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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 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: 333-84835
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ANTEON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 54-1023915
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3211 JERMANTOWN ROAD 22030-2801
(ZIP CODE)
FAIRFAX, VIRGINIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 246-0200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
NAME OF EACH EXCHANGE ON WHICH REGISTERED: N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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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 IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K (SECTION 229.405 OF THIS CHAPTER) IS NOT CONTAINED
HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN
DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III
OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. / /
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FORWARD-LOOKING STATEMENTS
This Form 10-K includes and incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to analyses and other information which are based
on forecasts of future results and estimates of amounts not yet determinable.
These statements also relate to our future projects, developments and business
strategies.
These forward-looking statements are identified by their use of terms
and phrases, such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, and may also include references to assumptions. These statements are
contained in the sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and other sections of
this Form 10-K.
Such forward-looking statements include, but are not limited to:
o funded backlog;
o our expectations regarding the Federal government's downsizing and
increased reliance on outsourcing of services; and
o our financial condition and liquidity, as well as future cash flows
and earnings.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, but are not limited to, the following:
o the continuing integration of Analysis & Technology, Inc. without
disruption to our other business activities;
o changes in general economic and business conditions;
o changes in Federal government procurement laws, regulations and
policies;
o the number and type of contracts and task orders awarded to the
Company;
o technological changes;
o the ability to attract and retain qualified personnel;
o changes in Federal government procurement budgets;
o industry capacity;
o competition; and
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o our ability to retain our contracts during any rebidding process.
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, actual results may vary materially from
those expected, estimated or projected. We do not undertake to update our
forward-looking statements or risk factors to reflect future events or
circumstances.
PART I
ITEM 1. BUSINESS
GENERAL
Anteon Corporation and its subsidiaries ("Anteon" or the "Company") are
a leading provider of advanced information technology and engineering systems
and services. Anteon Corporation was founded in 1977 and is incorporated in the
Commonwealth of Virginia. It has developed over a 22-year period the expertise
and capabilities to deliver a broad range of technology solutions. It primarily
serves hundreds of governmental clients, principally within the U.S. Federal
government, from 39 offices worldwide. Anteon has performed work for the U.S.
Congress and all 14 Cabinet-level government agencies, designing, maintaining
and upgrading critical systems such as defense, intelligence, emergency
response, logistics support and financial management systems.
The Company's corporate office is located in Fairfax, Virginia. It
presently employs approximately 3,900 full-time employees in the United States,
England, Germany, Canada, Australia and Korea.
SERVICES AND PRODUCTS
The Company primarily provides services and products to the Federal
Government. The Federal government is among the world's largest purchasers of
information technology. Due to projected increased Federal government
outsourcing, the amount of information technology services procured from
contractors is expected to increase by approximately 6.9% per annum from 1999 to
2002. The Company believes that the emphasis of the Federal government on
downsizing and budget constraints for large new projects will continue to result
in the increased use of technology to enhance productivity with expenditures
focused on upgrading existing equipment and systems, including many that we
designed and are currently supporting.
ANTEON DIVISIONS
The Company has organized itself into a number of operating divisions
(three of which are operated as subsidiaries). The following is a brief
description of each of the Company's divisions.
A&T
Analysis & Technology Inc. ("A&T"), which was acquired by the Company in
1999, provides its services through two operating divisions (one of which is a
subsidiary), the Engineering/Information Technology ("E/IT") division and
Interactive Media Corp. The following
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is a brief description of each of A&T's divisions and examples of some of the
projects and programs A&T has performed for its government customers. The E/IT
division consists of three groups, the Systems Technology Group, the Engineering
Technology Group and the Information Technology Group, which are primarily
organized according to functional capabilities and customer focus. The Systems
Technology Group provides expertise in undersea warfare through full end-to-end
services, including requirements definition, combat system engineering, test and
evaluation, production and support. The Engineering Technology Group and the
Information Technology Group each provide technical expertise in key technology
areas such as ship signature modeling, signal processing, smart product
modeling, and development of tactical decision aids.
The E/IT division's Systems Technology Group has provided the full
spectrum of engineering and analytical services primarily to the Naval Undersea
Warfare Center for more than three decades. Over the years, its customer focus
has been expanded to include U.S. Navy Systems and Operations commands. The
Systems Technology Group has leveraged its naval C4ISR experience into other
branches of the armed forces. The Systems Technology Group has the capability to
provide end-to-end services to meet customer requirements including (1)
requirements definition; (2) systems engineering and integration; (3) testing
and evaluation; and (4) support. For example, the Systems Technology Group
provides a wide array of support for the Combat System for the New Attack
Submarine ("NSSN"), the next generation of attack submarine. Other important
contracts are with the Fleet Technical Support Center and the Naval Research
Laboratory's Stennis Space Center. In addition, the division is developing
prototype communication software in support of the U.S. Navy's IT-21 initiative
that will incorporate commercial off-the-shelf ("COTS") technology to speed
solution to the fleet.
The E/IT division's Engineering Technology Group strategically combines
ship design and engineering and combat systems engineering expertise with
acquisition and program management support services to further the Company's
strategy of positioning itself as a provider of end-to-end services for
technology solutions. This combination of services allows the Company to use the
knowledge gained from the day-to-day management of high profile U.S. Navy
programs to capture high-end ship design and engineering and combat systems
engineering work. An example of the work of the Engineering Technology Group is
the service it provides to Office of Naval Research Technology Transfer and PEBB
Programs. The Technology Transfer program's goal is to transition technology
developed in U.S. Navy research and development programs to the fleet and to
private industry. The objective of the PEBB program is to reduce new ship
construction costs as well as maintenance costs by providing a smart
multifunction device that interfaces between the ship's machinery, systems and
power supply. To facilitate this, the Company's machinery research and
development engineers are designing and developing a new class of programmable
electronic power modules for shipboard power control and conversion. This
includes providing engineering support from requirements definition to design,
development, prototyping and device fabrication and installation. The
Engineering Technology Group performs high level theoretical and applied
research to reduce various signatures in combatant ships for Naval Surface
Warfare Center ("NSWC").
The E/IT division's Information Technology Group specializes in
developing tactical decision aids primarily for the U.S. Navy. Its capabilities
include (1) software development, (2) telecommunications/networking, (3)
database systems, (4) COTS product integration,
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(5) training, (6) simulation and (7) modeling and data fusion. The Information
Technology Group helps customers improve the capability, responsiveness, and
reliability of their systems through advanced network architectures and user
friendly software platforms. The Company is providing COTS solutions to develop
a high-technology graphical user interface ("GUI") for the Advanced Systems
Technology Office of NAVSEA. The Company was also selected by the Naval Research
Laboratory to perform research and development on the METOC database, a system
that reduces event-triggered human decision errors. The METOC system was
selected by NATO as the standard for the Allied forces' environmental analysis
systems.
Interactive Media Corp. ("IMC"), a subsidiary and division of A&T,
provides custom training and performance solutions across all major computer
platforms and delivery systems. IMC has established positions in
telecommunications and financial services as well as in the rapidly growing
web-based training market. IMC has many years of consulting, performance
improvement and training services experience. Since 1990, IMC's personnel have
developed thousands of hours of interactive media courseware. IMC's computer
programmers and consultants use web-based delivery systems and multimedia
technology, including computer generated graphics, animation, full motion video
and high fidelity audio to develop training solutions that are both educational
and expedient to the end user. The unit's multimedia technologies are platform
and tool independent, allowing them to be easily integrated into any company's
computer environment.
FEDERAL INFORMATION TECHNOLOGY GROUP
The Federal Information Technology Group focuses on providing
information technology services to the U.S. Army, U.S. Air Force, Defense
Finance and Accounting Service, Federal Emergency Management Agency ("FEMA"),
Bureau of Indian Affairs and selected additional government and commercial
organizations. The division provides system integration and full end-to-end
information technology services. The division provides its services through
multiple contract vehicles including GSA Schedule, GSA CAPZONE, GSA ANSWER and
Department of Transportation ITOP.
The Federal Information Technology Group developed for FEMA the National
Emergency Management Information System ("NEMIS"). NEMIS is an enterprise-wide
Oracle-based client/server management information system that connects several
thousand desktop and mobile terminals/handsets and provides FEMA with a fully
mobile, nationwide response and disaster management system. The Federal
Information Technology Group continues to provide support and maintenance to
NEMIS system and we believe there may be significant opportunities to sell
similar systems to individual states and foreign governments.
Another example of the group's work is the U.S. Air Force Cargo Movement
Operations System ("CMOS") project, which began as a systems development and
integration contract and has evolved into an end-to-end support relationship.
The Company has been supporting CMOS since 1989 when it started to develop this
mission critical system for the U.S. Air Force to automate cargo movement
operations. CMOS is one of the largest open systems within the Department of
Defense, and the first standard Air Force client server application to be
installed at air bases worldwide. The CMOS project involved full systems
development, end-to-end support, integration of COTS systems and custom
developed software, configuration management, maintenance implementation, and
training. As a result of the Company's performance on CMOS, the Company
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has been awarded the Transportation Coordination Automated Information Movement
Systems ("TC-AIMS") contract through the Department of Transportation ITOP II
contract. TC-AIMS uses the CMOS system as a model to develop a transportation
and deployment management system that will coordinate critical logistics
requirements throughout the Department of Defense.
TECHMATICS
Techmatics, Inc. ("Techmatics") was acquired by the Company in 1998.
Techmatics' client base is predominantly the U.S. Navy and includes
approximately 30 customers or agencies within the U.S. Navy. Projects on which
Techmatics is engaged include the Ballistic Missile Defense Program, the Cruise
Missile Defense Program, the Ship Self Defense Program and the Navy Theater Air
Defense program. Techmatics was also recently selected to provide systems
engineering support for the next generation destroyer, the new attack submarine
and the aircraft carrier programs.
Techmatics also supports all aspects of the U.S. Navy AEGIS Program,
including ship design, construction and maintenance; AEGIS Combat System
engineering and testing; and the engineering and introduction of a Theater
Ballistic Missile Defense capability in AEGIS.
VECTOR DATA
Vector Data Systems, Inc. ("Vector Data") was acquired by the Company in
1997 and provides systems engineering including what is known in the defense
industry as command, control, computers, communications, intelligence,
surveillance and reconnaissance (C4ISR) services to national and international
defense organizations. Vector Data provides services and support worldwide for
NATO and other coalition warfare, strategic and tactical communications, imagery
exploitation and mission rehearsal from the beginning stages of a program
through its entire life. The division's client base includes, among others, the
U.S. Department of Defense, NATO and the U.K. Ministry of Defense. Vector Data's
support of C4ISR systems such as Linked Operations/Intelligence Centers Europe
("LOCE") has been critical in providing a common structure and set of standards
that allow for the rapid distribution and exchange of tailored intelligence data
to support coalition operations in peace, crisis and war. Vector Data supports
the LOCE program by providing software and hardware maintenance, communications
engineering, formal classroom and on-site training, and hardware/software
configuration management, and provides responsive, on-site daily customer
service from the U.S., Italy, U.K., and Germany. Vector Data is in its third
contract on this project and is currently the sole-source provider.
ENTERPRISE SOLUTIONS AND SERVICES GROUP
The Enterprise Solutions and Services Group is a multifunctional
division which includes four groups: the Dayton Operation, the Product
Applications and Services Operation, the Business Development Group and the
Proposal Development Group. The Dayton Operation conducts materials science
research and development efforts and covers the spectrum of basic research and
exploratory and advanced development efforts for the Air Force's Research
Laboratory including helping to design, build and operate the largest continuous
wave gas laser in the United States, located at Wright Patterson Air Force Base.
The Product Applications and Services Operation sells a wide variety of
products, such as Oracle's latest database and applications software, and
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maintenance and other services and training to the Federal government through
Anteon's GSA Schedule contract. The Business Development Group is responsible
for generating new business for Anteon and the Proposal Development Group is
responsible for preparing new proposals for all of Anteon's operating groups.
GSA PROGRAMS GROUP
The GSA Programs Group provides information technology services to a
wide variety of customers in the western U.S. through one or more of its GSA
contracts or GSA Schedules. The Company's client base includes, among others,
the U.S. Navy, Army Corps of Engineers, Air Force, the Environmental Protection
Agency, the GSA and Department of Interior. An example of the type of services
provided by the GSA Programs Group is the engineering and information technology
support provided to the U.S. Navy's Site Characterization and Analysis
Penetrometer System ("SCAPS") since 1994. The SCAPS is an innovative technology
developed by the Naval Command, Control and Ocean Surveillance Center-Research
and Development. Geologists use SCAPS to rapidly characterize subsurface
conditions at sites for real-time data processing of on-site evaluations.
CONTRACTS
GOVERNMENT BIDDING OVERVIEW
There are several different processes through which a Federal government
agency will solicit bids. The following is a summary of the typical bidding
process which government contractors such as the Company encounter. If a Federal
government agency has a requirement, such as the upgrade of a management
information system, the agency makes a brief announcement of its requirements in
the COMMERCE BUSINESS DAILY or on a government electronic bulletin board to
which contractors like the Company have access. Interested contractors then
submit packages expressing their interest and highlighting their qualifications.
The agency responds to those contractors it deems preliminarily qualified by
providing them with a request for a proposal ("RFP") or similar solicitation.
The RFP is an extensive document describing the desired services and terms and
conditions that will form the final agency contract. The RFP includes a
statement of the criteria according to which bids will be evaluated (usually
focusing on price, past performance and quality of technical/management plan).
Bidders then submit proposals in response to the RFP. The agency evaluates all
the proposals and announces the winner. This process can take up to a year.
The competitive process for a multiple award contract procurement is
similar to that described above, except that the government awards multiple
contracts to a selected group of contractors, rather than a single contract.
Federal agencies desiring to procure goods and services through a particular
multi-agency contract such as GSA ANSWER, will request the servicing agency (for
example, GSA) to initiate a limited competition among the selected awardees,
resulting in the issuance of a task order to a single contractor. A task order
calls for a specific set of services to be delivered by the contractor to a
particular client agency. Competition for task orders among initial awardees can
be intense and often focuses on price, because the initial awardees are already
qualified to supply the service through the initial award of the government
contract vehicle. However, the Company's experience has been that after winning
a task order and effectively
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providing the requested services, it will typically receive successive task
orders from the same agency for follow-on services. The Company's experience has
also been that the key factors in bidding successfully for these Federal
government contracts are technical capabilities, past performance, competitive
prices and reputation.
TYPES OF CONTRACT VEHICLES
The Federal information technology procurement environment has changed
dramatically in recent years. Federal government agencies traditionally procured
information technology solutions through agency-specific contracts awarded to a
single contractor or contractor team. Several statutory and regulatory changes
have significantly altered Federal government procurement practices. The number
of procurement "vehicles" available to Federal government customers to satisfy
their requirements has increased dramatically in recent years. Federal
government agencies are now more likely to use flexible contract vehicles that
permit multiple sources to compete for specific orders. The Company believes
these trends are likely to continue.
IDIQ ("Indefinite Delivery Indefinite Quantity") contracts are
essentially umbrella contracts that set forth the basic terms and conditions
under which the Federal government may order goods and services from one, and in
some cases, more than one, contractor. Such contracts will also specify the
labor and other costing rates that will apply to services that may be the
subject of task orders under those contracts. IDIQ contracts may be awarded to a
single contractor, or to multiple contractors. Multiple-award IDIQ contracts are
increasingly being used for large-scale Federal government purchases of services
and/or integrated systems that may include a significant service or maintenance
component, along with the provision of computer hardware and software. The
periods of performance for IDIQ contracts usually span a base year and a number
of option years. IDIQ contracts do not obligate the Federal government to
purchase goods or services at the maximum levels set forth in the contract.
Federal government agencies also frequently purchase information
technology services and products through other contract vehicles such as GSA
Schedules. GSA awards such indefinite quantity fixed price contracts to
companies for stated periods of time through which individual agencies may place
orders, receive shipments and make payments directly to contractors. In order
for a company to provide services under a GSA contract, the company must be
pre-qualified and selected by the GSA. In the information technology service
sector the three ratings criteria employed by the GSA for pre-qualification are
technical skills, price and a history of excellence in government contract
administration. The Company and certain of its divisions have GSA Schedule
contracts.
The changed environment presents suppliers such as the Company with a
number of challenges. For example, a substantial amount of marketing must be
done after winning the initial contract in order to win subsequent delivery and
task orders. The Company's experience has been that the changed environment for
government contractors has on balance been highly favorable to suppliers such as
the Company that have a wide range of technological capabilities, are very
focused on cost control and have a high degree of sophistication and experience
in government contracting. First, these more flexible forms of contract vehicles
provide for very sizable revenue generation opportunities. Some of the Company's
IDIQ contracts potentially involve billions of dollars of revenues for awardees.
Second, these vehicles permit the Company to market its services
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to a much wider range of customers than was possible under more traditional
contracting vehicles. Third, the current environment tends to favor entities
that have the size and technological breadth to offer a variety of services
because the umbrellas provide for broader opportunities. Finally, the Company
has found that this environment encourages building longer term and stable
supplier/customer relationships because there are often a number of contract
vehicles under which Federal agencies may be able to direct work to preferred
contractors. This tends to lessen the risks to customer and supplier of going
through recompetes in order to continue to transact business, and provides a
reward for suppliers such as the Company that establish a reputation for quality
and integrity.
CONTRACT PAYMENT TYPES
The contract vehicles described above employ various payment
methodologies. Contracts are typically referred to as time and materials
contracts, cost-plus contracts and fixed-price contracts. Each of these contract
payment types is described below.
TIME AND MATERIALS CONTRACTS
Some of the Company's largest contracts are negotiated on the basis of
time and materials. Under this type of contract, a contractor is paid a fixed
hourly rate for direct labor hours expended. Labor costs, overhead and profit
are included in the fixed hourly rate. Materials, subcontractors and other
direct costs are reimbursed at actual cost-plus general and administrative
expenses and, in some instances, an agreed-upon percentage of profit. A
contractor makes critical pricing assumptions when proposing fixed labor rates
for a time and materials contract and risks loss of profitability on time and
materials contracts if its actual costs exceed assumed costs made.
COST-PLUS CONTRACTS
Cost-plus contracts provide for reimbursement of costs, to the extent
that such costs are allowable, and the payment of a fixed "fee," which is
essentially the profit negotiated between the contractor and the contracting
agency. Cost-plus incentive fee and cost-plus award fee contracts provide for
increases or decreases in the contract fee, within specified limits, based upon
actual results as compared to contractual targets for factors such as cost,
quality, schedule and performance. The fee is either fixed at the time of award
(fixed-fee), earned at a fixed hourly rate as hours of service are provided
(hourly-fee), or is awarded based on performance, at the sole discretion of the
Government (award-fee). The majority of the Company's cost-reimbursement
contracts are either cost-plus-fixed-fee or cost-plus-hourly-fee contracts. The
contracts may either require completion of defined tasks or delivery of a
specific number of hours of service. The current trend continues to be to
contracts of the latter type. The total of the cost and the fee cannot exceed
the ceiling set forth in the contract. If a contracted task has not been
completed or the specific number of hours of service have not been delivered at
the time the authorized cost is expended, the Company may be required to
complete the work and will be reimbursed for the additional costs but will not
receive an additional fee or the fee may be prorated proportionately to the
number of hours actually provided. To date, the impact of such revisions has not
been material.
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FIXED PRICE CONTRACTS
Under fixed price contracts, a contractor agrees to perform specified
work for a fixed-price and, accordingly, there is greater risk of performing on
the contract.
The following table gives the approximate percentages of the Company's
revenues realized from the three basic contract types during the periods
indicated for its continuing operations:
FISCAL YEARS ENDED DECEMBER 31,
CONTRACT TYPE 1997 1998 1999
- - ------------- ---- ---- ----
Cost-Reimbursement 23% 34% 37%
Time-and-Materials 61% 47% 38%
Fixed-Price 16% 19% 25%
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Total Company 100% 100% 100%
Revenue under cost-reimbursement, time-and-materials, and fixed-price
contracts, including applicable fee or profit, are recognized concurrently with
costs incurred thereunder. Certain amounts not yet billed to customers are
included in recognized revenues and in contract receivables on the balance
sheet.
FEDERAL GOVERNMENT RECEIVABLES
Almost all of the Company's accounts receivable are derived from Federal
government agencies. An account receivable from a Federal government agency
enjoys the overall credit worthiness of the Federal government, even though each
such agency is a separate agency with its own budget. Pursuant to the Prompt
Payment Act, payments from government agencies must be made within 30 days of
final invoice or interest must be paid. However, changes in Federal government
contracting policies could directly affect the Company's financial performance,
and its continued performance under government agency contracts, or the award of
additional contracts from these agencies, could be materially adversely affected
by spending reductions or budget cutbacks at these agencies. Also, Federal
government prime contracts typically span one or more base years and one or more
option years, often covering more than half of the contract's potential
duration. Federal government agencies generally have the right not to exercise
these option periods and to terminate their contracts on short notice, with or
without cause. Further, all Federal government contracts are subject to protest
by competitors.
REGULATION
The passage of the Information Technology Management Reform Act
("ITMRA") in late 1996 resulted in major changes in Federal government
procurement rules governing the acquisition of information technology goods and
services. The ITMRA changed the government's process for procuring information
technology by (1) placing increased attention on the cost-effectiveness of
information technology, return on investment and performance and (2) allocating
to individual
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agencies authority and accountability for information technology budgets. These
trends are expected to result in increased interagency coordination and sharing
of expense and fewer proprietary or single agency solution systems. Suppliers
such as the Company benefit from these trends. As a result of the ITMRA,
multiple-award IDIQ government-wide contracts are the preferred vehicle for
procuring information technology. Accordingly, contractors have a decreased need
for large-scale investment in bid and proposal activities and an increased need
to commit marketing resources to identify and capture tasks under existing
contracts.
Federal government contracts are subject to the Federal Acquisition
Regulations ("FAR") and other agency FAR supplements. Major contracts are also
subject to the Truth in Negotiations Act ("TIN Act") and Cost Accounting
Standards ("CAS"). Among other procurement regulations, the FAR contains the
cost principles for setting contract prices while the TIN Act requires us to
provide current, accurate and complete cost or pricing data in connection with
the negotiation of a contract. CAS requires consistency of accounting practices
over time and compliance with specific cost accounting criteria.
To the extent that a company fails to comply with procurement
requirements, the Federal government may adjust contract prices. Additionally,
changes in cost accounting practice are subject to a required procedure for
negotiation of the cost of the change. The Federal government is protected from
paying increased costs resulting from accounting changes.
The books and records of the Company are subject to audit by the Defense
Contract Audit Agency ("DCAA"), which can result in adjustments to contract
costs and fees as well as penalties and interest costs. The Government retains a
portion of the fee earned by the Company until contract completion and audit by
the DCAA. Audits of the Company by DCAA have been completed for all fiscal years
through 1996 without material adjustments. In the opinion of management, the
audits for fiscal years 1997, 1998 and 1999 will not result in adjustments
having a material adverse effect on the Company's financial position or Results
of Operations. However, no assurances can be given that future material
adjustments will not be required.
BACKLOG
The Company's total backlog represents the aggregate contract revenue
remaining to be earned by the Company at a given time over the life of its
contracts. When more than one company is awarded contracts for a given work
requirement, the Company includes in total backlog its estimate of the
contract revenue it expects to earn over the remaining life of the contract.
Funded backlog consists of the aggregate revenue remaining to be earned at a
given time under (a) contracts for which funding has been contractually
committed to the Company in writing by a procuring Government agency, and (b)
contracts with non-Government customers. Unfunded backlog is the difference
between total backlog and funded backlog.
The Company, like most of its competitors, possess a substantial backlog
of several hundred contracts that provide potential multi-year revenues. Most of
the contracts are operational over a one to ten-year period. In the past, the
Company has generally been successful in substantially expanding the scope and
size of our principal contracts. The Company's estimated total contract backlog
as of December 31, 1999 was $2.3 billion with an additional $533 million of bids
outstanding and over $1 billion of identified bid opportunities. As of
December 31, 1999 and 1998, funded backlog was $207 million and $101 million,
respectively.
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CUSTOMERS
The Company is one of a select group of qualified suppliers of
information technology services to the Federal government. Domestically, the
Company services more than 60 agencies, bureaus and divisions of the U.S.
Federal government, Cabinet-level agencies and all branches of the military
services, which customers provide approximately 93% of the Company's aggregate
revenues. State and local governments, international clients and the commercial
sector provide the remaining 7%. In particular, the Company has an established
track record of providing quality services to the U.S. Navy. The Company
maintains contracts with approximately 30 different U.S. Navy organizations.
These organizations independently contract for our services and generated, after
giving pro forma effect to the acquisition of A&T, approximately 48% of the
Company's 1999 revenues. The GSA, the Environmental Protection Agency and FEMA
are Anteon and its subsidiaries largest civil government customers.
Approximately 60% of IMC's revenues were generated from commercial
customers. These customers include FORTUNE 500 companies primarily in
telecommunications, financial services and information technology. IMC has
developed training systems for companies such as MCI Worldcom, Ameritech, GTE,
Royal Bank of Canada, National City Bank, SmithKline Beecham and Merck.
COMPETITION
The Federal information technology and engineering services industries
are comprised of a large number of enterprises ranging from small,
niche-oriented companies to multi-billion dollar corporations with a major
presence throughout the Federal government. Because of the diverse requirements
of Federal government clients and the highly competitive nature of large Federal
contracting initiatives, corporations frequently form teams to pursue contract
opportunities. Prime contractors leading large proposal efforts select team
members on the basis of their relevant capabilities and experience particular to
each opportunity. As a result of these circumstances, companies that are
competitors for one opportunity may be team members for another opportunity. The
Company frequently competes against the well-known firms in the industry as a
prime contractor. Obtaining a position as either a prime contractor or
subcontractor on large government-wide contracting vehicles is only the first
step to ensuring a secure competitive position. Competition then takes place at
the task order level, where knowledge of the client and its procurement
requirements and environment are key to winning the business.
EMPLOYEES
The Company employs approximately 3,900 personnel. None of the Company's
employees is represented by collective bargaining agreements. Management
believes its relationship with its employees is good.
ITEM 2. PROPERTIES
The Company's headquarters are located in leased facilities in Fairfax,
Virginia. The Company also leases approximately 768,602 square feet of office,
shop and warehouse space in 75 facilities across the United States, Canada,
United Kingdom, South Korea and Australia. The
12
<PAGE>
Company owns A&T's headquarters building in North Stonington, Connecticut, which
occupies 60,330 square feet of office space. The Company also owns office and
shop space in New London, Connecticut and Butler, Pennsylvania. It presently
subleases to tenants approximately 23,000 square feet of its Butler office space
and 20,000 square feet of its New London office space.
A summary of the Company's principal leases over 5,000 square feet is as
follows:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE LEASE EXPIRATION
- - -------- -------------- ----------------
<S> <C> <C> <C>
Fairfax, Va. Jermantown Road 111,865 6/30/10
Crystal City, Va. Jefferson Davis Hwy. 74,350 7/31/02
Chesapeake, Va. Crossways Boulevard 48,000 2/28/03
Middletown, R.I. One Corporate Place 45,130 6/30/04
Arlington, Va. Jefferson Davis Hwy. 33,958 9/30/03
Montgomery, Ala. E. Gunter Park Road 19,320 2/28/01
Rockville, Md. Tower Oaks Boulevard 19,164 12/31/01
McLean, Va. Jones Bridge Road 15,779 10/31/01
San Diego, Ca. Mission Valley Road 15,023 5/14/00
Dayton, Oh. Wright Point 2 10,665 3/31/04
Walnut Creek, Ca. Growers Square 8,531 12/31/01
Virginia Beach, Va. Greenwich Commons 7,754 5/31/04
Newington, Va. Cinderbed Road 7,634 9/30/03
Las Vegas, NV S. Maryland Parkway 7,473 1/27/05
</TABLE>
The Company believes its facilities and equipment are in good condition and
adequate for its current business needs. The Company has not experienced, and
does not anticipate experiencing, any difficulty in obtaining satisfactory
facilities. For additional information on the Company's leases and rental
expenses see Note 12(a) of "Notes to Consolidated Financial Statements" on page
23 of the Company's 1999 Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Neither Anteon nor A&T is involved in any material legal proceedings
except for ordinary routine litigation incidental to its business which is
not otherwise material to its business or financial condition.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Not Applicable
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data has been derived from
(1) in the case of the Company, its audited consolidated financial statements as
of and for the years ended December 31, 1999, 1998 and 1997 and as of December
31, 1996 and for the period from April 1, 1996 to December 31, 1996 and (2) in
the case of our predecessor company, Ogden Professional Services Corporation
(the "Predecessor Company"), its audited consolidated financial statements for
the period from January 1, 1996 to March 31, 1996 and the year ended December
31, 1995. The following selected consolidated financial data as of December 31,
1995 of its Predecessor Company is derived from unaudited consolidated financial
statements. Each of the audited consolidated financial statements of the Company
and the Predecessor Company have been audited by KPMG LLP, independent certified
public accountants. These results are not necessarily indicative of the results
that may be expected for a complete year or for any future period and are not
comparable to the prior period as a result of business acquisitions consummated
in 1997, 1998 and 1999. Results of operations of these acquired businesses are
included in the Company's consolidated financial statements for the periods
subsequent to the respective dates of acquisition. This data should be read in
conjunction with "Business", "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical consolidated financial
statements of the Company, together with the respective notes thereto.
14
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
------------------- -------
PERIOD FROM PERIOD FROM
YEAR JANUARY 1, APRIL 1,
ENDED 1996 1996 TO
DECEMBER 31, TO MARCH 31, DECEMBER 31, YEAR ENDED
------------ ------------ ------------ DECEMBER 31,
1995 1996 1996 1997 1998 1999
---- ---- ---- ---- ----- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................. $ 108,504 $ 32,046 $ 109,780 $ 176,292 $ 249,776 $ 400,850
Costs of revenues......... 101,084 29,218 100,426 159,539 221,588 353,245
-------- -------- --------- -------- ---------- --------
Gross profit.............. 7,420 2,828 9,354 16,753 28,188 47,605
General and
administrative expenses. 6,489 2,071 4,616 8,061 15,286 25,610
Amortization of
non-compete agreements.. - - 1,714 2,286 530 909
Goodwill amortization..... - - 346 742 1,814 3,440
Costs of acquisitions .... - - - 584 115 2,316
-------- -------- --------- -------- ---------- --------
Operating income (loss)... 931 757 2,678 5,080 10,443 15,330
Gains on sales of
investments and other - - - - - 2,585
income
Interest expense, net..... 105 - 1,455 2,365 5,597 16,042
Minority interest in
earnings of subsidiaries - - - 13 25 40
-------- -------- --------- -------- ---------- --------
Income (loss) before
provision for income
taxes and 826 757 1,223 2,702 4,821 1,833
extraordinary loss......
Income tax expense 330 303 416 1,063 2,353 1,543
(benefit)...............
-------- -------- --------- -------- ---------- --------
Net income (loss) before
extraordinary loss....... $496 $454 $807 $1,639 $2,468 $290
Extraordinaryloss, net of
tax..................... - - - - - 463
-------- -------- --------- -------- ---------- --------
Net income (loss)......... 496 454 807 1,639 2,468 (173)
======== ========= ========= ======== ========== ========
<CAPTION>
PREDECESSOR COMPANY COMPANY
------------------- -------
PERIOD FROM PERIOD FROM
YEAR JANUARY 1, APRIL 1,
ENDED 1996 1996 TO
DECEMBER 31, TO MARCH 31, DECEMBER 31, YEAR ENDED
------------ ------------ ------------ DECEMBER 31,
1995 1996 1996 1997 1998 1999
---- ---- ---- ---- ----- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(a)................. $2,039 $1,143 $5,800 $9,583 $15,988 $26,425
EBITDA margin............. 1.9% 3.6% 5.3% 5.4% 6.4% 6.6%
Cash flow from (used in)
operating activities.... $(8,119) $2,224 $7,519 $14,094 $(8,340) $11,565
Capital expenditures...... 1,195 211 376 817 2,089 4,761
Ratio of earnings to
fixed charges........... 1.8x 4.5x 1.6x 1.8x 1.6x 1.1x
BALANCE SHEET DATA (AS
OF DECEMBER 31):
Current assets............ $36,591 $42,394 $35,744 $73,556 $117,600
Working capital........... 23,859 23,397 11,767 34,161 48,219
Total assets.............. 40,697 59,599 68,572 143,168 285,176
Net debt ................. - 19,486 23,448 73,573 178,083
</TABLE>
15
<PAGE>
(a) EBITDA represents earnings before interest, taxes and depreciation and
amortization. EBITDA is presented because we believe that it is a widely
accepted supplemental indicator of an entity's ability to incur and
service debt. However, EBITDA should not be considered by an investor as
an alternative to net income or operating income as an indicator of our
operating performance or cash flow from operations, or as an alternative
to cash flows as a measure of liquidity.
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
A summary of comparative results for the years ended December 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1999 and 1998
(amounts in thousands)
- - -------------------------------------------------------------------------------------------------------------------
Percentage
increase/decrease
from December 31, 1998
1999 1998 to December 31, 1999
----------------- ------------------ ------------------------
<S> <C> <C> <C>
Revenue $ 400,850 $ 249,776 60.5%
Operating income 15,330 10,443 46.8%
Income before provision for
income taxes and extraordinary 1,833 4,821 (62.0%)
loss
Net income (loss) $ (173) $ 2,468 (107.0%)
</TABLE>
A summary of comparative results for the years ended December 31, 1998 and 1997
is as follows:
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1998 and 1997
(amounts in thousands)
- - ------------------------------------------------------------------------------------------------------
Percentage
increase/decrease
from December 31, 1997
1998 1997 to December 31, 1998
-------------- -------------- --------------------
<S> <C> <C> <C>
Revenue $ 249,776 $ 176,292 41.7%
Operating income 10,443 5,080 105.6%
Income before provision for
income taxes and extraordinary 4,821 2,702 78.4%
item
Net income $ 2,468 $ 1,639 50.6%
</TABLE>
16
<PAGE>
1999 COMPARED WITH 1998
REVENUES
Revenues increased by $151.1 million to $400.9 million for the year
ended December 31, 1999, or 60.5%, from $249.8 million in 1998. The increase was
due to both internal growth and growth through acquisitions. Internal revenue
growth was primarily attributable to increased revenues in Enterprise Solutions
and Services, Federal Information and Technology and Vector Data. These gains
were offset by a decline in the West Coast business which resulted from a
transition of tasks from the sole source Paczone contracts to the new Answer
contract which was awarded in December 1998. Growth from acquisitions was due to
the inclusion of a full year of Techmatics revenue of an additional $39.0
million ($88.6 million for twelve months). In addition, A&T contributed $92.9
million in revenue for the period July through December.
Total backlog increased during 1999 from $1.2 billion at January 1, 1999
to $2.3 billion at December 31, 1999. Of this amount, funded backlog increased
from $101 to $207 million. Of the total increase, $713 million was due to the
acquisition of A&T and $383 million was generated internally through both new
contract awards and the Company's ability to maintain its position as incumbent
service provider on 100% of its major contracts.
COSTS OF REVENUES
Costs of revenues increased by $131.7 million for the year ended
December 31, 1999 or 59.4%, to $353.2 million from $221.6 million in 1998. As a
percentage of revenues, costs of revenues decreased to 88.1% in 1999 from 88.7%
in 1998. The improvement in gross margins was attributable to improved
absorption of indirect overhead expenses and higher gross profit margins at
Techmatics and Vector Data.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased from $15.3 million in 1998
to $25.6 million in 1999, a difference of $10.3 million or 67.3%. As a
percentage of revenues, general and administrative expenses increased to 6.4% in
1999 from 6.1% in 1998. General and administrative expenses consist of corporate
management, finance and administration, marketing and contract functions. The
increase in general and administrative expense was attributable primarily to the
addition of $9.2 million of general and administrative expenses related to the
acquisition of A&T in 1999 and the expansion of the Company's personnel and
management to meet the increasing demands of its expanding business. Generally,
a significant portion of these costs is reimbursable under the Company's
contracts.
OPERATING INCOME
For the twelve months ended December 31, 1999, operating income
increased by $4.9 million, or 46.8%, to $15.3 million, from $10.4 million in
fiscal year 1998. As a percentage of revenues, operating income decreased from
4.2% in 1998 to 3.8% in 1999. Acquisition-related severance and costs associated
with other potential acquisitions of $2.3 million accounted for 0.6%
17
<PAGE>
of the margin decline. The $15.3 million in 1999 earnings includes $4.3 million
associated with six months of A&T operations.
Net interest expense increased by $10.4 to $16.0 million in 1999 from
$5.6 million in 1998. This increase was principally due to the $100 million of
12% senior subordinated notes, which were issued in May 1999. Interest expense
on the notes was $7.5 million for fiscal year 1999. In addition, the Company
expensed $0.7 million of bridge financing and $0.7 million of deferred loan and
financing fees associated with the purchase of A&T, and $0.8 million interest on
the Techmatics shareholder notes and non-compete agreements.
Earnings before income taxes for the twelve months ended December 31,
1999 decreased 62.0% to $1.8 million from $4.8 million for the twelve months
ended December 31, 1998. This was due primarily to the increased interest
expense for the new senior subordinated notes. Anteon's effective tax rate for
the twelve months ended December 31, 1999 increased to 84.2% from 48.8% for
1998. The higher effective tax rate in fiscal 1999 was due primarily to an
increase in non-deductible amortization of goodwill.
For the twelve months ended December 31, 1999 net earnings fell 107.0%
to $(.2) million from $2.5 million during the twelve months ended December 31,
1998. This was primarily attributable to a $7.5 million increase in net interest
expense for the senior subordinated notes.
1998 Compared with 1997
REVENUES
Revenues increased by $73.5 million or 41.7% to $249.8 million in
1998 from $176.3 million in 1997 due to internal growth and acquisitions. The
Company's internal growth (I.E., excluding acquisitions) of 13.5%, or $23.9
million, was primarily driven by increased licensing revenues from the
Product Applications and Services Group of the Enterprise Solutions and
Services Group and increased revenues under the TC-AIMS contract. Techmatics
generated $49.6 million in revenues subsequent to its acquisition on May 29,
1998. The full year impact from the acquisition of Techmatics increased the
Company's pro forma revenues to $282.5 million. The Company also
significantly increased its contract backlog by winning several major awards
in late 1998, including the $25 billion GSA ANSWER contract and the $10
billion Department of Transportation ITOP II contract. Backlog increased
during 1998 from $341 million at January 1, 1998 to $1.2 billion at December
31, 1998, $119.2 million. Funded backlog increased from $99.7 million at
December 31, 1997 to $129.7 million. This was attributable to new contract
awards and $230 million of which was attributable to the acquisition of
Techmatics and the remainder of which was attributable to the Company's
ability to maintain its position as an incumbent service provider on 100% of
its major contracts that have been recompeted.
COSTS OF REVENUES
Costs of revenues increased by $62.1 million or 38.9% to $221.6 million
in 1998 from $159.5 million in 1997. As a percentage of revenues, costs of
revenues decreased to 88.7% in 1998 from 90.5% in 1997. The improvement in gross
margins was attributable to improved
18
<PAGE>
reimbursement for indirect overhead expenses, higher gross profit margins of
Techmatics and improved profitability of the Product Applications and Services
Group.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $7.2 million or 88.9%
from $15.3 million in 1998 from $8.1 million in 1997. As a percentage of
revenues, general and administrative expenses increased to 6.1% in 1998 from
4.6% in 1997. General and administrative expenses consist of corporate
management, finance and administration, marketing and contract functions. The
increase in general and administrative expense was attributable primarily to the
addition of $3.1 million of overhead expenses of Techmatics in 1998 and the
expansion of the Company's personnel and management to meet the increasing
demands of its expanding business. Generally, a significant portion of these
costs is reimbursable under the Company's contracts. Additionally, general and
administrative expenses were increased by a $0.7 million write-off of
unamortized contract start-up costs incurred by our Predecessor Company relating
to contracts that were awarded in 1995.
OPERATING INCOME
Operating income increased by $5.3 million or 105.6% to $10.4 million in
1998 from $5.1 million in 1997. As a percentage of revenues, operating income
improved by 44.8% to 4.2% in 1998 from 2.9% in 1997.
Net interest expense increased to $5.6 million in 1998 from $2.4 million
in 1997 principally due to increased debt incurred to acquire Techmatics.
Income before taxes increased 77.8% to $4.8 million in 1998 from $2.7
million in 1997. The Company's effective tax rate increased to 48.8% in 1998
from 39.3% in 1997 principally due to the non-deductibility of goodwill
generated by the Company's acquisition of Vector Data. After-tax income
increased 56.3% to $2.5 million in 1998 from $1.6 million in 1997. The large
increase in revenue and operating earnings offset in part by the increase in
interest expense and tax rate, contributed to this increase in net income.
LIQUIDITY AND CAPITAL RESOURCES
For the twelve months ended December 31, 1999, net cash provided by
operating activities was $11.6 million. Contract receivables totaled $107.4
million at December 31, 1999, $68.1 million at December 31, 1998, and
represented 37.7% and 47.6%, respectively, of total assets at each of those
dates.
For the fiscal year 1999, net cash used by investing activities was
$111.7 million. The primary use of cash during the twelve months was for the
purchase of A&T in June 1999.
19
<PAGE>
For the fiscal year 1999, the net cash provided by financing activities
was $101.0 million. The primary source of cash from financing activities for the
twelve months ending December 31, 1999 was approximately $208.7 million from the
bank line credit facility and $100 million in senior subordinated notes. The
primary use of cash in the third quarter was for pay down of $205.8 million on
the company's line of credit.
The total funds available to the Company under its New Credit Facility
as of December 31, 1999 were $30.1 million, which management believes are
sufficient to meet ongoing working capital requirements for the next twelve
months. Borrowings under the Revolving Credit Facility were $2.9 million as of
December 31, 1999.
As of December 31, 1999 the Company does not have any major capital
commitments.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The company has a degree of interest rate exposure on its long-term
obligations. While the interest rate on its senior subordinated notes is fixed
at 12%, interest on both the term and revolving facilities are affected by
changes in the market interest rates. The Company manages these fluctuations
through interest rate swaps that are currently in place and focusing on reducing
the amount of outstanding debt through cash flow. In addition, the Company has
implemented a cash flow management plan focusing on billing and collecting
receivables to pay down debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA RISK
Pursuant to General Instruction G to Form 10-K, the information required
by this Item is incorporated by reference to information set forth in the
"Consolidated Financial Statements" and notes and the exhibits to this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS IF THE REGISTRANT
The directors and executive officers of Anteon and their respective ages as of
the date of this filing are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
<S> <C> <C>
Frederick J. Iseman...................... 47 Chairman of the Board and Director
Joseph M. Kampf.......................... 54 President, Chief Executive Officer and Director
Joseph Maurelli.......................... 58 Executive Vice President, Office of the
President
20
<PAGE>
Thomas M. Cogburn........................ 56 Executive Vice President and Chief Operating
Officer and Director
Carlton B. Crenshaw...................... 55 Senior Vice President, Chief Financial and
Administrative Officer
Seymour L. Moskowitz..................... 67 Senior Vice President
Mark Heilman............................. 51 Senior Vice President Corporate Development
Curtis L. Schehr......................... 41 Vice President, General Counsel and Secretary
Vincent J. Kiernan....................... 41 Vice President, Controller
Gilbert F. Decker........................ 62 Director
Robert A. Ferris......................... 57 Director
Dr. Paul Kaminski........................ 57 Director
Steven M. Lefkowitz...................... 35 Director
</TABLE>
FREDERICK J. ISEMAN has served as Chairman of Anteon Corporation since
its formation in April 1996. Mr. Iseman is Chairman and President of
Caxton-Iseman Capital, Inc. (a private investment firm) which was founded by Mr.
Iseman in 1993. Prior to establishing Caxton-Iseman Capital, Inc., Mr. Iseman
founded Hambro-Iseman Capital Partners (a merchant banking firm) in 1990. From
1988 to 1990, Mr. Iseman was a member of Hambro International Venture Fund. Mr.
Iseman is a director of the following companies: Leisure Link Holdings,
Metropolitan T.L.C. Holdings, Inc. and the Advisory Board of Duke Street
Capital. He is a former director of: Cremascoli Ortho S.A., Franklin Hotel and
Investments, Ltd., Framleydove Ltd. (Glass's Information Services), Golden
Valley LLC, Magnavox Electronic Systems Corporation Holdings, Inc., Electronic
Distribution Acquisition Company (Deanco), Geowaste, Inc. and Hambro America,
Inc. (the U.S. subsidiary of Hambros PLC). Mr. Iseman received a B.A. from Yale
University in 1975.
JOSEPH M. KAMPF has served as Anteon's President and Chief Executive
Officer and a director since April 1996. From January 1994 to 1996, Mr. Kampf
was a Senior Partner of Avenac Corporation, a consulting firm providing advice
in change management, strategic planning, corporate finance, and mergers and
acquisitions to middle market companies. From 1990 through 1993, Mr. Kampf
served as Executive Vice President of Vitro Corporation, a wholly owned
subsidiary of The Penn Central Corporation. Prior to his position as Executive
Vice President of Vitro Corporation, Mr. Kampf served as the Senior Vice
President of Vitro Corporation's parent company, Penn Central Federal Systems
Company, and as Chief Liaison Officer for the group with The Penn Central
Corporation. Between 1982 and 1986, Mr. Kampf was Vice President of Adena
21
<PAGE>
Corporation, an oil and gas exploration and development company. Mr. Kampf
received a B.A. from the University of North Carolina in 1966.
JOSEPH MAURELLI has served as a director of Anteon since July 1998. Mr.
Maurelli currently serves as theExecutive Vice President, Office of the
President. Mr. Maurelli joined Techmatics as a Vice President in 1983, and
became President and Chief Executive Officer of Techmatics in January 1984. From
1967 to 1983, Mr. Maurelli was a senior civilian professional for the U.S. Navy
Department. He has written numerous technical articles and is an active member
of the American Society of Naval Engineers and the U.S. Navy League and
currently serves on the Board of Directors of the Professional Services Council
and the Virginia Opera. Mr. Maurelli received a B.S. from the State University
of New York in 1963 and an M.S. from George Washington University in 1971.
THOMAS M. COGBURN has served as Executive Vice President and Chief
Operating Officer and a director since April 1996. From 1992 to 1996, he served
in the same capacity at Ogden Professional Services Corporation, the predecessor
company to Anteon. From 1988 to 1992, Mr. Cogburn served as Vice President of
the Information System Support Division of CACI International, Inc. Mr.
Cogburn's experience also includes 21 years in information systems design,
operation, program management, and policy formulation for the U.S. Air Force.
Mr. Cogburn received a B.B.A. from the University of Texas in 1965 and an M.B.A
from Arizona State University in 1971.
CARLTON B. CRENSHAW has served as Anteon's Senior Vice President, Chief
Financial and Administrative Officer since July 1996. From 1989 to 1996, Mr.
Crenshaw served as Executive Vice President, Finance and Administration, and
Chief Financial Officer of Orbital Sciences Corporation (a commercial technology
company). He served in a similar capacity with Software AG Systems, Inc. from
1985 to 1989. From 1971 to 1985, Mr. Crenshaw progressed from financial analyst
to Vice President of Strategic Planning for the Sperry Univac division and was
Treasurer for Sperry Corporation. Mr. Crenshaw received a B.B.A. from Southern
Methodist University in 1966 and an M.B.A. from New York University in 1971.
SEYMOUR L. MOSKOWITZ served as a consultant to Anteon beginning in April
1996 and became Anteon's Senior Vice President in March 1997, and is responsible
for strategic planning with an emphasis on current and future technologies.
Prior to joining Anteon, Mr. Moskowitz served as Senior Vice President of
Technology at Vitro Corporation from 1985 to 1994, where he was responsible for
the development and acquisition of technologies and management of Research and
Development personnel and laboratory resources. Prior thereto, Mr. Moskowitz
served as Director of Research and Development for Curtiss-Wright Corporation.
Mr. Moskowitz received a B.S. from the City College of New York in 1954.
MARK HEILMAN has served as Anteon's Senior Vice President for Corporate
Development since October 1998. From 1991 to 1998, Mr. Heilman was a partner and
principal of CSP Associates, Inc., where he specialized in strategic planning
and mergers and acquisition support for the aerospace, defense and information
technology sectors. From 1987 to 1991, Mr. Heilman was Vice President and an
Executive Director of Ford Aerospace and Communications Corporation. Mr. Heilman
received a B.A. from the University of Iowa in 1970.
22
<PAGE>
CURTIS L. SCHEHR has served as Anteon's Vice President, General Counsel
and Secretary since October 1996. From 1991 to 1996, Mr. Schehr served as
Associate General Counsel at Vitro Corporation. During 1990, Mr. Schehr served
as Legal Counsel at Information Systems and Networks Corporation. Prior to 1990,
Mr. Schehr served for six years in several legal and contract oriented positions
at Westinghouse Electric Corporation (Defense Group). Mr. Schehr received a B.A.
from Lehigh University in 1980 and a J.D. from George Washington University in
1984.
VINCENT J. KIERNAN has served as Anteon's Vice President and Controller
since October 1998. From July 1995 to September 1998 he was a Managing Director
at KPMG Peat Marwick where he provided cost and pricing control reviews, claim
analysis, accounting/contract management and general consulting services to a
wide array of clients including both government contractors and commercial
enterprises. From 1989 to 1995 Mr. Kiernan was a Director for Coopers & Lybrand.
From 1985 to 1989 he was a consultant with Peterson & Co. Consulting. From 1980
to 1984 Mr. Kiernan was a Contract Representative for a large subsidiary of
Figgie International. Mr. Kiernan is a Certified Management Accountant and a
member of the Institute of Management Accountants. He received his B.S. from
Wake Forest University and his M.B.A from the College of William and Mary.
GILBERT F. DECKER has served as a director of Anteon since June 1997. He
joined Walt Disney Imagineering in May 1999. From April 1994 to May 1997, Mr.
Decker served as the Assistant Secretary of the U.S. Army for Research,
Development and Acquisition. As Assistant Secretary, Mr. Decker led the Army's
acquisition and procurement reform efforts, with an emphasis on eliminating
excessive government requirements throughout the acquisition process. He also
served as the Army Acquisition Executive, the Senior Procurement Executive, the
Science Advisor to the Secretary and the Senior Research and Development
official for the Army. From 1983 to 1989, Mr. Decker was on the Army Science
Board and served as Chairman from March 1987 until the end of his appointment.
In the private sector, Mr. Decker has served as President and Chief Executive
Officer of three technology companies, including Penn Central Federal Systems
Company. Mr. Decker received a B.S. from Johns Hopkins University in 1958 and an
M.S. from Stanford University in 1967.
ROBERT A. FERRIS has served as a director of Anteon since April 1996.
From 1998, Mr. Ferris has been a Managing Director of Caxton-Iseman Capital,
Inc. (a private investment firm). From 1981 to 1998, Mr. Ferris was a General
Partner of Sequoia Associates (a private investment firm). Prior to founding
Sequoia Associates, Mr. Ferris was a Vice President of Arcata Corporation, a New
York Stock Exchange-listed company. Mr. Ferris currently is a director of
Clayton Group, Inc. and Newell Manufacturing Corporation, as well as several
other privately owned corporations. Mr. Ferris received a B.A. from Boston
College in 1963, and a J.D. from Fordham University Law School in 1966.
DR. PAUL KAMINSKI has served as a director of Anteon since June 1997.
From 1994 to May 1997, Dr. Kaminski served as the Under Secretary of Defense for
Acquisition and Technology. In this position, Dr. Kaminski was responsible for
all matters, relating to Department of Defense acquisition, including research
and development, procurement, acquisition reform, dual-use technology and the
defense technology and industrial base. Prior to 1994, he served as Chairman of
a technology oriented investment banking and consulting firm. Dr. Kaminski also
served as Chairman of the Defense Science Board and as a consultant and advisor
to many
23
<PAGE>
government agencies. Mr. Kaminski received a B.S. from the Air Force Academy in
Colorado in 1964, two M.A. degrees from the Massachusetts Institute of
Technology in 1966 and a Ph.D. from Stanford University in 1971.
STEVEN M. LEFKOWITZ has served as a director of Anteon since April 1996.
Mr. Lefkowitz has been a principal of Caxton-Iseman Capital Inc. (a private
investment firm) since 1993. From 1988 to 1993, Mr. Lefkowitz was employed by
Mancuso & Company (a private investment firm) and served in several positions
including Vice President and as a Partner of Mancuso Equity Partners. Mr.
Lefkowitz received a B.A. from Northwestern University in 1986 and an M.B.A.
from J.L. Kellogg Graduate School of Management in 1987.
BOARD OF DIRECTORS
There are currently eight members of the Board of Directors of Anteon.
COMPENSATION OF DIRECTORS
Some directors of Anteon who are not employees of Anteon are paid an
annual retainer. In 1999, each of Messrs. Ferris and Kaminski received a
retainer of $17,750 and Mr. Decker received a retainer of $16,750. Each director
of Anteon is compensated for expenses incurred in connection with serving as a
member of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
The following table describes the compensation awarded to, earned by or
paid to the Chief Executive Officer and the four other most highly compensated
executive officers of Anteon whose individual compensation exceeded $100,000
during the fiscal years ended December 31, 1999 and December 31, 1998 for
services rendered in all capacities tothe Company. The persons listed in the
table below are referred to as the "Named Executive Officers."
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NUMBER OF SHARES
UNDERLYING STOCK
OPTIONS
-------
OTHER LONG-TERM
NAME AND PRINCIPAL POSITION SALARY ANNUAL COMPENSATION
YEAR BONUS COMPENSATION (1) AWARDS
---- ----- ---------------- ------
<S> <C> <C> <C> <C> <C>
Joseph M. Kampf.......................... 1999 $360,000 $240,000 -- -
President and Chief Executive Officer 1998 235,566 200,000 -
Joseph Maurelli.......................... 1999 287,768 128,597 -- -
Executive Vice President, 1998 287,768 78,000 -
Office of the President
Thomas M. Cogburn........................ 1999 195,315 100,000 -- -
Executive Vice President and 1998 176,341 82,500 5,000
Chief Operating Officer
Carlton B. Crenshaw...................... 1999 192,935 100,000 -- -
Senior Vice President, Chief 1998 183,495 92,750 -
Financial and Administrative Officer
24
<PAGE>
Mark Heilman............................. 1999 180,000 75,000 -- -
Senior Vice President, Corporate 1998 175,011 50,000 -
Development
</TABLE>
- - ----------------------
(1) No Named Executive Officer received Other Annual Compensation in an amount
in excess of the lesser of either $50,000 or 10% of the total of salary and
bonus reported from him in the two preceding columns.
The following table sets forth certain information regarding options
granted during fiscal 1999 to each of the Named Executive Officers under
Anteon's Amended and Restated Omnibus Stock Option Plan:
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES OF
SHARES ------------------------------------- STOCK PRICE APPRECIATION
UNDERLYING % OF TOTAL EXERCISE OR FOR OPTION TERM (1)
OPTIONS OPTIONS GRANTED TO BASE EXPIRATION --------------------------
NAME GRANTED EMPLOYEES IN 1998 PRICE PER SHARE DATE 5% 10%
- - ---- ---------- ------------------ --------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Kampf - - $ - - $ - $ -
Thomas M. Cogburn - - - - - -
Joseph Maurelli - - - - - -
Carlton B. Crenshaw - - - - - -
Mark Heilman 10,000 - 41.98 12/03/04 116,000 256,300
</TABLE>
(1) The indicated dollar amounts are the result of calculations based on the
exercise price of the options and assume five and ten percent
appreciation rates and, therefore, are not intended to forecast possible
future appreciation, if any, of Anteon's stock price.
(2) Represents options granted under Anteon's Amended and Restated Omnibus
Stock Option Plan.
The following table sets forth certain information with respect to
options held at the end of fiscal 1999 by each of the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY
ACQUIRED ON VALUE AT DECEMBER 31, 1999 OPTIONS AT DECEMBER 31, 1999
NAME EXERCISE(S) REALIZED(S) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- - ---- ----------- ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Joseph M. Kampf - - 17,423/11,617 $409,267/$613,883
Joseph Maurelli - - 3,000/12,000 14,040/56,160
Thomas M. Cogburn - - 1,000/4,000 4,680/18,720
Carlton B. Crenshaw - - 8,411/5,608 197,535/296,355
25
<PAGE>
Mark Heilman - - 5,000/30,000 23,400/93,600
</TABLE>
- - -----------
(1) Based on the difference between the latest estimated per share value
calculation on December 3, 1999 for Anteon's common stock, which was
$41.98 per share, and the option exercise price. The above valuations
may not reflect the actual value of unexercised options, as the value
of unexercised options will fluctuate.
26
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of March 30, 1999, the number of shares
of common stock beneficially owned by each of the 5% stockholders of Anteon,
each of its directors, the Named Executive Officers and all directors and
executive officers as a group.
NUMBER OF SHARES
OF COMMON PERCENTAGE OF
STOCK OF ANTEON TOTAL SHARES OF
BENEFICIALLY COMMON STOCK
OWNED(A) OF ANTEON
-------- ---------
Azimuth Technologies, Inc. (b) 3,551,972 99.8%
Frederick J. Iseman (b) 3,551,972 99.8
Gilbert F. Decker (c) 4,000 *
Dr. Paul Kaminski (c) 4,000 *
Joseph M. Kampf (d) 17,423 *
Carlton B. Crenshaw (e) 8,411 *
Seymour L. Moskowitz (f) 26,436 *
All Directors and Executive Officers as a 99.8
Group(g)
- - -----------
* Denotes beneficial ownership of less than 1%.
(a) Determined in accordance with Rule 13d-3 under the Exchange Act.
(b) By virtue of Mr. Frederick Iseman's indirect control of Azimuth
Technologies, Inc. ("Azimuth") through Azimuth Technologies, LP
("Azimuth LP"), the limited partners of which include affiliates of
Caxton-Iseman Capital, Mr. Steven Lefkowitz and Mr. Robert Ferris. Mr.
Frederick Iseman has sole voting and dispositive power over 3,551,972
shares of Anteon common stock and may be deemed to be the beneficial
owner thereof. Mr. Frederick Iseman's address is c/o Caxton-Iseman
Capital, Inc., 667 Madison Avenue, New York, New York 10021.
(c) Includes 4,000 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 30, 2000. Does not include 2,000
shares of common stock issuable pursuant to stock options that are not
exercisable within 60 days of such date.
(d) Includes 17,423 shares of common stock issuable pursuant to stock
options exercisable within 60 days of March 30, 2000. Does not include
11,617 shares of common stock issuable pursuant to stock options that
are not exercisable within 60 days of such date.
27
<PAGE>
(e) Includes 8,411 shares of common stock issuable pursuant to stock options
exercisable within 60 days of March 30, 2000. Does not include 5,607
shares of common stock issuable pursuant to stock options that are not
exercisable within 60 days of such date.
(f) Includes 26,436 shares of common stock issuable pursuant to stock
options exercisable within 60 days of March 30, 2000. Does not include
28,625 shares of common stock issuable pursuant to stock options that
are not exercisable within 60 days of such date.
(g) Includes 40,645 shares of common stock issuable pursuant to stock
options exercisable within 60 days of March 30, 2000. Does not include
87,075 shares of common stock issuable pursuant to stock options that
are not exercisable within 60 days of such date.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CAXTON-ISEMAN ARRANGEMENT
Anteon's management and an investor group organized by Caxton-Iseman
Capital Inc. ("Caxton-Iseman Capital"), through Azimuth, acquired in April 1996
all of the outstanding capital stock of our Predecessor Company, a wholly-owned
subsidiary of Ogden Technology Services Corporation and indirectly a
wholly-owned subsidiary of Ogden Corporation.
Azimuth obtained the funds required for the acquisition of our
Predecessor Company by issuing subordinated debt and common stock to Azimuth
Technologies, L.P. and to certain directors and executive officers of Anteon.
The limited partners of Azimuth LP include, among others, affiliates of
Caxton-Iseman Capital, Mr. Steven Lefkowitz, Mr. Robert Ferris and a number of
business associates of Caxton-Iseman Capital. The sole general partner of
Azimuth LP is Georgica (Azimuth Technologies), L.P., the sole general partner of
which is a corporation solely owned by Mr. Frederick Iseman. As a result, Mr.
Frederick Iseman controls Azimuth LP, Azimuth and Anteon.
Since April 1997, Anteon has been party to an arrangement (the
"Caxton-Iseman Capital Arrangement") with Caxton-Iseman Capital, an affiliate of
Anteon and an affiliate and advisor to the Company's parent, Azimuth
Technologies, Inc. The terms of the Caxton-Iseman Capital Arrangement are that
Caxton-Iseman Capital will monitor and assist the activities of Anteon in
accordance with, and subject to the investment objectives and guidelines
established by Anteon.
Effective June 1, 1999, the Company entered into an arrangement with
Caxton-Iseman Capital whereby the Company is required to pay management fees to
Caxton-Iseman Capital. Prior to the completion of the acquisition of A&T, the
annual management fee was $500,000 and covered the period beginning January 1,
1999. As part of the A&T acquisition Caxton-Iseman was paid $1.1 million for
acquisition advisory services. Caxton-Iseman provided $22.5 million in equity
contribution as part of the June 23, 1999 purchase of A&T. For periods
subsequent to the acquisition of A&T, the annual management fee is $1 million.
Pursuant to this arrangement, during the year ended December 31, 1999 and 1998,
the Company incurred $750,000 and $400,000,
28
<PAGE>
respectively, of management fees with Caxton-Iseman Capital, Inc. No such fees
were incurred in 1997.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page Number
in 1999
Annual Report
-------------
<S> <C> <C>
(a) 1 Financial Statements
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1999 and F-2
1998
Consolidated Statements of Operations for Each of the Years
in the Three-Year Period Ended December 31, 1999 F-3
Consolidated Statements of Stockholders' Equity for Each of
the Years in the Three-Year Period Ended December 31, 1999 F-4
Consolidated Statements of Cash Flows for Each of the Years
in the Three-Year Period Ended December 31, 1999 F-5
Notes to Consolidated Financial Statements F-6-F-30
(a) 2. Financial Statement Schedules
Independent Auditors' Report S-1
Valuation and Qualifying Accounts S-2
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Anteon Corporation and subsidiaries:
We have audited the accompanying consolidated balance sheets of Anteon
Corporation (a majority-owned subsidiary of Azimuth Technologies, Inc.) and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Anteon Corporation and subsidiaries
as of December 31, 1999 and 1998 and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.
KPMG LLP
McLean, Virginia
February 23, 2000
F-1
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A majority-owned subsidiary of Azimuth Technologies, Inc.)
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands except share data)
<TABLE>
<CAPTION>
ASSETS 1999 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,061 156
Accounts receivable, net 107,446 68,053
Income tax receivable 2,082 2,138
Prepaid expenses and other current assets 4,746 3,209
Deferred tax assets, net 2,265 --
--------- ---------
Total current assets 117,600 73,556
Due from parent 7,525 6,625
Property and equipment, at cost, net of accumulated
Depreciation and amortization of $6,089 and $2,940 19,953 4,537
Goodwill, net of accumulated amortization of $6,342 and $2,909 130,563 50,036
Investments -- 5,973
Other assets, net 9,535 2,441
--------- ---------
Total assets $ 285,176 143,168
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,211 12,582
Accrued expenses 35,625 23,338
Subordinated notes payable, current portion 8,840 967
Business purchase consideration payable 5,500 --
Deferred tax liabilities, net -- 1,542
Other current liabilities 1,205 966
--------- ---------
Total current liabilities 69,381 39,395
Term Loan 60,000 --
Revolving Facility 2,900 --
Bank notes payable -- 70,400
Senior subordinated notes payable 100,000 --
Subordinated notes payable, less current portion -- 8,335
Noncurrent deferred tax liabilities, net 4,921 311
Other long term liabilities 1,681 985
--------- ---------
Total liabilities 238,883 119,426
--------- ---------
Minority interest in subsidiaries 625 37
Stockholders' equity:
Common stock, $0.05 par value, 4,415,460 shares authorized,
3,558,992 and 2,975,009 shares issued and outstanding as
of December 31, 1999 and 1998, respectively 178 149
Treasury stock, at cost, 200 shares as of December 31, 1999 (5) --
Additional paid-in capital 40,759 18,243
Accumulated other comprehensive income (loss) (5) 399
Retained earnings 4,741 4,914
--------- ---------
Total stockholders' equity 45,668 23,705
--------- ---------
Total liabilities and stockholders' equity $ 285,176 143,168
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues $ 400,850 249,776 176,292
Costs of revenues 353,245 221,588 159,539
--------- --------- ---------
Gross profit 47,605 28,188 16,753
--------- --------- ---------
Operating Expenses:
General and administrative expenses,
excluding acquisition-related costs below 25,610 15,286 8,061
Amortization of noncompete agreements 909 530 2,286
Goodwill amortization 3,440 1,814 742
Costs of acquisitions/acquisition-
related severance costs 2,316 115 584
--------- --------- ---------
Total operating expenses 32,275 17,745 11,673
--------- --------- ---------
Operating income 15,330 10,443 5,080
Gains on sales of investments and other, net (2,585) -- --
Interest expense, net of interest income
of $814, $136, and $48 16,042 5,597 2,365
Minority interest in earnings of
subsidiaries 40 25 13
--------- --------- ---------
Income before provision for income taxes
and extraordinary loss 1,833 4,821 2,702
Provision for income taxes 1,543 2,353 1,063
--------- --------- ---------
Income before extraordinary loss 290 2,468 1,639
Extraordinary loss, net of tax 463 -- --
--------- --------- ---------
Net income (loss) $ (173) 2,468 1,639
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
(in thousands except share data)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK TREASURY STOCK ADDITIONAL OTHER TOTAL
-------------------- -------------------- PAID-IN COMPREHENSIVE RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) EARNINGS EQUITY
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 2,973,269 $ 149 -- $ -- 18,221 -- 807 19,177
Net income -- -- -- -- -- -- 1,639 1,639
--------- --------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 2,973,269 149 -- -- 18,221 -- 2,446 20,816
Exercise of stock options 1,740 -- -- -- 22 -- -- 22
Unrealized gains on investments -- -- -- -- -- 392 -- 392
Foreign currency translation -- -- -- -- -- 7 -- 7
Net income -- -- -- -- -- -- 2,468 2,468
--------- --------- --------- --------- --------- --------- --------- ---------
Comprehensive income -- -- -- -- -- 399 2,468 2,867
--------- --------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1998 2,975,009 149 -- -- 18,243 399 4,914 23,705
Exercise of stock options 5,280 -- -- -- 45 -- -- 45
Purchase of treasury stock -- 200 (5) -- -- -- (5)
Sales of investments -- -- -- -- -- (392) -- (392)
Sale of common stock 578,703 29 -- -- 22,471 -- -- 22,500
Foreign currency translation -- -- -- -- -- (12) -- (12)
Net loss -- -- -- -- -- -- (173) (173)
--------- --------- --------- --------- --------- --------- --------- ---------
Comprehensive income (loss) -- -- -- -- -- (404) (173) (577)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1999 3,558,992 $ 178 200 $ (5) 40,759 (5) 4,741 45,668
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES (a
majority-owned subsidiary of Azimuth Technologies, Inc.)
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (173) 2,468 1,639
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Extraordinary loss 772 -- --
Gain on sales of investments (2,881) -- --
Depreciation and amortization of property and
equipment 3,623 1,837 895
Goodwill amortization 3,440 1,814 742
Amortization of noncompete agreements 909 530 2,286
Amortization of deferred financing and contract costs 692 1,420 1,209
Inventory obsolescence reserve -- 500 --
Loss (gain) on disposals of property and equipment (67) -- 21
Deferred income taxes 3,578 2,501 (943)
Minority interest in earnings (losses) of subsidiaries 40 25 (13)
Changes in assets and liabilities, net of acquired
assets and liabilities:
(Increase) decrease in accounts receivable (10,650) (15,559) 10,086
(Increase) decrease in income tax receivable 55 (2,138) --
Decrease (increase) in inventory -- 2,259 (2,759)
Increase in due from parent (900) (730) (531)
(Increase) decrease in prepaid expenses and
other current assets 2,645 (2,088) (518)
Decrease in other assets 1,822 556 414
Increase (decrease) in accounts payable and
accrued expenses 8,695 (2,230) 1,566
(Decrease) increase in other liabilities (35) 495 --
--------- --------- ---------
Net cash provided by (used for)
operating activities 11,565 (8,340) 14,094
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (4,761) (2,089) (817)
Acquisition of Vector Data Systems, net of cash acquired 224 -- (17,239)
Acquisition of Techmatics, net of cash acquired (115) (27,612) --
Acquisition of Analysis & Technologies, Inc.,
net of cash acquired (115,471) -- --
Proceeds from sales of investments 11,491 -- --
Purchases of investments (3,040) (5,574) --
Other, net -- (113) --
--------- --------- ---------
Net cash used in investing activities (111,672) (35,388) (18,056)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from bank notes payable 132,043 278,500 199,300
Principal payments on bank notes payable (202,443) (232,200) (194,800)
Principal payments on Techmatics obligations (4,925) (2,075) --
Proceeds from issuance of common stock 22,545 22 --
Deferred financing costs (8,930) (1,015) --
Proceeds from Term Loan 60,000 -- --
Proceeds from Revolving Facility 208,700 -- --
Payments on Revolving Facility (205,800) -- --
Payments on subordinated notes payable (173) -- --
Proceeds from senior subordinated notes payable 100,000 -- --
Purchase of treasury stock (5) -- --
--------- --------- ---------
Net cash provided by financing activities 101,012 43,232 4,500
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 905 (496) 538
Cash and cash equivalents, beginning of period 156 652 114
--------- --------- ---------
Cash and cash equivalents, end of period $ 1,061 156 652
========= ========= =========
</TABLE>
(continued)
F-5
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Consolidated Statements of Cash Flows, continued
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Supplemental disclosure of cash flow
information (in thousands):
Interest paid $14,969 5,721 1,684
Income taxes paid 213 1,784 1,154
======= ======= =======
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During 1999, the Company received $224,000 in amounts previously held in
escrow by the former owners of Vector Data Systems (note 3) in conjunction
with the purchase of Vector by the Company. The amounts received by the
Company were recorded as a reduction of goodwill from the purchase business
combination.
In 1999, in connection with the Techmatics acquisition (note 3), the former
shareholders of Techmatics earned additional consideration from Anteon of
$5,500,000 based on the results of its operations for the fiscal year ended
June 30, 1999. The additional consideration paid by the Company was
recorded as an increase to goodwill.
In May 1998, the Company assumed $10 million of subordinated notes payable
discounted as of the date of the Techmatics acquisition to approximately
$8,880,000. The Company assumed $4 million of future income tax obligations
of the former shareholders of Techmatics discounted to approximately
$3,762,000 as of the date of acquisition. In addition, the Company entered
into two-year noncompete agreements valued at $2,850,000 with certain
executives of Techmatics discounted to approximately $2,654,000 as of the
date of acquisition.
As of September 30, 1998, the Company reached a settlement on the
arbitration proceedings related to the purchase of the Company from Ogden
Professional Services Corporation (note 1). The reduction of $4,850,000 of
the consideration paid for the Company was recognized as a reduction of the
Ogden debt at the Azimuth level and the goodwill from the Anteon
acquisition.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) ORGANIZATION AND BUSINESS
Anteon Corporation ("Anteon" or the "Company") was acquired by Azimuth
Technologies, Inc. ("Azimuth") effective April 1, 1996. Azimuth acquired
all of the outstanding stock of Ogden Professional Services Corporation, a
wholly owned subsidiary of Ogden Technology Services Corporation and an
indirectly wholly owned subsidiary of Ogden Corporation (collectively,
"Ogden"). Upon completion of the acquisition, Ogden Professional Services
Corporation was renamed Anteon Corporation. The consideration paid by
Azimuth to Ogden was approximately $45.2 million, consisting of
approximately $36.7 million in cash and a note payable to Ogden from
Azimuth for $8.5 million.
Subsequent to the date of the closing of the Anteon acquisition and in
accordance with the stock purchase agreement, the Company filed a demand
for arbitration against Ogden seeking refund of a portion of the purchase
price. As of September 30, 1998, the arbitration proceedings were settled
and resulted in a reduction of $4.85 million of the purchase price paid to
Ogden in the 1996 acquisition of Anteon. The settlement was recognized as a
reduction of the note payable by Azimuth to Ogden and goodwill from the
Anteon acquisition.
The Company provides professional information technology, systems and
software development, high technology research, and engineering services
primarily to the U.S. government and its agencies.
The Company is subject to all of the risks associated with conducting
business with the U.S. federal government, including the risk of contract
terminations at 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 contract backlog will be funded in the future cannot be
determined.
(2) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
(a) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All
material intercompany transactions and accounts have been eliminated
in consolidation.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash balances and highly liquid
investments that have original maturities of three months or less.
(c) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, or fair value if acquired
through a purchase business combination. For financial reporting
purposes, depreciation and amortization is provided using the
straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Computer hardware and software 3 to 7 years
Furniture and equipment 5 to 12 years
Leasehold and building improvements shorter of estimated useful life or lease term
Buildings 31.5 years
</TABLE>
F-7
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(d) INVESTMENTS
The Company accounts for investments in debt and marketable equity
securities depending on the purpose of the investment. The Company's
only investment as of December 31, 1998 consisted entirely of
marketable equity securities. Since the Company did not hold this
investment principally for the purpose of selling the investment in
the near term, the Company classified the securities as
available-for-sale. Accordingly, this investment was recognized at
fair market value and any unrealized gains were recognized as a
component of stockholders' equity. As of December 31, 1998, the
aggregate fair market value of the investments was $5,973,000,
resulting in an unrealized gain of $392,000. During 1999, the Company
sold all of its equity securities for a realized gain on sale of
$2,522,000.
(e) DEFERRED FINANCING COSTS
Costs associated with obtaining the Company's financing arrangements
are deferred and amortized over the term of the financing arrangements
using a method that approximates the effective interest method.
(f) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company follows the provisions of Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS No.
121"). This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount
of the assets exceed the fair values of the assets.
(g) GOODWILL
Goodwill relating to the Company's acquisitions represents the excess
of cost over the fair value of net assets acquired and is amortized on
a straight-line basis over periods ranging from twenty to thirty
years. Determination of the period is dependent on the nature of the
operations acquired. The Company evaluates the recoverability of
goodwill in accordance with SFAS No. 121.
(h) OTHER INTANGIBLE ASSETS
The Company amortizes, on a straight-line basis, the allocated cost of
noncompete agreements entered into in connection with business
combinations over the terms of the agreements. Product development
costs represent expenditures for the development of software products
that have been capitalized in accordance with Statement of Financial
Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED. Amortization is
computed on an individual product basis and is the greater of (a) the
ratio of current gross revenues for a product to the total of current
and anticipated future gross revenues for that product or (b) the
amount computed using the straight-line method over the remaining
economic useful life of the product. The Company is currently using
economic lives ranging from two to five years for all capitalized
product development costs. Amortization of product development costs
begins when the software product is available for general release to
customers. As of December 31, 1999 and 1998, $962,000 and $0 have been
capitalized for software development.
F-8
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(i) REVENUE RECOGNITION
Revenue from contract services is earned under cost-reimbursement,
time and material, and fixed-price contracts. Revenue under
cost-reimbursement contracts is recognized as costs are incurred and
under time and materials contracts as time is spent and as materials
costs are incurred. Revenue under fixed price contracts, including
applicable fees and estimated profits, is recognized on the percentage
of completion basis, using the cost-to-cost or units-of-delivery
methods. The majority of the Company's cost-reimbursement contracts
are either cost-plus-fixed-fee or time and materials contracts. The
contracts may either require the Company to work on defined tasks or
deliver a specific number of hours of service. In either case, costs
are reimbursed up to the contract-authorized cost ceiling as they
are incurred. If a contracted task has not been completed or the
specific number of hours of service has not been delivered at the
time the authorized cost is expended, the Company may be required
to complete the work or provide additional hours. The Company will
be reimbursed for the additional costs but may not receive an
additional fee or the fee may be prorated proportionately to the
number of hours actually provided. If estimates indicate a probable
ultimate loss on a contract, provision is made immediately for the
entire amount of the estimated future loss. Profit and losses accrued
include the cumulative effect of changes in prior periods' cost
estimates. Revenues from sales of products are generally recognized
upon acceptance by the customer, which is typically within thirty
days of shipment.
(j) COSTS OF ACQUISITIONS
Costs incurred on successful acquisitions are capitalized as a cost of
the acquisition, while costs incurred by the Company for unsuccessful
or discontinued acquisition opportunities are expensed as incurred.
(k) INCOME TAXES
The Company is currently included in the consolidated income tax
returns of Azimuth; however, the Company prepares its provisions for
income taxes as if it filed its income tax returns separately. The
Company calculates its income tax provision using the asset and
liability method. Under the asset and liability method, deferred
income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
(l) FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The balance sheets of Vector Data Systems (U.K.) Limited, Anteon VDS
(Korea) Limited, Vector Data Systems Australia Pty. Ltd., and Analysis
& Technology, Inc. Australia Pty. Ltd. are translated to U.S. dollars
for consolidated financial statement purposes using the current
exchange rates in effect as of year end. The revenue and expense
accounts of foreign subsidiaries are converted using a weighted
average exchange rate during the period. Gains or losses resulting
from such translations are included in accumulated comprehensive
income (loss) in stockholders' equity. Gains and losses from
transactions denominated in foreign currencies are included in current
period income.
F-9
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(m) ACCOUNTING FOR DEFERRED CONTRACT COSTS
During 1998, the Company adopted the provisions of Statement of
Position No. 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP
98-5"), which requires costs of start-up activities, including
precontract costs, to be expensed as incurred. During 1994 and 1995,
the Company capitalized certain precontract costs associated with two
of its significant contracts. The remaining balances of the
precontract costs were written-off during 1998. The adoption of SOP
98-5 did not have a material impact on the Company's financial
position or results of operations.
(n) 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, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES; however, the
Company discloses the pro forma effect on net income (loss) as if the
fair value based method of accounting as defined in Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS No. 123") had been applied.
(o) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, accounts payable and
accrued liabilities approximate their fair market values as of
December 31, 1999 and 1998 due to the relatively short duration of
these financial instruments. The carrying amounts of the Company's
indebtedness approximate their fair values as of December 31, 1999 and
1998 as they bear interest rates that approximate market.
(p) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and 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. Actual results could differ from those estimates.
(q) RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997
consolidated financial statements to conform to the 1999 consolidated
financial statement presentation.
F-10
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(3) ACQUISITIONS AND JOINT VENTURE
(a) VECTOR DATA SYSTEMS INC.
On August 29, 1997, the Company acquired all of the outstanding stock
of Vector Data Systems, Inc., as well as Vector's eighty percent
interest in Vector Data Systems (UK) Limited (collectively, "Vector").
The consideration paid by Anteon to the former shareholders of Vector
was approximately $19 million in cash financed through borrowings
under a previous revolving line of credit with a financial institution
(see note 7). The acquisition of Vector was accounted for using the
purchase method whereby the net tangible and identifiable intangible
assets acquired and liabilities assumed were recognized at their
estimated fair market values as of the date of the combination.
The total purchase price paid, including transaction costs, of
approximately $19.5 million, was allocated to the assets and
liabilities acquired as follows (in thousands):
Cash and cash equivalents $ 2,530
Accounts receivable 2,951
Prepaid expenses and other current assets 50
Property and equipment 340
Deferred tax assets, net 121
Goodwill 16,991
Accounts payable and accrued expenses (3,414)
Minority interest (24)
--------
Total consideration $ 19,545
========
Vector also provides professional information technology, systems and
software development, high technology research, and engineering
services primarily to the U.S. government and its agencies.
(b) TECHMATICS, INC.
On May 29, 1998, the Company acquired all of the outstanding stock of
Techmatics, Inc. ("Techmatics"), a subchapter S corporation. The
consideration paid by Anteon to the former shareholders and option
holders of Techmatics was approximately $31 million in cash, $27
million due at closing and financed through a previous revolving line
of credit with a financial institution (see note 7), $4 million in
cash paid under two non-interest bearing installments on April 1,
1999, and $10 million in subordinated notes payable. Additional
consideration of up to $6.25 million could have been paid by the
Company and was contingent upon Techmatics meeting certain operating
profit thresholds for its fiscal year ended June 30, 1999. The amount
of the earn-out actually earned by Techmatics was $5,500,000 and is
payable in April 2000. The earn-out was recognized as additional
purchase consideration and accordingly increased goodwill from the
combination. Interest of 6 percent per year began accruing on
September 30, 1999. The acquisition of Techmatics was accounted for
using the purchase method whereby the net tangible and identifiable
intangible assets acquired and liabilities assumed were recognized at
their estimated fair market value as of the date of combination.
F-11
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The total purchase price paid, including transaction costs, of
approximately $45.8 million was allocated to the assets and
liabilities acquired as follows (in thousands):
Cash and cash equivalents $ 845
Accounts receivable 23,089
Prepaid expenses and other current assets 168
Property and equipment 2,416
Other long-term assets 337
Noncompete agreements 2,850
Goodwill 32,279
Accounts payable and accrued expenses (15,134)
Long-term debt (786)
Other liabilities (251)
--------
Total consideration $ 45,813
========
In conjunction with the purchase agreement, the Company entered into
noncompete agreements for approximately $2,850,000, payable over a
three-year period and discounted to $2,654,000 as of the date of
acquisition, with four employees of Techmatics. In addition, the
Company assumed certain tax obligations of the former shareholders of
Techmatics amounting to $4,000,000 paid over the period ended May 31,
1999.
Techmatics also provides professional information technology, systems
and software development, high technology research, and engineering
services primarily to the U.S. government and its agencies.
The following unaudited pro forma summary presents consolidated
information as if the Techmatics acquisition had occurred as of
January 1, 1998. The pro forma summary is provided for informational
purposes only and is based on historical information that does not
necessarily reflect actual results that would have occurred nor is it
necessarily indicative of future results of operations of the combined
entity:
YEAR ENDED
DECEMBER 31, 1998
-----------------
Total revenues $282,539
Total expenses 279,970
--------
Net income $ 2,569
========
F-12
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(c) ANALYSIS & TECHNOLOGY, INC.
On June 23, 1999, the Company acquired all of the outstanding stock of
Analysis & Technology, Inc. ("A&T"), a provider of system and
engineering technologies, technology-based training systems, and
information technologies to the U.S. government and commercial
customers. The acquisition has been accounted for using the purchase
method whereby the net tangible and identifiable intangible assets
acquired and liabilities assumed were recognized at their estimated
fair market values at the date of combination. These estimates are
preliminary and will be modified as appraisals and other studies are
completed. Goodwill resulting from the combination is being amortized
on a straight-line basis over thirty years.
The total purchase price paid, including transaction costs of
approximately $115.5 million, has been preliminarily allocated to the
assets and liabilities acquired as follows (in thousands):
Accounts receivable $ 29,910
Prepaid expenses and other current assets 2,985
Property and equipment 13,996
Other assets 1,606
Goodwill 78,473
Deferred tax assets, net 2,775
Accounts payable and accrued expenses (12,197)
Mortgage note payable (2,077)
---------
Total consideration $ 115,471
=========
Transaction costs of approximately $4.5 million were incurred in
connection with the acquisition, including a fee of approximately $1.1
million paid to Caxton-Iseman Capital, Inc., an affiliate of and
advisor to the Company's parent, Azimuth Technologies, Inc.
In addition, the Company has integrated A&T into Anteon's management
structure in an attempt to achieve synergies between the two
organizations. As a result of the integration, certain executive
officers of A&T either resigned or were terminated and exercised their
rights to certain consideration established through pre-existing
employment agreements. These costs are recorded as
"acquisition-related severance costs" in the December 31, 1999
consolidated statements of operations.
The following unaudited pro forma summary presents consolidated
information as if the acquisition of A&T had occurred as of January 1,
1998. The pro forma summary is provided for informational purposes
only and is based on historical information that does not necessarily
reflect actual results that would have occurred nor is it necessarily
indicative of future results of operations of the combined entity (in
thousands):
YEARS ENDED DECEMBER 31,
1999 1998
--------- ---------
Total revenues $ 490,949 450,786
Total expenses 491,278 453,971
--------- ---------
Net loss before extraordinary item (329) (3,185)
--------- ---------
Net income (loss) $ (792) (3,185)
========= =========
F-13
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(d) ANTEON-CITI LLC
During 1999, the Company and Criminal Investigative Technology, Inc.
("CITI") entered into a joint venture ("Anteon-CITI LLC"). Anteon-CITI
LLC is developing and marketing certain investigative support products
and services. At the date of formation, CITI contributed certain
assets to the joint venture. The Company has the sole ability to
control the management and operation of Anteon-CITI LLC and,
accordingly, consolidates its results. Further, upon the occurrence of
certain events, the Company has the option to purchase the 50%
interest of CITI, at a formula price as included in the joint venture
agreement.
(4) ACCOUNTS RECEIVABLE
The components of accounts receivable as of December 31, 1999 and 1998, are
as follows (in thousands):
1999 1998
--------- ---------
Billed and billable $ 103,986 67,018
Unbilled 5,378 3,114
Retainages due upon contract completion 2,283 1,380
Allowance for doubtful accounts (4,201) (3,459)
--------- ---------
Total $ 107,446 68,053
========= =========
Approximately 93% of the Company's revenues are earned, and accounts
receivable are due, from agencies of the U.S. Government. Unbilled costs
and fees and retainages billable upon completion of contracts are amounts
due primarily within one year and will be billed on the basis of contract
terms and delivery schedules.
The accuracy and appropriateness of the Company's direct and indirect costs
and expenses under its government contracts, and therefore its accounts
receivable recorded pursuant to such contracts, are subject to extensive
regulation and audit, including by the U.S. Defense Contract Audit Agency
("DCAA") or by other appropriate agencies of the U.S. government. Such
agencies have the right to challenge the Company's cost estimates or
allocations with respect to any government contract. Additionally, a
substantial portion of the payments to the Company under government
contracts are provisional payments that are subject to potential adjustment
upon audit by such agencies. In the opinion of management, any adjustments
likely to result from inquiries or audits of its contracts would not have a
material adverse impact on the Company's financial condition or results of
operations.
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1999
and 1998 (in thousands):
1999 1998
-------- --------
Land $ 596 --
Buildings 6,498 --
Computer hardware and software 11,435 6,165
Furniture and equipment 4,707 1,111
Leasehold improvements 2,806 201
-------- --------
26,042 7,477
Less - accumulated depreciation and amortization (6,089) (2,940)
-------- --------
$ 19,953 4,537
======== ========
F-14
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(6) ACCRUED EXPENSES
The components of accrued expenses as of December 31, 1999 and 1998 are as
follows (in thousands):
1999 1998
------- -------
Accrued payroll and related benefits $23,216 10,923
Accrued subcontractor costs 5,435 4,693
Accrued additional consideration for
Techmatics acquisition -- 2,940
Accrued legal -- 949
Accrued interest 1,677 748
Other accrued expenses 5,297 3,085
------- -------
$35,625 23,338
======= =======
(7) INDEBTEDNESS
(a) BANK LOAN AGREEMENT
Concurrent with the Anteon acquisition, the Company entered into a
Business Loan and Security Agreement (the "Bank Loan Agreement") with
two commercial banks. Under the terms of the Bank Loan Agreement, the
Company entered into promissory notes for an aggregate available
financing facility of $38 million. Concurrent with the Vector
acquisition, the Bank Loan Agreement was amended (the "Amended Bank
Loan Agreement") whereby the financial institution increased the
promissory notes by $6 million for an aggregate available facility of
$44 million. As of March 18, 1998, this Bank Loan Agreement was
terminated and replaced by a $125 million Old Credit Facility as
discussed below. Upon termination of this Bank Loan Agreement, all
principal and interest due on the existing facilities were paid in
full. Total interest expense incurred on these financial arrangements
was approximately $1,079,000 and $1,891,000, respectively, for the
years ended December 31, 1998 and 1997.
(b) OLD CREDIT FACILITY
On March 18, 1998, the Company entered into the Old Credit Facility
with six commercial banks. Under the terms of the Old Credit Facility,
the Company entered into promissory notes for aggregate available
financing facilities of $125 million. The Old Credit Facility was
comprised of a revolving credit facility for aggregate borrowings of
up to $75 million, based on a portion of eligible billed accounts
receivable and a portion of eligible unbilled accounts receivable
("Revolver"); and an acquisition credit facility for aggregate
borrowings of up to $50 million ("Acquisition Facility"). As of June
23, 1999, this Old Credit Facility was terminated and replaced by a
$180 million New Credit Facility as discussed below.
F-15
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Under the Old Credit Facility, the interest rate on the Revolver
varied based on Anteon's ratio of debt-to-earnings before income
taxes, depreciation and amortization, calculated quarterly. Interest
was payable on a quarterly basis. During the years ended December 31,
1999 and 1998, interest on the Revolving Facility ranged from 7.5
percent to 8.5 percent and 7.8125 percent to 8.75 percent,
respectively.
The interest rate on the Acquisition Facility varied using a
performance-based interest rate schedule measured using the Company's
ratio of debt-to-earnings before income taxes, depreciation and
amortization and was calculated quarterly. Interest was payable on a
quarterly basis. Interest rates charged on the Acquisition Facility
ranged from 7.5 percent to 9.0 percent and 7.5 percent to 9.25 percent
during the years ended December 31, 1999 and 1998, respectively.
As of December 31, 1998, the outstanding amount under the Revolver was
$35,400,000 and $35,000,000 under the Acquisition Facility.
Total interest expense incurred on the Revolver and Acquisition
Facility arrangements for the years ending December 31, 1999 and 1998
was approximately $3,049,000 and $3,475,000, respectively.
The Revolver was secured by certain assets of the Company and certain
assets of its subsidiaries. The subsidiaries' security interest was
limited to its obligations under these bank notes. The terms of the
Old Credit Facility restricted the ability of the Company to pay
dividends, although Anteon could declare dividends payable to Azimuth
in order to pay required payments on certain of its long-term debt.
During 1999, the Company wrote-off the remaining balance of deferred
financing costs of approximately $772,000 upon the effective date of
the New Credit Facility. This amount, net of taxes of approximately
$309,000, is reflected as an extraordinary loss in the consolidated
statement of operations for the year ended December 31, 1999.
(c) NEW CREDIT FACILITY
On June 23, 1999 the Company entered into a New Credit Facility with
nine commercial banks. This New Credit Facility replaced the Company's
Old Credit Facility and coincided with the purchase of A&T. The
balance outstanding of $76,200,000 under the Old Credit Facility was
paid in full on that date.
Under the terms of the New Credit Facility, the Company entered into
promissory notes with aggregate available financing facilities of
$180,000,000. The New Credit Facility is comprised of a Revolving
Credit Facility for aggregate borrowings of up to $120,000,000, as
determined based on a portion of eligible billed accounts receivable
and a portion of eligible unbilled accounts receivable, and maturing
on June 23, 2005 ("Revolving Facility"); and a $60,000,000 note ("Term
Loan") with principal payments due quarterly commencing June 30, 2001
and $15,000,000 at maturity on June 23, 2005.
Under the New Credit Facility, the interest rate on both the Revolving
Facility and the Term Loan vary using the Libor rate plus a margin
determined using the Company's ratio of net debt-to-earnings before
interest, taxes, depreciation and amortization. Interest is payable on
the last day of each quarter. During the period June 23, 1999 through
December 31, 1999, interest on the Revolving Facility and Term Loan
ranged from 10.0 percent to 10.75 percent.
F-16
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
As of December 31, 1999, the outstanding amounts under the New Credit
Facility are as follows (in thousands):
1999
----------
Revolving Facility $ 2,900
Term Loan 60,000
----------
$ 62,900
==========
The remaining available limit for the Revolving Facility as of
December 31, 1999 was $30,100,000.
Total interest expense incurred on the Revolving Facility and Term
Loan for the year ended December 31, 1999 was approximately $860,000
and $2,869,000 respectively. In addition, the Company incurred
approximately $654,000 in bridge financing interest expenses.
The Revolving Facility and Term Loan are secured by certain assets of
the Company and certain assets of its subsidiaries ("Guarantors"). The
subsidiaries' security interest is limited to obligations under these
bank notes. In addition, the New Credit Facility has restrictions on
dividends and distributions. These restrictions limit the ability to
declare or pay, directly or indirectly, any dividend or make any other
distribution unless certain conditions are met.
(d) SENIOR SUBORDINATED NOTES PAYABLE
On May 11, 1999, the Company sold $100,000,000, in aggregate
principal, of ten-year, 12 percent Senior Subordinated Notes
("Notes"). These Notes were principally used to purchase A&T (note 3).
The Notes are subordinate to the Company's New Credit Facility but
rank senior to any other subordinated indebtness. The Notes mature May
15, 2009 and interest is payable semi-annually on May 15 and November
15. Total interest expense incurred during 1999 was $7,500,000.
The Company cannot redeem the Notes prior to May 15, 2004 except under
certain conditions. Under certain limitations and prior to May 15,
2002, the Company can elect to redeem the Notes at an amount not to
exceed 25 percent of the sum of the original principal amount of the
Notes and the original principal amount of any other notes issued
under the same indenture with proceeds from certain equity offerings.
In addition, under certain conditions after May 15, 2004, the Company
can redeem some portion of the Notes at certain redemption prices.
The Notes are guaranteed by each of the Company's existing and certain
future domestic subsidiaries. The Notes include certain restrictions
regarding additional indebtness, dividend distributions, investing
activities, stock sales, transactions with affiliates, and asset sales
and transfers.
F-17
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(e) SUBORDINATED NOTES PAYABLE
In connection with the purchase of Techmatics, the Company entered
into subordinated promissory notes with the Techmatics shareholders
and option holders as of the date of acquisition in the principal
amount of $10,000,000, discounted as of the date of acquisition to
approximately $8,800,000.
One-tenth of the total amount of principal was paid on May 31, 1999
with the remaining nine-tenths due May 31, 2000. Interest began
accruing on May 31, 1999 at 6 percent per year on four-ninths of the
principal amount outstanding. All overdue amounts accrue interest at
7.5 percent per year.
Total interest expense incurred on the subordinated notes payable for
the years ended December 31, 1999 and 1998 was approximately $672,000
and $423,000, respectively.
(f) FUTURE MATURITIES
Scheduled future maturities under the Company's indebtedness are as
follows (in thousands):
YEAR ENDING DECEMBER 31,
2000 $ 8,840
2001 8,438
2002 11,250
2003 11,250
2004 11,250
Thereafter 120,712
---------
$ 171,740
=========
(g) INTEREST RATE SWAP AGREEMENTS
The Company has entered into interest rate swap agreements to reduce
the impact of changes in interest rates on its indebtedness facilities
that have varying rates of interest. As of December 31, 1999 and 1998,
the Company had outstanding interest rate swap agreements with
off-balance-sheet market risk with commercial banks having total
notional principal amounts of $35 million and $15 million,
respectively. Those swap agreements effectively changed the
Company's interest rate exposure for the following amounts to the
following fixed rates on its Old Credit Facility and subsequently
its New Credit Facility, respectively:
<TABLE>
<CAPTION>
EFFECTIVE FAIR VALUE AS OF
DATE OF SWAP NOTIONAL MATURITY OF FIXED RATE DECEMBER 31, 1999
AGREEMENT AMOUNT SWAP AGREEMENT OF INTEREST (in thousands)
- - -------------- ----------- ------------------ ------------- -----------------
<S> <C> <C> <C> <C>
May 1998 $5 million December 31, 2002 5.8 percent $ 8
September 1998 $5 million September 25, 2003 5.02 percent 54
June 1999 $10 million June 29, 2001 5.8 percent 85
June 1999 $10 million June 29, 2001 5.78 percent (67)
June 1999 $5 million June 29, 2001 6.15 percent 13
</TABLE>
The fair value of interest rate swaps is the estimated amount that
the counterparty would receive (pay) to terminate the swap agreements
at December 31, 1999.
F-18
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The swap agreements entered into under the Old Credit Facility
remained in effect upon consummation of the New Credit Facility. The
differential to be paid or received is accrued as interest rates
change and is recognized over the life of the agreements. The Company
is exposed to credit loss in the event of nonperformance by the other
parties to the interest rate swap agreements; however, the Company
does not anticipate nonperformance by the counterparties.
(8) INCOME TAXES
The provisions for income taxes for the years ended December 31, 1999, 1998
and 1997, consist of the following (in thousands), respectively:
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
Current provision (benefit):
Federal $(1,593) (115) 1,618
State (479) (16) 290
Foreign 37 68 (19)
------- ------- -------
Total current provision (benefit) (2,035) (63) 1,889
------- ------- -------
Deferred provision (benefit):
Federal 2,875 2,067 (708)
State 662 380 (118)
Foreign 41 (31) --
------- ------- -------
Total deferred provision (benefit) 3,578 2,416 (826)
------- ------- -------
Total income tax provision $ 1,543 2,353 1,063
======= ======= =======
The income tax provisions for the years ended December 31, 1999, 1998 and
1997, respectively, are different from that computed using the statutory
U.S. federal income tax rate of 34 percent as set forth below (in
thousands):
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- -------
Expected tax expense, computed
at statutory rate $ 637 1,648 914
State taxes, net of federal expense 94 197 111
Nondeductible expenses 168 42 9
Goodwill amortization 663 333 20
Foreign losses (19) 123 9
Other -- 10 --
------- ------- -------
$ 1,543 2,353 1,063
======= ======= =======
F-19
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The tax effect of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities as of December 31, 1999 and 1998 are
presented below (in thousands):
1999 1998
-------- --------
Deferred tax assets:
Accrued expenses $ 4,006 1,662
Intangible assets, due to
differences in amortization 3,490 2,791
Accounts receivable allowances 890 686
Property and equipment, due to
differences in depreciation 490 --
Net operating loss carryover 2,356 --
Other 102 --
-------- --------
Total deferred tax assets 11,334 5,139
-------- --------
Deferred tax liabilities:
Deductible goodwill, due to
differences in amortization 4,673 3,582
Revenue recognition differences 4,084 3,332
Property and equipment, due to
differences in depreciation 1,487 17
Other 264 61
Accrued expenses 3,482
-------- --------
Total deferred tax liabilities 13,990 6,992
-------- --------
Deferred tax assets (liabilities), net $ (2,656) (1,853)
======== ========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax asset will be realized. The ultimate realization of the deferred tax
asset is dependent upon the generation of future taxable income during the
periods in which temporary differences become deductible. Management
considers scheduled reversals of deferred tax liabilities, projected future
taxable income, and tax planning strategies that can be implemented by the
Company in making this assessment. Based upon the level of historical
taxable income, scheduled reversal of deferred tax liabilities, and
projections of future taxable income over the periods in which the
temporary differences become deductible based on available tax planning
strategies, management presently believes that it is more likely than not
that the Company will realize all of the benefits of these deductible
differences and, accordingly, has established no valuation allowance
against the deferred tax assets as of December 31, 1999 or 1998. At
December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $4,384,000 and $8,542,000, respectively.
Such carryforwards have various expiration dates and begin to expire in
2004.
(9) EMPLOYEE BENEFIT PLANS
Employees of the Company may participate in 401(k) retirement savings
plans, whereby employees may elect to make contributions pursuant to a
salary reduction agreement upon meeting eligibility requirements.
Participants may contribute up to 20 percent of salary in any calendar year
to these plans, provided that amounts in total do not exceed certain
statutory limits. The Company matches up to 50 percent of the first 6
percent of a participant's contributions subject to certain limitations.
The Company made contributions to these plans of approximately $2,306,000,
$1,995,000 and $1,207,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
F-20
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
From the date of its acquisition to December 31, 1998, Techmatics sponsored
a defined health and welfare plan that provides health, dental and
short-term disability benefits for all eligible full-time employees of
Techmatics. The plan was self-insured and has specific employee stop-loss
coverage insurance of $50,000 and aggregate stop-loss coverage insurance
calculated based on monthly participation in the plan. Contributions to the
plan were made by both Techmatics and the employees and are maintained in a
trust fund intended to qualify as a tax-exempt Voluntary Employees'
Beneficiary Trust within the meaning of Section 501(c)(9) of the U.S.
Internal Revenue Code. Contributions by Techmatics are based upon estimates
and on actual amounts of claims processed. For the year ended December 31,
1999 and from the date of acquisition of Techmatics by the Company to
December 31, 1998, Techmatics made contributions to the plan of
approximately $704,000 and $879,000, respectively. Effective January 1,
1999 the Techmatics employees became participants in Anteon's employee
benefit plan.
A&T's Savings and Investment Plan is a discretionary contribution plan as
defined in the Internal Revenue Code, Section 401(a)(27). The Plan covers
substantially all of A&T's full-time employees. A&T's contributions are
made at the discretion of the Board of Directors for any plan year. A&T's
matching contributions to this plan from the date of acquisition of A&T by
the Company to December 31, 1999 was approximately $1,019,000.
(10) EMPLOYEE STOCK OPTION PLAN
In February 1997, the Board of Directors approved the adoption of the
Anteon Corporation Omnibus Stock Plan ("the Plan"). At the discretion of
the Board of Directors, the Plan permits the granting of stock options,
stock appreciation rights, restricted or unrestricted stock awards, and/or
phantom stock to employees or directors of the Company. As of December 31,
1999, an aggregate of 575,000 shares of Anteon's common stock was reserved
for issuance under the Plan.
The exercise price of stock options granted is determined by the Board of
Directors but is not to be less than the fair value of the underlying
shares of common stock at the grant date.
For stock options granted to employees, 20 percent of the shares subject to
the options vest on the first anniversary of the grant date and an
additional 20 percent vest on each succeeding anniversary of the grant
date. The employees have a period of three years from the vesting date to
exercise the option to purchase shares of the Company's common stock. In
1997, the Board of Directors approved that 20 percent of the options issued
on the August 1, 1997 grant date vest immediately.
For stock options granted to directors of the Company, 33 1/3 percent of
the shares subject to the options vest on the first anniversary of the
grant date and an additional 33 1/3 percent vest on the two succeeding
anniversaries of the grant date. The directors have a period of two years
from the vesting date to exercise the option to purchase shares of the
Company's common stock.
F-21
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following tables summarize information regarding options under the
company's stock option plans:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE OUTSTANDING
OF OPTION PRICE EXERCISE AND
SHARES PER SHARE PRICE EXERCISABLE
--------- ------------ ------ -----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996 - - -
Granted 171,630 $6.75-$18.37 $ 8.42
Exercised - - -
Cancelled or expired (6,200) 6.75-$18.37 11.44
--------- ------------ ------
Outstanding at December 31, 1997 165,430 $6.75-$18.37 $ 8.32 19,325
Granted 151,450 26.90-$37.30 36.80
Exercised (1,740) 6.75-$18.37 13.43
Cancelled or expired (10,600) 6.75-$37.30 14.74
--------- ------------ ------
Outstanding at December 31, 1998 304,540 $6.75-$37.30 $22.17 52,209
Granted 173,750 38.88-$41.98 41.57
Exercised (5,280) 6.75-$32.17 8.15
Cancelled or expired (19,450) 6.75-$41.98 35.50
--------- ------------ ------
Outstanding at December 31, 1999 453,560 $6.75-$41.98 $29.19 106,716
========= ============ ======
</TABLE>
Option and weighted average price information by price group is as follows:
SHARES OUTSTANDING EXERCISABLE SHARES
------------------------------ -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
OF EXERCISE REMAINING OF EXERCISE
SHARES PRICE LIFE SHARES PRICE
------- -------- --------- ------ --------
December 31, 1999:
$6.75 133,310 $ 6.75 5.5 73,676 $ 6.75
$18.37 to $26.90 14,500 18.96 5.8 5,000 18.71
$32.17 to $37.30 138,000 36.91 6.7 27,440 36.94
$38.88 to $41.98 167,750 41.57 7.6 600 38.88
The Company applies APB No. 25 and related interpretations in accounting
for the Plan. Adoption of the fair market value provisions prescribed in
SFAS No. 123 is optional with respect to stock-based compensation to
employees; however, pro forma disclosures are required as if the Company
adopted the fair value recognition requirements under SFAS No. 123.
The weighted average fair value of options granted during the years ended
December 31, 1999, 1998 and 1997 was $15.01, $10.18, and $3.04,
respectively. Had compensation cost for the Company's 1999, 1998 and 1997
grants under the Plan been determined consistent with the fair market value
provisions prescribed in SFAS No. 123, the Company's pro forma net income
(loss) for the years ended December 31, 1999, 1998 and 1997 would
approximate ($699,000), $2,224,000 and $1,586,000, respectively, using an
expected option life of 7 years, dividend yield rate and volatility rate of
0 percent, respectively, and a risk-free interest rate of 6.61, 4.73 and
5.77 percent, respectively. The effects of applying SFAS No. 123 in this
pro forma disclosure are not indicative of future amounts.
F-22
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(11) COMPREHENSIVE INCOME (LOSS)
During 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS No.
130"). SFAS No. 130 requires the display of comprehensive income (loss),
which includes the Company's unrealized gains (losses) on investments and
the accumulated foreign currency translation adjustment. The Company has
presented comprehensive income (loss) as a component of the accompanying
consolidated statements of stockholders' equity. During the year ended
December 31, 1998, $392,000 of unrealized gains on investments was
recognized. During 1999, the Company sold all of its equity securities. The
amount of accumulated foreign currency translation adjustment was
approximately ($5,000), $7,000 and $0 as of December 31, 1999, 1998 and
1997, respectively. There were no unrealized gains (losses) on investments
as of December 31, 1999 or 1997, respectively.
(12) COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company leases facilities under operating leases and uses certain
equipment under lease agreements expiring at various dates through
2010. As of December 31, 1999, the aggregate minimum annual rental
commitments under noncancelable operating leases are as follows (in
thousands):
YEAR ENDING DECEMBER 31,
2000 $ 13,844
2001 13,084
2002 10,070
2003 6,047
2004 5,495
Thereafter 18,087
--------
Total minimum lease payments $ 66,627
========
Rent expense under all operating leases for the years ended December
31, 1999, 1998 and 1997 was approximately $11,887,000, $5,644,000 and
$3,368,000, respectively.
(b) MANAGEMENT FEES
Effective June 1, 1999, the Company entered into an arrangement with
Caxton-Iseman Capital, Inc., an affiliate and advisor to the Company's
parent, Azimuth Technologies, Inc., whereby the amount the Company is
required to pay for management fees to Caxton-Iseman Capital, Inc.
increased to $1,000,000 per year. Prior to the completion of the
acquisition of A&T, the annual management fee was $500,000 and covered
the period beginning January 1, 1999.
During the years ended December 31, 1999 and 1998, the Company
incurred $750,000 and $400,000, respectively, of management fees with
Caxton-Iseman Capital, Inc.
No such fees were incurred in 1997.
F-23
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(c) LEGAL PROCEEDINGS
The Company is involved in various legal proceedings in the ordinary
course of business. Management of the Company and its legal counsel
cannot currently predict the outcome of these matters, but do not
believe that they will have a material impact on the Company's
financial position or results of operations.
F-24
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(13) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION
The Company's wholly-owned domestic subsidiaries are guarantors (the
"Subsidiary Guarantors") under the terms of the Notes. Such guarantees are
full, unconditional and joint and several. Separate financial statements of
the Subsidiary Guarantors are not presented because the Company's
management has determined that they would not be material to investors. The
following supplemental financial information sets forth, on a combined
basis, balance sheets, statements of operations and statements of cash
flows information for the Subsidiary Guarantors, the Company's
non-guarantor subsidiaries and for the Company.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------------------------------------------
NON- CONSOLIDATED
CONDENSED CONSOLIDATED ANTEON GUARANTOR GUARANTOR ELIMINATION ANTEON
BALANCE SHEETS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
- - ------------------------------------------ ----------- ------------ ------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash $ (11) 499 573 1,061
Receivables 34,882 72,239 325 107,446
Other current assets 8,614 350 129 9,093
Property and equipment, net 3,072 16,810 71 19,953
Due from parent 7,525 -- -- 7,525
Investment in and advances to subsidiaries 54,644 225 (225) (54,644) --
Goodwill, net 130,563 -- -- 130,563
Other long-term assets 7,524 2,009 2 9,535
--------- --------- --------- ---------
Total assets 246,813 92,132 875 285,176
========= ========= ========= =========
Indebtedness 177,240 -- -- 177,240
Accounts payable 11,237 6,762 212 18,211
Accrued expenses 16,840 18,563 222 35,625
Other current liabilities 820 359 26 1,205
Other long-term liabilities 4,848 1,671 83 6,602
--------- --------- --------- ---------
Total liabilities 210,985 27,355 543 238,883
Minority interest in subsidiaries 549 -- 76 625
Total stockholders' equity 35,279 64,777 256 (54,644) 45,668
--------- --------- --------- ---------
Total liabilities and
stockholders' equity $ 246,813 92,132 875 285,176
========= ========= ========= =========
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
- - ------------------------------------------ --------------------------------------------------------------------------
(in thousands)
Revenues $ 204,388 194,523 3,241 (1,302) 400,850
Costs of revenues 187,143 164,518 2,886 (1,302) 353,245
--------- --------- --------- ---------
Gross profit 17,245 30,005 355 47,605
Total operating expenses 13,668 18,591 16 32,275
--------- --------- --------- ---------
Operating income 3,577 11,414 339 15,330
Interest and other expense (income), net 13,486 (18) (11) 13,457
Minority interest -- -- 40 40
--------- --------- --------- ---------
Income (loss) before provision
for income taxes and
extraordinary loss (9,909) 11,432 310 1,833
Provision (benefit) for income taxes (3,028) 4,498 73 1,543
--------- --------- --------- ---------
Income (loss) before extraordinary loss (6,881) 6,934 237 290
Extraordinary loss, net of tax 463 -- -- 463
--------- --------- --------- ---------
Net income (loss) $ (7,344) 6,934 237 (173)
========= ========= ========= =========
</TABLE>
F-25
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------
NON- CONSOLIDATED
CONDENSED CONSOLIDATED ANTEON GUARANTOR GUARANTOR ANTEON
STATEMENTS OF CASH FLOWS CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
- - ------------------------------------------------------------ ----------- ------------ ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
Net income (loss) $ (7,344) 6,895 276 (173)
Adjustments to reconcile change in net income (loss) to net
cash provided by (used for) operations:
Extraordinary loss 772 -- -- 772
Gain on sale of investments (2,869) 8 (20) (2,881)
Gain on sale of asset -- (67) (67)
Depreciation and amortization 930 2,671 22 3,623
Goodwill amortization 3,440 -- -- 3,440
Amortization of noncompetes 909 -- -- 909
Amortization of deferred financing fees 692 -- -- 692
Deferred income taxes 1,737 1,805 36 3,578
Minority interest in earnings of subsidiary -- 40 40
Changes in assets and liabilities, net of acquired assets
and liabilities 10,450 (8,896) 78 1,632
--------- --------- --------- ---------
Net cash provided by (used for)
Operating activities 8,717 2,456 392 11,565
--------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (2,194) (2,513) (54) (4,761)
Acquisitions, net of cash acquired (115,362) -- -- (115,362)
Proceeds from sales of investments 11,491 -- -- 11,491
Purchases of investments (3,040) -- -- (3,040)
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (109,105) (2,513) (54) (111,672)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from bank notes payable 132,043 -- -- 132,043
Principal payments on bank notes payable (202,443) -- -- (202,443)
Payments on subordinated notes payable -- (173) -- (173)
Proceeds from Term Loan 60,000 -- -- 60,000
Proceeds from Revolving Facility 208,700 -- -- 208,700
Payments on Revolving Facility (205,800) -- -- (205,800)
Proceeds from senior subordinated notes payable 100,000 -- -- 100,000
Initial capitalization of joint venture (962) 962 -- --
Deferred financing costs (8,930) -- -- (8,930)
Principal payments on Techmatics obligations (4,925) -- -- (4,925)
Proceeds from issuance of common stock 22,545 -- -- 22,545
Purchase of treasury stock (5) -- -- (5)
--------- --------- --------- ---------
Net cash provided by financing
Activities 100,223 789 -- 101,012
--------- --------- --------- ---------
Net increase (decrease) in cash (165) 732 338 905
Cash, beginning of year 154 (233) 235 156
--------- --------- --------- ---------
Cash, end of year $ (11) 499 573 1,061
========= ========= ========= =========
</TABLE>
F-26
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
----------------------------------------------------------------------
NON- CONSOLIDATED
CONDENSED CONSOLIDATED ANTEON GUARANTOR GUARANTOR ELIMINATION ANTEON
BALANCE SHEETS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
- - ------------------------------------------- ----------- ------------ ------------ ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash $ 154 (233) 235 -- 156
Receivables 37,955 29,908 190 -- 68,053
Other current assets 4,558 573 216 -- 5,347
Property and equipment, net 2,076 2,422 39 -- 4,537
Due from parent 6,625 -- -- -- 6,625
Investment in and advances to subsidiaries 21,177 (4,009) 222 (17,390) --
Other long-term assets 57,686 752 12 -- 58,450
-------- -------- -------- -------- --------
Total assets 130,231 29,413 914 (17,390) 143,168
======== ======== ======== ======== ========
Indebtedness 79,702 -- -- -- 79,702
Accounts payable 9,910 2,394 278 -- 12,582
Accrued expenses 15,904 7,138 296 -- 23,338
Other current liabilities 2,444 64 -- -- 2,508
Other long-term liabilities 1,033 226 37 -- 1,296
-------- -------- -------- -------- --------
Total liabilities 108,993 9,822 611 -- 119,426
Minority interest in subsidiary -- 37 -- -- 37
Total stockholders' equity 21,238 19,554 303 (17,390) 23,705
-------- -------- -------- -------- --------
Total liabilities and
Stockholders' equity $130,231 29,413 914 (17,390) 143,168
======== ======== ======== ======== ========
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
- - ------------------------------------------- ----------------------------------------------------------------------
(in thousands)
Revenues $186,995 60,534 2,376 (129) 249,776
Costs of revenues 168,210 51,279 2,007 92 221,588
-------- -------- -------- -------- --------
Gross profit 18,785 9,255 369 (221) 28,188
Total operating expenses 11,748 5,873 345 (221) 17,745
-------- -------- -------- -------- --------
Operating income 7,037 3,382 24 -- 10,443
Interest expense (income), net 5,637 (13) (27) -- 5,597
Minority interest -- 25 -- -- 25
-------- -------- -------- -------- --------
Income before provision
for income taxes 1,400 3,370 51 -- 4,821
Provision for income taxes 677 1,663 13 -- 2,353
======== ======== ======== ======== ========
Net income $ 723 1,707 38 -- 2,468
======== ======== ======== ======== ========
</TABLE>
F-27
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------
NON- CONSOLIDATED
CONDENSED CONSOLIDATED ANTEON GUARANTOR GUARANTOR ANTEON
STATEMENTS OF CASH FLOWS CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
- - ----------------------------------------------------------- ----------- ------------ ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 723 1,707 38 2,468
Adjustments to reconcile change in net income to net cash
provided by (used for) operations:
Depreciation and amortization 898 877 62 1,837
Goodwill amortization 1,814 -- -- 1,814
Amortization of noncompetes 530 -- -- 530
Amortization of deferred financing and
contract costs 1,420 -- -- 1,420
Inventory obsolence reserve 500 -- -- 500
Deferred income taxes 2,501 -- -- 2,501
Minority interest in earnings of subsidiary -- 25 -- 25
Changes in assets and liabilities, net of acquired assets
and liabilities (15,737) (3,669) (29) (19,435)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities (7,351) (1,060) 71 (8,340)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (1,402) (609) (78) (2,089)
Acquisitions, net of cash acquired (28,457) 845 -- (27,612)
Purchases of investments (5,574) -- -- (5,574)
Other, net (113) -- -- (113)
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (35,546) 236 (78) (35,388)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from bank notes payable 278,500 -- -- 278,500
Principal payments on bank notes payable (232,200) -- -- (232,200)
Principal payments on Techmatics obligations (2,075) -- -- (2,075)
Initial Capitalization of Vector Korea (195) -- 195 --
Initial Capitalization of Vector Australia (30) -- 30 --
Proceeds from issuance of common stock 22 -- -- 22
Deferred financing costs (1,015) -- -- (1,015)
--------- --------- --------- ---------
Net cash provided by financing
activities 43,007 -- 225 43,232
--------- --------- --------- ---------
Net increase (decrease) in cash 110 (824) 218 (496)
Cash, beginning of year 44 591 17 652
--------- --------- --------- ---------
Cash, end of year $ 154 (233) 235 156
========= ========= ========= =========
</TABLE>
F-28
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------
NON- CONSOLIDATED
CONDENSED CONSOLIDATED STATEMENT OF ANTEON GUARANTOR GUARANTOR ELIMINATION ANTEON
OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
- - ------------------------------------------------ ----------- ------------ ------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues $170,736 5,330 226 -- 176,292
Cost of revenues 154,968 4,263 308 -- 159,539
-------- -------- -------- -------- --------
Gross profit 15,768 1,067 (82) -- 16,753
Total operating expenses 11,294 379 -- -- 11,673
-------- -------- -------- -------- --------
Operating income (loss) 4,474 688 (82) -- 5,080
Interest expense (income) net 2,372 (6) (1) -- 2,365
Minority interest -- 13 -- -- 13
-------- -------- -------- -------- --------
Income before provision for income
taxes 2,102 681 (81) -- 2,702
Provision for income taxes 824 271 (32) -- 1,063
-------- -------- -------- -------- --------
Net income $ 1,278 410 (49) -- 1,639
======== ======== ======== ======== ========
</TABLE>
F-29
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
NON- CONSOLIDATED
CONDENSED CONSOLIDATED STATEMENT ANTEON GUARANTOR GUARANTOR ANTEON
OF CASH FLOW CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
- - ------------------------------------------------ ----------- ------------ ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
Net income (loss) $ 1,278 410 (49) 1,639
Adjustments to reconcile change in net income
(loss) to net cash provided by operations:
Minority interest in earnings of subsidiaries -- (13) -- (13)
Depreciation and amortization 843 42 10 895
Goodwill amortization 742 -- -- 742
Amortization of noncompete agreements 2,286 -- -- 2,286
Amortization of deferred financing and contract 1,209 -- -- 1,209
costs
Loss on disposal of equipment 16 5 -- 21
Deferred income taxes (943) -- -- (943)
Changes in assets and liabilities, net of assets
and liabilities acquired 8,226 77 (45) 8,258
--------- --------- --------- ---------
Net cash provided by operating
activities 13,657 521 (84) 14,094
--------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (796) (1) (20) (817)
Acquisitions, net of cash (17,239) -- -- (17,239)
--------- --------- --------- ---------
Net cash used in investing activities
(18,035) (1) (20) (18,056)
--------- --------- --------- ---------
Cash flow from financing activities
Proceeds from bank notes payable 199,300 -- -- 199,300
Principal payments on bank notes payable (194,800) -- -- (194,800)
Initial Capitalization of Vector U.K -- (121) 121 --
--------- --------- --------- ---------
Net cash provided by financing
activities 4,500 (121) 121 4,500
--------- --------- --------- ---------
Net increase (decrease) in cash 122 399 17 538
Cash, beginning of year (78) 192 -- 114
--------- --------- --------- ---------
Cash, end of year $ 44 591 17 652
========= ========= ========= =========
</TABLE>
F-30
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following summarizes the quarterly results of operations for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
QUARTER ENDED: MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
(in thousands) -------- ------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
1999
Revenues $ 72,557 72,936 125,708 129,649 400,850
Operating income 3,377 3,465 5,555 2,933 15,330
Net income (loss) before
extraordinary loss 555 16 1,362 (1,643) 290
Net income (loss) 555 (447) 1,362 (1,643) (173)
1998
Revenues $ 45,189 62,770 72,349 69,468 249,776
Operating income 2,172 2,936 3,133 2,202 10,443
Net income (loss) 931 1,118 832 (413) 2,468
</TABLE>
(12) SEGMENT REPORTING
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments.
Based on its organization, the Company operates in two business segments:
the company's government contracting business and the Company's commercial
custom training and performance solutions group ("Interactive Media").
The Company's government contracting business aggregates the operations of
Anteon, Vector, Techmatics and A&T.
The Company's chief operating decision maker utilizes both revenue and
earnings before interest and taxes in assessing performance and making
overall operating decisions and resource allocations. Certain indirect
costs such as corporate overhead and general and administrative expenses
are allocated to the segments. Allocation of overhead costs to segments are
based on measures such as revenue and employee headcount. General and
administrative costs are allocated to segments based on the
government-required three-factor formula which uses measures of revenue,
labor and net book value of fixed assets. Interest expense, investment
income and income taxes are not allocated to the Company's segments.
F-31
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(a majority-owned subsidiary of Azimuth Technologies, Inc.)
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following table presents information about the Company's segments as
of and for the twelve-month period ended December 31, 1999. During 1998 and
1997, the Company operated in one segment, government contracting.
Interactive Media results include the period from the date of acquisition
of A&T (June 23, 1999) to December 31, 1999.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED GOVERNMENT INTERACTIVE
DECEMBER 31, 1999 CONTRACTING MEDIA ELIMINATIONS CONSOLIDATED
----------------------------------------------------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Total assets $ 279,677 5,499 -- 285,176
========= ========= ========= =========
Sales to unaffiliated customers $ 389,127 11,723 -- 400,850
Intersegment sales 297 97 (394) --
--------- --------- --------- ---------
389,424 11,820 (394) 400,850
========= ========= ========= =========
Operating income, net $ 14,319 1,011 15,330
---------
Other income $ (2,545)
Interest expense, net 16,042
---------
Income before income taxes and extraordinary loss 1,833
Income taxes 1,543
Extraordinary loss, net of taxes 463
---------
Net loss $ (173)
=========
</TABLE>
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Anteon Corporation and subsidiaries:
Under date of February 23, 2000, we reported on the consolidated balance
sheets of Anteon Corporation and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999, as contained in the Company's annual report on Form 10-K
for the year 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
McLean, Virginia
February 23, 2000
S-1
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
beginning of costs and other end of
Description period expenses accounts Deductions period
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $4,267 $ $ 304 $ (577) $3,994
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts 3,994 840 (1,375) 3,459
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts 3,459 826 612 (696) 4,201
</TABLE>
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANTEON CORPORATION
By:
-------------------------------------
Joseph M. Kampf
President and Chief Executive Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
NAME TITLE DATE
---- ----- ----
/s/ JOSEPH M. KAMPF President and Chief Executive March 30, 2000
- - ----------------------------- Officer and Director
Joseph M. Kampf (Principal Executive Officer)
/s/ CARLTON B. CRENSHAW Senior Vice President and March 30, 2000
- - ----------------------------- Chief Financial and
Carlton B. Crenshaw Administrative Officer
(Principal Financial and
Accounting Officer)
/s/ FREDERICK J. ISEMAN Chairman of the Board March 30, 2000
- - ----------------------------- and Director
Frederick J. Iseman
/s/ THOMAS M. COGBURN Director March 30, 2000
- - -----------------------------
Thomas M. Cogburn
/s/ GILBERT F. DECKER Director March 30, 2000
- - -----------------------------
Gilbert F. Decker
/s/ ROBERT A. FERRIS Director March 30, 2000
- - -----------------------------
Robert A. Ferris
/s/ PAUL KAMINSKI Director March 30, 2000
- - -----------------------------
Paul Kaminski
/s/ STEVEN M. LEFKOWITZ Director March 30, 2000
- - -----------------------------
Steven M. Lefkowitz
/s/ JOSEPH MAURELLI Director March 30, 2000
- - -----------------------------
Joseph Maurelli
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
2.1 Agreement and Plan of Merger, dated as of June 7, 1999, by and
among the Company, Buffalo Acquisition Corporation and Analysis &
Technology, Inc. (incorporated by reference to Exhibit Z to A&T's
Current Report on Form 8-K filed on June 9, 1999 (Commission File
No. 0-14161)).
3.1 Articles of Incorporation (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-4 filed on
August 9, 1999 (Commission File No. 333-84835)).
3.2 By-laws (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-4 filed on August 9, 1999
(Commission File No. 333-84835)).
4.1 Indenture, dated as of May 11, 1999, by and among the Company,
Vector Data Systems, Inc., Techmatics, Inc. and IBJ Whitehall Bank
& Trust Company, as trustee (incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-4 filed on
August 9, 1999 (Commission File No. 333-84835)).
10.1 Stock Purchase Agreement, dated August 29, 1997, by and among the
Company, Vector Data Systems, Inc. and the shareholders of Vector
Data Systems, Inc. signatories thereto (incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement on Form
S-4 filed on August 9, 1999 (Commission File No. 333-84835)).
10.2 Agreement and Plan of Merger, dated May 13, 1998, by and among the
Company, TM Acquisition Corp., Techmatics, Inc. and certain
shareholders of Techmatics, Inc. signatories thereto (incorporated
by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-4 filed on August 9, 1999 (Commission File No.
333-84835)).
10.3 Purchase Agreement, dated May 6, 1999, by and among the Company,
Vector Data Systems, Inc., Techmatics, Inc., and Credit Suisse
First Boston Corporation, Deutsche Bank Securities Inc. and Legg
Mason Wood Walker, Incorporated, as initial purchasers
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-4 filed on August 9, 1999
(Commission File No. 333-84835)).
10.4 Credit Agreement, dated as of June 23, 1999, among the Company,
Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG
and the lenders named therein (incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement on Form S-4
filed on August 9, 1999 (Commission File No. 333-84835)).
10.5 Pledge Agreement, dated as of June 23, 1999, among the Company,
Azimuth Technologies, Inc., Analysis & Technology, Inc.,
Interactive Media Corp., Techmatics, Inc., Vector Data Systems,
Inc. and Mellon Bank, N.A. (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-4 filed on
August 9, 1999 (Commission File No. 333-84835)).
10.6 Indemnity, Subrogation and Contribution Agreement, dated as of
June 23, 1999, among the Company, Analysis & Technology, Inc.,
Interactive Media Corp., Techmatics, Inc., Vector Data Systems,
Inc. and Mellon Bank, N.A. (incorporated by reference to Exhibit
10.6 to the Company's Registration Statement on Form S-4 filed on
August 9, 1999 (Commission File No. 333-84835)).
10.7 Subsidiary Guarantee Agreement, dated as of June 23, 1999, among
Analysis & Technology, Inc., Interactive Media Corp., Techmatics,
Inc., Vector Data Systems, Inc. and Mellon Bank, N.A.
(incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-4 filed on August 9, 1999
(Commission File No. 333-84835)).
10.8 Security Agreement, dated as of June 23, 1999, among the Company,
Analysis & Technology, Inc., Interactive Media Corp., Techmatics,
Inc., Vector Data Systems, Inc. and Mellon Bank, N.A.
(incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-4 filed on August 9, 1999
(Commission File No. 333-84835)).
10.9 Fee Agreement, dated as of June 1, 1999, between the Company and
Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on Form S-4 filed on
August 9, 1999 (Commission File No. 333-84835)).
<PAGE>
10.10 Company Amended and Restated Omnibus Stock Plan (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement
on Form S-4 filed on August 9, 1999 (Commission File No.
333-84835)).
12.1 Computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 to the Company's Registration Statement on Form S-4 filed on
August 9, 1999 (Commission File No. 333-84835)).
23.1 Consent of KPMG LLP, independent accountants.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
<PAGE>
Exhibit 12.1
Computation of Ratios of Earnings to Fixed Changes
<TABLE>
<CAPTION>
Successor Predecessor
Period Period
April 1 to January 1 to Predecessor Year
Successor Year Ended December 31, December 31, March 31, Ended December 31,
-------------------------------- ------------ ------------ ------------------
1999 1998 1997 1996 1996 1995
------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense, net of
capitalized interest $16,856 $ 5,733 $2,413 $1,486 $ - $ 135
Capitalized interest - - - - - -
Portion of rent expense
representative of interest (1) 3,962 1,879 1,122 662 215 843
------- ------- ------ ------ ------ ------
Total fixed charges 20,818 7,612 3,535 2,148 215 978
Earnings (loss):
Income (loss) before income
taxes 1,833 4,821 2,702 1,223 757 826
Fixed charges, less
capitalized interest 20,818 7,612 3,535 2,148 215 978
------- ------- ------ ------ ------ ------
Earnings (losses) adjusted for
fixed charges 22,651 12,433 6,237 3,371 972 1,804
Ratio of earnings (losses) to
fixed charges 1.09x 1.63x 1.76xx 1.57x 4.52x 1.84x
Deficiency of earnings to cover - - - - - -
fixed charges
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001090709
<NAME> ANTEON CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1,000
<CASH> 1,061
<SECURITIES> 0
<RECEIVABLES> 107,446
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 117,600
<PP&E> 27,892
<DEPRECIATION> 7,939
<TOTAL-ASSETS> 285,176
<CURRENT-LIABILITIES> 69,391
<BONDS> 164,581
0
0
<COMMON> 178
<OTHER-SE> 45,490
<TOTAL-LIABILITY-AND-EQUITY> 285,176
<SALES> 0
<TOTAL-REVENUES> 400,850
<CGS> 353,245
<TOTAL-COSTS> 353,245
<OTHER-EXPENSES> 32,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,042
<INCOME-PRETAX> 1,833
<INCOME-TAX> 1,543
<INCOME-CONTINUING> 290
<DISCONTINUED> 0
<EXTRAORDINARY> 463
<CHANGES> 0
<NET-INCOME> (173)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
