-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HdcIdScNFj/yHslLa3BeWR0l0GdP3HNCD5oQxuzguUkrgML0x9O16pzXkGXZnF04 J0KGxOcJDi1ob+H35wZUuw== 0000912057-00-024788.txt : 20000516 0000912057-00-024788.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024788 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEON CORP CENTRAL INDEX KEY: 0001090709 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 541023915 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-84835 FILM NUMBER: 634993 BUSINESS ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 BUSINESS PHONE: 7032460300 MAIL ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 10-Q 1 10-Q Form 10-Q for ANTEON CORPORATION filed on May 15, 2000 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 333-84835 ANTEON CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Virginia 54-1023915 ------------------------------- --------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3211 Jermantown Road, Fairfax, Virginia 22030-2801 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) (703) 246-0200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 March 31, 2000, there were 3,559,232 outstanding shares of the registrant's common stock, par value $0.05 per share. CONTENTS PAGE PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 2 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 3 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS 18 ITEM 2. CHANGES IN SECURITIES 18 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18 ITEM 5. OTHER INFORMATION 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 i PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ANTEON CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS)
March 31, 2000 December 31, 1999 (Unaudited) (Audited) --------- --------- ASSETS Current assets: Cash and cash equivalents $ 1,771 $ 1,061 Accounts receivable, net 107,245 107,446 Prepaid expenses and other current assets 9,707 9,093 --------- --------- $ 118,723 $ 117,600 Total current assets Due from parent 7,673 7,525 Property and equipment, net 19,990 19,953 Goodwill, net 129,371 130,563 Other assets, net 9,245 9,535 --------- --------- Total assets $ 285,002 $ 285,176 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,398 $ 18,211 Accrued expenses 41,113 35,625 Subordinated notes payable, current portion 8,936 8,840 Business purchase consideration payable 5,500 5,500 Other current liabilities, net 1,200 1,205 --------- --------- Total current liabilities $ 71,147 $ 69,381 Revolving credit facility 1,000 2,900 Term loan facility 60,000 60,000 Senior subordinated notes payable 100,000 100,000 Deferred tax liabilities, net 4,857 4,921 Other long term liabilities 1,569 1,681 --------- --------- Total liabilities $ 238,573 $ 238,883 Minority interest in subsidiaries 622 625 Shareholders' equity: Common stock 178 178 Additional paid-in capital 40,769 40,759 Treasury stock (5) (5) Accumulated other comprehensive income (loss) (8) (5) Retained earnings 4,873 4,741 --------- --------- Total shareholders' equity $ 45,807 $ 45,668 --------- --------- Total liabilities and shareholders' equity $ 285,002 $ 285,176 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 1 ANTEON CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
For the three months ended March 31, ------------------------- 2000 1999 --------- --------- Revenues $ 125,700 $ 72,557 Costs of revenues 109,479 64,243 --------- --------- Gross profit 16,221 8,314 Operating expenses: General and administrative expenses 9,095 4,198 Amortization of noncompete agreements 227 227 Goodwill amortization 1,209 512 Cost of acquisitions 17 -- --------- --------- Total operating expenses 10,548 4,937 --------- --------- Operating income 5,673 3,377 Interest expense, net of interest income of $71 and $47 respectively 5,403 2,269 Minority interest in earnings (losses) of subsidiaries (3) 9 --------- --------- Income before provision for income taxes 273 1,099 Provision for income taxes 142 544 --------- --------- Net income (loss) $ 131 $ 555 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 2 ANTEON CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
For the three months ended ---------------------------------- March 31, 2000 March 31, 1999 -------------- -------------- OPERATING ACTIVITIES: Net income (loss) $ 131 $ 555 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities Depreciation and amortization 1,105 512 Noncompete amortization 227 227 Amortization of goodwill 1,209 512 Amortization of deferred financing fees 295 301 Deferred income taxes 200 26 Minority interest in earnings (losses) of subsidiaries (3) 9 Changes in assets and liabilities 683 (6,424) --------- --------- NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 3,847 (4,282) --------- --------- INVESTING ACTIVITIES: Purchases of property, buildings, and equipment (1,142) (846) Purchases of long-term investments -- (3,040) Other, net (17) (30) --------- --------- NET CASH USED FOR INVESTING ACTIVITIES (1,159) (3,916) --------- --------- FINANCING ACTIVITIES: Proceeds from bank notes payable -- 65,200 Principal payments on bank notes payable (88) (56,300) Proceeds from revolving facility 102,500 -- Principal payments on revolving facility (104,400) -- Proceeds from issuance of common stock 10 2 --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES (1,978) 8,902 --------- --------- CASH AND CASH EQUIVALENTS: Net increase (decrease) in cash and cash equivalents 710 704 Balance at beginning of period 1,061 156 --------- --------- Balance at end of period $ 1,771 $ 860 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 2,092 2,079 Income taxes paid 63 6 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 3 ANTEON CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 AND 1999 (1) BASIS OF PRESENTATION The unaudited interim financial information for the three months ended March 31, 2000 and March 31, 1999 have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of such information. The operating results for the three months ended March 31, 2000 may not be indicative of the results of operations for the year ending December 31, 2000 or any future period. This financial information should be read in conjunction with the Company's audited consolidated financial statements and footnotes thereto. (2) PRO FORMA RESULTS FOR ACQUISITION OF ANALYSIS & TECHNOLOGY, INC. On June 23, 1999, the Company acquired all of the outstanding stock of Analysis & Technology, Inc. ("A&T"), a provider of systems and engineering technologies, technology-based training systems, and information technologies to the U.S. Government and commercial customers. The total purchase price paid, including transaction costs, was $115.5 million and has been allocated to the assets and liabilities. The following unaudited pro forma summary presents consolidated information as if the acquisition of A&T had occurred as of January 1, 1999. The pro forma summary is provided for informational purposes only and is based on historical information that does not necessarily reflect actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined entity (in thousands): THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, 2000 1999 ------------------ ------------------ Total revenues 125,700 118,241 Total expenses 125,569 120,245 -------- -------- Net income (loss) 131 (2,004) ======== ======== (3) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION Under the terms of the Senior Subordinated Notes, the Company's wholly-owned domestic subsidiaries (the "Subsidiary Guarantors") are guarantors of the Senior Subordinated Notes. Such guarantees are full, unconditional and joint and several. Separate unaudited condensed financial statements of the Subsidiary Guarantors are not presented because the Company's management has determined that they would not be material to investors. The following supplemental financial information sets forth, on a combined basis, condensed balance sheets, statements of operations and statements of cash flows information for the Subsidiary Guarantors, the Company's non-guarantor subsidiaries and for Anteon Corporation. 4
AS OF MARCH 31, 2000 --------------------------------------------------------------------------- CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION (AMOUNTS IN THOUSANDS) ----------- ------------ ------------ ------- ----------- Cash $ 869 $ 394 $ 508 $ -- $ 1,771 Receivables 44,491 62,018 736 -- 107,245 Other current assets 10,342 (763) 128 -- 9,707 Property and equipment, net 3,221 16,702 67 -- 19,990 Due from parent (3,030) 10,826 (123) -- 7,673 Investment in and advances to subsidiaries 54,398 -- -- (54,398) -- Goodwill, net 129,371 -- -- -- 129,371 Other long-term assets 7,068 2,175 2 -- 9,245 --------- --------- --------- --------- --------- Total assets $ 246,730 $ 91,352 $ 1,318 $ (54,398) $ 285,002 ========= ========= ========= ========= ========= Indebtedness $ 175,436 $ -- $ -- $ -- $ 175,436 Accounts payable 10,930 3,267 201 -- 14,398 Accrued expenses 21,371 19,285 457 -- 41,113 Other current liabilities 837 363 -- -- 1,200 Other long-term liabilities 4,784 1,569 73 -- 6,426 --------- --------- --------- --------- --------- Total liabilities 213,358 24,484 731 0 238,573 Minority interest in subsidiaries -- -- 73 549 622 Total stockholders' equity 33,372 66,868 514 (54,947) 45,807 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 246,730 $ 91,352 $ 1,318 $ (54,398) $ 285,002 ========= ========= ========= ========= =========
5
FOR THE THREE MONTHS ENDED MARCH 31, 2000 -------------------------------------------------------------------------- CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ---------- ----------- ------------ ------------ ------- ----------- (AMOUNTS IN THOUSANDS) Revenues $ 48,277 $ 77,039 $ 754 $ (370) $ 125,700 Cost of revenues 43,699 65,458 692 (370) 109,479 --------- --------- --------- --------- --------- Gross profit 4,578 11,581 62 0 16,221 Total operating expenses 3,699 6,840 9 -- 10,548 --------- --------- --------- --------- --------- Operating income 879 4,741 53 0 5,673 Interest expense (income), net 5,364 36 3 -- 5,403 Minority interest in earnings (losses) of subsidiaries -- -- (3) -- (3) --------- --------- --------- --------- --------- Income (loss) before provision for income taxes (4,485) 4,705 53 0 273 Provision (benefit) for income taxes (1,780) 1,908 14 -- 142 --------- --------- --------- --------- --------- Net income (loss) $ (2,705) $ 2,797 $ 39 $ 0 $ 131 ========= ========= ========= ========= =========
6
FOR THE THREE MONTHS ENDED MARCH 31, 2000 ------------------------------------------------------------ CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ANTEON GUARANTOR NON-GUARANTOR ANTEON CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ------------ ------------ ----------- (AMOUNTS IN THOUSANDS) Net income (loss) $ (2,705) $ 2,800 $ 36 $ 131 Adjustments to reconcile change in net income (loss) to net cash provided by operations: Depreciation and amortization 225 875 5 1,105 Amortization of Goodwill 1,209 -- -- 1,209 Amortization of noncompetes 227 -- -- 227 Amortization of deferred financing fees 295 -- -- 295 Deferred Income Taxes 200 -- -- 200 Minority interest in earnings of subsidiaries -- (3) -- (3) Changes in assets and liabilities 3,464 (2,676) (105) 683 --------- --------- --------- --------- Net cash provided by (used for) operating activities 2,915 996 (64) 3,847 --------- --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment (373) (768) (1) (1,142) Other, net (17) -- -- (17) --------- --------- --------- --------- Net cash used for investing activities (390) (768) (1) (1,159) --------- --------- --------- --------- Cash flow from financing activities: Payments on A&T's notes payable -- (88) -- (88) Proceeds from revolving facility 102,500 -- -- 102,500 Principal payments on revolving facility (104,400) -- -- (104,400) Initial capitalization of joint venture 246 (246) -- -- Proceeds from issuance of common stock 10 -- -- 10 --------- --------- --------- --------- Net cash provided by (used for) financing activities (1,644) (334) -- (1,978) --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 881 (106) (65) 710 Cash and cash equivalents beginning of year (11) 499 573 1,061 --------- --------- --------- --------- Cash and cash equivalents end of year $ 870 $ 393 $ 508 $ 1,771 ========= ========= ========= =========
7
FOR THE THREE MONTHS ENDED MARCH 31, 1999 --------------------------------------------------------------------- CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON STATEMENT OF OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION - ----------------------- ----------- ------------ ------------ ------- ----------- (AMOUNTS IN THOUSANDS) Revenues $ 47,239 $ 24,406 $ 1,028 $ (116) $ 72,557 Cost of revenues 42,705 20,708 946 (116) 64,243 -------- -------- -------- -------- -------- Gross profit 4,534 3,698 82 -- 8,314 Total operating expenses 2,609 2,307 21 -- 4,937 -------- -------- -------- -------- -------- Operating income 1,925 1,391 61 -- 3,377 Interest expense (income), net 2,289 (26) 6 -- 2,269 Minority interest in earnings of subsidiaries -- -- 9 -- 9 -------- -------- -------- -------- -------- Income (loss) before provision for income taxes (364) 1,417 46 -- 1,099 Provision (benefit) for income taxes (54) 582 16 -- 544 -------- -------- -------- -------- -------- Net income (loss) $ (310) $ 835 $ 30 $ -- $ 555 ======== ======== ======== ======== ========
8
FOR THE THREE MONTHS ENDED MARCH 31, 1999 -------------------------------------------------------- UNAUDITED CONDENSED CONSOLIDATED CONSOLIDATED STATEMENT OF CASH FLOWS ANTEON GUARANTOR NON-GUARANTOR ANTEON CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ------------ ------------ ----------- (AMOUNTS IN THOUSANDS) Net income (loss) $ (309) $ 835 $ 29 $ 555 Adjustments to reconcile change in net income (loss) to net cash provided by operations: Depreciation and amortization 217 288 7 512 Amortization of Goodwill 512 -- -- 512 Amortization of noncompetes 227 -- -- 227 Amortization of deferred financing fees 301 -- -- 301 Deferred income taxes -- -- 26 26 Minority interest in earnings of subsidiaries -- -- 9 9 Changes in assets and liabilities (6,152) (274) 2 (6,424) -------- -------- -------- -------- Net cash provided by (used for) operating activities (5,204) 849 73 (4,282) -------- -------- -------- -------- Cash flows from investing activities: Purchases of property and equipment (593) (220) (33) (846) Acquisitions, net of cash acquired (30) -- -- (30) Cost of investments (3,040) -- -- (3,040) -------- -------- -------- -------- Net cash used for investing activities (3,663) (220) (33) (3,916) -------- -------- -------- -------- Cash flow from financing activities: Proceeds from bank notes payable 65,200 -- -- 65,200 Principal payments on bank notes payable (56,300) -- -- (56,300) Proceeds from issuance of common stock 2 -- -- 2 -------- -------- -------- -------- Net cash provided by financing activities 8,902 -- -- 8,902 -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 35 629 40 704 Cash and cash equivalents beginning of year 154 (233) 235 156 -------- -------- -------- -------- Cash and cash equivalents end of year $ 189 $ 396 $ 275 $ 860 ======== ======== ======== ========
9 (4) SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION as of June 30, 1999. SFAS No. 131 establishes annual and interim reporting standards for an enterprise's operating segments. Based on its organization, the Company operates in two business segments: the company's government contracting business and IMC's commercial custom training and performance solutions group. The Company's chief operating decision maker utilizes both revenue and earnings before interest and taxes in assessing performance and making overall operating decisions and resource allocations. Certain indirect costs such as corporate overhead and general and administrative expenses are allocated to the segments. Allocation of overhead costs to segments is based on measures such as headcount. General and administrative costs are allocated to segments based on the government-required three-factor formula which uses measures of revenue, labor and net book value of fixed assets. Interest expense, investment income and income taxes are not allocated to the Company's segments.
THREE MONTHS ENDED MARCH 31, 2000 (AMOUNTS IN THOUSANDS) INTERACTIVE ANTEON MEDIA ELIMINATIONS CONSOLIDATED --------- --------- ------------ ------------ Total assets $ 278,006 $ 6,996 $ -- $ 285,002 ========= ========= ========= ========= Sales to unaffiliated customers 118,551 7,149 -- 125,700 Intersegment sales 1 84 (85) -- --------- --------- --------- --------- Total revenues $ 118,552 $ 7,233 $ (85) $ 125,700 Operating income 5,133 540 -- 5,673 Minority interest in losses of subsidiaries (3) Interest expense, net 5,403 Provision for income taxes 142 --------- Net loss $ 131 =========
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and are subject to a number of risks and uncertainties. Statements relating to the Company's or management's intentions, hopes, beliefs, expectations, or predictions of the future are forward-looking statements. Forward-looking statements discuss the Company's backlog, liquidity, capital resources. The Company cautions readers that actual results could differ materially from those in the forward-looking statements. The factors that could cause actual results to differ materially include the following: the integration of A&T into our business, general economic and business conditions, program funding priorities, changes in Federal government procurement laws, regulations and policies, budget reductions in defense programs, technological changes, delays in the development and acceptance of new commercial products, pricing pressures from competitors and/or customers, and our ability to attract and retain qualified personnel. GENERAL Anteon is a leading provider of advanced information technology and engineering services principally to a wide range of customers within the U.S. Federal government. The Company serves hundreds of governmental clients through over 40 offices worldwide. The Company has performed work for all 14 Cabinet-level agencies, designing, maintaining and upgrading critical elements of the government's information technology infrastructure, such as emergency response, defense, intelligence, logistics and financial management systems. The Federal government is among the world's largest purchasers of information technology with expected total expenditures in fiscal 2000 in excess of $30 billion. In April 1996 an investor group led by affiliates of Caxton-Iseman Capital, Inc. acquired Ogden Professional Services Corporation, which was renamed Anteon Corporation. Since that acquisition, the Company has implemented a strategy designed to increase revenues through internal growth and acquisitions, improve earnings before interest, taxes, depreciation and amortization, profit margins and improve asset turnover. The contracts the Company performs may be categorized into three primary types: time and materials ("time and materials"), cost-plus fixed fee reimbursement ("cost-plus") and firm fixed price ("fixed price"). Revenue recognition for time and materials contracts is recorded at hourly rates, which are negotiated with the customer. Time and materials contracts are typically more profitable because of our ability to negotiate rates and manage costs on those contracts. Revenue is recognized under cost-plus contracts on the basis of direct and indirect costs incurred plus a negotiated profit calculated as a percentage of our costs. Cost-plus contracts provide less risk than other contract types because the Company is reimbursed for all direct costs and certain indirect costs, such as overhead and general and administrative charges, and is paid a fixed fee for work performed. Revenues are recognized under fixed price contracts based on the percentage-of-completion method. The Company may be exposed to cost overruns if the Company encounters variances from estimated costs under fixed price contracts. Accordingly, the Company attempts to minimize the number of fixed price contracts, particularly for advanced software development projects. Prices on Federal government contracts are generally set using estimated costs plus a negotiated profit percentage. Under time and materials and fixed price contracts, margins are not limited by law or regulation; however, the Federal government's profit objectives in negotiating time and materials and fixed price contracts seldom provide for operating profits in excess of 15%. Due to competitive pressures, operating profits on time and materials and fixed price contracts are often less than 10%. Under cost-plus contracts, operating profits are statutorily limited to 15% of costs. Anteon's costs may be categorized as direct costs such as labor and related fringe costs which are directly attributable to contract performance, and indirect costs such as corporate overhead which are not directly attributable to contract performance. Under our time and materials and cost-plus contracts, the Company charges direct costs and an agreed-upon portion of indirect costs to the customer. A key element in the successful bidding and execution of contracts is the control of indirect costs. The Company has developed comprehensive management information and resource management systems in order to increase the productivity of the finance and administrative support areas. As a result of these efforts, the Company's indirect costs have grown at rates much lower than overall revenues. In each year a significant portion of the Company's revenues is derived from contract backlog and a significant portion of that backlog represents work related to maintenance, upgrade or replacement of systems under contracts or projects for which the Company is the incumbent provider. Proper management of contracts is critical to the overall financial success of Anteon and the Company believes that it manages costs effectively. This allows the Company to be highly competitive on price. The demonstrated performance 11 record and service excellence have enabled the Company to maintain its position as an incumbent service provider on all major contracts that have been recompeted over the past three years, while increasing backlog from $428 million in 1996 to $2.1 billion at March 31, 2000, of which $203 million was funded as of March 31, 2000. The Company's total backlog represents the aggregate contract revenue remaining to be earned by the Company at a given time over the life of its contracts. When more than one company is awarded contracts for a given work requirement, the Company includes in total backlog its estimate of the contract revenue it expects to earn over the remaining life of the contract. Funded backlog, is based upon amounts actually appropriated by a customer for payment of goods and services. Because the federal government operates under annual appropriations, agencies of the federal government typically fund contracts on an incremental basis. Accordingly, the majority of the total contract backlog is not funded. RESULTS OF OPERATIONS A summary of comparative results for the quarters ended March 31, 2000 and March 31, 1999 is as follows: QUARTER ENDED MARCH 31 (amounts in thousands) - ----------------------------------------------------------------------------- PERCENTAGE 2000 1999 CHANGE --------- --------- ---------- Revenue $ 125,700 $ 72,557 73.2% Operating income $ 5,673 $ 3,377 67.9% Income before provision for income taxes $ 273 $ 1,099 (75.2%) Net income (loss) $ 131 $ 555 (76.4%) Revenue increased 73.2% to $125.7 million for the quarter ended March 31, 2000 from $72.6 million for the quarter ended March 31, 1999. The increases in revenue were attributable to internal growth in several business units as well as the addition on June 23, 1999 of the Company's latest acquisition, A&T. For the quarter ended March 31, 2000, internal growth was 7%. It was driven by an increase in the Company's Products Applications and Services ("PAS"), Systems Engineering ("Techmatics") Group and gains recorded on contracts closed out during the period. In addition, A&T provided $50.4 million in revenue during the first quarter of 2000. Operating income increased 67.9% for the quarter ended March 31, 2000 to $5.7 million from $3.4 million for the quarter ended March 31, 1999. Operating earnings as a percentage of revenue (operating margin) decreased to 4.5% compared with 4.6% in the prior year comparable quarter. The decreased operating earnings margin for the quarter resulted from an increase in goodwill amortization attributed to the purchase of A&T in June 1999. However, A&T contributed $3.0 million to earnings with an above average company wide margin during the first quarter. Cost of Revenues increased $45.2 million from first quarter 1999 to first quarter 2000. Over 90% of this increase, or $40.9 million, was due to the addition of A&T in June of 1999. An additional 8% of the increase, or $3.7M, was due to costs related to increased sales of the PAS business unit. G&A expenses increased $4.2 million from first quarter 1999 to first quarter 2000 due primarily to the addition of the AT&T. G&A expenses also increased due to additional costs incurred in support of the growing PAS and ANTEON/CITI ("Criminal Investigative Technology, Inc.") businesses. Interest expense increased for the three month period ended March 31, 2000 from the comparable period of 1999 due primarily to the $100 million in 12% senior subordinated notes which we issued in May 1999. In addition, greater interest expense was incurred for deferred loan and financing fee amortization. Earnings before income taxes decreased 75.2% to $0.2 million in the first quarter of fiscal 2000 from $1.1 million in the first quarter of 1999. This was due primarily to the increased interest expense for the 12% senior subordinated notes and goodwill amortization related to the A&T acquisition. The Company's effective tax rate was 52.0% for the three-month period ended March 31, 2000 compared with 49.5% for the three-month period ended March 31, 1999. The higher effective tax rate in the current quarter was due primarily to an increase in nondeductible amortization of goodwill associated with the Company's acquisitions. 12 LIQUIDITY AND CAPITAL RESOURCES The Company generated $3.8 million in cash from operations for the quarter ended March 31, 2000. By comparison, the Company had a $4.3 million cash outflow for the quarter ended March 31, 1999. The cash flow improvement during the first quarter was attributable to improvements in the Company's billing and collection processes. Contract receivables totaled $107.2 million at March 31, 2000 and represented 38% of total assets at that date. In addition to interest payments on the New Credit Facility, the Company has interest payments of $12 million due in 2000 for the Senior Subordinated Notes. These payments will be made in $6 million increments in each of May 2000 and November 2000. For the first quarter of 2000, net cash used by investing activities was $1.2 million. The primary use of cash in the first quarter was to pay down the company's revolving line of credit. The total funds available to the Company under its New Credit Facility as of March 31, 2000 were $14.5 million and, in the opinion of management, are sufficient to meet ongoing working capital requirements for the next 12 months. Borrowings under the Revolving Credit Facility were $1.0 million as of March 31, 2000. As of March 31, 2000 the Company does not have any major capital commitments greater than $1.0 million. The Company believes that inflation has not had a material effect on its business. RECENT ACCOUNTING PRONOUNCEMENTS In 1998, the Financial Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"). SFAS No. 133 becomes effective June 15, 2000 and will require the Company to disclose additional information on any hedging activities. The Company is reviewing this standard; however, it is not expected that implementing this standard will significantly impact the Company. 13 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. ANTEON CORPORATION Date: May 15, 2000 ---------------------------------------------------- Joseph Kampf - President and Chief Executive Officer Date: May 15, 2000 ---------------------------------------------------- Carlton B. Crenshaw - Senior Vice President of Finance and Administrative and Chief Financial Officer 14 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS NONE. ITEM 2. CHANGES IN SECURITIES NONE. ITEM 3. DEFAULTS UPON SENIOR SUBORDINATED SECURITIES NONE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE. ITEM 5. OTHER INFORMATION NONE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS 27.1 FINANCIAL DATA SCHEDULE B. REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended March 31, 2000. 15 EXHIBIT INDEX Exhibit Number Description of Documents 27 Financial Data Schedules - For the quarter ended March 31, 2000 16 EX-27 2 EXHIBIT 27
5 0001090709 ANTEON CORPORATION 1,000 3-MOS DEC-31-1999 JAN-01-2000 MAR-31-2000 1,771 0 107,245 6,010 0 118,723 19,990 1,105 285,002 71,147 162,569 0 0 178 45,807 285,002 125,700 125,700 109,479 109,479 10,548 0 5,403 273 142 131 0 0 0 131 0 0
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