UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | ||
| EXCHANGE ACT OF 1934 | |||
| For the quarterly period ended September 30, 2003 | |||
| OR | |||
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | ||
| EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-02479
DYNAMICS RESEARCH CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
| Massachusetts (State or other Jurisdiction of Incorporation or Organization) |
04-2211809 (I.R.S. Employer Identification No.) |
|
| 60 Frontage Road Andover, Massachusetts (Address of Principal Executive Offices) |
01810-5498 (Zip Code) |
Registrant’s telephone number, including area code (978) 475-9090
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No .
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No .
As of November 3, 2003, there were 8,421,399 shares of the Registrant’s Common Stock, $0.10 par value, outstanding.
DYNAMICS RESEARCH CORPORATION
INDEX
| Page Number | ||||||||
PART I. |
FINANCIAL INFORMATION | |||||||
Item 1. |
Consolidated Financial Statements (unaudited) | |||||||
| Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 | 3 | |||||||
| Consolidated Statements of Operations for the three months ended September 30, 2003 and 2002 | 4 | |||||||
| Consolidated Statements of Operations for the nine months ended September 30, 2003 and 2002 | 5 | |||||||
| Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 | 6 | |||||||
| Notes to Unaudited Consolidated Financial Statements | 7 | |||||||
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||||||
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 34 | ||||||
Item 4. |
Controls and Procedures | |||||||
PART II. |
OTHER INFORMATION | |||||||
Item 1. |
Legal Proceedings | 35 | ||||||
Item 6. |
Exhibits and Reports on Form 8-K | 36 | ||||||
Signatures |
37 | |||||||
2
Dynamics Research Corporation
Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
| September 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
Assets |
||||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
$ | 2,694 | $ | 1,076 | ||||||||
Accounts receivable, net of allowances of $329 and $373
at September 30, 2003 and December 31, 2002, respectively |
26,723 | 29,819 | ||||||||||
Unbilled expenditures and fees on contracts in process |
30,291 | 26,614 | ||||||||||
Prepaid expenses and other current assets |
5,053 | 1,727 | ||||||||||
Discontinued operations |
— | 3,432 | ||||||||||
Total current assets |
64,761 | 62,668 | ||||||||||
Noncurrent assets |
||||||||||||
Property, plant and equipment, net |
18,760 | 15,608 | ||||||||||
Deferred income taxes |
1,501 | 1,559 | ||||||||||
Goodwill |
26,613 | 26,169 | ||||||||||
Intangible assets, net |
2,765 | 4,066 | ||||||||||
Other noncurrent assets |
1,475 | 1,275 | ||||||||||
Discontinued operations |
— | 331 | ||||||||||
Total noncurrent assets |
51,114 | 49,008 | ||||||||||
Total assets |
$ | 115,875 | $ | 111,676 | ||||||||
Liabilities and stockholders’ equity |
||||||||||||
Current liabilities |
||||||||||||
Current portion of long-term debt |
$ | 500 | $ | 500 | ||||||||
Notes payable and revolver |
8,500 | 14,644 | ||||||||||
Deferred income taxes |
6,907 | 6,524 | ||||||||||
Accounts payable |
13,066 | 12,334 | ||||||||||
Accrued payroll and employee benefits |
15,042 | 11,898 | ||||||||||
Other accrued expenses |
3,552 | 3,531 | ||||||||||
Discontinued operations |
1,143 | 1,009 | ||||||||||
Total current liabilities |
48,710 | 50,440 | ||||||||||
Long-term liabilities |
||||||||||||
Long-term debt, less current portion |
7,875 | 8,250 | ||||||||||
Accrued pension liability |
11,778 | 11,778 | ||||||||||
Other long-term liabilities |
931 | 1,399 | ||||||||||
Discontinued operations |
605 | — | ||||||||||
Total long-term liabilities |
21,189 | 21,427 | ||||||||||
Total liabilities |
69,899 | 71,867 | ||||||||||
Commitments and contingencies |
||||||||||||
Stockholders’ equity |
||||||||||||
Preferred stock, $0.10 par value, 5,000,000 shares authorized,
no shares issued |
— | — | ||||||||||
Common stock, $0.10 par value, 30,000,000 shares authorized: |
||||||||||||
Issued - 9,747,798 and 9,534,606 shares at September 30, 2003
and December 31, 2002, respectively |
974 | 954 | ||||||||||
Treasury stock -1,379,426 shares at both September 30, 2003
and December 31, 2002 |
(138 | ) | (138 | ) | ||||||||
Capital in excess of par value |
35,654 | 33,844 | ||||||||||
Unearned compensation |
(863 | ) | (816 | ) | ||||||||
Accumulated other comprehensive loss |
(6,881 | ) | (6,881 | ) | ||||||||
Retained earnings |
17,230 | 12,846 | ||||||||||
Total stockholders’ equity |
45,976 | 39,809 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 115,875 | $ | 111,676 | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Dynamics Research Corporation
Consolidated Statements of Operations
(unaudited)
(in thousands, except share and per share data)
| Three months ended | |||||||||||
| September 30, | |||||||||||
| 2003 | 2002 | ||||||||||
Contract revenue |
$ | 60,602 | $ | 45,633 | |||||||
Product sales |
1,830 | 1,521 | |||||||||
Total revenue |
62,432 | 47,154 | |||||||||
Cost of contract revenue |
51,386 | 38,412 | |||||||||
Cost of product sales |
1,342 | 1,137 | |||||||||
Selling, engineering and administrative expenses |
5,018 | 4,203 | |||||||||
Amortization of intangible assets |
423 | 136 | |||||||||
Total operating costs and expenses |
58,169 | 43,888 | |||||||||
Operating income |
4,263 | 3,266 | |||||||||
Other income |
51 | 57 | |||||||||
Interest expense, net |
(182 | ) | (103 | ) | |||||||
Income from continuing operations before provision for income taxes |
4,132 | 3,220 | |||||||||
Provision for income taxes |
1,745 | 1,236 | |||||||||
Income from continuing operations |
2,387 | 1,984 | |||||||||
Loss from discontinued operations, net of tax benefit of $100 and $118
in the three months ended September 30, 2003 and 2002, respectively |
(147 | ) | (191 | ) | |||||||
Net income |
$ | 2,240 | $ | 1,793 | |||||||
Net income per common share |
|||||||||||
Basic |
|||||||||||
Income from continuing operations |
$ | 0.29 | $ | 0.25 | |||||||
Loss from discontinued operations |
(0.02 | ) | (0.03 | ) | |||||||
Net income per common share |
$ | 0.27 | $ | 0.22 | |||||||
Diluted |
|||||||||||
Income from continuing operations |
$ | 0.27 | $ | 0.22 | |||||||
Loss from discontinued operations |
(0.02 | ) | (0.02 | ) | |||||||
Net income per common share |
$ | 0.25 | $ | 0.20 | |||||||
Weighted average shares outstanding |
|||||||||||
Weighted average shares outstanding — basic |
8,259,833 | 7,986,550 | |||||||||
Dilutive effect of options |
735,157 | 952,967 | |||||||||
Weighted average shares outstanding — diluted |
8,994,990 | 8,939,517 | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Dynamics Research Corporation
Consolidated Statements of Operations
(unaudited)
(in thousands, except share and per share data)
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| 2003 | 2002 | ||||||||||
Contract revenue |
$ | 177,840 | $ | 136,057 | |||||||
Product sales |
5,336 | 5,961 | |||||||||
Total revenue |
183,176 | 142,018 | |||||||||
Cost of contract revenue |
150,389 | 115,861 | |||||||||
Cost of product sales |
3,877 | 3,836 | |||||||||
Selling, engineering and administrative expenses |
16,908 | 12,553 | |||||||||
Amortization of intangible assets |
1,301 | 203 | |||||||||
Total operating costs and expenses |
172,475 | 132,453 | |||||||||
Operating income |
10,701 | 9,565 | |||||||||
Other income |
131 | 60 | |||||||||
Interest expense, net |
(696 | ) | (186 | ) | |||||||
Income from continuing operations before provision for income taxes |
10,136 | 9,439 | |||||||||
Provision for income taxes |
4,159 | 3,766 | |||||||||
Income from continuing operations |
5,977 | 5,673 | |||||||||
Loss from discontinued operations, net of tax benefit of $914 and $391
in 2003 and 2002, respectively |
(1,360 | ) | (590 | ) | |||||||
Loss on disposal of discontinued operations, net of tax benefit of
$157 in 2003 |
(233 | ) | — | ||||||||
Net income |
$ | 4,384 | $ | 5,083 | |||||||
Net income per common share |
|||||||||||
Basic |
|||||||||||
Income from continuing operations |
$ | 0.73 | $ | 0.72 | |||||||
Loss from discontinued operations |
(0.16 | ) | (0.08 | ) | |||||||
Loss on disposal of discontinued operations |
(0.03 | ) | — | ||||||||
Net income per common share |
$ | 0.54 | $ | 0.64 | |||||||
Diluted |
|||||||||||
Income from continuing operations |
$ | 0.68 | $ | 0.64 | |||||||
Loss from discontinued operations |
(0.15 | ) | (0.07 | ) | |||||||
Loss on disposal of discontinued operations |
(0.03 | ) | — | ||||||||
Net income per common share |
$ | 0.50 | $ | 0.57 | |||||||
Weighted average shares outstanding |
|||||||||||
Weighted average shares outstanding — basic |
8,192,299 | 7,928,678 | |||||||||
Dilutive effect of options |
584,324 | 991,685 | |||||||||
Weighted average shares outstanding — diluted |
8,776,623 | 8,920,363 | |||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Dynamics Research Corporation
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
| Nine months ended | ||||||||||||
| September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Operating activities |
||||||||||||
Net income |
$ | 4,384 | $ | 5,083 | ||||||||
Loss from discontinued operations |
(1,360 | ) | (590 | ) | ||||||||
Loss on disposal of discontinued operations |
(233 | ) | — | |||||||||
Income from continuing operations |
5,977 | </ | ||||||||||