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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 JUNE 30, 1999
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: 000-24193
ATLANTIC DATA SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
MASSACHUSETTS 04-2696393
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
ONE BATTERYMARCH PARK
QUINCY, MASSACHUSETTS 02169
(Address of Principal Executive Offices) (Zip Code)
(617) 770 - 3333
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
As of July 31, 1999, there were 12,906,391 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
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ATLANTIC DATA SERVICES, INC.
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and March 31, 1999 3
Condensed Consolidated Statements of Income for the Three Months Ended 4
June 30, 1999 and 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Three 5
Months Ended June 30, 1999 and 1998 (Unaudited)
Notes to Condensed Consolidated Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk 13
PART II - OTHER INFORMATION
ITEM 2: Changes in Securities and Use of Proceeds 14
ITEM 6: Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
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PART I
ITEM 1: FINANCIAL INFORMATION
ATLANTIC DATA SERVICES, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1999 1999
-------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $36,272 $37,326
Accounts receivable, net of allowances for doubtful accounts of $725
at June 30, 1999 and March 31, 1999 6,146 7,037
Prepaid expenses 426 100
Deferred taxes 739 739
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Total current assets 43,583 45,202
Property and equipment, net 1,280 1,346
Other assets 175 213
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TOTAL ASSETS $45,038 $46,761
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,009 $ 1,193
Accrued expenses and other liabilities 3,072 4,393
Income taxes payable -- 417
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Total current liabilities 4,081 6,003
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Long-term liabilities 8 13
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Commitments
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 authorized, no shares
issued or outstanding -- --
Common stock, $.01 par value, 60,000,000 shares authorized,
13,018,391 shares issued and 12,906,391 outstanding at June 30,
1999 and March 31, 1999 130 130
Additional paid-in capital 26,526 26,526
Retained earnings 14,318 14,114
Treasury stock (112,000 shares carried at cost) (25) (25)
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Total stockholders' equity 40,949 40,745
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $45,038 $46,761
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</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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ATLANTIC DATA SERVICES, INC.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------------------
1999 1998
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<S> <C> <C>
Revenues $10,251 $17,446
Cost of revenues 7,580 9,981
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Gross profit 2,671 7,465
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Operating expenses:
Sales and marketing 679 1,552
General and administrative 2,038 2,305
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Total operating expenses 2,717 3,857
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Income (loss) from operations (46) 3,608
Interest income, net 406 152
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Income before provision for income taxes 360 3,760
Provision for income taxes 156 1,598
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Net income $ 204 $ 2,162
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Basic earnings per share $ 0.02 $ 0.19
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Diluted earnings per share $ 0.02 $ 0.18
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Shares used in computing earnings per share (basic) 12,906 11,355
======= =======
Shares used in computing earnings per share (diluted) 13,096 11,737
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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ATLANTIC DATA SERVICES, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 204 $ 2,162
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 161 136
Provision for bad debts -- 100
Change in assets and liabilities:
Accounts receivable 891 (2,749)
Prepaid expenses and other assets (288) 267
Accounts payable (184) 513
Accrued expenses and other liabilities (1,321) (105)
Billings in excess of costs and estimated earnings on contracts -- (151)
Federal and state income taxes (417) 494
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Net cash provided by (used in) operating activities (954) 667
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (95) (253)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligation (5) (5)
Net proceeds from initial public offering -- 23,534
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Net cash provided by (used in) financing activities (5) 23,529
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Net increase (decrease) in cash and cash equivalents (1,054) 23,943
Cash and cash equivalents, beginning of period 37,326 3,401
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Cash and cash equivalents, end of period $36,272 $27,344
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Taxes $ 771 $ 1,105
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</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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ATLANTIC DATA SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by Atlantic Data Services, Inc. (the "Company") in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended June 30, 1999 are
not necessarily indicative of the results that may be expected for future
periods of the full fiscal year. These Condensed Consolidated Financial
Statements should be read in conjunction with the Consolidated Financial
Statements and related notes included in the Company's Annual Report on Form
10-K for the year ended March 31, 1999.
The balance sheet at March 31, 1999 has been derived from the audited financial
statements at that date, but does not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company primarily derives its revenue from consulting services under time
and material billing arrangements. Under these arrangements, revenue is
recognized as the services are provided. Deferred revenue pertains to time and
material billing arrangements and represents cash collected in advance of the
performance of services.
Revenue on fixed price contracts is recognized using the percentage of
completion method of accounting and is adjusted monthly for the cumulative
impact of any revision in estimates. The Company determines the percentage of
its contracts by comparing costs incurred to date to total estimated costs.
Contract costs include all direct labor and expenses related to the contract
performance. An asset, "Costs and estimated earnings in excess of billings on
contracts," would represent revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on contracts,"
represents billings in excess of revenues recognized.
Included in revenues are reimbursable contract-related travel and entertainment
expenses, which are separately billed to clients.
Earnings Per Share
The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("FAS 128"). FAS 128 requires the presentation of two
amounts, basic earnings per share and diluted earnings per share.
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3. EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share and
diluted earnings per share for the three months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------------------
1999 1998
---------------- ----------------
(in thousands, except
per share data)
<S> <C> <C>
Numerator:
Net income (numerator for basic earnings per share and
diluted earnings per share) $ 204 $ 2,162
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Denominator:
Denominator for basic earnings per share - weighted average
shares and special common shares 12,906 11,355
Effect of dilutive securities:
Employee stock options 190 382
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Denominator for diluted earnings per share - adjusted
weighted average and assumed conversions 13,096 11,737
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Basic earnings per share $0.02 $0.19
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Diluted earnings per share $0.02 $0.18
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</TABLE>
In addition, as of June 30, 1999, there were options outstanding to purchase
1,475,625 shares that are potentially dilutive.
4. MAJOR CUSTOMERS
The nature of the Company's services results in the Company deriving significant
amounts of revenue from certain customers in a particular period. For the
quarter ended June 30, 1999, two customers accounted for 26.3% and 16.7% of the
Company's revenues. For the quarter ended June 30, 1998, three customers
accounted for 23.1%, 15.6% and 13.7% of the Company's revenues.
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ATLANTIC DATA SERVICES, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Atlantic Data Services, Inc. ("We" or "ADS") provides IT strategy consulting and
systems integration services to customers exclusively in the financial services
industry, primarily banks. Our service offerings are organized around four
practice areas: IT Strategy Consulting, Consolidations and Conversions, Year
2000 Resolution and Electronic Commerce and Home Banking.
We were organized in Massachusetts in 1980 to provide consulting services to
banks and bank service bureaus. Our revenues are derived primarily from
professional fees billed to customers on a time and materials basis, or in
certain instances on a fixed price basis. Included in revenues are reimbursable
contract-related travel and entertainment expenses, which are separately billed
to clients. Substantially all of our contracts, other than fixed price
contracts, are terminable by the customer following limited notice and without
significant penalty to the customer. Revenues from fixed price contracts
represented approximately 0% and 6.2% of our revenues for the quarters ended
June 30, 1999 and 1998, respectively.
We have derived, and expect to continue to derive, a significant portion of our
revenues from a relatively limited number of customers. Revenues from our five
largest customers for the quarters ended June 30, 1999 and 1998 were 65.4% and
67.2%, respectively, as a percentage of revenues. For the quarter ended June 30,
1999, First Security Information Technology Inc, Fleet Services Corporation,
SunTrust Service Corporation, Associated Banc-Corp. and UST Data Services, Inc.
accounted for approximately 26.3%, 16.7%, 8.4%, 7.4% and 6.7%, respectively, of
revenues. For the quarter ended June 30, 1998, National City Corporation, First
Security Information Technology, Inc., Associated Banc-Corp., Peoples Heritage
Bank and ABN-AMRO Information Technology Service Company accounted for
approximately 23.1%, 15.6%, 13.7%, 8.7% and 6.2%, respectively, of revenues.
Cost of revenues consists primarily of salaries and employee benefits for
personnel dedicated to customer assignments, fees paid to subcontractors for
work performed in connection with customer assignments, and reimbursable
contract-related travel and entertainment expenses incurred by us in connection
with the delivery of our services.
Sales and marketing expenses consist primarily of salaries, employee benefits,
travel expenses and promotional costs. General and administrative expenses
consist primarily of expenses associated with our management, finance and
administrative groups, including recruiting, training, depreciation and
amortization, and occupancy costs.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report on Form 10-Q includes forward-looking statements. You can identify
these forward-looking statements when you see us using words such as "expect,"
"anticipate," "believe," "intend," "may," "predict," and other similar
expressions. These forward-looking statements cover, among other items: events,
conditions and financial trends that may effect the Company's future plans of
operation, business strategy, growth of operations and financial position,
including statements relating to estimates of earnings for any future financial
period including, without limitation, the second quarter of fiscal 2000, new
customer opportunities and levels of professional staff. Forward-looking
statements are not guarantees of future performance and are necessarily subject
to a number of risks and uncertainties, some of which are beyond our control.
Actual results could differ materially from those anticipated as a result of any
of the following factors:
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- - variations in our revenues and operating results which could cause our
results of operations to be below the expectations of public market
analysts and investors;
- - our dependence on the financial services industry;
- - the concentration of our revenues from a relatively limited number of
customers;
- - the risks associated with fixed price contracts;
- - our dependence on the Year 2000 market and the current reductions in Year
2000 spending by our customers;
- - our dependence on key personnel;
- - the availability of professional staff as our business involves the
delivery of professional services which is labor-intensive;
- - the management of our growth;
- - competition from other companies in the information technology and systems
integration market;
- - rapid technological change and our ability to develop information
technology solutions that keep pace with such changes;
- - our potential for contract liability;
- - equity control by management;
- - the risks associated with potential acquisitions; and
- - the volatility of our stock price.
Because of these risks and uncertainties, the forward-looking events discussed
in this Report might not transpire.
RECENT DEVELOPMENTS
We continue to experience lower bookings and our financial results have been
affected by the slowdown in merger activity within the banking sector. Further,
many of our clients have completed their use of external resources for their Y2K
projects, which has also negatively impacted revenue generation. Consequently,
it is likely that, at least through the remainder of calendar 1999, ADS will
continue to experience reduced revenue generation and have revenue lower than
that of the corresponding quarters in the prior fiscal year, and at least for
the first two quarters of fiscal year 2000 lower than that of the immediate
preceding quarters. This, in turn, will have an adverse impact on our earnings.
For our fiscal quarter ending September 30, 1999, we currently expect that our
revenue will be in the range of $5.0 million to $7.0 million. Because we are
currently committed to maintaining current staffing levels to support
anticipated future customer opportunities we likely will incur a net loss for
that quarter.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in our revenues and operating results have occurred from quarter to
quarter and may continue to occur as a result of a number of factors. Quarterly
revenues and operating results can depend on:
- the number, size and scope of customer projects commenced and
completed during a quarter;
- changes in employee utilization rates;
- changes in average billing rates;
- the number of working days in a quarter;
- the timing of introduction of new service offerings, both by us and
our competitors;
- changes in pricing, both by us and our competitors;
- loss of a significant customer;
- loss of key personnel;
- other factors that adversely impact the financial services industry;
and
- general economic conditions.
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The timing of revenues is difficult to forecast because our sales cycle is
relatively long, ranging from one to six months for new projects with existing
customers and three to six months for new customers, and may depend on factors
such as the size and scope of projects or other factors that adversely impact
the financial services industry and general economic conditions. In addition,
the relatively long length of our sales cycle may negatively impact the
operating results for any particular quarter as a result of increased sales and
marketing expenses without associated increases in revenues in the particular
quarter. Furthermore, many of our projects are, and may be in the future,
terminable without customer penalty. An unanticipated termination of a major
project or loss of a major customer could require us to maintain or terminate
underutilized employees, resulting in a higher than expected number of
unassigned persons or higher than expected severance expenses.
QUARTERS ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998
REVENUES
Revenues decreased 41.2% for the quarter ended June 30, 1999 over the quarter
ended June 30 1998, from $17.4 million to $10.3 million. This decrease was
primarily due to a decrease in volume of services delivered to customers and a
decrease in our utilization rate.
COST OF REVENUES
Cost of revenues decreased 24.1% to $7.6 million from $10.0 million for the
quarter ended June 30, 1999 compared to the quarter ended June 30, 1998,
representing 73.9% and 57.2%, respectively, of revenues in each quarter. The
dollar decrease in cost of revenues was primarily due to a decrease in billable
personnel from 292 at June 30, 1998 to 196 at June 30, 1999. The increase in
cost of revenues as a percentage of revenues is due primarily to decreased
utilization rates. Based on current industry conditions, we expect that
decreased utilization rates will continue in fiscal 2000.
SALES AND MARKETING
Sales and marketing expenses decreased 56.3% to $679,000 from $1.6 million for
the quarter ended June 30, 1999 compared to the quarter ended June 30, 1998,
representing 6.6% and 8.9% of revenues, respectively. This decrease resulted
primarily from a reduction in our sales and marketing group from 18 employees at
June 30, 1998 to 12 employees at June 30, 1999, the decrease in sales
commissions, travel related expenses for the sales group, as well as decreased
investment in marketing initiatives. We expect our sales and marketing expenses
to increase in absolute dollars as we continue to add sales and marketing staff.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 11.6% to $2.0 million from $2.3
million for the quarter ended June 30, 1999 compared to the quarter ended June
30, 1998, representing 19.9% and 13.2% of revenues, respectively. The dollar
decrease is primarily due to decreases in recruiting efforts. The increase in
general and administrative expenses as a percentage of revenues reflects the
significant decrease in revenues for the quarter ended June 30, 1999 compared to
the quarter ended June 30, 1998.
INTEREST INCOME, NET
Interest income, net increased $254,000 from $152,000 for the quarter ended June
30, 1998 to $406,000 for the quarter ended June 30, 1999. This increase was
principally due to the increase in the amount of cash and cash equivalents
available for investment because of the net proceeds received from our initial
public offering completed on May 28, 1998 of $23.4 million and additional cash
generated from operations.
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PROVISION FOR INCOME TAXES
The provision for income taxes decreased $1.4 million to $156,000 from $1.6
million for the quarter ended June 30, 1999 compared to the quarter ended June
30, 1998, resulting in effective tax rates of 43.3% and 42.5%, respectively. Our
rate may vary from period to period based on doing business in areas with
varying state and local statutory income tax rates. The increase in the
effective tax rate is primarily due to differences in applicable state income
tax rates.
LIQUIDITY AND CAPITAL RESOURCES
We have no long-term debt and continue to operate primarily debt-free. Working
capital was $39.5 million at June 30, 1999. Our days sales in accounts
receivable at June 30, 1999 was 54 compared to 61 days at June 30, 1998. The
decrease in days sales outstanding was the result of increased emphasis on
collections. While we believe that the risk with respect to collection of
accounts receivable is minimized by the creditworthiness of our customers,
primarily banks and other financial institutions, and our credit and collection
policies, there can be no assurance that we will not encounter collection
problems in the future. We attempt to further minimize this risk by performing
ongoing credit valuations of our customers and maintaining an allowance for
potential credit losses. We believe that our allowance for doubtful accounts and
collection policies are adequate.
Capital expenditures for the quarter ended June 30, 1999 of $95,000 were
primarily to support our existing employees. Capital expenditures for the
remainder of fiscal 2000 are expected to be approximately $700,000 and will be
used principally for computers and other equipment and, to a lesser extent,
leasehold improvements.
We expect that existing cash and cash equivalent balances, together with cash
provided from operations, will be sufficient to meet the Company's working
capital and capital expenditure requirements for at least the next twelve
months.
To date, inflation has not had a material impact on the Company's financial
results.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs using a two-digit format,
as opposed to four digits, to indicate the year. Computer systems based on a
two-digit format will be unable to interpret dates beyond the year 1999 which
could cause a system failure or other computer errors, leading to disruptions in
operations. The Year 2000 problem affects virtually all computer systems,
processes, and products in all segments of the economy. We are aware of the
issues associated with the Year 2000 issue and believe there are three general
areas of potential exposure: (1) our own service offerings; (2) our internal
informational systems; and (3) the effects of third party compliance efforts.
Based on our analysis through June 30, 1999, we do not believe that the Year
2000 issue will materially affect our business.
- - Service Offerings and Products. We believe that our information technology
("IT") strategy consulting and systems integration services will not be
affected by the Year 2000 issue because such IT service offerings do not
involve computer processes that store or manipulate date-related fields. We
will continue to monitor newly developed or acquired IT service offerings
and products for Year 2000 compliance. In the event that any of our
developed or acquired IT service offerings or products are not Year 2000
compliant in a timely manner, our sales may decline materially, customers
and those with whom they do business may assert product liability and other
claims, and our business, results of operations and financial condition
would be materially and adversely affected.
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- - Internal Information Systems. We have conducted an assessment of our
information technology systems and non-IT systems (such as voice mail,
telephone and other systems containing embedded microprocessors). As a
result of our assessment, we have remediated our voice mail, telephone
system, corporate workstation computers and their servers, making them Year
2000 compliant. We determined during this assessment that our mission
critical focus would be the accounting and finance area. As a result, we
have scrutinized and tested for Year 2000 compliance both the accounting
software created by third parties and internally developed time and expense
reporting and project accounting software applications. For such
third-party software applications, we have obtained written confirmation
that the software applications are Year 2000 compliant. We also expect that
results of the independent testing of our third party payroll application
(ADP) will be completed by ADP on schedule. We believe that our internally
developed applications are already Year 2000 compliant and testing of the
mission critical areas, as outlined above, was completed by June 30, 1999.
Based on currently available information, expenses to date, plus the
expenses we believe will be associated with these efforts in the future,
will be immaterial and have provided for the enhancements of these systems
in our operating and capital budgets for the current fiscal year. However,
if compliance efforts of which we are not currently aware are required and
are not completed on time, or if the cost of any required updating,
modification or replacement of any of our IT systems exceeds our estimates,
the Year 2000 issue could have a material adverse effect on our business,
financial condition and results of operations.
- - Effects of Third Party Compliance. In addition to our internal systems, we
rely on third party relationships in the conduct of our business. For
example, third party vendors handle the payroll function for us, and we
also rely on the services of the landlord at our facility,
telecommunication companies, banks, utilities and commercial airlines,
among others. We have obtained assurances from our landlord and our
material vendors and suppliers that there will be no interruption of
service as a result of the Year 2000 issue. We have prepared contingency
plans to mitigate the negative effects on us in the event the Year 2000
issue results in the unavailability of any of these services. However,
contingency plans developed by us may not prevent a service interruption on
the part of one or more of our third party vendors or suppliers. In
addition, the failure on the part of the accounting systems of our clients
due to the Year 2000 issue could result in a delay in the payment of
invoices issued by us for services and expenses. A material service
interruption from a material vendor or supplier or a failure of the
accounting systems of a significant number of our clients would have a
material adverse effect on our business, financial condition and results of
operations.
We have prepared written contingency plans to address failures in our major IT
and non-IT systems. These plans include identification of major systems,
dependencies on third parties, and resources and strategies necessary to restore
operations or work around failures. The failure of our accounting systems
resulting from a Year 2000 related power system outage, particularly at the end
of a fiscal period, could represent a reasonably likely worst case scenario. Our
contingency plan provides for an alternate site that is equipped with back-up
power systems that can support the mission critical areas.
The information concerning our Year 2000 compliance effort includes
"forward-looking statements." Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors that may cause actual events or
costs to be materially different than indicated by such forward-looking
statements. These factors include, among others, unanticipated costs of
remediation and replacement of our Year 2000 compliance efforts, our inability
to meet our targeted dates as scheduled and the failure of our material
suppliers and other strategic relationships to ensure Year 2000 compliance. Any
estimates and projections described have been developed by management and are
based on our best judgments together with the information that is available to
date. Due to the many uncertainties surrounding the Year 2000 issue, our
stockholders are cautioned not to place undue reliance on such forward-looking
statements.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. As of June 30, 1999, we did not use
derivative financial instruments for speculative or trading purposes.
Interest Rate Risk
We invest our cash in corporate money market accounts and collateralized
repurchase agreements. These securities are not subject to interest rate risk
and will not fall in value if market interest rates increase.
Foreign Currency Exchange Risk
The majority of our sales are denominated in U.S. dollars and take place in
North America. We do not believe foreign currency exchange rates or the
introduction of the Euro will have an impact on us.
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PART II
OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds
On May 22, 1998, we commenced an initial public offering ("IPO") of 2,500,000
shares of common stock, par value $.01 per share (the "Common Stock"), pursuant
to our final prospectus dated May 22, 1998 (the "Prospectus"). The Prospectus
was contained in our Registration Statement on Form S-1, which was declared
effective by the Securities and Exchange Commission (SEC File No. 333-48703) on
May 21, 1998. Of the 2,500,000 shares of Common Stock offered, 2,000,000 shares
were offered and sold by us and 500,000 shares were offered and sold by certain
stockholders of ADS. As part of the IPO, certain stockholders of ADS granted the
several underwriters, for whom BancAmerica Robertson Stephens, BT Alex Brown and
Adams, Harkness & Hill, Inc., acted as representatives (the "Representatives"),
an overallotment option to purchase up to an additional 375,000 shares of Common
Stock (the "Underwriters' Option"). The IPO closed on May 28, 1998.
On June 22, 1998, the Representatives, on behalf of the several underwriters,
purchased 375,000 shares of Common Stock from certain stockholders of ADS
pursuant to the exercise of the Underwriters' Option.
The aggregate offering price of the IPO to the public was $32,500,000 (exclusive
of the Underwriters' Option), with proceeds to us and the selling stockholders,
after deduction of underwriting discounts, of $24,180,000 (before deducting
offering expenses payable by us) and $6,045,000, respectively. The aggregate
offering price of the Underwriters' Option exercised was $4,875,000, with
proceeds to the selling stockholders, after deduction of the underwriting
discounts and commissions, of $4,533,750.
The aggregate amount of expenses incurred by us through March 31, 1999 in
connection with the issuance and distribution of the shares of Common Stock
offered and sold in the IPO were approximately $3,084,000, including $2,275,000
in underwriting discounts and approximately $809,000 in other expenses.
None of the expenses paid by us in connection with the IPO or the exercise of
the Underwriters' Option were paid, directly or indirectly, to directors,
officers, persons owning ten percent or more of the our equity securities, or
affiliates of ADS.
The net proceeds to us from the IPO, after deducting underwriting discounts and
commissions and other expenses, were approximately $23,371,000.
From May 21, 1998 through June 30, 1999, we have applied approximately $876,000
of the net proceeds from the IPO to working capital. We invested the balance of
such net proceeds primarily in money market accounts.
14
<PAGE> 15
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial data schedule
(b) Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirement 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.
ATLANTIC DATA SERVICES, INC.
Date: August 9, 1999 By: /s/ Robert W. Howe
----------------------
Robert W. Howe
Chairman and Chief Executive Officer
Date: August 9, 1999 By: /s/ Paul K. McGrath
-----------------------
Paul K. McGrath
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
16
<PAGE> 17
EXHIBIT INDEX
Page
----
27.1 - Financial Data Schedule 18
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1998 Financial Statements included in the Company's Form 10-Q and is
qualified in its entirety by reference to such From 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 36,272
<SECURITIES> 0
<RECEIVABLES> 6,871
<ALLOWANCES> 725
<INVENTORY> 0
<CURRENT-ASSETS> 43,583
<PP&E> 3,203
<DEPRECIATION> 1,923
<TOTAL-ASSETS> 45,038
<CURRENT-LIABILITIES> 4,081
<BONDS> 0
0
0
<COMMON> 130
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 45,038
<SALES> 10,251
<TOTAL-REVENUES> 10,251
<CGS> 7,580
<TOTAL-COSTS> 7,580
<OTHER-EXPENSES> 2,717
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 360
<INCOME-TAX> 156
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
