-----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, B84xfsRrvbN1OfXxb7TxiZqHgEgtw+6MkhLytQFjx+oYASJH/28xcA/5bQM1i8GA Fz7HgdQkd9vvvL35QWCn8w== 0001163842-03-000139.txt : 20031031 0001163842-03-000139.hdr.sgml : 20031031 20031031121826 ACCESSION NUMBER: 0001163842-03-000139 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031031 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEON INTERNATIONAL CORP CENTRAL INDEX KEY: 0001163842 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 133880755 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31258 FILM NUMBER: 03968894 BUSINESS ADDRESS: STREET 1: 3211 JERMANTOWNE ROAD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030-2801 BUSINESS PHONE: (703) 246-0200 MAIL ADDRESS: STREET 1: 3211 JERMANTOWN ROAD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030-2801 FORMER COMPANY: FORMER CONFORMED NAME: AZIMUTH TECHNOLOGIES INC DATE OF NAME CHANGE: 20011219 10-Q 1 anteonq3.txt ANTEON Q3 Form 10-Q for ANTEON INTERNATIONAL CORPORATION filed on October 31, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (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, 2003 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 001-31258 ANTEON INTERNATIONAL CORPORATION --------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3880755 ----------------------------- ----------------- (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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes [ ] No[ X ] As of the close of business on October 28, 2003, there were 35,243,575 outstanding shares of the registrant's common stock, par value $0.01 per share.
CONTENTS PAGE PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 1 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 2 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 3 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 26 ITEM 4 CONTROLS AND PROCEDURES 26 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS 27 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 27 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27 ITEM 5. OTHER INFORMATION 27 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27
PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A Delaware Corporation) CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) September 30, 2003 December 31, (Unaudited) 2002 ------------------ ---------------- ASSETS Current assets: Cash and cash equivalents $ 2,724 $ 4,266 Accounts receivable, net 207,228 189,059 Deferred tax asset 1,415 -- Prepaid expenses and other current assets 15,248 15,071 ------------------ ----------------- Total current assets 226,615 208,396 Property and equipment, net 12,424 9,992 Goodwill, net 212,693 138,619 Intangible and other assets, net 10,027 7,685 ------------------ ----------------- Total assets $ 461,759 $ 364,692 ================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Term loan, current portion $ 3,798 $ 3,798 Subordinated notes payable 2,500 2,500 Accounts payable 36,697 47,630 Due to related parties 102 -- Deferred tax liability -- 2,230 Accrued expenses 85,668 57,603 Income tax payable 3,797 7,738 Other current liabilities 355 806 Deferred revenue 5,160 5,701 ------------------ ----------------- Total current liabilities 138,077 128,006 Term loan, less current portion 14,554 17,403 Revolving facility 57,400 7,000 Senior subordinated notes payable 75,000 75,000 Noncurrent deferred tax liabilities, net 9,107 7,808 Other long term liabilities 16 490 ------------------ ----------------- Total liabilities 294,154 235,707 Minority interest in subsidiaries 206 156 Stockholders' equity : Preferred stock, $.01 par value 15,000,000 shares authorized, none issued and outstanding as of September 30, 2003 -- -- Common stock, $.01 par value 175,000,000 shares authorized, 35,152,087 shares issued and outstanding as of September 30, 2003 352 344 Stock subscription receivable (12) (12) Additional paid-in capital 114,781 106,849 Accumulated other comprehensive loss (206) (509) Retained earnings 52,484 22,157 ------------------ ----------------- Total stockholders' equity 167,399 128,829 ------------------ ----------------- Total liabilities and stockholders' equity $ 461,759 $ 364,692 ================== ================= See accompanying notes to unaudited condensed consolidated financial statements.
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ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A Delaware Corporation) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) For the three months ended For the nine months ended September 30, September 30, 2003 2002 2003 2002 ------------ ------------ ----------- ------------ Revenues $ 279,080 $ 214,314 $ 761,764 $ 608,880 Costs of revenues 240,689 184,585 656,695 526,278 ----------- ----------- ------------ ---------- Gross profit 38,391 29,729 105,069 82,602 ----------- ----------- ------------ ---------- Operating expenses: General and administrative expenses 14,969 12,704 42,388 34,085 Other intangibles amortization 723 476 1,763 1,430 ----------- ----------- ------------ ---------- Total operating expenses 15,692 13,180 44,151 35,515 ----------- ----------- ------------ ---------- Operating income 22,699 16,549 60,918 47,087 Other income -- 57 -- 417 Secondary offering expenses 798 -- 798 -- Interest expense, net of interest income of $45, $147, $187 and $240, respectively 3,831 3,223 10,384 18,306 Minority interest in (earnings) losses of subsidiaries (18) 5 (50) (3) ----------- ----------- ------------ ---------- Income before provision for income taxes 18,052 13,388 49,686 29,195 Provision for income taxes 7,109 5,222 19,359 11,386 ----------- ----------- ------------ ---------- Net income $ 10,943 $ 8,166 $ 30,327 $ 17,809 =========== =========== ============ ========== Basic earnings per common share: $ 0.31 $ 0.24 $ 0.87 $ 0.57 =========== =========== ============ ========== Basic weighted average shares outstanding 34,970,108 34,184,263 34,709,666 31,430,331 Diluted earnings per common share: $ 0.30 $ 0.22 $ 0.82 $ 0.53 =========== =========== ============ ========== Diluted weighted average shares outstanding 37,084,351 36,554,674 36,816,366 33,915,068 See accompanying notes to unaudited condensed consolidated financial statements.
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ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A Delaware Corporation) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the nine months ended September 30, ------------------------------------------------- 2003 2002 ---------------------- ----------------------- OPERATING ACTIVITIES: Net income $ 30,327 $ 17,809 Adjustments to reconcile net income to net cash (used for) provided by operating activities Interest rate swap termination -- (1,903) Depreciation and amortization of property and equipment 2,986 3,382 Other intangibles amortization 1,763 1,430 Amortization of deferred financing fees 1,078 2,124 Loss on disposals of property and equipment 135 79 Deferred income taxes (3,307) 3,638 Minority interest in earnings of subsidiaries 50 3 Changes in assets and liabilities 7,794 (41,663) ---------------- ---------------- NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES 40,826 (15,101) ---------------- ---------------- INVESTING ACTIVITIES: Purchases of property, equipment and other assets (2,241) (2,476) Proceeds from the sale of building -- 1,802 Acquisitions, net of cash acquired (92,369) -- ---------------- ---------------- NET CASH USED FOR INVESTING ACTIVITIES (94,610) (674) ---------------- ---------------- FINANCING ACTIVITIES: Principal payments on notes payable (38) (34) Payment of credit facility amendment fee (249) (604) Principal payments on term loan (2,849) (24,903) Proceeds from revolving facility 737,100 642,400 Principal payments on revolving facility (686,700) (641,100) Redemption of senior subordinated notes payable -- (25,000) Proceeds from issuance of common stock, net of expenses 4,078 80,983 Principal payments on subordinated notes payable to stockholders -- (7,499) Proceeds from certain stockholders related to secondary offering 900 -- Payment of subordinated notes payable-related party -- (4,369) ---------------- ---------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 52,242 19,874 ---------------- ---------------- CASH AND CASH EQUIVALENTS: Net increase (decrease) in cash and cash equivalents (1,542) 4,099 Cash and cash equivalents, beginning of period 4,266 1,930 ---------------- ---------------- Cash and cash equivalents, end of period $ 2,724 $ 6,029 ================ ================ Supplemental disclosure of cash flow information (in thousands): Interest paid $ 8,325 $ 14,200 ================ ================= Income taxes paid, net $ 22,715 $ 1,244 ================ ================= See accompanying notes to unaudited condensed consolidated financial statements.
3 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A Delaware Corporation) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Supplemental disclosure of non-cash investing and financing activities: In March 2002, in connection with the Company's initial public offering ("IPO") of shares of its common stock, a $22.5 million principal amount subordinated convertible promissory note of the Company held by Azimuth Tech. II LLC, now one of the Company's principal stockholders, was converted pursuant to its terms into 4,629,232 shares of the Company's common stock at a conversion price of $4.86 per share. In March 2002, the Company exchanged approximately 90,060 shares held by minority interest holders in Anteon International Corporation, a Virginia corporation, at December 31, 2001 into 180,120 shares of the Company's common stock. 4 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A Delaware Corporation) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003 AND 2002 (1) Basis of Presentation The information furnished in the accompanying Unaudited Condensed Consolidated Balance Sheets, Unaudited Condensed Consolidated Statements of Operations and Unaudited Condensed Consolidated Statements of Cash Flows has 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 and nine months ended September 30, 2003 may not be indicative of the results of operations for the year ending December 31, 2003, or any future period. This financial information should be read in conjunction with the Company's December 31, 2002 audited consolidated financial statements and footnotes thereto, included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2003 (Commission File No. 001-31258). (2) Organization and Business Anteon International Corporation, a Delaware Corporation, "Anteon" or the "Company," and its subsidiaries provide professional information technology solutions and advanced systems engineering services to government clients. The Company designs, integrates, maintains and upgrades information systems for national defense, intelligence, emergency response and other government missions. The Company also provides many of its clients with the systems analysis, integration and program management skills necessary to manage their mission systems development and operations. The Company is subject to all of the risks associated with conducting business with the U.S. federal government, including the risk of contract termination for the convenience of the government. In addition, government funding continues to be dependent on congressional approval of program level funding and on contracting agency approval for the Company's work. The extent to which the Company's existing contracts will be funded in the future cannot be determined. (3) Reclassification Pursuant to SFAS 145 In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment to FASB Statement 13, and Technical Corrections. SFAS No. 145 addresses the reporting of gains and losses from extinguishment of debt and rescinds FASB Statements 4 and 64. Under the new standard, only gains and losses from extinguishments meeting the criteria of Accounting Principles Board Opinion No. 30 would be classified as extraordinary items. Thus, gains or losses arising from extinguishments of debt that are part of the Company's recurring operations can no longer be reported as extraordinary items. Upon adoption, previously reported extraordinary gains or losses not meeting the requirements for classification as such in accordance with Accounting Principles Board Opinion No. 30 are required to be reclassified for all periods presented. The Company adopted SFAS No. 145 as of January 1, 2003, and as a result, the Company reclassified approximately $4.2 million ($2.6 million net of tax) of losses previously recorded as an extraordinary item for the nine months ended September 30, 2002 to interest expense. (4) Acquisition of Information Spectrum, Inc. On May 23, 2003, the Company purchased all of the outstanding stock of Information Spectrum, Inc. ("ISI"), a provider of credential card technologies, military logistics and training systems, based in Annandale, Virginia, for a total purchase price of approximately $91.6 million, excluding transactions costs of approximately $724,000. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations, 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 made by management. The identifiable intangible assets consisted of $4.8 million of contracts and related customer relationships and $500,000 for the value of a non-compete agreement. The preliminary value of the contracts and related customer relationships is based, in part, on an independent appraisal and other studies that are being performed by the Company. The contracts and related customer relationships have an expected useful life of approximately 5.3 years. The non-compete agreement value was based on the consideration paid for the agreement and is being amortized straight-line over the three year term of the agreement. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill arising from the transaction is not being amortized. 5 The total purchase price paid, including transaction costs and other deal related costs, of $92.4 million was preliminarily allocated to the assets acquired and liabilities assumed as follows (in thousands): Accounts receivable $ 21,400 Prepaid and other current assets 2,156 Property and equipment 3,312 Other assets 120 Current income tax receivable 818 Accounts payable and accrued expenses (11,187) Deferred income tax, net (797) Deferred revenue (2,777) Contracts and customer relationships 4,751 Goodwill 74,073 Non-compete agreement 500 ------------- Total consideration $ 92,369 ============= (5) Accounting for Stock-Based Compensation The Company accounts for employee stock-based compensation plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, or "APB No. 25," Accounting for Stock Issued to Employees. The Company has an employee stock option plan. Compensation expense for stock options granted to employees is recognized based on the difference, if any, between the fair value of the Company's common stock and the exercise price of the option at the date of grant. The Company discloses the pro forma effect on net income (loss) as if the fair value based method of accounting as defined in SFAS No. 123, Accounting for Stock-based Compensation, had been applied. The Company accounts for stock options granted to non-employees using the fair value method of accounting as prescribed by SFAS No. 123. Stock options and related compensation expense on stock options granted to non-employees are not significant. 6 The following table illustrates the effect on net income and earnings per share for the three and nine months ended September 30, 2003 and 2002 as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:
Three Months Ended Three Months September 30, 2003 Ended September 30, 2002 -------------------- ------------------ (in thousands, except per share data) Net income, as reported $ 10,943 $ 8,166 Add: stock-based compensation recorded -- -- Deduct: total stock-based compensation expense determined under the fair value method, net of tax 715 580 -------------------- ------------------ Pro forma net income $ 10,228 $ 7,586 Earnings Per Share: Basic-as reported $ 0.31 $ 0.24 ==================== ================== Basic-Pro forma $ 0.29 $ 0.22 ==================== ================== Diluted-as reported $ 0.30 $ 0.22 ==================== ================== Diluted-Pro forma $ 0.28 $ 0.21 ==================== ==================
Nine Months Ended Nine Months September 30, 2003 Ended September 30, 2002 -------------------- ------------------ (in thousands, except per share data) Net income, as reported $ 30,327 $ 17,809 Add: stock-based compensation recorded -- -- Deduct: total stock-based compensation expense determined under the fair value method, net of tax 1,940 1,457 -------------------- ------------------ Pro forma net income $ 28,387 $ 16,352 Earnings Per Share: Basic-as reported $ 0.87 $ 0.57 ==================== ================== Basic-Pro forma $ 0.82 $ 0.52 ==================== ================== Diluted-as reported $ 0.82 $ 0.53 ==================== ================== Diluted-Pro forma $ 0.77 $ 0.48 ==================== ==================
(6) Comprehensive Income (Loss) Comprehensive income (loss) for the three months ended September 30, 2003 and 2002 was approximately $11.0 million and $8.1 million, respectively. Comprehensive income (loss) for the nine months ended September 30, 2003 and 2002 was approximately $30.6 million and $19.0 million, respectively. Other comprehensive income (loss) for the three months ended September 30, 2003 and 2002 includes foreign currency translation gains (losses) of approximately $17,000 and $17,000, respectively, and increases (decreases) in the fair value of interest rate swaps of approximately $104,000 and $(101,000), respectively, net of tax. Comprehensive income (loss) for the nine months ended September 30, 2003 and 2002, includes foreign currency translation gains of approximately $52,000 and $11,000, respectively, and increases (decreases) in the fair value of interest rate swaps of approximately $251,000 and $1.2 million, respectively, net of tax. For the nine months ended September 30, 2002, the Company exercised its cancellation rights under certain interest rate swap agreements and cancelled $30.0 million of such agreements. These interest rate swap agreements related primarily to term loan obligations that have been permanently reduced. Interest expense for the nine months ended September 30, 2002 included losses of $1.9 million associated with these cancellations. Prior to cancellation, losses associated with these interest rate swap agreements were recorded as a component of accumulated other comprehensive loss. 7
(7) Computation of Earnings Per Share For the three months ended September 30, 2003 Weighted average Income shares Per Share (Numerator) (Denominator) Amount ------------ -------------- ----------- (in thousands, except share and per share data) Basic earnings per share: Net income $ 10,943 34,970,108 $ 0.31 ================= =============== Stock options -- 2,114,243 -- Diluted earnings per share: Net income $ 10,943 37,084,351 $ 0.30 ================= ===============
For the three months ended September 30, 2002 Weighted average Income shares Per Share (Numerator) (Denominator) Amount -------------- ------------------ -------------- (in thousands, except share and per share data) Basic earnings per share: Net income $ 8,166 34,184,263 $ 0.24 ================= =============== Stock options -- 2,370,411 -- Diluted earnings per share: Net income $ 8,166 36,554,674 $ 0.22 ================= ===============
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For the nine months ended September 30, 2003 Weighted average Income shares Per Share (Numerator) (Denominator) Amount (in thousands, except share and per share data) Basic earnings per share: Net income $ 30,327 34,709,666 $ 0.87 ================= =============== Stock options -- 2,106,700 -- Diluted earnings per share: Net income $ 30,327 36,816,366 $ 0.82 ================= ===============
For the nine months ended September 30, 2002 Weighted average Income shares Per Share (Numerator) (Denominator) Amount ---------------- -------------------- ---------------- (in thousands, except share and per share data) Basic earnings per share: Net income $ 17,809 31,430,331 $ 0.57 ================= =============== Stock options -- 2,484,737 -- Diluted earnings per share: Net income $ 17,809 33,915,068 $ 0.53 ================== ===============
(8) Domestic Subsidiaries Summarized Financial Information Under the terms of the Company's 12% senior subordinated notes due 2009, or "12% Notes," and the Company's Credit Facility, the Company's wholly owned domestic subsidiaries (the "Guarantor Subsidiaries") are guarantors of the 12% Notes and the Company's Credit Facility. Such guarantees are full, unconditional, joint and several. Separate unaudited condensed financial statements of the Guarantor Subsidiaries are not presented because the Company's management has determined that they would not be material to investors. Non-guarantor subsidiaries include the Company's foreign subsidiaries. The following supplemental financial information sets forth, on a combined basis, condensed balance sheets, statements of operations and statements of cash flows information for the Guarantor Subsidiaries, the Company's non-guarantor subsidiaries and for the Company. 9
As of September 30, 2003 --------------------------------------------------------------------------------- Consolidated Unaudited Condensed Consolidated Anteon Anteon Balance Sheets International Guarantor Non-Guarantor Elimination International Corporation Subsidiaries Subsidiaries Entries Corporation -------------- ------------- -------------- ------------ ------------- (in thousands) Cash and cash equivalents $ (2) $ 1,226 $ 1,500 $ -- $ 2,724 Accounts receivable, net -- 206,362 866 -- 207,228 Other current assets 1,166 15,181 316 -- 16,663 Property and equipment, net 2,214 10,091 119 -- 12,424 Due from parent (105,765) 105,994 (229) -- -- Investments in and advances to subsidiaries 30,780 (17,130) -- (13,650) -- Goodwill, net 169,021 43,672 -- -- 212,693 Intangible and other assets, net 76,087 1,940 -- (68,000) 10,027 ------------ ------------- ------------ ------------ ------------ Total assets $ 173,501 $ 367,336 $ 2,572 $ (81,650) $ 461,759 ============ ============= ============ ============ ============ Indebtedness $ 95,853 $ 125,399 $ -- $ (68,000) $ 153,252 Accounts payable 684 35,785 228 -- 36,697 Accrued expenses and other current liabilities 4,630 84,724 568 -- 89,922 Deferred revenue -- 4,394 766 -- 5,160 Other long-term liabilities -- 9,123 -- -- 9,123 ------------ ------------- ------------ ------------ ------------ Total liabilities 101,167 259,425 1,562 (68,000) 294,154 Minority interest in subsidiaries -- -- 206 -- 206 Total stockholders' equity (deficit) 72,334 107,911 804 (13,650) 167,399 ------------ ------------- ------------ ------------ ------------ Total liabilities and stockholders' equity (deficit) $ 173,501 $ 367,336 $ 2,572 $ (81,650) $ 461,759 ============ ============= ============ ============ ============
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For the nine months ended September 30, 2003 Consolidated Unaudited Condensed Consolidated Statements Anteon Anteon of Operations International Guarantor Non-Guarantor Elimination International Corporation Subsidiaries Subsidiaries Entries Corporation --------------- --------------- -------------- ------------ ------------ (in thousands) Revenues $ -- $ 753,527 $ 8,376 $ (139) $ 761,764 Costs of revenues -- 649,342 7,492 (139) 656,695 ------------ ------------- ------------ ------------ ------------ Gross profit -- 104,185 884 -- 105,069 Total operating expenses 2,379 64,055 535 (22,818) 44,151 ------------ ------------- ------------ --------------- ------------ Operating income (loss) (2,379) 40,130 349 22,818 60,918 Other income (loss) 7,229 15,589 -- (22,818) -- Secondary offering expenses 798 -- -- -- 798 Interest expense (income), net 3,646 6,749 (11) -- 10,384 Minority interest in earnings of subsidiaries -- -- (50) -- (50) ------------ ------------- ------------ ------------ ------------ Income before provision for income taxes 406 48,970 310 -- 49,686 Provision for income taxes 161 19,086 112 -- 19,359 ------------ ------------- ------------ ------------ ------------- Net income $ 245 $ 29,884 $ 198 $ -- $ 30,327 ============ ============= ============ ============ ============
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For the nine months ended September 30, 2003 ----------------------------------------------------------------------- Consolidated Unaudited Condensed Consolidated Statements of Cash Flows Anteon Anteon International Guarantor Non-Guarantor International Corporation Subsidiaries Subsidiaries Corporation --------------- -------------- ---------------- -------------- (in thousands) OPERATING ACTIVITIES: Net income $ 245 $ 29,884 $ 198 $ 30,327 Adjustments to reconcile net income to net cash (used for) provided by operating activities Depreciation and amortization of property and equipment 503 2,428 55 2,986 Other intangibles amortization 1,582 181 -- 1,763 Amortization of deferred financing fees 995 83 -- 1,078 Loss on disposals of property and equipment -- 135 -- 135 Deferred income taxes -- (3,307) -- (3,307) Minority interest in earnings of subsidiaries -- -- 50 50 Changes in assets and liabilities 87,063 (79,894) 625 7,794 --------------- ------------- ------------- -------------- NET CASH PROVIDED (USED FOR) BY OPERATING ACTIVITIES 90,388 (50,490) 928 40,826 --------------- ------------- ------------- -------------- INVESTING ACTIVITIES: Purchases of property equipment and other assets (352) (1,837) (52) (2,241) Acquisitions, net of cash acquired (92,150) (219) -- (92,369) --------------- ------------- ------------- -------------- NET CASH USED FOR INVESTING ACTIVITIES (92,502) (2,056) (52) (94,610) --------------- ------------- ------------- -------------- FINANCING ACTIVITIES: Principal payments on notes payable -- (38) -- (38) Payment of credit facility amendment fee -- (249) -- (249) Principal payments on term loan (2,849) -- -- (2,849) Proceeds from revolving facility -- 737,100 -- 737,100 Principal payments on revolving facility -- (686,700) -- (686,700) Proceeds from issuance of common stock, net of expenses 4,078 -- -- 104,078 Proceeds from certain stockholders related to secondary offering 900 -- -- 900 --------------- ------------- ------------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,129 50,113 -- 52,242 --------------- ------------- ------------- -------------- CASH AND CASH EQUIVALENTS Net increase (decrease) in cash and cash equivalents 15 (2,433) 876 (1,542) Cash and cash equivalents, beginning of period (17) 3,659 624 4,266 --------------- ------------- ------------- -------------- Cash and cash equivalents, end of period $ (2) $ 1,226 $ 1,500 $ 2,724 =============== ============= ============= ==============
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For the nine months ended September 30, 2002 ------------------------------------------------------------------------------------- Consolidated Unaudited Condensed Consolidated Anteon Anteon Statements of Operations International Guarantor Non-Guarantor Elimination International Corporation Subsidiaries Subsidiaries Entries Corporation --------------- -------------- ---------------- ------------- -------------- (in thousands) Revenues $ -- $ 610,905 $ 3,556 $ (5,581) $ 608,880 Costs of revenues 10 528,650 3,199 (5,581) 526,278 ------------- -------------- ------------- ------------ -------------- Gross profit (loss) (10) 82,255 357 -- 82,602 ------------- -------------- ------------- ------------ -------------- Total operating expenses 1,792 40,500 265 (7,042) 35,515 ------------- -------------- ------------- ------------ -------------- Operating income (loss) (1,802) 41,755 92 7,042 47,087 Other income (loss) 4,609 2,850 -- (7,042) 417 Interest expense (income), net 12,482 5,836 (12) -- 18,306 Minority interest in earnings of subsidiaries -- -- (3) -- (3) ------------- -------------- ------------- ------------ -------------- Income (loss) before provision for inco me taxes (9,675) 38,769 101 -- 29,195 Provision for (benefit from) income taxes (4,193) 15,491 88 -- 11,386 ------------- -------------- ------------- ------------ -------------- Net income (loss) $ (5,482) $ 23,278 $ 13 $ -- $ 17,809 ============= ============== ============= ============ ==============
13
For the nine months ended September 30, 2002 -------------------------------------------------------------------------- Unaudited Condensed Consolidated Statements of Cash Consolidated Flows Anteon Anteon International Guarantor Non-Guarantor International Corporation Subsidiaries Subsidiaries Corporation ---------------- ----------------- ------------------ ----------------- (in thousands) OPERATING ACTIVITIES: Net income (loss) $ (5,482) $ 23,278 $ 13 $ 17,809 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Interest rate swap termination (1,903) -- -- (1,903) Depreciation and amortization of property and equipment 502 2,832 48 3,382 Other intangibles amortization 1,266 164 -- 1,430 Amortization of deferred financing fees 2,124 -- -- 2,124 Loss on disposals of property and equipment -- 79 -- 79 Deferred income taxes 2,537 1,101 -- 3,638 Minority interest in earnings of subsidiaries -- -- 3 3 Changes in assets and liabilities (1,117) (41,129) 583 (41,663) --------- ---------- --------- ----------- NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (2,073) (13,675) 647 (15,101) --------- ---------- --------- ----------- INVESTING ACTIVITIES: Purchases of property, equipment and other assets (198) (2,234) (44) (2,476) Proceeds from the sale of building -- 1,802 -- 1,802 --------- ---------- --------- ------------ NET CASH USED FOR INVESTING ACTIVITIES (198) (432) (44) (674) --------- ---------- --------- ----------- FINANCING ACTIVITIES: Principal payments on notes payable -- (34) -- (34) Payment of credit facility amendment fee (604) -- -- (604) Principal payments on term loan (24,903) -- -- (24,903) Proceeds from revolving facility -- 642,400 -- 642,400 Principal payments on revolving facility (18,700) (622,400) -- (641,100) Redemption of senior subordinated notes payable (25,000) -- -- (25,000) Proceeds from issuance of common stock, net of expenses 80,983 -- -- 80,983 Principal payments on subordinated notes payable to stockholders (7,499) -- -- (7,499) Payment of subordinated notes payable-related party (4,369) -- -- (4,369) --------- ---------- --------- ----------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (92) 19,966 -- 19,874 --------- ---------- --------- ----------- CASH AND CASH EQUIVALENTS: Net increase (decrease) in cash and cash equivalents (2,363) 5,859 603 4,099 Cash and cash equivalents, beginning of period 3,347 (1,668) 251 1,930 --------- ---------- --------- ----------- Cash and cash equivalents, end of period $ 984 $ 4,191 $ 854 $ 6,029 ========= ========== ========= =========== (9)
14 Segment Information Although the Company is organized by strategic business units, the Company considers each of its government contracting business 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 of the Company's strategic business units. (10) Interest Rate Swap Agreements In the nine months ended September 30, 2002, the Company exercised its cancellation rights under certain interest rate swap agreements and cancelled $30.0 million of such agreements. These interest rate swap agreements related primarily to term loan obligations that have been permanently reduced. Interest expense for the nine months ended September 30, 2002 includes losses of $1.9 million associated with these cancellations. As of September 30, 2003, the fair value of the Company's interest rate swap agreements, with a notional value of $10.0 million, resulted in a net liability of approximately $350,000 and has been included in other current liabilities. Over the next twelve months, approximately $350,000 of losses related to the interest rate swaps are expected to be reclassified into remaining interest expense as a yield adjustment of the hedged debt obligation. (11) Legal Proceedings The Company is involved in various legal proceedings in the ordinary course of business. On December 18, 2002, an arbitrator issued a decision requiring the Company to continue to issue task orders to a subcontractor under a subcontract for so long as the Company's customer continues to issue task orders to the Company for these services. The arbitrator's decision also enjoined the Company from interviewing, offering employment to, hiring or otherwise soliciting employees of the subcontractor who work on this particular project. The arbitrator's decision also denied the subcontractor's claim for monetary damages and the Company's counter-demand. The Company subsequently filed an action to vacate or modify that portion of the arbitrator's decision enjoining it from hiring certain subcontractor employees under any circumstances, since the prohibition extends the scope of the parties' pre-existing contractual obligations. The court vacated the portion of the arbitrator's decision relating to the scope of the injunction and referred the issue back to the arbitrator for further consideration. The arbitrator issued a revised decision dated September 26, 2003 which eliminated the permanent injunction against the Company hiring certain subcontractor employees and reaffirmed the continued applicability of the subcontract provision addressing the parties' rights and obligations with respect to the solicitation for hire of employees of the other party. The Company cannot predict the ultimate outcome of these matters, but does not believe that they will have a material impact on its financial position or results of operations. (12) Secondary Offering Expenses On September 22, 2003, certain of the Company's stockholders sold 6,600,000 shares of the Company's common stock in an underwritten offering pursuant to a registration statement on Form S-3 filed with the SEC (Commission File Nos. 333-108147 and 333-108858). In connection with this offering, the Company incurred approximately $798,000 of expenses in the third quarter of 2003, which amounts were reimbursed by certain of the selling stockholders and recorded by the Company as a contribution to paid-in-capital. In the fourth quarter of 2003, the underwriters of this offering partially exercised their over-allotment option with respect to additional shares held by the selling stockholders. As a result, on October 16, 2003, certain of the selling stockholders sold an additional 297,229 shares of the Company's common stock in a second closing pursuant to the same underwritten offering. Expenses incurred by the Company in connection with the second closing will also be reimbursed by certain of the selling stockholders and recorded by the Company as a contribution to paid-in-capital in the fourth quarter of 2003. (13) New Accounting Pronouncements In December 2002, the Emerging Issue Task Force, or "EITF", issued a consensus on Issue 00-21, or "EITF 00-21," Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. It also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in an arrangement. EITF 00-21 does not apply to deliverables in arrangements to the extent the accounting for such deliverables is within the scope of other existing higher-level authoritative accounting literature. The effective date of EITF 00-21 for the Company is July 1, 2003. The adoption of EITF 00-21 did not have a significant impact on the Company's consolidated financial statements. 15 In January 2003, the FASB issued Interpretation No. 46, or "Interpretation No. 46," Consolidation of Variable Interest Entities. Interpretation No. 46 provides guidance for identifying a controlling interest in a Variable Interest Entity, or "VIE," established by means other than voting interests. Interpretation No. 46 also requires consolidation of a VIE by an enterprise that holds such a controlling interest. The effective date for interests qualifying as VIEs that were created after February 1, 2003 is July 1, 2003. For those interests created before February 1, 2003, the effective date is December 31, 2003. The Company does not have any interests qualifying as VIEs created after February 1, 2003, including residual value guarantees or fixed purchase options under leases as of September 30, 2003. As a result, Interpretation No. 46 will not have an impact on its consolidated financial statements. In April 2003, the FASB issued SFAS No. 149, Amendment to Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the financial condition or the operating results of the Company. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how certain free standing financial instruments with characteristics of both liabilities and equity are classified and measured. Financial instruments within the scope of SFAS No. 150 are required to be recorded as liabilities (or assets in certain circumstances) which may require reclassification of amounts previously reported in equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The cumulative effect of a change in accounting principle should be reported for financial instruments created before the issuance of this Statement and still existing at the beginning of the period of adoption. The adoption of SFAS No. 150 did not have an impact on the financial condition or the operating results of the Company. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We acquired Information Spectrum, Inc., or "ISI," on May 23, 2003. Unless otherwise indicated, financial statement information presented in this quarterly report includes the results of ISI from the date of acquisition; any other data and information excludes ISI. FORWARD LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events or our future performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our and our industry's actual results, levels of activity, performance or achievements to be materially different from any results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology like "may", "will", "should", "expects", "plans", "projects", anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. Such forward-looking statements include, but are not limited to: o estimated remaining contract value; o our expectations regarding the U.S. federal government's procurement budgets and reliance on outsourcing of services; and o our financial condition and liquidity, as well as future cash flows and earnings. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this quarterly report to conform these statements to actual results and do not intend to do so. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the following: o the integration of acquisitions, including ISI, without disruption to our other business activities; o changes in general economic and business conditions; o changes in federal government procurement laws, regulations, policies, and budgets; o the number and type of contracts and task orders awarded to us; o technological changes; o the ability to attract and retain qualified personnel; o competition; o and our ability to retain our contracts during any rebidding process. GENERAL We are a leading provider of information technology solutions and advanced systems engineering services to government clients as measured by revenue. We design, integrate, maintain and upgrade state-of-the-art information systems for national defense, intelligence, emergency response and other high priority government missions. We also provide many of our government clients with the systems analysis, integration and program management skills necessary to manage their mission systems development and operations. We have a broad client and contract base and a diverse contract mix. We currently serve over 1,000 U.S. federal government clients in more than 50 government agencies, as well as state and foreign governments. For the nine months ended September 30, 2003, approximately 81% of our revenues were derived from the Department of Defense, or "DOD," and DOD-related intelligence agencies, and approximately 17% from civilian agencies of the U.S. federal government. For the nine months ended September 30, 2003, we estimate that approximately 89% of our revenues were from contracts where we were the lead, or "prime," contractor. Our diverse contract base has approximately 470 active contracts, and more than 3,000 active task orders. For the three and nine months ended September 30, 2003, our largest contract or task order accounted for approximately 7% and 8% of our revenues, respectively. We also have a diverse mix of contract types, with approximately 39%, 32%, and 29% of our revenues for the nine months ended September 30, 2003 derived from time and materials, cost-plus, and fixed price contracts, respectively. In addition, we generally do not pursue fixed price software development contracts that may create financial risk. Additionally, we have contracts with an estimated remaining contract value of $5.4 billion as of September 30, 2003, of which $591.5 million is funded backlog. Our contracts have a weighted-average term of approximately eight years. 17 DESCRIPTION OF CRITICAL ACCOUNTING POLICIES Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates including those related to uncollected accounts receivable and other contingent liabilities, revenue recognition and goodwill and other intangible assets. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable at the time the estimates are made. Actual results may differ from these estimates under different assumptions or conditions. Management believes that our critical accounting policies which require more significant judgments and estimates in the preparation of our consolidated financial statements are revenue recognition, costs of revenues, goodwill impairment, long-lived assets and identifiable intangible asset impairment and business combinations. Revenue Recognition For the nine months ended September 30, 2003, we estimate that approximately 98% of our revenues were derived from services and approximately 2% from product sales. Services are performed under contracts that may be categorized into three primary types: time and materials, cost-plus reimbursement and firm fixed price. Revenue for time and materials contracts is recognized as time is spent at hourly rates, which are negotiated with the customer. Time and materials contracts are typically more profitable than cost-plus contracts 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 costs or as a performance-based award fee. Cost-plus type contracts provide relatively less risk than other contract types because we are reimbursed for all direct costs and certain indirect costs, such as overhead and general and administrative expenses, and are paid a fee for work performed. For cost-plus award fee type contracts, we recognize the expected fee to be awarded by the customer at the time such fee can be reasonably estimated, based on factors such as our prior award experience and communications with the customer regarding our performance, including any interim performance evaluations rendered by the customer. Revenues are recognized under substantially all fixed price contracts based on the percentage-of-completion basis, using the cost-to-cost method for all services provided. For non-service-related fixed price contracts, revenues are recognized as units are delivered (the units-of-delivery method). We recognize revenues under our U.S. federal government contracts when a contract is executed, the contract price is fixed and determinable, delivery of the services or products has occurred, the contract is funded and collectibility of the contract price is considered probable. Our contracts with agencies of the U.S. federal government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the term of the contract as the services are provided. From time to time we may proceed with work based on customer direction pending finalization and signing of contractual funding documents. We have an internal process for approving any such work. All revenue recognition is deferred during periods in which funding is not received. Costs incurred during such periods are deferred if the receipt of funding is assessed as probable. In evaluating the probability of funding being received, we consider our previous experiences with the customer, communications with the customer regarding funding status, and our knowledge of available funding for the contract or program. If funding is not assessed as probable, costs are expensed as they are incurred. We recognize revenues under our U.S. federal government contracts based on allowable contract costs, as mandated by the U.S. federal government's cost accounting standards. The costs we incur under U.S. federal government contracts are subject to regulation and audit by certain agencies of the U.S. federal government. Historically, contract cost disallowances resulting from government audits have not been significant. We may be exposed to variations in profitability, including potential losses, if we encounter variances from estimated fees earned under award fee contracts and estimated costs under fixed price contracts. We generally do not pursue fixed price software development work that may create material financial risk. We do, however, provide services under fixed price labor hour and fixed price level of effort contracts, which represent similar levels of risk as time and materials contracts. Our contract mix was approximately 39% time and materials, 32% cost-plus and 29% fixed price (a substantial majority of which were fixed price level of effort) during the nine months ended September 30, 2003. The contract mix can change over time depending on contract awards and acquisitions. Under cost-plus contracts, operating profits are statutorily limited to 15% but typically range from 5% to 7%. Under fixed price and time and materials contracts, margins are not subject to statutory limits. However, the U.S. federal government's objective in negotiating such contracts is to seldom allow for operating profits in excess of 15%. Due to competitive pressures, operating profits on such contracts are often less than 10%. We maintain reserves for uncollectible accounts receivable which may arise in the normal course of business. Historically, we have not had significant write-offs of uncollectible accounts receivable. However, we do perform work on many contracts and task orders, where on occasion, issues may arise, which could lead to accounts receivable not being fully collected. 18 Costs of Revenues Our costs are categorized as either direct or indirect costs. Direct costs are those that can be identified with and allocated to specific contracts and tasks. They include labor, fringe (vacation time, medical/dental, 401K plan matching contribution, tuition assistance, employee welfare, worker's compensation and other benefits), subcontractor costs, consultant fees, travel expenses and materials. Indirect costs are either overhead or general and administrative expenses. Indirect costs cannot be identified with specific contracts or tasks, and to the extent that they are allowable, they are allocated to contracts and tasks using appropriate government-approved methodologies. Costs determined to be unallowable under the Federal Acquisition Regulations cannot be allocated to projects. Our principal unallowable costs are interest expense, amortization expense for separately identified intangibles from acquisitions and certain general and administrative expenses. A key element to our success has been our ability to control indirect and unallowable costs, enabling us to profitably execute our existing contracts and successfully bid for new contracts. Goodwill Impairment Goodwill relating to our acquisitions represents the excess of cost over the fair value of net tangible and separately identifiable intangible assets acquired, and has a carrying amount of approximately $212.7 million and $138.6 million at September 30, 2003 and December 31, 2002, respectively. For the nine months ended September 30, 2003, goodwill increased by approximately $74.1 million as a result of the acquisition of ISI in May 2003. Effective January 1, 2002, we adopted SFAS No. 142, and no longer amortize goodwill, but rather test our goodwill for impairment at least annually using a fair value approach. We completed our transition analysis under SFAS No. 142 as of June 30, 2002 and our annual impairment analyses as of September 30, 2002 and 2003, noting no indications of impairment for any of our reporting units. Long-Lived Assets and Identifiable Intangible Asset Impairment The carrying amount of long-lived assets and identifiable intangible assets was approximately $18.2 million and $12.7 million at September 30, 2003 and December 31, 2002, respectively. Of the $18.2 million at September 30, 2003, approximately $7.7 million of the assets are related to our acquisition of ISI. Long-lived assets and identifiable intangible assets, excluding goodwill, are evaluated for impairment when events occur that suggest that such assets may be impaired. Such events could include, but are not limited to, the loss of a significant customer or contract, decreases in federal government appropriations or funding of certain programs, or other similar events. We determine if an impairment has occurred based on a comparison of the carrying amount of such assets to the future undiscounted net cash flows, excluding charges for interest. If considered impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds their estimated fair value, as determined by an analysis of discounted cash flows using a discounted interest rate based on our cost of capital and the related risks of recoverability. During the nine months ended September 30, 2003, we recognized an impairment charge of approximately $135,000, included in general and administrative expenses in the accompanying consolidated statement of operations, to write-down the carrying value of a building to its estimated fair market value. In evaluating impairment, we consider, among other things, our ability to sustain our current financial performance on contracts and tasks, our access to and penetration of new markets and customers and the duration of, and estimated amounts from, our contracts. Any uncertainty of future financial performance is dependent on the ability to maintain our customers and the continued funding of our contracts and tasks by the government. Over the past four years, we have been able to win nearly all of our contracts that have been recompeted. In addition, we have been able to sustain financial performance through indirect cost savings from our acquisitions, which have generally resulted in either maintaining or improving margins on our contracts and tasks. If we are required to record an impairment charge in the future, it would have an adverse impact on our results of operations. 19 Business Combinations We apply the provisions of SFAS No. 141, Business Combinations, whereby the net tangible and separately identifiable intangible assets acquired and liabilities assumed are recognized at their estimated fair market values at the acquisition date. The purchase price in excess of the estimated fair market value of the net tangible and separately identifiable intangible assets acquired represents goodwill. The allocation of the purchase price related to our business combinations involves significant estimates and management judgment that may be adjusted during the allocation period, but in no case beyond one year from the acquisition date. Costs incurred related to successful business combinations are capitalized as costs of business combinations, while costs incurred by us for unsuccessful or terminated acquisition opportunities are expensed when we determine that such opportunities will no longer be pursued. Costs incurred related to anticipated business combinations are deferred. On May 23, 2003, we purchased all of the outstanding stock of Information Spectrum, Inc. ("ISI"), a provider of credential card technologies, military logistics and training systems, based in Annandale, Virginia, for a total purchase price of approximately $91.6 million, excluding transaction costs of approximately $724,000. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations, 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 made by management. The identifiable intangible assets consisted of $4.8 million of contracts and related customer relationships, and $500,000 for the value of a non-compete agreement. The preliminary value of the contracts and related customer relationships is based, in part, on an independent appraisal and other studies that are being performed by the Company. The contracts and related customer relationships have an expected useful life of approximately 5.3 years. The non-compete agreement value was based on the consideration paid for the agreement and is being amortized straight-line over the three year term of the agreement. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill arising from the transaction is not being amortized. The total purchase price paid, including transaction and other deal related costs, of $92.4 million was preliminarily allocated to the assets acquired and liabilities assumed as follows (in thousands): Historical net assets of ISI $ 13,045 Goodwill 74,073 Non-compete agreement 500 Contracts and customer relationships 4,751 --------------- Total consideration $ 92,369 =============== 20 Statements of Operations The following is a description of certain line items from our statement of operations. Revenues for the three and nine months ended September 30, 2003 include the operations of ISI for the period beginning May 23, 2003, the date of the acquisition. Costs of revenues include direct labor and fringe costs for program personnel and direct expenses incurred to complete contracts and task orders. Costs of revenues also include depreciation, overhead, and other direct contract costs, which comprise subcontract work, consultant fees, and materials. Overhead consists of indirect costs relating to operational managers, rent/facilities, administration, travel and other expenses. General and administrative expenses are primarily for corporate functions such as management, legal, finance and accounting, contracts and administration, human resources, company management information systems and depreciation, and also include other unallowable costs such as marketing, certain legal fees and reserves. Amortization expenses relate to intangible assets from our acquisitions. These intangible assets consist of contract backlog acquired as part of our acquisitions of Analysis & Technology, Inc., Sherikon, Inc., and the training division of SIGCOM, Inc. and contracts and related customer relationships acquired as part of our acquisition of ISI. Amortization expenses also include costs associated with a non-compete agreement related to the ISI acquisition. Interest expense is primarily for our 12% Notes, our term loan and revolving Credit Facility, our subordinated debt and subordinated convertible promissory notes held by our stockholders prior to their repayment or conversion in connection with our IPO, and other miscellaneous interest costs. Other income is from non-core business items such as gains on the sales and closures of businesses and investments. FUNDED BACKLOG AND ESTIMATED CONTRACT VALUE Each year a significant portion of our revenue is derived from existing contracts with our government clients, and a portion of the revenue represents work related to maintenance, upgrade or replacement of systems under contracts or projects for which we are the incumbent provider. Proper management of contracts is critical to our overall financial success and we believe that effective management of costs makes us competitive on price. Historically, we believe that our demonstrated performance record and service excellence have enabled us to maintain our position as an incumbent service provider on more than 90% of our contracts that have been recompeted. We have increased our total estimated contract value by approximately $1.1 billion from $4.3 billion at December 31, 2002 to $5.4 billion at September 30, 2003, of which $591.5 million was funded backlog as of September 30, 2003. Our total estimated contract value, at a given time, represents the aggregate estimated contract revenue expected to be earned by us over the remaining life of our contracts. When we and one or more other companies are each awarded awarded a contract for the same scope of work, we include in total estimated contract value only our estimate of the contract revenue we expect to earn over the remaining term of the contract. Funded backlog is based upon amounts actually appropriated by a customer for payment for goods and services. Because the U.S. federal government operates under annual appropriations, agencies of the U.S. federal government typically fund contracts on an incremental basis. Accordingly, the majority of the total estimated contract value is not funded backlog. Our estimated contract value is based on our experience under contracts and we believe our estimates to be reasonable. However, there can be no assurance that our existing contracts will result in realized future revenues. These amounts could vary depending upon government budgets and appropriations. In addition, we are periodically asked to work at-risk on projects. At-risk means that the customer has asked us to commence work, or to continue working, on a project even though there are no funds appropriated and released for payment. In most cases, the government is in the process of funding the contract or tasks and makes the request to avoid disruptions to the project. Historically, we have not recorded any significant write-offs because funding was not ultimately received. 21 RESULTS OF OPERATIONS Our historical consolidated financial statements included herein do not reflect the full impact of the operating results of our acquisition of ISI, since its operating results are only included with our results from the date of acquisition. The following table sets forth our results of operations based on the amounts and percentage relationship of the items listed to contract revenues during the period shown:
For the Three Months Ended September 30, 2003 2002 ------------------------------- ------------------------ ($ in thousands) Revenues $ 279,080 100.0% $ 214,314 100.0% Costs of revenues 240,689 86.2 184,585 86.1 ----------------- ----------- ---------------- ------------ Gross profit 38,391 13.8 29,729 13.9 ----------------- ----------- ---------------- ------------ Operating expenses: General and administrative expenses 14,969 5.4 12,704 5.9 Amortization 723 0.3 476 0.2 ----------------- ----------- ---------------- ------------ Total operating expenses 15,692 5.7 13,180 6.1 ----------------- ----------- ---------------- ------------ Operating income 22,699 8.1 16,549 7.8 Other income, net -- -- 57 -- Secondary offering expenses 798 0.3 -- -- Interest expense, net 3,831 1.4 3,223 1.5 Minority interest in (earnings) losses of subsidiaries (18) -- 5 -- ----------------- ----------- ---------------- ------------ Income before income taxes 18,052 6.4 13,388 6.3 Provision for income taxes 7,109 2.5 5,222 2.4 ----------------- ----------- ---------------- ------------ Net income $ 10,943 3.9% $ 8,166 3.9% ================= ============ ================ =============
For the Nine Months Ended September 30, 2003 2002 ---------------------------- ----------------------- ($ in thousands) Revenues $ 761,764 100.0% $ 608,880 100.0% Costs of revenues 656,695 86.2 526,278 86.4 ----------------- ----------- ---------------- ------------ Gross profit 105,069 13.8 82,602 13.6 ----------------- ----------- ---------------- ------------ Operating expenses: General and administrative expenses 42,388 5.6 34,085 5.6 Amortization 1,763 0.2 1,430 0.3 ----------------- ----------- ---------------- ------------ Total operating expenses 44,151 5.8 35,515 5.9 ----------------- ----------- ---------------- ------------ Operating income 60,918 8.0 47,087 7.7 Other income, net -- -- 417 0.1 Secondary offering expenses 798 0.1 Interest expense, net 10,384 1.4 18,306 3.0 Minority interest in earnings of subsidiaries (50) -- (3) -- ----------------- ----------- ---------------- ------------ Income before income taxes 49,686 6.5 29,195 4.8 Provision for income taxes 19,359 2.5 11,386 1.9 ----------------- ----------- ---------------- ------------ Net income $ 30,327 4.0% $ 17,809 2.9% ================= ============ ================ =============
22 REVENUES For the three months ended September 30, 2003, revenues increased by $64.8 million, or 30.2%, to $279.1 million from $214.3 million for the three months ended September 30, 2002. For the nine months ended September 30, 2003, revenues increased by $152.9 million, or 25.1% to $761.8 million, from $608.9 million for the nine months ended September 30, 2002. The increase in revenues was attributable to organic growth and the acquisition of ISI. We define organic growth as the increase in revenues excluding the revenues associated with acquisitions, divestitures and closures of businesses in comparable periods. We believe organic growth is a useful supplemental measure to revenue. Management uses organic growth as part of its evaluation of core operating results and underlying trends. For the three and nine month periods ended September 30, 2003, our organic growth was 14.5%, or $31.0 million, and 17.7%, or $107.6 million, respectively. The increase in revenue was primarily driven by growth in the following contracts: Secretary of the Air Force Technical and Analytical Support, Battlefield Information Collection Exploitation Systems, contracts with the U.S. Army for military operations on urban terrain, ANSWER, our Professional Engineering Services schedule contract, and our other GSA contracts. COSTS OF REVENUES For the three months ended September 30, 2003, costs of revenues increased by $56.1 million, or 30.4%, to $240.7 million from $184.6 million for the three months ended September 30, 2002. Costs of revenues as a percentage of revenues increased to 86.2% from 86.1% for the three months ended September 30, 2003. Cost of revenues as a percentage of revenue increased due to a modification of our treatment of certain overhead expenses which were reclassified as general and administrative expenses as requested by the government in the third quarter of 2002. For the nine months ended September 30, 2003, costs of revenues increased by $130.4 million, or 24.8%, to $656.7 million, from $526.3 million for the nine months ended September 30, 2002. For the nine months ended September 30, 2003, costs of revenues as a percentage of revenues decreased to 86.2% from 86.4% for the nine months ended September 30, 2002. The costs of revenues increase was due in part to the corresponding growth in revenues resulting from organic growth and the acquisition of ISI. The majority of the increase in cost of revenues for the three and nine month periods ended September 30, 2003 was due to a $29.6 million and $58.2 million increase in direct labor and fringe costs and $22.0 million and $67.2 million increase in other direct contract costs, respectively. The increases in direct labor and fringe costs and other direct contract costs were offset in part by reductions in certain overhead expenses. For the three months ended September 30, 2003, gross profit increased $8.7 million, or 29.3%, to $38.4 million from $29.7 million for the three months ended September 30, 2002. Gross margin was 13.8% compared to 13.9 % for the comparable period in 2002. The decrease in gross margin for the three months ended September 30, 2003 was primarily attributable to a modification of our treatment of certain overhead expenses which were reclassified as general and administrative expenses as requested by the government in the third quarter of 2002. For the nine months ended September 30, 2003, gross profit increased $22.5 million, or 27.2%, to $105.1 million from $82.6 million for the nine months ended September 30, 2002. Gross margin was 13.8% compared to 13.6% for the comparable period in 2002. The increase in gross margin for the nine months ended September 30, 2003 was primarily a result of the impact of certain indirect cost reductions. GENERAL AND ADMINISTRATIVE EXPENSES For the three months ended September 30, 2003, general and administrative expenses increased $2.3 million, or 18.1%, to $15.0 million from $12.7 million for the three months ended September 30, 2002. The increase was primarily attributable to the corresponding growth in revenue. General and administrative expenses for the three months ended September 30, 2003, as a percentage of revenues, decreased to 5.4% from 5.9% from the comparable period in 2002. The decrease in general and administrative expenses as a percentage as of revenues was attributable to a modification of our treatment of certain overhead expenses which were reclassified as general and administrative expenses as requested by the government in the third quarter of 2002. For the nine month period ended September 30, 2003, general and administrative expenses increased $8.3 million, or 24.3%, to $42.4 million from $34.1 million for the nine months ended September 30, 2002. General and administrative expenses for the nine months ended September 30, 2003, as a percentage of revenues, remained constant at 5.6% from the comparable period in 2002. AMORTIZATION For the three months ended September 30, 2003, amortization expenses increased $247,000, or 51.9%, to $723,000 from $476,000 for the comparable period in 2002. Amortization as a percentage of revenues for the three months ended September 30, 2003 increased to 0.3% from 0.2% for the three months ended September 30, 2002. For the nine months ended September 30, 2003, amortization expenses increased $333,000, or 23.3%, to $1.8 million from $1.4 million for the comparable period in 2002. Amortization as a percentage of revenues decreased to 0.2% from 0.3%. The increase in amortization expense for the three and nine months ended September 30, 2003 is attributable to the amortization of the intangible assets related to the ISI acquisition. 23 OPERATING INCOME For the three months ended September 30, 2003, operating income increased $6.2 million, or 37.6%, to $22.7 million from $16.5 million for the three months ended September 30, 2002. Operating income as a percentage of revenues increased to 8.1% for the three months ended September 30, 2003 from 7.8% for the comparable period in fiscal 2002. For the nine month period ended September 30, 2003, operating income increased $13.8 million, or 29.4%, to $60.9 million from $47.1 million for the nine month period ended September 30, 2002. Operating income as a percentage of revenues increased to 8.0% for the nine month period ended September 30, 2003 from 7.7% for the same period in 2002. OTHER INCOME For the three months ended September 30, 2003, we did not have any other income. Other income for the three and nine months ended September 30, 2002 included a gain on the sale of assets of DisplayCheck, a previously discontinued business, and receipt of insurance proceeds for misappropriated equipment previously recorded as a loss. SECONDARY OFFERING EXPENSES On September 22, 2003, certain of our stockholders sold 6,600,000 shares of our common stock in an underwritten offering pursuant to a registration statement on Form S-3 filed with the SEC (Commission File Nos. 333-108147 and 333-108858). In connection with this offering, we incurred approximately $798,000 of expenses in the third quarter of 2003, which amounts were reimbursed by certain of the selling stockholders and recorded by us as a contribution to paid-in capital. In the fourth quarter of 2003, the underwriters of this offering partially exercised their over-allotment option with respect to additional shares held by the selling stockholders. As a result, on October 16, 2003, certain of the selling stockholders sold an additional 297,229 shares of our common stock in a second closing pursuant to the same underwritten offering. Expenses incurred by us in connection with the second closing will also be reimbursed by certain of the selling stockholders and recorded by us as a contribution to paid-in capital in the fourth quarter of 2003. INTEREST EXPENSE, NET For the three months ended September 30, 2003, interest expense, net of interest income, increased $608,000, or 18.8%, to $3.8 million from $3.2 million for the three months ended September 30, 2002. The increase is primarily attributable to the increased borrowings under our Credit Facility in conjunction with the ISI acquisition. For the nine months ended September 30, 2003, interest expense, net of interest income, decreased $7.9 million, or 43.2%, to $10.4 million from $18.3 million for the nine months ended September 30, 2002. The decrease in interest expense was due primarily to a reduction in our debt, which was paid down with proceeds from our initial public offering, or "IPO," and from increased operating cash flow. Interest expense for the nine months ended September 30, 2002 reflected the impact of certain items that did not occur in the nine months ended September 30, 2003. These items include the recognition of previously unrecognized losses of $1.9 million related to the termination of $30.0 million of interest rate swap agreements and $4.2 million of losses previously recorded as an extraordinary item in conjunction with the early extinguishment of debt. PROVISION FOR INCOME TAXES As a result of our acquisition of ISI and certain non-deductible secondary offering expenses we incurred (referred to above), our effective tax rate for the three and nine months ended September 30, 2003 was 39.4% and 39.0%, respectively, compared with an effective tax rate of 39.0% for the three and nine months ended September 30, 2002. LIQUIDITY AND CAPITAL RESOURCES Cash flows for the Nine Months Ended September 30, 2003 We generated $40.8 million in cash from operations for the nine months ended September 30, 2003. In comparison, we used $15.1 million in cash from operations for the nine months ended September 30, 2002. This increase in cash flow was primarily attributable to an increase in net income and improved working capital turnover, offset by an increase in deferred income taxes. Total days sales outstanding in accounts receivable, or "DSO," at September 30, 2003 decreased to 67 days from 78 days as of December 31, 2002. The improvement in total DSO from December 31, 2002 to September 30, 2003 was attributable to our improved billing and collection processes and an improvement in government payment cycles as a result for the nine months ended September 30, 2003. Accounts receivable totaled approximately $207.2 million at September 30, 2003, an increase of approximately $18.2 million, from $189.0 million at December 31, 2002 and represented 44.9% of the total assets at that date. In our acquisition of ISI, we purchased approximately $21.4 million of accounts receivable. For the nine months ended September 30, 2003, net cash used for investing activities was $94.6 million, which was attributable to purchases of property, plant and equipment and approximately $92.4 million for the acquisition of ISI. Cash provided by financing activities was $52.2 million for the nine months ended September 30, 2003, due to the additional borrowings under the revolving loan portion of our Credit Facility for the acquisition of ISI. 24 On March 15, 2002, we completed our IPO with the sale of 4,687,500 shares of our common stock. Our net proceeds were approximately $75.2 million. We used the net proceeds from the IPO to repay debt outstanding under our prior credit facility, repay in full certain of our subordinated promissory notes and redeem $25.0 million principal amount of our 12% Notes. We also used $2.5 million of the IPO proceeds temporarily to repay debt under the revolving portion of our prior credit facility with the intention of repaying in full, on or before October 20, 2002, a $2.5 million principal amount promissory note held by former stockholders of Sherikon, Inc, a company we acquired in 2002. On October 18, 2002, we asserted an indemnification claim against the former shareholders of Sherikon, Inc. in an aggregate amount exceeding the $2.5 million promissory note. We are treating this indemnification claim as a set off against the $2.5 million promissory note obligation. Historically, our primary liquidity requirements have been for debt service under our Credit Facility and 12% Notes and for acquisitions and working capital requirements. We have funded these requirements primarily through internally generated operating cash flow and funds borrowed under our existing Credit Facility. On October 21, 2002, we entered into an amended and restated credit agreement related to our Credit Facility. Our Credit Facility permits the revolving loan portion of our Credit Facility to increase to a maximum of $200.0 million. As of September 30, 2003, $187.5 million of the revolving loan was committed to by participants in our Credit Facility. The Credit Facility also permits us to elect from time to time to (i) repurchase certain amounts of our subordinated debt and outstanding common stock from excess cash flow (as defined in the Credit Facility); and (ii) repurchase certain amounts of our subordinated debt from net cash proceeds of issuances of equity securities. In addition, the Credit Facility provides flexibility to raise additional financing to fund future acquisitions. Borrowings from the revolving line of credit can be made based upon a borrowing base consisting of a portion of our eligible billed and unbilled receivable balances and our ratio of net debt to EBITDA (as defined in the Credit Facility). The Credit Facility contains affirmative and negative covenants customary for such financings. In addition, the Credit Facility contains financial covenants customary for such financing, including, but not limited to: maximum ratio of net debt to EBITDA, maximum ratio of senior debt to EBITDA, and limitation on capital expenditures. For the periods ended September 30, 2003, and December 31, 2002, we were in compliance with all of the financial covenants. At September 30, 2003, total debt outstanding under our Credit Facility was approximately $75.8 million, consisting of $18.4 million of term loan and $57.4 million outstanding under the revolving loan portion of our Credit Facility. The total funds available to us under the revolving loan portion of our Credit Facility were approximately $113.0 million as of September 30, 2003. Under certain conditions related to excess annual cash flow, and our ratio of net senior debt to EBITDA, as defined in our Credit Facility, and the receipt of proceeds from certain asset sales and debt or equity issuances, we are required to prepay, in amounts specified in our Credit Facility, borrowings under the term loan. In addition, borrowings under the Credit Facility mature on June 23, 2005, and we are scheduled to pay quarterly installments of approximately $950,000 under the term portion with the balance due when the Credit Facility matures on June 23, 2005. We did not have any capital commitments greater than $1.5 million as of September 30, 2003. Our principal working capital need is for funding accounts receivable, which has increased with the growth in our business and the delays in government funding and payment. Our principal sources of cash to fund our working capital needs are cash generated from operating activities and borrowings under our Credit Facility. We have relatively low capital investment requirements. Capital expenditures were $2.2 million and $2.5 million for the nine months ended September 30, 2003 and 2002, respectively, primarily for leasehold improvements and office equipment. We use off-balance sheet financing, primarily to finance certain capital expenditures. Operating leases are used primarily to finance the purchase of computers, servers, phone systems and to a lesser extent, other fixed assets like furnishings. At September 30, 2003, we had equipment worth approximately $16.2 million under operating leases. Had we not used operating leases, we would have used our existing line of credit to purchase these assets. Other than the operating leases described above, and facilities leases, we do not have any other off- balance sheet financing. Our business acquisition expenditures in the nine months ended September 30, 2003 were $92.4 million for the acquisition of ISI. This acquisition was financed primarily through borrowings under our Credit Facility. We intend to, and expect over the next twelve months to be able to, fund our operating cash, capital expenditure and debt service requirements through cash flow from operations and borrowings under our Credit Facility. Over the longer term, our ability to generate sufficient cash flow from operations to make scheduled payments on our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside our control. INFLATION We do not believe that inflation has had a material effect on our business in the three months ended September 30, 2003. 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have interest rate exposure relating to certain of our long-term obligations. While the interest rate on the remaining $75 million principal amount of our 12% Notes is fixed at 12%, the interest rate on both the term and revolving portions of our Credit Facility is affected by changes in market interest rates. We manage these fluctuations in part through interest rate swaps that are currently in place and our focus on reducing the amount of outstanding debt through cash flow. On January 29, 2002, we cancelled approximately $30 million of interest swap agreements and recognized previously unrecognized losses of $1.9 million in interest expense for the quarter ended March 31, 2002. As of September 30, 2003, the fair value of our remaining interest rate swap agreements resulted in a net liability of approximately $350,000 and has been included in other current liabilities. A 1% change in interest rates on variable rate debt would have resulted in our interest expense fluctuating by approximately $316,000 and $182,000 for the nine months ended September 30, 2003 and 2002, respectively. ITEM 4. CONTROLS AND PROCEDURES Our management, with the participation of our chief executive officer and chief financial officer (our principal executive officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2003. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2003, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 26 PART II. OTHER INFORMATION REQUIRED IN REPORT ITEM 1. LEGAL PROCEEDINGS We are involved in various legal proceedings in the ordinary course of business. On December 18, 2002, an arbitrator issued a decision requiring us to continue to issue task orders to a subcontractor under a subcontract for so long as our customer continues to issue task orders to us for these services. The arbitrator's decision also enjoined us from interviewing, offering employment to, hiring or otherwise soliciting employees of the subcontractor who work on this particular project. The arbitrator's decision also denied the subcontractor's claim for monetary damages and our counter-demand. We subsequently filed an action to vacate or modify that portion of the arbitrator's decision enjoining us from hiring certain subcontractor employees under any circumstances, since the prohibition extends the scope of the parties' pre-existing contractual obligations. The court vacated the portion of the arbitrator's decision relating to the scope of the injunction and referred the issue back to the arbitrator for further consideration. The arbitrator issued a revised decision dated September 26, 2003 which eliminated the permanent injunction against our hiring certain subcontractor employees and reaffirmed the continued applicability of the subcontract provision addressing the parties' rights and obligations with respect to the solicitation for hire of employees of the other party. We cannot predict the ultimate outcome of these matters, but do not believe that they will have a material impact on our financial position or results of operations. ITEM 2.CHANGES IN SECURITIES AND USE OF PROCEEDS NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS 31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 27 B. REPORTS ON FORM 8-K (1) On July 29, 2003, the Company filed a Current Report on Form 8-K/A, pursuant to Item 2 (Acquisition or Disposition of Assets), providing the financials statements required under Item 7. In accordance with Item 7 (a) (4), the required financial statements provided were the Audited Financial Statements for Information Spectrum, Inc. as of November 30, 2002, 2001, and 2000 and for each of the three years in the period ended November 30, 2002 and the related Independent Auditors' Report thereon, and the Unaudited Balance Sheet as of February 28, 2003 and the Unaudited Statements of Operations and Cash Flows for the three months ended February 28, 2003 and 2003. In accordance with Item (7) (b) (2), the Unaudited Pro Forma Condensed Consolidated Statements of Operations, Unaudited Pro Forma Condensed Consolidated Balance Sheet, and Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements were provided. 28 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 INTERNATIONAL CORPORATION Date: October 31, 2003 By: /s/: Joseph M. Kampf ------------------ ------------------------------------------- Joseph M. Kampf - President and Chief Executive Officer Date: October 31, 2003 By: /s/: Charles S. Ream ------------------ ------------------------------------------- Charles S. Ream - Executive Vice President and Chief Financial Officer 29 EX-31 3 kampfcert.txt KAMPF CERTIFICATION Certifications I, Joseph M. Kampf, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Anteon International Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused each disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared: b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: October 31, 2003 By: /s/ Joseph M. Kampf --------------------- -------------------------------- Joseph M. Kampf President and Chief Executive Officer EX-31 4 reamcert.txt REAM CERTIFICATION Certifications I, Charles S. Ream, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Anteon International Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused each disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared: b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: October 31, 2003 By: /s/ Charles S. Ream --------------------- -------------------------------- Charles S. Ream Executive Vice President and Chief Financial Officer EX-32 5 kampfsarbanes.txt KAMPF SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Anteon International Corporation (the "Company") on Form 10-Q for the quarterly period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph M. Kampf, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 31, 2003 By: /s/ Joseph M. Kampf ------------------- --------------------------------------- Joseph M. Kampf President and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Anteon International Corporation and will be retained by Anteon International Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 6 reamsarbanes.txt REAM SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Anteon International Corporation (the "Company") on Form 10-Q for the quarterly period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles S. Ream, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 31, 2003 By::/s/ Charles S. Ream ----------------------------- ----------------------------- Charles S. Ream Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Anteon International Corporation and will be retained by Anteon International Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----