) 48.8 26 40.7 25
Vinnell 33.4 17 31.8 19
------ ---- ----- ----
Total $191.9 100% $165.2 100%
====== ==== ====== ====
__________
(1) BDM Federal revenue in 1994 includes revenue from GCL from its date of
acquisition.
(2) BDM Europe revenue includes revenue from IABG and FACE.
Revenue includes sales of professional services as well as of
materials requested by clients, consisting primarily of computer hardware
and software. The increase in BDM Federal revenue reflected a 7% increase
in professional services and a 17% increase in sales of material. BDM
Technologies added significant revenue from the performance of two state
government systems integration contracts awarded subsequent to the first
quarter of 1994. BDM Europe's increase in revenue was due to exchange rate
fluctuations between the German mark and the U.S. dollar.
COST OF SALES
Cost of sales, which includes salaries, benefits, subcontractor
expenses, materials and overhead costs, consistently totalled 81.8% of
total revenue for the three months ended March 31, 1995 when compared to
the 81.9% such costs comprised of total revenue during the same period in
1994.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general, and administrative expense, which includes the
Company's research and development (R&D) costs, decreased to 10.1% as a
percentage of total revenue during the three months ended March 31, 1995
from 11.7% in the same period in 1994. The decrease was due to the
discontinuance of a certain R&D activity which approximated $2 million
during the three months ended March 31, 1994.
BDM INTERNATIONAL, INC.
Item 2. Managements' Discussion and Analysis (cont'd)
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Results of Operations
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DEPRECIATION, AMORTIZATION AND OTHER
For the three months ended March 31, 1995, depreciation, amortization
and other expenses increased to $5.6 million from $4.9 million for the
three months ended March 31, 1994. Included in the 1995 amount is a write-
off of $1.6 million for the unamortized value of goodwill related to the
FACE acquisition in 1993, reflecting management's estimate of the non-
recoverability of this asset.
INTEREST EXPENSE
Interest expense increased due to a weighted average debt balance of
$80.7 million during the three months ended March 31, 1995 versus $58.9
million during the same period in 1994. The increase in debt in 1995 was
the result of the Company's repurchase of 2.6 million outstanding shares of
common stock from institutional investors in May 1994. In addition, the
weighted average interest rate incurred during the quarters ended March 31,
1995 and 1994 was 8.5% and 5.5%, respectively.
MINORITY INTEREST
Minority interest increased by $1.6 million to $2.2 million in the
first quarter of 1995 compared to the same period in 1994. The increase
was partially due to revenue activity of Vinnell which performing on a
large contract as a 60% joint venture partner with a Saudi Arabian company
Minority interest recognized on this contract during the first quarter of
1995 was $0.9 million. Of this amount, $0.4 million represented the one-
time recognition in March 1995 of profit negotiations applicable to
services provided since the inception of the contract in 1994.
Vinnell currently has a contract to provide training services to the
Saudi Arabian National Guard which represented 55% of its total revenue in
1994. The contract was recompeted by the client in 1994 and in the spring
of 1995, through a joint venture in which it is a 51% partner, was awarded
the three year follow-on contract for $163 million beginning in July 1995.
The contract's future results of operations will be consolidated, and the
other partner's minority ownership interest of 49% will be reflected as a
minority interest. Due to the new ownership arrangement, the Company
expects a reduction in profit from this new contract when compared to the
previous contract.
PROVISION FOR INCOME TAXES
The provision for income tax expense increased as a percentage of
income before taxes during the quarter ended March 31, 1995 to 52% compared
to 43% for the comparable period in 1994 as a result of a charge of $1.6
million recognized in the first quarter of 1995 to reflect management's
estimate of the non-recoverability of unamortized goodwill generated in an
earlier business acquisition.
BDM INTERNATIONAL, INC.
Item 2. Managements' Discussion and Analysis (cont'd.)
----------------------------------------------
Liquidity and Financial Condition
- ---------------------------------
At March 31, 1995, the Company had working capital of $89.1 million
compared to $100.2 million at December 31, 1994. In April 1995, the
Company exercised its second option to extend the term of this facility for
an additional one year through July 1998. As of March 31, 1995, the
Company was eligible to borrow an additional $58.6 million (net of
outstanding letters of credit) in accordance with the terms of its credit
facility and was in compliance with all restrictive covenants contained
therein.
Supplementing the cash flow from operations has been IABG's historic
arrangements whereby it has secured significant amounts of advance payments
from customers. As part of customary arrangements, IABG continues to
receive such advance payments from a large percentage of its client base.
Pursuant to the privatization plan for IABG, the German Government has also
indicated that it will continue the practice of advance payments.
Cash flow provided by investing activities is primarily related to
amounts received in accordance with the IABG acquisition agreement. At the
time of BDM's acquisition of 45% of IABG in November 1993, 15% of IABG was
retained by its former owner, IVG, and the remaining 40% was retained in a
trust for ultimate sale to employees and other investors. In October 1994,
Buck Werke GmbH & Co. KG (Buck), a German company, acquired 12% of IABG and
IVG acquired an additional 5%. The remaining 23% continued to be retained
in trust for sale to employees and other investors.
In March 1995, the current shareholders entered into a Trust Agreement
with a bank to administer the remaining sale of shares to employees and
others. Prior to such sale and on behalf of the future owners, the bank
advanced to IABG 23% of a required capital infusion of $1.9 million due in
1994, as well as $1.1 million to BDM for the reimbursement of 23% of the
transaction costs incurred by the Company in acquiring IABG. Pursuant to
the Trust Agreement, the current shareholders agreed to repurchase, in the
proportion of the total shares they owned at such date, any trust shares
not sold to employees and others as of December 31, 2000.
The terms of the original acquisition also required the new owners to
provide IABG with guaranteed equity infusions. The unpaid equity guarantee
remaining as of March 31, 1995, is due in a final installment of
approximately $8.7 million on November 16, 1995. BDM's share of this
equity guarantee is 45%. The equity infusion due from the 23% trust will
then also be advanced by the bank trustee to the extent any portion of the
trust remains unsold to employees or other investors.
Other investing cash flow activities include fluctuations in the
timing of working capital infusions to and earnings distributions from
Vinnell's unconsolidated joint ventures as well as planned capital
expenditures.
Financing activities, facilitated by the net proceeds from the above
cash flow activities, were comprised primarily of the reduction of the
Company's working capital facility by $19.0 million. In addition, the
Company continued the employee benefit of enabling employees to purchase
shares of common stock at current value, and has continued to repurchase
certain outstanding shares in order to minimize dilution in the Company's
ownership resulting from the employee purchases.
During the three months ended March 31, 1995, the fluctuation in the
value of the German mark to the U.S. dollar resulted in a $4.8 million
increase in cash as reported in U.S. dollars in the accompanying financial
statements due to the signfiicant balance of cash maintained by IABG.
Item 2. Management's' Discussion and Analysis (cont'd.)
-----------------------------------------------
Liquidity and Financial Condition, cont.
- ----------------------------------------
GENERAL
Management believes the Company has sufficient liquidity and working
capital resources necessary to conduct planned business operations, debt
service requirements, planned investments, capital expenditures, and to
ensure compliance with restrictive bank covenants for the foreseeable
future.
PART II
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits:
11. Statement of Computation of Earnings Per Share
(b) Reports on Form 8-K:
None
BDM INTERNATIONAL, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
May 15, 1995 BDM INTERNATIONAL, INC.
C. Thomas Faulders, III
-------------------------
C. Thomas Faulders, III
Executive Vice President, Treasurer and
Chief Financial Officer
BDM INTERNATIONAL, INC.
INDEX TO EXHIBITS
Exhibit No.
- -----------
11. Statement of Computation of Earnings Per Share