10-Q 1 a2031129z10-q.txt FORM 10-Q Form 10-Q for ANTEON CORPORATION filed on November 14, 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 September 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 September 30, 2000, there were 14,253,408 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 SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999 2 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 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)
September 30, 2000 December 31, 1999 --------------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,970 $ 1,061 Accounts receivable, net Prepaid expenses and other current assets 113,889 107,446 7,820 9,093 --------- --------- Total current assets $ 126,679 $ 117,600 Due from parent -- 7,525 Property and equipment, net 19,988 19,953 Goodwill, net 121,719 130,563 Other intangibles, net 7,154 -- Other assets, net 8,785 9,535 --------- --------- Total assets $ 284,325 $ 285,176 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Term loan facility, current portion $ 5,625 $ -- Subordinated notes payable, current portion -- 8,840 Accounts payable 24,026 18,211 Accrued expenses 39,618 35,625 Business purchase consideration payable -- 5,500 Other current liabilities, net 358 1,205 --------- --------- Total current liabilities $ 69,628 $ 69,381 Revolving credit facility 14,900 2,900 Term loan facility, less current portion 54,375 60,000 Senior subordinated notes payable 100,000 100,000 Deferred tax liabilities, net 8,124 4,921 Other long term liabilities 1,397 1,681 --------- --------- Total liabilities $ 248,423 $ 238,883 Minority interest in subsidiaries 630 625 Shareholders' equity: Common stock 713 178 Additional paid-in capital 31,576 40,759 Treasury stock (5) (5) Accumulated other comprehensive income (loss) (27) (5) Retained earnings 3,015 4,741 --------- --------- Total shareholders' equity $ 35,272 $ 45,668 --------- --------- Total liabilities and shareholders' equity $ 284,325 $ 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)
Three months ended Nine months ended September 30, September 30, ------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Revenues $ 134,088 $ 125,708 $ 390,072 $ 271,317 Costs of revenues 117,988 110,141 340,596 238,717 --------- --------- --------- --------- Gross profit 16,100 15,567 49,476 32,600 Operating expenses: General and administrative expenses 8,833 8,409 27,523 17,316 Amortization of noncompete agreements 209 227 657 681 Goodwill amortization 1,163 1,208 3,367 2,232 Other intangible amortization 429 -- 2,146 -- Cost of acquisitions 63 168 82 168 --------- --------- --------- --------- Total operating expenses 10,697 10,012 33,775 20,397 --------- --------- --------- --------- Operating income 5,403 5,555 15,701 12,203 Gain on sales of long-term investments -- 2,463 -- 2,463 Interest expense, net of interest income of $145, $34, $314, $716, respectively 5,557 5,119 16,301 10,619 Minority interest in earnings of subsidiaries 3 6 5 23 --------- --------- --------- --------- Income (loss) before provision for income taxes (157) 2,893 (605) 4,024 Provision for income taxes 1,382 1,531 1,121 2,128 --------- --------- --------- --------- Income (loss) before extraordinary item (1,539) 1,362 (1,726) 1,896 Extraordinary item-loss on early extinguishment of debt, net of income taxes of $309 in 1999 -- -- -- 463 --------- --------- --------- --------- Net income (loss) $ (1,539) $ 1,362 $ (1,726) $ 1,433 ========= ========= ========= =========
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 nine months ended -------------------------------------------------- September 30, 2000 September 30, 1999 ------------------- ------------------ OPERATING ACTIVITIES: Net income (loss) $ (1,726) $ 1,433 Adjustments to reconcile net income (loss) to net cash provided by operating activities Extraordinary loss -- 772 Loss on sale of assets 42 -- Gain on sale of long term investments -- (2,721) Depreciation and amortization 4,744 2,062 Amortization of noncompete 657 681 Amortization of goodwill 3,367 2,233 Amortization of other intangible assets 2,146 -- Amortization of deferred financing fees 885 388 Deferred income taxes (benefit) (49) 1,383 Minority interest in earnings of subsidiaries 5 23 Changes in assets and liabilities, net of acquired assets and liabilities 3,288 1,828 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 13,359 $ 8,082 --------- --------- INVESTING ACTIVITIES: Purchases of property, buildings, and equipment (4,598) (2,901) Acquisition of A&T, net of cash acquired (112) (115,203) Proceeds from sales of long-term investments -- 10,580 Purchases of long-term investments -- (3,040) Other, net -- (30) --------- --------- NET CASH USED FOR INVESTING ACTIVITIES $ (4,710) $(110,594) --------- --------- FINANCING ACTIVITIES: Proceeds from bank notes payable -- 132,043 Principal payments on bank notes payable -- (202,525) Proceeds from senior subordinated notes payable -- 100,000 Principal payments on notes payable (267) -- Principal payments on subordinated notes payable and other consideration (15,350) (4,925) Proceeds from term loan facility -- 60,000 Proceeds from revolving facility 351,700 110,500 Principal payments on revolving facility (339,700) (105,200) Deferred financing costs -- (8,775) Proceeds from issuance of common stock 62 22,544 Distribution to parent (1,185) -- --------- --------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES $ (4,740) $ 103,662 --------- --------- CASH AND CASH EQUIVALENTS: Net increase in cash and cash equivalents 3,909 1,150 Balance at beginning of period 1,061 156 --------- --------- Balance at end of period $ 4,970 $ 1,306 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 13,225 $ 6,667 ========= ========= Income taxes paid, net of refunds $ (2,030) $ 204 ========= =========
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 SEPTEMBER 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 nine months ended September 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 2.3 million to 2.7 million, as adjusted for the four-for-one stock split. During the 2nd quarter of 2000 the company reclassified $7.9 million in Due From Parent as a reduction of Additional Paid-in-Capital. During the quarter ended September 30, 2000, the Company recorded an additional $1.2 million as a reduction to additional paid-in-capital for additional debt service payments made by the Company on behalf of its parent. The Company had internally developed software sales of approximately $750,000 for the nine months ended September 30, 2000 and $0 for the nine months ended September 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. Certain fiscal year 1999 amounts have been reclassified to conform to the September 30, 2000, unaudited condensed consolidated financial statement presentation. (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 acquired assets and liabilities. During the quarter ended June 30, 2000, 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 from the date of acquisition, related to the above identifiable intangible assets. 4 ANTEON CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 The company recorded an increase in goodwill related to the A&T acquisition during the second quarter ended June 30, 2000 of approximately $269,000 related to an adjustment to the fair value of a building to be disposed of. The following unaudited pro forma summary presents consolidated information for 1999 as if the acquisition of A&T had occurred as of January 1, 1999. The unaudited 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):
NINE MONTHS ENDED SEPTEMBER 30, 1999 ----------------------- Total revenues $ 361,414 Total expenses 361,291 ----------------------- Income (loss) before extraordinary items $ 123 ----------------------- Net loss $ (340) =======================
(3) COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) for the nine months ended September 30, 2000 and 1999 was approximately $(1,748,000) and $1,128,000 and for the three months ended September 30, 2000 and 1999 was approximately $(1,544,000) and $(487,000), respectively. (4) 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. 5
AS OF SEPTEMBER 30, 2000 ----------------------------------------------------------------------- CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION (AMOUNTS IN THOUSANDS) Cash and cash equivalents $ 3,944 $ 714 $ 312 $ -- $ 4,970 Receivables 46,582 66,646 661 -- 113,889 Other current assets 6,203 1,472 145 -- 7,820 Property and equipment, net 3,331 16,608 49 -- 19,988 Investment in and advances to subsidiaries 35,765 18,696 (152) (54,309) -- Goodwill, net 121,719 -- -- -- 121,719 Other intangibles, net 7,154 -- -- -- 7,154 Other long-term assets 6,395 2,351 39 -- 8,785 -------- -------- -------- -------- -------- Total assets $231,093 $106,487 $ 1,054 $(54,309) $284,325 ======== ======== ======== ======== ======== Indebtedness $174,900 $ -- $ -- $ -- $174,900 Accounts payable 12,927 10,953 146 -- 24,026 Accrued expenses 17,620 21,668 330 -- 39,618 Other current liabilities -- 358 -- -- 358 Other long-term liabilities 8,124 1,397 -- -- 9,521 -------- -------- -------- -------- -------- Total liabilities 213,571 34,376 476 -- 248,423 Minority interest in subsidiaries 549 -- 81 -- 630 Total shareholders' equity 16,973 72,111 497 (54,309) 35,272 -------- -------- -------- -------- -------- Total liabilities and shareholders' equity $231,093 $106,487 $ 1,054 $(54,309) $284,325 ======== ======== ======== ======== ========
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 -------------------------------------------------------------------------- CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON STATEMENT OF OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION (AMOUNTS IN THOUSANDS) ------------ ------------ ------------- ------------ ------------- Revenues $ 149,986 $ 240,229 $ 1,881 $ (2,024) $ 390,072 Cost of revenues 133,949 206,899 1,772 (2,024) 340,596 --------- --------- --------- --------- --------- Gross profit 16,037 33,330 109 -- 49,476 Total operating expenses 14,235 19,522 18 -- 33,775 --------- --------- --------- --------- --------- Operating income 1,802 13,808 91 -- 15,701 Interest expense, net 16,272 29 -- -- 16,301 Minority interest in earnings of subsidiaries -- -- 5 -- 5 --------- --------- --------- --------- --------- Income (loss) before provision for income taxes (14,470) 13,779 86 -- (605) Provision (benefit) for income taxes (4,416) 5,502 35 -- 1,121 --------- --------- --------- --------- --------- Net income (loss) $ (10,054) $ 8,277 $ 51 $ -- $ (1,726) ========= ========= ========= ========= =========
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FOR THE NINE MONTHS ENDED SEPTEMBER 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) $ (10,054) $ 8,277 $ 51 $ (1,726) Adjustments to reconcile change in net income (loss) to net cash provided by operations: Loss on sale of assets -- 42 -- 42 Depreciation and amortization 1,173 3,564 7 4,744 Amortization of noncompete 657 -- -- 657 Amortization of goodwill 3,367 -- -- 3,367 Amortization of other intangible assets 2,146 -- -- 2,146 Amortization of deferred financing fees 885 -- -- 885 Deferred income taxes (benefit) (44) 68 (73) (49) Minority interest in earnings of subsidiaries -- -- 5 5 Changes in assets and liabilities, net of acquired assets and liabilities 11,107 (7,553) (266) 3,288 --------- --------- --------- --------- Net cash provided by (used for) operating activities $ 9,237 $ 4,398 $ (276) $ 13,359 --------- --------- --------- --------- Cash flows from investing activities: Purchases of property, buildings and equipment (1,032) (3,581) 15 (4,598) Acquisition of A&T, net of cash acquired (112) -- -- (112) --------- --------- --------- --------- Net cash provided by (used for) investing activities $ (1,144) $ (3,581) $ 15 $ (4,710) --------- --------- --------- --------- Cash flow from financing activities: Principal payments on notes payable -- (267) -- (267) Principal payments on subordinated notes payable and other consideration (15,350) -- -- (15,350) Proceeds from revolving facility 351,700 -- -- 351,700 Principal payments on revolving facility (339,700) -- -- (339,700) Initial capitalization of joint venture 335 (335) -- -- Proceeds from issuance of common stock 62 -- -- 62 Distribution to parent (1,185) -- -- (1,185) --------- --------- --------- --------- Net cash used for financing activities $ (4,138) $ (602) $ -- $ (4,740) --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 3,955 215 (261) 3,909 Cash and cash equivalents beginning of year (11) 499 573 1,061 ========= ========= ========= ========= Cash and cash equivalents end of year $ 3,944 $ 714 $ 312 $ 4,970 ========= ========= ========= =========
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------------------------- CONSOLIDATED UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON STATEMENT OF OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION (AMOUNTS IN THOUSANDS) ----------- ------------ ------------- ----------- ----------- Revenues $ 148,041 $ 121,573 $ 2,282 $ (579) $ 271,317 Cost of revenues 134,269 102,910 2,117 (579) 238,717 --------- --------- --------- --------------- --------- Gross profit 13,772 18,663 165 -- 32,600 Total operating expenses 9,940 10,451 6 -- 20,397 --------- --------- --------- --------------- --------- Operating income 3,832 8,212 159 -- 12,203 Gain on sales of long-term investments 2,463 -- -- -- 2,463 Interest expense (income), net 10,627 (18) 10 -- 10,619 Minority interest in earnings of subsidiaries -- -- 23 -- 23 --------- --------- --------- --------------- --------- Income (loss) before provision for income taxes (4,332) 8,230 126 -- 4,024 Provision (benefit) for income taxes (1,196) 3,281 43 -- 2,128 --------- --------- --------- --------------- --------- Income (loss) before extraordinary item (3,136) 4,949 83 -- 1,896 Extraordinary loss, net of tax 463 -- -- -- 463 --------- --------- --------- --------------- --------- Net income (loss) $ (3,599) $ 4,949 $ 83 $ -- $ 1,433 ========= ========= ========= =============== =========
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------ UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CONSOLIDATED CASH FLOWS ANTEON GUARANTOR NON-GUARANTOR ANTEON (AMOUNTS IN THOUSANDS) CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION --------- --------- --------- --------- Net income (loss) $ (3,599) $ 4,949 $ 83 $ 1,433 Adjustments to reconcile change in net income (loss) to net cash provided by operations: Extraordinary loss 772 -- -- 772 Gain on sale of long-term investments (2,721) -- -- (2,721) Depreciation and amortization 585 1,454 23 2,062 Amortization of noncompete 2,233 -- -- 2,233 Amortization of goodwill 681 -- -- 681 Amortization of deferred financing fees 388 -- -- 388 Deferred income taxes 218 1,158 7 1,383 Minority interest in earnings of subsidiaries -- 23 -- 23 Changes in assets and liabilities, net of acquired assets and liabilities 7,782 (6,035) 81 1,828 --------- --------- --------- --------- Net cash provided by operating activities $ 6,339 $ 1,549 $ 194 $ 8,082 --------- --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment (1,981) (879) (41) (2,901) Acquisition of A&T, net of cash acquired (115,203) -- -- (115,203) Proceeds from sales of long-term investments 10,581 1 (2) 10,580 Purchases of investments (3,040) -- -- (3,040) Other, net (30) -- -- (30) --------- --------- --------- --------- Net cash used for investing activities $(109,673) $ (878) $ (43) $(110,594) --------- --------- --------- --------- Cash flow from financing activities: Proceeds from bank notes payable 132,043 -- -- 132,043 Principal payments on bank notes payable (202,442) (83) -- (202,525) Proceeds of senior subordinated notes payable 100,000 -- -- 100,000 Proceeds from term loan facility 60,000 -- -- 60,000 Proceeds from revolving facility 110,500 -- -- 110,500 Principal payments on revolving facility (105,200) -- -- (105,200) Principal payments on subordinated notes (4,925) -- -- (4,925) Deferred financing costs (8,775) -- -- (8,775) Proceeds from issuance of common stock 22,544 -- -- 22,544 --------- --------- --------- --------- Net cash provided by (used for) financing activities $ 103,745 $ (83) $ -- $ 103,662 --------- --------- --------- --------- Net increase in cash and cash equivalents 411 588 151 1,150 Cash and cash equivalents beginning of year 154 (233) 235 156 ========= ========= ========= ========= Cash and cash equivalents end of year $ 565 $ 355 $ 386 $ 1,306 ========= ========= ========= =========
10 (5) REVOLVING CREDIT FACILITY On June 23, 1999 the Company entered into a New Credit Facility with a syndicate of 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 due 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 July 1, 2000 through September 30, 2000, interest on the Revolving Facility and Term Loan ranged from 11.50 percent to 11.75 percent. Total funds available under the New Credit Facility as of September 30, 2000 were $25.6 million. The terms of the Revolving Credit Facility require that the Company comply with certain financial covenants. As of September 30, 2000 the Company was in compliance with the covenants specified under the Revolving Credit Facility. (6) 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.
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (AMOUNTS IN THOUSANDS) INTERACTIVE ANTEON MEDIA ELIMINATIONS CONSOLIDATED --------- --------- ------------ --------- Total assets $ 276,365 $ 7,960 $ -- $ 284,325 ========= ========= ============ ========= Sales to unaffiliated customers 369,340 20,732 390,072 Intersegment sales 4 332 (336) -- --------- --------- ------------ --------- Total revenues $ 369,344 $ 21,064 $ (336) $ 390,072 Operating income $ 14,573 $ 1,128 $ -- $ 15,701 Minority interest in earnings of subsidiaries 5 Interest expense, net 16,301 Income tax 1,121 --------- Net loss $ (1,726) =========
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AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (AMOUNTS IN THOUSANDS) INTERACTIVE ANTEON MEDIA ELIMINATIONS CONSOLIDATED ------------- ----------- ------------ ------------ Total assets $ 271,001 $ 22,203 $ -- $293,204 ============= =========== ============ ======== Sales to unaffiliated customers 252,297 19,020 -- 271,317 Intersegment sales -- 127 (127) -- ------------- ----------- ------------ -------- Total revenues $ 252,297 $ 19,147 $ (127) $271,317 Operating income $ 10,555 $ 1,648 $ -- $ 12,203 Minority interest in earnings of subsidiaries 23 Interest expense, net 10,619 Other income, net 2,463 Income tax 2,128 Extraordinary item 463 -------- Net income $ 1,433 ========
AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 (AMOUNTS IN THOUSANDS) INTERACTIVE ANTEON MEDIA ELIMINATIONS CONSOLIDATED --------- ----------- ------------ ------------ Total assets $ 276,365 $ 7,960 $ -- $ 284,325 ========= ========= ============ ========= Sales to unaffiliated customers 127,102 6,987 134,088 Intersegment sales -- 248 (248) -- --------- --------- ------------ --------- Total revenues $ 127,102 $ 7,235 $ (248) $ 134,088 Operating income $ 4,850 $ 553 $ -- $ 5,403 Minority interest in earnings of subsidiaries 3 Interest expense, net 5,557 Income tax 1,382 --------- Net loss $ (1,539) =========
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AS OF AND FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 (AMOUNTS IN THOUSANDS) INTERACTIVE ANTEON MEDIA ELIMINATIONS CONSOLIDATED ------------ ----------- ------------ ------------ Total assets $ 271,001 $ 22,202 $ -- $293,204 ============ ======== ============ ======== Sales to unaffiliated customers 119,690 6,018 -- 125,708 Intersegment sales -- 359 (359) -- ------------ -------- ------------ -------- Total revenues $ 119,690 $ 6,377 $ (359) $125,708 Operating income $ 4,966 $ 589 $ -- $ 5,555 Interest expense, net 5,119 Other income, net 2,463 Income tax 1,531 -------- Net income $ 1,362 ========
(7) SUBSEQUENT EVENT On October 20, 2000, the Company purchased all of the outstanding stock of Sherikon, Inc., a technology solutions and services firm based in Chantilly, Virginia, for a total purchase price, net of cash acquired of $4.1 million, of $30.1 million on October 20, 2000. The transaction will be accounted for as a purchase business combination. Sherikon, Inc. is a privately-held company offering diversified technology services including information technology, engineering, health care, training and manufacturing to federal, state, and local clients. Under the terms of the sale, the total purchase price included a cash payment of $20.8 million at closing, and notes payable totaling $7.5 million, of which $5.0 million is due at the end of the first year after closing and $2.5 million due at the end of the second year after closing. The notes carry a 0% coupon rate. The present value of the notes payable using an assumed borrowing rate of 11.75% is $6.5 million as of the date of purchase. Additional expenditures for the purchase include estimated closing costs of approximately $386 thousand and a management bonus payout at the closing date of $5.0 million. As included in the total purchase price above, the purchase agreement also guarantees bonuses payable to employees equal to $1.8 million, of which $1.2 million is due at the end of the first year after closing and $567.3 thousand due at the end of the second year after closing. Sherikon, Inc. will operate as a business unit of Anteon. 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 or other acquired companies 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 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, using the cost-to-cost or units-of delivery methods. 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 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 Company's 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 14 recompeted over the past three years, while increasing backlog from $428 million in 1996 to $2.3 billion at December 31, 1999 and to $2.8 billion at September 30, 2000, of which $221 million was funded as of September 30, 2000. The Company's total backlog represents the aggregate contract revenue remaining to be earned by the Company at a given time over the term 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 September 30, 2000 and September 30, 1999 is as follows:
QUARTER ENDED SEPTEMBER 30, (amounts in thousands) -------------------------------------------------------------------------------- PERCENTAGE 2000 1999 CHANGE --------- --------- ---------- Revenue $ 134,088 $ 125,708 6.7% Operating income $ 5,403 $ 5,555 (2.7%) Income (loss) before provision for income taxes $ (157) $ 2,893 (105.4)% Net income (loss) $ (1,539) $ 1,362 (213.0)%
NINE MONTHS ENDED SEPTEMBER 30, (amounts in thousands) -------------------------------------------------------------------------------- PERCENTAGE 2000 1999 CHANGE --------- --------- ---------- Revenue $ 390,072 $ 271,317 43.8% Operating income $ 15,701 $ 12,203 28.7% Income (loss) before provision for income taxes $ (605) $ 4,024 (115.0)% Net income (loss) $ (1,726) $ 1,433 (220.4)%
Revenue increased 6.7% to $134.1 million for the quarter ended September 30, 2000 from $125.7 million for the quarter ended September 30, 1999. For the nine month period ended September 30, 2000, revenue increased 43.8% to $390.1 million from $271.3 million for the nine month period ended September 30, 1999. The increases in revenue for the three months ended September 30, 2000 were attributable to internal growth in several business units including Information Systems, Applied Technology and Systems Engineering ("Techmatics"). For the nine months ended September 30, 2000, internal growth was 9.0%. That was driven by an increase in the Company's Intelligence Systems, Systems Engineering and Education Groups. The remainder was due primarily to the acquisition of A&T. In addition, A&T provided $48.9 million in revenue during the third quarter of 2000 which was a 5.2% increase from A&T's revenues of $46.5 million during the third quarter of 1999. Costs of revenues increased by $7.8 million (7.1%) from third quarter 1999 to third quarter 2000. Costs of revenues for the nine month period ended September 30, 2000 increased by $101.9 million (42.7%) from the nine month period ended September 30, 1999. Over 78% of increase during the nine month period ended September 30 2000, or $79.8 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 Intelligence Systems and Systems Engineering sales, as well as costs related to startup of Anteon-CITI, LLC ("CITI"). CITI is a joint venture between Anteon and 15 Crimminal Investigative Technology Incorporated formed in 1999 to develop and market certain investigative software support products and services to government law enforcement agencies. CITI recognized its first software sale during 2000. G&A expense increased by $.4 million (5.0%) from third quarter 1999 to third quarter 2000 to $8.8 million from $8.4 milllion for the quarter. G&A expense also increased for the nine month period ended September 30, 2000 by $10.2 million (58.9%) from the nine month period ended September 30, 1999, the majority of which was due to the addition of A&T. G&A expenses also increased due to additional costs incurred in support of Systems Engineering and Applied Technology. Operating income decreased by $.2 million (2.7%) for the quarter ended September 30, 2000 to $5.4 million from $5.6 million for the quarter ended September 30, 1999. Operating income increased by $3.5 million (28.7%) to $15.7 million for the nine month period ended September 30, 2000 from $12.2 million for the nine month period ended September 30, 1999. Operating earnings as a percentage of revenue (operating margin) decreased to 4.0% compared with 4.4% in the prior year comparable quarter. This decrease was primarily due to the retroactive increase of amortization expense for other intangible assets relating to the A&T acquisition which was made at the end of second quarter 2000. This decrease was partially offset by increased operating earnings margin for the quarter from the Information Systems and Applied Technology Groups. Interest expense, net, increased $.5 million (9.8%) to $5.6 million for the quarter ended September 30, 2000 from $5.1 million for the quarter ended September 30, 1999. Interest expense, net, increased $5.7 million (53.8%) to $16.3 million for the nine months ended September 30, 2000 from $10.6 million for the nine months ended September 30, 1999. The increase during the nine month period was 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. Earnings before income taxes decreased by $3.1 million (105.4%) to $(.2) million in the third quarter of fiscal 2000 from $2.9 million in the third quarter of 1999. This decrease was due to the increase in interest expense, the retroactive adjustment of amortization expense for other intangible assets and the gain on the sale of long term investments which occurred in 1999. Earnings before income taxes decreased by $4.6 million (115.0%) to $(.6) million for the nine month period ended September 30, 2000 from $4.0 million for the nine month period ended September 30, 1999. The Company's effective tax rate was 185.2% for the three-month period ended September 30, 2000 compared with 52.9% for the three-month period ended September 30, 1999. The higher effective tax rate in the current quarter was due primarily to a cumulative tax provision adjustment due to the Company's add back of certain non-deductible goodwill amortization and the Company's estimates of financial performance for the remainder of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company generated $13.4 million in cash from operations for the nine months ended September 30, 2000. By comparison, the Company had a $8.1 million positive cash flow from operations for the nine months ended September 30, 1999. Contract receivables totaled $113.9 million at September 30, 2000 and represented 40.0% of total assets at that date, which represented a increase of $6.5 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 is due in November 2000 to satisfy the amount due on the Senior Subordinated Notes. Net cash used for investing activities for the first nine months of 2000 totaled $4.7 million, which was used primarily for purchases of capital equipment and software. Net changes in financing activities totaled $4.7 million during the first nine months of 2000 and included $5.5 million in paydown of an earn-out associated with the Techmatics acquisition and $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 $12.0 million increase in the revolving line of credit. The total funds remaining available to the Company under its New Credit Facility as of September 30, 2000 was $25.6 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 $14.9 million as of September 30, 2000. As of September 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. 16 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. SAB 101 is effective beginning in the fourth quarter of 2000. The Company does not expect the adoption of SAB 101 to have a material effect on the Company's consolidated results of operations or its financial position. In September 2000, the Financial Accounting Standards Board issued SFAS No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES ("SFAS No. 140"). SFAS No. 140 replaces SFAS No. 125, and revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. The Company does not expect the adoption of SFAS No. 140 to have a material effect on the Company's consolidated results of operations or its financial position. 17 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. 18 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: November 14, 2000 -------------------------------- Joseph Kampf - President and Chief Executive Officer Date: November 14, 2000 -------------------------------- Carlton B. Crenshaw - Senior Vice President of Finance and Administrative and Chief Financial Officer 19 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 a report on Form 8-K during the quarter ended September 30, 2000. 20 EXHIBIT INDEX Exhibit Number Description of Documents 27 Financial Data Schedules - For the quarter ended September 30, 2000 21