DYNCORP
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Filing Type: |
10-K |
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Filing Date: |
Mar 29 2000 |
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Ticker: |
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CIK |
30770 |
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State: |
VA |
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Country: |
USA |
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Date Printed: |
Dec 6 2000 |
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SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
(Mark One)
[X] Annual
Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act
Of 1934
For the
fiscal year ended December 30, 1999 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: 1-3879
DynCorp
(Exact name
of registrant as specified in its charter)
Delaware 36-2408747
(State or
other jurisdiction of (I.R.S.
Employer Identification No.)
incorporation
or organization)
11710 Plaza
America Drive, Reston, Virginia 20190
(Address of
principal executive offices)
(Zip Code)
Registrant's
telephone number, including area code:
(703) 261-5000
Former
address: 2000 Edmund Halley Drive,
Reston, Virginia 20191
Securities
registered pursuant to Section 12(b) of the Act:
Title of
each class Name of each
exchange on which registered
None
None
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to
the best of registrant's
knowledge, in definitive proxy
or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]
State the aggregate market value of the voting stock held
by nonaffiliates of the registrant. The registrant's voting
stock is not publicly traded; therefore, the aggregate market value of
approximately 7% of outstanding voting
stock held by nonaffiliates is not available.
Indicate the number of
shares outstanding of each of the registrant's classes of common stock, as of
the latest practicable date.
10,413,708 shares of common
stock having a par value of $0.10 per share were outstanding March 28, 2000.
TABLE OF
CONTENTS
1999
FORM 10-K
Item Page
Part I
1. Business 1-3
2. Properties 3
3. Legal Proceedings 3
4. Submission of Matters to a
Vote of Security Holders 3
Part II
5. Market for the Registrant's Common Stock
and Related
Stockholder Matters 3-5
6. Selected Financial Data 5-6
7. Management's Discussion and Analysis of
Financial
Condition and Results of Operations 6-14
8. Financial Statements and Supplementary
Data
Report of Independent Public
Accountants 15
Financial Statements
Consolidated Balance Sheets
Assets
16
Liabilities and
Stockholders' Equity
17
Consolidated Statements of Operations 18
Consolidated Statements of Cash Flows 19
Consolidated Statements of
Stockholders' Equity 20
Notes to Consolidated Financial
Statements 21-37
9. Changes in and Disagreements with
Accountants on
Accounting and Financial Disclosures 37
Part III
10.Directors and Executive
Officers of the Registrant 38-40
11.Executive Compensation 40-43
12.Security Ownership of Certain Beneficial
Owners and
Management 43-44
13.Certain Relationships and
Related Transactions 44
Part IV
14.Exhibits, Financial Statement Schedules,
and Reports on
Form 8-K 45-48
PART I
ITEM 1. BUSINESS
General Information
DynCorp and subsidiaries (collectively the "Company") provides
diversified management, technical and professional services primarily
to U.S. Government customers throughout
the United States
and internationally. The
Company provides services to various branches of the
Department of Defense,
Energy, State, Justice, and
Agriculture, the Drug Enforcement Agency, the National Institute of Health, the Defense
Information Systems Agency, the
National Aeronautics and Space Administration and various other U.S.,
state and local government agencies, commercial clients
and foreign governments. Generally, these services are provided under both prime contracts
and subcontracts, which may be fixed-price, time-and-material or cost-type contracts depending on the work
requirements and other individual circumstances. These services encompass a wide range of
management, technical and professional
services covering the
following areas:
DynCorp Information and Enterprise
Technology ("DI&ET"), based in Reston,
Virginia, designs, develops, supports
and integrates software
and
hardware systems to provide customers with comprehensive solutions
for
information management and engineering
needs. DI&ET provides a wide range
of information technology solutions including
information technology
("IT") lifecycle
support, electronic records
and media management,
network
and communications engineering, seat management, metrology
engineering, operational
outsourcing, healthcare information and
technology services and security and
intelligence programs. Revenues for
fiscal
years ended 1999, 1998, and 1997 were $635.9 million, $633.1
million, and $553.3 million,
respectively.
DynCorp Technical Services
("DTS"), based in Fort Worth,
Texas, delivers
a myriad of specialized technical
services including aviation services,
base
operations, range technical
services, contingency services,
international program, space and
re-entry system services,
logistics
support
services, personal and physical security services and
marine
services. These services are provided to the U.S. Government as well as
the United Nations and other foreign organizations at various locations
throughout the world depending on the
customer's requirements. Revenues
for 1999, 1998, and 1997 were $695.5
million, $600.6 million, and $592.6
million, respectively.
DynCorp
Information Systems LLC ("DIS"), based in Chantilly,
Virginia,
provides a broad range of
integrated
telecommunications services and
information technology solutions in the areas of professional services,
business systems integration, information
infrastructure solutions and IT
operations and support. DIS
is DynCorp's full-service voice/data
integrator and has an established
business base in the Federal
defense
and
civil markets. DIS was
acquired on December
10, 1999 from GTE
Corporation. Revenue for the twenty days ended December 30, 1999, was
$13.9 million and was included in the
Company's consolidated results of
operations. Full year revenues, which
are not included in the Company's
results of operations except for the
portion representing the twenty days
ended
December 30, 1999, as noted
above, were $221.6 million,
$233.6
million, and $209.4 million, for 1999,
1998 and 1997, respectively.
Industry Segments
For business segment reporting,
DI&ET, DTS and DIS each constitute
reportable business segments.
Backlog
The Company's
backlog of business, which
includes awards under both prime contracts and subcontracts, as well as the estimated
value of option years on government
contracts, was $4.4 billion at
December 30, 1999,
compared to December 31, 1998
backlog of $4.1 billion, a net increase
of $0.3 billion. The increase resulted
primarily from the acquisition of GTE Information Systems LLC. The backlog at
December 30, 1999 consisted of $2.2 billion for DTS, $1.7 billion for DI&ET, and $0.5
billion for DIS compared to
December 31, 1998 backlog of $2.0 billion
for DTS and $2.1 billion for
DI&ET. Of the total backlog
at December 30, 1999, $3.0 billion is expected to produce revenues after 2000: DTS $1.5 billion,
DI&ET $1.2 billion, and DIS $0.3 billion.
Contracts with the U.S.
Government are generally written for periods of three to five years with a few
Federal contracts awarded with options up to eight and ten years. Because of
appropriation limitations in the Federal
budget process, firm funding is usually
made for only one year at a time,
and, in some cases, for periods
of less than one year,
with the remainder of the
years under the contract
expressed as a series of one-year options. The Company's experience has been
that the Government generally exercises these options. Amounts included in backlog are based on the contract's total awarded
value and the Company's estimates regarding the amount of the award that will
ultimately result in the recognition of
revenue. These estimates are based on the Company's experience with similar awards and similar
customers. Estimates are reviewed periodically and appropriate adjustments are made to the amounts included in backlog and in unexercised contract
options. Historically, these
adjustments have not been significant. In 1999, 98.9% of the Company's
prime contract revenue was from the U.S. Government, 54.1% attributable to the
Department of Defense.
During 1998, the Company
was awarded significant indefinite delivery, indefinite quantity
("IDIQ") contracts with GSA and NASA to provide comprehensive desktop computer, server
and intra-center communication support. These contracts were multiple awards and have estimated values in
the billions of dollars. The Company's backlog at December 30,
1999 does not include any value
for these contracts, except for one
contract under GSA, because the Company has
not received any contract tasks and cannot reasonably estimate the future
revenues from these contracts.
Competition
The markets that the Company services are highly
competitive. In each of its
business areas, the Company's
competition is quite
fragmented, with no single competitor holding a
significant market position.
The Company experiences vigorous competition from
industrial firms, university laboratories,
non-profit institutions, and
U.S. Government agencies. Many of the
Company's competitors are large, diversified firms with substantially greater
financial resources and larger technical staffs than the Company has available.
Government agencies also compete with
and are potential competitors
of the Company because they can utilize their internal resources to
perform certain types of services that might otherwise be performed by the
Company. A majority of the
Company's revenues is derived from
contracts with the U.S. Government and
its prime contractors, and such contracts are awarded on the basis of negotiations or competitive bids where price is a significant factor.
Foreign Operations
The Company currently
provides services in
foreign countries under contracts with
the U.S. Government, the United
Nations, and other foreign customers. None of these foreign operations is material to the Company's financial position or results of operations.
The risks associated with
the Company's foreign operations relating to foreign currency fluctuation and political and economic
conditions in foreign countries have not been significant.
Incorporation
The Company
was incorporated in
Delaware in 1946. With more
than 19,000 employees
worldwide, the Company is one of the
largest employee-owned companies in the United States.
Employees
At December 30, 1999, the
Company employed 17,713 full-time and
1,554 part-time employees.
Approximately 3,163 employees
were located outside of the
United States. Of the
Company's U.S. employees,
3,671 were covered
by various collective bargaining
agreements with labor unions.
At year-end, the Company had approximately 497 vacant
positions, a majority of which was for
IT professionals. The scarcity of IT professionals is a common
predicament within the industry.
The Company is actively
recruiting to fill these
vacancies utilizing extensive
advertising, participation in
job fairs, sign-on bonuses, and other recruitment incentives.
Forward Looking Statements
Certain matters
discussed or incorporated by reference in this report are forward-looking statements
within the meaning of the federal
securities laws. Although
the Company believes
that the expectations reflected in such forward-looking statements are based upon reasonable
assumptions, there can be no assurance
that its expectations will be achieved. Factors that could cause actual
results to differ
materially from the
Company's current expectations include the early termination
of, or failure of a customer to exercise option periods under, a significant contract; the inability of the Company to generate
actual customer orders under indefinite delivery, indefinite quantity
contracts; technological change; the
inability of the Company to manage its growth or to execute its internal
performance plan; the inability of the Company to integrate the operations
of acquisitions; the
inability of the Company to attract and retain the technical and other
personnel required to perform
its various contracts; general economic conditions; and other risks discussed elsewhere in this
report and in other filings of the Company with the Securities and Exchange
Commission.
ITEM 2. PROPERTIES
The Company is primarily a
service-oriented company and, as such,
the ownership or leasing of
real property is an
activity that is
not material to an understanding of
the Company's operations. The Company leases
numerous commercial facilities
used in connection with the various services
rendered to its customers. None
of the properties is unique. In the
opinion of management, the facilities employed by the Company are adequate for
the present needs of the business.
On February 29, 2000, the
Company sold an office building located in Alexandria, Virginia to a third party for $10.5 million,
and simultaneously closed on a lease of that property from the
new owner. The Company used a portion of the net proceeds to payoff the
mortgage on the property.
ITEM 3. LEGAL PROCEEDINGS
This item is incorporated herein by reference to
Note 20 to the Consolidated Financial
Statements included elsewhere in this Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR THE
REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
DynCorp's common stock is not publicly traded. However,
the Company has
established an Internal
Market to provide liquidity for its
stockholders. Shares available for trading in the Internal Market are registered under the
Securities Act of 1933. The Internal Market generally permits
stockholders to sell shares of
common stock which have been registered
for such sale on four
predetermined days each year, subject to purchase demand.
Sales of common stock on the Internal Market are made at
established prices for the common stock
determined pursuant to the
formula and valuation process described below (the "Formula Price") to active employees and
directors of the Company, subject to state securities regulations, and to the trustees of the
Savings and Retirement Plan ("SARP") and the
Employee Stock Ownership
Plan ("ESOP"), as well as the administrator of the
Employee Stock Purchase Plan ("ESPP"), who
may purchase shares of common stock for their respective trusts
and plans.
If the aggregate purchase
orders exceed the number of shares available for sale, the Company may,
but is not obligated to, sell shares of common stock on the Internal Market. Further, the following prospective
purchasers will have priority,
in the order listed:
- the administrator of the ESPP;
- the trustee of the SARP;
- eligible employees and directors, on a pro
rata basis; and
- the trustees of the ESOP.
If the aggregate number of
shares offered for sale on the
Internal Market is greater than the aggregate number of shares sought to be
purchased, offers by stockholders
to sell 500 shares or less, or up to the first 500 shares if more than 500 shares are offered, will be accepted first. If,
however, there are insufficient purchase orders to support the primary allocation of 500 shares,
then the purchase orders will be
allocated equally among all of the proposed sellers up to the first 500 shares offered
for sale by each seller. Thereafter, a
similar procedure will be applied to the next 10,000 shares
offered by each remaining seller,
and offers to sell in excess of 10,500
shares will then be accepted on
a pro-rata basis. The Company may, but is not required to, purchase shares
offered for sale in the
Internal Market, to the extent the number of shares
offered exceeds the number sought
to be purchased. All sellers on
the Internal Market (other than the Company and its retirement plans) will
pay a commission equal to one percent
of the proceeds from such sales.
Purchasers on the Internal
Market pay no commission.
The market price of the common stock is established pursuant to
the valuation process described
below, which uses the formula
set forth below to determine the
Formula Price at which the Common Stock trades in the Internal Market. The
Formula Price is reviewed on a quarterly basis, generally in
conjunction with Internal Market trade
dates.
The Formula Price per
share of common stock is the product of
seven times the operating cash
flow ("CF"), where
operating cash flow is represented
by earnings before
interest, taxes, depreciation and amortization of the
Company for the four fiscal quarters
immediately preceding the date
on which a price revision is made, multiplied by a market factor ("Market Factor" denoted MF)
plus the non-operating assets at
disposition value (net of disposition
costs) ("NOA"), minus the sum of interest bearing debt adjusted to market and other
outstanding securities senior to common stock ("IBD"), the
whole divided by the number of
shares of common stock
outstanding at the date on which
a price revision is made, on a fully
diluted basis assuming exercise of all outstanding options and shares deferred under a former restricted stock plan
("ESO"). The Market Factor is a numeric factor which reflects
existing securities market
conditions relevant to the valuation of such stock. The Formula Price of the common stock, expressed as an equation, is
as follows:
[(CFx7)MF+NOA-IBD]
Formula Price = ESO
The Board of Directors
believes that the valuation
process and Formula result in a
fair price for the common stock
within a broad range
of financial criteria.
Other than quarterly review and possible modification of the Market
Factor, the Board of
Directors will not change the
Formula unless (i) in the good faith
exercise of its fiduciary duties
and after consultation with its
professional advisors, the Board of Directors determines that the formula no longer
results in a stock price which reasonably
reflects the value of the Company on a per share basis, or (ii) a change in the Formula or the
method of valuing the common stock is
required under applicable law.
The following table sets forth the Formula Price for the
common stock and the Market Factor by quarter since the adoption of the
Formula by the Board of
Directors in August 1995.
Quarter Ended Formula Price ($) Market Factor
December 31, 1995 14.50 2.14
March 28, 1996 14.50 2.14
June 27, 1996 15.00 1.36
September 26, 1996 16.75 1.15
December 31, 1996 19.00 1.15
March 27, 1997 20.00 1.27
June 26, 1997 20.00 1.27
September 25, 1997 20.00 1.27
December 31, 1997 20.00 1.23
April 2, 1998 21.00 1.29
July 2, 1998 22.50 1.33
October 1, 1998 23.25 1.30
December 31, 1998 20.00 1.16
April 1, 1999 23.50 1.21
July 1, 1999 24.50 1.21
September 30, 1999 24.00 1.08
December 30, 1999 23.50 1.11
The price at December 30, 1999 is based on third quarter data and
has not been revised to reflect the
current valuation. The ESOP valuation
price was $22.75.
Prior to August 1995, the market
value of the common stock
was established periodically by the Board of
Directors for purposes of repurchases
under a former stockholders
agreement. Based on the Board's review of valuations set by the ESOP Trust, the price per share by
quarter was as follows:
March 30, 1995 $14.90
June 29, 1995 $14.90
September 28, 1995 $14.90
There were approximately 722 record holders of DynCorp
common stock at December 30, 1999. The DynCorp
Employee Stock Ownership Plan Trust owns 7,451,989 shares on behalf
of approximately 33,000 current and former employees of the
Company. In addition, the
Company's Savings and Retirement Plan holds 763,758 shares. Cash dividends have not been paid on the common stock
since 1988.
ITEM 6. SELECTED FINANCIAL
DATA
The following table presents summary
selected historical financial data
derived from the audited
Consolidated Financial Statements of the Company for each of the
five years presented. During these
periods, the Company
paid no cash dividends on its
Common Stock. The following information
should be read in conjunction with
"Management's Discussion
and Analysis of Financial Condition and
Results of Operations" and the audited Consolidated Financial Statements
and related notes thereto, included
elsewhere in this Annual Report on Form 10-K. (Dollars in
thousands, except per share data.)
Reference to "note"
are the footnotes to the audited consolidated financial statements.
Fiscal Year Ended
Dec 30 Dec 31 Dec 31 Dec 31 Dec 31
1999 (a) 1998(b) 1997(c) 1996(d) 1995(e)
-------- ------- ------- -------
-------
Statement
of Operations Data:
Revenues
$1,345,281 $1,233,707 $1,145,937 $1,021,453 $908,725
Cost of
services
$1,280,239 $1,173,151 $1,096,246 $ 970,163 $871,317
Corporate
general and administrative
$ 21,741 $
18,630 $ 17,785
$ 18,241 $ 18,705
Interest
expense
$ 18,943 $
14,144 $ 12,432
$ 10,220 $ 14,856
Earnings
from continuing operations