-----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, FXEE0YklRIxU4OJeIWC931j0OIG/NWHx3SkOFIaJToZ9F+f98liYKVfg8jmm1q63 L27MpRDRsBYiG+Ac7/Yz0w== 0000912057-01-516287.txt : 20010516 0000912057-01-516287.hdr.sgml : 20010516 ACCESSION NUMBER: 0000912057-01-516287 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEON CORP CENTRAL INDEX KEY: 0001090709 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 541023915 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-84835 FILM NUMBER: 1640566 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 a2049283z10-q.txt FORM 10-Q Form 10-Q for ANTEON INTERNATIONAL CORPORATION filed on May 15, 2001 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 333-84835 ANTEON INTERNATIONAL CORPORATION --------------------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 54-1023915 ----------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3211 Jermantown Road, Fairfax, Virginia 22030-2801 ------------------------------------------------------------------------------ (Address of principal executive office) (Zip Code) (703) 246-0200 ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Not Applicable - ------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of the close of business on March 31, 2001, there were 14,266,128 outstanding shares of the registrant's common stock, par value $.05 per share. CONTENTS PAGE PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2001 AND DECEMBER 31, 2000 1 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 2 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 3 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS 18 ITEM 2. CHANGES IN SECURITIES 18 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18 ITEM 5. OTHER INFORMATION 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 i PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS)
March 31, 2001 (Unaudited) December 31, 2000 -------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 3,225 $ 928 Accounts receivable, net 137,458 132,369 Prepaid expenses and other current assets 10,775 8,605 Deferred taxes 3,955 3,621 --------- --------- Total current assets 155,413 145,523 Property and equipment, net 16,440 17,974 Goodwill, net 139,057 140,482 Other assets, net 16,741 17,547 --------- --------- Total assets $ 327,651 $ 321,526 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Term loan, current portion $ 11,250 $ 8,437 Subordinated notes payable, current portion 4,693 4,558 Business purchase consideration payable 1,087 1,075 Accounts payable 28,621 23,232 Accrued expenses 48,059 46,682 Income taxes payable 587 531 Deferred revenue 5,147 6,489 Other current liabilities, net 2,185 186 --------- --------- Total current liabilities 101,629 91,190 Revolving credit facility 38,200 32,000 Term loan facility, less current portion 43,201 51,563 Senior subordinated notes payable 100,000 100,000 Subordinated notes payable, less current portion 2,104 2,044 Deferred tax liabilities, net 8,578 9,212 Other long term liabilities 868 859 --------- --------- Total liabilities 294,580 286,868 Minority interest in subsidiaries 602 601 Stockholders' equity: Common stock 713 713 Additional paid-in capital 40,313 40,294 Accumulated other comprehensive income (loss): Foreign currency translations (19) 37 Interest rate swaps (1,228) -- Treasury stock (9) (9) Due from parent (9,123) (8,810) Retained earnings 1,822 1,832 --------- --------- Total stockholders' equity 32,469 34,057 --------- --------- Total liabilities and stockholders' equity $ 327,651 $ 321,526 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 1 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
For the three months ended March 31, --------------------------- 2001 2000 --------- --------- Revenues $ 162,366 $ 125,700 Costs of revenues 143,154 109,479 --------- --------- Gross profit 19,212 16,221 Operating expenses: General and administrative expenses, excluding acquisition related costs, below 10,905 9,095 Amortization of noncompete agreements 209 227 Goodwill amortization 1,446 1,209 Other intangibles amortization 546 -- Cost of acquisitions -- 17 --------- --------- Total operating expenses 13,106 10,548 --------- --------- Operating income 6,106 5,673 Interest expense, net of interest income of $91 and $71, respectively 5,956 5,403 Minority interest in (earnings) losses of subsidiaries (1) 3 --------- --------- Income before provision for income taxes 149 273 Provision for income taxes 159 142 --------- --------- Net income (loss) $ (10) $ 131 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 2 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
For the three months ended March 31, ------------------------------------ 2001 2000 ------------ --------------- OPERATING ACTIVITIES: Net income (loss) $ (10) $ 131 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of property and equipment 2,276 1,105 Amortization of noncompete agreements 209 227 Goodwill amortization 1,446 1,209 Other intangibles amortization 546 -- Amortization of deferred financing fees 295 295 Loss (gain) on disposals of property and equipment 1 -- Deferred income tax expense (benefit) (149) 200 Minority interest in earnings (losses) of subsidiaries 1 (3) Changes in assets and liabilities (1,966) 683 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,649 3,847 --------- --------- INVESTING ACTIVITIES: Purchases of property, equipment and other assets (629) (1,142) Acquisitions, net of cash acquired (21) -- Other, net -- (17) --------- --------- NET CASH USED FOR INVESTING ACTIVITIES (650) (1,159) --------- --------- FINANCING ACTIVITIES: Principal payments on notes payable (59) (88) Principal payments on term loan facility (5,549) -- Proceeds from revolving credit facility 164,500 102,500 Principal payments on revolving credit facility (158,300) (104,400) Proceeds from issuance of common stock 19 10 Advances to parent for debt service (313) -- --------- --------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 298 (1,978) --------- --------- CASH AND CASH EQUIVALENTS: Net increase in cash and cash equivalents 2,297 710 Cash and cash equivalents, beginning of period 928 1,061 --------- --------- Cash and cash equivalents, at end of period $ 3,225 $ 1,771 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 2,597 2,092 Income taxes paid (refunded) (89) 63 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 3 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 AND 2000 (1) BASIS OF PRESENTATION The information furnished in the accompanying unaudited Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, and Condensed Consolidated Statements of Cash Flows have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of such information. The operating results for the three months ended March 31, 2001 may not be indicative of the results of operations for the year ending December 31, 2001 or any future period. This financial information should be read in conjunction with the Company's December 31, 2000 audited consolidated financial statements and footnotes thereto filed on Form 10-K. 2) PRO FORMA RESULTS FOR ACQUISITION OF SHERIKON, INC. 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 of approximately $34.8 million, including transaction costs of approximately $861,000. Under the terms of the sale, the total purchase price included, at closing, a cash payment of $20.8 million to the shareholders of Sherikon, Inc., cash payments of approximately $5.2 million to certain executives and employees of Sherikon, Inc. and subordinated 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 subordinated notes carry a 0% coupon rate. The present value of the subordinated notes payable, using an assumed borrowing rate of 11.75%, was approximately $6.5 million as of the date of purchase. In addition, the Company guaranteed certain bonuses totaling approximately $1.75 million to former Sherikon employees' payable in two installments on October 20, 2001 and October 20, 2002. Such bonuses are not contingent on continued employment with Sherikon, and the present value of such amount assuming an 11.75% discount rate, of $1,503,000, has been recognized as additional purchase consideration. The transaction was accounted for using the purchase method whereby the net tangible and identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair market values at the date of acquisition, based on preliminary estimates by management. The identifiable intangible assets were acquired contracts and workforce in place. These assets were valued, based on an independent appraisal, at $1,310,000 and $760,000, respectively. Both have expected useful lives of 4 years. Goodwill is being amortized on a straight-line basis over twenty years. 4 The following unaudited pro forma summary presents consolidated information as if the acquisition of Sherikon had occurred as of January 1, 2000, and 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 entities (in thousands):
Three Months Ended March 31, 2000 ---------- Total revenues $ 140,421 Total expenses 140,427 ---------- Net income (loss) $ (6) ==========
(3) COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) for the three months ended March 31, 2001 and 2000 was approximately $(665,000) million and $128,000, respectively. Comprehensive loss for the three months ended March 31, 2001 is comprised of foreign currency translation losses of $56,000 and decreases in the fair value of interest rate swaps of $599,000, net of tax. Comprehensive income for the three months ended March 31, 2000 included $3,000 of foreign currency translation losses. (4) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION Under the terms of the Senior Subordinated Notes, the Company's wholly-owned domestic subsidiaries (the "Subsidiary Guarantors") are guarantors of the Senior Subordinated Notes. Such guarantees are full, unconditional and joint and several. Separate unaudited condensed financial statements of the Subsidiary Guarantors are not presented because the Company's management has determined that they would not be material to investors. The following supplemental financial information sets forth, on a combined basis, condensed balance sheets, statements of operations and statements of cash flows information for the Subsidiary Guarantors, the Company's non-guarantor subsidiaries and for Anteon International Corporation. 5
AS OF MARCH 31, 2001 ------------------------------------------------------------------------- CONSOLIDATED ANTEON ANTEON UNAUDITED CONDENSED CONSOLIDATED INTERNATIONAL GUARANTOR NON-GUARANTOR ELIMINATION INTERNATIONAL BALANCE SHEETS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- ------------ ------------- ----------- ------------- (AMOUNTS IN THOUSANDS) Cash and cash equivalents $ 1,442 $ 349 $ 1,434 $ -- $ 3,225 Accounts receivable, net 120,894 15,958 606 -- 137,458 Other current assets 13,065 839 826 -- 14,730 Property and equipment, net 14,800 1,566 74 -- 16,440 Due from parent (1,780) 2,390 (610) -- -- Investment in and advances to subsidiaries 92,633 -- -- (92,633) -- Goodwill, net 139,057 -- -- -- 139,057 Other assets, net 16,333 272 136 -- 16,741 --------- --------- --------- --------- --------- Total assets $ 396,444 $ 21,374 $ 2,466 $ (92,633) $ 327,651 ========= ========= ========= ========= ========= Indebtedness $ 199,448 $ 1,087 $ -- $ -- $ 200,535 Accounts payable 25,529 2,847 245 -- 28,621 Accrued expenses and other current liabilities 44,795 5,306 730 -- 50,831 Deferred revenue 4,260 -- 887 -- 5,147 Other long-term liabilities 8,753 693 -- -- 9,446 --------- --------- --------- --------- --------- Total liabilities 282,785 9,933 1,862 294,580 Minority interest in subsidiaries 549 (48) 101 602 Total stockholders' equity 113,110 11,489 503 (92,633) 32,469 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity $ 396,444 $ 21,374 $ 2,466 $ (92,633) $ 327,651 ========= ========= ========= ========= =========
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FOR THE THREE MONTHS ENDED MARCH 31, 2001 ----------------------------------------------------------------------- CONSOLIDATED ANTEON ANTEON UNAUDITED CONDENSED CONSOLIDATED INTERNATIONAL GUARANTOR NON-GUARANTOR ELIMINATION INTERNATIONAL STATEMENTS OF OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- ------------ ------------- ----------- ------------- (AMOUNTS IN THOUSANDS) Revenues $ 142,213 $ 17,832 $ 2,752 $ (431) $162,366 Costs of revenues 124,015 17,046 2,524 (431) 143,154 --------- --------- --------- --------- --------- Gross profit 18,198 786 228 -- 19,212 Total operating expenses 12,145 837 124 -- 13,106 --------- --------- --------- --------- --------- Operating income (loss) 6,053 (51) 104 -- 6,106 Interest expense (income), net 5,923 40 (7) -- 5,956 Minority interest in earnings (losses) of subsidiaries -- 18 (19) -- (1) --------- --------- --------- --------- --------- Income (loss) before provision for income taxes 130 (73) 92 -- 149 Provision (benefit) for income taxes 152 (35) 42 -- 159 --------- --------- --------- --------- --------- Net income (loss) $ (22) $ (38) $ 50 $ -- $ (10) ========= ========= ========= ========= =========
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FOR THE THREE MONTHS ENDED MARCH 31, 2001 ------------------------------------------------------------ CONSOLIDATED ANTEON ANTEON INTERNATIONAL GUARANTOR NON-GUARANTOR INTERNATIONAL UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ------------- ------------ ------------- ------------- (AMOUNTS IN THOUSANDS) Net income (loss) $ (22) $ (38) $ 50 $ (10) Adjustments to reconcile change in net income (loss) to net cash provided by operations: Depreciation and amortization of property and equipment 1,204 1,067 5 2,276 Loss on disposals of property and equipment 1 -- -- 1 Goodwill amortization 1,446 -- -- 1,446 Other intangibles amortization 546 -- -- 546 Amortization of noncompete agreements 209 -- -- 209 Amortization of deferred financing fees 295 -- -- 295 Deferred income tax expense (benefit) (149) -- -- (149) Minority interest in earnings (losses) of subsidiaries -- (18) 19 1 Changes in assets and liabilities (2,334) (681) 1,049 (1,966) --------- --------- --------- --------- Net cash provided by (used for) operating activities 1,196 330 1,123 2,649 --------- --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment (319) (305) (5) (629) Acquisitions, net of cash acquired (21) -- -- (21) --------- --------- --------- --------- Net cash used for investing activities (340) (305) (5) (650) --------- --------- --------- --------- Cash flow from financing activities: Principal payments on notes payable (59) -- -- (59) Proceeds from revolving loan facility 164,500 -- -- 164,500 Principal payments on revolving credit facility (158,300) -- -- (158,300) Principal payments on term credit facility (5,549) -- -- (5,549) Proceeds from issuance of common stock 19 -- -- 19 Advances to parent for debt service (313) -- -- (313) --------- --------- --------- --------- Net cash provided by financing activities 298 -- -- 298 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 1,154 25 1,118 2,297 Cash and cash equivalents, beginning of year 288 324 316 928 --------- --------- --------- --------- Cash and cash equivalents, at end of year $ 1,442 $ 349 $ 1,434 $ 3,225 ========= ========= ========= =========
8
FOR THE THREE MONTHS ENDED MARCH 31, 2000 ----------------------------------------------------------------------- CONSOLIDATED ANTEON ANTEON UNAUDITED CONDENSED CONSOLIDATED INTERNATIONAL GUARANTOR NON-GUARANTOR ELIMINATION INTERNATIONAL STATEMENTS OF OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- ------------ ------------- ----------- ------------- (AMOUNTS IN THOUSANDS) Revenues $ 48,277 $ 77,039 $ 754 $ (370) $ 125,700 Costs of revenues 43,699 65,458 692 (370) 109,479 --------- --------- --------- --------- --------- Gross profit 4,578 11,581 62 -- 16,221 Total operating expenses 3,699 6,840 9 -- 10,548 --------- --------- --------- --------- --------- Operating income 879 4,741 53 -- 5,673 Interest expense (income), net 5,364 36 3 -- 5,403 Minority interest in losses of subsidiaries -- -- 3 -- 3 --------- --------- --------- --------- --------- Income (loss) before provision for income taxes (4,485) 4,705 53 -- 273 Provision (benefit) for income taxes (1,780) 1,908 14 -- 142 --------- --------- --------- --------- --------- Net income (loss) $ (2,705) $ 2,797 $ 39 $ -- $ 131 ========= ========= ========= ========= =========
9
FOR THE THREE MONTHS ENDED MARCH 31, 2000 ------------------------------------------------------------ UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED ANTEON ANTEON INTERNATIONAL GUARANTOR NON-GUARANTOR INTERNATIONAL CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ------------- ------------ ------------- ------------- (AMOUNTS IN THOUSANDS) Net income (loss) $ (2,705) $ 2,795 $ 39 $ 131 Adjustments to reconcile change in net income (loss) to net cash provided by operations: Depreciation and amortization of property and equipment 225 875 5 1,105 Goodwill amortization 1,209 -- -- 1,209 Amortization of noncompete agreements 227 -- -- 227 Amortization of deferred financing fees 295 -- -- 295 Deferred income taxes 200 -- -- 200 Minority interest in losses of subsidiaries -- (3) -- (3) Changes in assets and liabilities 3,464 (2,673) (108) 683 --------- --------- --------- --------- Net cash provided by (used for) operating activities 2,915 996 (64) 3,847 --------- --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment (373) (768) (1) (1,142) Acquisitions, net of cash acquired (17) -- -- (17) --------- --------- --------- --------- Net cash used for investing activities (390) (768) (1) (1,159) --------- --------- --------- --------- Cash flow from financing activities: Principal payments on notes payable -- (88) -- (88) Proceeds from revolving credit facility 102,500 -- -- 102,500 Principal payments on revolving credit facility (104,400) -- -- (104,400) Initial capitalization of common stock 246 (246) -- Proceeds from issuance of common stock 10 -- -- 10 --------- --------- --------- --------- Net cash used for financing activities (1,644) (334) -- (1,978) --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 881 (106) (65) 710 Cash and cash equivalents, beginning of year (11) 499 573 1,061 --------- --------- --------- --------- Cash and cash equivalents, at end of year $ 870 $ 393 $ 508 $ 1,771 ========= ========= ========= =========
10 (5) SEGMENT INFORMATION Based on its organization, the Company operates in two business segments: the Company's government contracting business and the Company's commercial custom training and performance solutions group (Interactive Media). Although the Company is organized by strategic business unit, the Company considers each of its government contracting units to have similar economic characteristics, provide similar types of services, and have a similar customer base. Accordingly, the Company's government contracting segment aggregates the operations of all its business units excluding 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 revenue and employee headcount. General and administrative costs are allocated to segments based on the government-required three-factor formula which uses measures of revenue, labor and net book value of fixed assets. Interest expense, investment income and income taxes are not allocated to the Company's segments.
THREE MONTHS ENDED MARCH 31, 2001 (AMOUNTS IN THOUSANDS) GOVERNMENT INTERACTIVE CONTRACTING MEDIA ELIMINATIONS CONSOLIDATED ----------- ----------- ------------ ------------ Total assets $ 318,689 $ 8,962 $ -- $ 327,651 ========= ========= ========= ========= Sales to unaffiliated customers 153,966 8,400 -- 162,366 Intersegment sales $ 27 $ 15 $ (42) $ -- --------- --------- --------- --------- Total revenues 153,993 8,415 (42) 162,366 Operating income 5,467 639 6,106 Minority interest in earning of subsidiaries (1) Interest expense, net 5,956 --------- Provision for income taxes 159 --------- Net loss $ (10) =========
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THREE MONTHS ENDED MARCH 31, 2000 (AMOUNTS IN THOUSANDS) GOVERNMENT INTERACTIVE CONTRACTING MEDIA ELIMINATIONS CONSOLIDATED ----------- ----------- ------------ ------------ Total assets $278,006 $ 6,996 $ -- $285,002 ======== ======== ======== ======== Sales to unaffiliated customers 118,551 7,149 -- 125,700 Intersegment sales $ 1 $ 84 $ (85) $ -- -------- -------- -------- -------- Total revenues 118,552 7,233 (85) 125,700 Operating income 5,133 540 -- 5,673 Minority interest in losses of subsidiaries 3 Interest expense, net 5,403 -------- Provision for income taxes 142 -------- Net income $ 131 ========
(6) INTEREST RATE SWAP AGREEMENTS Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS No. 137, and as further amended by SFAS No. 138. The adoption of SFAS No. 133, as amended, had no significant impact on the Company's consolidated financial statements. OBJECTIVES AND CONTEXT The Company uses variable-rate debt to finance its operations through its revolving credit and term loan facilities. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. Management believes it is prudent to limit the variability of a portion of its interest payments. It is the Company's objective to hedge between - to - percent of its variable-rate short-term interest payments and - to - percent of its longer-term variable interest payments. STRATEGIES To meet this objective, management enters into various interest rate swap derivative contracts to manage fluctuations in cash flow resulting from fluctuations in interest rate. The interest rate swaps change the variable-rate cash flow exposure on the Company's long-term debt obligations to fixed-rate cash flows by entering into receive-variable, pay-fixed interest rate swaps. Under the interest rate swaps, the Company receives variable interest rate payments and makes fixed interest rate payments, thereby creating fixed-rate long-term debt. The Company does not enter into derivative instruments for any purpose other than cash flow hedging purposes. That is, the Company does not speculate using derivative instruments. RISK MANAGEMENT POLICES The Company assesses interest rate cash flow by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company monitors interest rate cash flow risk attributable to both the Company's outstanding or forecasted debt obligations as well as the Company's offsetting hedge positions and estimates the 12 expected impact of changes in interest rates on the Company's future cash flows. Upon adoption of SFAS No. 133, the fair value of interest rate swaps was recorded as a transition adjustment to accumulated other comprehensive income. This resulted in a decrease of $629,000, net of tax, to accumulated other comprehensive income. Changes in the fair value subsequent to January 1, 2001 of interest rate swaps designated as hedging instruments of the variability of cash flows associated with floating-rate, long-term debt obligations are reported in accumulated other comprehensive income (loss). These amounts subsequently are reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations affects earning. Over the next twelve months, approximately $1.2 million of losses in accumulated other comprehensive loss related to the interest rate swap are expected to be reclassified into interest expense as a yield adjustment of the hedged debt obligation. As of March 31, 2001, the fair value of the Company's interest swap agreements resulted in a net liability of $2.0 million and has been recorded as other current liabilities. (7) LEGAL PROCEEDINGS The Company entered into a settlement agreement on April 24, 2001 with Cambridge Technology Partners, Inc. ("Cambridge") to resolve a legal action brought by Cambridge against the Company for work performed solely by Cambridge for the United States Customs Service ("Customs Service"). In 1998, the Customs Service requested that the Company enter into a contract for the sole purpose of allowing the Customs Service to direct work to Cambridge to develop software as part of a Customs Service information system modernization program. The Company awarded Cambridge a subcontract to perform all of the software development effort required by the contract without any work being performed by the Company. In 1999, the Customs Service rejected the Cambridge developed software. As a result, the Company terminated the Cambridge subcontract. The Customs Service and the Company negotiated a no-cost termination to resolve the matter. In 2000, Cambridge filed a lawsuit seeking payment of the subcontract amount, approximately $3 million, plus pre-judgment interest. Anteon filed a counter-claim for damages. While the Company believed that it had a strong defense and would likely have prevailed at trial, settlement discussions with Cambridge just prior to the trial date in early April 2001, resulted in the Company deciding to settle the matter. The Company concluded this decision was in the best interests of the Company in light of the diversion of management time a trial would cause, the additional legal fees that would be incurred and ultimate uncertainties of trial. Under the terms of the settlement agreement, the Company agreed to pay Cambridge $600,000. In exchange, Cambridge agreed to dismiss all claims against the Company. The Company also agreed to dismiss its counter-claims against Cambridge. The settlement was recognized as general and administrative expense during the three months ended March 31, 2001. 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 Sherikon and other acquisitions 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 and general economic conditions which may affect the level of federal government procurement. GENERAL Anteon International Corporation ("Anteon" or the "Company") is a leading information technology and e-business solutions company providing support to the federal government, commercial, and international sectors. Founded in 1976 and incorporated in the Commonwealth of Virginia, Anteon is headquartered in Fairfax, Virginia and employs approximately 5,000 full-time employees in the United States, Puerto Rico, England, Germany, Italy, Canada and Australia. Anteon Corporation was renamed Anteon International Corporation effective January 1, 2001. Anteon offers customers information technology, e-business, and engineering solutions. Anteon's teams of software engineers bring the latest database tools, application products and technologies, and web-based solutions to address customer needs. Anteon's communication services include the design, custom configuration and implementation of data, voice, and video communication networks. The Company has obtained ISO 9001 registration for its quality systems as well as achieving Software Engineering Institute (SEI) Level 3 certification for its software development processes. Anteon specializes in helping client agencies web-enable legacy systems, achieving the promise of extended services and more efficient internal processes. The Company brings its depth of systems integration experience to identification of the e-government business case, re-engineering processes, supplier management, database development, data mining, data security, and performance requirements, among other critical e-government system challenges. The contracts the Company performs may be categorized into three primary types: time and materials ("time and materials"), cost-plus fixed fee reimbursement ("cost-plus") and firm fixed price ("fixed price"). Revenue recognition for time and materials contracts is recorded at hourly rates, which are negotiated with the customer. Time and materials contracts are typically more profitable because of our ability to negotiate rates and manage costs on those contracts. Revenue is recognized under cost-plus contracts on the basis of direct and indirect costs incurred plus a negotiated profit calculated as a percentage of our costs. Cost-plus contracts provide less risk than other contract types because the Company is reimbursed for all direct costs and certain indirect costs, such as overhead and general and administrative charges, and is paid a fixed fee for work performed. Revenues are recognized under fixed price contracts based on the percentage-of-completion method. The Company may be exposed to cost overruns if the Company encounters variances from estimated costs under fixed price contracts. Accordingly, the Company attempts to minimize the number of fixed price contracts, particularly for advanced software development projects. Prices on federal government contracts are generally set using estimated costs plus a negotiated profit percentage. Under time and materials and fixed price contracts, margins are not limited by law or regulation; however, the Federal government's profit objectives in negotiating time and materials and fixed price contracts seldom provide for operating profits in excess of 15%. Due to competitive pressures, operating profits on time and materials and fixed price contracts are often less than 10%. Under cost-plus contracts, operating profits are statutorily limited to 15% of costs. Anteon's costs may be categorized as direct costs such as labor and related fringe costs, which are directly attributable to contract performance, and indirect costs such as corporate overhead, which are not directly attributable to contract performance. Under our time and materials and cost-plus contracts, the Company charges direct costs and an agreed-upon portion of indirect costs to the customer. A key element in the successful bidding and execution of contracts is the control of indirect costs. The Company has developed management 14 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 Company believes that its demonstrated performance record and service excellence have enabled it 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 $2.8 billion at March 31, 2001, of which $325.6 million was funded as of March 31, 2001. The Company's total backlog represents the aggregate contract revenue remaining to be earned by the Company at a given time over the life of its contracts. When more than one company is awarded a contract for a given work requirement, the Company includes in total backlog its estimate of the contract revenue it expects to earn over the remaining life of the contract. Funded backlog is based upon amounts actually appropriated by a customer for payment of goods and services. Because the federal government operates under annual appropriations, agencies of the federal government typically fund contracts on an incremental basis. Accordingly, the majority of the total contract backlog is not funded. RESULTS OF OPERATIONS A summary of comparative results for the quarters ended March 31, 2001 and March 31, 2000 is as follows:
QUARTER ENDED MARCH 31 (amounts in thousands) - ------------------------------------------------------------------------ PERCENTAGE 2001 2000 CHANGE --------- --------- ----------- Revenue $ 162,366 $ 125,700 29.2% Operating income $ 6,106 $ 5,673 7.6% Income before provision for income taxes $ 149 $ 273 (45.4%) Net income (loss) $ (10) $ 131 (107.6%)
Revenue increased 29.2 % to $162.4 million for the quarter ended March 31, 2001 from $125.7 million for the quarter ended March 31, 2000. The increases in revenue were attributable to internal growth in several business units as well as the addition on October 20, 2000 of the Company's latest acquisition, Sherikon, Inc. ("Sherikon"). For the quarter ended March 31, 2001, internal growth was 15.4%, driven by revenue increases in the Company's Applied Technology Group ("ATG"), Information Systems Group ("ISG"), and Systems Engineering Group ("SEG"). In addition, Sherikon provided $17.1 million in revenue during the first quarter of 2001. Operating income increased 7.6% for the quarter ended March 31, 2001 to $6.1 million from $5.7 million for the quarter ended March 31, 2000. Sherikon contributed $1.4 million in operating income during the first quarter of 2001. Operating income as a percentage of revenue (operating margin) decreased to 3.8% compared with 4.5% in the prior year comparable quarter. The decreased operating income margin for the quarter resulted from a $.7 million increase in goodwill amortization attributed to the purchase of Sherikon in October 2000 and the acceleration of amortization for other intangibles associated with the purchase of Sherikon and the purchase of Analysis & Technology, Inc. ("A&T") in June 1999. In addition, the Company amortized $1.0 million in software developed for Anteon-CITI, LLC during the first quarter of 2001 compared to $124,000 in the first quarter of 2000. In addition, the decreased operating margin reflects legal settlement cost of $836,000 relating to a dispute with a former subcontractor. (See Note 7 to the unaudited condensed consolidated financial statements). Adjusting for these items, operating income would have been $8.6 million and the operating margin would have been 5.3%. Cost of revenues increased $33.7 million from first quarter 2000 to first quarter 2001. Over 44% of this increase, or $14.9 million, was due to the addition of Sherikon in October of 2000. In addition, cost of revenues increased due to the corresponding growth in revenue. The majority of this growth was due to a $4.8 million increase in direct labor and an $11.6 million increase in other direct contract costs. General and Administrative ("G&A") expense increased $1.8 million from first quarter 2000 to first quarter 2001 due primarily to the addition of the Sherikon strategic business unit. G&A expenses also increased due to additional costs incurred in support of the Anteon-CITI, LLC and Displaycheck businesses. In addition and as mentioned above, the Company agreed to a $600,000 settlement of a legal matter, relating to a dispute with a former subcontractor. 15 Interest expense increased 10% for the three-month period ended March 31, 2001 from the comparable period of 2000 due primarily to increased borrowings on the Company's revolving line of credit due primarily to the purchase of Sherikon. Earnings before income taxes decreased 45.4% to $149,000 in the first quarter of fiscal 2001 from $273,000 in the first quarter of 2000. The Company's effective tax rate was 105.7% for the three-month period ended March 31, 2001 compared with 52.0% for the three-month period ended March 31, 2000. The higher effective tax rate in the current quarter was due primarily to an increase in nondeductible amortization of goodwill associated with the Company's acquisitions. LIQUIDITY AND CAPITAL RESOURCES The Company generated $2.6 million in cash from operations for the quarter ended March 31, 2001. By comparison, the Company generated $3.8 million in cash for the quarter ended March 31, 2000. This decrease in cash flow was attributable to an increase in contract receivables and an increase in prepaid and other assets. Contract receivables totaled $137.5 million at March 31, 2001 and represented 42% of total assets at that date. For the first quarter of 2001, net cash used by investing activities was $650,000 primarily for purchases of property, plant and equipment. Cash provided by financing activities was $298,000. The primary provider of cash in the first quarter 2001 was proceeds, net of payments under our Revolving Credit Facility. The total additional funds available to the Company under its Revolving Credit Facility as of March 31, 2001 were $35.3 million and, in the opinion of management, are sufficient to meet ongoing working capital and debt service requirements for the next 12 months. Borrowings under the Revolving Credit Facility were $38.2 million as of March 31, 2001. The Credit Agreement was amended to modify certain financial covenants for the first, second and third quarter of 2001. A copy of the Amendment has been filed. As of March 31, 2001 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 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: _______________ ----------------------------------------------- Joseph Kampf - President and Chief Executive Officer Date: _______________ ----------------------------------------------- Carlton B. Crenshaw - Senior Vice President of Finance and Administrative and Chief Financial Officer 17 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS (7) LEGAL PROCEEDINGS-BEING EDITED AND REVIEWED The Company entered into a settlement agreement on April 24, 2001 with Cambridge Technology Partners, Inc. ("Cambridge") to resolve a legal action brought by Cambridge against the Company for work performed solely by Cambridge for the United States Customs Service ("Customs Service"). In 1998, the Customs Service requested that the Company enter into a contract for the sole purpose of allowing the Customs Service to direct work to Cambridge to develop software as part of a Customs Service information system modernization program. The Company awarded Cambridge a subcontract to perform all of the software development effort required by the contract without any work being performed by the Company. In 1999, the Customs Service rejected the Cambridge developed software. As a result, the Company terminated the Cambridge subcontract. The Customs Service and the Company negotiated a no-cost termination to resolve the matter. In 2000, Cambridge filed a lawsuit seeking payment of the subcontract amount, approximately $3 million, plus pre-judgment interest. Anteon filed a counter-claim for damages. While the Company believed that it had a strong defense and would likely have prevailed at trial, settlement discussions with Cambridge just prior to the trial date in April 2001, resulted in the Company deciding to settle the matter. The Company concluded this decision was in the best interests of the Company in light of the diversion of management time a trial would cause, the additional legal fees that would be incurred and ultimate uncertainties of trial. Under the terms of the settlement agreement, the Company agreed to pay Cambridge $600,000. In exchange, Cambridge agreed to dismiss all claims against the Company. The Company also agreed to dismiss its counter-claims against Cambridge. ITEM 2. CHANGES IN SECURITIES NONE. ITEM 3. DEFAULTS UPON SENIOR SUBORDINATED SECURITIES NONE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE. ITEM 5. OTHER INFORMATION NONE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS SCHEDULE B. REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended March 31, 2001. 18 EXHIBIT INDEX Exhibit Number Description of Documents 19 -----END PRIVACY-ENHANCED MESSAGE-----