-----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, LXHy1vxvbfdFONpDtnnRPolzrOu2qv+Gz6LaHuz4SYrYQBIYb5GQGKeO78X4kC53 H9JElZshZKEVhzh8ZJKPVg== 0000912057-99-006187.txt : 19991117 0000912057-99-006187.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006187 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99756040 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 FORM 10-Q Form 10-Q for ANTEON CORPORATION filed on November 15, 1999 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, 1999 -------------------------------------------- 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, 1999, there were 3,557,672 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, 1999 AND DECEMBER 31, 1998 1 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 2 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 3 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS 18 ITEM 2. CHANGES IN SECURITIES 18 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18 ITEM 5. OTHER INFORMATION 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
i PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ANTEON CORPORATION AND SUBSIDIARIES (A majority-owned subsidiary of Azimuth Technologies, Inc.) CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS)
September 30, 1999 December 31, 1998 (Unaudited) (Audited) ------------------ ----------------- ASSETS Current assets: Cash and cash equivalents $ 1,306 $ 156 Accounts receivable, net 112,419 68,053 Prepaid expenses and other current assets 7,223 5,347 -------- -------- Total current assets 120,948 73,556 Due from parent 7,323 6,625 Property and equipment, net 19,105 4,537 Goodwill, net 132,837 50,036 Investments 909 5,973 Other assets, net 12,082 2,441 -------- -------- Total assets $293,204 $143,168 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 15,751 $ 12,582 Accrued expenses 44,996 23,338 Subordinated notes payable, current portion 9,099 967 Business purchase consideration payable 5,500 -- Other current liabilities, net 3,228 2,508 -------- -------- Total current liabilities $ 78,574 $ 39,395 Revolving credit facility 5,300 -- Bank notes payable, net of current portion -- 70,400 Term loan facility 60,000 -- Senior subordinated notes payable 100,000 -- Subordinated notes payable, net of current portion -- 8,335 Mortgage note payable, net of current portion 1,640 -- Deferred tax liabilities, net 44 311 Other long term liabilities 210 985 -------- -------- Total liabilities $245,768 $119,426 Minority interest in subsidiary 59 37 Shareholders' equity: Common stock 178 149 Additional paid-in capital 40,758 18,243 Accumulated other comprehensive income 94 399 Retained earnings 6,347 4,914 -------- -------- Total shareholders' equity $ 47,377 $ 23,705 -------- -------- Total liabilities and shareholders' equity $293,204 $143,168 ======== ========
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, -------------------- -------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Revenues $125,708 $ 72,349 $271,317 $180,545 Costs of revenues 110,141 64,487 238,717 160,626 -------- -------- -------- -------- Gross profit 15,567 7,862 32,600 19,919 Operating expenses: General and administrative expenses 8,409 3,879 17,316 10,082 Amortization of noncompete agreements 227 227 681 303 Goodwill amortization 1,208 551 2,232 1,302 Cost of acquisitions 168 72 168 90 -------- -------- -------- -------- Total operating expenses 10,012 4,729 20,397 11,777 -------- -------- -------- -------- Operating income 5,555 3,133 12,203 8,142 Income from sales of long-term investments 2,463 -- 2,463 -- Interest expense, net of interest income of $34, $29, $716, $111, respectively 5,119 1,772 10,619 3,508 Minority interest in earnings of subsidiary 6 5 23 19 -------- -------- -------- -------- Income before provision for income taxes and extraordinary item 2,893 1,356 4,024 4,615 Provision for income taxes 1,531 524 2,128 1,834 -------- -------- -------- -------- Net income before extraordinary item 1,362 832 1,896 2,781 Extraordinary item - loss on early extinguishment of debt, net of income taxes of $309 -- -- 463 -- -------- -------- -------- -------- Net income $ 1,362 $ 832 $ 1,433 $ 2,781 ======== ======== ======== ========
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, 1999 September 30, 1998 ------------------ ------------------ OPERATING ACTIVITIES: Net income $ 1,433 $ 2,781 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Extraordinary loss 772 -- Gain on sale of long-term investments (2,721) -- Depreciation and amortization 2,062 999 Noncompete amortization 681 303 Amortization of goodwill 2,233 1,301 Amortization of deferred financing 388 494 Deferred income taxes 1,383 92 Minority interest in earnings (losses) of subsidiaries 23 -- Changes in assets and liabilities, net of acquired assets and liabilities 1,828 (12,770) --------- --------- NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES $ 8,082 $ (6,800) --------- --------- INVESTING ACTIVITIES: Purchases of property, buildings, and equipment (2,901) (1,631) Acquisition of A&T, net of cash acquired (115,203) -- Acquisition of Techmatics, net of cash acquired -- (28,490) Proceeds from sales of long-term investments 10,580 -- Purchases of long-term investments (3,040) -- Other, net (30) 122 --------- --------- NET CASH USED FOR INVESTING ACTIVITIES $(110,594) $ (29,999) --------- --------- FINANCING ACTIVITIES: Proceeds from bank notes payable 132,043 215,904 Principal payments on bank notes payable (202,525) (172,099) Proceeds from senior subordinated notes payable 100,000 -- Proceeds from term loan facility 60,000 -- Proceeds from revolving facility 110,500 -- Principal payments on revolving facility (105,200) -- Deferred financing costs (8,775) (963) Proceeds from issuance of common stock 22,544 19 Principal payments on Techmatics sub note payable (4,925) -- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES $ 103,662 $ 42,861 --------- --------- CASH AND CASH EQUIVALENTS: Net increase in cash and cash equivalents 1,150 6,062 Balance at beginning of period 156 652 --------- --------- Balance at end of period $ 1,306 $ 6,714 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 6,667 $ 2,075 ========= ========= Income taxes paid $ 204 $ 1,849 ========= =========
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, 1999 (1) BASIS OF PRESENTATION The unaudited interim financial information as of September 30, 1999 and for the three and nine months ended September 30, 1999 and 1998 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, 1999 may not be indicative of the results of operations for the year ending 1999 or any future period. This financial information should be read in conjunction with the Company's audited consolidated financial statements and footnotes thereto. (2) SENIOR SUBORDINATED NOTES OFFERING AND RELATED TRANSACTIONS On May 11, 1999, the Company completed an offering of $100 million of its 12% Senior Subordinated Notes due 2009 (the "Notes"). The Notes are unsecured and are guaranteed by all of the Company's current and future domestic subsidiaries. The Notes require semi-annual interest payments beginning on November 15, 1999 through maturity on May 15, 2009. The Notes may be redeemed at the option of the Company after May 15, 2004 upon the payment of certain redemption premiums, although up to 25% of the Notes can be redeemed prior to May 15, 2002 with the proceeds of certain equity offerings and upon the payment of certain redemption premiums. The Notes contain various restrictive covenants, including limitations on the incurrence of additional indebtedness, restrictions and limitations on dividends paid to the Company's parent, Azimuth Technologies, Inc., and restrictions and limitations on the sales of certain assets, among others. Concurrent with the offering of the Notes, the Company's parent, Azimuth Technologies, Inc., invested an additional $22.5 million in the Company's common stock (the "Equity Contribution"). During June 1999, the Company obtained a new bank credit facility (the "New Credit Facility") with a syndicate of banks, which includes a revolving line of credit (the "Revolving Credit Facility") and a term loan facility (the "Term Loan Facility"). The Revolving Credit Facility has maximum borrowings of up to $120 million, as determined based on a portion of eligible accounts receivable, and bears interest at varying rates based on LIBOR plus a margin determined using Anteon's ratio of net debt to EBITDA (as defined in the New Credit Facility) and matures on June 23, 2005. As of September 30, 1999, the outstanding balance on the Revolving Credit Facility was $5.3 million. The Term Loan Facility consists of a term loan of $60 million bearing interest at varying rates based on LIBOR plus a margin determined using Anteon's ratio of net debt to EBITDA (as defined in the New Credit Facility). Principal payments on the Term Loan Facility commence on a quarterly basis after June 23, 2001 with $15 million due at maturity on June 23, 2005. The New Credit Facility is secured by substantially all of the tangible and intangible assets of Anteon and the Guarantor Subsidiaries (see note 6). The proceeds from the Notes, the Equity Contribution, and the New Credit Facility were used, along with other available cash to acquire all of the outstanding stock of Analysis & Technology, Inc. ("A&T") and repay all outstanding amounts on the Company's previous bank line of credit. Deferred financing fees of $772,000 associated with the previous bank line of credit were written off during the six months ended June 30, 1999 and have been recognized as an extraordinary item, net of taxes. 4 (3) ACQUISITION OF ANALYSIS & TECHNOLOGY, INC. On June 23, 1999, the Company acquired all of the outstanding stock of A&T, a provider of system and engineering technologies, technology-based training systems, and information technologies to the U.S. Government and commercial customers. The acquisition has been 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 combination. These estimates were based on preliminary appraisals and other studies that will be completed during the remainder of 1999. During the third quarter of 1999, certain of these studies were completed and certain reallocations were made, resulting in reductions to goodwill of approximately $3.8 million. Goodwill resulting from the combination is being amortized on a straight-line basis over thirty years. The total purchase price paid, including transaction costs, of approximately $115.5 million, has been preliminarily allocated to the assets and liabilities acquired as follows (in thousands): Accounts receivable............................ $ 29,910 Prepaid expenses and other current assets...... 951 Property and equipment ........................ 13,996 Other assets................................... 1,606 Goodwill....................................... 79,708 Deferred tax assets, net....................... 5,058 Accounts payable and accrued expenses.......... (13,619) Mortgage note payable.......................... (2,077) --------- Total consideration $ 115,533 =========
Transaction costs of approximately $4.5 million were incurred in connection with the acquisition, including a fee of approximately $1.1 million paid to Caxton-Iseman Capital, Inc., an affiliate of and advisor to the Company's parent, Azimuth Technologies, Inc. The following unaudited pro forma summary presents consolidated information as if the acquisition of A&T had occurred as of January 1, 1998. The pro forma summary is provided for informational purposes only and is based on historical information that does not necessarily reflect actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined entity (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1999 1998 --------- --------- --------- Total revenues........................ $ 113,481 $ 361,414 $ 306,574 Total expenses........................ 114,335 361,291 309,619 --------- --------- --------- Net income (loss) before extraordinary items............................... (854) 123 (3,045) --------- --------- --------- Net (loss).............................. $ (854) $ (340) $ (3,045) ========= ========= =========
(4) COMPREHENSIVE INCOME Comprehensive income (loss) for the nine and three months ended September 30, 1999 and 1998 was approximately $1,128,000 and $2,781,000 and ($487,000) and $832,000, respectively. (5) ARRANGEMENT WITH CAXTON-ISEMAN CAPITAL, INC. Effective June 1, 1999, the Company entered into an arrangement with Caxton-Iseman Capital, Inc., an affiliate of and advisor to the Company's parent, Azimuth Technologies, Inc., whereby the Company is required to pay annual management fees to Caxton-Iseman Capital, Inc. Prior to the completion of the acquisition of A&T, the annual management fee was $500,000 and covered the period beginning January 1, 1999. For periods subsequent to the acquisition of A&T, the annual management fee is $1 million. For 5 the nine months ended September 30, 1999, the Company recognized $375,000 of management fee expense under the arrangement. Also under the arrangement, the Company paid Caxton-Iseman Capital, Inc. a transaction fee of approximately $1.1 million in connection with the acquisition of A&T. (6) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION Under the terms of the Notes, the Company's wholly-owned domestic subsidiaries (the "Subsidiary Guarantors") are guarantors of the 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 the Company.
AS OF SEPTEMBER 30, 1999 ------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEET CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------ ------------- ----------- ------------ (AMOUNTS IN THOUSANDS) Cash............................................ $ 565 $ 355 $ 386 $ -- $ 1,306 Receivables..................................... 45,151 66,794 474 -- 112,419 Other current assets............................ 2,393 4,607 223 -- 7,223 Property and equipment, net..................... 3,205 15,843 57 19,105 Due from parent................................. 7,323 -- -- -- 7,323 Investment in and advances to subsidiaries...... 53,658 225 (225) (53,658) -- Goodwill, net................................... 132,837 -- -- -- 132,837 Investments..................................... 909 -- -- -- 909 Other long-term assets.......................... 7,908 4,151 23 12,082 --------- --------- --------- --------- --------- Total assets.................................... $ 253,949 $ 91,975 $ 938 $ (53,658) $ 293,204 ========= ========= ========= ========= ========= Indebtedness.................................... 174,046 1,993 -- -- 176,039 Accounts payable................................ 10,627 4,814 310 -- 15,751 Accrued expenses................................ 29,642 20,468 386 -- 50,496 Other current liabilities....................... (245) 3,469 4 -- 3,228 Other long-term liabilities..................... -- 197 58 -- 254 --------- --------- --------- --------- --------- Total liabilities............................... 214,070 30,941 758 -- 245,768 Minority interest in subsidiary................. -- -- 59 -- 59 Total stockholders' equity...................... 39,879 61,035 121 (53,658) 47,377 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity...... $ 253,949 $ 91,975 $ 938 $ (53,658) $ 293,204 ========= ========= ========= ========= =========
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CONSOLIDATED OPERATIONS ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON 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............................ -- -- 23 -- 23 --------- --------- --------- --------- --------- Income (loss) before provision for income taxes and extraordinary item............... (4,332) 8,230 126 -- 4,024 Provision (benefit) for income taxes......... (1,196) 3,281 43 -- 2,128 --------- --------- --------- --------- --------- Net income 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 -------------------------------------------------------------- CONSOLIDATED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ANTEON GUARANTOR NON-GUARANTOR ANTEON CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ------------ ------------- ------------ (AMOUNTS IN THOUSANDS) Net income (loss)............................................ $ (3,559) $ 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 sales of long-term investments..................... (2,721) -- -- (2,721) Depreciation and amortization.............................. 585 1,454 23 2,062 Amortization of goodwill................................... 2,233 -- -- 2,233 Amortization of noncompetes................................ 681 -- -- 681 Amortization of deferred financing......................... 388 -- -- 388 Deferred income taxes...................................... 218 1,158 7 1,383 Minority interest in earnings of subsidiary................ -- 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) Acquisitions, net of cash acquired......................... (115,203) -- -- (115,203) Proceeds from sale of long-term securities................. 10,582 1 (2) 10,580 Purchases of long-term investments......................... (3,040) -- -- (3,040) Other, net................................................. (30) -- -- (30) --------- --------- --------- --------- Net cash used by 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 Techmatics subnote paybale........... (4,925) -- -- (4,925) Proceeds from issuance of common stock..................... 22,544 -- -- 22,544 Deferred financing costs................................... (8,775) -- (8,775) --------- --------- --------- --------- Net cash provided by financing activities.................. $ 103,745 $ (83) $ -- $ 103,662 --------- --------- --------- --------- Net increase (decrease) 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 ========= ========= ========= =========
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (AMOUNTS IN THOUSANDS) ---------------------------------------------------------- CONSOLIDATED ANTEON GUARANTOR NON-GUARNATOR ANTEON CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ------------ ------------- ------------ Revenues...................................... $140,985 $ 37,857 $ 1,703 $180,545 Cost of revenues.............................. 126,968 32,061 1,597 160,626 -------- -------- -------- -------- Gross profit.................................. $ 14,017 $ 5,796 $ 106 $ 19,919 Total operating expenses...................... 8,041 3,708 28 11,777 -------- -------- -------- -------- Operating income (loss)....................... $ 5,976 $ 2,088 $ 78 $ 8,142 Interest expense (income) net................. 3,559 (37) (14) 3,508 Minority interest............................. -- -- 19 19 -------- -------- -------- -------- Income before provision for income taxes...... $ 2,417 $ 2,125 $ 73 $ 4,615 Provision for income taxes.................... 958 848 28 1,834 -------- -------- -------- -------- Net income.................................... $ 1,459 $ 1,277 $ 45 $ 2,781 ======== ======== ======== ========
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 -------------------------------------------------------------- CONSOLIDATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ANTEON GUARANTOR NON-GUARANTOR ANTEON CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ------------ ------------- ------------ (AMOUNTS IN THOUSANDS) Net income................................................... $ 1,459 $ 1,277 $ 45 $ 2,781 Adjustments to reconcile change in net income to net cash provided by (used in) operations: Depreciation and amortization.............................. 575 372 52 999 Goodwill amortization...................................... 1,301 -- -- 1,301 Amortization of noncompete agreements...................... 303 -- -- 303 Amortization of deferred financing and contract costs...... 494 -- -- 494 Deferred income taxes...................................... -- 71 21 92 Changes in assets and liabilities, net of acquired assets and liabilities..................................... (11,668) (1,449) 347 (12,770) --------- --------- --------- --------- Net cash provided by (used in) operating activities.......... $ (7,536) $ 271 $ 465 $ (6,800) --------- --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment........................ (1,311) (229) (91) (1,631) Acquisition of Techmatics, net of cash..................... (28,490) -- -- (28,490) Other...................................................... 114 -- 8 122 --------- --------- --------- --------- Net cash used in investing activities........................ $ (29,687) $ ( 229) $ (83) $ (29,999) --------- --------- --------- --------- Cash flow from financing activities: Proceeds from bank notes payable........................... $ 215,904 $ -- $ -- $ 215,904 Principal payments on bank notes payable................... (172,099) -- -- (172,099) Proceeds from issuance of common stock..................... 19 -- -- 19 Deferred financing fees.................................... (963) -- -- (963) --------- --------- --------- --------- Net cash provided by financing activities.................... $ 42,861 $ -- $ -- $ 42,861 --------- --------- --------- --------- Net increase in cash and cash equivalents.................... 5,638 42 382 6,062 Cash and cash equivalents beginning of year.................. 830 (195) 17 652 --------- --------- --------- --------- Cash and cash equivalents end of year........................ $ 6,468 $ (153) $ 399 $ 6,714 ========= ========= ========= =========
10 (7) DEFERRED COMPENSATION In connection with the acquisition of A&T, the Company entered into employment agreements with certain officers of Interactive Media Corporation ("IMC"), a subsidiary of A&T. The agreements require the Company to pay the officers $800,000 of aggregate compensation in the event they continue their employment with IMC for at least eighteen months. Compensation expense is being accrued over the eighteen month employment period. (8) BUSINESS PURCHASE CONSIDERATION PAYABLE As part of the agreement for the Techmatics acquisition, the Company is required to pay an earnout to the former shareholders of Techmatics based on the attainment by Techmatics of certain financial performance measures from date of the acquisition (May 29, 1998) through June 30, 1999. As a result of the earnout provisions, the amount earned by Techmatics was $5,500,000 and is payable in April 2000. The earnout was recognized as additional purchase consideration for the Techmatics acquisition, and accordingly, increased goodwill from the combination. (9) SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION as of June 30, 1999. SFAS No. 131 establishes annual and interim reporting standards for an enterprise's operating segments. Based on its organization, the Company operates in two business segments: the company's government contracting business and IMC's commercial custom training and performance solutions group. The Company's chief operating decision maker utilizes both revenue and earnings before interest and taxes in assessing performance and making overall operating decisions and resource allocations. Certain indirect costs such as corporate overhead and general and administrative expenses are allocated to the segments. Allocation of overhead costs to segments are based on measures such as revenue and 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.
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 (AMOUNTS IN THOUSANDS) ------------------------------------------------------------------------------------ ANTEON INTERACTIVE MEDIA ELIMINATIONS CONSOLIDATED ---------- ----------------- ------------ ------------ 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 (5,084) (35) - (5,119) Other income, net 2,457 - - 2,457 -------------------- ---------------------- ------------------ -------------------- Income before provision for income taxes $ 2,339 $ 554 $ - $ 2,893 ==================== ====================== =================== ====================
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NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 (AMOUNTS IN THOUSANDS) ------------------------------------------------------------------------------------ ANTEON INTERACTIVE MEDIA ELIMINATIONS CONSOLIDATED ---------- ----------------- ------------ ------------ 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 Interest expense, net (10,582) (37) - (10,619) Other income, net 2,440 - - 2,440 -------------------- ---------------------- ------------------- -------------------- Income before provision for income taxes $ 2,413 $ 1,611 - $ 4,024 ==================== ====================== =================== ====================
12 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 are set forth in the paragraphs above that discuss the Company's backlog, liquidity, capital resources, and "Year 2000" conversion. The Company cautions readers that actual results could differ materially from those in the forward-looking statements. The factors that could cause actual results to differ materially include the following: the integration of A&T into our business, general economic and business conditions, program funding priorities, changes in Federal government procurement laws, regulations and policies, budget reductions in defense programs, technological changes, delays in the development and acceptance of new commercial products, pricing pressures from competitors and/or customers, our ability to attract and retain qualified personnel, and third party failures to complete the "Year 2000" conversions in a timely manner. GENERAL Anteon is a leading provider of advanced information technology and engineering services principally to a wide range of customers within the U.S. Federal government. The Company serves hundreds of governmental clients through over 40 offices worldwide. The Company has performed work for all 14 Cabinet-level agencies, designing, maintaining and upgrading critical elements of the government's information technology infrastructure, such as emergency response, defense, intelligence, logistics and financial management systems. The Federal government is among the world's largest purchasers of information technology with expected total expenditures in fiscal 1999 in excess of $30 billion. In April 1996 an investor group led by affiliates of Caxton-Iseman Capital, Inc. acquired Ogden Professional Services Corporation (the Predecessor Company), which was renamed Anteon Corporation. Since that acquisition, the Company has implemented a strategy designed to increase revenues through internal growth and acquisitions, improve earnings before interest, taxes, depreciation and amortization, profit margins and improve asset turnover. Substantially all of the Company's services and products are provided under long-term government contracts. Anteon's contract base is well diversified and in 1998, the Company performed work on approximately 3,000 task orders under more than 500 contracts for approximately 400 customers. Management estimates that no task order accounted for more than 5% of 1998 revenues. The contracts the Company perform under can 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"). Time and materials contracts represented approximately 47% of 1998 revenues. 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. Cost-plus contracts represented approximately 34% of 1998 revenues. 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. From 1995 - 1998 fixed price contracts have represented only 15% to 20% of revenues, including 19% of 1998 revenues. 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 13 finance and administrative support areas. As a result of these efforts, the Company's indirect costs have grown at rates much lower than overall revenues. In each year a significant portion of the Company's revenues is derived from contract backlog and a significant portion of that backlog represents work related to maintenance, upgrade or replacement of systems under contracts or projects for which the Company is the incumbent provider. Proper management of contracts is critical to the overall financial success of Anteon and the Company believes that it manages costs effectively. This allows the Company to be highly competitive on price. The demonstrated performance record and service excellence have enabled the Company to maintain its position as an incumbent service provider on all major contracts that have been recompeted over the past three years, while increasing backlog from $428 million in 1996 to $2.3 billion at September 30, 1999. These backlog amounts consist of "funded" backlog, which is based upon amounts actually appropriated by a customer for payment of goods and services and "unfunded" backlog which is based upon management's estimates of the future potential of our existing contracts to generate revenues for us. RESULTS OF OPERATIONS A summary of comparative results for the nine months ended and the quarters ended September 30, 1999 and September 30, 1998 is as follows:
QUARTER ENDED SEPTEMBER 30 (amounts in thousands) - ------------------------------------------------------------------------------- PERCENTAGE 1999 1998 CHANGE ---- ---- ------ Revenue $ 125,708 $ 72,349 73.8% Operating income $ 5,555 $ 3,133 77.3% Income before provision for income taxes $ 2,893 $ 1,356 113.3% Net income $ 1,362 $ 832 63.7% NINE MONTHS ENDED SEPTEMBER 30 (amounts in thousands) - ------------------------------------------------------------------------------- PERCENTAGE 1999 1998 CHANGE ---- ---- ------ Revenue $ 271,317 $ 180,545 50.3% Operating income $ 12,203 $ 8,142 49.8% Income before provision for income taxes and extraordinary item $ 4,024 $ 4,615 (12.8%) Net income $ 1,433 $ 2,781 (48.5%)
Revenue increased 73.8% to $125.8 million for the quarter ended September 30, 1999 from $72.3 million for the quarter ended September 30, 1998. For the nine month period ended September 30, 1999, revenue increased 50.3% to $271.3 million from $180.5 million for the nine month period ended September 30, 1998. The increases in revenue were attributable to internal growth in several business units as well as the addition from June 23, 1999 of results of the Company's latest acquisition, A&T. For the quarter ending September 30, 1999, internal growth was 10%. It was driven by increases in both the Company's information technology and 14 engineering services businesses. In addition, A&T provided $46.5 million in revenue during the third quarter of 1999 which was a 13% increase from its third quarter revenues in 1998. July 1999 was the first month in which Anteon included A&T's results. Revenue growth for the nine months ended September 30, 1999 was primarily attributable to nine months of Techmatics revenue versus only four months in 1998 and growth in our engineering services and software products sales. These gains offset a slight decline in our West Coast business resulting from a transition of tasks on our sole source PacZone contracts to the Answer contract which was awarded in December 1998. Operating earnings increased 77.3% for the three months ended September 30, 1999 to $5.6 million from $3.1 million for the quarter ended September 30, 1998. Operating earnings as a percentage of revenue (operating margin) increased to 4.4% compared with 4.3% in the prior year comparable quarter. For the nine months ended September 30, 1999, operating earnings increased 49.8% to $12.2 million from $8.1 million the first nine months of 1998. The increased operating earnings for the quarter resulted from growth in the Company's information technology, engineering services and software products sales businesses. In particular, the Company successfully completed a large sale to a government agency during the period. In addition, A&T contributed $2.9 million to earnings with an above average margin during the third quarter. Operating earnings growth for the nine months ended September 30, 1999 versus September 30, 1998 was also attributable to increases in earnings of the engineering services and PAS businesses and the inclusion of Techmatics for a full nine months. In addition, A&T is included from July 1, 1999. Interest expense increased for both the nine month and three month periods in 1999 from the comparable periods of 1998 due primarily to the $100 million in 12% senior subordinated notes which we issued in May 1999. In addition, interest expense was amortized for deferred loan and financing fees. Other expense net increased in the third quarter of fiscal 1999 primarily due to an increase in amortization of goodwill associated with the acquisition of A&T in June 1999. Earnings before income taxes increased 113.3% to $2.9 million in the third quarter of fiscal 1999 from $1.4 million in the third quarter of 1998. In addition to the ongoing operating earnings during the period, the Company also realized a gain on the sale of long term investments. The Company's effective tax rate was 52.9% for the three-month period ended September 30, 1999 compared with 38.6% for the three-month period ended September 30, 1998. 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. Earnings before income taxes for the nine months ended September 30, 1999 decreased 12.8% to $4.0 million from $4.6 million for the nine months ended September 30, 1998. This was due primarily to the increased interest expense for the new senior subordinated notes. Anteon's effective tax rate for the nine months ended September 30, 1999 increased to 52.9% from 38.6% for the first three quarters of 1998. Net earnings for the third quarter of 1999 increased 63.7% to $1.4 million from $832,000 in the third quarter of fiscal 1998. The revenue increase, operating margin increase and gains from the sale of long term investments all contributed to the net earnings increase for the third quarter of 1999. For the nine months ended September 30, 1999 net earnings fell 48.5% to $1.4 million from $2.8 million during the nine months ended September 30, 1998. This was primarily attributable to a $7.1 million increase in interest expense for the senior subordinated notes during the second and third quarters of 1999. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 1999, net cash provided by operating activities was $8.1 million. Contract receivables totaled $112.4 million at September 30, 1999, $68.1 million at September 30, 1998, and represented 38% and 48%, respectively, of total assets at each of those dates. For the first three quarters of 1999 net cash used by investing activities was $112.4 million. The primary use of cash during the nine months was for the purchase of A&T in June. For the first nine months of 1999 the net cash provided by financing activities was $103.7 million. The primary source of cash from financing activities for the nine months ending September 30, 1999 was approximately $65.3 million from the new bank line credit facility and $100 million in senior subordinated notes. The primary use of cash in the third quarter was for pay down on the company's line of credit. 15 The total funds available to the Company under its New Credit Facility as of September 30, 1999 were $63.2 million and are sufficient to meet ongoing working capital requirements for the foreseeable future. Borrowings under the Revolving Credit Facility were $5.3 million as of September 30, 1999. As of September 30, 1999 the Company does not have any major capital commitments. The Company believes that inflation has not had a material effect on its business. RECENT ACCOUNTING PRONOUNCEMENTS In 1998, the Financial Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"). SFAS No. 133 becomes effective June 15, 2000 and will require the Company to disclose additional information on any hedging activities. The Company is reviewing this standard; however, it is not expected that implementing this Standard will significantly impact the Company. YEAR 2000 The Company has completed an assessment of its computer systems and has identified the systems that will be affected by the "Year 2000" issue. The Company has substantially completed a plan for corrective action, including modification or replacement of certain systems such as security and telephones. This includes the Company's personal computers, servers, security systems and facilities. The Company presently believes that, with modifications to existing software and conversions to new software, the "Year 2000" issue will not pose significant operational problems for the Company's computer systems or operations. The total cost of modification and replacement of affected systems has not had a material effect on the Company's financial position or results of operations. Not withstanding the foregoing, there is a risk that the "Year 2000" issue could adversely affect the Company. The "Year 2000" issue also creates risk for the Company from unforeseen problems from third parties with whom the Company deals. The Company is in the process of contacting its key suppliers, customers, and other third parties to determine the possible impact on its business. There can be no assurance that their "Year 2000" solutions will be successful. If third parties do not convert their systems in a timely manner, or if other unforeseen problems arise relative to the "Year 2000" issue, there is a risk that this could have a material adverse impact on the Company's ability to conduct 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: November 12, 1999 /s/Joseph Kampf --------------------------- Joseph Kampf - President and Chief Executive Officer Date: November 12, 1999 /s/Carlton B. Crenshaw --------------------------- 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 NONE. ITEM 2. CHANGES IN SECURITIES NONE. ITEM 3. DEFAULTS UPON SENIOR SUBORDINATED SECURITIES NONE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE. ITEM 5. OTHER INFORMATION NONE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS 27.1 FINANCIAL DATA SCHEDULE B. REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended September 30, 1999. 18 EXHIBIT INDEX Exhibit Number Description of Documents 27 Financial Data Schedules - For quarter ended September 30, 1999 19 EX-27 2 EXHIBIT 27
5 0001090709 ANTEON CORPORATION 1,000 3-MOS DEC-31-1999 JUL-01-1999 SEP-30-1999 1,306 0 112,419 0 0 120,948 25,741 6,636 293,204 78,574 166,940 0 0 178 47,199 293,204 271,317 271,317 238,717 238,717 20,397 0 10,619 4,024 2,128 1,896 0 463 0 1,433 0 0
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