Back to GetFilings.com
25837107
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1995
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 1-7348
DYNAMICS RESEARCH CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-2211809
(State or Other Jurisdiction of(I.R.S. Employer Identification No.)
Incorporation or Organization)
60 FRONTAGE ROAD
ANDOVER, MASSACHUSETTS 01810-5498
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (508) 475-9090
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
NONE NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 Par Value
(Title of Class)
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 .
(Continued)
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]
As of March 18xx, 1996, the aggregate market value of Common Stock held
by nonaffiliates of the Registrant was $31xx,045xxx,092xxx and the number
of shares of Common Stock, $.10 par value, of the Registrant outstanding
was 5x,663xxx,042xxx.
Documents Incorporated By Reference
Portions of the 1995 Annual Report to Shareholders are incorporated by
reference in Parts I and II. Portions of the Registrant's Proxy Statement
for the 1996 Annual Meeting of Shareholders are incorporated by reference
in Part III.
The Exhibit Index is on pages 240 and 251.
DYNAMICS RESEARCH CORPORATION
Form 10-K
For the Fiscal Year Ended December 30, 1995
Part I Page
Item 1. Business 4
2. Properties 111
3. Legal Proceedings 122
4. Submission of Matters to a Vote of Security Holders
122
4A. Executive Officers of the Registrant 122
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters 133
6. Selected Financial Data 133
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 133
8. Financial Statements and Supplementary Data 133
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 144
Part III
10. Directors and Executive Officers of the Registrant
155
11. Executive Compensation 155
12. Security Ownership of Certain Beneficial Owners
and Management 155
13. Certain Relationships and Related Transactions
155
Part IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 166
PART I
Item 1. Business
Dynamics Research Corporation (referred to herein as "DRC" or the
"Company") was organized in 1955 under the laws of the Commonwealth of
Massachusetts.
The Company is principally engaged in providing a broad range of
technical services including informationcomputer-based systems development
and operation, engineering, and management support services to
organizations of the United States Department of Defense (DoD), other
agencies of the U.S. Government and commercial companies. The Company also
designs, and manufactures and sells digital instruments and precision
componentsproducts and measurement devices,that are often used as
components in computer- controlled systems.
The Company's products and services fall within the following broad
categories:
Information systems development and operation
Engineering and management support services
Digital instruments and components
The following sections describe each of these business areas and
related major programs and products.
Information Systems Development and Operation
DRC maintains a multi-vendor data processing environment with
professionals who provides systems analysis and programming support
primarily to government customers. The Company designs, develops,
installs, operates, and maintains custom-engineered data systems. Systems
developed by DRC gather information electronically from various sources,
organize the data and store it in large databases. The Company's systems
enable customers to track product location and configuration, and perform
detailed reliability, maintainability, quality assurance, vendor
qualification and cost analyses. The Company has developed systems for
transit vehicles, missiles, submarines, surface ships, land warfare
weapons, and aircraft.
The Company's major DoD information systems programs are sometimes
referred to as logistics information systems. These systems are essentially
product management information systems and involve inventory requirements
and control, maintenance and repair, warranty analysis, supply,
distribution and other functions critical to effective and economical
support of system hardware and software throughout the system's life.
Under contract with the U.S. Air Force, the Company has designed,
developed, implemented and operates TICARRS (Tactical Interim CAMS and
REMIS Reporting System) for the F-16 aircraft. The TICARRS databases
accept data entries and requests from numerous Air Force user organizations
worldwide. The TICARRS databases are continuously expanded and provide,
upon request by the Air Force user organizations worldwide, a variety of
operational reports. Data include results from worldwide F-16 flight
operations and maintenance activities. While remote computer terminals and
communications interfaces are an integral part of the system, the host
computer facility and its associated F-16 databases are located at a
Company facility where system operations are supported around the clock.
Based on TICARRS, DRC developed a Smart Data System (SDS) for the F-
117A Stealth Fighter Program by special request of the U.S. Air Force. It
was used in the Persian Gulf to support Operation Desert Storm. The SDS is
an on-line interactive aircraft maintenance data reporting and analysis
system supporting operational, staff, depot and contractor organizations.
For nearly thirty years, the Company has assisted the U.S. Navy's Fleet
Ballistic Missile program office in the design, development, and operation
of inertial systems. The Company has extensive experience with the
Polaris, Poseidon, and Trident missile guidance systems and submarine
inertial navigation systems. The Company develops and maintains
performance, reliability, and logistics databases for the inertial guidance
instruments housed in those systems. These databases track detailed
information on thousands of component parts comprising the systems. This
information is used by the customer for a wide range of operating
management tasks and decision making.
Also for the U.S. Navy, the Company provides independent analysis and
monitoring of submarine-based inertial guidance systems and electronic
modules. The Company's support capabilities include its Inertial
Instrument Test Laboratory, which is equipped for full-scale performance
testing of navigational quality inertial instruments.
Weapon Systems Management Information System (WSMIS) is a primary Air
Force decision support tool for assessing the impacts of logistics status
on potential wartime capabilities. WSMIS computes inventory requirements
and purchasing needs for high-tech, high-cost aircraft spare parts to meet
aircraft availability requirements. WSMIS also controls repair,
manufacturing and distribution schedules to meet customer demands. WSMIS
assesses the "health" and capability of the Air Force's weapon systems to
meet wartime objectives. DRC served as the overall functional integrator
of WSMIS and the developer of certain WSMIS modules. Currently, the
Company continues to provides operational support for the system as well as
software development modifications and other changes.
During 1994, DRC completed work as subcontractor under the U.S. Air
Force Aircraft Mishap Prevention (AMP) Program. The Company developed a
new system to facilitate aircraft accident analysis. The system helps
analysts systematically identify safeguards, corrective actions, and
countermeasures to reduce the number and impact of human factors that
contribute to aircraft mishaps.
Critical to the development of information systems is the Company's
software development process and related tools. The Company's approach to
mission-critical software stresses principles of continuous software
quality evaluation and increased visibility throughout the software
development life cycle. The Company uses commercially available software
development tools and internally developed tools to meet the needs of
software acquisition managers and developers.
The Company has also developed computer-based tools thatwhich evaluate
the quality of software programs and determine how well they adhere to
predetermined standards. One of these tools, AdaMAT, is licensed to both
government and commercial customers as a tool for an Ada software
engineering environment. The Company designed this static code analyzer
for use with the Ada programming language. AdaMAT helps Ada users and
managers of Ada development efforts adhere to specific programming
practices and program development goals during coding, testing, and
maintenance of the software. by AdaMAT allowings visibility into the
quality of the code at any given point in time. AdaMAT incorporates a
hierarchy of software metrics including management-related concerns such as
reliability, portability, maintainability; and software-related concerns
such as code simplicity, modularity, and self-descriptiveness.
Engineering and Management Support Services
Under various DoD contracts, the Company has performed a variety of
services for its U.S. Government customers to assist them in the planning
and managing of their large system development programs. This business
area utilizes a wide range of technical and management skills of Company
personnel to plan, analyze, design, test, support, train, maintain, and
dispose of a variety of complex physical systems. Systems include radar,
C3I, missile, aircraft, information, software, munitions, and soldier
protective gear.
The Company provides support at all stages of a system's life. In
response to emerging requirements, the Company helps customersclients
define, develop, and initiate new programs. The Company also helps
customersclients obtainreceive program approval, conduct strategic
planning, and evaluate proposals from industry. After prime contract
awards, the Company helps clients monitor contractor activities, evaluate
progress, and measure performance against program requirements.
Under the umbrella of the U.S. Air Force Technical and Engineering
Management Support (TEMS) and System Design and Analysis Support (SDAS)
contracts, the Company has supported, among others, the following programs
out of the Air Force Electronic Systems Center at Hanscom Air Force Base in
Massachusetts:
o Milstar
o Airborne Warning and Control System (AWACS)
o Joint Surveillance Target Attack Radar System (JSTARS)
o Mission Planning Systems
o Cheyenne Mountain Upgrade
o U.S. Transportation Command/Air Mobility Command Support
o PEACE SHIELD Air Defense System
o Airborne Battlefield Command and Control Center
o Over-the-Horizon Radar
o Theater Battle Management Core Systems (TBMCS)
DRC served as a prime contractor under the TEMS program from 1984 to
1993. During 1993, the Air Force recompeted the TEMS program and awarded
contracts to eight contractors, including several small and "disadvantaged"
businesses. DRC was a subcontractor on one of the winning teams, and has
been subsequently added as a subcontractor to several of the other winning
bidders. In addition, in January 1996, the Company acquired the
Massachusetts-based operations of Support Systems Associates, Inc. The
acquired assets included a prime contract to provide support services under
the TEMS program.As a result, DRC has retained substantially all the tasks
it had previously performed as a prime contractor, although. As discussed
in the Company's third and fourth quarter reports during 1993, financial
results have been adversely affected by the reduced hourly rates available
as a subcontractor.. To favorably position itself for future TEMS programs
as a prime contractor with the Air Force Electronic Systems Center (ESC),
the Company acquired a Massachusetts based business of Support Systems
Associates, Incorporated (SSAI) in January 1996. "The acquisition of the
Massachusetts based operations of Support Systems Associates, Inc. (SSAI)
in January, 1996 is a major accomplishment in our effort to strengthen the
Air Force management support services portion of our Systems Division. The
combination of our existing business base and resources with the SSAI
contrctual vehicles enhances our competitiveness in this important business
area."
In February 1995, the U.S. Air Force awarded to the Company a 5-year
contract (one year plus four option years), valued depending on customer
task ordering at up to $23.7 million. Under the contract, DRC will provide
technical and engineering services to the U.S. Air Force Air Logistics
Center at Tinker AFB, Oklahoma. Initial tasking under the new contract
included orders to provide independent test and evaluation services of
certain avionics and software under the Air Force B-1B aircraft program.
DRC has been supporting the B-1B programthis program office since 1990.
In November 1993, the Defense Information Systems Agency (DISA) awarded
its Defense Enterprise Integration Services (DEIS) contract, an estimated
$900 million, five- year program, to six competitors. DRC is a member of
the winning Computer Sciences Corporation team. DEIS is an indefinite
order, indefinite quantity program that may be a vehicle for a wide variety
of tasks which DRC will perform for DISA and related agencies. In
particular, DRC brings its experience in Business Process Re-Engineering
(BPR), as well as systems development, integration and migration, to the
DEIS program.
In particular, DRC brings its experience in Business Process Re-Engineering
(BPR), as well as systems development, integration and migration, to the
DEIS program.
The Company is also supporting the DoD in the area of acquisition
logistics. DRC technical staff helpassist the customers to plan and manage
the implementation of program requirements throughout all phases of the
acquisition process. From 1987 to present the Company has provided
services to the Ballistic Missile Defense Organization (BMDO) that include
operating and support considerations during the early conceptual phases of
the BMDO program. In 1995, the Company received a five-year contract (one
year plus four option years) to provide logistics modeling and analysis for
the U.S. Air Force Air Staff, with a potential value depending upon tasking
of up to $6.9 million. The Company also received a $400,000 contract from
the Federal Aviation Administration for a radar performance monitoring and
analysis system and a $600,000 contract for logistics modeling support for
the DoD's Joint Advanced Strike Technology program. From 1987 to present
the Company has provided acquisition logistics services to the Ballistic
Missile Defense Organization (BMDO). In February 1995, the Company received
a $0.7 million contract to provide logistics modeling support for the Joint
Advanced Strike Technology program. Also in February 1995, an indefinite
quantity contract was awarded to the Company to provide logistics support
to the Air Staff.
The Company combines its expertise in the weapon system acquisition
process with expertise in systems analysis, design, training and
simulation, and human factors to perform human-systems integration and
force analysis. DRC has been provideding force analysis support to the
Army Research Laboratory since 1987. Force Analysis activities are focused
on developing tools that support analysis of soldier and system
effectiveness, identify and assess force improvement options (doctrine,
training, leader development, organization, and material), and ensure that
soldier considerations are addressed in force improvements. In 1995, DRC
won a $22.5 million 5-year contract from the U.S. Army Research Laboratory
to providewhich builds on the Company's capabilities providing analysis,
system development and support in several functional areas, including
assessment of manpower, personnel and training issues, analysis of soldier
systems performance, and integration of methods and databases for use by
system designers. Under the Company's previouscurrent contract, begun in
1991, DRC developed a set of automated manpower and personnel integration
analysis tools that are used to analyze system cost versus performance to
help maintain optimal system performance at an affordable price. DRC also
developed methods for analyzing training requirements to promote
standardized training across the military services. In addition, DRC
developed advanced crew coordination training methods for the Army aviation
community designed to help reduce aviation mishaps. from the U.S. Army
Research Laboratory which singA follow-on to the current contract is
presently under evaluation with award expected during the first half of
1995.
Through its human-systems integration efforts, the Company helps the
military benefit through improved performance and effectiveness, by
matching soldiers to the tasks they must perform; cost and resource
savings, by making soldiers more effective and by automating tasks; and
more effective system design, by documenting relationships of design
options to eventual performance.
HARDMAN III, a suite of microcomputer-based tools developed by DRC,
estimates a weapon system's manpower and training requirements, calculating
manpower requirements by military specialty, skill level, pay grade, and
maintenance level for every unit within a specified force structure. This
suite of tools also allows analysts to locate and distribute system-level
requirements to lower-level tasks with consistency; estimate and set
required parameters for personnel quality constraints that affect job
performance; and evaluate contractor designs on the basis of performance
requirements, available maintenance support, and operator crew sizes. The
training model estimates a weapon system's total course costs, costs per
graduate, instructor requirements, and training man-day requirements. The
HARDMAN software has been used on over fifteen Army weapon systems.
, including the APACHE helicopter, and can produce manpower requirements
for the Active Army, Reserves, and National Guard components.
DRC is a subcontractor to Loral Federal Systems for the Close Combat
Tactical Trainer program (CCTT). CCTT will simulate Army tank and
mechanized infantry units from vehicle crews to the battalion level. CCTT
will use distributed, interactive simulation technology to provide a
"virtual" training environment. DRC will conduct all manpower and
personnel integration activities such as training, human factors
engineering, system safety, health hazards, and survivability, and will
develop modules of software for CCTT that generate tactical exercises and
that assess unit performance.
DRC has been supporting the B-1B Program Office since 1990. We
provide independent, third party test and evaluation services to ensure the
proper installation and implementation of avionics and software
modifications. In 1994, the Company received an award to continue these
services through the Government's 1995 fiscal year. DRC staff in offices
in Oklahoma City, Oklahoma and Andover, Massachusetts support this program.
, insert proven technology into the design of new and existing Air
Force systems and processes resulting in improvements to life-cycle cost,
productivity, efficiency, reliability, maintainability, supportability and
survivability provide technical and engineering services DRC staff in
offices in Oklahoma City, Oklahoma and Andover, Massachusetts support this
program.
The Company's Test Equipment Division provides a variety of research,
engineering, and manufacturing services in support of the U.S. Navy,
including test equipment services for the Trident submarine's inertial
gyroscopes, accelerometers, and other components. Also for the Navy, the
Company has developed an automated system used for the design, simulation,
synthesis, analysis, and verification of integrated circuits, printed
circuit boards, and entire electronic systems.
During 1994, the Company's Systems and Test Divisions competitively bid
and won an Air Force contract to produce a test system for secure tactical
communications devices. Company systems engineers are responsible for the
integration of commercially available components with sophisticated
software supplied by a subcontractor. The system operates with a DEC Alpha
workstation. Future system sales depend on system performance capabilities
as well as cost and customer budget factors.
During 1995, DRC was awarded two major prime contracts awards as a
result of a concerted multi-year effort to serve Federal agencies other
than DoD., traditionally our principal customer. successful in
accomplishing its plans to penetrate the non-DoD information technology
business by being awarded two prime contracts: the The first award was
fromwith the U.S. Department of the Treasury to provide information
technology support services to the Internal Revenue Service and other
Treasury departments. The contract is for one year plus four one-year
options with an aggregate ceiling of $200 million. The contract may be
used for a broad range of information system development, acquisition
support, and other management services. The Treasury made multiple awards
and expects the best technical and management performing contractors to
obtain the highest level of tasking over the life of the program. The
secondAlso was with award, from the General Services Administration,,
permits DRC to provide a broad range of information technology services
including software management, communications systems support, satellite
communications systems, acquisition support, and system engineering under
the GSA's Federal Systems Integration and Management program (FEDSIM).
This contract may serve as a vehicle for services to the GSA as well as
other Federal agencies. The amount of revenue that DRC may achieve under
this contract is uncertain. The FEDSIM program is for $840 million over 5
years among eight winning teams.
Digital Instruments and Precision Components
The Company operates two units that produce digital instuments and
precision components manufactured products for commercial markets, the
Encoder Division and the Metrigraphics Division. The Encoder Division
designs, manufactures and markets a line of digital encoders used to sense
position in a wide range of equipment. These products use optical
techniques to convert motion to digital signals that can then be used to
control the speed and position of devices such as machine tools, computer
peripherals, robotics arms and medical equipment.
Beginning in late 1992 and continuing through 1993, the Company
invested in a specialized production line and produced a line of encoders
for an automotive industry manufacturing customer. This line of encoders
is designed into a fuel pump and is used to control fuel flow and reduce
emissions. Manufacturing on the line commenced in 1993, and became
fullywas fully operational infor 1994 and has continued through 1995,
contributing sales of approximately $5 million in 1995. The continuation
of this business throughout 1995 and beyond depends on follow-on orders on
mutually satisfactory terms and conditions, end user demand for the
vehicles equipped with the system and other factors.
The Metrigraphics Division uses photolithographic processes to
manufacture optical discs, scales and reticles thatwhich are used for
precision measurement. Metrigraphics also uses various metals deposition
processes, including electroplating and electroforming, to produce a
variety of precision components. Products include printheads and oriface
plates used in electronic printers.
Using a process called electroforming, DRC manufactures precision
components used in inkjet cartridges. During 1995, the Metrigraphics
DivisionDRC received a $10 million order to produce these components. The
order is for delivery in 1996. In December 1995, the Company leased 27,000
square feet in Wilmington, Massachusetts to provide space for a second
electroform production facility. Approximately $5 million has been
committed for the purchase of production equipment for the new facility,
$1.9 million of which was incurred in 1995.and is the largest commercial
order ever received by DRC. Uu,. manufactures precision components used in
inkjet cartridges. DRC has been investing capital funds during 1995 to
increase electroform production capacity, and has recently committed to an
additional $3.0 million capital expansion program to meet customer
requirements.committed to a $2.4 million capital expansion program to meet
customer requirements.
The customers for both of these dDivisionsproducts are primarily
manufacturingOEM companies which integrate the Company's components into
their equipment. Encoder and Metrigraphics engineers work closely with
customer engineers to design and develop prototypes to meet customer
product requirements. Repeat orders for these customer-designed components
are a significant factorelement of sales. High quality standards and
competitive unit costs are critical aspects of this business.
United States Government Contracts
Contracts for the Company's defense services are obtained by marketing
and technical personnel employed by the Company. The Company's other
products are sold by sales personnel employed by the Company and sales
representatives.
During 1995, the Company's revenues from contracts with the
DoDDepartment of Defense, either as prime contractor or subcontractor,
accounted for approximately 78% of the Company's total revenues. The
Company's government contracts can fall into one of three categories: (1)
fixed price, (2) time and materials, andor (3) cost plus fixed fee. Under
a fixed price contract, the customer pays an agreed upon price for the
Company's services or products, and the Company bears the risk that
increased or unexpected costs may reduce its profits or cause it to incur a
loss. Conversely, to the extent the Company incurs actual costs below
anticipated costs on these contracts, the Company could realize greater
profits. Under a time and materials contract, the government pays the
Company a fixed hourly rate intended to cover salary costs and related
indirect expenses plus a certain profit margin. Under a cost plus fixed fee
contract, the government reimburses the Company for its allowable expenses
and allowable costs and pays a negotiated fee. In 1995, approximately
xx56% of the Company's government contracts revenue was under fixed price
or time and material contracts, while approximately xx44% of revenue was
under costs plus fixed fee contracts.
During 1995, the Company's U.S. Government business consisted of
approximately 135 separate contracts on 60xx different programs. The
Company's contracts with the government are generally subject to
termination at the convenience of the government; however, the Company
would be reimbursed for its allowable costs to the time of termination and
would be paid a proportionate amount of the stipulated profit attributable
to the work actually performed. Although government contracts may extend
for several years, they are generally funded on an annual basis and are
subject to reduction or cancellation in the event of changes in government
requirements or budgetary concerns. If the U.S. Government significantly
curtails expenditures for research, development and consulting activities,
such curtailment might have an adverse impact on the Company's sales and
earnings.
Backlog
At December 30, 1995, the Company's backlog of unfilled orders was
approximately $61,284,000 compared with $43,679,000 at December 31, 1994.
The Company expects that substantially all of its backlog on December 30,
1995 will be filled during itsthe fiscal year ending December 28, 1996.
The bBacklog at December 30, 1995 consisted of funded amounts under
contracts. Backlog at December 30, 1995 included $xx25,528xxx,000xxx of
unfunded amounts under ongoing programs which were contractually committed
by the procuring Government agency. The Company has a number of multi-year
contracts with agencies of the U.S. Government on which actual funding
generally occurs on an annual basis. The Company's business does not have
seasonal characteristics but a portion of its funded backlog is based on
annual purchase contracts, and the amount of funded backlog as of any date
can be affected by the timing of order receipts and deliveries thereunder.
Competition
The Company competes with both domestic and foreign firms, including
larger diversified companies and smaller specialized firms. The U.S.
Government's own in-house capabilities are also, in effect, competitors of
the Company becausesince various agencies perform certain types of services
which might otherwise be performed by the Company. The principal
competitive factors for dDefense sServices are price, performance,
technical competence and reliability. In addition, in the our commercial
business, the Company also competes with other manufacturers of encoders,
electroform vendors and photolithographic suppliers of precision
measurement scales. The principal competitive factors effecting the
precision components manufacturing business are price, product quality and
custom engineering to meet customer system requirements.
Research and Development
The Company expended approximately $1,949,000 (inclusive of overhead
and other indirect costs) on new product and service development during the
year ended December 30, 1995, as compared to expenditures of $224,000
during 1994 and $2,007,000 during 1993.
Raw Materials
Raw materials and components are purchased from a large number of
independent sources and are generally available in sufficient quantities to
meet current requirements.
Environmental Matters
Compliance with federal, state and local provisions relating to the
protection of the environment has not had and is not expected to have a
material effect upon the capital expenditures, earnings or competitive
position of the Company.
Employees
At December 30, 1995, the Company had approximately 1,249 employees.
Proprietary Information
Patents, trademarks and copyrights are not materially important to the
business of the Company. The United States Government has certain
proprietary rights in processes and data developed by the Company in its
performance of government contracts.
Item 2. Properties
The Company leases offices and other facilities, totaling approximately
231,000170,000 square feet, which are utilized for its defense services,
manufacturing and warehousing operations as well as its marketing and
engineering offices. The Company has manufacturing and office space in
Wilmington, Massachusetts under threetwo leases totaling 11385,000 square
feet, expiring in 20001995, with options to the year 20050. The remaining
leased facilities consist of offices in 242 locations across the United
States. The Company owns aits 135,000 square foot facility in Andover,
Massachusetts. This building was purchased in 1993 and is utilized for its
defense service operations and corporate administrative offices.
The Company's total rental cost for 1995 was $1,636,000.
The Company believes its properties are adequate for its present needs.
See Note 7 to the Consolidated Financial Statements included in the
Company's 1995 Annual Report to Shareholders for a description of the
Company's lease obligations.
Item 3. Legal Proceedings
None.The information set forth in the last paragraph of Note 7 to the
Consolidated Financial Statements included in the Company's Annual Report
to Shareholders for 1995 is incorporated herein by reference. The
complaint described therein, filed in the United States District Court for
Massachusetts by the United States Government, was dismissed in connection
with a settlement agreement entered into by the Company in April 1994.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
Item 4A. Executive Officers of the Registrant
The following is a list of the names and ages of the executive officers
of the Company indicating all positions and offices held by each person and
each person's principal occupations or employment during the past five
years. The executive officers were elected by the Board of Directors and
will hold office until the next annual election of officers and their
successors are elected and qualified, or until their earlier resignation or
removal by the Board of Directors. There are no family relationships
between any executive officers and directors.
Years of
Age Service Position
John S. Anderegg, Jr. 72 41 Chairman
Albert Rand 69 36President and Chief Executive Officer
John L. Wilkinson 56 14 Vice President, Human Resources
Douglas R. Potter 45 2 Vice President of Finance,
Chief Financial Officer
Each of the persons named above has served in the position indicated
for more than five years, with the exception of Douglas R. Potter. Mr.
Potter was appointed Vice President of Finance and Chief Financial Officer
in November 1993. Previously hHe was Vice President, Treasurer, and Chief
Financial Officer of SofTech, Inc. of Waltham, Massachusetts fromsince 1990
to 1993. and Corporate Controller from 1985 to 1990.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The common stock of Dynamics Research Corporation is traded on the
National Market System of the National Association of Securities Dealers,
Inc., Automated Quotation System (NASDAQ - NMS) under the symbol DRCO.
The high and low bid prices for the quarters in 1994 and 1995 and the
number of holders of record of the Company's common stock are described in
the Company's Annual Report to Shareholders for 1995 under the caption
"Stock Prices" and "Number of Shareholders," and such information is
incorporated herein by reference.
In September 1984, the Board of Directors indicated its intention not
to declare cash dividends to preserve cash for the future growth and
development of the Company. The Company did not declare any cash dividends
betweenduringbetween 1984 and 19954 and does not anticipate doing so for
the foreseeableforseeable future.
Item 6. Selected Financial Data
The section entitled, "Five Year Summary of Selected Financial Data" in
the Company's Annual Report to Shareholders for 1995 is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The section entitled, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's Annual
Report to Shareholders for 1995 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following financial statements are filed as part of this Annual
Report:
Report of Independent Public Accountants
Consolidated Balance Sheets at December 30, 1995, December 31, 1994
and December 25, 1993
Consolidated Statements of Operations for the three years ended
December 30, 1995
Consolidated Statements of Shareholders' Investment for the three
years ended December 30, 1995
Consolidated Statements of Cash Flows for the three years ended
December 30, 1995
Notes to Consolidated Financial Statements
(The consolidated financial statements and related notes listed above
are incorporated by reference to the Company's Annual Report to
Shareholders for the year 1995.)
Report of Independent Public Accountants on Schedules to Consolidated
Financial Statements
Schedule VIII - Valuation and Qualifying Accounts for the three
years ended December 30, 1995
The foregoing schedule is included as part of Item 14 of this Annual
Report on Form 10-K
All other financial statements and schedules have been omitted because
the information required to be submitted has been included in the financial
statements and related notes or they are either not applicable or not
required under the rules of Regulation S-X.
Quarterly financial data presented on page 13, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
presented on pages 26-28, of the Company's Annual Report to Shareholders
for the year 1995, are also incorporated herein by reference. With the
exception of the portions listed in the above index, the Annual Report
referred to above is not to be deemed filed as part of the financial
statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to Directors of the Registrant in the section
entitled "Election of Directors" in the Company's definitive proxy
Statement for the 1995 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission within 120 days after the close
of the fiscal year ended December 30, 1995, is incorporated herein by
reference.
Information relating to the Executive Officers of the Company is
included in Item 4A of Part I of this Form 10K.
Item 11. Executive Compensation
Information called for by this item is incorporated by reference from
the section entitled "Compensation and Related Matters" in the Company's
definitive Proxy Statement for the 1995 Annual Meeting of Stockholders,
which will be filed with the Securities and Exchange Commission within 120
days after the close of the fiscal year ended December 30, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information called for by this item is incorporated by reference from
the sections entitled "Common Stock Ownership of Certain Beneficial Owners
and Management" in the Company's definitive Proxy Statement for the 1996
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after the close of the fiscal year
ended December 30, 1995.
Item 13. Certain Relationships and Related Transactions
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Schedules - See Item 8.
(a) (3) Exhibits. The exhibits thatwhich are filed with this Form 10-
K or thatwhich are incorporated herein by reference are set forth in
the Exhibit Index, which appears in Part IV of this report on pages
240 and 251.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of fiscal 19954.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
TO CONSOLIDATED FINANCIAL STATEMENTS
To Dynamics Research Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Dynamics
Research Corporation's annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated
February 16, 19965. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in the
accompanying index is the responsibility of the company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts,
February 126, 19965
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The following factors, among others, could cause the Company's actual
results and performance to differ materially from those contained in
forward-looking statements made in this report and presented elsewhere by
or on behalf of the Company from time to time.
Uncertainties as to Department of Defense and Other Federal Agency Budgets
The Company has historically derived a substantial portion of its
revenue from contracts and subcontracts with the Government, and currently
more than 78% of the Company's revenue is derived from the Department of
Defense business. Over the past several years, the Company's defense
business has been adversely affected by significant changes in defense
spending. Overall U.S. defense budgets have been declining, and the
effects of this general decline and attendant increased competition within
the consolidating defense industry is expected to continue over the next
several years. Funding limitations could result in a reduction, delay, or
cancellation of existing or emerging programs. These factors, among
others, have reduced the Company's revenue and operating margins on its
defense contracts in recent fiscal periods. The Company anticipates that
competition in all defense-related areas will continue to be intense and
that, accordingly, there will be continued significant competition when the
Company's defense contracts are rebid and continued significant competitive
pressure to lower prices, which may reduce profitability in this area of
the Company's business. Any reduction in the level or profitability of the
Company's defense business, if not offset by new commercial business or
other business with the federal government, will adversely affect the
Company's business, financial condition and results of operations.
A significant portion of the Company's Government contracts are
renewable on an annual basis, or are subject to the exercise of contractual
options. Also, multi-year contracts often require funding actions by the
Government on an annual or more frequent basis. As a result, the Company's
business could experience material adverse consequences should the
Government budget not include funds required to sustain the programs under
which DRC operates.
Government Contracting Risks
A significant portion of the Company's Government contracts are of a
time and materials nature, with fixed hourly rates that are intended to
cover salaries, benefits, other indirect costs of operating the business
and profit. The pricing of such contracts is based upon estimates of
future costs and assumptions as to the aggregate volume of business that
the Company will perform in a certain business division or other relevant
unit. For long term contracts, the Company must estimate the costs
necessary to complete the defined statement of work and recognize revenues
or losses in accordance with such estimates. However, actual costs may
vary materially from the estimates made from time to time, necessitating
adjustments to reported revenue and net income. Underestimates of the
costs associated with a project would adversely affect the Company's
overall profitability and could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Government's awards of contracts are subject to regulations and
procedures that permit formal protests by losing bidders. Such protests
may result in significant delays in the commencement of expected
contractual effort, or the reversal of a previous award decision, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Because of the complexity and scheduling of contracting with the
Government, from time to time costs are incurred in advance of contractual
funding by the Government. In some circumstances, such costs may not be
recovered in whole or in part under subsequent Government contractual
actions. Failure to collect such amounts may have material adverse
consequences on the Company's business, financial condition and results of
operations.
Costs incurred in connection with Government contracts are generally
subject to after-the-fact audits. Such audits may result in material
disallowances, which could have an adverse effect on the Company's
business, financial condition and results of operations.
A substantial portion of the Company's Government contracting business
is as a subcontractor. In such circumstances, the Company generally bears
the risk that the prime contractor will meet its performance obligations to
the Government under the prime contract and that the prime contractor will
have the financial capability to pay the Company amounts due under the
subcontract. The inability of a prime contractor to perform or make
required payments could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Government has the right to terminate contracts for convenience.
In such a termination, the Company would generally recover costs incurred
to termination, costs required to be incurred in connection with the
termination, and a portion of the fee earned commensurate with the work
performed to termination. However, significant adverse effects on the
Company's indirect cost pools may not be recoverable in connection with a
termination for convenience.
Dependence or Key Personnel
The Company is dependent on its key technical personnel. In addition,
certain technical contributors may have specific knowledge and experience
related to various Government customer operations that would be difficult
to replace in a timely fashion. The loss of the services of key personnel
could have a material adverse effect on the Company's ability to perform
required services under certain contracts, or to retain such business after
the expiration of the current contract, or to win new business where
certain personnel have been identified as key personnel in the proposal,
any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Competition
The Government contracting business is subject to intense competition,
both technical and pricing, from numerous companies, many of which have
significantly greater financial, technical and marketing resources than the
Company.
Competition in the market for the Company's commercial products is
also intense. There is a significant lead time for developing such
business, and it involves significant capital investment including
development of prototypes and investment in manufacturing equipment. The
Company's precision products business has a number of competitors, many of
which have significantly greater financial, technical and marketing
resources than the Company.
Risks Associates with New Markets and New Products
In its efforts to enter new markets, including Government agencies
other than the Department of Defense and commercial markets, the Company
faces significant competition from other companies that have prior
experience with such potential customers as well as significantly greater
financial, technical and marketing resources than the Company. As a
result, the Company's efforts to enter such new markets may be unsuccessful
or may not achieve the level of success sought by the Company.
The Company has announced software products for commercial markets.
There is no assurance that the Company's software products will meet with
market acceptance or that the Company will be able to compete in the
development and distribution of such products with competitors that have
significantly greater resources and experience.
Concentration of Customers
Within the Department of Defense, individual services and program
offices account for a significant portion of the Company's Government
business. Two customers account for a significant portion of the revenue
of the Company's commercial manufacturing divisions. No assurance can be
provided that any of these customers will continue as such or will continue
at current levels. A decrease in orders from these customers would have an
adverse effect on the Company's profitability, and the loss of any large
customer could have a material adverse effect on the Company's business,
financial condition and results of operations.
Risk of Product Claims
The Company's precision manufactured products are generally designed
to operate as important components of complex systems or products, and
defects in DRC products could cause the customer's product or systems to
fail or perform below expectations. Like other manufacturing companies,
the Company may be subject to claims for alleged performance issues
relating to its products. There can be no assurance any such claims, if
made, will not have a material adverse effect on the Company's business,
financial conditions or results of operations.
Risk of Economic Events Effecting the Company's Business Segments
Certain of the Company's precision products are components of
commercial products. Factors that affect the production and demand for such
products, including economic events, competition, technological change and
productions stoppages, could adversely affect demand for the Company's
products. Certain of the Company's products are incorporated into capital
equipment, such as machine tools and other automated production equipment,
used in the manufacture of other products. As a result, this portion of
the Company's business may be subject to fluctuations in the manufacturing
sector of the overall economy. An economic recession could have a material
adverse effect on the rate of orders received by the commercial divisions.
Significantly lower production volumes resulting in under-utilization of
the Company's manufacturing would adversely impact the Company's
profitability.
Technological Change
The Company's knowledge base and skills in the Government contracting
area are sophisticated and involve areas in which there have been and are
expected to be significant technological change. There is no assurance
that the Company will continue to be able to offer services that satisfy
its customers' requirements at a competitive price. Many of the Company's
products are incorporated into sophisticated machinery, equipment or
electronic systems. Technological changes may be incorporated into
competitor's products that may adversely affect the market for the
Company's products. Further, there can be no assurance that the Company's
research and product development efforts will be successful and result in
new or improved products that may be required to sustain the Company's
market position.
Uncertainty of Future Financing
Although the Company has no immediate plans to raise additional
capital, it may in the future need to raise additional funds through public
or private debt or equity financings. There can be no assurance that any
such funding will be available or of the terms or timing of any such
funding.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 25, 1996
DYNAMICS RESEARCH CORPORATION
by: /s/ Albert Rand
Albert Rand, President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 25th of March, 1996.
/s/ Albert Rand
Albert Rand Director, President, Chief Executive Officer
/s/ Douglas R. Potter
Douglas R. Potter Vice President of Finance, Chief Financial
Officer (Principal Financial and Accounting Officer)
/s/ John S. Anderegg, Jr.
John S. Anderegg, Jr. Director, Chairman
/s/ Francis J. Aguilar
Dr. Francis J. Aguilar Director
/s/ Thomas J. Troup
Thomas J. Troup Director
/s/ James P. Mullins
Gen. James P.Mullins Director
SCHEDULE VIII
DYNAMICS RESEARCH CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 30, 1995
(in thousands of dollars)
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS
Balance, December 26, 1992 $356
Additions charged to expense 63
Write-off of uncollectible accounts, net (1)
Balance, December 25, 1993 $418
Additions charged to expense 222
Write-off of uncollectible accounts, net (54)
Balance, December 31, 1994 $586
NetAdditions recoveries charged to expense (2)
Write-off of uncollectible accounts, net (182)
Balance, December 30, 1995 $402
EXHIBIT INDEX
3.0 Certificate of Incorporation and By-Laws.
3.1 Restated Articles of Organization dated May 22, 1987.
(Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended 6/13/87)
3.2 By-Laws dated May 22, 1987. (Incorporated by reference to the
Registrant's Form 10-Q for the quarter ended 6/13/87)
4.0 Instruments defining the rights of security holders, including
indentures.
4.1 Common stock included in Exhibit 3.1 through 3.2.
4.2 Preferred stock included in Exhibit 3.1 through 3.2.
4.3 Rights Agreement dated as of July 14, 1988 ("Rights Agreement")
between the Company and American Stock Transfer & Trust Company,
as Rights Agent.* (Incorporated by reference to the Registrant's
Form 8-K on July 14, 1988)
4.4 Rights Agreement Amendment No. 1 dated as of September 6, 1989.*
(Incorporated by reference to the Registrant's Form 8-K on
September 12, 1989)
10.0 Material Contracts
10.1 Amended 1983 Stock Option Plan. dated January 14, 1987
(Incorporated by reference to the Registrant's Form 10-K for the
year ended 12/27/87)
Plan terminated during 1993.*
10.2 1993 Equity Incentive Plan. (Incorporated by reference to
the Registrant's Form
10-Q for the quarter ended 6/12/93)
10.3 1995 Stock Option Plan for non-employee directors.
(Incorporated by reference to the Registrant's Form 10-K for the
year ended 12/31/94)
10.42 Form of Dynamics Research Corporation Indemnification Agreement
for Directors as of July, 1988. (Incorporated by reference to the
Registrant's Form 10-K for the year ended 12/28/91)*
10.53 Form of Dynamics Research Corporation Severance Agreement for
Messrs. Anderegg and Rand as of July, 1988. (Incorporated by
reference to the Registrant's Form 10-K for the year ended
12/28/91)*
10.64 Dynamics Research Corporation Deferred Compensation Plan for
Non-Employee Directors as of October 22, 1991. (Incorporated by
reference to the Registrant's Form 10-K for the year ended
12/28/91)*
10.75 Mortgage Aagreement dated February 5, 1993 on the Andover
office building as referred above between Dynamics Research
Corporation and ABN AMRO Bank, N.V., Boston branch of a
Connecticut corporation. (Incorporated by reference to the
Registrant's Form 8-K on May 5, 1993)
10.6 1993 Equity Incentive Plan dated April 27, 1993.
(Incorporated by reference to the Registrant's Form 10-Q for the
quarter ended 6/12/93)*
10.7 1995 Stock Option Plan for non-employee directors filed
herewith.*
13.0 Annual Report to security holders, Form 10-Q or quarterly reports to
security holders.
13.1 The Company's Annual Report to Shareholders for the year
ended December 30, 1995 filed herewith with the exception of the
information incorporated by reference in parts I, II and IV of
this Form 10-K is not deemed to be filed as part of this report.
23.0 Consents of experts and counscel
23.1 Consent of Independent Accountants (Arthur Andersen LLP) dated
March 26XX, 1996 filed herewith.
99.0 Important Factors Regarding Forward-Looking Statements.
* Management contract or compensatory plan or arrangement.