ITEM 1. BUSINESS
General Information The Company provides diversified management, technical and professional services to government and commercial customers throughout the United States and to a limited extent in certain foreign countries. Generally, these services are provided under written contracts which may be fixed-price, time-and-material or cost reimbursable depending on the work requirements and other individual circumstances. The Company performs these services through several operating units. For business reporting purposes these operating units are combined into two categories: Government Services and Commercial Services. (In 1992 and 1991 the Company reported through four operating groups: The Government Services Group, the Applied Sciences Group, the Commercial Aviation Services Group and the Postal Operations Division.) Government Services provides services to all branches of the Department of Defense and to NASA, the Department of State, the Department of Energy, the Environmental Protection Agency, the Centers for Disease Control, the National Institutes of Health, the Postal Service and other U.S. Government agencies and foreign governments. These services encompass a wide range of management, technical and professional services covering the following areas:
Aviation Services, including engineering, maintenance, modification, and operational and logistical support of military aircraft and weapons systems.
Facilities Management Services, including specialized facilities operations, maintenance and management support on military installations and at other federal operating locations.
Security and Telecommunications Services, including the design, installation and maintenance of security and telecommunications systems.
Range Operations, Test and Evaluation Services, including the test and evaluation of military hardware and weapons systems at Government test ranges, and research, development and engineering services.
Computer and Information Services, including software development and maintenance, computer center operations, data processing and analysis, database administration, telecommunications, and operation and maintenance of integrated electronic systems.
Health and Information Technology Services, including a full range of health services, medical care, environmental and biomedical research, and information technology services to such customers as the Centers for Disease Control, the National Institutes of Health and the Environmental Protection Agency.
Energy, Environmental and Management Consulting Services, including technical and program management consulting services to the U.S. Government and private industry clients in areas such as energy, environmental engineering, robotics, nuclear weapons security, artificial intelligence and information processing.
Commercial Services is composed of two major operating units that provide aircraft maintenance, ground support, cargo handling, passenger services and aircraft fueling to domestic and international air carriers throughout the U.S. In 1993, business proposals were submitted in several European countries and aviation ground support services were provided in Russia. The two major operating units of Commercial Services are as follows:
Aircraft Maintenance includes maintenance checks, component overhaul, heavy structural maintenance, airframe and system maintenance and modification on a wide variety of passenger and cargo aircraft including wide-body aircraft.
Ground Support Services includes cargo handling, cabin grooming, line maintenance, ticketing and passenger handling and boarding services. Auxiliary support services include bus and limousine operation, security, baggage service and passenger screening operations. Also includes into-plane fueling services and the management and operation of tank farms and fuel distribution systems.
Industry Segments
The Company has one line of business, which is to provide management and technical services to commercial and government organizations in support of the customers' facilities and/or operations.
Backlog
The Company's backlog of business (including estimated value of option years on government contracts) was $2.772 billion at the close of 1993, compared to a year-end 1992 backlog of $2.241 billion. Of the total backlog on December 31, 1993, $1.823 billion is expected to produce revenues after 1994.
Contracts with the U.S. Government are generally written for periods of three to five years. Because of appropriation limitations in the federal budget process, firm funding is usually made for only one year at a time, with the remainder of the years under the contract expressed as a series of one-year options. U.S. Government contracts contain standard provisions for termination for the convenience of the U.S. Government, pursuant to which the Company is generally entitled to recover costs incurred, settlement expenses, and profit on work completed to termination.
The Company's ground support services contracts with airlines generally run for one to three years. Some contracts are terminable on short notice, but the Company's experience has been that few airlines choose to exercise this option given the difficulty of integrating a replacement provider into the airline's schedule. The Company is usually paid for its ground services at a fixed contract rate on a per-flight basis (every takeoff and landing). For heavy aircraft maintenance checks, carriers solicit bids for the required services. Awards are made on the basis of price, quality of service and past performance. For routine line maintenance, the Company charges a flat rate based on the service and the frequency of visits.
Competition
The general fields in which the Company conducts business are all highly competitive, with competition based on a variety of factors including, but not limited to, price, service and past experience. Competitors of the Company vary in size with some having a larger financial resource base. However, the Company believes that it has been awarded many contracts because of its technical know-how and past service record. Some of the major competitors of the Company are as follows:
Government Services Commercial Services SAIC AMR Services, Inc. BDM Hudson General Corp Computer Science Corp. Ogden Aviation Services Johnson Controls Lockheed Tracor Page Avjet Brown and Root Delfort Aviation Inc. Vitro ASI
Foreign Operations
The Company has a minority investment in an affiliate company which operates in Saudi Arabia. In addition, the Company in 1993 established operations in Mexico and Russia. None of these foreign operations are material to the Company's financial position or results of operations.
Other activities of the Company presently include the providing of services within the United States to certain foreign customers. These services for foreign customers are generally paid for in United States dollars. The Company also performs services in foreign countries under U.S. Government contracts.
The risks associated with the Company's foreign operations in regard to foreign currency fluctuation, and political and economic conditions in foreign countries are not significant.
Incorporation
The Company was incorporated in Delaware in 1946.
Employees
The Company had approximately 21,800 employees at December 31, 1993.
ITEM 2.
ITEM 2. PROPERTIES
The Company is a service-oriented company, and as such the ownership or leasing of real property is an activity which is not material to an understanding of the Company's operations. Properties owned or leased include office facilities, hangars, warehouses used in connection with the storage of inventories and fabrication of materials associated with various services rendered and servicing facilities used in the Company's commercial aviation operations. None of the properties is unique; however, several of the leases constitute partially exclusive rights to operate at certain airports. All of the Company's owned facilities are located within the United States. In the opinion of management, the facilities employed by the Company are adequate for the present needs of the business. Reference is made to the Consolidated Financial Statements and Notes, included elsewhere in this Annual Report on Form 10-K, for additional information concerning capital expenditures and lease commitments for property.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
This item is incorporated herein by reference to Note 16 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of 1993.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
DynCorp's common stock is not publicly traded. There were approximately 336 record holders of DynCorp common stock at December 31, 1993. In addition, the DynCorp Employee Stock Ownership Plan Trust owns stock on behalf of approximately 29,000 present and former employees of the Company. Cash dividends have not been paid on the common stock since 1988.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table of selected financial data of the Company should be read in conjunction with the Company's Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. (Dollars in thousands except per share data.)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
In 1993, the Company achieved record revenues, incurred the smallest loss ($11.1 million) before income taxes, minority interest and extraordinary item since the leveraged buy-out by its management and Employee Stock Ownership Plan in 1988, and ended the year with the largest backlog in its history. In fact, but for losses in the Commercial Services' aircraft maintenance business ($6.6 million), unusual write-offs and expenses in connection with two acquisitions ($3.6 million) and the above market PIK interest (approximately $4.1 million) the Company would have been profitable for the year. However, the Company continues to be highly leveraged, and its debt expense continued to be excessive in comparison to its earnings and cash flow. Some of the major events in 1993 were:
- Completed the acquisition of Technology Applications, Inc. and the purchase of certain net assets of Science Management Corporation's Information Division and NMI Systems, Inc.
- Eliminated the Commercial Services Administrative Group, resulting in improved efficiencies and reduced general and administrative expenses.
- Completed the relocation of the Miami, Florida aircraft maintenance operation to larger hanger facilities which will permit the Company to perform maintenance on wide-body aircraft.
- Received the last payment from the ESOP on its $100 million loan from the Company.
Revenues from the Department of Defense were $543 million in 1993 compared to $538 million in 1992 and $523 million in 1991. These revenues represented 56.9% of total 1993 revenues compared to 59.0% in 1992 and 64.8% in 1991. This represents the Company's third year of its strategic long range plan to continue to grow or maintain its defense business while focusing primarily on the growth of non-defense business.
Following is a three-year summary of operations, cash flow and long-term debt and redeemable preferred stock (in thousands):
Years Ended December 31, 1993 1992 1991 Operations Revenues $953,144 $911,422 $807,186 Gross profit 39,557 28,146 23,886 Selling and corporate administrative (18,267) (20,476) (17,935) Interest, net (23,099) (22,458) (16,826) Other (9,324) (5,860) (7,717) Loss before income taxes, minority interest and extraordinary item $(11,133) $(20,648) $(18,592)
Cash Flow Net loss $(13,414) $(23,342) $(12,403) Depreciation and amortization 19,818 19,372 24,473 Pay-in-kind interest 13,142 6,590 11,950 Working capital items (7,704) (7,559) (823) Other (1,222) 283 (1,920) Cash provided (used) by operations 10,620 (4,656) 21,277 Investing activities (15,611) (18,130) (8,622) Financing activities 7,817 26,868 (110) Increase in cash and short- term investments $ 2,826 $ 4,082 $ 12,545
December 31, 1993 1992 1991
Long-term Debt and Redeemable Preferred Stock
Junior Subordinated Debentures, net of discount $ 86,947 $ 73,489 $ 75,612 Contract Receivable Collateralized Notes 100,000 100,000 - Employee Stock Ownership Plan Term and Revolving Credit Loan - - 38,215 Mortgages payable 23,416 19,436 - Other notes payable and capitalized leases 9,899 9,507 9,861 Class A Preferred Stock - - 24,884 $220,262 $202,432 $148,572
The following discussion of the Company's results of operations is directed toward the two major categories, Government Services and Commercial Services.
Results of Operations
Revenues - Revenues for 1993 were $953.1 million compared to 1992 revenues of $911.4 million, an increase of $41.7 million (4.6%). Government Services (GS) had an increase of $49.1 million (6.7%) while Commercial Services (CS) had a decrease of $7.4 million (4.0%). The increase in GS's revenues includes approximately $15.1 million from businesses acquired in December 1992 and February and December 1993, $16.0 million from the Postal contracts which were in the start-up phase in 1992 but were fully operational in 1993, and $17.9 million from new contract awards offset partially by contracts completed and/or not renewed. The overall decline in CS's 1993 revenues results from low volume in the aircraft maintenance activities and the impact of relocating the Miami, Florida maintenance operation to a new hangar facility; offset partially by increases in ground support services. Aircraft maintenance 1993 revenues decreased to $57.3 from $74.3 million in 1992 while ground support services' 1993 revenues increased to $118.6 million from $109.0 million in 1992.
The increase in 1992 revenues of $104.2 million (11.9%) over 1991 was attributable to a combination of internal growth and the effect of acquisitions; GS increased $73.6 million (11.2%) and CS increased $30.6 million (20.1%). The increase in GS's revenues includes approximately $18.2 million from businesses acquired in April and May of 1991, $16.3 million from the Postal Service contracts awarded in the latter part of 1991 with the remaining increase attributable to the net increase in contract awards over contracts completed and/or not renewed. The increase in CS's revenues includes $23.0 million from higher volume in aircraft maintenance and $7.6 million from ground support services. The absence of the negative impact of the Persian Gulf War on ground support services also contributed to the overall increase in CS's 1992 revenues.
Cost of Services/Gross Margins - Cost of services was 95.8% of revenues in 1993, 96.9% in 1992 and 97% in 1991 which resulted in gross margins of $39.6 million (4.1%), $28.1 million (3.1%) and $23.9 million (3.0%) respectively. GS's 1993 gross margins were improved while CS's 1993 margins declined from that of the prior year. The improvement in GS's gross margins was principally due to improved profit performance on new contracts started in 1992 and the early part of 1993 (in particular the Postal and the Department of Energy contracts). CS's decline in gross margin was the result of reduced volume in the aircraft maintenance activities, offset partially by improved gross margins of the ground support activities. Aircraft maintenance had gross margin losses of $6.6 million in 1993 compared to $.4 million in 1992. Also contributing to the decline in CS's margins were approximately $.6 million of costs associated with the relocation of the Miami, Florida aircraft maintenance operations to larger hangar facilities at the Miami, Florida airport.
The 1992 gross margin, compared to 1991, was adversely impacted by approximately $7.0 million of nonrecurring insurance claims related to prior years, losses on the start-up of the new Postal contracts and a decline in GS's margins. These charges and the decline in GS's margins substantially offset increased gross margins in CS maintenance activities and a reduction in the amount of amortization of merger related contract write-ups.
Selling and Corporate Administrative - Selling and corporate administrative expenses as a percentage of revenues were 1.9% in 1993 and 2.2% in both 1992 and 1991. There were both increases and decreases in 1993 of the various elements and components of these expenses, however, the two most significant factors contributing to the decrease of $2.2 million from 1992 were cost reductions made in CS's general and administrative expenses and a decrease in GS's marketing and bid and proposal costs from the unusually high amount incurred in 1992 on a contract proposal for the Department of Energy's Strategic Petroleum Reserve in Louisiana. Even though selling and corporate administrative expenses as a percentage of revenues were the same in both 1992 and 1991, the dollar amount increased $2.5 million over 1991. This increase was caused principally by marketing and proposal costs associated with the bidding of the Department of Energy Contract mentioned above and costs, principally the addition of staff, incurred in developing new nondefense business and customers.
Interest - Interest expense in 1993 of $25.5 million was $.6 million higher than 1992. This small increase was primarily the result of the Contract Receivable Collateralized Notes being outstanding for the full year of 1993 compared to approximately eleven months in 1992, interest on the mortgage for the Corporate office building was for the full year of 1993 compared to five months in 1992 and an increase in the amount of capitalized leases outstanding, all of which were partially offset by a reduction in the accrual of interest on possible payments of Federal income taxes. Interest expense in 1992 was $24.9 million compared to $18.9 in 1991. This increase in 1992 was principally the result of the issuance of the Contract Receivable Collateralized Notes, compounding of Junior Subordinated Debentures due to pay-in-kind interest, accrual of interest on possible payments of federal income taxes and interest on the mortgage assumed on July 31, 1992 for the Corporate office building.
Interest income in 1993 of $2.4 million was approximately the same as that in 1992 while interest income in 1992 was $.3 million higher than 1991. Even though interest rates were lower in 1992 than 1991, the Company had more excess funds available for investment and owned the Cummings Point Industries, Inc. note receivable with an interest rate of 17%.
Other - The net increase in 1993 from 1992 is caused primarily by accelerated amortization of costs in excess of net assets of a recently acquired business and legal and other expenses associated with another acquired business. (The legal and other expenses relate to events which occurred prior to the businesses being acquired by the Company.) The net decrease in 1992 compared to 1991 is caused primarily by adjustment of reserves for environmental costs related to divested businesses, obligations to repurchase shares from terminated ESOP participants at a premium in excess of the fair value, and other transactions related to divested businesses.
(In thousands) 1993 1992 1991 Amortization of costs in excess of net assets acquired and deferred ESOP costs $4,830 $ 3,793 $3,791 Provision for nonrecovery of receivables 1,141 965 953 ESOP Repurchase Premium 1,507 2,787 3,680 Legal and other expenses associated with an acquired business 2,070 - - Environmental costs of divested businesses - 1,000 709 Gain on sale of warrants obtained in divestitures - (756) (1,331) Other divested business adjustments(224) (1,929) (85) Total Other $9,324 $ 5,860 $7,717
Income Taxes - In 1993, the Company recorded a foreign income tax provision and a state income tax benefit and in addition, for its majority owned subsidiary which is required to file a separate return, a federal income tax provision. In 1992, the Company recorded only a foreign income tax provision. In 1993 and 1992, the Company did not recognize any federal income tax benefit on its losses because of the uncertainty regarding the level of future income. In 1991, the effective income tax rate was 32.3%. The income tax benefit for 1991 is less than the federal statutory rate because of nondeductibility of amortization of goodwill and value assigned to contracts and fixed assets in connection with the 1988 merger and reorganization.
Cash Flow
Cash and short-term investments increased to $22.8 million at December 31, 1993, from $20.0 million at the prior year-end. Working capital at December 31, 1993, was $73.8 million compared to $59.2 million at December 31, 1992. The working capital increase was primarily the result of expanded business volume. The 1993 ratio of current assets to current liabilities was 1.53 compared to 1.47 in 1992 (as restated). At December 31, 1993, $17.6 million of cash and short-term investments and $107.1 million of accounts receivable were restricted as collateral for the Contract Receivable Collateralized Notes.
In 1993, operating activities produced cash flow of $10.6 million compared to a negative cash flow of $4.7 million in 1992 (for an improvement of $15.3 million). The two major reasons for the improved cash flow from operating activities were a decrease of $9.9 million in the amount of loss for 1993 compared to 1992 and an increase of $6.6 million of pay-in-kind interest on Junior Subordinated Debentures. In 1992, the Company had voluntarily elected to pay the interest due December 31, 1992 in cash rather than pay-in-kind.
Investing activities used $15.6 million of cash, of which $10.9 million was used for the acquisition of businesses (see Note 15 to the Consolidated Financial Statements included elsewhere in this Form 10-K) and another $5.4 million was used for the purchase of property and equipment. In addition, $1.3 million of contract phase-in costs of a new long-term contract were incurred and deferred. These costs will be amortized over the duration of the contract. In 1992, investing activities used $18.1 million of cash. The primary use of cash was the purchase of property and equipment for $11.4 million and another $4.6 million was the net increase in notes receivable resulting primarily from the loan to Cummings Point Industries, Inc. In 1991, investing activities used $8.6 million of cash. The principal uses were the purchase of property and equipment for $12.1 million and the acquisitions of businesses for $6.3 million offset by proceeds received from notes receivable of $8.4 million.
Financing activities provided cash of $7.8 million in 1993. Payments of $16.1 million were received on the loan to the Employee Stock Ownership Plan (the last and final payment on the loan from the Company was received in December, 1993), $6.3 million was used for payments on indebtedness and $2 million was used to purchase treasury stock. In 1992, financing activities provided cash of $26.9 million principally from the payments received from the ESOP plus surplus funds from the new financing arrangement of $100 million. During 1992, the Company used $38.1 million to pay in full its outstanding balance under the Restated Credit Agreement, $33.3 million for redemption of all of the outstanding Class A Preferred Stock plus accrued dividends and $10.2 million for the partial redemption of its 16% Junior Subordinated Debentures. In 1991, the Company received payments of $15.4 from the ESOP and borrowed $6.0 million under its revolving credit, which funds were offset by payments on indebtedness of $17.0 million and the purchase of treasury stock and Junior Subordinated Debentures of $4.9 million.
Liquidity and Capital Resources
At December 31, 1993, the Company's debt totaled $220.3 million compared to $202.4 million the prior year-end and $148.6 million at December 31, 1991, including redeemable preferred stock. The net increase in debt resulted principally from the pay-in-kind interest of $13.1 million on the Junior Subordinated Debentures and the $4.0 million mortgage assumed in the acquisition of Technology Applications, Inc. The Company had a net increase in cash and short-term investments of $2.8 million, $4.1 million and $12.5 million in 1993, 1992 and 1991, respectively. However, without the pay-in-kind interest on the Junior Subordinated Debentures (interest becomes payable in cash effective with the December 31, 1995 payment) and the payments received on the loan to the Employee Stock Ownership Plan (ESOP), the Company would have had a net decrease in cash and short-term investments of $26.4 million, $18.6 million and $14.8 million in 1993, 1992 and 1991, respectively. Annualized interest expense at January 1, 1994 is approximately $28.4 million of which $15.3 million of interest on the Junior Subordinated Debentures is payable in kind. The only significant debt maturing in the next three years is the mortgage of approximately $19 million on the Corporate Office, which matures in March, 1995. The Company intends to refinance this mortgage before it matures.
The Company believes that it can achieve the required cash flow by continued profit improvement, reduced debt service cost and/or the continuation of its contribution to the ESOP which can be used to purchase common stock from the Company. The Company plans to continue its Value Improvement Program which was initiated in late 1992 to reduce and/or eliminate operating costs and loss operations, turn around the losses in Commercial Services' aircraft maintenance operations, and to improve the gross margins in Government Services. To reduce its debt service costs, the Company is presently in discussions with its investment bankers to replace its high interest rate Junior Subordinated Debentures through the issuance of new senior notes or an initial public offering, or both. In addition, the Company and the ESOP have an agreement in principal under which the ESOP will continue during 1994 to purchase Company common stock to fund the ESOP retirement benefit.
The Company is also considering its alternatives, including the possible sale or spinoff, in respect to CS's aircraft maintenance unit which has incurred operating losses in the last three years. Selected financial operating data of the aircraft maintenance unit is as follows (in thousands except number of employees):
1993 1992 1991 Revenues $57,288 $74,253 $51,221 Operating losses $(6,629) $(428) $(1,137) Net assets including Goodwill at December 31, $44,354 $43,328 $42,775 Backlog at December 31, $11,368 $ - $12,584 Number of employees 701 631 627
These units are continuing to face an extremely competitive market with some competitors willing to buy market share at or below cost. At this point, the Company does not believe that the assets and goodwill associated with this unit has been permanently impaired; however, it is possible that future events may require a write-down of the carrying value.
Although the Company has made some progress to diversify into non-defense business activities, the Company is still heavily dependent on the Department of Defense. Due to the procurement cycles of its customers (generally three to five years), the Company's revenues and margins are subject to continual recompetition. In a typical annual cycle approximately 20% to 30% of the Company's business will be recompeted, and the Company will bid on several new contracts. Existing contracts can be lost or rewon at lower margins at any time and new contracts can be won. The net outcome of this bidding process, which in any one year can have a dramatic impact on future revenues and earnings, is impossible to predict. Also, if the U.S. Government budget is reduced or spending shifts away from locations or contracts for which the Company provides services, the Company's success in retaining current contracts or obtaining new contracts could be significantly reduced. The Company's Commercial Services business is likewise highly competitive and subject to the economic conditions of the domestic and foreign airline industry.
In summary, the Company continues to be highly leveraged, and its ability to meet its future debt service and working capital requirements is dependent upon increased future earnings and cash flow from operations, extension of the ESOP and the reduction of its debt expense.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is contained in the Company's Consolidated Financial Statements and Financial Statement Schedules included elsewhere in this Annual Report on Form 10-K.
Report of Independent Public Accountants
To DynCorp:
We have audited the accompanying consolidated balance sheets of DynCorp (a Delaware corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the periods ended December 31, 1993. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DynCorp and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in Item 14 of the Form 10-K are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Washington, D.C., March 22, 1994.
ARTHUR ANDERSEN & CO.
DynCorp and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
December 31, 1993 1992 Assets
Current Assets: Cash and short-term investments (includes restricted cash and short-term investments of $17,632 in 1993 and $16,768 in 1992) (Notes 2 and 4) $ 22,806 $ 19,980 Notes and current portion of long-term receivables (Notes 2 and 8) (a) 235 161 Accounts receivable and contracts in process (Notes 2, 3 and 4) 177,470 151,970 Inventories of purchased products and supplies, at lower of cost (first-in, first-out) or market 6,467 6,137 Prepaid income taxes (Note 10) 127 1,836 Other current assets 6,724 5,708 Total Current Assets 213,829 185,792
Long-term Receivables, due through 1998 (Note 2) 274 342
Property and Equipment, at cost (Notes 1 and 14): Land 5,539 5,234 Buildings and leasehold improvements 33,498 30,324 Machinery and equipment 64,907 50,842 103,944 86,400 Accumulated depreciation and amortization (42,996) (32,258) Net property and equipment 60,948 54,142
Intangible Assets, net of accumulated amortization (Notes 1 and 15) 93,890 94,653
Other Assets (Notes 2 and 4) 13,515 13,344 Total Assets $382,456 $348,273
(a) December 1992 has been restated to conform to the 1993 presentation.
See accompanying notes.
DynCorp and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
December 31, 1993 1992
Liabilities, Redeemable Common Stock and Stockholders' Equity
Current Liabilities: Notes payable and current portion of long-term debt (Notes 2 and 4) $ 3,837 $ 2,670 Accounts payable (Note 2) 25,376 18,763 Deferred revenue and customer advances (Note 1) 2,178 2,188 Accrued income taxes (Notes 1 and 10) 3,074 345 Accrued expenses (Note 5) 105,578 102,667 Total Current Liabilities 140,043 126,633
Long-term Debt (Notes 2, 4 and 15) 216,425 199,762
Deferred Income Taxes (Notes 1 and 10) 1,269 1,189 Other Liabilities and Deferred Credits (Note 2) 16,353 16,805 Total Liabilities 374,090 344,389
Commitments, Contingencies and Litigation (Notes 14 and 16)
Redeemable Common Stock $17.50 per share redemption value, 125,714 shares issued and outstanding (Note 6) 2,200 -
Stockholders' Equity (Note 7) Capital stock, par value ten cents per share - Preferred stock, Class C, 18% cumulative, convertible, $24.25 liquidation value, 123,711 shares authorized and issued and outstanding 3,000 3,000 Common stock, authorized 15,000,000 shares; issued 5,015,139 shares in 1993 and 4,913,385 shares in 1992 502 491 Common stock warrants 15,119 15,119 Unissued common stock under restricted stock plan 10,395 9,941 Paid-in surplus 95,983 96,408 Retained earnings (deficit) (105,425) (92,011) Common stock held in treasury, at cost; 285,987 shares and 178,100 warrants in 1993 and 325,211 shares and 180,210 warrants in 1992 (5,840) (6,538) Cummings Point Industries, Inc. note receivable (Note 8) (a) (7,568) (6,410) Employee Stock Ownership Plan Loan (Note 9) - (16,116) Total stockholders' equity 6,166 3,884 Total Liabilities, Redeemable Common Stock and Stockholders' Equity $382,456 $348,273
(a) December 1992 has been restated to conform to 1993 presentation. See accompanying notes.
DynCorp and Subsidiaries Consolidated Statements of Operations For the Years Ended December 31 (Dollars in thousands except per share data)
1993 1992 1991 Revenues (Note 1) $953,144 $911,422 $807,186
Costs and expenses: Cost of services 913,587 883,276 783,300 Selling and corporate administrative 18,267 20,476 17,935 Interest expense 25,538 24,876 18,910 Interest income (2,439) (2,418) (2,084) Other 9,324 5,860 7,717 Total costs and expenses 964,277 932,070 825,778
Loss before income taxes, minority interest and extraordinary item (11,133) (20,648) (18,592) Provision (benefit) for income taxes (Note 10) 1,329 168 (5,997)
Loss before minority interest and extraordinary item (12,462) (20,816) (12,595) Minority interest (Note 1) 952 - -
Loss before extraordinary item (13,414) (20,816) (12,595) Extraordinary gain (loss) from early extinguishment of debt, net of income taxes of $99 in 1991 (Note 4) - (2,526) 192
Net loss (13,414) (23,342) (12,403) Preferred Class A dividends declared and paid and accretion of discount - 959 5,180
Net loss for common stockholders $(13,414)$ (24,301) $(17,583)
Earnings (Loss) Per Common Share (Note 12) Primary and fully diluted: Loss before extraordinary item $ (2.87)$ (4.49)$ (3.97) Extraordinary item - (0.49) 0.04 Net loss for common stockholders $ (2.87)$ (4.98)$ (3.93)
See accompanying notes.
DynCorp and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31 (Dollars in thousands) 1993 1992 1991 Cash Flows from Operating Activities: Net loss $(13,414) $(23,342)$(12,403) Adjustments to reconcile net loss from operations to net cash provided by operating activities: Depreciation and amortization 19,818 19,372 24,473 Pay-in-kind interest on Junior Subordinated Debentures (Note 4) 13,142 6,590 11,950 Loss (gain) on purchase of Junior Subordinated Debentures (Note 4) - 2,526 (291) Deferred income taxes 521 (2,114) (4,933) Accrued compensation under Restricted Stock Plan 2,235 3,264 3,785 Noncash interest income (1,158) (910) - Other (2,820) (2,483) (481) Change in assets and liabilities, net of acquisitions and dispositions: Increase in accounts receivable and contracts in process (9,698) (14,904) (14,298) (Increase) decrease in inventories (326) 280 (174) (Increase) decrease in other current assets 1,159 2,797 (1,117) Increase in current liabilities except notes payable and current portion of long-term debt 1,161 4,268 14,766 Cash provided (used) by operating activities 10,620 (4,656) 21,277
Cash Flows from Investing Activities: Sale of property and equipment 1,422 1,262 1,974 Proceeds received from notes receivable 558 1,353 8,439 Purchase of property and equipment (5,423) (11,400) (12,106) Increase in notes receivable (Note 8) - (5,934) - Increase in investments in affiliates (99) (1,888) - Deferred income taxes from "safe harbor" leases (Note 10) (441) (314) (338) Deferred income taxes related to the merger and disposition of businesses - - 342 Assets and liabilities of acquired businesses, excluding cash acquired (Notes 1 and 15) (10,890) (905) (6,262) Other (738) (304) (671) Cash used by investing activities (15,611) (18,130) (8,622)
Cash Flows from Financing Activities: Purchase of Class A Preferred Stock and Junior Subordinated Debentures (Note 4) - (42,466) (2,074) Treasury stock purchased (Note 7) (1,980) (3,448) (2,810) Payment on indebtedness (6,365) (41,040) (17,026) Increase in bank borrowings - - 6,000 Refinancing proceeds (Note 4) - 100,000 - Deferred financing expenses (Note 4) - (1,524) - Dividends paid on Class A Preferred Stock - (861) - Treasury stock sold under Management Employees Stock Purchase Plan 46 108 398 Reduction in loan to Employee Stock Ownership Plan (Note 9) 16,116 16,099 15,402 Cash provided (used) by financing activities 7,817 26,868 (110) Net Increase in Cash and Short-term Investments 2,826 4,082 12,545 Cash and Short-term Investments at Beginning of the Period 19,980 15,898 3,353 Cash and Short-term Investments at End of the Period $ 22,806 $ 19,980 $ 15,898
See accompanying notes.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation -- All majority-owned subsidiaries have been included in the financial statements and all significant intercompany accounts and transactions have been eliminated. Outside investors' interest in minority owned subsidiaries is reflected as minority interest. Investments less than 50% owned are accounted for using the equity method of accounting.
Contract Accounting -- Contracts in process are stated at the lower of actual cost incurred plus accrued profits or net estimated realizable value of incurred costs, reduced by progress billings. The Company records income from major fixed-price contracts, extending over more than one accounting period, using the percentage- of-completion method. During performance of such contracts, estimated final contract prices and costs are periodically reviewed and revisions are made as required. The effects of these revisions are included in the periods in which the revisions are made. On cost-plus-fee contracts, revenue is recognized to the extent of costs incurred plus a proportionate amount of fee earned, and on time-and- material contracts, revenue is recognized to the extent of billable rates times hours delivered plus material and other reimbursable costs incurred. Losses on contracts are recognized when they become known. Disputes arise in the normal course of the Company's business on projects where the Company is contesting with customers for additional funds because of events such as delays or changes in contract specifications. For fixed-price contracts, such disputes, whether claims or unapproved changes in the process of negotiation, are recorded at the lesser of their estimated net realizable value or actual costs incurred and only when realization is probable and can be reliably estimated. Claims against the Company are recognized where loss is considered probable and reasonably determinable in amount.
It is the Company's policy to provide reserves for the collectibility of accounts receivable when it is determined that it is probable that the Company will not collect all amounts due and the amount of reserve requirement can be reasonably estimated.
Property and Equipment -- The Company computes depreciation and amortization using both straight-line and accelerated methods. The estimated useful lives used in computing depreciation and amortization on a straight-line basis are: building, 15-33 years; machinery and equipment, 3-20 years; and leasehold improvements, term of lease. Accelerated depreciation is based on a 150% declining balance method with light-duty vehicles assigned a three-year life and machinery and equipment assigned a five-year life. Depreciation and amortization expense was $9,670,000 for 1993, $9,275,000 for 1992 and $10,759,000 for 1991.
Cost of property and equipment sold or retired and the related accumulated depreciation or amortization is removed from the accounts in the year of disposal, and any gains or losses are reflected in the consolidated statement of operations. Expenditures for maintenance and repairs are charged to expense as incurred, and major additions and improvements are capitalized.
Intangible Assets -- At December 31, 1993, intangible assets consist of $91,942,000 of unamortized goodwill and $1,948,000 of value assigned to contracts. Goodwill is being amortized on a straight- line basis over periods up to forty years. Amortization expense was $3,990,000, $2,953,000 and $2,952,000 in 1993, 1992 and 1991, respectively. Amounts allocated to contracts are being amortized over the lives of the contracts for periods up to ten years. Amortization of amounts allocated to contracts was $3,555,000, $4,566,000 and $7,763,000 in 1993, 1992 and 1991, respectively. Cumulative amortization of $16,116,000 and $31,720,000 has been recorded through December 31, 1993, of goodwill and value assigned to contracts, respectively.
The Company assesses and measures impairment of intangible assets, including goodwill, based on several factors including the probable fair market value, probable future cash flows and net income and the aggregate value of the business as a whole. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, on Liquidity and Capital Resources, included elsewhere in this Form 10-K concerning possible impairment.
Income Taxes -- As prescribed by Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes" the Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
Postretirement Health Care Benefits -- The Company provides no significant postretirement health care or life insurance benefits to its retired employees other than allowing them to continue as participants in the Company's plans with the retiree paying the full cost of the premium. The Company has determined, based on an actuarial study, that it has no liability under Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
Postemployment Benefits -- The Company has no liability under Statement of Financial Accounting Standard 112, "Employers' Accounting for Postemployment Benefits," as it provides no benefits as defined.
New Accounting Pronouncements -- The Financial Accounting Standards Board issued Statement 114, "Accounting by Creditors for Impairment of a Loan," and Statement 115, "Accounting for Certain Investments in Debt and Equity Securities," in May 1993. The statements are required to be adopted in 1995 and 1994, respectively. The Company has no significant financial instruments of the nature described and therefore believes the statements will not have a material effect on its results of operations or financial condition.
The Company intends to contribute approximately $15 million to the Employee Stock Ownership Plan in 1994 to acquire common stock at a per share value to be determined by an independent appraisal. At such time, the Company will adopt SOP 93-6, "Employer's Accounting for Employee Stock Ownership Plans," issued in November 1993 and effective for financial statements issued after December 15, 1993.
Consolidated Statement of Cash Flows -- For purposes of this Statement, short-term investments which consist of certificates of deposit and government repurchase agreements with a maturity of ninety days or less are considered cash equivalents.
Cash paid for income taxes was $1,232,000 for 1993, $4,054,000 for 1992 and $944,000 for 1991.
Cash paid for interest, excluding the interest paid under the Employee Stock Ownership Plan term loan, was $11,706,000 for 1993, $17,212,000 for 1992 and $3,371,000 for 1991.
Noncash investing and financing activities consist of the following (in thousands):
1993 1992 1991 Acquisitions of businesses: Assets acquired $31,675 $ 3,524 $14,849 Liabilities assumed (17,198) (1,248) (6,959) Stock issued (2,200) - - Notes issued and other liabilities (1,382) (592) (1,764) Cash paid for fees and noncompete covenant - - 141 Cash acquired (5) (779) (5) Net cash 10,890 905 6,262 Pay-in-kind interest on Junior Subordinated Debentures (Note 4) 13,142 6,590 11,950 Pay-in-kind dividends and accretion of discount on preferred stock - - 5,056 Unissued common stock under restricted stock plan (Note 7) 2,235 3,264 3,785 Capitalized equipment leases and notes secured by property and equipment 5,294 1,792 1,759 Mortgage note assumed (Note 4) - 19,456 -
(2) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value:
Accounts Receivable and Accounts Payable - The carrying amount approximates their fair value.
Notes and long-term receivables - The carrying amount approximates the fair value because of the short maturity of these instruments.
Investments (included in "Other Assets") - The Company has an investment in convertible debentures and preferred stock of an untraded company. Based upon the financial statements of this business, the carrying value of these investments approximates their fair value.
Long-term debt and other liabilities - The fair value of the Company's long-term debt is based on the quoted market price for its Junior Subordinated Debentures, the current rate as if the issue date were December 31, 1993 for its Collateralized Notes. For the remaining long- term debt (see Note 4) and other liabilities, the carrying amount approximates the fair value.
Cummings Point Industries, Inc. Note Receivable - The carrying value approximates the fair value. (See Note 8.)
The estimated fair values of the Company's financial instruments are as follows (in thousands):
1993 1992 Carrying Fair Carrying Fair Amount Value Amount Value Cash and short-term investments $ 22,806 $ 22,806 $19,980 $19,980 Accounts receivable 177,470 177,470 151,970 151,970 Notes and long-term receivables (a) 509 509 503 503 Investments 2,116 2,116 2,439 2,439 Accounts Payable 25,376 25,376 18,763 18,763 Long-term debt and other liabilities 218,758 229,012 200,950 208,623 Cummings Point note receivable 7,568 7,568 6,410 6,410
(a) December 1992 has been restated to conform to the 1993 presentation of the Cummings Point Industries, Inc. note receivable.
(3) Accounts Receivable and Contracts in Process
The components of accounts receivable and contracts in process were as follows (in thousands): 1993 1992 U.S. Government: Billed and billable $ 83,822 $ 83,722 Recoverable costs and accrued profit on progress completed but not billed 25,473 20,218 Retainage due upon completion of contracts 1,287 1,762 110,582 105,702 Commercial Customers: Billed and billable (less allowances for doubtful accounts of $1,469 in 1993 and $3,415 in 1992) 43,660 32,239 Recoverable costs and accrued profit on progress completed but not billed 23,228 14,029 66,888 46,268
$177,470 $151,970
Billed and billable include amounts earned and contractually billable at year-end but which were not billed because customer invoices had not yet been prepared at year-end. Recoverable costs and accrued profit not billed is composed primarily of amounts recognized as revenues, but which are not contractually billable at the balance sheet dates.
The Company performs substantial services for the commercial aviation industry. Receivables from domestic and foreign airline and leasing companies were approximately $38,700,000 and $26,600,000 at December 31, 1993 and 1992, respectively.
(4) Long-term Debt
At December 31, 1993 and 1992, long-term debt consisted of (in thousands): 1993 1992
Contract Receivable Collateralized Notes, Series 1992-1 $100,000 $100,000 Junior Subordinated Debentures, net of unamortized discount of $5,175 and $5,491 86,947 73,489 Mortgages payable 23,416 19,436 Notes payable, due in installments through 2002, 9.27% weighted average interest rate 6,689 6,343 Capitalized equipment leases 3,210 3,164 220,262 202,432 Less current portion 3,837 2,670 $216,425 $199,762
Maturities of long-term debt as of December 31, 1993, were as follows (in thousands):
1994 $ 3,837 1995 21,638 1996 2,157 1997 101,527 1998 1,044 Thereafter 90,059
On January 23, 1992, the Company's wholly owned subsidiary, Dyn Funding Corporation (DFC), completed a private placement of $100,000,000 of 8.54% Contract Receivable Collateralized Notes, Series 1992-1 (the "Notes"). The Notes are collateralized by the right to receive proceeds from certain U.S. Government contracts and certain eligible accounts receivable of commercial customers of the Company and its subsidiaries. Credit support for the Notes is provided by overcollateralization in the form of additional receivables. The Company retains an interest in the excess balance of receivables through its ownership of the common stock of DFC. Additional credit and liquidity support is provided to the Notes through a cash reserve fund. Interest payments are made monthly with monthly principal payments beginning February 28, 1997. (The period between January 23, 1992 and January 30, 1997 is referred to as the Non-Amortization Period.) The notes are projected to have an average life of five years and two months and to be fully repaid by July 30, 1997.
Upon receiving the proceeds from the sale of the Notes, DFC purchased from the Company an initial pool of receivables for $70,601,000, paid $1,524,000 for expenses and deposited $3,000,000 into a reserve fund account and $24,875,000 into a collection account with Bankers Trust Company as Trustee pending additional purchases of receivables from the Company. Of the proceeds received from DFC, the Company used $38,112,000 to pay the outstanding balances of the Employee Stock Ownership Plan term loan and revolving loan facility under the Restated Credit Agreement and $33,280,000 was used for the redemption of all of the outstanding Class A Preferred Stock plus accrued dividends (the redemption price per share was $25.00 plus accrued dividends of $.66). The Company expensed $1,432,000 (reported as an extraordinary loss) of unamortized deferred debt expense pertaining to the term loan and revolving loan facility which was paid in full. The Company charged $8,047,000 of unamortized discount and deferred issuance costs associated with the redemption of the Class A Preferred Stock to paid-in surplus.
On an ongoing basis, cash receipts from the collection of the receivables are used to make interest payments on the Notes, pay a servicing fee to the Company, and purchase additional receivables from the Company. Beginning February 28, 1997, instead of purchasing additional receivables, the cash receipts will be used to repay principal on the Notes. During the Non-Amortization Period, cash in excess of the amount required to purchase additional receivables and meet payments on the Notes is to be paid to the Company subject to certain collateral coverage tests. The receivables pledged as security for the Notes are valued at a discount from their stated value for purposes of determining adequate credit support. DFC is required to maintain receivables, at their discounted values, plus cash on deposit at least equal to the outstanding balance of the Notes.
Commencing March 30, 1994, the Notes may be redeemed in whole, but not in part, at the option of DFC at a price equal to the principal amount of the Notes plus accrued interest plus a premium (as defined).
Mandatory redemption (payment of the Notes in full plus a premium) is required in the event that (i) the collateral value ratio test is equal to or less than .95 as of three consecutive monthly determination dates and the Company has not substituted receivables or deposited cash into the collection account to bring the collateral value ratio above .95; or (ii) three special redemptions are required within any consecutive 12-month period; or (iii) the aggregate stated value of all ineligible receivables which have been ineligible receivables for more than 30 days exceeds 7% of the aggregate collateral balance and the collateral value ratio is less than 1.00.
Special redemption (payment of a portion of the Notes plus a premium) is required in the event that the collateral value ratio test is less than 1.00 as of two consecutive monthly determination dates and the Company has not substituted receivables or deposited cash into the collection account to bring the collateral value ratio to 1.00.
Also, DFC may not purchase additional eligible receivables if the Company has an interest coverage ratio (as defined) of less than 1.10; or if the Company has more than $40 million of scheduled principal debt (as defined) due within 24 months prior to the amortization date or $20 million of scheduled principal debt due within 12 months prior to the amortization date.
At December 31, 1993, $17,632,000 of cash and short-term investments and $107,091,000 of accounts receivable are restricted as collateral for the Notes.
As of December 31, 1993, the Company had two separate unsecured revolving credit facilities available. One facility, which matured January 23, 1994, provided that the Company could borrow up to $10,000,000 less any outstanding letters of credit. At the Company's option, amounts borrowed under this facility bear interest at either prime rate plus 1% or Eurodollar rate plus 2%, all as defined. The other revolving credit facility, which matured January 31, 1994, provided that the Company could borrow up to $5,000,000 at a per annum interest rate equal to 1% plus the prime interest rate established by the Bank. The Company paid commitment fees of $68,000 and $73,000 in 1993 and 1992, respectively, which equal 1/2 of 1% per annum on the unused loan commitments. At December 31, 1993, the Company had $12,084,000 available under these Revolving Credit Facilities.
In March 1994, the Company entered into a secured revolving credit agreement which provides a $5,000,000 line of credit plus a $2,500,000 revolving letter of credit facility. The agreement is secured by the stock of the Company's Commercial Aviation subsidiaries and selected fixed assets. Advances under the line of credit will bear interest at a per annum interest rate equal to 1% plus the prime interest rate established by the bank. For each letter of credit issued, the Company must assign a cash collateral deposit in favor of the bank for 100% of the face value of the letter of credit. The Company will pay a fee of 1.5% per annum computed on the face amount of the letter of credit for the period the letter of credit is scheduled to be outstanding. The credit agreement will expire July 1, 1994.
The Junior Subordinated Debentures (Debentures) mature on June 30, 2003, and bear interest of 16% per annum, payable semi-annually. The effective interest rate is 19.4%. The Company may, at its option, prior to September 9, 1995, pay the interest either in cash or issue additional Debentures. The Debentures are subject to annual mandatory redemption beginning June 30, 1999. The Company may, at its option, redeem in whole or in part, at any time, the Debentures at their face value plus accrued interest. During 1993, 1992 and 1991, $13,142,000, $6,590,000 and $11,950,000, respectively, of additional Debentures were issued in lieu of cash interest payments.
Using a lottery selection method, the Company called for partial redemption of $10,000,000 face value plus accrued interest for cash redemption on August 10, 1992. The lottery resulted in redeeming $9,698,000 face value of the Debentures. Open market purchases during 1992 retired $290,000 of the Debentures. The related unamortized discount, deferred debt expense and expenses, net of applicable income taxes, were reported as an extraordinary loss in 1992.
The Company received title to its corporate office building on July 31, 1992 by assuming a mortgage of $19,456,000. At the Company's option, the interest on the mortgage may be computed from time to time under one of three methods based on the Certificate of Deposit Rate, LIBOR Rate or the Prime Rate, all as defined. Also, the Company was required to pay additional interest through May 27, 1993. The additional interest was the difference between a fixed rate of 9.36% and a floating rate based upon an imputed amount of $31,900,000. The original mortgage maturity date was May 27, 1993; however, as provided, the Company extended the mortgage to March 27, 1995 with an increase in the interest rate of 1/2% per annum plus an extension fee (based on the principal amount of the mortgage outstanding) of .42% on May 27, 1993 and .50% on March 27, 1994.
The Company acquired the Alexandria, VA headquarters of Technology Applications, Inc. on November 12, 1993. A mortgage of $3,344,000 bearing interest at 8% per annum was assumed. Payments are made monthly and the mortgage matures in April 2003. Additionally, a $1,150,000 promissory note was issued. The note bears interest at 7% per annum. Payments under the note shall be made quarterly through October, 1998.
Deferred debt issuance costs are being amortized using the effective interest rate method over the terms of the related debt. At December 31, 1993, unamortized deferred debt issuance costs were $1,339,000 and amortization for 1993, 1992 and 1991 was $328,000, $420,000 and $2,309,000, respectively.
(5) Accrued Expenses
At December 31, 1993 and 1992, accrued expenses consisted of the following (in thousands):
1993 1992 Salaries and wages $ 43,698 $ 38,906 Insurance 17,202 23,802 Interest 6,233 6,187 Payroll and miscellaneous taxes 10,412 9,123 Accrued contingent liabilities and operating reserves 19,028 16,440 Other 9,005 8,209 $105,578 $102,667
(6) Redeemable Common Stock
In conjunction with the acquisition of Technology Applications, Inc. (see Note 15), the Company issued put options on 125,714 shares of common stock. The holder may, at any time commencing on December 31, 1998 and ending on December 31, 2000, sell these shares to the Company at a price per share equal to the greater of $17.50; or, if the stock is publicly traded, the market value at a specified date; or, if the Company's stock is not publicly traded, the fair market value at the time of exercise.
(7) Stockholders' Equity
Class C Preferred Stock is convertible, at the option of the holder, into one share of common stock, adjusted for any stock splits, stock dividends or redemption. At conversion the holders of Class C Preferred Stock are also entitled to receive such warrants as have been distributed to the holders of the common stock. Dividends accrue at an annual rate of 18%, compounded quarterly. At December 31, 1993, cumulative dividends of $5,342,000 have not been recorded or paid. Dividends will be payable only when cash dividends are declared with respect to common stock and only in an aggregate amount equal to the aggregate amount of dividends that such holders would have been entitled to receive if such Class C Preferred Stock had been converted into common stock. Each holder of Class C Preferred Stock is entitled to one vote per share on any matter submitted to the holders of common stock for stockholder approval. In addition, so long as any Class C Preferred Stock is outstanding, the Company is prohibited from engaging in certain significant transactions without the affirmative vote of the holders of a majority of the outstanding Class C Preferred Stock.
The Company has issued warrants to the Class C Preferred stockholders and to certain common stockholders to purchase a maximum of 5,891,987 shares of common stock of the Company. At December 31, 1993, warrants were outstanding to purchase 5,713,887 shares of common stock of the Company. Each warrant is exercisable to obtain one share of common stock for $0.25. Rights under the warrants lapse no later than September 9, 1998. The Board of Directors has authorized a new stockholders' agreement which will permit current stockholders to convert warrants to shares on a noncash basis.
The Company has a Restricted Stock Plan (the Plan) under which management and key employees may be awarded shares of common stock based on the Company's performance. The Company has reserved 1,025,037 shares of common stock for issuance under the Plan. Under the Plan, Restricted Stock Units (Units) are granted to participants who are selected by the Compensation Committee of the Board of Directors. Each Unit will entitle the participant upon achievement of the performance goals (all as defined) to receive one share of the Company's common stock. Units cannot be converted into shares of common stock until the participant's interest in the Units has vested. Vesting occurs upon completion of the specified periods as set forth in the Plan. In 1993, 1992 and 1991, the Company accrued as compensation expense $2,235,000, $3,264,000 and $3,785,000, respectively, under the Plan which was charged to cost of services and corporate administrative expenses.
The Company has a Management Employees Stock Purchase Plan (the Stock Purchase Plan) whereby employees in management, supervisory or senior administrative positions may purchase shares of the Company's common stock along with warrants at current fair value. The Board of Directors is responsible for establishing the fair value for purposes of the Stockholders Agreement and the Management Employees Stock Purchase Plan. The determination has been based upon the most recent appraisal of the Company's common stock prepared by the financial advisors to the Employee Stock Ownership Plan Committee, adjusted to reflect the absence of a control-share premium, lack of liquidity, reductions in the warrant exercise price, and inflationary forces. At December 31, 1993, the fair value was determined to be $59.52 per share including 6.6767 warrants. Treasury stock, which the Company acquired from terminated employees who had previously purchased the stock from the Company, is being issued to employees purchasing stock under the Stock Purchase Plan.
In accordance with ERISA regulations and the Employee Stock Ownership Plan Documents, the ESOP Trust or the Company are obligated to purchase vested common stock shares from ESOP participants (see Note 9) at the fair value (as determined by an independent appraiser) as long as the Company's common stock is not publicly traded. Participants receive their vested shares upon retirement, becoming totally disabled, or death, over a period of one to five years and for other reasons of termination over a period of one to ten years, all as set forth in the Plan. In the event the fair value of a share is less than $27.00, the Company is committed to pay through December 31, 1996, up to an aggregate of $16,000,000, the difference (Premium) between the fair value and $27.00 per share. As of December 31, 1993, the Company has purchased 327,411 shares from participants and has expended $3,069,000 of the $16,000,000 commitment. Based on the fair value of $17.99 per share at December 31, 1993, the Company estimates a total Premium of $8,500,000 and an aggregate annual commitment to repurchase shares from the ESOP participants upon death, disability, retirement and termination as follows; $3,600,000 in 1994, $5,900,000 in 1995, $4,000,000 in 1996, $3,000,000 in 1997, $4,300,000 in 1998 and $56,800,000 thereafter. The fair value is charged to Treasury Stock at the time of repurchase. The estimated Premium of $8,500,000 is being recorded over the life of the ESOP and reported as "Other" expense in the income statement. Through December 31, 1993, $7,181,000 of the Premium had been recorded and recognized as compensation expense.
The Company is presently in discussions with its investment bankers to replace the Junior Subordinated Debentures through the issuance of new senior notes or an initial public offering or a combination of the two. In the event of an initial public offering, the unpaid balance of the $16 million premium may become payable.
Under the DynCorp Stockholders' Agreement which expired on March 11, 1994, the Company was committed, upon an employee's termination of employment, to purchase common stock shares held by employees pursuant to the merger (Management Investor Shares), through the Stock Purchase Plan or through the Restricted Stock Plan. The share price is fair value ($59.52 per share including 6.6767 warrants at December 31, 1993) as determined by the Board of Directors for Management Investor Shares and Stock Purchase Plan shares. Such shares outstanding at December 31, 1993, were 262,298, with 1,751,285 warrants attached. The share price for Restricted Stock Plan shares ($17.99 at December 31, 1993) is fair value as set forth in the appraisal of shares held by the ESOP. However, the Company may not purchase more than $250,000 of Management Investor shares or Restricted Stock shares in any fiscal year without the approval of the Class C Preferred stockholders. The Board of Directors has authorized an extension of the Stockholders' agreement, pending acceptance by the shareholders, which will contain similar repurchase obligations.
(8) Cummings Point Industries, Inc. Note Receivable
The Company loaned $5,500,000 to Cummings Point Industries, Inc. ("CPI"), of which Capricorn Investors, L.P. ("Capricorn") owns more than 10%. The indebtedness is represented by a promissory note (the "Note"), bearing interest at the annual rate of 17%, which provides that interest is payable quarterly but that interest payments may not be payable in cash but may be added to the principal of the Note. The Note is subordinated to all senior debt of CPI. The Note, which was issued February 12, 1992, was due three months thereafter; however, the Company, at its option, has extended and may further extend the maturity date in three month increments to no later than February 12, 1995. By separate agreement and as security to the Company, Capricorn has agreed to purchase the Note from the Company upon three months' notice, for the amount of outstanding principal plus accrued interest. As additional security, Capricorn's purchase obligation is collateralized by certain common stock and warrants issued by the Company and owned by Capricorn. The note has been reflected as a reduction in stockholders' equity as it is anticipated the collateral will be used to satisfy the obligation.
(9) Employee Stock Ownership Plan
In September, 1988, the Company established an Employee Stock Ownership Plan (the Plan). The Company borrowed $100 million and loaned the proceeds, on the same terms as the Company's borrowings, to the Plan to purchase 4,123,711 shares of common stock of the Company (the "ESOP loan"). The common stock purchased by the Plan was held in a collateral account as security for the ESOP loan from the Company. The Company was obligated to make contributions to the Plan in at least the same amount as required to pay the principal and interest installments under the Plan's borrowings. The Plan used the Company contributions to repay the principal and interest on the ESOP loan. As the ESOP loan was liquidated, shares of the Company's common stock were released from the collateral account and allocated to participants of the Plan. As of December 31, 1993, the loan has been fully repaid.
In March, 1991, the Employee Stock Ownership Plan was amended to provide for an additional contribution of no fewer than 25,000 shares of common stock in 1993 and 625,000 shares in 1994. The Company may, at its option, contribute cash in lieu of the aforementioned shares of common stock, based on the most recent valuation of such stock. The Company has an agreement in principle with the ESOP to contribute approximately $15 million in cash or stock in 1994, inclusive of the 625,000 shares, to satisfy its funding obligations.
The Plan covers a majority of the employees of the Company. Participants in the Plan become fully vested after four years of service. All of the 4,148,711 shares owned by the ESOP have been allocated to participants as of December 31, 1993. The Company recognizes ESOP expense each year based on contributions committed to be made to the Plan. The Company's cash contributions were determined based on the ESOP's debt service. Stock contributions are determined in accordance with the amended agreement. In 1993 cash and stock contributions to the ESOP were $16,608,000 and $437,000 respectively, 1992 and 1991 cash contributions were $17,275,000 and $18,805,000, respectively. These amounts were charged to cost of services and selling and corporate administrative expenses (including $491,000, $1,450,000 and $3,231,000 of interest on the ESOP term loan).
(10) Income Taxes
The Company changed from Statement of Financial Accounting Standards (SFAS) No. 96 to Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" effective January 1, 1992. There was no significant cumulative effect from this change and prior year financial statements were not restated.
Earnings (loss) before income taxes and minority interest (but including extraordinary item - see Note 4) were derived from the following (in thousands):
1993 1992 1991 Domestic operations $(11,240) $(23,378) $(18,393) Foreign operations 107 204 92 $(11,133) $(23,174) $(18,301)
The provision (benefit) for income taxes (and including extraordinary item - see Note 4) consisted of the following (in thousands):
1993 1992 1991 Current: Federal $ 723 $ 416 $ (867) Foreign 170 168 567 State (85) 193 (665) 808 777 (965)
Deferred: Federal 500 (416) (5,106) State 21 (193) 173 521 (609) (4,933) Total $ 1,329 $ 168 $(5,898)
The components of and changes in deferred taxes are as follows (in thousands):
The components of the changes in deferred taxes are as follows (in thousands):
Difference between book and tax method of accounting for depreciation and amortization $(1,233) Difference between book and tax method of accounting for income on U.S. Government contracts 2,668 Deferred compensation expense (255) Operating reserves and other accruals (3,661) Difference between book and tax method of accounting for certain employee benefits (485) Amortization of intangibles (2,051) Other, net 84 Total temporary differences affecting tax provision (4,933) Deferred taxes from "safe harbor" lease transactions (338) Taxes related to the merger and disposition of businesses 342 $(4,929)
The tax provision (benefit) differs from the amounts obtained by applying the statutory U.S. Federal income tax rate to the pre-tax loss amounts. The differences can be reconciled as follows (in thousands):
1993 1992 1991 Expected Federal income tax benefit $(3,785) $(7,879) $(6,222) Valuation allowance 3,812 6,031 - State and local income taxes, net of Federal income tax benefit (42) - (325) Nondeductible amortization of intangibles and other costs 1,552 2,300 2,651 Foreign income tax 84 99 585 Tax credits, primarily foreign (359) (222) (2,663) Other, net 67 (161) 76 Tax provision (benefit) $1,329 $ 168 $(5,898)
In 1993, the Company recorded a $170,000 foreign income tax provision and a $64,000 state income tax benefit. However, due to the uncertainty regarding the level of future taxable income, the Company did not recognize any federal tax benefits on the losses incurred in 1993. The federal tax provision of $1,223,000 is that of a majority owned subsidiary which is required to file a separate federal return.
The Company's U.S. Federal income tax returns have been audited through 1984. The Internal Revenue Service has performed an examination of the Company's tax returns for the period 1985- 88 and has proposed several adjustments, the most significant of which relates to deductions taken by the Company for expenses incurred in the 1988 merger. The Company and its attorneys are currently protesting these proposed adjustments with the IRS appeals office. Taxes and accrued interest associated with these proposed adjustments, including the ongoing effects of similar adjustments in future years, are approximately $15,700,000. In the opinion of management, based in part upon opinion of its attorneys, the tax liability, if any, for these proposed adjustments will not have a material adverse effect on the consolidated results of operations and financial position of the Company.
The Company has state net operating losses and foreign tax credit carryforwards available to offset future taxable income and income taxes. Following are the net operating losses and foreign tax credits by year of expiration (in thousands):
Year of Foreign State Net Expiration Tax Credits Operating Losses 1994 $2,341 $ - 1995 - 2,448 1996 189 20 2005 - 8,145 2006 - 66 2007 - 472 $2,530 $11,151
(11) Pension Plans
Union employees who are not participants in the ESOP are covered by multiemployer pension plans under which the Company pays fixed amounts, generally per hours worked, according to the provisions of the various labor contracts. In 1993, 1992 and 1991, the Company expensed $2,400,000, $2,693,000 and $2,900,000, respectively, for these plans. Under the Employee Retirement Income Security Act of 1974 as amended by the Multiemployer Pension Plan Amendments Act of 1980, an employer is liable upon withdrawal from or termination of a multiemployer plan for its proportionate share of the plan's unfunded vested benefits liability. Based on information provided by the administrators of the majority of these multiemployer plans, the Company does not believe there is any significant amount of unfunded vested liability under these plans.
The Company makes contributions to a defined benefit pension plan for employees working on one cost plus U.S. Government contract. The plan is accounted for in accordance with the requirements of Statement of Financial Accounting Standards No. 87. The pension plan had assets of $5,642,000 and projected benefit obligations of $5,356,000 at September 30, 1993 (the plan's fiscal year end). This pension plan remains in effect regardless of changes in contractors which may occur as a result of the recompetition process.
(12) Earnings Per Share
Primary earnings per share is based on the weighted average number of common and dilutive common equivalent shares outstanding during the period. In addition, 1993 and 1992 include as outstanding common stock, shares earned and vested but unissued under the Restricted Stock Plan. For years 1993, 1992 and 1991, the outstanding warrants and shares which would be issued under the assumed conversion of Class C Preferred Stock have been excluded from the calculation of earnings per share as their effect is antidilutive because of the losses incurred during the periods (see also Note 6). Further, the loss per common share for 1993, 1992 and 1991 includes the effect of the unpaid dividends on the Class C Preferred Stock ($1,347,000 in 1993, $1,129,000 in 1992 and $947,000 in 1991 - see Note 7) and, in addition, for 1991 and 1992 the dividends paid on Class A Preferred Stock. The average number of shares used in determining primary earnings per share was 5,141,319 for 1993, 5,102,621 for 1992 and 4,719,407 for 1991.
(13) Incentive Compensation Plans
The Company has several formal incentive compensation plans which provide for incentive payments to officers and key employees. Incentive payments under these plans are based upon operational performance, individual performance, or a combination thereof, as defined in the plans. Incentive compensation expense was $7,067,000 for 1993, $6,058,000 for 1992 and $5,788,000 for 1991.
(14) Leases
The Company has capitalized all significant leases which meet the criteria for classification as capital leases, principally leases for vehicles and equipment. Capitalized leases are amortized over the useful lives of the assets.
Future minimum lease payments required under operating leases that have remaining noncancellable lease terms in excess of one year at December 31, 1993 and payments under capitalized leases are summarized below:
Operating Capitalized Leases Leases Years Ending December 31, 1994 $ 6,805 $1,519 1995 6,562 1,022 1996 4,080 651 1997 3,683 489 1998 2,727 77 Thereafter 7,831 - Total minimum lease payments $31,688 $3,758 Less interest on capitalized leases 548 Present value of capitalized leases as of December 31, 1993 (Note 4) $3,210
Net rent expense for leases, excluding amounts for capitalized leases, was $16,553,000 for 1993, $14,706,000 for 1992 and $14,980,000 for 1991.
(15) Acquisitions
On November 12, 1993 the Company acquired Technology Applications, Inc. (TAI). Aggregate cash paid, notes issued and mortgages assumed totaled $11,419,000 and 125,714 shares of common stock valued at $2,200,000 were issued (see Note 6). TAI, located in Alexandria, Virginia, provides tactical and nontactical software engineering and logistics services to industry as well as defense and civilian government agencies. The acquisition was accounted for as a purchase and $2,710,000 of goodwill was recorded which will be amortized over 40 years.
The Company also acquired certain assets of Science Management Corporation ("SMC") and NMI Systems Inc. ("NMI") on February 18, 1993 and December 10, 1993, respectively, for an aggregate of $5,352,000 in cash, notes and other liabilities. SMC provides information processing, systems management and related consulting services, primarily to the U.S. Government. Key customers include the U.S. Postal Service, Centers for Disease Control and the Department of Education. NMI, headquartered in Fairfax, VA, provides telecommunications operations, engineering and local and wide area network design and consulting services primarily for the Environmental Protection Agency, the U.S. Treasury and the Internal Revenue Service. Both of these acquisitions were accounted for as purchases. Goodwill of $3,373,000 was recorded and will be amortized over periods up to 40 years. The allocation period for the NMI acquisition remains open pending resolution of certain contract issues.
Consolidated revenues, loss before extraordinary item, net loss and loss per share for the years ended December 31, 1993 and 1992, adjusted on an unaudited pro forma basis as if the above acquisitions and the acquisition in 1992 (BK Dynamics Inc. was acquired on December 15, 1992 for an aggregate of $2,277,000 in cash and notes) had been consummated at the beginning of the respective periods, are as follows (in thousands except per share amounts):
Unaudited 1993 1992
Revenues $999,285 $993,180 Loss before extraordinary item $(11,951) $(19,307) Net loss for common stockholders (a) $(13,298) $(22,792) Net loss per common share $ (2.64) $ (4.58)
(a) The net loss for common stockholders includes Preferred Class A dividends declared and paid and accretion of discount of $959,000 in 1992.
(16) Commitments, Contingencies and Litigation
The Company is involved in various claims and lawsuits, including contract disputes and claims based on allegations of negligence and other tortious conduct. The Company is also potentially liable for certain environmental, personal injury, tax and contract dispute issues related to the prior operations of divested businesses. In most cases, the Company has denied, or believes it has a basis to deny, liability, and in some cases has offsetting claims against the plaintiffs or third parties.
Damages currently claimed by the various plaintiffs for these items which may not be covered by insurance aggregate approximately $34,000,000 (including compensatory and possible punitive damages and penalties).
A former subsidiary, which discontinued its business activities in 1986, has been named as one of many defendants in civil lawsuits which have been filed in various state courts against manufacturers, distributors and installers of asbestos products. (The subsidiary had discontinued the use of asbestos products prior to being acquired by the Company.) The Company has also been named as a defendant in several of these actions. At the beginning of 1991, 31 claims had been filed and during the year 360 additional claims were filed with one claim being settled. In 1992, 1,755 additional claims were filed and 73 were settled. In 1993, 662 new claims were filed with 1,204 claims being settled. Defense has been tendered to and accepted by the Company's insurance carriers. The former subsidiary was a nonmanufacturer that installed or distributed industrial insulation products. Accordingly, the Company strongly believes that the subsidiary has substantial defenses against alleged secondary and indirect liability. The Company has provided a reserve for the estimated uninsured legal costs to defend the suits and the estimated cost of reaching reasonable no-fault liability settlements of $18,000,000 less estimated insurance coverages of $11,000,000. The amount of the reserve has been estimated based on the number of claims filed and settled to date, number of claims outstanding, current estimates of future filings, trends in costs and settlements, and the advice of the insurance carriers and counsel.
The Company and a wholly-owned subsidiary acquired in 1991 are the subjects of separate investigations by federal investigators who are reviewing, respectively, the accuracy of the Company's equipment maintenance records on a military equipment maintenance contract, and the appropriateness of pricing proposals submitted by the subsidiary to a government agency prime contractor for software development services. The Company and subsidiary are cooperating with the investigators. The Company has provided a reserve for the estimated legal costs associated with these investigations.
The Company has also been notified of certain proposed tax adjustments by the IRS relative to the deduction taken by the Company for expenses incurred in the 1988 merger.
The Company is a party to other civil lawsuits which have arisen in the normal course of business for which potential liability, including costs of defense, are covered by insurance policies.
The Company has recorded its best estimate of the liability that will result from these matters. While it is not possible to predict with certainty the outcome of the litigation and other matters discussed above, it is the opinion of the Company's management, based in part upon opinions of counsel, insurance in force and the facts presently known, that liabilities in excess of those recorded, if any, arising from such matters would not have a material adverse effect on the results of operations or consolidated financial position of the Company.
The major portion of the Company's business involves contracting with departments and agencies of, and prime contractors to, the U.S. government and as such are subject to possible termination for the convenience of the government and to audit and possible adjustment to give effect to unallowable costs under cost-type contracts or to other regulatory requirements affecting both cost-type and fixed- price contracts. In management's opinion, there are no outstanding issues of this nature at December 31, 1993 that would have a material adverse effect on the Company's consolidated financial position or results of operations.
The Company is highly leveraged, and its ability to meet its future debt service and working capital requirements is dependent upon several factors. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion on the Company's Liquidity and Capital Resources, included elsewhere in this Form 10-K.
(17) Business Segment
The Company operates in one line of business, that of providing management and technical services to industry and government organizations primarily to support the customers' facilities and/or operations on a turn-key (full) service basis.
The Company has no significant foreign operations or assets outside the United States. The largest single customer of the Company is the U.S. Government. The Company had prime contract revenues from the U.S. Government of $663 million in 1993, $674 million in 1992 and $600 million in 1991. Included in revenues from the U.S. Government are revenues from the Department of Defense of $543 million in 1993, $538 million in 1992 and $523 million in 1991. No other customer accounted for more than 10% of revenues in any year.
(18) Quarterly Financial Data (Unaudited)
A summary of quarterly financial data for 1993 and 1992 is as follows (in thousands, except per share data):
ITEM 9
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Herbert S. Winokur, Jr., 50 Director and Chairman of the Board since 1988, term expires 1996 President, Winokur Holdings, Inc. (investment company)
Formerly Senior Executive Vice President, Member Office of the President, and Director, Penn Central Corporation. Director of ENRON Corporation; NacRe Corp.; NHP, Inc.; and Marine Drilling Companies, Inc.
Dan R. Bannister, 63* Director since 1985, term expires Chief Executive Officer since 1985 President since 1984 Director of Industrial Training Corporation
T. Eugene Blanchard, 63* Nominee for Director, term expires 1997 Director since 1988 Senior Vice President and Chief Financial Officer since 1979
Russell E. Dougherty, 73 Director since 1989, term expires 1996 Attorney, McGuire, Woods, Battle & Boothe (law firm)
Retired General, United States Air Force; served as Commander-in-Chief, Strategic Air Command and Chief of Staff, Allied Command, Europe. From 1980 to 1986 served as Executive Director of the Air Force Association and Publisher of Air Force Magazine. Member of the Defense Science Board. Trustee of the Institute for Defense Analysis. Director of The Aerospace Corp.
James H. Duggan, 58* Director since 1988, term expires 1996 Executive Vice President since 1987 President of Applied Sciences Group since 1991
Paul G. Kaminski, 51 Director since 1988, term expires Chairman and Chief Executive Officer of Technology Strategies & Alliances (strategic partnership consulting)
Retired Colonel, United States Air Force. Director of Atlantic Aerospace & Electronics; Delfin Systems, Inc.; Geodynamics, Inc.; Jaycor; Microwave Technology Inc.; ISX Corp.; and Michigan Development Corp. Chairman of the Defense Science Board.
Dudley C. Mecum II, 59 Nominee for Director, term expires 1997 Director since 1988 Partner, G.L. Ohrstrom & Co. (investment company)
Formerly Chairman of Mecum Associates, Inc. Served as Group Vice President and Director, Combustion Engineering, Inc. Director of The Travelers Inc., Lyondell Petrochemical Company, Vicorp Restaurants Inc., Fingerhut Companies, Inc., and Roper Industries Inc.
David L. Reichardt, 51* Director since 1988, term expires Senior Vice President and General Counsel since 1986
President of Dynalectric Company, a subsidiary of DynCorp, from 1984 to 1986. Vice President and General Counsel of DynCorp from 1977 to 1984.
Other Executive Officers
Patrick G. Deasy, 55* Vice President since 1993 President of DynAir Ground Services Group since 1993, President of DynAir Services Inc. since 1985
Gerald A. Dunn, 60* Vice President since 1973 Controller since 1967
H. Montgomery Hougen, 58 Corporate Secretary and Deputy General Counsel since 1984
Richard A. Hutchinson, 49 Treasurer since 1978
Marshal J. Hyman, 48 Vice President since 1993 Director of Taxes since 1986
Paul V. Lombardi, 52* Vice President since 1992 President of Government Services Group since 1992
Senior Vice President and Group General Manager, Planning Research Corporation from 1990 to 1992. Senior Vice President and Group General Manager, Advanced Technology Inc. from 1988 to 1990.
Gregory Moyer, 45 Vice President, Human Resources and Administration since 1993
Vice President, Human Resources and Quality, Planning Research Corporation from 1989 to 1993.
John H. Saunders, 37 Vice President, Finance since 1993 Director of Corporate Finance since 1990 Vice President, Finance, Government Services Group from 1987 to 1990
Donald S. Sullenberger, 53 Vice President, Quality Improvement since 1991. Retired Colonel, United States Air Force. Division Manager, DynCorp, Holloman Support Division from 1987 to 1991
Richard L. Webb, 61* Vice President since 1988 President of DynAir Technical Services Group since 1993, President of Aviation Services Group from 1985 to 1993
Robert G. Wilson, 52 Vice President and General Auditor since 1985
*Officers designated by an asterisk are deemed to be officers for purposes of Rule 16a-1(f), as promulgated in Release No. 34-28869.
Stockholders Agreement
In anticipation of the merger of DME Holdings, Inc. into the Company, which occurred in September, 1988, the stockholders and other investors in DME Holdings, Inc. entered into a Stockholders Agreement, dated March 11, 1988. This Agreement, to which most of the holders of voting stock of DynCorp, except the Employee Stock Ownership Plan Trust and participants in such Plan to whom shares have been distributed, are parties, provides that the Company's management employees as a group and the outside investors acting through Capricorn Investors as a group are each entitled to nominate four of the nine authorized directors and, in concert, to nominate a ninth director, for which nominees all the parties are required to vote. Each of the eight current directors, including those currently nominated to succeed themselves, was initially nominated by this procedure. The Stockholders Agreement expired on March 11, 1994, but a replacement Stockholders Agreement, effective as of such expiration date and having similar terms, has been approved by the Board of Directors and is expected to be adopted by the respective parties.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Compensation
The following table sets forth information regarding annual and long-term compensation for the chief executive officer and the other four most highly compensated executive officers of the Company. The table does not include information for any fiscal year during which a named executive officer did not hold such a position with the Company.
(1) Column (d) reflects bonuses earned and expensed during year, whether paid during or after such year.
(2) Value of restricted stock units determined in accordance with Restricted Stock Plan. Units awarded in 1991 could vest in less than three years, in the event of earlier issuance of a tax ruling regarding the allocation of shares within the Employee Stock Ownership Plan (ESOP). There is no provision to pay dividends on restricted stock units. The following table reflects the number of restricted stock units in the respective accounts of the named individuals, whether vested or unvested, and the aggregate valuation as of December 31, 1993.
Name No. of Value ($) Units
Dan R. Bannister 55,292 967,610 James H. Duggan 58,764 1,028,370 T.Eugene Blanchard 47,980 839,650 David L. Reichardt 32,528 569,240 Paul V. Lombardi 12,000 210,000
(3) Column (i) includes individual's pro rata share of the Company's contribution to the ESOP Trust, estimated for 1993, and the Company-paid portion of group term-life insurance premiums covering the individual, as reflected in the following table.
Name ESOP Contributions ($) Insurance Premiums($) 1993 1992 1991 1993 1992 1991 Dan R. Bannister 8,912 8,912 11,406 8,553 7,722 7,722 James H. Duggan 8,912 8,912 11,406 3,901 4,855 4,855 T. Eugene Blanchard 8,912 8,912 11,406 8,106 7,722 7,722 David L. Reichardt 8,912 8,912 11,406 2,881 1,448 1,448 Paul V. Lombardi 8,912 1,810 - 3,048 528 -
Compensation of Directors
Non-employee directors of the Company receive an annual retainer fee of $16,500 as directors and $2,750 for each committee on which they serve. The Company also pays non- employee directors a meeting fee of $1,000 for attendance at each Board meeting and $500 for attendance at committee meetings. Directors are reimbursed for expenses incurred in connection with attendance at meetings and other Company functions.
Directors and Officers Liability Insurance The Company has purchased and paid the premium for insurance in respect of claims against its directors and officers and in respect of losses for which the Company may be required or permitted by law to indemnify such directors and officers. The directors insured are the directors named herein and all directors of the Company's subsidiaries. The officers insured are all officers and assistant officers of the Company and its subsidiaries. There is no allocation or segregation of the premium as regards specific subsidiaries or individual directors and officers.
Employment-Type Contracts
In September, 1987, the Company entered into change-in- control severance agreements with Messrs. Bannister, Duggan, Blanchard, and Reichardt, and certain other executive officers of DynCorp (the "Severance Agreements"). Each Severance Agreement provides that certain benefits, including a lump-sum payment, will be triggered if such executive is terminated following a change in control during the term of that executive's Severance Agreement, unless such termination occurs under certain circumstances set forth in the Severance Agreements. The Severance Agreements expire on December 31, 1994, but they are automatically extended. The amount of such lump sum payment would be equal to 2.99 times the sum of the executive's annual salary and the average annual amount paid to the executive pursuant to certain applicable compensation-type plans in the three years preceding the year in which the termination occurs. Other benefits include payment of any incentive compensation which has been allocated or awarded but not yet paid to the executive for a fiscal year or other measuring period preceding termination and a pro rata portion to the date of termination of the aggregate value of incentive compensation awards for uncompleted periods under such plans. Each Severance Agreement also provides that, if the aggregate of the lump sum payment to the executive and any other payment or benefit included in the calculation of "parachute payments" within the meaning of Section 280G of the Internal Revenue Code exceeds the amount the Company is entitled to deduct on its federal income tax return, the severance payments shall be reduced until no portion of the aggregate termination payments to the executive is not so deductible or the severance payment is reduced to zero. The Severance Agreements also provide that the Company will reimburse the executive for legal fees and expenses incurred by the executive as a result of termination except to the extent that the payment of such fees and expenses would not be, or would cause any other portion of the aggregate termination payments not to be, deductible by reason of Section 280G of the Code. The Company has an employment contract with Mr. Lombardi, under which Mr. Lombardi receives salary at an annual rate of $215,000; subject to earlier termination for specified reasons, the contract continues until September 30, 1994.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board of Directors during 1993 were: Herbert S. Winokur, Jr., Chairman of the Board and Director; Russell E. Dougherty, Director; and Paul G. Kaminski, Director. None of the members are current or former employees of the Company, and, except for Mr. Winokur, whose relationship to Capricorn Investors, L.P. ("Capricorn") is described in Item 12, none have any relationship with the Company of the nature contemplated by Rule 404 of Regulation S-K.
On February 12, 1992, the Company loaned $5,500,000 to Cummings Point Industries, Inc. ("CPI"), a Delaware corporation of which Capricorn owns more than 10%. The indebtedness is represented by a promissory note (the "Note"), bearing interest at the annual rate of 17%, which provides that interest is payable quarterly but that interest payments may be added to the principal of the Note rather than being paid in cash. The Note is subordinated to all senior debt of CPI. The Note was due six months after issuance, but it has been, and may continue to be, automatically extended for three-month periods until no later than February 12, 1995. By separate agreement, Capricorn agreed to purchase the Note from the Company upon three months' notice, for the amount of outstanding principal plus accrued interest. The purchase obligation is secured by certain common stock and warrants issued by the Company and owned by Capricorn. No executive officer of the Company serves on the board of directors or compensation committee of any entity (other than subsidiaries of the Company) whose directors or executive officers served on the Board of Directors or Compensation Committee of the Company.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Voting Securities
As of March 1, 1994, the Company had 4,728,563 shares of Common Stock and 123,711 shares of Class C Preferred Convertible Stock outstanding, which constituted all the outstanding voting securities of the Company. If all the shares issuable upon exercise of outstanding warrants, all the shares issuable upon conversion of outstanding Class C Preferred Convertible Stock and exercise of related warrants, and shares issuable as a result of scheduled expiration within 60 days of Restricted Stock Plan deferrals (but excluding any vesting of Restricted Stock Plan units or shares subsequent to March 1, 1994) were issued, the outstanding voting securities following such dilution would consist of 10,570,267 shares of Common Stock (and no shares of Class C Stock). The following tables show beneficial ownership of issued voting shares as a percentage of currently outstanding stock and beneficial ownership of issued and issuable shares as a percentage of common stock on a fully diluted basis assuming all such conversions, exercises, and issuances.
Security Ownership of Certain Beneficial Owners
The following table presents information as of March 1, 1994, concerning the only known beneficial owners of five percent or more of the Company's Common Stock and Class C Preferred Stock. Amount & Amount & Nature of Nature of Percent Title Ownership Percent Ownership of Name and Address of of of Outstand- of of Diluted Diluted Beneficial Owner Class ing Shares Class Shares (3) Shares (3)
Chemical Bank, Common 3,816,841 80.7% 3,816,841 36.1% Trustee of the Direct(1) Direct (1) DynCorp Employee Stock Ownership Trust 450 W. 33rd Street New York, NY 10001-2697
Capricorn Investors, Common 292,369 6.2% 4,117,127 39.0% L.P.(2) Direct Direct 72 Cummings Point Road Stamford, CT 06902
Capricorn Investors, Class C 123,711 100% N/A - L.P.(2) Preferred Direct 72 Cummings Point Road Stamford, CT 06902
(1) Shares are held for the accounts of participants in the ESOP. When allocated to individual participant accounts, shares are voted upon instruction of the individual participants. Until so allocated, shares are voted upon the instruction of the ESOP Administrative Committee, 2000 Edmund Halley Drive, Reston, Virginia 22091-3436.
(2) Herbert S. Winokur, Jr., Chairman of the Board and a Director of the Company, is the President of Winokur Holdings, Inc., which is the managing partner of Capricorn Holdings, G.P., which in turn is the general partner of Capricorn Investors, L.P.
(3) Assumes dilution described above.
Security Ownership of Management(1)
Beneficial ownership of the Company's equity securities by directors and nominees for election to the Board, and all current officers and directors as a group, are set forth below:
Amount & Amount & Nature of Nature of Percent Title Ownership Percent Ownership of Name and Title of of of Outstand- of of Diluted Diluted Beneficial Owner Class ing Shares(2) Class(3) Shares (4) Shares(3) (4)
D. R. Bannister Common 55,030 Direct} 1.3% 305,620 Direct} 3.0% President & 6,952 Indirect} 6,952 Indirect} Director
T. E. Blanchard Common 19,385 Direct} * 148,746 Direct} 1.5% Senior Vice 5,763 Indirect} 14,109 Indirect} President & Director
R. E. Dougherty -- -- -- -- -- - -- Director
J. H. Duggan Common 16,146 -- * 123,881 Direct} 1.3% Executive Vice 7,278 12,426 Indirect} President & Director
P. J. Kaminski -- -- -- -- -- -- -- Director
D. C. Mecum II -- -- -- -- -- -- -- Director
D. L. Reichardt Common 10,905 Direct} * 58,430 Direct} * Senior Vice 5,994 Indirect} 10,748 Indirect} President & Director
H. S. Winokur, Common 292,369 Indirect 6.2% 4,117,127 Indirect 39.0% Jr.(5) Chairman of the Class C 123,711 Indirect 100% N/A -- Board & Preferred Director
All officers Common 159,793 Direct} 10.7% 910,596 Direct} 48.5% and 345,198 Indirect} 4,216,487 Indirect} directors as a group Class C 123,711 Indirect 100% N/A -- -- Preferred
(1) As disclosed in filings under the Securities Exchange Act of 1934 or otherwise known to the Company as of March 1, 1994. Shares held by the ESOP trustee but within individual voting control are included in the table, whether or not vested.
(2) Restricted stock units which have not been converted into shares of stock and distributed pursuant to the Company's Restricted Stock Plan as of March 1, 1994 are not transferable by or within the voting control of the participants. Such units are not included herein.
(3) An asterisk indicates that beneficial ownership is less than one percent of the class.
(4) Assumes dilution described above.
(5) Includes securities owned by Capricorn. See preceding table for relationship of Mr. Winokur thereto.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Dougherty is of counsel to the law firm of McGuire, Woods, Battle & Boothe, which firm has provided legal services to the Company from time to time.
During 1993, Bankers Trust Company was a lender to the Company pursuant to a revolving credit agreement in the amount of $10,000,000; except for letters of credit issued thereunder and still outstanding, the credit agreement has expired. Bankers Trust Company also provides various trustee, banking, and other financial and advisory services to the Company. An affiliated company of Bankers Trust Company is a partner in Capricorn. Officers and directors who obtained securities through the Company's Management Employees Stock Purchase Plan and Restricted Stock Plan are subject to the Stockholders Agreement described in Item 10. Under the terms of the Stockholders Agreement, the Company's securities can not be sold individually to outside parties. Management employees of the Company whose employment is terminated, except retiring employees who could elect to retain their securities indefinitely, are required to sell such securities, at the fair market price established by the Board of Directors from time to time, to the other stockholders or to the Company, and the Company is required to repurchase such securities at such price, subject to restrictions imposed by its Certificate of Incorporation and various financing agreements. The Stockholders Agreement expired on March 11, 1994, but a replacement Stockholders Agreement, effective as of such expiration date and having similar terms, has been approved by the Board of Directors and is expected to be adopted by the respective parties.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. All financial statements. See Table of Contents
2. Financial statement Schedules.
Schedule III - Condensed Financial Information of Registrant DynCorp (Parent Company) Balance Sheets Assets Liabilities and Stockholders' Equity Statements of Operations Statements of Cash Flows Notes to Condensed Financial Statements
Schedule VIII - Valuation and Qualifying Accounts for the Years Ended December 31, 1993, 1992, and 1991.
All other financial schedules not listed have been omitted since the required information is included in the Consolidated Financial Statements or the notes thereto, or is not applicable or required.
3. Exhibits
Exhibit 3
(1) Certificate of Incorporation, as currently in effect, consisting of Restated Certification of Incorporation (incorporated by reference to Registrant's Form 10-K for 1992, File No. 1-3879)
(2) Registrant's By-laws as amended to date.
Exhibit 4
(1) Specimen 16% Pay-in-Kind Junior Subordinated Debentures due 2003 Certificate. (incorporated by reference to Registrant's Form 10-K for 1988, File No. 1-3879)
(2) Indenture for $100,000,000 of 8.54% Contract Receivables Collateralized Notes, Series 1992-1, Due 1997, dated as of January 1, 1992, between Dyn Funding Corporation (wholly owned subsidiary of the Registrant) and Bankers Trust Company, as trustee (incorporated by reference to Registrant's Form 8-K filed February 7, 1992, File No. 1- 3879)
(3) Specimen 18% Class C Preferred Stock Certificate. (incorporated by reference to Registrant's Form 10-K for 1988, File No. 1-3879)
(4) Specimen Common Stock Certificate. (incorporated by reference to Registrant's Form 10-K for 1988, File No. 1-3879)
(5) Specimen Class A Common Stock Warrant Certificate. (incorporated by reference to Registrant's Form 10-K for 1988, File No. 1-3879)
(6) Specimen Class B Common Stock Warrant Certificate. (incorporated by reference to Registrant's Form 10-K for 1988, File No. 1-3879)
(7) Indenture Agreement for 16% Pay-in-kind Junior Subordinated Debenture (incorporated by reference to Exhibit 4.1 to Form S-4 filed July 27, 1988)
(8) Statement Respecting Warrants and Lapse of Certain Restrictions (incorporated by reference to Registrant's Form 10-K for 1988, File No. 1-3879)
(9) Amendment (effective March 26, 1991) to Statement Respecting Warrants and Lapse of Certain Restrictions (incorporated by reference to Registrant's Form 10-K for 1990, File No. 1- 3879)
(10) Article Four of the Restated Certificate of Incorporation (incorporated by reference to Registrant's Form 10-K for 1992, File No. 1-3879)
The Registrant, by signing this Report, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of the Registrant.
Exhibit 10
(1) Deferred Compensation Plan. (incorporated by reference to Registrant's Form 10-K for 1987, File No. 1-3879)
(2) Management Incentive Plan (MIP)
(3) DynCorp Executive Incentive Plan (EIP)
(4) Management Severance Agreements. (incorporated by reference to Exhibits (c)(4) through (c)(12) to Schedule 14D-9 filed by Registrant January 25, 1988.
(5) Employment agreement of Richard L. Webb, Vice President, Aviation Services, dated June 24, 1992 (incorporated by reference to Registrant's Form 10-K for 1992, File No. 1- 3879)
(6) Employment agreement of Paul V. Lombardi, Vice President, Government Services Group
(7) Restricted Stock Plan.
Exhibit 11
(1) Computations of Earnings Per Common Share for the Years Ended December 31, 1993, 1992, and 1991
Exhibit 21
(1) Subsidiaries of the Registrant
Exhibit 24
(1) Consent of Independent Public Accountants
(b) Reports on Form 8-K
None filed during the fourth quarter ended December 31, 1993
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DYNCORP
March 31, 1994 By: D. R. Bannister D. R. Bannister President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
D. R. Bannister President and Director March 31, 1994 D. R. Bannister (Principal Executive Officer)
J. H. Duggan Executive Vice President March 31, 1994 J. H. Duggan and Director
T. E.Blanchard Senior Vice President March 31, 1994 T. E. Blanchard Chief Financial Officer and Director
D. L. Reichardt Senior Vice President March 31, 1994 D. L. Reichardt General Counsel and Director
G. A. Dunn Vice President March 31, 1994 G. A. Dunn and Controller (Principal Accounting Officer)
D. C. Mecum II Director March 31, 1994 D. C. Mecum II
H. S. Winokur, Jr. Director March 31, 1994 H. S. Winokur, Jr.
DynCorp (Parent Company) SCHEDULE III - Condensed Financial Information of Registrant Balance Sheets (Dollars in Thousands)
ASSETS
December 31, 1993 1992
Current Assets: Cash and short-term investments $ 6,894 $ 5,822 Notes and current portion of long-term receivables (a) - 1 Accounts receivable and contracts in process, net of allowance for doubtful accounts (Note 3) 20,723 18,153 Inventories of purchased products and supplies 513 419 Other current assets 3,718 5,710 Total current assets 31,848 30,105
Investment in and advances to subsidiaries and affiliates 70,277 50,005
Property and Equipment, net of accumulated depreciation and amortization 9,836 11,479
Intangible Assets, net of accumulated amortization 86,811 90,374
Other Assets 6,040 7,513
Total Assets $204,812 $189,476
(a) December 1992 has been restated to conform to 1993 presentation of the Cummings Point Industries, Inc. note receivable.
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements"
DynCorp (Parent Company) SCHEDULE III - Condensed Financial Information of Registrant Balance Sheets (Dollars in Thousands)
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
December 31, 1993 1992 Current Liabilities: Notes payable and current portion of long-term debt (Note 2) $ 3,392 $ 2,601 Accounts payable (a) 11,594 7,776 Advances on contracts in process 864 668 Accrued liabilities (a) 71,855 77,283 Total current liabilities 87,705 88,328
Long-term Debt (Note 2) 93,150 80,294
Other Liabilities and Deferred Credits 15,591 16,970 Total Liabilities 196,446 185,592
Commitments, Contingencies and Litigation - -
Redeemable Common Stock $17.50 per share redemption value, 125,714 shares issued and outstanding 2,200 -
Stockholders' Equity: Capital stock, $0.10 par value: Preferred stock, Class C 3,000 3,000 Common stock 502 491 Common stock warrants 15,119 15,119 Unissued common stock under restricted stock plan 10,395 9,941 Paid-in surplus 95,983 96,408 Deficit (105,425) (92,011) Common stock held in treasury (5,840) (6,538) Cummings Point Industries, Inc. note receivable (b) (7,568) (6,410) Employee Stock Ownership Plan Loan - (16,116) Total Stockholders' Equity 6,166 3,884 Total Liabilities, Redeemable Common Stock and Stockholders' Equity $204,812 $189,476
(a) December 1992 has been restated to conform to the 1993 presentation.
(b) December 1992 has been restated to conform to 1993 presentation of the Cummings Point Industries, Inc. note receivable.
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries are an integral part of these statements. See accompanying "Notes to Condensed Financial Statements."
DynCorp (Parent Company) SCHEDULE III - Condensed Financial Information of Registrant Statements of Operations (Dollars in Thousands)
For the Years Ended December 31, 1993 1992 1991
Revenues $552,662 $557,675 $513,601
Costs and Expenses: Cost of services 528,776 542,901 501,584 Selling and corporate administrative 10,994 12,534 10,473 Interest expense 14,950 14,608 18,295 Interest income (1,969) (1,693) (2,006) Other (Note 3) 23,902 23,490 8,805 576,653 591,840 537,151
Loss before income taxes, equity in net income of subsidiaries and extraordinary item (23,991) (34,165) (23,550) Benefit for income taxes (1,561) (3,900) (7,951)
Loss before equity in net income of subsidiaries and extraordinary item (22,430) (30,265) (15,599) Equity in net income of subsidiaries 9,016 9,449 3,004
Loss before extraordinary item (13,414) (20,816) (12,595) Extraordinary gain (loss) from early retirement of debt, net of income tax provision - (2,526) 192 Net Loss (13,414) (23,342) (12,403) Preferred Stock Class A dividends declared and paid and accretion of discount - 959 5,180 Net Loss for Common Stockholders $(13,414)$(24,301) $(17,583)
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries are an integral part of these statements.
See accompanying "Notes to Condensed Financial Statements."
DynCorp (Parent Company) SCHEDULE III - Condensed Financial Information of Registrant Statements of Cash Flow (Dollars in Thousands)
For the Years Ended December 31, 1993 1992 1991 Cash Flows from Operating Activities: Net loss $(13,414) $(23,342) $(12,403) Adjustments to reconcile net loss from operations to net cash provided by operating activities: Depreciation and amortization 7,834 9,510 14,713 Pay-in-kind interest on Junior Subordinated Debentures 13,142 6,590 11,950 Loss (gain) on purchase of Junior Subordinated Debentures - 2,526 (291) Deferred income taxes 521 (666) (5,167) Accrued compensation under Restricted Stock Plan 2,047 2,354 3,061 Noncash interest income (1,158) (910) - Other (1,936) (4,363) (1,312) Change in assets and liabilities, net of acquisitions and dispositions and sale of accounts receivable in 1993: Decrease in accounts receivable and contracts in process (2,570) (10,173) (11,446) (Increase) decrease in inventories (93) (72) 254 (Increase) decrease in other current assets 1,992 986 (577) Increase (decrease) in current liabilities except notes payable and current portion of long-term debt (976) 6,690 16,418 Cash provided (used) by operating activities 5,389 (10,870) 15,200 Cash Flows from Investing Activities: Sale of property and equipment 829 130 103 Proceeds received from notes receivable - 1,346 8,423 Purchase of property and equipment (928) (2,381) (2,519) Increase in notes receivable - (5,500) - Increase in investments and affiliates - (1,888) - Deferred income taxes from "safe harbor" leases - (20) (104) Deferred income taxes related to the merger and disposition of businesses - - 342 Other 345 (201) (66) Cash provided (used) from investing activities 246 (8,514) 6,179 Cash Flows from Financing Activities: Purchase of Preferred Stock Class A and Junior Subordinated Debentures - (42,466) (2,074) Treasury stock purchased (1,979) (3,448) (2,810) Payment on indebtedness (4,725) (41,010) (17,005) Increase in bank borrowings - - 6,000 Accounts receivable sold (Note 3) - 63,682 - Dividends paid on Class A Preferred Stock - (861) - Treasury stock sold under Management Employees Stock Purchase Plan 46 108 398 Reduction in loan to Employee Stock Ownership Plan 16,116 16,099 15,402 Change in intercompany balances, net (14,021) 14,050 (8,438) Cash provided (used) from financing activities (4,563) 6,154 (8,527) Net Increase (Decrease) in Cash and Short-term Investments 1,072 (13,230) 12,852 Cash and Short-term Investments at Beginning of the Period 5,822 19,052 6,200 Cash and Short-term Investments at End of the Period $ 6,894 $ 5,822 $ 19,052
The "Notes to Consolidated Financial Statements" of DynCorp and Subsidiaries are an integral part of these statements. See accompanying "Notes to Condensed Financial Statements."
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
Pursuant to the rules and regulations of the Securities and Exchange Commission, the Condensed Financial Statements of the Registrant do not include all of the information and notes normally included with financial statements prepared in accordance with generally accepted accounting principles. It is, therefore, suggested that these Condensed Financial Statements be read in conjunction with the Consolidated Financial Statements and Notes included elsewhere in this Annual Report on Form 10-K.
2. Long-term Debt
At December 31, 1993 and 1992, long-term debt consisted of:
1993 1992 (In thousands) Junior Subordinated Debentures, net of unamortized discount of $5,175 and $5,491 $86,947 $73,489 Notes payable, due in installments through 2002, 9.3% weighted average interest rate 6,643 6,242 Capitalized equipment leases 2,952 3,164 96,542 82,895 Less current portion 3,392 2,601 $93,150 $80,294
Maturities of long-term debt as of December 31, 1993, were as follows:
Years Ending December 31, (In Thousands)
1994 $ 3,392 1995 2,267 1996 1,747 1997 1,106 1998 688 Thereafter 92,517
3.Accounts Receivable
At December 31, 1992, the Company sold $63,682,000 of its accounts receivable to Dyn Funding Corporation (DFC), a wholly owned subsidiary of the Company. DFC was established in January, 1992 to issue $100,000,000 of Contract Receivable Collateralized Notes (Notes) and to purchase eligible accounts receivable from the Company and its subsidiaries. On an ongoing basis, the cash received by DFC from collection of the receivables is used to make interest payments on the Notes, pay a servicing fee to the Company and purchase additional receivables from the Company (see Note 4 to Consolidated Financial Statements included elsewhere in this Form 10-K).
The Company receives 97% of the face value of the accounts receivable sold to DFC. The 3% discount from the face value of the accounts receivable is recorded as an expense by the Company at the time of sale. In 1993 and 1992, the Company recorded as expense $16,298,000 and $17,308,000 which is reflected in "Other" in the accompanying "Statements of Operations" (in the "Consolidated Statements of Operations" of DynCorp and Subsidiaries this expense is offset by the gain recognized by DFC).