-----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, W2Md6u4NW8HylvQAiGGBbZoT1TyLnyzRnZ4E0oDmJcRwaOVy/vnP1+dLiG/EYpHu PO5NGemE+0M/48CK8eMoaA== /in/edgar/work/20000821/0000912057-00-038553/0000912057-00-038553.txt : 20000922 0000912057-00-038553.hdr.sgml : 20000922 ACCESSION NUMBER: 0000912057-00-038553 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEON CORP CENTRAL INDEX KEY: 0001090709 STANDARD INDUSTRIAL CLASSIFICATION: [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: 707081 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 a10-q.txt FORM 10-Q Form 10-Q for ANTEON CORPORATION filed on August 21, 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 June 30, 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 August 16, 2000, there were 3,563,152 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 JUNE 30, 2000 AND DECEMBER 31, 1999 1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999 2 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 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 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS 18 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 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)
June 30, 2000 December 31, 1999 -------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,309 $ 1,061 Accounts receivable, net 120,304 107,446 Prepaid expenses and other current assets 6,549 9,093 --------- --------- Total current assets $ 128,162 $ 117,600 Property and equipment, net 20,056 19,953 Goodwill, net 122,786 130,563 Other intangibles, net 7,583 -- Other assets, net 9,091 9,535 --------- --------- Total assets $ 287,678 $ 277,651 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 19,680 $ 18,211 Accrued expenses 37,827 35,625 Subordinated notes payable, current portion -- 8,840 Business purchase consideration payable -- 5,500 Other current liabilities, net 369 1,205 --------- --------- Total current liabilities $ 57,876 $ 69,381 Revolving credit facility 21,600 2,900 Term loan facility 60,000 60,000 Senior subordinated notes payable 100,000 100,000 Deferred tax liabilities, net 8,349 4,921 Other long term liabilities 1,482 1,681 --------- --------- Total liabilities $ 249,307 $ 238,883 Minority interest in subsidiaries 627 625 Shareholders' equity: Common stock 178 178 Additional paid-in capital 33,038 33,234 Treasury stock (5) (5) Accumulated other comprehensive income (loss) (22) (5) Retained earnings 4,555 4,741 --------- --------- Total shareholders' equity $ 37,744 $ 38,143 --------- --------- Total liabilities and shareholders' equity 287,678 277,651 ========= =========
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)
Three months ended Six months ended June 30, June 30, ------------------------- -------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- --------- Revenues $ 130,284 $ 73,052 $ 255,984 $ 145,609 Costs of revenues 113,129 64,333 222,608 128,576 --------- --------- --------- --------- Gross profit 17,155 8,719 33,376 17,033 Operating expenses: General and administrative expenses 9,595 4,709 18,690 8,907 Amortization of noncompete agreements 221 227 448 454 Goodwill amortization 995 512 2,204 1,024 Intangible amortization 1,717 -- 1,717 -- Cost of acquisitions 2 -- 19 -- --------- --------- --------- --------- Total operating expenses 12,530 5,448 23,078 10,385 --------- --------- --------- --------- Operating income 4,625 3,271 10,298 6,648 Interest expense, net of interest income of $98, $635, $169, $682, respectively 5,341 3,231 10,744 5,500 Minority interest in earnings of subsidiaries 5 8 2 17 --------- --------- --------- --------- Income before provision for income taxes (721) 32 (448) 1,131 Provision for income taxes (403) 53 (261) 597 --------- --------- --------- --------- Income (loss) before extraordinary item (318) (21) (187) 534 Extraordinary item-loss on early extinguishment of debt, net of income taxes of $309 in 1999 -- 463 -- 463 --------- --------- --------- --------- Net income (loss) $ (318) $ (484) $ (187) $ 71 ========= ========= ========= =========
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 six months ended ---------------------------- June 30, 2000 June 30, 1999 ------------- ------------- OPERATING ACTIVITIES: Net income (loss) $ (187) $ 71 Adjustments to reconcile net income (loss) to net cash provided by operating activities Extraordinary loss -- 772 Loss on sale of assets 117 -- Depreciation and amortization 2,865 996 Amortization of noncompete 448 454 Amortization of goodwill 2,204 1,024 Amortization of other intangible assets 1,717 -- Amortization of deferred financing fees 590 102 Deferred income taxes (44) 38 Minority interest in earnings of subsidiaries 2 17 Changes in assets and liabilities, net of acquired assets and liabilities (7,662) 6,128 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 50 9,602 --------- --------- INVESTING ACTIVITIES: Purchases of property, buildings, and equipment (3,007) (1,255) Payment of Techmatics earn-out (5,500) -- Acquisition of A&T, net of cash acquired (56) (115,446) Purchases of long-term investments -- (1,939) Other, net 40 (30) --------- --------- NET CASH USED FOR INVESTING ACTIVITIES (8,523) (118,670) --------- --------- FINANCING ACTIVITIES: Proceeds from bank notes payable -- 212,000 Principal payments on bank notes payable -- (209,400) Proceeds from senior sub notes payable -- 100,000 Principal payments on notes payable (173) -- Principal payments on subordinated notes payable and other consideration (9,850) (4,925) Proceeds from revolving facility 234,300 -- Principal payments on revolving facility (215,600) -- Deferred financing costs -- (8,535) Proceeds from issuance of common stock 44 22,536 --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 8,721 111,676 --------- --------- CASH AND CASH EQUIVALENTS: Net increase in cash and cash equivalents 248 2,608 Balance at beginning of period 1,061 156 --------- --------- Balance at end of period $ 1,309 $ 2,764 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 9,349 $ 4,856 Income taxes paid, net of refunds (1,703) 25 ========= =========
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 JUNE 30, 2000 AND 1999 (1) BASIS OF PRESENTATION The information furnished in the accompanying unaudited Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Operations, and Condensed Consolidated Statements of Cash Flows 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 and six months ended June 30, 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. On May 5, 2000, the Board of Directors of the Company approved an increase in the number of authorized shares of common stock of the Company to 17,661,840 and a four-for-one stock split, subject to the approval of the shareholders and effective upon the filing of an Amendment to the Articles of Incorporation of the Company with the Commonwealth of Virginia. The Board of Directors also approved, subject to shareholder approval, an amendment to the Anteon Corporation Omnibus Stock Plan to increase the number of shares of common stock available for stock option grants from 575,000 to 675,000. Certain fiscal year 1999 amounts have been reclassified to conform to the June 30, 2000, unaudited condensed consolidated financial statement presentation. During the current quarter the Company reclassified $7.9 million in Due From Parent as a reduction of Additional Paid in Capital. The Company had software sales of approximately $615,000 at June 30, 2000 and $0 at June 30, 1999. Software revenue is generated from licensing software and providing services, including maintenance and technical support, and consulting. The Company recognizes the revenue when the license agreement is signed, the license fee is fixed and determinable, delivery of the software has occurred, and collectibility of the fees is considered probable. Services revenue consists of maintenance and technical support and is recognized ratably over the service period. Other services revenues are recognized as the related services are provided. (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 Company obtained an independent appraisal for the allocation of the purchase price related to the acquisition of A&T. In addition to goodwill, the appraisal identified two intangible assets ("other intangible assets"), workforce in place and contract backlog. Based on the results of the valuation the Company has adjusted its preliminary purchase price allocation from goodwill to other intangibles as follows: Estimated Useful Life ---------------- Workforce $2,500,000 7 years Contract backlog $6,800,000 5 years The Company recorded approximately $1.5 million in amortization expense in the second quarter ended June 30, 2000 to retroactively adjust amortization expense to the date of acquisition, related to the above identifiable intangible assets. The Company recorded an increase to goodwill related to the A&T acquisition of approximately $269,000 related to an adjustment to the fair value of a building to be disposed of. 4 ANTEON CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 AND 1999 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):
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 ----------------- ---------------- Total revenues 255,984 235,706 Total expenses 256,171 236,711 -------- -------- Net income (loss) (187) (1,005) ======== ========
5 ANTEON CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 AND 1999 (3) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION Under the terms of the Senior Subordinated Notes, the Company's wholly-owned domestic subsidiaries (the "Guarantor Subsidiaries") are guarantors of the Senior Subordinated Notes. Such guarantees are full, unconditional and joint and several. Separate unaudited condensed financial statements of the Guarantor Subsidiaries 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 Guarantor Subsidiaries, the Company's non-guarantor subsidiaries and for Anteon Corporation. 6
AS OF JUNE 30, 2000 ------------------------------------------------------------------------ CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------- ------------- ------------ (AMOUNTS IN THOUSANDS) Cash $ 439 $ 240 $ 630 $ -- $ 1,309 Receivables 51,626 68,242 436 -- 120,304 Other current assets 8,278 (1,772) 43 -- 6,549 Property and equipment, net 3,489 16,510 57 -- 20,056 Investment in and advances to subsidiaries 54,398 -- -- (54,398) -- Goodwill, net 122,786 -- -- -- 122,786 Other intangibles, net 7,583 -- -- -- 7,583 Other long-term assets 6,664 2,425 2 -- 9,091 --------- --------- --------- --------- --------- Total assets $ 255,263 $ 85,645 $ 1,168 $ (54,398) $ 287,678 ========= ========= ========= ========= ========= Indebtedness $ 181,600 $ -- $ -- $ -- $ 181,600 Accounts payable 10,267 9,201 212 -- 19,680 Accrued expenses 20,944 16,615 268 -- 37,827 Other current liabilities -- 369 -- -- 369 Other long-term liabilities 8,349 1,482 -- -- 9,831 --------- --------- --------- --------- --------- Total liabilities 221,160 27,667 480 -- 249,307 Minority interest in subsidiaries -- -- 78 549 627 Total stockholders' equity 34,103 57,978 610 (54,947) 37,744 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 255,263 $ 85,645 $ 1,168 $ (54,398) $ 287,678 ========= ========= ========= ========= =========
7
FOR THE SIX MONTHS ENDED JUNE 30, 2000 ------------------------------------------------------------------------ CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON STATEMENT OF OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------- ------------- ------------ (AMOUNTS IN THOUSANDS) Revenues $ 98,059 $ 157,538 $ 1,293 $ (906) $ 255,984 Cost of revenues 87,749 134,531 1,234 (906) 222,608 --------- --------- --------- --------- --------- Gross profit 10,310 23,007 59 -- 33,376 Total operating expenses 9,543 13,519 16 -- 23,078 --------- --------- --------- --------- --------- Operating income 767 9,488 43 -- 10,298 Interest expense, net 10,714 30 -- -- 10,744 Minority interest in earnings of subsidiaries -- -- 2 -- 2 --------- --------- --------- --------- --------- Income (loss) before provision for income taxes (9,947) 9,458 41 -- (448) Provision (benefit) for income taxes (4,055) 3,769 25 -- (261) --------- --------- --------- --------- --------- Net income (loss) $ (5,892) $ 5,689 $ 16 $ -- $ (187) ========= ========= ========= ========= =========
8
FOR THE SIX MONTHS ENDED JUNE 30, 2000 --------------------------------------------------------- CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF ANTEON GUARANTOR NON-GUARANTOR ANTEON CASH FLOWS CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ------------ ------------- ------------ (AMOUNTS IN THOUSANDS) Net income (loss) $ (5,892) $ 5,689 $ 16 $ (187) Adjustments to reconcile change in net income (loss) to net cash provided by operations: Loss on sale of assets -- 117 -- 117 Depreciation and amortization 462 2,400 3 2,865 Amortization of noncompetes 448 -- -- 448 Amortization of goodwill 2,204 -- -- 2,204 Amortization of intangible assets 1,717 -- -- 1,717 Amortization of deferred financing fees 590 -- -- 590 Deferred Income Taxes (39) 68 (73) (44) Minority interest in earnings of subsidiaries 2 -- -- 2 Changes in assets and liabilities (1,787) (5,975) 100 (7,662) --------- --------- --------- --------- Net cash provided by (used for) operating activities (2,295) 2,299 46 50 --------- --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment (879) (2,139) 11 (3,007) Payment of Techmatics earn-out (5,500) -- -- (5,500) Other, net (16) -- -- (16) --------- --------- --------- --------- Net cash used for investing activities (6,395) (2,139) 11 (8,523) --------- --------- --------- --------- Cash flow from financing activities: Principal payments notes payable -- (173) -- (173) Principal payments on subordinated notes payable and other consideration (9,850) -- -- (9,850) Proceeds from revolving facility 234,300 -- -- 234,300 Principal payments on revolving facility (215,600) -- -- (215,600) Initial capitalization of joint venture 246 (246) -- -- Proceeds from issuance of common stock 44 -- -- 44 --------- --------- --------- --------- Net cash provided by (used for) financing activities 9,140 (419) -- 8,721 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 450 (259) 57 248 Cash and cash equivalents beginning of year (11) 499 573 1,061 --------- --------- --------- --------- Cash and cash equivalents end of year $ 439 $ 240 $ 630 $ 1,309 ========= ========= ========= =========
9
FOR THE SIX MONTHS ENDED JUNE 30, 1999 -------------------------------------------------------------------- CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON STATEMENT OF OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------- ----------- ------------ (AMOUNTS IN THOUSANDS) Revenues $ 94,117 $ 50,020 $ 1,775 $ (303) $145,609 Cost of revenues 85,518 41,717 1,644 (303) 128,576 -------- -------- -------- -------- -------- Gross profit 8,599 8,303 131 -- 17,033 Total operating expenses 5,513 4,798 74 -- 10,385 -------- -------- -------- -------- -------- Operating income 3,086 3,505 57 -- 6,648 Interest expense (income), net 5,536 (46) 10 -- 5,500 Minority interest in earnings of subsidiaries -- -- 17 -- 17 -------- -------- -------- -------- -------- Income (loss) before provision for income taxes (2,450) 3,551 30 -- 1,131 Provision (benefit) for income taxes (574) 1,141 30 -- 597 -------- -------- -------- -------- -------- Income (loss) before extraordinary loss (1,876) 2,410 -- -- 534 Early extinguishment of debt 463 -- -- -- 463 -------- -------- -------- -------- -------- Net income (loss) $ (2,339) $ 2,410 $ -- $ -- $ 71 ======== ======== ======== ======== ========
10
FOR THE SIX MONTHS ENDED JUNE 30, 1999 ---------------------------------------------------------- UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CONSOLIDATED CASH FLOWS ANTEON GUARANTOR NON-GUARANTOR ANTEON CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ------------ ------------- ------------- (AMOUNTS IN THOUSANDS) Net income (loss) $ (2,327) $ 2,382 $ 16 $ 71 Adjustments to reconcile change in net income (loss) to net cash provided by operations: Extraordinary loss 772 -- -- 772 Depreciation and amortization 407 576 13 996 Amortization of noncompetes 454 -- -- 454 Amortization of goodwill 1,024 -- -- 1,024 Amortization of deferred financing and 102 -- -- 102 contract costs Deferred income taxes -- -- 38 38 Minority interest in earnings of subsidiaries -- 17 -- 17 Changes in assets and liabilities, net of acquired assets and liabilities 8,641 (2,918) 405 6,128 --------- --------- --------- --------- Net cash provided by (used for) operating activities 9,073 57 472 9,602 --------- --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment (926) (294) (35) (1,255) Acquisition of A&T, net of cash acquired (115,446) -- -- (115,446) Purchases of investments (1,930) -- (9) (1,939) Other, net (30) -- -- (30) --------- --------- --------- --------- Net cash used for investing activities (118,332) (294) (44) (118,670) --------- --------- --------- --------- Cash flow from financing activities: Proceeds from bank notes payable 212,000 -- -- 212,000 Principal payments on bank notes payable (209,400) -- -- (209,400) Issuance of senior subordinated notes payable 100,000 -- -- 100,000 Principal payments on SEG subnote payable (4,925) -- -- (4,925) Deferred financing costs (8,535) -- -- (8,535) Proceeds from issuance of common stock 22,536 -- -- 22,536 --------- --------- --------- --------- Net cash provided by financing activities 111,676 -- -- 111,676 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 2,417 (237) 428 2,608 Cash and cash equivalents beginning of year 155 (234) 235 156 --------- --------- --------- --------- Cash and cash equivalents end of year $ 2,572 $ (471) $ 663 $ 2,764 ========= ========= ========= =========
11 (4) REVOLVING CREDIT FACILITY On June 23, 1999 the Company entered into a New Credit Facility with nine commercial banks. Under the terms of the New Credit Facility, the Company entered into promissory notes with aggregate available financing facilities of $180,000,000. The New Credit Facility is comprised of a Revolving Credit Facility for aggregate borrowings of up to $120,000,000, as determined based on a portion of eligible billed accounts receivable and a portion of eligible unbilled accounts receivable, and maturing on June 23, 2005 ("Revolving Facility"); and a $60,000,000 note ("Term Loan") with principal payments due quarterly commencing June 30, 2001 and $15,000,000 at maturity on June 23, 2005. Under the New Credit Facility, the interest rate on both the Revolving Facility and the Term Loan vary using the LIBOR rate plus a margin determined using the Company's ratio of net debt-to-earnings before interest, taxes, depreciation and amortization. Interest is payable on the last day of each quarter. During the period April 1, 2000 through June 30, 2000, interest on the Revolving Facility and Term Loan ranged from 11.25 percent to 11.75 percent. Total funds available under the New Credit Facility as of June 30, 2000 were $18.2 million. (5) SEGMENT INFORMATION Based on its organization, the Company operates in two business segments: the Company's government contracting business ("Anteon") and IMC's commercial custom training and performance solutions group ("Interactive Media"). 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.
SIX MONTHS ENDED JUNE 30, 2000 (AMOUNTS IN THOUSANDS) -------------------------------------------------------- INTERACTIVE ANTEON MEDIA ELIMINATIONS CONSOLIDATED --------- ------------- ------------ ------------ Total assets $ 280,222 $ 7,456 $ -- $ 287,678 ========= ========= ========= ========= Sales to unaffiliated customers 242,242 13,742 -- 255,984 Intersegment sales 2 84 (86) -- --------- --------- --------- --------- Total revenues $ 242,244 $ 13,826 $ (86) $ 255,984 Operating income 10,298 Minority interest in losses of subsidiaries 2 Interest expense, net 10,744 Income tax benefit (261) --------- Net loss $ (187) =========
12
THREE MONTHS ENDED JUNE 30, 2000 (AMOUNTS IN THOUSANDS) ----------------------------------------------------------- INTERACTIVE ANTEON MEDIA ELIMINATIONS CONSOLIDATED --------- ------------ -------------- ------------ Total assets $ 280,222 $ 7,456 $ -- $ 287,678 ========= ========= ========= ========= Sales to unaffiliated customers 123,691 6,593 -- 130,284 Intersegment sales -- -- -- -- --------- --------- --------- --------- Total revenues $ 123,691 $ 6,593 $ -- $ 130,284 Operating income 4,625 Minority interest in earnings of subsidiaries 5 Interest expense, net 5,341 Income tax benefit (403) --------- Net loss $ (318) =========
13 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 and 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, and to 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 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 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 $2.6 billion at June 30, 2000, of which $224 million was funded as of June 30, 2000. The Company's total backlog represents the aggregate contract revenue remaining to be earned by the 14 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 June 30, 2000 and June 30, 1999 is as follows:
QUARTER ENDED JUNE 30, (amounts in thousands) - ---------------------------------------------------------------------------------- PERCENTAGE 2000 1999 CHANGE --------- --------- ----------- Revenue $ 130,284 $ 73,052 78.3% Operating income $ 4,625 $ 3,271 41.3% Income before provision for income taxes $ (721) $ 32 (2353.1%) Net income (loss) $ (318) $ (484) (34.3%)
Revenue increased 78.3% to $130.3 million for the quarter ended June 30, 2000 from $73.1 million for the quarter ended June 30, 1999. For the six month period ended June 30, 2000, revenue increased 75.8% to $256.0 million from $145.6 million for the six month period ended June 30, 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 June 30, 2000, internal growth was 15.1%. It was driven by an increase in the Company's Intelligence Systems, Products Applications and Services ("PAS"), Systems Engineering ("Techmatics") and Education Groups. In addition, A&T provided $46.4 million in revenue during the second quarter of 2000 which was a 4.4% increase from the second quarter of 1999. Costs of revenues increased $48.8 million from second quarter 1999 to second quarter 2000. Costs of revenues for the six month period ended June 30, 2000 increased by $94.0 million from the six month period ended June 30, 1999. Over 90% of quarterly increase, or $40.9 million, was due to the addition of A&T in June of 1999. The remaining portion of the increase was attributable to an increase of costs related to PAS and Systems Engineering and Intelligence Systems sales. G&A expense increased $4.9 million from second quarter 1999 to second quarter 2000 due primarily to the addition of the A&T strategic business unit. G&A expense also increased for the six month period ended June 30, 2000 by $9.8 million from the six month period ended June 30, 1999. G&A expenses also increased due to additional costs incurred in support of the growing PAS, Systems Engineering and Anteon-CITI, LLC businesses. Anteon-CITI, LLC is a joint venture between Anteon and Crimminal Investigative Technology Incorporated ("CITI") formed in 1999 to develop and market certain investigative support products and services to government law enforcement agencies. Operating income increased 41.4% for the quarter ended June 30, 2000 to $4.6 million from $3.3 million for the quarter ended June 30, 1999. Operating income increased 54.9% to $10.3 million for the six month period ended June 30, 2000 from $6.6 million for the six month period ended June 30, 1999. Operating earnings as a percentage of revenue (operating margin) decreased to 3.6% compared with 4.5% in the prior year comparable quarter. This was due to the retroactive adjustment of amortization expense for other intangible assets. This decrease was offset by increased operating earnings margin for the quarter from the Information Systems and Applied Technology Groups. In addition, A&T contributed $2.6 million to earnings with an above average company wide margin during the second quarter. Interest expense increased $2.1 million to $5.3 million for the quarter ended June 30, 2000 from $3.2 million for the quarter ended June 30, 1999. Interest expense increased $5.2 million to $10.7 million for the six months ended June 30, 2000 from $5.5 million for the six months ended June 30, 1999. The increases were primarily due to the $100 million in 12% senior subordinated notes which were issued in May 1999. In addition, greater interest expense was incurred for deferred loan and financing fee amortization. 15 Earnings before income taxes decreased 2353.1% to $(.7) million in the second quarter of fiscal 2000 from $.03 million in the second quarter of 1999. This decrease was due to the retroactive adjustment of amortization expense for other intangible assets. Earnings before income taxes decreased by $1.58 million to $(.45) million for the six month period ended June 30, 2000 from $1.13 million for the six month period ended June 30, 1999. The Company's effective tax rate was (55.9%) for the three-month period ended June 30, 2000 compared with 165.6% for the three-month period ended June 30, 1999. The lower effective tax rate in the current quarter was due primarily to a higher tax provision adjustment in the second quarter of 1999 which was made for the first six months of 1999. LIQUIDITY AND CAPITAL RESOURCES The Company generated $50,000 in cash from operations for the six months ended June 30, 2000. By comparison, the Company had a $9.6 million positive cash flow from operations for the six months ended June 30, 1999. Contract receivables totaled $120.3 million at June 30, 2000 and represented 41.8% of total assets at that date, which represented an increase of $21.4 million from 1999. In addition to interest payments on the Company's term loan and revolving loan credit facility with a syndicate of lenders led by Credit Suisse First Boston and Mellon Bank (the "New Credit Facility"), the Company has interest payments of $12 million due in 2000 for the Senior Subordinated Notes. A payment of $6 million was made in May 2000 and another $6 million payment will be made in November 2000 to satisfy the amount due on the Senior Subordinated Notes. Net cash used for investing activities for the first six months of 2000 totaled $3.0 million, which was used primarily for purchases of capital equipment, software and the payment of $5.5 million related to the Techmatics earnout provision. Net changes in financing activities during the second quarter of 2000 included $9.9 million in paydown of obligations relating to the Company's acquisition of Techmatics, Inc. in May 1998, of which $9.0 million related to the payment of subordinated notes payable and $.85 million payment related to the payment of various non-compete agreements with former Techmatics employees. These payments were offset by a $18.7 million increase in the line of credit. The total funds remaining available to the Company under its New Credit Facility as of June 30, 2000 was $18.2 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 $21.6 million as of June 30, 2000. As of June 30, 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 June 1998, the Financial Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"). SFAS No. 133, as amended by SFAS No. 137 and further amended by SFAS No. 138, established accounting and reporting standards for derivative financial instruments and associated hedging activities as well as hedging activities in general. SFAS No. 133, as amended by SFAS No. 137 and as further amended by SFAS No. 138 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is reviewing this standard and does not expect the adoption of SFAS No. 133, as amended, to have a material effect on its consolidated results of operations or its financial position. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements, as amended by SAB 101A and SAB 101B, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 provides guidance on necessary disclosures relating to revenue recognition policies in addition to outlining the criteria that must be met in order to recognize revenue. Dependent upon the final guidance on SAB 101 which is expected to be issued by the SEC in the fourth quarter of this year, the Company will review this guidance, however, the Company does not expect this guidance to have a material effect on its consolidated results of operations or its financial position. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has a degree of interest rate exposure on its long-term obligations. While the interest rate on its senior subordinated notes is fixed at 12%, interest on both the term loan and revolving credit facilities are affected by changes in the market interest rates. The Company manages these fluctuations through interest rate swaps that are currently in place and focusing on reducing the amount of outstanding debt through cash flow. In addition, the Company has implemented a cash flow management plan focusing on billing and collecting receivables to pay down debt. 17 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: August 21, 2000 /s/ Joseph Kampf ------------------------------------ Joseph Kampf - President and Chief Executive Officer Date: August 21, 2000 /s/ Carlton B. Crenshaw ------------------------------------ Carlton B. Crenshaw - Senior Vice President of Finance and Administrative and Chief Financial Officer 18 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS NONE. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS NONE. ITEM 3. DEFAULTS UPON SENIOR 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 June 30, 2000. 19 EXHIBIT INDEX Exhibit Number Description of Documents 27 Financial Data Schedules - For the quarter ended June 30, 2000 20 EX-27 2 ex-27.txt EXHIBIT 27
5 1,000 3-MOS DEC-31-1999 APR-01-2000 JUN-30-2000 1,309 0 124,390 4,086 0 128,162 30,102 9,956 287,678 57,876 183,082 0 0 178 37,566 287,678 255,984 255,984 222,608 222,608 23,078 0 10,744 (448) (261) (187) 0 0 0 (187) 0 0
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