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BDM International Inc/DE – ‘10-Q’ for 9/30/96

As of: Wednesday, 11/13/96 · For: 9/30/96 · Accession #: 870763-96-8 · File #: 0-23966

  As Of                Filer                Filing    For·On·As Docs:Size

11/13/96  BDM International Inc/DE          10-Q        9/30/96    3:44K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      17     80K 
 2: EX-11.1     Statement re: Computation of Earnings Per Share        1      6K 
 3: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Financial Statements Managements' Discussion and Analysis Submission of Matters to a Vote of Security Holders
1	1st Page - Filing Submission
3	Item 1. Financial Statements
9	Item 2. Managements' Discussion and Analysis
15	Item 4. Submission of Matters to a Vote of Security Holders
"	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 17 TOC ↑Top Previous Next ↓Bottom Just 1st
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 Form 10-Q

 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
EXCHANGE ACT OF 1934

For the quarter                                   Commission File     
ended:   September 30, 1996                       Number:  000-23966  

 BDM International, Inc.
(Exact name of registrant as specified in its charter)

Delaware                                 54-1561881 
(State or other jurisdiction of                   (I.R.S. Employer    
incorporation or organization)                    Identification No.) 

1501 BDM Way, McLean, Virginia                    22102-3204          
(Address of principal executive office)           (Zip Code)          

 Registrant's telephone number
 including area code: 703-848-5000

Not Applicable
(Former name, former address, and former fiscal year, if
changed since last report)

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                                     

As of the close of business on October 31, 1996, the registrant had  outstanding
14,331,193 shares of Common Stock, par value $.01 per share.                    

10-Q 2nd Page of 17 TOC 1st Previous Next ↓Bottom Just 2nd
CONTENTS

Part I.  Financial Information                                                  

         Item 1.    Financial Statements.......................................2

        Item 2.    Management's Discussion and Analysis of Financial Condition
                    and Results of Operations..................................8

Part II. Other Information                                                      

         Item 4.    Submission of Matters to a Vote of Securities Holders.....15

         Item 6.    Exhibits and Reports on Form 8-K..........................15

10-Q 3rd Page of 17 TOC 1st Previous Next ↓Bottom Just 3rd
PART I

Item 1.  Financial Statements.                                                  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

BDM International, Inc.:                                                        

Consolidated Balance Sheets as of                             
                  September 30, 1996 (Unaudited) and December 31, 1995.........3

Consolidated Statements of Operations for the                 
  Three and Nine Months Ended September 30, 1996
                  and 1995 (Unaudited) ........................................4

Condensed Consolidated Statements of Cash Flow for the        
                  Nine Months Ended September 30, 1996 and 1995 (Unaudited) ...5

         Notes to Consolidated Financial Statements (Unaudited) ...............6

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                             BDM INTERNATIONAL, INC.                                                       
                           CONSOLIDATED BALANCE SHEETS                                                     
                        (in thousands, except share data)                                                  

                                                                         September 30,       December 31,  
                                                                              1996               1995      
                                                                        -----------------  ----------------
                                                                           (unaudited)                     
                                                                                                           

ASSETS                                                                                                     

Current assets:                                                                                            
Cash and cash equivalents                                               $      71,240       $     69,143   
Accounts receivable, net                                                      211,730            219,354   
Prepaid expenses and other                                                      4,305              6,157   
                                                                        -----------------  ----------------
   Total current assets                                                       287,275            294,654   

Property and equipment, net                                                    47,245             45,722   
Intangible assets, net                                                         22,613              9,615   
Deposits and other                                                              6,206              8,580   
Equity in and advances to affiliates                                            6,373              5,222   
                                                                        -----------------  ----------------
  Total assets                                                          $     369,712       $    363,793   
                                                                        =================  ================

LIABILITIES AND STOCKHOLDERS' EQUITY                                                                       

Current liabilities:                                                                                       
Accounts payable and accrued expenses                                   $     138,148       $    168,253   
Debt currently payable                                                          2,826                449   
Income taxes payable                                                              421              3,465   
Deferred tax liability                                                          8,779              6,363   
                                                                        -----------------  ----------------
  Total current liabilities                                                   150,174            178,530   

Deferred tax liability                                                          4,369              3,638   
Long term debt                                                                  6,918             25,900   
Severance and other                                                            15,903             12,099   
Minority interest                                                              28,195             28,157   
                                                                        -----------------  ----------------
  Total liabilities                                                           205,559            248,324   
                                                                        -----------------  ----------------

Commitments and contingencies                                                                              

Stockholders' equity:                                                                                      
Preferred stock, $.01 par value;                                                                           
 500,000 shares authorized, none issued                                                                    
                                                                                    -                  -   
Common  stock,  $.01 par value;  14,283,366  and  12,962,342  shares                                       
  issued and outstanding at June 30, 1996 and December 31, 1995,                                           
  respectively                                                                    143                130   
Additional paid in capital                                                    101,833             68,535   
Retained earnings                                                              62,751             46,790   
Deferred compensation                                                          (1,728)              (395)  
Cumulative translation adjustment                                               1,154                409   
                                                                        -----------------  ----------------
  Total stockholders' equity                                                  164,153            115,469   
                                                                        -----------------  ----------------
  Total liabilities and stockholders' equity                            $     369,712       $    363,793   
                                                                        =================  ================

        The accompanying notes are an integral part of these consolidated                                  
                             financial statements.                                                         


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                       BDM INTERNATIONAL, INC.                                                            
                CONSOLIDATED STATEMENTS OF OPERATIONS                                                     
           (in thousands, except earnings per share data)                                                 
                             (unaudited)                                                                  

                                                    For the three months            For the nine months   
                                                     ended September 30,            ended September 30,   

                                                   1996              1995         1996              1995  
                                                   ----              ----         ----              ----  
                                                                                                          

Revenue                                       $   246,766     $    215,900     $  723,727     $    620,864
                                              -----------     ------------     ----------     ------------

Cost of sales                                     205,133           83,272        605,359          519,007
Selling, general and administrative                23,454           19,577         67,223           59,814
Depreciation, amortization and other                4,474            3,712         13,068           14,011
Provision for restructuring                         5,760              --           5,760             --  
                                            -------------     ------------     ----------     ------------

      Operating profit                              7,945            9,339         32,317           28,032

Interest (income) expense, net                       (452)           (360)        (1,465)            2,125
Equity in earnings of affiliates                     (374)           (436)        (1,290)          (1,271)
Minority interest                                    1,818             973          6,997            3,986
                                            --------------   -------------  -------------    -------------

       Income before income taxes                   6,953            9,162         28,075           23,192

Provision for income taxes                           3,053           3,871         12,114           10,698
                                            --------------   -------------   ------------   --------------

         Net income                         $        3,900   $       5,291  $      15,961   $       12,494
                                            ==============   =============  =============   ==============

 Earnings per common and                                                                                  
 common equivalent share:                                                                                 
  Net income per common share               $         0.26   $        0.40   $      1.10    $         1.11
                                            ===============  =============   ===========    ==============

   Weighted average common                                                                                
       shares outstanding                           15,096          13,376        14,495            11,226
                                            ==============   =============   ===========     =============

  The accompanying notes are an integral part of these consolidated                                       
                       financial statements.                                                              


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                        BDM INTERNATIONAL, INC.                                                          
            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW                                               
         For the nine months ended September 30, 1996 and 1995                                           
                       (unaudited, in thousands)                                                         

                                                                         For the nine months ended       
                                                                                September 30,            
                                                                          1996                1995       
                                                                      --------------    -----------------
                                                                                                         
Cash flow from operating activities:                                                                     
  Net cash provided by operating activities                           $   27,569            $  38,663    
                                                                      --------------    -----------------

Cash flow from investing activities:                                                                     
  Additions to property and equipment                                    (12,218)             (12,724)   
  Purchase of businesses, net of cash acquired                            (8,695)                  --    
  Reimbursement of acquisition costs                                          --                1,143    
  Contributions from minority owners                                          --                1,862    
  Distributions from unconsolidated affiliates                             1,886                1,050    
  Investment in unconsolidated affiliates                                 (2,358)              (1,576)   
                                                                      -------------     -----------------

  Net cash used in investing activities                                  (21,385)             (10,245)   
                                                                      -------------     -----------------

Cash flow from financing activities:                                                                     
  Net  repayments of  revolving borrowings                               (26,203)             (76,341)   
  Repayment of acquisition debt                                               --                   --    
  Repayment of debt                                                       (1,954)              (3,700)   
  Proceeds from issuance of common stock                                  28,363               52,677    
  Payment of dividend                                                     (2,013)                  --    
  Acquisition of treasury stock                                               --               (1,097)   
                                                                      -------------     -----------------

  Net cash used in financing activities                                   (1,807)             (28,461)   
                                                                      -------------     -----------------

Effect of exchange rate changes on cash and cash equivalents              (2,280)               3,458    
                                                                      -------------     -----------------

Net increase in cash and cash equivalents                                  2,097                3,415    

Cash and cash equivalents, beginning of period                            69,143               45,314    
                                                                      -------------     -----------------

Cash and cash equivalents, end of period                              $   71,240           $   48,729    
                                                                      =============     =================

   The accompanying notes are an integral part of these consolidated                                     
                        financial statements.                                                            

10-Q 7th Page of 17 TOC 1st Previous Next ↓Bottom Just 7th
 BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

(1)      General                                                                
-------                                                       
         The accompanying  financial  statements of BDM International,  Inc. and
subsidiaries  (BDM or the  Company)  as of  September  30,  1996 and for interim
periods ended  September 30, 1996 and 1995, are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange  Commission
and does not include all disclosures  required by generally accepted  accounting
principles.  The balance  sheet as of December  31,  1995,  was derived from the
Company's audited consolidated  financial statements.  Certain other information
and  disclosures  included  in  the  Company's  annual  consolidated   financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed  or  omitted  pursuant  to the above  referenced  rules and
regulations.  It is  suggested  that  these  financial  statements  be  read  in
conjunction  with the  consolidated  financial  statements and the notes thereto
included in the Company's  latest annual report to the  Securities  and Exchange
Commission on Form 10-K.                                                        

         The  accompanying   consolidated   financial   statements  reflect  all
adjustments  and  reclassifications  that,  in the  opinion of  management,  are
necessary for a fair  presentation.  All such adjustments and  reclassifications
have been  deemed to be of a  recurring  nature,  except for the  provision  for
restructuring in the third quarter of 1996.                                     

         The Company announced a new alignment of its business operations in the
third quarter of 1996,  described in management's  discussion and analysis.  The
new business alignment resulted in a one-time,  pre-tax  restructuring charge of
$5.8 million to third  quarter  earnings,  which  included a write-down  of $3.1
million  of the  net  investment  in  the  Company's  environmental  subsidiary,
severance costs totaling $1.8 million for  approximately 40 employees across the
Company,  and the accrual of  approximately  $0.9  million for certain  facility
expenses.  The  write-down at the Company's  environmental  subsidiary  affected
primarily  goodwill and fixed assets,  and was  determined  based on analyses of
future cash flows expected from that area of business after changes in strategic
direction  resulting  from the  business  realignment.  Anticipated  future cost
savings from the changes are expected to be  reinvested  in human  capital and a
research and development program to support future growth.                      

(2)      Income Taxes                                                           
------------                                                  
         The Company uses the estimated annual effective rate method for interim
income tax  purposes.  The Company also  recognizes  an expense for U.S.  income
taxes on  undistributed  earnings  of its  foreign  subsidiaries  as though  the
earnings had been distributed.                                                  

         Excluding  the  effect  of  the  restructuring  charge,  the  Company's
effective income tax rate for the three months ended September 30, 1996 was 43%.
The difference  between the combined statutory federal and state income tax rate
of 42% and the Company's pro forma effective income tax rate of 43% for the nine
months  ended  September  30,  1996,  is  primarily   attributable  to  goodwill
amortization  which is not  deductible  for  federal  income tax  purposes.  The
acquisitions in February  contributed to an increase in the effective income tax
rate. The difference between the combined statutory federal and state income tax
rate of 41% and the Company's  actual  effective  income tax rate of 46% for the
nine months ended  September 30, 1995, is primarily  attributable to a charge of
$1.6 million  recognized  in the first  quarter of 1995 to reflect  management's
estimate of the  recoverability of unamortized  goodwill generated in an earlier
business  acquisition.  This charge,  as well as the  majority of the  Company's
other  goodwill,  is not  deductible  for  federal  income  tax  purposes,  thus
resulting in the higher effective tax rate.                                     

(3)      Earnings Per Share                                                     
------------------                                            
         Net  income  per common  share is net  income  divided by the  weighted
average number of common shares and common share equivalents  outstanding during
the period.  The Company's  common share  equivalents  consist entirely of stock
options.                                                                        

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 BDM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

(4)     Capital stock transactions                                            
--------------------------                                    
         On March 27, 1996, the Company completed a secondary offering of common
stock to the  public in which  3,220,000  shares of  Common  Stock  were sold at
$36.50 per share.  Of the total  3,220,000  shares  sold,  450,000  were primary
shares and the remaining  2,770,000 shares were sold by certain of the Company's
shareholders,  including  400,000  of Class B shares,  which were  converted  to
Common  Stock  immediately  prior to the  offering.  The net  proceeds  of $15.3
million  were  used  for  general  corporate  purposes  and  to  finance  future
acquisitions.                                                                   

         The remaining  shares of stock  available under the 1995 Employee Stock
Purchase  Program were purchased by employees during the months January to April
1996.  In May a  successor  plan (the  1996  Plan) was  established  which  made
available 1,000,000 shares of BDM common stock, with a maximum of 500,000 shares
available for purchase in any 12-month period. During the offering period of May
1, 1996 to October 31, 1996,  the purchase  price is 85% of the closing price of
BDM common stock on May 1, 1996 (the base price), or 85% of the closing price at
the end of each month, whichever is less. The base price will be reset every six
months to 85% of the closing price on the first trading day of the next offering
period.  The new  1996  Plan  includes  a 90-day  holding  period  during  which
employees  may not sell shares  purchased  under the 1996 Plan.  During the nine
months ended  September  30, 1996,  the Company  received $10 million from stock
purchased under these two plans.                                                

(5)      Acquisitions                                                           
------------                                                  
         On February 20, 1996,  the Company  completed the  acquisition of three
affiliated  companies - CW Systems,  Inc., IG Systems,  Inc. and Melco  Systems,
Inc.  - for $18.5  million.  The  acquired  companies  specialize  in  providing
information technology systems and services to large commercial organizations in
various  industries,  as well  as to  various  state  government  agencies.  The
acquisition  of these  companies has been  accounted for as a purchase,  and the
results of their  operations  have been included in the  Company's  consolidated
statements of operations  since the date of  acquisition.  Of the total purchase
price,  $8.8 million was paid out of existing cash balances and $9.7 million was
financed through the issuance of term notes payable to the previous owners.  The
notes  are  payable  over two  years  and  bear an  interest  rate  equal to the
prevailing   yield  rate  on  twenty-six  week  United  States  Treasury  Bills,
determined every six months (5.3% as of September 30, 1996). Interest is payable
on a  quarterly  basis.  Resulting  goodwill  totaled  $16  million  and will be
amortized  on a  straight-line  basis over 15 years.  Other  intangible  assets,
relating to non-compete  agreements,  totaled $1.4 million and will be amortized
over two years.                                                                 

         As discussed in the Other Matters  section of  Managements'  Discussion
and Analysis, the Company announced subsequent to quarter end the acquisition of
RGTI Systems  Software (RGTI),  a company  specializing in warehouse  management
systems.                                                                        

(6)      Legal Matters                                                          
-------------                                                 
         As discussed in the Other Matters  section of  Managements'  Discussion
and  Analysis,  the Company has been informed that a civil "qui tam" lawsuit has
been  filed  against  the  Company.  The  Company  does not  possess  sufficient
information  to  determine  the  amount  of any  loss  as a  consequence  of the
litigation. Accordingly, the Company has not been able to identify the amount of
any loss contingency.                                                           

10-Q 9th Page of 17 TOC 1st Previous Next ↓Bottom Just 9th
Item 2.  Managements' Discussion and Analysis                                   
-------  ------------------------------------                                   

OVERVIEW                                                                        

         The Company announced a new alignment of its business operations during
the third  quarter of 1996,  consisting  of strategic  business and  development
units designed to position the Company for long-term  expansion and growth.  The
new  alignment  resulted  in a  one-time  pre-tax  restructuring  charge of $5.8
million ($0.22 per share after tax) to third quarter earnings.                  

         The  Company  continued  to report  significant  growth in revenue  and
profitability,  excluding the  restructuring  charge,  for the third quarter and
nine months of 1996. For the three months ended September 30, 1996, revenue grew
14%, pro forma net income grew 37%, and pro forma  earnings per share  increased
20% (to $0.48 per  share),  compared  to the same  period in 1995.  For the nine
months ended  September 30, 1996, the Company  experienced  growth in revenue of
17%,  pro forma net income of 54%,  and pro forma  earnings per share of 18% (to
$1.32 per share),  compared to the same period in 1995.  This growth was despite
the impact of exchange  rate changes  which masked real growth in the  Company's
European  subsidiary,  as the dollar strengthened  roughly 4% against the German
mark in the third quarter of 1996 compared to the same period in 1995. Including
the  restructuring  charge,  the Company reported net income of $3.9 million and
$16.0  million for the three and nine month  periods  ended  September 30, 1996,
respectively.  Reported  earnings per share for the three and nine month periods
were $0.26 and $1.09, respectively.                                             

         Contract  backlog  increased to an all-time  high of $2.3 billion as of
September  30,  1996,  reflecting  the large  volume of  proposal  activity  and
subsequent  awards  experienced  this  year.  As a result of awards of almost $1
billion in the third quarter of 1996, proposal backlog decreased to $1.2 billion
as of September 30, 1996.                                                       

REVENUE                                                                         

                                                        [Enlarge/Download Table]

                                    Three months ended September 30,     Nine months ended September 30,     
                                    (in millions, except percentages)    (in millions, except percentages)   

                                       1996       %       1995       %     1996        %        1995        %
                                       ----       -       ----       -     ----        -        ----        -
                                                                                                             

Client Category                                                                                              
---------------                                                                                              
U.S. Department of Defense            $91.9     37%      $76.9     36%  $ 278.3      38%      $221.0      36%
International Defense                  61.2     25%       50.5     23%    177.6      26%       152.1      24%
Civil Government                       53.8     22%       56.3     26%    154.8      20%       155.3      25%
Commercial                             39.9     16%       32.2     15%    113.0      16%        92.5      15%
                                       ----     ---       ----     ---    -----      ---        ----      ---
     Total                          $ 246.8    100%    $215.9     100%  $ 723.7     100%     $ 620.9     100%
                                    =======    ====    =======    ====  =======     ====     =======     ====

Services Provided                                                                                            
-----------------                                                                                            
Systems & Software Integration        $92.7     38%      $76.8     36%   $262.1      36%     $ 200.6      32%
Computer & Technical Services         120.9     49%      108.5     50%    370.8      51%       339.7      55%
Enterprise Management & Operations     33.2     14%       30.6     14%     90.8      13%        80.6      13%
                                       ----     ---       ----     ---     ----      ---        ----      ---
     Total                          $ 246.8    100%    $ 215.9    100%  $ 723.7     100%     $ 620.9     100%
                                    =======    ====    =======    ====  =======     ====     =======     ====

Subsidiary                                                                                                   
----------                                                                                                   
BDM Federal                          $132.7     54%     $115.9     53%   $390.8      54%      $329.6      53%
BDM Technologies                       24.0     10%       14.5      7%     62.7       8%        41.3       7%
BDM Europe                             49.8     20%       53.5     25%    150.1      21%       149.0      24%
Vinnell Corporation                    40.3     16%       32.0     15%    120.1      17%       101.0      16%
                                       ----     ---       ----     ---    -----      ---       -----      ---
     Total                          $ 246.8    100%    $ 215.9    100%   $723.7     100%     $ 620.9     100%
                                    =======    ====    =======    ====  =======     ====     =======     ====


10-Q 10th Page of 17 TOC 1st Previous Next ↓Bottom Just 10th
Revenue by Client Category                                    
--------------------------                                    

         U.S.  Department  of  Defense  (DOD):  Revenue  derived  from  the U.S.
         Department  of Defense  (DOD)  increased  20% and 26% for the three and
         nine month  periods  ended  September  30,  1996,  compared to the same
         periods  in  1995.  The  primary  contributor  to this  growth  was the
         Company's  systems and software  integration work (primarily  DEIS), as
         well as growth in defense test and evaluation and technical support for
         ballistic  missile  defense  and  other  military  programs.  This  was
         partially  offset by lower  hardware  revenue  earned  from a  computer
         consolidation  and  modernization  contract.  This trend  toward  lower
material sales is expected to continue in future periods.     

         International  Defense:  Revenue from  international  defense  business
         increased  21% and 17% for the  three  and  nine  month  periods  ended
         September 30, 1996, compared to the same periods in 1995, due to higher
         revenue earned on BDM Federal's contract with the Royal Saudi Air Force
         and on Vinnell's  contract with the Royal Saudi Land Forces.  Vinnell's
         contract  with the Saudi Arabian  National  Guard also  contributed  to
         revenue  growth in the third quarter of 1996.  Revenue on this contract
         for the nine month period in 1996,  however,  was lower compared to the
         same  period in 1995,  partially  offsetting  the  increases  discussed
         above.  Exchange rate fluctuations impacted the growth of the Company's
         European  activities as a result of a stronger U.S.  dollar.  Excluding
         the impact of  changes  in the  exchange  rate,  international  defense
         business  would  have  increased  by 23% and 19% for the three and nine
         month periods ended September 30, 1996, compared to the same periods in
1995.                                                         

         Civil   Government:   Revenue  from  civil  government   contracts  was
         essentially  flat for the three and nine  months  ended  September  30,
         1996,  compared  to the  same  periods  in  1995,  but  decreased  as a
         percentage  of total  revenue due to the growth in other sectors of the
         Company's  business.  There are several  factors driving these results.
         Revenue  would  have  increased  modestly  for the  nine  months  ended
         September 30, 1996,  excluding the impact of changes in the German mark
         in relation to the U.S.  dollar,  compared to the same periods in 1995.
         The Company has  experienced a decline in revenue  generated from BDM's
         environmental   restoration  and  waste  management  programs  for  the
         Department of Energy as a result of budget reductions. There was also a
         decline in revenue  generated  from state  government  contracts.  This
         reflects the impact of the recently  enacted Federal Welfare reform law
         and the new block grant programs,  as well as the Federal  government's
         decision to delay by two years the  deadline by which  states must have
         federally  certified  information  systems in place to manage and track
         their child support enforcement programs. In addition,  the Company has
         experienced implementation  difficulties on one of its state contracts.
         The  Company  is  currently  in  discussions  with  the  client  and  a
         resolution is expected in 1997. Until a resolution is reached, however,
         the  Company  is not  recognizing  profit  on the  contract.  Partially
         offsetting the declines  described  above was an increase in revenue on
Vinnell's Job Corps contracts.                                

         Commercial:  The increase of 24% and 22% in commercial  revenue for the
         three and nine month periods ended September 30, 1996,  reflects growth
         of  information  technology  services  for various  clients,  including
         clients  obtained  as a result of the  acquisitions  completed  in late
         February.  This growth was also  fueled by  increases  in revenue  from
         semiconductor  integration,  warehouse automation,  reengineering,  and
         other consulting  services.  The international  commercial business was
         impacted by the aforementioned  fluctuations in the German mark to U.S.
         dollar   exchange   rate.   Excluding   the  impact  of  the   currency
         fluctuations,  commercial  revenue would have  increased by 27% and 25%
         for the three and nine months ended September 30, 1996, compared to the
same periods in 1995.                                         

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Revenue by Services Provided                                  
----------------------------                                  

                  Systems and Software Integration revenue increased 21% and 31%
         for the three and nine months ended September 30, 1996, compared to the
         same  periods  in 1995.  This  increase  was  driven  by  growth in BDM
         Federal's DEIS contract with the Defense Information Systems Agency, as
         well as work for a variety  of  commercial  clients.  The  increase  in
         Computer and Technical Services revenue of 11% and 9% for the three and
         nine  month  periods  is a result of  growth  in a number of  contracts
         including the  expansion of work for the Royal Saudi Land Forces,  test
         and evaluation  programs,  and technical  support for ballistic missile
         defense and other military programs. Vinnell's Job Corps contracts were
         a major driver of the increase in Enterprise  Management and Operations
revenue.                                                      

Revenue by Subsidiary                                         
---------------------                                         

                  Revenue at BDM Federal grew 12% and 18% for the three and nine
         months ended September 30, 1996,  compared to the same periods in 1995.
         This  increase  reflects  expanded  work for a wide variety of clients,
         most  notably  involving  information  technology  services on the DEIS
         contract,  and also increased  services and support in defense test and
         evaluation,  ballistic  missile  defense,  and other  military  program
         areas. This was offset somewhat by decreases in hardware revenue from a
         contract  with the U.S.  Air Force  and a decline  in work for the U.S.
         Department  of  Energy.  The  66%  and  52%  revenue  increases  at BDM
         Technologies for the three and nine month periods were due to growth in
         its  existing  commercial   information  technology  work  and  to  the
         acquisitions  completed in February  1996.  The modest  increase in BDM
         Europe's  local  currency  revenue  was masked by  fluctuations  in the
         exchange rate of German mark to U.S. dollar.  This real growth in local
         currency reflected additional work performed for the German Ministry of
         Defense and a variety of German civil  government  agencies.  Vinnell's
         revenue  increased  26% and 19% for the three and nine  month  periods.
         This  increase  was driven by its work for the Royal  Saudi Land Forces
         and additional Job Corps Center business.  Vinnell's  contract with the
         Saudi Arabian  National Guard also contributed to revenue growth in the
         third quarter of 1996,  although revenue on this contract has decreased
year-to-date.                                                 

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RESULTS OF OPERATIONS                                                           

         The  following  table  sets forth  selected  financial  data.  The 1996
periods are  presented  using pro forma  amounts which exclude the impact of the
restructuring charge:                                                           

                                                        [Enlarge/Download Table]


                                         Three Months Ended September 30,      Nine Months Ended September 30, 
                                         Pro          Pro                     Pro           Pro                
                                        Forma        Forma                   Forma         Forma               
          ($ in millions)                1996         1996         1995       1996         1996          1995  
          ---------------                ----         ----         ----       ----         ----          ----  
                                                                                                               

Revenue                                 $246.9        100.0%       100.0%    $723.7       100.0%         100.0%

Cost of Sales                            205.1         83.1         84.9      605.4        83.7           83.6 
Selling, general and administrative       23.3          9.5          9.1       67.0         9.3            9.6 
Depreciation, amortization and other       4.5          1.8          1.7       13.1         1.8            2.3 
                                           ---          ---          ---       ----         ---            --- 

Operating profit                          13.9          5.6          4.3       38.2         5.3            4.5 

Interest (income) expense, net            (0.4)        (0.2)        (0.2)      (1.5)       (0.2)           0.4 
Equity in earnings of affiliates          (0.3)        (0.1)        (0.2)      (1.3)       (0.2)          (0.2)
Minority interest                          1.8          0.7          0.5        7.0         1.0            0.6 
                                           ---          ---          ---        ---         ---            --- 

Income before taxes                       12.8          5.2          4.2       34.0         4.7            3.7 

Provision for income taxes                 5.6          2.3          1.8       14.7         2.0            1.7 
                                           ---          ---          ---       ----         ---            --- 

Net income                             $   7.2          2.9%         2.4%  $   19.3         2.7%           2.0%

Earnings per share                    $   0.48          ---     $   0.40   $   1.32         ---       $   1.11 

COST OF SALES                                                                   

         Cost  of  sales,  which  includes  salaries,  benefits,   subcontractor
expenses, materials and overhead costs, decreased as a percentage of revenue for
the third quarter of 1996  compared to the same period in 1995,  due to a higher
than expected recovery of indirect costs through contract revenue. Cost of sales
as a percentage of revenue remained stable for the nine month period as improved
indirect cost recovery was  experienced in the third quarter of 1996,  while the
1995 amount was offset by a one-time profit recognition from a Vinnell contract,
which was applicable to services provided since the inception of the contract in
1994, which lowered the 1995 cost of sales percentage.                          

SELLING, GENERAL AND ADMINISTRATIVE                                             

         The increase in selling, general and administrative (SG&A) expense as a
percentage of revenue for the three months ended September 30, 1996, compared to
the third quarter of 1995 reflects an increase in research and development costs
related to software  development  expenditures  and marketing  endeavors.  These
investments  are  associated  with the  Company's  Year 2000  efforts,  computer
network  security,  customer  care  software,  state  child  support and welfare
systems, and the enhancement of the MARC(TM) product. The increase also reflects
the inclusion of administrative  expenses of the companies  acquired in February
1996,  as well as an  increase  at  several  subsidiaries  in  expenditures  for
recruiting and training.  SG&A decreased as a percentage of revenue for the nine
months ended September 30, 1996, compared to the same period in 1995,  primarily
due to revenue growth which has outpaced the dollar  increase in SG&A costs,  as
the Company continues to reduce its overall administrative costs.               

10-Q 13th Page of 17 TOC 1st Previous Next ↓Bottom Just 13th
DEPRECIATION, AMORTIZATION AND OTHER                                            

         Depreciation,  amortization  and other  costs  increased  slightly as a
percentage of revenue for the three months ended September 30, 1996, compared to
the same period in 1995.  This increase is primarily the result of  amortization
expense related to the acquisitions completed in 1996, offset by a decrease from
other  intangibles that have become fully  amortized.  For the nine months ended
September 30, 1996, these costs decreased as a percentage of revenue largely due
to a $1.6 million  write-off of goodwill in the first quarter of 1995 related to
the FACE acquisition.                                                           

INTEREST (INCOME) EXPENSE, NET                                                  

         The Company had net  interest  income of $0.5  million and $1.5 million
for the three and nine months ended September 30, 1996, compared to net interest
income of $0.4 million for the third quarter of 1995,  and net interest  expense
of $2.1 million for the nine months ended September 30, 1995. This resulted from
applying  $49.4  million of net  proceeds in July 1995 from the  initial  public
stock  offering  and $15.3  million  of net  proceeds  from the March 1996 stock
offering to reduce outstanding borrowings.  In addition, the Company's cash flow
from  operations  of $28 million for the nine months ended  September  30, 1996,
contributed to this strong cash position.                                       

EQUITY IN EARNINGS OF AFFILIATES                                                

         Equity in earnings of  affiliates  represents  the  Company's  share of
earnings  from  Vinnell's  unconsolidated  joint  ventures.  These  amounts have
remained fairly stable compared to the prior year periods.                      

MINORITY INTEREST                                                               

         The minority  interest  share of earnings  increased as a percentage of
revenue for the three and nine months ended September 30, 1996,  compared to the
same periods in 1995.  This  increase  reflects  improved  profitability  of BDM
Europe and the  expansion  of  Vinnell's  joint  ventures  in the  Middle  East.
Vinnell's  contract with the Saudi Arabian  National Guard was performed under a
joint venture  beginning in July 1995,  in which  Vinnell is a 51% partner.  The
results of this operation are included in the Company's  consolidated  financial
statements,  with the  other  partner's  49%  ownership  interest  reflected  as
minority  interest.  This contract was performed  solely by Vinnell in the first
half of 1995,  and thus,  reported  no  minority  interest  at that time.  These
increases were partially offset by a reduction in minority interest from 1995 to
1996 due to a one-time  profit  recognition in 1995 from a Vinnell joint venture
in Saudi Arabia.                                                                

PROVISION FOR INCOME TAXES                                                      

         The  provision  for income taxes  increased  as a percentage  of income
before income taxes for the three months ended September 30, 1996, over the same
period in 1995. This resulted due to an increase in the Company's  statutory tax
rate from 41% in 1995 to 42% in 1996,  reflecting  the  impact of the  Company's
international  expansion  into  countries  with higher income tax rates than the
United States.  This higher income tax rate considers  foreign tax credits which
may expire prior to their use. The  effective  income tax rate  decrease for the
nine month period in 1996  compared to 1995 was related to the write-off of $1.6
million in goodwill from the FACE acquisition in the first quarter of 1995. This
write-off was not deductible for income tax purposes.                           

10-Q 14th Page of 17 TOC 1st Previous Next ↓Bottom Just 14th
LIQUIDITY AND FINANCIAL CONDITION                                               
---------------------------------                                               

         The Company's  principal sources of liquidity  continue to be cash from
operations,  as well as  available  credit  under  the  Company's  $150  million
revolving  credit  agreement.  For the nine months ended September 30, 1996, the
Company  had cash flow of $28 million  from  operating  activities,  and working
capital of $135 million at the end of the third quarter,  up 16% since year end.
As of September 30, 1996,  the Company had no borrowings  outstanding  and $28.3
million in letters of credit  outstanding,  resulting  in  approximately  $121.7
million  available for borrowing under the revolving credit agreement at the end
of the quarter.                                                                 

         Cash flow related to  investing  activities  primarily  consists of the
investment made for the acquisition of three affiliated  companies.  On February
20, 1996, the Company completed the acquisition of CW Systems, Inc., IG Systems,
Inc., and Melco Systems,  Inc. for $18.5 million, $8.8 million of which was paid
out of existing  cash  balances  and $9.7  million was  financed  through  notes
payable to the previous owners. The acquired  companies  specialize in providing
information technology systems and services to large commercial organizations in
several industries,  as well as to certain state government  agencies.  Goodwill
totaled $16  million,  and will be amortized  on a  straight-line  basis over 15
years. Other intangible assets, relating to non-compete agreements, totaled $1.4
million and will be amortized over two years.                                   

         Other investing  activities included capital  expenditures,  which have
increased due to the  implementation of a new enterprise  reporting system (SAP)
at BDM Federal, and working capital infusions to and earnings distributions from
Vinnell's unconsolidated joint ventures.                                        

         Financing activities included the net proceeds from the secondary stock
offering of $15.3 million  completed in the March of this year and the reduction
of the  Company's  working  capital  facility by $25 million.  In addition,  the
Company  continued  to provide a benefit to its  employees  by enabling  them to
purchase shares of common stock through stock option  exercises and the employee
stock purchase plan. Also included in financing activities is a dividend payment
of $2.0 million made by the Company's  German  subsidiary,  IABG, to its non-BDM
shareholders.                                                                   

General                                                                         

         Management  believes the Company has  sufficient  liquidity and working
capital resources necessary to conduct planned business operations, debt service
requirements,   planned  investments,   capital  expenditures,   and  to  ensure
compliance with restrictive bank covenants for the foreseeable future.          

OTHER MATTERS                                                                   
-------------                                                                   

         Restructuring:  The Company  announced a new  alignment of its business
operations  during the third quarter of 1996. This new organization  consists of
five  strategic  business  units -- Federal  Systems,  State and Local  Systems,
Integrated  Supply Chain  Solutions,  BDM Europe/IABG and Enterprise  Management
Services. In addition, the new BDM Technologies will be comprised of development
units  focused on promising IT areas,  including  Internet/Intranet  technology,
computer  network  security,  Year  2000+  solutions  and  services,  IT support
services  and  others.  A  horizontally-focused  effort  directed  by  "Practice
Leaders" is also being implemented to facilitate  cross-company  synergy in such
areas as software process improvement,  business process reengineering, and Year
2000+  solutions and services.  These practice  leaders will be responsible  for
developing  and  implementing  repeatable  solutions  and  processes  across the
Company, using common tool sets and standard methodologies. This new operational
alignment is being phased in starting October 1, 1996, with full  implementation
targeted by January 1997.                                                       

                  The  new  organizational  alignment  resulted  in a  one-time,
pre-tax  restructuring  charge of $5.8 million to third quarter earnings,  which
included a write-down  of $3.1 million of the net  investment  in the  Company's
environmental   subsidiary,   severance   costs   totaling   $1.8   million  for
approximately 40 employees across the Company,  and the accrual of approximately
$0.9 million for certain  facility  expenses.  Anticipated  future  savings from
these  changes are expected to be  reinvested  in human capital and the research
and development program to support future growth.                               

         Legal  Matters.  The Company has been  informed  that a civil "qui tam"
lawsuit  has been  filed  against  the  Company  and has  received a copy of the
Complaint in that action.  The matter is currently under Court seal. Under a qui
tam suit,  often  referred to as a "whistle  blower"  suit, a private  plaintiff
generally  alleges that false claims have been made to the U. S.  Government and
receives a portion of the  recovery,  if any,  achieved by the  Government.  The
Government  has  an  opportunity  to  investigate   the  Complaint  and  make  a
determination  whether to join the case.  The private  plaintiff  can pursue the
action  against  the  Company  in the  name of the U. S.  Government  at his own
expense if the  Government  declines  to join the case.  The  Complaint  alleges
violation  under  the  federal  False  Claims  Act in  connection  with  certain
mischarging under overseas  government  contracts  administered by the U. S. Air
Force, related to certain housing rented in connection with overseas operations,
alleged improper hiring of and payments to certain  employees,  alleged improper
payments to a subcontractor, and alleged improper purchases and payments made in
support of client activities. Aggregate revenue from these contracts in calendar
year 1996 is expected to be about $33 million. In connection with this case, BDM
has received a subpoena for information in a civil investigation underway by the
Office of Inspector  General of the Department of Defense and an Assistant U. S.
Attorney  for the  Eastern  District  of  Virginia  with  respect to the matters
alleged in the  Complaint.  BDM will  cooperate  fully with the  Government  and
expects to make extensive document production in response to the subpoena.      

         The  Company  is engaged  in  providing  services  and  products  under
contracts  with the U. S.  Government  and, to a lesser  degree,  under  foreign
government  contracts,  some of which are  administered by the U. S. Government.
All such contracts are subject to extensive  legal and regulatory  requirements,
and  the  above  mentioned  investigation  apparently  focuses  on  whether  the
Company's  overseas  operations in connection  with the subject  contracts  were
conducted  in  accordance  with  such  requirements.  The  lawsuit  and  related
investigation  could result in  administrative,  civil or criminal  liabilities,
including reimbursements, fines or penalties being imposed. Under the provisions
of the False  Claims Act, a civil  penalty of between  $5,000 and $10,000 can be
assessed for each claim, plus three times the amount of any damages sustained by
the Government.  The Complaint seeks such relief but does not specify the amount
of damages.  In addition  to damages,  a finding of civil or criminal  liability
could lead to suspension or debarment of the contractor if it is found to be not
currently  responsible,  which  would  make  some  or all  of  the  contractor's
operations  ineligible to be awarded U. S. Government  contracts for a period of
time.  Such civil or criminal  liability or suspension or debarment could have a
material adverse effect on the Company.  Based on an ongoing internal review and
preliminary  review  by  counsel,   the  Company  does  not  possess  sufficient
information  to determine the amount of any loss the Company may sustain,  or to
reasonably  estimate the amount of any loss as a consequence of the  litigation.
Accordingly,  the Company  has not been able to identify  the amount of any loss
contingency.                                                                    

         Subsequent  Event:  On  November  4, 1996,  the  Company  acquired  the
operations of RGTI Systems Software (RGTI), a company  specializing in warehouse
management  solutions.  The price of $16.4  million  included  covenants  not to
compete of $750,000  for a period of 4 years and  retention  payments to certain
key  management  team  members  totaling  $1.6  million  to be  paid  in  annual
installments  through  December 1999. The remaining  purchase price consisted of
$9.4  million  cash at  settlement  and  $4.6 of  assumed  net  liabilities.  In
addition,  the agreement  provides an additional  $6.35 million  purchase  price
contingent upon the achievement of targeted  earnings through the year 2000. The
transaction  was  accounted  for  as a  purchase,  and  the  results  of  RGTI's
operations  will  be  included  in  the  Company's  consolidated  statements  of
operations  since the  effective  date of the  acquisition.  Resulting  goodwill
totaled approximately $3 million and will be amortized over 7 years.            

         New  Headquarters:  BDM signed a letter of intent to move its corporate
headquarters to a new facility in Reston, Virginia. The Company expects the move
to take place when the lease on the current building expires in January 1999.   

10-Q 15th Page of 17 TOC 1st Previous Next ↓Bottom Just 15th
 PART II

Item 4.  Submission of Matters to a Vote of Security Holders                    
-------  ---------------------------------------------------                    

None.                                                         

Item 6.   Exhibits and Reports on Form 8-K.                                     
-------   ---------------------------------                                     

(a)   Exhibits:                                               

11.1   Statement of Computation of Earnings Per Share         

(b)   Reports on Form 8-K:                                    

                  The Company  filed a Form 8-K dated  February 20, 1996 related
                  to the acquisition of three affiliated companies:  CW Systems,
   Inc., IG Systems, Inc., and Melco Systems, Inc.

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 BDM INTERNATIONAL, INC.

SIGNATURES

         Pursuant to the  requirements  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.                                          

November 13, 1996                      BDM INTERNATIONAL, INC.                  

                     C. Thomas Faulders, III
                    ----------------------
                     C. Thomas Faulders, III
                                     Executive Vice President, Treasurer and
                               Chief Financial Officer

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BDM INTERNATIONAL, INC. 

 INDEX TO EXHIBITS

Exhibit No.                                                                     

11.1     Statement of Computation of Earnings Per Share

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	11/14/96
Filed on:	11/13/96	16
	11/4/96	14
	10/31/96	1	8
	10/1/96	14
For Period End:	9/30/96	1	14
	6/30/96	4		10-Q
	5/1/96	8
	3/27/96	8
	2/20/96	8	15	8-K
	12/31/95	3	7	10-K
	9/30/95	3	13	10-Q
				List all Filings

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BDM International Inc/DE – ‘10-Q’ for 9/30/96

As of: Wednesday, 11/13/96 · For: 9/30/96 · Accession #: 870763-96-8 · File #: 0-23966

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