UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2004 | ||
| OR | ||
o
|
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 Noo.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o.
As of October 28, 2004, there were 8,683,065 shares of the Registrant’s Common Stock, $0.10 par value, outstanding.
DYNAMICS RESEARCH CORPORATION
INDEX
2
Dynamics Research Corporation
Consolidated Balance Sheets
(in thousands, except share data)
| September 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
| (unaudited) | (audited) | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 150 | $ | 2,724 | ||||
Accounts receivable, net of allowances of $364 and $321 |
||||||||
at September 30, 2004 and December 31, 2003, respectively |
49,134 | 28,251 | ||||||
Unbilled expenditures and fees on contracts in process |
47,982 | 34,257 | ||||||
Prepaid expenses and other current assets |
1,871 | 2,145 | ||||||
Total current assets |
99,137 | 67,377 | ||||||
Noncurrent assets |
||||||||
Property, plant and equipment, net |
21,903 | 20,672 | ||||||
Deferred income taxes |
1,032 | 2,337 | ||||||
Goodwill |
64,109 | 26,711 | ||||||
Intangible assets, net |
12,508 | 2,343 | ||||||
Other noncurrent assets |
4,842 | 1,630 | ||||||
Total noncurrent assets |
104,394 | 53,693 | ||||||
Total assets |
$ | 203,531 | $ | 121,070 | ||||
Liabilities and stockholders’ equity |
||||||||
Current liabilities |
||||||||
Current portion of long-term debt |
$ | 8,356 | $ | 500 | ||||
Notes payable and revolver |
15,404 | 8,500 | ||||||
Accounts payable |
19,194 | 13,351 | ||||||
Accrued payroll and employee benefits |
19,060 | 15,657 | ||||||
Deferred income taxes |
9,569 | 9,698 | ||||||
Other accrued expenses |
6,688 | 2,371 | ||||||
Discontinued operations |
401 | 778 | ||||||
Total current liabilities |
78,672 | 50,855 | ||||||
Long-term liabilities |
||||||||
Long-term debt, less current portion |
52,920 | 7,750 | ||||||
Accrued pension liability |
10,208 | 12,030 | ||||||
Other long-term liabilities |
1,880 | 1,386 | ||||||
Discontinued operations |
— | 398 | ||||||
Total long-term liabilities |
65,008 | 21,564 | ||||||
Total liabilities |
143,680 | 72,419 | ||||||
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 -
8,676,955 and 9,822,508 shares at September 30, |
||||||||
2004 and December 31, 2003, respectively |
868 | 982 | ||||||
Treasury
stock -1,379,426 shares at December 31, 2003 |
— | (138 | ) | |||||
Capital in excess of par value |
40,121 | 36,642 | ||||||
Unearned compensation |
(1,743 | ) | (797 | ) | ||||
Accumulated other comprehensive loss |
(5,424 | ) | (7,556 | ) | ||||
Retained earnings |
26,029 | 19,518 | ||||||
Total stockholders’ equity |
59,851 | 48,651 | ||||||
Total liabilities and stockholders’ equity |
$ | 203,531 | $ | 121,070 | ||||
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 | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
Contract revenue |
$ | 68,659 | $ | 60,602 | $ | 192,361 | $ | 177,840 | ||||||||
Product sales |
1,792 | 1,830 | 5,108 | 5,336 | ||||||||||||
Total revenue |
70,451 | 62,432 | 197,469 | 183,176 | ||||||||||||
Cost of contract revenue |
58,022 | 51,386 | 164,017 | 150,389 | ||||||||||||
Cost of product sales |
1,274 | 1,342 | 3,774 | 3,877 | ||||||||||||
Selling, general and administrative expenses |
6,141 | 5,018 | 16,411 | 16,908 | ||||||||||||
Amortization of intangible assets |
573 | 423 | 1,335 | 1,301 | ||||||||||||
Total operating costs and expenses |
66,010 | 58,169 | 185,537 | 172,475 | ||||||||||||
Operating income |
4,441 | 4,263 | 11,932 | 10,701 | ||||||||||||
Interest expense, net |
(559 | ) | (182 | ) | (1,133 | ) | (696 | ) | ||||||||
Other income |
48 | 51 | 485 | 131 | ||||||||||||
Income from continuing operations before provision for income taxes |
3,930 | 4,132 | 11,284 | 10,136 | ||||||||||||
Provision for income taxes |
1,662 | 1,745 | 4,773 | 4,159 | ||||||||||||
Income from continuing operations |
2,268 | 2,387 | 6,511 | 5,977 | ||||||||||||
Loss from discontinued operations, net of tax benefits of $100 and
$914 in the three and nine months ended September 30, 2003, respectively |
— | (147 | ) | — | (1,360 | ) | ||||||||||
Loss on disposal of discontinued operations, net of tax benefit of |
||||||||||||||||
$157 in the nine months ended September 30, 2003 |
— | — | — | (233 | ) | |||||||||||
Net income |
$ | 2,268 | $ | 2,240 | $ | 6,511 | $ | 4,384 | ||||||||
Earnings (loss) per common share |
||||||||||||||||
Basic |
||||||||||||||||
Income from continuing operations |
$ | 0.27 | $ | 0.29 | $ | 0.77 | $ | 0.73 | ||||||||
Loss from discontinued operations |
— | (0.02 | ) | — | (0.16 | ) | ||||||||||
Loss on disposal of discontinued operations |
— | — | — | (0.03 | ) | |||||||||||
Net earnings per common share |
$ | 0.27 | $ | 0.27 | $ | 0.77 | $ | 0.54 | ||||||||
Diluted |
||||||||||||||||
Income from continuing operations |
$ | 0.25 | $ | 0.27 | $ | 0.72 | $ | 0.68 | ||||||||
Loss from discontinued operations |
— | (0.02 | ) | — | (0.15 | ) | ||||||||||
Loss on disposal of discontinued operations |
— | — | — | (0.03 | ) | |||||||||||
Net earnings per common share |
$ | 0.25 | $ | 0.25 | $ | 0.72 | $ | 0.50 | ||||||||
Weighted average shares outstanding |
||||||||||||||||
Weighted average shares outstanding — basic |
8,538,353 | 8,259,833 | 8,464,854 | 8,192,299 | ||||||||||||
Dilutive effect of options |
551,109 | 735,157 | 567,252 | 584,324 | ||||||||||||
Weighted average shares outstanding — diluted |
9,089,462 | 8,994,990 | 9,032,106 | 8,776,623 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Dynamics Research Corporation
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income
Three and nine months ended September 30, 2004
(unaudited)
(in thousands)
| Common stock |
||||||||||||||||||||||||
| Preferred stock |
Issued |
Treasury stock |
||||||||||||||||||||||
| Shares |
Par value |
Shares |
Par value |
Shares |
Par value |
|||||||||||||||||||
Three months ended September 30, 2004 |
||||||||||||||||||||||||
Balance June 30, 2004 |
— | $ | — | 10,008 | $ | 1,001 | (1,379 | ) | $ | (138 | ) | |||||||||||||
Issuance of common stock through stock options
exercised and employee stock purchase plan |
— | — | 50 | 5 | — | — | ||||||||||||||||||
Issuance of restricted stock |
— | — | — | — | — | — | ||||||||||||||||||
Forfeiture of restricted stock |
— | — | (2 | ) | — | — | — | |||||||||||||||||
Repurchase and retirement of restricted stock |
— | — | — | — | — | — | ||||||||||||||||||
Amortization of unearned compensation, net of forfeiture |
— | — | — | — | — | — | ||||||||||||||||||
Tax benefit from stock options exercised
and employee stock purchase plan |
— | — | — | — | — | — | ||||||||||||||||||
Redesignation of treasury stock to common stock in accordance
with Massachusetts Business Corporation Act, Chapter 156D |
— | — | (1,379 | ) | (138 | ) | 1,379 | 138 | ||||||||||||||||
Unrealized gain on investment in Lucent Technologies |
— | — | — | — | — | — | ||||||||||||||||||
Net income |
— | — | — | — | — | — | ||||||||||||||||||
Balance September 30, 2004 |
— | $ | — | 8,677 | $ | 868 | — | $ | — | |||||||||||||||
Nine months ended September 30, 2004 |
||||||||||||||||||||||||
Balance December 31, 2003 (audited) |
— | $ | — | 9,822 | $ | 982 | (1,379 | ) | $ | (138 | ) | |||||||||||||
Issuance of common stock through stock options
exercised and employee stock purchase plan |
— | — | 171 | 17 | — | — | ||||||||||||||||||
Issuance of restricted stock |
— | — | 88 | 9 | — | — | ||||||||||||||||||
Forfeiture of restricted stock |
— | — | (22 | ) | (2 | ) | — | — | ||||||||||||||||
Repurchase and retirement of restricted stock |
— | — | (3 | ) | — | — | — | |||||||||||||||||
Amortization of unearned compensation, net of forfeiture |
— | — | — | — | — | — | ||||||||||||||||||
Tax benefit from stock options exercised
and employee stock purchase plan |
— | — | — | — | — | — | ||||||||||||||||||
Redesignation of treasury stock to common stock in accordance
with Massachusetts Business Corporation Act, Chapter 156D |
— | — | (1,379 | ) | (138 | ) | 1,379 | 138 | ||||||||||||||||
Unrealized gain on investment in Lucent Technologies |
— | — | — | — | — | — | ||||||||||||||||||
Net income |
— | — | — | — | — | — | ||||||||||||||||||
Balance September 30, 2004 |
— | $ | — | 8,677 | $ | 868 | — | $ | — | |||||||||||||||
[Continued from above table, first column(s) repeated]
| Accumulated | ||||||||||||||||||||
| Capital in | other | |||||||||||||||||||
| excess of | Unearned | comprehensive | Retained | |||||||||||||||||
| par value |
compensation |
loss |
earnings |
Total |
||||||||||||||||
Three months ended September 30, 2004 |
||||||||||||||||||||
Balance June 30, 2004 |
$ | 39,538 | $ | (1,953 | ) | $ | (7,556 | ) | $ | 23,761 | $ | 54,653 | ||||||||
Issuance of common stock through stock options
exercised and employee stock purchase plan |
595 | — | — | — | 600 | |||||||||||||||
Issuance of restricted stock |
6 | (6 | ) | — | — | — | ||||||||||||||
Forfeiture of restricted stock |
(34 | ) | 34 | — | — | — | ||||||||||||||
Repurchase and retirement of restricted stock |
— | — | — | — | — | |||||||||||||||
Amortization of unearned compensation, net of forfeiture |
— | 182 | — | — | 182 | |||||||||||||||
Tax benefit from stock options exercised
and employee stock purchase plan |
16 | — | — | — | 16 | |||||||||||||||
Redesignation of treasury stock to common stock in accordance
with Massachusetts Business Corporation Act, Chapter 156D |
— | — | — | — | — | |||||||||||||||
Unrealized gain on investment in Lucent Technologies |
— | — | 2,132 | — | 2,132 | |||||||||||||||
Net income |
— | — | — | 2,268 | 2,268 | |||||||||||||||
Balance September 30, 2004 |
$ | 40,121 | $ | (1,743 | ) | $ | (5,424 | ) | $ | 26,029 | $ | 59,851 | ||||||||
Nine months ended September 30, 2004 |
||||||||||||||||||||
Balance December 31, 2003 (audited) |
$ | 36,642 | $ | (797 | ) | $ | (7,556 | ) | $ | 19,518 | $ | 48,651 | ||||||||
Issuance of common stock through stock options
exercised and employee stock purchase plan |
1,969 | — | — | — | 1,986 | |||||||||||||||
Issuance of restricted stock |
1,576 | (1,585 | ) | — | — | — | ||||||||||||||
Forfeiture of restricted stock |
(246 | ) | 248 | — | — | — | ||||||||||||||
Repurchase and retirement of restricted stock |
(36 | ) | — | — | — | (36 | ) | |||||||||||||
Amortization of unearned compensation, net of forfeiture |
— | 391 | — | — | 391 | |||||||||||||||
Tax benefit from stock options exercised |
— | |||||||||||||||||||
and employee stock purchase plan |
216 | — | — | — | 216 | |||||||||||||||
Redesignation of treasury stock to common stock in accordance
with Massachusetts Business Corporation Act, Chapter 156D |
— | — | — | — | — | |||||||||||||||
Unrealized gain on investment in Lucent Technologies |
— | — | 2,132 | — | 2,132 | |||||||||||||||
Net income |
— | — | — | 6,511 | 6,511 | |||||||||||||||
Balance September 30, 2004 |
$ | 40,121 | $ | (1,743 | ) | $ | (5,424 | ) | $ | 26,029 | $ | 59,851 | ||||||||
| Three | Nine | |||||||
| months | months | |||||||
| ended |
ended |
|||||||
| September 30, 2004 |
||||||||
Comprehensive income is calculated as follows: |
||||||||
Net income |
$ | 2,268 | $ | 6,511 | ||||
Adjustments to Accumulated other comprehensive loss: |
||||||||
Unrealized gain on investment in Lucent Technologies |
2,132 | 2,132 | ||||||
Comprehensive income |
$ | 4,400 | $ | 8,643 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Dynamics Research Corporation
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income
Three and nine months ended September 30, 2003
(unaudited)
(in thousands)
| Common stock |
||||||||||||||||||||||||
| Preferred stock |
Issued |
Treasury stock |
||||||||||||||||||||||
| Shares |
Par value |
Shares |
Par value |
Shares |
Par value |
|||||||||||||||||||
Three months ended September 30, 2003 |
||||||||||||||||||||||||
Balance June 30, 2003 |
— | $ | — | 9,672 | $ | 967 | (1,379 | ) | $ | (138 | ) | |||||||||||||
Issuance of common stock through stock options
exercised and employee stock purchase plan |
— | — | 72 | 7 | — | — | ||||||||||||||||||
Issuance of restricted stock |
— | — | — | — | — | — | ||||||||||||||||||
Amortization of unearned compensation |
— | — | — | — | — | — | ||||||||||||||||||
Tax benefit from stock options exercised
and employee stock purchase plan |
— | — | — | — | — | — | ||||||||||||||||||
Net income |
— | — | — | — | — | — | ||||||||||||||||||
Balance September 30, 2003 |
— | $ | — | 9,744 | $ | 974 | (1,379 | ) | $ | (138 | ) | |||||||||||||
Nine months ended September 30, 2003 |
||||||||||||||||||||||||
Balance December 31, 2002 |
— | $ | — | 9,544 | $ | 954 | (1,379 | ) | $ | (138 | ) | |||||||||||||
Issuance of common stock through stock options
exercised and employee stock purchase plan |
— | — | 177 | 17 | — | — | ||||||||||||||||||
Issuance of restricted stock |
— | — | 23 | 3 | — | — | ||||||||||||||||||
Amortization of unearned compensation |
— | — | — | — | — | — | ||||||||||||||||||
Tax benefit from stock options exercised
and employee stock purchase plan |
— | — | — | — | — | — | ||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||